<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 21, 2000
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CORIO, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<TABLE>
<S> <C> <C>
DELAWARE 7371 77-0492528
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
959 SKYWAY ROAD, SUITE 100
SAN CARLOS, CALIFORNIA 94070
(650) 232-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
GEORGE KADIFA
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CORIO, INC.
959 SKYWAY ROAD, SUITE 100
SAN CARLOS, CALIFORNIA 94070
(650) 232-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
HOWARD S. ZEPRUN, ESQ. STEVEN B. STOKDYK, ESQ.
CAINE T. MOSS, ESQ. ALBERT LIU, ESQ.
WILSON SONSINI GOODRICH & ROSATI SULLIVAN & CROMWELL
PROFESSIONAL CORPORATION 1888 CENTURY PARK EAST, SUITE 2100
650 PAGE MILL ROAD LOS ANGELES, CALIFORNIA 90067
PALO ALTO, CALIFORNIA 94304 (310) 712-6600
(650) 493-9300
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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 delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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- --------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Common Stock, $0.001 par value per share......... $50,000,000 $13,200
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a).
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
The information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration statement
filed with the Securities and Exchange Commission is effective. This
preliminary prospectus is not an offer to sell nor does it seek an offer
to buy these securities in any jurisdiction where the offer or sale is not
permitted.
Subject to Completion. Dated , 2000.
Shares
[CORIO LOGO]
CORIO, INC.
Common Stock
----------------------
This is an initial public offering of shares of common stock of Corio, Inc.
All of the shares of common stock are being sold by Corio.
Prior to this offering, there has been no public market for the common
stock. It is currently estimated that the initial public offering price per
share will be between $ and $ . Corio has applied for quotation of its
common stock on the Nasdaq National Market under the symbol "CRIO."
See "Risk Factors" beginning on page 5 to read about factors you should
consider before buying shares of the common stock.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price...............................
Underwriting discount.......................................
Proceeds, before expenses, to Corio.........................
</TABLE>
To the extent that the underwriters sell more than shares of
common stock, the underwriters have the option to purchase up to an additional
shares from Corio at the initial public offering price less the
underwriting discount.
----------------------
The underwriters expect to deliver the shares against payment in New York,
New York on , 2000.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
ROBERTSON STEPHENS
AMERITRADE
----------------------
Prospectus dated , 2000.
<PAGE> 3
DESCRIPTION OF GRAPHICS FOR FRONT COVER
At the top right-hand margin of the page appears the Corio logo and, to the
right of the logo, the name "Corio." Below the Corio logo and name appears the
phrase, "The Next Generation ASP -- more than just hosting an application."
Below this phrase is a graphic of a globe transposed on a series of concentric
circles traversed by spokes radiating from the center of the inner circle. On
the right margin below this graphic appears the phrase, "First generation
Application Service Providers (ASPs) simply outsource the existing application
process." Below this phrase appears the phrase, "Next generation ASPs address
integration, customization, automation and multi-tenancy. They provide a lower
total cost of ownership and a more compelling value proposition to all
stakeholders." Located below this phrase in the bottom right-hand corner of the
page appears the phrase, "Corio -- the next generation ASP." Extending from the
bottom left-hand corner of the page and extending halfway up and across the page
is a rectangular graphic depicting the first five characters of an URL address.
Along the right side of this rectangular graphic are ten rows of faint images of
the Corio logo and name.
DESCRIPTION OF GRAPHICS FOR BACK COVER
Traversing the top quarter of the page is a black rectangular graphic
containing the phrase, "How do companies reduce the cost of enterprise
applications?" Below this phrase, highlighted by a rectangular border is the
phrase, "They hire Corio." Below the black rectangular graphic is the phrase,
"Our entire delivery model is designed to provide maximum value to our
customers:" Below this phrase, running down the right margin of the page, are
six rows of phrases marked by bullets. The first phrase is "Lower IT personnel
costs." The second phrase is "Lower implementation costs." The third phrase is
"Integration and interface savings." The fourth phrase is "Lower software and
maintenance costs." The fifth phrase is "Reduced upgrade expenses." The sixth
phrase is "Reduced server hardware, network and maintenance costs." To the left
of the six rows of phrases is a graphic of a man's bespectacled face. In the
background of this graphic is an image of a woman. Below the graphic of the
man's face are the letters "www." In the bottom left corner of the page,
immediately below the letters "www.", is a graphic of an hourglass. To the right
of the graphic of the hourglass are faint images of a set of indecipherable
charts and graphic and the Corio name and logo.
DESCRIPTION OF GRAPHICS FOR FRONT GATEFOLD
Below the top of the front gatefold, beginning near the left margin of the
front gatefold and extending across to the right margin, is a thin black line.
Above this line and at the left margin of the front gatefold is the phrase,
"Corio is . . .". Approximately halfway across the front gatefold and above the
thin black line is the phrase, "Enabling a world where any company can get
best-of-breed e-business capabilities without the cost and challenges." Below
the thin black line and under the phrase "Corio is . . . " is the following
text: "A leading Application Service Provider (ASP) providing e-business
capabilities to any company. We provide a suite of integrated, best-of-breed
business applications hosted on a technology platform over a secure network for
a monthly fee. We are the single point of accountability for
everything -- application management, security, infrastructure, data center and
network management." Below this phrase is the phrase "Customer Benefits:",
followed by six rows of phrases, each marked by a bullet. The first phrase is
"Business process integration: internal processes and exchanges with suppliers,
partners and customers." The second phrase is, "Projected 30% or greater total
cost of ownership reduction." The third phrase is, "Rapid access to
best-of-breed applications they will never outgrow." The fourth phrase is
"Implementation typically in 2 to 14 weeks." The fifth phrase is "Ability to
focus on their core business." The sixth phrase is "Industry-leading customer
service and support." To the right of the six rows of bulleted text is a
graphic, entitled the "Corio Intelligence Enterprise", of a man sitting at a
desk before a large computer console on which appears an enlarged graphical
representation of the Corio Intelligent Enterprise. A cable extends from the
right side of the computer console and up the center of the front gatefold to
connect to the left side of another graphic entitled "Application Management
Center." This graphic depicts four people sitting at a desk in front of a large
computer console on which appears a
<PAGE> 4
globe, a pie chart, a bar chart and indecipherable text. From the right side of
this graphic extends a cable that connects to a graphic entitled "Data Centers."
Above the cable between Application Management Center and Data Centers is the
text "Secure Network." This graphic depicts a man standing in front of four
rectangular structures. Below the "Application Management Center" and "Data
Centers" graphics is a box divided into three sections of text. The first
section is entitled Corio Intelligent Enterprise, and contains the sentence "The
Corio Intelligent Enterprise is a suite of integrated applications covering
best-of-breed enterprise resource planning, customer relationship management and
e-commerce." The second section of text is entitled "Application Management
Center", and contains the following text: Our Application Management Center
manages and supports the software applications, security infrastructure,
networks, hardware and data centers we use 24 hours a day, seven days week." The
third section of text is entitled, "Orion -- Our Technology Platform," followed
by four rows of phrases, each marked with a bullet. The first phrase is "Enables
integration -- within our Corio Intelligent Enterprise as well as across
installed legacy applications." The second phrase is, "Provides software
automation management facilitating software upgrades, patching and testing." The
third phrase is, "Provides customization through a repository of robust
extensions -- providing our customers with additional functionality at a lower
cost." The fourth phrase is, "Delivers software applications to our customers in
a multi-tenant environment over a secure network. At the bottom of the front
gatefold, beginning near the left margin and extending beneath the graphic of
the Corio Intelligent Enterprise to the right margin, is a thin black line. At
the bottom left margin is a box titled "Enterprise Software Vendors" that
contains the logos of BroadVision, Changepoint, Commerce One, Moai, PeopleSoft,
Portal, SAP and Siebel. To the right of this box is another box titled
"Infrastructure Providers" that contains the logos of Concentric Network and Sun
Microsystems.
<PAGE> 5
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information appearing elsewhere in this prospectus, especially "Risk Factors"
and the financial statements and notes thereto.
Except as otherwise specified in this prospectus, all information herein:
- assumes no exercise of the underwriters' over-allotment option;
- gives effect to our two-for-one stock split in July 1999; and
- gives effect to conversion of all outstanding shares of preferred stock
into shares of common stock upon consummation of this offering,
assuming an offering price of $ .
CORIO, INC.
We are a leading enterprise application service provider, or ASP. We
implement, integrate and manage the Corio Intelligent Enterprise, a suite of
scalable, best-of-breed enterprise software applications from leading vendors,
which we offer to our customers over a secure network. This suite of
applications is designed to accommodate the requirements of rapidly growing as
well as larger, more mature companies. We enable our customers to avoid the
significant upfront licensing, implementation and integration costs and the
unpredictable and often greater ongoing application management costs usually
associated with internally-operated enterprise application systems. Following
the rapid implementation of applications, usually performed for a fixed fee, our
customers pay a predictable monthly service fee based largely on the number of
applications hosted and total users. By providing application implementation,
integration, management and various upgrade services and related hardware and
network infrastructure, we reduce the information technology, or IT, burdens of
our customers, enabling them to focus on their core businesses and react quickly
to dynamic market conditions.
We offer software applications from PeopleSoft and SAP for enterprise
resource planning, Siebel Systems for customer relationship management,
BroadVision, Commerce One and Moai for e-commerce and Changepoint, Cognos,
E.piphany and Portal Software for business intelligence and industry-specific
solutions. We leverage the capabilities of companies such as Concentric Network
to provide our customers leading data center and network infrastructure
technologies.
The ASP industry arose in the late 1990s in response to opportunities
created within the IT industry due to the emergence of the Internet, the
proliferation of emerging high-growth and middle-market companies requiring
rapid and cost-effective deployment of IT infrastructure and the increasing
importance of e-business to companies of all sizes. Gartner Group estimates that
the ASP market will grow from $900 million in 1998 to $23 billion by 2003.
Our objective is to be the leading enterprise ASP worldwide. Key elements
of our strategy to achieve this objective include:
- offering a compelling value proposition to our customers by providing
them with reduced and more predictable IT costs and accelerated time to
benefit;
- leveraging our "one-to-many" business model by providing standardized
services to numerous customers;
- maintaining our technology leadership position by continuing to invest in
research and development;
- working with leading network and data center providers to provide our
customers with state-of-the-art and secure network infrastructure;
- leveraging our strategic relationships to help build our customer base
and scale our services;
- broadening our service offerings; and
- continuing our commitment to customer satisfaction.
1
<PAGE> 6
We were incorporated in Delaware in September 1998. Our principal executive
offices are located at 959 Skyway Road, Suite 100, San Carlos, California 94070,
and our telephone number at that location is (650) 232-3000. Our website is
located at www.corio.com. The information contained on our website does not
constitute part of this prospectus.
Corio, the Corio logo, Orion and other marks relating to our services are
our trademarks or service marks. All other trademarks or service marks appearing
in this prospectus are the property of their respective holders.
2
<PAGE> 7
THE OFFERING
Common stock offered by Corio.... shares
Common stock to be outstanding
after this offering.............. shares
Use of proceeds.................. For repayment of indebtedness, working
capital and general corporate purposes and,
potentially, for acquisition opportunities
that may arise.
Proposed Nasdaq National Market
symbol........................... CRIO
The number of shares to be outstanding upon completion of this offering is
based on 32,604,990 shares outstanding as of March 31, 2000. This number assumes
the conversion into common stock of all of our preferred stock outstanding on
that date and excludes:
- 9,973,173 shares of common stock subject to outstanding options as of
March 31, 2000;
- 6,944,350 additional shares of common stock available for grant under our
1998 Stock Plan as of March 31, 2000;
- 1,000,000 shares of common stock reserved for issuance under our Employee
Stock Purchase Plan 2000;
- 50,000 shares of common stock subject to outstanding warrants at an
exercise price of $6.50 per share;
- 681,213 shares of series A preferred stock subject to outstanding
warrants at an exercise price of $1.24 per share;
- 307,692 shares of series C preferred stock subject to outstanding
warrants at an exercise price of $6.50 per share; and
- 43,077 shares of series C preferred stock subject to an outstanding
warrant at an exercise price of $6.50 per share, assuming this offering
is completed on or before June 30, 2000.
3
<PAGE> 8
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1998(1) 1999
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<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Application management services........................... $ -- $ 746
Professional services and other........................... 1,292 5,036
Total revenues......................................... 1,292 5,782
Loss from operations........................................ (3,130) (44,522)
Net loss.................................................... (3,201) (45,000)
Basic and diluted net loss per share........................ $(3.89) $ (38.96)
======= ========
Weighted-average shares..................................... 823 1,155
======= ========
Pro forma net loss per share (unaudited)(2):
Basic and diluted........................................... $
Weighted-average shares.....................................
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................... $37,117 $ 91,617 $
Working capital............................... 24,448 78,948
Total assets.................................. 61,596 116,096
Notes payable and capital lease obligations,
less current portion........................ 7,335 7,335
Total stockholders' equity.................... 36,484 90,984
</TABLE>
- ---------------
(1) Period from September 1, 1998 (date of inception) to December 31, 1998.
(2) Pro forma net loss per share for the year ended December 31, 1999 is
computed using the weighted-average number of shares of common stock
outstanding, including the pro forma effect of the automatic conversion of
our preferred stock and mandatorily redeemable preferred stock into shares
of our common stock effective upon the closing of this offering, as if such
conversion occurred on January 1, 1999, or at the date of issuance, if
later. Pro forma common equivalents, consisting of incremental common stock
issuance upon the exercise of stock options and warrants, as well as shares
subject to repurchase agreements are not included in pro forma diluted net
loss per share because they would be antidilutive.
(3) The pro forma column gives effect to the gross proceeds from the sale of our
senior series E mandatorily redeemable preferred stock in April 2000 on an
as if converted basis. Assuming an initial offering price of $ , all
outstanding shares of our preferred stock will convert into
shares of common stock upon the closing of this offering.
(4) The pro forma as adjusted column gives effect to the sale of
shares of common stock offered by us at an assumed initial public offering
price of $ per share and the application of the net proceeds from the
offering, after deducting underwriting discounts and commissions and
estimated offering expenses.
4
<PAGE> 9
RISK FACTORS
Any investment in our common stock involves a high degree of risk. You
should consider carefully the following information about risks, together with
the other information contained in this prospectus, before you decide whether to
buy our common stock. If any of the following risks actually occur, our
business, results of operations and financial condition could suffer
significantly. In any such case, the market price of our common stock could
decline, and you may lose all or part of the money you paid to buy our common
stock.
RISKS RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF LOSSES AND NEGATIVE CASH FLOW, EXPECT THIS TO CONTINUE AT
LEAST FOR THE FORESEEABLE FUTURE AND MAY NEVER ACHIEVE PROFITABILITY.
We have spent significant funds to date to develop and refine our current
services, to create an operations organization, consisting of application
management and customer support services personnel, to build a professional
services organization and to develop our sales and marketing resources. We have
incurred significant operating losses and negative cash flow and have not
achieved profitability. As of December 31, 1999, we had an accumulated deficit
of $48.2 million.
We expect to continue to invest significantly in our operations
organization and in research and development to enhance current services and
expand our service offerings. We also plan to continue to grow our professional
services organization and sales force and to spend significant funds to promote
our company and our services. We expect to continue to hire additional people in
all other areas of our company in order to support our growing business. In
addition, we expect to continue to incur significant fixed and other costs
associated with customer acquisitions and with the implementation and
configuration of software applications for customers. As a result of all of
these factors, to achieve operating profitability, excluding non-cash charges,
we will need to increase our customer base, to decrease our overall costs of
providing services, including the costs of our licensed technology and the costs
of customer acquisition, and to increase our number of users and revenues per
customer. We cannot assure you that we will be able to increase our revenues or
increase our operating efficiencies in this manner. Moreover, because we expect
to continue to increase our investment in our business faster than we anticipate
growth in our revenues, we expect that we will continue to incur significant
operating losses and negative cash flow for the foreseeable future and we may
never be profitable.
Even if we are able to generate revenues that exceed our operating costs,
we expect to incur substantial accounting charges over the next seven years
associated with our issuance of warrants to Ernst & Young on behalf of its
consulting division, E&Y Consulting, which will likely result in significant
operating losses through this entire period. For detailed information relating
to the issuance of these warrants and potential substantial accounting charges
associated with this issuance, please see "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
WE HAVE A LIMITED OPERATING HISTORY AND IF WE DO NOT ADDRESS THE RISKS
ASSOCIATED WITH OUR EARLY STAGE OF DEVELOPMENT OUR BUSINESS WILL SUFFER.
Our industry is new, we have not been in business long and we have offered
our services for a relatively short period of time. Prior to September 1998, our
predecessor company, DSCI, carried on a different business. Accordingly, we have
a limited operating history under our current business model. We have a limited
number of customers, have implemented our services a limited number of times and
only a portion of our customers are operating on our system. An investor in our
common stock must consider these facts as well as the risks, uncertainties,
expenses and difficulties frequently encountered by companies in their early
stages of development, particularly companies in new and
5
<PAGE> 10
rapidly evolving markets such as the market for Internet-based software
application services. Some of the risks and difficulties relate to our potential
inability to:
- acquire new customers;
- reduce costs associated with the delivery of services to our customers;
- expand and maintain our pipeline of sales prospects in order to promote
greater predictability in our period-to-period sales levels;
- complete successful implementations of our software applications in a
manner that is repeatable and scalable;
- integrate successfully software applications we manage with each other
and with our customers' existing systems;
- continue to offer new services that complement our existing offerings;
- increase awareness of our brand; and
- maintain our current, and develop new, strategic relationships.
We cannot assure you that we will successfully address these risks or
difficulties. If we fail to address any of these risks or difficulties
adequately, our business may suffer.
OUR QUARTERLY OPERATING RESULTS MAY VARY IN THE FUTURE, WHICH COULD CAUSE OUR
STOCK PRICE TO DROP.
Our revenues and operating results may vary significantly from quarter to
quarter due to a number of factors, many of which are beyond our control. In
order to promote future growth, we expect to continue to expend significant sums
in all areas of our business, particularly in our operations, professional
services, research and development and sales and marketing organizations.
Because the expenses associated with these activities are relatively fixed in
the short-term, we may be unable to adjust spending quickly enough to offset any
unexpected shortfall in revenue growth or any decrease in revenue levels. As a
result, we expect our quarterly operating results to fluctuate.
Important factors that could cause our quarterly results and stock price to
fluctuate materially include:
- the timing of obtaining, implementing and establishing connectivity with
individual customers;
- the loss of or change in our relationship with important customers;
- the timing and magnitude of capital expenditures;
- costs, including license fees, relating to the software applications we
use;
- costs relating to the expansion of our operations;
- customer discounts and credits;
- changes in our pricing policies or those of our competitors;
- changes in our revenue mix from professional services revenues to
application management services revenues;
- potential changes in the accounting standards associated with accounting
for stock or warrant issuances and for revenue recognition; and
- accounting charges associated with the warrants that we have issued to
E&Y Consulting and a software vendor, as well as potential accounting
charges we may incur in the future relating to stock or warrant issuances
to future strategic partners.
These factors make it difficult to predict our financial performance. As
our quarterly results fluctuate, they may fall short of the expectations of
public market analysts or investors. If this occurs, the price of our common
stock may drop.
6
<PAGE> 11
WE DEPEND ON SOFTWARE VENDORS TO SUPPLY US WITH THE SOFTWARE NECESSARY TO
PROVIDE OUR SERVICES, AND THE LOSS OF ACCESS TO THIS SOFTWARE, ANY DECLINE IN
ITS FUNCTIONALITY OR LIMITS ON ITS USE COULD CAUSE OUR BUSINESS TO SUFFER.
We offer our customers software applications from third parties, such as
BroadVision, Commerce One, PeopleSoft, SAP and Siebel Systems, that we in turn
incorporate into the services we provide to customers. Our agreements with
third-party software vendors are non-exclusive, are for limited terms ranging
from two to five years and typically permit termination in the event of our
breach of the agreements. If we lose the right to use the software that we
license from third-parties, if the cost of licensing such software applications
becomes prohibitive, or if we change the vendors from whom we currently license
software, our customers' businesses could be significantly disrupted, which
could harm our business. We cannot assure you that our services will continue to
support the software of our third-party vendors, or that we will be able to
adapt our own offerings to changes in third-party software. In addition, if our
vendors were to experience financial or other difficulties, it could adversely
affect the availability of their software. It is also possible that improvements
in software by third-parties with whom we have no relationship could render the
software we offer to our customers less compelling or obsolete.
Furthermore, the licenses we have for the third-party software we use to
deliver our services typically restrict our ability to sell our services to
customers with revenue above or below specified revenue levels and in specified
countries. Our operating results and ability to grow could be harmed to the
extent these licenses prohibit us from selling our services to customers to
which we would otherwise sell our services, or in countries in which we would
otherwise sell our services.
POOR PERFORMANCE OR DISRUPTIONS IN OUR BUSINESS-CRITICAL SERVICES COULD HARM OUR
REPUTATION AND SUBJECT US TO LIABILITIES.
Our customers depend on our hosted software applications for their critical
systems and business functions, including enterprise resource planning, customer
relationship management and e-commerce. Our customers' businesses could be
seriously harmed if the applications we provide to them work improperly or fail,
even if only temporarily. Accordingly, if the software that we license from our
vendors or our implementation of such software performs poorly, experiences
errors or defects or is otherwise unreliable, our customers would likely be
extremely dissatisfied, which could cause our reputation to suffer, force us to
divert research and development and management resources, cause a loss of
revenues or hinder market acceptance of our services. It is also possible that
any customer disruptions resulting from failures in our applications could force
us to refund all or a portion of the fees customers have paid for our services
or result in other significant liabilities to our customers.
WE CANNOT ASSURE YOU THAT WE WILL HAVE SUCCESS IMPLEMENTING, HOSTING OR MANAGING
ENTERPRISE SOFTWARE APPLICATIONS, AND WE HAVE LIMITED OR NO EXPERIENCE WITH SOME
OF THE APPLICATIONS WE OFFER OR ANY OF THE APPLICATIONS WE MAY OFFER IN THE
FUTURE.
Implementations of integrated enterprise software applications can be
complicated, and we have limited experience to date completing implementations
of integrated software applications for our customers. We cannot assure you that
we will develop the requisite expertise or that we can convince customers that
we have the expertise required to implement, host or manage these applications.
In addition, because PeopleSoft software applications were our first application
offerings, our customers to date have primarily implemented our PeopleSoft
application offerings. We have limited experience installing many of the
applications we offer, particularly some of the applications we have recently
begun to offer. Our reputation will be harmed and our business could suffer
significantly if we are not able to complete successfully repeated
implementations of our enterprise software applications, including those
applications with which we have limited or no implementation, hosting or
management experience to date.
7
<PAGE> 12
WE HAVE ONLY IMPLEMENTED OUR ORION TECHNOLOGY PLATFORM FOR A SMALL NUMBER OF
CUSTOMERS, AND IT MAY NOT PROVIDE THE BENEFITS WE EXPECT.
We have only implemented Orion, our technology platform, for a small number
of customers, and it may not be an effective means to integrate applications. In
addition, we are investing substantial resources to continue to develop and
improve this platform. We cannot assure you that our Orion platform will achieve
market acceptance or will work in the manner we expect or that we will be able
to achieve a return on our investment.
OUR STRATEGIC ALLIANCE WITH E&Y CONSULTING MAY NOT BE AS BENEFICIAL TO US AS WE
EXPECT AND WILL SUBJECT US TO LARGE AND UNPREDICTABLE EXPENSES.
We have entered into a strategic marketing alliance with Ernst & Young on
behalf of its consulting division, E&Y Consulting, and have granted to E&Y
Consulting warrants to purchase approximately 4.7 million shares of our common
stock upon consummation of this offering and up to approximately 2.3 million
shares based on specific performance metrics achieved by E&Y Consulting. The
warrants likely will subject us to accounting charges in significant and
unpredictable amounts. These expenses will likely affect our operating results
in a significant and adverse manner and may make our financial performance
difficult to predict. Because of the accounting policies associated with these
warrants, the charges associated with the warrants will be based in part on the
performance of our stock. Accordingly, significant increases in our stock price
could result in non-cash accounting charges amounting to hundreds of millions of
dollars.
Our agreement with E&Y Consulting provides for exclusive client referrals
from E&Y Consulting for emerging high-growth and middle-market clients in the
Americas. These limitations on exclusivity may limit our ability to benefit from
the marketing alliance. This strategic alliance will not be considered a success
if it does not generate a large number of customers for us. Moreover, this
alliance may adversely affect our ability to generate new customers through
relationships with other systems integration and consulting firms. Finally, it
is possible that we may become dependent on E&Y Consulting for implementation of
our services and, if our relationship with E&Y Consulting terminates, we may not
be able to find systems integrators to replace the services E&Y Consulting is
expected to provide us.
If our relationship with E&Y Consulting was determined to impinge upon E&Y
Consulting's independence with respect to any of Ernst & Young's audit clients,
we may be forced to either terminate our relationship with E&Y Consulting or
cease our alliance with, or not enter into relationships with, customers and
potential customers who are Ernst & Young's audit clients. Under these
circumstances, we likely would not realize the benefits we expect from this
alliance.
ANY INABILITY TO EXPAND SUFFICIENTLY OUR IMPLEMENTATION AND CONSULTING
CAPABILITIES COULD LIMIT OUR ABILITY TO GROW.
We depend on third-party systems integrators to provide implementation and
consulting services to our customers, and we expect to increase our dependence
on them as our business grows. A failure to establish and maintain relationships
with third-party systems integrators could have a material adverse effect on our
business. Because of our relationship with E&Y Consulting, we may have
difficulty retaining the services of other systems integrators, which we may
need if our alliance with E&Y Consulting terminates or if E&Y Consulting
performs services in a manner below our customers' expectations. If sales
increase rapidly or if we were to agree to undertake client relationships
requiring particularly large or complex implementations, our internal
professional services personnel may be unable to meet the demand for
implementation services. In that case, if we are unable to retain or hire
highly-trained third-party systems integrators and consultants to implement our
services, we would be unable to meet customer demands for our implementation and
consulting services, which could hinder our ability to grow our business. In
addition, we typically contract with our customers for implementation on a
fixed-price basis. As a result, unexpected complexities in
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implementing software applications for our customers could result in unexpected
losses for us or increases in losses. Our business and reputation also could be
seriously harmed if third-party systems integrators were unable to perform their
services for our customers in a manner that meets customer expectations.
INCREASED DEMAND FOR CUSTOMIZATION OF OUR SERVICES COULD REDUCE THE SCALABILITY
AND PROFITABILITY OF OUR BUSINESS.
Companies may prefer more customized applications and services than our
business model contemplates. Most of our customers have required some level of
customization of our services, and our customers may continue to require
customization in the future, perhaps to a greater extent than we currently
anticipate. If we do not offer the desired customization, there may be less
demand for our services. Conversely, providing customization of our services
increases our costs and reduces our flexibility to provide similar services to
many customers. Accordingly, increased demand for customization of our services
could reduce the scalability and profitability of our business and increase
risks associated with completing software upgrades.
WE ARE GROWING RAPIDLY, AND OUR FAILURE TO MANAGE THIS GROWTH SUCCESSFULLY COULD
HARM OUR BUSINESS.
We have rapidly expanded our operations since our current business started
in September 1998. The number of our employees increased from 58 at December 31,
1998, to 108 at June 30, 1999, to 279 at December 31, 1999 and to 456 at March
31, 2000. We expect our business to continue to grow in terms of headcount,
geographic scope, number of customers and the number of services we offer. We
cannot be sure that we will successfully manage our growth. In order to manage
our growth successfully, we must:
- improve our management, financial and information systems and controls;
- maintain a high level of customer service and support;
- expand our implementation and consulting resources internally and with
third-parties; and
- expand, train, manage and integrate our employee base effectively.
There will be additional demands on our customer service support, research
and development, sales and marketing and administrative resources as we try to
increase our service offerings and expand our target markets. The strains
imposed by these demands are magnified by our limited operating history. If we
cannot manage our growth effectively, our business and results of operations
could be adversely affected.
AS OUR SOFTWARE VENDORS UPGRADE THEIR SOFTWARE APPLICATIONS, WE WILL NEED TO
PERFORM SOFTWARE UPGRADES, AND WE CANNOT ASSURE YOU THAT WE WILL BE SUCCESSFUL
IN DOING SO.
Our software vendors from time to time will upgrade their software
applications, and at such time we will be required to implement these software
upgrades for our customers. For example, PeopleSoft, from whom we license a
substantial amount of software applications, has scheduled a new release of its
software in the third quarter of 2000. Implementing software upgrades can be a
complicated process, particularly implementation of an upgrade simultaneously
across multiple customers, and we have not performed a software upgrade to date.
Accordingly, we cannot assure you that we will be able to perform these upgrades
successfully. We may also experience difficulty implementing software upgrades
to a large number of customers, particularly if different software vendors
release upgrades simultaneously. If we are unable to perform software upgrades
successfully and to a large customer base, our customers could be subject to
increased risk of interruptions or errors in their business-critical software,
and our reputation and business would likely suffer. It will also be difficult
for us to predict the timing of these upgrades, the cost to us of these upgrades
and the additional resources that we may need to implement these upgrades.
Therefore, any such upgrades
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could strain our development and engineering resources, require significant
unexpected expenses and cause us to miss our financial forecasts or those of
securities analysts. Any of these problems could impair our customer relations
and our reputation, which could result in significant adverse business
consequences including litigation.
SECURITY RISKS AND CONCERNS MAY DECREASE THE DEMAND FOR OUR SERVICES, AND
SECURITY BREACHES WITH RESPECT TO OUR SERVICES MAY HARM OUR BUSINESS.
A significant requirement for effective electronic commerce and
communications is the secure transmission of confidential information. If any
compromises of our security systems were to occur, they could have the effect of
substantially reducing the demand for our services. Security is particularly
important when dealing with business-critical information. Anyone who
circumvents our security measures could misappropriate business-critical
proprietary information or cause interruptions in our services or operations. In
addition, computer "hackers" could introduce computer viruses into our systems
or those of our customers, which could disrupt our services or make them
inaccessible to customers. We may be required to expend significant capital and
other resources to protect against the threat of security breaches or to
alleviate problems caused by breaches. Our services involve the storage and
transmission of business-critical, proprietary information; security breaches
could expose us to a risk of loss of such information, litigation and possible
liability. Our security measures may be inadequate to prevent security breaches,
and our business would be harmed if we do not prevent them.
IF WE ARE UNABLE TO ADAPT OUR SERVICES TO RAPIDLY CHANGING TECHNOLOGY, OUR
REPUTATION AND OUR ABILITY TO GROW OUR REVENUES COULD BE HARMED.
The markets we serve are characterized by rapidly changing technology,
evolving industry standards, emerging competition and the frequent introduction
of new services, software and other products. We cannot assure you that we will
be able to enhance existing or develop new services that meet changing customer
needs in a timely and cost-effective manner. For example, as software
application architecture changes, the software for which we have licenses could
become out of date or obsolete and we may be forced to upgrade or replace our
technology. This may require substantial time and expense and even then we
cannot be sure that we will succeed in adapting our business to these
technological developments. Prolonged delays resulting from our efforts to adapt
to rapid technological change, even if ultimately successful, could harm our
reputation within our industry and our ability to grow our revenues.
THE EMERGING HIGH-GROWTH AND MIDDLE-MARKET COMPANIES THAT CURRENTLY COMPRISE OUR
CUSTOMER BASE MAY BE VOLATILE, WHICH COULD SERIOUSLY HARM OUR BUSINESS AND
OPERATING RESULTS.
Our current customer base consists of emerging high-growth and
middle-market companies. These companies may be more likely to be acquired,
experience financial difficulties or cease operations than other companies. As a
result, our client base will likely be more volatile than that of competitors
whose customers consist of more mature and established companies. If we
experience greater than expected customer loss or an inability to collect fees
from our customers for any reason, our business and operating results could be
seriously harmed.
OUR CUSTOMER AGREEMENTS ARE TYPICALLY LONG-TERM, FIXED-PRICE CONTRACTS, WHICH
MAY HINDER OUR ABILITY TO BECOME PROFITABLE.
We enter into agreements with our customers to provide services for long
periods, typically three to five years. Most of these agreements are in the form
of fixed-price contracts that do not provide for price adjustments to reflect
any cost overruns associated with providing our services, such as potential
increases in the costs of software applications we license from third parties
and the costs of upgrades, inflation or other factors. Furthermore, we may be
required to bundle implementation and application management services for some
of our customers for competitive reasons. As a result,
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unless we are able to provide our services in a more cost-effective manner than
we do today and unless the number of users at individual customers increases to
provide us higher revenue levels per customer, we may never achieve
profitability for a particular customer. In addition, customers may not be able
to pay us or may cancel our services before becoming profitable for us.
IF WE DO NOT MEET THE SERVICE LEVELS PROVIDED FOR IN OUR CONTRACTS WITH
CUSTOMERS, WE MAY BE REQUIRED TO GIVE OUR CUSTOMERS CREDIT FOR FREE SERVICE, AND
OUR CUSTOMERS MAY BE ENTITLED TO CANCEL THEIR SERVICE CONTRACTS, WHICH COULD
ADVERSELY AFFECT OUR BUSINESS.
Our application management services contracts contain service level
guarantees that obligate us to provide our applications at a guaranteed level of
performance. If we fail to meet those service levels, we may be obligated to
provide our customers credit for free service. If we continue to fail to meet
these service levels, our customers have the right to cancel their contracts
with us. These credits or cancellations would adversely affect our financial
results and could harm our reputation and adversely affect our business.
IF WE CANNOT OBTAIN ADDITIONAL SOFTWARE APPLICATIONS, WE WILL BE UNABLE TO
EXPAND OR ENHANCE OUR APPLICATION SERVICE OFFERINGS.
Part of our strategy is to expand our services by offering our customers
additional software applications that address their business needs. We cannot be
sure, however, that we will be able to license these applications at a
commercially viable cost or at all or that we will be able to cost-effectively
develop the applications in-house. If we cannot obtain these applications on a
cost-effective basis and, as a result, cannot expand the range of our service
offerings, our business could be materially adversely affected.
WE HAVE MANY COMPETITORS AND EXPECT NEW COMPETITORS TO ENTER OUR MARKET, WHICH
COULD PUT PRESSURES ON US.
The market for our services is extremely competitive and the barriers to
entry in our market are relatively low. We currently have no patented technology
that would bar competitors from our market.
Our current and potential competitors primarily include:
- application service providers and business process outsourcers, such as
Applicast, AristaSoft, Breakaway Solutions, NaviSite, Qwest
Cyber.Solutions, ResourcePhoenix.com and USinternetworking;
- systems integrators, such as Andersen Consulting, Breakaway Solutions,
Electronic Data Systems and PricewaterhouseCoopers;
- Internet service providers and web hosting providers, such as Concentric
Network, DIGEX, Exodus Communications, Frontier Corporation, GTE
Internetworking, MCI Worldcom and PSINet;
- software vendors, such as J.D. Edwards, Microsoft, Oracle, PeopleSoft,
SAP and Siebel Systems;
- major technology providers, such as Cisco Systems, IBM, Intel and Nortel
Networks;
- Internet portals, such as AOL, Excite@Home and Yahoo; and
- telecommunications companies.
Many of our competitors and potential competitors have substantially
greater financial, customer support, technical and marketing resources, larger
customer bases, longer operating histories, greater name recognition and more
established relationships in the industry than we do. We cannot be sure
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that we will have the resources or expertise to compete successfully in the
future. Our competitors may be able to:
- develop and expand their network infrastructures and service offerings
more quickly;
- adapt to new or emerging technologies and changing customer needs faster;
- take advantage of acquisitions and other opportunities more readily;
- negotiate more favorable licensing agreements with software application
vendors;
- devote greater resources to the marketing and sale of their products; and
- address customers' service-related issues more effectively.
Some of our competitors may also be able to provide customers with
additional benefits at lower overall costs or to reduce their application
service charges aggressively in an effort to increase market share. We cannot be
sure that we will be able to match cost reductions by our competitors.
Our competitors and other companies may form strategic relationships with
each other to compete with us. These relationships may take the form of
strategic investments, joint-marketing agreements, licenses or other contractual
arrangements, which arrangements may increase our competitors' ability to
address customer needs with their product and service offerings. We believe that
there is likely to be consolidation in our markets, which could lead to
increased price competition and other forms of competition that could cause our
business to suffer.
WE MAY BE UNABLE TO DELIVER EFFECTIVELY OUR SERVICES IF THIRD PARTIES DO NOT
PROVIDE US WITH KEY COMPONENTS OF OUR TECHNOLOGY INFRASTRUCTURE.
We depend on third-parties, such as Concentric Network, for our data center
management services and for key components of our network infrastructure. Our
contracts with these data center and network infrastructure providers are for a
fixed term and for a specified amount of services, which may be insufficient to
meet our needs as our business grows. We depend on suppliers such as Sun
Microsystems for our computer hardware and Active Software and Netegrity for our
software technology platform. If any of these relationships fail to provide
needed products or services in a timely and effective manner or at an acceptable
cost, our business could be seriously harmed. Some of the key components of our
infrastructure are available only from sole or limited sources in the quantity
and quality we demand. We do not carry significant inventories of those
components that we obtain from third-parties and have no guaranteed supply
arrangements for some of these components.
A NATURAL DISASTER OR SIMILAR DISRUPTION COULD SEVERELY HARM OUR OPERATIONS,
WHICH COULD HARM OUR REPUTATION AND SUBJECT US TO LIABILITY.
A natural disaster or similar disruption could severely interrupt our
service and harm our operations for an indeterminate length of time. Our
operations depend upon our ability and the ability of our third-party data
center and network providers to maintain and protect the computer systems on
which we host our customers' applications. We currently use two data centers to
house our hardware and to provide network services, but each of our customers is
serviced at a single site. While our data center and network providers maintain
back-up systems, a natural disaster or similar disruption at their site could
impair our ability to provide our services to our customers until the site is
repaired or back-up systems become operable. Each of our data center providers,
as well as our corporate headquarters, is located in Northern California, near
known earthquake fault zones. Our systems and the data centers are also
vulnerable to damage from fire, flood, power loss, telecommunications failures
and similar events. Any loss of customer data or an inability to provide service
for a period of time from these or other events could significantly harm our
reputation and could subject us to significant potential liabilities.
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IF WE ARE UNABLE TO RETAIN OUR EXECUTIVE OFFICERS AND KEY PERSONNEL, OR TO
INTEGRATE NEW MEMBERS OF OUR SENIOR MANAGEMENT THAT ARE CRITICAL TO OUR
BUSINESS, OUR BUSINESS WOULD BE HARMED.
Our future success depends upon the continued service of our executive
officers and other key personnel. None of our executive officers or key
employees is bound by an employment agreement for any specific term. If we lose
the services of one or more of our executive officers or key employees, or if
one or more of them decides to join a competitor or otherwise compete directly
or indirectly with us, our business could be seriously harmed. Most of the
members of our senior management joined us in the second half of 1999 and the
beginning of 2000, including our Chief Executive Officer and Chief Financial
Officer. Our success depends on the performance of our senior management and
their ability to work together. Failure to properly integrate them would harm
our business.
IF WE ARE UNABLE TO HIRE AND RETAIN SUFFICIENT SALES, MARKETING, TECHNICAL AND
OPERATIONS PERSONNEL, OUR BUSINESS WOULD BE HARMED.
If we fail to hire and retain sufficient numbers of sales, marketing,
technical and operations personnel, our business, operating results and
financial condition would be harmed. We need to expand substantially our sales
operations and marketing efforts, both domestically and internationally, in
order to try to increase market awareness and sales of our services. We will
also need to increase our technical staff in order to service customers and
perform research and development. Competition for qualified sales, marketing,
technical and operations personnel is intense as these personnel are in limited
supply and in high demand, particularly in Northern California, and we might not
be able to hire and retain sufficient numbers of these personnel to grow our
business or to service our customers effectively.
ANY FUTURE ACQUISITIONS OF BUSINESSES, TECHNOLOGIES OR SERVICES MAY RESULT IN
DISTRACTION OF OUR MANAGEMENT AND DISRUPTIONS TO OUR BUSINESS.
We expect significant consolidation in our industry to occur. We may
acquire or make investments in complementary businesses, technologies or
services if appropriate opportunities arise. From time to time we may engage in
discussions and negotiations with companies regarding acquiring or investing in
their businesses, technologies or services. We cannot make assurances that we
will be able to identify suitable acquisition or investment candidates, or that
if we do identify suitable candidates, we will be able to make the acquisitions
or investments on commercially acceptable terms or at all. If we acquire or
invest in another company, we could have difficulty assimilating that company's
personnel, operations, technology or products and service offerings. In
addition, the key personnel of the acquired company may decide not to work for
us. These difficulties could disrupt our ongoing business, distract our
management and employees, increase our expenses and adversely affect our results
of operations. Furthermore, we may incur indebtedness or issue equity securities
to pay for any future acquisitions. The issuance of equity or convertible debt
securities could be dilutive to our existing stockholders.
ANY INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS COULD REDUCE OUR
COMPETITIVE ADVANTAGE, DIVERT MANAGEMENT ATTENTION, REQUIRE ADDITIONAL
INTELLECTUAL PROPERTY TO BE DEVELOPED OR CAUSE US TO INCUR EXPENSES TO ENFORCE
OUR RIGHTS.
We cannot assure you that we will be able to protect or maintain our
intellectual property from infringement or misappropriation from others. In
particular, our business would be harmed if we were unable to protect our Orion
technology platform, our trademarks or our other software and confidential and
proprietary information. Agreements on which we rely to protect our intellectual
property rights and the trade secret, copyright and other laws on which we rely
may only afford limited protection to these rights. In addition, we currently
have no patents and no patent applications pending, which limits significantly
our ability to protect our proprietary rights in the event they are infringed.
Any infringement or misappropriation of our intellectual property could reduce
our competitive advantage,
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divert management attention, require us to develop technology and cause us to
incur expenses to enforce our rights.
ANY INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS AGAINST US COULD COST A
SIGNIFICANT AMOUNT OF MONEY AND COULD DIVERT MANAGEMENT'S ATTENTION AWAY FROM
OUR BUSINESS.
As the number of software applications used by our customers increases and
the functionality of these products further overlaps and integrates, software
industry participants may become increasingly subject to infringement claims. In
addition, we have agreed, and may agree in the future, to indemnify some of our
customers against claims that our services infringe upon the intellectual
property rights of others. Someone may claim that our technology or the
applications we offer infringes their proprietary rights. Any infringement
claims, even if without merit, can be time consuming and expensive to defend,
may divert management's attention and resources and could cause service delays.
Such claims could require us to enter into costly royalty or licensing
agreements. If successful, a claim of infringement against us and our inability
to modify or license the infringed or similar technology could adversely affect
our business. In addition, if our software vendors cease to offer their software
applications to us because of infringement claims against them, we would be
forced to license different software applications to our customers that may not
meet our customers' needs. This could harm our reputation and cause our business
to suffer.
RISKS RELATED TO OUR INDUSTRY
WE CANNOT ASSURE YOU THAT THE ASP MARKET WILL BECOME VIABLE OR GROW AT A RATE
THAT WILL ALLOW US TO ACHIEVE PROFITABILITY.
Growth in demand for and acceptance of ASPs and their hosted business
software applications is highly uncertain. The market for Internet services,
private network management solutions and widely distributed Internet-enabled
application software has only recently begun to develop and is now evolving
rapidly. We believe that many of our potential customers are not fully aware of
the benefits of hosted and managed solutions. It is possible that these
solutions will never achieve market acceptance. It is also possible that
potential customers will decide that the risks associated with hiring ASPs to
implement and manage their critical systems and business functions outweigh the
efficiencies associated with the products and services we provide. Concerns over
transaction security and user privacy, inadequate network infrastructure for the
entire Internet and inconsistent performance of the Internet could also limit
the growth of Internet-based business software solutions. We cannot be certain
that this market will become viable or, if it becomes viable, that it will grow
at a rate that will allow us to achieve profitability. If the market for our
services does not grow or grows more slowly than we currently anticipate, our
business would be materially adversely affected.
INCREASING GOVERNMENT REGULATION COULD LIMIT THE MARKET FOR, OR IMPOSE SALES AND
OTHER TAXES ON THE SALE OF, OUR SERVICES.
As electronic commerce evolves, we expect that state, federal and foreign
agencies will adopt regulations covering issues such as user privacy, pricing,
taxation of goods and services provided over the Internet and content and
quality of products and services. It is possible that legislation could expose
companies involved in electronic commerce to liability, which could limit the
growth of electronic commerce generally. Legislation could dampen the growth in
Internet usage and decrease its acceptance as a communications and commercial
medium. If enacted, these laws, rules or regulations could limit the market for
our services.
The taxation of commerce activities in connection with the Internet has not
been established, may change in the future and may vary from jurisdiction to
jurisdiction. One or more states or countries may seek to impose sales or other
taxes on companies that engage in or facilitate electronic commerce. A number of
proposals have been made at the local, state, national and international levels
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that would impose additional taxes on the sale of products and services over the
Internet. These proposals, if adopted, could substantially impair the growth of
electronic commerce and could significantly harm our business. Moreover, if any
state or country were to assert successfully that we should collect sales or
other taxes on the exchange of products and services over the Internet, our
business may be harmed.
AS WE EXPAND OUR BUSINESS OUTSIDE THE UNITED STATES WE WILL BE SUBJECT TO
UNFAVORABLE INTERNATIONAL CONDITIONS AND REGULATIONS THAT COULD CAUSE OUR
INTERNATIONAL BUSINESS TO FAIL.
We plan to expand our business outside of the United States in the
foreseeable future. Conducting our business outside of the United States is
subject to complexities associated with foreign operations and to additional
risks related to our business, including the possibility that the scarcity of
cost-effective, high-speed Internet access and the slow pace of future
improvements in access to the Internet will limit the market for hosting
software applications over the Internet or adversely affect the delivery of our
services to customers. Additionally, some countries outside of the United States
do not permit hosting applications on behalf of companies.
The European Union has adopted a privacy directive that regulates the
collection and use of information. This directive may inhibit or prohibit the
collection and sharing of personal information in ways that could harm us. The
globalization of Internet commerce may be harmed by these and similar
regulations since the European Union privacy directive prohibits transmission of
personal information outside the European Union unless the receiving country has
enacted individual privacy protection laws at least as strong as those enacted
by the European Union privacy directive. The United States and the European
Union have not yet resolved this matter and they may not ever do so in a manner
favorable to our customers or us.
CHANGES IN ACCOUNTING STANDARDS COULD ADVERSELY AFFECT THE CALCULATION OF OUR
FUTURE OPERATING RESULTS.
The ASP industry is new, and we anticipate the ASP business model is likely
to evolve over time. As a result, the application of accounting standards to the
ASP industry is also likely to change. Changes in the application of accounting
standards could force us to defer revenue recognition over a longer period of
time than is our current practice, result in large write-offs or cause us to
modify our customer contracts. For example, the Securities and Exchange
Commission has recently requested that the Emerging Issues Task Force of the
Financial Accounting Standards Board address issues of accounting for
multiple-element revenue arrangements. We currently recognize revenue for
professional services as the services are performed. If accounting standards
were modified to require deferral of professional services revenue and
recognition of that revenue over the life of the application management services
contract, our reported revenues would be substantially reduced. These changes
could adversely affect our operating results or require us to restate our
financial statements. For detailed information regarding potential accounting
standards changes that could adversely affect our business, please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DOMESTIC AND INTERNATIONAL REGULATIONS MAY MAKE IT DIFFICULT FOR US TO SAFEGUARD
THE INFORMATION THAT WE TRANSMIT OVER NETWORKS.
In order to safeguard the flow of personal information over networks, we
intend to offer our customers various forms of cryptographic technology. The
export of this technology is regulated by the U.S. government and may require a
license or other authorization. There is no guarantee that we will be able to
obtain such a license. In addition, many other countries regulate the export,
import, or use of cryptography. There is no guarantee that we will be able to
obtain the necessary permission to engage in our business, and if we are
unsuccessful in obtaining this permission, we may not be able to adequately
secure the information we transmit over networks.
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RISKS RELATED TO THIS OFFERING
INVESTORS WILL BE RELYING ON OUR MANAGEMENT'S JUDGMENT REGARDING THE USE OF
PROCEEDS FROM THIS OFFERING.
We do not have a definitive quantified plan with respect to the use of the
net proceeds of this offering and have not committed the substantial majority of
these proceeds to any particular purpose. We anticipate repayment of a portion
of approximately $10.0 million of outstanding debt. Our management will have
broad discretion with respect to the use of the net proceeds from this offering
and investors will be relying on the judgment of our management regarding the
application of these proceeds. We have only made preliminary determinations as
to the amount of net proceeds to be used based upon our current expectations
regarding our financial performance and business needs over the foreseeable
future. These expectations may prove to be inaccurate, as our financial
performance may differ from our current expectations or our business needs may
change as our business and the industry we address evolve. As a result, the
proceeds we receive in this offering may be used in a manner significantly
different from our current allocation plans.
WE WILL LIKELY NEED OR DESIRE TO RAISE ADDITIONAL FINANCING IN THE FORESEEABLE
FUTURE, AND OUR ABILITY TO RAISE FURTHER FINANCING IS UNCERTAIN.
We anticipate that we will need to raise significant additional capital in
the future to fund continued operations. We expect that we will need additional
funding at some point after approximately eighteen months, and potentially
sooner depending on the risks and uncertainties associated with our business and
inherent in our rapidly growing and evolving industry. We may also desire to
raise additional financing at times when we believe terms are favorable and it
is advantageous to our growth strategy. We expect that we could require
additional financing to:
- fund continued business expansion;
- fund additional marketing expenditures and development of sales
resources;
- develop new and enhance existing services;
- enhance our operating infrastructure;
- hire additional personnel;
- respond to competitive pressures; and
- acquire complementary businesses or technologies.
If we raise additional funds through the issuance of equity or convertible
debt securities, it will reduce the percentage ownership of our stockholders. In
addition, the equity may be issued at lower prices per share than that of this
offering and these newly-issued securities may have rights, preferences or
privileges senior to those of existing stockholders, including those acquiring
shares in this offering. We cannot assure you that additional financing will be
available on terms favorable to us, or at all. If we raise additional funds
through the issuance of debt securities, these new securities would have rights,
preferences and privileges senior to those of the holders of our common stock.
The terms of these securities could also impose restrictions on our operations.
If adequate funds are not available or are not available on acceptable terms,
our ability to fund our operations, take advantage of unanticipated
opportunities, develop or enhance our products and services or otherwise respond
to competitive pressures would be significantly limited.
MARKET PRICES OF INTERNET AND TECHNOLOGY COMPANIES HAVE BEEN HIGHLY VOLATILE,
AND THE MARKET FOR OUR STOCK MAY BE VOLATILE AS WELL.
The stock market has experienced significant price and trading volume
fluctuations, and the market prices of technology companies generally, and
Internet-related software companies particularly, have been extremely volatile.
Recent initial public offerings by technology companies have been accompanied by
exceptional share price and trading volume changes in the first days and weeks
after
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the securities were released for public trading. Investors may not be able to
resell their shares at or above the initial public offering price. In the past,
following periods of volatility in the market price of a public company's
securities, securities class action litigation has often been instituted against
that company. Such litigation could result in substantial costs and a diversion
of management's attention and resources.
NEW INVESTORS WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION IN THE TANGIBLE NET
BOOK VALUE OF THEIR SHARES.
We expect the initial public offering price to be substantially higher than
the net tangible book value per share of our common stock. The net tangible book
value of a share of common stock purchased at an assumed initial public offering
price of $ per share will be only $ . Additional dilution may be
incurred if holders of stock options, whether currently outstanding or
subsequently granted, exercise their options or if warrantholders exercise their
warrants to purchase common stock.
THE LARGE NUMBER OF SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD
CAUSE OUR STOCK PRICE TO DECLINE.
The market price of our common stock could decline as a result of sales by
our existing stockholders of a large number of shares of our common stock in the
market after this offering or the perception that such sales could occur. Upon
completion of this offering, based upon shares outstanding as of
, 2000, we will have shares of our common stock
outstanding. All of the shares we are selling in this offering may be resold in
the public market immediately. Another 23,486,848 shares are subject to lock-up
agreements and will become available for resale in the public market beginning
180 days after the date of this prospectus. In specified circumstances, the 180
day restriction will terminate as to 15% of the shares subject to the
restriction after 90 days and 20% of such shares after 120 days. An additional
shares subject to outstanding options will be available for sale in
the public market beginning 180 days after the date of this prospectus. As
restrictions on resale end, our stock price could drop significantly if the
holders of these restricted shares sell them or are perceived by the market as
intending to sell them. These sales also might make it more difficult for us to
sell equity securities in the future at a time and at a price that we deem
appropriate. See "Shares Eligible for Future Sale."
MANY CORPORATE ACTIONS WILL BE CONTROLLED BY OUR OFFICERS, DIRECTORS AND
AFFILIATED ENTITIES REGARDLESS OF THE OPPOSITION OF OTHER INVESTORS OR THE
DESIRE OF OTHER INVESTORS TO PURSUE AN ALTERNATIVE CAUSE OF ACTION.
Our executive officers, directors and entities affiliated with them will,
in the aggregate, beneficially own approximately % of our common stock
following this offering. If they were to act together, these stockholders would
be able to exercise control over most matters requiring approval by our
stockholders, including the election of directors and approval of significant
corporate transactions. This concentration of ownership may also have the effect
of delaying or preventing a change in control of our company, which could cause
our stock price to drop. These actions may be taken even if they are opposed by
the other investors, including those who purchase shares in this offering.
DELAWARE LAW AND OUR CHARTER, BYLAWS AND CONTRACTS PROVIDE ANTI-TAKEOVER
DEFENSES THAT COULD DELAY OR PREVENT AN ACQUISITION AND COULD ADVERSELY AFFECT
THE PRICE OF OUR COMMON STOCK.
Provisions of our certificate of incorporation, bylaws and contracts and of
Delaware law could delay, defer or prevent an acquisition or change of control
of us or otherwise adversely affect the price of our common stock.
