<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 2, 2000
REGISTRATION STATEMENT NO. 333-90911
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 5
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FIREPOND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 7389 41-1462409
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
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890 WINTER STREET
WALTHAM, MASSACHUSETTS 02451
(781) 487-8400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
------------------------
KLAUS P. BESIER
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
FIREPOND, INC.
890 WINTER STREET
WALTHAM, MASSACHUSETTS 02451
(781) 487-8400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C>
JOHN B. STEELE, ESQ. PATRICK J. RONDEAU, ESQ.
MCDERMOTT, WILL & EMERY HALE AND DORR LLP
28 STATE STREET 60 STATE STREET
BOSTON, MASSACHUSETTS 02109-1775 BOSTON, MASSACHUSETTS 02109-1803
(617) 535-4000 (617) 526-6000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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, 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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PROPOSED
PROPOSED MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE(3)
- ----------------------------------------------------------------------------------------------------------------------------
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<S> <C> <C> <C> <C>
Common Stock, $.01 par value per
share................................. 5,750,000 $15.00 $86,250,000 $22,770
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</TABLE>
(1) Includes 750,000 shares which the underwriters have an option to purchase
from FirePond and a stockholder to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933.
(3) Includes $20,850 previously paid by FirePond in connection with the initial
filing and $1,920 which is paid in connection with this Amendment No. 5.
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 SEC, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL SECURITIES, AND WE ARE NOT SOLICITING
OFFERS TO BUY THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS
NOT PERMITTED.
SUBJECT TO COMPLETION, DATED FEBRUARY 2, 2000
[FIREPOND LOGO]
5,000,000 SHARES
COMMON STOCK
FirePond, Inc. is offering 5,000,000 shares of its common stock. This is
our initial public offering and no public market currently exists for our
shares. We have applied to have the common stock approved for quotation on the
Nasdaq National Market under the symbol FIRE. We anticipate that the initial
public offering price will be between $13.00 and $15.00 per share.
------------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 4.
------------------------
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<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to FirePond........................................ $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FirePond and one of its stockholders, who is identified on page 56, have
granted the underwriters a 30-day option to purchase up to 750,000 additional
shares of common stock to cover over-allotments. FleetBoston Robertson Stephens
Inc. expects to deliver the shares of common stock to purchasers on
, 2000.
------------------------
ROBERTSON STEPHENS
DAIN RAUSCHER WESSELS
SG COWEN
E*OFFERING
The date of this prospectus is , 2000
<PAGE> 3
(inside front cover)
DESCRIPTION OF ARTWORK
At the top of the page is the name "FirePond" with the company's logo above
it. The following caption is beneath the name of the company and its logo:
The text "FirePond Application Suite(TM) enables selling complex products and
services through e-commerce channels, integrates e-commerce selling channels
with established sales channels, and shares customer information across the
entire enterprise."
In the center of the page is a small shaded circle with the following text:
"FirePond Business Rules Engine." There are two shaded quarter-circles
protruding from the top of the center circle on the left and right. The quarter
circle on the left is labeled: "FirePond Commerce, Internet Selling Software for
E-Commerce." The quarter circle on the right is labeled: "FirePond Sales,
Internet Selling Software for Direct and Indirect Sales Channels."
There is one large rectangle protruding from the bottom of the center
circle. The rectangle is labeled: "FirePond Sales Manager, Enterprise Sales
Administration and Customer Information Management."
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 1
Risk Factors................................................ 4
Note on Forward Looking Statements.......................... 10
Use of Proceeds............................................. 10
Dividend Policy............................................. 10
Capitalization.............................................. 11
Dilution.................................................... 12
Selected Consolidated Financial Data........................ 13
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 15
Business.................................................... 26
Management.................................................. 38
Related Party Transactions.................................. 46
Principal Stockholders...................................... 48
Description of Capital Stock................................ 50
Shares Eligible for Future Sale............................. 54
Underwriting................................................ 56
Legal Matters............................................... 58
Experts..................................................... 58
Where You Can Find More Information......................... 59
Index to Consolidated Financial Statements.................. F-1
</TABLE>
i
<PAGE> 5
PROSPECTUS SUMMARY
This is only a summary and may not contain all of the information that you
should consider before investing in our common stock. You should read the entire
prospectus carefully, including the "Risk Factors" section and our financial
statements and the related notes included in this prospectus. Unless otherwise
indicated, this prospectus assumes that the underwriters have not exercised
their option to purchase additional shares. This prospectus also assumes that
the warrants to purchase series F preferred stock have been exercised, that all
shares of preferred stock have been automatically converted into shares of
common stock and that the priority payments have been made through the issuance
of additional shares of common stock to some common and preferred stockholders.
This prospectus has been adjusted to reflect a two-for-three reverse stock split
of the common stock effected on January 4, 2000.
FIREPOND, INC.
FirePond is a leading provider of integrated e-business sales and marketing
solutions for companies wishing to offer complex products and services through
business-to-business and business-to-consumer e-commerce channels. We provide
software and services that allow companies to merge their e-commerce selling,
customer relationship management, and channel management strategies on a single,
Internet-based platform.
Our FirePond Application Suite allows companies to offer personalized
products, services and content to their customers over the Internet, as well as
through more traditional selling channels, to convert potential customers into
customers and to increase repeat business. Our products are able to link
information obtained from business-to-business or business-to-consumer
e-commerce transactions into traditional sales channels, where it can improve
the ability of both sales models to transact business effectively. Our products
can also share the information from these interactive, Internet-based
transactions across the enterprise to help develop a company's common view of
individual customers. This approach allows companies to manage their ongoing
sales, marketing, product planning and fulfillment activities in a fashion that
encourages long-term customer loyalty.
We target the largest 2,000 companies in the world, commonly known as
Global 2000 companies, in selected industries characterized by complex products,
services or channel relationships, including health care/insurance, financial
services, high technology, telecommunications, automotive/trucking and
manufacturing. Our customers include ADP, Empire Blue Cross Blue Shield,
KLA-Tencor, Renault V.I. and Sprint.
Our goal is to be the leading provider of integrated e-business sales and
marketing solutions. To achieve this goal, key elements of our strategy are to:
- build on our experience to expand into new markets;
- utilize our established international organization to target leading
businesses worldwide;
- utilize our development organization to expand our products' packaged
e-business application functionality;
- expand our relationships with systems integrators and complementary
software vendors to expand our market reach and implementation capacity;
- provide a range of product packaging options to better penetrate Global
2000 accounts; and
- take advantage of our 16 years of implementation expertise to provide
individualized solutions for our customers.
1
<PAGE> 6
We were incorporated in Minnesota in 1983 as a provider of custom developed
interactive selling solutions. Although we undertook a strategic restructuring
in late 1996 to focus on providing more standardized software products, we
continue to depend on revenue from our custom development services. For example,
in fiscal 1999 our custom development services revenue accounted for almost half
of our total revenue. In addition, custom development services revenues from two
customers accounted for more than a quarter of our total revenues in fiscal
1999. We released our current product, the FirePond Application Suite, in
October 1999, and we are dependent upon its acceptance by our target markets to
complete our transition to a packaged software company. If the FirePond
Application Suite is not widely adopted, we may never be profitable.
We became a Delaware corporation as a result of a reincorporation merger
effected in December 1999. Our principal executive offices are at 890 Winter
Street, Waltham, Massachusetts 02451 and our telephone number at that address is
(781) 487-8400. Information contained on our web site at http://www.firepond.com
does not constitute part of this prospectus. We own or have rights to trademarks
that we use in conjunction with the sale of our products. FirePond, our logo and
our product names including FirePond Application Suite, FirePond Business Rule
Engine, FirePond Commerce, FirePond Sales, FirePond Sales Manager, FirePond
Process Server, FirePond Enterprise Workbench and Signature Plus are our
trademarks. All other trade names and trademarks used in this prospectus are the
property of their owners.
THE OFFERING
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Common stock offered by FirePond........................... 5,000,000 shares
Common stock to be outstanding after the offering.......... 32,751,713 shares
Use of proceeds............................................ For debt repayment, working capital and
general corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market Symbol..................... FIRE
</TABLE>
The number of shares of common stock outstanding after this offering
excludes:
- 10,047,234 shares issuable upon exercise of outstanding options as of
January 31, 2000 at a weighted average exercise price of $5.75 per share;
- 901,234 shares issuable upon exercise of outstanding warrants as of
January 31, 1999 at a weighted average exercise price of $7.72 per share;
and
- warrants to purchase 190,438 shares of series B preferred stock at an
exercise price of $19.69 per share, which will convert into warrants to
purchase 634,794 shares of common stock at an exercise price of $5.91 per
share upon completion of this offering.
As of January 31, 2000, we have also reserved an additional 2,734,808
shares of common stock for future issuance under our stock option plans. We also
plan to issue warrants to purchase up to 500,000 shares of our common stock over
the next 12 months in connection with sales of our products as well as to our
present and future strategic partners.
2
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following tables are a summary of financial data for our business. The
pro forma net loss per share calculation reflects the conversion of our
preferred stock into shares of common stock upon the completion of this
offering. See note 3 of notes to consolidated financial statements for an
explanation of the number of shares used in computing per share data.
The pro forma consolidated balance sheet data summarized below reflects:
- the exercise of warrants to purchase series F preferred stock on a net
exercise basis;
- the conversion of all outstanding shares of preferred stock into shares
of common stock; and
- the payment of priority payments through the issuance of additional
shares of common stock to some common and preferred stockholders upon
completion of this offering.
The pro forma as adjusted consolidated balance sheet data summarized below
reflects the sale of the common stock in this offering at an assumed initial
public offering price of $14.00 per share, after deduction of estimated
underwriting discounts and commissions and our estimated offering expenses and
the use of net proceeds as described in "Use of Proceeds."
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FISCAL YEARS ENDED OCTOBER 31,
-------------------------------
1997 1998 1999
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<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Product-related revenues.................................. $ 416 $ 6,860 $ 18,381
Custom development services............................... 27,747 22,142 15,904
-------- ------- --------
Total revenues......................................... 28,163 29,002 34,285
Loss from operations........................................ (25,444) (8,715) (28,224)
Net loss.................................................... (27,035) (9,041) (28,855)
Net loss per share:
Basic and diluted net loss per share...................... $ (2.62) $ (0.91) $ (2.88)
Basic and diluted weighted average common shares
outstanding............................................ 10,319 9,925 10,024
Pro forma net loss per share (unaudited):
Pro forma net loss per share.............................. $ (1.12)
Pro forma basic and diluted weighted average common shares
outstanding............................................ 25,799
</TABLE>
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<CAPTION>
OCTOBER 31, 1999
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PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 2,120 $ 2,120 $58,930
Working capital (deficit)................................. (11,380) (11,380) 52,170
Total assets.............................................. 21,660 21,660 78,470
Long-term debt, less current portion...................... 702 702 702
Convertible preferred stock............................... 191 -- --
Total stockholders' equity (deficit)...................... (5,354) (5,354) 58,196
</TABLE>
3
<PAGE> 8
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. If any of the following risks actually occur, our business,
financial condition or results of operations could be seriously harmed, the
trading price of our common stock could decline, and you may lose all or part of
your investment.
BECAUSE WE HAVE A LIMITED OPERATING HISTORY AS A SOFTWARE COMPANY, OUR FUTURE
SUCCESS IS UNCERTAIN
Although FirePond was incorporated in 1983, we have only been focused on
providing software products since 1997. Because we have only been focused on
providing software products for a short time, we have a limited operating
history pursuing this business model. The revenue and income potential of the
market for e-business sales and marketing solutions is unproven. As a result,
our historical financial statements are not an accurate indicator of our future
operating results. In addition, we have limited insight into trends that may
emerge and affect our business, and we cannot forecast operating expenses based
on our historical results. In evaluating FirePond, you should consider the risks
and uncertainties frequently encountered by early stage companies in new and
rapidly evolving markets. If we are not able to successfully address these
risks, our business could be harmed.
WE EXPECT TO CONTINUE TO INCUR LOSSES AND MAY NOT BE PROFITABLE IN THE FUTURE
We have incurred quarterly and annual losses intermittently since we were
formed in 1983, and regularly since we undertook our strategic restructuring in
late 1996. We incurred net losses of $27.0 million for fiscal 1997, $9.0 million
for fiscal 1998 and $28.9 million for fiscal 1999. We expect to continue to
incur losses on both a quarterly and annual basis and we are uncertain if or
when we will become profitable. Moreover, we expect to continue to incur
significant sales and marketing and research and development expenses, and, as a
result, we will need to generate significant revenues to achieve and maintain
profitability. We may not sustain our growth or generate sufficient revenues to
attain profitability.
DISAPPOINTING QUARTERLY REVENUES OR OPERATING RESULTS COULD CAUSE THE PRICE OF
OUR COMMON STOCK TO FALL
We currently derive a significant portion of our license revenues in each
quarter from a small number of relatively large orders, and we generally
recognize revenues from our licenses over the related implementation period. If
we are unable to recognize revenues from one or more substantial license sales
planned for a particular fiscal quarter, our operating results for that quarter
would be seriously harmed. In addition, the purchase of our products typically
involves a substantial commitment of resources by our customers or their
consultants over an extended period of time. The time required to complete an
implementation may vary from customer to customer and may be protracted due to
unforeseen circumstances. Because our revenues from implementation, maintenance
and training services are largely correlated with our license revenues, a
decline in license revenues would also cause a decline in our services revenues
in the same quarter and in subsequent quarters. Because our sales cycle is long,
we may have difficulty predicting when we will recognize revenues. If our
quarterly revenues or operating results fall below the expectations of investors
or securities analysts, the price of our common stock could fall substantially.
A SIGNIFICANT PERCENTAGE OF OUR PRODUCT DEVELOPMENT IS PERFORMED BY A THIRD
PARTY INTERNATIONALLY, THE LOSS OF WHICH WOULD SUBSTANTIALLY HARM OUR PRODUCT
DEVELOPMENT EFFORTS
A significant percentage of our product development work, and some of our
implementation services, are performed by a third-party development organization
in Minsk, Belarus. Unpredictable developments in the political, economic and
social conditions in Belarus, or our failure to renew our consulting agreement
with this organization on terms similar to our current agreement, could
eliminate or reduce the availability of these product development and
implementation services. If access to these services were to be unexpectedly
eliminated or significantly reduced, our ability to meet development objectives
vital to our ongoing strategy would be hindered, and our business could be
seriously harmed.
4
<PAGE> 9
THE SUCCESS OF OUR BUSINESS DEPENDS ON THE NEW FIREPOND APPLICATION SUITE, WHICH
HAS BEEN RECENTLY INTRODUCED AND MAY NOT BE WIDELY ADOPTED BY OUR CUSTOMERS
We expect to derive substantially all of our product license revenues in
the future from the newly announced FirePond Application Suite and its component
products, which were released in October 1999. Our business depends on the
successful release, introduction and customer acceptance of this new suite of
products. We expect that we will continue to depend on revenues from new and
enhanced versions of the FirePond Application Suite, and our business would be
harmed if our target customers do not adopt and expand their use of the FirePond
Application Suite and its component products.
OUR CUSTOM DEVELOPMENT SERVICES REVENUES ARE EXPECTED TO CONTINUE TO REPRESENT A
SIGNIFICANT PERCENTAGE OF OUR TOTAL REVENUES, AND THE UNEXPECTED LOSS OF A
CONTRACT COULD REDUCE OUR REVENUES
Custom development services revenues represented 99% of total revenues for
fiscal 1997, 76% of total revenues for fiscal 1998 and 46% of total revenues for
fiscal 1999. While we anticipate that custom development services revenues will
decline as a percentage of total revenues as license revenues increase, we
expect that it will continue to represent a significant percentage of our total
revenues. We also expect that a limited number of customers will continue to
account for a substantial portion of these revenues. For example, for fiscal
1999, custom development services revenues from two customers accounted for 27%
of our total revenues in the aggregate. An unexpected decrease in revenues from
our custom development services and related maintenance contracts could
adversely affect our overall revenues and our operating results.
FAILURE TO INCREASE OUR INTERNATIONAL REVENUES COULD SERIOUSLY HARM OUR BUSINESS
International revenues currently account for a significant percentage of
our total revenues. We expect international revenues to continue to account for
a significant percentage of total revenues in the future and we believe that we
must continue to expand our international sales activities to be successful.
However, foreign markets for our products may develop more slowly than currently
anticipated. International revenues represented 11% in fiscal 1999. Our failure
to expand our international sales could have a significant negative impact on
our business.
FAILURE TO EFFECTIVELY MANAGE OUR GEOGRAPHICALLY DISPERSED ORGANIZATION COULD
HAVE A SIGNIFICANT NEGATIVE IMPACT ON OUR BUSINESS OPERATIONS
If we fail to manage our geographically dispersed organization, we may fail
to meet or exceed our objectives and our revenues may decline. We perform
research and development activities in Minnesota, New Jersey, Massachusetts and
Belarus, and our executive officers and other key employees are similarly
dispersed throughout the United States, Europe and Asia. This geographic
dispersion requires significant management resources that our locally-based
competitors do not need to devote to their operations. In addition, the
expansion of our existing international operations and entry into additional
international markets will require significant management attention and
financial resources.
INTEGRATION OF A NEW MANAGEMENT TEAM AND NEW PERSONNEL AND CONTINUED RAPID
GROWTH MAY STRAIN OUR OPERATIONS
We have recently experienced a period of rapid growth and expansion. All
members of our senior management team have joined FirePond since May 1997. From
July 1997 to December 1998, significant turnover of our employees occurred in
conjunction with our change in focus from providing custom development services
to providing packaged software products. A significant increase in domestic and
international personnel will likely be necessary to address potential growth in
our customer base and market opportunities. This may place a significant burden
on our management and our internal resources. If we are not able to install
adequate systems, procedures and controls to support our future operations in an
efficient and timely manner, or if we are unable to otherwise manage growth
effectively, our business could be harmed.
5
<PAGE> 10
INTENSE COMPETITION FROM OTHER TECHNOLOGY COMPANIES COULD PREVENT US FROM
INCREASING OR SUSTAINING REVENUES AND PREVENT US FROM ACHIEVING OR SUSTAINING
PROFITABILITY
The market for integrated e-business sales and marketing solutions is
intensely competitive and we expect that this competition will increase. Many of
our current and potential competitors have longer operating histories, greater
name recognition and substantially greater resources than we do. Therefore, they
may be able to respond more quickly than we can to new or changing
opportunities, technologies, standards or customer requirements. If we are
unable to compete effectively, our revenues could significantly decline.
FAILURE TO EXPAND OUR RELATIONSHIPS WITH SYSTEMS INTEGRATORS AND CONSULTING
FIRMS WOULD IMPEDE ACCEPTANCE OF OUR PRODUCTS AND DELAY THE GROWTH OF OUR
REVENUES
At times we rely on systems integrators and consulting firms to recommend
our products to their customers and to install and support our products for
their customers. To increase our revenues and implementation capabilities, we
must develop and expand our relationships with systems integrators and
consulting firms. If these firms fail to implement our products successfully for
their clients, we may not have the resources to implement our products on the
schedule required by the client which would result in our inability to recognize
revenues from the license of our products to these customers.
IF e-BUSINESS SALES AND MARKETING SOLUTIONS ARE NOT WIDELY ADOPTED, WE MAY NOT
BE SUCCESSFUL
Our products address a new and emerging market for e-business sales and
marketing solutions. The failure of this market to develop, or a delay in the
development of this market, would seriously harm our business. The success of
e-business sales and marketing solutions depends substantially upon the
widespread adoption of the Internet as a primary medium for commerce and
business applications. The Internet infrastructure may not be able to support
the demands placed on it by the continued growth upon which our success depends.
Moreover, critical issues concerning the commercial use of the Internet, such as
security, reliability, cost, accessibility and quality of service, remain
unresolved and may negatively affect the growth of Internet use or the
attractiveness of commerce and business communication over the Internet.
IF WE ARE UNABLE TO INTRODUCE NEW AND ENHANCED PRODUCTS ON A TIMELY BASIS THAT
RESPOND EFFECTIVELY TO CHANGING TECHNOLOGY, OUR REVENUES MAY DECLINE
Our market is characterized by rapid technological change, changes in
customer requirements, frequent new product and service introductions and
enhancements, and evolving industry standards. Advances in Internet technology
or in e-commerce software applications, or the development of entirely new
technologies to replace existing software, could lead to new competitive
products that have better performance or lower prices than our products and
could render our products obsolete and unmarketable. In addition, if a new
software language or operating system becomes standard or is widely adopted in
our industry, we may need to rewrite portions of our products in another
computer language or for another operating system to remain competitive. If we
are unable to develop new and enhanced products on a timely basis that respond
to changing technology, our business could be seriously harmed.
WE DEPEND ON TECHNOLOGY LICENSED TO US BY THIRD PARTIES, THE LOSS OF WHICH COULD
ADVERSELY AFFECT OUR COMPETITIVE POSITION
We license technology from a small number of software providers for use
with our products. In addition, the effective implementation of our products
depends upon the successful operation of third-party licensed technology in
conjunction with our products. We anticipate that we will continue to license
and rely on technology from third parties in the future. This technology may not
continue to be available on commercially reasonable terms, if at all, and some
of the technology we license would be difficult to replace. The loss of the use
of this technology would result in delays in the license and implementation of
our products until equivalent technology, if available, is identified, licensed
and integrated. In turn, this could prevent the implementation or impair the
functionality of our products, delay new product introductions, or injure our
reputation.
6
<PAGE> 11
WE DEPEND ON KEY PERSONNEL AND MUST ATTRACT AND RETAIN ADDITIONAL QUALIFIED
PERSONNEL TO BE SUCCESSFUL
Our success depends upon the continued contributions of our senior sales,
engineering and management personnel, who perform important functions, and would
be difficult to replace. Specifically, we believe that our future success is
highly dependent on Klaus P. Besier, our chairman, president and chief executive
officer, and other senior management personnel. The loss of the services of any
key personnel, particularly senior management and engineers, could seriously
harm our business.
In addition, our success depends in large part upon our ability to attract,
train, motivate and retain highly skilled employees, particularly marketing
personnel, software engineers and other senior personnel. Our failure to attract
and retain the highly-trained technical personnel that are integral to our
product development, professional services and support teams may limit our
ability to develop new products or product enhancements.
CLAIMS MAY BE BROUGHT AGAINST US IF WE HIRE FORMER EMPLOYEES OF OUR COMPETITORS,
WHICH MAY CAUSE US TO INCUR SUBSTANTIAL COSTS
Companies in the software industry, whose employees accept positions with
competitors, frequently claim that those competitors have breached, or
encouraged the breach of, noncompetition and nondisclosure agreements. These
claims have been made against us in the past, and we may receive claims in the
future as we hire additional qualified personnel. If a claim were to be made
against us, it could result in material litigation. We could incur substantial
costs in defending ourselves against any of these claims, regardless of the
merits of these claims.
IF WE ARE UNABLE TO PROVIDE ADEQUATE PROFESSIONAL SERVICE AND CUSTOMER SUPPORT,
OUR ABILITY TO SUSTAIN OR GROW OUR BUSINESS WILL BE HARMED
Our ability to continue to grow, to retain current and future customers and
to recognize revenues from our licenses depends in part upon the quality of our
professional service and customer support operations. Failure to offer adequate
integration, consulting and other professional services in connection with the
implementation of our products, and ongoing customer support, either directly or
through third parties, could materially and adversely affect our operating
results and reputation, and could cause demand for our products to decline.
IF OUR NEW AND COMPLEX PRODUCTS FAIL TO PERFORM PROPERLY, OUR REVENUES WOULD BE
ADVERSELY AFFECTED
Software products as complex as ours may contain undetected errors, or
bugs, which result in product failures, or may cause our products to fail to
meet our customers' expectations. Our products may be particularly susceptible
to bugs or performance degradation because of the evolving nature of Internet
technologies and the stress that full deployment of our products over the
Internet to thousands of end-users may cause. Because we have only recently
released our primary product, the FirePond Application Suite, it may be
particularly susceptible to bugs. Product performance problems could result in
loss of or delay in revenues, loss of market share, failure to achieve market
acceptance, diversion of development resources or injury to our reputation.
PRODUCT LIABILITY CLAIMS RELATED TO OUR CUSTOMERS' CRITICAL BUSINESS OPERATIONS
COULD RESULT IN SUBSTANTIAL COSTS
Our products are critical to the business operations of our customers. If
one of our products fails, a customer may assert a claim for substantial damages
against us, regardless of our responsibility for the failure. Our product
liability insurance may not cover claims brought against us. Product liability
claims could require us to spend significant time and money in litigation or to
pay significant damages. Any product liability claims, whether or not
successful, could seriously damage our reputation and our business.
7
<PAGE> 12
IF WE OR OUR KEY SUPPLIERS OR CUSTOMERS FAIL TO BE YEAR 2000 COMPLIANT, OUR
BUSINESS MAY BE SEVERELY DISRUPTED AND OUR RESULTS OF OPERATIONS MAY BE HARMED
The year 2000 problem creates a risk for us. The risk exists primarily in
four areas:
- potential warranty or other claims from our customers, which may result
in significant expense to us;
- failures of systems we use to run our business, which could disrupt our
business operations;
- potential failures of our products, particularly our central office-based
systems, which may require that we incur significant unexpected expenses;
and
- the possibility that our potential customers will reduce spending on
e-business software products such as ours as a result of significant
spending on year 2000 remediation.
Our products are generally integrated into computer systems involving
sophisticated hardware and complex software products, which may not be year 2000
compliant. The failure of our customers' systems to be year 2000 compliant could
limit our ability to remedy known defects in our products. Therefore, known or
unknown defects that affect the operation of our software, could result in delay
or loss of revenues, diversion of development resources, damage to our
reputation, or increased service or warranty costs and litigation costs, any of
which could harm our business.
OUR LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY MAY HARM OUR ABILITY TO
COMPETE
Our success and ability to compete is dependent in part upon our
proprietary technology. Any infringement of our proprietary rights could result
in significant litigation costs, and any failure to adequately protect our
proprietary rights could result in our competitors offering similar products,
potentially resulting in loss of a competitive advantage and decreased revenues.
Existing patent, copyright, trademark and trade secret laws afford only limited
protection. In addition, the laws of some foreign countries do not protect our
proprietary rights to the same extent as do the laws of the United States.
Therefore, we may not be able to protect our proprietary rights against
unauthorized third-party copying or use. Furthermore, policing the unauthorized
use of our products is difficult. Some of our contractual arrangements provide
third parties with access to our source code and other intellectual property
upon the occurrence of specified events. This access could enable these third
parties to use our intellectual property and source code to develop and
manufacture competing products, which would adversely affect our performance and
ability to compete. Litigation may be necessary in the future to enforce our
intellectual property rights, to protect our trade secrets or to determine the
validity and scope of the proprietary rights of others. This litigation could
result in substantial costs and diversion of resources and could materially
adversely affect our future operating results.
CLAIMS ALLEGING INFRINGEMENT OF A THIRD PARTY'S INTELLECTUAL PROPERTY COULD
RESULT IN SIGNIFICANT EXPENSE TO US AND RESULT IN OUR LOSS OF SIGNIFICANT RIGHTS
The software and other Internet-related industries are characterized by the
existence of frequent litigation of intellectual property rights. From time to
time, third parties may assert patent, copyright, trademark and other
intellectual property rights to technologies that are important to our business.
Any claims, with or without merit, could be time-consuming, result in costly
litigation, divert the efforts of our technical and management personnel, cause
product shipment delays, disrupt our relationships with our customers or require
us to enter into royalty or licensing agreements, any of which could have a
material adverse effect upon our operating results. Royalty or licensing
agreements, if required, may not be available on terms acceptable to us, if at
all. If a claim against us is successful and we cannot obtain a license to the
relevant technology on acceptable terms, license a substitute technology or
redesign our products to avoid infringement, our business, financial condition
and results of operations would be materially adversely affected.
DIFFICULTIES AND FINANCIAL BURDENS ASSOCIATED WITH ACQUISITIONS COULD HARM OUR
BUSINESS AND FINANCIAL RESULTS
We may consider acquiring complementary businesses and technologies in the
future. If we make an acquisition, we could issue equity securities which would
dilute current stockholders' percentage
8
<PAGE> 13
ownership, incur substantial debt, assume contingent liabilities, incur a
one-time charge or be required to amortize goodwill. Additionally, we may not be
able to successfully integrate any technologies, products, personnel or
operations of companies that we may acquire in the future. These difficulties
could disrupt our ongoing business, distract our management and employees, and
increase our expenses. If we are unable to successfully address any of these
risks, our business could be seriously harmed.
CONTROL BY OUR EXECUTIVE OFFICERS, DIRECTORS AND THEIR AFFILIATES MAY LIMIT YOUR
ABILITY TO INFLUENCE THE OUTCOME OF DIRECTOR ELECTIONS AND OTHER MATTERS
REQUIRING STOCKHOLDER APPROVAL
Upon completion of this offering, our executive officers, directors and
their affiliates will own 16,739,150 shares, or approximately 51% of the
outstanding shares of common stock, 50% if the underwriters' over-allotment
option is exercised in full. These stockholders can control substantially all
matters requiring approval by our stockholders, including the election of
directors and the approval of mergers or other business combination
transactions. This concentration of ownership could have the effect of delaying
or preventing a change in our control or discouraging a potential acquiror from
attempting to obtain control of us, which in turn could have a material adverse
effect on the market price of the common stock or prevent our stockholders from
realizing a premium over the market price for their shares of common stock.
OUR STOCK PRICE MAY BE VOLATILE WHICH MAY LEAD TO LOSSES BY INVESTORS AND RESULT
IN SECURITIES LITIGATION
There has previously not been a public market for our common stock. We
cannot predict the extent to which investor interest will lead to the
development of a trading market for our common stock or how liquid that market
might become. The initial public offering price for the shares will be
determined by negotiations between us and the representatives of the
underwriters and may not be indicative of prices that will prevail in the
trading market. The trading price of our common stock could be subject to wide
fluctuations.
In addition, the stock market in general, the Nasdaq National Market, and
securities of Internet and software companies in particular, have experienced
extreme price and volume fluctuations that have often been unrelated or
disproportionate to their operating performance. The trading prices of many
Internet and software companies' stocks are at or near historical highs and
these trading prices are substantially above historical levels. These trading
prices may not be sustained. These broad market and industry factors may
materially adversely affect the market price of our common stock, regardless of
our actual operating performance. In the past, following periods of volatility
in the market price of a company's securities, securities class-action
litigation has often been instituted against publicly traded companies.
Litigation, if instituted, could result in substantial costs and a diversion of
management's attention and resources, which would materially adversely affect
our business, financial condition and results of operations.
FUTURE SALES OF OUR STOCK COULD CAUSE OUR STOCK PRICE TO FALL
Sales of a substantial number of shares of our common stock in the public
market after this offering could cause the market price of our common stock to
decline. In addition, the sale of these shares could impair our ability to raise
capital through the sale of additional equity securities.
PROVISIONS OF DELAWARE LAW AND OF OUR CHARTER AND BY-LAWS MAY MAKE A TAKEOVER
MORE DIFFICULT AND LOWER THE VALUE OF OUR COMMON STOCK
Provisions in our certificate of incorporation and by-laws and in Delaware
corporate law may make it difficult and expensive for a third party to pursue a
tender offer, change in control or takeover attempt that is opposed by our
management. Public stockholders who might desire to participate in such a
transaction may not have an opportunity to do so, and the ability of public
stockholders to change our management could be substantially impeded by these
anti-takeover provisions. For example, we have a staggered board of directors
and the right under our charter documents to issue preferred stock without
further stockholder approval, which could adversely affect the holders of our
common stock.
9
<PAGE> 14
NOTE ON FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as anticipates, believes, plans, expects,
future, intends and similar expressions to identify forward-looking statements.
This prospectus also contains forward-looking statements attributed to third
parties relating to their estimates about the growth in the demand for
interactive e-business solution software. You should not place undue reliance on
these forward-looking statements, which apply only as of the date of this
prospectus. Our actual results could differ materially from those anticipated in
these forward-looking statements for many reasons, including the risks faced by
us and described in the preceding pages and in other sections of this
prospectus.
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of the common stock
in this offering will be approximately $63.6 million, at an assumed initial
offering price of $14.00 per share, after deducting the estimated underwriting
discounts and commissions and offering expenses payable by us in connection with
the offering. If the underwriters' over-allotment option is exercised in full,
we estimate that our net proceeds will be approximately $73.3 million. We expect
to use the estimated net proceeds for the following purposes:
- to repay the outstanding principal balance of up to $5.0 million plus
accrued interest on our revolving line of credit, which bears interest
payable monthly at a rate equal to the prime rate plus 2.0% and is due
October 31, 2000;
- to repay a $2.0 million term loan, plus accrued interest, which bears
interest payable monthly at 10.25% and is due October 31, 2000; and
- to repay $6.0 million of subordinated promissory notes plus accrued
interest of approximately $160,000, assuming a repayment date of January
31, 2000, which bear interest at 12.0% and are due upon the earlier of
the closing of this offering or November 11, 2000.
The remainder of the net proceeds will be used for working capital and general
corporate purposes.
As of the date of this prospectus, other than the repayment of debt as
described above, we have not made any specific expenditure plans for the
proceeds of this offering. Therefore, we cannot specify with certainty the
particular uses for the net proceeds to be received upon completion of this
offering.
DIVIDEND POLICY
Since we became a C corporation in May 1997, we have never declared or paid
cash dividends on our capital stock. We currently intend to retain any future
earnings to fund the development and growth of our business and do not currently
anticipate paying any cash dividends. Future dividends, if any, will be
determined by our board of directors after taking into account various factors,
including our financial condition, operating results, and current and
anticipated cash needs. Under the terms of our current line of credit, there are
restrictions on our ability to declare and pay dividends.
10
<PAGE> 15
CAPITALIZATION
The following table presents our capitalization as of October 31, 1999:
- on an actual basis;
- on a pro forma basis to reflect the net exercise of warrants to purchase
series F preferred stock, the conversion of all outstanding shares of
convertible preferred stock into shares of common stock and the payment
of priority payments through the issuance of additional shares of common
stock to some common and preferred stockholders upon completion of this
offering; and
- on a pro forma as adjusted basis to reflect the sale of the common stock
in this offering at an assumed initial public offering price of $14.00
per share, after deduction of estimated underwriting discounts and
commissions and our estimated offering expenses and the use of net
proceeds as described in "Use of Proceeds" on page 10.
The adjusted information presented below is unaudited and should be read in
conjunction with our consolidated financial statements and notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 15.
<TABLE>
<CAPTION>
AS OF OCTOBER 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Line of credit.............................................. $ 6,740 $ 6,740 $ --
======== ======== =========
Long-term debt, less current portion........................ $ 702 $ 702 $ 702
Stockholders' equity (deficit):
Preferred stock; 50,000,000 shares authorized:
Series A convertible participating preferred stock;
4,188,880 shares designated, issued and outstanding,
actual; no shares designated, issued and outstanding,
pro forma and pro forma as adjusted..................... 42 -- --
Series B convertible preferred stock; 190,438 shares
designated, no shares issued and outstanding, actual; no
shares designated, issued and outstanding, pro forma and
pro forma as adjusted................................... -- -- --
Series C convertible participating preferred stock;
570,342 shares designated, issued and outstanding,
actual; no shares designated, issued and outstanding,
pro forma and pro forma as adjusted..................... 6 -- --
Series F convertible preferred stock; 7,407,409 shares
designated, 6,734,008 shares issued and outstanding,
actual; no shares designated, issued and outstanding,
pro forma and pro forma as adjusted..................... 67 -- --
Series G convertible participating preferred stock;
7,604,563 shares designated, issued and outstanding,
actual; no shares designated, issued and outstanding,
pro forma and pro forma as adjusted..................... 76 -- --
Common stock, 100,000,000 shares authorized; 10,072,817
shares issued and outstanding, actual; 27,469,142 shares
issued and outstanding, pro forma; and 32,469,142 shares
issued and outstanding, pro forma as adjusted............. 101 275 325
Additional paid-in capital.................................. 62,380 62,397 125,897
Accumulated deficit......................................... (61,793) (61,793) (61,793)
Deferred compensation....................................... (5,893) (5,893) (5,893)
Cumulative translation adjustment........................... (327) (327) (327)
Subscription receivables.................................... (13) (13) (13)
-------- -------- ---------
Total stockholders' equity (deficit)...................... (5,354) (5,354) 58,196
-------- -------- ---------
Total capitalization.................................. $ (4,652) $ (4,652) $ 58,898
======== ======== =========
</TABLE>
The table above excludes as of October 31, 1999:
- - 7,655,121 shares of common stock issuable upon exercise of outstanding stock
options at a weighted average exercise price of $4.17 per share under our
stock option plans;
- - 296,667 shares of common stock subject to outstanding warrants at a weighted
average exercise price of $5.02 per share; and
- - warrants to purchase 190,438 shares of series B preferred stock at an exercise
price of $19.69 per share, which will convert into warrants to purchase
634,794 shares of common stock at an exercise price of $5.91 per share upon
completion of this offering.
11
<PAGE> 16
DILUTION
As of October 31, 1999, we had a pro forma net tangible book deficit of
$5.6 million, or $(0.20) per share.
Pro forma net tangible book deficit per share is equal to:
- our total tangible assets minus total liabilities, divided by
- the number of outstanding shares of our common stock, after giving effect
to the net exercise of warrants to purchase series F preferred stock, the
conversion of all outstanding shares of our convertible preferred stock
into common stock and the payment of priority payments through the
issuance of additional shares of common stock to some common and
preferred stockholders.
If we give effect to our sale of 5,000,000 shares of common stock in this
offering at an assumed initial public offering price of $14.00 per share and
deduct the estimated underwriting discounts and commissions and the estimated
expenses relating to this offering, our pro forma as adjusted net tangible book
value as of October 31, 1999 would have been $58.0 million, or $1.79 per share.
This represents an immediate increase in pro forma net tangible book value of
$1.99 per share to existing stockholders and an immediate dilution of $12.21 per
share to new investors. If the initial public offering price is higher or lower
than $14.00 per share, the dilution to new investors will also be higher or
lower. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........... $14.00
Pro forma net tangible book deficit per share as of
October 31, 1999........................................ $ (0.20)
Increase per share attributable to new investors.......... 1.99
-------
Pro forma as adjusted net tangible book value per share
after the offering...................................... 1.79
------
Dilution per share to new investors....................... $12.21
======
</TABLE>
The following table summarizes, as of October 31, 1999, on the pro forma
basis described above, the difference between the number of shares of common
stock purchased from us, the total consideration paid and the average price per
share paid by the existing stockholders and by new public investors purchasing
shares from us in this offering before deducting estimated underwriting
discounts and commissions and offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.... 27,469,142 84.6% $ 54,645,000 43.8% $ 1.99
New investors............ 5,000,000 15.4 70,000,000 56.2 14.00
----------- ----- ------------ ------
Total............... 32,469,142 100.0% $124,645,000 100.0%
=========== ===== ============ ======
</TABLE>
The foregoing computations are based on the number of common shares
outstanding as of October 31, 1999 and exclude:
- 7,655,121 shares of common stock issuable upon exercise of outstanding
options at a weighted average exercise price of $4.17 per share under our
stock option plans;
- 296,667 shares of common stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $5.02 per share; and
- warrants to purchase 190,438 shares of series B preferred stock at an
exercise price of $19.69 per share, which will convert into warrants to
purchase 634,794 shares of common stock at an exercise price of $5.91 per
share upon completion of this offering.
To the extent stock is issued upon the exercise of outstanding warrants or
outstanding stock options under our stock option plans, there will be further
dilution to new investors.
12
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data are derived from our consolidated and
combined financial statements. The following data were derived from our audited
consolidated financial statements presented elsewhere in this prospectus:
- consolidated statements of operations for fiscal 1997, 1998 and 1999; and
- consolidated balance sheets at October 31, 1998 and 1999.
The following data were derived from our audited combined financial statements
not included in this prospectus:
- combined statements of operations for fiscal 1995 and 1996; and
- combined balance sheets at October 31, 1995, 1996 and 1997.
When you read this selected financial data, it is important that you also
read the historical consolidated financial statements and related notes included
in this prospectus, as well as the section of this prospectus entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 15. The historical results are not necessarily
indicative of the operating results to be expected in the future.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED OCTOBER 31,
-----------------------------------------------------
1995 1996 1997 1998 1999
------- ------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF CONSOLIDATED OPERATIONS DATA:
Revenues:
Product-related revenues:
License(1).............................................. $ -- $ -- $ 416 $ 1,888 $ 9,777
Services and maintenance................................ -- -- -- 4,972 8,604
------- ------- -------- ------- --------
Total product-related revenues........................ -- -- 416 6,860 18,381
Custom development services............................... 31,150 34,158 27,747 22,142 15,904
------- ------- -------- ------- --------
Total revenues........................................ 31,150 34,158 28,163 29,002 34,285
Cost of revenues:
License................................................... -- -- 178 192 238
Product-related services and maintenance(2)............... -- -- -- 3,061 5,677
Custom development services............................... 19,749 20,036 31,365 8,397 10,636
------- ------- -------- ------- --------
Total cost of revenues................................ 19,749 20,036 31,543 11,650 16,551
------- ------- -------- ------- --------
Gross profit (loss)......................................... 11,401 14,122 (3,380) 17,352 17,734
Operating expenses:
Sales and marketing(2).................................... 3,643 5,290 8,080 13,680 23,609
Research and development(2)............................... 723 2,601 3,634 8,199 9,641
General and administrative(2)............................. 4,354 3,081 3,188 3,516 7,084
Stock-based compensation.................................. -- -- 450 672 2,597
Restructuring charge...................................... -- -- 6,712 -- 3,027
------- ------- -------- ------- --------
Total operating expenses.............................. 8,720 10,972 22,064 26,067 45,958
------- ------- -------- ------- --------
Income (loss) from operations............................... 2,681 3,150 (25,444) (8,715) (28,224)
Other expense, net.......................................... 1,039 1,306 1,591 326 631
------- ------- -------- ------- --------
Net income (loss)........................................... $ 1,642 $ 1,844 $(27,035) $(9,041) $(28,855)
======= ======= ======== ======= ========
Net income (loss) per share:
Basic and diluted net income (loss) per share............. $ 0.16 $ 0.18 $ (2.62) $ (0.91) $ (2.88)
======= ======= ======== ======= ========
Basic weighted average common shares outstanding.......... 10,348 10,401 10,319 9,925 10,024
Diluted weighted average common shares outstanding........ 10,379 10,432 10,319 9,925 10,024
</TABLE>
13
<PAGE> 18
<TABLE>
<CAPTION>
OCTOBER 31,
-----------------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 467 $ 450 $10,147 $ 2,324 $ 2,120
Working capital (deficit)................................... (553) (3,417) (7,119) (6,240) (11,380)
Total assets................................................ 19,863 23,342 27,906 18,786 21,660
Long-term debt, net of current portion...................... 7,290 7,685 3,991 1,727 702
Total stockholders' equity (deficit)........................ 2,836 4,200 (986) 1,031 (5,354)
</TABLE>
- ------------------------------------
(1) Includes related-party revenues of $350 in fiscal 1997. See note 11(a) in
notes to consolidated financial statements.
(2) Excludes charge for stock-based compensation. See note (2) to consolidated
statements of operations on page F-4.
14
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We are a leading provider of integrated e-business sales and marketing
solutions for companies wishing to offer complex products and services through
business-to-business and business-to-consumer e-commerce channels. From our
inception in 1983 through 1997, we generated revenues primarily through
providing custom development services. These services consisted of the
development of highly customized applications, utilizing core software
technology, and related software maintenance and data maintenance services. In
early fiscal 1997, we undertook a plan to change our strategic focus from a
custom development services company to a software product company providing more
standardized solutions. As a result, we exited several of our unrelated business
activities, changed our management team and reduced our workforce to be in line
with our newly defined business strategy. Our first packaged software product
was introduced in May 1997 and we released our current product, the FirePond
Application Suite, in October 1999. As a result of these efforts,
product-related revenues as a percentage of total revenues increased from 1.5%
in fiscal 1997 to 23.6% in fiscal 1998 and to 53.6% in fiscal 1999.
We anticipate that product-related revenues from product licenses will
continue to grow as result of increased market acceptance of our products, the
recent introduction of the FirePond Application Suite, and increases in both the
size and productivity of our sales force. Therefore, we expect that a higher
percentage of total revenues will be attributable to product-related revenues in
the future. Unlike our custom development services, our product-related services
represent the implementation of our packaged software products.
We also anticipate a decline in custom development services revenues, as we
have strategically de-emphasized that business and do not plan to accept new
custom development contracts. Custom development services revenues will continue
to represent a material portion of total revenues until existing custom
development contracts and related maintenance agreements are completed. Custom
development services revenues in the future will be primarily from ongoing
software maintenance and data maintenance services that we provide under custom
development services contracts. The rate of decline in custom development
revenues depends in part on our ability to convert custom development services
customers to our software products. Since the introduction of our first software
product in May 1997, we have converted six custom development customers to our
software products.
We derive revenues principally from the following sources:
- software product licenses;
- product-related consulting and training, support and maintenance
services; and
- custom development services and related support and maintenance.
We recognize revenues under Statement of Position, or SOP, No. 97-2,
Software Revenue Recognition, as amended by SOP No. 98-4, and SOP No. 81-1,
Accounting for Performance of Construction-Type and Certain Production-Type
Contracts. We generally recognize revenues from product-related license
agreements over the implementation period. We recognize these revenues following
the percentage-of-completion method over the implementation period because we
have concluded that the implementation services are essential to our customers'
use of our packaged software products. Percentage of completion is measured by
the percentage of implementation hours incurred to date to total estimated
implementation hours.
We recognize revenues from product-related support and maintenance services
ratably over the term of the contract, typically one year. Product-related
support and maintenance services include technical support and unspecified
upgrade and maintenance rights. We recognize consulting and training revenues as
the services are performed. Consulting and training revenues are primarily
related to implementation services performed on a time-and-materials basis under
separate service arrangements.
Revenues from custom software development projects can be either
fixed-price or on a time-and-materials basis. We recognize revenues as the
services are performed when the project is based on time-and-materials. We
recognize revenues on a percentage-of-completion method when the project is a
fixed-price contract. Percentage-of-completion is determined based on the number
of hours incurred to date on a project
15
<PAGE> 20
compared to the total estimated hours. During fiscal 1997, we increased our
estimates of total contract costs on several of our fixed-priced contracts and
recorded a $5.2 million provision for loss contracts, all of which was accrued
as of October 31, 1997. In fiscal 1998, the loss contract reserve changed
because:
- we charged $1.9 million of costs against the accrual when we fulfilled
our obligations to the customers;
- we reduced the accrual by $2.9 million when we revised our estimated
losses; and
- we increased the accrual by $480,000 for estimated losses on other
contracts.
In fiscal 1999, we charged an additional $500,000 of costs against the accrual
for loss contracts when we fulfilled our obligations to the customer.
Since May 1998, we have been investing heavily in the infrastructure
necessary to expand our global operations, including the formation and staffing
of international subsidiaries. We expect to continue to invest in our
international operations as we expand our international direct sales channel and
enhance our marketing effort to increase our worldwide market share.
We have invested heavily in research and development. Research and
development expenses have been increasing since early fiscal 1997 when we began
the development of our software products. During fiscal 1996 and fiscal 1997, we
capitalized software development costs and amortized these costs over a period
of 18 to 36 months. During fiscal 1997, in connection with our change in focus
from providing custom development services to providing more standardized
software products, we reviewed the software development costs capitalized to
date, which principally related to components of custom solutions, and
determined that these costs were not realizable. In connection with our change
in strategic focus, we wrote off $4.0 million of our capitalized software
development costs to costs of custom development services revenues in fiscal
1997. Through May 1997, we capitalized $532,000 of costs related to the
development of our first software product. We have amortized these costs over
three years to cost of license revenues.
Since the introduction of our first software product, we have determined
that technological feasibility of our software products occurs late in the
development cycle and close to general release of the products, and that the
development costs incurred between the time technological feasibility is
established and general release of the product are not material. Therefore,
beginning in June 1997, we expense these costs as incurred to research and
development expense. To enhance our product offering and market position, we
believe it is essential for us to continue to make significant investment in
research and development. As a result, we anticipate our research and
development expenses will increase in the future.
We have granted stock options to employees and consultants that require us
to record stock-based compensation expense. We have also granted stock warrants
to a customer and to a strategic business partner. Stock-based compensation
related to grants to employees represents the amortization, over the vesting
period of the option, of the difference between the exercise price of options
granted to employees and the fair market value of our common stock for financial
reporting purposes. Stock-based compensation related to grants to non-employees
represents the fair market value of the options and warrants granted as computed
using an established option valuation formula. We recorded stock-based
compensation expense of approximately $450,000 in fiscal 1997, $672,000 in
fiscal 1998 and $2.6 million in fiscal 1999. As of October 31, 1999, the
deferred compensation balance was approximately $5.9 million and will be
amortized over the remaining vesting period of the options and warrants.
We have incurred quarterly and annual losses intermittently since we were
formed, and regularly since we began transitioning to a software product
business in early fiscal 1997. In addition, we moved our headquarters from
Mankato, Minnesota to Waltham, Massachusetts in the third quarter of fiscal
1999, and incurred increased costs associated with that relocation. We incurred
net losses of $27.0 million for fiscal 1997, $9.0 million for fiscal 1998, and
$28.9 million for fiscal 1999. We expect to continue to incur losses on both a
quarterly and annual basis in the future.
Our series A, series C and series G preferred stock, as well as shares of
our common stock outstanding on May 20, 1997 other than those shares held by
General Atlantic Partners, have rights that allow holders to
16
<PAGE> 21
receive a priority payment upon the completion of this offering. These priority
payments total $35.8 million for the series A, series C and series G preferred
stockholders, and $10.0 million for the shares of our common stock outstanding
on May 20, 1997 other than those shares held by General Atlantic Partners. While
we have the option of settling this obligation either in cash or in shares of
our common stock, we will settle this obligation in shares of our common stock.
This payment will be accounted for as a stock dividend. In the period in which
this offering is completed and the payment is made, we will charge our
additional paid-in capital account for the fair value of the shares of common
stock issued. To the extent that the payment relates to the preferred stock, we
will also increase our net loss and basic and diluted net loss per share
attributable to common stockholders.
Before May 1997, we had elected to be treated as an S corporation under the
Internal Revenue Code. As an S corporation, federal and some state income tax
consequences of FirePond were passed through to the individual stockholders and
dividend distributions were made to the stockholders for payments of their
individual taxes related to our income. Therefore, no provision for income taxes
had been provided before fiscal 1997. In May 1997, we changed from an S
corporation to a C corporation and, as such, taxes are payable at the corporate
level. As of October 31, 1999, we had available a net operating loss
carryforward of approximately $36.0 million to reduce future federal and state
income taxes, if any. This carryforward expires beginning in 2012 and may be
subject to review and possible adjustment by the Internal Revenue Service. The
Tax Reform Act of 1986 contains provisions that may limit the amount of net
operating loss carryforwards that we may utilize in any one year in the event of
cumulative changes in ownership over a three-year period in excess of 50%.
RESULTS OF OPERATIONS
The following table presents selected consolidated financial data as a
percentage of total net revenues:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
-------------------------
1997 1998 1999
------ ------ -----
<S> <C> <C> <C>
Revenues:
Product-related revenues:
License................................................ 1.5% 6.5% 28.5%
Services and maintenance............................... -- 17.1 25.1
------ ------ -----
Total product-related revenues....................... 1.5 23.6 53.6
Custom development services............................... 98.5 76.4 46.4
------ ------ -----
Total revenues....................................... 100.0 100.0 100.0
------ ------ -----
Cost of revenues:
License................................................... 0.6 0.6% 0.7
Product-related services and maintenance.................. -- 10.6 16.6
Custom development services............................... 111.4 29.0 31.0
------ ------ -----
Total cost of revenues............................... 112.0 40.2 48.3
------ ------ -----
Gross profit (loss)......................................... (12.0) 59.8 51.7
Operating expenses:
Sales and marketing....................................... 28.7 47.2 68.9
Research and development.................................. 12.9 28.3 28.1
General and administrative................................ 11.3 12.1 20.7
Stock-based compensation.................................. 1.6 2.3 7.6
Restructuring charge...................................... 23.8 -- 8.8
------ ------ -----
Total operating expenses............................. 78.3 89.9 134.1
------ ------ -----
Loss from operations........................................ (90.3) (30.2) (82.4)
Other expense, net.......................................... 5.7 1.0 1.8
------ ------ -----
Net loss.................................................... (96.0)% (31.2)% (84.2)%
====== ====== =====
</TABLE>
17
<PAGE> 22
COMPARISON OF FISCAL YEARS ENDED OCTOBER 31, 1999 AND 1998
Revenues. Total revenues increased $5.3 million, or 18.2%, to $34.3
million in fiscal 1999 from $29.0 million in fiscal 1998. This increase is
attributable to a 167.9% increase in product-related revenues, offset by a
planned decrease in custom development services revenues, associated with our
change in focus from providing custom development services to providing more
standardized software products.
License. License revenues increased $7.9 million, or 417.8%, to $9.8
million in fiscal 1999 from $1.9 million in fiscal 1998. License revenues
as a percentage of total revenues increased to 28.5% in fiscal 1999 from
6.5% in fiscal 1998. The increase in license revenues in absolute dollars
and as a percentage of total revenues is primarily attributable to an
increase in the number of licenses implemented at higher average selling
prices. We anticipate that license revenues will continue to grow as a
result of more license sales and increased average transaction size
resulting from increased market acceptance of our new products, a growing
customer reference base, increased marketing efforts, and increases in both
the size and productivity of our sales force.
Product service and maintenance. Product service and maintenance
revenues increased $3.6 million, or 73.0%, to $8.6 million in fiscal 1999
from $5.0 million in fiscal 1998. Product services revenues as a percentage
of total revenues increased to 25.1% in fiscal 1999 from 17.1% in fiscal
1998. The increase in absolute dollars and as a percentage of total
revenues is attributable to the increase in the number of consulting
engagements and maintenance agreements related to the increased license
sales in fiscal 1999.
Custom development services. Custom development services revenues
decreased $6.2 million, or 28.2%, to $15.9 million in fiscal 1999 from
$22.1 million in fiscal 1998. Custom development services revenues as a
percentage of total revenues decreased to 46.4% in fiscal 1999 from 76.4%
in fiscal 1998. The decrease in absolute dollars and as a percentage of
total revenues is due to the change of our strategic focus. We expect
custom development services revenues to continue to decline in absolute
dollars and as a percentage of total revenues.
Cost of revenues. Total cost of revenues increased $4.9 million, or 42.1%,
to $16.6 million in fiscal 1999 from $11.7 million in fiscal 1998. Total cost of
revenues as a percentage of total revenues increased to 48.3% in fiscal 1999
from 40.2% in fiscal 1998.
Cost of license revenues. Cost of license revenues consists primarily
of costs of royalties, media, product packaging, documentation and other
production cost as well as amortization of capitalized software development
costs. Cost of license revenues increased 24.0% to $238,000 in fiscal 1999
from $192,000 in fiscal 1998. Cost of license revenues as a percentage of
license revenues decreased to 2.4% in fiscal 1999 from 10.2% in fiscal 1998
due to a 417.8% increase in license revenues while cost of license revenues
increased by only 24.0%.
Cost of product-related services and maintenance revenues. Cost of
product-related services and maintenance revenues consists primarily of
salaries and related costs for consulting, training and customer support
personnel, including cost of services provided by third-party consultants
engaged by us. Cost of product-related services and maintenance revenues
increased $2.6 million, or 85.5%, to $5.7 million in fiscal 1999 from $3.1
million in fiscal 1998. Cost of product-related services and maintenance
revenues as a percentage of product-related services and maintenance
revenues increased to 66.0% in fiscal 1999 from 61.6% in fiscal 1998. The
increase was primarily due to increased staff to support a higher number of
product-related engagements.
Cost of custom development services revenues. Cost of custom
development services revenues consists primarily of salaries and related
costs for development, consulting, training and customer support personnel
as it relates to our custom development projects, including cost of
services provided by third-party consultants engaged by us. Cost of custom
development services revenues increased $2.2 million, or 26.7%, to $10.6
million in fiscal 1999 from $8.4 million in fiscal 1998. Cost of custom
development
18
<PAGE> 23
services as a percentage of custom development services revenues increased
to 66.9% in fiscal 1999 from 37.9% in fiscal 1998. The increase resulted
primarily from the following factors:
- we reduced the estimated losses on contracts in fiscal 1998 by a net
amount of approximately $2.4 million; and
- we charged costs incurred of $1.9 million on loss contracts in fiscal
1998 to the accrual for loss contracts.
Sales and marketing expenses. Sales and marketing expenses consist
primarily of salaries, commissions and bonuses for sales and marketing personnel
and promotional expenses. Sales and marketing expenses increased $9.9 million,
or 72.6%, to $23.6 million in fiscal 1999 from $13.7 million in fiscal 1998.
Sales and marketing expenses as a percentage of total revenues increased to
68.9% in fiscal 1999 from 47.2% in fiscal 1998. Sales and marketing expenses
increased in absolute dollars and as a percentage of total revenues primarily
due to increased headcount in our sales operations, particularly our
international direct sales channel and the infrastructure of our global
operations, as well as a $1.0 million increase in marketing programs to promote
the new FirePond Application Suite. We believe sales and marketing expenses will
continue to increase as we expand our sales and marketing organization and
initiate additional marketing programs.
Research and development expenses. Research and development expenses
consist primarily of salaries and personnel-related costs and the costs of
contractors associated with the development of new products, the enhancement of
existing products, and the performance of quality assurance and documentation
activities. Research and development expenses increased $1.4 million, or 17.6%
to $9.6 million in fiscal 1999 from $8.2 million in fiscal 1998. Research and
development expenses as a percentage of total revenues decreased to 28.1% in
fiscal 1999 from 28.3% in fiscal 1998. These expenses increased in absolute
dollars as a result of increased engineering and product development activities
associated with our investment in the FirePond Application Suite. We expect
research and development expenses will continue to increase as we maintain and
enhance our existing products and conduct research for new products.
General and administrative expenses. General and administrative expenses
consist primarily of salaries, and other personnel-related cost for executive,
financial, human resource, information services, and other administrative
functions, as well as legal and accounting costs. General and administrative
expenses increased $3.6 million, or 101.5%, to $7.1 million in fiscal 1999 from
$3.5 million in fiscal 1998. General and administrative expenses as a percentage
of total revenues increased to 20.7% in fiscal 1999 from 12.1% in fiscal 1998.
These expenses increased in absolute dollars and as a percentage of total
revenues primarily as a result of increased costs of our infrastructure
necessary to support our growth. We expect that general and administrative
expenses will continue to increase as we continue to add personnel to support
our expanding operations, incur additional costs related to the growth of our
business, and assume the responsibility and the costs associated with becoming a
public company.
Stock-based compensation expense. Stock-based compensation expense
increased $1.9 million, or 286.5%, to $2.6 million in fiscal 1999 from $672,000
in fiscal 1998. Stock-based compensation expense as a percentage of total
revenues increased to 7.6% in fiscal 1999 from 2.3% in fiscal 1998. If we had
allocated our stock-based compensation to the departments for which the services
were performed, general and administrative expenses would have increased by
$672,000 in fiscal 1998. In fiscal 1999, the allocation would have increased
cost of revenues by $40,000, sales and marketing expenses by $1,327,000,
research and development expenses by $913,000 and general and administrative
expenses by $317,000. The increase in stock-based compensation expense related
to sales and marketing activities in fiscal 1999 resulted from $622,000 in
awards to employees at exercise prices below fair market value, $474,000 in
awards to terminated employees, and $231,000 in awards to consultants and in
connection with strategic business alliances. The increase in stock-based
compensation expense related to research and development activities in fiscal
1999 resulted from $237,000 in awards to consultants and $676,000 in awards to
employees at exercise prices below fair market value.
Restructuring charge. During fiscal 1999, we undertook a plan to relocate
our corporate offices from Minnesota to Massachusetts. In connection with this
plan, we incurred $3.0 million of restructuring charges,
19
<PAGE> 24
which included $1.5 million for asset impairments, $1.0 million for idle lease
space and $500,000 for employee severance costs.
Other expense, net. Other expense, net consists of interest expense,
interest income, bank fees, and foreign currency transaction gains/losses. Other
expense, net increased $305,000, or 93.6%, to $631,000 in fiscal 1999 from
$326,000 in fiscal 1998 and represented less than 2.0% of total revenues in each
period.
COMPARISON OF FISCAL YEARS ENDED OCTOBER 31, 1998 AND 1997
Revenues. Total revenues increased $839,000, or 3.0%, to $29.0 million in
fiscal 1998 from $28.2 million in fiscal 1997. The increase in total revenues
from fiscal 1997 to fiscal 1998 was primarily due to the increased number of
user license sales and related consulting and training engagements related to
the release of our first software product in May 1997.
License. License revenues increased $1.5 million, or 353.8%, to $1.9
million in fiscal 1998 from $416,000 in fiscal 1997. License revenues as a
percentage of total revenues increased to 6.5% in fiscal 1998 from 1.5% in
fiscal 1997. The increase in absolute dollars and as a percentage of total
revenues was primarily due to the introduction of our first software
product in May 1997, and the subsequent market acceptance of these
products.
Product service and maintenance. Product service and maintenance
revenues increased to $5.0 million in fiscal 1998 from $0 in fiscal 1997.
Product service and maintenance revenues as a percentage of total revenues
was 17.1% in fiscal 1998. The increase was primarily due to the increased
customer support, consulting services and training programs we provided for
our customers as we increased the number of software license sales upon the
release of our new product.
Custom development services. Custom development services revenues
decreased $5.6 million, or 20.2%, to $22.1 million in fiscal 1998 from
$27.7 million in fiscal 1997. Custom development services revenues as a
percentage of total revenues decreased to 76.4% in fiscal 1998 from 98.5%
in fiscal 1997. The decrease in absolute dollars and as a percentage of
total revenues is due to the change of our strategic focus.
Cost of revenues. Total cost of revenues decreased $19.9 million, or
63.1%, to $11.6 million in fiscal 1998 from $31.5 million in fiscal 1997. Total
cost of revenues as a percentage of total revenues decreased to 40.2% in fiscal
1998 from 112.0% in fiscal 1997.
Cost of license revenues. Cost of license revenues increased to
$192,000 in fiscal 1998 from $178,000 in fiscal 1997. Cost of license
revenues as a percentage of license revenues decreased to 10.2% in fiscal
1998 from 42.8% in fiscal 1997 due to a 353.8% increase in license revenue
while cost of license revenues increased by only 7.9%.
Cost of product-related services and maintenance revenues. Cost of
product-related services and maintenance revenues increased $3.1 million,
to $3.1 million in fiscal 1998 from $0 in fiscal 1997. Cost of
product-related services and maintenance revenues as a percentage of
product-related service and maintenance revenues was 61.6% in fiscal 1998.
The increase was primarily due to the increased number of contracts for our
new software product in fiscal 1998.
Cost of custom development services revenues. Cost of custom
development services revenues decreased $23.0 million, or 73.2%, to $8.4
million in fiscal 1998 from $31.4 million in fiscal 1997. Cost of custom
development services as a percentage of custom development services
revenues decreased to 37.9% in fiscal 1998 from 113.0% in fiscal 1997. This
decrease is partially because cost of custom development services revenues
in fiscal 1997 included the following:
- a $5.2 million provision for loss contracts reserve;
- a $4.0 million write-off of our capitalized software development costs;
and
- amortization of $1.1 million of capitalized software development costs.
20
<PAGE> 25
Sales and marketing expenses. Sales and marketing expenses increased $5.6
million, or 69.3%, to $13.7 million in fiscal 1998 from $8.1 million in fiscal
1997. Sales and marketing expenses as a percentage of total revenues increased
to 47.2% in fiscal 1998 from 28.7% in fiscal 1997. These expenses increased in
absolute dollars and as a percentage of total revenues primarily due to
increased headcount in our sales operations, especially as we began to increase
the size of our international direct sales channel and the infrastructure of our
global operations in fiscal 1998.
Research and development expenses. Research and development expenses
increased $4.6 million, or 125.6%, to $8.2 million in fiscal 1998 from $3.6
million in fiscal 1997. Research and development expenses as a percentage of
total revenues increased to 28.3% in fiscal 1998 from 12.9% in fiscal 1997.
These expenses increased in absolute dollars and as a percentage of total
revenues as a result of increased engineering and product development activity
associated with our investment in our new products. In addition, all development
costs were expensed as incurred in fiscal 1998; while in fiscal 1997, $2.6
million of software development costs were capitalized.
General and administrative expenses. General and administrative expenses
increased $328,000, or 10.3%, to $3.5 million in fiscal 1998 from $3.2 million
in fiscal 1997. General and administrative expenses as a percentage of total
revenues increased to 12.1% in fiscal 1998 from 11.3% in fiscal 1997. The
increase in absolute dollars was largely due to additional costs necessary to
support the growth in our operations.
Stock-based compensation expense. Stock-based compensation expense
increased $222,000, or 49.3%, to $672,000 in fiscal 1998 from $450,000 in fiscal
1997. Stock-based compensation expense as a percentage of total revenues
increased to 2.3% in fiscal 1998 from 1.6% in fiscal 1997. This expense
increased primarily due to a higher number of stock options granted to
non-employees in fiscal 1998. If we had allocated our stock-based compensation
to our functional departments, general and administrative expenses would have
increased by $450,000 in fiscal 1997 and $672,000 in fiscal 1998, resulting from
stock option awards to consultants.
Restructuring charge. In May 1997, we undertook a plan to change our
strategic focus and, in connection with this change, decided to exit several of
our unrelated business activities, change our management team and reduce our
workforce. In connection with this plan, we incurred $6.7 million of
restructuring charges in fiscal 1997, which includes $2.7 million of employee
severance costs, $1.2 million of costs to exit several of our business
activities, and $2.8 million of asset impairments.
Other expense, net. Other expense, net decreased $1.3 million, or 79.5%,
to $326,000 in fiscal 1998 from $1.6 million in fiscal 1997. Other expense, net
as a percentage of total revenues decreased to 1.0% in fiscal 1998 from 5.7% in
fiscal 1997 due primarily to a $920,000 decrease in interest expense resulting
from a decrease in outstanding borrowings.
QUARTERLY RESULTS OF OPERATIONS
The following table presents our unaudited consolidated statement of
operations data for the eight quarters in the period ended October 31, 1999, as
well as the percentage of our total revenues represented by each item. We have
prepared this unaudited consolidated information on a basis consistent with our
audited consolidated financial statements, and in the opinion of our management,
this information reflects all normal recurring adjustments necessary for a fair
presentation of our operating results for the quarters presented.
21
<PAGE> 26
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------
JAN. 31, APR. 30, JUL. 31, OCT. 31, JAN. 31, APR. 30, JUL. 31, OCT. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Product-related revenues:
License.......................... $ 144 $ 447 $ 706 $ 591 $ 1,607 $ 2,410 $ 2,615 $ 3,145
Services and maintenance......... 1,594 1,163 944 1,271 1,296 1,950 2,359 2,999
------- ------- ------- ------- ------- ------- ------- -------
Total product-related
revenues.................... 1,738 1,610 1,650 1,862 2,903 4,360 4,974 6,144
Custom development services...... 5,255 6,888 5,399 4,600 4,283 4,066 3,712 3,843
------- ------- ------- ------- ------- ------- ------- -------
Total revenues................. 6,993 8,498 7,049 6,462 7,186 8,426 8,686 9,987
------- ------- ------- ------- ------- ------- ------- -------
Cost of revenues:
Licenses........................... 44 46 51 51 46 47 45 100
Product-related services and
maintenance...................... 890 749 742 680 998 1,405 1,487 1,787
Custom development services........ 2,652 620 3,065 2,060 3,001 2,733 2,888 2,014
------- ------- ------- ------- ------- ------- ------- -------
Total cost of revenues......... 3,586 1,415 3,858 2,791 4,045 4,185 4,420 3,901
------- ------- ------- ------- ------- ------- ------- -------
Gross profit......................... 3,407 7,083 3,191 3,671 3,141 4,241 4,266 6,086
Operating expenses:
Sales and marketing................ 3,098 3,211 3,456 3,915 4,758 6,541 5,736 6,574
Research and development........... 1,933 1,950 2,047 2,269 1,997 1,828 2,547 3,269
General and administrative......... 907 704 995 910 1,531 1,717 1,814 2,022
Stock-based compensation........... 36 36 244 356 232 423 143 1,799
Restructuring charge............... -- -- -- -- -- -- 2,625 402
------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses....... 5,974 5,901 6,742 7,450 8,518 10,509 12,865 14,066
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from operations........ (2,567) 1,182 (3,551) (3,779) (5,377) (6,268) (8,599) (7,980)
Other expense, net................... 34 209 51 32 235 78 92 226
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss).................... $(2,601) $ 973 $(3,602) $(3,811) $(5,612) $(6,346) $(8,691) $(8,206)
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------
JAN. 31, APR. 30, JUL. 31, OCT. 31, JAN. 31, APR. 30, JUL. 31, OCT. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- -------- -------- -------- -------- -------- --------
(AS A PERCENTAGE OF TOTAL REVENUES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Product-related revenues:
License............................ 2.1% 5.3% 10.0% 9.1% 22.4% 28.6% 30.1% 31.5%
Services and maintenance........... 22.8 13.6 13.4 19.7 18.0 23.1 27.2 30.0
----- ----- ----- ----- ----- ----- ----- -----
Total product-related revenues... 24.9 18.9 23.4 28.8 40.4 51.7 57.3 61.5
Custom development services........ 75.1 81.1 76.6 71.2 59.6 48.3 42.7 38.5
----- ----- ----- ----- ----- ----- ----- -----
Total revenues................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- ----- ----- -----
Cost of revenues:
Licenses............................. 0.6 0.5 0.8 0.8 0.6 0.6 0.5 1.0
Product-related services and
maintenance........................ 12.8 8.8 10.5 10.5 13.9 16.8 17.1 17.9
Custom development services.......... 37.9 7.3 43.5 31.9 41.8 32.4 33.2 20.2
----- ----- ----- ----- ----- ----- ----- -----
Total cost of revenues........... 51.3 16.6 54.8 43.2 56.3 49.6 50.8 39.1
----- ----- ----- ----- ----- ----- ----- -----
Gross profit........................... 48.7 83.4 45.2 56.8 43.7 50.4 49.2 60.9
Operating expenses:
Sales and marketing.................. 44.3 37.8 49.0 60.6 66.2 77.6 66.0 65.8
Research and development............. 27.6 22.9 29.0 35.1 27.8 21.7 29.3 32.7
General and administrative........... 13.0 8.3 14.1 14.1 21.3 20.4 20.9 20.2
Stock-based compensation............. 0.5 0.4 3.5 5.5 3.2 5.0 1.6 18.0
Restructuring charge................. -- -- -- -- -- -- 30.2 4.0
----- ----- ----- ----- ----- ----- ----- -----
Total operating expenses......... 85.4 69.4 95.6 115.3 118.5 124.7 148.0 140.7
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from operations.......... (36.7) 14.0 (50.4) (58.5) (74.8) (74.3) (98.8) (79.8)
Other expense, net..................... 0.5 2.5 0.7 0.5 3.3 0.9 1.1 2.3
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)...................... (37.2)% 11.5% (51.1)% (59.0)% (78.1)% (75.2)% (99.9)% (82.1)%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
22
<PAGE> 27
Our operating results have varied significantly from quarter to quarter in
the past and may continue to fluctuate in the future. The quarterly fluctuations
are caused by a number of factors, including demand for our products and
services, size and timing of specific sales, level of product and price
competition, timing and market acceptance of new product introductions and
product enhancements by us and our competitors, the length of our sales cycle,
personnel changes, budgeting cycles of our customers, the impact of our revenue
recognition policies, changes in technology and changes caused by the rapidly
evolving e-business market and the impact of year 2000 investments by us and our
customers. Many of these factors are beyond our control. Therefore, we believe
that results of operations for interim periods should not be relied upon as any
indication of the results to be expected in any future period.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations and met our capital
expenditure requirements primarily through the sale of private equity
securities, borrowings on our line of credit and capital equipment leases.
As of October 31, 1999, we had $2.1 million of cash and cash equivalents,
compared with $2.3 million as of October 31, 1998. Our working capital deficit
at October 31, 1999 was $11.4 million, compared to a working capital deficit of
$6.2 million at October 31, 1998.
Net cash used in operating activities was $19.9 million in fiscal 1999,
$10.5 million in fiscal 1998, and $3.0 million in fiscal 1997. Cash used in
operating activities in fiscal 1999 was primarily attributable to our net loss
and increases in accounts receivable and prepaid expense, offset in part by an
increase in deferred revenues, accounts payable and accrued liabilities and
non-cash expenses including depreciation, amortization, stock-based compensation
expense and a restructuring charge.
Net cash used in investing activities was $2.1 million in fiscal 1999, $1.5
million for fiscal 1998, and $6.6 million for fiscal 1997. Net cash used in
investing activities in fiscal 1999 was primarily attributable to purchases of
property and equipment to support our expanding operations, offset in part by
proceeds from the sale of our Mankato, Minnesota facility.
Net cash provided by financing activities provided net cash of $21.9
million in fiscal 1999, $4.1 million in fiscal 1998, and $19.3 million for
fiscal 1997. Proceeds from financing activities for fiscal 1999 were primarily
from the sale of our series F preferred stock and net borrowings on our line of
credit and term note, offset in part by payments on long-term debt.
On July 31, 1998, we established a $5.0 million line of credit with a
financial institution to replace our $4.3 million line of credit which expired
on April 1, 1998. Effective September 29, 1999, we amended our line of credit
agreement to increase the commitment by $2.0 million. This additional commitment
was reached through the conversion of outstanding borrowings on the existing
line of credit to a $2.0 million term loan. The entire unpaid principal balance
of the term loan is payable upon the termination of the agreement. The line of
credit expires on October 31, 2000. The amount available for borrowing is based
on 80% of eligible accounts receivable. Eligible accounts receivable are defined
as accounts receivable from United States based contracts that are payable
within six months and which are not in dispute or delinquent. Interest on the
line of credit is at the prime rate plus 2.0% limited to a minimum of 8.0% per
year, and is payable monthly. We also pay a monthly fee of 0.5% per year on the
unused line of credit. As of October 31, 1999, we had $4.7 million outstanding
under the line of credit and available borrowing capacity of $37,000.
On November 12, 1999, we borrowed $6.0 million of subordinated indebtedness
from an outside investor and two of our existing stockholders. The indebtedness
bears interest at 12.0% and is due upon the earlier of the closing of this
offering or November 11, 2000. We also issued to these lenders warrants to
purchase an aggregate of 360,000 shares of our common stock at an exercise price
of $5.25 per share. We will record the warrants as a discount totaling $1.9
million against the carrying value of the subordinated notes payable.
We anticipate a substantial increase in our capital expenditures consistent
with anticipated growth in operations, infrastructure and personnel. We believe
that existing cash and cash equivalents, together with the net proceeds of this
offering, will be sufficient to meet our anticipated cash need for working
capital and capital expenditures for at least the next 12 months. However, we
may need to raise additional funds in the
23
<PAGE> 28
next 12 months or in the future to support more rapid expansion of our sales
force, develop new or enhanced products or services, respond to competitive
pressures, acquire complementary businesses or technologies or respond to
unanticipated requirements. If we seek to raise additional funds, we may not be
able to obtain funds on terms which are favorable or acceptable to us. If we
raise additional funds through the issuance of equity securities, the percentage
ownership of our stockholders would be reduced. Furthermore, these securities
may have rights, preferences or privileges senior to our common stock.
YEAR 2000 READINESS
Background of Year 2000 Issue
The year 2000 issue refers generally to the problems that some software may
have in determining the correct date as a result of the millennium change. We
define year 2000 ready to mean that testing has revealed that the electronic
components at issue will recognize and properly perform date sensitive functions
into and beyond the year 2000. Software with date sensitive information that is
not year 2000 ready may not be able to distinguish whether 00 means 1900 or
2000, which may result in system failures or the creation of erroneous results.
We are subject to potential year 2000 issues affecting our products, our
internal systems and the systems of our suppliers and customers, any of which
could harm our business.
State of Readiness
We organized a year 2000 task force to address our year 2000 issues. The
task force concluded all testing and remediation efforts in relation to year
2000 issues on December 15, 1999 as discussed below.
We have tested all custom and product implementations currently being
utilized by customers and, as necessary, have remediated and made all of these
implementations year 2000 ready. We have further tested all existing and past
FirePond products for year 2000 issues and, as necessary, remediated and made
all of these products year 2000 ready. However, we have not tested independently
installed third-party software which may be integrated within our customer's
systems. Integrated software could be susceptible to year 2000 issues and the
failure of our customers' systems to be year 2000 ready could impede the success
of our applications in their systems.
We have tested all internal hardware and software for 2000 issues and, as
necessary, have remediated and made all of these systems year 2000 ready. For
our non-information technology, we have obtained year 2000 ready statements from
all of our material suppliers and do not anticipate any year 2000 problems.
The Cost to Address Our Year 2000 Issues
We have incurred costs in replacing hardware as well as labor in assessing,
testing and remediating all of our software and hardware. All costs incurred in
our process to be year 2000 ready are covered by our general budget to fund the
activities of the year 2000 task force. These costs are divided into two
categories:
- our internal systems and hardware; and
- custom and product customer implementations.
The majority of costs were incurred during calendar year 1999. We incurred
approximately:
- 2000 employee hours;
- $10,000 in contract fees; and
- $75,000 in capital expenditures remediating our internal hardware and
software systems.
We anticipate no further material costs associated with remediating year 2000
issues.
The Risk of Our Year 2000 Issues
We have assessed, tested and remediated all anticipated year 2000 issues.
Therefore, currently we are not aware of any material operational issues or
costs associated with year 2000 issues. The only potential
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problems we anticipate in relation to the year 2000 are minor internal or
customer associated year 2000 issues which may have been overlooked by our year
2000 task force or year 2000 issues which are beyond our control.
Our Contingency Plan
We have prepared a contingency plan if we are not year 2000 ready. All key
personnel are available to address all potential problems which may occur with
our own internal systems as well as unanticipated problems with our customers
use of our software products and implementations. We have taken further
contingency plans designed to protect software code that is material to our
business operation.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standard, or SFAS, No. 133, Accounting for
Derivative Instruments and Hedging Activities. This statement establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, and for hedging activities.
SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal quarters
of fiscal years beginning after June 15, 2000. SFAS No. 133 is not expected to
have a material impact on our consolidated financial statements.
In December 1998, the AICPA issued Statement of Position 98-9, Modification
of SOP 97-2 Software Revenue Recognition, With Respect to Certain Transactions.
SOP 98-9 requires use of the residual method of recognition of revenues when
vendor-specific objective evidence exists for undelivered elements but does not
exist for delivered elements of a software arrangement. We will be required to
comply with the provisions of SOP 98-9 for transactions entered into beginning
January 1, 2000. We do not expect the adoption of SOP 98-9 will have a material
effect on our financial position or operating results.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We develop products in the United States and Belarus and sell them
worldwide. As a result, our financial results could be affected by factors such
as changes in foreign currency exchange rates or weak economic conditions in
foreign markets. Since our sales are currently priced in U.S. dollars and are
translated to local currency amounts, a strengthening of the dollar could make
our products less competitive in foreign markets. Interest income and expense
are sensitive to changes in the general level of U.S. interest rates,
particularly since our investments are in short-term instruments and our
long-term debt and available line of credit require interest payments calculated
at variable rates. Based on the nature and current levels of our investments and
debt, however, we have concluded that there is no material market risk exposure.
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BUSINESS
INDUSTRY BACKGROUND
In today's highly competitive global marketplace, it is increasingly
critical for companies to prioritize their businesses around the attraction,
conversion and retention of customers. As a result, many companies are
redirecting their technology investments toward systems that will maximize their
long-term revenue streams by increasing customer loyalty. Within industries that
are characterized by complex products, services, or channel relationships,
competitive advantage often results from a company's ability to provide
products, services and content that are specific to the preferences of
individual customers, particularly when they are making a buying decision.
Companies are also realizing that existing and potential customers often access
their organization through multiple business channels, including e-commerce
channels, traditional direct sales forces, and indirect channel partners. It is
therefore important that companies not only equip these channels with systems
that provide competitive differentiation when a customer's buying decision is
being made, but that they provide the customer with consistent, valuable service
across all channels.
In response to this shift toward customer-oriented systems, companies
originally invested heavily in traditional customer relationship management, or
CRM, software, which was designed to automate administrative support for
traditional corporate sales, call center, and service employees to more
effectively manage customer relationships. These solutions, which traditionally
have included functionality such as customer contact management, sales force
administration, call center service and support, and marketing automation, have
helped to eliminate cost inefficiencies within a company's sales and marketing
organization by streamlining and consolidating customer information and other
internal administrative tasks. However, because these applications are focused
on administrative aspects of a company's sales and marketing efforts, they
generally have not directly enhanced the customer's buying experience.
Traditional CRM solutions are further prevented from providing value directly to
customers because they were typically designed before the widespread commercial
use of the Internet, and were not intended for large scale, Internet-based
customer-driven transactions. Many companies that implemented traditional CRM
systems therefore have found themselves with systems that do not interactively
engage the customer in ways that add value to those relationships or enhance
individual buying decisions.
The rapid evolution and acceptance of the Internet as a means for
communicating, sharing information, and transacting directly with customers
worldwide has dramatically changed the focus of customer relationship
management. The Internet offers new opportunities for increased interactivity
and self-service, enabling companies to create new approaches for initiating,
developing and managing customer relationships over time. The Internet enables
the creation of powerful new revenue channels, while simultaneously improving
the effectiveness with which existing distribution channels market, sell and
support product and service offerings. Forrester Research, Inc. estimates that
the total value of U.S. business trade on the Internet will grow to
approximately $1.3 trillion in 2003. International Data Corporation, or IDC,
estimates that the market for Internet Commerce applications will grow 280% to
$1.7 billion in 1999 and projects the market to top $13 billion by 2003. We have
derived this information from Internet Commerce Software Applications Market
Review and Forecast, 1998-2003, April 1999.
As a result of these developments, the market for sales and marketing
oriented e-business software offerings has also evolved rapidly. The first
generation of e-business software was primarily focused on providing the back
office infrastructure to enable secure commerce transactions. More recently, a
variety of niche e-business software applications have been introduced,
including Internet content management and personalization offerings, which
target a specific aspect of the customer relationship or buying process. These
point solutions have provided tactical value in encouraging the adoption of the
Internet for the purchase of more basic, consumer-oriented goods. However, they
have typically not provided the advanced, comprehensive selling functionality
necessary to offer targeted products, services and content based upon a
customer's individual profile or stated requirements, which we believe is a
critical success factor for companies using e-commerce to sell complex products
and services. In addition, these Internet applications typically do not interact
with a company's traditional sales and distribution channels. Because these
applications were designed to support only Internet-based interactions, they
typically are unable to collect information about
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customers when they access a company's traditional sales channels, leaving a
company with an incomplete view of an individual customer's behavior,
requirements and preferences. This inability to enable a common view of
individual customers across multiple selling channels limits a company's ability
to develop strategies for improving its product offerings, services, and selling
processes in ways that would encourage repeat business from those customers.
Companies that sell complex products and services require a new generation
of e-business sales and marketing applications to offer targeted products,
services, and content to individual customers. Without these applications,
companies with complex selling activities may not be able to execute successful
e-commerce strategies, and may be forced to rely exclusively on traditional
human-assisted selling channels for their revenue streams. To encourage
conversion of potential customers into customers and repeat business from
individual customers, these companies must utilize advanced, Internet-based
technologies that offer enhanced customer interactivity and can support the
creation of personalized solutions in a highly scalable and reliable fashion at
the time of customer buying decisions. These capabilities must support the rapid
deployment of an effective e-commerce channel for selling complex products and
services, and must also automate complex selling activities within traditional
direct and indirect selling channels to maximize the ability of all channels to
transact new business. This next-generation software must also capitalize on the
highly interactive nature of the Internet to collect real-time customer
information from individual selling interactions across all sales channels, so
that this common view of customer activity may be shared across a company's
enterprise as a basis for developing improved product offerings, services, and
selling processes that encourage long-term customer loyalty.
THE FIREPOND SOLUTION
FirePond is a leading provider of integrated e-business sales and marketing
solutions for companies wishing to offer complex products and services through
business-to-business and business-to-consumer e-commerce channels. We offer
packaged software applications and related services that allow these companies
to deploy comprehensive, highly interactive selling systems that increase
customer conversion and retention of individual customers over the long term, in
both e-commerce and more traditional sales channels. Our packaged software
product, the FirePond Application Suite, allows companies in our targeted
markets to offer personalized products, services and content when a customer is
preparing to buy, either on an e-commerce web-site, or from a direct
salesperson, distributor, dealer or agent. Using our software, companies are
able to share customer information obtained from business-to-business or
business-to-consumer e-commerce sales transactions with traditional sales
channels, where that information is used by sales people to improve individual
customer relationships and develop additional revenue opportunities. By enabling
these interactive, Internet-based selling transactions, our products are able to
collect from multiple selling channels real-time information about individual
customer behavior, preferences and transaction activity, creating a common view
of individual customers. Our software then distributes this customer information
across the enterprise, where it provides the basis for developing improved
product offerings, services and selling processes that will increase the
likelihood of long-term customer retention.
Using our integrated e-business sales and marketing solutions, companies
that offer complex products and services are able to:
- quickly develop an effective e-commerce sales channel by delivering
interactive selling capabilities to business-to-business and
business-to-consumer e-commerce sites;
- automate highly complex selling tasks within direct and indirect selling
channels to ensure the accuracy and personalization of products and
services offered to customers throughout those channels;
- utilize the same business rules, data and selling functionality across
all e-commerce and traditional sales channels, so that individual
customers receive consistent, high quality information when they are
ready to buy products or services;
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- develop a common view of each customer across all e-commerce and
traditional sales channels to bring intelligence and consistency to every
customer interaction;
- take advantage of the interactivity of the Internet to create a common
view of individual customers from real-time interactions across selling
channels, and share that information across the enterprise to enable
strategies for improved product offerings, services, and selling
processes, increasing the likelihood of achieving long-term customer
loyalty; and
- achieve high reliability, performance and scalability in e-commerce
environments, as well as in broader enterprise environments that support
multiple selling channels.
STRATEGY
Our goal is to be the leading provider of integrated e-business sales and
marketing solutions. To achieve this goal, key elements of our strategy include:
Pursue Targeted Vertical Markets. We currently focus on industries that
are typically characterized by complex products, services or channel
relationships, including health care/insurance, financial services, high
technology, telecommunications, automotive/trucking and manufacturing. We
believe that our focused pursuit of these targeted markets increases our ability
to offer solutions that meet the unique needs of our target customers, which may
vary greatly across industry segments. To further our vertical market focus, our
sales efforts are organized around complementary industry segments so that we
may offer more specialized, consultative expertise when customers evaluate and
license our products. We will continue to deepen our focus on target industry
markets and translate customer requirements into industry-specific product
features and functions, which we believe will create barriers to entry for our
competitors. During fiscal 2000, we also plan to expand into new vertical
industries with similar characteristics and will target leading companies in
those industries.
Expand Established International Infrastructure to Gain Global Market
Share. During fiscal 1999, we invested heavily in a global infrastructure to
target leading businesses worldwide. We have increased the number of FirePond
employees internationally to 78 as of November 30, 1999 from 24 on October 31,
1998. Our international revenues as a percentage of total revenues were 11% in
fiscal 1999. Our leading international customers include Ford Motor
Company-Europe, Hitachi, Packard Bell/NEC, Renault V.I, and Scania. We plan to
use new customers and existing and new partner relationships to complement our
infrastructure and grow market share in international markets.
Expand Our E-Business Solutions. Our internal development organization,
combined with our strategic relationship with an offshore development
organization, creates a highly scalable product delivery model that allows us to
rapidly introduce significant new product features and functionality. We believe
these combined resources provide us with significant advantages, including ready
access to a highly-skilled labor pool, reduced turnover and rapid development
cycles. The use of this model was integral to the rapid development and timely
release of the FirePond Application Suite, which includes functionality,
features, and underlying architecture not available in our prior product
offerings. We intend to continue to use this combined organization to expand the
functionality of our products and incorporate new technologies to meet the
demands of the marketplace.
Expand Relationships with Partners. We have established strategic
marketing alliances with industry leading systems integrators, including Ernst &
Young, Viant, EDS and Intelligroup, and with complementary software vendors,
such as E.piphany, Talus Software, Silverstream and Oberon Software and
application service providers such as GTE Internetworking. These alliances help
extend our market coverage and provide us with new business leads and access to
a large pool of highly trained implementation personnel. On an ongoing basis, we
will seek to expand the number of partners we work with to further penetrate the
market and accelerate our growth.
Offer Packaging Flexibility to Strategically Penetrate Global 2000
Accounts. We offer a suite of e-business products, which may be purchased as
separate components or as an enterprise platform for integrated e-business sales
and marketing solutions. This has allowed us to penetrate accounts that differ
greatly in their
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current stages of developing and implementing their e-business strategies. When
we are successful in selling our independent component offerings, we create
future opportunities for up-selling customers to our enterprise platform which
we intend to pursue. In addition, we offer a migration path to an enterprise
platform for integrated e-business sales and marketing solutions to increase the
likelihood that we will successfully sell our independent components to accounts
that are not yet ready for enterprise-wide solutions. We also offer innovative
pricing alternatives such as annual licensing and transaction-based pricing that
provide our customers with a wide variety of licensing options. We will continue
to package and price our product offerings in a fashion designed to remove sales
barriers and create recurring revenue streams.
Incorporate Expertise from Prior Custom Development Business. We have been
engaged for 16 years in the development of custom interactive selling solutions
for Global 2000 companies and have utilized that expertise in developing and
implementing the FirePond Application Suite. We have successfully transitioned
the majority of our business from providing custom development services to
providing more standardized software products and product-related services,
while maintaining the technical expertise and knowledge developed in providing
customized solutions in our prior business model. We believe that our historical
expertise in this area represents a significant competitive advantage. We intend
to expand upon this expertise to develop products by creating packaged software
versions of previously installed custom functionality and by re-using highly
specialized implementation methodologies developed over the course of our
history.
FIREPOND PRODUCTS
The FirePond Application Suite is a suite of packaged, Internet-based
software applications, enabling companies that offer complex products and
services to deploy integrated e-business sales and marketing solutions. The
FirePond Application Suite includes packaged software components for
Internet-based guided selling, which allow companies to offer personalized
products, services and content to customers when they are ready to make a buying
decision, whether on an e-commerce site or through a traditional sales channel.
Within the FirePond Application Suite, we also offer enterprise customer
information management and sales administration capabilities, which allow
customer information collected from selling interactions across multiple sales
channels to be consolidated in a single administrative application. Finally, our
software includes a process workflow engine, which enables companies to design
processes that distribute information collected from real-time selling events
across a company's enterprise.
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The table below describes the packaged software components of the FirePond
Application Suite, all of which, other than the FirePond Business Rule Engine,
were released in October 1999. Previous versions of the FirePond Business Rule
Engine have been used in our custom software development implementations as well
as in our prior software products.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
FIREPOND APPLICATION SUITE
COMPONENT COMPONENT DESCRIPTION
- ---------------------------------------------------------------------------------------------------
<S> <C>
FirePond Business Rule Engine Industry-leading business intelligence engine for
rules-based product configuration, pricing, customer needs
analysis and transactional personalization during the sale
of complex products and services
- ---------------------------------------------------------------------------------------------------
FirePond Commerce Guided selling application that enable consultative selling
processes within business-to-business or
business-to-consumer e-commerce web-sites, utilizing the
configuration and business rule services of the FirePond
Business Rule Engine
- ---------------------------------------------------------------------------------------------------
FirePond Sales Guided selling application that automates complex selling
activities for assisted direct and indirect sales channels,
utilizing the configuration and business rule services of
the FirePond Business Rule Engine
- ---------------------------------------------------------------------------------------------------
FirePond Sales Manager Sales administration and customer information management
system
- ---------------------------------------------------------------------------------------------------
FirePond Process Server Transaction-based process workflow engine, enabling
companies to design processes that share customer
information collected by FirePond Commerce and FirePond
Sales across connected systems and individuals within the
enterprise
- ---------------------------------------------------------------------------------------------------
FirePond Enterprise Workbench Application administration platform, including tools for
managing functionality, content, business rules, enterprise
process flows and system administration activities
- ---------------------------------------------------------------------------------------------------
</TABLE>
FirePond Product Packaging and Pricing
We offer a variety of packaging and pricing options for the FirePond
Application Suite, to achieve flexibility in aligning our technology with
companies in different stages of executing their e-business strategies.
Customers seeking an enterprise platform for integrated e-business sales and
marketing may license the entire FirePond Application Suite, including all
associated components. Those companies pursuing less comprehensive initiatives,
but which are still focused on making strategic investments in e-commerce
selling, channel management or customer information management solutions, may
license FirePond Commerce or FirePond Sales, each bundled with the FirePond
Business Rule Engine, as well as FirePond Sales Manager, as standalone
applications. By offering this variety of packaging options, we allow our
customers to make strategic investments in our technology, without necessarily
committing to a larger enterprise platform.
We also offer a wide variety of pricing options to our customers. We
currently offer our packaged software on a price per user or group of concurrent
users basis, which customers can then license on a perpetual or annual basis. We
also offer transaction-based pricing that ties the overall cost of owning our
software to the value provided to the company. To date, substantially all of our
licenses have been perpetual licenses. License fees for our products typically
range from approximately several hundred thousand dollars to several million
dollars.
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FirePond Business Rule Engine
The FirePond Business Rule Engine, or FirePond BRE, is an industry-leading
business intelligence engine for executing rules-based product configuration,
pricing, customer needs analysis and transactional personalization during the
sale of complex products and services. The FirePond BRE was originally utilized
in our previous business model, as the centerpiece of custom software
developments, and was incorporated in the FirePond Application Suite. The
FirePond BRE has proven highly scalable in large-scale enterprise environments.
The FirePond BRE evaluates customer requirements and characteristics, then
matches them to specific products, pricing and content, all at the time of
evaluation and purchase. Using accompanying tools in the FirePond Enterprise
Workbench, companies create multi-tiered business rule models that govern how
products are configured, offered and sold to individual customers, customer
types, or market segments, in both e-commerce and traditional sales channels. At
the time of customer evaluation or purchase, the FirePond BRE will evaluate
customer information input, draw from the underlying business rule models,
configure targeted products, generate customer-specific pricing, and offer
relevant content to facilitate the customer buying decision. This interactive
information exchange, or customer needs analysis, shields customers from the
complexity of the product being sold, allowing targeted solutions to be
configured based on customers' high level descriptions of intended use, personal
preferences, business priorities, or price sensitivities, rather than detailed
option selection.
FirePond Commerce
FirePond Commerce allows companies to offering complex products or services
to quickly deploy highly interactive, consultative e-commerce web sites for
selling. Companies receive the base packaged selling functionality of FirePond
Commerce, then collaborate with FirePond or third-party implementation partners
to organize the selling functionality in ways that reflect their unique
strategies and best practices for selling. Associated tools in the FirePond
Enterprise Workbench allow us, our partners, or the company to organize and
deploy this functionality. Using the FirePond Business Rule Engine to apply
business rules intelligence to independent components of functionality,
companies can easily construct comprehensive e-commerce selling sites that
emulate the consultative nature of traditional sales channels. The packaged
functionality of FirePond Commerce allows customers to proceed through an entire
complex sales process in an e-commerce environment, beginning with an
interactive needs analysis session, creating a targeted product configuration
with a personalized price quote, exploring optimal financing recommendations,
comparing relevant competitive offerings, obtaining individualized product
content, generating a company-branded proposal, and completing the order.
FirePond Commerce then logs these interactions to share real-time information
with other FirePond applications as well as with the larger enterprise.
FirePond Sales
FirePond Sales is a guided selling application which automates complex
selling activities for sales people in traditional selling channels, including
direct sales forces, distributors, dealers, agents and others who deal
interactively with customers. Similar to FirePond Commerce, companies receive
the base packaged selling functionality of FirePond Sales, then use associated
tools in the FirePond Enterprise Workbench to organize the functionality to
represent their unique strategies and best practices for selling. FirePond Sales
provides the same functionality offered in FirePond Commerce to personalize
products, services and content to individual customers when they are ready to
buy. However, the functionality is typically presented differently due to the
presence of human interaction in the sales process. The underlying data model
and architecture that support FirePond Sales are also the same as that which
supports FirePond Commerce, allowing for collaboration between the two
applications. For example, when a customer creates and saves a personalized
solution on a FirePond Commerce-enabled site, a sales person can access that
solution and use FirePond Sales to offer informed alternatives to further
develop the opportunity.
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FirePond Sales Manager
FirePond Sales Manager is an integrated, web-based sales administration and
customer information management system. FirePond Sales Manager allows sales
people and their managers to perform a wide variety of customer information
management activities, including managing customer contacts and profiles,
coordinating activities, defining and assessing opportunities, managing a sales
pipeline, aligning sales territories, and generating and analyzing forecasts.
Because it is typically linked to FirePond Commerce and FirePond Sales, data
from real-time customer interactions is automatically delivered to FirePond
Sales Manager, rather than input by a salesperson. For example, if a customer
engages in a buying session on a FirePond Commerce-enabled web site, that event,
along with all of the customer profile information associated with that session,
is delivered to FirePond Sales Manager, where assigned next steps will be
presented to the sales person for effective pursuit of the sale.
FirePond Process Server
FirePond Process Server is a transaction-based workflow engine that enables
companies to coordinate connected software systems and individuals in organized,
customer-driven processes. Using intuitive visual tools in FirePond Enterprise
Workbench, companies can design business processes for responding to real-time
events generated from interactive sessions occurring within FirePond Commerce or
FirePond Sales. Using FirePond Process Server and its related tools, companies
can identify organizational roles, assign tasks, and connect software systems to
each process. Companies then apply logic that defines how and when these
organizational roles, tasks, and software systems will be invoked, based on
different events. When events trigger these processes, FirePond Process Server
ensures that the process is triggered across the enterprise, while maintaining
the integrity of underlying corporate databases. Companies then use FirePond
Process Server tools to test and analyze these processes for maximum benefit.
For example, companies use FirePond Process Server to define the processes that
will be triggered when an individual customer creates a solution on a FirePond
Commerce-enabled web site. Using the associated tools, companies may create
processes that inform the appropriate sales person of this event, attach
relevant customer information from the session, update the corporate customer
information database, or send an e-mail to that customer's service team.
FirePond Enterprise Workbench
FirePond Enterprise Workbench is a maintenance and development platform for
defining, analyzing, and managing functions, data, content and processes within
the FirePond Application Suite. FirePond Enterprise Workbench is comprised of
several tools, which allow companies to:
- author and manage business rules that support product configuration,
pricing and transactional personalization in the FirePond Business Rule
Engine;
- organize packaged FirePond selling functionality within FirePond Commerce
and FirePond Sales to comply with their strategies and best practices for
selling;
- develop and deploy additional e-business functionality that complements
the packaged application functions of FirePond Commerce, FirePond Sales
and FirePond Sales Manager;
- visually create, manage, and monitor transaction-based business processes
that span multiple applications;
- define connectivity and data flows between the FirePond Application Suite
and third-party applications; and
- assign users, manage security, and troubleshoot the distributed
components of a FirePond Application Suite deployment.
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PROFESSIONAL SERVICES AND SUPPORT
We offer a range of professional services that help companies use the
packaged software functionality of the FirePond Application Suite to create
deployments that are highly specific to their businesses. Our professional
services personnel typically have extensive experience in the deployment of
enterprise-scale selling systems, as many have participated in projects
associated with our prior custom development services business model. When we
assist companies in the implementation of the FirePond Application Suite, or one
of its components, we help them determine how their individual selling
strategies can be reflected in our packaged technology, then provide specialized
professional services resources who use FirePond Enterprise Workbench to assist
in the creation of a functional application workflow, data models, automated
enterprise processes, highly branded user interfaces, and functional extensions
to our packaged software applications to support those strategies. Our
professional services implementation teams are organized around the following
roles:
- Project Manager -- Business manager of the FirePond Application Suite
implementation, responsible for leading project strategies and
coordinating our resources in support of those strategies
- Business Analyst -- Strategic business consultant responsible for mapping
a company's corporate selling strategies to the packaged product
functionality in the FirePond Commerce and FirePond Sales applications,
and for designing customer-focused business processes within FirePond
Process Server
- Product Architect -- Technical architecture specialist responsible for
compliance of the FirePond Application Suite with the technical
infrastructure of individual companies, including strategies for data
management, communication, and integration between the FirePond
Application Suite and third party applications
- BRE Engineer -- Highly specialized resource responsible for implementing
business rule models that allow the FirePond Business Rule Engine to
reflect a company's product configuration, pricing and transactional
personalization strategies
- Interactive Consultant -- Graphic design specialist responsible for using
FirePond Enterprise Workbench to create a user interface for FirePond
Commerce and FirePond Sales systems, which reflect a company's individual
brand identity
We may also involve third-party systems integrators to perform these roles
and supplement our professional services personnel on particular accounts.
We provide support services, as well as software upgrades, under annual
software maintenance contracts. These annual maintenance contracts are renewable
at the company's option. Our support services are available seven days per week,
24 hours per day, and 365 days per year.
In addition to the services provided in connection with the FirePond
Application Suite, we also provide custom development and support services. From
our inception through 1997, we generated revenues primarily through custom
development services, and the ongoing support of the implementations from our
prior business model continues to represent a significant portion of our
revenues. Although we do not offer custom development services to new customers
and we expect revenues from our custom development services to decline as a
percentage of overall revenues over time, we intend to continue to provide these
services in support of our established custom development services contracts.
SALES AND MARKETING
We market and sell our products primarily through our direct sales force,
which is located throughout North America, Europe and Asia. In North America,
the FirePond sales organization is focused on our targeted vertical markets,
with resources assigned to health care/insurance, financial services, high
technology, telecommunications, automotive/trucking and manufacturing. In Europe
and Asia, the FirePond sales organization is deployed by geographic region, but
focuses on the same vertical markets that we target in North America.
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We have multi-disciplined sales teams that consist of sales, technical and
sales support professionals. Our senior management also takes an active role in
our sales efforts. Frequently, we use FirePond Enterprise Workbench to develop
customer-specific demonstrations of FirePond Commerce and FirePond Sales to
support selling cycles which we or our partners then use as a basis for the
actual full-scale implementations. We typically direct our sales efforts to the
chief executive officer, the chief information officer, the vice presidents of
sales and marketing and other senior executives responsible for e-business or
multiple selling strategies at our customers' organizations.
FirePond has sales offices in the Boston, Chicago, Detroit, Minneapolis,
Pittsburgh, San Francisco, St. Louis, Amsterdam, Dusseldorf, London, Paris,
Stockholm, Hong Kong and Tokyo areas. As of November 30, 1999, our world-wide
sales organization consisted of 62 employees.
A key element of our growth strategy is the formation of strategic
relationships with industry leaders whose business offerings complement our own.
We believe that these relationships allow us to scale our business rapidly and
effectively, by enabling the expansion of our:
- global brand exposure;
- pipeline of qualified sales opportunities;
- capacity to effectively implement our software offerings for new
customers; and
- ability to deliver enhanced value to our customers.
FirePond has successfully established relationships with large,
international systems integrators and consulting services companies, including
Ernst & Young, Viant, EDS, Intelligroup, Debis Systemhaus, and WM Data. We
intend to expand these relationships and add new relationships in this area to
increase our capacity to sell and implement our products on a global basis. With
existing partners, such as Ernst & Young and Intelligroup, we align our
relationships to coincide with our target vertical markets, including the
healthcare/insurance, telecommunications, and automotive market sectors. We will
continue to pursue relationships that augment our vertical market strategy.
FirePond also has relationships with vendors whose products are generally
believed to be complementary to our own, including E.piphany, Talus Solutions,
Silverstream, Sun Microsystems and Oberon Software. On an ongoing basis, we will
pursue additional technology relationships that increase our value to potential
customers, expand our ability to offer integrated enterprise solutions, and
increase our market opportunities.
Recently, several companies have emerged that offer outsourced software
application hosting services to a wide variety of companies that may not want to
incur the cost of hosting and maintaining enterprise software applications
within their internal technology infrastructure. We believe that these
alternative hosting models provide an opportunity to expand our market reach,
because they offer a lower ownership cost to companies that might not otherwise
be able to justify a large software investment. We have commenced pursuit of
this opportunity by establishing a relationship with GTE Internetworking that
provides the FirePond Application Suite on a GTE hosted platform. We will expand
our pursuit of partners that offer alternative software hosting models to
increase our market reach into companies outside the Global 2000.
As of November 30, 1999, FirePond had 3 employees focused on the
development of corporate partnerships and strategic alliances. In addition, our
senior management takes an active role in the development of these key
relationships.
FirePond's marketing organization utilizes a variety of programs to support
our sales efforts, including:
- market and product research and analysis;
- product and strategy updates with industry analysts;
- public relations activities and speaking engagements;
- internet-based and direct mail marketing programs;
- seminars and trade shows;
- brochures, data sheets and white papers; and
- web site marketing.
As of November 30, 1999, FirePond's marketing organization consisted of 11
employees.
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<PAGE> 39
CUSTOMERS
FirePond has targeted and will continue to target selected vertical
industries with complex products, services or channel relationships, including
health care/insurance, financial services, high technology, telecommunications,
automotive/trucking and manufacturing. The following is a list of some of our
better-known customers to whom we have provided our products or services in
fiscal 1998 or fiscal 1999:
ADP
American Isuzu Motors*
Bell Atlantic Network Integration
Blue Cross Blue Shield
Minnesota
Compaq
Cummins Power Generation
Group
DAF Trucks N.V.*
Empire Blue Cross Blue Shield
Ford Motor Company -- Europe
Freightliner*
General Motors
Hitachi
IBM*
Ingersoll-Rand
Isuzu-General Motors Australia*
JI Case*
John Deere*
Johnson Controls*
KLA-Tencor
Norwest Services
Packard Bell/NEC
Peugeot SA
Renault V.I.
Savings Bank Life Insurance
Scania
Sprint
Subaru
Sunds Defibrator
- ------------
* Customer relationships based on custom development services exclusively
The following table is a list of customers from whom we derived revenues
equal to 10% or more of our total revenues during fiscal 1997, fiscal 1998 or
fiscal 1999, and whose loss would seriously harm our business:
<TABLE>
<CAPTION>
FISCAL 1997 REVENUES FISCAL 1998 REVENUES FISCAL 1999 REVENUES
--------------------------- --------------------------- ---------------------------
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
CUSTOMER AMOUNT TOTAL REVENUES AMOUNT TOTAL REVENUES AMOUNT TOTAL REVENUES
-------- ---------- -------------- ---------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
General Motors....... $6,005,000 21% $7,152,000 25% $8,143,000 24%
Blue Cross Blue
Shield Minnesota..... -- -- 147,000 1% 4,993,000 15%
</TABLE>
RESEARCH AND DEVELOPMENT
As of November 30, 1999, FirePond employed 87 people in research and
development throughout its U.S. offices. This team is responsible for product
planning and design, development of particular functionality within the FirePond
Application Suite and general release and quality assurance functions.
We contract with a third party, Soft OS, to provide software development
and implementation services on an outsourced basis. Soft OS subcontracts to have
these services provided to us by Effective Programming, a development
organization located in Minsk, Belarus, and EPAM Systems, a related development
organization located in New Jersey. Under this arrangement, Effective
Programming and EPAM Systems provide software developers dedicated to our
projects to develop products and application functionality based on
specifications provided by us and to provide implementation services to our
customers. The agreement expires in February 2002. As of November 30, 1999,
approximately 85 employees and contractors of Effective Programming and EPAM
Systems were performing services for us. Each of Effective Programming and EPAM
Systems is majority owned by one of our employees, Arkadiy Dobkin, our vice
president of product research and development. We believe our relationship with
Effective Programming and EPAM Systems is a significant competitive advantage
and provides us with ready access to a highly-skilled labor pool, reduced
turnover, rapid development cycles and a cost-effective solution to our research
and development needs.
Our research and development expenses were $9.6 million for fiscal 1999,
$8.2 million for fiscal 1998 and $3.6 million for fiscal 1997. We expect to
continue to invest significantly in research and development in the future.
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<PAGE> 40
COMPETITION
The market for e-business sales and marketing solutions is intensely
competitive, fragmented and subject to rapid technological change. The principal
competitive factors in this market include:
- adherence to emerging Internet-based technology standards;
- comprehensiveness of applications;
- adaptability, flexibility and scalability;
- real-time, interactive capability with customers, partners, vendors and
suppliers;
- ability to support vertical industry requirements;
- ease of application use and deployment;
- speed of implementation;
- customer service and support; and
- initial price and total cost of ownership.
Because we offer both independent packaged applications, as well as an
enterprise platform for integrated e-business sales and marketing solutions, we
consider a number of companies in different market categories to be our
competitors. Companies focused on providing advanced selling applications for
e-commerce and traditional sales channels include Calico Commerce, Selectica and
Trilogy Software. Companies offering e-commerce software that focuses on a
specific aspect of the customer relationship or buying process, including
personalization, content management or self-service applications, include
BroadVision, Vignette, and Silknet. Finally, companies that offer enterprise
platforms for customer information management include Siebel Systems and Oracle
Corporation. There are a substantial number of other companies focused on
providing Internet-based software applications for customer relationship
management that may offer competitive products in the future. We believe that
the market for integrated e-business sales and marketing solutions is still in
its formative stage, and that no currently identified competitor represents a
dominant presence in this market.
We expect competition to increase as a result of software industry
consolidation. For example, a number of enterprise software companies have
acquired point solution providers to expand their product offerings. Our
competitors may also package their products in ways which may discourage users
from purchasing our products. Current and potential competitors may establish
alliances among themselves or with third parties or adopt aggressive pricing
policies to gain market share. In addition, new competitors could emerge and
rapidly capture market share.
Although we believe we have advantages over our competitors in terms of the
comprehensiveness of our solution, as well as our targeted vertical focus, there
can be no assurance that we can maintain our competitive position against
current and potential competitors, especially those with longer operating
histories, greater name recognition and substantially greater financial,
technical, marketing, management, service, support and other resources.
INTELLECTUAL PROPERTY
We believe our intellectual property rights are significant and that the
loss of all or a substantial portion of our intellectual property rights could
seriously harm our success and ability to compete. We rely on a combination of
copyright, patent, trade secret, trademark, and other intellectual property law,
nondisclosure agreements and other protective measures to protect our
proprietary rights. There can be no assurance that our intellectual property
protection measures will be sufficient to prevent misappropriation of our
technology. Some of our contracts with our customers contain escrow arrangements
with a third party escrow agent which provide these companies with access to our
source code, and other intellectual property upon the occurrence of specified
events. This access could enable these companies to use our intellectual
property and source code creating a risk of disclosure or other inappropriate
use. Our third-party development organization located in Minsk, Belarus and New
Jersey has access to our source code and other intellectual property rights.
Despite our contractual protections, this access could enable them to use our
intellectual property and source code to
36
<PAGE> 41
wrongfully develop and manufacture competing products, which would adversely
affect our performance and ability to compete. In addition, we cannot be certain
that others will not independently develop substantially equivalent intellectual
property, gain access to our trade secrets or intellectual property, or disclose
our intellectual property or trade secrets. Furthermore, the laws of many
foreign countries do not protect our intellectual property to the same extent as
the laws of the United States. From time to time, we may desire or be required
to renew or to obtain licenses from others to enable us to develop and market
commercially viable products effectively. There can be no assurances that any
necessary licenses will be available on reasonable terms, if at all.
From time to time, third parties may assert claims or initiate litigation
against us or our technology partners alleging that our existing or future
products infringe their proprietary rights. We could be increasingly subject to
infringement claims as the number of products and competitors in the market for
our technology grows and the functionality of products overlaps. In addition, we
may in the future initiate claims or litigation against third parties for
infringement of our proprietary rights to determine the scope and validity of
our proprietary rights. Any claims, with or without merit, could be
time-consuming, result in costly litigation and diversion of technical and
management personnel or require us to develop non-infringing technology or enter
into royalty or licensing agreements. Royalty or licensing agreements, if
required, may not be available on acceptable terms, if at all.
EMPLOYEES
At November 30, 1999, we had a total of 350 employees, of which 87 were in
research and development, 73 were in sales and marketing, 58 were in finance and
administration, and 132 were in professional services and support. None of our
employees is represented by a labor union. We have not experienced any work
stoppages and consider our relations with our employees to be good.
FACILITIES
Our corporate headquarters are located in Waltham, Massachusetts and occupy
approximately 29,500 square feet. Our lease for this facility expires on
December 31, 2004. In addition, we have two facilities located in Minnesota. Our
facility in Mankato, Minnesota currently occupies approximately 63,250 square
feet. Our lease for this facility expires on December 1, 2008. In connection
with the relocation of our corporate headquarters in fiscal 1999, we will take
actions to reduce the lease commitment by 50% as of December 1, 2000 and
terminate the lease as of December 1, 2003. We are currently operating under two
separate leases in Bloomington, Minnesota. Both of these suites are in the same
building. One occupies approximately 12,100 square feet and our lease for this
facility expires on January 31, 2002. The other suite occupies approximately
2,500 square feet and our lease for this facility expires on March 31, 2002. We
believe these existing facilities will be adequate to meet our needs for the
next 12 months. If our growth continues, we may need larger facilities after
that time. Suitable additional facilities may not be available as needed on
commercially reasonable terms. We also lease sales offices in Chicago, Illinois;
Bloomfield Hills, Michigan; Oakland, California; Sewickly, Pennsylvania;
Chesterfield, Missouri; Hoofddorp, The Netherlands; Duesseldorf, Germany; Fleet,
England; Paris, France; Stockholm, Sweden; Hong Kong and Tokyo, Japan.
LEGAL PROCEEDINGS
We are engaged in legal proceedings incidental to the normal course of
business. Although the ultimate outcome of these matters cannot be determined,
we believe that the final outcome of these proceedings will not seriously harm
our business.
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<PAGE> 42
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and their ages as of November 30,
1999, are as follows:
<TABLE>
<CAPTION>
AGE POSITION
--- --------
<S> <C> <C>
Klaus P. Besier........................... 48 Chairman, President, Chief Executive Officer and
Director
Ilya G. Gorelik........................... 38 Senior Vice President of Product Strategy and
Development
Edwin B. Lange............................ 43 Senior Vice President of North American Sales
Graham S. Williams........................ 44 Senior Vice President and Managing Director of
Europe and Asia
Paul K. McDermott......................... 38 Chief Financial Officer and Vice President of
Finance and Administration
Steven J. Waters.......................... 31 Vice President of Marketing
Thomas F. Carretta........................ 41 General Counsel and Secretary
Paul R. Butare............................ 48 Director
J. Michael Cline.......................... 40 Director
William O. Grabe.......................... 61 Director
Gerhard Schulmeyer........................ 61 Director
Vernon Lawrence Weber..................... 45 Director
</TABLE>
Klaus P. Besier has served as chairman of our board of directors since
October 1999 and has served as our president, chief executive officer and a
director since June 1997. Before joining FirePond, from February 1996 to May
1997, Mr. Besier was chairman, president and chief executive officer of Primix
Solutions, Inc., an internet-enabled software company. From 1994 to 1996, Mr.
Besier was the chief executive officer of SAP America, Inc., a subsidiary of SAP
AG, a leading provider of business application software. From 1992 to 1993, he
was the president of SAP America, Inc. From 1991 to 1992, Mr. Besier was vice
president of sales of SAP America, Inc. From 1977 to 1990, Mr. Besier held
various senior management positions including general manager and corporate vice
president with various affiliates of Hoechst Celanese, a specialty chemicals
company. Mr. Besier is also a director of Intelligroup, a global professional
services firm.
Ilya G. Gorelik has served as our senior vice president of product strategy
and development since October 1998. Before joining FirePond, from 1989 to 1998
Mr. Gorelik held various senior management positions with Parametric Technology
Corporation, most recently as senior vice president of product engineering, and
chief technology officer. Parametric Technology Corporation is a leading
software supplier for the mechanical design automation market.
Edwin B. Lange has served as our senior vice president of North American
sales since September 1999. Before joining FirePond, from 1993 to 1999, Mr.
Lange held various senior management positions with SAP America, Inc., most
recently senior vice president and general manager of the discrete manufacturing
sector. From 1990 to 1993 he was a sales director at Andersen Consulting.
Graham S. Williams has served as our senior vice president and managing
director of Europe and Asia since June 1998. Before joining FirePond, from 1996
to June 1998, Mr. Williams was president and chief executive officer of
SuperNova, an application and component development tool firm. From 1993 to
1996, Mr. Williams was vice president, European operations and vice president,
European and Asia Pacific operations for Compuware Corp/Uniface International, a
provider of enterprise and client/server systems. From 1992 to 1993 he was the
vice president and managing director, Europe of Seer Technologies, a provider of
integrated CASE systems.
Paul K. McDermott has served as our chief financial officer since January
1999. Before joining FirePond, from 1995 to 1999, Mr. McDermott was chief
financial officer, treasurer, and secretary of ServiceWare, Inc.,
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<PAGE> 43
an Internet software company specializing in knowledge management. From 1990 to
1995, he held various positions in finance, including controller, with Legent
Corporation, a supplier of software and services for distributed enterprise
computing.
Steven J. Waters has served as our vice president of marketing since
September of 1997. Before joining FirePond, from 1993 to 1997, he held various
marketing positions at Trilogy Software, Inc., a sales technology company,
including director of sales and marketing from 1996 to 1997. Before Trilogy, Mr.
Waters worked in the national high-technology investment banking group of Bear,
Stearns & Co., Inc.
Thomas F. Carretta has served as our general counsel since May 1998. He was
elected to serve in the additional capacity of secretary in November 1998.
Before joining FirePond, from 1988 to 1998, Mr. Carretta was general counsel for
Comtrol Corporation and affiliated companies.
Paul R. Butare has been a director of FirePond since July 1999. Mr. Butare
is the chairman and chief executive officer of Richter Systems International
Inc., a leader in global supply chain enterprise solutions. Before joining
Richter, Mr. Butare served as executive vice president for Policy Management
Systems Corporation, a developer of insurance industry software, which he joined
in 1984, and president of CYBERTEK, a life insurance financial systems and
services company of Policy Management Systems.
J. Michael Cline has been a director of FirePond since May 1997. Mr. Cline
is the managing partner of Accretive Technology Partners. From 1989 to 1999, Mr.
Cline was a managing member of General Atlantic Partners, LLC, or its
predecessor, a private equity firm that invests globally in software, Internet
services and related information technology companies. Before joining General
Atlantic, Mr. Cline helped found AMC, a software company subsequently sold to
Legent Corporation. Before founding AMC, Mr. Cline was an associate at McKinsey
and Company. Mr. Cline is a director of Brio Technology, Manugistics and Exult,
Inc. as well as several other private information technology companies.
William O. Grabe has been a director of FirePond since May 1997. Mr. Grabe
is a managing member of General Atlantic Partners, LLC and has been with General
Atlantic since April 1992. Before joining General Atlantic, Mr. Grabe was
corporate vice president and general manager, marketing & services for IBM US.
He is also a director of Baan Company, N.V., LHS Group, Inc., Compuware
Corporation, Gartner Group Inc., Exact Holdings N.V., Meta4, TDS AG and several
other private software and services companies.
Gerhard Schulmeyer has been a director of FirePond since November 1999. Mr.
Schulmeyer is president and chief executive officer of Siemens Corporation in
the United States of America, having been president and chief executive officer
of Siemens Nixdorf Informationssysteme AG and chairman of its managing board
since 1994. Before joining Siemens Nixdorf, Mr. Schulmeyer was executive vice
president and a member of the executive committee of Asea Brown Boveri Ltd. as
well as president and chief executive officer of ABB Inc., U.S.A. From 1980 to
1989, he held various senior positions with Motorola Inc., culminating with that
of executive vice president, deputy to the chief executive officer, responsible
for European business. He is a member of the boards of Korn Ferry International,
Ingram Micro, Inc., Alcan Aluminum Ltd., Allied Zurich p.l.c., Zurich Financial
Services and Arthur D. Little, Inc.
Vernon Lawrence Weber has been a director of FirePond since January 2000.
Mr. Weber is the chairman and chief executive officer of Weber Public Relations
Worldwide, a leading public relations firm. Mr. Weber founded The Weber Group in
1987. The Interpublic Group of Companies purchased The Weber Group in 1996 and
appointed Mr. Weber chairman and chief executive officer of Weber Public
Relations Worldwide. Mr. Weber is a director of Technology Review, MIT's
magazine of innovation. He is also a director of several other private
technology companies.
Following this offering, the board of directors will consist of five
directors divided into three classes, with each class serving for a term of
three years. At each annual meeting of stockholders, directors will be elected
by the holders of common stock to succeed the directors whose terms are
expiring. The members of the board of directors are currently classified as
follows:
- Mr. Cline and Mr. Schulmeyer are class I directors whose terms will
expire in 2001;
- Mr. Grabe and Mr. Weber are class II directors whose terms will expire in
2002; and
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<PAGE> 44
- Mr. Besier and Mr. Butare are class III directors whose terms will expire
in 2003.
BOARD COMMITTEES
The board of directors has a compensation committee composed of Messrs.
Butare and Cline, which makes recommendations concerning salaries and incentive
compensation for our employees and administers our stock option plans. The board
of directors also has an audit committee composed of Messrs. Cline and Grabe,
which recommends the engagement of our outside auditors and reviews our
accounting controls, the results and scope of the audit and other services
provided by our outside auditors. The board of directors may establish, from
time to time, other committees to facilitate the management of our business.
DIRECTOR COMPENSATION
Our directors do not receive cash compensation for their services as
directors but are reimbursed for their reasonable and necessary expenses
incurred in connection with attendance at meetings of the board of directors or
its committees. Members of the board who are not employees receive stock options
under our 1999 director plan. Our directors are also eligible to participate in
our 1997 stock option plan and 1999 stock option and grant plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers serves on the board of directors or
compensation committee of any entity which has one or more executive officers
serving as a member of our board of directors or compensation committee.
EXECUTIVE COMPENSATION
The following table presents the fiscal 1999 compensation earned for
services rendered to us by our current chief executive officer and each of our
four other most highly compensated executive officers whose salary and bonus
compensation for fiscal 1999 exceeded $100,000, collectively referred to below
as the named executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
AWARDS
ANNUAL COMPENSATION ------------
-------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME & PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($) OPTIONS(#)
- ------------------------- --------- -------- --------------- ------------
<S> <C> <C> <C> <C>
Klaus P. Besier............................. $200,000 $ -- $ -- --
Chairman, President and Chief Executive
Officer
Graham S. Williams.......................... 213,850 8,910 19,740(1) 100,000
Senior Vice President and Managing
Director of Europe and Asia
Ilya G. Gorelik............................. 175,000 -- -- 133,334
Senior Vice President of Product Strategy
and Development
Paul K. McDermott........................... 132,060 25,000 36,674(2) 340,001
Chief Financial Officer and Vice President
of Finance and Administration
Steven J. Waters............................ 156,766 -- 41,429(2) 133,334
Vice President of Marketing
</TABLE>
- ---------------
(1) Represents a car allowance of $1,645 per month paid on behalf of Mr.
Williams.
(2) Represents amounts paid to the executive officer as reimbursement for
relocation expenses.
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<PAGE> 45
The following table presents information about stock options granted during
fiscal 1999 to the named executive officers. The percent of total options
granted to employees in the last fiscal year is based on options to purchase an
aggregate of 3,338,522 shares granted to officers and employees during fiscal
1999. The amounts shown as potential realizable value illustrate what might be
realized upon exercise immediately before expiration of the option term using
the 0%, 5% and 10% appreciation rates above the exercise price established in
regulations of the SEC, compounded annually. The potential realizable value is
not intended to predict future appreciation of the price of our common stock and
do not give effect to any actual appreciation after the date of grant.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT ASSUMED
NUMBER OF SHARES % OF TOTAL ANNUAL RATES OF STOCK PRICE
UNDERLYING OPTIONS GRANTED TO EXERCISE APPRECIATION FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 0%($) 5%($) 10%($)
- ---- ---------------- ------------------ -------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Klaus P. Besier...... -- -- -- -- $ -- $ -- $ --
Graham S. Williams... 100,000(1) 3.0% $4.46 6/1/09 155,500 533,466 1,113,339
Ilya G. Gorelik...... 133,334(2) 4.0 4.46 6/16/09 207,334 711,291 1,484,460
Paul K. McDermott.... 283,334(1) 8.5 3.95 1/11/09 -- 702,949 1,781,410
56,667(1) 1.7 7.22 10/27/09 107,951 432,965 931,602
Steven J. Waters..... 100,000(1) 3.0 3.95 11/1/08 -- 248,099 628,731
33,334(3) 1.0 4.46 6/16/09 51,834 177,825 371,121
</TABLE>
- ------------
(1) 25% of the underlying shares vest on each anniversary of the date of grant
so long as the holder remains as an employee.
(2) Vest upon the occurrence of preestablished performance goals related to the
development of our new product, the FirePond Application Suite.
(3) 100% of the underlying shares vest immediately upon grant.
The following table presents information concerning the number and value of
unexercised options to purchase common stock held by the named executive
officers. The named executive officers did not exercise any stock options during
fiscal 1999. The values of the unexercised in-the-money options have been
calculated on the basis of the fair market value at October 31, 1999 of $9.12
per share, as determined by the board of directors.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END(#) AT FY-END($)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Klaus P. Besier........................... 986,163 938,839 $5,103,394 $4,858,492
Graham S. Williams........................ 54,167 262,500 280,314 1,307,438
Ilya G. Gorelik........................... 241,667 325,000 1,182,627 1,681,875
Paul K. McDermott......................... -- 340,000 -- 1,574,204
Steven J. Waters.......................... 75,000 158,334 371,125 819,378
</TABLE>
1999 STOCK OPTION AND GRANT PLAN
Our 1999 stock option and grant plan was adopted by our board of directors
in September 1999 and received stockholder approval in January 2000. The 1999
stock option and grant plan permits us to grant incentive stock options,
non-qualified stock options and restricted and unrestricted stock. These grants
may be
41
<PAGE> 46
made to our officers, employees, directors, consultants, advisors and key
persons. The 1999 stock option and grant plan allows for the issuance of
3,000,000 shares of common stock. Of the shares reserved for issuance under the
1999 stock option plan, 2,468,083 shares remain available for future issuance as
of January 31, 2000.
The 1999 stock option and grant plan is administered by the board of
directors or a committee designated by the board of directors. Subject to the
provisions of the 1999 stock option and grant plan, the board of directors or
the committee may select the individuals eligible to receive awards, determine
the terms and conditions of the awards granted, accelerate the vesting schedule
of any award and generally administer and interpret the plan.
The exercise price of options granted under the 1999 stock option and grant
plan is determined by the board of directors or the committee. Under present
law, however, incentive stock options may not be granted at an exercise price
less than the fair market value of the common stock on the date of grant, or
less than 110% of the fair market value in the case of incentive stock options
granted to persons holding more than 10% of the voting power of our stock.
Non-qualified stock options may be granted at prices which are less than the
fair market value of the underlying shares on the date granted. Options are
typically subject to vesting schedules, terminate ten years from the date of
grant and may be exercised for specified periods after the termination of the
holder's employment or other service relationship with us. Upon the exercise of
options, the option exercise price must be paid in full by one of the following
means:
- cash;
- by certified or bank check;
- by another instrument acceptable to the board of directors or the
committee; or
- in the sole discretion of the board of directors or the committee, by
delivery of shares of common stock that have been owned by the holder
free of restrictions for at least six months.
The exercise price may also be delivered to us by a broker under irrevocable
instructions to the broker selling the underlying shares from the holder.
The purchase price, vesting dates and requirements of restricted stock
awards are determined by the board of directors or the committee. The board of
directors or the committee may place conditions on the restricted stock awards,
such as continued employment or the achievement of performance goals or
objectives in a grant document. Restricted stock may not be sold, assigned,
transferred or pledged except as specifically provided in the grant document. If
a restricted stock award recipient's employment or other relationship with us
terminates or other events specified in the grant document occur, we have the
right to repurchase some or all of the shares of stock subject to the award at
the purchase price of the stock.
When we become a publicly held corporation and are subject to Section
162(m) of the Internal Revenue Code, no person may be granted options under the
1999 stock option and grant plan covering more than 1,000,000 shares of common
stock in any calendar year.
In the event of any merger, reorganization or sale in which:
- the outstanding awards issued under the 1999 stock option and grant plan
are generally not assumed by the surviving entity, or
- equivalent substitute awards are not issued by the surviving entity, then
all of the outstanding awards issued under the 1999 stock option and grant plan
that are not then vested will become fully vested and exercisable upon the
closing of the transaction.
Upon a merger, reorganization or sale, all awards issued under the 1999
stock option and grant plan will terminate upon closing of the transaction. All
participants under the 1999 stock option and grant plan will be permitted to
exercise, for a period of 15 days before any termination of the 1999 stock
option and grant plan, all awards held by them which are then exercisable or
will become exercisable upon the closing of the transaction.
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<PAGE> 47
1999 DIRECTOR PLAN
Our 1999 director plan was adopted by our board of directors in September
1999 and received stockholder approval in December 1999. A total of 500,000
shares of common stock have been authorized for issuance under the 1999 director
plan. Of the shares reserved for issuance under the 1999 director plan, 266,666
shares remain available for future issuance as of January 31, 2000.
The 1999 director plan is administered by our compensation committee. The
term of the 1999 director plan is ten years, unless sooner terminated by vote of
the board of directors. Under the 1999 director plan, each non-employee director
who is or becomes a member of the board of directors is automatically granted on
September 9, 1999 or, if not a director on that date, the date first elected to
the board of directors, an option to purchase 50,000 shares of our common stock.
In addition, provided that the director continues to serve as a member of the
board of directors, each continuing non-employee director will be automatically
granted on the date of our annual stockholders meeting an option to purchase
12,500 shares of our common stock.
Options granted under the 1999 director plan are subject to the following
terms:
- the exercise price will be equal to the fair market value of the common
stock on the date of grant;
- 25% of the options in each grant will become exercisable on each of the
first, second, third and fourth anniversaries of the date of grant and
will have a term of ten years from the date of grant;
- unexercisable options terminate when the director ceases to be a director
for any reason other than death or permanent disability;
- exercisable options may be exercised at any time during the option term;
and
- in the event of a change in control transaction in which a director is
not retained as a director of the surviving corporation, options granted
to that director will become 100% vested and exercisable in full.
The term of the 1999 director plan is ten years, unless sooner terminated by
vote of the board of directors.
1997 STOCK OPTION PLAN
Our board of directors and stockholders adopted the 1997 stock option plan
in May 1997. The 1997 stock option plan permits us to grant incentive stock
options, non-qualified stock options, stock appreciation rights, restricted
stock and deferred stock awards to our officers, employees, directors,
consultants, and advisors. The 1997 stock option plan allows for the issuance of
9,396,815 shares of common stock. Of the shares reserved for issuance under the
1997 stock option plan, 59 shares remain available for future issuance as of
January 31, 2000.
The 1997 stock option plan may be administered by the board of directors or
a committee designated by the board of directors. Subject to the provisions of
the 1997 stock option plan, the board of directors or the committee may select
the individuals eligible to receive awards, determine the terms and conditions
of the awards granted, accelerate the vesting schedule of any award and
generally administer and interpret the 1997 stock option plan.
The exercise price of options granted under the 1997 stock option plan is
determined by the board of directors or the committee. Under present law,
incentive stock options may not be granted at an exercise price less than the
fair market value of the common stock on the date of grant, or less than 110% of
the fair market value in the case of incentive stock options granted to persons
holding more than 10% of the voting power of our stock. Non-qualified stock
options may be granted at prices which are less than the fair market value of
the underlying shares on the date granted. Options are typically subject to
vesting schedules, terminate ten years from the date of grant and may be
exercised for specified periods after the termination of the holder's employment
or other service relationship with us. Upon the exercise of options, the option
exercise price must be paid in full by one of the following means:
- cash;
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<PAGE> 48
- by certified or bank check;
- by another instrument acceptable to the board of directors or the
committee; or
- in the sole discretion of the board of directors or the committee, by
delivery of shares of common stock that have been owned by the holder
free of restrictions for at least six months.
The purchase price, and vesting dates and requirements of restricted stock
awards are determined by the board of directors or the committee. The board of
directors or the committee may place conditions on the restricted stock awards,
such as continued employment or the achievement of performance goals or
objectives in a grant document. Restricted stock may not be sold, assigned,
transferred or pledged except as specifically provided in the grant document. If
a restricted stock award recipient's employment or other relationship with us
terminates or other events specified in the grant document occur, we have the
right to repurchase some or all of the shares of stock subject to the award at
the purchase price of the stock.
When we become subject to Section 162(m) of the Internal Revenue Code, no
person may be granted options under the 1997 stock option plan covering more
than 1,750,000 shares of common stock in any calendar year.
On November 8, 1999, Mr. Besier received stock options under the 1997 stock
option plan to purchase 1,500,000 shares of our common stock at an exercise
price of $9.90 per share. The options vest monthly over four years and will be
fully vested on November 8, 2003.
EMPLOYMENT AGREEMENTS
Mr. Besier's employment agreement, dated April 2, 1998, provides for an
initial annual salary of $200,000 and an annual bonus of up to $150,000 based on
FirePond's achievement, during the applicable fiscal year, of performance goals
agreed upon by Mr. Besier and our board of directors before the beginning of
each fiscal year. The agreement also provides that he will be eligible to earn
an additional bonus of up to $100,000 if FirePond achieves or surpasses
performance targets in excess of the performance goals. Mr. Besier received
stock options under our 1997 stock option plan to purchase 1,417,960 shares of
our common stock at an exercise price of approximately $3.95 per share. These
options vest monthly commencing on August 7, 1997 and shall be fully vested on
July 7, 2001. Upon the occurrence of specified liquidity events, such as a
merger or acquisition of FirePond, 80% of the then unvested options will become
vested at the time of the event, increasing to 100% if there shall be a
reduction in the scope of Mr. Besier's employment responsibilities in connection
with the liquidity event. Mr. Besier was also granted registration rights for
all shares of our common stock which he acquires.
In the event of Mr. Besier's death during the term of his employment, his
legal representative will receive Mr. Besier's annual salary for 12 months, an
amount equal to his most recent annual bonus, payable in quarterly installments,
and 75% of Mr. Besier's options to purchase shares of our common stock shall
become fully vested and exercisable, with the remaining 25% percent terminating.
If Mr. Besier is terminated without cause, or he voluntarily resigns for good
reason, he shall receive severance payments equal to his annual salary payable
in equal monthly installments for a period of 12 months and the term of his
vested options shall be extended until the earlier of three months following the
termination, the effectiveness of specified liquidity events, or nine months
after an initial public offering.
Mr. Williams' offer letter, dated May 11, 1998, provides for an initial
annual salary of $213,850 commencing on June 1, 1998 and an annual bonus of up
to 50% of his annual salary based on our performance and individual performance
objectives. Mr. Williams received stock options to purchase 216,667 shares of
our common stock at an exercise price of approximately $3.95 per share under the
1997 stock option plan. These options vest annually over four years commencing
on June 1, 1998. Upon the occurrence of a change of control event, 50% of the
then unvested options will become immediately vested and exercisable.
Mr. Gorelik's offer letter, dated October 21, 1998, provides for an initial
annual salary of $175,000 commencing on October 2, 1998 and an annual bonus of
up to 50% of his annual salary based on our performance and individual
performance objectives. Mr. Gorelik received stock options to purchase 433,334
shares of our common stock at an exercise price of approximately $3.95 per share
under the 1997 stock
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<PAGE> 49
option plan. These options vest annually over four years commencing on October
2, 1998. Upon the occurrence of a change of control event, if Mr. Gorelik is not
retained as an employee of the surviving company, with responsibilities similar
to his responsibilities with FirePond, 80% of the then unvested options will
become immediately vested and exercisable.
Mr. McDermott's offer letter, dated December 11, 1998, provides for an
initial annual salary of $160,000 commencing on January 4, 1999, an initial
bonus of $25,000 and an annual bonus of up to $50,000 based on our performance
and individual performance objectives. Mr. McDermott received stock options to
purchase 283,334 shares of our common stock at an exercise price of
approximately $3.95 per share under the 1997 stock option plan. These options
vest annually over four years commencing on January 4, 1999. In addition, Mr.
McDermott was granted an additional stock option to purchase 56,667 shares of
our common stock on similar terms, upon the achievement of performance
objectives before this initial public offering. Upon the occurrence of a change
of control event, if Mr. McDermott is not retained as an employee of the
surviving company, with responsibilities similar to his responsibilities with
FirePond, 80% of the unvested portion of these options will become immediately
vested and exercisable.
Mr. Waters' offer letter, dated September 5, 1997, provides for an initial
annual salary of $120,000 commencing on September 10, 1997. Mr. Waters received
stock options to purchase 16,667 shares of our common stock at an exercise price
of approximately $3.95 per share under the 1997 stock option plan. These options
vest annually over four years commencing on September 16, 1997. In addition, Mr.
Waters received a cash payment of $50,000 and stock options to purchase 33,334
shares of our common stock in substitution for commissions Mr. Waters would have
received from his previous employer.
LIMITATIONS OF LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation contains a provision permitted by Delaware
law that generally eliminates the personal liability of directors to FirePond or
our stockholders for monetary damages for breaches of their fiduciary duty,
including breaches involving negligence or gross negligence in business
combinations, unless the director has:
- breached his duty of loyalty;
- failed to act in good faith;
- engaged in intentional misconduct or a knowing violation of law;
- paid a dividend or approved a stock repurchase in violation of the
Delaware General Corporation Law; or
- obtained an improper personal benefit.
This provision does not alter a director's liability under the federal
securities laws or to parties other than FirePond or our stockholders and does
not affect the availability of equitable remedies, such as an injunction or
rescission, for breach of fiduciary duty.