- Our bylaws limit the ability of our stockholders to call a special
meeting and do not permit stockholders to act by written consent.
17
<PAGE> 22
- We are subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law, which prohibits us from engaging in a
"business combination" with an "interested stockholder" for a period of
three years after the date of the transaction in which the person became
an interested stockholder, unless the business combination is approved in
a prescribed manner.
- Several members of our senior management have contracts with us that
provide for the acceleration of the vesting of their stock options upon
termination following a change of control.
- Our certificate of incorporation permits our board to issue shares of
preferred stock without stockholder approval. In addition to delaying or
preventing an acquisition, the issuance of a substantial number of shares
of preferred stock could adversely affect the price of the common stock.
- Additional provisions of our certificate of incorporation that may serve
to delay or prevent an acquisition include a staggered board, advance
notice procedures for stockholders to nominate candidates for election as
directors, authorization of our board to alter the number of directors
without stockholder approval and lack of cumulative voting.
THE LIQUIDITY OF OUR COMMON STOCK IS UNCERTAIN SINCE IT HAS NOT BEEN PUBLICLY
TRADED, AND OUR STOCK MAY BE ILLIQUID, RESULTING IN MORE VOLATILITY.
There has not been a public market for our common stock. We cannot predict
the extent to which investor interest in our company will lead to the
development of an active, liquid trading market. Active trading markets
generally result in lower price volatility and more efficient execution of buy
and sell orders for investors. 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.
WE MAY FACE ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US WHICH
COULD MATERIALLY IMPAIR OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
In addition to the risks specifically identified in this section or
elsewhere in this prospectus, we may face additional risks and uncertainties not
presently known to us or that we currently deem immaterial which ultimately may
impair our business, results of operations and financial condition in a material
fashion.
18
<PAGE> 23
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve inherent
risks and uncertainties. These statements relate to our future plans,
objectives, expectations and intentions. We use words such as "may," "will,"
"should," "expect," "anticipate," "estimate," "seek," "project," "believe,"
"plan," "intend," "future," "strategy" and other similar expressions to identify
forward-looking statements. You should not place undue reliance on these
forward-looking statements. Our actual results may differ materially from those
anticipated in these forward-looking statements. Factors that could contribute
to differences include, but are not limited to, those discussed in "Risk
Factors" and elsewhere in this prospectus.
You should rely only on the information contained in this prospectus when
making a decision about whether to invest in our common stock. 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 our 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 when this prospectus or any shares of our common
stock is delivered.
19
<PAGE> 24
USE OF PROCEEDS
The net proceeds to us from the sale of the shares being offered
by us at an assumed initial public offering price of $ per share, after
deducting estimated underwriting discounts and commissions and estimated
offering expenses, are estimated to be approximately $ , or
approximately $ if the underwriters' over-allotment option is exercised
in full.
The size of the offering has been determined primarily based upon our
desire to raise a sufficient amount of capital to afford to us significant
business flexibility in the future.
The principal purposes of this offering are to:
- create a public market for our common stock;
- facilitate future access by us to public equity markets; and
- enhance our ability to use our stock to make future acquisitions due to
the fact that our shares will be publicly traded.
We intend to use a portion of the net proceeds of this offering to repay in
part outstanding indebtedness to Comdisco of approximately $4.0 million under a
loan and security agreement and approximately $6.0 million under various capital
leases and other debt. Indebtedness under the loan and security agreement has
been accruing interest at a fixed rate of 11.5% and matures through 2003, and
indebtedness under the capital leases accrue interest at rates ranging from 7.5%
to 11.5% and mature at various dates through 2003. We expect to use the
remainder of the net proceeds for working capital and general corporate
purposes, including increased spending on sales and marketing, operations,
professional services, research and development, expansion of our operational
and administrative infrastructure and the leasing of additional facilities. In
addition, we may use a portion of the net proceeds to acquire or invest in
complementary businesses, technologies, product lines or products. However, we
have no current plans, agreements or commitments with respect to any such
acquisition, and we are not currently engaged in any negotiations with respect
to any such transaction.
Pending use, we intend to invest the net proceeds in short-term,
interest-bearing, investment grade securities, certificates of deposit or direct
or guaranteed obligations of the U.S. government.
DIVIDEND POLICY
The payment of dividends is within the discretion of our board of
directors. Our ability to pay any future dividends will depend on our earnings,
operating and financial condition, projected capital requirements, and
restrictions under our credit facilities. However, we have never declared or
paid any cash dividends on shares of our capital stock and do not intend to do
so at any time in the foreseeable future.
20
<PAGE> 25
CAPITALIZATION
The table below sets forth the following information as of December 31,
1999:
- our actual capitalization;
- our pro forma capitalization after giving effect to the gross proceeds
from the sale of our senior series E mandatorily redeemable preferred
stock in April 2000 and the conversion of all outstanding shares of
preferred stock into shares of common stock upon completion of
this offering assuming an initial public offering price of $ per
share; and
- our pro forma capitalization as adjusted to reflect the receipt of net
proceeds from our sale of shares of common stock at an assumed
initial public offering price of $ per share in this offering, less
assumed underwriting discounts and commissions and estimated offering
expenses payable by us.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Notes payable and capital lease obligations, less
current portion................................... $ 7,335 $ 7,335 $ 7,335
Stockholders' equity:
Preferred stock: $0.001 par value, 33,127,000 shares
authorized; 29,964,795 shares issued and
outstanding, actual; shares issued and
outstanding, pro forma; none issued and
outstanding, pro forma as adjusted................ 30 -- --
Common stock: $0.001 par value, 50,000,000 shares
authorized; 1,574,584 shares issued and
outstanding, actual; shares issued and
outstanding, pro forma; shares issued
and outstanding, pro forma as adjusted............ 2
Additional paid-in capital.......................... 99,649
Note receivable from stockholder.................... (15) (15) (15)
Deferred stock compensation......................... (14,981) (14,981) (14,981)
Accumulated deficit................................. (48,201)
-------- -------- --------
Total stockholders' equity..................... 36,484 90,984
-------- -------- --------
Total capitalization........................... $ 43,819 $ 98,319 $
======== ======== ========
</TABLE>
This table does not include:
- 8,754,951 shares of common stock subject to outstanding options as of
December 31, 1999 at a weighted average exercise price of $0.70 per
share;
- 618,467 shares of common stock available for grant under our 1998 Stock
Plan as of December 31, 1999;
- 50,000 shares of common stock subject to outstanding warrants at an
exercise price of $6.50 per share;
- 681,213 shares of series A preferred stock subject to outstanding
warrants at an exercise price of $1.24 per share;
- 307,692 shares of series C preferred stock subject to outstanding
warrants at an exercise price of $6.50 per share; and
- 43,077 shares of our series C preferred stock subject to an outstanding
warrant at an exercise price of $6.50 per share, assuming this offering
is completed on or before June 30, 2000; and
21
<PAGE> 26
DILUTION
Our pro forma net tangible book value as of December 31, 1999, after giving
effect to the sale of our senior series E mandatorily redeemable preferred stock
on April 20, 2000 and the automatic conversion of our preferred stock upon the
closing of this offering, was $ , or $ per share of common stock.
Net tangible book value per share is determined by dividing our tangible book
value by the number of outstanding shares of common stock at that date. After
giving effect to the sale of the shares of our common stock offered
hereby at an assumed initial public offering price of $ per share and after
deducting underwriting discounts and commissions and estimated offering
expenses, our pro forma net tangible book value at December 31, 1999 would have
been $ , or $ per share. This represents an immediate increase in
pro forma net tangible book value to existing stockholders of $ per share
and an immediate dilution to new investors of $ per share. The following
table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share............... $
Increase per share attributable to new investors..........
----
Pro forma net tangible book value per share after this
offering..................................................
----
Net tangible book value dilution per share to new
investors................................................. $
====
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1999, the differences 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 the new public investors based upon an assumed
initial public offering price of $ per share and before deducting estimated
underwriting discounts and commissions and estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- -------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............. % $ % $
New public investors..............
--------- --- -------- ---
Total........................... % $ %
========= === ======== ===
</TABLE>
The above discussion and tables assume no exercise of stock options or
warrants outstanding as of December 31, 1999. To the extent that any of these
options or warrants are exercised, there will be further dilution to the new
public investors. See "Capitalization," "Management -- Compensation Plans" and
Notes 9, 10 and 11 of the notes to our financial statements.
22
<PAGE> 27
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read together with
the financial statements and related notes, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the other
information contained in this prospectus. The statements of operations data set
forth below with respect to the year ended September 30, 1997, the period from
October 1, 1997 to September 4, 1998, the period from September 1, 1998 to
December 31, 1998, and for the year ended December 31, 1999, and the balance
sheet data as of December 31, 1998 and 1999 are derived from our financial
statements that have been audited by KPMG LLP, independent auditors, included
elsewhere in this prospectus. The statements of operations data for the years
ended September 30, 1995 and 1996 and the balance sheet data as of September 30,
1996, 1997 and September 4, 1998 are derived from the unaudited financial
statements of DSCI that are not included in this prospectus.
<TABLE>
<CAPTION>
CORIO
DSCI(1) ------------------
---------------------------------- YEAR ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
------------------------ ------------------
1995 1996 1997 1998(2) 1998(3) 1999
------ ------ ------ ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues:
Application management services..... $ -- $ -- $ -- $ -- $ -- $ 746
Professional services and other..... 4,146 5,876 5,682 4,280 1,292 5,036
------ ------ ------ ------- ------- --------
Total revenues................... 4,146 5,876 5,682 4,280 1,292 5,782
Costs and Expenses:
Application management services..... -- -- -- -- -- 6,297
Professional services and other..... 1,817 2,311 2,521 2,185 1,039 7,755
Research and development............ -- -- -- -- 93 3,192
Sales and marketing................. -- -- -- -- 461 11,930
General and administrative.......... 1,936 3,727 3,011 3,437 2,092 10,416
Amortization of deferred stock-based
compensation..................... -- -- -- -- 7 8,524
Amortization of intangibles......... -- -- -- -- 730 2,190
------ ------ ------ ------- ------- --------
Total operating expenses......... 3,753 6,038 5,532 5,622 4,422 50,304
Income (loss) from operations......... 393 (162) 150 (1,342) (3,130) (44,522)
Interest and other income............. 52 145 107 76 7 541
Interest and other expense............ (4) (34) (180) (189) (78) (1,019)
------ ------ ------ ------- ------- --------
Net income (loss) before income tax
provision........................... 441 (51) 77 (1,455) (3,201) (45,000)
Income taxes.......................... 176 -- -- -- -- --
------ ------ ------ ------- ------- --------
Net income (loss)..................... $ 265 $ (51) $ 77 $(1,455) $(3,201) $(45,000)
====== ====== ====== ======= ======= ========
Basic and diluted net loss per
share............................... $ (3.89) $ (38.96)
======= ========
Shares used in computation, basic and
diluted............................. 823 1,155
======= ========
</TABLE>
<TABLE>
<CAPTION>
DSCI(1) DECEMBER 31,
--------------------------- ------------------
1996(4) 1997(4) 1998(5) 1998 1999
------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents..................... $ 699 $ 284 $ 501 $ 1,019 $ 37,177
Total assets.................................. 1,035 966 986 10,006 61,596
Notes payable and capital lease obligations,
less current portion........................ -- -- -- 1,586 7,335
Total stockholders' equity (deficit).......... 178 256 (1,200) 3,069 36,484
</TABLE>
- ---------------
(1) On September 4, 1998, we acquired all of the outstanding common stock of
DSCI. Due to the application of purchase accounting, the accounts of DSCI
prior to the acquisition are not comparable to those of Corio.
(2) Period from October 1, 1997 to September 4, 1998 (date of acquisition).
(3) Period from September 1, 1998 (date of inception) to December 31, 1998.
(4) As of September 30.
(5) As of September 4 (date of acquisition).
23
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read together with "Selected Financial Data" and
our financial statements and related notes appearing elsewhere in this
prospectus. This discussion and analysis contains forward-looking statements
that involve risks, uncertainties and assumptions. The actual results may differ
materially from those anticipated in these forward-looking statements as a
result of many factors, including but not limited to those set forth under "Risk
Factors" and elsewhere in this prospectus.
OVERVIEW
We were established in September 1998 to provide integrated, best-of-breed
software applications that meet companies' evolving information technology, or
IT, requirements. Since inception, we have devoted our efforts to developing our
service architecture, creating our corporate infrastructure, building technical,
operations and sales organizations and establishing strategic business
relationships.
DSCI
In September 1998, we acquired all of the capital stock of Data Systems
Connectors, Inc., or DSCI, a predecessor company of ours that provided
professional services. As of December 31, 1999, we had substantially completed
the contracts originally entered into by DSCI.
REVENUES
Our revenues consist of Corio application management services revenues and
professional services revenues. In addition to including revenues from our
professional services activities, professional services revenues include
revenues from DSCI consulting services and resale of software and related
maintenance by DSCI, or DSCI activities.
APPLICATION MANAGEMENT SERVICES REVENUES. Revenues from application
management services consist of monthly fees from ongoing services and are
recognized ratably as earned over the contract term, which is typically three to
five years. We also recognize customer prepayments for application management
services revenues over the contract term. We price our application management
services based on various factors, such as the number and type of applications
being licensed, the number of users covered by a contract and the frequency of
access to our applications. The monthly fee for our application management
services is typically fixed for the life of the contract, subject to increases
in the event a customer requires additional applications, increases its number
of users or increases frequency of use. Application management services revenues
comprised 13% of our total revenues for the year ended December 31, 1999.
PROFESSIONAL SERVICES AND OTHER REVENUES. Revenues from professional
services consist of fees derived from providing implementation, consulting,
training and related services for our customers, as well as DSCI activities. We
generally recognize revenues from the delivery of professional services using
the percentage-of-completion method of contract accounting as we perform the
services. We typically perform these professional services pursuant to fixed fee
contracts for consulting, training and implementation of applications. We record
losses resulting from fixed-fee contracts at the time the losses become known.
Professional services and other revenues comprised 87% of our total revenues for
the year ended December 31, 1999.
We anticipate that, for the foreseeable future, professional services
revenues will constitute the majority of our total revenues. We also anticipate
that revenues from our application management services will grow as a percentage
of revenues as our customer base grows.
We record payments received in advance of revenue recognition as deferred
revenues. Our deferred revenues were $1.9 million at December 31, 1999 and were
$286,000 at December 31,
24
<PAGE> 29
1998. Deferred revenues at December 31, 1999 included $992,000 of professional
services revenues that will be recognized under the percentage-of-completion
method of contract accounting and $896,000 of prepaid application management
services revenues that will be recognized ratably as earned over the term of the
contract.
E&Y CONSULTING
In April 2000, we entered into a strategic alliance with Ernst & Young, on
behalf of its consulting division, E&Y Consulting, whereby E&Y Consulting will
exclusively offer our services to its emerging high-growth and middle-market
customers in the Americas who might benefit from our application management
services and will provide systems integration and support services to our
customers. As part of this agreement, we have issued to E&Y Consulting four
warrants to purchase up to 7,000,000 shares of our common stock at an exercise
price of $6.50 per share. E&Y Consulting may exercise the first of these
warrants to acquire 4,666,666 shares of our common stock during the 90 day
period following this offering. The second, third and fourth warrants become
exercisable, respectively, upon the occurrence of specified events following our
2000, 2001 and 2002 fiscal years. Depending upon the amount of our revenues that
are attributable to E&Y Consulting referrals in each of our 2000, 2001 and 2002
fiscal years, the second, third and fourth warrants may be exercised to acquire
up to 933,333, 933,333 and 466,667 shares of our common stock, respectively. The
warrants are subject to cancellation or repurchase in whole or in part under
circumstances such as if E&Y Consulting breaches a material provision of the
agreement. These warrants and other expenses related to the strategic alliance
with E&Y Consulting are likely to result in substantial expenses throughout the
term of our agreement with E&Y Consulting. Because of the accounting policies
applicable to these warrants, the charges associated with the warrants will be
measured in part upon the changes in the fair value of our stock. Accordingly,
significant increases in our stock price could result in non-cash accounting
charges amounting to hundreds of millions of dollars. We will calculate and
record these charges quarterly as sales and marketing expenses based on the fair
value of the warrants using a Black-Scholes option pricing model.
In February 2000, Ernst & Young announced that it had reached an agreement
to sell substantially all of E&Y Consulting to Cap Gemini S.A., a leading
European management consulting and information technology services group. In the
event that this sale is consummated, Ernst & Young is entitled to assign its
rights and obligations pursuant to our strategic alliance to Cap Gemini. We
expect that Cap Gemini will assume all of such rights and obligations. If Cap
Gemini fails to do so, we may terminate our agreement and cancel the warrants.
STOCK-BASED COMPENSATION
We have granted stock options to our officers and employees at prices
deemed to be below the estimated fair value of the underlying stock. As a
result, we recorded deferred stock-based compensation of $23.5 million for the
year ended December 31, 1999. Such amount represents, for employee stock
options, the difference at the grant date between the exercise price of each
stock option granted and the fair market value of the underlying common stock.
This amount is being amortized, using the graded vesting method, over the
vesting period of the granted options.
INVESTMENT IN OPERATIONS
We have incurred substantial costs since inception in all areas of our
business, including application management services, professional services and
other, research and development, sales and marketing and general and
administrative activities, in order to support our long-term growth strategy.
Our full-time employees increased from 58 at December 31, 1998 to 279 at
December 31, 1999. As a result of these investments, we have incurred net losses
in each fiscal quarter since inception in September 1998 and, as of December 31,
1999, we had an accumulated deficit of $48.2 million. We expect to continue to
invest significantly in our operations organization to support the application
management services we provide to our existing and future customers and in
research
25
<PAGE> 30
and development to enhance current services and to expand our service offerings.
We also plan to continue to grow our professional services organization and
sales force and to spend significant funds in marketing to promote our company
and our services. We expect to continue to hire additional personnel in all
other areas of our company in order to support our anticipated growth. In
addition, we expect to continue to rapidly expand our base of customers, and,
for the foreseeable future, we expect to incur significant fixed and other costs
associated with customer acquisition and with the implementation and
configuration of the software applications they license from us. As a result of
all of these factors, to achieve operating profitability, excluding non-cash
charges, we will need to increase our customer base, to decrease our overall
costs of providing services, including the costs of our technology and the costs
of customer acquisition, and to increase our number of users and revenues per
customer.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, our statement of
operations data as a percentage of total revenues.
<TABLE>
<CAPTION>
DSCI CORIO
------------------------------ ----------------------------
YEAR ENDED YEAR ENDED
------------------------------ ----------------------------
SEPTEMBER 30, DECEMBER 31,
1997 1998(1) 1998(2) 1999
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Application management
services..................... -- -- -- 13%
Professional services and
other........................ 100% 100% 100% 87
--- --- ---- ----
Total revenues............... 100 100 100 100
--- --- ---- ----
Costs and Expenses:
Application management
services..................... -- -- -- 109
Professional services and
other........................ 44 51 80 134
Research and development........ -- -- 7 55
Sales and marketing............. -- -- 36 206
General and administrative...... 53 80 162 180
Amortization of deferred stock-
based compensation........... -- -- 1 147
Amortization of intangibles..... -- -- 57 38
--- --- ---- ----
Total operating expenses..... 97 131 343 869
--- --- ---- ----
Income (loss) from operations..... 3 (31) (243) (769)
Interest and other income......... 1 2 1 9
Interest and other expense........ (3) (5) (6) (18)
--- --- ---- ----
Net income (loss)................. 1% (34)% (248)% (778)%
=== === ==== ====
</TABLE>
- ---------------
(1) Period from October 1, 1997 to September 4, 1998 (date of acquisition).
(2) Period from September 1, 1998 (date of inception) to December 31, 1998.
26
<PAGE> 31
The increases in revenues and expenses discussed below for the year ended
December 31, 1999 as compared to the period from September 1, 1998 through
December 31, 1998 are attributable, in part, to the fact that we are comparing a
twelve month period to a four month period.
REVENUES
Total revenues increased to $5.8 million for the year ended December 31,
1999 from $1.3 million for the period from September 1, 1998 through December
31, 1998. For the year ended December 31, 1999, one customer accounted for 19%
of total revenues and a second customer accounted for 18% of total revenues. For
the period from September 1, 1998 through December 31, 1998, one customer
accounted for 43% of our total revenues and a second customer accounted for 11%
of total revenues.
DSCI revenues were $4.3 million for the period from October 1, 1997 through
September 4, 1998 and $5.7 million for the year ended September 30, 1997. For
the period from October 1, 1997 through September 4, 1998, one customer
accounted for 33% of total revenues, and a second customer accounted for 32% of
total revenues. For the year ended September 30, 1997, one customer accounted
for 40% of total revenues, and a second customer accounted for 24% of total
revenues.
APPLICATION MANAGEMENT SERVICES REVENUES. Revenues from our application
management services, which commenced in January 1999, were $746,000 for the year
ended December 31, 1999. At December 31, 1999, we had a balance of $896,000 for
deferred application management services revenues from a customer who prepaid a
portion of its contract. These deferred revenues will be recognized as the
related services are provided over the life of the contract.
PROFESSIONAL SERVICES AND OTHER REVENUES. Revenues from our professional
services and other were $5.0 million for the year ended December 31, 1999 and
$1.3 million for the period from September 1, 1998 through December 31, 1998. At
December 31, 1999, we had a balance of $992,000 for deferred professional
services revenues resulting from customer deposits that we typically require in
advance of commencing work on professional services engagements.
COSTS AND EXPENSES
APPLICATION MANAGEMENT SERVICES EXPENSES. Expenses for application
management services consist primarily of personnel costs associated with
application management and client services activities, third-party license and
support fees, costs of our data center and network providers and depreciation
and lease costs for equipment. Application management services expenses also
include amortization of deferred costs associated with warrants issued to a
service provider.
Application management services expenses, excluding non-cash stock-based
compensation of $229,000, were $6.3 million for the year ended December 31,
1999. Amortization of deferred costs for warrants issued to a service provider
in 1999 were $52,000 and will be $210,000 in 2000 for these warrants.
Application management services expenses have exceeded our application
management services revenues as we have invested in this portion of our business
in anticipation of future increases in contract volume. We anticipate that this
trend will continue for the foreseeable future.
PROFESSIONAL SERVICES AND OTHER EXPENSES. Expenses for professional
services and other expenses consist of compensation and related overhead costs
for personnel engaged in providing implementation, consulting, training and
related services as well as costs for third parties contracted to provide such
services. In addition, for all periods through September 4, 1998, there were
software royalty expenses related to the distribution of software products to
DSCI's customers.
Professional services and other expenses, excluding non-cash stock-based
charges of $427,000, were $7.8 million for the year ended December 31, 1999 and
$1.0 million for the period from September 1, 1998 through December 31, 1998. Of
the total professional services expenses for 1999, approximately $4.0 million
were for personnel costs and $1.9 million were for subcontractors to
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perform services under professional services engagements. There were 69
professional services employees at December 31, 1999. Professional services
expenses have exceeded our professional services revenues, as we have invested
in our consulting organization in anticipation of future increases in contract
volume. We expect to continue making significant investments to expand our
professional services infrastructure. We anticipate that professional services
margins will fluctuate from period to period due to fluctuations in professional
services revenues, since many of the costs of providing professional services do
not vary proportionately with the associated revenues. Professional services
revenues will fluctuate due to a number of factors, such as the degree to which
our customers use independent systems integrators instead of our professional
services for implementation, consulting and training. In addition, since we
implement our services on a fixed fee basis, if we incur more costs than we
expect in implementations, our profitability will suffer. In the past, for
example, some of our early fixed fee engagements required more resources than we
initially anticipated at the time we entered into the contracts.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
consist of compensation and related personnel costs, fees associated with
contractors and other costs related to the design, development, testing and
enhancement of our services. Research and development expenses, excluding
stock-based compensation of $923,000, increased to $3.2 million for the year
ended December 31, 1999 from $93,000 for the period from September 1, 1998
through December 31, 1998. Research and development expenses as a percentage of
total revenues were 55% for 1999 and 7% for the period from September 1, 1998
through December 31, 1998. The increase in research and development expenses
largely reflects growth in the number of research and development personnel from
2 at December 31, 1998 to 44 at December 31, 1999. The increase in research and
development expenses also reflects our continuing efforts to add enhancements to
our existing service offerings and to develop new technologies for integrating
applications. We expect that the absolute dollar amount of research and
development expenses will continue to increase as we make additional investments
in our technology and service capabilities and increase the level of integration
of our service offerings.
SALES AND MARKETING EXPENSES. Sales and marketing expenses consist
primarily of compensation and related costs for sales and marketing personnel,
including commissions and marketing program costs, and other related expenses
and amortization of costs associated with warrants issued to a software vendor
in connection with a remarketing agreement. Sales and marketing expenses,
excluding stock-based compensation of $2.8 million, increased to $11.9 million
for the year ended December 31, 1999 from $461,000 for the period from September
1, 1998 through December 31, 1998. Sales and marketing expenses, as a percentage
of total revenues were 206% for the year ended December 31, 1999 and 36% for the
period from September 1, 1998 through December 31, 1998. The increase in sales
and marketing expenses in 1999 was attributable to increased compensation,
commissions and other related costs associated with hiring additional sales
representatives, sales and marketing management and marketing personnel. The
number of employees in sales and marketing increased from 10 at December 31,
1998 to 80 at December 31, 1999. Increased spending on new customer lead
generation activities, advertising and tradeshows, and on market research and
collateral items also contributed to the increase in sales and marketing
expenses. In addition, the year ended December 31, 1999 includes $127,000
related to amortization of costs associated with warrants issued to a software
vendor. For the year 2000, charges for amortization of these warrants will
depend, in part, on the software vendor's achievement of specified performance
milestones. We expect that the absolute dollar amount of sales and marketing
expenses will continue to increase as we expand our sales force and marketing
efforts to capitalize on the growth of our market and as we continue to increase
and expand our operations. In addition, we anticipate recognizing substantial
sales and marketing expenses associated with our strategic alliance with E&Y
Consulting entered into in April 2000, as well as potentially significant sales
and marketing charges associated with the warrants issued to E&Y Consulting.
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GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of compensation and related costs for general and
administrative personnel, as well as amortization of deferred costs associated
with fees paid to one of our software vendors. General and administrative
expenses, excluding stock-based compensation of $4.2 million, increased to $10.4
million for the year ended December 31, 1999 from $2.1 million for the period
from September 1, 1998 through December 31, 1998. General and administrative
expenses as a percentage of total revenues were 180% for the year ended December
31, 1999 and 162% for the period from September 1, 1998 through December 31,
1998. General and administrative expenses include costs related to our internal
information technology and systems architecture, finance, executive management,
human resources, legal and training activities. In addition, the year ended
December 31, 1999 includes approximately $1.8 million of expenses related to
amortization of fees paid to a software vendor for a non-competition agreement
and preferred partner status. There may be similar charges for this relationship
in the year 2000. We expect that the absolute dollar amount of general and
administrative expenses will continue to increase as we expand our operations
and incur the incremental costs associated with being a public company.
AMORTIZATION OF DEFERRED STOCK-BASED COMPENSATION. We granted stock options
to our officers and employees at prices deemed to be below the fair value of the
underlying stock. The difference between the fair value of the underlying stock
at the date the options were granted and the exercise price of the granted
options was $23.5 million at December 31, 1999. This amount is being amortized,
using the graded vesting method, over the vesting period of the granted options.
Accordingly, our results from operations will include a non-cash compensation
expense at least through 2003. We recognized $8.5 million of this expense during
the year ended December 31, 1999.
AMORTIZATION OF INTANGIBLES. In September 1998, we acquired DSCI at a price
in excess of the fair value of the net tangible assets acquired, resulting in
goodwill and other intangibles totaling $6.6 million. Such intangibles are being
amortized over a 36-month period, which resulted in amortization expense of $2.2
million for the year ended December 31, 1999 and $730,000 for the period from
September 1, 1998 through December 31, 1998.
INTEREST AND OTHER EXPENSE. Net interest and other expense was $478,000 for
the year ended December 31, 1999 and $71,000 for the period from September 1,
1998 through December 31, 1998. Net interest and other expense for the year
ended December 31, 1999 resulted primarily from the interest expense from our
subordinated debt facility and capital equipment loans and leases offset by
interest generated from funds raised in private placements of our preferred
stock in 1999. Net interest and other expense for the period from September 1,
1998 through December 31, 1998 resulted primarily from interest expense from a
loan payable to a stockholder and capital equipment lease obligations offset by
interest earned on the proceeds from the September 1998 private placements of
our preferred stock.
INCOME TAXES. Since inception, we have incurred net losses for federal and
state tax purposes and have not recognized any material tax provision or
benefit. As of December 31, 1999, we had net operating loss carryforwards of
approximately $33.0 million for federal income tax purposes and approximately
$16.5 million for state income tax purposes, which expire in varying amounts
beginning in 2018 for federal tax purposes and 2004 for state tax purposes.
Federal and state tax laws impose significant restrictions on the utilization of
net operating loss carryforwards in the event of an ownership change, as defined
in Section 382 of the Internal Revenue Code. See Note 7 of the notes to our
financial statements for additional information regarding these carryforwards.
We have placed a valuation allowance against our net deferred tax assets due to
the uncertainty of the realization of these assets.
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QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited statement of operations data for
the four quarters ended December 31, 1999, as well as application management and
professional services and other revenues expressed as a percentage of total
revenues for the periods indicated. The unaudited quarterly financial statements
have been prepared on the same basis as the audited financial statements
contained in this prospectus and include all adjustments, consisting only of
normal recurring adjustments, that we considered necessary for a fair
presentation of the information when read together with our audited financial
statements and related notes. Operating results for any quarter are not
necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1999 1999 1999 1999
--------- -------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues:
Application management services........ $ 35 $ 50 $ 128 $ 533
Professional services and other........ 826 1,104 898 2,208
------- ------- -------- --------
Total revenues...................... 861 1,154 1,026 2,741
------- ------- -------- --------
Costs and Expenses:
Application management services........ 868 1,152 1,446 2,831
Professional services and other........ 928 1,014 2,288 3,525
Research and development............... 267 429 894 1,602
Sales and marketing.................... 600 1,251 4,150 5,929
General and administrative............. 1,783 2,158 2,703 3,772
Amortization of deferred stock-based
compensation........................ 144 624 3,218 4,538
Amortization of intangibles............ 547 547 548 548
------- ------- -------- --------
Total operating expenses............ 5,137 7,175 15,247 22,745
------- ------- -------- --------
Loss from operations..................... (4,276) (6,021) (14,221) (20,004)
Interest and other income................ 68 110 109 254
Interest and other expense............... (165) (243) (285) (326)
------- ------- -------- --------
Net loss................................. $(4,373) $(6,154) $(14,397) $(20,076)
======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1999 1999 1999 1999
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Application management services......... 4% 4% 12% 19%
Professional services and other......... 96 96 88 81
--- --- --- ---
Total revenues....................... 100% 100% 100% 100%
=== === === ===
</TABLE>
The general trends discussed in the comparisons of operating results for
the year ended December 31, 1999 apply to the comparison of results of
operations for our four most recent quarters ended December 31, 1999. The
significant increases in both application management and professional services
revenues from September 30, 1999 to December 31, 1999 were due to additional
customers and increased revenues from some of our pre-existing customers. The
increase in amortization of stock based compensation from June 30, 1999 to
September 30, 1999 was due to options granted to new personnel during the
quarter ended September 30, 1999.
You should not rely on quarter-to-quarter comparisons of our results of
operations as indicators of future performance due to our limited operating
history, the early stage of our market and the
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factors discussed in the section entitled "Risk Factors" above. In particular,
because our base of customers and the number of new customers in each quarter
are still relatively small, the loss of a few key customers in any quarter could
result in a significant decrease in revenues for that quarter.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations and funded our capital expenditures since
inception through the private sale of equity securities, supplemented by loan
facilities and equipment leases. Aggregate net proceeds to date from private
equity financings total $124.6 million. As of December 31, 1999, we had $37.2
million in cash and cash equivalents, and $24.4 million in working capital. Net
cash used in operating activities was $20.4 million in the year ended December
31, 1999 and $776,000 for the period from September 1, 1998 through December 31,
1998. For those periods, net cash used in operating activities was primarily
used to fund ongoing operations including increases in accounts receivable
offset by increases in accounts payable, accrued liabilities and deferred
revenues. Net cash used in investing activities was $12.2 million in 1999 and
$2.2 million in 1998. Investing activities consisted primarily of the purchase
of DSCI in 1998 along with capital expenditures in 1998 and 1999. Net cash
provided by financing activities was $68.8 million in 1999 and $4.0 million in
1998, and consisted primarily of proceeds from the issuance of preferred stock
and proceeds from loans offset by repayments on loans and capital leases. In
1998, we raised $4.0 million through the private sale of our series A preferred
stock and in 1999, we raised $66.1 million in proceeds through the private sale
of our series B and C preferred stock. In April 2000, we raised $54.5 million in
gross proceeds through the private sale of our senior series E mandatorily
redeemable preferred stock.
In December 1998, we entered into a $4.0 million financing arrangement with
Comdisco, Inc. These borrowings bear an average annual interest rate of
approximately 11.5% and are payable in 42 monthly installments through 2003. We
have also entered into capital lease agreements with Comdisco to finance up to
$4.0 million of capital expenditures. Interest accrues under the terms of these
agreements at an average rate of approximately 8.75% per year based on the
outstanding utilized capital lease line. Borrowings under the capital lease are
payable in 42 monthly installments through 2003. As of December 31, 1999, we had
drawn $4.0 million under the loan agreement and approximately $3.3 million under
the capital lease agreement. In connection with these financings, in December
1998 we issued to Comdisco warrants to purchase a total of 655,713 shares of our
series A preferred stock at an exercise price of $1.24 per share.
In December 1998, we also entered into a three-year guarantee subordinated
loan and security agreement with Comdisco in the amount of $350,000. The purpose
of this agreement was to provide a lease guarantee to the lessor of our
principal facility. In the event of a draw down under the guarantee by lessor,
the loan shall become payable in 24 equal monthly installments of principal and
interest, with interest accruing at a rate of 14% per year. In connection with
this agreement, we issued to Comdisco warrants to purchase 25,500 shares of our
series A preferred stock at an exercise price of $1.24 per share. In December
1999, we entered into a reimbursement and security agreement with Comdisco in
the amount of $7.0 million to acquire a letter of credit. This letter of credit
provides a lease guarantee to the landlord of our new headquarters facilities
and may be reduced if we satisfy conditions specified in the agreement. In
connection with this agreement, we issued to Comdisco a warrant to purchase
shares of our series C preferred stock at an exercise price of $6.50 per share.
This warrant does not become exercisable unless we successfully consummate this
offering, whereby the warrant is exercisable through December 2006, or 3 years
from the date of the offering, whichever is earlier. Assuming we consummate this
offering prior to June 30, 2000, this warrant is exercisable for 43,077 shares
of series C preferred stock.
During 1999, we entered into a revolving loan agreement with a commercial
bank for an amount not to exceed 80% of eligible accounts receivable or $3.0
million. There were no borrowings under this agreement, which expired on January
31, 2000.
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In March 2000, we entered into a volume purchase agreement to purchase up
to $6.0 million of equipment through September 2001.
In April 2000, we sold 5,450,000 shares of senior series E mandatorily
redeemable preferred stock at a price of $10 per share, for aggregate gross
proceeds to us of $54.5 million. Assuming we consummate this offering prior to
December 31, 2000, the senior series E mandatorily redeemable preferred stock
converts to common stock upon this offering at 73% of the price per share of our
common stock in this offering. We expect to record a significant beneficial
conversion adjustment which will increase net loss to derive net loss
attributable to common stockholders in connection with the issuance of these
securities. The beneficial conversion adjustment will be recorded in the period
during which we consummate this offering. Also in April 2000, we entered into an
equipment lease line of credit for up to $5.0 million with Finova Capital
Corporation. In connection with this line of credit, we issued to Finova a
warrant to purchase up to $100,000 of our common stock at a price per share
equal to 90% of the price per share of our common stock in this offering.
We have executed a ten year build-to-suit lease for a facility in San
Carlos, California that will require minimum payments of $2.2 million in 2000
and $3.5 million in 2001.
As we execute our strategy, we expect significant increases in our
operating expenses, especially in application management services, professional
services, sales and marketing and research and development. We expect that our
current cash balances and existing debt arrangements, together with the proceeds
from this offering, will be sufficient to meet our cash requirements for the
next 18 months. We may be required to raise additional funds in order to support
more rapid expansion, develop new or enhanced services or technologies, respond
to competitive pressures, acquire complementary businesses or respond to
unanticipated requirements. We cannot be sure that additional funding, if
needed, will be available on acceptable terms or at all. If adequate funds are
not available, we may be required to curtail significantly or defer one or more
of our operating goals or programs. If we succeed in raising additional funds
through the issuance of equity securities, the issuance could result in
substantial dilution to existing stockholders. If we raise additional funds
through the issuance of debt securities or preferred stock, these new securities
would have rights, preferences and privileges senior to those of the holders of
our common stock. The terms of these securities could also impose restrictions
on our operations.
FOREIGN CURRENCY AND MARKET RISK
We develop and market our services primarily in the United States. As we
expand our operations outside of the United States, our financial results could
be affected by factors such as changes in foreign currency rates or weak
economic conditions in foreign markets. Because all of our revenues are
currently denominated in U.S. dollars, a strengthening of the dollar could make
our services less competitive in international markets.
INTEREST RATE RISK
We have an investment portfolio of money market funds. In view of the
nature and mix of our total portfolio, a 10% movement in market interest rates
would not have a significant impact on the total value of our portfolio as of
December 31, 1999. Our interest expense is not sensitive to changes in the
general level of U.S. interest rates because all of our debt arrangements are
based on fixed rates of interest.
ACCOUNTING DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards, or SFAS, No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 establishes new
standards of accounting and reporting for derivative instruments and hedging
activities. In July 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133." SFAS No. 137 deferred the effective date of SFAS No.
133 until fiscal years beginning after
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June 15, 2000. We plan to adopt SFAS No. 133 during fiscal 2001. To date, we
have not engaged in any derivative or hedging activities.
In December 1999, the Securities and Exchange Commission, or SEC, issued
Staff Accounting Bulletin, or SAB, No. 101. SAB No. 101 summarized certain of
the SEC Staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. SAB No. 101, and any resulting
change in accounting principles that a registrant would have to report, is
effective no later than our fiscal quarter ending June 30, 2000. We do not
expect the application of SAB No. 101 to have a material effect on our financial
position or results of operations.
In December 1999, the SEC wrote a letter to the FASB requesting that the
Emerging Issues Task Force, or EITF, address the issue of accounting for
multiple-element revenue arrangements. In general, these arrangements are
defined as the delivery of substantive products, services, or rights at the
outset of the arrangement and generally involve either a fixed fee or a fixed
fee combined with a continuing payment stream. The continuing payment stream
generally corresponds to the continuing performance and may be fixed, variable
based upon future performance, or a combination of fixed and variable payments.
This issue is applicable only to the portion of the fee that is fixed or
determinable because only that portion is eligible for current revenue
recognition. The SEC requested that the EITF provide technical accounting
guidance on the following two issues relating to the accounting for
multiple-element revenue arrangements:
- what causes the arrangement to be treated as a multiple element
arrangement and when is it appropriate to segment the elements for
purposes of revenue recognition; and
- even if a deliverable is deemed to be a separate component for which
separate revenue recognition would normally be appropriate, are there
conditions that should preclude recognition of revenue allocable to a
delivered component of an arrangement until other undelivered components
are delivered or performed.
It is our understanding that the EITF will deliberate upon these issues at
a future meeting. We believe our current revenue recognition policies and
practices are consistent with existing industry practice. Any changes in
technical accounting guidance resulting from these EITF deliberations could
result in substantial changes in the timing of our recognition of future
revenues.
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BUSINESS
OVERVIEW
We are a leading enterprise application service provider, or ASP. We
implement, integrate and manage the Corio Intelligent Enterprise, a suite of
scalable, best-of-breed enterprise software applications from leading vendors,
which we offer to our customers over a secure network. This suite of
applications is designed to accommodate the requirements of rapidly growing as
well as larger, more mature companies. We enable our customers to avoid the
significant upfront licensing, implementation and integration costs and the
unpredictable and often greater ongoing application management costs usually
associated with internally-operated enterprise application systems. Following
the rapid implementation of applications, usually performed for a fixed fee, our
customers pay a predictable monthly service fee based largely on the number of
applications hosted and total users. By providing application implementation,
integration, management and various upgrade services and related hardware and
network infrastructure, we reduce the information technology, or IT, burdens of
our customers, enabling them to focus on their core businesses and react quickly
to dynamic market conditions.
We offer software applications from PeopleSoft and SAP for enterprise
resource planning, Siebel Systems for customer relationship management,
BroadVision, Commerce One and Moai for e-commerce and Changepoint, Cognos,
E.piphany and Portal Software for business intelligence and industry-specific
solutions. We leverage the capabilities of companies such as Concentric Network
to provide our customers leading data center and network infrastructure
technologies.
INDUSTRY BACKGROUND
We believe the application software industry is being transformed by three
fundamental forces:
- the emergence of secure Internet Protocol, or IP, networks and increased
bandwidth to enable a new model for delivering software applications;
- the proliferation of emerging high-growth and middle-market companies
that require rapid and cost-effective deployment of IT infrastructure and
business processes; and
- new e-commerce business models that are driving the need for rapid
deployment of e-commerce applications in both established and emerging
businesses.
Traditionally, organizations have installed, operated and maintained
enterprise software applications internally. The initial cost of these
applications is typically significant, and the time required to implement and
customize them is often lengthy. According to the Standish Group, the
implementation of enterprise software applications often takes twice as long as
planned. Moreover, the ongoing costs of operating these applications, including
upgrading, training and management expenses, are often significantly greater
than the original capital outlay and may increase over time. Emerging
high-growth and middle-market companies have had difficulty purchasing these
systems because of the costs and time associated with implementing and managing
enterprise software applications. The emergence of the Internet, the increased
communications bandwidth and the re-writing of enterprise software to be
delivered over IP networks are transforming the way enterprise software
applications are being provided to customers. Instead of in-house installations,
these applications are beginning to be hosted over the Internet as a service.
These new technologies and the resulting shift in the delivery model are
reducing the total cost of ownership and implementation times of enterprise
software applications, facilitating access to best-of-breed applications for
emerging high-growth and middle-market companies.
We believe that the recent proliferation of emerging high-growth and
middle-market companies has created a significant market opportunity for
Internet-hosted software applications. For many of these companies, particularly
those engaged in e-commerce activities, minimizing the cost of business
applications and accelerating their implementation time are considered necessary
for success. The IT
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infrastructure and business processes of emerging high-growth and middle-market
companies are generally more standardized than those of larger companies,
allowing these companies to accept software functionality without extensive
customizations. In addition, competitive pressures have led to a renewed focus
on core competencies, with many businesses concluding that IT capabilities are
not among them. In response to these factors, emerging high-growth and
middle-market companies are adopting hosted applications rather than performing
in-house installations.
Finally, new e-commerce business models have increased demand for
e-commerce software applications. E-commerce applications range from electronic
store fronts and electronic procurement systems to business-to-business
exchanges connecting communities of buyers and sellers across entire supply
chains. These applications are designed to be Internet-hosted and may be
deployed quickly. The appeal of these e-commerce applications has extended
beyond emerging high-growth and middle-market companies to larger enterprises,
as enterprises of all sizes recognize the need to adopt and rapidly deploy
e-commerce applications for their businesses.
The application service provider, or ASP, industry arose recently as a
result of the changing forces in the application software industry. Gartner
Group estimates that the ASP market will grow from $900 million in 1998 to $23
billion by 2003. The initial ASP model offers a simple value
proposition -- access to an application over a network for a monthly fee.
Customers need only pay for the use of the applications, while the ASP assumes
responsibility for implementing and managing the applications. Using an ASP,
businesses can thus avoid the significant up-front costs and risks of deploying
sophisticated packaged software applications, and can access experienced IT
personnel that they would otherwise need to recruit and retain themselves.
The ASP industry is less than two years old but is already evolving.
Although first generation ASPs relieve companies of some of the burden and
expense of deploying and maintaining stand-alone software applications,
companies still experience protracted implementation times, difficulties
customizing and integrating software applications and costly upgrade and
maintenance cycles. First generation ASPs simply outsource the existing
application process with little innovation, merely shifting the process of
integrating, implementing and managing enterprise applications from the customer
to a third party. In addition, by hosting applications in their own data
centers, first generation ASPs have limited ability to scale their business
rapidly and respond quickly to the needs of their customers for additional
network requirements. We believe that there is a significant opportunity for a
company that provides the benefits of the initial ASP model while addressing
these shortcomings, including lack of integration, excessive customization and
the high cost of application management, by providing improved business
processes for customers and a more compelling customer value proposition.
THE CORIO SOLUTION
We provide integrated, best-of-breed software applications over a secure
network for a monthly fee. Our services provide customers the following
compelling business benefits:
BUSINESS PROCESS INTEGRATION. Through Orion, our technology platform, we
integrate and implement a suite of software applications, such as e-commerce,
customer relationship management and enterprise resource planning applications.
Orion also allows us to offer our integrated suite of applications on a hosted
basis and to integrate these applications with customers' existing applications.
By enabling business process integration, our solution helps companies quickly
streamline both their internal processes and their exchanges with suppliers,
partners and customers.
LOWER AND MORE PREDICTABLE COSTS. Our customers gain access to
best-of-breed applications hosted over a secure network without the significant
up-front costs and unpredictable follow-on software upgrade and support costs
associated with internally-operated IT systems. Following rapid implementation
of our applications, typically for a fixed fee, our customers pay a predictable
monthly fee. Our customers only pay for the services they need and can modify
these services as their needs change, allowing them flexibility and scalability
in addressing their evolving IT requirements. Compared
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with the cost of implementing and maintaining enterprise applications in-house,
we project that our customers can achieve a 30% or greater total cost of
ownership reduction over the term of their contract with us.
ACCESS TO SCALABLE, BEST-OF-BREED APPLICATIONS. Through our relationships
with our third-party software providers, we provide our customers access to
sophisticated enterprise applications. We offer software from leading vendors
such as BroadVision, Commerce One, Moai, PeopleSoft, SAP and Siebel Systems. The
applications we offer from these vendors are designed to accommodate the
requirements of rapidly growing companies and to address the needs of larger,
more mature companies. By gaining rapid access to these best-of-breed
applications, our customers are able to avoid the risks and costs associated
with replacing less sophisticated applications as they outgrow them.
ACCELERATED TIME TO BENEFIT. We can typically complete a standard
implementation of our services in 2 to 14 weeks. This allows our customers to
avoid the longer implementation times frequently experienced with installing and
integrating customized, sophisticated applications. Our services enable
customers to achieve their desired benefits quickly by reducing the time
required to establish or augment their IT capabilities.
FOCUS ON CORE BUSINESS. We reduce the IT burdens of companies by providing
application implementation, management and various upgrade services and related
hardware and network infrastructure. By providing our customers with software,
hardware and network management capabilities, we enable companies to focus on
their core business.
OUTSTANDING SERVICE AND SUPPORT. We are dedicated to providing our
customers industry-leading customer service and support. Our highly-talented IT
professionals manage our services and provide support to our customers. We
assign to each customer a support team composed of software application experts,
network engineers, hardware engineers and customer support specialists. We also
assign a member of our senior management team to each customer to ensure high
levels of customer satisfaction.
THE CORIO STRATEGY
Our objective is to be the leading enterprise ASP worldwide. Key elements
of our strategy include:
OFFER A COMPELLING VALUE PROPOSITION. We will continue to offer to current
and potential customers an opportunity to host their application and e-commerce
needs on a cost-effective basis. As part of our sales process, we work with
prospective customers to develop a total cost of ownership analysis specific to
that customer. We believe that we will be able to continue to grow our customer
base by offering a quantified, compelling value proposition of reduced and more
predictable IT costs and an accelerated time to benefit.
LEVERAGE OUR "ONE-TO-MANY" BUSINESS MODEL. Our business is based on
providing an array of standardized services to numerous customers. We believe
that we will be able to achieve the economies of scale inherent in this
"one-to-many" model by being able to reduce the costs we incur in delivering our
services. We intend to continue to develop implementation templates, innovative
application management tools and integration models that can be used for
numerous applications across a variety of companies and industries. We believe
this strategy enables us to leverage our IT resources to deliver
cost-effectively high standards of service and support. By continually reducing
our costs of providing service, we believe we can build a profitable business
over the long term.
MAINTAIN OUR TECHNOLOGY LEADERSHIP POSITION. We believe we have established
a technology leadership position in the ASP market, and we intend to maintain
this position by continuing to enhance our technology platform. We will continue
to invest in research and development to bring new services to market, to
develop new application functionalities and to enhance our automation and
integration technology.
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WORK WITH LEADING DATA CENTER MANAGEMENT AND NETWORK SERVICES PROVIDERS. We
intend to continue to outsource our data center management and a portion of our
network service needs to leading providers. We currently engage Concentric
Network and others to provide these services. We believe this is a key
competitive differentiator for us, enabling us to focus on our core business
while providing our customers access to leading, dynamic and scalable data
centers and networks. By engaging data center management and network service
providers, we are able to forego the significant fixed capital costs associated
with building data centers and managing network infrastructure.
LEVERAGE OUR STRATEGIC RELATIONSHIPS. We intend to leverage our current
strategic relationships, and to enter into new strategic relationships, in order
to expand our customer base and scale our services. In April 2000, we entered
into a strategic alliance with E&Y Consulting whereby E&Y Consulting will refer
its customers to us and engage in joint-marketing and sales activities. In
addition, we have established co-marketing and sales arrangements with other
systems integrators and with our software vendors. As our customer base grows,
we intend to expand and strengthen our relationships with systems integrators
and other service providers in order to expand our service offerings and to
increase our implementation capacity.
BROADEN OUR SERVICE OFFERINGS. We believe that we can increase customer
demand for our services by expanding our service offerings. We continue to
invest in developing and integrating additional services that address the
evolving IT needs of our customers. We intend to broaden our relationships with
our existing software vendors and to establish new relationships with additional
software application providers. In addition, based on our knowledge of the
application needs of different markets, we have developed and intend to further
develop standard application suites for specific markets. By expanding our
service offerings and addressing industry-specific needs of our customers, we
believe we will attract new customers and deepen our relationships with existing
customers.
CONTINUE OUR COMMITMENT TO CUSTOMER SATISFACTION. We are committed to
customer satisfaction throughout our organization, and we endeavor to provide
our customers with the highest quality service offerings. In order to accomplish
this, we expect to invest substantial time and effort in enhancing our services.
Our commitment to customer satisfaction enables us to leverage existing
customers to serve as reference accounts for prospective customers.
SERVICES
Our service offerings consist of application management services and
professional services. Application management services are ongoing services we
provide our customers in connection with the operation of the Corio Intelligent
Enterprise, a suite of scalable, best-of-breed software applications that is
available over a secure network. Our professional services include our
implementation of the Corio Intelligent Enterprise and other consulting and
training services.
APPLICATION MANAGEMENT SERVICES
Our application management services consist of hosting services for our
hosted applications. As of March 31, 2000, our application management services
team consisted of 91 employees. We price our application management services
based on various factors, such as the number and type of applications being
licensed, the number of users covered by a contract and the frequency of access
to our applications. The monthly fee for our application management services is
typically fixed for the life of the contract, subject to increases in the event
a customer requires additional applications, increases its number of users or
increases frequency of use. Most of our customer agreements have three to five
year terms.
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<PAGE> 42
BUSINESS INTELLIGENCE
& INDUSTRY-
SPECIFIC SOLUTIONS
E-COMMERCE
CUSTOMER RELATIONSHIP
MANAGEMENT
ENTERPRISE RESOURCE PLANNING
Hosted Applications
We provide our services through our Corio Intelligent Enterprise which is
designed to provide our customers enterprise resource planning, customer
relationship management and e-commerce capabilities as well as industry-specific
applications. Set forth below are the services we offer through the Corio
Intelligent Enterprise, the software vendors from whom we obtain the constituent
applications and the functionality each application provides.
<TABLE>
<C> <S> <C> <C>
-------------------------------------------------------------------------------------------------------
CORIO SERVICES SOFTWARE VENDORS FUNCTIONALITY
- ------------------------------------------------------------------------------------------------------------------
Corio Financials PeopleSoft SAP Provides general ledger, accounts receivable,
accounts payable, employee expense, projects, asset
management, cash management, investment management,
fund management, enterprise management and management
accounting.
-------------------------------------------------------------------------------------------------------
Corio Human Resources PeopleSoft SAP Enables benefit and personnel administration,
compensation management, employee training and event
management, human resources cost controls, employee
development and evaluation, recruiting and staffing
capabilities.
-------------------------------------------------------------------------------------------------------
Corio Manufacturing SAP Provides sales and operations planning, materials
requirements planning, demand management, production
control, production costing and quality management.
-------------------------------------------------------------------------------------------------------
Corio Distribution PeopleSoft SAP Provides sales support, order management, service
management, billing, materials management,
requisitions, purchasing, inventory management,
shipping and warehouse management functionality.
- ------------------------------------------------------------------------------------------------------------------
Siebel Sales Siebel Systems Provides opportunity management, sales and pipeline
analysis, and account and activity management
capabilities.
-------------------------------------------------------------------------------------------------------
Siebel Product Siebel Systems Facilitates sales force processes, including product
Configurator configuration, price quoting and availability
information.
-------------------------------------------------------------------------------------------------------
Siebel Service Siebel Systems Automates and facilitates customer service processes
for inbound transactions.
-------------------------------------------------------------------------------------------------------
Siebel Call Center Siebel Systems Automates and facilitates personnel management
processes for all inbound and outbound telephonic
sales, service and marketing needs.
- ------------------------------------------------------------------------------------------------------------------
Corio e-Store BroadVision Enables personalized Internet shopping, with support
for product catalog, dynamic pricing, quote
generation, shopping cart, configuration, payment and
settlement.