Our by-laws provide that directors and officers shall be, and in the
discretion of the board of directors, non-officer employees may be, indemnified
by us to the fullest extent authorized by Delaware law, as it now exists or may
in the future be amended, against all expenses and liabilities reasonably
incurred in connection with service for or on our behalf. The by-laws also
provide that the right of directors and officers to indemnification shall be a
contract right and shall not be exclusive of any other right now possessed or
later acquired under any by-law, agreement or vote of stockholders. We also have
directors' and officers' insurance against potential liabilities.
We have been advised that in the opinion of the SEC, although
indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers or controlling persons of FirePond as
described above, this indemnification is against public policy as expressed in
the Securities Act and may be unenforceable.
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<PAGE> 50
RELATED PARTY TRANSACTIONS
PRIVATE PLACEMENT TRANSACTIONS
We have issued preferred stock in private placement transactions as
follows. The tables below gives effect to a five-for-one stock split which
occurred in July 1997 and affected only the series A convertible participating
preferred stock.
<TABLE>
<CAPTION>
NUMBER OF PRICE PER AGGREGATE
DATE OF ISSUANCE SERIES SHARES SHARE CONSIDERATION
- ---------------- ------ --------- --------- -------------
<S> <C> <C> <C> <C>
May 1997........................... Series A Convertible 4,188,880 $ 2.63 $11,000,000(1)
Participating Preferred
July 1997.......................... Series C Convertible 570,342 2.63 1,500,000
Participating Preferred
October 1997....................... Series D Convertible 100,000 100.00 10,000,000
Participating Preferred
April 1998......................... Series E Convertible 7,604,563 2.63 20,000,000(2)
Participating Preferred
February 1999...................... Series F Convertible 6,734,008 2.97 20,000,000(3)
Preferred
February 1999...................... Series G Convertible 7,604,563 2.63 20,000,000(4)
Participating Preferred
</TABLE>
- ------------
(1) Warrants to purchase 190,438 shares of series B preferred stock, at an
exercise price of $19.69 per share, were issued to the purchasers of our
series A preferred stock in connection with the sale of series A preferred
stock. The aggregate consideration received for these warrants was $1,000.
(2) The aggregate consideration received for the series E preferred stock
consisted of the exchange of all of the outstanding shares of series D
preferred stock and the payment of an additional $10,000,000.
(3) Warrants to purchase 673,401 shares of series F preferred stock, at an
exercise price of $3.56 per share, were issued to the purchasers of our
series F preferred stock in connection with the sale of our series F
preferred stock. The aggregate consideration received for the warrants was
$1,000.
(4) The aggregate consideration received for the series G preferred stock
consisted only of the exchange of all of the outstanding shares of series E
preferred stock.
The following table summarizes the shares of our preferred stock purchased
by our named executive officers, directors and 5% stockholders, and persons and
entities associated with them.
<TABLE>
<CAPTION>
SERIES A SERIES D SERIES E SERIES G
CONVERTIBLE CONVERTIBLE CONVERTIBLE SERIES F CONVERTIBLE
PARTICIPATING PARTICIPATING PARTICIPATING CONVERTIBLE PARTICIPATING
PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED
INVESTOR STOCK STOCK STOCK STOCK STOCK
- -------- ------------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Entities associated with
General Atlantic Partners,
LLC......................... 4,188,880 100,000 7,604,563 841,751 7,604,563
Entities associated with
Technology Crossover
Ventures...................... -- -- -- 4,208,755 --
Entities associated with
Lehman Brothers............. -- -- -- 1,683,502 --
</TABLE>
In connection with the sale of our series F preferred stock, we agreed to
use our reasonable best efforts to cause the underwriter of our initial public
offering to offer to sell to the series F preferred stockholders 7.5% of the
shares sold to the public in the offering. The shares are to be allocated among
the series F preferred stockholders on a pro rata basis based upon the number of
series F shares held. Entities associated with General Atlantic Partners, LLC,
Technology Crossover Ventures and Lehman Brothers are the series F preferred
stockholders.
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<PAGE> 51
On September 30, 1999, we sold 33,334 shares of common stock to Edwin B.
Lange, our senior vice president of North American sales, for an aggregate
purchase price of $148,500.
On November 12, 1999, we borrowed $6.0 million of subordinated indebtedness
from an outside investor, and entities associated with General Atlantic
Partners, LLC and Technology Crossover Ventures, existing stockholders of
FirePond. The indebtedness bears interest at 12.0% and is due upon the earlier
of the closing of this offering or November 11, 2000. If we have not closed an
initial public offering of our stock by May 11, 2000 or if we enter into a sale
transaction before May 11, 2000, the subordinated indebtedness is convertible
into shares of our preferred stock having rights equivalent to our existing
series F preferred stock at a rate of $2.97 per share. FirePond also issued to
these lenders warrants to purchase an aggregate of 360,000 shares of our common
stock at an exercise price of $5.25 per share.
PAYMENTS TO STOCKHOLDERS
In connection with the sales of our preferred stock, we agreed to make
payments to some of our stockholders upon consummation of this offering as
follows:
- an aggregate amount of $10,000,000 to holders of our shares of common
stock outstanding on May 20, 1997, other than those shares held by
entities associated with General Atlantic Partners, LLC;
- an aggregate amount of $15,000,000 to holders of our series A preferred
stock;
- an aggregate amount of $750,000 to holders of our series C preferred
stock; and
- an aggregate of up to $20,000,000 to holders of our series G preferred
stock.
These amounts are payable in cash, or, at our option, a number of shares of
our common stock determined by dividing the amount payable by $12.00. Our board
of directors has elected to make these payments in 3,812,524 shares of common
stock upon consummation of this offering.
REGISTRATION RIGHTS AGREEMENTS
After this offering holders of 28,918,308 shares of our common stock and
preferred stock have registration rights for their shares of common stock,
including shares of common stock issuable upon conversion of their preferred
stock.
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<PAGE> 52
PRINCIPAL STOCKHOLDERS
The following table presents information about the beneficial ownership of
common stock as of January 31, 2000 and as adjusted to reflect the sale of the
common stock offered by this prospectus, by:
- all persons who own beneficially 5% or more of our common stock;
- each of the named executive officers;
- each of our directors; and
- all directors and executive officers as a group.
Unless otherwise indicated, each of the stockholders has sole voting and
investment power for the shares of common stock listed opposite its name below,
subject to community property laws, where applicable. Beneficial ownership is
determined under the rules of the Securities and Exchange Commission. Percentage
of beneficial ownership is based on:
- 27,751,713 shares outstanding as of January 31, 2000; and
- 32,751,713 shares outstanding after completion of this offering.
All options exercisable within 60 days of January 31, 2000 are reported as
currently exercisable. The shares issuable under these options are treated as if
outstanding for computing the percentage ownership of the person holding these
options but are not treated as if outstanding for the purposes of computing the
percentage ownership of any other person.
The data below gives effect to the issuance of:
- 3,812,532 shares of common stock as priority payments to some of our
existing stockholders upon consummation of this offering; and
- 506,071 shares of common stock issuable upon the exercise of warrants to
purchase series F preferred stock upon consummation of this offering.
In addition, the table below assumes that the underwriters do not exercise their
over-allotment option.
The address of the entities associated with General Atlantic Partners, LLC
is General Atlantic Partners, LLC, 3 Pickwick Plaza, Greenwich, Connecticut
06830. The address of the entities associated with Technology Crossover Ventures
is Technology Crossover Ventures, 575 High Street, Suite 400, Palo Alto,
California 94301. The address of Jerome D. Johnson is 2409 Northridge Drive,
North Mankato, Minnesota 56003.
<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY OWNED
NUMBER OF SHARES ---------------------------
BENEFICIALLY BEFORE THE AFTER THE
OWNED OFFERING OFFERING
---------------- ------------ ------------
<S> <C> <C> <C>
Entities associated with General Atlantic Partners,
LLC (1).......................................... 17,290,161 60.9% 51.8%
Entities associated with Technology Crossover
Ventures (2)....................................... 3,479,238 12.5 10.6
Jerome D. Johnson (3).............................. 2,942,896 10.6 9.0
Klaus P. Besier (4)................................ 1,344,252 4.6 3.9
Ilya G. Gorelik (5)................................ 257,192 less than 1% less than 1%
Graham S. Williams (6)............................. 57,303 less than 1% less than 1%
Paul K. McDermott (7).............................. 70,833 less than 1% less than 1%
Steven J. Waters (8)............................... 100,000 less than 1% less than 1%
Paul R. Butare..................................... -- -- --
J. Michael Cline................................... -- -- --
William O. Grabe (9)............................... 17,290,161 60.9 51.8
Gerhard Schulmeyer................................. -- -- --
All executive officers and directors as a group (10
persons) (10).................................... 19,243,852 63.6 54.6
</TABLE>
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<PAGE> 53
- ------------
(1) Consists of:
- 2,614,398 shares held by GAP Coinvestment Partners, L.P. and includes
96,837 shares underlying warrants exercisable within 60 days of January
31, 2000;
- 119,272 shares held by GAP Coinvestment Partners II L.P.;
- 11,157,797 shares held by General Atlantic Partners 40, L.P. and includes
537,957 shares underlying warrants exercisable within 60 days of January
31, 2000;
- 2,822,118 shares held by General Atlantic Partners 46, L.P.; and
- 576,576 shares held by General Atlantic Partners 52, L.P.
GAP Coinvestment Partners, L.P., GAP Coinvestment Partners II, L.P.,
General Atlantic Partners 40, L.P., General Atlantic Partners 46, L.P. and
General Atlantic Partners 52, L.P. are part of an affiliated group of
investment partnerships referred to, collectively, as entities associated
with General Atlantic Partners, LLC.
(2) Consists of:
- 25,271 shares held by TCV III (GP);
- 120,032 shares held by TCV III, L.P.;
- 3,190,295 shares held by TCV III (Q), L.P.; and
- 143,640 shares held by TCV III Strategic Partners, L.P.
TCV III (GP), TCV III, L.P., TCV III(Q), L.P. and TCV III Strategic
Partners L.P. are referred to, collectively, as entities associated with
Technology Crossover Ventures. Technology Crossover Management III, L.L.C.
is the general partner of each of the entities associated with Technology
Crossover Ventures.
(3) Includes 83,334 shares which may be sold if the underwriters exercise their
over-allotment option.
(4) Includes 1,313,242 shares underlying options granted to Mr. Besier
exercisable within 60 days of January 31, 2000.
(5) Includes 241,667 shares underlying options granted to Mr. Gorelik
exercisable within 60 days of January 31, 2000.
(6) Includes 54,166 shares underlying options granted to Mr. Williams
exercisable within 60 days of January 31, 2000.
(7) Includes 70,833 shares underlying options granted to Mr. McDermott
exercisable within 60 days of January 31, 2000.
(8) Includes 100,000 shares underlying options granted to Mr. Waters
exercisable within 60 days of January 31, 2000.
(9) Represents shares described in note (1) above, beneficially owned by
entities associated with General Atlantic Partners, LLC. Mr. Grabe
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest in GAP Coinvestment Partners, L.P. and GAP Coinvestment
Partners II, L.P.
(10) Includes 2,504,702 shares underlying options granted to the executive
officers exercisable within 60 days of January 31, 2000.
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<PAGE> 54
DESCRIPTION OF CAPITAL STOCK
Immediately following the offering, our authorized capital stock will
consist of 100,000,000 shares of common stock of which 32,751,713 will be issued
and outstanding; and 5,000,000 shares of undesignated preferred stock issuable
in one or more series to be designated by our board of directors, of which no
shares will be issued and outstanding.
As of January 31, 2000, there were outstanding:
- 10,129,875 shares of common stock held by approximately 93 stockholders
of record;
- 19,097,793 shares of preferred stock, convertible into 13,303,235 shares
of common stock upon completion of this offering;
- warrants to purchase 190,438 shares of series B preferred stock,
convertible into 634,794 shares of common stock upon completion of this
offering;
- warrants to purchase 673,401 shares of series F preferred stock,
convertible into 506,071 shares of common stock upon completion of this
offering;
- warrants to purchase 901,234 shares of common stock; and
- options to purchase an aggregate of 10,047,234 shares of common stock.
These outstanding shares do not include the 3,812,532 shares of common stock to
be issued as priority payments to some of our existing stockholders upon
consummation of this offering.
COMMON STOCK
The holders of common stock have one vote per share. Holders of common
stock are not entitled to vote cumulatively for the election of directors.
Generally, all matters to be voted on by stockholders must be approved by a
majority, or, in the case of election of directors, by a plurality, subject to
any voting rights granted to holders of any then outstanding preferred stock.
Except as otherwise provided by law, amendments to our certificate of
incorporation, which will be effective upon consummation of the offering, must
be approved by a majority of the voting power of the common stock.
Holders of common stock share ratably in any dividends declared by the
board of directors, subject to the preferential rights of any preferred stock
then outstanding. Dividends consisting of shares of common stock may be paid to
holders of shares of common stock. If we merge or consolidate with another
company and, as a result, shares of our common stock convert into or are
exchanged for cash or shares of stock or other securities or property of another
company, then all holders of common stock will be entitled to receive the same
kind and amount of consideration for each share of common stock they hold.
On our liquidation, dissolution or winding up, all holders of common stock
are entitled to share ratably in any assets available for distribution to the
holders of shares of common stock. No shares of common stock are subject to
redemption or have preemptive rights to purchase additional shares of common
stock.
PREFERRED STOCK
Our certificate of incorporation provides that shares of preferred stock
may be issued from time to time in one or more series.
Our board of directors has the authority to determine any of the following
for each series:
- The distinctive serial designation and the number of shares constituting
a series;
- The amount of dividends to be paid on the shares of a series, whether
dividends shall be cumulative and, if so, from which date or dates, and
other rights, if any, related to dividends;
- The voting rights and powers, full or limited, if any, of the shares of a
series;
- Whether the shares of a series shall be redeemable and, if so, the price
or prices at which, and the terms and conditions on which, the shares may
be redeemed;
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<PAGE> 55
- The amount or amounts payable upon the shares of a series and any
preferences applicable in the event of our voluntary or involuntary
liquidation, dissolution or winding up;
- Whether the shares of a series shall be entitled to the benefit of a
sinking or retirement fund for redemption of the shares, and if so, the
amount of the fund and the manner of its application, including the price
or prices at which the shares may be redeemed or purchased;
- Whether the shares of a series shall be convertible into, or exchangeable
for, shares of any other class or classes or of any other series of the
same or any other class or classes of our stock, and the terms and
conditions of a conversion or exchange;
- The consideration for which the shares of a series shall be issued;
- Whether the shares of a series which are redeemed or converted shall have
the status of authorized but unissued shares of undesignated preferred
stock, or a series, and whether the shares may be reissued as shares of
the same or any other class or series of stock; and
- Any other powers, preferences, rights, qualifications, limitations and
restrictions as the board of directors or any authorized committee may
determine advisable.
Our board of directors may, without stockholder approval, issue preferred
stock with voting and other rights that could adversely affect the voting power
and other rights of the holders of the common stock and could have anti-takeover
effects. The ability of our board of directors to issue preferred stock without
stockholder approval could have the effect of delaying, deferring or preventing
a change of control or the removal of our existing management. We have no
present plans to issue any shares of preferred stock.
WARRANTS
As of January 31, 2000, there were outstanding:
- warrants to purchase up to 190,438 shares of series B preferred stock at
an exercise price of $19.69 per share that were issued to General
Atlantic, which will be automatically converted upon the closing of this
offering into a warrant to purchase 634,794 shares of common stock at an
exercise price of $5.91 per share;
- warrants to purchase up to 673,401 shares of series F preferred stock at
an exercise price of $3.56 per share that were issued to the purchasers
of series F preferred stock;
- a warrant to purchase up to 200,000 shares of common stock at an exercise
price of approximately $3.95 per share that was issued to a vendor;
- warrants to purchase an aggregate of up to 341,233 shares of common stock
at a weighted average exercise price of $7.63 per share that were issued
to strategic partners and customers; and
- warrants to purchase 360,000 shares of common stock with an exercise
price of $5.25 per share that were issued to lenders in November 1999.
We plan to issue additional warrants to purchase up to 500,000 shares of
our common stock over the next 12 months in connection with future sales of our
products as well as to our present and future strategic partners.
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<PAGE> 56
REGISTRATION RIGHTS
Under the terms of our registration rights agreement, after the closing of
this offering, some of our shareholders may demand that we file a registration
statement for the registration of all or any portion of their shares, subject to
minimum thresholds, under the Securities Act. We are not required to effect more
than a total of two of these demand registrations per year. Upon completion of
this offering, holders of an aggregate of 28,618,308 shares will be party to the
registration rights agreement. At any time after we become eligible to file a
registration statement on Form S-3, these stockholders may require us to file up
to two registration statements on Form S-3 in any given 12-month period under
the Securities Act covering their shares of common stock.
In addition, after the closing of this offering, these and another
stockholder holding an aggregate of 300,000 shares will be entitled to
registration rights in connection with any registration by us of securities for
our own account or the account of other stockholders. If we propose to register
any shares of common stock under the Securities Act, we are required to give
those stockholders notice of the registration and to include their shares in the
registration statement.
The registration rights of these stockholders, subject to some limitations,
will terminate when the shares held by them may be sold under Rule 144 under the
Securities Act. We are generally required to bear all of the expenses of all
registrations, except underwriting discounts and commissions. We also have
agreed to indemnify those stockholders under the terms of the registration
rights agreement.
AMENDMENT OF THE CERTIFICATE OF INCORPORATION
Any amendment to our certificate of incorporation must first be approved by
a majority of the board of directors and then approved by a majority of the
total votes eligible to be cast by holders of voting stock related to the
amendment.
DELAWARE ANTI-TAKEOVER LAW AND OUR CHARTER AND BY-LAW PROVISIONS
Statutory Business Combination Provision. Following the offering, we will
be subject to Section 203 of the Delaware General Corporation Law, which
prohibits a publicly held Delaware corporation from consummating a business
combination with an interested stockholder for a period of three years after the
date that person became an interested stockholder unless:
- before that person became an interested stockholder, the board of
directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the
business combination;
- upon the closing of the transaction that resulted in the interested
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, excluding shares held
by directors who are also officers of the corporation and shares held by
employee stock plans; or
- following the transaction in which that person became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders
by the affirmative vote of the holders of 66.67% of the outstanding
voting stock of the corporation not owned by the interested stockholder.
The term interested stockholder is generally defined as a person who,
together with affiliates and associates, owns, or, within the prior three years,
owned 15% or more of a corporation's outstanding voting stock. The term business
combination includes mergers, asset sales and other similar transactions
resulting in a financial benefit to an interested stockholder. Section 203 makes
it more difficult for an interested stockholder to effect various business
combinations with a corporation for a three-year period. A Delaware corporation
may opt out of Section 203 with an express provision in its original certificate
of incorporation or an express provision in its certificate of incorporation or
by-laws resulting from an amendment approved by holders of at least a majority
of the outstanding voting stock. Neither our certificate of incorporation nor
our by-laws contains any provision electing to opt out of Section 203.
52
<PAGE> 57
Charter and By-law Provisions. Our certificate of incorporation provides
that any action required or permitted to be taken by our stockholders at an
annual or special meeting of stockholders may only be taken if it is properly
brought before the meeting and may not be taken by written action in lieu of a
meeting. Our by-laws provide that a special meeting of stockholders may be
called only by the president or the board of directors unless otherwise required
by law. Our by-laws provide that only those matters included in the notice of
the special meeting may be considered or acted upon at that special meeting
unless otherwise provided by law. In addition, our by-laws include advance
notice and informational requirements and time limitations on any director
nomination or any new proposal which a stockholder wishes to make at an annual
meeting of stockholders.
Ability to Adopt Stockholder Rights Plan. The board of directors may in
the future resolve to issue shares of preferred stock or rights to acquire
shares of preferred stock to implement a stockholder rights plan. A stockholder
rights plan typically creates voting or other impediments that would discourage
persons seeking to gain control of FirePond by means of a merger, tender offer
or proxy contest if the board of directors determines that a change in control
is not in the best interests of our stockholders. The board of directors has no
present intention of adopting a stockholder rights plan and is not aware of any
attempt to obtain control of FirePond.
TRADING ON THE NASDAQ NATIONAL MARKET SYSTEM
The shares being sold in the offering have been approved for quotation on
the Nasdaq National Market under the symbol FIRE.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock will be EquiServe.
53
<PAGE> 58
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of shares of our common stock in the
public market could adversely affect prevailing market prices. Furthermore,
since only a limited number of shares will be available for sale shortly after
this offering because of contractual and legal restrictions on resale, as
described below, sales of substantial amounts of common stock in the public
market after the restrictions lapse could adversely affect the prevailing market
price.
NUMBER OF SHARES
After this offering, 32,751,713 shares of common stock will be outstanding,
assuming the issuance of an aggregate of 5,000,000 shares of common stock. The
number of shares outstanding after this offering is based on the number of
shares outstanding as of January 31, 2000 and assumes no exercise of outstanding
options. The 5,000,000 shares sold in this offering will be freely tradable
without restriction under the Securities Act.
The remaining 27,751,713 shares of common stock held by existing
stockholders are restricted shares or are subject to the contractual
restrictions described below. Restricted shares may be sold in the public market
only if registered or if they qualify for an exception from registration under
Rules 144, 144(k) or 701 under the Securities Act, which are summarized below.
Of these restricted shares,
- 4,486,242 shares will be available for resale in the public market in
reliance on Rule 144(k) immediately following this offering, of which
4,552,074 shares are subject to lock-up agreements described below;
- 23,133,747 shares will be available for resale in the public market in
reliance on Rule 144 beginning 90 days following this offering, of which
23,124,346 shares are subject to lock-up agreements; and
- 78,660 shares become eligible for resale in the public market at various
dates beginning 90 days following this offering, 61,466 of which shares
are subject to lock-up agreements.
LOCK-UP AGREEMENTS
Each of our executive officers and directors, and other stockholders who
will own in the aggregate 26,671,173 shares of common stock after the offering,
have entered into lock-up agreements generally providing that they will not:
- offer to sell, contract to sell or transfer any of the shares of common
stock or any securities convertible into, or exercisable or exchangeable
for, common stock owned by them; or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock, for a period of 180 days after the date of this prospectus,
without the prior written consent of FleetBoston Robertson Stephens Inc.
FleetBoston Robertson Stephens Inc. may, in its sole discretion and at any
time without notice, release all or any portion of the securities subject to
lock-up agreements. When determining whether or not to release shares from the
lock-up agreements, FleetBoston Robertson Stephens Inc. will consider the
stockholder's reasons for requesting the release, the number of shares for which
the release is being requested and market conditions at the time. Following the
expiration of the 180 day lock-up period, additional shares of common stock will
be available for sale in the public market subject to compliance with Rule 144
or Rule 701.
We have agreed not to sell or dispose of any shares of common stock during
the 180-day period following the date of this prospectus, except we may issue,
and grant options to purchase, shares of common stock under our stock option
plans.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- 1% of the number of shares of our common stock then outstanding, which
will equal approximately 327,517 shares immediately after this offering;
or
54
<PAGE> 59
- the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 concerning that sale.
Sales under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of current public information about
FirePond.
RULE 144(k)
Under Rule 144(k) as currently in effect, a person who has not been one of
our affiliates 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,
including the holding period of any prior owner other than an affiliate, is
entitled to sell those shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, Rule 144(k) shares may be sold immediately upon the
completion of this offering.
RULE 701
In general, our employees, officers, directors and consultants who
purchased shares of our common stock in connection with written compensatory
benefit plans or written contracts relating to the compensation of the
purchaser, may rely on Rule 701 to resell those shares. The Securities and
Exchange Commission has indicated that Rule 701 will apply to stock options
granted by an issuer before it becomes subject to the reporting requirements of
the Exchange Act, along with the shares acquired upon exercises of those
options, including exercises after the date of this offering. Securities issued
in reliance on Rule 701 are restricted securities and beginning 90 days after
the date of this prospectus:
- may be sold by persons other than affiliates subject only to the manner
of sale provisions of Rule 144; and
- may be sold by affiliates under Rule 144 without complying with its
one-year minimum holding requirement.
STOCK OPTIONS
At January 31, 2000:
- we had reserved an aggregate of 9,282,042 shares of common stock for
issuance under the 1997 stock option plan, and options to purchase
9,281,983 shares were outstanding under the 1997 stock option plan;
- we had reserved an aggregate of 3,000,000 shares of common stock for
issuance under the 1999 stock option and grant plan, and options to
purchase 531,917 were outstanding under the 1999 stock option and grant
plan; and
- we had reserved an aggregate of 500,000 shares of common stock for
issuance under the 1999 director plan, and options to purchase 233,334
shares were outstanding under the 1999 director plan.
As soon as practicable following the offering, we intend to file a registration
statement under the Securities Act to register shares of common stock reserved
for issuance under our stock option plans. This registration statement will
automatically become effective immediately upon filing. Any shares issued upon
the exercise of stock options will be eligible for immediate public sale,
subject to the lock-up agreements noted above.
REGISTRATION RIGHTS
Following the offering, some of our stockholders will have rights to
require us to register their shares of common stock under the Securities Act,
and they will have rights to participate in any future registration of
securities by us.
55
<PAGE> 60
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., Dain Rauscher Incorporated, SG Cowen
Securities Corporation and E*OFFERING Corp., have each agreed with us, subject
to the terms and conditions of the underwriting agreement, to purchase from us
the number of shares of common stock listed opposite their names below. The
underwriters are committed to purchase and pay for all of the shares if any are
purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ------------ ----------
<S> <C>
FleetBoston Robertson Stephens Inc. ........................
Dain Rauscher Incorporated..................................
SG Cowen Securities Corporation.............................
E*OFFERING Corp. ...........................................
---------
Total.................................................. 5,000,000
=========
</TABLE>
We have been advised that the underwriters propose to offer the shares of
common stock to the public at the public offering price located on the cover
page of this prospectus and to dealers at that price less a concession of not in
excess of $ per share, of which $ may be reallowed to other
dealers. After the initial public offering, the public offering price,
concession and reallowance to dealers may be reduced by the representatives. No
reduction in this price will change the amount of proceeds to be received by us
as indicated on the cover page of this prospectus.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed 6% of the total number of shares offered.
Over-Allotment Option. We and one of our stockholders, Jerome D. Johnson,
have granted to the underwriters an option, exercisable during the 30-day period
after the date of this prospectus, to purchase up to 750,000 additional shares
of common stock at the same price per share as we will receive for the 5,000,000
shares that the underwriters have agreed to purchase. If the underwriters
exercise the option in full, we will sell 666,666 additional shares and the
selling stockholder will sell 83,334 additional shares. If the underwriters
exercise this option only in part, the option shares will be sold first by the
selling stockholder, and we will sell only if, and to the extent, the
underwriters exercise the option to purchase more than 83,334 shares. To the
extent that the underwriters exercise this option, each of the underwriters will
have a commitment to purchase approximately the same percentage of additional
shares that the number of shares of common stock to be purchased by it shown in
the above table represents as a percentage of the 5,000,000 shares offered by
this prospectus. If purchased, the additional shares will be sold by the
underwriters on the same terms as those on which the 5,000,000 shares are being
sold. We and the selling stockholder will be obligated, under this option, to
sell shares to the extent the option is exercised. The underwriters may exercise
the option only to cover over-allotments made in connection with the sale of the
5,000,000 shares of common stock offered by this prospectus.
The following table shows the per share and total underwriting discounts
and commissions to be paid by us to the underwriters. This information is
presented assuming either no exercise or full exercise by the underwriters of
their over-allotment option.
<TABLE>
<CAPTION>
PER WITHOUT OVER-ALLOTMENT WITH OVER-ALLOTMENT
SHARE OPTION OPTION
-------- ---------------------- -------------------
<S> <C> <C> <C>
Assumed public offering price.............. $ $ $
Underwriting discounts and commissions..... $
Proceeds, before expenses, to us........... $
</TABLE>
The expenses of the offering payable by us are estimated at $1,550,000.
FleetBoston Robertson Stephens Inc. expects to deliver the shares of common
stock to purchasers on , 2000.
56
<PAGE> 61
Indemnity. The underwriting agreement contains covenants of indemnity
among the underwriters, us and the selling stockholder against civil
liabilities, including liabilities under the Securities Act and liabilities
arising from breaches of representations and warranties contained in the
underwriting agreement.
Lock-Up Agreements. Each of our executive officers, directors and most of
our other stockholders of record have agreed with the representatives, for a
period of 180 days after the date of this prospectus, not to offer to sell,
contract to sell or transfer any:
- shares of common stock;
- options or warrants to purchase any shares of common stock; or
- any securities convertible into or exchangeable for shares of common
stock.
However, FleetBoston Robertson Stephens Inc. may, in its sole discretion and at
any time without notice, release all or any portion of the securities subject to
lock-up agreements. There are no agreements between the representatives and any
of our stockholders providing consent by the representatives to the sale of
shares before the expiration of the 180-day lock-up period.
We have agreed that during the lock-up period we will not, without the
prior written consent of FleetBoston Robertson Stephens Inc., consent to the
disposition of any shares held by shareholders subject to lock-up agreements
before the expiration of the lock-up period, or issue, sell, contract to sell,
or dispose of, any shares of common stock, any options or warrants to purchase
any shares of common stock or any securities convertible into, exercisable for
or exchangeable for shares of common stock. However, the following are examples
of exceptions to this agreement:
- our sale of shares in this offering;
- the issuance of our common stock upon the exercise of outstanding options
or warrants; and
- the issuance of options under existing stock option and incentive plans,
provided that those options do not vest before the expiration of the
lock-up period.
Internet Distribution. E*OFFERING Corp. is the exclusive Internet
underwriter for this offering. E*OFFERING Corp. has agreed to allocate a portion
of the shares that it purchases to E*TRADE Securities, Inc. E*OFFERING Corp. and
E*TRADE will allocate shares to their customers based on usual and customary
industry practices. A prospectus in electronic format will be made available on
Internet sites maintained by E*OFFERING Corp. and E*TRADE. Other than the
prospectus in electronic format, the information on these Internet sites is not
part of this prospectus or the registration statement of which the prospectus
forms a part.
Directed Shares. We have requested that the underwriters reserve up to 6%
of the shares of common stock for sale at the initial public offering price to
directors, officers, employees and other persons designated by us.
Qualified Independent Underwriter. Under the rules of the National
Association of Securities Dealers, Inc., we may be considered to be an affiliate
of E*OFFERING Corp, who is an NASD member. Therefore, this offering is being
conducted according to Rule 2720 of the NASD which requires that, if an NASD
member is an underwriter of an affiliate's shares, the initial public offering
price of the shares cannot be more than the price recommended by a qualified
independent underwriter meeting the standards described in the NASD rules.
FleetBoston Robertson Stephens Inc. will serve as a qualified independent
underwriter for this offering and will recommend a public offering price for our
shares in compliance with Rule 2720. As a qualified independent underwriter,
FleetBoston Robertson Stephens Inc. has performed due diligence investigations
and reviewed and participated in the preparation of this prospectus and the
registration statement.
Listing. The shares being sold in the offering have been approved for
quotation on the Nasdaq National Market under the symbol FIRE.
57
<PAGE> 62
No Prior Public Market. Before this offering, there has been no public
market for our common stock. Consequently, the initial public offering price for
the common stock offered by this prospectus will be determined through
negotiations between us and the representatives. Among the factors to be
considered in these negotiations are prevailing market conditions, our financial
information, market valuations of other companies that we and the
representatives believe to be comparable to us, estimates of our business
potential and the present state of our development.
Stabilization. The representatives have advised us that, under Regulation
M under the Securities Exchange Act of 1934, some persons participating in this
offering may engage in transactions that may have the effect of stabilizing or
maintaining the market price of the common stock at a level above that which
might otherwise prevail in the open market. These transaction may include
stabilizing bids, syndicate covering transactions or the imposition of penalty
bids, as described below:
- A stabilizing bid is a bid for or the purchase of common stock on behalf
of the underwriters for the purpose of fixing or maintaining the price of
the common stock.
- A syndicate covering transaction is the bid for or the purchase of common
stock on behalf of the underwriters to reduce a short position incurred
by the underwriters in connection with this offering; a short position
results when an underwriter sells more shares than it has committed to
purchase.
- A penalty bid is an arrangement permitting the representatives to reclaim
the selling concession otherwise accruing to an underwriter or syndicate
member in connection with this offering if the common stock originally
sold by that underwriter or syndicate member is purchased by the
representatives in a syndicate covering transaction and has therefore not
been effectively placed by that underwriter or syndicate member.
These transactions may be effected on the Nasdaq National Market or through
other means such as privately negotiated transactions. If commenced, these
transactions may be discontinued at any time.
LEGAL MATTERS
The validity of the shares of common stock offered by this prospectus will
be passed upon for FirePond by McDermott, Will & Emery, Boston, Massachusetts.
Various legal matters related to the sale of the common stock offered by this
prospectus will be passed upon for the underwriters by Hale and Dorr LLP,
Boston, Massachusetts.
EXPERTS
The consolidated balance sheets as of October 31, 1998 and 1999 and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the three years in the period ended October 31, 1999
included in this prospectus and elsewhere in the registration statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report appearing in this prospectus and elsewhere in the
registration statement, and is included in reliance upon the authority of the
firm as experts in accounting and auditing.
58
<PAGE> 63
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 for the
registration of the common stock offered by this prospectus. This prospectus,
which forms a part of the registration statement, does not contain all the
information included in the registration statement, parts of which have been
omitted as permitted by the SEC rules and regulations. For further information
about us and our common stock, you should refer to the registration statement.
Statements contained in this prospectus about any contract or other document are
not necessarily complete. Statements made about any contract or document are
summaries of all material information about the documents summarized, but are
not complete descriptions of all terms. If we filed any of those documents as
exhibits to the registration statement, you may read the document itself for a
complete description of its terms.
The registration statement can be inspected and copied at the Securities
and Exchange Commission's following locations:
<TABLE>
<S> <C> <C>
Public Reference Room Office New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. Seven World Trade Center Citicorp Center
Washington, D.C. 20549 Suite 1300 500 West Madison Street
New York, NY 10048 Chicago, IL 60661-2511
</TABLE>
Copies of all or any portion of the registration statement can be obtained from
the public reference section of the SEC, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. In addition, the registration statement is
publicly available through the SEC's site on the Internet's world wide web,
located at http://www.sec.gov.
We will also file annual, quarterly and current reports, proxy statements
and other information with the SEC. You may obtain copies of the documents that
we file electronically with the SEC through the SEC's website located at
http://www.sec.gov. You can also request copies of these documents, for a
copying fee, by writing to the SEC.
59
<PAGE> 64
FIREPOND, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of October 31, 1998 and
1999...................................................... F-3
Consolidated Statements of Operations for the Fiscal Years
Ended October 31, 1997, 1998 and 1999..................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the Fiscal Years Ended October 31, 1997, 1998 and
1999...................................................... F-5
Consolidated Statements of Cash Flows for the Fiscal Years
Ended October 31, 1997, 1998 and 1999..................... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 65
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
FirePond, Inc.:
We have audited the accompanying consolidated balance sheets of FirePond,
Inc. (a Delaware corporation) and subsidiaries as of October 31, 1998 and 1999,
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the three years in the period 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 consolidated financial position of
FirePond, Inc. and subsidiaries as of October 31, 1998 and 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended October 31, 1999, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
December 10, 1999 (except with respect to the
matters discussed in notes 9(b) and 14, as to
which the date is January 4, 2000)
F-2
<PAGE> 66
FIREPOND, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
OCTOBER 31, 1999
OCTOBER 31, ----------------
-------------------- PRO FORMA
1998 1999 (NOTE 2(B))
-------- -------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,324 $ 2,120 $ 2,120
Accounts receivable, net of allowance for doubtful
accounts of $290 in 1998 and $410 in 1999............... 6,214 9,910 9,910
Unbilled services......................................... 845 1,191 1,191
Prepaid expenses and other current assets................. 405 1,265 1,265
-------- -------- ---------
9,788 14,486 14,486
Property and equipment, net................................. 8,443 6,048 6,048
Restricted cash............................................. -- 550 550
Other assets................................................ 555 576 576
-------- -------- ---------
$ 18,786 $ 21,660 $ 21,660
======== ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Line of credit............................................ -- $ 6,740 $ 6,740
Current portion of long-term debt......................... 4,769 1,313 1,313
Accounts payable.......................................... 1,832 3,833 3,833
Accrued liabilities....................................... 4,813 5,700 5,700
Deferred revenue.......................................... 4,614 8,280 8,280
-------- -------- ---------
16,028 25,866 25,866
Long-term debt, less current portion........................ 1,727 702 702
Restructuring accrual, less current portion................. -- 446 446
Commitments and contingencies (note 8)
Stockholders' equity (deficit):
Preferred stock, $0.01 par value --
Authorized -- 50,000,000 shares;
Issued and outstanding -- 12,363,785 shares in 1998,
19,097,793 shares in 1999 and no shares on a pro forma
basis, liquidation preference of $71,500,000 as of
October 31, 1999...................................... 124 191 --
Common stock, $0.01 par value --
Authorized -- 100,000,000 shares;
Issued and outstanding -- 10,004,315 shares in 1998,
10,072,817 shares in 1999 and 27,469,142 shares on a
pro forma basis....................................... 100 101 275
Additional paid-in capital................................ 33,745 62,380 62,397
Accumulated deficit....................................... (32,938) (61,793) (61,793)
Deferred compensation..................................... -- (5,893) (5,893)
Cumulative translation adjustment......................... -- (327) (327)
Subscription receivables.................................. -- (13) (13)
-------- -------- ---------
Total stockholders' equity (deficit).................... 1,031 (5,354) (5,354)
-------- -------- ---------
$ 18,786 $ 21,660 $ 21,660
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 67
FIREPOND, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED OCTOBER 31,
--------------------------------------------
1997 1998 1999
---------- -------------- --------------
<S> <C> <C> <C>
Revenues:
Product-related revenues:
License(1)........................................... $ 416 $ 1,888 $ 9,777
Services and maintenance............................. -- 4,972 8,604
-------- -------- --------
Total product-related revenues..................... 416 6,860 18,381
Custom development services............................. 27,747 22,142 15,904
-------- -------- --------
Total revenues..................................... 28,163 29,002 34,285
-------- -------- --------
Cost of revenues:
License................................................. 178 192 238
Product-related services and maintenance(2)............. -- 3,061 5,677
Custom development services............................. 31,365 8,397 10,636
-------- -------- --------
Total cost of revenues............................. 31,543 11,650 16,551
-------- -------- --------
Gross profit (loss)....................................... (3,380) 17,352 17,734
Operating expenses:
Sales and marketing(2).................................. 8,080 13,680 23,609
Research and development(2)............................. 3,634 8,199 9,641
General and administrative(2)........................... 3,188 3,516 7,084
Stock-based compensation................................ 450 672 2,597
Restructuring charge.................................... 6,712 -- 3,027
-------- -------- --------
Total operating expenses........................... 22,064 26,067 45,958
-------- -------- --------
Loss from operations...................................... (25,444) (8,715) (28,224)
Interest expense.......................................... (1,536) (616) (850)
Other income (expense), net............................... (55) 290 219
-------- -------- --------
Net loss.................................................. $(27,035) $ (9,041) $(28,855)
======== ======== ========
Net loss per share (note 3(a)):
Basic and diluted net loss per share.................... $ (2.62) $ (0.91) $ (2.88)
======== ======== ========
Basic and diluted weighted average common shares
outstanding.......................................... 10,319 9,925 10,024
======== ======== ========
Pro forma net loss per share (unaudited) (note 3(b)):
Pro forma net loss per share............................ $ (1.12)
========
Pro forma basic and diluted weighted average common
shares outstanding................................... 25,799
========
</TABLE>
- ---------------
(1) Includes related-party revenues of $350 in fiscal 1997, see note 11(a).
(2) The following summarizes the departmental allocation of the stock-based
compensation charge:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED OCTOBER 31,
------------------------------
1997 1998 1999
------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cost of revenues....................................... $ -- $ -- $ 40
Operating expenses:
Sales and marketing.................................. -- -- 1,327
Research and development............................. -- -- 913
General and administrative........................... 450 672 317
---- ---- ------
Total stock-based compensation......................... $450 $672 $2,597
==== ==== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 68
FIREPOND, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
-------------------- ----------------------
$0.01 ADDITIONAL
PAR $0.01 PAR MEMBERSHIP PAID-IN
SHARES VALUE SHARES VALUE UNITS CAPITAL
----------- ------ ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1996 -- Combined....... -- $ -- 10,362,870 $103 112,278 $1,365
Issuance of series A preferred stock....... 4,188,880 42 -- -- -- 9,321
Issuance of warrants to purchase series B
preferred stock.......................... -- -- -- -- -- 1
Issuance of series C preferred stock....... 570,342 6 -- -- -- 1,494
Issuance of series D preferred stock....... 100,000 1 -- -- -- 9,988
Issuance of common stock................... -- -- 69,167 1 -- 149
Repurchase and retirement of common
stock.................................... -- -- (172,633) (2) -- (146)
Elimination of subsidiaries, net of
issuances................................ -- -- (353,617) (3) (112,278) 3
Payments by stockholders................... -- -- -- -- -- --
Exchange of stockholder receivable for
consulting services...................... -- -- -- -- -- --
Distributions to stockholders.............. -- -- -- -- -- --
Stock-based compensation expense........... -- -- -- -- -- 600
Net loss................................... -- -- -- -- -- --
Comprehensive loss for the year ended
October 31, 1997.........................
----------- ----- ---------- ---- -------- ------
<CAPTION>
RETAINED TOTAL
EARNINGS CUMULATIVE STOCKHOLDERS'
(ACCUMULATED DEFERRED TRANSLATION SUBSCRIPTION EQUITY
DEFICIT) COMPENSATION ADJUSTMENT RECEIVABLES (DEFICIT)
------------ ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1996 -- Combined....... $ 3,305 $ -- $ -- $(573) $ 4,200
Issuance of series A preferred stock....... -- -- -- -- 9,363
Issuance of warrants to purchase series B
preferred stock.......................... -- -- -- -- 1
Issuance of series C preferred stock....... -- -- -- -- 1,500
Issuance of series D preferred stock....... -- -- -- -- 9,989
Issuance of common stock................... -- -- -- -- 150
Repurchase and retirement of common
stock.................................... -- -- -- -- (148)
Elimination of subsidiaries, net of
issuances................................ -- -- -- -- --
Payments by stockholders................... -- -- -- 361 361
Exchange of stockholder receivable for
consulting services...................... -- -- -- 200 200
Distributions to stockholders.............. (167) -- -- -- (167)
Stock-based compensation expense........... -- -- -- -- 600
Net loss................................... (27,035) -- -- -- (27,035)
Comprehensive loss for the year ended
October 31, 1997.........................
-------- ----- ----- ----- --------
<CAPTION>
COMPREHENSIVE
INCOME (LOSS)
-------------
<S> <C>
Balance, October 31, 1996 -- Combined.......
Issuance of series A preferred stock.......
Issuance of warrants to purchase series B
preferred stock..........................
Issuance of series C preferred stock.......
Issuance of series D preferred stock.......
Issuance of common stock...................
Repurchase and retirement of common
stock....................................
Elimination of subsidiaries, net of
issuances................................
Payments by stockholders...................
Exchange of stockholder receivable for
consulting services......................
Distributions to stockholders..............
Stock-based compensation expense...........
Net loss................................... $(27,035)
--------
Comprehensive loss for the year ended
October 31, 1997......................... $(27,035)
========
</TABLE>
F-5
<PAGE> 69
FIREPOND, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
-------------------- ----------------------
$0.01 ADDITIONAL
PAR $0.01 PAR MEMBERSHIP PAID-IN
SHARES VALUE SHARES VALUE UNITS CAPITAL
----------- ------ ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1997 -- Consolidated... 4,859,222 49 9,905,787 99 -- 22,775
Exercise of common stock options........... -- -- 20,067 -- -- 79
Issuance of common stock................... -- -- 86,061 1 -- 339
Repurchase and retirement of common
stock.................................... -- -- (7,600) -- -- (30)
Stock-based compensation expense........... -- -- -- -- -- 672
Series D preferred stock exchanged for
series E preferred stock................. 3,702,281 37 -- -- -- (37)
Issuance of series E preferred stock....... 3,802,282 38 -- -- -- 9,947
Payments by stockholders................... -- -- -- -- -- --
Net loss................................... -- -- -- -- -- --
Comprehensive loss for the year ended
October 31, 1998.........................
----------- ----- ---------- ---- -------- --------
Balance, October 31, 1998 -- Consolidated... 12,363,785 124 10,004,315 100 -- 33,745
Exercise of common stock options........... -- -- 35,169 -- -- 139
Issuance of common stock................... -- -- 33,333 1 -- 278
Issuance of warrants to purchase common
stock to a customer...................... -- -- -- -- -- 106
Issuance of series F preferred stock....... 6,734,008 67 -- -- -- 19,774
Issuance of warrants to purchase series F
preferred stock.......................... -- -- -- -- -- 1
Cost of exchanging series E for series G
preferred stock.......................... -- -- -- -- -- (23)
Deferred stock-based compensation.......... -- -- -- -- -- 8,360
Stock-based compensation expense........... -- -- -- -- -- --
Cumulative translation adjustment.......... -- -- -- -- -- --
Net loss................................... -- -- -- -- -- --
Comprehensive loss for the year ended
October 31, 1999.........................
----------- ----- ---------- ---- -------- --------
Balance, October 31, 1999 -- Consolidated... 19,097,793 191 10,072,817 101 -- 62,380
Conversion of preferred stock into common
stock (unaudited)........................ (19,097,793) (191) 13,334,643 134 -- 57
Issuance of common stock in settlement of
priority payments (unaudited)............ -- -- 3,812,524 38 -- (38)
Exercise of Series F preferred stock
warrant and conversion into common stock
(unaudited).............................. -- -- 249,158 2 -- (2)
----------- ----- ---------- ---- -------- --------
Pro forma balance, October 31, 1999
(unaudited)................................ -- $ -- 27,469,142 $275 -- $ 62,397
=========== ===== ========== ==== ======== ========
<CAPTION>
RETAINED TOTAL
EARNINGS CUMULATIVE STOCKHOLDERS'
(ACCUMULATED DEFERRED TRANSLATION SUBSCRIPTION EQUITY
DEFICIT) COMPENSATION ADJUSTMENT RECEIVABLES (DEFICIT)
------------ ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1997 -- Consolidated... (23,897) -- -- (12) (986)
Exercise of common stock options........... -- -- -- -- 79
Issuance of common stock................... -- -- -- -- 340
Repurchase and retirement of common
stock.................................... -- -- -- -- (30)
Stock-based compensation expense........... -- -- -- -- 672
Series D preferred stock exchanged for
series E preferred stock................. -- -- -- -- --
Issuance of series E preferred stock....... -- -- -- -- 9,985
Payments by stockholders................... -- -- -- 12 12
Net loss................................... (9,041) -- -- -- (9,041)
Comprehensive loss for the year ended
October 31, 1998.........................
--------- ------- ----- ----- --------
Balance, October 31, 1998 -- Consolidated... (32,938) -- -- -- 1,031
Exercise of common stock options........... -- -- -- (13) 126
Issuance of common stock................... -- (130) -- -- 149
Issuance of warrants to purchase common
stock to a customer...................... -- -- -- -- 106
Issuance of series F preferred stock....... -- -- -- -- 19,841
Issuance of warrants to purchase series F
preferred stock.......................... -- -- -- -- 1
Cost of exchanging series E for series G
preferred stock.......................... -- -- -- -- (23)
Deferred stock-based compensation.......... -- (8,360) -- -- --
Stock-based compensation expense........... -- 2,597 -- -- 2,597
Cumulative translation adjustment.......... -- -- (327) -- (327)
Net loss................................... (28,855) -- -- -- (28,855)
Comprehensive loss for the year ended
October 31, 1999.........................
--------- ------- ----- ----- --------
Balance, October 31, 1999 -- Consolidated... (61,793) (5,893) (327) (13) (5,354)
Conversion of preferred stock into common
stock (unaudited)........................ -- -- -- -- --
Issuance of common stock in settlement of
priority payments (unaudited)............ -- -- -- -- --
Exercise of Series F preferred stock
warrant and conversion into common stock
(unaudited).............................. -- -- -- -- --
--------- ------- ----- ----- --------
Pro forma balance, October 31, 1999
(unaudited)................................ $ (61,793) $(5,893) $(327) $ (13) $ (5,354)
========= ======= ===== ===== ========
<CAPTION>
COMPREHENSIVE
INCOME (LOSS)
-------------
<S> <C>
Balance, October 31, 1997 -- Consolidated...
Exercise of common stock options...........
Issuance of common stock...................
Repurchase and retirement of common
stock....................................
Stock-based compensation expense...........
Series D preferred stock exchanged for
series E preferred stock.................
Issuance of series E preferred stock.......
Payments by stockholders...................
Net loss................................... $ (9,041)
--------
Comprehensive loss for the year ended
October 31, 1998......................... $ (9,041)
========
Balance, October 31, 1998 -- Consolidated...
Exercise of common stock options...........
Issuance of common stock...................
Issuance of warrants to purchase common
stock to a customer......................
Issuance of series F preferred stock.......
Issuance of warrants to purchase series F
preferred stock..........................
Cost of exchanging series E for series G
preferred stock..........................
Deferred stock-based compensation..........
Stock-based compensation expense...........
Cumulative translation adjustment.......... $ (327)
Net loss................................... (28,855)
--------
Comprehensive loss for the year ended
October 31, 1999......................... $(29,182)
========
Balance, October 31, 1999 -- Consolidated...
Conversion of preferred stock into common
stock (unaudited)........................
Issuance of common stock in settlement of
priority payments (unaudited)............
Exercise of Series F preferred stock
warrant and conversion into common stock
(unaudited)..............................
Pro forma balance, October 31, 1999
(unaudited)................................
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 70
FIREPOND, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED OCTOBER 31,
--------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................... $(27,035) $ (9,041) $(28,855)
Adjustments to reconcile net loss to net cash used in
operating activities:
Noncash restructuring charges........................... 3,984 -- 1,532
Write-off of capitalized software development costs..... 3,959 -- --
Issuance of warrants to a customer...................... -- -- 106
Exchange of stockholder receivable for consulting
services............................................... 200 -- --
Stock-based compensation expense........................ 450 672 2,597
Loss on disposal of property and equipment.............. 557 259 49
Depreciation and amortization........................... 3,419 2,282 2,851
Changes in assets and liabilities:
Accounts receivables.................................. (171) (1,699) (4,024)
Unbilled services..................................... 361 1,927 (346)
Prepaid expenses and other current assets............. (236) (57) (860)
Accounts payable...................................... (352) 138 2,001
Accrued liabilities................................... 8,832 (4,943) 1,334
Deferred revenue...................................... 2,327 2,294 3,666
Billings in excess of costs........................... 717 (2,305) --
-------- -------- --------
Net cash used in operating activities.............. (2,988) (10,473) (19,949)
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment....................... (3,606) (1,470) (3,916)
Proceeds from sale of property and equipment.............. -- -- 2,557
Additions to trademarks and patents....................... (101) -- --
Additions to capitalized computer software development
costs................................................... (2,648) -- --
Increase in restricted cash............................... -- -- (550)
Increase in investments and deposits...................... (235) (16) (236)
-------- -------- --------
Net cash used in investing activities.............. (6,590) (1,486) (2,145)
-------- -------- --------
Cash flows from financing activities:
Net borrowings (payments) on line of credit............... (877) (2,790) 6,740
Payments on long-term debt................................ (4,248) (3,460) (4,959)
Proceeds from long-term debt.............................. 3,351 -- --
Proceeds from sale of preferred stock and warrants........ 20,853 9,985 19,842
Proceeds from common stock issuance....................... 150 419 288
Costs associated with exchange of preferred stock......... -- -- (23)
Distributions to stockholders............................. (167) -- --
Common stock repurchased.................................. (148) (30) --
Decrease (increase) in subscription receivables........... 361 12 (13)
-------- -------- --------
Net cash provided by financing activities.......... 19,275 4,136 21,875
-------- -------- --------
Effect of exchange rate changes on cash and cash
equivalents............................................... -- -- 15
Net increase (decrease) in cash and cash equivalents........ 9,697 (7,823) (204)
Cash and cash equivalents, beginning of year................ 450 10,147 2,324
-------- -------- --------
Cash and cash equivalents, end of year...................... $ 10,147 $ 2,324 $ 2,120
======== ======== ========
Supplemental cash flow information:
Interest paid............................................. $ 1,552 $ 777 $ 695
======== ======== ========
Noncash investing and financing activities:
Series D preferred stock exchanged for series E preferred
stock................................................... $ -- $ 9,989 $ --
======== ======== ========
Series E preferred stock exchanged for series G preferred
stock................................................... -- -- 19,974
======== ======== ========
Equipment acquired under capital lease obligations........ -- 179 477
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 71
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
FirePond, Inc. and its wholly owned subsidiaries, collectively known as the
Company, is a leading provider of integrated e-business sales and marketing
solutions that enable companies to optimize their customer relationships and
maximize the effectiveness of their Internet-based and traditional sales
channels. The Company provides software and services that allow its customers to
merge their e-commerce selling, customer relationship management, and channel
management strategies on a single, Internet-based platform.
(a) Liquidity
On November 12, 1999, the Company issued subordinated notes payable
totaling $6,000,000 to an outside investor and several existing stockholders of
the Company. The subordinated notes bear interest at 12.0% per year and are due
upon the earlier of the closing of the Company's proposed initial public
offering or November 11, 2000. If an initial public offering is not completed by
May 11, 2000 or in the event of a sale transaction, as defined, before May 11,
2000, the subordinated notes, including accrued interest, are convertible into
shares of the Company's preferred stock having rights equivalent of FirePond
Inc.'s existing series F preferred stock at a rate of $2.97 per share. The
Company also issued to the holders of the subordinated notes payable warrants to
purchase an aggregate of 360,000 shares of common stock at an exercise price of
$5.25 per share. The estimated fair value of these warrants totaling $2,789,000
was determined using the Black-Scholes valuation model with the following
variables: risk-free interest rate of 6.0%, dividend yield rate of 0%, term of
five years, and volatility of 80%. The Company has allocated the proceeds from
the subordinated notes payable of $6,000,000 in proportion to the relative fair
values of both the warrants and the subordinated notes payable. As a result, the
Company will record the warrants as a discount totaling $1,904,000 against the
carrying value of the subordinated notes payable. The discount will be amortized
to interest expense over the term of the subordinated notes payable.
During September 1999, the Company modified its line of credit to provide
for additional borrowing availability, see note 6.
The Company continues to incur losses from operations and had an
accumulated deficit of $61,793,000 and a working capital deficit of $11,380,000
at October 31, 1999. As a result of its significant research and development,
customer support, and selling and marketing efforts, the Company has required
substantial working capital to fund its operations. To date, the Company has
financed its operations principally through its equity offerings. Management
believes that under its current business plan, funds available from borrowing
arrangements are sufficient to fund its operations and capital requirements
through at least October 31, 2000. Any substantial inability to achieve the
current business plan could have a material adverse impact on the Company's
financial position, liquidity, or results of operations and may require the
Company to reduce expenditures to enable it to continue operations through
October 2000.
(b) Change in Control
In May 1997, investment funds associated with General Atlantic Partners, or
GAP, acquired a majority interest in the Company through acquisition of shares
from the Company and shares directly from several stockholders. In addition, the
Company granted warrants to purchase preferred stock from the Company and
options to purchase common stock from several stockholders to these investment
funds. In October 1997, April 1998 and February 1999, these investment funds
acquired an additional equity interest in the Company through the purchase of
preferred stock, see note 9.
F-8
<PAGE> 72
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation and Presentation
The financial statements include the accounts of FirePond, Inc. and its
subsidiaries. In connection with the GAP investment in May 1997, FirePond, Inc.
acquired all of the outstanding stock of five related entities in a
stock-for-stock exchange. The value of the shares issued in the exchange was
equivalent to the net book value for each of the related entities. Because
FirePond, Inc. and three of the five related entities were under common
ownership before the stock-for-stock exchange, the combination of these entities
has been accounted for at historical cost in a manner similar to a pooling of
interests. While the two remaining related entities were managed by and were an
integral part of FirePond, Inc., they had dissimilar ownership interests. As a
result, the Company has recorded the acquisition of these two related entities
under the purchase method of accounting. The financial statements for FirePond,
Inc. and these two related entities are presented on a combined basis before the
May 1997 stock-for-stock exchange. All periods presented are reported on a
consolidated basis. All significant intercompany balances and transactions have
been eliminated in the accompanying financial statements.
(b) Unaudited Pro Forma Presentation
The unaudited pro forma consolidated balance sheet as of October 31, 1999
reflects the following: (1) the issuance of 249,158 shares of common stock
issuable upon the exercise of warrants to purchase 673,401 shares of series F
preferred stock on a post-split, cashless exercise basis, (2) the issuance of
12,731,863 shares of common stock from the conversion of all outstanding shares
of convertible preferred stock that will occur automatically upon the closing of
the Company's proposed initial public offering, (3) the issuance of 3,812,524
shares of common stock issuable in settlement of priority payments to series A,
series C and series G preferred stockholders totaling $35,750,000, and holders
of the Company's common stock outstanding on May 20, 1997 other than GAP,
totaling $10,000,000, based on the mid-point of the filing range for the
proposed initial public offering, which is $12.00 per share, and (4) the
issuance of an additional 602,780 shares of common stock issuable to series F
preferred stockholders based upon their pro rata percentage of the priority
payments to all other shareholders. See note 9(d).
The issuance of shares of common stock as payment of the $35,750,000 in
priority payments to series A, series C, and series G preferred stockholders and
$10,000,000 to holders of the Company's common stock outstanding on May 20,
1997, other than GAP, will be accounted for as a stock dividend. In the period
in which this payment is made, the Company will record a charge of $45,750,000
to additional paid-in capital. For the period in which the payment is made, the
amount of the net loss attributable to common stockholders used in the
computation of net loss per share will be increased by $35,750,000, the amount
being paid to preferred stockholders.
(c) 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 dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
(d) Revenue Recognition
The Company recognizes revenue based on the provisions of Statement of
Position, or SOP, No. 97-2, Software Revenue Recognition, as amended by SOP No.
98-4, and SOP No. 81-1, Accounting for Performance of Construction-Type and
Certain Production-Type Contracts. The American Institute of
F-9
<PAGE> 73
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Certified Public Accountants recently issued SOP No. 98-9, which provides
amendments to SOP No. 97-2, which is effective for transactions entered into
beginning January 1, 2000. This pronouncement is not expected to materially
impact the Company's revenue recognition practices.
The Company generates revenues from two primary sources: (1)
product-related license and service revenues and (2) custom development service
revenues.
Product-Related Revenues
Product-related license revenues are generated from licensing the rights to
the perpetual use of the Company's packaged software products. Product-related
service revenues are generated from sales of maintenance, consulting and
training services performed for customers that license the Company's products.
The Company has concluded that the implementation services are essential to
the customer's use of the packaged software products in arrangements where the
Company is responsible for implementation services. As such, the Company
recognizes revenue for these arrangements following the percentage-of-completion
method over the implementation period. Percentage of completion is measured by
the percentage of implementation hours incurred to date to estimated total
implementation hours. This method is used because management has determined that
past experience has shown expended hours to be the best measure of progress on
these engagements.
In situations where the Company is not responsible for implementation
services, the Company recognizes revenue on delivery on the packaged software if
there is persuasive evidence of an arrangement, collection is probable, the fee
is fixed or determinable and vendor-specific objective evidence exists to
allocate the total fees to all elements of the arrangement.
Vendor-specific objective evidence is based on the price charged when an
element is sold separately or, in the case of an element not yet sold
separately, the price established by authorized management, if it is probable
that the price, once established, will not change before market introduction.
Elements included in multiple-element arrangements could consist of software
products, upgrades, enhancements, maintenance, consulting and training services.
Revenues from maintenance services are recognized ratably over the term of
the contract, typically one year. Consulting revenues are primarily related to
implementation services performed on a time-and-materials basis under separate
service arrangements. Revenues from consulting and training services are
recognized as services are performed.
Deferred revenue comprises amounts billed or collected by the Company
before satisfying the above revenue recognition criteria consisted of the
following:
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Product license............................................. $3,000 $4,404
Product-related services.................................... 212 242
Product-related maintenance................................. 358 1,030
Custom development services................................. 1,044 2,604
------ ------
$4,614 $8,280
====== ======
</TABLE>
Custom Development Services Revenues
The Company performs custom development services under fixed-price
contracts, for which revenue is recognized using the percentage-of-completion
method. These services consist of the development of highly customized
applications utilizing core software technology. These contracts typically range
in terms of one to five years. Percentage of completion is measured by the
percentage of implementation hours incurred to date
F-10
<PAGE> 74
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to estimated total implementation hours. This method is used because management
considers expended hours to be the best measure of progress on these
engagements. When the current estimates of total contract revenue and contract
cost indicate a loss, a provision for the entire loss on the contract is
recorded, see note 12.
The Company also provides ongoing services related to custom development
projects including software and data maintenance. Revenues from these
arrangements are recognized as the services are performed.
Unbilled services represent amounts due to the Company under custom
development service agreements for work performed that had not been billed as of
the period-end. Billings in excess of costs represent the amounts billed under
custom development service agreements in advance of the performance of the work
as of the period-end. The Company bills customers under custom development
contracts upon achieving performance milestones or billing dates, as specified
in the contracts.
(e) Cost of Revenues
Cost of licenses includes the cost of media, product packaging,
documentation and other production costs.
Cost of product-related services and maintenance and cost of custom
development services revenues consist primarily of salaries, related costs for
development, consulting, training and customer support personnel, including cost
of services provided by third-party consultants engaged by the Company and the
amortization of capitalized software development costs, see note 2(i).
(f) Cash and Cash Equivalents
The Company accounts for cash equivalents based on the guidance in
Statement of Financial Accounting Standards, or SFAS, No. 115, Accounting for
Certain Investments in Debt and Equity Securities. Cash equivalents are
short-term, highly liquid investments with original maturity dates of three
months or less. Cash equivalents are carried at cost, which approximates fair
market value. Cash equivalents at October 31, 1998 and 1999 consist of
interest-bearing bank deposits.
(g) Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation.
The Company provides for depreciation of its property and equipment using the
accelerated and straight-line methods over their estimated useful lives.
Property and equipment, at cost, and their estimated useful lives are as
follows:
<TABLE>
<CAPTION>
OCTOBER 31,
ESTIMATED ------------------
USEFUL LIFE 1998 1999
------------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Computer equipment...................... 2-5 years $ 7,488 $ 7,251
Furniture and fixtures.................. 7 years 905 1,791
Leasehold improvements.................. Life of lease -- 541
Building................................ 30 years 3,624 --
------- -------
12,017 9,583
Accumulated depreciation................ (3,574) (3,535)
------- -------
$ 8,443 $ 6,048
======= =======
</TABLE>
Depreciation expense was $1,748,000 for fiscal 1997, $2,081,000 for fiscal
1998 and $2,590,000 for fiscal 1999.
F-11
<PAGE> 75
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(h) Other Assets
Other assets consist primarily of patents, which are being amortized using
the straight-line method over an estimated benefit period of ten years.
Accumulated amortization totaled $40,000 as of October 31, 1998 and $64,000 as
of October 31, 1999.
(i) Computer Software Development Costs and Research and Development Expenses
During fiscal 1996 and fiscal 1997, the Company capitalized software
development costs based on the guidance in SFAS No. 86, Accounting for the Costs
of Computer Software to Be Sold, Leased, or Otherwise Marketed, and amortized
these costs over a period of 18 to 36 months. Through May 1997, the Company
commenced the capitalization of software development costs when a detailed
program design was completed and continued capitalizing qualified costs until
the program master was complete. During fiscal 1997, in connection with the
Company's change in strategic focus from providing custom development services
to providing more standardized software solutions, the Company reviewed the
software development costs capitalized to date, which principally related to
components of custom development services, and determined that these costs were
not realizable. In connection with its change in strategic focus, the Company
wrote off its capitalized software development costs relating to custom
development components of $3,959,000 as a charge to cost of custom development
services revenues in fiscal 1997. Amortization of capitalized software
development costs charged to cost of custom development services before this
write-off was $1,080,000 for fiscal 1997.
The Company continues to incur software development costs associated with
its licensed products. Since June 1997, the Company determined that
technological feasibility occurs upon the successful development of a working
model, which happens late in the development cycle and close to general release
of the products. Because the development costs incurred between the time
technological feasibility is established and general release of the product are
not material, the Company expenses these costs as incurred. Through May 1997,
the Company capitalized $532,000 of costs related to the development of its
first software product. These costs were amortized over three years.
Amortization of these costs was charged to costs of product licenses and was
$178,000 in fiscal 1997, $177,000 in fiscal 1998 and $177,000 in fiscal 1999.
(j) Impairment of Long-Lived Assets
The Company evaluates the carrying value of long-lived assets based on the
guidance in SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of. The Company's evaluation considers
nonfinancial data such as changes in the operating environment and business
strategy, competitive information, market trends and operating performance.
Based on this evaluation, the Company recorded a charge of approximately
$3,683,000 related to assets that were impaired as a result of the plan for
restructuring during fiscal 1997, see note 5(a). In addition, the Company
recorded an asset impairment charge of $1,532,000 during fiscal 1999 in
connection with the relocation of the Company's corporate headquarters from
Minnesota to Massachusetts, see note 5(b).
(k) Concentration of Credit Risk
SFAS No. 105, Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk, requires disclosure of any significant off-balance-sheet risks and credit
risk concentrations. The Company has no significant off-balance-sheet risks or
credit risk concentrations. Financial instruments that potentially subject the
Company to concentrations of credit risk are principally cash equivalents,
accounts receivable and unbilled services. The Company maintains its cash and
cash equivalents with established financial institutions. Concentration of
credit risk related to accounts receivable and unbilled services is limited to
several customers to whom the Company makes substantial
F-12
<PAGE> 76
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
sales. The Company performs periodic credit evaluations of its customers and has
recorded allowances for estimated losses.
The following table summarizes the number of customers that individually
comprise greater than 10% of total revenue or total accounts receivable and
their aggregate percentage of the Company's total revenues and accounts
receivable.
<TABLE>
<CAPTION>
ACCOUNTS RECEIVABLE
REVENUE -----------------------
----------------------- PERCENT OF
PERCENT OF TOTAL
NUMBER OF TOTAL NUMBER OF ACCOUNTS
CUSTOMERS REVENUE CUSTOMERS RECEIVABLE
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Fiscal year ended:
October 31, 1997........................ 1 21% 3 42%
October 31, 1998...................... 3 47 3 48
October 31, 1999...................... 2 38 3 42
</TABLE>
(l) Financial Instruments
The estimated fair values of the Company's financial instruments, which
include cash equivalents, accounts receivable, unbilled services, restricted
cash, line of credit and long-term debt, approximate their carrying value.
(m) Stock-Based Compensation
SFAS No. 123, Accounting for Stock-Based Compensation, requires the
measurement of the fair value of employee and director stock options or warrants
to be included in the statement of operations or disclosed in the notes to
financial statements. The Company has determined that it will continue to
account for stock-based compensation for employees and directors under the
Accounting Principles Board, or APB, Opinion No. 25, Accounting for Stock Issued
to Employees, and elect the disclosure-only alternative under SFAS No. 123, see
note 9(f ). The Company accounts for options and warrants granted to
non-employees using the fair-value method prescribed by SFAS No. 123 and
Emerging Issues Task Force, or EITF, No. 96-18, Accounting for Equity
Instruments that are Issued to other than Employees for Acquiring, or in
Conjunction with Selling, Goods, or Services.
(n) Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board, or FASB, issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This
statement establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other contracts, and
for hedging activities. SFAS No. 133, as amended by SFAS No. 137, is effective
for all fiscal quarters of fiscal years beginning after June 15, 2000. SFAS No.
133 is not expected to have a material impact on the Company's consolidated
financial statements.
(o) Foreign Currency Translation
Assets and liabilities of the foreign subsidiaries are translated based on
the guidance in SFAS No. 52, Foreign Currency Translation. Under SFAS No. 52,
assets and liabilities of the Company's foreign operations are translated into
U.S. dollars at current exchange rates, and income and expense items are
translated at average rates of exchange prevailing during the year. Gains and
losses arising from translation are accumulated as a separate component of
stockholders' equity (deficit). Gains and losses arising from transactions
denominated in foreign currencies are included in other income and were not
material for the periods presented.
F-13
<PAGE> 77
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(p) Comprehensive Income (Loss)
As of November 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130, requires disclosure of all components of
comprehensive income (loss) on an annual and interim basis. Comprehensive income
(loss) is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources.
3. NET LOSS PER SHARE
(a) Net Loss Per Share
Net loss per share is computed based on the guidance of SFAS No. 128,
Earnings per Share. SFAS No. 128 requires companies to report both basic loss
per share, which is based on the weighted average number of common shares
outstanding, and diluted loss per share, which is based on the weighted average
number of common shares outstanding and the weighted average dilutive potential
common shares outstanding using the treasury stock method. As a result of the
losses incurred by the Company for fiscal 1997, fiscal 1998 and fiscal 1999, all
potential common shares were antidilutive and were excluded from the diluted net
loss per share calculations.
Under Securities and Exchange Commission Staff Accounting Bulletin No. 98,
common stock and convertible preferred stock issued or granted for nominal
consideration before the anticipated effective date of a company's initial
public offering must be included in the calculation of basic and diluted net
loss per share as if they had been outstanding for all periods presented. The
Company has determined that there were no issuances of common stock and
convertible preferred stock for nominal consideration.
The following table summarizes securities outstanding as of each period-end
which were not included in the calculation of diluted net loss per share since
their inclusion would be antidilutive.
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------------
1997 1998 1999
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Common stock options and warrants........................ 1,683 5,089 7,952
====== ====== ======
Convertible preferred stock.............................. 4,859 12,364 19,098
====== ====== ======
Preferred stock warrants (note 9(d))..................... 190 190 864
====== ====== ======
</TABLE>
(b) Pro Forma Net Loss Per Share
Pro forma net loss per share has been computed as described above and also
gives effect to the conversion of preferred stock that will convert upon the
completion of the Company's proposed initial public offering, using the
if-converted method, from the original date of issuance.
F-14
<PAGE> 78
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table reflects the reconciliation of the shares used in the
computation of pro forma loss per share.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
OCTOBER 31,
1999
-----------------
(IN THOUSANDS)
<S> <C>
Pro forma basic and diluted:
Weighted average common shares outstanding used in computing
basic and diluted net loss per share........................ 10,024
Weighted average common shares issuable upon the
conversion of preferred stock.......................... 11,792
Weighted average common shares issuable upon settlement of
the priority payments.................................. 3,812
Weighted average common shares issuable upon exercise of
series F preferred stock warrants...................... 171
------
Weighted average common shares outstanding used in
computing pro forma basic and diluted net loss per
share.................................................. 25,799
======
</TABLE>
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
----------------
1998 1999
------ ------
(IN THOUSANDS)
<S> <C> <C>
Loss contracts reserve...................................... $1,000 $ 500
Current portion of restructuring accrual.................... 304 799
Payroll and related costs................................... 1,101 1,740
Other....................................................... 2,408 2,661
------ ------
$4,813 $5,700
====== ======
</TABLE>
5. RESTRUCTURING CHARGE
(a) Change in Strategic Focus
During fiscal 1997, the Company undertook a plan to change the strategic
focus of the Company from a custom development services company to a software
product company providing more standardized solutions. In addition, the Company
decided to exit several of its business activities, change its management team
and reduce its workforce to be in line with its newly defined business strategy.
In connection with this plan, the Company incurred significant charges
associated with employee severance costs, costs to exit several of its business
activities and asset impairments, see note 5(c). The costs to exit business
activities are related to the Company's investment in a virtual reality lab.
These costs included $813,000 in specialized equipment that was abandoned and
$425,000 in equity investments in a privately-held company assisting with the
project that was considered worthless and was written off. The Company does not
anticipate any future benefit from the costs incurred.
F-15
<PAGE> 79
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The significant components of the restructuring charge were as follows:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
Employee severance costs.................................... $ 2,729
Costs to exit business activities, including asset
impairments................................................. 1,238
Impairment of property and equipment........................ 2,595
Other costs................................................. 150
-------
$ 6,712
=======
</TABLE>
The employee severance cost component of the restructuring charge was
related to reductions in headcount. Under the plan, the Company terminated seven
sales and marketing, 17 general and administrative and 27 software development
personnel.
The costs to exit business activities component related to the write down
of assets of a virtual reality product line. The Company wrote off $813,000 in
capital equipment, consisting principally of a virtual reality lab. At the
termination of the product line, the Company abandoned the property, as it had
no alternative use. The Company had partnered with a privately-held company to
develop the virtual reality lab. The Company held an equity investment of
$425,000 in this company. When the virtual reality product line was abandoned,
the Company deemed the value of its equity investment worthless and wrote-off
this investment.
The impairment of property and equipment component consisted primarily of
outdated and obsolete computers and related furniture. The Company determined
that this equipment would have no future benefit to the Company. The Company
removed these fixed assets from service and disposed of them upon execution of
the plan without any material proceeds from disposition. The Company ceased
depreciation of the fixed assets concurrent with the establishment of the
restructuring plan.
(b) Corporate Relocation
During fiscal 1999, the Company undertook a plan to relocate its corporate
offices from Mankato, Minnesota to Waltham, Massachusetts. In connection with
this plan, the Company incurred charges associated with asset impairments, idle
lease space and employee severance costs, see note 5(c). The Company does not
anticipate any future benefit from the costs incurred.
The significant components of the restructuring charge were as follows:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
Impairment of property and equipment........................ $1,532
Idle lease space............................................ 993
Employee severance costs.................................... 502
------
$3,027
======
</TABLE>
The Company is subject to a ten-year lease arrangement on its Mankato,
Minnesota facility that permits (1) a 50% reduction in the monthly lease
obligation by providing notice one year in advance, and (2) early termination of
the lease agreement at the end of the fifth year by giving notice before the
fourth anniversary of the lease agreement. The Company has determined that
approximately 72% of the office space in Mankato was rendered idle as part of
the relocation plan. The idle lease space cost was determined in anticipation of
the Company exercising its option to reduce the lease obligation within one year
and terminating the remaining lease obligation at the end of the fifth year.
Therefore, the present value of the portion of future lease payments for which
the Company does not anticipate any future benefit has been accrued as of
F-16
<PAGE> 80
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
October 31, 1999. As of October 31, 1999, approximately $367,000 of the
restructuring accrual relates to amounts reserved for idle lease space costs
extending beyond 12 months and, therefore, has been classified as a long-term
obligation in the accompanying consolidated balance sheet.
The impairment of property and equipment component consisted primarily of
excess and obsolete office furniture and computer equipment located in the
Mankato facility. The Company determined that this equipment would have no
future benefit to the Company. The Company has removed these fixed assets from
service and has commenced the process of disposing of this equipment. The
Company does not expect the proceeds from disposition to be significant. The
Company ceased depreciation of the fixed assets concurrent with the
establishment of the restructuring plan.
The employee severance cost component of the restructuring charge was
related to reductions in headcount. Under the plan, the Company terminated 12
general and administrative personnel. In October 1999, the Company's chairman,
who was located in the Mankato office, resigned. As part of his resignation, the
Company agreed to pay severance costs of $402,000. These costs have been
included as part of the severance component of the restructuring reserve.
(c) Restructuring Reserve
A summary of the restructuring reserve is as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED OCTOBER 31,
---------------------------------
1997 1998 1999
------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Restructuring reserve:
Balance, beginning of period........................ $ -- $ 1,583 $ 304
Provision...................................... 6,712 -- 3,027
Asset impairment write-offs.................... (3,833) -- (1,532)
Severance and other payments................... (1,296) (1,279) (552)
------- ------- -------
Balance, end of period............................ $ 1,583 $ 304 $ 1,247
======= ======= =======
</TABLE>
The Company estimates that $799,000 of the restructuring accrual will be
paid in fiscal 2000, $208,000 will be paid in fiscal 2001, $109,000 will be paid
in fiscal 2002, $118,000 will be paid in fiscal 2003, and $13,000 will be paid
in fiscal 2004.
6. FINANCINGS
Effective September 29, 1999, the Company amended its line of credit
agreement with a financial institution to increase the total commitment to
$7,000,000. This additional commitment was reached through the conversion of
$2,000,000 outstanding borrowings on the existing line of credit to a term loan
and establishing a new line of credit. Borrowings under the new line of credit
will be limited to the lesser of $5,000,000 or 80% of qualifying accounts
receivable, as defined. The amended line of credit and term loan matures on
October 31, 2000 and is subject to automatic renewal for successive additional
one-year terms unless cancelled by either party. Interest on the original line
and the amended line is charged at the prime rate, which was 8.25% at October
31, 1999, plus 2.0%, limited to a minimum of 8.0% per year, and is payable
monthly. The Company also pays a fee of 0.5% per year on the unused line of
credit. Substantially all of the Company's tangible and intangible assets are
pledged as collateral against the line of credit. At October 31, 1999,
$4,740,000 was outstanding under the line and the Company had approximately
$37,000 available for future borrowings.
F-17
<PAGE> 81
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-term debt obligations consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
----------------
1998 1999
------ ------
(IN THOUSANDS)
<S> <C> <C>
Mortgage notes payable in varying monthly installments,
including interest at 8.0% to 9.0%........................ $2,618 $ --
Notes payable in varying monthly installments, including
interest at 6.0% to 11.0%, through June 2001................ 3,708 1,644
Capital lease obligations payable in varying monthly
installments, including interest at 8.0% to 11.0%, through
August 2004............................................... 170 371
------ ------
6,496 2,015
Less -- current portion..................................... 4,769 1,313
------ ------
$1,727 $ 702
====== ======
</TABLE>
The mortgage notes were due to a municipality, secured by the building,
personally guaranteed by a stockholder of the Company and became due upon a
change in control, which occurred in May 1997. On December 2, 1998, the Company
sold the building which secured the property and repaid the notes, see note 8.
Scheduled annual maturities of long-term debt are as follows as of October
31, 1999:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
FOR THE FISCAL YEAR ENDED OCTOBER 31,
2000.................................................... $1,556
2001.................................................. 606
2002.................................................. 48
2003.................................................. 34
2004.................................................. 28
------
2,272
Less -- amounts representing interest................... 257
------
$2,015
======
</TABLE>
7. INCOME TAXES
Before to May 1997, the Company had elected to be treated as an S
corporation under the Internal Revenue Code. As an S corporation, federal and
some state income tax consequences of the Company were passed through to the
individual stockholders and dividend distributions were made to the stockholders
for payments of their individual taxes related to the Company's income.
Therefore, no provision (benefit) for income taxes has been provided in fiscal
1996. In May 1997, the Company was reorganized from an S corporation to a C
corporation and, as such, taxes are payable at the corporate level.
Since conversion to a taxable corporation, income taxes are accounted for
based on the guidance in SFAS No. 109, Accounting for Income Taxes. Under SFAS
No. 109, deferred income tax liabilities and assets are determined based on the
difference between the financial reporting and tax bases of assets and
liabilities using currently enacted tax rates.
F-18
<PAGE> 82
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The income tax provisions, assuming that the Company was subject to income
taxes as a C corporation for the entirety of each period, are as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED OCTOBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal.................................................... $(9,192) $(3,074) $(5,882)
State taxes, net of federal benefits....................... (1,757) (588) (1,053)
Foreign.................................................... -- -- (3,982)
Other...................................................... 60 216 1,099
Net operating loss not benefited........................... 10,889 3,446 9,818
------- ------- -------
$ -- $ -- $ --
======= ======= =======
</TABLE>
Deferred income taxes as of October 31, 1998 and 1999 relate to the
following temporary differences:
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------
1998 1999
------- --------
(IN THOUSANDS)
<S> <C> <C>
Net operating loss and credit carryforwards................. $ 7,947 $ 17,765
Nondeductible reserves and accruals......................... 1,398 2,722
Depreciation and amortization............................... (147) (1,365)
Valuation allowance......................................... (9,198) (19,122)
------- --------
$ -- $ --
======= ========
</TABLE>
As of October 31, 1999, the Company has available a net operating loss
carryforward of approximately $36,000,000 to reduce future federal and state
income taxes, if any. This carryforward expires beginning in 2012 and may be
subject to review and possible adjustment by the Internal Revenue Service. The
Tax Reform Act of 1986 contains provisions that may limit the amount of net
operating loss carryforwards that the Company may utilize in any one year in the
event of cumulative changes in ownership over a three-year period in excess of
50%, as defined. The Company has completed several equity financing transactions
since it became a C corporation. The Company has not assessed whether these
equity transactions have resulted in a cumulative ownership change in excess of
50%. The Company's wholly owned foreign subsidiaries have net operating loss
carryforwards of approximately $12 million.
(8) COMMITMENTS AND CONTINGENCIES
(a) Litigation
The Company is engaged in legal proceedings incidental to the normal course
of business. Although the ultimate outcome of these matters cannot be
determined, management believes that the final disposition of these proceedings
will not have a material adverse effect on the consolidated financial position
or the results of operations of the Company.
(b) Leases
The Company leases its office space under operating leases expiring at
various dates through December 2004. Rent expense under these agreements totaled
approximately $406,000 for fiscal 1997, $746,000 in fiscal 1998 and $2,349,000
in fiscal 1999.
F-19
<PAGE> 83
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At October 31, 1999, the minimum future obligations under operating leases
are as follows:
<TABLE>
<CAPTION>
AMOUNT
---------------
(IN THOUSANDS)
<S> <C>
FOR THE FISCAL YEAR ENDED OCTOBER 31,
2000................................................... $ 2,558
2001................................................. 2,402
2002................................................. 2,052
2003................................................. 1,935
2004................................................. 1,861
After 2004........................................... 3,172
-------
$13,980
=======
</TABLE>
On December 2, 1998, the Company sold its office building located in
Mankato, Minnesota, for $2,700,000 and entered into an agreement to lease the
facility back over ten years. The Company recognized an insignificant loss on
the sale. Proceeds from the sale were used to repay the notes payable as
described in note 6.
(c) Letter of Credit
The Company is obligated to maintain an irrevocable standby letter of
credit of approximately $550,000, which would be payable upon default of the
Company's noncancelable facility lease that was entered into in May 1999. The
letter of credit will be collateralized by cash, which has been classified as
restricted cash in the accompanying consolidated balance sheet as of October 31,
1999.
(9) STOCKHOLDERS' EQUITY (DEFICIT)
(a) Authorized Shares
As of July 31, 1999, the Company has authorized the issuance of 100,000,000
shares of $0.01 par value common stock and 50,000,000 shares of $0.01 par value
convertible preferred stock.
(b) Recapitalization
On November 8, 1999, the Company's board of directors approved a
two-for-three reverse stock split of its common stock. The stock split was
effective on January 4, 2000. In July 1997, the Company effected a five-for-one
stock split of its common stock. All shares and per share amounts of common
stock for all periods presented have been retroactively adjusted to reflect the
stock splits.
Before the closing of the Company's proposed initial public offering, its
certificate of incorporation will be amended and restated to change its
authorized capital stock to 100,000,000 shares of $0.01 par value common stock
and 5,000,000 shares of $0.01 par value preferred stock.
F-20
<PAGE> 84
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Reserved Shares
As of October 31, 1999, the Company has reserved the following number of
shares of common stock for the conversion of preferred stock and issuance of
stock options and warrants:
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
Series A preferred stock.................................... 2,792,587
Series B preferred stock.................................... 634,794
Series C preferred stock.................................... 380,228
Series F preferred stock.................................... 4,938,273
Series G preferred stock.................................... 5,069,709
Stock options and warrants.................................. 8,635,737
----------
22,451,328
==========
</TABLE>
In addition, the information above excludes 4,484,057 shares of common
stock that the Company expects to issue for the payment of priority payments to
some of our common stockholders and preferred stockholders, see note 9(d).
(d) Preferred Stock
The following table summarizes the number of shares designated, issued and
outstanding:
<TABLE>
<CAPTION>
OCTOBER 31,
------------------------
1998 1999
---------- ----------
<S> <C> <C>
Series A convertible preferred stock;
-- 4,188,880 shares designated................................... 4,188,880 4,188,880
Series B convertible preferred stock;
- -- 190,438 shares designated....................................... -- --
Series C convertible preferred stock;
-- 570,342 shares designated..................................... 570,342 570,342
Series D convertible preferred stock;
-- 100,000 shares designated..................................... -- --
Series E convertible preferred stock;
-- 7,604,563 shares designated................................... 7,604,563 --
Series F convertible preferred stock;
-- 7,407,409 shares designated................................... -- 6,734,008
Series G convertible preferred stock;
-- 7,604,563 shares designated................................... -- 7,604,563
---------- ----------
12,363,785 19,097,793
========== ==========
</TABLE>
In May 1997, the Company sold 4,188,880 shares of series A preferred stock
at $2.63 per share. In addition, the Company issued warrants to purchase 190,438
shares of series B preferred stock at an exercise price of $19.69 per share.
In July 1997, the Company sold 570,342 shares of series C preferred stock
at $2.63 per share.
In October 1997, the Company sold 100,000 shares of series D preferred
stock at $100.00 per share.
In April 1998, the Company sold 3,802,282 shares of series E preferred
stock at $2.63 per share. In connection with the series E preferred stock
financing, the Company exchanged 100,000 outstanding shares of series D
preferred stock for 3,802,281 shares of series E preferred stock.
F-21
<PAGE> 85
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In February 1999, the Company sold 6,734,008 shares of series F preferred
stock at $2.97 per share. In addition, the Company issued warrants to purchase
673,401 shares of series F preferred stock at an exercise price of $3.56 per
share. In connection with the series F preferred stock financing, the Company
exchanged 7,604,563 outstanding shares of series E preferred stock for 7,604,563
shares of series G preferred stock.
The rights and preferences of series A, series B, series C, series F and
series G preferred stock are as follows:
Conversion
Each outstanding share of series A, series C, series F and series G
preferred stock is convertible at the option of the holder and shall
automatically be converted into 0.67 shares of common stock upon the closing of
a qualified initial public offering of the Company's common stock, subject to
adjustments. Upon a liquidity event, as defined below, the conversion rate of
series F preferred stock will be adjusted for additional shares equal to their
pro rata percentage of the priority payments, as defined below. Each share of
series B preferred stock is convertible at the option of the holder into 3.33
shares of common stock, subject to adjustments. Based on the initial price range
for the proposed initial public offering, the conversion rate for the
outstanding shares of series F preferred stock would be adjusted to include the
issuance of 671,533 additional shares of common stock with a fair value of
$8,058,000.
Dividends
Each outstanding share of preferred stock shall be entitled to dividends
when and if declared by the Company's board of directors.
Voting Rights
Each outstanding share of preferred stock is entitled to the number of
votes equal to the number of votes the share would be entitled to if converted
into common stock. Holders of series A preferred stock are entitled to elect one
member to the Company's board of directors as long as GAP and its affiliates own
3% or greater of the number of common shares on a fully diluted basis.
Liquidation
In the event of liquidation, each share of series A, series B, series C,
series F and series G preferred stock shall be entitled to be paid the amount
shown below, per share plus all declared and unpaid dividends before any
payments to common stockholders.
<TABLE>
<CAPTION>
SERIES OF PREFERRED STOCK LIQUIDATION AMOUNT PER SHARE
- ------------------------- ----------------------------
<S> <C>
Series A $ 7.16
Series B 19.69
Series C 2.63
Series F 2.97
Series G 2.63
</TABLE>
If the amount is insufficient to pay all of the liquidation preferences,
then payments will be made to all remaining series of preferred stock based on
the relationship of the series' total liquidation value to the total of the
liquidation values of the preferred stock. As of October 31, 1999, the aggregate
liquidation value of all outstanding shares of preferred stock was $71,500,000.
F-22
<PAGE> 86
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Priority Payments
In the event of a sale of assets, a merger, or an initial public offering,
each a liquidity event, the holders of series A preferred stock shall be
entitled to receive $15,000,000, the holders of series C preferred stock shall
be entitled to receive $750,000, and some of the holders of our common stock
shall be entitled to receive $10,000,000. Holders of series G preferred stock
shall be entitled to a priority payment not to exceed $20,000,000 provided the
liquidity event does not result in a minimum company valuation. The Company does
not expect that the proposed initial public offering will satisfy the minimum
valuation requirements and expects to accrue the maximum priority payment
obligation of $20,000,000. The Company intends to pay the priority payments to
holders of series A, series C, and series G preferred stock, and holders of our
common stock outstanding on May 20, 1997 other than GAP, in shares of common
stock.
If the amount available for the priority payments is insufficient, then
payments shall be made based on the relationship of each stockholder group's
total priority payments to the total of all remaining priority payments if each
were paid in full.
(e) Stock Options
In May 1997, the Company adopted the 1997 stock option plan for the grant
of stock options to key employees, nonemployee directors and consultants. The
Company has reserved 7,896,815 shares of common stock for issuance under this
plan. The exercise price and vesting are determined by the board of directors at
the date of grant. Options generally vest over two to four years and expire ten
years after the date of grant. As of October 31, 1999, 317,282 shares were
available for future issuance under the 1997 plan.
In September 1999, the Company adopted the 1999 director stock option plan
for the grant of stock options to non-employee directors. The Company has
reserved 500,000 shares of common stock for issuance under this plan. As of
October 31, 1999, 366,667 shares were available for future issuance under this
plan.
In August 1997, the Company granted an option to purchase 66,667 shares of
common stock to two individuals as a settlement of a claim. These options are
fully vested and expire in fiscal 2007. The estimated fair value of these
options totaling $150,000 has been included as a component of the restructuring
charge in the accompanying statement of operations for the fiscal 1997. The
Company granted options to purchase 159,579 shares of common stock to
consultants for services performed during fiscal 1998. The estimated fair value
of these options totaling $593,000 has been recorded as stock-based compensation
expense in the accompanying fiscal 1998 consolidated statement of operations.
In connection with stock option and stock warrant grants to employees and
nonemployees during the fiscal year ended October 31, 1999, the Company recorded
deferred compensation of $8,360,000, which represents the aggregate difference
between the option exercise price and the fair market value of the common stock
determined for financial reporting purposes for grants to employees and the fair
value of the options for the nonemployees. Under EITF 96-18, the fair value of
the nonemployee grants will be marked to market over the vesting term of the
warrants. The deferred compensation will be recognized as an expense over the
vesting period of the underlying stock options and warrants. The Company
recorded stock-based compensation expense of $2,597,000 in the fiscal year ended
October 31, 1999, related to these options and warrants.
F-23
<PAGE> 87
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Option activity for fiscal 1997, fiscal 1998 and fiscal 1999 was as
follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF PRICE PER EXERCISE
SHARES SHARE PRICE
--------- ------------- --------
<S> <C> <C> <C>
Outstanding, October 31, 1996.................... 66,667 $ 2.10 $2.10
Granted........................................ 1,490,701 3.95 3.95
Exercised...................................... (69,167) 2.10 - 3.95 2.16
Canceled....................................... (5,167) 3.95 3.95
--------- ------------- -----
Outstanding, October 31, 1997.................... 1,483,034 3.95 3.95
Granted........................................ 3,961,213 3.95 3.95
Exercised...................................... (20,067) 3.95 3.95
Canceled....................................... (535,603) 3.95 3.95
--------- ------------- -----
Outstanding, October 31, 1998.................... 4,888,577 3.95 3.95
Granted........................................ 3,717,189 3.95 - 7.22 4.41
Exercised...................................... (35,169) 3.95 3.95
Canceled....................................... (915,476) 3.95 - 4.46 3.98
--------- ------------- -----
Outstanding, October 31, 1999.................... 7,655,121 $3.95 - $7.22 $4.17
========= ============= =====
Exercisable, October 31, 1999.................... 2,547,069 $3.95 - $7.22 $4.02
========= ============= =====
Exercisable, October 31, 1998.................... 804,119 $ 3.95 $3.95
========= ============= =====
Exercisable, October 31, 1997.................... 286,845 $ 3.95 $3.95
========= ============= =====
</TABLE>
During November 1999, the Company has granted options to employees and
non-employees to purchase 1,852,692 shares of common stock at a weighted-average
exercise price of $9.89 per share. The options granted to employees are subject
to vesting over a four-year period and were granted at exercise prices equal to
the fair value of common stock.
The following table summarizes information relating to currently
outstanding and exercisable options as of October 31, 1999.
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
--------------------------------------- --------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
EXERCISE PRICES SHARES LIFE (YEARS) PRICE SHARES PRICE
- --------------- --------- ---------------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$3.95 5,158,526 8.0 $3.95 2,195,464 $3.95
4.46 2,326,749 9.7 4.46 348,272 4.46
7.22 169,846 10.0 7.22 3,333 7.22
--------- ---- ----- --------- -----
7,655,121 8.6 $4.17 2,547,069 $4.02
========= ==== ===== ========= =====
</TABLE>
In connection with their May 1997 investment in the Company, the investment
funds affiliated with GAP purchased 5,108,202 shares of common stock directly
from several common stockholders. In addition, these investment funds also
received options to purchase 634,793 shares of common stock at an exercise price
of $5.91 per share from existing stockholders. GAP exercised options to purchase
29,580 shares of common stock from these stockholders. The remaining options to
purchase 605,213 shares of common stock expired in May 1999.
F-24
<PAGE> 88
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(f) Pro Forma Stock-Based Compensation
Under SFAS No. 123, Accounting for Stock-Based Compensation, the Company is
required to disclose the pro forma effects on net income (loss) and net income
(loss) per share as if the Company had elected to use the fair value approach to
account for all of its employee stock-based compensation plans beginning in
fiscal 1997.
The Company has computed the pro forma disclosures required under SFAS No.
123 for options granted during fiscal 1997, fiscal 1998 and fiscal 1999 using
the Black-Scholes option pricing model prescribed by SFAS No. 123. The weighted
average assumptions used were as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
OCTOBER 31,
--------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Risk-free interest rate..................... 5.8%-6.0% 4.2%-5.8% 4.5%-5.8%
Expected dividend yield..................... -- -- --
Expected lives.............................. 5 years 5 years 5 years
Expected volatility......................... 80% 80% 80%
Weighted average grant date fair value...... $2.70 $2.67 $4.75
Weighted average remaining contractual life
of options outstanding.................... 8.6 years 7.6 years 8.6 years
</TABLE>
Had compensation cost for the Company's plan been determined consistent
with the fair value approach enumerated in SFAS No. 123, the Company's pro forma
net income (loss) and net income (loss) per share would have been as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
OCTOBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net loss, as reported................................. $(27,035) $ (9,041) $(28,855)
Net loss, pro forma................................... (28,244) (13,214) (37,359)
Diluted net loss per share, as reported............... $ (2.62) $ (0.91) $ (2.88)
Diluted net loss per share, pro forma................. (2.74) (1.33) (3.73)
</TABLE>
The Black-Scholes option pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option pricing models require the input of
highly subjective assumptions including expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
(g) Warrants
In connection with the series A preferred stock financing in May 1997, the
Company issued warrants to the investment funds affiliated with GAP to purchase
190,438 shares of series B preferred stock at an exercise price of $19.69 per
share, exercisable in full, through May 2002. The price paid for this warrant
was $1,000. Upon an initial public offering, these warrants will automatically
be converted into warrants to purchase 634,794 shares of common stock at an
exercise price of $5.91 per share.
F-25
<PAGE> 89
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In July 1997, the Company issued a warrant to purchase 200,000 shares of
common stock to a vendor at $3.95 per share, exercisable in full, through 2007.
The warrant was issued in consideration for services to be received from the
vendor. The estimated value of the warrant totaled $450,000 and has been
recorded in stock-based compensation expense in the accompanying statement of
operations for fiscal 1997. In addition, in July 1997, that vendor purchased
190,114 shares of series C preferred stock for $500,000.
In connection with the series F preferred stock financing in February 1999,
the Company sold warrants to purchase 673,401 shares of series F preferred stock
at an exercise price of $3.56 per share. The price paid for this warrant was
$1,000. Upon an initial public offering, these warrants will automatically be
exercised through the voluntary payment of the exercise price by the warrant
holder or through a cashless exercise.
In October 1999, the Company approved the future issuance of warrants to
purchase 500,000 shares of common stock to customers and strategic partners. In
connection with a license arrangement with a customer, the Company issued
fully-vested warrants to purchase an aggregate of 13,333 shares of common stock
under this program at an exercise price of $7.22 per share, exercisable within
12 months. The estimated value of the warrants totaled $106,000 and has been
recorded as a reduction in the amount of future revenue to be recognized
associated with this customer. The Company also issued warrants to a strategic
partner to purchase 83,334 shares of common stock at an exercise price of $7.22
per share, and vest over three years. The estimated value of these warrants
totaled $463,000 at the time of grant. Under EITF 96-18, the fair value of these
warrants will be marked to market over the vesting period.
All of the warrants mentioned above were outstanding as of October 31,
1999.
(h) Stock Purchase Agreement
The Company had an agreement with a stockholder to repurchase 431,833
shares of common stock for $0.86 per share. The agreement provided for equal
monthly purchases over 60 months beginning in July 1993. Under the agreement,
the Company repurchased and retired approximately 86,667 shares of common stock
at a cost of approximately $74,000 in each of fiscal 1994, fiscal 1995 and
fiscal 1996. In fiscal 1997, the Company repurchased and retired the remaining
172,663 shares available under this agreement for approximately $148,000.
(i) Other Common Stock Issuances and Repurchases
During fiscal 1998, the Company sold 86,061 shares of its common stock at
$3.95 per share to a third party and also repurchased 7,600 shares of its
outstanding common stock from a stockholder for $3.95 per share.
In September 1999, the Company sold 33,334 shares of its common stock at
$4.46 per share to an officer of the Company. The Company recorded stock-based
compensation expense of $130,000 to reflect the below fair market value purchase
price.
10. PROFIT-SHARING PLAN
The Company sponsors a defined contribution profit-sharing plan which
conforms to Internal Revenue Service provisions for 401(k) plans. Employees must
be at least 21 years of age to be eligible to participate in the plan.
Participants may contribute up to 15% of their earnings. The Company matches 50%
of the first 2% and 25% of the next 4% of employee contributions and may make
additional contributions as determined by the board of directors. Operations
have been charged for contributions to the plan of approximately $321,000 for
fiscal 1997, $324,000 for fiscal 1998 and $551,000 for fiscal 1999.
F-26
<PAGE> 90
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. RELATED-PARTY TRANSACTIONS
(a) Transactions with Scopus Technology, Inc.
In June 1997, the Company entered into a $650,000 software license and
implementation services agreement with Scopus Technology, Inc., or Scopus, under
which it licensed Scopus' software product. In July 1997, the Company entered
into an agreement with Scopus, under which Scopus licensed the Company's
Signature Plus product for $350,000. Scopus was a related party through GAP. GAP
owned approximately 6% of Scopus and had board of director representation at
Scopus at that time. In addition, in October 1997, the Company entered into an
original equipment manufacturing arrangement with Scopus. The Company also
entered into a development license and obtained a prepaid license fee from
Scopus valued at $250,000 in exchange for outstanding liabilities owed to
Scopus. In fiscal 1998, the Company made the determination that it would not
pursue its arrangements with Scopus and wrote off the remaining book value of
the software license purchased totaling $469,000, net of deferred revenue
related to the prepaid license fee totaling $250,000, for a loss of $219,000.
(b) Transactions with Intelligroup, Inc.
In October 1997 and November 1997, the Company entered into a master
consulting agreement and an implementation partner agreement, with Intelligroup,
Inc. The chief executive officer of the Company is a member of the board of
directors of Intelligroup, Inc.
(c) Contract Software Development
The Company contracts with a third party, Soft OS, to provide software
development and implementation services on an outsourced basis. Soft OS
subcontracts to have these services provided to us by Effective Programming, a
development organization located in Minsk, Belarus, and EPAM Systems, a related
development organization located in New Jersey. Under this arrangement,
Effective Programming and EPAM Systems provide software developers dedicated to
the Company's projects to develop products and application functionality based
on specifications provided by the Company and to provide implementation services
to the Company's customer's. The agreement with Soft OS expires in February
2002. As of October 31, 1999, approximately 85 employees and contractors of
Effective Programming and EPAM Systems were performing services for the Company.
Effective Programming and EPAM Systems are majority owned by one of the
Company's employees.
For the fiscal year ended October 31, 1999, the Company incurred a total of
$1,920,000 of software development costs under this contract which has been
charged to research and development expenses in the accompanying consolidated
statements of operations. The Company believes that the terms of this agreement
were negotiated on an arms-length basis.
F-27
<PAGE> 91
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. VALUATION AND QUALIFYING ACCOUNTS
A summary of the allowance for doubtful accounts and reserve for loss
contracts is as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED OCTOBER 31,
--------------------------------
1997 1998 1999
------ ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Allowance for doubtful accounts:
Balance, beginning of period......................... $ 221 $ 100 $ 290
Provision for doubtful accounts................. 76 318 120
Write-offs...................................... (197) (128) --
------ ------- ------
Balance, end of period............................. $ 100 $ 290 $ 410
====== ======= ======
Reserve for loss contracts:
Balance, beginning of period....................... $ -- $ 5,238 $1,000
Provision (reduction) for loss contracts
reserve....................................... 5,238 (2,379) --
Payments and/or costs incurred.................. -- (1,859) (500)
------ ------- ------
Balance, end of period............................. $5,238 $ 1,000 $ 500
====== ======= ======
</TABLE>
In fiscal 1998, the Company revised its estimated loss reserve requirements
due to the resolution of contingencies identified in fiscal 1997. As a result,
the Company recorded a reduction of $2,859,000 in the cost of custom development
services in the accompanying consolidated statement of operations in fiscal
1998. In fiscal 1998, the Company also recorded a provision of $480,000 for
estimated losses on other contracts.
13. SEGMENT REPORTING
The Company has adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information in the period ended July 31, 1999. SFAS No.
131 establishes standards for reporting information related to operating
segments in annual financial statements and requires selected information for
those segments to be presented in interim financial reports issued to
stockholders. SFAS No. 131 also establishes standards for related disclosures
about products and services and geographic areas. Operating segments are
identified as components of an enterprise about which separate, discrete
financial information is available for evaluation by the chief operating
decision maker, or decision-making group, in making decisions how to allocate
resources and assess performance. The Company's chief operating decision maker,
as defined under SFAS No. 131, is its chief executive officer.
The Company views its operations and manages its business as two segments,
product-related licenses and services and custom development services. The
Company's reportable segments are strategic business units that provide distinct
services to the end customer. They are managed separately because each business
requires different marketing and management strategies. The Company's approach
is based on the way that management organizes the segments within the Company
for making operating decisions and assessing performance.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company does not allocate
operating expenses between its two reportable segments. Therefore, the Company's
measure of performance for each reportable segment is based on total net
revenues and direct costs of services, which are reported separately in the
accompanying consolidated statements of operations and no additional disclosure
is required. The Company does not identify assets and liabilities by segment.
Therefore, identifiable assets, capital expenditures and depreciation and
amortization are not reported by segment.
F-28
<PAGE> 92
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's revenues by geographic destination to any single foreign
country did not exceed 10% of total revenues during any period presented.
14. SUBSEQUENT EVENTS (UNAUDITED)
On November 8, 1999, the board of directors and on January 4, 2000 the
stockholders approved (1) the adoption of the 1999 stock option and grant plan
under which 3,000,000 shares of the Company's common stock have been reserved
for future issuance, (2) the adoption of the 1999 director stock option plan
under which 500,000 additional shares of the Company's common stock have been
reserved for future issuance and (3) an increase in the number of shares of the
Company's common stock reserved for issuance under the 1997 stock option plan
from 7,896,815 shares to 9,396,815 shares.
F-29
<PAGE> 93
[FIREPOND LOGO]
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
UNTIL , 2000, ALL DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WHEN SELLING THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 94
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL SECURITIES, AND WE ARE NOT SOLICITING
OFFERS TO BUY THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS
NOT PERMITTED.
SUBJECT TO COMPLETION, DATED FEBRUARY 2, 2000
[FIREPOND LOGO]
5,000,000 SHARES
COMMON STOCK
FirePond, Inc. is offering 5,000,000 shares of its common stock. This is
our initial public offering and no public market currently exists for our
shares. We have applied to have the common stock approved for quotation on the
Nasdaq National Market under the symbol FIRE. We anticipate that the initial
public offering price will be between $13.00 and $15.00 per share.
------------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 4.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to FirePond........................................ $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FirePond and one of its stockholders, who is identified on page 56, have
granted the underwriters a 30-day option to purchase up to 750,000 additional
shares of common stock to cover over-allotments. FleetBoston Robertson Stephens
Inc. expects to deliver the shares of common stock to purchasers on
, 2000.
------------------------
ROBERTSON STEPHENS INTERNATIONAL
DAIN RAUSCHER WESSELS
SG COWEN
E*OFFERING
The date of this prospectus is , 2000
<PAGE> 95
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., Dain Rauscher Incorporated, SG Cowen
Securities Corporation and E*OFFERING Corp., have each agreed with us, subject
to the terms and conditions of the underwriting agreement, to purchase from us
the number of shares of common stock listed opposite their names below. The
underwriters are committed to purchase and pay for all of the shares if any are
purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ------------ ----------
<S> <C>
FleetBoston Robertson Stephens Inc. ........................
Dain Rauscher Incorporated..................................
SG Cowen Securities Corporation.............................
E*OFFERING Corp. ...........................................
---------
INTERNATIONAL UNDERWRITERS
FleetBoston Robertson Stephens International Limited........
Dain Rauscher Incorporated..................................
SG Cowen Securities Corporation.............................
E*OFFERING Corp. ...........................................
---------
Total.................................................. 5,000,000
=========
</TABLE>
We have been advised that the underwriters propose to offer the shares of
common stock to the public at the public offering price located on the cover
page of this prospectus and to dealers at that price less a concession of not in
excess of $ per share, of which $ may be reallowed to other
dealers. After the initial public offering, the public offering price,
concession and reallowance to dealers may be reduced by the representatives. No
reduction in this price will change the amount of proceeds to be received by us
as indicated on the cover page of this prospectus.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed 6% of the total number of shares offered.
Over-Allotment Option. We and one of our stockholders have granted to the
underwriters an option, exercisable during the 30-day period after the date of
this prospectus, to purchase up to 750,000 additional shares of common stock at
the same price per share as we will receive for the 5,000,000 shares that the
underwriters have agreed to purchase. If the underwriters exercise the option in
full, we will sell 666,666 additional shares and the selling stockholder will
sell 83,334 additional shares. If the underwriters exercise this option only in
part, the option shares will be sold first by the selling stockholder, and we
will sell only if, and to the extent, the underwriters exercise the option to
purchase more than 83,334 shares. To the extent that the underwriters exercise
this option, each of the underwriters will have a commitment to purchase
approximately the same percentage of additional shares that the number of shares
of common stock to be purchased by it shown in the above table represents as a
percentage of the 5,000,000 shares offered by this prospectus. If purchased, the
additional shares will be sold by the underwriters on the same terms as those on
which the 5,000,000 shares are being sold. We and the selling stockholder will
be obligated, under this option, to sell shares to the extent the option is
exercised. The underwriters may exercise the option only to cover
over-allotments made in connection with the sale of the 5,000,000 shares of
common stock offered by this prospectus.
56
<PAGE> 96
The following table shows the per share and total underwriting discounts
and commissions to be paid by us to the underwriters. This information is
presented assuming either no exercise or full exercise by the underwriters of
their over-allotment option.
<TABLE>
<CAPTION>
PER WITHOUT OVER-ALLOTMENT WITH OVER-ALLOTMENT
SHARE OPTION OPTION
-------- ---------------------- -------------------
<S> <C> <C> <C>
Assumed public offering price.............. $ $ $
Underwriting discounts and commissions..... $
Proceeds, before expenses, to us........... $
</TABLE>
The expenses of the offering payable by us are estimated at $1,550,000.
FleetBoston Robertson Stephens Inc. expects to deliver the shares of common
stock to purchasers on , 2000.
Indemnity. The underwriting agreement contains covenants of indemnity
among the underwriters, us and the selling stockholder against civil
liabilities, including liabilities under the Securities Act and liabilities
arising from breaches of representations and warranties contained in the
underwriting agreement.
Lock-Up Agreements. Each of our executive officers, directors and most of
our other stockholders of record have agreed with the representatives, for a
period of 180 days after the date of this prospectus, not to offer to sell,
contract to sell or transfer any:
- shares of common stock;
- options or warrants to purchase any shares of common stock; or
- any securities convertible into or exchangeable for shares of common
stock.
However, FleetBoston Robertson Stephens Inc. may, in its sole discretion and at
any time without notice, release all or any portion of the securities subject to
lock-up agreements. There are no agreements between the representatives and any
of our stockholders providing consent by the representatives to the sale of
shares before the expiration of the 180-day lock-up period.
We have agreed that during the lock-up period we will not, without the
prior written consent of FleetBoston Robertson Stephens Inc., consent to the
disposition of any shares held by shareholders subject to lock-up agreements
before the expiration of the lock-up period, or issue, sell, contract to sell,
or dispose of, any shares of common stock, any options or warrants to purchase
any shares of common stock or any securities convertible into, exercisable for
or exchangeable for shares of common stock. However, the following are examples
of exceptions to this agreement:
- our sale of shares in this offering;
- the issuance of our common stock upon the exercise of outstanding options
or warrants; and
- the issuance of options under existing stock option and incentive plans,
provided that those options do not vest before the expiration of the
lock-up period.
Internet Distribution. E*OFFERING Corp. is the exclusive Internet
underwriter for this offering. E*OFFERING Corp. has agreed to allocate a portion
of the shares that it purchases to E*TRADE Securities, Inc. E*OFFERING Corp. and
E*TRADE will allocate shares to their respective customers based on usual and
customary industry practices. A prospectus in electronic format will be made
available on Internet sites maintained by E*OFFERING Corp. and E*TRADE. Other
than the prospectus in electronic format, the information on these Internet
sites is not part of this prospectus or the registration statement of which the
prospectus forms a part.
Directed Shares. We have requested that the underwriters reserve up to 6%
of the shares of common stock for sale at the initial public offering price to
directors, officers, employees and other persons designated by us.
Qualified Independent Underwriter. Under the rules of the National
Association of Securities Dealers, Inc., we may be considered to be an affiliate
of E*OFFERING Corp, who is an NASD member. Therefore,
57
<PAGE> 97
this offering is being conducted according to Rule 2720 of the NASD which
requires that, if an NASD member is an underwriter of an affiliate's shares, the
initial public offering price of the shares cannot be more than the price
recommended by a qualified independent underwriter meeting the standards
described in the NASD rules. FleetBoston Robertson Stephens Inc. will serve as a
qualified independent underwriter for this offering and will recommend a public
offering price for our shares in compliance with Rule 2720. As a qualified
independent underwriter, FleetBoston Robertson Stephens Inc. has performed due
diligence investigations and reviewed and participated in the preparation of
this prospectus and the registration statement.
Listing. The shares being sold in the offering have been approved for
quotation on the Nasdaq National Market under the symbol FIRE.
No Prior Public Market. Before this offering, there has been no public
market for our common stock. Consequently, the initial public offering price for
the common stock offered by this prospectus will be determined through
negotiations between us and the representatives. Among the factors to be
considered in these negotiations are prevailing market conditions, our financial
information, market valuations of other companies that we and the
representatives believe to be comparable to us, estimates of our business
potential and the present state of our development.
Stabilization. The representatives have advised us that, under Regulation
M under the Securities Exchange Act of 1934, some persons participating in this
offering may engage in transactions that may have the effect of stabilizing or
maintaining the market price of the common stock at a level above that which
might otherwise prevail in the open market. These transaction may include
stabilizing bids, syndicate covering transactions or the imposition of penalty
bids, as described below:
- A stabilizing bid is a bid for or the purchase of common stock on behalf
of the underwriters for the purpose of fixing or maintaining the price of
the common stock.
- A syndicate covering transaction is the bid for or the purchase of common
stock on behalf of the underwriters to reduce a short position incurred
by the underwriters in connection with this offering; a short position
results when an underwriter sells more shares than it has committed to
purchase.
- A penalty bid is an arrangement permitting the representatives to reclaim
the selling concession otherwise accruing to an underwriter or syndicate
member in connection with this offering if the common stock originally
sold by that underwriter or syndicate member is purchased by the
representatives in a syndicate covering transaction and has therefore not
been effectively placed by that underwriter or syndicate member.
These transactions may be effected on the Nasdaq National Market or through
other means such as privately negotiated transactions. If commenced, these
transactions may be discontinued at any time.
LEGAL MATTERS
The validity of the shares of common stock offered by this prospectus will
be passed upon for FirePond by McDermott, Will & Emery, Boston, Massachusetts.
Various legal matters related to the sale of the common stock offered by this
prospectus will be passed upon for the underwriters by Hale and Dorr LLP,
Boston, Massachusetts.
EXPERTS
The consolidated balance sheets as of October 31, 1998 and 1999 and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the three years in the period ended October 31, 1999
included in this prospectus and elsewhere in the registration statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report appearing in this prospectus and elsewhere in the
registration statement, and is included in reliance upon the authority of the
firm as experts in accounting and auditing.
58
<PAGE> 98
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 for the
registration of the common stock offered by this prospectus. This prospectus,
which forms a part of the registration statement, does not contain all the
information included in the registration statement, parts of which have been
omitted as permitted by the SEC rules and regulations. For further information
about us and our common stock, you should refer to the registration statement.
Statements contained in this prospectus about any contract or other document are
not necessarily complete. Statements made about any contract or document are
summaries of all material information about the documents summarized, but are
not complete descriptions of all terms. If we filed any of those documents as
exhibits to the registration statement, you may read the document itself for a
complete description of its terms.
The registration statement can be inspected and copied at the Securities
and Exchange Commission's following locations:
<TABLE>
<S> <C> <C>
Public Reference Room Office New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. Seven World Trade Center Citicorp Center
Washington, D.C. 20549 Suite 1300 500 West Madison Street
New York, NY 10048 Chicago, IL 60661-2511
</TABLE>
Copies of all or any portion of the registration statement can be obtained from
the public reference section of the SEC, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. In addition, the registration statement is
publicly available through the SEC's site on the Internet's world wide web,
located at http://www.sec.gov.
We will also file annual, quarterly and current reports, proxy statements
and other information with the SEC. You may obtain copies of the documents that
we file electronically with the SEC through the SEC's website located at
http://www.sec.gov. You can also request copies of these documents, for a
copying fee, by writing to the SEC.
59
<PAGE> 99
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses payable by us in
connection with the offering (excluding underwriting discounts and commissions):
<TABLE>
<CAPTION>
NATURE OF EXPENSE AMOUNT
- ----------------- ----------
<S> <C>
SEC Registration Fee........................................ $ 22,770
NASD Filing Fee............................................. 9,125
Nasdaq National Market Listing Fee.......................... 90,000
Accounting Fees and Expenses................................ 450,000
Legal Fees and Expenses..................................... 550,000
Printing Expenses........................................... 250,000
Blue Sky Qualification Fees and Expenses.................... 15,000
Transfer Agent's Fee........................................ 10,000
Miscellaneous............................................... 153,105
----------
Total....................................................... 1,550,000
==========
</TABLE>
The amounts set forth above, except for the Securities and Exchange
Commission, National Association of Securities Dealers, Inc. and Nasdaq National
Market fees, are in each case estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
In accordance with Section 145 of the Delaware General Corporation Law,
Article VII of our amended and restated certificate of incorporation provides
that no director of FirePond be personally liable to FirePond, its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (1) for any breach of the director's duty of loyalty to FirePond or
its stockholders, (2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) in respect of unlawful
dividend payments or stock redemptions or repurchases, or (4) for any
transaction from which the director derived an improper personal benefit. In
addition, the first amended and restated certificate of incorporation provides
that if the Delaware General Corporation Law is amended to authorize the further
elimination or limitation of the liability of directors, then the liability of a
director of the corporation shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
Article V of our amended and restated by-laws provides for indemnification
by FirePond of its officers and certain non-officer employees under certain
circumstances against expenses, including attorneys fees, judgments, fines and
amounts paid in settlement, reasonably incurred in connection with the defense
or settlement of any threatened, pending or completed legal proceeding in which
any such person is involved by reason of the fact that such person is or was an
officer or employee of the registrant if such person acted in good faith and in
a manner he or she reasonably believed to be in or not opposed to the best
interests of FirePond, and, with respect to criminal actions or proceedings, if
such person had no reasonable cause to believe his or her conduct was unlawful.
Under Section 7 of the underwriting agreement to be filed as Exhibit 1.1
hereto, the underwriters have agreed to indemnify, under certain conditions,
FirePond, its directors, certain officers and persons who control FirePond
within the meaning of the Securities Act against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth in chronological order below is information regarding the number
of shares of capital stock issued by the Registrant during the past three years.
Further included is the consideration, if any, received by
II-1
<PAGE> 100
the Registrant for such shares, and information relating to the section of the
Securities Act or rule of the Securities and Exchange Commission under which
exemption from registration was claimed.
1. An aggregate of 837,776 shares of Series A preferred stock was issued
in a private placement in May 1997 to investment funds associated with
General Atlantic. In July 1997, an aggregate of 3,351,104 additional
shares of Series A preferred stock were issued to investment funds
associated with General Atlantic to account for a 5-for-1 stock split.
The Series A preferred stock is convertible into 2,792,587 shares of
common stock. The consideration received for such shares was
$11,000,000.
2. Warrants to purchase an aggregate of 190,438 shares of Series B
preferred stock (which are convertible into 634,794 shares of common
stock) were issued in a private placement in May 1997 to investment
funds associated with General Atlantic. The consideration received for
such warrants was $1,000.
3. An aggregate of 570,342 shares of Series C preferred stock (which are
convertible into 380,228 shares of common stock) was issued in a
private placement in July 1997 to Ramsey/Bierne Associates Incorporated
and Ori Sasson, pursuant to a Stock Purchase Agreement. The
consideration received for such shares was $1,500,000.
4. An aggregate of 100,000 shares of Series D preferred stock was issued
in a private placement in October 1997 to investment funds associated
with General Atlantic pursuant to a Stock Purchase Agreement. The
consideration received for such shares was $10,000,000. The shares of
Series D preferred stock were exchanged for 3,802,281 shares of Series
E preferred stock in April 1998.
5. An aggregate of 86,061 shares of common stock was issued in a private
placement in September 1998 to Loek van den Boog, a private investor.
The consideration received for such shares was $339,509.
6. An aggregate of 7,604,563 shares of Series E preferred stock was issued
in a private placement in April 1998 to investment funds associated
with General Atlantic pursuant to a Stock Purchase Agreement. The
consideration received for such shares was $10,000,000 and the exchange
of all of the outstanding shares of Series D preferred stock. These
shares of Series E preferred stock were exchanged for an equivalent
number of shares of Series G preferred stock in February 1999.
7. An aggregate of 6,734,008 shares of Series F preferred stock (which are
convertible into 5,060,709 shares of common stock) was issued in a
private placement in February 1999 to investment funds associated with
Technology Crossover Ventures, General Atlantic and Lehman Brothers,
pursuant to a Stock Purchase Agreement. The consideration received for
such shares was $20,000,000.
8. Warrants to purchase an aggregate of 673,401 shares of Series F
preferred stock (which are convertible into 506,071 shares of common
stock) were issued in a private placement in February 1999 to
investment funds associated with Technology Crossover Ventures, General
Atlantic and Lehman Brothers. The consideration received for such
warrants was $1,000.
9. An aggregate of 7,604,563 shares of Series G preferred stock (which are
convertible into 5,069,709 shares of common stock) was issued in
exchange for the outstanding shares of Series E preferred stock in
February 1999 to investment funds associated with General Atlantic
pursuant to a Stock Exchange Agreement.
10. An aggregate of 33,334 shares of common stock was issued in a private
placement in September 1999 to Edwin B. Lange, our Senior Vice
President of North American Sales. The consideration received for such
shares was $148,500.
11. From May 20, 1997 to January 31, 2000, FirePond granted stock options
to purchase an aggregate of 11,038,416 shares of common stock to
directors, employees and consultants with exercise prices ranging from
$3.95 to $11.00 per share pursuant to FirePond's 1997 Stock Option
Plan. As of January 31, 2000, 114,773 shares of common stock have been
issued upon exercise of options pursuant to Firepond's 1997 Stock
Option Plan.
II-2
<PAGE> 101
12. From September 9, 1999 to January 31, 2000, FirePond granted stock
options to purchase an aggregate of 233,334 shares of common stock to
non-employee directors with exercise prices ranging from $4.46 to
$11.00 per share pursuant to FirePond's 1999 Director Plan.
13. From January 22, 2000 to January 31, 2000, FirePond granted stock
options to purchase an aggregate of 373,332 shares of common stock to
employees and consultants with exercise prices of $11.00 per share
pursuant to FirePond's 1999 stock option plan. As of January 31, 2000,
no shares of common stock have been issued upon exercise of options
pursuant to FirePond's 1999 stock option plan.
14. From October 29, 1999 to January 31, 2000, FirePond granted warrants to
purchase an aggregate of 341,233 shares of common stock to customers
and a strategic partner with exercise prices ranging from $7.22 to
$11.00 per share.
15. Warrants to purchase an aggregate of 360,000 shares of common stock
were issued in a private placement transaction in November 1999 to
lenders, including investment funds affiliated with General Atlantic
Partners and Technology Crossover Ventures, with an exercise price of
$5.25 per share.
No underwriters were used in connection with these sales and issuances. The
sales and issuances of these securities were exempt from registration under the
Securities Act pursuant to Rule 701 promulgated thereunder on the basis that
these securities were offered and sold either pursuant to a written compensatory
benefit plan or pursuant to written contracts relating to compensation, as
provided by Rule 701, or pursuant to Section 4(2) of the Securities Act on the
basis that the transactions did not involve a public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
**1.1 Form of Underwriting Agreement.
**3.1 Amended and Restated Certificate of Incorporation of the
Registrant.
**3.2 Form of Second Amended and Restated Certificate of
Incorporation of the Registrant (to be filed prior to the
effectiveness of the offering).
**3.3 Form of Third Amended and Restated Certificate of
Incorporation of the Registrant (to be filed following the
consummation of this offering).
**3.4 By-laws of the Registrant.
**3.5 Form of First Amended and Restated By-laws of the Registrant
(to be effective upon consummation of the offering).
**4.1 Specimen certificate for shares of common stock, $.01 par
value, of the Registrant.
**5.1 Opinion of McDermott, Will & Emery as to the validity of the
securities being offered.
**10.1 Amended and Restated Registration Rights Agreement, dated
February 23, 1999, between the Registrant and the
Stockholders named therein.
**10.2 Amended and Restated 1997 Stock Option Plan of the
Registrant.
10.3 1999 Stock Option and Grant Plan of the Registrant.
**10.4 1999 Director Plan of the Registrant.
**10.5 Lease Agreement between Petrie Development Corp. and the
Registrant, dated as of August 11, 1998.
**10.6 Lease of 890 Winter Street, Waltham, Massachusetts between
FirePond, Inc., as Tenant, and 890 Winter Street, L.L.C., as
Landlord dated as of March 25, 1999.
**10.7 Consulting Agreement between the Registrant and Soft OS,
Inc. dated January 23, 1999.
+10.8 Software License Agreement between the Registrant and
Silverstream Software Inc. dated as of March 18, 1999.
**10.9 Loan and Security Agreement between Registrant and Greyrock
Business Credit Company dated as of July 31, 1998.
**10.9.1 First Amendment to Loan and Security Agreement between
Registrant and Greyrock Business Credit Company dated June
24, 1999.
</TABLE>
II-3
<PAGE> 102
<TABLE>
<C> <S>
**10.9.2 Second Amendment to Loan and Security Agreement between
Registrant and Greyrock Business Credit Company dated as of
July 8, 1999.
**10.9.3 Third Amendment to Loan and Security Agreement between
Registrant and Greyrock Business Credit Company dated as of
September 28, 1999.
**10.10 Employment Agreement dated April 2, 1998 between Registrant
and Klaus P. Besier.
**10.11 Offer Letter dated May 11, 1998 between Registrant and
Graham S. Williams.
**10.11.1 Employee Agreement Regarding Inventions, Confidentiality and
Non-Competition between Registrant and Graham Williams.
**10.11.2 Incentive Stock Option Agreement between Registrant and
Graham S. Williams dated June 1, 1998.
**10.12 Offer Letter dated October 21, 1998 between Registrant and
Ilya G. Gorelik.
**10.12.1 Employee Agreement Regarding Inventions, Confidentiality and
Non-Competition for Ilya Gorelik.
**10.13 Offer Letter dated September 5, 1998 between Registrant and
Steven J. Waters.
**10.14 Offer Letter dated December 11, 1998 between Registrant and
Paul K. McDermott.
10.15 Product Use and General Services Agreement between the
Registrant and General Motors dated as of August 1, 1994.
+10.15.1 Amendment to Product Use and General Services Agreement
between Registrant and General Motors Corporation dated as
of June 26, 1998.
+10.15.2 Purchase Order between Registrant and General Motors
Corporation dated as of February 3, 1999.
+**10.15.3 Amendment to Product Use and General Services Agreement
between Registrant and General Motors Corporation dated as
of February 24, 1999.
+10.16 Signature Plus Software License Agreement between the
Registrant and BCBSM, Inc. dated as of December 18, 1998.
**10.17 Sublease between Registrant and Dataworks Corporation dated
as of November 2, 1998.
**10.17.1 Addendum to Sublease Agreement between Registrant and
Dataworks Corporation dated November 2, 1998.
**10.18 Sublease Agreement between Registrant and International
Poison Center Consortium, Inc. dated as of December 8, 1998.
**21.1 Subsidiaries
**23.1 Consent of McDermott, Will & Emery (included in Exhibit 5.1
hereto).
23.2 Consent of Arthur Andersen LLP.
**24.1 Powers of Attorney (included on page II-6).
**27.1 Financial Data Schedule.
**27.2 Financial Data Schedule.
</TABLE>
- ------------
** Previously filed.
+ Confidential treatment has been requested for certain portions of this
Exhibit. The confidential redacted information has been filed separately with
the Securities and Exchange Commission.
(b) Consolidated Financial Statement Schedules
All schedules have been omitted because they are not required or because
the required information is given in the Consolidated Financial Statements or
Notes to those statements.
II-4
<PAGE> 103
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
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 104
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 5 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Waltham, Commonwealth of Massachusetts, on February 2, 2000.
FIREPOND, INC.
By: /s/ PAUL K. MCDERMOTT
------------------------------------
Paul K. McDermott
Chief Financial Officer and
Vice President of Finance and
Administration
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 5 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman, President, Chief February 2, 2000
- --------------------------------------------------- Executive Officer and
Klaus P. Besier Director (Principal Executive
Officer)
/s/ PAUL K. MCDERMOTT Chief Financial Officer and February 2, 2000
- --------------------------------------------------- Vice President of Finance and
Paul K. McDermott Administration (Principal
Financial Officer and
Principal Accounting Officer)
* Director February 2, 2000
- ---------------------------------------------------
Paul R. Butare
* Director February 2, 2000
- ---------------------------------------------------
J. Michael Cline
* Director February 2, 2000
- ---------------------------------------------------
William O. Grabe
* Director February 2, 2000
- ---------------------------------------------------
Gerhard Schulmeyer
Director
- ---------------------------------------------------
Vernon Lawrence Weber
*By: /s/ PAUL K. MCDERMOTT
---------------------------------------------
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 105
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
**1.1 Form of Underwriting Agreement.
**3.1 Amended and Restated Certificate of Incorporation of the
Registrant.
**3.2 Form of Second Amended and Restated Certificate of
Incorporation of the Registrant (to be filed prior to the
effectiveness of the offering).
**3.3 Form of Third Amended and Restated Certificate of
Incorporation of the Registrant (to be filed following the
consummation of this offering).
**3.4 By-laws of the Registrant.
**3.5 Form of First Amended and Restated By-laws of the Registrant
(to be effective upon consummation of the offering).
**4.1 Specimen certificate for shares of common stock, $.01 par
value, of the Registrant.
**5.1 Opinion of McDermott, Will & Emery as to the validity of the
securities being offered.
**10.1 Amended and Restated Registration Rights Agreement, dated
February 23, 1999, between the Registrant and the
Stockholders named therein.
**10.2 Amended and Restated 1997 Stock Option Plan of the
Registrant.
10.3 1999 Stock Option and Grant Plan of the Registrant.
**10.4 1999 Director Plan of the Registrant.
**10.5 Lease Agreement between Petrie Development Corp. and the
Registrant, dated as of August 11, 1998.
**10.6 Lease of 890 Winter Street, Waltham, Massachusetts between
FirePond, Inc., as Tenant, and 890 Winter Street, L.L.C., as
Landlord dated as of March 25, 1999.
**10.7 Consulting Agreement between the Registrant and Soft OS,
Inc. dated January 23, 1999.
+10.8 Software License Agreement between the Registrant and
Silverstream Software, Inc. dated as of March 18, 1999.
**10.9 Loan and Security Agreement between Registrant and Greyrock
Business Credit Company dated as of July 31, 1998.
**10.9.1 First Amendment to the Loan and Security Agreement between
the Registrant and Greyrock Business Credit Company dated
June 24, 1999.
**10.9.2 Second Amendment to Loan and Security Agreement between
Registrant and Greyrock Business Credit Company dated as of
July 8, 1999.
**10.9.3 Third Amendment to Loan and Security Agreement between
Registrant and Greyrock Business Credit Company dated as of
September 28, 1999.
**10.10 Employment Agreement dated April 2, 1998 between Registrant
and Klaus P. Besier.
**10.11 Offer Letter dated May 11, 1998 between Registrant and
Graham S. Williams.
**10.11.1 Employee Agreement Regarding Inventions, Confidentiality and
Non-Competition between Registrant and Graham Williams.
**10.11.2 Incentive Stock Option Agreement between Registrants and
Graham S. Williams dated as of June 1, 1998.
**10.12 Offer Letter dated October 21, 1998 between Registrant and
Ilya G. Gorelik.
**10.12.1 Employee Agreement Regarding Inventions, Confidentiality and
Non-Competition for Ilya Gorelik.
**10.13 Offer Letter dated September 5, 1998 between Registrant and
Steven J. Waters.
**10.14 Offer Letter dated December 11, 1998 between Registrant and
Paul K. McDermott.
10.15 Product Use and General Services Agreement between the
Registrant and General Motors dated as of August 1, 1994.
+10.15.1 Amendment to Product Use and General Services Agreement
between Registrant and General Motors Corporation dated as
of June 26, 1998.
+10.15.2 Purchase Order between Registrant and General Motors
Corporation dated as of February 3, 1999.
+**10.15.3 Amendment to Product Use and General Services Agreement
between Registrant and General Motors Corporation dated as
of February 24, 1999.
</TABLE>
<PAGE> 106
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
+10.16 Signature Plus Software License Agreement between the
Registrant and BCBSM, Inc. dated as of December 18, 1998.
**10.17 Sublease between Registrant and Dataworks Corporation dated
as of November 2, 1998.
**10.17.1 Addendum to Sublease Agreement between Registrant and
Dataworks Corporation dated as of November 2, 1998.
**10.18 Sublease Agreement between Registrant and International
Poison Center Consortium, Inc. dated as of December 8, 1998.
**21.1 Subsidiaries.
**23.1 Consent of McDermott, Will & Emery (included in Exhibit 5.1
hereto).
23.2 Consent of Arthur Andersen LLP.
**24.1 Powers of Attorney (included on page II-6).
**27.1 Financial Data Schedule.
**27.2 Financial Data Schedule.
</TABLE>
- ------------
** Previously filed.
+ Confidential treatment has been requested for certain portions of this
Exhibit. The confidential redacted information has been filed separately with
the Securities and Exchange Commission.
<PAGE> 1
EXHIBIT 10.3
FIREPOND, INC.
1999 STOCK OPTION AND GRANT PLAN
Section 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
The name of the plan is the FirePond, Inc. 1999 Stock Option and Grant
Plan (the "Plan"). The purpose of the Plan is to encourage and enable the
officers, employees, directors, consultants, advisors and other key persons of
FirePond, Inc. (the "Company") and its Subsidiaries (as defined below) upon
whose judgment, initiative and efforts the Company largely depends for the
successful conduct of its business to acquire a proprietary interest in the
Company. It is anticipated that providing such persons with a direct stake in
the Company's welfare will assure a closer identification of their interests
with those of the Company, thereby stimulating their efforts on the Company's
behalf and strengthening their desire to remain with the Company.
The following terms shall be defined as set forth below:
"Act" means the Securities Exchange Act of 1934, as amended.
"Award" or "Awards," except where referring to a particular category of
grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock
Options, Restricted Stock Awards, and
Unrestricted Stock Awards.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Committee" has the meaning specified in Section 2.
"Effective Date" means the date on which the Plan is approved by
stockholders as set forth in Section 13.
"Fair Market Value" of the Stock on any given date means (i) if the Stock
is admitted to quotation on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), the Fair Market Value on any given date
shall not be less than the average of the highest bid and lowest asked prices of
the Stock reported for such date or, if no bid and asked prices were reported
for such date, for the last day preceding such date for which such prices were
reported; or (ii) if the Stock is admitted to trading on a national securities
exchange or the NASDAQ National Market System, then clause (i) shall not apply
and the Fair Market Value on any date shall not be less than the closing price
reported for the Stock on such exchange or system for such date or, if no sales
were reported for such date, for the last date preceding such date for which a
sale was reported; or (iii) if the Stock is not publicly traded on a securities
exchange or traded in the over-the-counter market or, if traded or quoted, there
are no transactions or quotations within the last ten trading days or trading
has been halted for
<PAGE> 2
extraordinary reasons, the Fair Market Value on any given date shall be
determined in good faith by the Committee; and (iv) notwithstanding the
foregoing, the Fair Market Value of the Stock on the effective date of the
Initial Public Offering shall be the offering price to the public of the Stock
on such date.
"Incentive Stock Option" means any Stock Option designated and qualified
as an "incentive stock option" as defined in Section 422 of the Code.
"Independent Director" means a member of the Board who is neither an
employee or officer of the Company or any Subsidiary.
"Initial Public Offering" means the first underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, covering the offer and sale of Stock to the public.
"Non-Qualified Stock Option" means any Stock Option that is not
an Incentive Stock Option.
"Option" or "Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 5.
"Restricted Stock Award" means any Award granted pursuant to
Section 6.
"Stock" means the Common Stock, par value $.01 per share, of the Company,
subject to adjustments pursuant to Section 3.
"Subsidiary" means any corporation or other entity (other than the
Company) in any unbroken chain of corporations or other entities, beginning with
the Company, if each of the corporations or entities (other than the last
corporation or entity in the unbroken chain) owns stock or other interests
possessing 50% or more of the economic interest or the total combined voting
power of all classes of stock or other interests in one of the other
corporations or entities in the chain.
"Unrestricted Stock Award" means any Award granted pursuant to
Section 7.
Section 2. ADMINISTRATION OF PLAN; COMMITTEE AUTHORITY TO SELECT
PARTICIPANTS AND DETERMINE AWARDS.
(a) Committee. The Plan shall be administered by the Board of Directors of the
Company, or at the discretion of the Board, by a committee of the Board
consisting of not less than two Directors; provided, however, that if each
member of the Committee is not (i) a "Non-Employee Director" within the meaning
of Rule 16b-3(a)(3) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and (ii) an "Outside Director" within the meaning of Section
162(m) of the Code and the regulations promulgated thereunder, any Awards
granted to individuals subject to the reporting requirements of Section 16 of
the Exchange Act shall be approved by the Board of Directors. All references
herein to the Committee shall be
-2-
<PAGE> 3
deemed to refer to the entity then responsible for administration of the Plan at
the relevant time (i.e., either the Board of Directors or a committee of the
Board, as applicable).
(b) Powers of Committee. The Committee shall have the power and authority
to grant Awards consistent with the terms of the Plan, including the power and
authority:
(1) to select the officers, employees, Independent Directors,
consultants, advisers and key persons of the Company and its Subsidiaries to
whom Awards may from time to time be granted;
(2) to determine the time or times of grant, and the extent, if any,
of Incentive Stock Options, Non-Qualified Stock Options, Restricted Stock Awards
and Unrestricted Stock Awards, or any combination of the foregoing, granted to
any one or more participants;
(3) to determine the number of shares of Stock to be covered by any
Award;
(4) to determine and modify from time to time the terms and
conditions, including restrictions, not inconsistent with the terms of the Plan,
of any Award, which terms and conditions may differ among individual Awards and
participants, and to approve the form of written instruments evidencing the
Awards;
(5) to accelerate at any time the exercisability or vesting of all or
any portion of any Award and/or to include provisions in Awards providing for
such acceleration,
(6) to impose any limitations on Awards granted under the Plan,
including limitations on transfers repurchase provisions and the like and to
exercise repurchase rights or obligations;
(7) subject to the provisions of Section 5(a)(3), to extend at any
time the period in which Stock Options may be exercised;
(8) to determine at any time whether, to what extent, and under what
circumstances Stock and other amounts payable with respect to an Award shall be
deferred either automatically or at the election of the participant and whether
and to what extent the Company shall pay or credit amounts constituting interest
(at rates determined by the Committee) or dividends or deemed dividends on such
deferrals; and
(9) at any time to adopt, alter and repeal such rules, guidelines and
practices for administration of the Plan and for its own acts and proceedings as
it shall deem advisable, to interpret the terms and provisions of the Plan and
any Award (including related written instruments); to make all determinations it
deems advisable for the administration of the Plan; to decide all disputes
arising in connection with the Plan; and to otherwise supervise the
administration of the Plan.
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All decisions and interpretations of the Committee shall be binding
on all persons, including the Company and Plan participants.