-------------------------------------------------------------------------------------------------------
Corio Commerce One Permits online requisitions of goods and services,
e-Procurement workflow and approval, price updates, purchase order
submissions, freight estimates and tracking and tax
capabilities.
-------------------------------------------------------------------------------------------------------
Corio e-Market BroadVision Software, services and hosting offering for
Commerce One Moai business-to- business net market makers. Includes
multi-vendor catalog aggregators, auction sites and
trading exchanges.
- ------------------------------------------------------------------------------------------------------------------
Corio Business Cognos E.piphany Enables critical decision support capabilities
Intelligence through data access, reporting, analysis and
forecasting.
-------------------------------------------------------------------------------------------------------
Corio Professional Changepoint Automates and facilitates a variety of professional
Services Automation services delivery processes, such as contact
management, resource and project management, time and
expense administration, client billing and support
management.
-------------------------------------------------------------------------------------------------------
Corio Billing Portal Software Supports Internet service usage measurement and
customer care and billing capabilities.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 43
To address the challenges of integrating the applications, we have
developed our Orion technology platform. Orion enables us to offer our customers
the Corio Intelligent Enterprise on a hosted and integrated basis, providing
customized functionality enhancements and various upgrade services. We currently
offer our customers integration among Corio Financials with PeopleSoft, Corio
Human Resources with PeopleSoft, Corio Distribution with PeopleSoft, Corio
Professional Services Automation and Siebel Systems' Customer Relationship
Management software. We are in the process of developing integration
capabilities among the other services we offer and have recently begun offering
BroadVision, Moai and SAP.
Hosting Services
We host and manage each of the services that we offer through the Corio
Intelligent Enterprise and are responsible to our customers for these services,
regardless of whether we have developed or licensed the underlying technology.
We guarantee service levels for customers of at least 99% availability,
excluding scheduled downtime. To maintain this level of service, we have
configured our hosted applications and infrastructure for capacity and
performance and incorporated into our system a sophisticated backup recovery
process. We have also engineered automated upgrade and testing tools that
increase our efficiency, reduce our costs and improve our ability to scale our
operations. We provide these hosting services through our application management
center, which manages and supports the software applications, security
infrastructure, networks, hardware and data centers which operate 24 hours a
day, seven days a week.
Our hosting services include the following:
CUSTOMER SUPPORT. Our client services organization is the first point of
contact for our customers. Within client services, our customer support
specialists work with our experts in software applications, hardware and data
center management to respond to customer inquiries. We also assign a member of
our senior management team to each customer to ensure high levels of customer
satisfaction.
APPLICATION MANAGEMENT. The vendors of software applications incorporated
into the Corio Intelligent Enterprise periodically release minor modifications,
or patches, and upgrades for their software applications. Our application
management experts use our automated tools and test scripts to review, test and
assess each modification or upgrade released by our vendors to determine the
compatibility and stability of each modification or upgrade, and then they
incorporate appropriate changes into the Corio Intelligent Enterprise and make
them available to our customers.
SECURITY MANAGEMENT. The secure transmission of information over
telecommunication networks is a key requirement for our business. We have
implemented an effective information security protection program to minimize
risk to the confidentiality, integrity and availability of our customers'
mission critical applications and data. Our data protection program is built
around a pervasive, multi-layer security model that includes: strong network
perimeter defenses, aggressive real-time monitoring, detection and response
capability, security enabled at the host and application levels, continuous
vulnerability management, physical and operational security and the use of
proven security policy management practices.
INFRASTRUCTURE MANAGEMENT. Our customers' data resides on servers that we
own, located in secure cages in the data centers we use. Our infrastructure
management personnel are responsible for all aspects of our infrastructure
requirements, including hardware procurement, installation and configuration. To
support our "one-to-many" business model, our infrastructure management
personnel can configure our servers to support multiple customers. To maintain
the integrity and confidentiality of data in our shared hosting environments, we
ensure rigid partitioning of each customer's information.
DATA CENTER AND NETWORK MANAGEMENT. We engage Concentric Network and others
to offer our customers state-of-the-art data centers and network management. To
maximize network
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<PAGE> 44
availability, our application management personnel has, with Concentric Network
and others, designed our network architecture to ensure a redundancy of network
hardware, facilities infrastructure and telecommunications circuits. Our
application management center personnel also ensure that our services support
multiple network models and offer our customers a number of connectivity
options, including dedicated T1 lines and VPNs.
PROFESSIONAL SERVICES
Our professional services, which include initial implementation and ongoing
support services, are provided both by our professional services personnel and
by third-party systems integrators. We have established a professional services
team to implement the Corio Intelligent Enterprise quickly and efficiently. As
of March 31, 2000, our professional services team consisted of 139 employees
located throughout the United States. We organize our professional services team
by geographic location and application expertise.
We typically perform professional services pursuant to fixed fee contracts
for consulting, training and implementation of applications. Our professional
services team supports a number of implementation methodologies and programs:
FASTLANE. FastLane is an implementation methodology in which a
multi-disciplined team of our IT professionals works with a group of customers
to implement the Corio Intelligent Enterprise. By coordinating the simultaneous
implementation of our services for multiple customers, FastLane captures
customer requirements early in the sales cycle and leverages our
industry-specific implementation and configuration templates. The results are
implementation periods of weeks rather than the months traditional
implementation approaches typically require.
EXPRESS. Express is an implementation methodology that enables us to
accelerate a customer's transition from its existing, entry-level applications
to the Corio Intelligent Enterprise. Using automated configuration tools, data
migration accelerators and implementation templates, our Express service enables
our customers to migrate from entry-level applications such as Intuit QuickBooks
to Corio Financials in as little as two weeks.
CORIO IMPLEMENTATION PARTNER PROGRAM. The Corio Implementation Partner
Program, or CIPP, is a program whereby we train and certify third-party
implementation experts to use our FastLane and Express methodologies. The CIPP
enables us to scale our implementation capabilities through use of CIPP members.
As of March 31, 2000, CIPP members included Beacon Application Services,
Broadiant, Catalyst Resources, Cambridge Technology Partners, Acuent, eForce,
Emerald Solutions and Optimos. Collectively, our CIPP members have over 1,600
experts capable of implementing our services.
E&Y CONSULTING. Through our alliance with E&Y Consulting, we have access to
a large and diverse consulting organization to provide implementation of the
Corio Intelligent Enterprise to our customers.
CIO SERVICES. Through our CIO Services program, our professional services
team provides our application management services customers with IT consulting
services in a number of strategic areas, including e-commerce. Our CIO Services
program frees our customers from the difficult and costly task of hiring and
retaining scarce chief information officer-level talent.
STRATEGIC RELATIONSHIPS
A key element of our strategy is to establish and maintain a wide variety
of commercially beneficial strategic relationships. Among others, we have
established strategic relationships with the following third parties:
ENTERPRISE SOFTWARE VENDORS. We have established relationships with leading
software vendors to enable us to provide our customers with best-of-breed
enterprise software applications. We license
40
<PAGE> 45
software applications from leading enterprise software application vendors,
including BroadVision, Commerce One, Moai, PeopleSoft, SAP and Siebel Systems.
In addition, we have arrangements with some of our enterprise software vendors
that provide their sales people with financial incentives to promote the Corio
Intelligent Enterprise.
INFRASTRUCTURE SOFTWARE VENDORS. To assist us in providing our customers
with integrated services on a secure, hosted basis, we license third-party
technology from leading infrastructure software vendors such as Active Software,
BMC, ChainLink Technologies, Netegrity and Verisign, for incorporation into our
Orion technology platform.
DATA CENTER / NETWORK INFRASTRUCTURE PROVIDERS. We have built relationships
with leading data center and network infrastructure providers, such as
Concentric Network, to enable us to focus on our core businesses and to utilize
their expertise in data center management and network services provisioning.
E&Y CONSULTING. We have entered into a strategic alliance with E&Y
Consulting, whereby E&Y Consulting refers customers to us and we engage in joint
marketing and sales activities. Through our relationship with E&Y Consulting, we
believe we will be able to offer our services to a broader range of emerging
high-growth and middle-market companies and to scale our business more rapidly.
RESEARCH AND DEVELOPMENT RELATIONSHIPS. We have entered into a strategic
relationship with Microsoft to build a joint development lab in Silicon Valley
to work on ASP hosting and deployment architecture using the Microsoft Windows
DNA platform. We also have a joint technology development relationship with Sun
Microsystems to optimize the delivery of our service offering on Sun
Microsystems' hardware platform.
TECHNOLOGY
Our technology platform, Orion, enables integration, automation and hosted
deployment of software applications and facilitates the customization of these
applications.
INTEGRATION. Orion enables integration of best-of-breed software
applications and provides customers a secure, central point of entry into these
applications. We are continuing to develop our technology to further enable the
integration of applications hosted by us as well as the integration of these
applications with those not hosted by us, such as those hosted by the customer
or another ASP. This capability is designed to increase the efficiency of a wide
range of our customers' business processes by combining the functionality of a
number of enterprise applications.
AUTOMATION. We continue to invest in our automation infrastructure to
enable us to rapidly implement software upgrades, patching and testing. Enhanced
automation will better enable us to scale the number of hosted applications we
can support. We have accomplished automation for a number of processes to date.
HOSTED DEPLOYMENT. We have developed, and continue to refine, technology
that allows us to deliver software applications to our customers effectively in
a multi-tenant environment over the Internet.
CONFIGURATION MANAGEMENT. We have developed, and continue to refine,
technology that allows us to track and manage modifications to the applications
and the environments used in the Corio Intelligent Enterprise through a
configuration management system. This system manages changes that include
extensions to software applications offered through the Corio Intelligent
Enterprise to meet the particular functionality requirements of our customers,
customizations, configuration changes, reporting extensions and other
modifications. This configuration management system allows us to retain and
manage these extensions and provide them to other customers with similar
customized functionality needs. By maintaining a library of these solutions, we
are able to provide our customers additional functionality at a lower cost than
if they were to build this customized functionality internally or through a
third party.
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<PAGE> 46
CUSTOMERS
As of March 31, 2000, we had 56 customers, of which 27 were operational on
our system. The following is a list of our 15 customers that, as of March 31,
2000, had the largest projected application management services revenues over
the life of their respective contracts with us:
<TABLE>
<S> <C>
BackOfficeWeb.com LivePerson
Broadiant LoanCity.com
Commodinet MadeToOrder.com
Enstar Networking Participate.com
Essential Technologies Simplexis.com
Excite@Home SiteSmith
Extreme Networks ZEFER
IntraLinks
</TABLE>
The following case studies illustrate how selected customers are currently
benefiting from our services.
CLARENT CORPORATION
COMPANY OVERVIEW: Clarent is a provider of IP telephone systems that enable
the simultaneous transmission of voice, fax and data over the Internet and
similar communications networks. Clarent has been our customer since January
1999.
BUSINESS CHALLENGE: Clarent was quickly outgrowing its existing entry-level
financial, accounting and management systems. Clarent's applications could not
accommodate their growing number of users, requiring employees to share systems
and causing delays in purchase order and payment processing throughout the
organization. Clarent's management believed that the company required a
best-of-breed, scalable solution to meet its IT infrastructure requirements, but
decided the cost and resources required to purchase, implement and support these
applications, as well as the disruption to management caused by a long
transition period, were prohibitive.
CORIO SOLUTION: We implemented Corio Financials, Distribution and
Manufacturing, powered by PeopleSoft, in under 12 weeks. By integrating multiple
services, we enabled the automation and streamlining of Clarent's business
processes. The applications we implemented are scalable, allowing Clarent to add
both users and functionality as Clarent's business grows and becomes more
complex. Clarent estimates that our solution will result in a total cost of
ownership savings of 46% over the life of the contract compared to an
internally-operated, less sophisticated solution that would have required an
upgrade to a best-of-breed application within two years.
EXCITE@HOME
COMPANY OVERVIEW: At Home Corporation, or Excite@Home, is a global media
company offering broadband Internet connectivity, personalized, web-based
content and targeted advertising services. Excite has been our customer since
November 1998. Excite@Home became a Corio customer in 2 phases:
Phase 1: Excite, Inc.
BUSINESS CHALLENGE: In January 1998, prior to its merger with @Home, Excite
acquired MatchLogic, an online advertising service. Excite needed to integrate
the two companies' accounting systems and decided that its own enterprise
software would soon be inadequate.
CORIO SOLUTION: We implemented Corio Financials, powered by PeopleSoft, in
13 weeks. This quickly integrated Excite's and MatchLogic's accounting systems
and gave Excite scalability that its former systems did not provide.
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<PAGE> 47
Phase 2: Excite@Home
BUSINESS CHALLENGE: Within 2 months of the completed Excite and MatchLogic
implementation, Excite announced its planned merger with @Home. After the
merger, Excite@Home's management focused on combining the merged company's
internal processes to more fully realize synergies. Excite@Home wanted to
minimize the integration challenges associated with its financial and human
resources applications, concentrate on its core operations and establish a
scalable and flexible software applications platform that could support future
growth. In addition, the company had difficulty finding talented IT personnel in
the very competitive Silicon Valley market necessary to implement, support and
maintain such a solution internally.
CORIO SOLUTION: After Excite's merger with @Home, we implemented Corio
Financials and Human Resources, powered by PeopleSoft, in 16 weeks. Our monthly
user-based pricing contract with Excite@Home provides Excite@Home with a
predictable yet flexible solution for addressing future growth opportunities.
Excite@Home estimates that our solution will result in a total cost of ownership
savings of at least 30% over the life of the contract compared to an
internally-operated, best-of-breed solution. In addition, Excite@Home recently
requested us to host Siebel Sales.
VERTICAL NETWORKS
COMPANY OVERVIEW: Vertical Networks is a leading developer of integrated
communications platforms, a new class of voice and data solutions designed to
simplify communications for branch offices and small businesses worldwide.
Vertical Networks has been our customer since March 1998.
BUSINESS CHALLENGE: Vertical Networks did not have an IT platform that
could support its growth and allow easy automation of its business processes.
Vertical Networks also relied on Flextronics, a contract manufacturer with whom
we have a strategic relationship, for the manufacturing of its products. The
combination of disparate internal software applications and an outsourced
manufacturing capability resulted in inefficiencies in order fulfillment and
bill processing for Vertical Networks and Flextronics.
CORIO SOLUTION: In under 10 weeks, we implemented Corio Financials and
Distribution, powered by PeopleSoft, and integrated these solutions into
Flextronics' manufacturing system. The implementation allowed Vertical Networks
to automate business processes ranging from order entry to invoicing. The
integration with Flextronics demonstrated the ability of our Orion platform to
integrate Corio-hosted and third-party-hosted applications successfully.
Vertical Networks estimates the total cost of ownership savings from our
solution over the life of the contract to be in excess of 60% compared to an
internally-operated solution.
SALES AND MARKETING
We sell and market our services primarily through a direct sales force.
Many of our software vendors and systems integrators also pass sales leads on to
us. In 1999, we spent $11.9 million on sales and marketing activities, excluding
stock-based compensation. As of March 31, 2000, we had 101 sales and marketing
employees. Our sales organization is segmented by application expertise and
geographical location. We plan to establish regional offices staffed with our IT
experts to support our sales force. We intend to expand our direct sales
organization into all major U.S. markets and to expand our joint-sales efforts
with third parties. We also intend to extend our sales activities into
international markets through our direct sales force and through third parties.
We focus our marketing efforts on achieving brand recognition, market
awareness and lead generation. We market our services through magazine and
billboard advertising, directed advertising and targeted events, including
tradeshows, conferences and seminars. Our current customers provide references
and we feature customer recommendations in our magazine and billboard
advertising and other promotional activities.
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RESEARCH AND DEVELOPMENT
In 1999, we spent $3.2 million, excluding stock-based compensation, on
research and development. As of March 31, 2000, we had 65 employees in our
research and development team. Research and development capabilities are
essential to our strategy to enhance and expand the capabilities of our
services. We have invested significant resources in creating a structured
process for undertaking all our research and development and have recruited
engineers and software developers with relevant industry experience. When
appropriate, we also use third-party development firms to expand capacity and to
provide additional technical expertise. We have entered into a strategic
relationship with Microsoft to build a joint development lab in Silicon Valley
to work on ASP hosting and deployment architecture using the Microsoft Windows
DNA platform. We also have a joint technology development relationship with Sun
Microsystems to optimize the delivery of our service offering on Sun
Microsystems' hardware platform.
COMPETITION
We compete primarily on the basis of software functionality, total cost of
ownership, performance, service quality and security. Our current and potential
competitors primarily include:
- application service providers and business process outsourcers, such as
Applicast, AristaSoft, Breakaway Solutions, NaviSite, Qwest
Cyber.Solutions, ReSourcePhoenix.com and USinternetworking;
- systems integrators, such as Andersen Consulting, Breakaway Solutions,
Electronic Data Systems and PricewaterhouseCoopers;
- Internet service providers and web hosting companies, such as Concentric
Network, DIGEX, Exodus Communications, Frontier Corporation, GTE
Internetworking, MCI Worldcom and PSINet;
- software vendors, including J.D. Edwards, Microsoft, Oracle Corporation,
PeopleSoft, SAP, and Siebel Systems;
- major technology providers, such as Cisco Systems, IBM, Intel Corporation
and Nortel Networks;
- Internet portals, such as AOL, Excite@Home and Yahoo; and
- telecommunications companies.
The companies listed above may form strategic relationships with each other
to compete with us. These relationships may take the form of strategic
investments, joint-marketing agreements, licenses or other contractual
arrangements and may increase our competitors' ability to address customer needs
with their product and service offerings. In addition, we believe that there is
likely to be consolidation in our markets, which could lead to increased price
competition and other forms of competition.
It is possible that new competitors or alliances may emerge and gain market
share. These competitors could materially affect our ability to obtain new
contracts. Further, competitive pressure could require us to reduce the price of
our products and services, thus affecting our business, financial condition and
results of operations.
PROPRIETARY RIGHTS
Our principal proprietary rights relate to our Orion technology platform
and our trademarks. We also have developed and are developing applications and
application extensions for use internally and to offer to customers. We also
have trade secrets relating to our business processes and other confidential and
proprietary information.
We rely on a combination of copyright, trademark and trade secret
protection, confidentiality and nondisclosure agreements and licensing
arrangements to establish and protect our intellectual
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<PAGE> 49
property rights. The license agreements with our customers limit their rights to
the technologies that we offer and develop for our customers. In addition, we
seek to avoid disclosure of our trade secrets through a number of means,
including requiring those persons with access to our proprietary information to
execute nondisclosure agreements and restricting access to such information. We
have applied for the registration of the following trademarks: Corio, Express,
e-Hours and Orion. To date, we have not secured registration of any of our
marks. In addition, we currently have no patents and no patent applications
pending.
EMPLOYEES
As of March 31, 2000, we had 456 employees, including 101 in sales and
marketing, 65 in research and development, 91 in application management
services, 139 in professional services and 60 in general and administration.
None of our employees is represented by a labor union. We have never experienced
a work stoppage and believe our relationship with our employees is good.
FACILITIES
Our headquarters includes approximately 77,000 square feet in San Carlos,
California pursuant to a lease that expires in April 2010. We also sublease
approximately 36,000 square feet in Redwood City, California pursuant to a
sublease which expires with respect to 15,000 square feet in August 2000 and
with respect to the remainder in March 2002. We also have regional offices in
other U.S. locations.
We believe that our existing facilities are adequate to meet current
requirements and that additional or substitute space will be available as needed
to accommodate any expansion of operations.
LEGAL PROCEEDINGS
Although we are not currently a party to any litigation, we may from time
to time become involved in litigation arising in the ordinary course of our
business.
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<PAGE> 50
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The names, ages and positions of our directors and executive officers as of
March 31, 2000 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
George Kadifa........................... 40 President, Chief Executive Officer and
Director
Jonathan J. Lee......................... 40 Founder, Chief Strategy Officer and Director
Eric J. Keller.......................... 47 Executive Vice President, Chief Financial
Officer
John B. Ottman.......................... 42 Executive Vice President of Worldwide Markets
Vinod Khosla(1)......................... 45 Director
Aneel Bhusri(1)......................... 34 Director
Ted E. Schlein(2)....................... 36 Director
Roger S. Siboni(2)...................... 46 Director
George J. Still, Jr.(2)................. 42 Director
</TABLE>
- ------------------------
(1) Member of the compensation committee.
(2) Member of the audit committee.
GEORGE KADIFA has served as our President, Chief Executive Officer and as a
director since August 1999. Prior to joining us, from August 1992 to August
1999, Mr. Kadifa was Group Vice President and later Senior Vice President of
Industrial Sector Worldwide at Oracle Corporation, a supplier of software for
information management. Mr. Kadifa holds a B.S. in Electrical Engineering from
the American University of Beirut, an M.S. in Electrical Engineering from the
California Institute of Technology and an M.B.A. from the Graduate School of
Business at the University of Chicago.
JONATHAN J. LEE is our founder and has served as our Chief Strategy Officer
since August 1999 and as a director since September 1998. Mr. Lee served as our
President from September 1998 to August 1999 and as our Chief Executive Officer
from September 1998 to February 1999. From October 1989 to September 1998, Mr.
Lee served as Chief Executive Officer and founder of DSCI, a provider of
enterprise resource planning applications and our predecessor company. Mr. Lee
holds a B.S. in Accounting and Marketing from the University of California at
Berkeley and a B.S. in Information Management Systems from the University of
California at San Francisco. He is also an alumnus of the Executive Program at
the Graduate School of Business at Stanford University.
ERIC J. KELLER has served as our Chief Financial Officer since February
2000. Prior to joining us, from January 1996 to June 1999, Mr. Keller served as
Chief Financial Officer at Aspect Communications Corporation, a provider of
customer relationship portals, and from June 1999 to February 2000 as an
executive advisor of Aspect. From June 1993 to January 1996, Mr. Keller served
as Chief Financial Officer of Ventritex, Inc. a manufacturer of medical devices.
Mr. Keller holds a B.S. in Industrial Relations from Cornell University and an
M.B.A. from the University of California at Berkeley.
JOHN B. OTTMAN has served as Executive Vice President of Worldwide Markets
since December 1999. Prior to joining us, from November 1989 to November 1999,
Mr. Ottman held various key management positions at Oracle Corporation, most
recently as Group Vice President of the Industrial Sector. Mr. Ottman's other
management positions at Oracle included Vice President, Global Alliances,
Regional Manager and Area Manager. Mr. Ottman holds a B.A. in History from
Denison University.
ANEEL BHUSRI has served as a director since April 1999. Mr. Bhusri is a
general partner at Greylock Management, a venture capital firm, which he joined
in April 1999. Mr. Bhusri has been affiliated with PeopleSoft since August 1993,
initially as the company's Senior Vice President responsible for product
strategy, business development and marketing, and most recently as Vice
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<PAGE> 51
Chairman. He serves on the board of directors of PeopleSoft, Guru.com, HelloAsia
and Cameraworld.com. Mr. Bhusri holds a B.S. in Electrical Engineering from
Brown University and an M.B.A. from the Graduate School of Business at Stanford
University.
VINOD KHOSLA has served as a director since September 1998. Mr. Khosla is a
general partner at Kleiner Perkins Caufield & Byers, a venture capital firm,
which he joined in 1987. Mr. Khosla co-founded Daisy Systems. Mr. Khosla founded
and served as Chief Executive Officer at Sun Microsystems, Inc. Mr. Khosla
serves on the board of directors of Cerent Corporation, Concentric Network,
Excite Inc., Juniper Networks, Microprose, Nova Telecommunications, Total
Entertainment Network and Qwest Communications. Mr. Khosla holds a Bachelor of
Technology in Electrical Engineering from the Indian Institute of Technology, an
M.S. in Biomedical Engineering from Carnegie Mellon University and an M.B.A.
from the Graduate School of Business at Stanford University.
TED E. SCHLEIN has served as a director since September 1998. Mr. Schlein
is a general partner at Kleiner Perkins Caufield & Byers, which he joined in
November 1996. From June 1986 to October 1996, Mr. Schlein served in a variety
of executive positions at Symantec Corporation, a provider of Internet security
technology and business management technology solutions, most recently as Vice
President, Enterprise Products. Mr. Schlein serves on the board of directors of
Extensity, Inc. and also serves on the board of directors of several private
companies, including weservehomes.com, Portera, Angara, Linuxcare,
WineShopper.com, Nonstop Solutions and Iron Planet. Mr. Schlein holds a B.S. in
economics from the University of Pennsylvania.
ROGER S. SIBONI has served as a director since July 1999. Mr. Siboni has
served as President, Chief Executive Officer and as a member of the board of
directors of E.piphany, a software company, since August 1998. Prior to joining
E.piphany, Mr. Siboni served, from October 1996 to July 1998, as Deputy Chairman
and Chief Operating Officer of KPMG Peat Marwick LLP, a member firm of KPMG
International, an accounting and consulting organization. Mr. Siboni also served
as National Managing Partner of KPMG's information and communications practice
from June 1993 to October 1996. He serves on the board of directors of Cadence
Design Systems, Inc., FileNET, Inc., Active Software and Pivotal Corporation.
Mr. Siboni holds a B.S. in Business Administration from the University of
California at Berkeley and is a Certified Public Accountant in New York and
California.
GEORGE J. STILL, JR. has served as a director since May 1999. Mr. Still is
a general partner at Norwest Venture Partners, a venture capital firm, which he
joined in October 1989, and is a managing partner of several partnerships of
Norwest Venture Partners. Norwest was the sole venture investor in PeopleSoft,
for which Mr. Still currently serves on the board of directors. Mr. Still was a
co-founder of PeopleMan and Verio. Mr. Still also serves as a director of
several private companies including Software Technologies Corp., Embark.com,
MetaPath Software International, Market-Touch, Rates.com, eForce, Inc. and
Website Pros, Inc. Mr. Still received a B.S. from Pennsylvania State University
and an M.B.A. from the Amos Tuck School at Dartmouth College.
CLASSIFIED BOARD OF DIRECTORS
Our board of directors currently consists of seven directors. Upon the
completion of this offering, our board of directors will be divided into three
classes of directors who will serve in staggered three-year terms. As a result,
approximately one-third of the members of the board of directors will be elected
each year. Provisions in our bylaws and certificate of incorporation allow the
board of directors to fill vacancies on or increase the size of the board of
directors. These provisions, along with having a classified board of directors,
may make it difficult for our stockholders to remove incumbent directors and
fill vacancies with their own nominees to gain control of the board of
directors.
Messrs. Bhusri, Lee and Still will serve as Class I Directors, whose
initial term will expire at the 2001 annual meeting of stockholders. Messrs.
Kadifa and Schlein will serve as Class II Directors, whose initial term will
expire at the 2002 annual meeting of stockholders. Messrs. Khosla and Siboni
will serve as Class III Directors, whose initial term will expire at the 2003
annual meeting of stockholders.
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<PAGE> 52
BOARD COMMITTEES
In January 2000, our board designated a compensation committee and an audit
committee. Prior thereto, there were no such committees of the board. The
compensation committee, which consists of Messrs. Bhusri and Khosla, makes
recommendations to the board concerning the compensation of our officers and
directors and the administration of our 1998 Stock Plan and Employee Stock
Purchase Plan 2000. The audit committee, which consists of Messrs. Schlein,
Siboni and Still, reviews our financial controls, evaluates the scope of the
annual audit, reviews audit results, consults with management and our
independent auditors prior to the presentation of financial statements to
stockholders and, as appropriate, initiates inquiries into aspects of our
internal accounting controls and financial affairs.
DIRECTOR COMPENSATION
Directors currently do not receive any cash compensation from us for their
services as members of our board of directors, although members are reimbursed
for expenses in connection with attendance at board of directors and committee
meetings. Directors are eligible to participate in our 1998 Stock Plan. In July
1999, Roger Siboni was granted the right to purchase 25,000 shares of common
stock and to early exercise 100,000 stock options granted to him in January
1999. Option grants to directors are at our discretion, and we have no specific
plans regarding the amounts to be granted to our directors in the future.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee currently consists of Messrs. Bhusri and Khosla.
Prior to the formation of the compensation committee, the board of directors
performed the functions typically assigned to a compensation committee. No
member of the compensation committee and none of our executive officers has a
relationship that would constitute an interlocking relationship with executive
officers and directors of another entity.
EXECUTIVE COMPENSATION
The following table sets forth in summary form information concerning the
compensation paid by us during the fiscal year ended December 31, 1999 to our
Chief Executive Officer and another executive officer, who earned more than
$100,000 during the fiscal year. In this prospectus, these individuals are
referred to as the "named executive officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION -------------------
------------------- SECURITIES
NAME AND POSITION SALARY BONUS UNDERLYING OPTIONS
----------------- -------- -------- -------------------
<S> <C> <C> <C>
George Kadifa............................................... $125,000 $ 0 2,209,975
President and Chief Executive Officer
Jonathan J. Lee............................................. $200,000 $100,000 0
Chief Strategy Officer
</TABLE>
Mr. Kadifa joined us as our President and Chief Executive Officer in August
1999 at an annualized base salary of $300,000 and a performance bonus of up to
$100,000. In addition to the executive officers discussed above, Ronald Clarke
joined us as our Chief Executive Officer in February 1999 and resigned in March
1999. We paid Mr. Clark $53,320 in salary and granted him an option to purchase
2,000,766 shares of our common stock. At the time Mr. Clarke resigned, however,
his options were cancelled pursuant to the terms of our 1998 Stock Plan.
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<PAGE> 53
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth, as to George Kadifa, the only named
executive officer to receive option grants in fiscal 1999, information
concerning stock options granted during the fiscal year ended December 31, 1999.
The information regarding options granted as a percentage of total options
granted in the fiscal year is based upon options to purchase an aggregate of
10,527,391 shares of common stock that were granted, including to Mr. Kadifa, in
the fiscal year ended December 31, 1999.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF ASSUMED ANNUAL RATE OF
SECURITIES PERCENT OF EXERCISE STOCK PRICE APPRECIATION FOR
UNDERLYING TOTAL OPTIONS PRICE OPTION TERM
OPTIONS GRANTED IN PER EXPIRATION ------------------------------
GRANTED FISCAL YEAR SHARE DATE 5% 10%
---------- ------------- -------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
George Kadifa.................. 2,209,975 20.99% $0.40 08/02/09 $ $
</TABLE>
The potential realizable value is calculated based on the term of the
option at the time of grant, which is ten years, and the assumed initial public
offering price of $ . The assumed rates of appreciation are prescribed by
the Securities and Exchange Commission for illustrative purposes only and are
not intended to forecast or predict future stock prices. The potential
realizable value at 5% and 10% appreciation is calculated by assuming that the
initial public offering price appreciates at the indicated rate for the entire
term of the option and that the option is exercised at the exercise price and
sold on the last day of its term at its appreciated price.
Mr. Kadifa's options have a ten year term and vest as to 25% of the shares
one year from the vesting commencement date and as to 1/48 of the shares at the
end of each month thereafter, subject to continued service as an employee or
consultant. In the event Mr. Kadifa is terminated involuntarily and without
cause during his first year of employment, 1/48 of the shares subject to his
option vest for each month he was employed with us. There were no option
exercises or unexercised options by our named executive officers for the year
ended December 31, 1999.
COMPENSATION PLANS
1998 Stock Plan
Our 1998 Stock Plan provides for the granting to employees of incentive
stock options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended, or the Code, and for the granting to employees, directors and
consultants of nonstatutory stock options and stock purchase rights, or SPRs.
The board of directors and the stockholders approved the 1998 Stock Plan in
September 1998. Unless terminated sooner, the 1998 Stock Plan will automatically
terminate in 2008. There are currently 18,500,000 shares reserved for issuance
under the plan. In addition, the 1998 Stock Plan provides for automatic annual
increases in the number of shares reserved for issuance under the plan, in an
amount each year equal to the lesser of:
- 6% of the outstanding shares on such date;
- 6,000,000 shares; and
- such lesser amount as may be determined by the board.
The 1998 Stock Plan may be administered by our board of directors or a
committee of the board, referred to as the administrator, which shall, in the
case of options intended to qualify as "performance-based compensation" within
the meaning of Section 162(m) of the Code, consist of two or more "outside
directors" within the meaning of Section 162(m) of the Code. The administrator
has the power to determine the terms of the options or SPRs granted, including
the exercise price, the number of shares subject to each option or SPR, the
exercisability thereof, and the form of consideration payable upon such
exercise. In addition, the board of directors has the authority to amend,
suspend or terminate the 1998 Stock Plan, provided that no such action may
impair the rights of any holder of an outstanding
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<PAGE> 54
option or SPR granted under the 1998 Stock Plan unless mutually agreed by the
holder and the administrator.
Options and SPRs granted under the 1998 Stock Plan are not generally
transferable by the optionee, and each option and SPR is exercisable during the
lifetime of the optionee only by the optionee. Vested options granted under the
1998 Stock Plan must generally be exercised within three months of the end of an
optionee's status as an employee or consultant of us, or within twelve months
after an optionee's termination by death or disability, but in no event later
than the expiration of the option's ten year term. In the case of SPRs, unless
the administrator determines otherwise, the restricted stock purchase agreement
shall grant us a repurchase option exercisable upon the voluntary or involuntary
termination of the purchaser's services with us for any reason including death
or disability. The purchase price for shares repurchased under the restricted
stock purchase agreement shall be the original price paid by the purchaser and
may be paid by cancellation of any indebtedness of the purchaser to us. The
repurchase option shall lapse at a rate determined by the administrator. The
exercise price of all incentive stock options granted under the 1998 Stock Plan
must be no less than 110% of the fair market value per share on the date of the
grant for employees who own stock representing more than 10% of the voting power
of all classes of our stock, and for all other employees the exercise price must
be at least equal to the fair market value of the common stock on the date of
grant. The exercise price of nonstatutory stock options and SPRs granted under
the 1998 Stock Plan is determined by the administrator. With respect to
nonstatutory stock options intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the exercise
price must be no less than 110% of the fair market value per share on the date
of the grant for service providers who own stock representing more than 10% of
the voting power of all classes of our stock, and for all other service
providers the exercise price must be no less than 85% of the fair market value
of the common stock on the date of grant. The term of incentive stock options
granted to any participant who owns stock representing more than 10% of the
voting power of all classes of our stock must not exceed five years. The term of
all other options granted under the 1998 Stock Plan may not exceed ten years.
The 1998 Stock Plan provides that in the event of a merger with or into
another corporation or a sale of substantially all of our assets, each option or
right shall be assumed or an equivalent option or right substituted by the
successor corporation. If the outstanding options or rights are not assumed or
substituted, the administrator shall notify the optionee that the option or SPR
will be fully exercisable as to all of the optioned stock, including shares as
to which it would not otherwise be exercisable for a period of at least 15 days
from the date of notice, and that the option or SPR will terminate upon the
expiration of such period.
Employee Stock Purchase Plan 2000
Our board and stockholders adopted our Employee Stock Purchase Plan 2000,
or the Purchase Plan, in February 2000, and the Purchase Plan will become
effective upon the closing of this offering. A total of 1,000,000 shares of
common stock have been reserved for issuance under the Purchase Plan. The
Purchase Plan provides for automatic annual increases in the number of shares
reserved for issuance under the Purchase Plan, in an amount each year equal to
the lesser of:
- 2.5% of the outstanding shares on such date;
- 2,500,000 shares; and
- such lesser amount as may be determined by the board.
The Purchase Plan, which is intended to qualify under Section 423 of the
Code, generally contains six month offering periods, during which an option
granted under the Purchase Plan may be exercised. The offering periods generally
start on the first trading day on or after February 1 and August 1 of each year,
except for the first such offering period. The first offering period commences
on the first trading day on or after the effective date of this offering and
ends on the last trading day on or before January 31, 2001.
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<PAGE> 55
Employees are eligible to participate in the Purchase Plan if they are
customarily employed by us for at least 20 hours per week and more than five
months in any calendar year. However, any employee who immediately after a grant
owns stock possessing 5% or more of the total combined voting power or value of
all classes of our capital stock, or whose rights to purchase stock under all of
our employee stock purchase plans accrues at a rate which exceeds $25,000 worth
of stock for each calendar year may be not be granted an option to purchase
stock under the Purchase Plan. The Purchase Plan permits participants to
purchase common stock through payroll deductions of up to 15% of the
participant's "compensation." Compensation is defined as the participant's total
compensation including base straight time gross earnings, bonuses and
commissions, overtime, shift premium payments, incentive payments and other
compensation. The maximum aggregate number of shares that may be issued to
employees during the first offering period is 2% of the then outstanding shares
of capital stock on the first day of such period; thereafter, the maximum number
of shares that may be issued to employees during a single offering period is
1.5% of the outstanding shares of capital stock on the first day of the offering
period.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each offering period. The price of stock
purchased under the Purchase Plan is generally 85% of the lower of the fair
market value of the common stock at the beginning or the end of the offering
period. Participants may end their participation at any time during an offering
period, and they will be paid their payroll deductions to date. Participation
ends automatically upon termination of employment with us.
Rights granted under the Purchase Plan are not transferable by a
participant other than by will, the laws of descent and distribution, or as
otherwise provided under the Purchase Plan. The Purchase Plan provides that, in
the event of a merger with or into another corporation or a sale of
substantially all of our assets, each outstanding option may be assumed or
substituted for by the successor corporation. If the successor corporation
refuses to assume or substitute for the outstanding options, the offering period
then in progress will be shortened and a new exercise date will be set. The
Purchase Plan will terminate in 2010. The Purchase Plan is administered by the
board of directors or a committee of the board, and the board of directors has
the authority to amend or terminate the Purchase Plan, except that no such
action may adversely affect any outstanding rights to purchase stock under the
Purchase Plan.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation limits the liability of our directors to
the maximum extent permitted by Delaware law. Delaware law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except for any liability
arising with respect to:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- any transaction from which the director derived an improper personal
benefit; or
- unlawful payments of dividends or unlawful stock repurchases or
recissions.
The limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or recission.
Our certificate of incorporation further provides that we are authorized to
indemnify our directors and executive officers and may indemnify our other
officers and employees and agents to the fullest extent permitted by Delaware
law. We believe that indemnification under our certificate of incorporation
covers negligence and gross negligence on the part of indemnified parties. Our
bylaws permit us to secure insurance on behalf of any officer, employee or other
agent for any liability arising
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<PAGE> 56
out of his or her actions in their capacity as an officer, director, employee or
other agent, regardless of whether we would have the power to indemnify him or
her under Delaware law.
In addition to indemnification provided for in our certificate of
incorporation, we have entered into agreements to indemnify our directors and
officers. These agreements, among other things, require us to indemnify these
directors and officers for certain expenses, including attorneys' fees,
judgments, fines and settlement amounts incurred by these persons in any action
or proceeding, including any action by or in our right, arising out of that
person's services as a director or officer of us, any subsidiary of ours or any
other company or enterprise to which the person provides services at our
request.
The limited liability and indemnification provisions in our certificate of
incorporation and bylaws may discourage stockholders from bringing a lawsuit
against our directors for breach of their fiduciary duty and may reduce the
likelihood of derivative litigation against our directors and officers, even
though a derivative action, if successful, might otherwise benefit us and our
stockholders. A stockholder's investment in us may be adversely affected to the
extent we pay the costs of settlement or damage awards against our directors and
officers under these indemnification provisions.
At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees or agents where indemnification would be
required or permitted. We are not aware of any pending or threatened litigation
or proceeding that might result in a claim for such indemnification. We believe
that these provisions and agreements are necessary to attract and retain
qualified directors and officers.
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<PAGE> 57
CERTAIN TRANSACTIONS
PREFERRED STOCK SALES
SERIES A PREFERRED STOCK. In September 1998, we completed a number of
transactions which included, among other things, the following:
- Jonathan Lee, through a trust for which he is a trustee, contributed all
of the outstanding stock of DSCI, a predecessor to us, in exchange for:
- 3,492,000 shares of our series A preferred stock at a price of
$0.4706 per share, of which 1,746,000 shares were subject to a
repurchase right in favor of us that lapses over three years;
- a promissory note in the aggregate principal amount of approximately
$2.3 million; and
- an aggregate of $1.6 million in cash;
- Entities affiliated with Kleiner, Perkins, Caufield & Byers, or KPC&B,
purchased 8,500,000 shares of series A preferred stock at a price of
$0.4706 per share;
- Jonathan Lee, through a trust of which he is a trustee, granted KPC&B a
call option to purchase 1,600,000 shares of series A preferred stock at
an aggregate purchase price of $5.0 million, as more fully described
below; and
- The holders of our series A preferred stock were allocated rights to
three seats on our board of directors, currently filled by Vinod Khosla
and Ted Schlein, in connection with the investment by KPC&B, and by
Jonathan Lee. These rights expire upon the closing of this offering.
CALL OPTION AGREEMENT. In September 1998, we entered into a call option
agreement with KPC&B and Jonathan Lee, through a trust of which he is a trustee.
Under the call option agreement, Mr. Lee's trust granted KPC&B a call option to
purchase up to 1,600,000 shares of our series A preferred stock held by Mr.
Lee's trust at an aggregate exercise price of $5.0 million. This option required
us to release in part our right to repurchase shares if KPC&B exercised its call
option to buy those shares within a specified period of time following the date
of the call option agreement. On February 17, 2000, KPC&B exercised its call
option for the entire 1,600,000 shares of series A preferred stock, and we
released from our repurchase right 422,400 shares of series A preferred stock
held by Mr. Lee's trust.
SERIES B PREFERRED STOCK. In April 1999 and May 1999, we sold 10,639,842
shares of our series B preferred stock at a price of $2.00 per share, to raise
capital to finance our operations. The holders of our series B preferred stock
were allotted two seats on our board of directors, currently filled by George J.
Still, Jr. and Aneel Bhusri.
SERIES C PREFERRED STOCK. In October, November and December 1999, we sold
7,104,621 shares of our series C preferred stock at a price of $6.50 per share
to raise capital to finance our operations. Concurrent with this transaction,
indebtedness aggregating $1.0 million in principal amount previously due to Mr.
Lee from us pursuant to the note referenced above was converted by Mr. Lee into
153,846 shares of our series C preferred stock. In October 1999, we issued
warrants to purchase 307,692 shares of our series C preferred stock at an
exercise price of $6.50 per share. In December 1999, we also issued warrants to
purchase 43,077 shares of our series C preferred stock, assuming this offering
is consummated on or before June 30, 2000, at an exercise price of $6.50 per
share.
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<PAGE> 58
The following 5% stockholders purchased shares in the following preferred
stock financings:
<TABLE>
<CAPTION>
NO. OF NO. OF NO. OF
SHARES OF SHARES OF SHARES OF
SERIES A SERIES B SERIES C AGGREGATE
PURCHASER PREFERRED PREFERRED PREFERRED TOTAL SHARES CONSIDERATION
--------- ------------ ------------ ------------ --------------- -------------
<S> <C> <C> <C> <C> <C>
Funds affiliated with Kleiner
Perkins Caufield & Byers:
KPCB Java Fund............. 4,250,000 500,000 212,308 4,962,308 $4,380,011
Kleiner Perkins Caufield &
Byers VIII, L.P. ....... 3,816,500 449,000 200,674 4,466,174 3,998,388
KPCB VIII Founders Fund
L.P. ................... 221,000 26,000 11,634 258,634 231,621
KPCB Information Sciences
Zaibatsu Fund II,
L.P..................... 212,500 25,000 237,500 150,000
Jonathan and Su Lee as
Trustees of the Lee
Revocable Trust............ 3,492,000 -- 153,846 3,645,846 2,643,335
Norwest Venture Partners
VII........................ -- 4,000,000 198,462 4,198,462 9,290,003
Greylock IX Limited
Partnership................ -- 2,500,000 124,615 2,624,615 5,809,998
</TABLE>
In connection with the above transactions, we entered into agreements with
the investors providing for registration rights with respect to these shares.
For more information regarding this agreement, see "Description of Capital Stock
- -- Registration Rights."
INDEMNIFICATION AGREEMENTS
We have entered into indemnification agreements with officers and directors
containing provisions which may require us, among other things, to indemnify
them against certain liabilities that may arise by reason of their status or
service as officers or directors. See "Management -- Limitation of Liability and
Indemnification Matters" for more information regarding indemnification of our
officers and directors.
EXECUTIVE OFFICER EMPLOYMENT ARRANGEMENTS
In June 1999, we entered into an offer letter with George Kadifa, our
President and Chief Executive Officer, pursuant to which we agreed to pay Mr.
Kadifa an initial annual salary of $300,000 and a performance bonus of up to
$100,000 to be paid on the achievement of agreed-upon milestones. Mr. Kadifa's
employment with us is on an at-will basis. Pursuant to a separate change in
control agreement between Corio and Mr. Kadifa, in the event that we terminate
Mr. Kadifa's employment within one year following a change in control, Mr.
Kadifa is entitled to an additional year of vesting of his options.
In September 1998, we entered into an employment agreement with Jonathan
Lee, our founder and Chief Strategy Officer, pursuant to which we agreed to pay
Mr. Lee an annual salary of $200,000 and an annualized performance bonus, paid
quarterly, of up to $100,000 based upon achievement of agreed-upon milestones.
Mr. Lee's employment with us is on an at-will basis. Under the employment
agreement, if Mr. Lee is terminated involuntarily for any reason other than for
cause or Mr. Lee voluntarily terminates his employment with us for good reason,
Mr. Lee is entitled to receive a severance payment equal to nine months' base
salary as then in effect, plus continuing health payments for nine months. Also
under the employment agreement, in the event that Mr. Lee voluntarily terminates
his employment with us within six months following a change in control, our
repurchase option in respect of any unvested shares of our common stock shall
lapse in full and Mr. Lee shall become fully vested as to such shares.
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<PAGE> 59
In February 2000, we entered into an offer letter with Eric Keller, our
Executive Vice President and Chief Financial Officer, pursuant to which we
agreed to pay Mr. Keller an annual salary of $200,000 and an annual bonus of up
to $60,000. Mr. Keller's employment with us is on an at-will basis. Pursuant to
a separate change in control agreement between Corio and Mr. Keller, in the
event that we terminate Mr. Keller's employment within one year following a
change in control, Mr. Keller is entitled to an additional year of vesting of
his options.
In November 1999, we entered into an offer letter with John Ottman, our
Executive Vice President of Worldwide Markets, pursuant to which we agreed to
pay Mr. Ottman an annual salary of $200,000 and a bonus of up to $100,000. Mr.
Ottman's employment with us is on an at-will basis. Pursuant to a separate
change in control agreement between Corio and Mr. Ottman, in the event that we
terminate Mr. Ottman's employment within one year following a change in control,
Mr. Ottman is entitled to an additional year of vesting of his options.
PEOPLESOFT AGREEMENTS
In January 1999, we entered into an outsourcer alliance agreement with
PeopleSoft for a software license to offer PeopleSoft software to our customers
and for other rights, and in March 1999, we entered into a software license and
services agreement with PeopleSoft for a license to use PeopleSoft software
internally. Two of our directors, Aneel Bhusri and George Still, are also
members of the board of directors of PeopleSoft. Pursuant to the agreements, we
paid a total of approximately $7.5 million to PeopleSoft in 1999, and as of
December 31, 1999 we had an accrued liability to PeopleSoft pursuant to these
agreements of approximately $1.8 million.
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<PAGE> 60
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of March 31, 2000 for:
- each person who we know to beneficially own more than 5% of our common
stock,
- each of our directors;
- each of the named executive officers; and
- all directors and executive officers as a group.
<TABLE>
<CAPTION>
PERCENTAGE
OF SHARES
OUTSTANDING(2)
NUMBER OF SHARES --------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OWNED(1) OFFERING OFFERING
---------------- ---------------- -------- --------
<S> <C> <C> <C>
Entities affiliated with Kleiner Perkins Caufield &
Byers, Vinod Khosla and Ted Schlein(3)............... 11,524,616 35.3
2750 Sand Hill Road
Menlo Park, CA 94025
Norwest Venture Partners VII and George J. Still,
Jr.(4)............................................... 4,198,462 12.9
245 Lytton Avenue, Suite 250
Palo Alto, CA 94301-1426
Greylock IX Limited Partnership and Aneel Bhusri(5).... 2,624,615 8.1
755 Page Mill Road
Building A, Suite 100
Palo Alto, CA 94304
George Kadifa.......................................... 109,231 * *
Jonathan and Su Lee as trustees of the Lee Revocable
Trust and Jonathan Lee(6)............................ 2,045,846 6.3
Roger Siboni(7)........................................ 125,000 * *
All executive officers and directors as a group (9
persons)(8).......................................... 2,408,648 7.4
</TABLE>
- ---------------
* Less than 1% of the outstanding shares of common stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of our common stock subject to options or warrants held by that
person that are currently exercisable or exercisable within 60 days of March
31, 2000 are deemed outstanding. Those shares, however, are not deemed
outstanding for the purposes of computing the percentage ownership of each
other person. Percentage ownership is based on 34,194,024 shares of common
stock outstanding at March 31, 2000, assuming the conversion of all
outstanding shares of preferred stock into common stock.
(2) Assumes no exercise of the underwriters' over-allotment option.
(3) Consists of 5,762,308 shares held by KPCB Java Fund, L.P., 5,184,574 shares
held by Kleiner Perkins Caufield & Byers VIII, L.P., 300,234 shares held by
KPCB VIII Founders Fund, L.P. and 277,500 shares held by KPCB Information
Sciences Fund Zaibatsu Fund II, L.P. Both Vinod Khosla and Ted Schlein are
members of our board of directors and general partners of Kleiner Perkins
Caufield & Byers. Mr. Khosla and Mr. Schlein disclaim beneficial ownership
of the shares held by the funds affiliated with Kleiner Perkins Caufield &
Byers except to the extent of their pecuniary interest therein. The
following natural persons exercise voting and/or dispositive powers for the
shares held by KPCB Information Science Zaibatsu Fund II, L.P.: Brook Byers,
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<PAGE> 61
John Doerr, Vinod Khosla, Joseph Lacob, Kevin Compton, W.S. McKinsey and William
Hearst. The following natural persons exercise voting rights and/or dispositive
powers for the shares held by the KPCB Java Fund, L.P., Kleiner Perkins Caufield
& Byers VIII, L.P. and Kleiner Perkins Caufield & Byers Founders Fund,
L.P.: Brook Byers, John Doerr, James Lally, Floyd Kvamme, Vinod Khosla,
Joseph Lacob, Bernard Lacroute, Kevin Compton, W.S. McKinsey and William
Hearst.
(4) Consists of 4,198,462 shares held by Norwest Venture Partners VII. George J.
Still, Jr. is a member of our board of directors and a general partner of
Norwest Venture Partners. Mr. Still disclaims beneficial ownership of the
shares held by the funds affiliated with Norwest Venture Partners except to
the extent of his pecuniary interest therein. The following natural persons
exercise voting and/or dispositive powers for the shares held by Norwest
Venture Partners: George Still, Jr. and Promod Hague.
(5) Consists of 2,624,615 shares held by Greylock IX Limited Partnership. Aneel
Bhusri is a member of our board of directors and a general partner of
Greylock. Mr. Bhusri disclaims beneficial ownership of the shares held by
the funds affiliated with Greylock except to the extent of his pecuniary
interest therein. The following natural persons exercise voting and/or
dispositive powers for the shares held by Greylock IX Limited Partnership:
Aneel Bhusri, Howard E. Cox, Jr., Roger L. Evans, Charles M. Hazard, Jr.,
William W. Helman, William S. Kaiser, Henry F. McCance and David N. Strohm.
(6) Consists of 2,045,846 shares held by the Jonathan and Su Lee Revocable
Trust. Jonathan Lee is a member of our board of directors and our Chief
Strategy Officer. Includes 450,600 subject to a right of repurchase in our
favor which lapses over a period of time.
(7) Consists of 125,000 shares held by Roger Siboni. Roger Siboni is a member of
our board of directors. Includes 88,542 subject to a right of repurchase in
our favor which lapses over a period of time.
(8) Includes 667,713 shares subject to a right of repurchase in our favor which
lapses over a period of time.
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<PAGE> 62
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Our authorized capital stock as of March 31, 2000 consisted of 50,000,000
shares of common stock, and 33,127,000 shares of preferred stock. As of March
31, 2000, there were outstanding 2,640,195 shares of common stock and 29,964,795
shares of preferred stock. These shares were held of record by a total of 101
stockholders.
Upon the closing of this offering:
- our certificate of incorporation will be amended and restated to provide
for total authorized capital consisting of 200,000,000 shares of common
stock and 10,000,000 shares of preferred stock; and
- all shares of preferred stock will convert into common stock, and a total
of shares of common stock and no shares of preferred stock will
be outstanding, assuming no exercise of the underwriters' over-allotment
option.
Common Stock
The holders of our common stock are entitled to receive dividends as may be
declared by our board of directors and paid out of legally available funds.
Holders of shares of common stock are entitled to one vote per share upon all
matters upon which stockholders have the right to vote. Cumulative voting of
shares is not permitted. In the event of a voluntary or involuntary liquidation,
dissolution or winding up of our company, the holders of our common stock are
entitled to receive and share ratably in all assets remaining available for
distribution to stockholders after payment of any preferential amounts to which
the holders of preferred stock may be entitled. Our common stock has no
preemptive rights and is not redeemable, assessable or entitled to the benefits
of any sinking fund. Shares of our common stock are not convertible into any
other security. All outstanding shares of our common stock are, and the common
stock to be issued in this offering will be, validly issued, fully paid and
nonassessable.
Preferred Stock
Upon the closing of this offering, each outstanding share of preferred
stock will automatically convert into one share of common stock, except for the
outstanding shares of senior series E mandatorily redeemable preferred stock.
The outstanding shares of senior series E mandatorily redeemable preferred stock
will, assuming this offering closes before the end of this year, convert into
shares of common stock at a discount of 27% to the per share offering price. In
certain circumstances, if we close a private equity financing prior to the
consummation of this offering, the senior series E mandatorily redeemable
preferred stock will be convertible into shares of series D preferred stock at a
discount to the per share offering price in the private equity financing.
Pursuant to an amended and restated certificate of incorporation to be
filed upon the closing date, a total of 10,000,000 shares of preferred stock
will be authorized for issuance, none of which has been designated in any
series. Our board of directors is authorized, without further stockholder
action, to authorize and issue any of the 10,000,000 undesignated shares of
preferred stock in one or more series and to fix the voting rights, liquidation
preferences, dividend rights, repurchase rights, conversion rights, preemption
rights, redemption rights and terms, including sinking fund provisions and
certain other rights and preferences of such shares of our preferred stock. The
issuance of any class or series of preferred stock could adversely affect the
rights of the holders of common stock by restricting dividends on, diluting the
power of, impairing the liquidation rights of common stock, or delaying,
deferring or preventing a change in control of us. We have no present plans to
issue any additional preferred stock.
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<PAGE> 63
WARRANTS
In connection with debt arrangements, we issued to Comdisco warrants to
purchase a total of 681,213 shares of series A preferred stock at an exercise
price of $1.24 per share on December 21, 1998. Following the closing of this
offering, the warrants automatically will become exercisable for a similar
number of shares of common stock at the same exercise price per share. Comdisco
may exercise this warrant by means of a cash payment in an amount equal to the
exercise price or, in the event the common stock is publicly traded, a net issue
exercise whereby Comdisco would receive shares equal to the value of the
warrant. The warrants expire upon the earlier to occur of:
- December 21, 2005;
- 3 years after the effective date of our initial public offering; or
- a change in control of Corio.
In connection with the lease for our new headquarters, we issued to Spieker
Properties, L.P. a warrant to purchase a total of 50,000 shares of common stock
at an exercise price of $6.50 per share on October 15, 1999. Following the
closing of this offering, the warrants automatically will become exercisable for
a similar number of shares of common stock at the same exercise price per share.
Spieker Properties, L.P. may exercise this warrant by means of a cash payment in
an amount equal to the exercise price or in the event the common stock is
publicly traded, a net issue exercise whereby Spieker Properties, L.P. would
receive shares equal to the value of the warrant. The warrants expire upon the
earlier to occur of December 31, 2001 or change in control of Corio.
In connection with a hosting agreement, we issued to Concentric Network a
warrant to purchase a total of 153,846 shares of series C preferred stock at an
exercise price of $6.50 per share on October 29, 1999. Following the closing of
this offering, the warrants automatically will become exercisable for a similar
number of shares of common stock at the same exercise price per share.
Concentric Network may exercise such warrant by means of a cash payment in an
amount equal to the exercise price or in the event the common stock is publicly
traded, a net issue exercise whereby Concentric Network would receive shares
equal to the value of the warrant. The warrants expire upon the earlier to occur
of October 29, 2001 or change in control of Corio.
In connection with a hosting license agreement, we issued to Siebel
Systems, Inc. a warrant to purchase a total of 153,846 shares of series C
preferred stock at an exercise price of $6.50 per share on October 29, 1999.
Following the closing of this offering, the warrants automatically will become
exercisable for a similar number of shares of common stock at the same exercise
price per share. Siebel Systems, Inc. may exercise this warrant by means of a
cash payment in an amount equal to the exercise price or in the event the common
stock is publicly traded, a net issue exercise whereby Siebel Systems, Inc.
would receive shares equal to the value of the warrant. The warrants expire upon
the earlier to occur of October 29, 2002 or change in control of Corio.
In connection with a guarantee for our new headquarters, we issued to
Comdisco a warrant to purchase up to a certain percentage of $7,000,000 divided
by the exercise price of $6.50 per share of series C preferred stock on December
27, 1999. Following the closing of this offering, the warrants automatically
will become exercisable for a similar number of shares of common stock at the
same exercise price per share. Comdisco may exercise this warrant by means of a
cash payment in an amount equal to the exercise price or in the event the common
stock is publicly traded, a net issue exercise whereby Comdisco would receive
shares equal to the value of the warrant. The warrants expire upon the earlier
to occur of:
- December 27, 2006;
- 3 years after the effective date of our initial public offering; or
- a change in control of Corio.
As part of our strategic alliance with Ernst & Young, on behalf of its
consulting division, E&Y Consulting, we have issued to E&Y Consulting warrants
to purchase up to 7,000,000 shares of our common stock at an exercise price of
$6.50 per share. E&Y Consulting may exercise the first of these
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<PAGE> 64
warrants to acquire 4,666,666 shares of our common stock during the 90 day
period following this offering. The second, third and fourth warrants become
exercisable, respectively, upon the occurrence of specified events following our
2000, 2001 and 2002 fiscal years. Depending upon the amount of our revenues that
are attributable to E&Y Consulting referrals in each of our 2000, 2001 and 2002
fiscal years, the second, third and fourth warrants may be exercised to acquire
up to 933,333, 933,333 and 466,667 shares of our common stock, respectively. The
warrants are subject to cancellation or repurchase in whole or in part under
circumstances such as E&Y Consulting breaching a material provision of the
agreement.
In connection with our equipment lease line of credit with Finova Capital
Corporation, we issued Finova a warrant to purchase $100,000 of common stock at
an exercise price per share equal to 90% of the price per share of our common
stock in this offering. Finova may exercise this amount in whole or in part at
any time and from time to time after this offering by means of cash payment in
an amount equal to the exercise price or by means of a net issue exercise
whereby Finova would receive shares equal to the value of the warrant. The
warrant expires in April 2005.
REGISTRATION RIGHTS
The holders of approximately shares of outstanding common stock,
assuming an initial public offering price of $ per share and the conversion
of all outstanding preferred stock and warrants to purchase preferred stock
convertible into 1,031,982 shares of our common stock, will have certain
registration rights under the Securities Act with respect to their shares of
common stock. Under the terms of the Amended and Restated Investor Rights
Agreement dated April 20, 2000, if we propose to register any of our common
stock under the Securities Act, the holders of the registrable securities are
entitled to notice of the registration and have the right to include their
registrable securities in the registration. However, the underwriters have
certain rights to limit the number of shares included in any registration.
Beginning 180 days after the closing of the offering, the holders of at least
40% of the registrable securities have the right to require us on no more than
two occasions, to file a registration statement under the Securities Act in
order to register all or any part of their registrable securities, subject to
conditions and limitations. We may in certain circumstances defer these
registrations, and the underwriters have the right to limit, and in the case of
our initial public offering, to exclude entirely, the number of shares included
in these registrations. Further, the holders of registrable securities may
require us to register all or any portion of their registrable securities on
Form S-3, when such form becomes available to us, subject to conditions and
limitations.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, AND
BYLAWS AND OF DELAWARE LAW
Provisions of our certificate of incorporation, bylaws and Delaware law,
described below, may have the effect of delaying, deferring or discouraging
another person from acquiring control of our company.
Certificate of Incorporation and Bylaws
Our certificate of incorporation permits our board to issue up to
10,000,000 shares of preferred stock without stockholder approval. The issuance
of a substantial number of shares of preferred stock could delay or prevent an
acquisition. Additional provisions of our certificate of incorporation that may
delay or prevent an acquisition include a staggered board, advance notice
procedures for stockholders to nominate candidates for election as directors,
authorization of our board to alter the number of directors without stockholder
approval and lack of cumulative voting. Our bylaws limit the ability of our
stockholders to call a special meeting and do not permit the stockholders to act
by written consent. These provisions of our certificate of incorporation and
bylaws are designed to enhance the likelihood of continuity and stability of our
board of directors. Accordingly, these provisions may have the effect of
preventing, discouraging or delaying any potential acquisition proposals or
changes in the control of us and of preventing changes in our management.
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<PAGE> 65
Effect of Delaware Anti-Takeover Statute
We are subject to Section 203 of the Delaware General Corporation Law
which, subject to exceptions, prohibits a Delaware corporation from engaging in
any business combination with any interested stockholder for a period of three
years following the date that the stockholder became an interested stockholder,
unless:
- the transaction is approved by the board of directors prior to the date
the interested stockholder attained such status;
- upon the closing of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced; or
- on or subsequent to such date the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders by at least two-thirds of the outstanding voting stock that
is not owned by the interested stockholder.
Generally, a "business combination" includes a merger, asset or stock sale,
or other transaction resulting in a financial benefit to the interested
stockholder. Generally, an "interested stockholder" is a person who, together
with affiliates and associates, owns or within three years prior to the
determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Norwest Shareowner
Services.
LISTING
We have applied to list our common stock on the Nasdaq National Market
under the symbol "CRIO".
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<PAGE> 66
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have shares of
common stock outstanding. Of these shares, the shares sold in
this offering will be freely tradable without restriction under the Securities
Act, unless purchased by our "affiliates," as that term is defined in Rule 144
under the Securities Act. Substantially all shares of our stock outstanding
prior to this offering are subject to 180-day lock-up agreements with the
underwriters, and may not be sold in the public market prior to the expiration
of the lock-up agreements except in specified circumstances. The 180-day
restriction will terminate as to 15% of the shares subject to the restriction
after 90 days and 20% of the shares subject to the restriction after 120 days
after the date of this prospectus, subject to delays as a result of the timing
of our earnings releases and compliance with our insider trading policies, in
the event that, at such dates, the reported last sale price of our common stock
on the Nasdaq National Market is at least twice the initial public offering
price specified in this prospectus for a certain period of time ending on such
dates. In addition, Goldman, Sachs & Co. may, at its discretion, release the
shares subject to the lock-up agreements in whole or in part at any time without
prior public notice. However, Goldman, Sachs & Co. has no current plans to
effect such a release.
<TABLE>
<CAPTION>
NUMBER OF SHARES
ELIGIBLE FOR SALE COMMENT
- ----------------- -------
<C> <S>
0 After the date of this prospectus, freely tradable shares
sold in this offering and shares saleable under Rule 144(k)
that are not subject to the 180-day lock-up.
3,523,027 After 90 days from the date of this prospectus, the lock-up
may, in certain circumstances, terminate in part, resulting
in these shares becoming saleable under Rule 144 (subject in
some cases to volume limitations), Rule 144(k) or Rule 701
(subject in some cases to a right of repurchase by Corio).
4,697,370 After 120 days from the date of this prospectus, the lock-up
may, in certain circumstances, terminate in part, resulting
in these shares becoming saleable under Rule 144 (subject in
some cases to volume limitations), Rule 144(k), or Rule 701
(subject in some cases to a right of repurchase by Corio).
23,486,848 After 180 days from the date of this prospectus, the 180-day
lock-up terminates in its entirety and these shares are
saleable under Rule 144 (subject in some cases to volume
limitations), Rule 144(k) or Rule 701 (subject in some cases
to a right of repurchase by Corio).
19,121,276 After 180 days from the date of this prospectus, restricted
securities that are held for less than one year and are not
yet saleable under Rule 144.
</TABLE>
RULE 144
In general, under Rule 144 a person, or persons whose shares are
aggregated, who has beneficially owned shares for at least one year is entitled
to sell within any three-month period commencing 90 days after the date of this
prospectus a number of shares that does not exceed the greater of
- 1% of the then outstanding shares of our common stock, or approximately
shares immediately after this offering, or
- the average weekly trading volume during the four calendar weeks
preceding such sale, subject to the filing of a Form 144 with respect to
the sale.
A person, or persons whose shares are aggregated, who is not deemed to have
been our affiliate at any time during the 90 days immediately preceding the sale
and who has beneficially
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<PAGE> 67
owned his or her shares for at least two years is entitled to sell these shares
pursuant to Rule 144(k) without regard to the limitations described above.
Affiliates must always sell pursuant to Rule 144, even after the applicable
holding periods have been satisfied.
We cannot estimate the number of shares that will be sold under Rule 144,
as this will depend on the market price for our common stock, the personal
circumstances of the sellers and other factors. Prior to this offering, there
has been no public market for our common stock, and there can be no assurance
that a significant public market for our common stock will develop or be
sustained after this offering. Any future sale of substantial amounts of our
common stock in the open market may adversely affect the market price of our
common stock.
LOCK-UP AGREEMENTS
We and our officers, directors and stockholders have agreed, subject to
specified exceptions, not to, without the prior written consent of Goldman,
Sachs & Co., offer, sell, contract to sell, grant any option to purchase or
otherwise dispose of any shares of our common stock or options to acquire shares
of our common stock during the 180-day period following the date of this
offering. Goldman, Sachs & Co. may, in its sole discretion and at any time
without notice, release all or any portion of the securities subject to lock-up
agreements. See "Underwriting."
The 180-day restriction will terminate as to 15% of the shares subject to
the restriction after 90 days and 20% of the shares subject to the restriction
after 120 days after the date of this prospectus, subject to delays as a result
of the timing of our earnings releases and compliance with our insider trading
policies, in the event that, at such dates, the reported last sale price of our
common stock on the Nasdaq National Market is at least twice the initial public
offering price specified in this prospectus for a certain number of days ending
on such dates.
STOCK OPTIONS
We intend to file a registration statement on Form S-8 under the Securities
Act to register shares of our common stock that are subject to outstanding
options or reserved for issuance under our 1998 Stock Plan and our Employee
Stock Purchase Plan 2000 within 180 days after the date of this prospectus, thus
permitting the resale of these shares by nonaffiliates in the public market
without restriction under the Securities Act.
RULE 701
Any of our employees or consultants who purchased his or her shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701, which permits nonaffiliates to sell their Rule
701 shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
prospectus. As of March 31, 2000, the holders of options exercisable for
approximately 675,206 shares of our common stock will be eligible to sell their
shares in reliance upon Rule 701 or pursuant to the Form S-8 upon the expiration
of the 180-day lockup period.
REGISTRATION RIGHTS
If this offering closes before July 2000, assuming an initial offering
price of $ per share and the exercise of outstanding warrants, the holders
of shares of our common stock will be entitled to rights with
respect to registration of their shares under the Securities Act. Registration
of these shares under the Securities Act would result in these shares becoming
freely tradable without restriction under the Securities Act, except for shares
purchased by our affiliates. See "Description of Capital Stock -- Registration
Rights."
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UNDERWRITING
Corio and the underwriters for the offering named below have entered into
an underwriting agreement with respect to the shares being offered. Subject to
certain conditions, each underwriter has severally agreed to purchase the number
of shares indicated in the following table. Goldman, Sachs & Co., FleetBoston
Robertson Stephens Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, and
Advanced Clearing, Inc. are the representatives of the underwriters.
<TABLE>
<CAPTION>
Number
Underwriters of Shares
------------ ---------
<S> <C>
Goldman, Sachs & Co.........................................
FleetBoston Robertson Stephens Inc..........................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated....................................
Advanced Clearing, Inc. ....................................
------
Total.............................................
======
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
shares from Corio to cover such sales. They may exercise that
option for 30 days. If any shares are purchased under this option, the
underwriters will severally purchase shares in approximately the same proportion
as set forth in the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by Corio. Such amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
Paid by Corio
----------------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share.................................................. $ $
Total...................................................... $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the underwriters to
certain other brokers or dealers at a discount of up to $ per share from the
initial public offering price. If all the shares are not sold at the initial
offering price, the representatives may change the initial offering price and
the other selling terms.
Corio and its directors, officers and stockholders have agreed with the
underwriters not to dispose of or hedge any of their common stock or securities
convertible into or exchangeable for shares of common stock during the period
from the date of this prospectus continuing through the date 180 days after the
date of this prospectus, except with the prior written consent of Goldman, Sachs
& Co. and except in specified circumstances as described in "Shares Eligible for
Future Sale." See "Shares Eligible for Future Sale" for a discussion of these
transfer restrictions.
Prior to the offering, there has been no public market for the common
stock. The initial public offering price will be negotiated among Corio and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be Corio's historical performance, estimates of the business
potential and earnings prospects of Corio, an assessment of Corio's management
and the consideration of the above factors in relation to market valuation of
companies in related business.
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<PAGE> 69
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock while
the offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, on the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock offered hereby for certain
individuals designated by Corio who have expressed an interest in purchasing
such shares of common stock in the offering. The number of shares available for
sale to the general public will be reduced to the extent such persons purchase
such reserved shares. Any reserved shares not so purchased will be offered by
the underwriters to the general public on the same basis as other shares offered
hereby.
Corio estimates that its share of the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately
$ .
Corio has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
VALIDITY OF COMMON STOCK
The validity of the common stock offered hereby will be passed upon for us
by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California and for the underwriters by Sullivan & Cromwell, Los Angeles,
California. At the close of this offering, WS Investments, an investment
partnership composed of some current and former members of and persons
associated with Wilson Sonsini Goodrich & Rosati, Professional Corporation, as
well as individual attorneys at this firm, will beneficially own a total of
21,730 shares of our common stock.
EXPERTS
The financial statements of Corio as of December 31, 1998 and 1999 and for
the period from September 1, 1998 through December 31, 1998 and the fiscal year
ended December 31, 1999, and of DSCI for the fiscal year ended September 30,
1997 and for the period from October 1, 1997 through September 4, 1998 have been
included in this prospectus in reliance upon the report of KPMG LLP, independent
auditors, given on the authority of said firm as experts in accounting and
auditing.
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<PAGE> 70
CHANGE IN INDEPENDENT AUDITORS
In March 2000, we engaged KPMG LLP to replace PricewaterhouseCoopers LLP as
our independent auditors. Our board of directors and audit committee approved
the decision to change independent auditors. We replaced PricewaterhouseCoopers
LLP prior to the completion of their audits and as such they did not issue an
auditors' report on our financial statements for any periods. We had no
disagreements with PricewaterhouseCoopers LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures which, if not resolved to the satisfaction of PricewaterhouseCoopers
LLP, would have caused them to make reference to the matter in their report if
completed.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, or SEC, a
registration statement on Form S-1 under the Securities Act with respect to our
common stock. This prospectus does not contain all of the information set forth
in the registration statement and the exhibits and schedules filed as part of
the registration statement. For further information with respect to us and our
common stock, we refer you to the registration statement and the exhibits and
schedules filed as a part of the registration statement. Statements contained in
this prospectus concerning the contents of any contract or any other document
are not necessarily complete. If a contract or document has been filed as an
exhibit to the registration statement, we refer you to the copy of the contract
or document that has been filed. Each statement in this prospectus relating to a
contract or document filed as an exhibit is qualified in all respects by the
filed exhibit. The registration statement, including exhibits and schedules, may
be inspected without charge at the principal office of the SEC in Washington,
D.C., and copies of all or any part of it may be obtained from that office after
payment of fees prescribed by the SEC. The SEC maintains a website that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC at http://www.sec.gov.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act, as amended,
and, in accordance therewith, will file periodic reports, proxy statements and
other information with the SEC. These periodic reports, proxy statements and
other information will be available for inspection and copying at the SEC's
public reference rooms and the website of the SEC referred to above.
We intend to provide our stockholders annual reports containing financial
statements audited by an independent public accounting firm and to make
available to our stockholders quarterly reports containing unaudited financial
data for the first three quarters of each fiscal year.
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<PAGE> 71
CORIO, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Equity (Deficit)................ F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 72
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
of Corio, Inc.
We have audited the accompanying balance sheets of Corio, Inc. ("Corio" or
the "Company") as of December 31, 1998 and 1999, and the related statements of
operations, stockholders' equity (deficit) and cash flows for the period from
September 1, 1998 through December 31, 1998 and for the year ended December 31,
1999, and the accompanying statements of operations, stockholders' equity
(deficit) and cash flows for the year ended September 30, 1997 and for the
period from October 1, 1997 through September 4, 1998 of Data Systems
Connectors, Inc. ("DSCI" or the "Predecessor"). These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based upon 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 our audits provide a reasonable basis for our opinion.
As described in Note 1 of the notes to financial statements, the Company
acquired the stock of the Predecessor on September 4, 1998 in a transaction
which was accounted for as a purchase business combination. Accordingly, the
financial statements of the Company are presented on a different cost basis than
the financial statements of the Predecessor and therefore, are not comparable.
In our opinion, the financial statements of Corio, Inc., referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1998 and 1999, and the results of its operations and its cash
flows for the period from September 1, 1998 through December 31, 1998 and for
the year ended December 31, 1999, in conformity with generally accepted
accounting principles.
In our opinion, the financial statements of Data Systems Connectors, Inc.,
referred to above present fairly, in all material aspects, the results of
operations and cash flows of the Predecessor for the year ended September 30,
1997 and for the period from October 1, 1997 through September 4, 1998, in
conformity with generally accepted accounting principles.
KPMG LLP
Mountain View, California
March 31, 2000, except as to Note 15 which is as
of April 20, 2000.
F-2
<PAGE> 73
CORIO, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------- DECEMBER 31,
1998 1999 1999
------- -------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,019 $ 37,177 $ 91,677
Accounts receivable, net of allowance of $138 and $233 in
1998 and 1999, respectively............................. 361 2,941 2,941
Prepaid expenses and other current assets................. 583 2,107 2,107
------- -------- --------
Total current assets.................................... 1,963 42,225 96,725
Property and equipment, net................................. 1,342 14,380 14,380
Intangibles, net............................................ 5,837 3,647 3,647
Other assets................................................ 864 1,344 1,344
------- -------- --------
Total assets............................................ $10,006 $ 61,596 $116,096
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,331 $ 5,017 $ 5,017
Accrued liabilities....................................... 1,911 8,163 8,163
Deferred revenue.......................................... 286 1,888 1,888
Current portion of notes payable.......................... -- 1,002 1,002
Current portion of notes payable -- related party......... 1,360 250 250
Current portion of capital lease obligations.............. 127 1,457 1,457
------- -------- --------
Total current liabilities............................... 5,015 17,777 17,777
Notes payable, less current portion......................... -- 2,998 2,998
Notes payable -- related party, less current portion........ 1,218 -- --
Capital lease obligations, less current portion............. 368 4,337 4,337
Other liabilities........................................... 336 -- --
------- -------- --------
Total liabilities....................................... 6,937 25,112 25,112
------- -------- --------
Commitments
Stockholders' equity:
Preferred stock: $0.001 par value; 33,127,000 shares
authorized; 12,127,000 and 29,964,795 shares issued and
outstanding at December 31, 1998 and December 31, 1999,
respectively, and shares authorized, none
outstanding on a pro forma basis as of December 31, 1999
(liquidation value: $73,210)............................ 12 30 --
Common stock: $0.001 par value; 50,000,000 shares
authorized; 873,002 and 1,574,584 shares issued and
outstanding at December 31, 1998 and December 31, 1999,
respectively; shares authorized, 31,539,379
shares issued and outstanding on a pro forma basis as of
December 31, 1999....................................... 1 2
Additional paid-in capital................................ 6,289 99,649
Note receivable from stockholder.......................... -- (15) (15)
Deferred stock-based compensation......................... (32) (14,981) (14,981)
Accumulated deficit....................................... (3,201) (48,201)
------- -------- --------
Total stockholders' equity.............................. 3,069 36,484 90,984
------- -------- --------
Total liabilities and stockholders' equity.............. $10,006 $ 61,596 $116,096
======= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 74
CORIO, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DSCI CORIO
------------------------------ -----------------------------
FOR THE FOR THE
PERIOD FROM PERIOD FROM
OCTOBER 1, SEPTEMBER 1,
1997 TO 1998 (DATE OF
YEAR ENDED SEPTEMBER 4, INCEPTION) TO YEAR ENDED
SEPTEMBER 30, 1998 (DATE OF DECEMBER 31, DECEMBER 31,
1997 ACQUISITION) 1998 1999
------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Application management services............. $ -- $ -- $ -- $ 746
Professional services and other............. 5,682 4,280 1,292 5,036
------ ------- ------- --------
Total revenues............................ 5,682 4,280 1,292 5,782
COSTS AND EXPENSES:
Application management services............. -- -- -- 6,297
Professional services and other............. 2,521 2,185 1,039 7,755
Research and development.................... -- -- 93 3,192
Sales and marketing......................... -- -- 461 11,930
General and administrative.................. 3,011 3,437 2,092 10,416
Amortization of deferred stock-based
compensation.............................. -- -- 7 8,524
Amortization of intangibles................. -- -- 730 2,190
------ ------- ------- --------
Total operating expenses.................. 5,532 5,622 4,422 50,304
------ ------- ------- --------
Income (loss) from operations................. 150 (1,342) (3,130) (44,522)
Interest and other income..................... 107 76 7 541
Interest and other expense.................... (180) (189) (78) (1,019)
------ ------- ------- --------
Net income (loss)............................. $ 77 $(1,455) $(3,201) $(45,000)
====== ======= ======= ========
Basic and diluted net loss per share.......... $ (3.89) $ (38.96)
======= ========
Shares used in computation -- basic and
diluted..................................... 823 1,155
======= ========
</TABLE>
<TABLE>
<S> <C>
Pro forma (unaudited):
Basic and diluted net loss per share...................... $
======
Shares used in computation -- basic and diluted...........
======
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 75
CORIO, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOTE
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE DEFERRED RETAINED
--------------- --------------- PAID-IN FROM STOCK-BASED EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDER COMPENSATION (DEFICIT)
------ ------ ------ ------ ---------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DSCI PERIOD:
Balance at October 1, 1996......... -- $-- 50 $10 $ -- $ -- $ -- $ 294
Net income......................... -- -- -- -- -- -- -- 77
------ --- ----- --- ------- ---- -------- --------
Balance at September 30, 1997...... -- -- 50 10 -- -- -- 371
Net loss........................... -- -- -- -- -- -- -- (1,455)
------ --- ----- --- ------- ---- -------- --------
Balance at September 4, 1998....... -- $-- 50 $10 $ -- $ -- $ -- $ (1,084)
====== === ===== === ======= ==== ======== ========
CORIO PERIOD:
Balance at September 1, 1998....... -- $-- -- $-- $ -- $ -- $ -- $ --
Issuance of series A preferred
stock, net of issuance costs of
$26.............................. 8,500 9 -- -- 3,965 -- -- --
Issuance of series A preferred
stock in connection with
DSCI acquisition................. 3,492 3 -- -- 1,640 -- -- --
Issuance of series A preferred
stock in exchange for services... 135 -- -- -- 63 -- -- --
Issuance of preferred stock
warrants......................... -- -- -- -- 539 -- -- --
Issuance of common stock........... -- -- 873 1 43 -- -- --
Deferred stock-based
compensation..................... -- -- -- -- 39 -- (39) --
Amortization of deferred
stock-based compensation......... -- -- -- -- -- -- 7 --
Net loss........................... -- -- -- -- -- -- -- (3,201)
------ --- ----- --- ------- ---- -------- --------
Balance at December 31, 1998....... 12,127 12 873 1 6,289 -- (32) (3,201)
Issuance of series A preferred
stock in exchange for services... 93 -- -- -- 373 -- -- --
Issuance of series B preferred
stock, net of issuance costs of
$46.............................. 10,513 11 -- -- 20,968 -- -- --
Issuance of series B preferred
stock in exchange for notes
payable-related party............ 127 -- -- -- 254 -- -- --
Issuance of series C preferred
stock, net of issuance costs of
$79.............................. 6,951 7 -- -- 45,094 -- -- --
Issuance of series C preferred
stock in exchange for notes
payable-related party............ 154 -- -- -- 1,000 -- -- --
Issuance of preferred stock
warrants......................... -- -- -- -- 1,404 -- --
Issuance of common stock........... -- -- 375 -- 574 (10) -- --
Issuance of common stock upon
exercise of stock options........ -- -- 527 1 37 (5) -- --
Repurchase of common stock......... -- -- (200) -- (10) -- --
Issuance of common stock warrant... -- -- -- -- 136 -- -- --
Issuance of stock options to
non-employees.................... -- -- -- -- 57 -- -- --
Deferred stock-based
compensation..................... -- -- -- -- 23,473 -- (23,473) --
Amortization of deferred
stock-based compensation......... -- -- -- -- -- -- 8,524 --
Net loss........................... -- -- -- -- -- -- (45,000)
------ --- ----- --- ------- ---- -------- --------
Balance at December 31, 1999....... 29,965 $30 1,575 $ 2 $99,649 $(15) $(14,981) $(48,201)
====== === ===== === ======= ==== ======== ========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY (DEFICIT)
----------------
<S> <C>
DSCI PERIOD:
Balance at October 1, 1996......... $ 304
Net income......................... 77
--------
Balance at September 30, 1997...... 381
Net loss........................... (1,455)
--------
Balance at September 4, 1998....... $ (1,074)
========
CORIO PERIOD:
Balance at September 1, 1998....... $ --
Issuance of series A preferred
stock, net of issuance costs of
$26.............................. 3,974
Issuance of series A preferred
stock in connection with
DSCI acquisition................. 1,643
Issuance of series A preferred
stock in exchange for services... 63
Issuance of preferred stock
warrants......................... 539
Issuance of common stock........... 44
Deferred stock-based
compensation..................... --
Amortization of deferred
stock-based compensation......... 7
Net loss........................... (3,201)
--------
Balance at December 31, 1998....... 3,069
Issuance of series A preferred
stock in exchange for services... 373
Issuance of series B preferred
stock, net of issuance costs of
$46.............................. 20,979
Issuance of series B preferred
stock in exchange for notes
payable-related party............ 254
Issuance of series C preferred
stock, net of issuance costs of
$79.............................. 45,101
Issuance of series C preferred
stock in exchange for notes
payable-related party............ 1,000
Issuance of preferred stock
warrants......................... 1,404
Issuance of common stock........... 564
Issuance of common stock upon
exercise of stock options........ 33
Repurchase of common stock......... (10)
Issuance of common stock warrant... 136
Issuance of stock options to
non-employees.................... 57
Deferred stock-based
compensation..................... --
Amortization of deferred
stock-based compensation......... 8,524
Net loss........................... (45,000)
--------
Balance at December 31, 1999....... $ 36,484
========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 76
CORIO, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DSCI CORIO
------------------------------- -------------------------------
FOR THE PERIOD FOR THE PERIOD
FROM OCTOBER 1, FROM SEPTEMBER
1997 TO 1, 1998 (DATE
YEAR ENDED SEPTEMBER 4, OF INCEPTION) TO YEAR ENDED
SEPTEMBER 30, 1998 (DATE OF DECEMBER 31, DECEMBER 31,
1997 ACQUISITION) 1998 1999
------------- --------------- ---------------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 77 $(1,455) $(3,201) $(45,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization........................... 29 32 19 4,668
Amortization of intangibles............................. -- -- 730 2,190
Amortization of deferred stock-based compensation....... -- -- 7 8,524
Compensation for grants of stock, options and warrants
in exchange for services.............................. -- 3 313 1,439
Changes in assets and liabilities:
Accounts receivable................................... (443) 207 (44) (2,580)
Prepaid expenses and other current assets............. 133 (63) (512) (889)
Accounts payable...................................... (108) 29 1,164 3,686
Accrued liabilities................................... 50 1,178 343 6,288
Deferred revenue...................................... 202 268 69 1,602
Other liabilities..................................... (290) -- 336 (336)
----- ------- ------- --------
Net cash (used in) provided by operating
activities........................................ (350) 199 (776) (20,408)
Cash flows from investing activities:
Purchase of property and equipment........................ (46) (11) (798) (12,424)
Acquisition of DSCI, net of cash acquired................. -- -- (1,106) --
Other assets.............................................. (19) 29 (319) 232
----- ------- ------- --------
Net cash (used in) provided by investing
activities........................................ (65) 18 (2,223) (12,192)
Cash flows from financing activities:
Proceeds from issuance of preferred stock, net............ -- -- 3,974 66,080
Proceeds from sale of common stock and exercise of stock
options................................................. -- -- 44 48
Payments on capital lease obligations..................... -- -- -- (260)
Borrowings on notes payable............................... -- -- -- 4,000
Repayment of notes payable -- related party............... -- -- -- (1,110)
----- ------- ------- --------
Net cash provided by financing activities........... -- -- 4,018 68,758
----- ------- ------- --------
Net increase (decrease) in cash and cash equivalents........ (415) 217 1,019 36,158
Cash and cash equivalents, beginning of period.............. 699 284 -- 1,019
----- ------- ------- --------
Cash and cash equivalents, end of period.................... $ 284 $ 501 $ 1,019 $ 37,177
===== ======= ======= ========
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ -- $ -- $ -- $ 693
===== ======= ======= ========
Supplemental non-cash investing and financing activities:
Issuance of series A preferred stock in connection with
DSCI acquisition...................................... $ 1,643 $ --
======= ========
Issuance of note payable -- related party in connection
with DSCI acquisition................................. $ 2,328 $ --
======= ========
Acquisition of property and equipment under capital
leases................................................ $ 495 $ 5,305
======= ========
Issuance of preferred stock and common stock warrants... $ 539 $ 1,540
======= ========
Issuance of preferred stock in exchange for notes
payable -- related party.............................. $ -- $ 1,254
======= ========
Deferred stock-based compensation....................... $ 39 $ 23,473
======= ========
Issuance of stock and options for services.............. $ 63 $ 969
======= ========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 77
CORIO, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Corio, Inc. ("Corio" or the "Company") is a leading application service
provider, or ASP. The Company makes available to its customers over a secure
network for a monthly fee a suite of scalable software applications that are
licensed and integrated by the Company from various software vendors. The
Company also provides professional services which include initial implementation
and ongoing support services. The Company was incorporated under the laws of the
state of Delaware on September 1, 1998. On September 4, 1998, the Company
acquired all of the outstanding common stock of Data Systems Connectors, Inc.
("DSCI" or the "Predecessor") (Note 2). The Company's operations prior to
September 4, 1998 were immaterial.
BASIS OF PRESENTATION
The accompanying financial statements include the accounts of DSCI for the
year ended September 30, 1997 and for the period from October 1, 1997 to
September 4, 1998 (date of acquisition). The accompanying financial statements
for the period from September 1, 1998 (date of inception) to December 31, 1998
and for the year ended December 31, 1999 include the accounts of the Company.
Due to the application of purchase accounting by Corio, the accounts of DSCI
prior to the acquisition are not comparable to those of Corio.
The pro forma balance sheet as of December 31, 1999 includes the assumed
automatic conversion of all outstanding shares of series A, B and C preferred
stock upon the closing of the Company's planned initial public offering into
29,964,795 shares of common stock.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Cash
equivalents consist principally of cash on deposit with a bank and money market
accounts that are stated at cost, which approximate fair value.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist of cash, cash equivalents and accounts
receivable. The Company places its cash with two high quality financial
institutions. The Company maintains an allowance for doubtful accounts
receivable based upon the expected collectibility of accounts receivable.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments, which includes
accounts receivable, accounts payable, accrued liabilities and debt obligations
approximate their fair values at December 31, 1999 and 1998.
F-7
<PAGE> 78
CORIO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives of
the assets, generally three to five years. Leasehold improvements are amortized
over the shorter of the estimated useful lives of the assets or the lease term.
In 1999, the Company adopted Statement of Position 98-1 ("SOP 98-1"),
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use". SOP 98-1 requires the capitalization of direct costs incurred in
connection with developing or obtaining software for internal use, including
external direct costs of materials and services and payroll and payroll related
costs for employees who are directly associated with and devote time to an
internal-use software development project. During the year ended December 31,
1999, the Company capitalized $355,000 of costs related to the implementation of
internal-use software which is included in computer software in property and
equipment at December 31, 1999.
INCOME TAXES
The Company accounts for its income taxes in accordance with the liability
method. Under this method, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees" and complies with the
disclosure provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation". Under APB No. 25,
compensation expense is based on the difference, if any, on the date of the
grant between the fair value of the Company's stock and the exercise price.
Deferred compensation is amortized and expensed in accordance with the graded
vesting approach provided for in Financial Accounting Standards Board ("FASB")
Interpretation No. 28. The Company accounts for stock issued to non-employees in
accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force
Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services." The Company uses the Black-Scholes option pricing model to value
options granted to non-employees. The related expense is recorded over the
period in which the related services are received.
INTANGIBLES
Goodwill and other intangibles were recorded in connection with the
acquisition of DSCI. Intangibles are being amortized on a straight-line basis
over three years.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates its long-lived assets, including goodwill and other
intangibles, for impairment whenever events or changes in circumstances indicate
that the carrying amount of such assets may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the carrying amount
of any asset to future undiscounted net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the impairment to be
F-8
<PAGE> 79
CORIO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.
REVENUE RECOGNITION
The Company generates revenue from application management services,
professional services and other revenues.
Application management services revenue consists of monthly recurring fees
for hosting services and is recognized as the services are performed. Our
application management services provide customers rights to access applications,
hardware for the application access, customer service, and rights to upgrades
and updates as provided to the Company under contract with the original software
vendor. Contracts for application management services include monthly or
quarterly minimum volume commitments by the Company's customers and fees for
actual volume usage. Minimum volume customer commitments are recognized as they
become due and payable. Actual volume usage that exceed designated minimums are
recognized as revenues when amounts due are earned by the Company.
Professional services and other revenues include revenues from consulting
services, training, resale of software, and post-contract support. Revenue from
consulting services is recognized using the percentage-of-completion method for
fixed-fee arrangements or as the services are provided for time-and-materials
arrangements. Losses resulting from fixed-fee contracts are recorded at the time
such losses are known. Revenue from customer training and education are
recognized at the date the services are performed. Revenue from post-contract
support, i.e., unspecified upgrades and telephone support, is recognized ratably
over the period the support is provided. Revenues associated with the resale of
software are recognized ratably over the post-contract support period. Such
revenues from resale of software and maintenance and support have been
immaterial.
The Company provides limited services warranty rights to its customers,
which are accounted for in accordance with SFAS No. 5, "Accounting for
Contingencies". To date, the estimated warranty obligations have not been
considered significant.
ADVERTISING COSTS
Advertising costs are expensed as incurred and totaled $1,193,000 for the
year ended December 31, 1999. There were no advertising costs prior to the year
ended December 31, 1999 for the Company or Predecessor.
COMPREHENSIVE INCOME
In 1998, the Company adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting
comprehensive income and its components in financial statements. Comprehensive
income, as defined, includes all changes in equity (net assets) during a period
from non-owner sources. The Company's and Predecessor's comprehensive loss was
equal to its net loss for all periods presented.
STOCK SPLIT
In July 1999, the Company's board of directors approved a 2-for-1 stock
split of common stock, preferred stock, options and warrants. Accordingly, all
share and per share amounts, including stock option, warrant and net loss per
share information have been restated in the financial statements to
retroactively reflect the stock split.
F-9
<PAGE> 80
CORIO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NET LOSS PER SHARE
Basic net loss per share is computed by dividing the net loss for the
period by the weighted average number of shares of common stock outstanding
during the period (excluding shares subject to repurchase). Diluted net loss per
share is computed by dividing the net loss for the period by the weighted
average number of shares of common stock and potentially dilutive common
securities outstanding during the period. Potentially dilutive common shares are
excluded from the computation in loss periods as their effect would be
antidilutive.
The following table sets forth the computation of basic and diluted net
loss per share for the periods indicated (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM SEPTEMBER 1,
1998 (DATE OF YEAR ENDED
INCEPTION) TO DECEMBER 31,
DECEMBER 31, 1998 1999
------------------- -------------------
<S> <C> <C>
Numerator:
Net loss.............................................. $(3,201) $(45,000)
======= ========
Denominator:
Weighted average shares of common stock............... 823 1,155
======= ========
Net loss per share:
Basic and diluted..................................... $ (3.89) $ (38.96)
======= ========
</TABLE>
The following table sets forth potential shares of common stock that are
not included in the diluted net loss per share calculation above as their effect
would have been antidilutive for the periods indicated (in thousands):
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM SEPTEMBER 1,
1998 (DATE OF YEAR ENDED
INCEPTION) TO DECEMBER 31,
DECEMBER 31, 1998 1999
----------------- ------------
<S> <C> <C>
Series A preferred stock.............................. 12,127 12,220
Series B preferred stock.............................. -- 10,640
Series C preferred stock.............................. -- 7,105
Preferred stock warrants.............................. 1,788 989
Common stock subject to repurchase.................... -- 96
Common stock options and warrants..................... 2,135 8,805
</TABLE>
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Pro forma net loss per share for the year ended December 31, 1999 is
computed using the weighted-average number of shares of common stock
outstanding, including the pro forma effect of the automatic conversion of the
Company's preferred stock and mandatorily redeemable preferred stock into shares
of the Company's common stock effective upon the closing of the Company's
initial public offering, as if such conversion occurred on January 1, 1999, or
at the date of issuance, if later. Pro forma common equivalents, consisting of
incremental common stock issuance upon the exercise of stock options and
warrants, as well as shares subject to repurchase agreements are not included in
pro forma diluted net loss per share because they would be antidilutive.
F-10
<PAGE> 81
CORIO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 established new standards of
accounting and reporting for derivative instruments and hedging activities. In
July 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities -- Deferral of the Effective Date of FASB Statement No.
133." SFAS No. 137 deferred the effective date of SFAS No. 133 until fiscal
years beginning after June 15, 2000. The Company will adopt SFAS No. 133 during
its year ending December 31, 2001. To date, the Company has not engaged in any
derivative or hedging activities.
NOTE 2 -- ACQUISITION OF DATA SYSTEMS CONNECTORS, INC.
On September 4, 1998, the Company acquired all of the outstanding common
stock of DSCI, a provider of information technology consulting services, license
and other services.
This transaction was accounted for using the purchase method of accounting.
The allocation of the aggregate purchase price to the tangible and identifiable
intangible assets acquired and liabilities assumed in connection with this
acquisition was based on estimated fair values as determined by management. The
allocation is summarized below (in thousands):
<TABLE>
<S> <C>
Goodwill and identifiable intangible assets................. $6,567
Tangible net assets......................................... 491
------
$7,058
======
</TABLE>
The total purchase price of approximately $7.1 million consisted of
$1,607,000 in cash, 3,492,000 shares of the Company's series A preferred stock
valued at $1,643,000 issued to a stockholder of the Company (Note 14), a secured
subordinated promissory note in the amount of $2,328,000 issued to the same
stockholder of the Company (Note 14), assumed liabilities of $1,250,000 and
transaction costs of $230,000.
Intangibles, net, consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- -----------------
<S> <C> <C>
Intangibles.................................. $6,567 $ 6,567
Accumulated amortization..................... (730) (2,920)
------ -------
$5,837 $ 3,647
====== =======
</TABLE>
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment, net, consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- -----------------
<S> <C> <C>
Computer equipment........................... $ 489 $ 4,985
Computer software............................ -- 12,983
Furniture and fixtures....................... 673 796
Leasehold improvements....................... 199 207
------ -------
1,361 18,971
Accumulated depreciation and amortization.... (19) (4,591)
------ -------
$1,342 $14,380
====== =======
</TABLE>
F-11
<PAGE> 82
CORIO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Property and equipment includes assets under capital leases of $495,000 at
December 31, 1998 and $5,800,000 at December 31, 1999. Accumulated depreciation
of assets under capital leases totaled $781,000 at December 31, 1999. There was
no accumulated depreciation at December 31, 1998.
NOTE 4 -- ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- -----------------
<S> <C> <C>
Accrued license and technical access fees...... $ -- $4,285
Accrued compensation and related benefits...... 339 1,658
Assumed liability in connection with DSCI
acquisition.................................. 1,250 1,250
Other.......................................... 322 970
------ ------
$1,911 $8,163
====== ======
</TABLE>
NOTE 5 -- BORROWING AGREEMENT
In February 1999, the Company entered into a $3 million revolving line of
credit agreement with a bank, which expired in January 2000. Borrowings were
limited to 80% of certain eligible accounts receivable and bear interest at the
bank's prime rate (8.5% at December 31, 1999) plus 0.25%. The line of credit
agreement was collateralized by certain assets of the Company and contains
financial covenants, including a minimum tangible net worth and quick ratio.
There were no borrowings under this line of credit agreement.
NOTE 6 -- NOTES PAYABLE
In December 1998, the Company entered into a loan and security agreement to
borrow up to $4,000,000. Borrowings under the agreement bear interest at 11.5%
per annum and are payable in 42 monthly installments. Borrowings under the
agreement are collateralized by substantially all of the Company's assets. As of
December 31, 1999, $4,000,000 was outstanding and is payable as follows: 2000,
$1,002,000; 2001, $1,554,000; 2002, $1,185,000; and 2003, $259,000. In
connection with the loan and security agreement, the Company granted the lender
warrants to purchase 469,523 shares of series A preferred stock at an exercise
price of $1.24 per share (Note 9).
F-12
<PAGE> 83
CORIO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- INCOME TAXES
The income tax expense differed from the amounts computed by applying the
statutory federal income tax rate of 34% to pretax income as a result of the
following (in thousands):
<TABLE>
<CAPTION>
DSCI CORIO
-------------------------------- ------------------------------
FOR THE PERIOD
FROM
FOR THE PERIOD SEPTEMBER 1,
FROM OCTOBER 1, 1998 (DATE OF
1997 THROUGH INCEPTION)
YEAR ENDED SEPTEMBER 4, THROUGH YEAR ENDED
SEPTEMBER 30, 1998 (DATE OF DECEMBER 31, DECEMBER 31,
1997 ACQUISITION) 1998 1999
------------- --------------- -------------- ------------
<S> <C> <C> <C> <C>
Federal tax at statutory rate.... $ 26 $(494) $(1,088) $(15,299)
State taxes...................... 18 1 1 3
Amortization of intangibles...... -- -- 200 745
Net operating loss not
benefited...................... -- 44 887 11,576
Nondeductible expenses........... 5 449 -- 131
Nondeductible stock
compensation................... -- -- -- 2,848
Other............................ (49) -- -- (4)
---- ----- ------- --------
Total income tax expense....... $ -- $ -- $ -- $ --
==== ===== ======= ========
</TABLE>
The types of temporary differences that give rise to significant portions
of the Company's deferred tax assets and liabilities are set out below (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Deferred tax assets:
Accruals and reserves..................................... $ 315 $ 1,922
State income taxes........................................ 1 1
Other..................................................... 13 --
Net operating loss and credit carryforwards............... 760 12,173
------- --------
Gross deferred tax assets................................... 1,089 14,096
Valuation allowance......................................... (1,089) (13,691)
------- --------
Total deferred tax assets.............................. -- 405
Deferred tax liability:
Property and equipment.................................... -- (405)
------- --------
Net deferred tax assets..................................... $ -- $ --
======= ========
</TABLE>
The acquisition of DSCI was structured as a tax-free exchange of stock,
therefore, the difference between the recognized fair values of acquired net
assets and their historical tax bases is not deductible for tax purposes.
Based on the available objective evidence, management believes it is not
more likely than not that the net deferred tax assets will be realized,
therefore, management has established a valuation allowance for the entire
amount of net deferred tax assets. The net change in the total valuation
allowance for the year ended December 31, 1999 was an increase of $12,602,000;
there was an increase of $1,089,000 for the period from September 1, 1998 (date
of inception) through December 31, 1998.
F-13
<PAGE> 84
CORIO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Company has net operating loss carryforwards for federal income tax
purposes of approximately $32,974,000 and state income tax purposes of
approximately $16,493,000 available to reduce future income subject to income
taxes. The difference between the federal and state net operating loss
carryforward is due to the State of California 50% limitation rule for net
operating loss. The federal net operating loss carryforwards expire beginning in
2018 through 2019. State net operating loss carryforwards expire beginning in
2004.
Federal and California tax laws impose substantial restrictions on the
utilization of net operating loss and credit carryforwards in the event of an
"ownership change" for tax purposes, as defined in Section 382 of the Internal
Revenue Code. The Company has not yet determined whether an ownership change
occurred due to significant stock transactions in each of the reporting years
disclosed. If an ownership change occurred, utilization of the net operating
loss carryforwards could be reduced significantly on an annual basis.
NOTE 8 -- LEASES AND COMMITMENTS
The Company leases office space and equipment under noncancelable operating
and capital leases with various expiration dates through 2010. The Company
subleases to a tenant, one of its facilities under a sub-lease agreement which
expires on February 15, 2000 (sublease rental income of $75,000 in fiscal year
1999 and $13,000 in fiscal year 2000). Rent expense for the Predecessor was
$67,000 for the year ended September 30, 1997 and $94,000 for the period from
October 1, 1997 to September 4, 1998 (date of acquisition). Rent expense for the
Company was $59,000 for the period from September 1, 1998 (date of inception) to
December 31, 1998 and $1,473,000 for the year ended December 31, 1999. The terms
of the facility lease provide for rental payments on a graduated scale. The
Company recognizes rent expense on a straight-line basis over the lease period
and has accrued for rent expense incurred but not paid.
Future minimum lease payments under noncancelable operating (net of future
minimum sublease rental income) and capital leases are as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31, CAPITAL LEASES OPERATING LEASES
------------ -------------- ----------------
<S> <C> <C>
2000................................................ $ 1,947 $ 3,392
2001................................................ 2,432 4,296
2002................................................ 1,990 3,919
2003................................................ 363 3,660
2004................................................ -- 3,749
2005 and thereafter................................. -- 21,256
------- -------
Total minimum lease payments...................... 6,732 $40,272
=======
Less amount representing interest................... (938)
-------
Present value of minimum lease payments............. 5,794
Less current portion................................ (1,457)
-------
Capital lease obligations, less current portion..... $ 4,337
=======
</TABLE>
In December 1998, the Company entered into a master lease agreement to
purchase equipment up to an aggregate of $4,000,000. As of December 31, 1999,
the Company had drawn down approximately $3,339,000 related to this agreement.
Each draw against the agreement bears interest at 8.75% per annum and is payable
in 42 monthly installments. In connection with the agreement, the Company
granted the lessor warrants to purchase 186,190 shares of series A preferred
stock at an exercise price of $1.24 per share (Note 9).
F-14
<PAGE> 85
CORIO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In December 1998, the Company entered into a guarantee with a lender for
$350,000 as security on a facility lease. The guarantee is collateralized by
certain assets of the Company. In connection with the guarantee, the Company
granted the lender warrants to purchase 25,500 shares of series A preferred
stock at an exercise price of $1.24 per share (Note 9).
In December 1999, the Company entered into another guarantee with the same
lender for a maximum $7,000,000 letter of credit as security on another facility
lease. The guarantee is collateralized by certain assets of the Company. In
connection with the guarantee, the Company granted the lender a right to
purchase shares of series C preferred stock at an exercise price of $6.50 per
share (Note 9).
NOTE 9 -- PREFERRED STOCK
The Company currently has authorized for issuance an aggregate of
33,127,000 shares of $0.001 par value preferred stock. At December 31, 1999, the
following numbers of shares of each series of preferred stock were authorized
and were issued and outstanding (in thousands):
<TABLE>
<CAPTION>
SHARES ISSUED
SHARES AND LIQUIDATION
SERIES AUTHORIZED OUTSTANDING VALUE
------ ---------- ------------- -----------
<S> <C> <C> <C>
A..................................................... 14,127 12,220 $ 5,751
B..................................................... 11,000 10,640 21,279
C..................................................... 8,000 7,105 46,180
------ ------ -------
33,127 29,965 $73,210
====== ====== =======
</TABLE>
As of December 31, 1999, 1,018,500 shares of series A preferred stock were
subject to repurchase from a stockholder of the Company at a price of $0.01 per
share (Note 14).
During the year ended December 31, 1999, the Company issued 93,332 shares
of series A preferred stock at an exercise price of $0.50 per share in exchange
for services. The fair value of the series A preferred stock of $373,000 was
recorded as a general and administrative expense.
The holders of preferred stock have various rights and preferences as
follows:
VOTING
Each share of series A, B and C preferred stock has voting rights equal to
an equivalent number of shares of common stock into which it is convertible and
votes together as one class with the common stock.
DIVIDENDS
Holders of convertible preferred stock are entitled to receive
noncumulative dividends at the rate of $0.0235295, $0.10 and $0.325 per share
per annum for each share of series A, B and C preferred stock, respectively,
when and if declared by the board of directors. The holders of preferred stock
will also be entitled to participate in dividends on common stock, when and if
declared by the board of directors, based on the number of shares of common
stock held on an as-if converted basis. No dividends on convertible preferred
stock or common stock have been declared by the board from inception through
December 31, 1999.
F-15
<PAGE> 86
CORIO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
LIQUIDATION
In the event of any liquidation, dissolution or winding up of the Company,
including a merger, acquisition or sale of assets where the beneficial owners of
the Company's common stock and preferred stock own less than 51% of the
resulting voting power of the surviving entity, the holders of preferred stock
are entitled to receive an amount of $0.47059, $2.00 and $6.50 per share of each
share of series A, series B and series C preferred stock, respectively, held,
plus any declared but unpaid dividends prior to and in preference to any
distribution to the holders of common stock. The remaining assets, if any, shall
be distributed among the holders of preferred stock and common stock pro rata
based on the equivalent number of shares of common stock held by each; provided,
however, that each holder of preferred stock ceases to share in such additional
distributions at such time as the holder has received total distributions in
respect of such share equal to three times the original purchase price. Should
the Company's legally available assets be insufficient to satisfy the
liquidation preferences of the preferred stock in full the funds will be
distributed ratably among the holders of preferred stock in proportion to the
full preferential amount each such holder is otherwise entitled to receive.
CONVERSION
Each share of preferred stock is convertible, at the option of the holder,
into the number of shares of common stock as determined by the then effective
conversion ratio. Each share of preferred stock automatically converts into the
number of shares of common stock into which such shares are convertible at the
then effective conversion ratio upon: (1) the closing of a public offering of
common stock at a per share price of at least $6.50 per share, with gross
proceeds of at least $33,000,000, or (2) the consent of the holders of at least
a majority of the holders of the then outstanding shares of series A preferred
stock, the holders of at least a majority of the then outstanding shares of
series B preferred stock, and the holders of at least a majority of the then
outstanding shares of series C preferred stock.
WARRANTS FOR PREFERRED STOCK
In December 1998 and in connection with (i) the master lease agreement to
purchase equipment (Note 8), (ii) the $350,000 guarantee for security on a
facility lease (Note 8), and (iii) a loan and security agreement for $4,000,000
(Note 6), the Company granted warrants to purchase 186,190 shares, 25,500
shares, and 469,523 shares, respectively, of series A preferred stock at the
average of the price of the series A and series B preferred stock. Series A
preferred stock price was $0.47 and was known at December 31, 1998. The series B
preferred stock was issued at $2.00 per share in April 1999 and was not known at
December 31, 1998. The estimated value of the warrant of $539,000 was recorded
in the year ended December 31, 1998. Upon issuance of series B preferred stock,
the actual fair value was determined and the amount was adjusted to a total
adjusted fair value of $1,016,000. As of December 31, 1999, the warrants were
outstanding and exercisable and will expire in December 2005 or three years from
the closing of a public offering of common stock, whichever is earlier. The
following assumptions were used in the Black-Scholes fair value calculation: no
dividends; contractual life of seven years; risk-free interest rate of 6.0%; and
expected volatility of 60%. The fair value of the warrants is amortized over a
period of 42 months.