(c) Delegation of Authority to Grant Awards. The Committee, in its
discretion, may delegate to the Chief Executive Officer of the Company all or
part of the Committee's authority and duties with respect to Awards, including
the granting thereof, to individuals who are not subject to the reporting and
other provisions of Section 16 of the Act or "covered employees" within the
meaning of Section 162(m) of the Code. Any such delegation by the Committee
shall include a limitation as to the amount of Awards that may be granted during
the period of delegation and shall contain guidelines as to the determination of
the exercise price of any Option, the price of other Awards and the vesting
criteria. The Committee may revoke or amend the terms of a delegation at any
time but such action shall not invalidate any prior actions of the Committee's
delegate or delegates that were consistent with the terms of the Plan.
Section 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION
(a) Stock Issuable. The maximum number of shares of Stock reserved
and available for issuance under the Plan shall be 4,500,000 shares of Stock.
For purposes of the foregoing limitations, the shares of Stock underlying any
Awards which are forfeited, canceled, reacquired by the Company, satisfied
without the issuance of Stock or otherwise terminated (other than by exercise)
shall be added back to the shares of Stock available for issuance under the
Plan. Subject to such overall limitation, shares of Stock may be issued up to
such maximum number pursuant to any type or types of Award; provided, however,
that from and after the date the Plan is subject to Section 162(m) of the Code,
Awards with respect to no more than 2,250,000 shares of Stock may be granted to
any one individual participant during any one calendar year period. The shares
available for issuance under the Plan may be authorized but unissued shares of
Stock or shares of Stock reacquired by the Company.
(b) Recapitalizations. If, through or as a result of any merger,
consolidation, sale of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, the outstanding shares of
Stock are increased or decreased or are exchanged for a different number or kind
of shares or other securities of the Company or any successor company, or
additional shares or new or different shares or other securities of the Company
or other non-cash assets are distributed with respect to such shares of Stock or
other securities, the Committee shall make an appropriate or proportionate
adjustment in (i) the maximum number of shares reserved for issuance under the
Plan, (ii) the number of Stock Options, or other Awards that can be granted to
any one individual participant, (iii) the number and kind of shares or other
securities subject to any then outstanding Awards under the Plan, and (iv) the
price for each share subject to any then outstanding Stock Options or other
Awards under the Plan, without changing the aggregate exercise price (i.e., the
exercise price multiplied by the number of shares) as to which such Stock
Options remain exercisable and the repurchase price for shares subject to
repurchase. The adjustment by the Committee shall be final, binding and
conclusive. No fractional shares of
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Stock shall be issued under the Plan resulting from any such adjustment, but the
Committee in its discretion may make cash payment in lieu of fractional shares.
(c) Mergers and Other Transactions. In the case of (i) the
dissolution or liquidation of the Company, (ii) a merger, reorganization or
consolidation between the Company and another person or entity (other than a
holding company or subsidiary of the Company) as a result of which the holders
of the Company's outstanding voting stock immediately prior to the transaction
hold less than a majority of the outstanding voting stock of the surviving
entity immediately after the transaction, (iii) the sale of all or substantially
all of the assets of the Company to an unrelated person or entity, or (iv) the
sale of all of the Stock of the Company to an unrelated person or entity (in
each case, a "Transaction"), unless provision is made in connection with the
Transaction for the assumption of the Awards heretofore granted, or the
substitution of such Awards with new Awards of the successor entity or parent
thereof, with appropriate adjustment as to the number and kind of shares and, if
appropriate, the per share exercise prices, as provided in Section 3(b) above,
all of the remaining outstanding Awards held by participants, to the extent not
fully vested and exercisable, shall become fully vested and exercisable, except
with respect to specific awards as the Committee otherwise determines. Upon the
effectiveness of the transaction, the Plan and all Awards granted hereunder
shall, unless assumed by the successor entity, terminate. In the event of such
termination, each optionee shall be permitted to exercise for a period of at
least 15 days prior to the date of such termination all outstanding Awards held
by such optionee which are then exercisable.
(d) Substitute Awards. The Committee may grant Awards under the Plan
in substitution for stock and stock based awards held by employees of another
corporation who become employees of the Company or a Subsidiary as the result of
a merger or consolidation of the employing corporation with the Company or a
Subsidiary or the acquisition by the Company or a Subsidiary of property or
stock of the employing corporation. The Committee may direct that the substitute
awards be granted on such terms and conditions as the Committee considers
appropriate in the circumstances.
Section 4. ELIGIBILITY.
Participants in the Plan will be such officers and other employees,
Independent Directors, consultants, advisors and other key persons of the
Company and its Subsidiaries who are responsible for or contribute to the
management, growth or profitability of the Company and its Subsidiaries as are
selected from time to time by the Committee, in its sole discretion.
Section 5. STOCK OPTIONS.
Any Stock Option granted under the Plan shall be pursuant to a stock
option agreement which shall be in such form as the Committee may from time to
time approve. Option agreements need not be identical.
Stock Options granted under the Plan may be either Incentive Stock
Options or Non-Qualified Stock Options. Incentive Stock Options may be granted
only to employees of the Company or any Subsidiary that is a "subsidiary
corporation" within the meaning of Section
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424(f) of the Code. Non-Qualified Stock Options may be granted to officers,
employees, Independent Directors, advisors, consultants and other key persons of
the Company and its Subsidiaries. To the extent that any Option does not qualify
as an Incentive Stock Option, it shall be deemed a Non-Qualified Stock option.
No Incentive Stock Option shall be granted under the Plan after November
7, 2009.
(a) Terms of Stock Options. Stock Options granted under the Plan shall be
subject to the following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the terms of the Plan as the
Committee shall deem desirable:
(1) Exercise Price. The exercise price per share for the Stock
covered by a Stock Option shall be determined by the Committee at the time of
grant but shall not be less than 100% of the Fair Market Value in the case of
Incentive Stock Options. If an employee owns or is deemed to own (by reason of
the attribution rules applicable under Section 424(d) of the Code) more than 10%
of the combined voting power of all classes of stock of the Company or any
parent or Subsidiary corporation and an Incentive Stock Option is granted to
such employee, the option price of such Incentive Stock Option shall be not less
than 110% of the Fair Market Value on the grant date.
(2) Grant of Discount Options in Lieu of Cash Compensation. Upon the
request of a participant and with the consent of the Committee, such participant
may elect each calendar year to receive a Non-Qualified Stock Option in lieu of
any cash bonus or other compensation to which he may become entitled during the
following calendar year, but only if such participant makes an irrevocable
election to waive receipt of all or a portion of such cash compensation. Such
election shall be made on or before the date set by the Committee which date
shall be no later than 15 days (or such shorter period permitted by the
Committee) preceding January 1 of the calendar year for which the cash
compensation would otherwise be paid. A Non-Qualified Stock Option shall be
granted to each participant who made such an irrevocable election on the date
the waived cash compensation would otherwise be paid. The exercise price per
share shall be determined by the Committee. The number of shares of Stock
subject to the Stock Option shall be determined by dividing the amount of the
waived cash compensation by the difference between the Fair Market Value of the
Stock on the date the Stock Option is granted and the exercise price per share
of the Stock Option. The Stock Option shall be granted for a whole number of
shares so determined; the value of any fractional share shall be paid in cash.
(3) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than ten
years after the date the Option is granted. If an employee owns or is deemed to
own (by reason of the attribution rules of Section 424(d) of the Code) more than
10% of the combined voting power of all classes of Stock of the Company or any
parent or subsidiary corporation and an Incentive Stock Option is granted to
such employee, the term of such Option shall be no more than five years from the
grant date.
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(4) Exercisability; Rights of a Stockholder. Stock Options shall
become vested and exercisable at such time or times, whether or not in
installments, as shall be determined by the Committee at or after the grant
date; provided, however, that Stock Options granted in lieu of cash compensation
shall be exercisable in full as of the grant date. The Committee may at any time
accelerate the exercisability of all or any portion of any Stock Option. An
optionee shall have the rights of a stockholder only as to shares acquired upon
the exercise of a Stock Option and not as to unexercised Stock Options.
(5) Method of Exercise. Stock Options may be exercised in whole or in
part, by giving written notice of exercise to the Company, specifying the number
of shares to be purchased. Payment of the purchase price may be made by one or
more of the following methods; provided, however, that the methods set forth in
subsections (B) and (C) below shall become available only after the closing of
the Initial Public Offering:
(i) In cash by certified or bank check or other instrument
acceptable to the Committee,
(ii) In the form of shares of Stock that are not then subject to
restrictions under any Company plan and that have been held by the optionee free
of such restrictions for at least six months, if permitted by the Committee in
its discretion. such surrendered shares shall be valued at Fair Market Value on
the exercise date;
(iii) By the optionee delivering to the Company a properly executed
exercise notice together with irrevocable instructions to a broker to promptly
deliver to the Company cash or a check payable and acceptable to the Company to
pay the purchase price; provided that in the event the optionee chooses to pay
the purchase price as so provided, the optionee and the broker shall comply with
such procedures and enter into such agreements of indemnity and other agreements
as the Committee shall prescribe as a condition of such payment procedure; or
(iv) By the optionee delivering to the Company a promissory note if
the Board has authorized the loan of funds to the optionee for the purpose of
enabling or assisting the optionee to effect the exercise of his Stock Option;
provided that at least so much of the exercise price as represents the par value
of the Stock shall be paid other than with a promissory note.
Payment instruments will be received subject to collection. The
delivery of certificates representing the shares of Stock to be purchased
pursuant to the exercise of a Stock Option will be contingent upon receipt from
the optionee (or a purchaser acting in his stead in accordance with the
provisions of the Stock Option) by the Company of the full purchase price for
such shares and the fulfillment of any other requirements contained in the Stock
Option or applicable provisions of laws.
(6) Termination. Unless otherwise provided in the option agreement or
determined by the Committee, upon the optionee's termination of employment (or
other business
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<PAGE> 8
relationship) with the Company and its Subsidiaries, the optionee's rights in
his Stock Options shall automatically terminate.
(7) Annual Limit on Incentive Stock Options. To the extent required
for "incentive stock option" treatment under Section 422 of the Code, the
aggregate Fair Market Value (determined as of the time of grant) of the shares
of Stock with respect to which Incentive Stock Options granted under this Plan
and any other plan of the Company or its parent and subsidiary corporations
become exercisable for the first time by an optionee during any calendar year
shall not exceed $100,000. To the extent that any Stock Option exceeds this
limit, it shall constitute a Non-Qualified Stock Option.
(b) Reload Options. At the discretion of the Committee, Options granted
under the Plan may include a "reload" feature pursuant to which an optionee
exercising an Option by the delivery of number of shares of stock in accordance
with Section 5(a)(5)(ii) hereof would automatically be granted an additional
Option (with an exercise price equal to the Fair Market Value of the Stock on
the date the additional Option is granted and with the same expiration date as
the original Option being exercised, and with such other terms as the Committee
may provide) to purchase that number of shares of Stock equal to the number
delivered to exercise the original Option.
(c) Non-transferability of Options. No Stock option shall be transferable
by the optionee otherwise than by will or by the laws of descent and
distribution and all Stock Options shall be exercisable, during the optionee's
lifetime, only by the optionee; provided, however, that an optionee may
transfer, without consideration for the transfer, the Non-Qualified Stock
Options to members of his immediate family, to trusts for the benefit of such
family members, to partnerships in which such family members are the only
partners, or to charitable organization so long as the transferee agrees in
writing to be bound by the terms and conditions of this Plan and the applicable
Option Agreement.
Section 6. RESTRICTED STOCK AWARDS
(a) Nature of Restricted Stock Awards. A Restricted Stock Award is an
Award entitling the recipient to acquire, at par value or such other purchase
price determined by the Committee, shares of Stock subject to such restrictions
and conditions as the Committee may determine at the time of grant ("Restricted
Stock"). Conditions may be based on continuing employment (or other business
relationship) and/or achievement or pre-established performance goals and
objectives.
(b) Rights as a Stockholder. Upon execution of a written instrument
setting forth the Restricted Stock Award and paying any applicable purchase
price, a participant shall have the rights of a stockholder with respect to the
voting of the Restricted Stock, subject to such conditions contained in the
written instrument evidencing the Restricted Stock Award. Unless the Committee
shall otherwise determine, certificates evidencing the Restricted Stock shall
remain in the possession of the Company until such Restricted Stock is vested as
provided in Section 6(d) below.
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<PAGE> 9
(c) Restrictions. Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided herein or in the written instrument evidencing the
Restricted Stock Award. If a participant's employment (or other business
relationship) with the Company and its Subsidiaries terminates under the
conditions specified in the relevant instrument relating to the Award, or upon
such other event or events as may be stated in the instrument evidencing the
Award, the Company or its assigns shall have the right or shall agree, as may be
specified in the relevant instrument, to repurchase some or all of the shares of
Stock subject to the Award at such purchase price as is set forth in such
instrument.
(d) Vesting of Restricted Stock. The Committee at the time of grant
shall specify the date or dates and/or the attainment of pre-established
performance goals, objectives and other conditions on which Restricted Stock
shall become vested, subject to such further rights of the Company or its
assigns as may be specified in the instrument evidencing the Restricted Stock
Award.
(e) Waiver, Deferral and Reinvestment of Dividends. The written
instrument evidencing the Restricted Stock Award may require or permit the
immediate payment, waiver, deferral or investment of dividends paid on the
Restricted Stock.
Section 7. UNRESTRICTED STOCK AWARDS
(a) Grant or Sale of Unrestricted Stock. The Committee may, in its
sole discretion, grant (or sell at a purchase price determined by the Committee)
an Unrestricted Stock Award to any participant, pursuant to which such
participant may receive shares of Stock free of any vesting restrictions
("Unrestricted Stock") under the Plan. Unrestricted Stock Awards may be granted
or sold as described in the preceding sentence in respect of past services or
other valid consideration, or in lieu of any cash compensation due to such
individual.
(b) Elections to Receive Unrestricted Stock In Lieu of Compensation.
Upon the request of a participant and with the consent of the Committee, each
such participant may, pursuant to an advance written election delivered to the
Company no later than the date specified by the Committee, receive a portion of
the cash compensation otherwise due to such participant in the form of shares of
Unrestricted Stock either currently or on a deferred basis.
(c) Restrictions on Transfers. The right to receive shares of
Unrestricted Stock on a deferred basis may not be sold, assigned, transferred,
pledged or otherwise encumbered, other than by will or the laws of descent and
distribution.
Section 8. TAX WITHHOLDING
(a) Payment by Participant. Each participant shall, no later than the
date as of which the value of an Award or of any Stock or other amounts received
thereunder first becomes includable in the gross income of the participant for
Federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Committee regarding payment of, any federal, state, or local
taxes of any kind required by law to be withheld with respect to such
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<PAGE> 10
income. The Company and its Subsidiaries shall, to the extent permitted by law,
have the right to deduct any such taxes from any payment of any kind otherwise
due to the participant.
(b) Payment in Stock. Subject to approval by the Committee, a
participant may elect to have such tax withholding obligation satisfied, in
whole or in part, by (i) authorizing the Company to withhold from shares of
Stock to be issued pursuant to any Award a number of shares with an aggregate
Fair Market Value (as of the date the withholding is effected) that would
satisfy the withholding amount due, or (ii) transferring to the Company shares
of Stock owned by the participant with an aggregate Fair Market Value (as of the
date the withholding is effected) that would satisfy the withholding amount due.
Section 9. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or
from the Company to a Subsidiary, or from one Subsidiary to another; or
(b) an approved leave of absence for military service or sickness, or
for any other purpose approved by the Company, if the employee's right to
re-employment is guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted or if the Committee
otherwise so provides in writing.
Section 10. AMENDMENTS AND TERMINATION
The Board may, at any time, amend or discontinue the Plan and the
Committee may, at any time, amend or cancel any outstanding Award (or provide
substitute Awards at the same or reduced exercise or purchase price or with no
exercise or purchase price in a manner not inconsistent with the terms of the
Plan), but such price, if any, must satisfy the requirements which would apply
to the substitute or amended Award if it were then initially granted under this
Plan for the purpose of satisfying changes in law or for any other lawful
purpose, but no such action shall adversely affect rights under any outstanding
Award without the holder's consent. If and to the extent determined by the
Committee to be required by the Act to ensure that Incentive Stock Options
granted under the Plan are qualified under Section 422 of the Code, Plan
amendments shall be subject to approval by the Company's stockholders who are
eligible to vote at a meeting of stockholders.
Section 11. STATUS OF PLAN
With respect to the portion of any Award which has not been exercised and
any payments in cash, Stock or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Committee shall otherwise expressly determine
in connection with any Award or Awards. In its sole discretion, the Committee
may authorize the creation of trusts or other arrangements to meet the Company's
obligations to deliver Stock or make payments with respect to Awards hereunder,
provided that the existence of such trusts or other arrangements is consistent
with the foregoing sentence.
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Section 12. GENERAL PROVISIONS
(a) No Distribution; Compliance with Legal Requirements. The
Committee may require each person acquiring Stock pursuant to an Award to
represent to and agree with the Company in writing that such person is acquiring
the shares without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Award until all
applicable securities law and other legal and stock exchange or similar
requirements have been satisfied. The Committee may require the placing of such
stop orders and restrictive legends on certificates for Stock and Awards, as it
deems appropriate.
(b) Other Compensation Arrangements; No Employment Rights. Nothing
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, and such arrangements may be either
generally applicable or applicable only in specific cases. The adopting of this
Plan and the grant of Awards do not confer upon any employee any right to
continued employment with the Company or any Subsidiary.
Section 13. EFFECTIVE DATE OF PLAN
This Plan shall become effective upon approval by the holders of a
majority of the shares of Stock of the Company present or represented and
entitled to vote at a meeting of stockholders. Subject to such approval by the
stockholders and to the requirement that no Stock may be issued hereunder prior
to such approval, Stock Options and other Awards may be granted hereunder on and
after adoption of this Plan by the Board.
Section 14. GOVERNING LAW
This Plan shall be governed by Delaware law except to the extent such law
is preempted by federal law.
Adopted and Effective: November 8, 1999
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<PAGE> 1
EXHIBIT 10.8
SOFTWARE LICENSE AGREEMENT
This software License Agreement (the "Agreement") is dated as of March
18, 1999 (the "Agreement Date"), and is by and between SilverStream Software,
Inc., a Delaware corporation with its principal offices at One Burlington Woods
Drive, Burlington, MA 01803 ("Licensor") and Firepond, Inc., a Minnesota
corporation, with Its principal offices at 1983 Premier Drive, Mankato, MN 56001
("Licensee").
WHEREAS, Licensor has developed and/or otherwise possesses rights to
certain computer software which It refers to as "SilverStream Designer", and
WHEREAS, Licensee desires to license such software for integration by
Licensee in Its products In anticipation of the execution of a mutually
agreeable ISBN Business Partner Agreement between Licensor and Licensee (the
"ISV Agreement") and Licensor is willing to grant to Licensee a non-exclusive
license for such purposes on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of these premises and the mutual
covenants herein contained, the parties hereby agree as follows:
1. DEFINITIONS.
1.1 "LICENSED SOFTWARE" means the SilverStream Designer software
described in Exhibit A attached hereto in Source Code Form and in Object Code
Form,
1.2 "OBJECT CODE FORM" means a form of software code resulting
from the translation or processing of a computer program in Source Code Form by
a computer into machine language or intermediate code, which thus is in a form
that would not be convenient to human understanding of the program logic, but
which Is appropriate for execution or interpretation by a computer.
1.3 "FIREPOND PRODUCT" means the Firepond Workbench Product
described in Exhibit B attached hereto.
1.4 "SOURCE CODE FORM" Means a form in which a computer program's
logic is easily deduced by a human being with skill In the art, such as a
printed listing of the program or a form from which a printed listing can be
easily generated.
<PAGE> 2
2. LICENSES
2.1 Subject to the terms and conditions contained herein, Licensor
grants the Licensee, and the Licensee accepts, a worldwide, non-exclusive,
nontransferable right and license to use, copy, modify, enhance and prepare
derivative works of the Licensed Software in Source Code Form and Object Code
Form solely for the purpose of embedding the Licensed Software In the Firepond
Product and a worldwide, nonexclusive, nontransferable right and license (with
the right to sublicense provided the ISV Agreement is In effect) to distribute
the Licensed Software in Object Code Form only. Licensor also grants the
Licensee, and the Licensee accepts, a worldwide, nonexclusive, nontransferable
right and license (with the right to sublicense provided the ISV Agreement is in
effect) to use, copy, modify, enhance, prepare derivative works of and
distribute any user manuals and other documentation supplied by the Licensor,
2.2 Licensee agrees that the Licensed Software will not be sold or
priced separately or listed, or otherwise identified, on a price list as being
available on a standalone basis.
2.3 Licensee and its sublicensees and distributors will only
distribute the Licensed Software in Object Code Form pursuant to license
agreements that provides that the (i) sublicensee shall not disassemble or
reverse engineer the Licensed Software included with the Firepond Product, (ii)
sublicensee Is notified that portions of the software Included in the Firepond
Product have been licensed from Licensor; and (iii) provisions of such license
agreement inure to the benefit of Licensor where applicable.
2.4 In consideration of the licenses granted herein by Licensor,
Licensee shall pay to Licensor the fees and royalties. and purchase the update
and maintenance services, as provided in the ISV Agreement.
2.5 Licensee agrees that the Licensed Software and all derivative
works thereof shall be used only with the Firepond Product in accordance with
the terms of the ISV agreement.
2.6 Under no circumstances shall Licensee distribute any portion
of the Licensed Software in Source Code Form.
3. DELIVERY OF LICENSED SOFTWARE.
Licensor shall provide the Licensee with one (1) complete copy of the
Licensed Software in Source Code Form upon execution of this Agreement. IN
ADDITION, THE LICENSOR SHALL, FOR SO LONG AS THE ISV AGREEMENT IS IN EFFECT AND
CONCURRENTLY WITH ANY RELEASE OF A NEW VERSION OF THE LICENSOR'S APPLICATION
SERVER SOFTWARE (A "NEW VERSION"), DELIVER AN UPDATED VERSION OF THE LICENSED
SOFTWARE WHICH IS FULLY COMPATIBLE
2
<PAGE> 3
WITH THE NEW VERSION AND HAS AT LEAST ALL OF THE FUNCTIONALITY OF THE VERSION OF
THE LICENSED SOFTWARE WHICH IS GENERALLY AVAILABLE PRIOR TO THE RELEASE OF SUCH
NEW VERSION.
4. OWNERSHIP OF SOFTWARE
4.1 LICENSED SOFTWARE. Licensor shall retain all its rights, title
and interest in the Licensed Software, except for the license rights granted to
License hereunder and under the terms of the ISV Agreement.
4.2 COPYRIGHT NOTICES. The Licensee shall disclose that portions
of the Firepond Product are licensed from SilverStream and are copyrighted by
SilverStream
5. TERM AND TERMINATION.
5.1 TERM. This Agreement shall commence on the Agreement Date and
shall continue until terminated pursuant to Section 5.2; provided however, that
this Agreement shall terminate automatically at 5:00 p.m. (Boston time) on March
31, 1999 if the parties have not entered Into the ISV Agreement on or before
such date
5.2 GROUNDS FOR TERMINATION. This Agreement may be terminated:
(a) By Licensee upon notice to Licensor,
(b) By either party in the event the other party
materially breaches a Provision of this Agreement and the breaching party fails
to cure such breach within thirty (30) days of the receipt of written notice of
such breach from the non-breaching party.
5.3 EFFECTS OF TERMINATION.
(a) Upon termination of this Agreement, all rights,
obligations and licenses of the parties hereunder shall cease.
(b) Immediately after the termination on the grounds of a
material breach by the Licensee the Licensee shall have no further right to use,
copy, modify, enhance, create derivative works of, or distribute the Licensed
Software, provided, however, that Licensee shall continue to have the right to
use the Licensed Software for the sale purpose of maintaining and supporting the
Licensed Software for its licensees of the Firepond Product and Licensee's end
users shall continue to have the right to use the Licensed Software in
accordance with the terms of their end user license agreements.
(c) The provisions of Sections 6 (Confidentiality), 7
(Warranty and
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<PAGE> 4
Disclaimer of Warranty), 8 (Infringement Indemnification), 9 (Limitations on
Liability), 10 (Compliance with Laws), 11 (Notices), 12 (General Provisions) and
this Section 5 shall survive any termination or expiration of this Agreement
according to their terms.
(d) In the event of the automatic termination of this
Agreement as provided in Section 5.1 above, Licensee shall immediately return to
Licensor all copies of the Licensed Software and related documentation and
destroy all copies of enhancements, and modifications to, and derivative works
of, the Licensed Software and certify in writing to the Licensor to that effect.
6. CONFIDENTIALITY.
6.1 CONFIDENTIAL INFORMATION. The licensee agrees and acknowledges
that in order to facilitate the use of the Licensed Software, Licensor may
disclose to licensee certain confidential information which will be identified
as such in writing ("Confidential Information"). the Licensed Software in Source
Code Form shall be regarded as Confidential Information of licensor whether or
not it is identified in writing as "Confidential."
6.2 PROTECTION OF PROPRIETARY INFORMATION. In order to protect the
confidentiality of the Confidential Information Licensee agrees:
(a) Not to disclose or otherwise permit any other person
or entity access to, in any manner, the Confidential Information, or any part
thereof in any form whatsoever, except that such disclosure or access shall be
permitted to employees and agents of the Licensee requiring access to the
Confidential Information in the course of their work for Licensee, and who have
signed an agreement or agreements obligating them to maintain the
confidentiality of the Confidential Information of third parties in the
Licensee's possession and assigning to Licensee any of their inventions or
developments related to their work for Licensee;
(b) To notify Licensor promptly and in writing of the
circumstances surrounding any suspected possession, use or knowledge of the
Confidential Information or any part thereof at any location or by any person or
entity other than those authorized by this Agreement;
(c) Not to use the Confidential Information for any
purpose other than as explicitly set forth herein; and
(d) To provide in writing to Licensor the name of each
individual ranted access to the Confidential Information prior to the granting
of such access.
6.3 EXCEPTIONS. Nothing In this Section 6 shall restrict the
Licensee with respect to information or data, whether or not identical or
similar to that contained in the
4
<PAGE> 5
Confidential Information, if such information or data: (a) was rightfully
possessed by the Licensee before it was received from Licensor; (b) is
independently developed by the Licensee without reference to Licensor's
Confidential Information or data; (c) is subsequently furnished to the Licensee
by a third party not under any obligation of confidentiality with respect to
such information or data, and without restrictions on use or disclosure; or (d)
is or becomes public or available to the general public otherwise than through
any act or default of the Licensee. In addition, nothing in this agreement shall
prohibit Licensee from using information relating to ideas, concepts and
techniques retained In the memories of individual employees or agents without
the aid of any document or other recorded stored Information.
6.4 INJUNCTIVE RELIEF. Because the unauthorized use, transfer or
dissemination of any Confidential Information provided by Licensor to Licensee
may diminish substantially the value of such materials and may irreparably harm
Licensor, if the Licensee breaches the provisions of this Section 6, Licensor
shall, without limiting its other rights or remedies, be entitled to equitable
relief, including but not limited to injunctive relief.
7. WARRANTY AND DISCLAIMER OF WARRANTY.
THE LICENSED SOFTWARE IS BEING PROVIDED "AS IS" WITHOUT WARRANTY OF ANY
KIND AND LICENSOR HEREBY DISCLAIMS ALL WARRANTIES, WHETHER EXPRESS OR IMPLIED,
ORAL OR WRITTEN, WITH RESPECT TO THE LICENSED SOFTWARE INCLUDING, WITHOUT
LIMITATION, ALL IMPLIED WARRANTIES OF NON-INFRINGEMENT, MERCHANTABILITY OR
FITNESS FOR ANY PARTICULAR PURPOSE. NOTWITHSTANDING THE FOREGOING, THE
LIMITATIONS ON AND DISCLAIMERS OF REPRESENTATIONS, WARRANTIES AND INDEMNITIES
SET FORTH IN THIS AGREEMENT SHALL NOT BE CONSTRUED TO LIMIT OR QUALIFY ANY
REPRESENTATIONS, WARRANTIES OR INDEMNITIES ON THE OBJECT CODE FORM OF THE
LICENSED SOFTWARE FORTH IN THE ISV AGREEMENT.
8. INFRINGEMENT: INDEMNIFICATION
8.1 Except as provided below, Licensor shall defend and indemnify
Licensee from and against any damages, liabilities, Costs and expenses
(including reasonable attorneys' fees) arising out of any claim that the
Licensed Software infringes a valid United States patent, copyright or other
intellectual property right of a third party, PROVIDED THAT (ii) Licensee shall
have promptly provided Licensor written notice thereof and reasonable
cooperation, information, and assistance in connection therewith, and (ii)
Licensor shall have sole control and authority with respect to the defense,
settlement, or compromise thereof. Should any Licensed Software become or, in
Licensor's opinion, be likely to become the subject of an injunction preventing
its use as contemplated herein, Licensor may, at its option, (1) procure for the
Licensee the right
5
<PAGE> 6
to continue using such Licensed Software, (2) replace or modify such Licensed
Software so that it becomes non-infringing, or, if (1) and (2) are not
reasonably available to Licensor, then (3) terminate Licensee's license to the
allegedly Infringing Licensed Software.
8.2 Licensor shall have no liability or obligation to Licensee
hereunder with respect to any patent, copyright trade secret or other
intellectual property infringement, misappropriation or claim thereof based upon
(i) use of the Licensed Software by Licensee or its licensees in combination
with products or software riot provided by Licensor, or (ii) modifications,
alterations or enhancements of the Licensed Software not created by or for
Licensor,
8.3 Except as may otherwise be provided in the ISV Agreement, the
foregoing states the entire liability of Licensor with respect to Infringement
of patents, copyrights, trade secrets and other Intellectual property rights by
the Licensed Software or any part thereof or by Its operation.
9. LIMITATIONS ON LIABILITY
9.1 IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY LOSS OF DATA,
OR PROFITS OR SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES ARISING OUT
OF OR IN CONNECTION WITH THE USE OR PERFORMANCE Or THE LICENSED SOFTWARE,
9.2 Licensee will immediately inform Licensor as soon as Licensee
becomes aware of any threatened or actual liability claim by a third party
relating to the Licensed Software,
10. COMPLIANCE WITH EXPORT LAWS.
Licensee shall not export, directly or indirectly, the Licensed
Software, or other information or materials provided by Licensor hereunder, to
any country for which the United States or any other relevant jurisdiction
requires any export license or other governmental approval at the time of export
without first obtaining such license or approval.
11. NOTICES
Any notice or communication from one party to the other shall be in
writing and either personally delivered or sent via facsimile or certified mail,
postage prepaid and return receipt requested addressed, to such other party at
the address specified below or such other address as either party may from time
to time designate in writing to the other party.
6
<PAGE> 7
If to Licensor: SilverStream Software, Inc.
One Burlington Woods Drive
Burlington, MA 01803
Attn.: President
with a copy to: Hale and Dorr LLP
60 State Street
Boston, MA 02109
Attn.: John H. Chary, Esq.
If to the Licensee: Firepond Inc,
HQ Waltham
Bay Colony Corporate Center IV
1050 Winter Street
Suite 1000
Waltham, MA 02457
Attn.: Klaus P. Besier
with a copy to: Goodwin, Procter and Hoar LLP
Exchange Place
Boston, MA 02109
Attn: John Egan III, P.C.
No change of address shah be binding upon the other party hereto until
written notice thereof is received by such party at the address show herein. All
notices shall be in English and shall be effective upon receipt.
12. GENERAL PROVISIONS.
12.1 FORCE MAJEURE. In the event that either party is prevented
from performing, or is unable to perform, any of its obligations under this
Agreement due to any cause beyond the reasonable control of the patty invoking
this provision, the affected party's performance shall be excused and the time
for performance shall be extended for the period of delay or inability to
perform due to such occurrence.
12.2 WAIVER. The waiver by either party of a breach or a default of
any provision of this Agreement by the other party shah not be construed as a
waiver of any succeeding breach of the same or any other provision, nor shall
any delay or omission on the part of either party to exercise or avail Itself of
any right, power or privilege that it has, or may have hereunder operate as a
waiver of any right power or privilege by such party.
7
<PAGE> 8
12.3 NO AGENCY; INDEPENDENT CONTRACTORS. Nothing contained in this
Agreement shall be deemed to imply or constitute either party as the agent or
representative of the other party, or both parties as joint ventures or partners
for any purpose.
12.4 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts,
without regard to its choice of low provisions.
12.5 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the Exhibits
attached hereto constitute (together with the ISV Agreement if one is in effect)
the entire agreement between the parties with regard to the subject matter
hereof. No waiver, consent modification or change of terms of this Agreement
shall bind either party unless in writing signed by both parties, and then such
waiver, consent, modification or change shall be effective only in the specific
instance and for the specific purpose given.
12.6 MISCELLANEOUS. All rights and licenses granted under or
pursuant to this Agreement by Licensor to Licensee are, and shall otherwise be
deemed to be, for purposes of Section 365(n) of the United States Bankruptcy
Code (the "Code"), licenses to rights in "intellectual property," as defined in
the Code.
12.7 HEADINGS. Captions and headings contained in this Agreement
have been included for ease of reference and convenience and shall not be
considered in interpreting or construing this Agreement.
12.8 COSTS, EXPENSES AND ATTORNEYS' FEES. If either party commences
any action or proceeding against the other party to enforce or interpret this
Agreement, the prevailing party in such action or proceeding shall be entitled
to recover from the other party the actual costs, expenses and reasonable
attorneys' fees (including all related costs and expenses), incurred by such
prevailing party in connection with such action or proceeding and in connection
with obtaining and enforcing any judgment or order thereby obtained.
IN WITNESS WHEREOF, the parties, have caused this Agreement to be
executed by their duly authorized representatives.
SILVERSTREAM SOFTWARE, INC. FIREPOND, INC.
By: /s/ John H. Chary By: /s/ Thomas F. Carretta
---------------------------------- -----------------------------
Name: John H. Chary Name: Thomas F. Carretta
Title: Director, Channel Sales Title: Secretary
Date: 3/31/99 Date: 3/31/99
8
<PAGE> 9
EXHIBIT A
LICENSED SOFTWARE
This Exhibit A is incorporated in its entirety as part of this Software
License Agreement between Licensor and Licensee.
LICENSED SOFTWARE:
The SilverStream Designer Source Code
Packages that begin with the following files;
[ * * * ]
[ * * * ] Confidential treatment has been requested for the bracketed
portions. The confidential redacted portion has been filed
separately with the Securities and Exchange Commission.
9
<PAGE> 10
EXHIBIT B
FIREPOND PRODUCT
This Exhibit B is incorporated in its entirety as part of this
Software License Agreement between Licensor and Licensee.
10
<PAGE> 11
BUSINESS PARTNER AGREEMENT
<TABLE>
<S> <C> <C>
Partner FirePond, Inc.
Partner Address: 1983 Premier Drive
Mankato, MN 56001
Incorporated in the State of: Minnesota
Telephone: 800-772-8110 781-530-3740
Fax:
e-Mail: URL:
</TABLE>
This Agreement and the Exhibits which form part of it set forth the terms
applicable to you as a SilverStream Business Partner. By signing this Agreement
Partner agrees to the General Terms and the Exhibits applicable to each category
selected below.
Partner Category:
[X] SilverStream Independent Software Vendor (ISV) Partner
This Agreement takes effect as of the last date written below.
<TABLE>
<S> <C> <C>
SILVERSTREAM SOFTWARE, INC. PARTNER FIREPOND, INC.
Signature /s/ John H. Chary Signature /s/ Thomas F. Carretta
----------------------- ----------------------
Name (please print) John H. Chary Name (please print) Thomas F. Carretta
Title Director, Channel Sales Title Secretary
Date 3/31/99 Date 3/31/99
</TABLE>
SilverStream Software, Inc. One Burlington Woods Drive, Burlington,
MA 01803, USA.
Tel (781) 238 5400, Fax (781) 238 5499
Confidential 1998
<PAGE> 12
1. APPOINTMENT
SilverStream appoints Partner as a non-exclusive member of the SilverStream
Business Partner Program in the Territory for the category(s) selected
(individually a "Category") on the face page of this Agreement. SilverStream and
Partner acknowledge their respective benefits and obligations as outlined in the
Exhibits attached hereto. SilverStream may in all Categories (but not in the ISV
Category) from time to time change the terms and conditions as outlined in
Exhibits by giving the Partner 30 days notice. Partner represents that it meets
or will meet within 60 days of the date hereof the program requirements
specified in Exhibit B and agrees to maintain such qualification during the
period of this Agreement.
2. TERM
This Agreement shall be for an initial term of One (1) years ("Initial Term")
commencing on the date hereof and this Agreement shall automatically renew for
FOUR subsequent one (1) year periods unless terminated as elsewhere herein
provided.
3. GRANT OF LICENSES
3.1 Subject to the terms and conditions of the Agreement, SilverStream
hereby grants to the Partner, and the hereby accepts, the license set
forth in Exhibit A for the Products as designated in Exhibit A. To the
extent permitted herein, the distribution of any Product by Partner AND
ITS DISTRIBUTORS, RESELLERS AND PARTNERS shall be subject to the terms
and conditions of SilverStream's shrink-wrap sublicense agreements
under which each end user sublicensee agrees: (i) to operate and
process the Product for its own business purposes only, without the
rights to further sublicense; (ii) not to copy or reproduce the
Product, in whole or in part, except as permitted in writing; (iii) not
to modify, adapt, translate, decompile, disassemble or reverse engineer
(except to the extent SilverStream is required by applicable law to
allow you to reverse engineer the software) the Product in any manner,
and (iv) that the sublicense agreement inures to the benefit of
SilverStream, and that SilverStream may directly enforce the terms of
the sublicense agreement in order to protect its interest in the
Products.
3.2 EXCEPT AS PROVIDED IN A CERTAIN SOFTWARE LICENSE AGREEMENT DATED THE
DATE HEREOF (THE "SOURCE CODE AGREEMENT") NEITHER Partner nor any
persons or entities who directly or indirectly purchase or license
Products from or who have the Products marked to them by, the Partner
in accordance with this Agreement ("Customers") shall have any right to
create derivative works of the Products.
3.3 Title to and ownership of the Products, including all patents,
copyrights and property rights applicable thereto, shall at all times
remain solely and exclusively with SilverStream or its licensors, and
neither the Partner nor any Customer shall take any action inconsistent
with such title and ownership.
3.4 SilverStream, may at its option, make available to Partner certain
software, media and/or related documentation for products or versions
of products not generally commercially available ("Pre-released
SOFTWARE"). Partner agrees to use Pre-released Software for testing and
evaluation purposes only, and to treat Pre-released Software as
Confidential Information and trade secrets subject to the provisions of
this Agreement. Partner agrees to abide by the terms of the shrink-wrap
license associated with such Pre-released Software.
Confidential 1998
<PAGE> 13
4. PRICES, PAYMENT AND AUDIT
4.1 Partner agrees to pay the "Partner Price" as a license fee for each
Product ordered hereunder. The Partner Price shall equal SilverStream's
suggested MSRP ("Base Price") for Products ordered, less the applicable
discount (the "Discount"), set forth in the North American Price List
("Price List") in Exhibit C. All Base Prices and Partner Prices are in
U.S. Dollars and F.O.B. SilverStream's point of shipment. All payments
from Partner to SilverStream shall be made in U.S. Dollars. Payments
from Canadian Partners may be made in Canadian Dollars if the
SilverStream invoice to the Partner is prepared by SilverStream in
Canadian Dollars.
4.2 SilverStream in its sole discretion, shall have the right from time to
time, to change the Base Prices and Discounts and/or add or delete
products to or from the Price List by giving 30 days' prior written
notice to the Partner. Orders accepted by SilverStream prior to the
effective date of any such change and scheduled for delivery within 30
days following receipt by SilverStream shall be processed at the lower
of (i) the Base Prices and/or Partner Prices in effect on the date of
acceptance of the order or (ii) the Base Prices and/or Partner Prices
in effect on the scheduled shipment date.
4.3 The payment terms for Product ordered shall be net thirty (30) days and
if Partner fails to pay any amounts when due, the Partner shall pay
SilverStream a late payment charge equal to 1.5% per month or if lesser
the maximum amount permitted by law. SilverStream reserves the right to
require full or partial payment in advance, or to revoke any credit
previously extended, if, in SilverStream's judgment, the Partner's
financial condition does not warrant proceeding on the terms specified.
4.4 SILVERSTREAM SHALL HAVE THE RIGHT, SUBJECT TO REASONABLE ADVANCE
NOTICE, AND NO MORE OFTEN THAN ONCE PER CALENDAR YEAR, TO HAVE AN
INDEPENDENT AUDITOR OF NATIONALLY RECOGNIZED STANDING ACCEPTABLE TO
PARTNER (WHICH ACCEPTANCE MAY BE CONDITIONED UPON APPROPRIATE
UNDERTAKINGS REGARDING CONFIDENTIALITY BUT SHALL NOT IN ANY EVENT BE
UNREASONABLY WITHHELD) inspect such books and records of Partner, at
Partner's principal place of business, as are necessary to verify the
reports provided by Partner to SilverStream. Any such audit shall be at
the expense of SilverStream, unless such audit discloses an
underpayment by the Partner in excess of TEN PERCENT (10%) IN ANY
THREE-MONTH PERIOD, IN WHICH CASE PARTNER shall reimburse SilverStream
for such expenses. Any underpayment by Partner shall be promptly paid
to SilverStream together with interest as provided in this Section.
5. TAXES AND IMPORT DUTIES
Base Prices and Partner Prices are exclusive of all federal, state, municipal,
excise, sales, use, value added, property and other similar taxes and import
duties, now in force or enacted in the future by any community of nations or any
nation or political subdivision, all of which shall be paid by the Partner,
except for such taxes as are imposed on SilverStream's income, which shall be
paid by SilverStream. The Partner is responsible for obtaining and providing to
SilverStream any certificate of exemption or similar document required to exempt
any sale from sales, use or similar tax liability.
6. MASTER DISKS AND AUTHORIZED LICENSE CODES
Master Disks and authorized license codes. Partner is authorized to distribute
Application Deployment Servers and is authorized to make Evaluation Copies and
Demonstration Copies of the Software and copies of the Software to be licensed
as Application Deployment Servers from the Master Disks ("Master Disks") and
authorized license codes that SilverStream will make available to Partner.
Partner may make a reasonable number of Evaluation and Demonstration copies that
may be distributed without Royalties provided that the Partner receives no
revenue associated with the Evaluation and Demonstration Copies and Evaluation
and Demonstration Copies contains a license code, as provided by SilverStream,
that causes the Software to cease functioning 60 days after installation.
Partner must maintain adequate security over Master Disks and authorized license
codes and shall allow only a limited number of employees to make copies from
Master Disks. Partner shall fully account for all copies of the Software.
Partner shall not modify or alter and proprietary rights notices contained
within the Software. Partner is strictly prohibited from providing access or
transferring the Master Disks or license codes to any third party.
Confidential 1998
<PAGE> 14
7. OBLIGATIONS OF THE PARTNER
Partner shall undertake all obligations set forth as Program Requirements on
Exhibit B.
8. WARRANTIES
SILVERSTREAM DISCLAIMS ALL WARRANTIES, WHETHER EXPRESS OR IMPLIED, WRITTEN OR
ORAL, WITH RESPECT TO THE PRODUCTS, INCLUDING WITHOUT LIMITATION ALL IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE.
SILVERSTREAM'S LIABILITY FOR DAMAGES TO THE PARTNER FOR ANY CAUSE WHATSOEVER
REGARDLESS OF THE FORM OF ANY CLAIM OR ACTION, SHALL NOT EXCEED THE AGGREGATE
PAID FOR PRODUCTS UNDER THIS AGREEMENT. EXCEPT FOR LIABILITY FOR DAMAGES ARISING
UNDER SECTIONS 3, 4, AND/OR 11.1 FOR WHICH NOT LIMITATION SHALL APPLY, PARTNER'S
LIABILITY FOR DAMAGES TO SILVERSTREAM FOR ANY CAUSE WHATSOEVER, REGARDLESS OF
THE FORM OF ANY CLAIM OR ACTION, SHALL NOT EXCEED AN AMOUNT EQUAL TO THE
AGGREGATE PAID BY PARTNER FOR PRODUCTS UNDER THIS AGREEMENT. EXCEPT FOR
PARTNER'S LIABILITY FOR DAMAGES TO SILVERSTREAM ARISING UNDER SECTIONS 3 OR
11.1, NEITHER PARTY SHALL BE LIABLE FOR ANY LOSS OF DATA, PROFITS OR USE OF THE
PRODUCTS, OR FOR ANY SPECIAL, INDIRECT, INCIDENTAL, EXEMPLARY OR CONSEQUENTIAL
LOSS DAMAGES ARISING HEREUNDER EVEN IF SILVERSTREAM HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. IN NO EVENT WILL SILVERSTREAM BE LIABLE TO
CUSTOMERS OR OTHER THIRD PARTIES NOR ANY DAMAGES, INCLUDING BUT NOT LIMITED TO:
(i) DAMAGES CAUSED BY THE PARTNER'S FAILURE TO PERFORM COVENANTS AND
RESPONSIBILITIES, BY REASON OF SILVERSTREAM'S NEGLIGENCE OR OTHERWISE; (ii)
DAMAGES CAUSED BY REPAIRS OR MODIFICATIONS DONE WITHOUT SILVERSTREAM'S WRITTEN
APPROVAL; OR (iii) LOSS OF DATA, OR PROFITS OR USE OF THE PRODUCTS OR ANY
SPECIAL, INDIRECT, INCIDENTAL, EXEMPLARY OR CONSEQUENTIAL LOSS DAMAGES IN
CONNECTION WITH THE USE OR PERFORMANCE OF THE PRODUCTS. THE PARTNER SHALL
INDEMNIFY SILVERSTREAM AGAINST ALL SUCH CLAIMS ASSERTED BY ITS CUSTOMERS OR
OTHER THIRD PARTIES AGAINST SILVERSTREAM.
Indemnification by the Partner. To the extent a claim or action is brought
against SilverStream based on or related to the Partner's failure to observe or
perform its obligations under this Agreement, including its obligation to notify
customers of limitation and disclaimers of warranties and liabilities, the
Partner shall defend and hold SilverStream harmless from and against any and all
damages, costs and expenses, including reasonable attorney's fees, suffered by
or awarded against SilverStream.
9. PATENTS AND TRADEMARKS
9.1 INFRINGEMENT INDEMNIFICATION BY SILVERSTREAM. IN THE EVENT OF ANY
ACTION OR CLAIM ALLEGING THAT THE PRODUCTS INFRINGE ANY PATENT,
COPYRIGHT, TRADEMARK, TRADE SECRET OR OTHER INTELLECTUAL PROPERTY
RIGHTS OF ANY THIRD PARTY, SILVERSTREAM SHALL INDEMNIFY, DEFEND AND
HOLD THE PARTNER HARMLESS FROM ALL CLAIMS, LIABILITIES, DAMAGES,
EXPENSES, JUDGEMENTS AND LOSSES (INCLUDING REASONABLE ATTORNEYS' FEES)
ARISING FROM SUCH ACTION OR CLAIM AT ITS EXPENSE AND PAY ALL COSTS AND
DAMAGES FINALLY AWARDED IN SUCH ACTION OR SETTLEMENT WHICH ARE
ATTRIBUTABLE TO SUCH CLAIM. SilverStream MAY ASSUME sole control of the
defense of any such action and all negotiations for its settlement or
compromise. The Partner shall cooperate fully with SilverStream in the
defense, settlement or compromise of any such action. In the event that
a final injunction is obtained against the Partner's use of the Product
by reason of infringement of a valid patent, copyright, trade secret or
other intellectual property right, or if in the REASONABLE opinion of
SilverStream the Product is likely to become the subject of a
successful claim of such infringement, SilverStream shall, at its
option and expense, (i) procure for the Partner and its Customers the
right to continue using the Product, (ii) replace or modify the Product
so that it becomes non-infringing so long as its functionality is
essentially unchanged, or (iii) if neither (i) and (ii) are reasonably
available to SilverStream, terminate the license for the Products AND
REFUND ALL LICENSE FEES PAID TO SILVERSTREAM
Confidential 1998
<PAGE> 15
HEREUNDER.
9.2 Notwithstanding the foregoing, SilverStream shall have no liability to
the Partner to the extent that any infringement or claim thereof is
based upon (i) use of any Product in combination with equipment or
software not supplied by SilverStream where the Product would not
itself be infringing, (ii)compliance with designs, specifications or
instructions of the Partner or any of its Customers, (iii) use of any
Product in any application or environment for which its was not
designed or contemplated hereunder, (iv) modifications of the Products
by anyone other than SilverStream, or (v) any claims or infringement of
any patent, copyright or trade secret in which the Partner or any
affiliate of the Partner has an interest or license.
9.3 THE FOREGOING INDEMNIFICATION PROVISIONS STATE THE ENTIRE LIABILITY OF
SILVERSTREAM WITH RESPECT TO INFRINGEMENT OR ALLEGED INFRINGEMENT OF
PATENTS, COPYRIGHTS, TRADEMARKS, TRADE SECRETS AND OTHER INTELLECTUAL
PROPERTY OR PROPRIETARY RIGHTS BY THE PRODUCTS.
9.4 INFRINGEMENT, INDEMNIFICATION BY THE PARTNER. THE PARTNER SHALL
INDEMNIFY, DEFEND AND HOLD HARMLESS SILVERSTREAM AGAINST ALL CLAIMS,
LIABILITIES, DAMAGES, EXPENSES, JUDGMENTS AND LOSSES (INCLUDING
REASONABLE ATTORNEYS' FEES) ARISING FROM INFRINGEMENT OR ALLEGED
INFRINGEMENT OF ANY PATENT, COPYRIGHT, TRADE SECRET, TRADEMARK OR OTHER
INTELLECTUAL PROPERTY OR PROPRIETARY RIGHT AS A RESULT OF COMPLIANCE BY
SILVERSTREAM WITH THE DESIGNS, SPECIFICATIONS OR INSTRUCTIONS OF THE
PARTNER OR ANY OF ITS CUSTOMERS.
9.5 OWNERSHIP OF PATENTS AND TRADEMARKS. ALL PATIENTS, TRADEMARKS, TRADE
NAMES, COPYRIGHTS, DOMAIN NAMES AND DESIGNS IN RELATION TO THE PRODUCTS
AND THE LITERATURE SUPPLIED IN CONNECTION THEREWITH SHALL BE AND REMAIN
THE PROPERTY OF SILVERSTREAM, OR THE OWNER OF SUCH AS APPLICABLE AND NO
RIGHTS TO DUPLICATE SUCH PROPERTY SHALL ACCRUE TO THE PARTNER UNLESS
EXPRESSLY PROVIDED HEREIN OR UNLESS WRITTEN PERMISSION IS GRANTED BY
SILVERSTREAM.
9.6 USE OF SILVERSTREAM'S TRADE NAMES AND TRADEMARKS. THE PARTNER AGREES AS
FOLLOWS WITH RESPECT TO ANY MARKINGS, COLORS, LOGOS OR OTHER INSIGNIA
WHICH ARE CONTAINED ON OR IN OR AFFIXED TO PRODUCTS AT THE TIME OR
SHIPMENT (COLLECTIVELY, WITH ANY DOMAIN NAME INCLUDING THE WORD
SILVERSTREAM, THE "SILVERSTREAM MARKS").
9.6.1 SUBJECT TO THE TERMS AND CONDITIONS OF THIS AGREEMENT,
SILVERSTREAM HEREBY GRANTS TO PARTNERS DURING THE TERM OF THIS
AGREEMENT A NON-ASSIGNABLE AND NON-TRANSFERABLE RIGHT AND
LICENSE TO USE THE SILVERSTREAM MARKS IN THE CONDUCT OF ITS
BUSINESS IN A STYLE AND MANNER APPROVED BY SILVERSTREAM IN
WRITING PRIOR TO SUCH USE. PARTNER MAY, IN ADVERTISING,
PROMOTIONAL MATERIALS, LETTERHEADS, INVOICES, AND OTHER
APPROPRIATE DOCUMENTS, DESCRIBE ITSELF AS AN "AUTHORIZED
PARTNER FOR SILVERSTREAM SOFTWARE PRODUCTS." PARTNER SHALL
FORWARD TO SILVERSTREAM FOR ITS PROMPT REVIEW AND APPROVAL ANY
AND ALL FORMS OF PROPOSED ADVERTISING OR PROMOTIONAL MATERIALS
OF PARTNER WHICH INCLUDE A SILVERSTREAM MARK.
9.6.2 PARTNER AGREES IT IS NOT AUTHORIZED UNDER THIS AGREEMENT TO
USE ANY SILVERSTREAM MARKS IN CONNECTION WITH ANY BUSINESS
CONDUCTED BY THE PARTNER OTHER THAN THE BUSINESS OF RESELLING
PRODUCTS IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT.
9.6.3 PARTNER WILL NOT, DURING OR AFTER THE TERM OF THIS AGREEMENT,
CLAIM ANY OWNERSHIP OR SIMILAR INTEREST IN ANY OF THE
SILVERSTREAM MARKS.
9.6.4 NOTHING HEREIN SHALL GIVE PARTNER ANY RIGHT, TITLE, OR
INTEREST IN THE SILVERSTREAM MARKS EXCEPT THE RIGHT TO USE THE
NAME DURING THE TERM OF THIS AGREEMENT AND IN ACCORDANCE WITH
ITS TERMS. ANY USE OF THE SILVERSTREAM MARKS BY OR WITH THE
AUTHORITY OF PARTNER SHALL INURE TO THE BENEFIT OF
SILVERSTREAM.
9.6.5 PARTNER AGREES IT SHALL NOT, AND IT SHALL NOT CAUSE OR ASSIST
ANY THIRD PARTY TO, REGISTER OR ATTEMPT TO REGISTER, IN ITS
OWN NAME OR OTHERWISE, ANY OF THE SILVERSTREAM MARKS OR ANY
OTHER TRADEMARKS, SERVICE MARKS, OR SLOGANS OWNED BY OR
ASSOCIATED WITH SILVERSTREAM OR ANY DERIVATIVE OF ANY OF
THESE. IN THE EVENT THAT PARTNER SECURES OR HAS SECURED IN ANY
JURISDICTION ANY RIGHTS TO ANY OF THE SILVERSTREAM MARKS OR
ANY OF SUCH OTHER MARKS OR SLOGANS WHICH ARE PRIOR TO OR
GREATER THAN THE RIGHTS OWNED BY SILVERSTREAM, THEN PARTNER
SHALL IMMEDIATELY
Confidential 1998
<PAGE> 16
NOTIFY SILVERSTREAM OF SAME AND, UPON WRITTEN REQUEST FROM
SILVERSTREAM, HEREBY ASSIGNS ALL PARTNER'S RIGHT, TITLE AND
INTEREST THEREIN TO SILVERSTREAM (OR ITS DESIGNEE).
9.6.6 PARTNER AGREES TO NOTIFY SILVERSTREAM IN WRITING OF ANY
APPARENT INFRINGEMENT OF ANY OF THE SILVERSTREAM MARKS WHICH
COMES TO THE ATTENTION OF PARTNER.
9.6.7 UPON TERMINATION OF THIS AGREEMENT FOR ANY REASON, ALL RIGHTS
AND LICENSES GRANTED TO PARTNER HEREUNDER SHALL TERMINATE AND
REVERT IMMEDIATELY TO SILVERSTREAM AND PARTNER SHALL
IMMEDIATELY CEASE USING THE SILVERSTREAM MARKS.
9.6.8 PARTNER ACKNOWLEDGES AND AGREES THAT THE SILVERSTREAM MARKS
HAVE A UNIQUE CHARACTER GIVING THEM A PECULIAR VALUE, THE LOSS
OF WHICH CANNOT REASONABLY OR ADEQUATELY BE COMPENSATED FOR BY
MONETARY DAMAGES, AND THAT THE VIOLATION BY PARTNER OF THE
PROVISIONS HEREOF CONCERNING THE SAME OR OF SILVERSTREAM'S
RIGHTS THEREIN ARE LIKELY TO CAUSE SILVERSTREAM IRREPARABLE
DAMAGES AND INJURY. PARTNER HEREBY EXPRESSLY AGREES THAT
SILVERSTREAM WILL BE ENTITLED TO EQUITABLE RELIEF TO PREVENT
OR CURE ANY VIOLATION OR INFRINGEMENT OR THREATENED VIOLATION
OR INFRINGEMENT OF SILVERSTREAM'S RIGHTS IN THE SILVERSTREAM
MARKS.
10. TERMINATION, DEFAULT AND REMEDIES
10.1 AFTER THE INITIAL TERM AND FOR THE NEXT FOUR ANNUAL RENEWALS
THIS AGREEMENT MAY BE TERMINATED BY THE PARTNER, WITHOUT
CAUSE, UPON WRITTEN NOTICE TO SILVERSTREAM GIVING 90 DAYS
NOTICE, AT ANY TIME DURING THE TERM OF THIS AGREEMENT.
10.2 AFTER THE INITIAL TERM, AND THE FOUR ANNUAL RENEWALS THIS
AGREEMENT MAY BE TERMINATED BY EITHER PARTY, WITHOUT CAUSE,
UPON WRITTEN NOTICE TO THE OTHER PARTY GIVING 90 DAYS.
10.3 UPON THE OCCURRENCE OF ANY OF THE FOLLOWING ACTS OR EVENTS
("EVENTS OF DEFAULT"), THE PARTNER SHALL BE IN DEFAULT AND
BREACH OF THIS AGREEMENT.
10.3.1 WHERE APPLICABLE, THE FAILURE TO MEET THE FINANCIAL
REQUIREMENTS AS SET FORTH ON EXHIBIT B WHICH IS NOT CURED
WITHIN THIRTY (30) DAYS AFTER WRITTEN NOTICE THEREOF FROM
SILVERSTREAM.
10.3.2 FAILURE TO MAKE ANY MATERIAL PAYMENT WHEN DUE HEREUNDER WHICH
FAILURE REMAINS UNCURED FOR THIRTY DAYS (30) DAYS AFTER NOTICE
THEREOF FROM SILVERSTREAM.
10.3.3 FAILURE TO COMPLY WITH THE MATERIAL TERMS HEREOF OR TO PERFORM
IN ALL MATERIAL RESPECTS ANY OF ITS COVENANTS, OBLIGATIONS OR
RESPONSIBILITIES UNDER THIS AGREEMENT WHICH FAILURE REMAINS
UNCURED FOR THIRTY (30) DAYS AFTER NOTICE THEREOF FROM
SILVERSTREAM.
10.3.4 DISSOLUTION, TERMINATION OF EXISTENCE, LIQUIDATION, INSOLVENCY
OR BUSINESS FAILURE OF THE PARTNER OR THE INSTITUTION OF ANY
BANKRUPTCY PROCEEDING AGAINST OR BY THE PARTNER, OR THE
APPOINTMENT OF A CUSTODIAN OR RECEIVER FOR THE PARTNER OR ANY
PART OF ITS PROPERTY IF SUCH BANKRUPTCY PROCEEDING OR
APPOINTMENT IS NOT TERMINATED OR DISMISSED WITHIN THIRTY (30)
DAYS.
10.3 UPON THE OCCURRENCE OF AN EVENT OF DEFAULT, SILVERSTREAM, IN ITS SOLE
DISCRETION, SHALL HAVE THE RIGHT TO (i) IMMEDIATELY TERMINATE, BY
WRITTEN NOTICE, THIS AGREEMENT AND/OR ANY SOFTWARE LICENSE GRANTED TO
THE PARTNER, (ii) CANCEL ANY OR ALL UNFILLED ORDERS FOR PRODUCTS
SUBMITTED BY THE PARTNER, AND (iii) EXERCISE ANY OTHER REMEDY WHICH MAY
BE AVAILABLE AT LAW OR IN EQUITY.
10.4 Upon the termination of this Agreement, the Partner shall (i) cease
immediately from acting as a Partner of SilverStream and abstain from
making further distributions of Products, (ii) pay to SilverStream, in
full within 30 days of such termination, all amounts owed to
SilverStream, (iii) cooperate with SilverStream in completing all
outstanding obligations to Customers, and (iv) cease making use of any
printed material, trademarks, trade name or domain name identified with
SilverStream without the express written consent of SilverStream. The
provisions set forth in Sections 8, 9.6.7, 9.6.8, 10 and 11 shall
survive the termination of this Agreement.
10.4 Silver stream shall have no liability to the Partners for
damages of any kind, including indirect, incidental or
consequential damages, on account of the termination or
expiration of this Agreement IN ACCORDANCE WITH ITS TERMS.
Without limiting the generality of the foregoing, SilverStream
shall not be liable to the Partner for reimbursement or
damages for the loss of
Confidential 1998
<PAGE> 17
goodwill, prospective profits or anticipated sales, or on
account of any expenditures, investment, leases or commitments
made by the Partner or for any other reason whatsoever based
upon, or growing out of, such termination or expiration.
10.5 THE REJECTION OF THIS AGREEMENT OR THE LICENSE OF THE PRODUCT GRANTED
HEREUNDER PURSUANT TO SECTION 365 OF THE UNITED STATES BANKRUPTCY CODE
(THE "CODE") BY SILVERSTREAM OR A TRUSTEE IN A BANKRUPTCY PROCEEDING
UNDER THE CODE CONSTITUTES A MATERIAL BREACH OF THIS AGREEMENT AND
ENTITLES PARTNER, AT ITS OPTION, TO TERMINATE THIS AGREEMENT AND THE
LICENSE OF THE PRODUCT GRANT HEREUNDER UPON WRITTEN NOTICE.
11. GENERAL
11.1 Proprietary Information. No proprietary information disclosed by either
party to the other in connection with this Agreement shall be disclosed
to any person or entity other than the recipient party's employees or
agents directly involved with the recipient party's use of such
information (in accordance with the terms hereof) who are bound by
written agreement to protect the confidentiality of such information,
and such information shall otherwise be protected by the recipient
party from disclosure to others. Information will not be subject to
this provision if it is or becomes a matter of public knowledge without
the fault of the recipient party, if it was a matter of written record
in the recipient party's files prior to disclosure to it by the other
party, if it was or is received by the recipient party from a third
person under circumstances permitting ITS DISCLOSURE BY THE RECIPIENT
PARTY OR IF IT IS INDEPENDENTLY developed by the recipient party. Upon
termination of this Agreement, each party shall promptly deliver to the
other all proprietary information of the other party in the possession
or control of such party and all copies thereof. The obligations under
this Section shall continue for a period of five (5) years after the
termination of the Agreement.
11.2 ALL RIGHTS AND LICENSES GRANTED UNDER OR PURSUANT TO THIS AGREEMENT BY
SILVERSTREAM TO PARTNER (INCLUDING THE LICENSE OF THE PRODUCT GRANTED
HEREUNDER) ARE, AND SHALL OTHERWISE BE DEEMED TO BE, FOR PURPOSES OF
SECTION 365(n) OF THE CODE, LICENSES TO RIGHT IN "INTELLECTUAL
PROPERTY, " AS DEFINED UNDER THE CODE. THE PARTIES HERETO FURTHER AGREE
THAT IN THE EVENT OF THE COMMENCEMENT OF BANKRUPTCY PROCEEDINGS BY OR
AGAINST SILVERSTREAM UNDER THE CODE, PARTNER SHALL BE ENTITLED, AT ITS
OPTION, TO RETAIN ALL OF ITS RIGHTS UNDER THIS AGREEMENT (INCLUDING THE
LICENSE OF THE PRODUCT GRANTED HEREUNDER) PURSUANT TO CODE SECTION
35(n).
11.3 Force Majeure. In the event that either party fails to perform any of
its obligations under this Agreement due to any act of God, fire,
casualty, flood, war, strike, lock out, failure of public utilities,
injunction or any act, exercise, intervention of governmental
authority, epidemic, insurrection, or any other cause beyond the
reasonable control of the party invoking this provision, then, except
for Partner's obligation to make payments to SilverStream hereunder,
the affected party's performance shall be excused and the time for
performance shall be extended for the period of delay or inability to
perform due to such occurrence.
11.4 COMPLIANCE WITH U.S. GOVERNMENT REGULATIONS. THE PARTIES AGREE TO
COMPLY WITH ALL U.S. STATE AND FEDERAL LAWS, REGULATIONS OR ORDERS
PERTAINING TO THE FULFILLMENT OF THIS AGREEMENT INCLUDING, BUT NOT
LIMITED TO EXPORT CONTROL LAWS, ANTI-BOYCOTT LAWS, AND THE FOREIGN
CORRUPT PRACTICES ACT, WHICH PROHIBITS CERTAIN PAYMENTS TO PARTIES WHO
ARE NOT THE PARTNER.
11.5 APPLICABLE LAW AND JURISDICTION. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS.
11.6 RELATIONSHIP OF THE PARTIES. THE PARTNER ACKNOWLEDGES THAT BOTH PARTIES
HERETO ARE, INDEPENDENT CONTRACTORS AND THAT THE PARTNER WILL, ON ITS
OWN BEHALF, SOLICIT ORDERS FOR PRODUCTS ONLY AS AN INDEPENDENT
CONTRACTOR. THE PARTNER SHALL NOT REPRESENT ITSELF AS A PARTNER, JOINT
VENTURE, AGENT, EMPLOYEE OR GENERAL REPRESENTATIVE OF SILVERSTREAM. THE
PARTNER ACKNOWLEDGES THAT IT SHALL HAVE NO RIGHT, POWER OR AUTHORITY TO
IN ANY WAY OBLIGATE SILVERSTREAM TO ANY CONTRACT OR OTHER OBLIGATION.
11.7 ENTIRE AGREEMENT. THIS AGREEMENT (TOGETHER WITH THE SOURCE CODE
AGREEMENT AND THE ESCROW AGREEMENT) CONSTITUTES THE ENTIRE AGREEMENT
BETWEEN SILVERSTREAM AND THE PARTNER WITH RESPECT TO THE
Confidential 1998
<PAGE> 18
SUBJECT MATTER HEREOF AND SHALL NOT BE AMENDED, ALTERED OR CHANGED
EXCEPT BY A WRITTEN AGREEMENT SIGNED BY THE PARTIES HERETO.
11.8 WAIVERS. NO DELAY OR OMISSION ON THE PART OF EITHER PARTY TO THIS
AGREEMENT IN REQUIRING PERFORMANCE BY THE OTHER PARTY OR IN EXERCISING
ANY RIGHT HEREUNDER SHALL OPERATE AS A WAIVER OF ANY PROVISION HEREOF
OR OF ANY RIGHT OR RIGHTS HEREUNDER; AND THE WAIVER, OMISSION OR DELAY
IN REQUIRING PERFORMANCE OR EXERCISING ANY RIGHT HEREUNDER ON ANY ONE
OCCASION SHALL NOT BE CONSTRUED AS A BAR TO OR WAIVER OF SUCH
PERFORMANCE OR RIGHT, OR OF ANY RIGHT OR REMEDY UNDER THIS AGREEMENT,
ON ANY FUTURE OCCASION.
11.9 NOTICES. FOR PURPOSES OF THIS AGREEMENT, AND FOR ALL NOTICES AND
CORRESPONDENCE HEREUNDER, THE ADDRESSES OF THE RESPECTIVE PARTIES HAVE
BEEN SET OUT AT THE BEGINNING OF THIS AGREEMENT, AND NO CHANGE OF
ADDRESS SHALL BE BINDING UPON THE OTHER PARTY UNTIL WRITTEN NOTICE
THEREOF IS RECEIVED BY SUCH PARTY AT THE ADDRESS SHOWN HEREIN. ALL
NOTICES SHALL BE EFFECTIVE UPON RECEIPT IF DELIVERED BY COURIER SERVICE
AND FIVE DAYS AFTER MAILING IF SENT BY REGISTERED MAIL.
11.10 SEVERABILITY. IF ANY PROVISION OF THIS AGREEMENT SHALL FOR ANY REASON
BE HELD ILLEGAL OR UNENFORCEABLE, SUCH PROVISION SHALL BE DEEMED
SEPARABLE FROM THE REMAINING PROVISIONS OF THIS AGREEMENT AND SHALL IN
NO WAY AFFECT OR IMPAIR THE VALIDITY OR ENFORCEABILITY OF THE REMAINING
PROVISIONS OF THIS AGREEMENT.
11.11 COUNTERPARTS. THIS AGREEMENT MAY BE EXECUTED IN COUNTERPARTS, EACH OF
WHICH SHALL BE DEEMED AN ORIGINAL BUT ALL OF WHICH SHALL CONSTITUTE ONE
AND THE SAME INSTRUMENTS.
11.12 ESCROW. SILVERSTREAM AND FIREPOND AGREE TO ESTABLISH AN ESCROW ACCOUNT
FOR ALL SOFTWARE AND DOCUMENTATION WITH DATA SECURITIES INTERNATIONAL
("DSI") WITHIN FOURTEEN (14) DAYS AFTER THE EXECUTION DATE OF THE ISV
BUSINESS PARTNER AGREEMENT. THE ESCROW AGREEMENT SHALL BE SUBSTANTIALLY
IN THE FORM OF THE ATTACHMENT X ATTACHED HERETO.
Confidential 1998
<PAGE> 19
- --------------------------------------------------------------------------------
RSA A $[ * * * ] prepaid RSA license fee is due upon
execution of the license. This advance royalty will
be forwarded to RSA in full to the benefit of the ISV
partner. Additional royalties, based on reports
submitted by the ISV partner, will be made, to the
benefit of the ISV partner by RSA by SilverStream
according to the terms of the SilverStream/RSA
licensing agreement. Should the license agreement
between RSA and SilverStream be terminated, the ISV
partner has three months to negotiate a license
agreement directly with RSA for redistribution of RSA
components. The balance of any prepaid license fees
will be continued under such a license agreement. The
ISV partner may continue to redistribute the RSA
licensed components within the SilverStream
Application Server during this three-month period.
SilverStream shall report RSA license fee based on
the net sales price by applying a percentage of net
sales price of [ * * * ]% and a per copy/unit
minimum of $[ * * * ]. All prepaid amounts may be
offset against license fees accrued at a rate of
[***] ($[ * * * ]) for each ($[ * * * ]) of
license fees accrued until prepayments are exhausted.
- --------------------------------------------------------------------------------
Advance Royalty A NON-REFUNDABLE ADVANCE ROYALTY OF $[***] PAYABLE IN
THREE (3) INSTALLMENTS OF $[***] EACH SHALL BE DUE
(i) UPON THE EXECUTION OF THIS AGREEMENT, (ii) THIRTY
(30) DAYS AFTER THE DATE OF THIS AGREEMENT, AND (iii)
SIXTY (60) DAYS AFTER THE DATE OF THIS AGREEMENT.
ADVANCE ROYALTY SHALL BE OFF SET AGAINST ACTUAL
ROYALTY REPORTED PURSUANT TO THE PRICE LIST ON
SCHEDULE C AND THE TERMS OF THIS AGREEMENT.
- --------------------------------------------------------------------------------
Reporting ISV Partner must report to SilverStream all monthly
revenue from the Bundled Product within 14 days of
the end of each such month. Reports must be completed
on a template to be provided from time to time by
SilverStream which shall include, but not be limited
to, the following:
1) the total number of copies/units of each of the
Bundled Products' licensed or distributed by ISV
Partner during the month,
2) the total license fees accrued,
3) the sales location (by zip code in the US and by
country for all international sales) for all
copies/units licensed or distributed during the
month.
- --------------------------------------------------------------------------------
Update Assurance ISV PARTNER MUST PURCHASE ANNUAL UPDATE ASSURANCE @
15% OF THE MOST-RECENT PRE-PAID ROYALTY AMOUNT,
PAYABLE ON SAME SCHEDULE AS ADVANCED ROYALTIES ABOVE.
- --------------------------------------------------------------------------------
Payments Royalties are to be calculated as per the attached
price list. All royalty payments are due within 30
days at the end of each month. All payments are to be
made in US dollars and must be made by wire transfer
or a check drawn on a US bank. ISV Partner is
responsible for all credit and collections from ISV
customers. Nonpayment to ISV Partner by its customer
does not affect payments to SilverStream.
- --------------------------------------------------------------------------------
Technical Support ISV partner must maintain a SilverStream Level 2
support contract during the life of the Agreement.
- --------------------------------------------------------------------------------
Use of SilverStream Marks Notwithstanding the provision of section 9 to the
contrary, the SilverStream Marks that may be used by
the ISV Partners are limited to the ISV log kit
provided by SilverStream. The SilverStream ISV logo
must be displayed on all Bundled Product packaging,
documentation, marketing literature and advertising.
Confidential 1998
[ * * * ] Confidential treatment has been requested for the bracketed
portions. The confidential redacted portion has been filed
separately with the Securities and Exchange Commission.
<PAGE> 20
- --------------------------------------------------------------------------------
Bundled Product The Bundled Product is defined as the
SilverStream Application Server embedded with the
following ISV products and for the applications
listed below:
The Bundled Product shall be deemed to include any
enhancements, thereto and new versions, thereof.
- --------------------------------------------------------------------------------
Native Drivers SilverStream will supply native database
drivers as available. No third party drivers are
included with this license.
SILVERSTREAM SOFTWARE, INC.
LICENSE AGREEMENT FOR SILVERSTREAM PRODUCTS
- --------------------------------------------------------------------------------
SilverStream Products
Single Developer Pack: Includes 1 SilverStream Server and Designer Software and
1 Sybase SQL Anywhere Server Software licensed for use, on a stand alone basis,
all of one Computer. Group Developer Packs: Includes 1 SilverStream Server and
Designer Software licensed for either 5 or 10 concurrent users, 1 Sybase SQL
Anywhere Server Software licensed for 10 concurrent users.
SilverStream Application Server: Includes 1 SilverStream Server licensed for use
on one computer with the number of Processors indicated on the product
packaging.
- --------------------------------------------------------------------------------
This is a legal agreement (this "Agreement") between you (either an individual
or an entity) and SilverStream Software, Inc. ("SilverStream") governing the use
of the accompanying SilverStream Products (one or more of which his identified
above) which may include certain software programs ("Software") and other
written materials and "online" or electronic documentation ("Documentation").
BY INSTALLING THE SOFTWARE, YOU ACKNOWLEDGE, THAT YOU HAVE READ ALL OF THE TERMS
AND CONDITIONS OF THIS AGREEMENT, UNDERSTAND THEM, AND AGREE TO BE BOUND BY
THEM. YOU UNDERSTAND THAT, IF YOU PURCHASED THE SILVERSTREAM PRODUCT FROM AN
AUTHORIZED RESELLER OF SILVERSTREAM, THAT RESELLER IS NOT SILVERSTREAM'S AGENT
AND IS NOT AUTHORIZED TO MAKE ANY REPRESENTATIONS OR WARRANTIES ON
SILVERSTREAM'S BEHALF NOR TO VARY ANY OF THE TERMS OR CONDITIONS OF THIS
AGREEMENT. IN ADDITION, YOU ACKNOWLEDGE THAT, UNLESS OTHERWISE AGREED BY THAT
RESELLER IN WRITING OR PROHIBITED BY LAW, THE LIMITATIONS OF WARRANTIES AND
LIABILITY SET FORTH IN THIS AGREEMENT ALSO APPLY TO AND BENEFIT THAT RESELLER.
IF YOU DO NOT AGREE TO THE TERMS OF THIS AGREEMENT DO NOT INSTALL THE SOFTWARE.
IN SUCH CASE PROMPTLY RETURN THE ENTIRE SILVERSTREAM PRODUCT(S), INCLUDING THE
DOCUMENTATION, TO THE PLACE YOU OBTAINED THEM FOR A FULL REFUND.
Confidential 1998
<PAGE> 21
1. LICENSE GRANT. SilverStream and its suppliers hereby grant you a personal,
non-exclusive, non-transferable license (the "License") to use the Software, and
Documentation, all in accordance with the terms and conditions of this
Agreement. SilverStream and its supplier retain title to all copyright,
trademarks, trade names and other intellectual property rights, in the Software
and Documentation. You are not granted any right, title, or interest in the
Software, or Documentation, except the right to use them in accordance with this
Agreement.
2. GENERAL USE LIMITATIONS. When operated, the Server Software included in
SilverStream Product I (identified above) must be resident only on ONE SERVER
computer and all sessions must run on the same one server computer. When
operated, the Server Software included in SilverStream Products II and III
(identified above) must be resident only on ONE SERVER computer. You may also
make a copy of the Software for backup and archival purposes. You may use the
Software included in SilverStream Products II and III in a multiple-user
arrangement or remote access arrangement (limited by the number of concurrent
sessions, or processors, as identified above, or on the product package, for
each such Package). You may not rent or lease the Software but you may transfer
the Software from one server computer to another provided the Software is in use
on only one server computer at a time. The Software is "in use" on a server
computer when it is loaded into temporary memory (i.e., RAM) or installed into
the permanent memory (e.g., hard disk, CD-ROM, or other storage device) of that
server computer.
NOTE ON JAVA SUPPORT. The Software contains support for program written in Java.
Java is not designed or intended for use in online control of aircraft, air
traffic, aircraft navigation or aircraft communications; or in the design,
construction, operation or maintenance of any nuclear facility. You acknowledge
that you are not licensed to use the Software for such purposes and you warrant
that you will not use the Software for such purposes.
3. COPYRIGHT. The Software is owned by SilverStream or its suppliers and is
protected by United States and other applicable copyright law and international
treaty provisions. Therefore, you may not copy (except as otherwise expressly
permitted by this Agreement or by United States and other applicable copyright
law) the Software and Documentation. Except as expressly permitted by this
Agreement, you may not modify, adapt, translate, decompile, disassemble, or
reverse engineer (except to the extent SilverStream is required by applicable
law to allow you to reverse engineer the Software) the Software in any manner,
you may not merge or embed the Software into any other computer program or work,
and you may not create derivative works of the Software or the Documentation.
4. SPECIFIC RESTRICTIONS. You may not remove or alter, and you shall reproduce
on any permitted copies, SilverStream's or its suppliers' copyright notices and
other intellectual property rights notices included in the Software or
Documentation.
If any Software or Documentation is acquired by or on behalf of a unit or agency
of the United States Government, the government agrees that such Software or
Documentation is "commercial computer software" or "commercial computer software
documentation" and that, absent a written agreement to the contrary, the
Government's rights with respect to such Software or Documentation are limited
by the terms of this License Agreement, pursuant to FAR ss. 12.212(a) and its
successors regulations and/or DFARS ss. 227.7202-1(a) and its successor
regulations, as applicable.
5. TERM. The License is effective upon your acceptance of these terms and
conditions by breaking the seal on the CD-ROM envelope and installing the
Software indicating acceptance and will continue in effect until terminated
either (a) by you, at any time by notifying SilverStream in writing, or (b)
automatically, upon your failure to comply with any term or condition of this
Agreement. You agree that, upon termination of this Agreement, you will promptly
destroy or return to SilverStream all copies of the disk, the Documentation or
the Software including copies made by or for you. You will purge or otherwise
remove all electronic and magnetic copies of the Software and Documentation from
any computer, storage medium, or other device on which the same may be stored or
maintained.
6. SUPPORT SERVICES. SilverStream may provide you with support services related
to the Software
Confidential 1998
<PAGE> 22
("Support Services") pursuant to a SilverStream Support Services Agreement. Any
supplemental software code provided to you as part of the Support Services shall
be considered part of the Software and subject to the terms and conditions of
this Agreement.
7. LIMITATION OF WARRANTIES. You assume responsibility for the selection of the
Software to achieve your intended results and for the installation and use of,
and the results obtained from, the Software. Neither SilverStream nor any of its
suppliers warrants that the functions or features contained in the Software will
meet your requirements or that the operation of the Software will be
uninterrupted or error free.
THE SOFTWARE AND MEDIA ARE BEING PROVIDED "AS IS" WITHOUT WARRANTY OF ANY KIND.
SILVERSTREAM AND ITS SUPPLIERS HEREBY DISCLAIM ALL WARRANTIES, EXPRESS, IMPLIED,
OR STATUTORY INCLUDING, WITHOUT LIMITATION, ALL IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, AND ANY WARRANTIES AS TO
RIGHT OF THIRD PARTIES OR NON-INFRINGEMENT. Some jurisdiction do not allow the
exclusion of implied warranties, so the above exclusion may not to you. This
warranty gives you specific legal rights, and you may also have other rights
which vary from jurisdiction to jurisdiction.
8. LIMITATION OF LIABILITY. To the maximum extent permitted by applicable law,
in no event shall SILVERSTREAM OR ITS SUPPLIERS BE LIABLE FOR ANY SPECIAL,
INCIDENTAL, INDIRECT, CONSEQUENTIAL, OR EXEMPLARY DAMAGES WHATSOEVER (INCLUDING,
WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION,
LOSS OF BUSINESS INFORMATION OR ANY OTHER PECUNIARY LOSS) ARISING OUT OF THE USE
OF OR INABILITY TO USE THE SILVERSTREAM OR ITS SUPPLIERS HAVE BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES. In any case, SilverStream's entire liability
under any provision of this Agreement shall be limited to the amount actually
paid by you for the SilverStream Products, provided however, if you have entered
into a SilverStream Support Services Agreement. SilverStream's entire liability
regarding Support Services shall be governed by the terms of that agreement.
Because some jurisdiction do not allow the exclusion or limitation of liability,
the above limitations may not apply to you.
9. TAXES. You agree to be responsible for and to pay, and to reimburse
SilverStream on request if SilverStream is required to pay, any sales, use, or
other tax (excluding any tax that is based on SilverStream's net income), duty,
or other charge of any kind or nature that is levied or imposed by any
governmental authority on your purchase of the SilverStream Product, the
License, or your use of the Software or Documentation.
10. EXPORT RESTRICTIONS. THIS LICENSE AGREEMENT IS EXPRESSLY MADE SUBJECT TO ANY
LAWS, REGULATIONS, ORDERS OR OTHER RESTRICTIONS ON THE EXPORT FROM THE UNITED
STATES OF AMERICA OF THE SILVERSTREAM PRODUCT (OR COMPONENTS THEREOF) OR OF
INFORMATION ABOUT THE SILVERSTREAM PRODUCT WHICH MAY BE IMPOSED FROM TIME BY THE
GOVERNMENT OF THE UNITED STATES OF AMERICA. NOTWITHSTANDING ANYTHING CONTAINED
IN THIS AGREEMENT TO THE CONTRARY, YOU SHALL NOT EXPORT OR RE-EXPORT, DIRECTLY
OR INDIRECTLY, ANY SILVERSTREAM PRODUCT (OR COMPONENT THEREOF) OR INFORMATION
PERTAINING THERETO TO ANY COUNTRY TO WHICH SUCH EXPORT OR RE-EXPORT IS
RESTRICTED OR PROHIBITED, OR AS TO WHICH SUCH GOVERNMENT OR ANY AGENCY THEREOF
REQUIRES AN EXPORT LICENSE OR OTHER GOVERNMENTAL APPROVAL AT THE TIME OF EXPORT
OR RE-EXPORT WITHOUT FIRST OBTAINING SUCH LICENSE OR APPROVAL.
11. GENERAL. This Agreement is the complete and exclusive statement of the
agreement between SilverStream and you, and this Agreement supersedes any prior
proposal, agreement, or communication, oral or written, pertaining to the
subject matter of this Agreement. This Agreement shall be governed by the laws
of the Commonwealth of Massachusetts and of the United States of America,
excluding (i) its conflicts of law principles, and (ii) the United National
Convention on Contracts for the International Sale of Goods. all questions
concerning the terms and conditions of this Agreement should be directed to
SilverStream in writing addressed to
Confidential 1998
<PAGE> 23
SilverStream Software, Inc., One Burlington Woods Drive, Burlington, MA 01803,
United States.
All disputes arising out of or relating to this Agreement shall be finally
settled by arbitration under the rules of commercial arbitration of the American
Arbitration Association ("Rules"). Both parties shall bear equally the cost of
the arbitration (exclusive of legal fees and expenses, all of which each party
shall bear separately). All decisions of the arbitrator(s) shall be final and
binding on both parties and enforceable in any court of competent jurisdiction.
NOTWITHSTANDING THE FOREGOING, IN THE EVENT OF A BREACH BY A PARTY OF ITS
OBLIGATIONS HEREUNDER, THE NON-BREACHING PARTY MAY SEEK INJUNCTIVE OR OTHER
EQUITABLE RELIEF IN ANY COURT OF COMPETENT JURISDICTION. YOU ACKNOWLEDGE THAT
INFRINGEMENT OR UNAUTHORIZED COPYING WOULD CAUSE IRREPARABLE HARM TO
SILVERSTREAM.
Confidential 1998
<PAGE> 24
SOURCE CODE ESCROW AGREEMENT
This Agreement (the "Agreement") is made as of __________, 1999 among
SilverStream Software, Inc. ("Licensor") and Data Securities International, Inc.
("Escrow Agent"), with the respective addresses set forth in Exhibit A attached
hereto, and Licensor's customers who become parties to this Agreement pursuant
to Section 16 below ("Licensees").
1. Background. Licensor has licensed or will license the Licensed Program
(as defined below) to each Licensee pursuant to a written software
license agreement, including any related Source Code license agreements
(a "License Agreement"). Licensor has agreed to place in escrow the
Source Code (as defined below) for the Licensed Program, to be released
to Licensees upon the occurrence of certain events as hereinafter
described.
2. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
(a) Licensed Program. The computer program(s), consisting of a
series of instructions or statements in machine readable,
object code form only, licensed to Licensees by Licensor
pursuant to License Agreements.
(b) Source Code. The version of the source code used by Licensor
to generate the Licensed Program, contained on one or more
magnetic tapes or other media, together with a print-out of
the source code listing.
(c) Documentation. Explanatory information, whether in
machine-readable form or otherwise, which would assist a
software engineer in understanding the structure, purpose and
operation of the Source Code.
(d) Information. The Source Code and the Documentation.
(e) Update Event. The delivery to Licensees of any new release of
the Licensed Program or the expiration of twelve months since
the most recent Update Event if the Source Code has been
modified in the interim.
(f) Update Information. All information, including without
limitation additional and/or replacement Source Code and
Documentation, necessary to bring the Information in escrow
prior to an Update Event into compliance with the definition
of Information contained in Section 2(d) after the occurrence
of such Update Event. The term "Information" shall be deemed
to include any such Update Information for the purposes of
this Agreement.
(g) Impact Event. An Impact Event shall consist of (a) any
rejection or termination of a License Agreement or this
Agreement by Licensor or its successors or representatives in
breach of the provisions of a License Agreement or this
Agreement, including in all events any rejection or
termination of the License Agreement or any proposal to do so
under Title 11 of the United States Code, as now constituted
or hereafter amended (the "Bankruptcy Code"), or any other
federal or state bankruptcy, insolvency, receivership, or
similar law; (b) failure of
<PAGE> 25
a trustee, including Licensor as debtor in possession, in any
bankruptcy case hereafter filed by or against Licensor either
to assume the License Agreement and this Agreement within
fifteen (15) days after the filing of the initial bankruptcy
petition or to perform the License Agreement and this
Agreement within the meaning of Section 365(a)(4)(i) of the
Bankruptcy Code; (c) the termination of substantially all of
Licensor's ongoing business operations relating to the subject
to the License Agreement and this Agreement; and (d) any
liquidation of Licensor, or any sale, assignment, or
foreclosure of or upon assets that are necessary for the
performance by Licensor of its responsibilities under the
License Agreement and this Agreement.
3. Appointment of Escrow Agent. Escrow Agent is hereby appointed and
accepts appointment to act as escrow agent hereunder.
4. Fees of Escrow Agent.
(a) All fees of Escrow Agent in connection with its duties
hereunder shall be paid by and shared equally by Licensor.
(b) Escrow Agent's fees for the initial year of service are due in
full within sixty (60) days after the execution of this
Agreement. Annual renewal fees will be due in full upon
receipt of invoice unless otherwise specified by the invoice.
Late payments are subject to interest at the rate of one and
one-half percent per month (18% per annum) from the due date.
(c) Escrow Agent's fees will be specified in its standard fee
schedule as modified from time to time. Escrow Agent shall
notify Licensor at least ninety (90) days prior to any
increase in its fees. For any service not listed on its
standard fee schedule, Escrow Agent shall provide a price
quotation prior to rendering such service.
5. Representation and Warranties. Licensor represents and warrants to each
Licensee as follows:
(a) Licensor is the owner of, and holder of all rights in, the
Source Code, and has the right to enter into and perform this
Agreement, to grant each Licensee the license granted pursuant
to Section 10 (a) of this Agreement and to deposit the
Information under the terms of this Agreement. Licensor
represents and warrants to each Licensee that the Source Code
deposited with Escrow Agent will at all times be the source
code version of the current release of the licensed Program,
as offered to the Licensees from time to time.
(b) The Information initially deposited hereunder is (and the
Update Information deposited after any Update Event will be)
reasonably sufficient to enable a software engineer, skilled
in the art of computer programming and without recourse to
collateral sources of assistance other than commercially
available
-2-
<PAGE> 26
computer programs, to independently compile the Licensed
Program and to modify the Licensed Program. Licensor further
represents and warrants that the Licensed Program does not
involve any proprietary languages or programming components
that such engineer could not reasonably be expected to
understand, except to the extent the Source Code contains
sufficient commentary to enable such contractor to understand
and use such language or components. Licensor further
represents and warrants that the Source Code includes all of
the devices, programming, and documentation necessary for the
maintenance, use, modification and/or enhancement of the
Licensed Program by the Licensees upon release of the Source
Code pursuant to this Agreement, except for devices,
programming, and documentation commercially available to the
Licensees on reasonable terms through readily known sources
other than the Licensor.
6. EXCEPT AS STATED ABOVE, THE LICENSOR DISCLAIMS ALL WARRANTIES, WHETHER
EXPRESSED OR IMPLIED, WRITTEN OR ORAL, WITH RESPECT TO THE INFORMATION,
INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE. IN NO EVENT SHALL LICENSOR BE LIABLE FOR SPECIAL, INCIDENTAL
OR CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT LIMITED TO LOSS OF
PROFITS, LOSS OF DATA OR LOSS OF USE DAMAGES, ARISING OUT OF OR WITH
RESPECT TO THIS AGREEMENT OR THE INFORMATION.
7. Deposit of Information into Escrow. Within ten (10) days after the
execution of this Agreement by Licensor and Escrow Agent, Licensor
shall deliver to Escrow Agent one copy of the Information in one or
more sealed packages (a "Deposit"), each of which shall be separately
labeled and accompanied by a separate written list of its contents in
the form of Exhibit B attached hereto (an "Exhibit B") [See note] [need
to see]. Thereafter, within ten (10) days after the occurrence of any
Update Event, Licensor shall deliver one copy of the Update Information
in a sealed package to Escrow Agent accompanied by an Exhibit B. Each
Exhibit B shall be signed by Licensor prior to submission to Escrow
Agent. Upon the delivery of any Update Information to Escrow Agent,
Licensor may instruct Escrow Agent to return to it any previously
delivered Information (other than the most recent and one previous
version of the Information) which is no longer necessary to satisfy
Licensor's obligations under this Agreement.
8. Acceptance and Storage of Information.
(a) Upon receipt of any Information hereunder, Escrow Agent shall
visually match the accompanying Exhibit B to the labels on the
Deposit. Escrow Agent shall not be responsible for verifying
the contents of the Deposit or validating the accuracy of
Licensor's labeling of the Deposit. If Escrow Agent determines
that there is a discrepancy between the Exhibit B and the
labels on the Deposit, Escrow Agent shall notify Licensor
within five (5) days after receipt thereof, and Licensor shall
promptly correct such discrepancy. Acceptance of the
Information shall occur when Escrow Agent determines that
Exhibit B matches the labels on the Deposit.
[Note: The referenced Exhibit B was never attached to this agreement, is not
part of the contract, and therefore has not been filed.]
-3-
<PAGE> 27
Upon acceptance, Escrow Agent shall sign Exhibit B and mail
copies thereof to Licensor and each Licensee.
(b) After acceptance, Escrow Agent shall store and maintain the
Information in such an environment or facility as Escrow Agent
determines, in its discretion, is suitable for the safekeeping
of the Information. Escrow Agent shall not permit any person
to have access to the Information other than in accordance
with this Agreement, and shall maintain security measures, in
accordance with reasonable professional standards, to prevent
unauthorized access to the Information. Escrow Agent shall not
release Information except in accordance with the provisions
of this Agreement.
9. Inspection of Information. Each Licensee shall have the right at its
sole expense from time to time during the term of this Agreement, upon
reasonable notice to Escrow Agent and Licensor, to designate a
representative to inspect, test and review the Information in the
presence of a representative of Escrow Agent and a representative of
Licensor, if Licensor so chooses, during normal business hours for the
purpose of determining the completeness and adequacy of the
Information. Such representative shall be an independent accounting or
consulting firm, which is reasonably acceptable to Licensor. As a
condition to such inspection, such representative shall execute a
customary confidentiality agreement in form and substance reasonably
acceptable to Licensor.
10. Release and Delivery of Information.
(a) A Licensee may request in writing that Escrow Agent deliver
the Information to such Licensee upon the occurrence of any of
the following events (a "Triggering Event"):
(i) If Licensor materially breaches its support and
maintenance obligations for the Licensed Program
under any written agreement between Licensor and such
Licensee and such breach remains uncured for ninety
(90) days after delivery of written notice thereof to
Licensor; or
(ii) If Licensor ceases to offer support and maintenance
services for the Licensed Program and such cessation
continues for ninety (90) days after delivery of
written notice thereof to Licensor, unless Licensor
shall have made arrangements for the continuation of
support and maintenance services for the Licensed
Program by another qualified party;
(iii) Any failure by Licensor to deliver to Escrow Agent
any required Update Information within sixty (60)
days after an Update Event, or, with respect to any
Licenses that have License Agreements for Source
Code, the failure of Licensor to deliver Update
Information to such Licensee within thirty (30) days
after an Update Event or the public announcement by
the Licensor that it will cease to market or license
the Licensed Programs; or
-4-
<PAGE> 28
(iv) The occurrence of an Impact Event.
(b) Upon receipt by Escrow Agent of notice from Licensee of a
Triggering Event together with the applicable release request
fee, Escrow Agent shall promptly deliver a copy of such notice
to Licensor. Escrow Agent shall have ten (10) days after
delivery of such notice to Licensor, deliver the Information
to such Licensee, unless within such ten (10) day period, such
Licensee's entitlement to receive the Information under this
Agreement shall be resolved by arbitration to Section 15 of
this Agreement, and Escrow Agent shall retain possession of
the Information pending the final determination by the
Arbitration Panel, which determination may be relied upon by
Escrow Agent without further inquiry. In the event that
Licensor or its successors or representatives rejects or
terminates the License Agreement or this Agreement in breach
of the provisions thereof or hereof, including as contemplated
under Section 365 of the Bankruptcy Code, it is acknowledged
that this Agreement contemplates the manner in which Licensee
may retain its rights in the Licensed Programs, including
associated intellectual property rights, if a Licensee chooses
to do so in accordance with Section 365(n) of the Bankruptcy
Code.
11. Possession, Use and Protection of the Information.
(a) If the Information is released to a Licensee pursuant to this
Agreement, Licensor hereby grants to Licensee a non-exclusive,
royalty-free, irrevocable, perpetual, non-assignable license
to possess, use, modify, maintain and update the Information
consistent with the terms of its License Agreement. Except as
set forth in Section 10(b), such Licensee shall not disclose,
market, license, sell, distribute, sublicense or in any other
manner make the Information available to third parties.
(b) Each Licensee acknowledges and agrees that title to the
Information shall remain confidential and proprietary to a
Licensor. If the Information is released to a Licensee
pursuant to this Agreement, the Information shall be received
and held by such a Licensee consistent with the terms of its
License Agreement. Such Licensee shall limit use of and access
to the Information to its employees (or third parties
reasonably acceptable to Licensor) as are directly involved in
the use, support, modification, enhancement and maintenance of
the Licensed Program and who are bound by written agreement to
preserve the confidentiality thereof. Such Licensee shall
promptly report to Licensor any actual or suspected violation
of this Section 10 and shall take all reasonable further steps
requested by Licensor to prevent or remedy any such violation.
(c) If, following the release of the Information to a Licensee,
Licensor subsequently establishes pursuant to Section 15 that
the conditions which constituted a Triggering Event no longer
exist, such Licensee shall immediately cease use of such
Information and return such Information (and all copies
thereof) to Escrow Agent together with Exhibit B. Upon Escrow
Agent's acceptance of such
-5-
<PAGE> 29
Information in accordance with Section 8(a), such Information
shall be held in escrow in accordance with this Agreement
until another Triggering Event shall have occurred.
12. Termination.
(a) This Agreement shall continue in effect with respect to a
Licensee until the termination or expiration of the License
Agreement between Licensor and such Licensee unless sooner
terminated by the written agreement of Licensor and such
Licensee or for non-payment of Escrow Agent's fees pursuant to
Section 12(b) below.
(b) This Agreement shall have an initial term of one year,
commencing on the date set forth above in the first sentence
of this Agreement (the "Effective Date"). This Agreement shall
automatically be renewed for additional one-year periods upon
receipt by Escrow Agent of the specified renewal fees. The
initial "Renewal Date" of this Agreement is one year from the
Effective Date and in succeeding years is one year from the
most recent Renewal Date. In the event that the renewal fees
are not received within thirty (30) days prior to the Renewal
Date, Escrow Agent shall notify Licensor and each Licensee
that this Agreement will expire on the Renewal date unless the
renewal fees are paid. If Escrow Agent does not receive the
renewal fees by the Renewal Date, this Agreement shall expire
on the Renewal Date without further notice and without
liability of Escrow Agent to the parties of this Agreement.
(c) If this Agreement expires or is otherwise terminated with
respect to a Licensee, all duties and obligations of Escrow
Agent to such Licensee shall terminate, and if this Agreement
expires or is otherwise terminated with respect to all
Licensees, all duties and obligations of Escrow Agent or
Licensor and all Licensees shall terminate. If Licensor
requests the return of the information upon expiration or
termination of this Agreement with respect to all Licensees,
Escrow Agent shall return the Information to Licensor only
after Escrow Agent's outstanding invoices and deposit return
fees have been paid. If such fee(s) are not received by Escrow
Agent within thirty (30) days after expiration or termination
of this Agreement with respect to all Licensees, Escrow Agent
shall, at its option, destroy or return the Information to
Licensor.
13. Responsibilities and Liabilities of Escrow Agent. Escrow Agent shall
not be liable under this Agreement with respect to the condition or
contents of the Information or for any action taken or omitted in
compliance with this Agreement in good faith and in the exercise of
Escrow Agent's own good judgment or in reliance on advise of Escrow
Agent's counsel or for any other cause unless a court of competent
jurisdiction finds that Escrow Agent's conduct was (i) willful
misconduct, (ii) fraudulent, (iii) grossly negligent, (iv) in bad faith
or (v) in disregard of or contrary to the terms of this Agreement.
Escrow Agent shall be obligated only for the performance of such duties
as are specifically set forth in the Agreement and may rely and shall
be protected by in
-6-
<PAGE> 30
relying or refraining from acting on any order or instrument reasonably
and actually believed by it to be genuine and to have been signed or
presented by the proper party or parties. Escrow Agent shall not be
responsible for or be required to enforce any of terms or conditions of
any agreement between Licensor or any Licensee. Escrow Agent shall not
be responsible or liable in any manner whatsoever for the performance
by Licensor or any Licensee of their respective obligations under this
Agreement.
14. Resignation and Discharge; Successor Escrow Agent.
(a) Escrow Agent may resign at any time, effective on such date
specified in a written notice of resignation delivered to
Licensor and each Licensee at least ninety (90) days prior to
such effective date. Escrow Agent may be discharged at any
time, with or without cause, by written agreement of Licensor
and a majority in number of Licensees, effective upon receipt
of written notice of such discharge from Licensor. The
resignation or discharge of Escrow Agent shall not affect the
right of Escrow Agent to be paid for its services through the
date of resignation or discharge.
(b) In the event of the resignation or discharge of Escrow Agent,
Licensor shall appoint a successor Escrow Agent (who shall be
reasonable acceptable to a majority of Licensee), and such
successor Escrow Agent shall assume the rights, powers and
responsibilities of Escrow Agent hereunder upon its written
agreement to act as Escrow Agent hereunder and to become a
party hereto.
(c) Escrow Agent's obligations hereunder shall terminate upon the
effective date of its resignation or discharge, except that it
shall continue to hold the Information in accordance with its
Agreement until a successor Escrow Agent is appointed, at
which time Escrow Agent shall deliver Information to such
successor Escrow Agent. If no successor Escrow Agent is
appointed within thirty (30) days after the effective date of
such resignation or discharge, Escrow Agent shall deliver the
Information to the Arbitration Panel pursuant to Section 15,
shall give written notice of the same to Licensor and each
licensee and shall have no further responsibility with respect
thereto.
15. Indemnification. Licensor and severally, each Licensee release, agree
to indemnify and hold Escrow Agent harmless against any loss, liability
or expense incurred by Escrow Agent as a result of any action taken or
omitted in compliance with this Agreement in good faith and in the
exercise of Escrow Agent's own good judgment or in reliance on advise
of Escrow Agent's counsel or for any other cause unless a court of
competent jurisdiction finds that Escrow Agent's conduct was (i)
willful misconduct, (ii) fraudulent, (iii) grossly negligent, (iv) in
bad faith or (v) in disregard of or contrary to the terms of this
Agreement.
16. Arbitration. Any dispute regarding the occurrence or non-occurrence of
a Triggering Event shall be submitted to arbitration before a panel of
arbitrators selected in accordance with the commercial rules of the
American Arbitration Association (the "Arbitration
-7-
<PAGE> 31
Panel"). If the Arbitration Panel determines that a Triggering Event
has occurred with respect to a Licensee, Escrow Agent shall immediately
release the Information to such Licensee, provided that if it is
subsequently determined pursuant to a final adjudication of the dispute
that a Triggering Event has not occurred, Licensee shall immediately
cease use of the Information, shall return the Information to Escrow
Agent, and shall destroy all other copies of the Information, or any
part thereof, in its possession. If the Arbitration Panel determines
that a Triggering Event has not occurred, Escrow Agent shall continue
to hold the Information in accordance with this Agreement. The
proceedings of the Arbitration Panel will be held, and any
determination of the Arbitration Panel shall be deemed to have been
made, in Boston, Massachusetts. All questions of law shall be decided
in accordance with the laws of the Commonwealth of Massachusetts. All
questions of law shall be decided in accordance with the laws of the
Commonwealth of Massachusetts.
17. Addition of Licensees. Licensor may, in its sole discretion and without
obtaining the consent of Escrow Agent or any Licensee, add its
customers as Licensees under this Agreement. Licensor and each such
customer so added shall execute a Counterpart Signature Page to this
Agreement substantially in the form of Exhibit C attached hereto, which
shall be promptly delivered to Escrow Agent. Escrow Agent shall
acknowledge receipt of such Counterpart Signature Page by signing it
and returning copies to Licensor and such Licensee, and such Licensee
shall thereafter be deemed a "Licensee" for all purposes of this
Agreement.
18. Notices. All notices required or permitted hereunder shall be given in
writing and shall be deemed delivered upon (1) delivery by messenger or
overnight courier service or (ii) three (3) days following the date of
mailing by registered or certified mail, postage prepaid, addressed to
Licensor or Escrow Agent at the applicable address set forth on the
applicable Counterpart Signature Page. Any party may change its address
by ten (10) days' written notice given to the other party in the manner
set forth in this Section 17.
19. Governing Laws. This Agreement is made in and shall be construed in
accordance with the laws of the Commonwealth of Massachusetts.
20. No Waiver. No delay or omission by any party in exercising any right
under this Agreement shall operate as a waiver of that or any other
right. A waiver or consent given by a party on any one occasion shall
be effectively only in that instance and shall not be construed as a
bar or waiver of any right on any other occasion.
21. Severability. In the event that any provision of this Agreement shall
be invalid, illegal or otherwise unenforceable, the validity, legality
and enforceability of the remaining provisions shall in no way be
affected or impaired thereby.
22. Successors and Assigns. Neither Licensor nor any Licensee may assign
this Agreement without the written consent of the other, except that no
such consent shall be required for an assignment in connection with the
sale of all or substantially all of a party's business by merger, sale
of stock, sale of assets or otherwise. Escrow Agent may not assign this
-8-
<PAGE> 32
Agreement without the written consent of Licensor and a majority number
of Licensees (including Firepond). Subject to the foregoing, this
Agreement shall be binding upon and inure to the benefit of the
parties, their respective executors, administrators, successors and
assigns.
23. Amendment. This Agreement may be amended or modified only by a written
instrument executed by Escrow Agent, Licensor and a majority in number
of Licensees (including Firepond).
24. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall
constitute but one agreement binding on the parties.
25. Captions. The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the
scope or substance of any section of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as a sealed
instrument as of the day and year set forth above.
SILVERSTREAM SOFTWARE, INC.
By: ____________________________
Title: ___________________________
DATA SECURITIES INTERNATIONAL, INC.
By: ____________________________
Title: ___________________________
-9-
<PAGE> 33
Exhibit A
DESIGNATED REPRESENTATIVES
<TABLE>
<S> <C>
Notice to Licensor: Invoices should
Should be addressed to: be addressed to:
Licensor: SilverStream Software, Inc. SilverStream Software, Inc.
Address: One Burlington Woods One Burlington Woods
Suite 200 Suite 200
Burlington, MA 01803 Burlington, MA 01803
Attn: Chief Financial Officer Attn: Chief Financial Officer
Designated Representative: Craig A. Dynes
Telephone 781-238-5471
Fax: 781-238-5499
Deposits and notices to Escrow Agent Invoice inquiries and payments
should be addressed to: to Escrow Agent should be addressed to:
Escrow Agent: Data Securities International, Inc.
Address: 101 Cambridge Street
Suite 310
Burlington, MA 01803
Designated Representative: ____________________________
Telephone: ____________________________
Fax: ____________________________
</TABLE>
-10-
<PAGE> 34
<TABLE>
<S> <C> <C>
SILVERSTREAM INDEPENDENT SOFTWARE VENDORS (ISV) PARTNER PROGRAM OVERVIEW 10/1/98
Program Benefits SILVER ISV STERLING ISV
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL BENEFITS
- ------------------------------------------------------------------------------------------------------------------------------------
1. PRODUCT PURCHASE OPTIONS
ISV "authenticated" Master Disk for deployment No Yes, see discount schedule
software purchases
- ------------------------------------------------------------------------------------------------------------------------------------
BUSINESS DEVELOPMENT BENEFITS
- ------------------------------------------------------------------------------------------------------------------------------------
1. SOFTWARE
Access to Evaluation Software Pool (for customer NA NA
evaluations)
Free "Not-For-Resale" Software (for internal use only) Group Developer Pack - 5 (GDP-5): Group Developer Pack - 10 (GDP-10):
$[ * * * ] MSRP $[ * * * ] MSRP
NFR Software Updates (with paid program renewal) Yes Yes
Automatic Inclusion in Beta Programs No Yes
Additional NFR Software (for internal use only) [ * * * ]% discount (purchased [ * * * ]% discount (purchased
from SilverStream) from SilverStream)
- ------------------------------------------------------------------------------------------------------------------------------------
2. SALES SUPPORT
ISV Lead Referrals (as available) No Yes
Joint Sales Presentations with SilverStream Field Sales No Yes
(in new as well as existing accounts)
- ------------------------------------------------------------------------------------------------------------------------------------
3. TECHNICAL SUPPORT
Technical Support Level Level 2 Level 2
Free Support Incidents No 5 annually
Discount on Additional Support Incidents [ * * * ]% [ * * * ]%
Access to private Support area of SilverStream Web Site Yes Yes
Access to private Partner newsgroup on SilverStream No Yes
Web Site
Toll-Free Technical Support Hotline No Limited
- ------------------------------------------------------------------------------------------------------------------------------------
4. TRAINING
Partner and Product Training
- SilverStream University Partner Training $[ * * * ] for SE track, $[ * * * ] $[ * * * ] for SE track, $[ * * * ]
for Application Engineering track for Application Engineering track
- SilverStream Programming Fundamentals Course At a SilverStream public At a SilverStream public
training center training center
Access to private Training area of SilverStream No Yes
Web Site
- ------------------------------------------------------------------------------------------------------------------------------------
5. MARKETING SUPPORT
Private Partner "Micro-Site" in conjunction with No Limited; at SilverStream's
discretion
SilverStream Web Site
Market Development Funds (subject to advance approval) No Limited; at SilverStream's
discretion
Participation in Trade Shows (as available) No Limited; at SilverStream's
discretion
Access to SilverStream prospect database via bonded No Limited; at SilverStream's
mailhouse (for mailings, etc.) discretion
Promotion of Partner Services to other SilverStream No Yes
Partners
Discounts on CD-based SilverStream demos No Yes
Free Product Literature No 50 SilverStream product brochures
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER BENEFITS
- ------------------------------------------------------------------------------------------------------------------------------------
1. REFERENCE MATERIALS/COMMUNICATIONS
SilverStream Partner Manual Yes Yes
SilverStream Partner Electronic News Bulletins Yes Yes
Discounts to attend SilverStream User Conference No Yes
Free copy of Third-Party SilverStream Reference Books No Yes
(as available)
- ------------------------------------------------------------------------------------------------------------------------------------
2. INCENTIVE PROGRAMS
Notification of special product bundles with No Yes
SilverStream Distributors and Co-Marketing Partners
Participation in Partner Incentive Programs run by No Yes
SilverStream
Leverage SilverStream Co-Marketing and Co-Selling No Yes
Partners
- ------------------------------------------------------------------------------------------------------------------------------------
3. AFFILIATION/IDENTIFICATION
SilverStream On-Line Applications Catalog Listing Listing + Profile + Sterling Logo
(as appropriate)
Use of SilverStream Partner logo (according to Yes Yes
published guidelines)
SilverStream Partner Plaque No Yes
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[***] Confidential treatment has been requested for the bracketed portions.
The confidential redacted portion has been filed separately with the
Securities and Exchange Commission.
<PAGE> 35
<TABLE>
<S> <C> <C>
SILVERSTREAM INDEPENDENT SOFTWARE VENDORS (ISV) PARTNER PROGRAM OVERVIEW 10/1/98
- ------------------------------------------------------------------------------------------------------------------------------------
EXHIBIT B
Program Requirements SILVER ISV STERLING ISV
- ------------------------------------------------------------------------------------------------------------------------------------
GENERAL REQUIREMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
1. BUSINESS FOCUS Focus on Fortune 2000 and small Focus on Fortune 1000 or selected
businesses verticals
- ------------------------------------------------------------------------------------------------------------------------------------
2. OTHER AFFILIATIONS / CERTIFICATIONS (RECOMMENDED) Microsoft Site Builder Network, Microsoft Site Builder Network,
Certified Professional Certified Professional
Netscape Worldwide Affiliate Netscape Worldwide Affiliate,
Lotus Business Partner Solution Expert
(Member/Qualified Levels) Lotus Business Partner
JavaSoft Developer (Premium Level)
JavaSoft Developer
Oracle Developer
Powersoft PowerChannel
- ------------------------------------------------------------------------------------------------------------------------------------
INFRASTRUCTURE REQUIREMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
1. TRAINING (SILVERSTREAM CERTIFICATION AND AUTHORIZATION) Required: Required:
Individuals become "Certified" by: SilverStream Programming Fundamentals SilverStream Programming
- Attending appropriate training course(s) Course Fundamentals Course
- Submitting Certification application 1 attendee 2 attendees
- Passing Certification exam
Partner organizations with the appropriate number of SilverStream University Partner SilverStream University Partner
"Certified" individuals become "Authorized" Training Training
Partner must maintain appropriate number of 1 attendee, Application Engineering 1 attendee, Application
Certifications in order to maintain Authorization track Engineering track
Required number of Certified SilverStream Developers 1 2
- ------------------------------------------------------------------------------------------------------------------------------------
2. TECHNICAL SUPPORT First-line technical support for First-line technical support for
developed applications developed applications
Customer training for developed
applications
- ------------------------------------------------------------------------------------------------------------------------------------
3. INTERNET E-MAIL ACCESS Required Required
- ------------------------------------------------------------------------------------------------------------------------------------
ENROLLMENT REQUIREMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
1. Enrollment Open enrollment; SilverStream Open enrollment; SilverStream
acceptance required acceptance required
- ------------------------------------------------------------------------------------------------------------------------------------
2. DOCUMENTATION
Initial Enrollment Completed SilverStream Partner Completed SilverStream Partner
Application Application
Completed Credit Application Completed Credit Application
Signed Partner Agreement Signed Partner Agreement
(with appropriate Addenda) (with appropriate Addenda)
Copy of State Tax Exemption Copy of State Tax Exemption
Certificate Certificate
3 Customer References
Annual Sales/Business Plan
Annual Renewal Updated SilverStream Partner Updated SilverStream Partner
Application Application
Annual Sales/Business Plan
- ------------------------------------------------------------------------------------------------------------------------------------
3. FEES
Initial Enrollment Fee $[ * * * ] $[ * * * ]
Annual Renewal Fee $[ * * * ] $[ * * * ]
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[***] Confidential treatment has been requested for the bracketed portions.
The confidential redacted portion has been filed separately with the
Securities and Exchange Commission.
<PAGE> 36
- --------------------------------------------------------------------------------
SILVERSTREAM SOFTWARE
ISV PRICING
(ALL PRICES IN U.S. $)
- --------------------------------------------------------------------------------
EXHIBIT C
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ISV POLICIES:
See ISV Contract for details. Major provisions include:
1. ISV must create "bundled product" which embeds Silverstream products, and
cannot sell Silverstream products separately, nor as components
2. Specific ISV territory will be pre-defined as part of ISV Agreement
3. ISV must pay a mutually-agreed upon, non refundable pre-paid royalty to
Silverstream, plus $[***], to be forwarded by Silverstream to RSA
4. All ISV Agreements require:
Monthly sales out reports and royalty payments
Annual update assurance @ 15% of the most-recent pre-paid royalty
amount, payable in advance
A current Support Assurance contract (Level 2) during the entire term
of the ISV contract
5. Contract Term extension is available for ISVs meeting agreement terms (by
mutual agreement)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
ISV MAXIMUM
PRODUCT PRODUCT PRE-PAID DISCOUNT CONTRACT
CATEGORY CODE ROYALTY OFF MSRP TERM
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
ISV NA [ * * * ] [ * * * ] 5 years
ISV NA [ * * * ] [ * * * ] 1 year
ISV NA [ * * * ] [ * * * ] 1 year
ISV NA [ * * * ] [ * * * ] 1 year
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
[***] Confidential treatment has been requested for the bracketed portions.
The confidential redacted portion has been filed separately with the
Securities and Exchange Commission.
<PAGE> 1
Exhibit 10.15
PRODUCTS USE AND GENERAL SERVICES
AGREEMENT
This Agreement dated as of this 1st day of August, 1994 is entered
into by and between Clear with Computors, Inc., 1983 Premiere Drive, P.O. Box
4459 Mankato, Minnesota, 56002-4459, a corporation of the State of Minnesota,
hereinafter called "CWC", and General Motors Corporation, 3044 West Grand
Boulevard, Detroit, Michigan 48202, a corporation of the State of Delaware,
hereinafter referred to as "GM".
WHEREAS GM has heretofore acquired the services of CWC in developing
electronic sales and training systems.
WHEREAS CWC is now willing to develop, and GM is willing to procure, an
electronic sales and training system known as GM PROSPEC and related Products
and Services pursuant to the terms and conditions of this Agreement.
NOW THEREFORE, in consideration of the premises, and of other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by CWC and GM, it is hereby agreed as follows:
1. DEFINITIONS. The following terms shall have the indicated meanings when
used with initial capital letters in this Agreement or any Statements
of Work entered into hereunder.
(a) "APPLICABLE SPECIFICATIONS" shall mean the functional,
performance, operational and compatibility characteristics of
the Product(s) as more fully set forth in the Statement of
Work.
(b) "ACCEPTANCE DATE" shall mean the date when all necessary
Documentation has been received, and the Product(s) have
successfully completed any relevant "Acceptance Test(s)"
conducted pursuant to a Statement of Work.
-1-
<PAGE> 2
(c) "ACCEPTANCE TESTS" shall mean the tests developed in
accordance with a Statement of Work used to demonstrate that
the Products perform in accordance with the Applicable
Specifications.
(d) "GM PROSPEC" shall mean the GM Sales Assistance Manager
Product as more fully described in the Statement of Work.
(e) "PRODUCTS" shall mean GM PROSPEC and such other computer
programs including, where applicable, object code (including
micro-code), source code, Documentation and any refinements,
enhancements, modifications, revisions, derivative works,
updates or releases related thereto, provided by CWC pursuant
to this Agreement.
(f) "DOCUMENTATION" shall mean Applicable Specifications, user
manuals, training materials, product descriptions, technical
manuals and supporting materials, and other printed
information relating to the Products, whether fully or
partially completed or distributed in print, electronic, or
video format, provided by CWC pursuant to this Agreement.
(g) "SERVICES" shall include, but not be limited to, consulting,
development, installation, training, support and maintenance
services, as the case may be, provided or to be provided by
CWC as more fully described in a Statement of Work.
(h) "STATEMENT(S) OF WORK" shall mean the documents substantially
in the format contained in Exhibit 1(h) which are mutually
agreed upon by the parties describing the detailed obligations
of the parties with respect to a Project.
(i) "PROJECT" shall mean an undertaking by CWC to develop a
Product(s) for GM.
(j) "COMPETITOR OF GM" shall be any entity doing business as a
motor vehicle manufacturer, assembler, or distributor anywhere
in North America, which entity, if required to report same,
would report revenues in any Standard Industrial
Classification Industry code or product class code published
by the Census Bureau ("SIC Code") in which GM is then
reporting revenues in the area of motor vehicle manufacturing
and assembly. As of the effective date of this Agreement GM is
reporting revenues in the following SIC Codes in the area of
-2-
<PAGE> 3
motor vehicle manufacturing and assembly (37111, 37116, 37117,
37118, 37119, 5012). Provided that the companies listed on
Exhibit 1(j) which are current clients of CWC reporting
revenues in SIC Code 37117, 37118, and 37119 shall not be
considered Competitors of GM for the medium and heavy duty
truck business covered by those SIC codes.
(k) "AUTHORIZED PURCHASING PERSONNEL" shall mean the members of
GM's Worldwide Purchasing and does not include GM's Project
Manager and, with respect to CWC, an executive identified by
CWC other than the CWC Project Manager.
(l) "PURCHASE ORDER" shall mean an order by GM which includes
terms and pricing which have been negotiated by Authorized
Purchasing Personnel of GM and CWC and references this
Agreement and a Statement of Work, and shall be effective upon
execution by a CWC Authorized Purchasing Personnel. "Purchase
Order" does not include any preprinted terms not expressly
negotiated by the parties and reference to this Agreement on
an Purchase Order shall be deemed to delete all standard terms
and conditions of GM's purchase order form, if such form is
used to transmit an Purchase Order, and all standard terms and
conditions found on CWC's acknowledgement form, if such form
is used to acknowledge a Purchase Order.
(m) "PROPRIETARY INFORMATION" shall mean information that relates
to the subject matter of this Agreement (i) which is in
written or other tangible form and is clearly and
conspicuously marked as confidential and proprietary or its
equivalent by the party which provides it to the other party,
or (ii) if disclosed in oral, visual or other non-written
form, is reduced to writing by the disclosing party and
transmitted to the recipient party, clearly and conspicuously
marked as confidential and proprietary within thirty (30) days
after such disclosure.
(n) "ORIGINAL INTENDED PURPOSE" shall mean the use of the
Product(s) for the purpose of helping Users learn about, sell
and/or buy products manufactured, distributed or sold by GM.
(o) "USER(S)" shall mean any GM employee, dealer, dealer
salesperson, customer, vendor or supplier who is authorized
under this Agreement to use Product(s) and who is operating at
retail, wholesale or any other level of distribution and
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<PAGE> 4
is marketing, selling and/or buying products manufactured,
distributed or sold by GM.
(p) "DATA" means product data, algorithms or other product
information provided by GM for incorporation into Product(s).
2. SCOPE OF AGREEMENT AND ORDER OF PRECEDENCE
(a) SCOPE OF THIS AGREEMENT. This Agreement embodies the terms and
conditions negotiated by the parties which shall apply to each
Purchase Order or Statement of Work placed hereunder.
(b) ORDER OF PRECEDENCE. The parties intend that the provisions of
each Statement of Work and Purchase Order will be consistent
with those contained in this Agreement. However, in the event
such construction is not possible, the terms and conditions of
this Agreement shall prevail over those in the Statement of
Work (except where this Agreement has specifically stated that
the Statement of Work takes precedence) or Purchase Order and
the terms and conditions of a Statement of Work shall prevail
over those in a Purchase Order unless the conflicting
provision: in a Statement of Work or Purchase Order expressly
references the provision herein or in a Statement of Work to
be superseded or modified, and unless such Statement of Work
or Purchase Order has been signed by both GM and CWC
Authorized Purchasing Personnel.
3. PROVISION OF PRODUCTS AND SERVICES.
(a) GENERAL. CWC understands and acknowledges that any GM entity
may obtain Products and Services in accordance with this
Agreement.
(b) TIME AND MATERIALS SERVICES. Subject to a Statement of Work,
if available from CWC, GM may obtain on a time and materials
basis from CWC certain consulting, development and other
Services (excluding maintenance and support Services) agreed
upon by the parties in accordance with the following terms and
conditions:
(i) GM may specify on a Purchase Order the number and
names or skill levels of CWC employees ("Employees")
required to perform Services.
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<PAGE> 5
In the event GM requests replacement of an Employee
or a proposed Employee, CWC shall, within ten (10)
working days of receipt of such notification from GM,
provide a substitute Employee of sufficient skill,
and training to perform the applicable Services. In
the event GM requests replacement of any Employee
within the first ten (10) days of such Employee's
commencement of Services, GM shall not be required to
pay for Services provided by such Employee and CWC
shall refund to GM all amounts paid for such
Employee's Services. If GM otherwise requests
replacement of an Employee, GM shall not be required
to pay for and shall be entitled to a refund of any
sums paid to CWC for such Employee's Services from
the date of GM's requested replacement of such
Employee.
(ii) CWC shall not replace any Employee, who has been
designated as a key Employee by GM ("Key Employee")
then currently performing Services without GM's
consent until the Statement of Work or Purchase Order
pursuant to which such Key Employee is providing
Services expires or is terminated. Notwithstanding
the foregoing, CWC may replace any Key Employee for
reasons relating to the Employee's termination with
CWC, promotion, illness, death, or causes beyond
CWC's control.
(iii) GM shall reimburse CWC for the reasonable direct
expenses (excluding overhead and fringe benefits) of
its Employees incurred in the performance of Services
if requested in advance and approved by GM. Expenses
related to travel, lodging, and meals shall be
reimbursed in accordance with GM's guidelines for its
own employees, as set forth in Exhibit 3(b)(iii) [See
Note].
(iv) CWC shall maintain records, for a period of three (3)
years following the performance of time and materials
Services, which adequately substantiate the
applicability and accuracy of charges for such
Services and related expenses to GM and shall, upon
receipt of reasonable advance notice from GM, produce
such records for audit by GM.
(v) Purchase Orders for Services provided or to be
provided under this Section may be canceled with a
thirty (30) day notice without charge or penalty,
upon written notice to CWC.
[Note: The referenced exhibit was never attached to this agreement, is not part
of this contract, and therefore has not been filed with this exhibit.]
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<PAGE> 6
(c) SERVICES IN GENERAL. In connection with the performance of any
Services pursuant to this Agreement:
(i) CWC warrants and agrees that Employees shall have
sufficient skill, knowledge, and training to perform
the Services and that the Services shall be performed
in a professional and workmanlike manner in
accordance with the highest reasonable commercially
applicable standards of the computer software
development industry.
(ii) Employees performing Services in the United States
must be United States citizens or lawfully admitted
in the United States for permanent residence or
lawfully admitted in the United States holding a visa
authorizing the performance of Services on behalf of
CWC.
(iii) CWC shall require all persons providing Services on
behalf of CWC, when at a GM location, to comply with
all applicable regulations and policies of GM
including, but not limited to, security regulations.
(iv) CWC shall provide for and pay the compensation and
other benefits of Employees including, but not
limited to, salary, health, accident and workers'
compensation benefits and shall pay all taxes and
contributions which an employer is required to pay
relating to the employment of employees.
(d) TIME OF PERFORMANCE. To the extent provided in a Statement of
Work, time is hereby expressly made of the essence with
respect to the specific items so provided for in the Statement
of Work. Therefore, to the extent necessary with respect to a
specific project, GM and CWC shall consider the use of
liquidated damages to help ensure timely performance.
4. PROJECT MANAGEMENT. For each Project, CWC and GM shall each designate a
project manager (the "Project Managers") who shall have the
responsibilities set forth herein and otherwise agreed upon by the
parties in the Statement of Work. Each Project Manager shall be
responsible for providing timely management decisions as required or
requested relating to the Project. The CWC Project Manager shall
provide to the GM Project Manager a written report of the status of the
Project as set forth in the
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<PAGE> 7
Statement of Work. GM may also designate Divisional Representatives to
work with CWC on a specific Project.
5. APPROVAL OF DELIVERABLES. The CWC Project Manager shall submit each
item or task to be performed by CWC which must be approved by GM or
performed to the satisfaction of GM ("Deliverable") to the GM Project
Manager on or before the mutually agreed delivery date. within the time
frame mutually agreed upon by the parties in the Statement Of work, GM
shall approve or disapprove the Deliverable by providing written notice
to CWC. Any disapproval shall describe the ways in which the
Deliverable is unacceptable to GM and what corrections or improvements
are required by GM. CWC shall resubmit the Deliverable to GM for
approval as set forth herein, modified in accordance with GM's
directions, within the mutually established cure period. GM may extend
the period of time for resubmission of the Deliverable if CWC submits a
written request setting forth the specific reasons why CWC cannot
comply with the requirements together with a schedule of when CWC will
be able to resubmit the Deliverable. The parties agree that in order to
expedite the approval process, CWC may submit draft versions of a
Deliverable prior to the required date for the informal comment of the
GM Project Manager and any other relevant GM personnel. By approving a
Deliverable, GM represents only that it has reviewed the Deliverable
and detected no errors or omissions sufficient enough to warrant the
withholding or denial of payment, if any, for such Deliverable. GM's
approval of a Deliverable does not discharge CWC's obligation to
provide a completed Product that as a whole conforms to the Applicable
Specifications.
6. ACCEPTANCE OF PRODUCT(S).
(a) DELIVERY AND INSTALLATION. Immediately upon the completion of
each phase of a Project excluding maintenance services
enumerated and described in the Statements of Work, CWC shall
deliver the Product(s) and/or deliver all Documentation and
other materials required to be provided under such phase
including the Program Report provided for in Section 4
hereof). CWC shall notify GM when products are ready for
testing by GM.
(b) ACCEPTANCE TESTS. Within the time frame as set forth in the
Statement of Work after receipt of such notice, GM shall
perform the Acceptance Tests of the Product(s). In addition,
if applicable, upon completion of final phase of a Project,
the Acceptance Tests shall be performed on all products
comprising a
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<PAGE> 8
Project as a whole in order to determine whether the
integration of the Product(s) and any necessary equipment
meets the Applicable Specifications and Acceptance Test
completion criteria for the Project set forth in the Statement
of Work and operates with internal consistency. If the
Products fail to meet any applicable Acceptance Tests, GM
shall forthwith notify CWC, and CWC shall, within the time
period set forth in the Statement of Work hereto, modify or
improve the Product(s) delivered to GM to ensure that the
Product(s) and the Project as a whole meet the Acceptance
Tests. GM shall thereafter have an additional test period of
equal duration to reconduct the Acceptance Tests. After a
reasonable number of acceptance tests failure of the
Product(s) to meet the aforesaid specifications and
performance standards after the additional set of Acceptance
Tests shall constitute a default by CWC under Section 14
hereof.
(c) ACCEPTANCE. GM shall notify CWC upon the Acceptance Date which
shall constitute Acceptance of the Products.
7. CHARGES, PRICES, AND FEES FOR PRODUCTS AND SERVICES.
(a) DETERMINATION. Charges, prices, and fees ("Charges") and
discounts, if any, for Products and Services related to each
Project shall be determined as set forth in the applicable
Statement of Work, in a Purchase Order, or as otherwise agreed
upon by the parties, unless modified as set forth herein, in
no event shall Charges exceed CWC's then current established
Charges.
(b) MODIFICATION TO CHARGES. Except as otherwise provided in the
Statement of Work, CWC shall provide to GM at least sixty (60)
days' prior written notice of a change in an established
Charge for Products or Services.
(i) Except as otherwise set forth herein, any increase in
a Charge 9a) shall not occur during the first twelve
(12) months of this Agreement, during the term of the
applicable Purchase Order or during the specified
period for performance of Services, whichever period
is longer, or occur more than once annually
thereafter, and (b) shall not exceed the percent
increase in the Consumer Price Index, U.S. city
Average, All Items published by the Bureau of Labor
Statistics of the United States
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<PAGE> 9
Department of Labor "CPI" during the most recent
calendar year for which the CPI is available.
(ii) All Purchase Orders issued by GM prior to the end of
the required notice period will be honored at the
then current Charges so long as the scheduled
delivery date of the applicable Products or Services
is within ninety (90) days after the effective date
of the increase.
If CWC's established Charge on the scheduled delivery date is lower
than the established Charge for such Product or Service stated in the
applicable Purchase Order, then GM shall be entitled to obtain such
Product or Service at such lower Charge, less any applicable discount.
(c) PAYMENT. Payment by GM of the purchase price of Products or
Services for each Project shall be made to CWC in accordance
with the applicable Statement of Work. Provided, however, that
all payments for Product development Services shall be made to
CWC only upon successful completion of milestones and/or
deliverables for a Project, unless the GM Authorized
Purchasing Personnel specifically agrees otherwise. Payment
terms are Net 25th Prox. and payment will be made by
Electronic Data Interchange to the extent CWC qualifies for
such in accordance with GM" established policies and
procedures.
(d) INVOICES. A "correct" invoice shall contain (i) CWC's name and
invoice date, (ii) the specific Purchase Order number, (iii)
description, price, and quantity of the Products or Services
actually delivered or rendered, (iv) credits (if applicable),
(v) name (where applicable), title, phone number, and complete
mailing address of responsible official to whom payment is to
be sent. A correct invoice must be submitted to the
appropriate invoice address listed on the Purchase Order.
(e) TAXES. Unless GM provides CWC with a valid tax exemption
number or as otherwise provided herein, GM shall pay directly
or reimburse CWC for all taxes, assessments, permits, and
fees, however designated, which are levied upon this Agreement
or the Products and Services, or their use, excluding
franchise taxes and taxes based upon CWC's income.
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<PAGE> 10
(f) RIGHT TO AUDIT. CWC hereby grants to the GM Audit Staff or
independent Auditors a right to audit direct labor hours and
expenses related to work authorized under this Agreement. CWC
shall maintain a separate account which shall be subject to
such audit by GM at any time during the progress of work and
after completion of work upon two (2) business days notice.
CWC further agrees to maintain the records in a manner to
facilitate an audit and agrees that such audit may be used as
a basis for settlement of charges for work authorized under
this Agreement.
8. PROVISION OF MOST FAVORABLE TERMS. Except as otherwise agreed in a
Statement of Work or in a fixed price contract, CWC warrants and agrees
that each of the Charges, terms, warranties, or benefits granted to GM
pursuant to this Agreement or in any Purchase Order are comparable to
or better than the equivalent Change, term, warranty, or benefit being
offered by CWC to any customer of CWC for similar services under
similar conditions. If CWC shall enter into arrangements with any
customer of CWC (except the United States Government) providing for
such similar more favorable Charges, terms, warranties, or benefits,
then this Agreement or the applicable Purchase Order or Statement of
Work shall thereupon be deemed amended to incorporate the more
favorable Charges, terms, warranties, or benefits and CWC shall
immediately notify GM of such more favorable Charges, terms,
warranties, or benefits.
9. CHANGE ORDERS.
(a) CHANGE REQUESTS. The GM Project Manager shall immediately
notify the CWC Project Manager in writing of changes that will
expand or reduce the scope of a Purchase Order or alter the
Applicable Specifications. CWC Authorized Purchasing Personnel
shall notify GM Authorized Purchasing Personnel in writing as
soon as practicable of technical problems/events/new
information/program changes that could result in an increase
or decrease in costs or dates. A log of such change requests
is to be maintained by the CWC Project Manager and the GM
Project Manager.
(b) IMPLEMENTING CHANGES. If GM and CWC desire to make such
changes described above, CWC Authorized Purchasing Personnel
will document the change and provide a written proposal for
incorporating the change with supporting information to the GM
Authorized Purchasing Personnel for
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<PAGE> 11
consideration. Approval of both GM and CWC Authorized
Purchasing Personnel must be obtained in writing in order to
implement the changes necessitating the changes in costs,
changes in schedules, or changes to Deliverables. The
Statement of Work will be amended by GM and CWC Authorized
Purchasing Personnel to reflect the agreed upon changes. No
agreements or actions communicated during a technical contact
shall change the responsibilities, cost, schedules, or
requirements of the Statement of Work to either party, unless
reduced in writing and signed by both GM and CWC Authorized
Purchasing Personnel.
10. NONCOMPETITION. During the performance of this Agreement, CWC agrees
not to perform any Services or provide any Product(s), directly or
indirectly through third parties, for any Competitor of GM, unless
bidding for Products or Services against other suppliers who are not so
constrained.
11. LICENSE OF PRODUCT(S); OWNERSHIP OF DOCUMENTATION.
(a) Upon Acceptance of the Product(s) by GM, CWC will grant to GM
an exclusive, perpetual, irrevocable, non-transferable,
worldwide, royalty free, paid-up, license to use, modify or
permit others to do so, and create derivative works for GM to
use but only for the Original Intended Purpose under any
patents, copyrights, or other proprietary rights of CWC.
(b) GM acknowledges and agrees that the Product(s) shall be and
remain the property of CWC and that this Agreement grants GM
no title or rights of ownership in the Products except as set
forth herein. GM further agrees that selected subroutines and
modules contained within the Products are, and will continue
to be, used by other CWC customers, and said subroutines and
modules shall be considered nonexclusive to GM.
(c) Transfer of Products. The rights and license granted to GM
hereunder may not be assigned, subleased, sold, offered for
sale, disposed of, encumbered or mortgaged, except in the
event that CWC shall cease directly licensing Users, in which
case CWC hereby grants to GM the right to sublicense the
executable version of the Products to Users pursuant to the
terms and conditions attached hereto as Exhibit 11(c) [See
Note]; provided that each User signs such agreement prior to
their receipt of the Product.
-11-
[Note: The referenced exhibit was never attached to this
agreement, is not part of the contract and therefore has not
been filed with this exhibit.]
<PAGE> 12
(d) Overseas Use. Ninety (90) days before the distribution of the
Products in any non-U.S. country, GM shall notify CWC so that
CWC can (i) approve of distributing the Products in the
non-U.S. country and (ii) obtain review if appropriate by
counsel in the non-U.S.country of this Agreement or the
applicable Statement of Work.
CWC may require changes in this Agreement or the applicable
Statement of Work from time to time or with respect to use in
a particular country.
(e) Provision of Source Code.
(i) Within thirty (30) days of the Acceptance Date for a Product,
CWC shall place with the GM Legal Staff one complete set of
source code with associated documentation for the Product
("Source Materials"). The Source Materials shall include
machine-readable, high level language code for the Product, as
well as machine-readable listings, tables and references
required to use the high level language code and shall be in
the form of 3 1/2 inch floppy disks. CWC represents and
warrants to GM that:
(1) the Source Materials constitute the source code and
documentation for the Product licensed to GM pursuant
to this Agreement or a Statement of Work; and
(2) the Source Materials are in a form suitable for
reproduction by computer and/or photocopy equipment,
and consist of a full source language statement of
the program or programs comprising the Product and
complete program maintenance documentation, including
all flow charts, schematics and annotations which
comprise the precoding detailed design
specifications, and all other material necessary to
allow a reasonably skilled third party programmer or
analyst to maintain or enhance the Product without
the help of any other person or reference to any
other material. The Source Materials shall be
delivered under seal for safekeeping to the GM Legal
Staff at P.O. Box 33122, New Center One Building,
3031 West Grand Boulevard, Detroit, Michigan 48232.
Source Materials shall not
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<PAGE> 13
be made available to anyone outside the GM Legal
Staff unless and until the occurrence of a Triggering
Event (as defined below). CWC agrees to update and
maintain the Source Materials held in safekeeping to
reflect all changes made thereto through maintenance,
enhancements, revisions or otherwise. All such
changes to the Source Materials shall also be
delivered in the required form to the GM Legal Staff
under seal.
(ii) GM may break the seal and use the Source Materials five (5)
days after written notice to CWC that the GM Legal Staff has
made a finding that one of the following "Triggering Events"
has occurred:
(1) it has established by clear and convincing evidence
that CWC is unable to meet its material obligations
to develop and/or maintain the Product(s) under any
Statement of Work for a running period of thirty (30)
days after notice to CWC in writing.
(2) CWC has been declared bankrupt, has voluntarily
petitioned a court for relief under any bankruptcy
laws, has been declared insolvent, has made an
assignment for the benefit of creditors, suffers or
permits the appointment of a receiver for its
business or assets, becomes subject to any proceeding
under any bankruptcy or insolvency law, whether
domestic or foreign, or has wound up or liquidated
its business voluntarily or otherwise and GM has
compelling reasons to believe that such event(s) will
cause CWC to fail to meet its obligations under this
Agreement or a Statement of Work in the foreseeable
future.
(3) after the applicable period of time identified in a
Statement of Work, under which GM has contracted for
CWC to provide maintenance, GM decides to use a party
other than CWC to maintain the Product. In such
event, CWC shall have the right of last refusal to
match any lower bids received by GM for such
maintenance services.