In October 1999, the Company granted to a software vendor in connection
with a remarketing agreement a warrant to purchase 153,846 shares of series C
preferred stock at $6.50 per share. This is a performance based warrant that
will become exercisable in October 2000, provided that the remarketing agreement
continues with the software vendor. Assuming the performance criteria are met,
the warrant will expire in October 2002. The fair value of the warrant issued
will be remeasured
F-16
<PAGE> 87
CORIO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
each period using the Black-Scholes option pricing model. At December 31, 1999,
the fair value of the warrant was calculated using the Black-Scholes option
pricing model, using $6.50 as the fair value of the underlying preferred stock
and the following weighted-average assumptions at December 31, 1999: no
dividends; contractual life of 3 years; risk-free interest rate of 6.5%; and
expected volatility of 70%. The fair value of the warrant of $508,000 at
December 31, 1999 is being amortized over one year.
In addition, the Company granted to a service provider a warrant to
purchase 153,846 shares of series C preferred stock at $6.50 per share. As of
December 31, 1999, the warrant was outstanding and exercisable and will expire
in October 2001. The fair value of the warrant issued was calculated using the
Black-Scholes option pricing model, using $6.50 as the fair value of the
underlying preferred stock and the following weighted-average assumptions: no
dividends; contractual life of 2 years; risk-free interest rate of 6.5%; and
expected volatility of 70%. The fair value of the warrant of $419,000 is being
amortized over two years.
In December 1999, the Company granted a lender (Note 8) a warrant to
purchase shares of series C preferred stock at $6.50 per share. The number of
shares will be calculated as a percent of the $7,000,000 letter of credit. The
percentages start at 4% if the Company closes a public offering of common stock,
acquisition or merger on or before June 30, 2000 and increases to 80% if the
Company closes a public offering of common stock, acquisition or merger on or
after January 1, 2004. This warrant does not become exercisable unless the
Company successfully completes an initial public offering, acquisition or
merger. In the event the Company successfully completes a public offering, the
warrant is exercisable through December 2006 or 3 years from the date of a
public offering, whichever is earlier.
NOTE 10 -- COMMON STOCK
The Company's certificate of incorporation authorizes the Company to issue
50,000,000 shares of $0.001 par value common stock. As of December 31, 1999, an
aggregate of 1,574,584 shares were issued and outstanding, including an
aggregate of 96,354 shares subject to repurchase at a weighted average price of
$0.24 per share (Note 11).
During the year ended December 31, 1999, the Company issued 50,000 shares
of common stock in exchange for services. The fair value of the common stock of
$189,000 was recorded as a marketing expense. In addition, the Company issued
125,000 shares of common stock to board members of the Company. The fair value
of the common stock of $350,000 was recorded as a general and administrative
expense.
WARRANT FOR COMMON STOCK
In October 1999, the Company granted to a landlord a warrant to purchase
50,000 shares of the Company's common stock at an exercise price of $6.50 per
share. As of December 31, 1999, the warrant was outstanding and exercisable and
will expire in December 2001. The fair value of the warrant issued was
calculated using the Black-Scholes pricing model, using $6.50 as the fair value
of the underlying common stock and the following weighted-average assumptions:
no dividends; contractual life of 2 years; risk-free interest rate of 6.5%; and
expected volatility of 70%. The fair value of the warrant of $136,000 is being
amortized over the term of the related lease agreement.
F-17
<PAGE> 88
CORIO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
COMMON STOCK RESERVED
At December 31, 1999, the Company has reserved shares of common stock for
issuance as follows:
<TABLE>
<S> <C>
Conversion of preferred stock............................... 29,964,795
Exercise of outstanding options............................. 8,754,951
Exercise of preferred stock warrants........................ 988,905
Exercise of common stock warrant............................ 50,000
Additional shares available for grant under the 1998 Stock
Plan...................................................... 618,467
----------
Total............................................. 40,377,118
==========
</TABLE>
NOTE 11 -- STOCK OPTION PLAN
Under the Company's 1998 Stock Plan (the "Plan"), the Company was
authorized as of December 31, 1999 to issue up to 9,900,000 shares of common
stock to directors, employees, and consultants. The Plan provides for the
issuance of stock purchase rights, incentive stock options and nonstatutory
stock options.
Stock purchase rights that have been issued under the Plan are subject to a
restricted stock purchase agreement, whereby the Company has the right to
repurchase the stock upon the voluntary or involuntary termination of the
purchaser's employment with the Company at the original issuance cost. The
Company's repurchase right lapses at a rate determined by the Plan
administrator, but at a minimum rate of 20% per year. Through December 31, 1999,
the Company had issued 475,000 shares under restricted stock purchase
agreements, of which 200,000 shares have been repurchased. As of December 31,
1999, 96,354 shares are subject to repurchase at a weighted average price of
$0.24 per share.
Under the Plan, the exercise price for incentive stock options is at least
100% of the stock's fair market value on the date of grant for employees owning
10% or less of the voting power of all classes of stock and at least 110% of the
fair market value on the date of grant for employees owning more than 10% of the
voting power of all classes of stock. For nonstatutory stock options, the
exercise price is also at least 110% of the fair market value on the date of
grant for employees owning more than 10% of the voting power of all classes of
stock.
Under the Plan, options generally expire in 10 years. However, the term of
the options may be limited to 5 years if incentive stock options are granted to
an optionee who owns stock representing more than 10% of the voting power of all
classes of stock. Vesting periods are determined by the Company's Board of
Directors and generally provide for shares to vest over a four-year period.
F-18
<PAGE> 89
CORIO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
A summary of the status of the Company's options under the Plan is as
follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------
SHARES WEIGHTED
AVAILABLE NUMBER OF AVERAGE
FOR GRANT SHARES EXERCISE PRICE
----------- ---------- --------------
<S> <C> <C> <C>
Balance, September 1, 1998
Shares reserved for grant............. 7,000,000 -- $ --
Granted............................... (2,206,000) 2,206,000 $0.05
Cancelled............................. 71,000 (71,000) $0.05
----------- ----------
Balance, December 31, 1998.............. 4,865,000 2,135,000 $0.05
Shares reserved for grant............. 2,900,000 --
Granted............................... (10,527,391) 10,527,391 $0.59
Exercised............................. -- (526,582) $0.07
Cancelled............................. 3,380,858 (3,380,858) $0.06
----------- ----------
Balance, December 31, 1999.............. 618,467 8,754,951 $0.70
=========== ==========
</TABLE>
Weighted-average fair values per share of options granted during the
following years were:
<TABLE>
<S> <C>
1998........................................................ $0.06
-----
1999........................................................ $2.66
-----
</TABLE>
The following table summarizes information concerning options outstanding
as of December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- ----------------------------
WEIGHTED
AVERAGE WEIGHTED
RANGE OF REMAINING AVERAGE WEIGHTED
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER AVERAGE
PRICES OF SHARES LIFE (YEARS) PRICE OF SHARES EXERCISE PRICE
- ------------ ----------- ------------ -------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.05........ 1,572,626 8.90 $0.05 62,857 $0.05
$0.20 - $0.35.. 2,005,100 9.42 $0.30 28,350 $0.35
$0.40........ 2,295,975 9.58 $0.40 -- $0.00
$1.50........ 2,515,900 9.73 $1.50 16,000 $1.50
$2.00........ 365,350 9.88 $2.00 -- $0.00
--------- -------
8,754,951 9.48 $0.70 107,207 $0.35
========= =======
</TABLE>
As of December 31, 1998, 530,625 shares were exercisable at a
weighted-average exercise price of $0.05 per share.
STOCK-BASED COMPENSATION
In connection with stock options granted to employees to purchase common
stock, the Company recorded a deferred charge for stock-based compensation of
$39,000 for the period from September 1, 1998 (date of inception) to December
31, 1998 and $23,473,000 for the year ended December 31, 1999. Such amounts
represent, for employee stock options, the difference at the grant date between
the exercise price of each stock option granted and the fair value of the
underlying common stock. The deferred charges for employee options are being
amortized to expenses using the graded vesting approach through fiscal year
2003. Amortization of deferred stock-based
F-19
<PAGE> 90
CORIO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
compensation expense was $7,000 for the period from September 1, 1998 (date of
inception) to December 31, 1998 and $8,524,000 in the year ended December 31,
1999. The amortization of deferred stock-based compensation relates to the
following items in the accompanying statements of operations (in thousands):
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
SEPTEMBER 1, 1998
(DATE OF INCEPTION)
TO DECEMBER 31, YEAR ENDED
1998 DECEMBER 31, 1999
------------------- -----------------
<S> <C> <C>
Costs and expenses:
Application management services............. $-- $ 229
Professional services....................... 1 427
Research and development.................... 3 923
Sales and marketing......................... 1 2,769
General and administrative.................. 2 4,176
--- ------
$ 7 $8,524
=== ======
</TABLE>
In connection with stock options granted to non-employees to purchase
common stock, the Company recorded compensation of $57,000 in the year ended
December 31, 1999. Such amount represents, for non-employee options, the deemed
fair value of the option at the date of vesting.
ADDITIONAL STOCK PLAN INFORMATION
If compensation cost for the Company's stock-based compensation plan had
been determined based on the fair value at the grant dates for the awards under
a method prescribed by SFAS No. 123, the Company's net loss would have been
increased to the pro forma amounts indicated below (in thousands, except per
share data):
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
SEPTEMBER 1, 1998
(DATE OF INCEPTION)
TO DECEMBER 31, YEAR ENDED
1998 DECEMBER 31, 1999
------------------- -----------------
<S> <C> <C>
Net loss:
As reported................................. $(3,201) $(45,000)
Pro forma................................... $(3,211) $(45,749)
Basic and diluted net loss per share:
As reported................................. $ (3.89) $ (38.96)
Pro forma................................... $ (3.90) $ (39.61)
</TABLE>
The Company calculated the fair value of each option on the date of grant
using the graded vesting approach with the following weighted-average
assumptions: no dividends; expected option term of four years; risk free
interest rates of 6.0% for the period from September 1, 1998 (date of inception)
to December 31, 1998 and 6.5% for the year ended December 31, 1999; and expected
volatility of 60% for the period from September 1, 1998 (date of inception) to
December 31, 1998 and 70% for the year ended December 31, 1999.
F-20
<PAGE> 91
CORIO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 -- EMPLOYEE BENEFIT PLAN
The Company sponsors a qualified 401(k) defined contribution plan (the
"Plan") covering substantially all of its employees. Participants are permitted,
in accordance with the provisions of Section 401(k) of the Internal Revenue
Code, to contribute up to 25% of their earnings into the Plan. Contributions
made by the Company are discretionary, and the Company has not made any
contributions since inception of the Plan.
NOTE 13 -- SIGNIFICANT CUSTOMER INFORMATION AND SEGMENT REPORTING INFORMATION
The Company has adopted SFAS No. 131, which requires the reporting of
segment information using the "management approach" versus the "industry
approach" previously required. Based on the information provided to the
Company's chief operating decision maker for purposes of making decisions about
allocating resources and assessing performance, the Company's operations have
been classified into two operating segments (i) application management services
and (ii) professional services. The operations of the Predecessor were
classified in a single operating segment, professional services. Corporate
expenses, including those for sales and marketing, general and administrative
and research and development, are not allocated to operating segments.
Disaggregated information is as follows (in thousands):
<TABLE>
<CAPTION>
APPLICATION
MANAGEMENT PROFESSIONAL
SERVICES SERVICES UNALLOCATED TOTAL
----------- ------------ ----------- --------
<S> <C> <C> <C> <C>
FOR THE PERIOD FROM SEPTEMBER 1, 1998 (DATE
OF INCEPTION) THROUGH DECEMBER 31, 1998
Revenues................................... $ -- $ 1,292 $ -- $ 1,292
Depreciation and amortization.............. $ -- $ 3 $ 16 $ 19
Segment profit (loss)...................... $ -- $ 253 $ (3,454) $ (3,201)
FOR THE YEAR ENDED DECEMBER 31, 1999
Revenues................................... $ 746 $ 5,036 $ -- $ 5,782
Depreciation and amortization.............. $ 1,228 $ 124 $ 3,316 $ 4,668
Segment loss............................... $(5,551) $(2,719) $(36,730) $(45,000)
</TABLE>
The Company does not allocate all assets to its operating segments, nor
does it allocate interest revenue or interest expense. In addition, the Company
has no foreign operations.
F-21
<PAGE> 92
CORIO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Significant customer information is as follows:
<TABLE>
<CAPTION>
PERCENT OF TOTAL
PERCENT OF TOTAL REVENUE ACCOUNTS RECEIVABLE
-------------------------------------------------------------------- ---------------------------
DSCI CORIO CORIO
--------------------------------- -------------------------------- ---------------------------
FOR THE PERIOD FOR THE PERIOD
FROM FROM
OCTOBER 1, 1997 SEPTEMBER 1, 1998
TO (DATE OF
YEAR ENDED SEPTEMBER 4, 1998 INCEPTION) YEAR ENDED
SEPTEMBER 30, (DATE OF TO DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 ACQUISITION) 1998 1999 1998 1999
------------- ----------------- ----------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Customer A........... -- 32% 43% 19% 32% --
Customer B........... -- -- 11% -- 13% --
Customer C........... -- -- -- 18% -- --
Customer D........... -- -- -- -- -- 35%
Customer E........... 24% 33% -- -- -- --
Customer F........... 40% -- -- -- -- --
</TABLE>
NOTE 14 -- RELATED PARTY TRANSACTIONS
In connection with the acquisition of DSCI in September 1998, the Company
issued a secured subordinated promissory note for $2,328,000 to a stockholder of
the Company. The promissory note earned interest at 9.5% per annum and is
payable in two equal payments occurring on each of the first two anniversaries
of the date of issuance. During 1999, the Company made the first cash payment of
$1,336,000 (including principal of $1,110,000 and interest of $226,000) and
converted $1,000,000 (including principal of $968,000 and interest of $32,000)
into 153,846 shares of series C preferred stock. As of December 31, 1999, the
outstanding balance was $250,000, which will be repaid in fiscal year 2000.
In addition, 3,492,000 shares of the Company's series A preferred stock,
valued at $1,643,000, was issued to the same stockholder of the Company as a
result of the acquisition of DSCI (Note 2). Such shares were issued under a
restricted stock agreement, whereby the Company has the right to repurchase any
unvested shares at a price per share of $0.01. The vesting terms are as follows:
1,746,000 shares shall vest immediately, 582,000 shares shall vest within one
year, and the remaining 1,164,000 shares shall vest monthly over 36 months. As
of December 31, 1999, 1,018,500 shares of series A preferred stock are subject
to repurchase at a price of $0.01 per share.
In January 1999, the Company entered into an outsourcer alliance agreement
with PeopleSoft for a software license to offer PeopleSoft software to customers
of the Company and for other rights, and in March 1999, the Company entered into
a software license and services agreement with PeopleSoft for a license to use
PeopleSoft software internally. Two directors of the Company are also members of
the board of directors of PeopleSoft. Pursuant to the agreements, the Company
paid a total of approximately $7.5 million to PeopleSoft in 1999, and the
Company had an accrued liability to PeopleSoft pursuant to these agreements of
approximately $1.8 million as of December 31, 1999.
NOTE 15 -- SUBSEQUENT EVENTS
In January and February 2000, the board of directors approved an increase
in the number of reserved shares under the 1998 Stock Plan (the "Plan") by
2,100,000 and 6,500,000 shares, respectively, for a total of 18,500,000 shares
reserved for issuance under the Plan. In addition, the Plan provides for
automatic annual increases in the number of shares reserved for issuance under
the Plan in an amount each year equal to the lesser of 1) 6% of the outstanding
amount on such date, 2) 6,000,000 shares and 3) such lesser amount as may be
determined by the board of directors.
F-22
<PAGE> 93
CORIO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In February 2000, the board of directors approved to reserve 1,000,000
shares for issuance under the Employee Stock Purchase Plan 2000 (the "ESPP"). In
addition, the ESPP provides for automatic annual increases in the number of
shares reserved for issuance under the ESPP, in an amount each year equal to the
lesser of (1) 2.5% of the outstanding shares on such date, (2) 2,500,000 shares
or (3) such lesser amount as may be determined by the Board of Directors.
In February 2000, the Company released from its rights of repurchase
422,400 shares of its series A preferred stock held by a stockholder in
connection with the exercise of a call option held by an investor with respect
to those shares. The exercise of this call option was effected pursuant to a
cash option agreement entered into by the Company, such stockholder and such
investor in September 1998.
In March 2000, the Company entered into a volume purchase agreement to
purchase up to $6,000,000 of equipment through September 2001.
In April 2000, the Company entered into an equipment lease line of credit
agreement to purchase up to an aggregate of $5,000,000. In connection with the
agreement, the Company issued the lender a warrant to purchase up to $100,000 of
the Company's common stock at 90% of the price per share of the common stock
offered in an initial public offering by the Company.
In April 2000, the Company issued 5,450,000 shares of senior series E
mandatorily redeemable preferred stock at $10.00 per share, for aggregate net
proceeds of approximately $54.5 million. The senior series E mandatorily
redeemable preferred stock converts to common stock upon an initial public
offering at 73% of the price per share of the common stock offered in an initial
public offering by the Company completed on or before December 31, 2000, or at
65% of the price per share in the event of certain transactions as defined. The
Company will record a significant beneficial conversion adjustment which will
increase net loss to derive net loss attributable to common stockholders. Such
adjustment will be recorded in the period in which the Company completes an
initial public offering.
In April 2000, the Company entered into a strategic alliance with Ernst &
Young, on behalf of its consulting division, or E&Y Consulting, whereby E&Y
Consulting will exclusively offer services of the Company to its customers and
will provide systems integration and support services to customers of the
Company. In connection with the agreement, the Company issued E&Y Consulting
warrants to purchase up to 7,000,000 shares of the Company's common stock at an
exercise price of $6.50 per share. E&Y Consulting may exercise approximately 4.7
million of these warrants upon completion of an initial public offering and the
remaining warrants become exercisable upon achievement of target volume revenues
resulting from referrals by E&Y Consulting in the period from the date of the
agreement through the end of 2002. The warrants are subject to cancellation or
repurchase, in whole or in part, if E&Y Consulting breaches a material provision
of the agreement or fails to achieve agreed-upon revenue referral targets. As
these are performance based warrants, the fair value of the warrant issued will
be remeasured each period using the Black-Scholes option pricing model and the
resulting charges will be recorded as a sales and marketing expense. The Company
expects to record a significant beneficial conversion adjustment to net loss to
derive net loss attributable to common stockholders in connection with the
issuance of these securities. The beneficial conversion adjustment will be
recorded in the period during which the Company consummates an initial public
offering.
In February 2000, Ernst & Young announced that it had reached an agreement
to sell almost all of E&Y Consulting to Cap Gemini S.A., a leading European
management consulting and information technology services group. If this sale is
consummated, Ernst & Young is entitled to assign its rights and obligations
pursuant to our alliance to Cap Gemini.
F-23
<PAGE> 94
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the shares offered hereby, but only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
----------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary................... 1
Risk Factors......................... 5
Note Regarding Forward-Looking
Statements......................... 19
Use of Proceeds...................... 20
Dividend Policy...................... 20
Capitalization....................... 21
Dilution............................. 22
Selected Financial Data.............. 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 24
Business............................. 34
Management........................... 46
Certain Transactions................. 53
Principal Stockholders............... 56
Description of Capital Stock......... 58
Shares Eligible for Future Sale...... 62
Underwriting......................... 64
Validity of Common Stock............. 65
Experts.............................. 65
Change in Independent Auditors....... 66
Where You Can Find Additional
Information........................ 66
Index to Financial Statements........ F-1
</TABLE>
----------------------
Through and including , 2000 (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a prospectus
when acting as an underwriter and with respect to an unsold allotment or
subscription.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
Shares
CORIO, INC.
Common Stock
----------------------
[CORIO LOGO]
----------------------
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
ROBERTSON STEPHENS
AMERITRADE
Representatives of the Underwriters
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 95
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of common stock being registered. All amounts are estimates except
the registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
Registration Fee............................................ $13,200
NASD Fee.................................................... 5,500
Nasdaq National Market Listing Fee.......................... *
Printing and Engraving...................................... *
Legal Fees and Expenses..................................... *
Accounting Fees and Expenses................................ *
Blue Sky Fees and Expenses.................................. 25,000
Transfer Agent Fees......................................... *
Miscellaneous............................................... *
-------
Total.................................................. $ *
=======
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 145 of the Delaware General Corporation Law, the
Registrant's certificate of incorporation includes a provision that eliminates
the personal liability of its directors for monetary damages for breach or
alleged breach of their duty of care to the Company or its stockholders. In
addition, as permitted by Section 145 of the Delaware General Corporation Law,
the certificate of incorporation of the Registrant provides, inter alia, that
each person who is made a party or is threatened to be made a party to or
otherwise involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that he or she is or was a director or officer of the Company or, while a
director or officer of the Company, is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan (hereinafter an "indemnitee"), whether the
basis of such proceeding is alleged action in an official capacity as a director
or officer or in any other capacity while serving as a director or officer, is
authorized to be indemnified and held harmless by the Company to the fullest
extent authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended, against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement) reasonably incurred or suffered by such indemnitee in
connection therewith and such indemnification shall continue as to an
indemnitee's heirs, executors and administrators; provided, however, that,
except with respect to the proceedings brought by an indemnitee to enforce
rights to indemnification (subject to certain restrictions and as more fully
described in the Registrant's certificate of incorporation), the Company shall
indemnify any such indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Company. The right to
indemnification conferred in the Registrant's certificate of incorporation
includes the right to be paid by the Company the expenses incurred in connection
with any such proceeding in advance of its final disposition; provided, however,
that, if and to the extent that the Delaware General Corporation Law requires,
such an advancement of expenses incurred by an indemnitee in his or her capacity
in which service was or is rendered by such indemnitee, including, without
limitation, service with
II-1
<PAGE> 96
respect to an employee benefit plan, shall be made only upon delivery to the
Company of an undertaking by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal that such indemnitee is
not entitled to be indemnified for such expenses under the Company's certificate
of incorporation or otherwise.
The Registrant's policy is to enter into indemnification agreements with
each of its directors and executive officers that provide the maximum indemnity
allowed to directors and executive officers by Section 145 of the Delaware
General Corporation Law and the bylaws, as well as certain additional procedural
protections. The indemnity agreements provide that directors and executive
officers will be indemnified to the fullest possible extent not prohibited by
law against all expenses (including attorney's fees) and settlement amounts paid
or incurred by them in any action or proceeding, including any derivative action
by or in the right of the Registrant, on account of their services as directors
or executive officers of the Registrant or as directors or officers of any other
company or enterprise when they are serving in such capacities at the request of
the Registrant. Pursuant to the indemnity agreements, the Company will not be
obligated to indemnify or advance expenses to an indemnified party with respect
to proceedings or claims initiated by the indemnified party and not by way of
defense, except with respect to proceedings specifically authorized by the board
of directors or brought to enforce a right to indemnification under such
indemnity agreement, the Company's certificate of incorporation, bylaws or any
statute or law, or as otherwise required under Section 145 of the Delaware
General Corporation Law. Also under the indemnification agreements, the Company
is not obligated to indemnify the indemnified party for (i) any expenses
incurred by the indemnified party with respect to any proceeding instituted by
the indemnified party to enforce or interpret the agreement, if a court of
competent jurisdiction determines that each of the material assertions made by
the indemnified party in such proceeding was not made in good faith or was
frivolous, (ii) acts, omissions or transactions on the part of the indemnified
party from which such party may not be relieved of liability under applicable
law or (iii) expenses and the payment of profits arising from the purchase and
sale by the indemnified party of securities in violation of Section 16(b) of the
Exchange Act, or any similar or successor statute.
The indemnification provisions in the certificate of incorporation and the
indemnification agreements entered into between the Registrant and its directors
and executive officers, may be sufficiently broad to permit indemnification of
the Registrant's officers and directors for liabilities arising under the 1933
Act.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ------- --------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Registrant
3.2 Form of Amended and Restated Certificate of Incorporation of
the Registrant
10.1 Form of Indemnification Agreement entered into by the
Registrant with each of its directors and executive officers
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following consists of information regarding all securities sold by us
since September 1998:
1. In September 1998, we issued and sold 11,992,000 shares of our series A
preferred stock to a total of 5 investors at $0.47059 per share, for aggregate
proceeds of $4,000,015. One consultant was issued 135,000 shares of series A
preferred stock for his services in connection with our series A preferred stock
Financing. The foregoing purchase and sale was exempt from Registration under
the
II-2
<PAGE> 97
Securities Act pursuant to Section 4(2), and Regulation D promulgated
thereunder, on the basis that the investors were "accredited" as defined therein
and the sale did not involve a public offering.
2. In December 1998, we sold warrants to purchase up to 681,213 shares of
series A preferred stock at an exercise price of $1.24 per share. The foregoing
purchase and sale was exempt from Registration under the Securities Act pursuant
to Section 4(2) thereof on the basis that the transaction did not involve a
public offering.
3. On February 23, 1999, we issued and sold 300,000 shares of common stock
to a member of our board of directors at $0.05 per share, for aggregate proceeds
of $15,000. This member of our board of directors subsequently resigned from our
board, after which time we purchased 200,000 of his shares under our right of
repurchase. The foregoing purchase and sale was exempt from Registration under
the Securities Act pursuant to Section 4(2) thereof on the basis that the
transaction did not involve a public offering.
4. On April 9, 1999, April 16, 1999 and May 7, 1999, we issued and sold
10,639,842 shares of series B preferred stock to a total of 21 investors at
$2.00 per share, for aggregate proceeds of $21,024,996. The foregoing purchase
and sale was exempt from Registration under the Securities Act pursuant to
Section 4(2), and Regulation D promulgated thereunder, on the basis that the
investors were "accredited" as defined therein and the sale did not involve a
public offering.
5. On July 7, 1999, we issued and sold 50,000 shares of common stock to a
consultant at $0.20 per share, for aggregate proceeds of $10,000. The foregoing
purchase and sale was exempt from Registration under the Securities Act pursuant
to Section 4(2) thereof on the basis that the transaction did not involve a
public offering.
6. On July 8, 1999, we issued and sold 25,000 shares of common stock to a
member of the board of directors at $0.40 per share, for aggregate proceeds of
$10,000. The foregoing purchase and sale was exempt from Registration under the
Securities Act pursuant to Section 4(2) thereof on the basis that the
transaction did not involve a public offering.
7. On August 2, 1999, we issued and sold 93,332 shares of series A
preferred stock to a consultant at $1.00 per share in exchange for services, for
aggregate proceeds of $93,332. The foregoing purchase and sale was exempt from
Registration under the Securities Act pursuant to Section 4(2) thereof on the
basis that the transaction did not involve a public offering.
8. In October 15, 1999, we issued and sold warrants to purchase 50,000
shares of common stock to Spieker Properties, L.P. at an exercise price of $6.50
per share. The foregoing purchase and sale was exempt from Registration under
the Securities Act pursuant to Section 4(2) thereof on the basis that the
transaction did not involve a public offering.
9. On October 29, 1999, November 15, 1999 and December 15, 1999, we issued
and sold 7,104,621 shares of series C preferred stock to a total of 31 investors
at $6.50 per share, for aggregate proceeds of $45,180,039. In October 1999, we
also issued and sold warrants to Concentric Network Corporation and Siebel
Systems, Inc. to purchase 307,692 shares of series C preferred stock at an
exercise price of $6.50 per share. The foregoing purchases and sales were exempt
from Registration under the Securities Act pursuant to Section 4(2), and
Regulation D promulgated thereunder, on the basis that the investors were
"accredited" as defined therein and the sale did not involve a public offering.
10. On December 27, 1999, we issued and sold warrants to purchase 43,077
shares of series C preferred stock to Comdisco, Inc. at an exercise price of
$6.50 per share, assuming this offering is completed on or before June 30, 2000.
The foregoing purchase and sale was exempt from Registration under the
Securities Act pursuant to Section 4(2) thereof on the basis that the
transaction did not involve a public offering.
11. On February 17, 2000, we issued 9,716 shares of common stock to Steve
Walden in connection with consulting services. The foregoing purchase and sale
was exempt from Registration
II-3
<PAGE> 98
under the Securities Act pursuant to Section 4(2) thereof on the basis that the
transaction did not involve a public offering.
12. On April 20, 2000, we issued an aggregate of 5,450,000 shares of senior
series E mandatorily redeemable preferred stock at $10.00 per share, at $10.00
per share, for aggregate net proceeds of approximately $54.5 million. The
foregoing purchase and sale was exempt from Registration under the Securities
Act pursuant to Section 4(2), and Regulation D promulgated thereunder, on the
basis that the investors were "accredited" as defined therein and the sale did
not involve a public offering.
13. Since September 1998, we have granted stock options under our 1998
Stock Plan, covering an aggregate of 9,973,173 shares of common stock (net of
expirations, exercises and cancellations) at exercise prices ranging from $0.05
to $12.00. The foregoing transactions were exempt from Registration under the
Securities Act pursuant to Rule 701.
14. Since September 1998, options to purchase 1,582,477 shares were
exercised with a weighted average exercise price of approximately $0.60 a share.
These transactions were exempt from Registration under the Securities Act
pursuant to Rule 701.
None of the transactions involved any underwriters, underwriting discounts
or commissions or any public offering, and we believe that each transaction was
exempt from registration requirements of the Securities Act by virtue of Section
4(2) thereof, Regulation D promulgated thereunder or pursuant to compensatory
benefit plans and contracts relating to compensation as provided under Rule 701.
The recipients in such transaction represented their intention to acquire the
securities for investment purposes only and not with a view to or for sale in
connection with any distribution thereof, and appropriate legends were affixed
to the share certificates and instruments issued in such transactions. All
recipients had adequate access to information about us.
In particular, the securities described in the preferred stock financings
and warrant issuances pursuant to numbers 1, 2, 3, 6, 8, 9, 10 and 11 are owned
in their entirety by individuals or large institutional investors who (A)
represented to us that they were "accredited investors" within the definition of
Rule 501 of Regulation D, familiar with investing in private companies, (B)
represented to us that they understood that the securities they were purchasing
were restricted and the risk of possible loss associated with their investment,
(C) represented to us that they were familiar with our history and business, (D)
received our recent financial information and (E) were afforded the opportunity
to ask questions of our management. Each of the investors had expressed previous
interest to our officers and directors in making an investment in us when an
opportunity was available, and such investors were contacted only on a
one-on-one basis without any general solicitation or advertising of the
investment opportunity. Accordingly, we believe that the each of the foregoing
transactions was exempt from the registration requirements of the Securities Act
by virtue of Section 4(2) thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT DESCRIPTION
------- -------------------
<S> <C>
1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Registrant
3.2 Form of Amended and Restated Certificate of Incorporation of
the Registrant
3.3 Bylaws of the Registrant
4.1 Form of Registrant's Common Stock Certificate
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, P.C. regarding
legality of the securities being issued
10.1 Form of Indemnification Agreement entered into by and
between the Registrant and each of its directors and
executive officers
</TABLE>
II-4
<PAGE> 99
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT DESCRIPTION
------- -------------------
<S> <C>
10.2+ Hosting License Agreement dated June 30, 1999 between the
Registrant and Active Software, Inc.
10.3+ Master Agreement dated November 8, 1999 between the
Registrant and BroadVision, Inc.
10.4+ Reseller Agreement dated November 8, 1999 between the
Registrant and BroadVision, Inc.
10.5+* License and Hosting Agreement dated October 29, 1999 between
the Registrant and Commerce One, Inc.
10.6+ Host Server Solutions Service Agreement dated January 29,
1999 between the Registrant and Concentric Network, Inc.
10.7+ Amendment No. 1 to Host Server Solutions Service Agreement
dated August 23, 1999 between the Registrant and Concentric
Network, Inc.
10.8+* Application Service Provider Agreement dated December 9,
1999 between the Registrant and E.piphany, Inc.
10.9+* Alliance and Co-Marketing Agreement dated April 20, 2000
between the Registrant and Ernst & Young LLP.
10.10+* Amended and Restated Investor Rights Agreement dated April
20, 2000 between the Registrant and Ernst & Young LLP.
10.11+ Outsourcer Alliance Agreement dated January 1, 1999 between
the Registrant and PeopleSoft USA, Inc.
10.12+ Marketing Alliance Agreement dated February 10, 2000 between
the Registrant and SAP America, Inc.
10.13+ Value Added Industry Remarketer Agreement dated August 13,
1999 between the Registrant and Siebel Systems, Inc.
10.14 Form of Change in Control Agreement entered into by and
between the Registrant and certain of its officers.
16.1 Letter regarding change in independent auditors
20.1 1998 Stock Plan
20.2 Employee Stock Purchase Plan 2000 and related agreements
23.1* Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included
in Exhibit 5.1)
23.2 Report on Financial Statement Schedule and Consent of
Independent Auditors
24.1 Power of Attorney (see page II-7)
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential treatment has been requested for certain portions of this
exhibit.
(b) FINANCIAL STATEMENT SCHEDULES
Schedule II -- Valuation and Qualifying Accounts.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned 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, or Act, may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions referenced in Item 14 of this
Registration Statement 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
II-5
<PAGE> 100
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 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 Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the 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 Act, each
post-effective amendment that contains a form of Prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-6
<PAGE> 101
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement on Form S-1 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Carlos, State of
California, on the 21st day of April, 2000.
CORIO, INC.
By: /s/ GEORGE KADIFA
------------------------------------
George Kadifa,
President, Chief Executive Officer
and Director
KNOW ALL BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints George Kadifa and Eric Keller, and each of them,
as his true and lawful attorneys-in-fact and agents, each with the power of
substitution, for him in his name, place and stead, in any and all capacities,
to sign the Registration Statement filed herewith and any and all amendments
(including post-effective amendments) to this Registration Statement, and to
sign any registration statement for the same offering covered by this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) promulgated under the Securities Act of 1933, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the foregoing, as full to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ GEORGE KADIFA President and Chief April 21, 2000
- ----------------------------------------------------- Executive Officer and
George Kadifa Director (Principal
Executive Officer)
/s/ ERIC J. KELLER Executive Vice President April 21, 2000
- ----------------------------------------------------- and Chief Financial
Eric J. Keller Officer (Principal
Financial and Accounting
Officer)
/s/ JONATHAN J. LEE Founder and Chief Strategy April 21, 2000
- ----------------------------------------------------- Officer
Jonathan J. Lee
/s/ VINOD KHOSLA Director April 21, 2000
- -----------------------------------------------------
Vinod Khosla
/s/ ANEEL BHUSRI Director April 21, 2000
- -----------------------------------------------------
Aneel Bhusri
</TABLE>
II-7
<PAGE> 102
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ TED E. SCHLEIN Director April 21, 2000
- -----------------------------------------------------
Ted E. Schlein
/s/ ROGER S. SIBONI Director April 21, 2000
- -----------------------------------------------------
Roger S. Siboni
/s/ GEORGE J. STILL, JR. Director April 21, 2000
- -----------------------------------------------------
George J. Still, Jr.
</TABLE>
II-8
<PAGE> 103
SCHEDULE II
CORIO, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED
BALANCE AT TO COSTS DEDUCTIONS/ BALANCE AT
BEGINNING AND WRITE- END OF
DESCRIPTION OF PERIOD EXPENSES OFFS PERIOD
----------- ---------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Accounts receivable allowances:
Predecessor:
For the year ended September 30, 1997....... $ -- $ -- $ -- $ --
For the period from October 1, 1997 to
September 4, 1998 (date of
acquisition)............................. $ -- $ -- $ -- $ --
Company:
For the period from September 1, 1998 (date
of inception) to December 31, 1998....... $ -- $138 $ -- $138
For the year ended December 31, 1999........ $138 $125 $(30) $233
</TABLE>
II-9
<PAGE> 104
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Registrant
3.2 Form of Amended and Restated Certificate of Incorporation of
the Registrant
3.3 Bylaws of the Registrant
4.1 Form of Registrant's Common Stock Certificate
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, P.C. regarding
legality of the securities being issued
10.1 Form of Indemnification Agreement entered into by and
between the Registrant and each of its directors and
executive officers
10.2+ Hosting License Agreement dated June 30, 1999 between the
Registrant and Active Software, Inc.
10.3+ Master Agreement dated November 8, 1999 between the
Registrant and BroadVision, Inc.
10.4+ Reseller Agreement dated November 8, 1999 between the
Registrant and BroadVision, Inc.
10.5+* License and Hosting Agreement dated October 29, 1999 between
the Registrant and Commerce One, Inc.
10.6+ Host Server Solutions Service Agreement dated January 29,
1999 between the Registrant and Concentric Network, Inc.
10.7+ Amendment No. 1 to Host Server Solutions Service Agreement
dated August 23, 1999 between the Registrant and Concentric
Network, Inc.
10.8+* Application Service Provider Agreement dated December 9,
1999 between the Registrant and E.piphany, Inc.
10.9+* Alliance and Co-Marketing Agreement dated April 20, 2000
between the Registrant and Ernst & Young LLP.
10.10+* Amended and Restated Investor Rights Agreement dated April
20, 2000 between the Registrant and Ernst & Young LLP.
10.11+ Outsourcer Alliance Agreement dated January 1, 1999 between
the Registrant and PeopleSoft USA, Inc.
10.12+ Marketing Alliance Agreement dated February 10, 2000 between
the Registrant and SAP America, Inc.
10.13+ Value Added Industry Remarketer Agreement dated August 13,
1999 between the Registrant and Siebel Systems, Inc.
10.14 Form of Change in Control Agreement entered into by and
between the Registrant and each of its executive officers.
16.1 Letter regarding change in independent auditors
20.1 1998 Stock Plan
20.2 Employee Stock Purchase Plan 2000 and related agreements
23.1* Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included
in Exhibit 5.1)
23.2 Report on Financial Statement Schedule and Consent of
Independent Auditors
24.1 Power of Attorney (see page II-7)
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential treatment has been requested for certain portions of this
exhibit.
<PAGE> 1
EXHIBIT 1.1
CORIO, INC.
COMMON STOCK
------------
UNDERWRITING AGREEMENT
May __ , 2000
Goldman, Sachs & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated
FleetBoston Robertson Stephens Inc.
Advanced Clearing, Inc.
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.
Ladies and Gentlemen:
Corio, Inc., a Delaware corporation (the "Company"), proposes, subject
to the terms and conditions stated herein, to issue and sell to the Underwriters
named in Schedule I hereto (the "Underwriters") an aggregate of ........ shares
(the "Firm Shares") and, at the election of the Underwriters, up to ........
additional shares (the "Optional Shares") of Common Stock, par value $0.001 per
share ("Stock"), of the Company (the Firm Shares and the Optional Shares that
the Underwriters elect to purchase pursuant to Section 2 hereof being
collectively called the "Shares").
1. The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-....) (the
"Initial Registration Statement") in respect of the Shares has been filed with
the Securities and Exchange Commission (the "Commission"); the Initial
Registration Statement and any post-effective amendment thereto, each in the
form heretofore delivered to you, and, excluding exhibits thereto, to you for
each of the other Underwriters, have been declared effective by the Commission
in such form; other than a registration statement, if any, increasing the size
of the offering (a "Rule 462(b) Registration Statement"), filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended (the "Act"), which became
effective upon filing, no other document with respect to the Initial
Registration Statement has heretofore been filed with the Commission; and no
stop order suspending the effectiveness of the Initial Registration Statement,
any post-effective amendment thereto or the Rule 462(b) Registration Statement,
if any, has been issued and no proceeding for that purpose has been initiated or
threatened by the Commission (any preliminary prospectus included in the Initial
Registration Statement or filed with the Commission pursuant to Rule 424(a) of
the rules and regulations of the Commission under the Act is hereinafter called
a "Preliminary Prospectus"; the various parts of the Initial Registration
Statement and the Rule 462(b) Registration Statement, if any,
<PAGE> 2
including all exhibits thereto and including the information contained in the
form of final prospectus filed with the Commission pursuant to Rule 424(b) under
the Act in accordance with Section 5(a) hereof and deemed by virtue of Rule 430A
under the Act to be part of the Initial Registration Statement at the time it
was declared effective, each as amended at the time such part of the Initial
Registration Statement became effective or such part of the Rule 462(b)
Registration Statement, if any, became or hereafter becomes effective, are
hereinafter collectively called the "Registration Statement"; and such final
prospectus, in the form first filed pursuant to Rule 424(b) under the Act, is
hereinafter called the "Prospectus");
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary Prospectus,
at the time of filing thereof, conformed in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder, and did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(c) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of the Act
and the rules and regulations of the Commission thereunder and do not and will
not, as of the applicable effective date as to the Registration Statement and
any amendment thereto, and as of the applicable filing date as to the Prospectus
and any amendment or supplement thereto, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
this representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in writing to
the Company by an Underwriter through Goldman, Sachs & Co. expressly for use
therein;
(d) The Company has not sustained since the date of the latest audited
financial statements included in the Prospectus any material loss or
interference with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus; and, since the respective dates as of which
information is given in the Registration Statement and the Prospectus, there has
not been any change in the capital stock, except for the grant of stock options
or issuances of stock upon the exercise of options or warrants pursuant to the
Company's existing stock plans approved by the Board of Directors or long-term
debt of the Company or any material adverse change, or any development involving
a prospective material adverse change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of operations of
the Company and its subsidiaries, otherwise than as set forth or contemplated in
the Prospectus;
(e) The Company owns no real property and have good and marketable title
to all personal property owned by it free and clear of all liens, encumbrances
and defects except such as are described in the Prospectus or such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company and its
subsidiaries; and any real property and buildings held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its subsidiaries;
2
<PAGE> 3
(f) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with power
and authority (corporate and other) to own its properties and conduct its
business as described in the Prospectus, and has been duly qualified as a
foreign corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases properties
or conducts any business so as to require such qualification, except where the
failure to be so qualified or be in good standing as a foreign corporation would
not, individually or in the aggregate, have a material adverse effect on
business, financial condition, results of operations or prospects (as described
in the Prospectus) of the Company (a "Material Adverse Effect"). The Company
does not own any equity interest, directly or indirectly, in any corporation,
partnership, joint venture or other entity and has no subsidiaries;
(g) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and conform to the description of the Stock and the other classes and series of
capital stock of the Company contained in the Prospectus; and all of the issued
shares of capital stock of the Company have been duly and validly authorized and
issued, are fully paid and non-assessable and (except for directors' qualifying
shares) are owned directly or indirectly by the Company, free and clear of all
liens, encumbrances, equities or claims;
(h) The unissued Shares to be issued and sold by the Company to the
Underwriters hereunder have been duly and validly authorized and, when issued
and delivered against payment therefor as provided herein, will be duly and
validly issued and fully paid and non-assessable and will conform to the
description of the Stock contained in the Prospectus; there are no preemptive or
registration rights applicable to the issuance hereunder that have not been
waived or terminated;
(i) The issue and sale of the Shares by the Company and the compliance
by the Company with all of the provisions of this Agreement and the consummation
of the transactions herein contemplated will not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company is a party or by which the Company
is bound or to which any of the property or assets of the Company is subject,
nor will such action result in any violation of the provisions of the
Certificate of Incorporation or By-laws of the Company or any statute or any
order, rule or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of their properties; and no consent,
approval, authorization, order, registration or qualification of or with any
such court or governmental agency or body is required for the issue and sale of
the Shares or the consummation by the Company of the transactions contemplated
by this Agreement, except the registration under the Act of the Shares and such
consents, approvals, authorizations, registrations or qualifications as may be
required under state securities or Blue Sky laws in connection with the purchase
and distribution of the Shares by the Underwriters;
(j) The Company is not in violation of its Certificate of Incorporation
or By-laws or in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any indenture,
mortgage, deed of trust, loan agreement, lease or other agreement or instrument
to which it is a party or by which it or any of its properties may be bound;
(k) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a summary
of the terms of the Stock, and under the caption "Underwriting", insofar as they
purport to describe the provisions of the laws and documents referred to
therein, are accurate and complete in all material respects;
3
<PAGE> 4
(l) Other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company is a party or of which any
property of the Company is the subject which, if determined adversely to the
Company would individually or in the aggregate have a Material Adverse Effect;
and, to the best of the Company's knowledge, no such proceedings are threatened
or contemplated by governmental authorities or threatened by others;
(m) The Company is not and, after giving effect to the offering and sale
of the Shares, will not be an "investment company", as such term is defined in
the Investment Company Act of 1940, as amended (the "Investment Company Act");
(n) KPMG LLP, who have certified certain financial statements of the
Company and its subsidiaries, are independent public accountants as required by
the Act and the rules and regulations of the Commission thereunder; and
(o) The Company owns, or possesses adequate rights to use, or otherwise
has the benefit of use under contractual arrangements or licenses, or has the
ability to acquire on reasonable terms, all material trademarks, service marks,
trade names, trademark registrations, service mark registrations, domain names,
copyrights and software necessary for the conduct of its business as described
in the Prospectus and has no reason to believe that the conduct of its business
as described in the Prospectus will conflict with, and has not received any
notice of any claim of conflict with any such rights or others, except where, to
the Company's knowledge after due inquiry, the failure to own or possess
adequate rights to use or otherwise have the benefit of use of such intellectual
property or have the ability to acquire on reasonable terms, would not have a
Material Adverse Effect; all licenses held by the Company to use software from
third party vendors are in full force and effect and the Company is not in
breach of any such license, except where, to the Company's knowledge after due
inquiry, such breach would not have a Material Adverse Effect; and the Company
is not aware of any claim by others that the Company is infringing or otherwise
violating the patents or other intellectual property of others and is not aware
of any rights of third parties to any of the Company's intellectual property
which could have a Material Adverse Effect on the use thereof by the Company in
the conduct of the Company's business as described in the Prospectus.
2. Subject to the terms and conditions herein set forth, (a) the Company
agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price per share of $................, the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I hereto and (b) in the
event and to the extent that the Underwriters shall exercise the election to
purchase Optional Shares as provided below, the Company agrees to issue and sell
to each of the Underwriters, and each of the Underwriters agrees, severally and
not jointly, to purchase from the Company, at the purchase price per share set
forth in clause (a) of this Section 2, that portion of the number of Optional
Shares as to which such election shall have been exercised (to be adjusted by
you so as to eliminate fractional shares) determined by multiplying such number
of Optional Shares by a fraction, the numerator of which is the maximum number
of Optional Shares which such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the maximum number of Optional Shares that all of the Underwriters
are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to ................... Optional Shares, at the purchase price
per share set forth in the paragraph above, for the sole purpose of covering
sales of shares in excess of the number of Firm Shares. Any such election to
purchase Optional Shares may be exercised only by written notice from you to the
Company, given within a period of 30 calendar days after the date of this
Agreement, setting forth the
4
<PAGE> 5
aggregate number of Optional Shares to be purchased and the date on which such
Optional Shares are to be delivered, as determined by you but in no event
earlier than the First Time of Delivery (as defined in Section 4 hereof) or,
unless you and the Company otherwise agree in writing, earlier than two or later
than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company shall be delivered by or on behalf of the Company to
Goldman, Sachs & Co., through the facilities of the Depository Trust Company
("DTC"), for the account of such Underwriter, against payment by or on behalf of
such Underwriter of the purchase price therefor by wire transfer of Federal
(same-day) funds to the account specified by the Company to Goldman, Sachs & Co.
at least forty-eight hours in advance. The Company will cause the certificates
representing the Shares to be made available for checking and packaging at least
twenty-four hours prior to the Time of Delivery (as defined below) with respect
thereto at the office of DTC or its designated custodian (the "Designated
Office"). The time and date of such delivery and payment shall be, with respect
to the Firm Shares, 9:30 a.m., New York City time, on ............., 2000 or
such other time and date as Goldman, Sachs & Co. and the Company may agree upon
in writing, and, with respect to the Optional Shares, 9:30 a.m., New York time,
on the date specified by Goldman, Sachs & Co. in the written notice given by
Goldman, Sachs & Co. of the Underwriters' election to purchase such Optional
Shares, or such other time and date as Goldman, Sachs & Co. and the Company may
agree upon in writing. Such time and date for delivery of the Firm Shares is
herein called the "First Time of Delivery", such time and date for delivery of
the Optional Shares, if not the First Time of Delivery, is herein called the
"Second Time of Delivery", and each such time and date for delivery is herein
called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7(k) hereof, including the
cross receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7(k) hereof, will be delivered at the offices
of Wilson Sonsini Goodrich & Rosati, Professional Corporation, 650 Page Mill
Road, Palo Alto, California 94304 (the "Closing Location"), and the Shares will
be delivered at the Designated Office, all at such Time of Delivery. A meeting
will be held at the Closing Location at 3:00 p.m., Palo Alto time, on the New
York Business Day next preceding such Time of Delivery, at which meeting the
final drafts of the documents to be delivered pursuant to the preceding sentence
will be available for review by the parties hereto. For the purposes of this
Section 4, "New York Business Day" shall mean each Monday, Tuesday, Wednesday,
Thursday and Friday which is not a day on which banking institutions in New York
are generally authorized or obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file such
Prospectus pursuant to Rule 424(b) under the Act not later than the Commission's
close of business on the second business day following the execution and
delivery of this Agreement, or, if applicable, such earlier time as may be
required by Rule 430A(a)(3) under the Act; to make no further amendment or any
supplement to the Registration Statement or Prospectus which shall be
disapproved by you promptly after reasonable notice thereof; to advise you,
promptly after it receives notice thereof, of the time when any amendment to the
Registration Statement has been filed or becomes effective or any supplement to
the Prospectus or any amended Prospectus has been filed and to furnish you with
5
<PAGE> 6
copies thereof; to advise you, promptly after it receives notice thereof, of the
issuance by the Commission of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus, of the
suspension of the qualification of the Shares for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or supplementing
of the Registration Statement or Prospectus or for additional information; and,
in the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus or suspending any
such qualification, promptly to use its best efforts to obtain the withdrawal of
such order;
(b) Promptly from time to time to take such action as you may reasonably
request to qualify the Shares for offering and sale under the securities laws of
such jurisdictions as you may request and to comply with such laws so as to
permit the continuance of sales and dealings therein in such jurisdictions for
as long as may be necessary to complete the distribution of the Shares, provided
that in connection therewith the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process in any
jurisdiction;
(c) Prior to 10:00 A.M., New York City time, on the New York Business
Day next succeeding the date of this Agreement and from time to time, to furnish
the Underwriters with copies of the Prospectus in New York City in such
quantities as you may reasonably request, and, if the delivery of a prospectus
is required at any time prior to the expiration of nine months after the time of
issue of the Prospectus in connection with the offering or sale of the Shares
and if at such time any event shall have occurred as a result of which the
Prospectus as then amended or supplemented would include an untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made when such Prospectus is delivered, not misleading, or, if for any other
reason it shall be necessary during such period to amend or supplement the
Prospectus in order to comply with the Act, to notify you and upon your request
to prepare and furnish without charge to each Underwriter and to any dealer in
securities as many copies as you may from time to time reasonably request of an
amended Prospectus or a supplement to the Prospectus which will correct such
statement or omission or effect such compliance, and in case any Underwriter is
required to deliver a prospectus in connection with sales of any of the Shares
at any time nine months or more after the time of issue of the Prospectus, upon
your request but at the expense of such Underwriter, to prepare and deliver to
such Underwriter as many copies as you may request of an amended or supplemented
Prospectus complying with Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the effective
date of the Registration Statement (as defined in Rule 158(c) under the Act), an
earnings statement of the Company and its subsidiaries (which need not be
audited) complying with Section 11(a) of the Act and the rules and regulations
thereunder (including, at the option of the Company, Rule 158);
(e) During the period beginning from the date hereof and continuing to
and including the date 180 days after the date of the Prospectus, not to offer,
sell, contract to sell or otherwise dispose of, except as provided hereunder any
securities of the Company that are substantially similar to the Shares,
including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive, Stock or any such
substantially similar securities (other than pursuant to employee stock option
plans existing on, or upon the conversion or exchange of convertible or
exchangeable securities outstanding as of, the date of this Agreement or in
connection with any acquisition transaction or strategic partnership, provided
that the holders of such securities agree in
6
<PAGE> 7
writing not to offer, sell, contract to sell or otherwise dispose of such
securities during the same 180 day period, subject to the proviso below),
without your prior written consent;
(f) To furnish to its stockholders as soon as practicable after the end
of each fiscal year an annual report (including a balance sheet and statements
of income, stockholders' equity and cash flows of the Company and its
consolidated subsidiaries certified by independent public accountants) and, as
soon as practicable after the end of each of the first three quarters of each
fiscal year (beginning with the fiscal quarter ending after the effective date
of the Registration Statement), to make available to its stockholders
consolidated summary financial information of the Company and its subsidiaries
if any for such quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to deliver to
you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national securities
exchange on which any class of securities of the Company is listed; and (ii)
such additional information concerning the business and financial condition of
the Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of the
Company and its subsidiaries are consolidated in reports furnished to its
stockholders generally or to the Commission);
(h) To use the net proceeds received by it from the sale of the Shares
pursuant to this Agreement in the manner specified in the Prospectus under the
caption "Use of Proceeds";
(i) To use its best efforts to list for quotation the Shares on the
National Association of Securities Dealers Automated Quotations National Market
System ("NASDAQ");
(j) To file with the Commission such information on Form 10-Q or Form
10-K as may be required by Rule 463 under the Act; and
(k) If the Company elects to rely upon Rule 462(b), the Company shall
file a Rule 462(b) Registration Statement with the Commission in compliance with
Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of this Agreement,
and the Company shall at the time of filing either pay to the Commission the
filing fee for the Rule 462(b) Registration Statement or give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under the Act.
6. The Company covenants and agrees with the several Underwriters that
the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the Blue Sky Memorandum,
closing documents (including any compilations thereof) and any other documents
in connection with the offering, purchase, sale and delivery of the Shares;
(iii) all reasonable expenses in connection with the qualification of the Shares
for offering and sale under state securities laws as provided in Section 5(b)
hereof, including the fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky survey
(iv) all fees and expenses in connection with listing the Shares on the NASDAQ;
(v) the filing fees incident to, and the fees and disbursements of counsel for
the Underwriters in connection with, securing any required review by the
National Association of Securities Dealers, Inc. of the terms of the sale of the
Shares; (vi) the cost of preparing stock certificates; (vii) the cost and
charges of any transfer agent or registrar; and (viii) all other costs
7
<PAGE> 8
and expenses incident to the performance of its obligations hereunder which are
not otherwise specifically provided for in this Section. It is understood,
however, that, except as provided in this Section, and Sections 8 and 11 hereof,
the Underwriters will pay all of their own costs and expenses, including the
fees of their counsel, stock transfer taxes on resale of any of the Shares by
them, and any advertising expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company herein are, at and as of such Time of Delivery, true and correct,
the condition that the Company shall have performed all of its obligations
hereunder theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed for
such filing by the rules and regulations under the Act and in accordance
with Section 5(a) hereof; if the Company has elected to rely upon Rule
462(b), the Rule 462(b) Registration Statement shall have become
effective by 10:00 P.M., Washington, D.C. time, on the date of this
Agreement; no stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose shall have been initiated or threatened by
the Commission; and all requests for additional information on the part
of the Commission shall have been complied with to your reasonable
satisfaction;
(b) Sullivan & Cromwell, counsel for the Underwriters, shall have
furnished to you such written opinion or opinions, dated such Time of
Delivery, with respect to such matters as you may reasonably request,
and such counsel shall have received such papers and information as they
may reasonably request to enable them to pass upon such matters;
(c) Wilson Sonsini Goodrich & Rosati, a Professional Corporation,
counsel for the Company, shall have furnished to you their written
opinion (a draft of such opinion is attached as Annex II(b) hereto),
dated such Time of Delivery, in form and substance satisfactory to you,
to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware, with power and authority (corporate and other)
to own its properties and conduct its business as described in
the Prospectus;
(ii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital
stock of the Company (including the Shares being delivered at
such Time of Delivery) have been duly and validly authorized and
issued and are fully paid and non-assessable; and the Shares
conform to the description of the Stock contained in the
Prospectus;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good
standing under the laws of each other jurisdiction in which it
owns or leases properties or conducts any business so as to
require such qualification or is subject to no material liability
or disability by reason of failure to be so qualified in any such
jurisdiction (such counsel being entitled to rely in respect of
the opinion in this clause upon opinions of local counsel and in
respect of matters of fact upon certificates of officers of the
Company, provided that such counsel shall state that they believe
that both you and they are justified in relying upon such
opinions and certificates);
8
<PAGE> 9
(iv) The Company has good and marketable title in fee
simple to all real property owned by them, in each case free and
clear of all liens, encumbrances and defects except such as are
described in the Prospectus or such as do not materially affect
the value of such property and do not interfere with the use made
and proposed to be made of such property by the Company; and any
real property and buildings held under lease by the Company is
held by it under valid, subsisting and enforceable leases with
such exceptions as are not material and do not interfere with the
use made and proposed to be made of such property and buildings
by the Company (in giving the opinion in this clause, such
counsel may state that no examination of record titles for the
purpose of such opinion has been made, and that they are relying
upon a general review of the titles of the Company, upon opinions
of local counsel and abstracts, reports and policies of title
companies rendered or issued at or subsequent to the time of
acquisition of such property by the Company, upon opinions of
counsel to the lessors of such property and, in respect to
matters of fact, upon certificates of officers of the Company,
provided that such counsel shall state that they believe that
both you and they are justified in relying upon such opinions,
abstracts, reports, policies and certificates);
(v) To the best of such counsel's knowledge and other than
as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company is a party
or of which any property of the Company is the subject which, if
determined adversely to the Company, would individually or in the
aggregate have a Material Adverse Effect; and, to such counsel's
knowledge after due inquiry, no such proceedings are threatened
or contemplated by governmental authorities or threatened by
others;
(vi) This Agreement has been duly authorized, executed and
delivered by the Company;
(vii) The issue and sale of the Shares being delivered at
such Time of Delivery by the Company and the compliance by the
Company with all of the provisions of this Agreement and the
consummation of the transactions herein contemplated will not
conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other
material agreement or material instrument known to such counsel
to which the Company or any of its subsidiaries is a party or by
which the Company is bound or to which any of the property or
assets of the Company is subject, nor will such action result in
any violation of the provisions of the Certificate of
Incorporation or By-laws of the Company or any statute or any
order, rule or regulation known to such counsel of any court or
governmental agency or body having jurisdiction over the Company
or any of its properties;
(viii) No consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale of
the Shares or the consummation by the Company of the transactions
contemplated by this Agreement, except the registration under the
Act of the Shares, the filings and other consents required
pursuant to the Securities and Exchange Act of 1934, as amended
and the rules and regulations thereunder, and such consents,
approvals, authorizations, registrations or qualifications as may
be required under
9
<PAGE> 10
state securities or Blue Sky laws in connection with the purchase
and distribution of the Shares by the Underwriters;
(ix) The Company is not in violation of its Certificate of
Incorporation or By-laws or in default in the performance or
observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust,
loan agreement, lease or, to the best of such counsel's
knowledge, other agreement or instrument to which it is a party
or by which it or any of its properties may be bound;
(x) The statements set forth in the Prospectus under the
caption "Description of Capital Stock", insofar as they purport
to constitute a summary of the terms of the Stock, and under the
caption "Underwriting", insofar as they purport to describe the
provisions of the laws and documents referred to therein, are
accurate and complete in all material respects;
(xi) The Company is not an "investment company", as such
term is defined in the Investment Company Act; and
(xii) The Registration Statement and the Prospectus and
any further amendments and supplements thereto made by the
Company prior to such Time of Delivery (other than the financial
statements and related schedules therein and financial data
derived therefrom, as to which such counsel need express no
opinion) comply as to form in all material respects with the
requirements of the Act and the rules and regulations thereunder;
although they do not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, except for those
referred to in the opinion in subsection (xi) of this section
7(c), they have no reason to believe that, as of its effective
date, the Registration Statement or any further amendment thereto
made by the Company prior to such Time of Delivery (other than
the financial statements and related schedules therein and any
other financial data derived therefrom, as to which such counsel
need express no opinion) contained an untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading or that, as of its date, the Prospectus or any further
amendment or supplement thereto made by the Company prior to such
Time of Delivery (other than the financial statements and related
schedules therein and any other financial data derived therefrom,
as to which such counsel need express no opinion) contained an
untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not
misleading or that, as of such Time of Delivery, either the
Registration Statement or the Prospectus or any further amendment
or supplement thereto made by the Company prior to such Time of
Delivery (other than the financial statements and related
schedules therein and any other financial data derived therefrom,
as to which such counsel need express no opinion) contains an
untrue statement of a material fact or omits to state a material
fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and
they do not know of any amendment to the Registration Statement
required to be filed or of any contracts or other documents of a
character required to be filed as an exhibit to the Registration
Statement or required to be described in the Registration
Statement or the Prospectus which are not filed or described as
required;
10
<PAGE> 11
(d) On the date of the Prospectus at a time prior to the
execution of this Agreement, at 9:30 a.m., New York City time, on the
effective date of any post-effective amendment to the Registration
Statement filed subsequent to the date of this Agreement and also at
each Time of Delivery, KPMG shall have furnished to you a letter or
letters, dated the respective dates of delivery thereof, in form and
substance satisfactory to you, to the effect set forth in Annex I hereto
(the executed copy of the letter delivered prior to the execution of
this Agreement is attached as Annex I(a) hereto and a draft of the form
of letter to be delivered on the effective date of any post-effective
amendment to the Registration Statement and as of each Time of Delivery
is attached as Annex I(b) hereto);
(e) (i) The Company shall not have sustained since the date of
the latest audited financial statements included in the Prospectus any
loss or interference with its business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than
as set forth or contemplated in the Prospectus, and (ii) since the
respective dates as of which information is given in the Prospectus
there shall not have been any change in the capital stock or long-term
debt of the Company or any change, or any development involving a
prospective change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of the
Company, otherwise than as set forth or contemplated in the Prospectus,
the effect of which, in any such case described in clause (i) or (ii),
is in the judgment of the Representatives so material and adverse as to
make it impracticable or inadvisable to proceed with the public offering
or the delivery of the Shares being delivered at such Time of Delivery
on the terms and in the manner contemplated in the Prospectus;
(f) On or after the date hereof (i) no downgrading shall have
occurred in the rating accorded the Company's debt securities by any
"nationally recognized statistical rating organization", as that term is
defined by the Commission for purposes of Rule 436(g)(2) under the Act,
and (ii) no such organization shall have publicly announced that it has
under surveillance or review, with possible negative implications, its
rating of any of the Company's debt securities;
(g) On or after the date hereof there shall not have occurred any
of the following: (i) a suspension or material limitation in trading in
securities generally on NASDAQ; (ii) a suspension or material limitation
in trading in the Company's securities on NASDAQ; (iii) a general
moratorium on commercial banking activities declared by either Federal
or New York or California State authorities; or (iv) the outbreak or
escalation of hostilities involving the United States or the declaration
by the United States of a national emergency or war, if the effect of
any such event specified in this clause (iv) in the judgment of the
Representatives makes it impracticable or inadvisable to proceed with
the public offering or the delivery of the Shares being delivered at
such Time of Delivery on the terms and in the manner contemplated in the
Prospectus;
(h) The Shares to be sold at such Time of Delivery shall have
been duly listed for quotation on NASDAQ;
(i) The Company has obtained and delivered to the Underwriters
executed copies of an agreement from (i) each officer and director of
the Company and (ii) each stockholder of 1% or more of the outstanding
capital stock of the Company (the name of, and the number of shares held
by, each such stockholder being set forth on Annex II hereto),
substantially to the effect set forth in the restrictions of Subsection
5(e) hereof in form and substance satisfactory to you; provided,
however, that (i) if the last sale price of the Stock on the Nasdaq
National
11
<PAGE> 12
Market is greater than twice the initial public offering price per share
for 20 of the 30 days after the date the of Prospectus, then 15% of
Shares subject to Subsection 5(e) as of the date of the Prospectus will
be released from such restrictions and (ii) if the reported last sale
price of the Stock on the Nasdaq National Market is greater than twice
the initial public offering price per share for 20 of the 30 consecutive
trading days ending on the day that is 120 calendar days after the date
of the Prospectus, then 20% of the Shares subject to the restrictions of
Subsection 5(e) will be released from such restrictions.
(j) The Company shall have complied with the provisions of
Section 5(c) hereof with respect to the furnishing of prospectuses on
the New York Business Day next succeeding the date of this Agreement;
and
(k) The Company shall have furnished or caused to be furnished to
you at such Time of Delivery certificates of officers of the Company
reasonably satisfactory to you as to the accuracy of the representations
and warranties of the Company herein at and as of such Time of Delivery,
as to the performance by the Company of all of its obligations hereunder
to be performed at or prior to such Time of Delivery, as to the matters
set forth in subsections (a) and (e) of this Section and as to such
other matters as you may reasonably request.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in any
Preliminary Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through Goldman, Sachs
& Co. expressly for use therein; and will reimburse the Company for any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending any such action or claim as such expenses are
incurred.
12
<PAGE> 13
(c) Promptly after receipt by an indemnified party under subsection (a)
or (b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal expenses of
other counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the written consent
of the indemnified party, effect the settlement or compromise of, or consent to
the entry of any judgment with respect to, any pending or threatened action or
claim in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified party is an actual or potential party
to such action or claim) unless such settlement, compromise or judgment (i)
includes an unconditional release of the indemnified party from all liability
arising out of such action or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act, by or on behalf of
any indemnified party.
(d) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages or liabilities (or actions
in respect thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law or if the indemnified
party failed to give the notice required under subsection (c) above, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand and
the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Underwriters
on the other shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the Company
bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or the Underwriters on the other and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the Underwriters
agree that it would not be just and equitable if contributions pursuant to this
subsection (d) were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this subsection (d). The amount paid or payable by an
13
<PAGE> 14
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subsection (d), no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this subsection
(d) to contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company (including any
person who, with his or her consent, is named in the Registration Statement as
about to become a director of the Company) and to each person, if any, who
controls the Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery, you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirty-six hours
after such default by any Underwriter you do not arrange for the purchase of
such Shares, then the Company shall be entitled to a further period of
thirty-six hours within which to procure another party or other parties
satisfactory to you to purchase such Shares on such terms. In the event that,
within the respective prescribed periods, you notify the Company that you have
so arranged for the purchase of such Shares, or the Company notifies you that it
has so arranged for the purchase of such Shares, you or the Company shall have
the right to postpone such Time of Delivery for a period of not more than seven
days, in order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby be
made necessary. The term "Underwriter" as used in this Agreement shall include
any person substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-eleventh of the aggregate number of all
the Shares to be purchased at such Time of Delivery, then the Company shall have
the right to require each non-defaulting Underwriter to purchase the number of
shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
14
<PAGE> 15
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds one-eleventh of the aggregate number of all the
Shares to be purchased at such Time of Delivery, or if the Company shall not
exercise the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or Underwriters,
then this Agreement (or, with respect to the Second Time of Delivery, the
obligations of the Underwriters to purchase and of the Company to sell the
Optional Shares) shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Company, except for the expenses to be borne
by the Company and the Underwriters as provided in Section 6 hereof and the
indemnity and contribution agreements in Section 8 hereof; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Underwriter except as
provided in Sections 6 and 8 hereof; but, if for any other reason, any Shares
are not delivered by or on behalf of the Company as provided herein, the Company
will reimburse the Underwriters through you for all out-of-pocket expenses
approved in writing by you, including fees and disbursements of counsel,
reasonably incurred by the Underwriters in making preparations for the purchase,
sale and delivery of the Shares not so delivered, but the Company shall then be
under no further liability to any Underwriter except as provided in Sections 6
and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 32 Old Slip, 21st Floor, New York, New York 10005, Attention: Registration
Department; and if to the Company shall be delivered or sent by mail to the
address of the Company set forth in the Registration Statement, Attention:
Secretary; provided, however, that any notice to an Underwriter pursuant to
Section 8(c) hereof shall be delivered or sent by mail, telex or facsimile
transmission to such Underwriter at its address set forth in its Underwriters'
Questionnaire, or telex constituting such Questionnaire, which address will be
supplied to the Company by you upon request. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company and, to the extent provided in
Sections 8 and 10 hereof, the officers and directors of the Company and each
person who controls the Company or any Underwriter, and their respective heirs,
executors, administrators, successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement. No purchaser of
any of the Shares from any Underwriter shall be deemed a successor or assign by
reason merely of such purchase.
15
<PAGE> 16
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
16
<PAGE> 17
If the foregoing is in accordance with your understanding, please sign
and return to us six counterparts hereof, and upon the acceptance hereof by you,
on behalf of each of the Underwriters, this letter and such acceptance hereof
shall constitute a binding agreement between each of the Underwriters and the
Company. It is understood that your acceptance of this letter on behalf of each
of the Underwriters is pursuant to the authority set forth in a form of
Agreement among Underwriters, the form of which shall be submitted to the
Company for examination upon request, but without warranty on your part as to
the authority of the signers thereof.
Very truly yours,
Corio, Inc.
By:
-------------------------------------
Name: George Kadifa
Title: President and Chief
Executive Officer
Accepted as of the date hereof:
Goldman, Sachs & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
FleetBoston Robertson Stephens Inc.
Advanced Clearing, Inc.
BY:
-----------------------------------
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
17
<PAGE> 18
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
----------- --------------- ------------------
<S> <C> <C>
Goldman, Sachs & Co...................................
Merrill Lynch, Pierce, Fenner & Smith Incorporated....
FleetBoston Robertson Stephens Inc....................
Advanced Clearing, Inc................................
Total..................................
--------------- ------------------
</TABLE>
18
<PAGE> 19
ANNEX I
Pursuant to Section 7(d) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
financial forecasts and/or pro forma financial information) examined by
them and included in the Prospectus or the Registration Statement comply
as to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations
thereunder; and, if applicable, they have made a review in accordance
with standards established by the American Institute of Certified Public
Accountants of the unaudited consolidated interim financial statements,
selected financial data, pro forma financial information, financial
forecasts and/or condensed financial statements derived from audited
financial statements of the Company for the periods specified in such
letter, as indicated in their reports thereon, copies of which have been
separately furnished to the representatives of the Underwriters (the
"Representatives");
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited condensed consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows included in the
Prospectus as indicated in their reports thereon copies of which have
been separately furnished to the Representatives, and on the basis of
specified procedures including inquiries of officials of the Company who
have responsibility for financial and accounting matters regarding
whether the unaudited condensed consolidated financial statements
referred to in paragraph (vi)(A)(i) below comply as to form in all
material respects with the applicable accounting requirements of the Act
and the related published rules and regulations, nothing came to their
attention that cause them to believe that the unaudited condensed
consolidated financial statements do not comply as to form in all
material respects with the applicable accounting requirements of the Act
and the related published rules and regulations;
(iv) The unaudited selected financial information with respect to
the consolidated results of operations and financial position of the
Company for the five most recent fiscal years included in the Prospectus
agrees with the corresponding amounts (after restatements where
applicable) in the audited consolidated financial statements for such
five fiscal years which were included or incorporated by reference in
the Company's Annual Reports on Form 10-K for such fiscal years;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and
on the basis of limited procedures specified in such letter nothing came
to their attention as a result of the foregoing procedures that caused
them to believe that this information does not conform in all material
respects with the disclosure requirements of Items 301, 302, 402 and
503(d), respectively, of Regulation S-K;
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries, inspection of
the minute books of the Company and its subsidiaries since the date of
the latest audited financial statements
<PAGE> 20
included in the Prospectus, inquiries of officials of the Company and
its subsidiaries responsible for financial and accounting matters and
such other inquiries and procedures as may be specified in such letter,
nothing came to their attention that caused them to believe that:
(A) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash
flows included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of
the Act and the related published rules and regulations, or (ii)
any material modifications should be made to the unaudited
condensed consolidated statements of income, consolidated balance
sheets and consolidated statements of cash flows included in the
Prospectus for them to be in conformity with generally accepted
accounting principles;
(B) any other unaudited income statement data and balance
sheet items included in the Prospectus do not agree with the
corresponding items in the unaudited consolidated financial
statements from which such data and items were derived, and any
such unaudited data and items were not determined on a basis
substantially consistent with the basis for the corresponding
amounts in the audited consolidated financial statements included
in the Prospectus;
(C) the unaudited financial statements which were not
included in the Prospectus but from which were derived any
unaudited condensed financial statements referred to in clause
(A) and any unaudited income statement data and balance sheet
items included in the Prospectus and referred to in clause (B)
were not determined on a basis substantially consistent with the
basis for the audited consolidated financial statements included
in the Prospectus;
(D) any unaudited pro forma consolidated condensed
financial statements included in the Prospectus do not comply as
to form in all material respects with the applicable accounting
requirements of the Act and the published rules and regulations
thereunder or the pro forma adjustments have not been properly
applied to the historical amounts in the compilation of those
statements;
(E) as of a specified date not more than five days prior
to the date of such letter, there have been any changes in the
consolidated capital stock (other than issuances of capital stock
upon exercise of options and stock appreciation rights, upon
earn-outs of performance shares and upon conversions of
convertible securities, in each case which were outstanding on
the date of the latest financial statements included in the
Prospectus) or any increase in the consolidated long-term debt of
the Company and its subsidiaries, or any decreases in
consolidated net current assets or stockholders' equity or other
items specified by the Representatives, or any increases in any
items specified by the Representatives, in each case as compared
with amounts shown in the latest balance sheet included in the
Prospectus, except in each case for changes, increases or
decreases which the Prospectus discloses have occurred or may
occur or which are described in such letter; and
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date
referred to in clause (E) there were any decreases in
consolidated net revenues or operating profit or the total or per
share amounts of
F-2
<PAGE> 21
consolidated net income or other items specified by the
Representatives, or any increases in any items specified by the
Representatives, in each case as compared with the comparable
period of the preceding year and with any other period of
corresponding length specified by the Representatives, except in
each case for decreases or increases which the Prospectus
discloses have occurred or may occur or which are described in
such letter; and
(vii) In addition to the examination referred to in their
report(s) included in the Prospectus and the limited procedures,
inspection of minute books, inquiries and other procedures referred to
in paragraphs (iii) and (vi) above, they have carried out certain
specified procedures, not constituting an examination in accordance with
generally accepted auditing standards, with respect to certain amounts,
percentages and financial information specified by the Representatives,
which are derived from the general accounting records of the Company and
its subsidiaries, which appear in the Prospectus, or in Part II of, or
in exhibits and schedules to, the Registration Statement specified by
the Representatives, and have compared certain of such amounts,
percentages and financial information with the accounting records of the
Company and its subsidiaries and have found them to be in agreement.
F-3
<PAGE> 22
ANNEX II
List of persons to sign Lock-Up Agreements
Name Number of Shares Held
---- ---------------------
F-4
<PAGE> 1
EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF CORIO, INC.
a Delaware corporation
(originally incorporated on September 1, 1998 under the name "Continuity, Inc.")
This Restated Certificate of Incorporation has been duly adopted by the
Corporation's Board of Directors and Stockholders in accordance with the
applicable provisions of Sections 228, 242 and 245 of the General Corporation
Law of the State of Delaware.
ARTICLE I
The name of this Corporation is Corio, Inc.
ARTICLE II
The address of the registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, Delaware 19081. The name of its registered
agent at such address is The Corporation Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
ARTICLE IV
A. Classes of Stock. This Corporation is authorized to issue two classes
of stock, to be designated, respectively, "Common Stock" and "Preferred Stock."
The total number of shares which the Corporation is authorized to issue is One
Hundred Eighty-Two Million One Hundred Twenty-Seven Thousand (182,127,000)
shares. One Hundred Thirty-Eight Million (138,000,000) shares shall be Common
Stock, par value $0.001 per share, and Forty-Four Million One Hundred
Twenty-Seven Thousand (44,127,000) shares shall be Preferred Stock, par value
$0.001 per share, of which Fourteen Million One Hundred Twenty-Seven Thousand
(14,127,000) shares shall be designated "Series A Preferred", Eleven Million
(11,000,000) shares shall be designated "Series B Preferred", Eight Million
(8,000,000) shares shall be designated "Series C Preferred", Five Million Five
Hundred Thousand (5,500,000) shares shall be designated "Series D Preferred" and
Five Million Five Hundred Thousand (5,500,000) shares shall be designated
"Senior Series E Preferred".
B. Rights, Preferences, Privileges and Restrictions of Preferred Stock.
The rights, preferences, privileges and restrictions granted to and imposed on
the Series A Preferred, Series B Preferred, Series C Preferred and Series D
Preferred (collectively, the "Junior Preferred") and the Senior Series E
Preferred (the "Senior Preferred") are as set forth below in this Article IV(B).
1. Senior Preferred Dividend Provisions. The holders of shares of
Senior Preferred shall be entitled to receive dividends, out of any assets
legally available therefor, prior and in preference to any declaration or
payment of any dividend (payable other than in Common Stock or other securities
and rights convertible into or entitling the holder thereof to receive, directly
or indirectly, additional shares of this
<PAGE> 2
Corporation) on the Junior Preferred or Common Stock of this Corporation, at the
rate of $0.50 per share per annum for each share of Senior Preferred held by
them (as adjusted for any stock splits, dividends, subdivisions, combinations,
recapitalizations and the like hereafter with respect to such shares). Such
dividends shall be noncumulative. No dividend shall be paid on shares of Junior
Preferred, Common Stock or other securities of this Corporation having dividend
rights junior to the Senior Preferred unless (i) all unpaid dividends on the
Senior Preferred shall have been paid (or declared and set aside for payment in
full) and (ii) with respect to dividends paid (or declared and set aside for
payment) on Junior Preferred or Common Stock in any fiscal year, the Senior
Preferred shall have been paid (or the amount declared and set aside for
payment) in such year aggregate dividends in not less than an equivalent amount
per share (as adjusted for any stock splits, dividends, subdivisions,
combinations, recapitalizations and the like hereafter with respect to such
shares).
2. Junior Preferred Dividend Provisions. After payment or the
declaration and setting aside for payment in full of the dividend preference of
the Senior Preferred, the holders of shares of Junior Preferred shall be
entitled to receive dividends, out of any assets legally available therefor,
prior and in preference to any declaration or payment of any dividend (payable
other than in Common Stock or other securities and rights convertible into or
entitling the holder thereof to receive, directly or indirectly, additional
shares of this Corporation) on the Common Stock of this Corporation, at the rate
of (w) $0.0235295 per share per annum for each share of Series A Preferred held
by them, (x) $0.10 per share per annum for each share of Series B Preferred held
by them, and (y) $0.3250 per share per annum for each share of Series C
Preferred held by them and (z) an amount per share per annum for each share of
Series D Preferred held by them equal to the product of 0.05 times the Original
Series D Issue Price (as defined below) (in each case as adjusted for any stock
splits, dividends, subdivisions, combinations, recapitalizations and the like
hereafter with respect to such shares). Such dividends shall not be cumulative
and shall be paid only when and if declared by the Board of Directors of the
Corporation. If any dividends are paid on shares of any series of Junior
Preferred, dividends shall be paid on shares of all series of Junior Preferred
on a pro rata basis based on the foregoing dividend rates. No dividend shall be
paid on shares of Common Stock or other securities of this Corporation having
dividend rights junior to the Junior Preferred Stock in any fiscal year unless
(i) the aforementioned preferential dividends of the Junior Preferred shall have
been paid in full and (ii) the holders of Junior Preferred participate in such
dividend on the Common Stock or other securities of this Corporation having
dividend rights junior to the Junior Preferred on a pro rata basis in proportion
to the number of shares of Common Stock held of record by each such holder of
Junior Preferred (assuming the conversion of all Preferred into Common Stock).
3. Liquidation Preference. In the event of any liquidation,
dissolution or winding up of this Corporation, either voluntary or involuntary,
the holders of outstanding capital stock of the Corporation shall be entitled to
receive the following:
a. Senior Preferred Stock. Each holder of Senior Preferred shall
be entitled to receive, prior and in preference to any distribution of any of
the assets of this Corporation to the holders of Junior Preferred or Common
Stock by reason of their ownership thereof, (x) the amount of $10.00 (the
"Original Senior Preferred Issue Price") for each share of Senior Preferred held
of record by such holder (as adjusted for any stock splits, dividends,
subdivisions, combinations, recapitalizations and the like hereafter with
respect to such shares) plus (y) all declared and unpaid dividends on each such
share, provided, however, that if the liquidation, dissolution or winding-up of
the Corporation is occasioned by a Change in Control, each holder of Senior
Preferred shall be entitled to receive, prior and in preference to any
distribution of any of the assets of this Corporation to the holders of Junior
Preferred or Common Stock by reason of their ownership thereof, the amount of
$20.00 for each share of Senior Preferred held of record by such holder (as
adjusted for any stock splits, dividends, subdivisions, combinations,
recapitalizations and the like hereafter with respect to such shares) plus all
declared and unpaid dividends on each such share. If upon the
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<PAGE> 3
occurrence of any such liquidation, dissolution or winding-up, the assets and
funds of the Corporation legally available for distribution among the holders of
Senior Preferred shall be insufficient to permit the payment to such holders of
the full aforesaid preferential amounts (the "Senior Preferential Amount"), then
the entire assets and funds of the Corporation legally available for
distribution shall be distributed ratably among the holders of the Senior
Preferred in proportion to the full preferential amount each such holder is
otherwise entitled to receive under this subsection (a).
b. Junior Preferred Stock. After payment in full of the Senior
Preferential Amount, pursuant to Section 3(a), each holder of Junior Preferred
Stock shall be entitled to receive, prior and in preference to any distribution
of any of the assets of this Corporation to the holders of Common Stock by
reason of their ownership thereof, (i) an amount equal to the sum of (x)
$0.47059 (the "Original Series A Issue Price") for each share of Series A
Preferred held of record by such holder (as adjusted for any stock splits,
dividends, subdivisions, combinations, recapitalizations and the like hereafter
with respect to such shares) and (y) all declared but unpaid dividends on such
shares, (ii) an amount equal to the sum of (x) $2.00 (the "Original Series B
Issue Price") for each share of Series B Preferred held of record by such holder
(as adjusted for any stock splits, dividends, subdivisions, combinations,
recapitalizations and the like hereafter with respect to such shares) and (y)
all declared but unpaid dividends on such shares, (iii) an amount equal to the
sum of (x) $6.50 (the "Original Series C Issue Price") for each share of Series
C Preferred held of record by such holder (as adjusted for any stock splits,
dividends, subdivisions, combinations, recapitalizations and the like hereafter
with respect to such shares) and (y) all declared and unpaid dividends on such
shares and (iv) an amount equal to the sum of (x) the deemed price at which the
Series D Preferred is originally issued upon the conversion of Senior Preferred
pursuant to Section 5(d)(iii) below (the "Original Series D Issue Price") for
each share of Series D Preferred held of record by such holder (as adjusted for
any stock splits, dividends, subdivisions, combinations, recapitalizations and
the like hereafter with respect to such shares) and (y) all declared and unpaid
dividends on such shares. If upon the occurrence of such event, and after
payment in full of the Senior Preferential Amount, the assets and funds of the
Corporation legally available for distribution among the holders of Junior
Preferred Stock, are insufficient to permit the payment to such holders of the
full aforesaid preferential amounts (collectively, the "Junior Preferential
Amount"), then the entire assets and funds of the Corporation legally available
for distribution shall be distributed ratably among the holders of the Junior
Preferred in proportion to the full preferential amount each such holder is
otherwise entitled to receive under this subsection (b).
c. Common Stock. Following such time as payment has been made to
the holders of Senior Preferred and Junior Preferred of the full amounts to
which they are entitled pursuant to Section 3(a) and Section 3(b), respectively,
above, then the entire remaining assets and funds of the Corporation legally
available for distribution, if any, shall be distributed ratably among the
holders of Common Stock in a manner such that the amount distributed to each
holder of Common Stock shall equal the amount obtained by multiplying the entire
remaining assets and funds of the Corporation legally available for distribution
hereunder by a fraction, (x) the numerator of which shall be the number of
shares of Common Stock then held by such holder, and (y) the denominator of
which shall be the total number of shares of Common Stock then outstanding.
d. Definition of Liquidation Event; Notice.
(i) For purposes of this Section 3, a liquidation,
dissolution or winding up of this Corporation shall be deemed to include and to
be occasioned by any "Change in Control." A "Change in Control" shall herein be
deemed to include (A) the acquisition of the Corporation by another entity by
means of any transaction or series of related transactions (including without
limitation any reorganization, merger or consolidation) and (B) a sale or
transfer of all or substantially all of the assets of the Corporation, including
a sale or transfer of intellectual property rights which, in the aggregate,
constitute
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<PAGE> 4
substantially all of the Corporation's material assets; unless in any case under
(A) or (B), the Corporation's stockholders of record as constituted immediately
prior to such acquisition or sale will, immediately after such acquisition or
sale (by virtue of securities issued as consideration for the Corporation's
acquisition or sale or transfer or otherwise and excluding shares held in the
acquiring entity by the Corporation's stockholders of record prior to such
acquisition or sale) hold at least fifty percent (50%) of the voting power of
the surviving or acquiring entity; provided, however, that a Change in Control
shall be deemed to exclude the Corporation's sale of its Common Stock in a firm
commitment underwritten public offering pursuant to a Registration Statement on
Form S-1 under the Securities Act.
(ii) In any of such events, if the consideration received by
the Corporation or its shareholders is other than cash, its value will be deemed
its fair market value. Any securities shall be valued as follows:
(A) Securities not subject to investment letter or
other similar restrictions on free marketability shall be valued as follows: (1)
if traded on a securities exchange or through The Nasdaq National Market, the
value shall be deemed to be the average of the closing prices of the securities
on such exchange over the thirty (30) day period ending three (3) days prior to
the closing; (2) if actively traded over-the-counter, the value shall be deemed
to be the average of the closing bid or sale prices (whichever is applicable)
over the thirty (30) day period ending three (3) days prior to the closing; and
(3) if there is no active public market, the value shall be the fair market
value thereof, as determined in good faith by a majority of the Board of
Directors of the Corporation.
(B) Securities subject to investment letter or other
restrictions on free marketability (other than restrictions arising solely by
virtue of a stockholder's status as an affiliate or former affiliate) shall be
valued in such a manner as to make an appropriate discount from the market value
determined as above in (A) (1), (2) or (3) to reflect the approximate fair
market value thereof, as determined in good faith by a majority of the Board of
Directors of the Corporation.
(iii) The Corporation shall give each holder of record of
Preferred Stock written notice of any such impending transaction not later than
fifteen (15) days prior to the stockholder meeting called to approve such
transaction, or twenty (20) days prior to the closing of such transaction
whichever notice date is earlier, and shall also notify such holders in writing
of the final approval of such transaction. The first of such notices shall
describe the material terms and conditions of the impending transaction, the
provisions of this Section 3, and the amounts anticipated to be distributed to
holders of each outstanding class of capital stock of the Corporation pursuant
to this Section 3, and the Corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take place
sooner than twenty (20) days after the Corporation has given the first notice
provided for herein or sooner than ten (10) days after the Corporation has given
notice of any material changes provided for herein.
(iv) In the event the requirements of Section 3(d) are not
complied with, this Corporation shall forthwith either:
(A) cause such closing to be postponed until such time
as the requirements of Section 3(d) have been complied with; or
(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Preferred shall revert to and
be the same as such rights, preferences and privileges existing immediately
prior to the date of the first notice referred to in Section 3(d)(iii).
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<PAGE> 5
4. Conversion of Junior Preferred. The holders of Junior Preferred
shall have conversion rights as follows (the "Junior Conversion Rights"):
a. Right to Convert. Each share of Junior Preferred shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share at the office of this Corporation or any transfer agent
for such stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined (i) in the case of the Series A Preferred, by
dividing the Original Series A Issue Price in respect of such share by the
Series A Conversion Price applicable to such share, determined as hereafter
provided, in effect on the date the certificate is surrendered for conversion,
(ii) in the case of the Series B Preferred, by dividing the Original Series B
Issue Price in respect of such share by the Series B Conversion Price applicable
to such share, determined as hereafter provided, in effect on the date the
certificate is surrendered for conversion, (iii) in the case of the Series C
Preferred, by dividing the Original Series C Issue Price in respect of such
share by the Series C Conversion Price applicable to such share, determined as
hereafter provided, in effect on the date the certificate is surrendered for
conversion and (iv) in the case of the Series D Preferred, by dividing the
Original Series D Issue Price in respect of such share by the Series D
Conversion Price applicable to such share, determined as hereafter provided, in
effect on the date the certificate is surrendered for conversion. The initial
Series A Conversion Price per share shall be the Original Series A Issue Price;
the initial Series B Conversion Price per share shall be the Original Series B
Issue Price; the initial Series C Conversion Price per share shall be the
Original Series C Issue Price; and the initial Series D Conversion Price shall
be the Original Series D Issue Price; provided, however, that each such
Conversion Price shall be subject to adjustment as set forth below (the Series A
Conversion Price, the Series B Conversion Price, the Series C Conversion Price
and the Series D Conversion Price are individually or collectively referred to
herein as the "Conversion Price").
b. Automatic Conversion. Each share of Junior Preferred shall
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect for such share of Junior Preferred immediately upon the
earlier of (i) the Corporation's sale of its Common Stock in a firm commitment
underwritten public offering pursuant to a Registration Statement on Form S-1
under the Securities Act of 1933, as amended, at a price per share not less than
$6.50, in which the gross proceeds to the Corporation is equal to or in excess
of thirty-three million dollars ($33,000,000) (a "Qualified IPO"), or (ii) the
date specified by (A) written consent or agreement of the holders of (w) at
least a majority of the holders of the then outstanding shares of Series A
Preferred, (x) at least a majority of the holders of the then outstanding shares
of Series B Preferred, (y) at least a majority of the then outstanding shares of
Series C Preferred and (z) at least a majority of the then outstanding shares of
Series D Preferred.
c. Mechanics of Conversion. Before any holder of Junior Preferred
shall be entitled to convert the same into shares of Common Stock, such holder
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of this Corporation or of any transfer agent for the Junior Preferred,
and shall give written notice to this Corporation at its principal corporate
office, of the election to convert the same and shall state therein the name or
names in which the certificate or certificates for shares of Common Stock are to
be issued. This Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Junior Preferred, or to the nominee or
nominees of such holder, a certificate or certificates for the number of shares
of Common Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Junior Preferred to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of such date. If the
conversion is in connection with an underwritten offering of securities
registered pursuant to the Securities Act, the conversion, unless otherwise
designated by the holder, will be conditioned upon the closing with the
underwriters of the sale of securities pursuant to such offering, in which event
the person(s) entitled to receive the Common Stock upon conversion
-5-
<PAGE> 6
of the Junior Preferred shall not be deemed to have converted such Junior
Preferred until immediately prior to the closing of such sale of securities.
d. Conversion Price Adjustments of Junior Preferred for Certain
Splits, Dividends and Combinations. Except as otherwise provided in this Section
4, the Conversion Price of each series of Junior Preferred shall be subject to
adjustment from time to time as follows:
(i)In the event the Corporation should at any time or from
time to time after the Original Issue Date (as defined below) fix a record date
for the effectuation of a split or subdivision of the outstanding shares of
Common Stock or for the determination of the holders of outstanding shares of
Common Stock entitled to receive a dividend or other distribution payable in
additional shares of Common Stock without payment of any consideration by such
holder for the additional shares of Common Stock then, as of such record date
(or the date of such dividend, distribution, split or subdivision if no record
date is fixed), the Conversion Price of each series of Junior Preferred shall be
appropriately decreased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be increased in proportion to such
increase of the aggregate of shares of Common Stock outstanding.
(ii) If the number of shares of Common Stock outstanding at
any time after the Original Issue Date is decreased by a combination of the
outstanding shares of Common Stock or reverse stock split, then, following the
record date of such combination or reverse stock split, the Conversion Price of
each series of Junior Preferred shall be appropriately increased so that the
number of shares of Common Stock issuable on conversion of each share of such
series shall be decreased in proportion to such decrease in outstanding shares.
e. Other Distributions. In the event the Corporation shall at any
time after the Original Issue Date declare a distribution payable in securities
of other persons, evidences of indebtedness issued by this Corporation or other
persons, assets (excluding cash dividends) or options or rights not referred to
in Section 1 or Section 4(d)(i), then, in each such case for the purpose of this
subsection 4(e), the holders of Junior Preferred shall be entitled to a
proportionate share of any such distribution as though they were the holders of
the number of shares of Common Stock of the Corporation into which their shares
of Junior Preferred are convertible as of the record date fixed for the
determination of the holders of Common Stock of the Corporation entitled to
receive such distribution.
f. Recapitalizations. If at any time or from time to time after
the Original Issue Date there shall be a recapitalization of the Common Stock
(other than a subdivision, combination or merger or sale or transfer of assets
transaction provided for elsewhere in this Section 4 or Section 3), provision
shall be made so that the holders of the Junior Preferred shall thereafter be
entitled to receive upon conversion of the Junior Preferred the number of shares
of stock or other securities or property of the Corporation or otherwise, which
a holder of Common Stock deliverable upon conversion immediately prior to such
recapitalization would have been entitled to receive on such recapitalization.
In any such case, appropriate adjustment shall be made in the application of the
provisions of this Section 4 with respect to the rights of the holders of the
Junior Preferred after the recapitalization to the extent that the provisions of
this Section 4 (including adjustment of the Conversion Price then in effect and
the number of shares purchasable upon conversion of the Junior Preferred) shall
be applicable after that event as nearly equivalently as may be practicable.
g. Adjustments to Junior Preferred Conversion Price for Dilutive
Issues.
(i)Special Definitions. For purposes of this Section 4(g),
the following definitions shall apply:
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<PAGE> 7
(A) "Additional Shares of Common" shall mean all shares
of Common Stock issued (or, pursuant to Section 4(g)(iii), deemed to be issued)
by the Corporation after the Original Issue Date (defined below), other than
shares of Common Stock issued, issuable or, pursuant to Section 4(g)(iii)
herein, deemed to be issued:
(1) upon conversion of shares of the Junior
Preferred or the Senior Preferred;
(2) to officers, directors or employees of, or
consultants and advisors to, the Corporation pursuant to a stock grant, option
plan or purchase plan or other stock incentive program or arrangement approved
by the Board of Directors for employees, officers, directors or consultants or
advisors of the Corporation;
(3) as a dividend or distribution on the Junior
Preferred;
(4) in connection with any transaction for which
adjustment is made pursuant to Section 4(d)(i), 4(d)(ii), 4(e) or 4(f) hereof;
(5) to financial institutions or lessors in
connection with bona fide, arm's length commercial credit arrangements, debt
financings, equipment lease financings or similar transactions, provided such
financings are approved by the Board and are for other than primarily equity
financing purposes;
(6) in connection with an underwritten initial
public offering; or
(7) in connection with a bona fide, arm's length
acquisition by the Corporation, whether by merger, consolidation or purchase of
assets, that results in the transfer of less than 25% of the voting power of the
Corporation.
(B) "Convertible Securities" shall mean stock or other
securities convertible into or exchangeable for Common Stock.
(C) "Options" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(D) "Original Issue Date" shall mean (i) in the case of
each series of Preferred Stock other than Series D Preferred, the date on which
the first share of Senior Preferred was issued, and (ii) in the case of the
Series D Preferred, the date on which the first share of Series D Preferred is
issued.
(ii) No Adjustment of Conversion Prices. No adjustment in
the applicable Conversion Price of any particular series of Junior Preferred
shall be made in respect of the issuance of Additional Shares of Common unless
the consideration per share for an Additional Share of Common issued or deemed
to be issued by the Corporation is less than the applicable Conversion Price in
effect on the date of, and immediately prior to, such issue.
(iii) Options and Convertible Securities. In the event that
the Corporation at any time or from time to time after the Original Issue Date
shall issue any Options or Convertible Securities or shall fix a record date for
the determination of holders of any class of securities entitled to receive any
such
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<PAGE> 8
Options or Convertible Securities, then the maximum number of shares of Common
Stock issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common issued as of the
time of such issue or, in case such a record date shall have been fixed, as of
the close of business on such record date; provided, however, that Additional
Shares of Common shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Section 4(g)(v) hereof) of such
Additional Shares of Common would be less than the applicable Conversion Price
in effect on the date of and immediately prior to such issue, or such record
date, as the case may be, and provided further that in any such case in which
Additional Shares of Common are deemed to be issued:
(A) no further adjustment in the applicable Conversion
Price shall be made upon the subsequent issue of shares of Common Stock or
Convertible Securities upon either the exercise of such Options or the
conversion or exchange of such Convertible Securities, in each case, pursuant to
their respective terms;
(B) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, or decrease in the number of shares of
Common Stock issuable, upon the exercise, conversion or exchange thereof, the
applicable Conversion Price computed upon the original issue thereof (or upon
the occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities;
(C) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which shall
not have been exercised, the applicable Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if:
(1) in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common issued were the
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon such exercise, or
for the issue of all such Convertible Securities which were actually converted
or exchanged, plus the additional consideration, if any, actually received by
the Corporation upon such conversion or exchange, and
(2) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
deemed to have been then issued was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the consideration deemed to have been received by the Corporation upon the issue
of the Convertible Securities with respect to which such Options were actually
exercised;
(D) no readjustment pursuant to clauses (C)(1) or
(C)(2) above shall have the effect of increasing the applicable Conversion Price
to an amount which exceeds the lower of (i) the applicable Conversion Price on
the original adjustment date or (ii) the applicable Conversion Price that
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would have resulted from other issuances of Additional Shares of Common between
the Original Issue Date and such readjustment date;
(E) in the case of an Option which expires by its terms
not more than thirty (30) days after the date of issue thereof, no adjustment of
the applicable Conversion Price shall be made until the expiration or exercise
of such Option, whereupon such adjustment shall be made in the same manner
provided in clause (iii) above.
(iv) Adjustment of Conversion Price of Junior Preferred Upon
Issuance of Additional Shares of Common. In the event that at any time after the
Original Issue Date this Corporation shall issue Additional Shares of Common
(including Additional Shares of Common deemed to be issued pursuant to Section
4(g)(iii)) without consideration or for a consideration per share less than the
Conversion Price of a particular series of Junior Preferred in effect on the
date of and immediately prior to such issue, then and in such event such
Conversion Price shall be reduced, concurrently with such issue, to a price
determined by multiplying such Conversion Price theretofore in effect by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of shares of Common
Stock which the aggregate consideration received by the Corporation for the
total number of Additional Shares of Common so issued would purchase at such
Conversion Price in effect immediately prior to such issue, and the denominator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such issue plus the number of such Additional Shares of Common so
issued; provided however, that, for the purposes of this Section 4(g)(iv), all
shares of Common Stock issuable upon exercise, conversion or exchange of
outstanding Options or Convertible Securities, as the case may be, shall be
deemed to be outstanding, and immediately after any Additional Shares of Common
are deemed issued pursuant to Section 4(g)(iii), such Additional Shares of
Common shall be deemed to be outstanding. No adjustment of the Conversion Price
for the Junior Preferred shall be made in an amount less than one cent per
share, provided that any adjustments that are not required to be made by reason
of this sentence shall be carried forward and shall be either taken into account
in any subsequent adjustment made prior to three (3) years from the date of the
event giving rise to the adjustment being carried forward, or shall be made at
the end of three (3) years from the date of the event giving rise to the
adjustment being carried forward.
(v)Determination of Consideration. For purposes of this
Section 4(g), the consideration received by the Corporation for the issue of any
Additional Shares of Common shall be computed as follows:
(A) Cash and Property. Such consideration shall:
(1) insofar as it consists of cash, be computed at
the aggregate amount of cash received by the Corporation excluding amounts paid
or payable for accrued interest or accrued dividends;
(2) insofar as it consists of property other than
cash, be computed at the fair market value thereof at the time of such issue, as
determined in good faith by a majority of the Board of Directors; and
(3) in the event Additional Shares of Common are
issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (1) and (2) above, as
determined in good faith by a majority of the Board of Directors.
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<PAGE> 10
(B) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common deemed to have been issued pursuant to Section 4(g)(iii), relating to
Options and Convertible Securities, shall be determined by dividing:
(1) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities, by
(2) the maximum number of shares of Common Stock
issuable upon the exercise of such Options or the conversion or exchange of such
Convertible Securities, or exercise and conversion or exchange of such Options
for Convertible Securities, as determined in Section 4(g)(iii) hereof.
h. No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, recapitalization,
sale or transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the Junior Conversion Rights of
the holders of the Junior Preferred against impairment.
i. No Fractional Shares; Certificate as to Adjustment.
(i) No fractional shares shall be issued upon the conversion
of any share or shares of the Junior Preferred, and the number of shares of
Common Stock to be issued shall be rounded to the nearest whole share. Such
rounding shall be determined on the basis of the total number of shares of
Junior Preferred the holder is at the time converting into Common Stock and the
number of shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment
of the applicable Conversion Price of Preferred pursuant to this Section 4, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Junior Preferred a certificate executed by the Corporation's President
or Chief Financial Officer setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the reasonable written request at any time of any
holder of Junior Preferred, furnish or cause to be furnished to such holder a
like certificate setting forth (A) such adjustment and readjustment, (B) the
applicable Conversion Price for the Junior Preferred at the time in effect, and
(C) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of a share of
Junior Preferred held by such holder.
j. Notices of Record Date. In the event of any taking by the
Corporation of a record date for determining the holders of any class of
securities who are entitled to receive any dividend (other than a cash dividend)
or other distribution, any right to subscribe for, purchase or otherwise acquire
any shares of stock of any class or any other securities or property, or to
receive any other right, this Corporation shall mail to each holder of Junior
Preferred, at least fifteen (15) days prior to the record date specified
therein, a notice specifying the record date for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
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<PAGE> 11
k. Reservation of Stock Issuable Upon Conversion. This
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the then outstanding shares of the Junior Preferred, such number
of its shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of the Junior Preferred; and if at any
time the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the Junior
Preferred, in addition to such other remedies as shall be available to the
holder of such Junior Preferred, the Corporation will take such corporate action
as may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purposes, including without limitation engaging in best
efforts to obtain the requisite Board of Directors and stockholder approval of
any necessary amendment to this Restated Certificate of Incorporation.
l. Notices. All notices and other communications required by the
provisions of this Restated Certificate of Incorporation shall be in writing,
shall be effective when given, and shall in any event be deemed to be given upon
receipt or, if earlier, (a) five (5) days after deposit with the U.S. Postal
Service or other applicable postal service, if delivered by first class mail,
postage prepaid, (b) upon delivery, if delivered by hand, (c) one (1) business
day after the business day of deposit with Federal Express or similar overnight
courier, freight prepaid or (d) one (1) business day after the business day of
facsimile transmission (with confirmation), if delivered by facsimile
transmission with copy by first class mail, postage prepaid, and shall be
addressed to each holder of record at his address appearing on the books of the
Corporation.
5. Conversion of Senior Preferred. The holders of Senior Preferred
shall have conversion rights as follows (the "Senior Conversion Rights"):
a. Automatic Conversion Upon Qualified IPO. Immediately upon the
Corporation's sale of its Common Stock in a Qualified IPO, each share of Senior
Preferred shall automatically be converted into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the Original
Senior Preferred Issue Price by the Senior Preferred Conversion Price,
determined as hereafter provided, then applicable to such share.
b. Automatic Conversion Upon Specified Large Financing. Upon any
Specified Large Financing (as defined herein), each share of Senior Preferred
shall automatically convert into such number of fully paid and nonassessable
shares of Series D Preferred as is determined by dividing the Original Senior
Preferred Issue Price in respect of such share by the Senior Preferred
Conversion Price applicable to such share, determined as hereafter provided, in
effect on the date the certificate is surrendered for conversion. In this
Section 5(b), a "Specified Large Financing" shall mean the closing of the
Corporation's first equity financing after the date hereof in which the lead
investor is an independent professionally managed institutional investor and
such financing results in gross cash proceeds received by the Corporation of
more than Fifty-Five Million Dollars ($55,000,000) and, for greater certainty,
shall not include a Qualified IPO or any sale of Senior Preferred.
c. Optional Conversion Upon Specified Small Financing. Upon and
at any time following a Specified Small Financing (as defined herein), each
share of Senior Preferred shall be convertible, at the option of the holder
thereof into such number of fully paid and nonassessable shares of Series D
Preferred as is determined by dividing the Original Senior Preferred Issue Price
in respect of such share by the Senior Preferred Conversion Price applicable to
such share, determined as hereafter provided, in effect on the date the
certificate is surrendered for conversion. No less than thirty (30) days prior
to the occurrence of a Specified Small Financing, the Corporation, at its
expense, shall furnish to each holder of Senior Preferred, a notice (the
"Specified Small Financing Notice") informing each holder of its rights under
this Section 5(c) and describing the particulars of the Specified Small
Financing. At any time on or following the closing of
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<PAGE> 12
the Specified Small Financing, any holder of Senior Preferred may elect to
convert such shares of Senior Preferred into Series D Preferred by written
notice (a "Conversion Notice") to the Corporation specifying the number of
shares of the Senior Preferred then held by such holder which such holder so
elects to convert under this Section 5(c). In this Section 5(c), a "Specified
Small Financing" shall mean the closing the Corporation's first equity financing
after the date hereof in which the lead investor is an independent
professionally managed institutional investor and such financing results in
gross cash proceeds received by the Corporation of not less than Twenty Million
Dollars ($20,000,000) and not more than Fifty-Five Million Dollars ($55,000,000)
and, for greater certainty, shall not include a Qualified IPO or a sale of
Senior Preferred.
d. Conversion Price. In this Section 5, the Senior Preferred
Conversion Price shall be deemed to be the amount specified by Section 5(d)(i),
(ii) or (iii), as applicable:
(i)Deemed Senior Preferred Conversion Price on Pre-2001
Qualified IPO. In the event that after the Original Issue Date of the Senior
Preferred and prior to January 1, 2001 the Corporation shall complete its
Qualified IPO giving rise to automatic conversion of the Senior Preferred
pursuant to Section 5(a), then, at the closing of such Qualified IPO and for the
purposes of the automatic conversion of the Senior Preferred, the Senior
Preferred Conversion Price shall be deemed to be a price equal to seventy-three
percent (73%) of the offering price to the public per share of Common Stock in
such Qualified IPO.
(ii) Deemed Senior Preferred Conversion Price on Post-2000
Qualified IPO. In the event that after December 31, 2000, the Corporation shall
complete its Qualified IPO giving rise to automatic conversion of the Senior
Preferred pursuant to Section 5(a), then, at the closing of such Qualified IPO
and for the purposes of the automatic conversion of the Senior Preferred, the
Senior Preferred Conversion Price shall be deemed to be a price equal to
sixty-five percent (65%) of the offering price to the public per share of Common
Stock in such Qualified IPO.