(4) the sale, assignment, or other transfer by CWC,
without the prior written consent of GM, of such of
CWC's rights in the Product
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<PAGE> 14
as would prevent CWC from the discharge of its
obligations with respect to the performance of the
Product under the Statement of Work; or
(5) the termination of this Agreement or the applicable
Statement of Work for the Product by GM for CWC's
material default. In the event that CWC shall contest
any such finding by the GM Legal Staff, GM shall
nevertheless have the use of the Source Materials as
permitted herein, and the matter shall be immediately
submitted to the dispute resolution procedures
identified in Section 14 of this Agreement.
(iii) GM shall retain a copy of the Source Materials as they existed
when unsealed and shall use a copy of the Source Materials
only to complete or maintain such Product as may be defined in
an applicable Statement of Work or to cause such Product to be
completed or maintained by a third party. In the event GM
causes a third party to use the Source Materials, GM shall
cause such third party to agree in writing that the Source
Materials shall be maintained in confidence in accordance with
the confidentiality provisions of this Agreement and shall be
used only for the Original intended purpose. If GM uses the
Source Materials or causes a third party to complete or
maintain any Product, unless otherwise determined during
dispute resolution proceedings requested by GM, CWC is
relieved of all warranties, liabilities and indemnification
provisions of this Agreement with respect to the Product to
the extent such modifications are the cause of a warranty
defect or infringement claim.
(iv) Following release of the Source Materials as permitted above,
GM shall seal the Source Materials as they existed when
unsealed and as they exist after any modifications reflecting
the permitted use and return them to the GM Legal Staff, where
they shall be secured until dispute resolution proceedings, if
any, shall determine the further use, if any, of the Source
Materials.
12. WARRANTIES. CWC hereby represents and warrants that:
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<PAGE> 15
(a) CWC has not entered into agreements or commitments which are
inconsistent with or conflict with the rights granted to GM
herein;
(b) Except for any security interest established by GM herein, the
Products shall be free and clear of all liens and
encumbrances, and GM shall be entitled to use the Products
without disturbance;
(c) Except as provided for in the Statement of Work, all Products
shall comply with all applicable provisions of standards or
draft standards issued by the international Standards
Organization (ISO);
(d) Each Product (i) shall be free from defects in manufacture,
materials, and design, (ii) shall be manufactured in a good
and workmanlike manner using a skilled staff fully qualified
to perform their respective duties, and (iii) shall function
properly under ordinary use and operate in conformance with
its Applicable Specifications and Documentation or CWC shall
repair or replace the defective Product at no charge to GM
during any period when GM is making maintenance payments to
CWC.
(e) Where applicable as indicated in a Statement of Work, the
Products are, and shall continue to be, data, program, and
upward compatible with any other Products available or to be
available from CWC so that data files created for a Product
can be utilized without adaptation of the other Products and
so that programs written for Products will operate on the
other Products and not result in the need for alteration,
emulation, or the loss of efficiency. Where applicable, as
indicted in a Statement of Work each Product is, and shall
continue t be, compatible with other Products provided by CWC
and each Product contained within a Project shall be fully
integrated, compatible, and operable with all other Products
contained within the Project. CWC shall provide to GM at least
ninety (90) days prior written notice to discontinue any
Product. If the course of the evolution of the technology,
conditions outside CWC's control limit CWC from compliance
with the condition, GM will release CWC from its
responsibility to meet this provision.
THIS WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES WHETHER
EXPRESSED, IMPLIED OR STATUTORY INCLUDING IMPLIED WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
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<PAGE> 16
13. INDEMNIFICATION
(a) Proprietary Rights Indemnification. If notified promptly in
writing of any judicial action brought against GM based on an
allegation that GM's use of the Products infringes any patent,
copyright, trademark, mask work or any rights of a third party
or constitutes misuse or misappropriation of a trade secret
(Infringement), CWC will defend such action at its expense and
will pay the costs and damages awarded in any such action or
the cost of settling such action. CWC shall have sole control
of the defense of any such action and all negotiations for its
settlement or compromise. If notified promptly in writing of
any informal claim (other than a judicial action) brought
against GM based on an allegation that GM's use of the
Products constitute Infringement, CWC will pay the costs
associated with resolving such claim and will pay the
settlement amount (if any), provided that CWC shall have sole
control of the resolution of any such claim and all
negotiations for its settlement. In the event a final
injunction shall be obtained against GM's use of the Products
by reason of infringement, or in CWC'
(i) procure for GM the right to continue to use the
Products as contemplated hereunder, or
(ii) replace or modify the Products to make its use
hereunder non-infringing while being capable of
performing the same function. If neither option as
reasonably available to CWC, then the applicable
Purchase Order or relevant part of such Purchase
Order may be terminated at the option of either party
hereto without further obligation or liability other
than as provided in Section 16 hereof, except as
follows: (i) Periodic Payment License, CWC shall
promptly refund to GM a monthly prorated amount of
the prepaid fees for the unexplored portion of the
applicable payment period; (ii) Lump Sum Payment
License. CWC shall promptly refund to GM a sum equal
to one thirty-sixth (1/36) or extension, if
applicable, of the lump sum fee paid for each month
remaining of a three (3) year period beginning from
the Acceptance Date of the Products by GM, plus a pro
rata amount of the prepaid charges for services for
the period then in effect, if any, paid by GM.
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<PAGE> 17
GM shall have the right to participate in the defense
of any such claim at its own expense through counsel
of its choice.
CWC will not indemnify GM, however, if the claim of
infringement is caused by (1) GM's misuse or
modification of the Products, (2) GM's failure to use
corrections or enhancements made available by CW, (3)
GM's use of the Product in combination with any
product or information not owned or developed by CWC,
(4) GM's distribution, marketing or use for the
benefit of third parties other than Users of the
Product; or Data.
(b) If notified promptly in writing of any judicial action brought
against CWC based on al allegation that CWC's use of the Data
infringes any patent, copyright, trademark, mask work or any
rights of a third party or constitutes misuse or
misappropriation of a trade secret (infringement), GM will
defend such action at its expense and will pay the costs and
damages awarded in any such action or the cost of settling
such action. GM shall have sole control of the defense of any
such action and all negotiations for its settlement or
compromise.
(c) Cross Indemnification. While at the facilities of the other
party, in the event any act or omission of a party or its
employees, servants, agents, or representatives causes or
results in (i) loss, damage to or destruction of property of
the other party or third parties, and/or (ii) death or injury
to persons including, but not limited to, employees or
invitees of either party, then such party shall indemnify,
defend, and hold the other party harmless from and against any
and all claims, actions, damages, demands, liabilities, costs,
and expenses, including reasonable attorneys' fees and
expenses, resulting therefrom. The indemnifying party shall
pay or reimburse the other party promptly for all such loss,
damage, destruction, death, or injury.
14. DISPUTE AND TERMINATION.
(a) NEGOTIATIONS OF DISPUTES. In the event of any dispute or
disagreement between GM and CWC to the Agreement with respect
to the interpretation of any provision of the Agreement or the
performance of CWC or GM under the Agreement, upon the written
request of either party, the applicable GM and CWC Project
Managers, or a designated representative of either of them,
will meet for the purpose of resolving such dispute or
negotiating an adjustment or
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<PAGE> 18
modification to such provision of the Agreement. The GM and
CWC Project Managers or designated representatives shall meet
as often as the parties reasonably deem necessary in order to
furnish to the other all information with respect to the
matter in issue which the parties believe to be appropriate
and germane in connection with its resolution. The GM and CWC
Project Managers or designated representatives will discuss
the problem and negotiate in good faith without the necessity
of any formal proceeding relating thereto. During the course
of such negotiation, all reasonable requests made by one party
to the other for information will be honored in order that
each of the parties may be fully advised in the premises. The
specific format for such discussion will be left to the
discretion of the GM and CWC Project Managers or designated
representatives but may include the preparation of agreed upon
statements of fact or written statements of position furnished
to the other party.
(b) RESOLUTION OF DISPUTES. Any dispute relating to the Agreement
which cannot be resolved by the respective GM and CWC Project
Managers or their designated representatives within thirty
(30) days of a written notice of such a dispute from one party
to the other party will be referred to the GM Director of
Dealer Communications and Systems and CWC President or their
designees for resolution within an additional thirty (30) day
period.
(c) TERMINATION. After exhausting the dispute resolution
procedures set forth above, either party shall have the right
to terminate this Agreement as follows:
(i) In the event CWC materially defaults in the
performance of a Project and fails to cure or ails to
make substantial progress to cure such default within
the sixty (60) day time period set forth in Section
14.(b) above for dispute resolutions, GM may, in its
sole discretion, elect to:
(1) terminate the Project, return to CWC all
Documentation and receive a pro-rata refund
from CWC of all amounts paid to CWC with
respect to the Project.
(2) extend the time for CWC performance at no
additional charge to GM;
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<PAGE> 19
(3) continue development itself or in
conjunction with a third party. In the event
GM elects to continue development itself or
utilizing a third party, CWC shall provide
to GM all Documentation or other CWC
Proprietary Information reasonably required
to complete such development to include
appropriate updates to the Source Materials
provided under Section 11(e). GM agrees that
any third parties pursuing such development
with GM shall agree in writing to comply
with the Restrictions on Use, and
Confidentiality obligations set forth in
Section 16 of this Agreement to protect
CWC's Proprietary Information. GM agrees and
any such third parties shall agree in
writing that they may use the information
only for the Original Intended Purpose and
as necessary in order to complete the
Project but for no other development beyond
the specific Project.
Upon any such termination under this Section
GM shall also be entitled to recover
reprocurement costs from CWC in excess of
amounts payable to CWC under this Agreement.
(ii) CWC shall have the right to terminate this Agreement
if GM commits any material breach of this Agreement
and fails to remedy or make substantial progress in
remedy such breach within the sixty (60) day time
period set forth in Section 14(b) above for dispute
resolution.
15. MAINTENANCE AND SUPPORT
(a) Mandatory Support Services. Except as otherwise set forth in
the Statement of Work, CWC shall provide the following support
Services and Products:
(i) Improvements. Improvements in the Products (which
shall mean any additions or modifications made by CWC
to or in the Products at any time after the
Acceptance Date) which will improve the efficiency
and effectiveness of this basic program function(s)
described in the Purchase Order and which do not
change such function or create one (1) or more new
functions, shall be furnished to GM at no charge.
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<PAGE> 20
(ii) Program Changes. If, at any time after the Acceptance
Date, CWC shall develop any changes in the Products
which change the basic program functions of the
Products or add one (1) or more new functions, GM
shall have the right to obtain such program changes
at the lesser of (i) CWC's standard prices then in
effect for installing such changes, or (ii) the
difference between the then current price of the
Products including such changes and the applicable
fees and charges for the Products reflected herein.
(b) Additional Support Services. AT GM's request, CWC shall
provide additional support Services for the Products as set
forth in a Statement of Work;
(c) If for any reason GM decides to have maintenance and support
services performed by a third party, CWC shall have the right
of last refusal to match any third party proposal for
maintenance and other services.
16. RESTRICTION ON USE CONFIDENTIALITY
(a) This Agreement, the Products, GM pricing data, competitive
pricing data, and all other information exchanged by the
parties under this Agreement, specifically identified in
writing as confidential and proprietary or its equivalent and
transmitted by either party to the other shall be maintained
in confidence by the receiving party and the receiving party
shall use the Products and such information only as authorized
by this Agreement and for no other purpose. CWC and GM agree
to take reasonable precautions to protect against unauthorized
disclosure of the Products and such information to third
parties other than Users.
(b) Neither CWC nor GM shall be obligated to maintain any
information received from the other party as confidential and
refrain from use, if the information:
(i) becomes publicly known through no fault of the
receiving party;
(ii) is learned by the receiving party from a third party
entitled to disclose it;
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<PAGE> 21
(iii) is already known by the receiving party prior to
obtaining the information from the disclosing party;
(iv) is independently developed by the receiving party
without utilization of the information of the
disclosing party;
(v) is or becomes available on an unrestricted basis to a
third party from the disclosing party or from someone
acting under its control; or
(vi) is required to be disclosed under an order created by
a court or government agency, provided that prior
written notification of the order and opportunity to
oppose the order is provided to the owner of the
information to be disclosed.
(c) GM shall cooperate with CWC to help ensure that each User
upholds the confidentiality and use requirements imposed upon
them through the agreement set forth in Exhibit 11(c); GM
agrees to notify CWC immediately after gaining knowledge of
the possession, use, disclosure or reproduction of the
Products by any party not authorized reproduction and to
cooperate with CWC and its representatives in any
investigation of and litigation against such user.
17. NOTICES. Except as otherwise specifically provided for herein, all
notices required or permitted to be given by either party under or in
connection with this Agreement shall be in writing and shall be deemed
duly given when personally delivered or sent by registered or certified
mail, return receipt requested, postage prepaid, or by prepaid
recognized overnight delivery service, or if confirmed by letter, by
facsimile, or by cable, to the other party at the address set forth in
Exhibit 17, or such other address as may be requested by either party
by like notice.
18. MODIFICATIONS AND AMENDMENTS. No addition to, deletion from or
modification of any of the provisions of these terms and conditions
shall be binding upon the parties unless made in writing and signed by
the Authorized Contracts Personnel of each party. Any such additions,
deletions or modifications shall refer specifically to this Agreement
and shall also state that it is an amendment hereof.
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<PAGE> 22
19. FORCE MAJEURE. Any delay or failure of either party to perform its
obligations hereunder shall be excused if, and to the extent that it is
caused by an event or occurrence beyond the reasonable control of the
party and without its fault or negligence, such as, by way of example
and not by way of limitation, acts of God, actions by any governmental
authority (where valid or invalid), fires, floods, windstorms,
explosions, shots, natural disasters, wars, sabotage, labor problems
(including lockouts, strikes and slowdowns), inability to obtain power,
material, labor, equipment or transportation, or court injunction or
order; provided that written notice of such delay (including the
anticipated duration of the delay) shall be given by the affected party
to the other party within ten (10) days.
20. LIMITATION OF LIABILITY AND REMEDIES. Except for the indemnification
set forth in Section 13 (with the exception of foreign patents which
shall be subject to this limitation of liability:
(a) LIMITATION OF LIABILITY. In no event shall either party be
liable for any loss of profit or revenue by the other party or
for any consequential, incidental, indirect or economic
damages incurred or suffered by either party arising as a
result of or related to this Agreement, whether arising in
contract, tort (including without limitation, negligence or
strict liability) or otherwise, even though either party has
been advised of the possibility of such loss or damages.
(b) LIMITATION OF REMEDY. The total liability of either party for
all claims of any kind arising from, or related to, this
Agreement, whether based on contract, tort including, but not
limited to, strict liability and negligence, warranty or on
other legal or equitable grounds, shall be limited to general
money damages and shall not exceed an amount equal to
$500,000.
21. INSURANCE. CWC shall remain insurance coverage in amounts not less than
the following:
(a) Worker's Compensation - Statutory Limits for the state or
states in which this Agreement is to be performed (or evidence
of authority to self-insure);
(b) Employer's Liability - $250,000;
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<PAGE> 23
(c) Comprehensive General Liability (including Products/Completed
Operations and Blanket Contractual Liability) - $1,000,000 per
person, $1,000,000 per occurrence Personal Injury, and
$1,000,000 per occurrence Property Damage, or $1,000,000 per
occurrence Personal Injury and Property Damage combined single
limit; and
(d) Automobile Liability (including owned, non-owned and hired
vehicles) - $1,000,000 per person, $1,000,000 per occurrence
Personal Injury and $1,000,000 per occurrence Property Damage,
or $1,000,000 per occurrence Personal Injury and Property
Damage combined single limit. At GM's request, CWC shall
furnish to GM certificates of insurance or other adequate
proof of self-insurance setting forth the amount(s) of
coverage, policy number(s) and date(s) of expiration for
insurance maintained by CWC and, if further requested by GM,
such certificates will provide that GM shall receive thirty
(30) days' prior written notification from the insurer of any
termination or reduction in the amount or scope of coverages.
GM shall allow CWC, upon proof of adequate self-insurance, to
self-insure the above insurance requirements. CWC's purchase
of appropriate insurance coverage or the furnishing of
certificates of insurance shall not release CWC of its
obligations or liabilities under this Agreement.
22. ADVERTISING. CWC shall not, without first obtaining the written consent
of GM, in any manner advertise or publish the fact that CWC has
contracted to furnish GM the goods or services herein ordered, or use
any trademarks or trade names of GM in CWC's advertising or promotional
materials.
23. GOVERNMENT COMPLIANCE. CWC and GM agree to comply with all federal,
state and local laws. Executive Orders, rules, regulations and
ordinances which may be applicable to CWC's performance of its
obligations under this Agreement.
24. EQUAL OPPORTUNITY AND AFFIRMATIVE ACTION. This Agreement incorporates
by reference:
(a) all provisions of 41 C.F.R. 60-1.4, as amended, pertaining to
the equal opportunity clause in government contracts;
(b) all provisions of 41 C.F.R. 60-250, as amended, pertaining to
affirmative action for disabled veterans of the Vietnam Era;
and
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<PAGE> 24
(c) all provisions of 41 C.F.R. 60-741, as amended, pertaining to
affirmative action for handicapped workers. CWC certifies that
it is in compliance with all applicable provisions of 41
C.F.R. 60-1, including but not limited to: (a) developing and
presently having in full force and effect a written
affirmative action compliance program for each of its
establishments as required by 41 C.F.R. 60-1.40, as amended,
(b) filing EEO-1 Reports as required by 41 C.F.R. 60-1.7, as
amended; and (c) neither maintaining segregated facilities nor
permitting its employees to perform services at segregated
facilities as prohibited by 41 C.F.R. 60-1.8, as amended. GM
requests that CWC adopt and implement a policy to extend
employment opportunities to qualified applicants and employees
on an equal basis regardless of an individual's age, race,
color, sex, religion or national origin.
25. NO IMPLIED WAIVER. The failure of either party at any time to require
performance by the other party of any provision of this Agreement shall
in no way affect the right to require such performance at any time
thereafter, nor shall the waiver of either party of a breach of any
provision of this Agreement constitute a waiver of any succeeding
breach of the same or any other provisions.
26. NON-ASSIGNMENT. Neither party may assign or delegate its rights and
obligations under this Agreement without the prior written consent of
the other party; provided, however, that CWC may use non-employee
contract programming personnel in the performance of design and
programming efforts, so long as such personnel are bound in writing to
provisions which are substantially similar to the Restriction on Use
and Confidentiality provisions of this Agreement.
27. RELATIONSHIP OF PARTIES. CWC and GM are independent contracting parties
and nothing in this Agreement shall make either party the agent or
legal representative of the other for any purpose whatsoever, nor does
it grant either party any authority to assume or to create any
obligation on behalf of or in the name of the other.
28. GOVERNING LAW. This Agreement is to be construed according to the laws
of the State of Michigan.
29. SEVERABILITY. If any term of this Agreement is invalid or unenforceable
under any statute, regulation, ordinance, executive order or other rule
of law, such term shall be deemed reformed or deleted, but only to the
extent necessary to comply with such
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<PAGE> 25
statute, regulation, ordinance, order or rule, and the remaining of
this Agreement shall remain in full force and effect.
30. ENTIRE AGREEMENT. This Agreement, together with the attachments,
exhibits, or supplements, specifically referenced herein, constitutes
the entire agreement between CWC and GM with respect to the matter
contained herein and supersedes all prior oral or written
representations and agreements.
31. SURVIVAL. The provisions of Sections 1, 2, 7, 8, 10, 11, 12, 13, 14,
15, 16, 19, 20, 21, 22, 28, 29, 30 and 31 shall survive the termination
or expiration of this Agreement for any reason.
IN WITNESS WHEREOF, GM and CWC have caused this Agreement to be
executed in multiple counterparts by their duly authorized representatives.
CLEAR WITH COMPUTERS, INC. GENERAL MOTORS CORPORATION
By: /s/ Alan R. Bennett By: /s/ Signature Illegible
----------------------------- -----------------------------
Title: Chief Operating Officer Title: General Director
-------------------------- --------------------------
Date: 6/21/94 Date: 8/1/94
--------------------------- ---------------------------
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<PAGE> 1
Exhibit 10.15.1
AMENDMENT TO
PRODUCTS USE AND GENERAL SERVICES AGREEMENT
Clear With Computers, Inc. (now known as CWC Incorporated), 1983 Premier Drive,
P.O. Box 4459, Mankato, Minnesota 56002-4459, a corporation of the State of
Minnesota, hereinafter called "CWC," and General Motors Corporation, 3044 West
Grand Boulevard, Detroit, Michigan 48202, a corporation of the State of
Delaware, hereinafter referred to as "GM" entered into a Products Use and
General Services Agreement ("Agreement") on August 1, 1994. GM now desires to
license CWC's new product, Signature Plus, and to procure services related to
Signature Plus.
Therefore, the parties agree to amend the Agreement as follows:
1. Delete Section 1(j) entitled "Competitor of GM."
2. Delete Section 10 entitled "Noncompetition."
3. Delete Section 11 entitled "License of Product(s)/Ownership of
Documentation" and replace with the following:
(a) Subject to the terms and conditions of this Agreement CWC
grants and GM accepts a non-exclusive, non-transferable
license with rights to use, for the Original Intended Purpose,
the Product as defined in the Statement of Work, Documentation
and other CWC proprietary information provided by CWC to GM
and to sublicense the Product to the number of dealers and
geographies identified in the Statement of Work who are
authorized to use the Product (for Signature Plus Sales --
"Named Users") and to allow access to the Product to the
number of consumers (not dealers) and geographies identified
in the Statement of Work as allowed access to the Product via
the Internet (for Signature Plus Web -- "Concurrent Users").
In order to sublicense the Product to Named Users GM shall
have in effect with such Named Users agreements sufficient to
obligate such Named Users to terms substantially similar to
the terms of Exhibit A. GM may transfer the Product from one
Named User to another Named User upon prompt written notice to
CWC and provided the Product is promptly deleted by the Named
User no longer using the Product.
(b) Subject to the terms and conditions of this Agreement CWC
grants and GM accepts a non-exclusive, non-transferable
license with rights to use the portion of the Product known as
Toolkit as defined in the Statement of Work ("Tools") at the
sites identified in the Statement of Work ("Designated
Site(s)"). GM may use the Tools on as many single computer
stations as needed at the Designated Site. GM may transfer the
Tools from one Designated Site to another Designated Site upon
prompt written notice to CWC. The Tools must be promptly
deleted in their
<PAGE> 2
entirety from the Designated Site no longer in use. GM may use
a third-party certified by CWC to use the Tools on behalf of
GM.
(c) GM shall maintain accurate records of all Named Users. Upon
CWC's request, GM shall provide CWC with a copy of such
records and executed agreements. In addition, CWC shall have
the right to inspect such records for compliance with the
terms of this Agreement no more frequently than annually,
during GM's normal business hours and upon reasonable advance
notice. GM shall cooperate with CWC to ensure that each Named
User upholds the requirements imposed upon them through this
Agreement or the agreement set forth in Exhibit A and will
take reasonable steps to ensure that such Named Users comply
with such terms and conditions. GM agrees to notify CWC
promptly after gaining knowledge of the possession, use,
disclosure or reproduction of Product by any person or other
party not authorized to have the benefit of such possession,
use, disclosure, or reproduction and to cooperate with CWC and
its representatives in any investigation of and litigation
against such unauthorized use.
(d) GM may make one copy of the Product for archival purposes. GM
may reproduce or copy any portion of the Documentation into
machine-readable or printed form for its internal use and for
distribution to Named Users. GM shall not remove any
proprietary, copyright, trademark, or service mark legend from
the Product, Documentation or CWC proprietary information and
shall include such legends on any complete or partial copies
of the Product, Documentation or CWC proprietary information.
(e) GM shall comply with United States export rules, laws and
regulations. GM shall indemnify CWC against any claims,
losses, liability, or damages suffered or incurred by CWC
arising out of or related to any violation by GM or Named User
of any United States or any foreign laws or regulations
relative to GM or Named User use, export or re-export of
Product or Documentation to or within any country outside the
United States.
(f) CWC warrants that the source code with associated
documentation ("Source Materials") for the Product as it is or
as it becomes available, will be deposited in an escrow
account maintained at Data Securities International, Inc. (the
"Escrow Agent"). The Source Materials constitute the source
code and documentation for the Product licensed to GM pursuant
to this Agreement or a Statement of Work; and the Source
Materials are in a form suitable for reproduction by computer
and/or photocopy equipment, and consist of a full source
language statement of the program or programs comprising the
Product and complete program maintenance documentation,
including all flow charts, schematics and
<PAGE> 3
annotations which comprise the precoding detailed design
specifications, and all other material necessary to allow
reasonably skilled third party programmer or analyst to
maintain or enhance the Product without the help of any other
person or reference to any other material. CWC will from time
to time deposit in an escrow account copies of all new
releases of the Source Materials for the Product.
CWC or CWC's trustee in bankruptcy shall authorize the Escrow
Agent to make and release a copy of the Source Materials to GM
upon the occurrence of any of the following events:
(i) CWC has ceased its ongoing business operations
relating to the licensing of software; or
(ii) CWC fails to carry out the material maintenance
obligations imposed on it pursuant to this Agreement
after reasonable opportunity has been provided to CWC
to perform such obligations; or
(iii) The existence of any one or more of the following
circumstances, if uncorrected for more than ninety
(90) days: (i) entry of an order of relief under
Title 11 of the United States Code; the making by CWC
of the general assignment for the benefit of
creditors; (ii) the appointment of a general receiver
or trustee in the bankruptcy of CWC's business or
property; or (iii) action by CWC under any state
insolvency or similar law for the purpose of
bankruptcy, reorganization or liquidation. The
occurrence of the described events shall not
constitute reason for the release of the source code
if, within the specified ninety (90) day period, CWC
(including its receiver or trustee in bankruptcy)
provides to GM adequate assurances, reasonably
acceptable to GM, of its continuing ability and
willingness to fulfill all of its maintenance and
support obligations.
In the event of release under this Agreement, GM agrees that
it will treat and preserve the Source Materials of the Product
as confidential information of CWC in accordance with the same
precautions adopted by GM to safeguard its own confidential
information against unauthorized use and disclosure. Release
under this provision shall not extend GM any greater rights or
lesser obligations than are otherwise provided or imposed
under this Agreement.
4. Delete Section 12 (d) and replace with the following: "Each Product (i)
shall be free from material defects in manufacture, materials, and
design, (ii) shall be manufactured in a good and workmanlike manner
using a skilled staff fully qualified to perform their respective
duties, and (iii) shall function properly under the ordinary use and
operate in material conformance with its Applicable Specifications and
Documentation or CWC shall repair or replace the defective
<PAGE> 4
Product at no charge to GM during any period when GM is making
maintenance payments to CWC."
5. Delete Section 14 (entitled Dispute and Termination) and replace with
the following: "In the event of material breach of this Agreement which
is not corrected, this Agreement may be terminated in the following
manner. The party complaining of the breach may terminate this
Agreement by serving written notice on the other party of its intention
to terminate the Agreement and stating the breach of the Agreement
complained of, whereupon the other party shall have a period of thirty
(30) days to correct the material breach except in the case of breach
of Section 16 or breach of the payment terms of Section 7(c), such
period shall be ten (10) days; and in the event the breach is not
corrected, the Agreement shall stand terminated at the end of said
thirty (30) days or ten (10) business days as applicable from service
of the notice. In the event the breach is corrected, the Agreement
shall continue as if no breach had occurred. If this Agreement is
terminated at any time, GM shall cease use immediately of the Product
and the parties shall promptly return or destroy all confidential
information to the disclosing party."
6. Replace Section 16(a) with the following:
(a) Confidential Information of GM. CWC agrees to treat GM data
transmitted to CWC and any other information or data
specifically identified as confidential ("GM Confidential
Information") with the same degree of care as CWC uses to
avoid disclosure, publication or dissemination of its own
information of a similar nature, but not less than a
reasonable degree of care.
(b) Confidential Information of CWC. GM agrees to treat the
information listed on Exhibit 16(b) and such other information
that GM accepts as confidential pursuant to Section 16(b)(1)
("CWC Confidential Information") with the same degree of care
as GM uses to avoid disclosure, publication or dissemination
of its own information of a similar nature, but not less than
a reasonable degree of care.
(1) Prior to any additional disclosures of CWC
Confidential Information to GM, CWC must receive the
approval of the applicable GM Project Manager. CWC
will follow the following process to obtain such
approval:
(A) CWC will prepare a written description of
the CWC Confidential Information, without
actually disclosing the CWC Confidential
Information, and send it to the GM Project
Manager.
(B) At the time of such transmission, the GM
Project Manager will decide, on the basis of
CWC's written description of the CWC
Confidential Information and not upon
receipt of the Confidential Information
itself, the following: (i) if GM agrees that
the information is confidential; (ii) if GM
needs the information. If the answers to (1)
and (2) are "yes" and GM agrees to accept
the CWC Confidential Information, GM agrees
to treat CWC Confidential Information with
the same degree of care as GM uses to avoid
disclosure, publication or
<PAGE> 5
dissemination of its own information of a
similar nature, but not less than a
reasonable degree of care.
(2) To the extent a decision not to approve or use CWC
Confidential Information jeopardizes CWC's ability to
perform its obligations under this Agreement, CWC
shall be relieved of adverse consequences, solely and
to the extent its performance is materially and
adversely affected thereby; provided, however, that
CWC shall promptly notify GM of the possibility of
such adverse consequences and both Parties shall
attempt to reach a mutually satisfactory solution to
alleviate or prevent such adverse consequences.
Section 16 (b) now becomes 16 (c).
Change Section 16(d) to read as follows:
"GM shall cooperate with CWC to help ensure that each User upholds the
confidentiality and use requirements imposed upon them through this
Agreement. GM agrees to notify CWC immediately after gaining knowledge
of the possession, use, disclosure or reproduction of the CWC
Confidential Information by any party not authorized reproduction and
to cooperate with CWC and its representatives in any investigation of
and litigation against such user."
Add the following as subsection (e) of Section 16:
"(e) Except as permitted in this Agreement, GM shall not copy,
translate, disassemble, or decompile, nor create or attempt to create,
by reverse engineering or otherwise the source code from the object
code of the Product licensed hereunder or use it to create a derivative
work, unless authorized in writing by CWC."
7. Add the following to the end of the first sentence in Section 20: "and
except for a material breach by either party of Section 16 (entitled
Restriction on Use, Confidentiality):"
8. In Section 20 (b), change the dollar amount from 500,000 to
[ * * * ].
IN WITNESS WHEREOF, GM and CWC have caused this Amendment to be executed in
multiple counterparts by their duly authorized representatives.
GENERAL MOTORS CORPORATION CWC INCORPORATED
By: [ * * * ] By: R. C. Lueck
----------------------------- -----------------------------
Signature: /s/ [ * * * ] Signature: /s/ R.C. Lueck
---------------------- ----------------------
Title: Sr. Divisional Buyer Title: V.P. Corporate Services
-------------------------- --------------------------
Date: June 26, 1998 Date: June 25, 1998
--------------------------- ---------------------------
[ * * * ] Confidential treatment has been requested for the bracketed
portions. The confidential redacted portion has been filed
separately with the Securities and Exchange Commission.
<PAGE> 6
EXHIBIT A
PRODUCT NAMED USER AGREEMENT
1. DELIVERY
Upon acceptance of these terms, Named User will be provided electronic media
containing Product, as ordered by Named User through GM.
2. GRANT OF LICENSE
Subject to becoming effective as set forth above, Named User is hereby granted a
non-exclusive, non-transferable right to use Product for the limited purpose of
helping Named User and Named User's customers learn about, sell and/or buy
products manufactured, distributed or sold by GM. Named User agrees that Product
shall be used exclusively by Named User's authorized employees and only for the
limited purpose set forth above. The electronic media and Product shall remain
the property of GM and/or its suppliers. All applicable rights in patents,
copyrights, trade secrets and other confidential and proprietary information,
trademarks, and any other intellectual property rights in Product are and shall
remain in GM and/or its suppliers. Named User is forbidden from copying,
transferring possession, using, or permitting others to copy, possess or use the
electronic media and/or Product for any purpose not specifically authorized in
this Agreement. Named User warrants that any individuals authorized by Named
User to access Product shall be bound by the terms and conditions of this
Agreement.
3. TERM OF AGREEMENT
The term of this Agreement shall commence upon execution of the Agreement and
shall continue until termination as provided herein.
4. PRODUCT SUPPORT
4.1 Warranty Disclaimer
GM AND ITS SUPPLIERS MAKE AND NAMED USER RECEIVES NO REPRESENTATION,
CONDITION OR WARRANTY, EXPRESS OR IMPLIED, IN ANY OTHER PROVISION OF THIS
AGREEMENT OR COMMUNICATION WITH NAMED USERS WITH RESPECT TO PRODUCT, AND GM
AND ITS SUPPLIERS SPECIFICALLY DISCLAIM ANY IMPLIED WARRANTIES WHETHER AS TO
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER MATTER. NAMED
USER ASSUMES ALL RESPONSIBILITIES FOR THE SELECTION OF PRODUCT TO ACHIEVE
NAMED USER'S INTENDED RESULTS. GM AND ITS SUPPLIERS DO NOT WARRANT THAT
PRODUCT WILL MEET NAMED USER'S REQUIREMENTS OR THAT PRODUCT WILL BE
UNINTERRUPTED OR ERROR FREE.
4.2 LIMITATION OF LIABILITY EXCEPT AS PROVIDED BELOW
GM AND ITS SUPPLIERS SHALL HAVE NO LIABILITY FOR ANY INCIDENTAL, SPECIAL,
CONSEQUENTIAL OR EXEMPLARY DAMAGES OF ANY DESCRIPTION, INCLUDING, WITHOUT
LIMITATION, DAMAGES DIRECTLY OR INDIRECTLY ARISING OUT OF THE INSTALLATION,
REMOVAL, USE OR NON-USE OF PRODUCT OR LOSS OF PROFITS, WHETHER ARISING OUT OF
WARRANTY OR CONTRACT, NEGLIGENCE, OR OTHER NON-INTENTIONAL TORT OR OTHERWISE.
UNDER NO CIRCUMSTANCES SHALL GM'S AND ITS SUPPLIERS' LIABILITY EXCEED THE
APPLICABLE LICENSE FEE PAID BY NAMED USER UNDER THIS AGREEMENT, REGARDLESS OF
THE FORM OF THE ACTION. NAMED USER EXPRESSLY AGREES THAT THE LIMITATIONS OF
INCIDENTAL, SPECIAL, CONSEQUENTIAL AND EXEMPLARY DAMAGES SET FORTH ABOVE ARE
AGREED ALLOCATIONS OF RISK, ARE REFLECTED
<PAGE> 7
IN THE FEES THAT HAVE BEEN AGREED TO BETWEEN THE PARTIES HEREIN.
5. RESTRICTIONS ON USE, CONFIDENTIALITY
To the maximum extent permitted by law, Named User agrees not to reverse
compile, disassemble, or otherwise reverse engineer Product or any portion
thereof. Named User further agrees not to disclose, reproduce, publish, release,
transfer, translate, copy or make available any portion of Product code or to
prepare or copy derivative or collective works based upon and/or containing any
portion of Product code. Named User agrees that all materials supplied under
this Agreement shall be kept in a secure place. Named User agrees to and shall
take appropriate action satisfactory to GM, by instruction, agreement or
otherwise, with any persons permitted access to Product to ensure continuous
confidentiality. All notices pertaining to use and ownership of the electronic
media and Product will be retained on the electronic media and Product in the
possession of Named User.
6. UNAUTHORIZED ACTS
Named User agrees to notify GM of the possession, use, knowledge, disclosure or
reproduction of any electronic media or Product made available to Named User
under this Agreement by any person, firm or organization not authorized by this
Agreement to have the benefit of such possession, use, knowledge, disclosure or
reproduction, and to cooperate with GM and its representatives in any
investigation of and litigation against such person, firm or organization.
7. TERMINATION
Named User may terminate this Agreement without cause by giving GM thirty (30)
days written notice of termination. In the event of a material breach of this
Agreement which is not corrected, this Agreement may be terminated in the
following manner. The party complaining of the breach may terminate this
Agreement by serving written notice on the other party of its intention to
terminate the Agreement and stating the breach of the Agreement complained of,
whereupon the other party shall have a period of thirty (30) days to correct the
material breach; and in the event the breach is not corrected, the Agreement
shall stand terminated at the end of said thirty (30) days from service of the
notice. In the event the breach is corrected, the Agreement shall continue as if
no breach had occurred. If this Agreement is terminated at any time, Named User
shall cease use immediately of Product and shall promptly return or destroy all
GM originals and all materials related to Product and electronic media received
from GM and/or any other material furnished by GM to Named User for use by Named
User in connection with this Agreement, including any modifications, and all
supplementary or related program materials and information, excluding normal
printouts or handouts which have been distributed to customers of Named User.
If for any reason the relationship between GM and its supplier of Product or
between GM and Named User is terminated, this Agreement will be concurrently
terminated, effective as of the relationship termination date.
8. GENERAL
This Agreement is entered into and shall be construed in accordance with the
laws of the State of Minnesota. This Agreement constitutes the entire agreement
between the parties and supersedes all other communications whether written or
oral. Neither the rights granted herein nor Product or copies thereof may be
licensed, assigned, or transferred by Named User. Any failure by GM to terminate
this Agreement for any particular cause shall not be interpreted as a waiver of
GM's right to subsequently cancel or terminate the Agreement for a later similar
reason. CWC and other third-party suppliers of GM are direct and intended
third-party beneficiaries of this Agreement and may enforce this Agreement
directly against Named User.
<PAGE> 8
EXHIBIT 16(b)(1)
o Source code
o Object Code (Compiled Code)
o Data Tools
o Data Model Templates
o Trade Secrets, Patent Rights, Copyrights and Trademark Rights Related to
CWC's proprietary configuration techniques
o Product Documentation (Included on CD)
o Data Compression Routines
o Application Program Interfaces
o Product Plans
o Database Schema
o Design Documentation
o Processes and Methods to Implement Signature Plus as set forth in CWC's
Implementation Guide
<PAGE> 9
STATEMENT OF WORK
This Statement of Work ("SOW") is entered into pursuant to a Products Use and
General Services Agreement between GM and CWC executed August 1, 1994, (the
"Base Agreement").
All amounts in U.S ($)
================================================================================
LICENSE FEES (SIGNATURE PLUS - WEB APPLICATION) - CONSUMERS
- --------------------------------------------------------------------------------
Access to Signature Plus - Web by up to 3000 Consumers utilizing up to six
servers at GM in the U.S. ... $[ * * * ]
The full license fee will be invoiced upon execution of this SOW. Payment terms
are as follows:
$[ * * * ] upon execution of this SOW.
$[ * * * ] due January 1, 1999.
In accordance with Section 7(c) of the Agreement, payment terms are Net 25th
Prox.
================================================================================
================================================================================
LICENSE FEES (SIGNATURE PLUS - TOOLKIT) - NUMBER OF SITES
- --------------------------------------------------------------------------------
1 Tools (Signature Plus Toolkit)........................................$0.00
- ----
* 1st Toolkit included at no charge, with the purchase of a Signature Plus Web
license.
- --------------------------------------------------------------------------------
The license fees are payable upon execution of this SOW.
================================================================================
================================================================================
HOSTING
- --------------------------------------------------------------------------------
CWC shall host the CWC Internet Configurator technology for a period of one year
at no charge, including hardware. Such services include:
o Hosting for US data and application services only. GM and CWC shall mutually
agree in writing to hosting other sectors in a separate SOW.
o Hardware and services will be provided to support 3000 concurrent users
only. Any extra hardware or services for a greater number of users will be
GM's responsibility.
o Hosting will be for one year from execution of this SOW.
o GM will be responsible for hosting (hardware and services) after the one
year time frame is complete.
o Hosting service charges will be limited to $[ * * * ]. (This is based upon
the estimate for the annual hosting charges from MCI.)
GM has requested CWC to use its preferred hosting company. In the event such
company's monthly fee exceeds $[ * * * ] per month, GM shall reimburse CWC up
to $[ * * * ] per month for the fee beyond $[ * * * ]. The following is an
example of such fees:
Preferred hosting company monthly fee: $[ * * * ]
CWC covers $[ * * * ]
Reimbursement from GM $[ * * * ]
Reimbursement for the hosting services will be done under the existing purchase
order of GM PROSPEC services.
================================================================================
APPLIABLE SPECIFICATIONS/DELIVERY
- --------------------------------------------------------------------------------
The Applicable Specifications for Signature Plus - Web are included in the
documentation distributed with Signature - Web. CWC shall deliver Signature Plus
- - Web to GM for installation upon execution of this SOW. The date of delivery
shall be considered the Acceptance Date.
Signature Plus - Web was developed consistent with software industry standards,
but is not ISO certified at this time.
Signature Plus is fully Year 2000 Compliant except as specified herein.
With respect to any third-party products procured by CWC for delivery to GM
under the terms of this Statement of Work (Third-Party Products), fi any, CWC
shall use all reasonable efforts: (i) to obtain on GM's behalf the warranty
[ * * * ] Confidential treatment has been requested for the bracketed
portions. The confidential redacted portion has been filed
separately with the Securities and Exchange Commission.
1
<PAGE> 10
set forth in the preceding sentence; and (ii) to determine whether the
Third-Party Product is Year 2000 Compliant before using the Third-Party Product
hereunder. If CWC is unable to obtain such warranty for Third-Party Products,
CWC shall promptly notify GM and shall promptly undertake to test the
Third-Party Products using GM's Year 2000 Compliance Test Procedure attached
hereto as Exhibit A, [See Note] or a comparable procedure approved by GM. If the
Third-Party Products fail the Year 2000 Compliance Test Procedure, GM shall have
the option to do one of the following: (i) reject the Third-Party Products and
pursue other alternatives; or (ii) require CWC to upgrade the Third-Party
Products to render it Year 2000 Compliant.
To be "Year 2000 Compliant" Signature Plus must at all times before, during and
after January 1, 2000, accurately process and handle date and time data
(including, but not limited to, calculating, comparing and sequencing) from,
into, and between the twentieth and twenty-first centuries, and the years 1999
and 2000, including leap year calculations, to the extent that other information
technology (e.g., hardware, software and firmware) used in combination with
Signature Plus properly exchange date/time data with it.
================================================================================
MAINTENANCE FEE
- --------------------------------------------------------------------------------
STANDARD MAINTENANCE (REQUIRED, 15% OF
THE TOTAL LICENSE FEE FOR SIGNATURE PLUS - WEB .................... $[ * * * ]
See below for definition of Standard maintenance to be provided to GM for
Signature Plus - Web.
If GM Decides to buy additional licenses for Concurrent Users or servers, CWC
will calculate the license fee based on the percentages above and pro-rate to
the end of the then-current GM maintenance year.
This maintenance fee will be invoiced under the existing purchase order for GM
PROSPEC services.
================================================================================
================================================================================
MAINTENANCE DESCRIPTION
- --------------------------------------------------------------------------------
CWC shall provide telephone support via a CWC customer support representative to
research questions and resolve issues for the GM designated contacts identified
in the attached schedule.
o Support is provided from 8am to 5pm Central Time, Monday through Friday
excluding CWC designated holidays. This service will also provide a means
for two GM designated contacts to provide feedback to CWC on the Software
and Tools.
Following is a definition of priority levels:
o P1: Production/Development Down
o P2: Major Feature/Function Failure
o P3: Minor Feature/Function Failure
o P4: Minor Question
Priority level support shall be handled according to the following table:
================================================================================
- --------------------------------------------------------------------------------
Priority Standard
- ---------- ---------------------------------------------------------------------
P1 CWC will use best efforts to respond to the GM contact within two
hour of notice and provide a fix plan within 24 hours.
- ---------- ---------------------------------------------------------------------
P2 CWC will use best efforts to respond to the GM contact within four
hours of notice and provide a fix plan within 48 hours
- ---------- ---------------------------------------------------------------------
P3 CWC will use best efforts to respond to the GM contact eight hours
of notice and provide a fix plan within ten days
- ---------- ---------------------------------------------------------------------
P4 CWC will use best efforts to respond to GM contact within eight
hours of notice.
- --------------------------------------------------------------------------------
Maintenance includes issuance of upgrades of Signature Plus - Web as they become
available from CWC. CWC is currently planning to more Signature Plus Web -
Application towards a UNIX environment at some point in the future as an
upgrade; CWC will make such upgrade available to GM under this maintenance
agreement if and when available. Upon issuance of an upgrade, CWC shall provide
the telephone support identified in this SOW for the previous upgrade for a
period of 12 months.
[ * * * ] Confidential treatment has been requested for the bracketed
portions. The confidential redacted portion has been filed
separately with the Securities and Exchange Commission.
[Note: This Exhibit was never attached to the agreement, is not part of the
contract and, accordingly is not attached hereto.]
2
<PAGE> 11
Maintenance service does not include the delivery of any software and associated
documentation which CWC offers as separate products which have not been licensed
to GM.
Maintenance services shall start upon execution of this SOW.
================================================================================
TAX AND DUTIES
- --------------------------------------------------------------------------------
All duties, taxes and levies (excluding taxes based on CWC's net income), if
any, shall be borne by GM.
================================================================================
FEES AND PAYMENT TERMS
- --------------------------------------------------------------------------------
Payment of maintenance fees shall commence upon execution of this SOW and shall
be invoiced annually in advance. Ninety (90) days prior to the end of the annual
maintenance period, CWC shall provide written notification to the GM Project
Manager (with a copy to the Practice Area Manager, General Commercial and
Government Contracts Practice Area) of any increase in the maintenance fee for
the following annual period. Within thirty (30) days of such notice, GM shall
notify CWC whether or not they will proceed with CWC's maintenance services for
the following year. In the event GM does not provide such notice within thirty
(30) days, the maintenance services shall automatically renew for the next
annual period.
================================================================================
The fees and terms in this SOW are valid until June 5, 1998. If this SOW is not
signed by GM prior to that date, CWC may revise such fees and terms.
================================================================================
SIGNATURES
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF, the parties have signed this SOW by their duly authorized
representatives.
GENERAL MOTORS CORPORATION CWC INCORPORATED
By: [ * * * ] By: R. C. Lueck
----------------------------- -----------------------------
Signature: [ * * * ] Signature: /s/ R.C. Lueck
---------------------- ----------------------
Title: Sr. Divisional Buyer Title: V.P. Corporate Services
-------------------------- --------------------------
Date: June 26, 1998 Date: June 25, 1998
--------------------------- ---------------------------
[ * * * ] Confidential treatment has been requested for the bracketed
portions. The confidential redacted portion has been filed
separately with the Securities and Exchange Commission.
3
<PAGE> 12
GM DESIGNATED CONTACTS
================================================================================
CONTACT #1
- --------------------------------------------------------------------------------
Name: [ * * * ]
---------------------------------------------------------------------------
Title: [ * * * ]
--------------------------------------------------------------------------
Business Address: [ * * * ]
---------------------------------------------------------------
Business Phone: [ * * * ]
-----------------------------------------------------------------
Business Fax: [ * * * ]
-------------------------------------------------------------------
E-mail: [ * * * ]
-------------------------------------------------------------------------
================================================================================
CONTACT #2
- --------------------------------------------------------------------------------
Name: [ * * * ]
---------------------------------------------------------------------------
Title: [ * * * ]
--------------------------------------------------------------------------
Business Address: [ * * * ]
---------------------------------------------------------------
Business Phone: [ * * * ]
-----------------------------------------------------------------
Business Fax: [ * * * ]
-------------------------------------------------------------------
E-mail:
-------------------------------------------------------------------------
================================================================================
CONTACT #3
- --------------------------------------------------------------------------------
Name: [ * * * ]
---------------------------------------------------------------------------
Title: [ * * * ]
--------------------------------------------------------------------------
Business Address: [ * * * ]
---------------------------------------------------------------
Business Phone: [ * * * ]
-----------------------------------------------------------------
Business Fax: [ * * * ]
-------------------------------------------------------------------
E-mail:
-------------------------------------------------------------------------
================================================================================
CONTACT #4
- --------------------------------------------------------------------------------
Name:
---------------------------------------------------------------------------
Title:
--------------------------------------------------------------------------
Business Address:
---------------------------------------------------------------
Business Phone:
-----------------------------------------------------------------
Business Fax:
-------------------------------------------------------------------
E-mail:
-------------------------------------------------------------------------
================================================================================
[ * * * ] Confidential treatment has been requested for the bracketed
portions. The confidential redacted portion has been filed
separately with the Securities and Exchange Commission.
4
<PAGE> 1
Exhibit 10.15.2
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
--
GM General Motors Corporation
-- ###ESTABLISHED PER RELEASE### PURCHASE PAGE 1
ORDER: GMB06046
GENERAL MOTORS CORPORATION Ship To:
WORLDWIDE PURCHASING This Number Must Appear On All Inovices, Packing
100 RENAISSANCE CENTER Slips, Packages and Bills of Lading
PO BOX 100 (2) copies of your packing slip must accompany each
DETROIT MI shipment.
48265-1000 US IF REQUESTED, SEND INVOICES TO Item Identification Number(s) must be shown on Packing
PERSON WHO ORDERED MATERIAL OR Slips and Invoices.
VENDOR NUMBER 11-876-9389 Invoice To: SERVICES!!! DON'T SEND ANY Invoice Attn: Accounts Payable
FIREPOND INC. INVOICES TO PAYABLES!!!! Do not Declare Valuation of Express Shipments or
TO: 1983 PREMIER DR VARIOUS MI Insure Parcel Post.
PO BOX 4459 48331 US ======================================================
MANKATO MN Order Date PHONE: [ * * * ]
56002-4459 [TEXT ILLEGIBLE ON FAXED DOCUMENT] 02/03/99 [ * * * ]
------------------------- ---------------------------
If Government Contract Number is Shown ALTERATION ISSUE DATE KJ BUYER
Hereon, additional Terms and Conditions ---------------------------
Attached Hereto Apply. -------------------------
---------------------------
------------------------- PURCHASING AGENT
ALTERATION EFFECTIVE DATE
====================================================================================================================================
PAYMENT TERMS F.O.B. DESTINATION UNLESS OTHERWISE INDICATED SHIP VIA
NET 2ND DAY OF 2ND MONTH OP YOUR DELIVERY
====================================================================================================================================
ITEM QUANTITY ITEM RFG PRICE PRICE UNIT
SEQUENCE ORDERED IDENTIFICATION NO. NOUN NAME DESCRIPTION NUMBER DATE REQUIRED TAX CODE % BASE UNIT MULTIPLE MEASURE
- ------------------------------------------------------------------------------------------------------------------------------------
THIS IS A MISC BLANKET ORDER FOR THE COMMODITY GM PROSPEC
### THIS IS A LOCAL BLANKET ORDER ###
EFFECTIVE DATE: 01/01/99 EXPIRATION DATE: 12/31/00
THIS ORDER LISTED IN THE FOLLOWING CURRENCY
USD DOLLARS (UNITED STATES)
THIS IS A BLANKET PURCHASE ORDER, EFFECTIVE THE
FIRST DAY OF JANUARY 1999 BETWEEN FIREPOND, INC.
(FORMERLY KNOWN AS CLEAR WITH COMPUTERS INC. CWC)
1983 PREMIER DR, PO BOX 4459, MANKATO MN, 56002-4459
A MINNESOTA CORPORATION, AND GENERAL MOTORS
CORPORATION, DETROIT, MI, A CORPORATION OF THE
STATE OF DELAWARE.
***** ATTENTION: [ * * * ]
***** INVOICE AND RECEIPT:
[ * * * ]
MANAGER, ELECTRONIC & INTERACTIVE RETAIL SYSTEMS
INFORMATION SYSTEMS & SERVICES, VEHICLE SALES,
SERVICE, AND MARKETING MAIL CODE 482-A14-B16
- ------------------------------------------------------------------------------------------------------------------------------------
BOO1784 USER: DALE D TURSO ORIGINAL CONTINUE PAGE 2
</TABLE>
[ * * * ] Confidential treatment has been requested for the bracketed portions.
The confidential redacted portion has been filed separately with the
Securities and Exchange Commission.
<PAGE> 2
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BUYER NAME: [***] GENERAL MOTORS BLDG - STAFFS PAGE 2
- ------------------------------------------------------------------------------------------------------------------------------------
BUYER CODE: KJ BLANKET ORDER ATTACHMENT FORM
VENDOR: FIREPOND INC. ORDER NUMBER GMB06046 ISSUE DATE 02/03/99
- ------------------------------------------------------------------------------------------------------------------------------------
ITEM VENDOR ITEM NOUN NAME DESCRIPTION RFQ NUMBER BASE UNIT PRICE PRICE BUY
SEQ PERCENT IDENTIFICATION MULT U/M
---- ------- -------------- --------- ----------- ---------- --------------- ----- ---
THIS BLANKET PURCHASE ORDER INCORPORATES THE PRODUCTS
USE AND GENERAL SERVICES AGREEMENT ("AGREEMENT")
DATED AUGUST 1, 1994, AMENDED JUNE 26, 1998, AND AS
- ------------------------------------------------------------------------------------------------------------------------------------
AMENDED FEBRUARY 19, 1999, ATTACHED HERETO DURING THE
PERIOD OF JANUARY 1, 1999 THROUGH DECEMBER 31, 2000.
THIS ORDER IS NOT TO EXCEED $[***]. COVERING
- ------------------------------------------------------------------------------------------------------------------------------------
THE TWO YEARS. REFERENCE PRDS2684.
THIS BLANKET PURCHASE ORDER REPLACES AND SUPERSEDES
TCB02351.
- ------------------------------------------------------------------------------------------------------------------------------------
******************* GM PROSPEC **********************
GM PROSPEC DATA SERVICES [***].
- ------------------------------------------------------------------------------------------------------------------------------------
GM PROSPEC ENHANCEMENTS [***].
GM PROSPEC REIMBURSABLE EXPENSES [***].
- ------------------------------------------------------------------------------------------------------------------------------------
DUPLICATION/DISTRIBUTION - RETAIL [***].
DUPLICATION/DISTRIBUTION - WHOLESALE [***].
TRAVEL [***].
- ------------------------------------------------------------------------------------------------------------------------------------
SELLER AGREES TO NOTIFY BUYER, IN WRITING OF ANY
REVISIONS IMPACTING COSTS AND/OR DELIVERABLES PRIOR
- ------------------------------------------------------------------------------------------------------------------------------------
TO COMMENCEMENT.
SELLER WILL ESTABLISH AND MAINTAIN A PROCEDURE FOR
- ------------------------------------------------------------------------------------------------------------------------------------
TRACKING AND REPORTING EQUAL PARTNER DOLLARS
QUARTERLY TO BUYER. BLANKET ORDER REQUIRES A
MINIMUM OF 10% OF GM BUSINESS BE DEDICATED TO
- ------------------------------------------------------------------------------------------------------------------------------------
EQUAL PARTNER (MINORITY) SUPPLIERS SPECIFIED BY
GENERAL MOTORS CORPORATION.
- ------------------------------------------------------------------------------------------------------------------------------------
RIGHT TO AUDIT
BY ACCEPTANCE OF A PURCHASE ORDER THE SELLER OF GOODS
AND/OR SERVICES GRANTS BUYER THE RIGHT TO AUDIT ALL
- ------------------------------------------------------------------------------------------------------------------------------------
CHARGES AND AGREES THAT ALL RECORDS SUPPORTING
CHARGES (INCLUDING THOSE OF SUBSIDIARIES AND AFFILIATES
TO WHOM WORK HAS BEEN CONTRACTED) WILL BE
- ------------------------------------------------------------------------------------------------------------------------------------
AVAILABLE FOR AUDIT BY GENERAL MOTORS CORPORATION FOR
A PERIOD OF ONE (1) YEAR BEYOND FINAL PAYMENT. (ZH)
- ------------------------------------------------------------------------------------------------------------------------------------
"DO NOT BILL SALES OR USE TAX ON ITEMS DELIVERED TO
BOO1784 USER: DALE D. TURSO CONTINUE PAGE 3
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[***] Confidential treatment has been requested for the bracketed portions.
The confidential redacted portion has been filed separately with the
Securities and Exchange Commission.
<PAGE> 3
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BUYER NAME: [***] GENERAL MOTORS BLDG - STAFFS PAGE 3
- ------------------------------------------------------------------------------------------------------------------------------------
BUYER CODE: KJ BLANKET ORDER ATTACHMENT FORM
VENDOR: FIREPOND INC. ORDER NUMBER GMB06046 ISSUE DATE 02/03/99
- ------------------------------------------------------------------------------------------------------------------------------------
ITEM VENDOR ITEM NOUN NAME DESCRIPTION RFQ NUMBER BASE UNIT PRICE PRICE BUY
SEQ PERCENT IDENTIFICATION MULT U/M
---- ------- -------------- --------- ----------- ---------- --------------- ----- ---
ALL SHIPPED TO LOCATIONS WITHIN STATES LISTED
- ------------------------------------------------------------------------------------------------------------------------------------
BELOW." GM HOLDS DIRECT AUTHORITY WITH THESE
STATES. AS A RESULT, IN ALL OF THE IDENTIFIED STATES
GM WILL REMIT DIRECTLY TO TAXING AUTHORITIES, ALL
- ------------------------------------------------------------------------------------------------------------------------------------
SALES OR USE TAX LIABILITY RELATED TO ITS PURCHASE
AND USE OF TANGIBLE PERSONAL PROPERTY AND SERVICES.
THEREFORE, EFFECTIVE IMMEDIATELY, THIS TAX CLAUS
- ------------------------------------------------------------------------------------------------------------------------------------
SUPERSEDES ALL TAX CODE INFORMATION FOUND ON THIS
ORDER. EXCEPT FOR THOSE STATES NOT IDENTIFIED BELOW.
FOR THOSE STATES NOT IDENTIFIED BELOW PLEASE
- ------------------------------------------------------------------------------------------------------------------------------------
CONTINUE TO FOLLOW THE SPECIFIC TAX CODE INSTRUCTIONS
FOUND ON THIS ORDER. LISTED BELOW ARE DIRECT PAY
PERMIT OR SALES TAX LICENSE NUMBERS FOR THE SEVENTEEN
- ------------------------------------------------------------------------------------------------------------------------------------
(17) STATES, OR GM LOCATIONS WITHIN A STATE, WHERE GM
HOLDS DIRECT PAY AUTHORITY AL #565
GA #044-38-00894-3 IN #003-2804890001
- ------------------------------------------------------------------------------------------------------------------------------------
KS #98-0004A(FAIRFAX ONLY) KY #000-10
LA #6009013-008DP (NATG ONLY) MD #20
MI #ME-0900440 MS #902
- ------------------------------------------------------------------------------------------------------------------------------------
MS #4277 (SPO ONLY) MO #11731559
NJ #DP380572515/002 NY #DP-003445
OH #98-000513 OK #137479
- ------------------------------------------------------------------------------------------------------------------------------------
PA #02-93450/DP246 TX #1-38-0572515-0
VA # 9980000793 WI #WDP95-01-1012
FURTHER, IF THIS ORDER RELATES TO THE CONSTRUCTION
- ------------------------------------------------------------------------------------------------------------------------------------
CONTRACT FOR REAL PROPERTY, ALL APPLICABLE SALES AND
USE TAXES ARE THE RESPONSIBILITY OF THE CONTRACTOR,
AND SHOULD BE INCLUDED IN THE CONTRACTOR'S BID AS
- ------------------------------------------------------------------------------------------------------------------------------------
REQUIRED PURSUANT TO SECTION 7 OF THE GM 1638 (12/95
REV. 1) "CONSTRUCTION GENERAL CONDITIONS," UNLESS THE
RESPONSIBILITY FOR PAYMENT FO SALES & USE TAXES ARE
- ------------------------------------------------------------------------------------------------------------------------------------
OTHERWISE SPECIFICALLY OUTLINED IN THE CONTRACT.
ANY QUESTIONS ON THE ABOVE SHOULD BE DIRECTED TO THE
FOLLOWING: NAO DISBURSEMENTS - CUSTOMER SERVICE.
- ------------------------------------------------------------------------------------------------------------------------------------
Telephone: 248-874-4636 (TX)
YEAR 2000 COMPLIANCE
- ------------------------------------------------------------------------------------------------------------------------------------
SELLER, AND ANY GOODS AND SERVICES SUPPLIED BY
SELLER, SHALL BE YEAR 2000 COMPLIANT AND COMPATIBLE,
AND SHALL FUNCTION WITHOUT ERROR OR FAULT IN THE
- ------------------------------------------------------------------------------------------------------------------------------------
PROCESSING (INCLUDING, BUT NOT LIMITED TO
BOO1784 USER: DALE D. TURSO CONTINUE PAGE 4
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[***] Confidential treatment has been requested for the bracketed portions.
The confidential redacted portion has been filed separately with the
Securities and Exchange Commission.
<PAGE> 4
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BUYER NAME: [***] GENERAL MOTORS BLDG - STAFFS PAGE 4
- ------------------------------------------------------------------------------------------------------------------------------------
BUYER CODE: KJ BLANKET ORDER ATTACHMENT FORM
VENDOR: FIREPOND INC. ORDER NUMBER GMB06046 ISSUE DATE 02/03/99
- ------------------------------------------------------------------------------------------------------------------------------------
ITEM VENDOR ITEM NOUN NAME DESCRIPTION RFQ NUMBER BASE UNIT PRICE PRICE BUY
SEQ PERCENT IDENTIFICATION MULT U/M
---- ------- -------------- --------- ----------- ---------- --------------- ----- ---
CALCULATING, MANAGING, MANIPULATING, COMPARING
- ------------------------------------------------------------------------------------------------------------------------------------
AND SEQUENCING) OF DATE AND DATE-RELATED DATA, FOR
THE YEARS 2000 AND BEYOND. AT BUYER'S REQUEST,
SELLER SHALL CERTIFY IN WRITING ITS COMPLIANCE
- ------------------------------------------------------------------------------------------------------------------------------------
WITH THE FOREGOING. (Y2)
CONFIDENTIALITY
- ------------------------------------------------------------------------------------------------------------------------------------
SELLER, IN ORDER TO PROVIDE THE SERVICES SET FORTH IN
THIS PURCHASE ORDER, WILL REQUIRE INFORMATION FROM
BUYER WHICH BUYER CONSIDERS CONFIDENTIAL (BUYER'S
- ------------------------------------------------------------------------------------------------------------------------------------
INFORMATION). BUYER IS WILLING TO DISCLOSE BUYER'S
INFORMATION ONLY WITH THE UNDERSTANDING THAT SELLER
MAINTAIN ITS CONFIDENTIALITY.
- ------------------------------------------------------------------------------------------------------------------------------------
ACCORDINGLY, SELLER ACKNOWLEDGES THAT BUYER'S
INFORMATION IS BEING DISCLOSED TO SELLER FOR THE SOLE
- ------------------------------------------------------------------------------------------------------------------------------------
PURPOSE OF PERMITTING SELLER TO PERFORM THE SERVICES
SET FORTH IN THIS PURCHASE ORDER, AND AGREES THAT IT
WILL NOT USE THE INFORMATION FOR ANY OTHER PURPOSE.
- ------------------------------------------------------------------------------------------------------------------------------------
IN ADDITION, SELLER AGREES THAT IT WILL NOT DISCLOSE,
DISSEMINATE OR OTHERWISE MAKE AVAILABLE BUYER'S
INFORMATION TO ANYONE, OTHER THAN TO THOSE EMPLOYEES
- ------------------------------------------------------------------------------------------------------------------------------------
WHO HAVE A NEED TO KNOW IT IN ORDER FOR SELLER TO
FULFILL ITS OBLIGATIONS UNDER THIS PURCHASE ORDER.
SELLER AGREES THAT IT WILL TAKE APPROPRIATE ACTION
- ------------------------------------------------------------------------------------------------------------------------------------
BY INSTRUCTION, AGREEMENT OR OTHERWISE, WITH ANY
PERSON PERMITTED ACCESS TO BUYER'S INFORMATION.
THE BUYER'S INFORMATION AND ANY ADDITIONS THERETO ARE
- ------------------------------------------------------------------------------------------------------------------------------------
THE SOLE PROPERTY OF BUYER. AT BUYER'S REQUEST OR
UPON COMPLETION OF SELLER'S USE OF BUYER'S
INFORMATION, SELLER WILL RETURN ALL COPIES OF BUYER'S
- ------------------------------------------------------------------------------------------------------------------------------------
INFORMATION TO BUYER OR, AT BUYER'S REQUEST, DESTROY
BUYER'S INFORMATION AND CERTIFY SUCH DESTRUCTION TO
BUYER.
- ------------------------------------------------------------------------------------------------------------------------------------
SELLER FURTHER AGREES TO INDEMNIFY AND HOLD BUYER
HARMLESS FROM ANY AND ALL LIABILITIES, DAMAGES, FINES,
PENALTIES, COSTS, CLAIMS, DEMANDS, AND EXPENSES
- ------------------------------------------------------------------------------------------------------------------------------------
(INCLUDING COSTS OF DEFENSE, SETTLEMENT, AND
REASONABLE ATTORNEY'S FEES), ARISING OUT OF THE
DISCLOSURE OR IMPROPER USE OF BUYER'S INFORMATION BY
- ------------------------------------------------------------------------------------------------------------------------------------
SELLER OR SELLER'S EMPLOYEES. (YC)
BOO1784 USER: DALE D. TURSO CONTINUE PAGE 5
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[***] Confidential treatment has been requested for the bracketed portions.
The confidential redacted portion has been filed separately with the
Securities and Exchange Commission.
<PAGE> 5
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BUYER NAME: [***] GENERAL MOTORS BLDG - STAFFS PAGE 5
- ------------------------------------------------------------------------------------------------------------------------------------
BUYER CODE: KJ BLANKET ORDER ATTACHMENT FORM
VENDOR: FIREPOND INC. ORDER NUMBER GMB06046 ISSUE DATE 02/03/99
- ------------------------------------------------------------------------------------------------------------------------------------
ITEM VENDOR ITEM NOUN NAME DESCRIPTION RFQ NUMBER BASE UNIT PRICE PRICE BUY
SEQ PERCENT IDENTIFICATION MULT U/M
---- ------- -------------- --------- ----------- ---------- --------------- ----- ---
- ------------------------------------------------------------------------------------------------------------------------------------
TERMS AND CONDITIONS SEPTEMBER 30, 1998, APPLY,
OF WHICH SUPPLIER HAS RECEIVED A COPY.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
BOO1784 USER: DALE D. TURSO LAST PAGE 5
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[***] Confidential treatment has been requested for the bracketed portions.
The confidential redacted portion has been filed separately with the
Securities and Exchange Commission.
<PAGE> 6
GENERAL TERMS AND CONDITIONS
1. ACCEPTANCE:
Seller has read and understands this contract and agrees that Seller's written
acceptance or commencement of any work or services under this contract shall
constitute Seller's acceptance of these terms and conditions only.
2. SHIPPING AND BILLING:
Seller agrees: (a) to properly pack, mark and ship goods in accordance with the
requirements of Buyer, the involved carriers, and, if applicable, the country of
destination; (b) to route shipments in accordance with Buyer's Instructions; (c)
to make no charge for handling, packaging, storage or transportation of goods,
unless otherwise stated as an item on this contract; (d) to provide with each
shipment packing slips with Buyer's contract and/or release number and date of
shipment marked thereon; (e) to properly mark each package with a label/tag
according to Buyer's Instructions; (f) to promptly forward the original bill of
lading or other shipping receipt for each shipment in accordance with Buyer's
Instructions. Seller will include on bills of lading or other shipping receipts
correct classification identification of the goods shipped in accordance with
Buyer's instructions and the carrier's requirements. The marks on each package
and identification of the goods on packing slips, bills of lading and invoices
(when required) shall be sufficient to enable Buyer to easily identify the goods
purchased. Seller further agrees: (a) to accept payment based upon Buyer's
Evaluated Receipt Record/Self Billed invoice, unless an invoice is requested by
Buyer; and (b) to accept payment by electronic funds transfer. The payment date
is set forth in the Line Item Detail of this contract, or if not stated, shall
be the date established by Buyer's Multilateral Netting System (MNS-2), which
provides, on average, that payment shall be made on the second day of the second
month following, in the case of the Buyer's North American facilities, Seller's
shipment date of goods or date of services, and, for all of Buyer's other
locations, Buyer's receipt date of the goods or date of services. Buyer may
withhold payment pending receipt of evidence, in such form and detail as Buyer
may direct, of the absence of any liens, encumbrances and claims on the goods or
services under this contract.
3. DELIVERY SCHEDULES:
Time is of the essence, and deliveries shall be made both in quantities and at
times specified in Buyer's schedules. Buyer shall not be required to make
payment for goods delivered to Buyer that are in excess of quantities specified
in Buyer's delivery schedules. Buyer may change the rate of scheduled shipments
or direct temporary suspension of scheduled shipments, neither of which shall
entitle Seller to a modification of the price for goods or services covered by
this contract. Where quantities and/or delivery schedules are not specified,
Seller shall deliver goods in such quantities and times as Buyer may direct in
subsequent releases.
4. PREMIUM SHIPMENTS:
If Seller's acts or omissions result in Seller's failure to meet Buyer's
delivery requirements and Buyer requires a more expeditious method of
transportation for the goods than the transportation method originally specified
by Buyer, Seller shall ship the goods as expeditiously as possible at Seller's
sole expense.