(iii) Deemed Senior Preferred Conversion Price on Specified
Small Financing and Specified Large Financing. In the event that after the
Original Issue Date of the Senior Preferred, the Corporation shall complete (x)
a Specified Large Financing giving rise to automatic conversion of the Senior
Preferred pursuant to Section 5(b) or (y) a Specified Small Financing in respect
of which shares of Senior Preferred are converted at the option of holders
thereof pursuant to Section 5(c), then, at the closing of such Specified Large
Financing or Specified Small Financing, as the case may be, and for the purposes
of the conversion of the Senior Preferred under Section 5(b) or Section 5(c), as
the case may be, the Senior Preferred Conversion Price shall be deemed at such
time to be a price equal to sixty-five percent (65%) of the aggregate average
offering price to the purchasers per share of stock issued in such Specified
Large Financing or Specified Small Financing (as the case may be) determined on
an as-converted into Common Stock basis. In such event, the "Original Series D
Issue Price" referenced in Section 3(b) shall be deemed to be such Senior
Preferred Conversion Price.
e. Mechanics of Conversion. Before any holder of Senior Preferred
shall be entitled to convert the same into shares of Common Stock or Series D
Preferred (as the case may be) under Section 5(a), Section 5(b) or Section 5(c),
such holder shall surrender the certificate or certificates therefor, duly
endorsed, at the office of this Corporation or of any transfer agent for the
Senior Preferred, and shall give written notice to this Corporation at its
principal corporate office, of the conversion of the same and shall state
therein the name or names in which the certificate or certificates for shares of
Common Stock or Series D Preferred (as the case may be) are to be issued. This
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Senior Preferred, or to the nominee or nominees of such
holder, a certificate or certificates for the number of shares of Common Stock
or Series D Preferred (as the case may
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be) to which such holder shall be entitled as aforesaid. Such conversion shall
be deemed to have been made immediately prior to the close of business on the
date of such surrender of the shares of Senior Preferred to be converted, and
the person or persons entitled to receive the shares of Common Stock or Series D
Preferred (as the case may be) issuable upon such conversion shall be treated
for all purposes as the record holder or holders of such shares of Common Stock
or Series D Preferred (as the case may be) as of such date; provided, however,
if the conversion is in connection with a Qualified IPO under Section 5(a), the
conversion will be conditioned upon the closing with the underwriters of the
sale of securities pursuant to such offering, in which event the person(s)
entitled to receive the Common Stock upon conversion of the Senior Preferred
shall not be deemed to have converted such Senior Preferred until immediately
prior to the closing of such sale of securities; and provided, further, if the
conversion is in connection with a Specified Large Financing under Section 5(b)
or a Specified Small Financing under Section 5(c), the conversion will be
conditioned upon the closing of such sale of securities.
f. No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, recapitalization,
sale or transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 5 and in the taking of all such action as may
be necessary or appropriate in order to protect the Senior Conversion Rights of
the holders of the Senior Preferred against impairment.
g. No Fractional Shares; Certificate as to Adjustment.
(i) No fractional shares shall be issued upon the conversion
of any share or shares of the Senior Preferred, and the number of shares of
Common Stock or Series D Preferred (as the case may be) to be issued shall be
rounded to the nearest whole share. Such rounding shall be determined on the
basis of the total number of shares of Senior Preferred the holder is at the
time converting into Common Stock or Series D Preferred (as the case may be) and
the number of shares of Common Stock or Series D Preferred (as the case may be)
issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment
of the applicable Conversion Price of Senior Preferred pursuant to this Section
5, the Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Senior Preferred a certificate executed by the Corporation's President
or Chief Financial Officer setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the reasonable written request at any time of any
holder of Senior Preferred, furnish or cause to be furnished to such holder a
like certificate setting forth (A) such adjustment and readjustment, (B) the
applicable Conversion Price for the Senior Preferred at the time in effect, and
(C) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of a share of
Senior Preferred held by such holder.
h. Notices of Record Date. In the event of any taking by the
Corporation of a record date for determining the holders of any class of
securities who are entitled to receive any dividend (other than a cash dividend)
or other distribution, any right to subscribe for, purchase or otherwise acquire
any shares of stock of any class or any other securities or property, or to
receive any other right, this Corporation shall mail to each holder of Senior
Preferred, at least fifteen (15) days prior to the record date specified
therein, a notice specifying the record date for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
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i. Reservation of Stock Issuable Upon Conversion. This
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock and Series D Preferred Stock, solely for the
purpose of effecting the conversion of the then outstanding shares of the Senior
Preferred, such number of its shares of Common Stock and Series D Preferred
Stock (together with Common Stock issuable on conversion of such Series D
Preferred Stock) as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Senior Preferred; and if at any time
the number of authorized but unissued shares of Series D Preferred Stock or
Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Senior Preferred, in addition to such other remedies
as shall be available to the holder of such Senior Preferred, the Corporation
will take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Series D Preferred
Stock or Common Stock to such number of shares as shall be sufficient for such
purposes, including without limitation engaging in best efforts to obtain the
requisite Board of Directors and stockholder approval of any necessary amendment
to this Restated Certificate of Incorporation.
j. Notices. All notices and other communications required by the
provisions of this Restated Certificate of Incorporation shall be in writing,
shall be effective when given, and shall in any event be deemed to be given upon
receipt or, if earlier, (a) five (5) days after deposit with the U.S. Postal
Service or other applicable postal service, if delivered by first class mail,
postage prepaid, (b) upon delivery, if delivered by hand, (c) one (1) business
day after the business day of deposit with Federal Express or similar overnight
courier, freight prepaid or (d) one (1) business day after the business day of
facsimile transmission (with confirmation), if delivered by facsimile
transmission with copy by first class mail, postage prepaid, and shall be
addressed to each holder of record at his address appearing on the books of the
Corporation.
6. Voting Rights.
a. Junior Preferred Voting Rights. Each holder of shares of
Junior Preferred shall be entitled to a number of votes equal to the number of
shares of Common Stock into which the shares of Junior Preferred held by such
holder could be converted, shall have voting rights and powers equal to the
voting rights and powers of the holders of Common Stock (except as otherwise
expressly provided herein or as required by law) and shall be entitled to notice
of any stockholder meeting in accordance with the Bylaws of the Corporation and
shall be entitled to vote, together with holders of Common Stock with respect to
any question upon which holders of Common Stock have the right to vote.
Fractional votes shall not be permitted and any fractional voting rights
resulting from the above formula (after aggregating all shares into which shares
of Junior Preferred held by each holder could be converted) shall be rounded to
the nearest whole number (with one-half being rounded upward).
b. Senior Preferred Voting Rights. Each holder of shares of
Senior Preferred shall be entitled to two votes per share, shall have voting
rights and powers equal to the voting rights and powers of the holders of Common
Stock (except as otherwise expressly provided herein or as required by law) and
shall be entitled to notice of any stockholder meeting in accordance with the
Bylaws of the Corporation and shall be entitled to vote, together with holders
of Common Stock with respect to any question upon which holders of Common Stock
have the right to vote. Fractional votes shall not be permitted and any
fractional voting rights resulting from the above formula (after aggregating all
shares into which shares of Senior Preferred held by each holder could be
converted) shall be rounded to the nearest whole number (with one-half being
rounded upward).
c. Required Class Vote. In addition to any other rights provided
by law, so long as at least 1,000,000 shares of Preferred Stock shall be
outstanding (as adjusted for stock splits, dividends, subdivisions,
combinations, recapitalizations and the like hereafter), this Corporation shall
not, without first obtaining the affirmative vote or written consent of the
holders of not less than sixty percent
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<PAGE> 15
(60%) of the voting power of the then outstanding shares of Preferred Stock,
voting as a single class and on an as converted basis:
(i) increase or decrease the total number of authorized
shares of the Preferred Stock (or any series thereof) or Common Stock;
(ii) authorize a liquidation, dissolution, winding up, or
Change in Control of the Corporation;
(iii) redeem or repurchase any shares of capital stock of
the Corporation (excluding shares of Series E Preferred redeemed pursuant to
Section 8 and excluding shares repurchased at or below cost upon termination of
an officer, director, employee, consultant or advisor of the Corporation
pursuant to a restricted stock purchase agreement);
(iv) change the number of directors from the number set
herein or in the Corporation's Bylaws; or
(v)authorize the creation or issuance of shares of any
series or class of capital stock or any other security exercisable for,
convertible into or exchangeable for shares of any series or class of capital
stock (including by means of reclassification of any existing securities) which
is senior to or on a parity with any series of Preferred Stock with respect to
dividend rights, redemption rights, rights upon liquidation or conversion
rights.
d. Required Series Vote - Junior Preferred. In addition to any
other rights required by law, so long as at least 1,000,000 shares of Series A
Preferred, Series B Preferred, Series C Preferred or Series D Preferred shall be
outstanding, as the case may be (as adjusted for stock splits, dividends,
subdivisions, combinations, recapitalizations and the like hereafter), this
Corporation shall not, without first obtaining the affirmative vote or consent
of the holders of not less than a majority of the voting power of the then
outstanding shares of each such series, voting as a separate series:
(i)authorize any action (including without limitation the
amendment or repeal of any provision of, or the addition of any provision to,
this Corporation's Restated Certificate of Incorporation or Bylaws), if such
action would alter or change the preferences, rights, privileges or powers of,
or the restrictions provided for the benefit of, such series of Preferred Stock
other than the creation of any new series of Preferred Stock approved by the
holders of not less than 60% of the voting power of the then outstanding shares
of Preferred Stock, voting as a single class and on an as-converted basis,
pursuant to Section 6(c) above; or
(ii) authorize the creation or issuance of shares of any new
series or class of capital stock or any other security exercisable for,
convertible into or exchangeable for shares of any series or class of capital
stock (including by means of reclassification of any existing securities) which
is senior to such series of Preferred Stock with respect to dividend rights,
redemption rights, rights upon liquidation or conversion rights.
e. Required Series Vote - Senior Preferred. In addition to any
other rights required by law, so long as Senior Preferred shall be outstanding,
this Corporation shall not, without first obtaining the affirmative vote or
consent of the holders of not less than sixty percent (60%) of the voting power
of the then outstanding shares of such series.
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<PAGE> 16
(i) authorize any action (including without limitation the
amendment or repeal of any provision of, or the addition of any provision to,
this Corporation's Restated Certificate of Incorporation or Bylaws), if such
action would alter or change the relative preferences, rights, privileges or
powers of, or the restrictions provided for the benefit of, Senior Preferred
other than the creation of a new series of Preferred which is junior to the
Senior Preferred with respect to dividend rights, redemption rights, or rights
upon liquidation; or
(ii) authorize the creation or issuance of shares of any new
series or class of capital stock or any other security exercisable for,
convertible into or exchangeable for shares of any series or class of capital
stock (including by means of reclassification of any existing securities) which
is senior to or on parity with the Senior Preferred with respect to dividend
rights, redemption rights or rights upon or liquidation.
f. Board Size. The authorized number of directors of the
Corporation's Board of Directors shall be determined as set forth in the Bylaws
of the Corporation; provided, however, that the authorized number of directors
of the Corporation's Board of Directors shall not exceed eight (8) members
unless the Corporation shall have obtained the affirmative vote of at least a
majority of the voting power of the then outstanding shares of Preferred, voting
as a single class.
g. Board of Directors Election. The holders of the Series A
Preferred, so long as at least 2,000,000 shares of Series A Preferred remain
outstanding, voting as a separate series (on an as-converted basis) (as
appropriately adjusted for stock splits, dividends, subdivisions, combinations,
recapitalizations and the like hereafter), shall be entitled to elect three (3)
directors of the Corporation at each annual election of directors; the holders
of the Series B Preferred, so long as at least 2,000,000 shares of Series B
Preferred remain outstanding (as appropriately adjusted for stock splits,
dividends, subdivisions, combinations, recapitalizations and the like
hereafter), voting as a separate series (on an as-converted basis), shall be
entitled to elect two (2) directors of the Corporation at each annual election
of directors; and the holders of a majority of the Senior Preferred, the Junior
Preferred and the Common Stock, voting together as a single class and not as
separate series (with the Junior Preferred voting on an as-converted basis),
shall be entitled to elect the remaining number of directors authorized, if any,
to be elected as a director of the Corporation at each annual election of
directors. In the case of any vacancy (other than a vacancy caused by removal)
in the office of a director occurring among the directors elected by the holders
of a class or series of stock pursuant to this Section 4(e), the remaining
directors so elected by that class or series may by affirmative vote of a
majority thereof (or the remaining director so elected if there be but one, or
if there are no such directors remaining, by the affirmative vote of the holders
of a majority of the shares of that class or series), elect a successor or
successors to hold office for the unexpired term of the director or directors
whose place or places shall be vacant. Any director who shall have been elected
by the holders of a class or series of stock or by any directors so elected as
provided in the immediately preceding sentence hereof may be removed during the
aforesaid term of office, either with or without cause, by, and only by, the
affirmative vote of the holders of the shares of the class or series of stock
entitled to elect such director or directors, given either at a special meeting
of such stockholders duly called for that purpose or pursuant to a written
consent of stockholders, and any vacancy thereby created may be filled by the
holders of that class or series of stock represented at the meeting or pursuant
to unanimous written consent.
7. Status of Converted Preferred Stock. In the event any shares of
Junior Preferred or Senior Preferred shall be converted pursuant to Section 4 or
Section 5, respectively, the shares so converted shall be canceled and shall not
thereafter be issuable by the Corporation. The Certificate of Incorporation of
the Corporation shall be appropriately amended to effect the corresponding
reduction in the Corporation's authorized capital stock.
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<PAGE> 17
8. Redemption Rights.
a. Senior Preferred. The holders of Senior Preferred shall have
redemption rights as follows:
(i) Upon the written request of the holders of not less than
two-thirds (2/3) of the then outstanding shares of Senior Preferred, at any time
after December 31, 2002, (the "Triggering Event"), the Corporation shall redeem
all of the issued, outstanding and unconverted shares of Senior Preferred from
any funds legally available therefor.
(ii) Redemption Price. The redemption price for each share
of Senior Preferred repurchased shall be equal to (i) the Original Senior
Preferred Issue Price (adjusted for any stock split, dividend, combination,
recapitalization or similar event with respect to such shares after the Original
Issue Date of the Senior Preferred) plus a redemption premium which shall
accumulate at a rate of eight percent (8%) per year (based on the Original
Senior Preferred Issue Price), compounded annually from the Original Issue Date
of the Senior Preferred through the date such share is redeemed, less (ii) the
amount of any cash dividends actually paid on each share of Senior Preferred
through the Redemption Date.
(iii) Procedure on Redemption. If the Corporation shall
receive written notice from holders of no less than two-thirds (2/3) of the then
outstanding shares of Senior Preferred requiring the Corporation to redeem the
shares of Senior Preferred pursuant to Section 8(a)(i)(a) above, then the
Corporation shall provide written notice of redemption to each holder of record
of Senior Preferred at least thirty (30) but not more than sixty (60) days prior
to the date of redemption set by the Corporation. Such notice shall be sent by
certified mail, postage prepaid, addressed to each holder at the address shown
in the Corporation's records and shall specify the Redemption Date, the number
of shares to be redeemed and the date at which conversion rights terminate
(which date shall be no earlier than five (5) days prior to the date fixed for
redemption). On or after the Redemption Date, as specified in such notice, each
holder shall surrender his certificate for the number of shares to be redeemed
as stated in the notice (except that such number of shares shall be reduced by
the number of shares which have been converted pursuant to Section 5 hereof
between the date of notice and the date on which conversion rights terminate) to
this Corporation at the place specified in such notice. Provided such notice is
duly given, and provided that on the Redemption Date specified there shall be a
source of funds legally available for such redemption, and funds necessary for
the redemption shall have been paid or made available at the place fixed for
redemption, then all rights with respect to such shares shall, after the
specified Redemption Date, terminate whether or not said certificates have been
surrendered, excepting only that in the latter instance the right of the holder
to receive the redemption price thereof, without interest, upon such surrender
will not terminate.
(iv) Partial Redemption. If upon a Triggering Event, the
Corporation is lawfully able to redeem only a part of the outstanding Senior
Preferred, the Corporation shall redeem from each such holder that number of
shares of Senior Preferred equal to the product obtained by multiplying the
total number of shares of Senior Preferred to by redeemed by the Corporation by
a fraction, the numerator of which is the number of shares of Senior Preferred
then held by such holder and the denominator of which is the total number of
Senior Preferred then outstanding. The shares of Senior Preferred not redeemed
under this Section 8 shall remain outstanding and entitled to all the rights and
preferences provided herein. At any time thereafter when additional funds of the
Corporation are legally available for the redemption of Senior Preferred, such
funds shall immediately be used to redeem the balance of the Senior Preferred
which the Corporation has become obliged to redeem under this Section 8, but
which it has not redeemed. The shares of Senior Preferred which have not been
redeemed shall continue to be entitled to the dividend, conversion and other
rights, preferences and privileges and restrictions of the Senior Preferred
until such shares have been redeemed and the redemption price has been paid or
set aside with respect thereto.
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<PAGE> 18
b. Junior Preferred. The Junior Preferred is not redeemable.
C. Common Stock.
1. Dividend Rights. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the Corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding
up of the Corporation, the assets of the Corporation shall be distributed as
provided in Section 3 of Article IV(B) hereof.
3. Voting Rights. Each holder of Common Stock shall be entitled to
one (1) vote for each share of Common Stock held, shall be entitled to notice of
any stockholder meeting in accordance with the Bylaws of the Corporation, and
shall be entitled to vote upon such matters and in such manner as is otherwise
provided herein or as may be provided by law.
4. Redemption. The Common Stock is not redeemable.
ARTICLE V
The Corporation is to have perpetual existence.
ARTICLE VI
Except as otherwise provided in this Restated Certificate of
Incorporation, the Board of Directors may make, repeal, alter, amend or rescind
any or all of the Bylaws of the Corporation.
ARTICLE VII
Elections of directors at an annual or special meeting need not be by
written ballot unless a stockholder demands election by written ballot at the
meeting and before voting begins or unless the Bylaws of the Corporation shall
so provide.
ARTICLE VIII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
ARTICLE IX
Subject to Section 6 of Article IV, the Corporation may amend, alter,
change or repeal any provision contained in this Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute. All rights
conferred on stockholders herein are granted subject to this reservation.
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<PAGE> 19
ARTICLE X
To the fullest extent permitted by the General Corporation Law of
Delaware, as the same may be amended from time to time, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director. If
the General Corporation Law of Delaware is hereafter amended to authorize, with
or without the approval of a Corporation's stockholders, further reductions in
the liability of the corporation's directors for breach of fiduciary duty, then
a director of the Corporation shall not be liable for any such breach to the
fullest extent permitted by the General Corporation Law of Delaware as so
amended.
Any repeal or modification of the foregoing provisions of this Article
X, by amendment of this Article X or by operation of law, shall not adversely
affect any right or protection of a director of the Corporation with respect to
any acts or omissions of such director occurring prior to such repeal or
modification.
ARTICLE XI
To the fullest extent permitted by applicable law, the Corporation is
authorized to provide indemnification of (and advancement of expenses to)
directors, officers, employees and other agents of the Corporation (and any
other persons to which Delaware law permits the Corporation to provide
indemnification), through Bylaw provisions, agreements with any such director,
officer, employee or other agent or other person, vote of stockholders or
disinterested directors, or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the Delaware General
Corporation Law, subject only to limits created by applicable Delaware law
(statutory or nonstatutory), with respect to actions for breach of duty to a
corporation, its stockholders and others.
Any repeal or modification of any of the foregoing provisions of this
Article XI, by amendment of this Article XI or by operation of law, shall not
adversely affect any right or protection of a director, officer, employee or
other agent or other person existing at the time of, or increase the liability
of any director of the Corporation with respect to any acts or omissions of such
director, officer or agent occurring prior to such repeal or modification.
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<PAGE> 20
IN WITNESS WHEREOF, the undersigned has executed this certificate on
April 20, 2000.
CORIO, INC.
By: _________________________________________
President and Chief Executive Officer
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<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF CORIO, INC.,
a Delaware Corporation
(Originally incorporated on September 1, 1998 under the name
"Continuity, Inc.")
ARTICLE I
The name of this Corporation is Corio, Inc.
ARTICLE II
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is the Corporation Trust
Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
ARTICLE IV
This Corporation is authorized to issue two classes of shares to be
designated, respectively, Common Stock and Preferred Stock. Each share of Common
Stock shall have a par value of $0.001 and each share of Preferred Stock shall
have a par value of $0.001. The total number of shares of Common Stock this
Corporation shall have authority to issue is 200,000,000, and the total number
of shares of Preferred Stock this Corporation shall have authority to issue is
10,000,000.
The Preferred Stock initially shall be undesignated as to series. Any
Preferred Stock not previously designated as to series may be issued from time
to time in one or more series pursuant to a resolution or resolutions providing
for such issue duly adopted by the Board of Directors (authority to do so being
hereby expressly vested in the Board), and such resolution or resolutions shall
also set forth the voting powers, full or limited or none, of each such series
of Preferred Stock and shall fix the designations, preferences and relative,
participating, optional or other special rights of each such series of Preferred
Stock and the qualifications, limitations or restrictions of such powers,
designations, preferences or rights. The Board of Directors is also authorized
to fix the number of shares of each such series of Preferred Stock. The Board of
Directors is authorized to alter the powers, designation, preferences, rights,
qualifications, limitations and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock and, within the limits and
<PAGE> 2
restrictions stated in any resolution or resolutions of the Board of Directors
originally fixing the number of shares constituting any series of Preferred
Stock, to increase or decrease (but not below the number of shares of any such
series then outstanding) the number of shares of any such series subsequent to
the issue of shares of that series.
Each share of Preferred Stock issued by the Corporation, if reacquired
by the Corporation (whether by redemption, repurchase, conversion to Common
Stock or other means), shall upon such reacquisition resume the status of
authorized and unissued shares of Preferred Stock, undesignated as to series and
available for designation and issuance by the Corporation in accordance with the
immediately preceding paragraph.
The Corporation shall from time to time in accordance with the laws of
the State of Delaware increase the authorized amount of its Common Stock if at
any time the number of shares of Common Stock remaining unissued and available
for issuance shall not be sufficient to permit conversion, if applicable, of the
Preferred Stock.
ARTICLE V
Except as otherwise provided in this Amended and Restated Certificate of
Incorporation, in furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend and rescind any or all of the Bylaws of the Corporation.
ARTICLE VI
The number of directors which constitute the whole Board of Directors of
the Corporation shall be fixed exclusively by one or more resolution adopted
from time to time by the Board of Directors. The Board of Directors shall be
divided into three classes designated as Class I, Class II and Class III,
respectively. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors. At the first annual
meeting of stockholders following the date hereof, the term of office of the
Class I directors shall expire and Class I directors shall be elected for a full
term of three years. At the second annual meeting of stockholders following the
date hereof, the term of office of the Class II directors shall expire and Class
II directors shall be elected for a full term of three years. At the third
annual meeting of stockholders following the date hereof, the term of office of
the Class III directors shall expire and Class III directors shall be elected
for a full term of three years. At each succeeding annual meeting of
stockholders, directors shall be elected for a full term of three years to
succeed the directors of the class whose term expire at such annual meeting.
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<PAGE> 3
ARTICLE VII
The number of directors of the Corporation shall number not less than
six and not more than nine and such number of directors of the Corporation shall
be fixed from time to time by, or in the manner provided in, the Bylaws or
amendment thereof duly adopted by the Board of Directors or by the stockholders.
ARTICLE VIII
Elections of directors need not be by written ballot unless the Bylaws
of the Corporation shall so provided.
ARTICLE IX
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
ARTICLE X
To the fullest extent permitted by the General Corporation Law of
Delaware, as the same may be amended from time to time, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director. If
the General Corporation Law of Delaware is hereafter amended to authorize, with
or without the approval of a corporation's stockholders, further reductions in
the liability of the corporation's directors for breach of fiduciary duty, then
a director of the Corporation shall not be liable for any such breach to the
fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
To the extent that the laws of the State of California would purport to
govern the ability of the Corporation under Delaware law to limit the personal
liability of its directors for breach of fiduciary duty, and to the extent that
a court should uphold the application of California law in lieu of Delaware law
to the issue of director liability, then for purposes of California law the
personal liability of a director to the Corporation or its stockholders for
monetary damages shall be limited to the fullest extent permitted by California
law.
Any repeal or modification of the foregoing provisions of this Article
X, by amendment of this Article X or by operation of law, shall not adversely
affect any right or protection of a director of the Corporation with respect to
any acts or omissions of such director occurring prior to such repeal or
modification.
ARTICLE XI
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<PAGE> 4
To the fullest extent permitted by applicable law, the Corporation is authorized
to provide indemnification of (and advancement of expenses to) directors,
officers, employees and other agents of the Corporation (and any other persons
to which Delaware law permits the Corporation to provide indemnification),
through Bylaw provisions, agreements with any such director, officer, employee
or other agent or other person, vote of stockholders or disinterested directors
or otherwise, in excess of the indemnification and advancement otherwise
permitted by Section 145 of the Delaware General Corporation Law, subject only
to limits created by applicable Delaware law (statutory or nonstatutory), with
respect to actions for breach of duty to a corporation, its stockholders, and
others.
To the extent that the laws of the State of California would purport to
govern the ability of the Corporation under Delaware law to provide
indemnification of (and advancement of expenses to) certain persons and to the
extent that a court should uphold the application of California law in lieu of
Delaware law to the issue of indemnification of (and advancement of expenses to)
directors, officers, employees and other agents of the Corporation (and any
other persons to which California law permits the Corporation to provide
indemnification) then for the purposes of California law, the Corporation is
authorized to provide indemnification of (and advancement of expenses to) any
such director, officer, employee or other agent or other person, through Bylaw
provisions, agreements with any such director, officer, employee or other agent
or other person, vote of stockholders or disinterested directors, or otherwise,
to the fullest extent permitted by California law.
Any repeal or modification of any of the foregoing provisions of this
Article XI, by amendment of this Article XI or by operation of law, shall not
adversely affect any right or protection of a director, officer, employee or
other agent or other person existing at the time of, or increase the liability
of any director of the Corporation with respect to any acts or omissions of such
director, officer or agent occurring prior to such repeal or modification.
ARTICLE XII
Advance notice of new business and stockholder nominations for the
election of directors shall be given in the manner and to the extent provided in
the Bylaws of the Corporation.
ARTICLE XIII
Section 1. Stockholders of the Corporation may not take action by
written consent in lieu of a meeting but must take any actions at a duly called
annual or special meeting.
Section 2. Unless otherwise required by law, special meetings of the
stockholders of the Corporation, for any purpose or purposes, may be called only
by either (i) the Board of Directors of the Corporation, (ii) the Chairman of
the Board of Directors of the Corporation, if there be one, (iii) the Chief
Executive Officer of the Corporation or (iv) the President of the Corporation.
ARTICLE XIV
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<PAGE> 5
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Amended and Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
ARTICLE V
The Corporation shall have perpetual existence.
* * *
The foregoing Amended and Restated Certificate of Incorporation has been
duly adopted by the Corporation's Board of Directors and Stockholders in
accordance with the applicable provisions of Section 228, Section 242 and
Section 245 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned has executed this certificate on
April __, 2000.
CORIO, INC.
By:
-----------------------------------
George Kadifa, President and Chief
Executive Officer
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<PAGE> 1
EXHIBIT 3.3
BY-LAWS
OF
CORIO, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I........................................................................................1
1.1 ANNUAL MEETINGS...................................................................1
1.2 SPECIAL MEETINGS..................................................................1
1.3 NOTICE OF MEETINGS................................................................1
1.4 ADJOURNMENTS......................................................................1
1.5 QUORUM............................................................................2
1.6 ORGANIZATION......................................................................2
1.7 VOTING; PROXIES...................................................................2
1.8 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD...........................3
1.9 LIST OF STOCKHOLDERS ENTITLED TO VOTE.............................................3
1.10 ACTION BY CONSENT OF STOCKHOLDERS.................................................4
ARTICLE II.......................................................................................4
2.1 NUMBER; QUALIFICATIONS............................................................4
2.2 CLASSES OF DIRECTORS..............................................................4
2.3 ELECTION; RESIGNATION; REMOVAL; VACANCIES.........................................5
2.4 REGULAR MEETINGS..................................................................5
2.5 SPECIAL MEETINGS..................................................................5
2.6 TELEPHONIC MEETINGS PERMITTED.....................................................5
2.7 QUORUM; VOTE REQUIRED FOR ACTION..................................................5
2.8 ORGANIZATION......................................................................6
2.9 INFORMAL ACTION BY DIRECTORS......................................................6
ARTICLE III......................................................................................6
3.1 COMMITTEES........................................................................6
3.2 COMMITTEE RULES...................................................................6
ARTICLE IV.......................................................................................7
4.1 EXECUTIVE OFFICERS; ELECTION; QUALIFICATIONS; TERM OF OFFICE;
RESIGNATION; REMOVAL; VACANCIES...................................................7
4.2 POWERS AND DUTIES OF OFFICERS.....................................................7
4.3 LIMITATIONS ON POWERS AND DUTIES OF OFFICERS......................................7
ARTICLE V........................................................................................8
5.1 CERTIFICATES......................................................................8
5.2 LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF NEW
CERTIFICATES......................................................................8
</TABLE>
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<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE VI.......................................................................................8
6.1 RIGHT TO INDEMNIFICATION..........................................................8
6.2 PREPAYMENT OF EXPENSES............................................................9
6.1. CLAIMS............................................................................9
6.2. NON-EXCLUSIVITY OF RIGHTS.........................................................9
6.3. OTHER INDEMNIFICATION.............................................................9
6.4. AMENDMENT OR REPEAL...............................................................9
ARTICLE VII.....................................................................................10
7.1 FISCAL YEAR......................................................................10
7.2 DESIGNATION OF AUDITORS..........................................................10
7.3 DRAFT OPERATING BUDGET AND BALANCE SHEET.........................................10
7.4 MANAGEMENT ACCOUNTS..............................................................10
7.5 BALANCE SHEET & PROFIT AND LOSS STATEMENT........................................10
7.6 FURTHER INFORMATION..............................................................10
7.7 SEAL.............................................................................10
7.8 WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS AND COMMITTEES..........11
7.9 INTERESTED DIRECTORS; QUORUM.....................................................11
7.10 FORM OF RECORDS..................................................................11
7.11 AMENDMENT OF BY-LAWS.............................................................11
7.12 NOTICE...........................................................................12
</TABLE>
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<PAGE> 4
BY-LAWS
OF
CORIO, INC.
ARTICLE I
STOCKHOLDERS
1.1 ANNUAL MEETINGS
An annual meeting of stockholders shall be held for the election of
directors at such date, time and place, either within or without the State of
Delaware, as may be designated by resolution of the Board of Directors from time
to time. Any other proper business may be transacted at the annual meeting.
1.2 SPECIAL MEETINGS
Special meetings of stockholders for any purpose or purposes may be
called at any time by the Board of Directors, or by a committee of the Board of
Directors which has been duly designated by the Board of Directors and whose
powers and authority, as expressly provided in a resolution of the Board of
Directors, include the power to call such meetings, but such special meetings
may not be called by any other person or persons.
1.3 NOTICE OF MEETINGS
Whenever stockholders are required or permitted to take any action at a
meeting, a written notice of the meeting shall be given which shall state the
place, date and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called. Unless otherwise provided
by law, the certificate of incorporation or these by-laws, the written notice of
any meeting shall be given not less than ten nor more than sixty days before the
date of the meeting to each stockholder entitled to vote at such meeting. If
mailed, such notice shall be deemed to be given when deposited in the mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation.
1.4 ADJOURNMENTS
Any meeting of stockholders, annual or special, may adjourn from time to
time to reconvene at the same or some other place, and notice need not be given
of any such adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken. At the adjourned meeting the
corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty days, or if after
the adjournment a
<PAGE> 5
new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
1.5 QUORUM
Except as otherwise provided by law, the certificate of incorporation or
these by-laws, at each meeting of stockholders the presence in person or by
proxy of the holders of shares of stock having a majority of the votes which
could be cast by the holders of all outstanding shares of stock entitled to vote
at the meeting shall be necessary and sufficient to constitute a quorum. In the
absence of a quorum, the stockholders so present may, by majority vote, adjourn
the meeting from time to time in the manner provided in Section 1.4 of these
by-laws until a quorum shall attend. Shares of its own stock belonging to the
corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the corporation, shall neither be entitled to vote nor be counted
for quorum purposes; provided, however, that the foregoing shall not limit the
right of the corporation to vote stock, including but not limited to its own
stock, held by it in a fiduciary capacity.
1.6 ORGANIZATION
Meetings of stockholders shall be presided over by the Chairman of the
Board, if any, or in his absence by the Vice Chairman of the Board, if any, or
in his absence by the President, or in his absence by a Vice President, or in
the absence of the foregoing persons by a chairman designated by the Board of
Directors, or in the absence of such designation by a chairman chosen at the
meeting. The Secretary shall act as secretary of the meeting, but in his absence
the chairman of the meeting may appoint any person to act as secretary of the
meeting.
1.7 VOTING; PROXIES
Except as otherwise provided by the certificate of incorporation, each
stockholder entitled to vote at any meeting of stockholders shall be entitled to
one vote for each share of stock held by him which has voting power upon the
matter in question. Each stockholder entitled to vote at a meeting of
stockholders may authorize another person or persons to act for him by proxy,
but no such proxy shall be voted or acted upon after three years from its date,
unless the proxy provides for a longer period. A duly executed proxy shall be
irrevocable if it states that it is irrevocable and if, and only as long as, it
is coupled with an interest sufficient in law to support an irrevocable power. A
stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking the
proxy or another duly executed proxy bearing a later date with the Secretary of
the corporation. Voting at meetings of stockholders need not be by written
ballot and need not be conducted by inspectors of election unless so determined
by the holders of shares of stock having a majority of the votes which could be
cast by the holders of all outstanding shares of stock entitled to vote thereon
which are present in person or by proxy at such meeting. At all meetings of
stockholders for the election of directors a plurality of the votes cast shall
be sufficient to elect. All other elections and questions shall, unless
otherwise provided by law, the certificate of incorporation or these by-laws, be
decided by the vote of the holders of shares of
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<PAGE> 6
stock having a majority of the votes which could be cast by the holders of all
shares of stock entitled to vote thereon which are present in person or
represented by proxy at the meeting.
1.8 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or to express consent to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors and which record date: (1) in the case of determination
of stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall, unless otherwise required by law, not be more than sixty nor
less than ten days before the date of such meeting; (2) in the case of
determination of stockholders entitled to express consent to corporate action in
writing without a meeting, shall not be more than ten days from the date upon
which the resolution fixing the record date is adopted by the Board of
Directors; and (3) in the case of any other action, shall not be more than sixty
days prior to such other action. If no record date is fixed: (1) the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held; (2) the record date
for determining stockholders entitled to express consent to corporate action in
writing without a meeting when no prior action of the Board of Directors is
required by law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
corporation in accordance with applicable law, or, if prior action by the Board
of Directors is required by law, shall be at the close of business on the day on
which the Board of Directors adopts the resolution taking such prior action; and
(3) the record date for determining stockholders for any other purpose shall be
at the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
1.9 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The Secretary shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof and may be inspected by any stockholder who is
present. Upon the willful neglect or refusal of the
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directors to produce such a list at any meeting for the election of directors,
they shall be ineligible for election to any office at such meeting. The stock
ledger shall be the only evidence as to who are the stockholders entitled to
examine the stock ledger, the list of stockholders or the books of the
corporation, or to vote in person or by proxy at any meeting of stockholders.
1.10 ACTION BY CONSENT OF STOCKHOLDERS
Unless otherwise restricted by the certificate of incorporation, any
action required or permitted to be taken at any annual or special meeting of the
stockholders may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE II
BOARD OF DIRECTORS
2.1 NUMBER; QUALIFICATIONS
The Board of Directors shall consist of to six to nine (6-9) members as
determined from time to time by the Board of Directors. Directors need not be
stockholders.
2.2 CLASSES OF DIRECTORS
The directors shall be divided into three classes designated as Class I,
Class II and Class III, respectively. Directors shall be assigned to each class
in accordance with a resolution or resolutions adopted by the board of
directors. At the first annual meeting of stockholders following the initial
adoption of these bylaws, the term of office of the Class I directors shall
expire and Class I directors shall be elected for a full term of three years. At
the second annual meeting of stockholders following the initial adoption of
these bylaws, the term of office of the Class II directors shall expire and
Class II directors shall be elected for a full term of three years. At the third
annual meeting of stockholders following the initial adoption of these bylaws,
the term of office of the Class III directors shall expire and Class III
directors shall be elected for a full term of three years. At each succeeding
annual meeting of stockholders, directors shall be elected each for a full term
of three years to succeed the directors of the class whose terms expire at such
annual meeting.
Notwithstanding the foregoing provisions of this article, each directors
shall serve until his successor is duly elected and qualified or until his
earlier death, resignation or removal. No decrease in the number of directors
constituting the board of directors shall shorten the term of any incumbent
director.
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2.3 ELECTION; RESIGNATION; REMOVAL; VACANCIES
The Board of Directors shall initially consist of the persons named as
directors in the incorporator's statement and each director so elected shall
hold office until the first annual meeting of stockholders or until his
successor is elected and qualified. At the first annual meeting of stockholders
and at each annual meeting thereafter, the stockholders shall elect directors
each of whom shall hold office for a term of one year or until his successor is
elected and qualified. Any director may resign at any time upon written notice
to the corporation. Any newly created directorship or any vacancy occurring in
the Board of Directors for any cause may be filled by a majority of the
remaining members of the Board of Directors, although such majority is less than
a quorum, or by a plurality of the votes cast at a meeting of stockholders, and
each director so elected shall hold office until the expiration of the term of
office of the director whom he has replaced or until his successor is elected
and qualified.
2.4 REGULAR MEETINGS
Regular meetings of the Board of Directors may be held at such places
within or without the State of Delaware and at such times as the Board of
Directors may from time to time determine, and if so determined notices thereof
need not be given.
2.5 SPECIAL MEETINGS
Special meetings of the Board of Directors may be held at any time or
place within or without the State of Delaware whenever called by the President,
any Vice President, the Secretary, or by any member of the Board of Directors.
Notice of a special meeting of the Board of Directors shall be given by the
person or persons calling the meeting at least twenty-four hours before the
special meeting.
2.6 TELEPHONIC MEETINGS PERMITTED
Members of the Board of Directors, or any committee designated by the
Board of Directors, may participate in a meeting thereof by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this by-law shall constitute presence in person at such meeting.
2.7 QUORUM; VOTE REQUIRED FOR ACTION
At all meetings of the Board of Directors a majority of the whole Board
of Directors shall constitute a quorum for the transaction of business. Except
in cases in which the certificate of incorporation or these by-laws otherwise
provide, the vote of a majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors.
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2.8 ORGANIZATION
Meetings of the Board of Directors shall be presided over by the
Chairman of the Board, if any, or in his absence by the Vice Chairman of the
Board, if any, or in his absence by the President, or in their absence by a
chairman chosen at the meeting. The Secretary shall act as secretary of the
meeting, but in his absence the chairman of the meeting may appoint any person
to act as secretary of the meeting.
2.9 INFORMAL ACTION BY DIRECTORS
Unless otherwise restricted by the certificate of incorporation or these
by-laws, any action required or permitted to be taken at any meeting of the
Board of Directors, or of any committee thereof, may be taken without a meeting
if all members of the Board of Directors or such committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or such committee.
ARTICLE III
COMMITTEES
3.1 COMMITTEES
The Board of Directors may, by resolution passed by a majority of the
whole Board of Directors, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of the committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in place of any
such absent or disqualified member. Any such committee, to the extent permitted
by law and to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the corporation, and
may authorize the seal of the corporation to be affixed to all papers which may
require it.
3.2 COMMITTEE RULES
Unless the Board of Directors otherwise provides, each committee
designated by the Board of Directors may make, alter and repeal rules for the
conduct of its business. In the absence of such rules each committee shall
conduct its business in the same manner as the Board of Directors conducts its
business pursuant to Article 2 of these by-laws.
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ARTICLE IV
OFFICERS
4.1 EXECUTIVE OFFICERS; ELECTION; QUALIFICATIONS; TERM OF OFFICE;
RESIGNATION; REMOVAL; VACANCIES
All officers of the corporation shall be appointed by the Board of
Directors. The Board of Directors may remove any officer with or without cause
at any time, but such removal shall be without prejudice to the contractual
rights of such officer, if any, with the corporation. Any number of offices may
be held by the same person. Any vacancy occurring in any office of the
corporation by death, resignation, removal or otherwise may be filled for the
unexpired portion of the term by the Board of Directors at any regular or
special meeting or upon written consent of the Board of Directors.
4.2 POWERS AND DUTIES OF OFFICERS
The officers of the corporation shall have such powers and duties in the
management of the corporation as may be prescribed by the Board of Directors
and, to the extent not so provided, as generally pertain to their respective
offices, subject to the control of the Board of Directors. The Board of
Directors may require any officer, agent or employee to give security for the
faithful performance of his duties.
4.3 LIMITATIONS ON POWERS AND DUTIES OF OFFICERS
No officer shall take any action, enter into any agreement, make any
representation or, by purposeful inaction, effect any of the actions or
decisions which the Board of Directors is prohibited or restricted from enacting
pursuant to this Section 4 hereof or any other section of these Bylaws and their
further amendments or the certificate of incorporation.
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ARTICLE V
STOCK
5.1 CERTIFICATES
Every holder of stock shall be entitled to have a certificate signed by
or in the name of the corporation by the Chairman or Vice Chairman of the Board
of Directors, if any, or the President or Vice President, and by the Treasurer
or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the
corporation, certifying the number of shares owned by him in the corporation.
Any of or all the signatures on the certificate may be a facsimile. In case any
officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. No certificates may be issued
without the written consent of the Board of Directors.
5.2 LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF NEW
CERTIFICATES
The corporation may issue a new certificate of stock in the place of any
certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
ARTICLE VI
INDEMNIFICATION
6.1 RIGHT TO INDEMNIFICATION
The corporation shall indemnify and hold harmless, to the fullest extent
permitted by applicable law as presently exists or may hereafter be amended, any
person who was or is made or is threatened to be made a party or is otherwise
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "proceeding") by reason of the fact that he,
or a person for whom he is the legal representative, is or was a director,
officer, employee or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust, enterprise or non-profit
entity, including service with respect to employee benefit plans, against all
liability and loss suffered and expenses reasonably incurred by such person. The
corporation shall be required to indemnify a
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<PAGE> 12
person in connection with a proceeding initiated by such person only if the
proceeding was authorized by the Board of Directors of the corporation.
6.2 PREPAYMENT OF EXPENSES
The corporation shall pay the expenses incurred in defending any
proceeding in advance of its final disposition, provided, however, that the
payment of expenses incurred by a director or officer in advance of the final
disposition of the proceeding shall be made only upon receipt of an undertaking
by the director or officer to repay all amounts advanced if it should be
ultimately determined that the director or officer is not entitled to be
indemnified under this Article or otherwise.
6.3 CLAIMS
If a claim for indemnification or payment of expenses under this Article
is not paid in full within sixty days after a written claim therefor has been
received by the corporation the claimant may file suit to recover the unpaid
amount of such claim and, if successful in whole or in part, shall be entitled
to be paid the expense of prosecuting such claim. In any such action the
corporation shall have the burden of proving that the claimant was not entitled
to the requested indemnification or payment of expenses under applicable law.
6.4 NON-EXCLUSIVITY OF RIGHTS
The rights conferred on any person by this Article 6 shall not be
exclusive of any other rights which such person may have or hereafter acquire
under any statute, provision of the certificate of incorporation, these by-laws,
agreement, vote of stockholders or disinterested directors or otherwise.
6.5 OTHER INDEMNIFICATION
The corporation's obligation, if any, to indemnify any person who was or
is serving at its request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, enterprise or non-profit entity
shall be reduced by any amount such person may collect as indemnification from
such other corporation, partnership, joint venture, trust, enterprise or
non-profit enterprise.
6.6 AMENDMENT OR REPEAL
Any repeal or modification of the foregoing provisions of this Article 6
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
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ARTICLE VII
MISCELLANEOUS
7.1 FISCAL YEAR
The fiscal year of the corporation end on December 31 of each year.
7.2 DESIGNATION OF AUDITORS
The corporate accountants/auditors of the corporation shall be Coopers &
Lybrand LLP.
7.3 DRAFT OPERATING BUDGET AND BALANCE SHEET
Before January 15 of each year a detailed draft operating budget,
including estimated major items of revenue and capital expenditure, for the then
current fiscal year, together with a balance sheet showing the projected
position of the company as at the end of the then current fiscal year will be
submitted by the corporation to the Board of Directors.
7.4 MANAGEMENT ACCOUNTS
Within twenty calendar days after the end of each calendar month,
unaudited management accounts for the month then ended shall be submitted to the
Board of Directors by the corporation.
7.5 BALANCE SHEET & PROFIT AND LOSS STATEMENT
Within twenty-five calendar days after the end of each of the first
three quarters of each fiscal year of the corporation and within forty days
after the end of the last quarter of each fiscal year of the company, a balance
sheet and a profit and loss statement, all in reasonable detail, as determined
by the Board of Directors shall be submitted by the corporation to the Board of
Directors.
7.6 FURTHER INFORMATION
The corporation shall promptly submit to the Board of Directors such
further information relating to the business or financial condition of the
company as the Board of Directors shall request.
7.7 SEAL
The corporate seal shall have the name of the corporation inscribed
thereon and shall be in such form as may be approved from time to time by the
Board of Directors.
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7.8 WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS AND
COMMITTEES
Any written waiver of notice, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of any regular or special meeting
of the stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice.
7.9 INTERESTED DIRECTORS; QUORUM
No contract or transaction between the corporation and one or more of
its directors or officers, or between the corporation and any other corporation,
partnership, association, or other organization in which one or more of its
directors or officers are directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the Board of
Directors or committee thereof which authorizes the contract or transaction, or
solely because his or their votes are counted for such purpose, if: (1) the
material facts as to his relationship or interest and as to the contract or
transaction are disclosed or are known to the Board of Directors or the
committee, and the Board of Directors or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or (2) the material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or (3) the contract or
transaction is fair as to the corporation as of the time it is authorized,
approved or ratified, by the Board of Directors, a committee thereof, or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
7.10 FORM OF RECORDS
Any records maintained by the corporation in the regular course of its
business, including its stock ledger, books of account, and minute books, may be
kept on, or be in the form of, punch cards, magnetic tape, photographs,
microphotographs, or any other information storage device, provided that the
records so kept can be converted into clearly legible form within a reasonable
time. The corporation shall so convert any records so kept upon the request of
any person entitled to inspect the same and any record shall at any time be made
available to the Board of Directors or an individual appointed by the Board of
Directors.
7.11 AMENDMENT OF BY-LAWS
These by-laws may be altered or repealed, and new by-laws made, by the
Board of Directors only with the prior written consent of the Board of
Directors.
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7.12 NOTICE
All notices and other communications required or permitted hereunder
shall be in writing, shall be effective when given, and shall in any event be
deemed to be given (a) five (5) days after deposit with the U.S. Postal Service
or other applicable postal service, if delivered by first class mail, postage
prepaid, (b) upon delivery, if delivered by hand, (c) one business day after the
business day of deposit with Federal Express or similar overnight courier,
freight prepaid, or (d) one business day after the business day of delivery by
facsimile transmission with copy by first class mail, postage prepaid, and shall
be addressed, if to a director or stockholder, to the director or stockholder's
address as it appears on the records of the Company, and, if to the Company, at
the address of its principal corporate offices (attention: Secretary) or at such
other address as designated by the addressee.
<PAGE> 1
EXHIBIT 4.1
INCORPORATED UNDER THE LAWS OF
THE STATE OF DELAWARE
CORIO, INC.
NUMBER *C-<<CERTNUMBER>>* A DELAWARE CORPORATION *<<SHARES>>* SHARES
COMMON STOCK
THIS CERTIFIES THAT *<<NAME>>* is the record holder of
*<<WRITTENSHARES>> (<<SHARES>>)* shares of the COMMON STOCK OF CORIO, INC.,
transferable only on the share registration of said corporation, in person or by
duly authorized attorney, upon surrender of this certificate properly endorsed
or assigned.
A statement of the rights, preferences, privileges and restrictions
granted to or imposed upon the respective classes or series of shares of stock
of the Corporation and upon the holders thereof as established by the
Certificate of Incorporation or by any certificate of determination of
preferences, and the number of shares constituting each class and designations
thereof, may be obtained by any shareholder upon request and without charge, at
the principal office of the Corporation, and the Corporation will furnish any
shareholder, upon written request to the Secretary of the Corporation at the
Corporation's principal office.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by its duly authorized officers and to be sealed with the seal of the
Corporation this <<DATE>>.
- ------------------------------------ ------------------------------------
Secretary President
<PAGE> 2
FOR VALUE RECEIVED, _____________________ HEREBY SELL, ASSIGN, AND TRANSFER UNTO
____________________ A TOTAL OF __________________________ SHARES REPRESENTED BY
THE WITHIN CERTIFICATE AND DO HEREBY IRREVOCABLY CONSTITUTE AND APPOINT
__________________________________________________ AS ATTORNEY TO TRANSFER THE
SAID SHARES ON THE SHARE REGISTER OF THE WITHIN NAMED CORPORATION WITH FULL
POWER OF SUBSTITUTION IN THE PREMISES.
DATED ,
------------------ ------- ------------------------------------
(Shareholder)
- ------------------------------------ ------------------------------------
(Witness) (Shareholder)
NOTICE: THE SIGNATURE ON THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THIS CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE
OPINION OF COMPANY COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH
OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS
ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE ISSUER OR ITS ASSIGNEE(S)
AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER
OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE
ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON
TRANSFEREES OF THESE SHARES.
<PAGE> 1
EXHIBIT 10.1
CORIO, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of _______,
_______ by and between Corio, Inc., a Delaware corporation (the "Company"), and
____________________ ("Indemnitee").
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve the Company and its
related entities;
WHEREAS, in order to induce Indemnitee to continue to provide services
to the Company, the Company wishes to provide for the indemnification of, and
the advancement of expenses to, Indemnitee to the maximum extent permitted by
law;
WHEREAS, the Company and Indemnitee recognize the continued difficulty
in obtaining liability insurance for the Company's directors, officers,
employees, agents and fiduciaries, the significant increases in the cost of such
insurance and the general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited; and
WHEREAS, in view of the considerations set forth above, the Company
desires that Indemnitee shall be indemnified and advanced expenses by the
Company as set forth herein;
NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth
below.
1. Certain Definitions.
(a) "Change in Control" shall mean, and shall be deemed to have
occurred if, on or after the date of this Agreement, (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended), other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company acting in such capacity or a corporation
owned directly or indirectly by the stockholders of the Company in substantially
the same proportions as their ownership of stock of the Company, becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing more than 50% of the total
voting power represented by the Company's then
1
<PAGE> 2
outstanding Voting Securities, (ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of the Company and any new director whose election by the Board of
Directors or nomination for election by the Company's stockholders was approved
by a vote of at least two thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation other than a
merger or consolidation which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 80% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
related transactions) all or substantially all of the Company's assets.
(b) "Claim" shall mean with respect to a Covered Event: any
threatened, pending or completed action, suit, proceeding or alternative dispute
resolution mechanism, or any hearing, inquiry or investigation that Indemnitee
in good faith believes might lead to the institution of any such action, suit,
proceeding or alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other.
(c) References to the "Company" shall include, in addition to
Corio, Inc., any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger to which Corio, Inc. (or any
of its wholly owned subsidiaries) is a party which, if its separate existence
had continued, would have had power and authority to indemnify its directors,
officers, employees, agents or fiduciaries, so that if Indemnitee is or was a
director, officer, employee, agent or fiduciary of such constituent corporation,
or is or was serving at the request of such constituent corporation as a
director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise,
Indemnitee shall stand in the same position under the provisions of this
Agreement with respect to the resulting or surviving corporation as Indemnitee
would have with respect to such constituent corporation if its separate
existence had continued.
(d) "Covered Event" shall mean any event or occurrence related to
the fact that Indemnitee is or was a director, officer, employee, agent or
fiduciary of the Company, or any subsidiary of the Company, or is or was serving
at the request of the Company as a director, officer, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action or inaction on the part of Indemnitee
while serving in such capacity.
2
<PAGE> 3
(e) "Expenses" shall mean any and all expenses (including
attorneys' fees and all other costs, expenses and obligations incurred in
connection with investigating, defending, being a witness in or participating in
(including on appeal), or preparing to defend, to be a witness in or to
participate in, any action, suit, proceeding, alternative dispute resolution
mechanism, hearing, inquiry or investigation), judgments, fines, penalties and
amounts paid in settlement (if such settlement is approved in advance by the
Company, which approval shall not be unreasonably withheld) of any Claim and any
federal, state, local or foreign taxes imposed on the Indemnitee as a result of
the actual or deemed receipt of any payments under this Agreement.
(f) "Expense Advance" shall mean a payment to Indemnitee pursuant
to Section 3 of Expenses in advance of the settlement of or final judgement in
any action, suit, proceeding or alternative dispute resolution mechanism,
hearing, inquiry or investigation which constitutes a Claim.
(g) "Independent Legal Counsel" shall mean an attorney or firm of
attorneys, selected in accordance with the provisions of Section 2(d) hereof,
who shall not have otherwise performed services for the Company or Indemnitee
within the last three years (other than with respect to matters concerning the
rights of Indemnitee under this Agreement, or of other Indemnitees under similar
indemnity agreements).
(h) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
Indemnitee with respect to an employee benefit plan; and references to "serving
at the request of the Company" shall include any service as a director, officer,
employee, agent or fiduciary of the Company which imposes duties on, or involves
services by, such director, officer, employee, agent or fiduciary with respect
to an employee benefit plan, its participants or its beneficiaries; and if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be in the interest of the participants and beneficiaries of an employee benefit
plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the
best interests of the Company" as referred to in this Agreement.
(i) "Reviewing Party" shall mean, subject to the provisions of
Section 2(d), any person or body appointed by the Board of Directors in
accordance with applicable law to review the Company's obligations hereunder and
under applicable law, which may include a member or members of the Company's
Board of Directors, Independent Legal Counsel or any other person or body not a
party to the particular Claim for which Indemnitee is seeking indemnification.
(j) "Section" refers to a section of this Agreement unless
otherwise indicated.
(k) "Voting Securities" shall mean any securities of the Company
that vote in the election of directors.
2. Indemnification.
3
<PAGE> 4
(a) Indemnification of Expenses. Subject to the provisions of
Section 2(b) below, the Company shall indemnify Indemnitee for Expenses to the
fullest extent permitted by law if Indemnitee was or is or becomes a party to or
witness or other participant in, or is threatened to be made a party to or
witness or other participant in, any Claim (whether by reason of or arising in
part out of a Covered Event), including all interest, assessments and other
charges paid or payable in connection with or in respect of such Expenses.