5. CHANGES:
Buyer reserves the right at any time to direct changes, or cause Seller to make
changes, to drawings and specifications of the goods or to otherwise change the
scope of the work covered by this contract including work with respect to such
matters as inspection, testing or quality control, and Seller agrees to promptly
make such changes. Any difference in price or time for performance resulting
from such changes shall be equitably adjusted by Buyer after receipt of
documentation in such form and detail as Buyer may direct. Any changes to this
contract shall be made in accordance with Paragraph 31.
6. SUPPLIER QUALITY AND DEVELOPMENT; INSPECTION:
Seller agrees to participate in Buyer's supplier quality and development
program(s) and to comply with all quality requirements and procedures specified
by Buyer, as revised from time to time, including those applicable to Seller as
set forth in Quality System Requirements QS-9000. In addition, Buyer shall have
the right to enter Seller's facility at reasonable times to inspect the
facility, goods, materials and any property of Buyer covered by this contract.
Buyer's inspection of the goods, whether during manufacture, prior to delivery
or within a reasonable time after delivery, shall not constitute acceptance of
any work-in-process or finished goods.
7. NONCONFORMING GOODS:
Seller acknowledges that Buyer will not perform incoming inspections of the
goods, and waives any rights to require Buyer to conduct such inspections. To
the extent Buyer rejects goods as nonconforming, the quantities under this
contract will automatically be reduced unless Buyer otherwise notifies Seller.
Seller will not replace quantities so reduced without a new contract or schedule
from Buyer. Nonconforming goods will be held by Buyer in accordance with
Seller's instructions at Seller's risk. Seller's failure to provide written
instructions within 10 days, or such shorter period as may be commercially
reasonable under the circumstances, after notice of nonconformity shall entitle
Buyer, at Buyer's option, to charge Seller for storage and handling or to
dispose of the goods without liability to Seller. Payment for nonconforming
goods shall not constitute an acceptance of them, limit or impair Buyer's right
to assert any legal or equitable remedy, or relieve Seller's responsibility for
latent defects.
8. FORCE MAJEURE:
Any delay or failure of either party to perform its obligations shall be excused
if Seller is unable to produce, sell or deliver, or Buyer is unable to accept
delivery, buy or use, the goods or services covered by this contract, as the
result of an event or occurrence beyond the reasonable control of the party and
without its fault or negligence, including, but not limited to, acts of God,
actions by any governmental authority (whether valid or invalid), fires, floods,
windstorms, explosions, riots, natural disasters, wars, sabotage, labor problems
(including lockouts, strikes and slowdowns), inability to obtain power,
material, labor equipment or transportation, or court injunction or order;
provided that written notice of such delay (including the anticipated duration
of the delay) shall be given by the affected party to the other party as soon as
possible after the event or occurrence (but in no event more than 10 days
thereafter). During the period of such delay or failure to perform by Seller,
Buyer, at its option, may purchase goods from other sources and reduce the
schedules to Seller by such quantities, without liability to Seller, or have
Seller provide the goods from other sources in quantities and at times requested
by Buyer, and at the price set forth in this contract. In addition, Seller at
its expense shall take such actions as are necessary to ensure the supply of
goods to Buyer for a period of at least 30 days during any anticipated labor
disruption or resulting from the expiration of Seller's labor contract(s). If
requested by Buyer, Seller shall, within 10 days, provide adequate assurances
that the delay shall not exceed 30 days. If the delay lasts more than 30 days or
Seller does not provide adequate assurance that the delay will cease within 30
days, Buyer may immediately terminate this contract without liability.
9. WARRANTY:
Seller warrants/guarantees that the goods covered by this contract will conform
to the specifications, drawings, samples, or descriptions furnished to or by
Buyer, and will be merchantable, of good material and workmanship and free from
defect. In addition, Seller acknowledges that Seller knows of Buyer's intended
use and warrants/guarantees that all goods covered by this contract that have
been selected, designed, manufactured or assembled by Seller based upon Buyer's
states use will be fit and sufficient for the particular purposes intended by
Buyer. The warranty period shall be that provided by applicable law, except that
if Buyer offers a longer warranty to its customers for goods installed on
vehicles, such longer period shall apply.
10. INGREDIENTS DISCLOSURE; SPECIAL WARNINGS NAD INSTRUCTIONS:
If requested by Buyer, Seller shall promptly furnish to Buyer in such form and
detail as Buyer may direct: (a) a list of all ingredients in the goods; (b) the
amount of all ingredients; and (c) information concerning any changes in or
additions to such ingredients. Prior to and with the shipment of the goods,
Seller agrees to furnish to Buyer sufficient warning and notice in writing
(including appropriate labels on the goods, containers and packing) of any
hazardous material that is an ingredient or a part of any of the goods, together
with special handling instructions as may be necessary to advise carriers,
Buyer, and their respective employees of how to exercise that measure of care
and precaution that will best prevent bodily injury or property damage in the
handling, transportation, processing, use or disposal of the goods, containers
and packing shipped to Buyer.
11. INSOLVENCY:
Buyer may immediately terminate this contract without liability to Seller in any
of the following or any other comparable events: (a) insolvency of Seller; (b)
filing of a voluntary petition in bankruptcy by Seller; (c) filing of any
involuntary petition in bankruptcy against Seller; (d) appointment of a receive
or trustee for Seller; or (e) execution of an assignment for the benefit of
creditors by Seller, provided that such petition, appointment or assignment is
not vacated or nullified within 15 days of such event. Seller shall reimburse
Buyer for all costs incurred by Buyer in connection with any of the foregoing,
including, but not limited to, all attorney's or other professional fees.
12. TERMINATION FOR BREACH OR NONPERFORMANCE:
Buyer reserves the right to terminate all or any part of this contract, without
liability to Seller, if Seller: (a) repudiates or breaches any of the terms of
this contract, including Seller's warranties; (b) fails to perform services or
deliver goods as specified by Buyer; (c) fails to make progress so as to
endanger timely and proper completion of services or deliver of goods; and does
not correct such failure or breach within 10 days (or such shorter period of
time if commercially reasonable under the circumstances) after receipt of
written notice from Buyer specifying such failure or breach.
13. TERMINATION FOR CONVENIENCE:
In addition to any other rights of Buyer to terminate this contract, Buyer, may,
at its option, immediately terminate all or any part of this contract, at any
time and for any reason, by giving written notice to Seller. Upon such
termination, Buyer shall pay to Seller the following mounts without duplication:
(a) the contract price for all goods or services that have been completed in
accordance with this contract and not previously paid for; and (b) the actual
costs of work-in-process and raw materials incurred by Seller in furnishing the
goods or services under this contract to the extent such costs are reasonable in
amount and are properly allocable or apportionable under generally accepted
accounting principles to the terminated portion of this contract; less, however,
the sum of the reasonable value or cost (whichever is higher) of any goods or
materials used or sold by Seller with Buyer's written consent, and the cost of
any damaged or destroyed goods or material. Buyer will make no payments for
finished goods, work-in-process or raw materials fabricated or procured by
Seller in amounts in excess of those authorized in delivery releases nor for any
undelivered goods that are in Seller's standard stock or that are readily
marketable. Payments made under this Paragraph shall not exceed the aggregate
price payable by Buyer for finished goods that would be produced by Seller under
delivery or release schedules outstanding at the date of termination. Except as
provided in this Paragraph, Buyer shall not be liable for and shall not be
required to make payments to Seller, directly or on account of claims by
Seller's subcontractors, for loss of anticipated profit, unabsorbed overhead,
interest on claims, product development and engineering costs, facilities and
equipment rearrangement costs or rental, unamortized depreciation costs, or
general and administrative burden charges from termination of this contract.
Within 60 days from the effective date of termination, Seller shall submit a
comprehensive termination claim to buyer, with sufficient supporting data to
permit Buyer's audit, and shall thereafter promptly furnish such supplemental
and supporting information as Buyer shall request. Buyer or its agents shall
have the right to audit and examine all books, records, facilities, work,
material, inventories and other items relating to any termination claim of
Seller.
14. INTELLECTUAL PROPERTY:
Seller agrees: (a) to defend, hold harmless and indemnify Buyer, its successors
and customers against any claims of infringement (including patent, trademark,
copyright, industrial design right, or other proprietary right, or misuse or
misappropriation of trade secret) and resulting damages and expenses (including
attorney's and other professional fees) arising in any way in relation to the
goods or services contracted, including such claims where Seller has provided
only part of the goods or services; Seller expressly waives any claim against
Buyer that such infringement arose out of compliance with Buyer's
specifications; (b) that Buyer or Buyer's subcontractor has he right to repair,
reconstruct, or rebuilt the specific goods delivered under this contract without
payment of any royalty to Seller; (c) that parts manufactured based on Buyer's
drawings and/or specifications may not be used for its own use or sold to third
parties without Buyer's express written authorization; and (d) to the extent
that this contract is issued for the creation of copyrightable works, the works
shall be considered "works made for hire;" to the extent that the works do not
qualify as "works made for hire," Seller hereby assigns to Buyer all right,
title and interest in all copyrights and moral rights therein.
15. TECHNICAL INFORMATION DISCLOSED TO BUYER:
Seller agrees not to assert any claim (other than a claim for patent
infringement) with respect to any technical information that Seller shall have
disclosed or may hereafter disclose to Buyer in connection with the goods or
services covered by this contract.
16. INDEMNIFICATION:
If Seller performs any work on Buyer's premises or utilizes the property of
Buyer, whether on or off Buyer's premises, Seller shall indemnify and hold Buyer
harmless from and against any liability, claims, demands or expenses (including
attorney's and other professional fees) for damages to the property of or
injuries (including death) to Buyer, its employees or any other person arising
from or in connection with Seller's performance of work or use of Buyer's
property, except for such liability, claim, or demand arising out of the sole
negligence of Buyer.
17. INSURANCE:
Seller shall maintain insurance coverage with carriers acceptable to Buyer and
in the amounts set forth in the Special Terms. Seller shall furnish to Buyer
either a certificate showing compliance with these insurance requirements or
certified copies of all insurance policies within 10 days of Buyer's written
request. The certificate will provide that Buyer will receive 30 days' prior
written notice from the insurer of any termination or reduction in the amount or
scope of coverage, Seller's furnishing of certificates of insurance or purchase
or insurance shall not release Seller of its obligations or liabilities under
this contract.
18. SELLER'S PROPERTY:
Unless otherwise provided to by Buyer, Seller, at its expenses, shall furnish,
keep in good condition, and replace when necessary all machinery, equipment,
tools, jigs, dies, gauges, fixtures, molds, patterns and other items ("Seller's
Property") necessary for the production of the goods. The cost of changes to
Seller's Property necessary to make design and specification changes authorized
by Buyer shall be paid for by Buyer. Seller shall insure Seller's Property with
full fire and extended coverage insurance for its replacement value. Seller
grants Buyer an irrevocable option to take possession of and title to Seller's
Property that is special for the production of the goods upon payment to Seller
of its net book value less any amounts that Buyer has previously paid to Seller
for the cost of such items; provided, however, that this option shall not apply
if Seller's Property is used to produce goods that are the standard stock of
Seller o if a substantial quantity of like goods are being sold by Seller to
others.
19. BUYER'S PROPERTY:
All supplies, materials, tools, jigs, dies, gauges, fixtures, molds, patterns,
equipment and other items furnished by Buyer, either directly or indirectly, to
Seller to perform this contract, or for which Seller has been reimbursed by
Buyer, shall be and remain the property of Buyer and held by Seller on a
bailment basis ("Buyer's Property"). Seller shall bear the risk of loss of and
damage to Buyer's Property. Buyer's Property shall at all times be properly
housed and maintained by Seller, at its expense, shall not be used by Seller for
any purpose other than the performance of this contract; shall be deemed to be
personally; shall be conspicuously marked by Seller as the property of Buyer;
shall not be commingled with the property of Seller or with that of a third
person; and shall not be moved from Seller's premises without Buyer's prior
written approval. Buyer shall have the right to enter Seller's premises at all
reasonable times to inspect such property and Seller's records with respect
thereto. Upon the request of Buyer, Buyer's Property shall be immediately
released to Buyer or delivered to Buyer by Seller, either (i) F.O.B. transport
equipment at Seller's plant, properly packed and marked in accordance with the
requirements of the carrier selected by Buyer to transport such property, or
(ii) to any location designed by Buyer, in which event Buyer shall pay to Seller
the reasonable costs of delivering such property to such location. When
permitted by law, Seller waives any lien or other rights that Seller might
otherwise have on any of Buyer's Property for work performed on such property or
otherwise.
20. SERVICE AND REPLACEMENT PARTS:
Seller will sell to Buyer goods necessary for it to fulfill its current model
service and replacement parts requirements at the price(s) set forth in this
contract. IF the goods are systems or modules, Seller will sell the components
or parts then comprise the system or module at price(s) that shall not, in the
aggregate, exceed the price of the system or module less assembly costs. During
the 15 year period after Buyer completes current model purchases, Seller will
sell goods to Buyer to fulfill Buyer's past model service and replacement parts
requirements. Unless otherwise agreed to by Buyer, the price(s) during the first
3 years of this period shall be those in effect at the conclusion of current
model purchases. For the remainder of this period, the price(s) for goods shall
be as agreed to by the parties. When requested by Buyer, Seller shall make
service literature and other materials available at no additional charge to
support Buyer's service part sales activities.
21. REMEDIES:
The rights and remedies reserved to Buyer in this contract shall be cumulative
with, and additional to, all other or further remedies provided in law or
equity. Without limiting the foregoing, should any goods fail to conform to the
warranties set forth in Paragraph 9, Buyer shall notify Seller and Seller shall,
if requested by Buyer, reimburse Buyer for any incidental and consequential
damages caused by such nonconforming goods, including, but not limited to,
costs, expenses and losses incurred by Buyer (a) in inspecting, sorting,
repairing or replacing such nonconforming goods; (b) resulting from production
interruptions, (c) conducting recall campaigns or other corrective service
actions, and (d) claims for personal injury (including death) or property damage
caused by such nonconforming goods. If requested by Buyer, Seller will enter
into a separate agreement for the administration or processing of warranty
chargebacks for nonconforming goods.
22. CUSTOMS; EXPORT CONTROLS:
Credits or benefits resulting or arising from this contract, including trade
credits, export credits or the refund of duties, taxes or fees, shall belong to
Buyer. Seller shall provide all information necessary (including written
documentation and electronic transaction records) to permit Buyer to receive
such benefits or credits, as well as to fulfill its customs related obligations,
original marketing or labeling requirements and local content origin
requirements, if any. Export licenses or authorizations necessary for the export
of the goods shall be the responsibility of Seller unless otherwise indicated in
this contract, in which event Seller shall provide such information as may be
necessary to enable Buyer to obtain such licenses or authorization(s). Seller
shall undertake such arrangements as necessary for the goods to be covered by
any duty deferral or trade zone program(s) of the country of import.
23. SET OFF/RECOUPMENT:
In addition to any right of setoff or recoupment provided by law, all amounts
due to Seller shall be considered net of indebtedness of Seller and its
affiliates/subsidiaries to Buyer and its affiliates/subsidiaries; and Buyer
shall have the right to setoff against or to recoup from any amounts due to
Seller and its affiliates/subsidiaries from buyer and its
affiliates/subsidiaries.
24. NO ADVERTISING:
Seller shall not, without first obtaining the written consent of Buyer, in any
manner advertise or publish the fact that Seller has contracted to furnish Buyer
the goods or services covered by this contract, or use any trademarks or trade
names of Buyer in Seller's advertising or promotional materials.
25. COMPLIANCE WITH LAWS; FORCE LABOR:
Seller, and any goods or services supplied by Seller, shall comply with all
applicable laws, rules, regulations, orders, conventions, ordinances or
standards of the country(ies) of destination or that relate to the manufacture,
labeling, transportation, importation, exportation, licensing, approval or
certification of the goods or services, including, but not limited to, those
relating to environmental matters, wages, hours and conditions of employment
subcontractor selection,. discrimination, occupational health/safety and motor
vehicle safety. Seller further represents that neither it nor any of its
subcontractors will utilize slave, prisoner or any other form or forced or
involuntary labor in the supply of goods or provision of services under this
contract. At Buyer's request, Seller shall certify in writing its compliance
with the foregoing. Seller shall indemnify and hold Buyer harmless from and
against any liability claims, demands or expenses (including attorney's or other
professional fees) arising from or relating to Seller's noncompliance.
26. NO IMPLIED WAIVER:
The failure of either party at any time to require performance by the other
party of any provision of this contract shall in no way affect the right to
require such performance at any time thereafter, nor shall the waiver of either
party of a breach of any provision of this contract constitute a waiver of any
succeeding breach of the same or any other provision.
27. NON-ASSIGNMENT:
Seller may not assign or delegate its obligations under this contract without
Buyer's prior written consent.
28. RELATIONSHIP OF PARTIES:
Seller and Buyer are independent contracting parties and nothing in this
contract shall make either party the agent or legal representative of the other
for any purpose whatsoever, nor does it grant either party any authority to
assume or to create any obligation on behalf of or in the name of the other.
29. GOVERNING LAW; JURISDICTION:
This contract is to be construed according to the laws of the country (and
state/province, if applicable) from which this contract is issued as shown by
the address of Buyer, excluding the provisions of the United Nations Convention
on Contracts for the International Sale of Goods and any conflict of law
provisions that would require application of another choice of law. Any action
or proceedings by Buyer against Seller may be brought by Buyer in any court(s)
having jurisdiction over Seller or, at Buyer's option, in the court(s) having
jurisdiction over Buyer's location, in which event Seller consents to
jurisdiction and service of process in accordance with applicable procedures.
Any actions or proceedings by Seller against Buyer may be brought by Seller only
in the court(s) having jurisdiction over the location of Buyer from which this
contract is issued.
30. SEVERABILITY:
If any term(s) of this contract is invalid or unforceable under any statute,
regulation, ordinance, executive order or other rule of law, such term(s) shall
be deemed reformed or deleted, as the case may be, but only to the extent
necessary to comply with such statute, regulation, ordinance, order or rule, and
the remaining provisions of this contract shall remain in full force and effect.
31. ENTIRE AGREEMENT:
This contract, together with the attachments, exhibits, supplements or other
terms of Buyer specifically referenced in this contract, constitutes the entire
agreement between Seller and Buyer with respect to the matters contained in this
contract and supersedes all prior oral or written representations and
agreements. This contract may only be modified by a contract amendment issued by
Buyer.
Revised: September 30, 1998
<PAGE> 1
Exhibit 10.16
[FIREPOND LOGO]
SIGNATURE PLUS SOFTWARE LICENSE AGREEMENT ("AGREEMENT")
This Agreement is made effective this 18th day of December, 1998 by and between
FirePond, Inc., a Minnesota corporation with offices at 1983 Premier Drive,
Mankato, Minnesota, 56001, ("FirePond"), and BCBSM, Inc., dba Blue Cross and
Blue Shield of Minnesota, a corporation having a place of business at 3535 Blue
Cross Road, St. Paul, Minnesota 55122, ("Licensee").
Whereas FirePond desires to grant Licensee and Licensee desires to accept from
FirePond, a license to use Signature Plus Software and the Signature Plus
ToolKit upon the terms and conditions hereinafter set forth. NOW, THEREFORE,
FirePond and Licensee agree as follows:
1. DEFINITIONS
1.1. "Attachment(s)" means any writing that is specifically identified as
attached to this Agreement and forming part of this Agreement and is signed
by authorized representatives of both parties.
1.2. "Documentation" means FirePond's standard documentation, which is
delivered to Licensee under this Agreement, including FirePond's standard
manuals, functional specifications, minimum hardware configuration required
and third party software required.
1.3. "Proprietary Information" means (i) with respect to FirePond, the
Software, Tools and Documentation and any complete or partial copies thereof,
the concepts, techniques, ideas and know-how in such programs, any
third-party software licensed with or as part of the Software or Tools,
benchmark results, and any other information identified or reasonably
identifiable as confidential and proprietary information of FirePond or their
licensors ("FirePond Proprietary Information"); and (ii) with respect to
Licensee, information identified or reasonably identifiable as the
confidential and proprietary information of Licensee ("Licensee Proprietary
Information"), provided that, any part of the FirePond or Licensee
Proprietary Information which: (a) is or becomes publicly available through
no act or failure of the other party; or (b) was or is rightfully acquired by
the other party from a source other than the disclosing party prior to
receipt from the disclosing party; or (c) becomes independently available to
the other party as a matter of right, shall be excluded.
1.4. "Software" means all Signature Plus software including Signature Plus
Sales (for laptops and/or desktops), Signature Plus Web (available via the
Internet), and EBridge identified in the Documentation in machine-readable
form licensed to Licensee hereunder, including all corrections,
modifications, enhancements and updates to the Software.
1.5. "Tools" means the Signature Plus ToolKit software identified in the
Documentation in machine-readable form licensed to Licensee hereunder,
including all corrections, modifications, enhancements and updates to the
Software.
1.6. "Use" means to load, execute, employ, utilize, store, or display the
Software for the limited purpose of helping Licensee salespeople and
customers learn about, sell and/or buy products or services manufactured,
distributed or sold by Licensee and to load, execute, employ, utilize, store,
or display Tools for the limited purpose of supporting the Software and to
maintain, distribute and synchronize Licensee's data to be used in the
Software.
1.7. "Licensee" means those entities set forth in an Attachment "Licensee."
2. GRANT OF LICENSE
2.1. Subject to the terms and conditions of this Agreement FirePond grants
and Licensee accepts a non-exclusive, non-transferable license with rights to
Use the Software, Documentation and other FirePond Proprietary Information
provided by FirePond to Licensee and to sublicense the Software to the number
of individuals identified in an Attachment who are authorized to Use the
Signature Plus Sales version of the Software ("Named Users") and to allow
access to the Software to the number of individuals identified in an
Attachment [See Note] as allowed access to the Signature Plus Web version of
the Software ("Concurrent Users"). In order to sublicense the Software to
Named Users, Licensee shall have in effect with such Named Users agreements
sufficient to obligate such Named Users to terms substantially similar to the
terms of Exhibit A. Licensee may transfer the Software from one Named User to
another Named User provided the Software is promptly deleted by the Named
User no longer using the Software and provided Licensee shall notify FirePond
quarterly of such transfers.
2.2. Subject to the terms and conditions of this Agreement FirePond grants
and Licensee accepts a non-exclusive, non-transferable license with rights to
Use the Tools at the sites identified in the Signature Plus License Fee
Attachment ("Designated Site(s)"). Licensee may use the Tools on as many
single computer stations as needed at the Designated Site. Licensee may
transfer the Tools from one Designated Site to another Designated Site upon
prior written notice to FirePond. The Tools must be promptly deleted in their
entirety from the Designated Site no longer in use. Licensee may use a
third-party certified by FirePond to Use the Tools on behalf of Licensee.
2.3. Licensee shall maintain accurate records of all Named Users. Upon
FirePond's request, Licensee shall provide FirePond with a copy of such
records and executed agreements. In addition, FirePond shall have the right
to inspect such records for compliance with the terms of this Agreement no
more frequently than annually, during Licensee's normal business hours and
upon reasonable advance notice. Licensee shall cooperate with FirePond to
ensure that each Named User upholds the requirements imposed upon them
through this Agreement or the agreement set forth in Exhibit A and will take
reasonable steps to ensure that such Named Users comply with such terms and
conditions. Licensee shall not be required to track Concurrent Users.
Licensee agrees to notify FirePond immediately after gaining knowledge of the
possession, use, disclosure or reproduction of Software or Tools by any
person or other party not authorized to have the benefit of such possession,
use, disclosure, or reproduction and to cooperate with FirePond and its
representatives in any investigation of and litigation against such
unauthorized use.
2.4. Licensee may make one copy of the Software and Tools for archival
purposes. Licensee may reproduce or copy any portion of the Documentation
into machine-readable or printed form for its internal use and for
distribution to Named Users. Licensee shall not remove any proprietary,
copyright, trademark, or service mark legend from the Software, Tools,
Documentation or FirePond Proprietary Information and shall include such
legends on any complete or partial copies of the Software, Tools,
Documentation or FirePond Proprietary Information.
3. FEES AND PAYMENT TERMS
3.1. In consideration of the licenses granted hereunder, Licensee shall pay
to FirePond license fees for the Software and Tools as set forth in
Attachments. The amount of license fees shall be calculated based on the
total number of Named Users for the Software, the total number of Concurrent
Users accessing the Software, and the number of Designated Sites for Tools.
As set forth in an Attachment, fees for Maintenance Services shall be paid
annually in advance in an amount calculated as a percentage of the License
Fees. FirePond and Licensee shall agree to any other services under a
separate Services Agreement.
3.2. Travel expenses and incidental expenses of FirePond shall be billed in
accordance with the current Blue Cross and Blue Shield of Minnesota Per Diem
Expense Allowance for Consultants Policy, a current copy of which is attached
hereto as Attachment A. FirePond shall bill such fees and expenses monthly.
3.3. Invoices are payable in full upon receipt of invoice. If the payment of
such invoice(s) is subject to a good faith dispute between the parties, the
project managers at FirePond and Licensee shall use their best efforts to
expeditiously resolve the dispute. If the project managers are unable to
resolve the dispute within fifteen (15) days, it shall be referred to a
FirePond executive or his/her designee and a Licensee executive or his/her
designee for mutual resolution. If the dispute is not resolved at the
executive level within fifteen
[Note: This License Agreement is an enterprise license, accordingly there is
no attachment identifying the number of individuals allowed access to the
software to this agreement.]
<PAGE> 2
[FIREPOND LOGO]
(15) days, FirePond shall have the right to bring suit on an open account.
All payments are to be made in U.S. dollars. Licensee shall pay a one and one
half percent penalty per month retroactive to the invoice date for payment(s)
received after thirty (30) days.
4. PROPRIETARY RIGHTS
4.1. Licensee acknowledges ownership of and title in and to all intellectual
property rights, including patent, trademark, service mark, copyright, and
trade secret rights, in the FirePond Proprietary Information are and shall
remain in FirePond and its respective licensors.
4.2. Except as permitted in this Agreement, Licensee shall not copy,
translate, disassemble, or decompile, nor create or attempt to create, by
reverse engineering or otherwise the source code from the object code of the
Software or Tools licensed hereunder or use it to create a derivative work,
unless authorized in writing by FirePond.
4.3. In order to protect the rights of FirePond and Licensee in their
respective Proprietary Information, FirePond and Licensee agree as follows:
4.3.1. Neither party shall, without the other party's prior written consent,
disclose, provide or make available any of the Proprietary Information of the
other party in any form to any person, except to bona fide employees,
officers, directors, or consultants or such party whose access is necessary
to enable such party to exercise its rights hereunder. Each party agrees that
prior to disclosing any Proprietary Information of the other party to any
consultant, it will obtain from that consultant a written acknowledgement
that such consultant will be bound by the same terms as specified in this
Section 4.
4.3.2. Licensee and FirePond acknowledge that any disclosure to third parties
of Proprietary Information may cause immediate and irreparable harm to the
owner of the disclosed Proprietary Information; therefore, each party agrees
to take all reasonable steps and the same protective precautions to protect
the Proprietary Information from disclosure to third parties as with its own
proprietary and confidential information.
4.4. Upon any termination hereunder, Licensee shall immediately cease Use of
the Software, Tools, Documentation and other FirePond Proprietary Information
and shall irretrievably delete and/or remove such items from all machines and
media and return such Software, Tools, Documentation and Proprietary
Information to FirePond within 30 days. Within 30 days after any termination,
FirePond shall return the Licensee Proprietary Information to Licensee.
5. MAINTENANCE SERVICES
Following expiration of the warranty period as defined in Section 7, Licensee
shall purchase and FirePond shall provide Licensee the maintenance services
identified in an Attachment.
6. INDEMNIFICATION
6.1. Subject to Section 6.2, if one party promptly notifies the other party
in writing of a third-party claim against it, the other party shall indemnify
the notifying party against all claims, liabilities, and costs, including
reasonable attorneys' fees reasonably incurred in the defense of any claim
brought against the notifying party by third parties alleging that the
notifying party's Use of the Software, Tools and Documentation or data or
other information supplied by the other party infringes or misappropriates:
(i) any United States patent; or (ii) a United States copyright; or (iii)
trade secret rights, provided that, the notifying party promptly notifies the
other party in writing of any such claim and the other party is permitted to
control fully the defense and any settlement of such claim. The notifying
party shall cooperate fully in the defense and may appear, at its own
expense, through counsel reasonably acceptable to the other party. The other
party may, in its sole discretion, settle any such claim on a basis requiring
FirePond to substitute for the Software, Tools and Documentation alternative
substantially equivalent non-infringing programs and supporting
documentation. The other party alone shall be responsible for taking such
actions which it determines are reasonably necessary or desirable in its sole
discretion in connection with any infringement or alleged infringement by a
third party of any portion of the Software, Tools and Documentation, provided
that should the software, Tools, or Documentation as delivered by licensee
become the subject of an infringement claim: Firepond at its sold expense
either (i) procure for licensee the right to continue to use the Software,
Tools, and Documentation as contemplated hereunder, or (ii) modify the
Software, Tools, or Documentation to eliminate any infringement claim,
provided that the Software and Tools' performance must remain the same as
provided for in the specifications, or (iii) replace the Software and Tools
with an equally suitable, compatible, and functionally equivalent
non-infringing product at no additional charge to licensee. If none of these
options are reasonably available to Firepond after executing its best efforts
to implement such options, then Firepond shall accept return of the Software,
Tools, and Documentation at Firepond's sole cost and expense and FirePond
shall pay to Licensee up to $3,500,000 as liquidated damages, as amortized
over five year useful life measured from the date of delivery..
6.2. FirePond makes no representation with respect to the possibility of
infringement if the claim of infringement is caused by: (1) Licensee's, Named
User's or Concurrent User's misuse or modification of Software, Tools and/or
Documentation; (2) Licensee's, Named User's or Concurrent User's failure to
use corrections or enhancements made available by FirePond; (3) Licensee's,
Named User's or Concurrent User's use of Software, Tools and/or Documentation
in combination with any product or information not owned or developed by
FirePond; or (4) Licensee's distribution, marketing or use for the benefit of
third parties other than Named Users or Concurrent Users of Software, Tools
and/or Documentation or distribution, marketing or use for the benefit of
third parties.
6.3. THE PROVISIONS OF THIS SECTION 6 STATE THE SOLE, EXCLUSIVE, AND ENTIRE
LIABILITY OF FIREPOND AND ITS LICENSORS TO LICENSEE AND LICENSEE'S SOLE
REMEDY WITH RESPECT TO THE INFRINGEMENT OF THIRD-PARTY INTELLECTUAL PROPERTY
RIGHTS.
7. WARRANTY
7.1. FirePond warrants that the Software and Tools will as delivered
materially conform to the functional specifications contained in the
Documentation and Exhibit B-2 ("Small Group Track") for 90 days following
execution of this Agreement. Services to be provided by FirePond during the
warranty period are those maintenance services identified in Section 5.
FirePond also warrants that the Software and Tools as delivered will be
materially free of all viruses, bombs and other self enacting devices that
could impair the functionality of the Software or Tools.
7.2. Should any component of the Software or Tools fail to conform materially
to the functional specifications therefore during the warranty period,
FirePond's sole obligation shall be, at FirePond's option, to correct the
defect by bringing the performance of the Software or Tools into material
compliance with the functional specifications or to replace the defective
component.
FirePond shall use reasonable commercial efforts to correct the defect by
bringing the performance of the Software into material compliance with the
functional specifications or to replace the defective component within thirty
(30) days or such longer period as is reasonable in the circumstances where
FirePond proceeds with all due diligence to cure such defect. In the event
FirePond is unable to correct or replace such defect within the stated time
period, Licensee shall refund the then present value of such Software to
Licensee, as amortized over a five (5) year useful life measured from the
date of delivery.
7.3. FirePond does not warrant that the Software or Tools will operate
uninterrupted nor that they will be free from minor defects or errors which
do not materially affect such performance nor that the applications contained
in the Software or Tools are designed to meet all Licensee's or Named Users'
or Concurrent Users' business requirements. FirePond makes no representation
or warranty as to the third-party software identified in the Documentation as
required to operate the Software or Tools.
7.4. FirePond represents and warrants to Licensee that: (i) the Software and
Tools shall, as delivered: (a) operate correctly and consistently with dates
and times before, during, and after the year 2000, and date and time ranges
before, spanning, and after 0:00 hours on January 1, 2000, and in a
<PAGE> 3
[FIREPOND LOGO]
manner identical to that in which the Software and Tools operate with dates,
times and date and time ranges prior to the year 2000; (b) utilize data
structures (databases, data files, etc.) which accommodate and provide
4-digit date century recognition; (c) operate in a manner which treats the
year 2000 as the year immediately following the year 1999 to 2000 without
material functional or data abnormality; and (d) manage and manipulate data
involving the transition of dates from 1999 to 2000 without material
functional or data abnormality; (ii) the Software and Tools as delivered will
lose no material functionality with respect to the introduction of record
containing dates falling on or after January 1, 2000 provided that all
products (for example, hardware and software) used with the Software and
Tools properly exchange accurate date data with the Software and Tools. The
representations and warranties provided herein shall not be limited to, and
shall survive for so long as maintenance services are purchased. FirePond
shall be responsible for and shall indemnify Licensee from and against all
losses and damages of any kind or nature incurred by Licensee up to the
amount of license fees paid hereunder as a result of any breach of the
foregoing representations and warranties.
7.5. FIREPOND DISCLAIMS ALL OTHER WARRANTIES EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR
A PARTICULAR PURPOSE EXCEPT TO THE EXTENT THAT ANY WARRANTIES IMPLIED BY LAW
CANNOT BE VALIDLY WAIVED.
8. LIMITATION OF LIABILITY
8.1. Subject to the limited warranty set forth in Section 7, Licensee's sole
and exclusive remedies for any damages or loss in any way connected with the
Software or Tools or services furnished by FirePond, whether due to
FirePond's negligence or breach of any other duty, shall be, at FirePond's
option: (i) replacement of the Software or Tools or performance of services;
or (ii) return or credit of an appropriate portion of any payment made or to
be made by Licensee with respect to the applicable portion of the Software or
Tools or services. The foregoing limitation of liability does not apply to
infringement of the property rights referred to in Section 6, or to personal
injury or death caused solely by the gross negligence or willful misconduct
of FirePond. With respect to damage to tangible property, FirePond will not
be responsible in any amount in excess of the amount by which such damage is
paid by FirePond's liability insurance.
8.2. ANYTHING TO THE CONTRARY HEREIN NOTWITHSTANDING, UNDER NO CIR-CUMSTANCES
SHALL FIREPOND AND ITS LICENSORS BE LIABLE TO LICENSEE OR ANY OTHER PERSON OR
ENTITY FOR SPECIAL, INCIDENTAL, CON-SEQUENTIAL, OR INDIRECT DAMAGES, LOSS OF
GOOD WILL OR BUSINESS PROFITS, WORK STOPPAGE, DATA LOSS, COMPUTER FAILURE OR
MALFUNCTION, ANY AND ALL OTHER COMMERCIAL DAMAGES OR LOSS, OR EXEMPLARY OR
PUNITIVE DAMAGES UNLESS SUCH DAMAGES OR LOSSES ARE DUE TO THE WILLFUL
MISCONDUCT OF FIREPOND.
9. EFFECTIVE DATE, TERM AND TERMINATION
9.1. This Agreement shall become effective upon execution by both parties and
shall continue in effect unless the Agreement is terminated under the terms
of Section 9.2 below.
9.2. This Agreement and the license granted hereunder shall terminate upon
the earliest to occur of the following: (i) thirty days after Licensee gives
FirePond written notice of Licensee's desire to terminate this Agreement, for
any reason, but only after payment of all License and Maintenance Fees then
due and owing; (ii) thirty days after FirePond gives Licensee notice of
Licensee's material breach of any provision of the Agreement (other than
Licensee's breach of its obligations under Section 4 (Proprietary Rights ) or
Section 11 (Assignment), which breach shall result in immediate termination),
including more than thirty days delinquency in Licensee's payment of any
money due hereunder, unless Licensee has cured such breach during such thirty
day period; (iii) immediately if Licensee or FirePond files a petition for
bankruptcy or insolvency, has an involuntary petition filed against it,
commences an action providing for relief under bankruptcy laws, files for the
appointment of a receiver, or is adjudicated a bankrupt concern.
9.3. In the event of any termination hereunder, Licensee shall not be
entitled to any refund of any payments made by Licensee except as otherwise
provided in this Agreement.
9.4. The following sections of this Agreement survive expiration or
termination of this Agreement: Section 4 (Proprietary Rights), Section 6
(Indemnification), Section 7.4 (Warranty Disclaimer), Section 8 (Limitation
of Liability), Section 11.7 (Governing Law), and Section 13 (Export Control).
10. ASSIGNMENT
Licensee may not, without FirePond's prior written consent, assign, delegate,
sublicense, pledge, or otherwise transfer this Agreement, or any of its
rights or obligations under this Agreement, or the Software, Tools or
Documentation, to any party, except as set forth herein. Any permitted
assignment of this Agreement shall provide that the provisions of this
Agreement shall continue in full force and effect and that Licensee shall
guaranty the performance of its assignee and shall remain liable for all
obligations hereunder.
11. GENERAL
11.1. Force Majeure. Neither FirePond nor Licensee shall be deemed to be in
default of any provision of this Agreement for any failure in performance
resulting from acts or events beyond the reasonable control of FirePond or
Licensee.
11.2. No Waiver. If either party should waive any breach of any provision of
this Agreement, it shall not thereby be deemed to have waived any preceding
or succeeding breach of the same or any other provision hereof.
11.3. Severability. If any provision of this Agreement is held to be
unenforceable, this Agreement shall be construed without such provision.
11.4. Agreement Binding/Entire Agreement. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. This Agreement and each Attachment hereto
constitute the complete and exclusive statement of the agreement between
FirePond and Licensee, and all previous representations, discussions, and
writings are merged in, and superseded by, this Agreement. This Agreement may
be modified only by a writing signed by both parties. This Agreement and each
Attachment hereto shall prevail over any additional, conflicting, or
inconsistent terms and conditions which may appear on any purchase order or
other document furnished by Licensee to FirePond.
11.5. Rights to Injunctive Relief. Both parties acknowledge that remedies at
law may be inadequate to provide FirePond or Licensee with full compensation
in the event of Licensee's material breach of Sections 2 (Grant of License),
Section 4 (Proprietary Rights), Section 13 (Export Control), or FirePond's
material breach of Section 4 with respect to Licensee's Proprietary
Information, and that the non-breaching party shall therefore be entitled to
seek injunctive relief in the event of any such material breach.
11.6. Taxes and Duties. Licensee is responsible for all taxes concerning the
Software and Tools, excluding taxes based on FirePond's income. If Licensee
will sublicense Software to Named Users, Licensee shall submit a resale
exemption certificate to FirePond. Licensee will self-asses use tax in the
event Licensee does not sublicense Software or if Licensee provides Software
to Named Users without consideration to Licensee.
11.7. Governing Law. This Agreement shall be governed by and construed under
the State of Minnesota law without reference to its conflicts of law
principles. Any legal action or suit related to this agreement shall be
brought exclusively in the courts of Minnesota. Both parties agree that the
courts of Minnesota are a convenient forum for the resolution of disputes.
11.8. Notices. All notices or reports which are required or may be given
pursuant to this Agreement shall be in writing and shall be deemed duly given
when delivered to the respective executive offices of FirePond and Licensee
at the addresses first set forth above.
11.9. Publicity. Neither party shall use the name of the other in publicity,
advertising, or similar activity, without the prior written consent of the
other.
<PAGE> 4
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12. ARBITRATION
Except for the right of either party to apply to a court of competent
jurisdiction for a Temporary Restraining Order or other provisional remedy to
preserve the status quo or prevent irreparable harm pending the selection and
confirmation of a panel of arbitrators, and for the right of FirePond to bring
suit on an open account for any payments due FirePond hereunder, (after
expiration of the informal dispute resolution as identified in Section 3.3) any
controversy or claim arising out of or relating to this Agreement shall be
settled by arbitration in Minneapolis, Minnesota, in accordance with the
Commercial Arbitration Rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrators may be entered in any court
having jurisdiction thereof. Arbitration shall be conducted by a panel of three
members, FirePond and Licensee each selecting one member and the third member,
who shall be chairman, selected by agreement between the other two members. The
chairman shall be an attorney-at-law, and the other members shall have a
background or training in computer law, computer science, or marketing of
computer products. The arbitrators shall have the authority to grant injunctive
relief in a form substantially similar to that which would otherwise be granted
by a court of law.
13. EXPORT CONTROL
13.1. Licensee shall comply with United States export rules and regulations
as they relate to Software, Tools and Documentation. Without obtaining any
necessary licenses, Licensee will not export or re-export outside the United
States Software, Tools or Documentation, whether directly or indirectly, and
will not cause, approve or otherwise intentionally facilitate others in so
doing. Licensee shall indemnify FirePond against any claims, losses,
liability, or damages suffered or incurred by FirePond arising out of or
related to any violation by Licensee of any United States or any foreign laws
or regulations relative to the Licensee or Named User use, export, or
re-export of Software, Tools or Documentation to or within any country
outside the United States. Licensee shall ensure that each Named User
complies with United States export rules and regulations as they relate to
Software.
13.2. Licensee shall cooperate with FirePond to protect FirePond's
intellectual property rights in foreign jurisdictions to which Software,
Tools or Documentation are used or distributed as reasonably requested by
FirePond.
13.3. FirePond may require changes in the agreement set forth in Exhibit A
from time to time or with respect to use in a particular country.
13.4 The Licensee acknowledges that the Statement of Direction is an
expression of intent for further development for the health care industry.
Licensee agrees that it has not relied on the potential development in
executing this Agreement and further agrees that the availability of said
development shall not affect Licensee's payment obligation of the license fee
set forth in the License Fee Attachment.
14. ESCROW
FirePond warrants that the source code for the Software as it is or as it
becomes available, will be deposited in an escrow account maintained at Data
Securities International, Inc. (the "Escrow Agent"). FirePond will from time to
time deposit in an escrow account copies of all new releases of the source code
for the Software.
FirePond or FirePond's trustee in bankruptcy shall authorize the Escrow Agent to
make and release a copy of the source code to Licensee upon the occurrence of
any of the following events:
(a) FirePond has ceased its ongoing business operations relating to the
licensing of software; or
(b) FirePond fails to carry out the material maintenance obligations imposed
on it pursuant to this Agreement after reasonable opportunity has been
provided to FirePond to perform such obligations; or
(c) The existence of any one or more of the following circumstances, if
uncorrected for more than ninety (90) days: (i) entry of an order of
relief under Title 11 of the United States Code; the making by FirePond of
the general assignment for the benefit of creditors; (ii) the appointment
of a general receiver or trustee in the bankruptcy of FirePond's business
or property; or (iii) action by FirePond under any state insolvency or
similar law for the purpose of bankruptcy, reorganization or liquidation.
The occurrence of the described events shall not constitute reason for the
release of the source code if, within the specified ninety (90) day
period, FirePond (including its receiver or trustee in bankruptcy)
provides to Licensee's adequate assurances, reasonably acceptable to
Licensee, of its continuing ability and willingness to fulfill all of its
maintenance and support obligations.
In the event of release under this Agreement, Licensee agrees that it will treat
and preserve the source code of the Software as a trade secret of FirePond in
accordance with the same precautions adopted by Licensee to safeguard its own
trade secrets against unauthorized use and disclosure. Release under this
provision shall not extend Licensee any greater rights or lesser obligations
than are otherwise provided or imposed under this Agreement.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have duly
executed this Agreement to become effective as of the date first above written.
BCBSM, INC., DBA BLUE CROSS AND BLUE SHIELD OF MINNESOTA
By: /s/ John N. Ounjian /s/ Timothy M. Peterson
------------------------------------------------------------
Name: John N. Ounjian Timothy M. Peterson
----------------------------------------------------------
Title: CIO CFO
---------------------------------------------------------
Date: 12/18/98
----------------------------------------------------------
FIREPOND, INC.
By: /s/ Klaus P. Besier
------------------------------------------------------------
Name: Klaus P. Besier
----------------------------------------------------------
Title: CEO
---------------------------------------------------------
Date: 12/18/98
----------------------------------------------------------
<PAGE> 5
Attachment A
Blue Cross and Blue Shield of Minnesota
Per Diem Expense Allowance for Consultants
January 1, 1998
Transportation
* Air Travel -- Reimbursement will be made for air fares purchased at
coach rates. The consulting firm will make all reasonable efforts to
purchase tickets at the lowest competitive market rate.
* Ground Transportation -- Reimbursement will be made for ground
transportation not to exceed $40 per day.
Lodging
* Hotel -- Lodging will be paid at the per diem rate of $91.
Meals
* Meals -- Meal expense will be paid at the per diem rate of $38.
Other Expenses
* Reimbursement for any expenses other than Transportation, Lodging,
and Meals will be the responsibility of the consultant unless
otherwise specified in the contract.
BCBSM, Inc. reserves the right to request and receive receipts for any expenses
incurred by the contractor that pertains to this contract.
Note: Rates for lodging and meals are based on per diem allowances as published
in the Federal Register, Volume 62, #231 dated Tuesday, December 2, 1997 and
the U.S. Master Tax Guide.
SIGNATURES
IN WITNESS WHEREOF, the parties have signed this Attachment by their duly
authorized representatives.
BCBSM, Inc. dba Blue Cross and Blue Shield FirePond, Inc.
of Minnesota
By: /s/ John N. Ounjian, /s/ T.M. Peterson By: /s/ Klaus P. Besier
Name: John N. Ounjian, Timothy M. Peterson Name: Klaus P. Besier
Title: CIO, CFO Title: CEO
Date: 12/18/98 Date: 12/18/98
<PAGE> 6
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EXHIBIT A
SOFTWARE NAMED USER AGREEMENT
1. DELIVERY
Upon acceptance of these terms, Named User will be provided electronic media
containing Software, as ordered by Named User through Licensee.
2. GRANT OF LICENSE
Subject to becoming effective as set forth above, Named User is hereby granted a
non-exclusive, non-transferable right to use Software for the limited purpose of
helping Named User and Named User's customers learn about, sell and/or buy
products manufactured, distributed or sold by Licensee. Named User agrees that
Software shall be used exclusively by Named User's authorized employees and only
for the limited purpose set forth above. The electronic media and Software shall
remain the property of Licensee and/or its suppliers. All applicable rights in
patents, copyrights, trade secrets and other confidential and proprietary
information, trademarks, and any other intellectual property rights in Software
are and shall remain in Licensee and/or its suppliers. Named User is forbidden
from copying, transferring possession, using, or permitting others to copy,
possess or use the electronic media and/or Software for any purpose not
specifically authorized in this Agreement. Named User warrants that any
individuals authorized by Named User to access Software shall be bound by the
terms and conditions of this Agreement.
3. TERM OF AGREEMENT
The term of this Agreement shall commence upon execution of the Agreement and
shall continue until termination as provided herein.
4. SOFTWARE SUPPORT
4.1 Warranty Disclaimer
LICENSEE AND ITS SUPPLIERS MAKE AND NAMED USER RECEIVES NO REPRESENTATION,
CONDITION OR WARRANTY, EXPRESS OR IMPLIED, IN ANY OTHER PROVISION OF THIS
AGREEMENT OR COMMUNICATION WITH NAMED USERS WITH RESPECT TO SOFTWARE, AND
LICENSEE AND ITS SUPPLIERS SPECIFICALLY DISCLAIM ANY IMPLIED WARRANTIES
WHETHER AS TO MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER
MATTER. NAMED USER ASSUMES ALL RESPONSIBILITIES FOR THE SELECTION OF SOFTWARE
TO ACHIEVE NAMED USER'S INTENDED RESULTS. LICENSEE AND ITS SUPPLIERS DO NOT
WARRANT THAT SOFTWARE WILL MEET NAMED USER'S REQUIREMENTS OR THAT SOFTWARE
WILL BE UNINTERRUPTED OR ERROR FREE.
4.2 LIMITATION OF LIABILITY EXCEPT AS PROVIDED BELOW
LICENSEE AND ITS SUPPLIERS SHALL HAVE NO LIABILITY FOR ANY INCIDENTAL, SPECIAL,
CONSEQUENTIAL OR EXEMPLARY DAMAGES OF ANY DESCRIPTION, INCLUDING, WITHOUT
LIMITATION, DAMAGES DIRECTLY OR INDIRECTLY ARISING OUT OF THE INSTALLATION,
REMOVAL, USE OR NON-USE OF SOFTWARE OR LOSS OF PROFITS, WHETHER ARISING OUT OF
WARRANTY OR CONTRACT, NEGLIGENCE, OR OTHER NON-INTENTIONAL TORT OR OTHERWISE.
UNDER NO CIRCUMSTANCES SHALL LICENSEE'S AND ITS SUPPLIERS' LIABILITY EXCEED THE
APPLICABLE LICENSE FEE PAID BY NAMED USER UNDER THIS AGREEMENT, REGARDLESS OF
THE FORM OF THE ACTION. NAMED USER EXPRESSLY AGREES THAT THE LIMITATIONS OF
INCIDENTAL, SPECIAL, CONSEQUENTIAL AND EXEMPLARY DAMAGES SET FORTH ABOVE ARE
AGREED ALLOCATIONS OF RISK, ARE REFLECTED IN THE FEES THAT HAVE BEEN AGREED TO
BETWEEN THE PARTIES HEREIN.
5. RESTRICTIONS ON USE, CONFIDENTIALITY
To the maximum extent permitted by law, Named User agrees not to reverse
compile, disassemble, or otherwise reverse engineer Software or any portion
thereof. Named User further agrees not to disclose, reproduce, publish, release,
transfer, translate, copy or make available any portion of Software code or to
prepare or copy derivative or collective works based upon and/or containing any
portion of Software code. Named User agrees that all materials supplied under
this Agreement shall be kept in a secure place. Named User agrees to and shall
take appropriate action satisfactory to Licensee, by instruction, agreement or
otherwise, with any persons permitted access to Software to ensure continuous
confidentiality. All notices pertaining to use and ownership of the electronic
media and Software will be retained on the electronic media and Software in the
possession of Named User.
6. UNAUTHORIZED ACTS
Named User agrees to notify Licensee of the possession, use, knowledge,
disclosure or reproduction of any electronic media or Software made available to
Named User under this Agreement by any person, firm or organization not
authorized by this Agreement to have the benefit of such possession, use,
knowledge, disclosure or reproduction, and to cooperate with Licensee and its
representatives in any investigation of and litigation against such person, firm
or organization.
7. TERMINATION
Named User may terminate this Agreement without cause by giving Licensee thirty
(30) days written notice of termination. In the event of a material breach of
this Agreement which is not corrected, this Agreement may be terminated in the
following manner. The party complaining of the breach may terminate this
Agreement by serving written notice on the other party of its intention to
terminate the Agreement and stating the breach of the Agreement complained of,
whereupon the other party shall have a period of thirty (30) days to correct the
material breach; and in the event the breach is not corrected, the Agreement
shall stand terminated at the end of said thirty (30) days from service of the
notice. In the event the breach is corrected, the Agreement shall continue as if
no breach had occurred. If this Agreement is terminated at any time, Named User
shall cease use immediately of Software and shall promptly return or destroy all
Licensee originals and all materials related to Software and electronic media
received from Licensee and/or any other material furnished by Licensee to Named
User for use by Named User in connection with this Agreement, including any
modifications, and all supplementary or related program materials and
information, excluding normal printouts or handouts which have been distributed
to customers of Named User.
If for any reason the relationship between Licensee and its supplier of Software
or between Licensee and Named User is terminated, this Agreement will be
concurrently terminated, effective as of the relationship termination date.
8. GENERAL
This Agreement is entered into and shall be construed in accordance with the
laws of the State of Minnesota. This Agreement constitutes the entire agreement
between the parties and supersedes all other communications whether written or
oral. Neither the rights granted herein nor Software or copies thereof may be
licensed, assigned, or transferred by Named User. Any failure by Licensee to
terminate this Agreement for any particular cause shall not be interpreted as a
waiver of Licensee's right to subsequently cancel or terminate the Agreement for
a later similar reason. FirePond and other third-party suppliers of Licensee are
direct and intended third-party beneficiaries of this Agreement and may enforce
this Agreement directly against Named User.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have duly
executed this Agreement.
Approved as to form:
BCBSM, INC., DBA BLUE CROSS AND BLUE SHIELD OF MINNESOTA
By: /s/ John N. Ounjian /s/ Timothy M. Peterson
------------------------------------------------------------
Name: John N. Ounjian Timothy M. Peterson
----------------------------------------------------------
Title: CIO CFO
---------------------------------------------------------
Date: 12/18/98
----------------------------------------------------------
FIREPOND, INC.
By: /s/ Klaus P. Besier
------------------------------------------------------------
Name: Klaus P. Besier
----------------------------------------------------------
Title: CEO
---------------------------------------------------------
Date: 12/18/98
----------------------------------------------------------
<PAGE> 7
Exhibit B-1
Signature Plus Services Attachment
This services attachment is considered an Attachment and is governed by the
provisions of the Services Agreement (hereinafter Agreement) executed by CWC
and BCBSM, Inc. doing business as Blue Cross and Blue Shield of Minnesota (for
the purpose of this Attachment - Client).
_______________________________________________________All amounts in U.S.($)
SERVICES
Upon execution of this Attachment, working with Client, CWC will demonstrate
Signature Plus capabilities during a Proof of Concept project further
identified in the Signature Plus License Fee Attachment.
COMPENSATION TO CWC
CWC and Client agree that the consultants fees for the Proof of Concept shall be
a fixed fee of $225.00. CWC agrees that it will not bill Client for any
consultant fees in excess of this amount without prior written consent of
Client. During the term of this Attachment, as part of the fixed fee, CWC shall
provide, without additional charge, up to 40 hours per week of one person's
time for the Proof of Concept project identified herein.
TAXES AND DUTIES
All duties, taxes, and levies (excluding taxes based on CWC's net income) if
any, shall be borne by Client.
The fees and terms of this Attachment are valid until September 23, 1998. If
this Attachment is not signed by Client prior to that date, CWC may revise such
fees and terms.
Exhibit B-2
Small Tract Group
. Producing preliminary quotes (i.e. street rate quotes for each of the small
group products.
. Generating an offer (from RAPS) for each of the small group products.
. Providing tracking and status.
. Storing and printing sales collateral material and forms.
. Small group consultation.
SIGNATURES
IN WITNESS WHEREOF, the parties have signed this Attachment by their duly
authorized representatives.
BCBSM, Inc, dba Blue Cross and Blue CWC Incorporation
Shield of Minnesota
By: /s/ John Ounjian /s/ T.M. Peterson By: /s/ Klaus P. Besier
Name: John Ounjian, Timothy M. Peterson Name: Klaus P. Besier
Title: Senior Vice President, CFO Title: CEO
Date: 9/24/98, 9/24/98 Date: 9/24/98
<PAGE> 8
[FIREPOND LOGO]
SIGNATURE PLUS LICENSE FEE ATTACHMENT
This License Fee Attachment is considered an Attachment and is governed by the
provisions of the Signature Plus Software License Agreement dated 12/8/98
(hereinafter Agreement) executed by FirePond, Inc. and BCBSM, Inc. dba Blue
Cross and Blue Shield of Minnesota (for the purpose of this Attachment -
Client).
All amounts in U.S. ($)
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LICENSE FEES (SIGNATURE PLUS - ENTERPRISE)
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For a fee of $[ * * * ], Client shall receive an Enterprise License, payable
as follows:
$[ * * * ] payable upon execution of this Attachment.
$[ * * * ] payable March 15, 1999.
$[ * * * ] payable June 1, 1999.
- ----------
$[ * * * ] total
Client will be invoiced for the above stated license fee upon execution of this
Attachment with the payment schedule above. The above fees are not subject to
offset for any reason, including any Finder's Fee Client may earn.
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LICENSE FEES (SIGNATURE PLUS - TOOLKIT) - DESIGNATED SITE
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Signature Plus Toolkit - Eagan Campuses of BCBSM, Inc. (Included in
above license fees) ........................................................ NA
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FINDER'S FEE
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If Client purchases, and FirePond receives payments as described above for an
Enterprise License, and if Client provides substantive Assistance in procuring
binding Signature Plus License Agreements with other Blue Cross Blue Shield
entities (other than those entities listed in Attachment Licensee), Client may
earn a finder's fee (as provided below). For purposes of this Agreement,
"Assistance" shall mean the substantive and documented introduction and
recommendation of FirePond and FirePond products by Client to other Blue Cross
Blue Shield entities, including serving as a reference account and providing
mutually agreed access to Client's installation for purposes of demonstrations
of FirePond's products. In the event Client provides such Assistance and
FirePond executes such agreements, FirePond shall pay Client a finder's fee as
follows:
o For each Blue Cross Blue Shield entity entering binding qualifying license
agreements within two (2) years after execution of this Agreement,
FirePond shall pay Client a finder's fee equal to 15% of such Blue Cross
Blue Shield entities' license fees during that period (excluding any
implementation, maintenance or Service Fees).
o For each Blue Cross Blue Shield entity entering binding qualifying license
agreements after the first two (2) years following execution of this
Agreement but before the beginning of the fourth year after execution of
this Agreement, FirePond shall pay Client a finder's fee equal to 10% of
such Blue Cross Blue Shield entities license fee during that period
(excluding any implementation, maintenance or Service Fees).
o For each Blue Cross Blue Shield entity entering binding qualifying license
agreements after the first four (4) years after execution of this
Agreement but before the beginning of the sixth year after execution of
this Agreement, FirePond shall pay Client a finder's fee equal to 5% of
such Blue Cross Blue Shield entities license fee during that period.
(excluding any implementation, maintenance or Service Fees).
o The finder's fee shall expire five (5) years from the date of Execution of
this Agreement.
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[ * * * ] Confidential treatment has been requested for the bracketed
portions. The confidential redacted portion has been filed
separately with the Securities and Exchange Commission.
<PAGE> 9
[FIREPOND LOGO]
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LIMITED SEMI EXCLUSIVE USE
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If Client purchases, and FirePond receives payments as described above for an
Enterprise License, and if Client provides substantive Assistance in procuring
binding Signature Plus License Agreements with other Blue Cross Blue Shield
entities (other than those entities listed in Attachment Licensee), FirePond
agrees that it shall not license, for use in Minnesota, to Health Partners,
Alliana, Health Systems of Minnesota, Preferred One or Medica doing business in
Minnesota for the period of December 18, 1998, to December 31, 2000. This
Limited Semi Exclusive Use License does not prohibit FirePond from using the
Software internally during such period, or from licensing the Software to third
parties other than Health Partners, Alliana, Health Systems of Minnesota,
Preferred One or Medica doing business inside and/or outside of Minnesota.
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TAXES AND DUTIES
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All duties, taxes and levies (excluding taxes based on FirePond's net income),
if any, shall be borne by Client.
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The fees and terms in this Attachment are valid until December 18, 1998. If
Client does not sign this Attachment prior to that date, FirePond may revise
such fees and terms.
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SIGNATURES
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IN WITNESS WHEREOF, the parties have signed this Attachment by their duly
authorized representatives.
BCBSM, INC. DBA BLUE CROSS AND BLUE FIREPOND, INC.
SHIELD OF MINNESOTA
By: /s/ John N. Ounjian /s/ Timothy M. Peterson By: /s/ Klaus P. Besier
---------------------------------------------- ------------------------
Name: John N. Ounjian Timothy M. Peterson Name: Klaus P. Besier
- ------------------------------------------------- ----------------------
Title: CIO CFO Title: CEO
- ------------------------------------------------- ---------------------
Date: 12/18/98 Date: 12/18/98
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<PAGE> 10
[FIREPOND LOGO]
SIGNATURE PLUS MAINTENANCE ATTACHMENT
This maintenance attachment is considered an Attachment and is governed by the
provisions of the Software License Agreement (hereinafter Agreement) executed by
FirePond, Inc. and Licensee ("Licensee").
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MAINTENANCE FEE All amounts in U.S.($)
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PLATINUM MAINTENANCE (REQUIRED, 15% OF THE TOTAL LICENSE FEE FOR THE
SOFTWARE AND TOOLS) ................................................$[ * * * ]
Client may purchase maintenance in a prepaid one-year block at a rate of 15% of
the license fee. Client shall elect this option at the time of execution of the
applicable License option.
See chart below for definition of Silver, Gold and Platinum maintenance.
If Licensee decides to buy additional seats, FirePond will calculate the license
fee based on the percentages above and pro-rate to the end of the then-current
Licensee maintenance year.
Maintenance shall start at the end of the warranty period as identified in the
Signature Plus Software License Agreement.
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RESPONSE LEVELS
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FirePond shall provide support via a FirePond technical support representative
to research questions and resolve issues for the four Licensee designated
contacts identified in the attached schedule from 8:00 a.m. to 5:00 p.m. Central
Time Monday through Friday (excluding FirePond holidays). This service will also
provide a means for the Licensee designated contacts to provide feedback to
FirePond on the Software and Tools.
Following is a definition of severity levels:
o Critical: Software or Tools are non-operational.
o High: A major function of the Software or Tools is unavailable.
o Medium: The Software or Tools are in substantial non-conformance to the
functional specifications in the Documentation.
o Low: The Software or Tools substantially conform to the functional
specifications in the Documentation but contain minor discrepancies.
Licensee identified problems shall be handled according to the following table.
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Severity Silver Gold Platinum
- -------- ---------------------- ---------------------- ----------------------
Critical FirePond will use best FirePond will use best FirePond will use best
efforts to respond to efforts to respond to efforts to respond to
the Licensee contact the Licensee contact the Licensee contact
within one business within one business within one business
hour of notice and hour of notice and hour of notice and
provide a fix plan provide a fix plan provide a fix plan
within three business within two business within one business
days. days day.
- -------- ---------------------- ---------------------- ----------------------
High FirePond will use best FirePond will use best FirePond will use best
efforts to respond to efforts to respond to efforts to respond to
the Licensee contact the Licensee contact the Licensee contact
within four business within four business within four business
hours of notice and hours of notice and hours of notice and
provide a fix plan provide a fix plan provide a fix plan
within four business within three business within two business
days. days. days.
- -------- ---------------------- ---------------------- ----------------------
Medium FirePond will use best FirePond will use best FirePond will use best
efforts to respond to efforts to respond to efforts to respond to
the Licensee contact the Licensee contact the Licensee contact
within one business within one business within one business
day of notice and day of notice and day of notice and
provide a fix plan provide a fix plan provide a fix plan
within five business within four business within three business
days. days. days.
- -------- ---------------------- ---------------------- ----------------------
Low FirePond will use best FirePond will use best FirePond will use best
efforts to respond to efforts to respond to efforts to respond to
the Licensee contact the Licensee contact the Licensee contact
within two to five within two to five within two to five
business days of business days of business days of
notice and consider notice and consider notice and give
for inclusion in the for inclusion in the priority consideration
maintenance release. maintenance release. for inclusion in the
maintenance release.
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[ * * * ] Confidential treatment has been requested for the bracketed
portions. The confidential redacted portion has been filed
separately with the Securities and Exchange Commission.
<PAGE> 11
[FIREPOND LOGO]
Maintenance includes issuance of upgrades as they become available from
FirePond. Upon issuance of an upgrade, FirePond shall provide the support
identified in this Attachment for the previous upgrade for a period of 12
months.
Maintenance service does not include the delivery of any software and associated
documentation which FirePond offers as separate products which have not been
licensed by Licensee.
Errors attributed to FirePond shall be those that are reproducible by FirePond
on unmodified FirePond software. FirePond will use reasonable efforts to work
with client to obtain corrections or workarounds to problems in third party
implementations/software.
FirePond shall use reasonable commercial efforts to correct the defect by
bringing the performance of the Software into material compliance with the
functional specifications or to replace the defective component within thirty
(30) days or such longer period as is reasonable in the circumstances where
FirePond proceeds with all due diligence to cure such defect. In the event
FirePond is unable to correct or replace such defect within the stated time
period, Licensee shall refund the then present value of such Software to
Licensee, as amortized over a five (5) year useful life measured from the date
of delivery.
All fix plan times begin when FirePond duplicates the problem.
FirePond shall have no obligation to support:
a. altered, damaged or modified (except for standard modifications utilizing
the standard software tools) software or any portion of the software
incorporated with or into other software;
b. Software problems caused by Licensee's negligence, abuse or
misapplication, use of software other than as specified in FirePond's
published and current documentation, or other causes beyond the control of
FirePond;
c. Software installed on or with any Computer Hardware, Operating System,
GUI, or Database Management System that is not specified in the
documentation covering the software.
TAXES AND DUTIES
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All duties, taxes and levies (excluding taxes based on FirePond's net income),
if any, shall be borne by Licensee.
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MAINENTANCE FEE RENEWAL
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The renewal fee for the maintenance shall be based on the total license fee for
the Software and Tools as identified in the Signature Plus License Fee
Attachment governed by and attached to the Software License Agreement executed
by FirePond and Licensee.
If payment is not made within thirty (30) days of the due date, support services
will be suspended until payment is received. If payment is not received by
FirePond, within 180 days of the due date, the support services will be
terminated. Licensee will be required to pay a reinstatement fee to reactivate
support. The cost to reactivate will be all maintenance fees in arrears.
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<PAGE> 12
[FIREPOND LOGO]
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FEES AND PAYMENT TERMS
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The maintenance identified above is payable as follows:
$[ * * * ] payable upon expiration of the warranty period for the Software.
$[ * * * ] payable March 15, 1999.
$[ * * * ] payable June 1, 1999.
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$[ * * * ] total
For the initial first year, Licensee will be invoiced for the above stated
maintenance fee upon execution of this Attachment with the payment schedule
above, and annually in advance thereafter. Maintenance fees are subject to
change once during a calendar year upon sixty (60) days notice. This Attachment
shall automatically renew for subsequent one-year terms unless the Agreement is
terminated by sixty (60) days advance written notice prior to the end of the
current maintenance year. If after any period of non-maintenance under a
Signature Plus Maintenance Attachment, Licensee desires to re-establish
maintenance of the Software by FirePond, Licensee shall pay all maintenance at
current list prices calculated from the day maintenance was discontinued. To
stay in compliance with the Agreement, all past due amounts must be paid timely
in accordance with the terms of the Agreement.
Notwithstanding the foregoing, increases in annual maintenance over the initial
base year maintenance shall be limited to ten (10) percentage.
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The fees and terms in this Attachment are valid until December 18, 1998. If this
Attachment is not signed by Licensee prior to that date, FirePond may revise
such fees and terms.
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SIGNATURES
- --------------------------------------------------------------------------------
BCBSM, INC. DBA BLUE CROSS AND BLUE FIREPOND, INC.
SHIELD OF MINNESOTA
By: /s/ John N. Ounjian /s/ Timothy M. Peterson By: /s/ Klaus P. Besier
---------------------------------------------- ------------------------
Name: John N. Ounjian Timothy M. Peterson Name: Klaus P. Besier
- ------------------------------------------------- ----------------------
Title: CIO CFO Title: CEO
- ------------------------------------------------- ---------------------
Date: 12/18/98 Date: 12/18/98
-------------------------------------------- ----------------------
[ * * * ] Confidential treatment has been requested for the bracketed
portions. The confidential redacted portion has been filed
separately with the Securities and Exchange Commission.
<PAGE> 13
"Licensee Attachment"
Affiliated Community Health Network, Inc.
Aspen Plus Health Network
Atrium Health Plan, Inc.
Aware Dental Services, LLC
Aware Integrated, Inc.
BCBSM, Inc.
BCBSM Foundation, Inc.
BCBSM Population Health, Inc.
Behavioral Health Services, Inc.
Capital Asset Care, Inc.
Care Delivery Management, Inc.
Comprehensive Managed Care, Inc.
Dakota Community Health Network, Inc.
Delta Dental Plan of Minnesota
Employer Provider Network, Inc.
First Integrated Exclusive Provider Organization
First Integrated Holding Company
First Plan of Minnesota
HMO Minnesota dba Blue Plus
MII, Inc.
MII Casualty, Incorporated
MII Life, Incorporated
MII Services, Inc.
Pharmacy Gold, Inc.
Prairie Community Health Network, Inc.
Prime Therapeutics, Inc.
River Bend Community Health Network, Inc.
IN WITNESS WHEREOF, the parties have so agreed:
BCBSM, Inc. dba Blue Cross and Blue Shield of Minnesota
By: /s/ John N. Ounjian, /s/ T.M. Peterson
Name: John N. Ounjian, Timothy M. Peterson
Title: CIO, CFO
Date: _____________________________________
CWC Incorporated
By: /s/ Klaus P. Besier
Name: Klaus P. Besier
Title: CEO
Date: 12/18/98
<PAGE> 14
[FIREPOND LOGO]
LICENSEE DESIGNATED CONTACTS
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CONTACT #1
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CONTACT #2
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Title:
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Business Phone:
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Business Fax:
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E-mail:
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CONTACT #3
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Name:
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Title:
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Business Address:
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Business Phone:
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Business Fax:
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CONTACT #4
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Name:
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Title:
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Business Address:
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Business Phone:
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Business Fax:
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<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Boston, Massachusetts
February 2, 2000