(b) Review of Indemnification Obligations. Notwithstanding the
foregoing, in the event any Reviewing Party shall have determined (in a written
opinion, in any case in which Independent Legal Counsel is the Reviewing Party)
that Indemnitee is not entitled to be indemnified hereunder under applicable
law, (i) the Company shall have no further obligation under Section 2(a) to make
any payments to Indemnitee not made prior to such determination by such
Reviewing Party, and (ii) the Company shall be entitled to be reimbursed by
Indemnitee (who hereby agrees to reimburse the Company) for all Expenses
theretofore paid to Indemnitee to which Indemnitee is not entitled hereunder
under applicable law; provided, however, that if Indemnitee has commenced or
thereafter commences legal proceedings in a court of competent jurisdiction to
secure a determination that Indemnitee is entitled to be indemnified hereunder
under applicable law, any determination made by any Reviewing Party that
Indemnitee is not entitled to be indemnified hereunder under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expenses theretofore paid in indemnifying Indemnitee until a
final judicial determination is made with respect thereto (as to which all
rights of appeal therefrom have been exhausted or lapsed). Indemnitee's
obligation to reimburse the Company for any Expenses shall be unsecured and no
interest shall be charged thereon.
(c) Indemnitee Rights on Unfavorable Determination; Binding
Effect. If any Reviewing Party determines that Indemnitee substantively is not
entitled to be indemnified hereunder in whole or in part under applicable law,
Indemnitee shall have the right to commence litigation seeking an initial
determination by the court or challenging any such determination by such
Reviewing Party or any aspect thereof, including the legal or factual bases
therefor, and, subject to the provisions of Section 15, the Company hereby
consents to service of process and to appear in any such proceeding. Absent such
litigation, any determination by any Reviewing Party shall be conclusive and
binding on the Company and Indemnitee.
(d) Selection of Reviewing Party; Change in Control. If there has
not been a Change in Control, any Reviewing Party shall be selected by the Board
of Directors, and if there has been such a Change in Control (other than a
Change in Control which has been approved by a majority of the Company's Board
of Directors who were directors immediately prior to such Change in Control),
any Reviewing Party with respect to all matters thereafter arising concerning
the rights of Indemnitee to indemnification of Expenses under this Agreement or
any other agreement or under the Company's Certificate of Incorporation or
Bylaws as now or hereafter in effect, or under any other applicable law, if
desired by Indemnitee, shall be Independent Legal
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<PAGE> 5
Counsel selected by Indemnitee and approved by the Company (which approval shall
not be unreasonably withheld). Such counsel, among other things, shall render
its written opinion to the Company and Indemnitee as to whether and to what
extent Indemnitee would be entitled to be indemnified hereunder under applicable
law and the Company agrees to abide by such opinion. The Company agrees to pay
the reasonable fees of the Independent Legal Counsel referred to above and to
indemnify fully such counsel against any and all expenses (including attorneys'
fees), claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto. Notwithstanding any other provision
of this Agreement, the Company shall not be required to pay Expenses of more
than one Independent Legal Counsel in connection with all matters concerning a
single Indemnitee, and such Independent Legal Counsel shall be the Independent
Legal Counsel for any or all other Indemnitees unless (i) the Company otherwise
determines or (ii) any Indemnitee shall provide a written statement setting
forth in detail a reasonable objection to such Independent Legal Counsel
representing other Indemnitees.
(e) Mandatory Payment of Expenses. Notwithstanding any other
provision of this Agreement other than Section 10 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
Claim, Indemnitee shall be indemnified against all Expenses incurred by
Indemnitee in connection therewith.
3. Expense Advances.
(a) Obligation to Make Expense Advances. Upon receipt of a
written undertaking by or on behalf of the Indemnitee to repay such amounts if
it shall ultimately be determined that the Indemnitee is not entitled to be
indemnified therefore by the Company hereunder under applicable law, the Company
shall make Expense Advances to Indemnitee.
(b) Form of Undertaking. Any obligation to repay any Expense
Advances hereunder pursuant to a written undertaking by the Indemnitee shall be
unsecured and no interest shall be charged thereon.
(c) Determination of Reasonable Expense Advances. The parties
agree that for the purposes of any Expense Advance for which Indemnitee has made
written demand to the Company in accordance with this Agreement, all Expenses
included in such Expense Advance that are certified by affidavit of Indemnitee's
counsel as being reasonable shall be presumed conclusively to be reasonable.
4. Procedures for Indemnification and Expense Advances.
(a) Timing of Payments. All payments of Expenses (including,
without limitation, Expense Advances) by the Company to the Indemnitee pursuant
to this Agreement shall be made to the fullest extent permitted by law as soon
as practicable after written demand by
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<PAGE> 6
Indemnitee therefor is presented to the Company, but in no event later than
thirty (30) business days after such written demand by Indemnitee is presented
to the Company, except in the case of Expense Advances, which shall be made no
later than ten (10) business days after such written demand by Indemnitee is
presented to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to Indemnitee's right to be indemnified or Indemnitee's
right to receive Expense Advances under this Agreement, give the Company notice
in writing as soon as practicable of any Claim made against Indemnitee for which
indemnification will or could be sought under this Agreement. Notice to the
Company shall be directed to the Chief Executive Officer of the Company at the
address shown on the signature page of this Agreement (or such other address as
the Company shall designate in writing to Indemnitee). In addition, Indemnitee
shall give the Company such information and cooperation as it may reasonably
require and as shall be within Indemnitee's power.
(c) No Presumptions; Burden of Proof. For purposes of this
Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that Indemnitee
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by this
Agreement or applicable law. In addition, neither the failure of any Reviewing
Party to have made a determination as to whether Indemnitee has met any
particular standard of conduct or had any particular belief, nor an actual
determination by any Reviewing Party that Indemnitee has not met such standard
of conduct or did not have such belief, prior to the commencement of legal
proceedings by Indemnitee to secure a judicial determination that Indemnitee
should be indemnified under this Agreement under applicable law, shall be a
defense to Indemnitee's claim or create a presumption that Indemnitee has not
met any particular standard of conduct or did not have any particular belief. In
connection with any determination by any Reviewing Party or otherwise as to
whether the Indemnitee is entitled to be indemnified hereunder under applicable
law, the burden of proof shall be on the Company to establish that Indemnitee is
not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 4(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such Claim in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be
obligated hereunder to provide indemnification for or make any Expense Advances
with respect to the Expenses of any Claim, the Company, if appropriate, shall be
entitled to assume the defense of
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<PAGE> 7
such Claim with counsel approved by Indemnitee (which approval shall not be
unreasonably withheld) upon the delivery to Indemnitee of written notice of the
Company's election to do so. After delivery of such notice, approval of such
counsel by Indemnitee and the retention of such counsel by the Company, the
Company will not be liable to Indemnitee under this Agreement for any fees or
expenses of separate counsel subsequently retained by or on behalf of Indemnitee
with respect to the same Claim; provided that, (i) Indemnitee shall have the
right to employ Indemnitee's separate counsel in any such Claim at Indemnitee's
expense and (ii) if (A) the employment of separate counsel by Indemnitee has
been previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense, or (C) the Company shall not
continue to retain such counsel to defend such Claim, then the fees and expenses
of Indemnitee's separate counsel shall be Expenses for which Indemnitee may
receive indemnification or Expense Advances hereunder.
5. Additional Indemnification Rights; Nonexclusivity.
(a) Scope. The Company hereby agrees to indemnify the Indemnitee
to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by the other provisions of this
Agreement, the Company's Certificate of Incorporation, the Company's Bylaws or
by statute. In the event of any change after the date of this Agreement in any
applicable law, statute or rule which expands the right of a Delaware
corporation to indemnify a member of its board of directors or an officer,
employee, agent or fiduciary, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits afforded by such
change. In the event of any change in any applicable law, statute or rule which
narrows the right of a Delaware corporation to indemnify a member of its board
of directors or an officer, employee, agent or fiduciary, such change, to the
extent not otherwise required by such law, statute or rule to be applied to this
Agreement, shall have no effect on this Agreement or the parties' rights and
obligations hereunder except as set forth in Section 10(a) hereof.
(b) Nonexclusivity. The indemnification and the payment of
Expense Advances provided by this Agreement shall be in addition to any rights
to which Indemnitee may be entitled under the Company's Certificate of
Incorporation, its Bylaws, any other agreement, any vote of stockholders or
disinterested directors, the General Corporation Law of the State of Delaware,
or otherwise. The indemnification and the payment of Expense Advances provided
under this Agreement shall continue as to Indemnitee for any action taken or not
taken while serving in an indemnified capacity even though subsequent thereto
Indemnitee may have ceased to serve in such capacity.
6. No Duplication of Payments. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, provision
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<PAGE> 8
of the Company's Certificate of Incorporation, Bylaws or otherwise) of the
amounts otherwise payable hereunder.
7. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
8. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge
that in certain instances, federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
9. Liability Insurance. To the extent the Company maintains liability
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are provided to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
10. Exceptions. Notwithstanding any other provision of this Agreement,
the Company shall not be obligated pursuant to the terms of this Agreement:
(a) Excluded Action or Omissions. To indemnify or make Expense
Advances to Indemnitee with respect to Claims arising out of acts, omissions or
transactions for which Indemnitee is prohibited from receiving indemnification
under applicable law.
(b) Claims Initiated by Indemnitee. To indemnify or make Expense
Advances to Indemnitee with respect to Claims initiated or brought voluntarily
by Indemnitee and not by way of defense, counterclaim or crossclaim, except (i)
with respect to actions or proceedings brought to establish or enforce a right
to indemnification under this Agreement or any other agreement or insurance
policy or under the Company's Certificate of Incorporation or Bylaws now or
hereafter in effect relating to Claims for Covered Events, (ii) in specific
cases if the Board of Directors has approved the initiation or bringing of such
Claim, or (iii) as otherwise required under Section 145 of the Delaware General
Corporation Law, regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification, Expense Advances, or insurance recovery, as
the case may be.
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<PAGE> 9
(c) Lack of Good Faith. To indemnify Indemnitee for any Expenses
incurred by the Indemnitee with respect to any action instituted (i) by
Indemnitee to enforce or interpret this Agreement, if a court having
jurisdiction over such action determines as provided in Section 13 that each of
the material assertions made by the Indemnitee as a basis for such action was
not made in good faith or was frivolous, or (ii) by or in the name of the
Company to enforce or interpret this Agreement, if a court having jurisdiction
over such action determines as provided in Section 13 that each of the material
defenses asserted by Indemnitee in such action was made in bad faith or was
frivolous.
(d) Claims Under Section 16(b). To indemnify Indemnitee for
Expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns (including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), spouses, heirs and
personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect, and whether by purchase, merger,
consolidation or otherwise) to all, substantially all, or a substantial part, of
the business or assets of the Company, by written agreement in form and
substance satisfactory to Indemnitee, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform if no such succession had taken place. This Agreement
shall continue in effect regardless of whether Indemnitee continues to serve as
a director, officer, employee, agent or fiduciary (as applicable) of the Company
or of any other enterprise at the Company's request.
13. Expenses Incurred in Action Relating to Enforcement or
Interpretation. In the event that any action is instituted by Indemnitee under
this Agreement or under any liability insurance policies maintained by the
Company to enforce or interpret any of the terms hereof or thereof, Indemnitee
shall be entitled to be indemnified for all Expenses incurred by Indemnitee with
respect to such action (including, without limitation, attorneys' fees),
regardless of whether Indemnitee is ultimately successful in such action, unless
as a part of such action a court having jurisdiction over such action makes a
final judicial determination (as to which all rights of appeal therefrom have
been exhausted or lapsed) that each of the material assertions made by
Indemnitee as a basis for such action was not made in good faith or was
frivolous; provided, however, that until such final judicial determination is
made, Indemnitee shall be entitled under Section 3 to receive payment of Expense
Advances hereunder with respect to such action. In the event of an action
instituted by or
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<PAGE> 10
in the name of the Company under this Agreement to enforce or interpret any of
the terms of this Agreement, Indemnitee shall be entitled to be indemnified for
all Expenses incurred by Indemnitee in defense of such action (including,
without limitation, costs and expenses incurred with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action a court having jurisdiction over such action makes a final judicial
determination (as to which all rights of appeal therefrom have been exhausted or
lapsed) that each of the material defenses asserted by Indemnitee in such action
was made in bad faith or was frivolous; provided, however, that until such final
judicial determination is made, Indemnitee shall be entitled under Section 3 to
receive payment of Expense Advances hereunder with respect to such action.
14. Period of Limitations. No legal action shall be brought and no cause
of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
15. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and signed for by the party addressed, on the date of such
delivery, or (ii) if mailed by domestic certified or registered mail with
postage prepaid, on the third business day after the date postmarked. Addresses
for notice to either party are as shown on the signature page of this Agreement,
or as subsequently modified by written notice.
16. Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
17. Severability. The provisions of this Agreement shall be severable in
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitation, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
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18. Choice of Law. This Agreement, and all rights, remedies,
liabilities, powers and duties of the parties to this Agreement, shall be
governed by and construed in accordance with the laws of the State of Delaware
as applied to contracts between Delaware residents entered into and to be
performed entirely in the State of Delaware without regard to principles of
conflicts of laws.
19. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
20. Amendment and Termination. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless it is in writing
signed by both the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed to be or shall constitute a waiver of any other
provisions hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver.
21. Integration and Entire Agreement. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
22. No Construction as Employment Agreement. Nothing contained in this
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries or affiliated entities.
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IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement as of the date first above written.
CORIO, INC.
A Delaware Corporation
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Address: 700 Bay Road, Suite 210
Redwood City, CA 94063
AGREED TO AND ACCEPTED
INDEMNITEE:
- ---------------------------------
(signature)
Name:
----------------------------
Address:
-------------------------
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EXHIBIT 10.2
HOSTING LICENSE AGREEMENT
This Hosting License Agreement ("Agreement") is entered into as of June 30, 1999
(the "Effective Date"), by and between Active Software, Inc., a California
corporation with its principal place of business at 3333 Octavius Drive, Santa
Clara, California 95054 ("Active"), and Corio, Inc., a Delaware corporation with
its principal place of business at 700 Bay Road, Redwood City, California 94063
("Partner").
RECITALS
1. Active develops and distributes software (the "Active Materials," as
defined below) which enables the integration of certain third party software
with other third party software.
2. Partner hosts certain third party software (the "Third Party
Software," as defined below) for its customers.
3. Active wishes Partner to integrate certain Active Materials into the
Third Party Software and host the Integrated Hosting Services (as defined
below), and Partner wishes to obtain the right to integrate the Active Materials
and host the Integrated Hosting Services.
AGREEMENT
IN CONSIDERATION OF THE MUTUAL PROMISES CONTAINED IN THIS AGREEMENT, THE
PARTIES AGREE AS FOLLOWS:
1. Definitions.
"Active Materials" means the Licensed Materials.
"Adapter" means the adapter and/or agent software described under the heading
"Adapters" in Exhibit A, in Object Code format only, which Active distributes or
develops and which interfaces between the Integration Kit and the Third Party
Software.
"Confidential Information" of a party means any information disclosed by that
party to the other party pursuant to this Agreement which is in written,
graphic, machine readable or other tangible form and is marked "Confidential,"
"Proprietary" or in some other manner to indicate its confidential nature.
Confidential Information may also include oral information disclosed by one
party to the other pursuant to this Agreement, provided that such information is
designated as confidential at the time of disclosure or is so designated in
writing by the disclosing party within thirty (30) days after its oral
disclosure. Notwithstanding the foregoing, all information Active provides to
Partner that relates to the Active Materials shall be deemed Active's
Confidential Information.
"Developer Kit" means the software described under the heading "Developer Kit"
in Exhibit A, in Object Code format only, which Active distributes to software
developers to enable such developers to build or modify Adapters and/or to build
or modify events, rules, transformations and other integration process
components used for specific applications.
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
<PAGE> 2
"Documentation" means all documentation provided by Active to Partner, as
further described or enumerated in Exhibit A.
"End User" means any party that accesses the Integrated Hosting Services through
Partner's servers.
"End User License" means the license agreement (i) pursuant to which Partner
will grant the End User access to the Integrated Hosting Services, and (ii)
which shall contain at least the restrictions set forth on Exhibit C.
"Integrated Hosting Services" means Partner's hosting services which enable End
Users to access the integrated Licensed Materials and the Third Party Software
hosted on Partner's servers.
"Integration Kit" means the software described under the heading "Integration
Kit" in Exhibit A, in Object Code format only.
"Licensed Materials" means the Integration Kit, the Adapters, the Developer Kit
and the Documentation, including any modifications Active provides under Section
10.2, which Partner may host for its End Users in accordance with Section 2.1
below and the terms of this Agreement.
"Object Code" and "Object Code format" means binary computer codes in executable
format and relocatable binary code libraries that can be linked into executable
programs.
All references in this Agreement to the "purchase" or "sale" of software means
the acquiring or granting, respectively, of a license to use such software, and
to exercise any other rights pertaining to such software which are expressly set
forth herein.
"Third Party Software" means any software not developed by Active that Partner
hosts for its End Users as listed in Exhibit A.
2. Licenses and Restrictions.
2.1 Hosting License. Subject to the terms and conditions of this
Agreement, Active hereby grants Partner a non-exclusive license,
without rights to sublicense, to host the Licensed Materials on
Partner's servers solely for the purposes of providing the
Integrated Hosting Services to End Users. Partner is allowed to
grant End Users the right to access the Licensed Materials
hosted on Partner's servers pursuant to the terms of this
Agreement and under the terms specified in the End User License.
2.1.1 Access to Technology: Active shall provide Corio with
any pre-release "Beta" versions of relevant Updates or
Upgrades of the Software. Active shall make these
versions available to Corio to preview at the earliest
possible date, but in no event later than the date
Active first publicly releases such products. Active
shall provide all such Updates and Upgrades to Corio
free of additional charge and Corio shall, in its sole
discretion determine when, and if, to offer any such
Updates and/or Upgrades to its Customers.
2.2 Use Licenses. Subject to the terms and conditions of this
Agreement, Active hereby grants Partner a nonexclusive license,
without rights to sublicense, to use the Active Materials solely
for the purposes of: (a) integrating the Licensed Materials into
the Third Party Software; (b) providing
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customization services with respect to the Adapters on behalf of End Users upon
request; (c) demonstrating the Integrated Hosting Services to potential End
Users; (d) providing training in the use of the Integrated Hosting Services and
the Active Materials to Partner's employees and contractors; and (e) providing
support and training to End Users in connection with the Integrated Hosting
Services.
2.3 Trademark License. Subject to the terms and conditions of this
Agreement, Active hereby grants Partner a nonexclusive license to use the Active
trademarks, trade names and logos set forth in Exhibit B (as amended from time
to time by Active) solely in connection with the marketing of the Integrated
Hosting Services. Partner shall comply with any usage guidelines which may be
provided to Partner by Active from time to time, and upon request by Active,
shall furnish Active with samples of Partner's usage of such trademarks, trade
names and logos. Partner shall not challenge Active's ownership of such
trademarks, trade names and logos or use or adopt any trademarks which might be
confusingly similar to such marks.
2.5 Restrictions. Active reserves all rights in the Active Materials
which are not expressly granted to Partner in this Agreement. Partner shall not
decompile, disassemble, reverse engineer or otherwise attempt to derive, obtain
or modify the source code of the Active Materials. Partner shall not remove any
Active copyright or other proprietary rights notices from any software or
documentation materials provided by Active to Partner. Partner further agrees to
permit Active to enter any of Partner's premises during regular business hours,
upon five (5) days prior written notice, to inspect Partner's use of the Active
Materials.
3. Obligations of Partner.
3.1 Promotion of the Integrated Hosting Services. Partner shall use its
best efforts to integrate the Licensed Materials into the Third Party Software
and to promote the sale of and use of, and to stimulate interest in, the
Integrated Hosting Services. All marketing efforts and development efforts by
Partner shall be at Partner's expense.
3.2 Partner Support. Partner shall provide its personnel involved in the
development of the Integrated Hosting Services with training, technical support,
information and other appropriate assistance.
3.3 Partner Contact. Partner shall designate one person who shall act as
a focal point to coordinate with Active the marketing activities and the
integration of the Active Materials, and who shall be authorized to act on
behalf of Partner within the scope of this Agreement.
3.4 Records and Reporting.
3.5.1 Within thirty (30) days following the end of each calendar
quarter, Partner will provide to Active written reports showing, for such
calendar quarter: (a) the number of copies of the Licensed Materials accessed
and used by each End User through the Integrated Hosting Services, and (b) the
End User contact information, location and any customer usage information with
respect to each copy of the Active Materials accessed through the Integrated
Hosting Services.
3.5.2 Partner will notify Active, in writing, of any claim or
proceeding, actual or threatened, involving the Active Materials within ten (10)
days after Partner learns of such claim or proceeding. Partner will also notify
Active in writing immediately of all claimed or suspected defects in
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<PAGE> 4
the Active Materials. All such claims, proceedings, and suspected defects shall
be deemed Active's Confidential Information.
3.5.3 Partner shall maintain full and complete records of the use
of Licensed Materials through the Integrated Hosting Services, including without
limitation copies of the reports described in Section 3.5.1, for at least three
(3) years after such use or sales. Active shall, at any time during the period
when Partner is obliged to maintain such records, be entitled to audit such
records upon thirty (30) days written notice, in order to confirm the accuracy
of the reports described in Section 3.5.1, provided, that Active may conduct no
more than one such audit in any six (6) month period. Any such audit shall be
performed at Active's expense during normal business hours; provided, that the
cost of such audit (in addition to the full amount of any underpayments and
related late charges under Section 6.6) shall be promptly paid by Partner if
such audit reveals an underpayment by Partner of more than five percent (5%) of
the amounts payable by Partner to Active in any six (6) month period.
3.6 Government Approvals. Partner shall be responsible for obtaining all
necessary government approvals, consents, licenses or permits to enable it to
purchase the Licensed Materials, and to provide the Integrated Hosting Services
to End Users. Partner will bear all costs associated with obtaining such
government approvals, consents, licenses or permits. Partner shall comply with
all government regulations.
3.7 End User License. Partner will obtain an executed End User License
from each End User prior to (i) granting such End User access to the Integrated
Hosting Services.
3.8 Further Agreements. Partner agrees: (i) to avoid deceptive,
misleading or unethical practices detrimental to Active or to the Active
Materials, including, without limitation, disparagement of Active or the Active
Materials; and (ii) to make no representations, warranties or guaranties to End
Users with respect to the specifications, features or capabilities of the Active
Materials that are inconsistent with the Documentation supplied by Active.
3.9 Feedback. Partner shall provide Active with prompt written
notification of any problems with the Active Materials or their use that Partner
becomes aware of. Such written notification shall be the property of Active, and
shall be considered Active's Confidential Information hereunder.
3.10 Publicity. Within thirty (30) days after the Effective Date, the
parties will issue a joint press release to announce the relationship of the
parties as set forth under this Agreement.
4. Changes in Active Materials. Active shall have the right to modify the
Active Materials at any time upon written notice to Partner or to discontinue
distribution of any of the Active Materials at any time. Receipt by Partner of a
price schedule or other notification from Active reflecting an addition or a
deletion to the Active Materials or receipt of a facsimile specifically adding
or deleting Active Materials shall constitute notice of such an addition or
deletion and, with respect to additions, of the price for the added product.
5. Title.
Active shall own all right, title and interest in and to the originals
and any copies, in whole or in part, of the Active Materials, and all patents,
trade secrets, copyrights and other intellectual property rights pertaining
thereto. Partner acknowledges that the licenses granted pursuant to this
Agreement do
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<PAGE> 5
not provide Partner with title or ownership of the Active Materials. Partner
shall keep the Active Materials free and clear of all claims, liens and
encumbrances.
6. Payments, Taxes.
6.1 Payments. Partner will pay Active as set forth in Exhibit D.
6.2 Payment Terms. All Payments are net 30, except as set forth in
Exhibit D.
6.3 Price Changes. Active shall have the right to change its list prices
for the Active Materials at any time.
6.4 Taxes. All prices are exclusive of, and Partner shall pay or
reimburse Active for, all taxes, duties and assessments imposed on Partner or
Active in connection with the license or use of Active Materials under this
Agreement or any services provided hereunder, including without limitation all
sales, use, excise and other taxes and duties, excluding only taxes based upon
Active's net income. Partner shall hold Active harmless from all claims and
liability arising from Partner's failure to report or pay any such taxes, duties
and assessments.
6.5 Late Payments. All amounts that are not paid by Partner as required
by this Agreement shall be subject to a late charge equal to one and one-half
percent (1.5%) per month, or, if less, the maximum amount allowed by applicable
law. In the event that any amount due hereunder is overdue, Active reserves the
right to suspend performance until such delinquency is corrected.
7. Confidential Information.
7.1 Confidentiality. Each party shall treat as confidential all
Confidential Information of the other party, shall not use such Confidential
Information except as set forth herein, and shall use reasonable efforts not to
disclose such Confidential Information to any third party. Without limiting the
foregoing, each of the parties shall use at least the same degree of care which
it uses to prevent the disclosure of its own confidential information of like
importance to prevent the disclosure of Confidential Information disclosed to it
by the other party under this Agreement. Each party shall promptly notify the
other party of any actual or suspected misuse or unauthorized disclosure of the
other party's Confidential Information.
7.2 Exceptions. Notwithstanding the above, neither party shall have
liability to the other with regard to any Confidential Information of the other
which: (a) was in the public domain at the time it was disclosed or has entered
the public domain through no fault of the receiving party; (b) was known to the
receiving party, without restriction, at the time of disclosure, as demonstrated
by files in existence at the time of disclosure; (c) is disclosed with the prior
written approval of disclosing party; (d) became known to the receiving party,
without restriction, from a source other than the disclosing party without
breach of this Agreement by the receiving party and otherwise not in violation
of the disclosing party's rights; or (e) is disclosed pursuant to the order or
requirement of a court, administrative agency, or other governmental body;
provided, however, that the receiving party shall use all reasonable efforts to
provide prompt, written, and sufficient advance notice thereof to the disclosing
party to enable the disclosing party to seek a protective order or otherwise
prevent or restrict such disclosure.
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<PAGE> 6
7.3 Return of Confidential Information. Each party shall promptly return
the other party's Confidential Information to the other party (i) after
termination of this Agreement, or (ii) upon receipt of written notice from the
other party requesting return of such Confidential Information.
8. Representations and Warranties of Partner.
Partner warrants to Active that the End Users shall be able to access
the Integrated Hosting Services (i) on a twenty-four-hours-per-day,
seven-days-per-week basis, except during scheduled and unscheduled maintenance
downtime, and (ii) on a ninety-nine percent (99%) availability basis.
9. Representations and Warranties of Active.
9.1 Warranty to the End User. Each End User receives a warranty (if any)
on the Active Materials from Partner only to the extent set forth in the End
User License. Active makes no warranties to the End User in connection with the
Active Materials, and expressly disclaims any implied warranties of
merchantability or fitness for a particular purpose to the End User.
9.2 Warranty to Partner. Active warrants to Partner that for a period of
ninety (90) days after the date of delivery of the Licensed Materials to the
Partner, (i) the Integration Kit, the Adapters and the Developer Kit will
substantially achieve the functionality described in the Documentation, and (ii)
the media containing the Licensed Materials will be free from defects in
materials and workmanship. Active's entire liability and Partner's exclusive
remedy under this limited warranty shall be, at Active's option, (y) repair or
replacement of all or the affected portion of the Licensed Materials, or (z) a
refund of the purchase price paid for such Licensed Materials and termination of
the licenses under Section 2 for such Licensed Materials, provided that Active
receives notice of such defect during the warranty period. Active does not
warrant that (a) the Licensed Materials will meet Partner's requirements, (b)
the operation of the Integration Kit, the Adapters or the Developer Kit will be
uninterrupted or error-free, or (c) the Documentation will be error-free.
9.3 Disclaimer. EXCEPT AS EXPRESSLY SET FORTH IN THIS SECTION 9, ACTIVE
MAKES NO REPRESENTATIONS OR WARRANTIES, EITHER EXPRESS, IMPLIED, STATUTORY, OR
OTHERWISE, WITH RESPECT TO ANY ACTIVE MATERIALS, INCLUDING THEIR CONDITION,
THEIR CONFORMITY TO ANY REPRESENTATION OR DESCRIPTION, OR THE EXISTENCE OF ANY
LATENT OR PATENT DEFECTS, AND ACTIVE SPECIFICALLY DISCLAIMS ALL IMPLIED
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND
NONINFRINGEMENT OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS. ACTIVE MAKES, AND
PARTNER RECEIVES, NO REPRESENTATIONS OR WARRANTIES OF ANY KIND EITHER EXPRESS,
IMPLIED, STATUTORY OR OTHERWISE, WITH RESPECT TO THE ACTIVE SUPPORT REFERRED TO
IN SECTION 10.2.
10. Support.
10.1 Support to End Users. Partner is responsible for providing all
support with respect to the Integrated Hosting Services and the Active Materials
to End Users. Active will not be responsible for providing support to End Users.
10.2 Support to Partner. Partner will receive support from Active with
respect to the Licensed Materials under the terms of the Support Agreement
attached as Exhibit E.
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<PAGE> 7
10.3 Title. All releases and other changes, improvements, bug fixes or
other modifications to the Licensed Materials provided pursuant to Section 10.2
shall be deemed to be included within the Licensed Materials, and will be
subject to the terms and conditions of this Agreement.
11. Indemnity.
11.1 Indemnity by Active.
11.1.1 Indemnity. Active will defend or settle, at its expense,
any action brought against Partner based upon a claim that the Active Materials
used within the scope of the licenses granted hereunder infringe an issued U.S.
patent or registered U.S. copyright, and Active further agrees to pay all
damages and costs finally awarded against Partner attributable to such claim;
provided that Partner (a) notifies Active promptly in writing of any such claim,
(b) gives Active sole control of the defense and/or settlement of such action,
and (c) gives Active all authority, information and assistance reasonably
necessary to settle or defend such claim. Active shall reimburse Partner for
incidental out-of-pocket expenses incurred by Partner in providing such
assistance. Active shall not be liable for any costs or expenses incurred
without its prior written authorization.
11.1.2 Active Options. If the Active Materials become, or in the
opinion of Active may become, the subject of a claim of infringement of any
issued U.S. patent or registered U.S. copyright, Active may, at its option: (i)
procure for Partner the right to use the Active Materials free of any liability;
(ii) replace or modify the Active Materials to make them non-infringing; or
(iii) remove the Active Materials, or part thereof, and refund the license fees
paid hereunder for such Active Materials, as depreciated over a sixty (60) month
period.
11.1.3 Exclusions from Indemnity. Active assumes no liability
hereunder for any compliance with Partner's specifications. Active shall have no
obligation to defend the Partner or to pay costs, damages or attorney's fees for
any claim based upon: (i) use of other than a current unaltered release of the
Active Materials; or (ii) the combination, operation or use of any Active
Materials furnished hereunder with non-Active programs or data if such
infringement would have been avoided but for the combination, operation or use
of the Active Materials with such programs or data.
11.1.4 Sole and Exclusive Liability. THIS SECTION 11 SETS FORTH
THE SOLE AND EXCLUSIVE LIABILITY OF ACTIVE FOR INFRINGEMENT OF THIRD PARTY
INTELLECTUAL PROPERTY RIGHTS.
11.2 Indemnity by the Partner. Partner agrees to indemnify and hold
Active harmless from and against any loss, cost or expense (including attorneys'
fees) resulting from any and all claims by third parties for loss, damage or
injury (including death) allegedly caused by the negligence, misrepresentation,
misconduct, error, omission or other action of Partner, or of Partner's agents
or employees. In addition, Partner agrees to indemnify and hold Active harmless
from and against any loss, cost or expense (including attorneys' fees) resulting
from any and all claims by third parties alleging that the Integrated Hosting
Services infringes any patent, trade secret, or copyright, provided that Partner
shall have sole control of any such action or settlement negotiations.
Notwithstanding the foregoing, Partner shall have no liability under this
Section 11.2 for any claim alleging that the unaltered Licensed Materials,
standing alone, infringe any third party's intellectual property rights.
12. Limitation of Liability.
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<PAGE> 8
Partner agrees that Active's liability hereunder arising from this
Agreement shall in no event exceed the payments received by Active pursuant to
this Agreement. NEITHER PARTY WILL BE LIABLE TO THE OTHER FOR ANY LOST PROFITS,
LOSS OF BUSINESS, INTERRUPTION OF BUSINESS, LOSS OF USE, OR LOSS OF DATA FOR
COSTS OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES, FOR ANY CLAIM OR DEMAND
AGAINST THE OTHER PARTY BY ANY OTHER PARTY OR FOR INDIRECT, INCIDENTAL,
CONSEQUENTIAL, SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES, HOWEVER CAUSED AND ON ANY
THEORY OF LIABILITY, WHETHER CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE,
UNDER OR ARISING OUT OF THIS AGREEMENT, EVEN IF SUCH PARTY HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES. THE PARTIES ACKNOWLEDGE AND AGREE THAT THE
AMOUNTS PAYABLE HEREUNDER ARE BASED IN PART UPON THESE LIMITATIONS, AND THAT
THESE LIMITATIONS SHALL APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE
OF ANY LIMITED REMEDY.
13. Term and Termination.
13.1 Term. The term of this Agreement and the license granted hereunder
shall commence on the date set forth at the beginning of this Agreement and
shall continue for a term of [*] unless earlier terminated in accordance with
this Section 13.
13.2 Termination for Material Breach. Either party may, at its option,
terminate this Agreement upon written notice to the other party if the other
party materially breaches any of the terms and conditions of this Agreement and
if such material breach has not been cured within thirty (30) days after written
notice to the other party.
13.3 Termination for Insolvency. This Agreement may be terminated by
either party, on notice, (i) if the other party becomes insolvent, (ii) upon the
institution by the other party of insolvency, receivership or bankruptcy
proceedings or any other proceedings for the settlement of its debts, (iii) upon
the institution of such proceedings against the other party, which are not
dismissed or otherwise resolved in such other party's favor within sixty (60)
days thereafter, (iv) upon the other party's making a general assignment for the
benefit of creditors, or (v) upon the other party's dissolution or ceasing to
conduct business in the normal course.
13.4 Surviving Terms. Sections 5, 6, 7, 9, 11, 12, 13 and 14, and all
payment obligations incurred prior to termination of this Agreement, shall
survive termination of this Agreement. Within thirty (30) days after termination
of this Agreement, Partner shall return to Active, at Partner's expense, and
shall make no further use of, any property, materials or other items of Active,
and shall certify in writing to Active, that the originals and all copies, in
whole or in part, in any form, of the Licensed Materials in the possession of
Partner or its affiliates or agents have been destroyed or returned to Active.
13.5 Other Remedies. Nothing contained herein shall limit any other
remedies that Active may have for the default of Partner under this Agreement
nor relieve Partner of any of its obligations incurred prior to termination of
this Agreement.
14. General Provisions.
14.1 Assignment. All the terms and provisions of this Agreement shall be
binding upon and inure to the benefit of the parties to this Agreement and to
their respective heirs, successors, assigns and
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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<PAGE> 9
legal representatives. Partner may not assign this Agreement in whole or in part
except with Active's prior written consent, excluding the condition that the
Partner shall have the right to assign this Agreement in connection with the
merger or acquisition of such party or the sale of all or substantially all of
its assets related to this Agreement without such consent. Any assignment by
Partner shall not result in an increase in the scope of the license granted
pursuant to this Agreement. Active shall be entitled to assign this Agreement to
a party which agrees to be bound by the terms and conditions of this Agreement.
14.2 Entire Agreement. This Agreement represents the entire agreement
between the parties, and supersedes all prior agreements and understandings with
respect to the matters covered by this Agreement. Partner agrees that it has not
entered into this Agreement based on any representations other than those
contained herein. This Agreement may only be amended by a written agreement
signed by both parties. The terms and conditions of this Agreement shall prevail
in the event of any variance with any purchase order or invoice produced by
Active or Partner.
14.3 Governing Law. This Agreement shall in all respects be governed by
the laws of the State of California without reference to its principles of
conflicts of laws. The parties hereby agree that all disputes arising out of
this Agreement shall be subject to the exclusive jurisdiction of and venue in
the federal and state courts located in San Francisco, California or within
Santa Clara County, California. Partner hereby consents to the personal and
exclusive jurisdiction and venue of these courts.
14.4 Severability. If any of the provisions of this Agreement are held
to be invalid under any applicable statute or rule of law, they are, to that
extent, deemed omitted.
14.5 Waiver. The waiver of any particular breach or default or any delay
in exercising any rights shall not constitute a waiver of any subsequent breach
or default.
14.6 Notices. All notices permitted or required under this Agreement
shall be in writing and shall be delivered in person or mailed by first class,
registered or certified mail, postage prepaid, to the address of the party
specified in this Agreement or such other address as either party may specify in
writing. Such notice shall be deemed to have been given upon receipt.
14.7 Force Majeure. Neither party will be responsible for any failure to
perform its obligations (other than payment obligations) under this Agreement
due to reasons beyond its reasonable control, including without limitation acts
of God, war, riot, embargoes, acts of civil or military authorities, fire,
floods or accidents.
14.8 Export Laws and Regulations. Any obligation of Active to provide
the Active Materials under this Agreement shall be subject in all respects to
all United States laws and regulations governing the license and delivery of
technology and products abroad by persons subject to the jurisdiction of the
United States. Partner shall not export, directly or indirectly, any Active
Materials or related information without first obtaining all required licenses
and approvals from the appropriate government agencies.
14.9 Independent Contractors. Notwithstanding the use of the word
"partner" in marketing materials, the relationship of Active and Partner is that
of independent contractors, and nothing contained in this Agreement shall be
construed to (i) give either party the power to direct or control the day-to-day
activities of the other, (ii) constitute the parties as partners, joint
venturers, co-owners or otherwise as participants in a joint undertaking, or
(iii) allow the Partner to create or assume any obligation on behalf of Active
for any purpose whatsoever.
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<PAGE> 10
14.10 Headings. The headings of the several sections of this Agreement
are intended for convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement.
14.11 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original and all of which together shall constitute
one instrument.
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<PAGE> 11
AGREED AND ACCEPTED:
ACTIVE SOFTWARE, INC. CORIO, INC./s/ Signature
Illegible>
By: /s/ Signature Illegible By: HASAN G. RIZVI
----------------------------- ----------------------------
Title: CFO Title: DIRECTOR OF ENGG.
-------------------------- -------------------------
7/1/99
<PAGE> 12
EXHIBIT A
LICENSED MATERIALS
1. Active Software.
1.1 Integration Kit.
Information Broker
Integration Logic Agent
7/1/99
PeopleSoft Application Adapter
Siebel Application Adapter
Oracle Database Adapter
Java Language Adapter
1.2 Developer Kit.
Includes 6 Non Production Instances of the following products to
be used for prototyping, development and testing integration
systems.
Active Works Information Broker and its Associated Options
<TABLE>
<S> <C>
Secure Sockets Layer
Multi-Broker Option
Active Works Information Broker Agents: All
ActiveWorks Integration Tools: All
ActiveWorks Adapters:
Language Adapters All
Middleware Adapters All
Database Adapters All
Application Adapters All
</TABLE>
2. Documentation.
All associated product documentation shipped with the Active Software
listed above.
3. Third Party Software-
PeopleSoft
Octane 99
Siebel 99
and any other apps that coris may include.
Hasan G. Rizvi 6/30/99
<PAGE> 13
EXHIBIT B
LICENSED TRADEMARKS, TRADE NAMES AND LOGOS
Active Software, ActiveWorks, Activesw, and
Active Database Adapter are registered
trademarks of Active Software, Inc.
<PAGE> 14
EXHIBIT C
END USER LICENSE AGREEMENT REQUIREMENTS
All End User licenses of the Active Materials shall be in writing and
executed and include at least the following provisions:
(1) the End User is granted only a personal, nontransferable, and
nonexclusive right to use the Active Materials only for its internal business
purposes;
(2) Active or its licensors retain all of their intellectual property
rights in the Active Materials, and no title to such intellectual property is
transferred to the End User;
(3) the End User agrees not to reverse assemble, decompile, or otherwise
attempt to derive source code form the Active Materials;
(4) the Active Materials are the confidential information of Active and
the End User shall keep such Active Materials in confidence and shall not use or
disclose such Active Materials, except as permitted by the license, without
Active's prior written consent;
(5) the End User agrees to comply with all export and re-export
restrictions and regulations of the Department of Commerce or other United
States agency or authority, and not to transfer, or authorize the transfer, of
the Active Materials to a prohibited country or otherwise in violation of any
such restrictions or regulations;
(6) the End User receives a warranty on the Active Materials from
Partner, and Active makes no warranties to the End User in connection with the
Active Materials, and expressly disclaims any implied warranties of
merchantability or fitness for a particular purpose;
(7) Active shall not be liable to the End User for any indirect,
consequential, incidental or special damages arising out of the use or license
of the Active Materials, regardless of the theory of liability (including
negligence and strict liability);
(8) Active may terminate the licensed use of Active's Licensed Products
upon written notice of failure by the End User to comply with the terms of such
license;
(9) within five (5) days after termination of the license, the End User
shall destroy the Active Materials or return them to Active or to Partner at the
End User's expense; and
(10) Active is a third-party beneficiary of the license agreement.
<PAGE> 15
EXHIBIT D
PAYMENTS
1. Integrated Hosting Services.
Corio shall pay the following monthly fees for each of their customers
accessing the Integration Kit through the Integrated Hosting Services as
per the table below.
<TABLE>
<CAPTION>
Customer # Of Customers Initial Sign Up Fee Annual Service Fee
Definition
<S> <C> <C> <C>
Tier 1 1st 150 Customers [*] [*]
Up to $375MM
Tier 1 All Other Tier 1 [*] [*]
Up to $375MM
Tier 2 All [*] [*]
Above $375MM
Up to $1 Billion
Tier 3 All [*] [*]
Above $1 Billion
</TABLE>
2. Corio Agrees to pay Active Software [*] for the licensed materials on
Exhibit A including prepayments of the fees for the first 23 Tier 1
customers. Payment will be in two increments: [*] Payable Net 30 Days,
[*] Payable Net 60 Days.
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 16
EXHIBIT E
ACTIVE SOFTWARE, INC.
ACTIVESERVICE PLAN
This Plan sets forth the terms and conditions under which Active Software, Inc.
("Active"), provides the following Support and Maintenance program known as
("ActiveService") to Corio for the programs (the "Software") and documentation
specified in Exhibit A.
This Plan sets forth the terms and conditions under which Active Software, Inc.
("Active"), provides the following Support and Maintenance program known as
("ActiveService") to the licensee ("Customer") for the programs (the "Software")
and documentation specified in Exhibit A hereto.
1. Definitions.
a. Documentation. "Documentation" shall mean the
documentation that Active provides to its customers for
the Software.
b. Error. "Error" shall mean any verifiable and
reproducible failure of the Software to substantially
conform to the Specifications for such Software.
Notwithstanding the foregoing, "Error" shall not include
any such failure that is caused by: (i) the use or
operation of the Software with any other software or
programming languages or in an environment other than
that intended or recommended by Active, (ii)
modifications to the Software not made by Active, or
(iii) any bug, defect or error in software used with the
Software or any other failure of such software to
conform to its published specifications.
c. "Error Correction(s)" shall mean either a modification
or addition to or deletion from the Software that
substantially conforms such Software to the then-current
Specifications or a procedure or routine that, when
observed in the regular operation of the Software
eliminates any material adverse effect on Customer of
such Error.
d. License Agreement. "License Agreement" shall mean the
license agreement under which the Software was licensed
to Customer.
e. Specifications. "Specifications" shall mean the
published description of the Software, as set forth in
the Documentation for the Software.
f. Update. "Update" means additional or replacement code or
Documentation for the Software that is provided by
Active to remedy an Error.
g. Upgrade. "Upgrade" means any additional or replacement
code or Documentation for the Software provided by
Active Software that adds incremental capabilities or
functionality and that is designated by Active, in its
sole discretion, as a new version of the Software.
h. Major Release. "Major Release" means any additional or
replacement code or Documentation for the Software
provided by Active Software that adds major new
capabilities or functionality and that is designated by
Active, in its sole discretion, as a new Major Release
of the Software. Major Release does not include new
Options that are added to the Software to provide
optional capabilities or functionality.
i. Option. "Option" means any additional or replacement
code that can be added to an existing product to provide
optional capability or functionality to that product.
Optional capabilities are those that some customers may
require and other customers may not.
<PAGE> 17
J Authorized Contact. "Authorized Contact" means the
individual designated by Customer to be responsible for
contacting Active's Support organization. Customer may
assign two named Authorized Contacts in Exhibit A per
ActiveService plan. Additional Authorized Contacts may
made available for an additional fee.
2. Maintenance Services.
a. New Software Releases. During the term of this Plan,
Active will provide software updates to the Customer as
they become generally available. An update is a new
release of the licensed software product that is made
available to the general public. This includes both
minor and major release numbers. In general this
software may contain both bug fixes and enhancements to
the product. Maintenance does not cover new products
being added to a product line or new functionally that
is sold as a separate option and price. Active Software
will provide a single copy of media for each update to
the Customer. If additional copies are require they will
be made available for a fee.
b. Current Release. Active's obligations under this Plan
shall apply only to those releases of the applicable
Software that are then currently being shipped by
Active. Active shall have the right, at any time after a
particular release has been superseded by another
release, to terminate support with respect to the
superseded release upon giving not less than ninety (90)
days notice. Notwithstanding the foregoing, Active will
support a superseded release for no less than one year
after a new release is shipped.
c. Error Correction. During the term of this Plan, Active
shall use commercially reasonable efforts to provide
Error Corrections for Errors in the Software reported by
Customer to Active.
d. Limitations. Active shall have no obligation under this
Plan to correct Errors which result from the breach by
Customer of this Plan or the License Agreement, or which
cannot be remedied due to any modifications of the
Software made by Customer or any third party. If Active
agrees to remedy any errors or problems not covered by
the terms of this Plan, Customer shall pay Active for
all such work performed at Active's then-current
standard rates. Customer acknowledges that Active is
under no obligation to perform services with respect to
any hardware or any software which is not Software.
3. Support Services.
a. Telephone Support. During the term of this Plan, Active
will provide telephone consultation and advice to
Authorized Contacts regarding technical support of the
Licensed Software between the hours of 6:00 a.m. and
6:00 p.m., Pacific Time, Monday through Friday,
excluding holidays. Response times are based upon
severity of the problem. Optional 24x7 telephone
consultation and advice for emergency situations of
Severity 1 problems may be purchased for an additional
fee.
b. Email and Fax Support. During the term of this Plan,
Active will respond to email and fax messages sent to
Support by Authorized Contacts between the hours of 6:00
a.m. and 6:00 p.m., Pacific Time, Monday through Friday,
excluding holidays within 6 business hours and whenever
possible within the same business day.
c. Limitations. Customer acknowledges that Active is under
no obligation to perform services with respect to any
hardware or any software which is not Active Software's
Licensed product.
d. Supported Releases. Active Software will provide
technical support for the current shipping release of
software and the one previous release for up to one year
after the release stopped shipping. In order to correct
or trouble shoot certain problems the Customer may be
required to update said software to the then current
release.
<PAGE> 18
4. Service Expectations.
a. Problem Classification. The following Problem
Classification Table definitions are used for
classifying customer issues. These classifications
insure consistent treatment of problems handled by
support. Severity 3 (Degraded Operations) is the default
severity level that all cases are initially set to
unless otherwise specified by the customer or the
support engineer. The support engineer handling the case
will work with the customer to establish what severity
should be assigned. The following are the four levels
used by Active Software to prioritize a customer's
problem.
Problem Classification Table
<TABLE>
<CAPTION>
Error Classification Criteria
<S> <C>
The problem is affecting time-critical applications with
production work at a standstill. The system is completely
Severity 1 (Critical) unusable and no work around is currently known. The
affected system must be for production purposes.
The system is significantly impaired such that key business
Severity 2 (Serious) processes can not be conducted and no known work around is
currently available.
Severity 3 (Degraded) The system can not function as designed however key business
processes are not interrupted.
Severity 4 (Minimal) Problems are low-impact. Little or no impact to daily
business process.
</TABLE>
b. Response Expectations. In the event that an error is
discovered in the Licensed Software which causes the
software not to operate in conformance with the
published specifications or applicable documentation,
Customer shall notify Active Software in writing (email
or fax) of the error (including a reasonable description
and the severity level based on the Problem
Classification Table). Active shall respond to such
notice and will make reasonable efforts to assign
engineers to resolve problems at the level of effort
indicated by the Response Expectation table. If
unspecified most new cases will be set to a severity
level of 3 until a clearer determination can be made.
The following Response Expectation table specifies
the level of response that will be given to a
customer issue at each step of the process based
upon the assigned severity of the problem. The
table specifies the maximum amount of time elapsed
to complete each step.
Step 1 represents the acknowledgment of a
customer's problem and the beginning of
information gathering process.
Step 2 represents the time frame by which the
problem is being actively addressed and a
temporary patch, correction, or workaround
is provided. The goal will be to provide a
fix or a work-around for a problem as soon
as possible. Critical issues will be worked
on continually during the business day until
a satisfactory problem resolution can be
reached. To have work continue on problems
during non-business hours requires the
purchase of a 24x7 coverage plan and the
commitment by the customer to make their
resources available on an after hours basis
as well.
Step 3 represents when a permanent solution will
be available. This may be in the form of a
tested permanent patch or a completely new
release depending upon what the problem
requires and time allows. When possible
permanent fixes will be provided in the next
scheduled release.
<PAGE> 19
RESPONSE EXPECTATION TABLE
<TABLE>
<CAPTION>
SEVERITY STEP 1 STEP 2 STEP 3
<S> <C> <C> <C>
1 (Critical) 2 business Immediate and Within 60
hours continuing calendar
effort during days.
the business
day.
2 (Serious) 4 business 1 to 5 business Within 90
hours days calendar
days.
3 (Degraded) 8 business Within 10 Next
hours business days scheduled
release of
software.
4 (Minimal) 16 business Worked on a As
hours time available appropriate
basis
</TABLE>
c. Escalation Process. All new cases will initially
be taken and handled by the support
representatives on duty at the time of the call.
All problems with a severity level of 1 to 3
will be escalated if a solution or plan of
resolution cannot be achieved within the
designated amount of time as described below. To
ensure that progress can continue, Customers
with Severity 1 (Critical) issues must provide
Active with a highly available contact during
this period who will assist the Support and
Development organizations with data gathering,
testing, and applying all fixes to their
environment. If Active cannot duplicate the
problem in-house, then Support may request
access to the Company's computing environment.
Support management will be made aware of issues
according to the following timeframes. Active
requires that as succeeding levels of Active
management become involved in the resolution
process, the Customer must provide contacts at
similar levels within their organizations, to
ensure that the level of management involvement
matches the decision-making level dictated by
the resolution requirements of the problem.
Elapsed time represents the number of business
hours (not clock hours) that have passed since
the issue was first opened by Active Software
Support.
ESCALATION TABLE
<TABLE>
<CAPTION>
Elapsed Time Severity 1 Severity 2 Severity 3
(Critical) (SERIOUS) (DEGRADED
OPERATIONS)
<S> <C> <C> <C>
Immediately Support Group
Leader
2 hours Support Manager
4 hours Support Director Support Group
Leader
8 hours
16 hours VP of Development Support Manager
24 hours Support Group Leader
32 hours Support Director
40 hours CEO Support Manager
80 hours VP of Development Support Director
</TABLE>
5 Fees.
a. Plan Fees. No additional Fees are ascribed to service,
Partner will pay Active as set forth in Exhibit D.
6. Term and Termination.
a. Term and Termination. The term of this Service Plan
shall begin on the Effective Date and shall continue
unless earlier terminated pursuant to Section 13 of the
Hosting Agreement.
b. Survival. The following provisions shall survive any
termination, expiration or cancellation of this Plan: 6
and 7.
7. Proprietary Rights.
Any corrections, additions or modifications to the
Software or Documentation effected or delivered under
this Plan and any Updates or Upgrades supplied under
this Plan shall be deemed part of the applicable
Software and subject to all of the provisions of the
License Agreement.
<PAGE> 1
Exhibit 10.3
MASTER AGREEMENT
BY AND AMONG
CORIO, INC. AND BROADVISION, INC.
NOVEMBER 8, 1999
This MASTER AGREEMENT (the "Master Agreement") is made by and among
Corio, Inc., a Delaware corporation, with offices at with offices at 700 Bay
Road, Suite 210, Redwood City, California 94063 (hereinafter referred to as
"Corio" or "Reseller"), and BroadVision, Inc., a Delaware corporation, with
offices at 585 Broadway, Redwood City, California (hereinafter referred to as
"BroadVision" or "BV") and is dated as of November 8, 1999.
RECITALS
1. BV is the market leader in the field of Net-based applications solutions
for personalized marketing, selling, and support for customers,
partners, and employees. BV provides a suite of intelligent one-to-one
extended enterprise relationship management ("XRM") products known as
BroadVision One-To-One Enterprise, BroadVision One-To-One Commerce
Retail, and BroadVision One-To-One Commerce Business. In addition,
BroadVision provides certain tools software commonly known as
BroadVision One-To-One Command Center, BroadVision One-To-One Publishing
Center, BroadVision One-To-One Instant Publisher, and BroadVision
One-To-One Design Center (collectively, the "Tools").
2. BV would like to expand its sales opportunities for XRM by expanding the
development activities for current and planned products, by having its
products incorporated into various Corio products and service offerings,
and by leveraging Corio's technical, field consulting, marketing, and
sales resources. Specifically, BV desires to enter the small and medium
business market through its relationship with Corio.
3. Corio is the leading application service provider for high-growth
companies. Corio provides a total solution including application
recommendation, quick implementation, secure hosting and network
infrastructure, 24x7 application support and ongoing application
management. Solutions are targeted for emerging and mid-market companies
needing to implement key applications that support their complex,
dynamic operation requirements.
4. Corio would like to expand its offering by including the Software in its
portfolio of solutions that it offers to the emerging and middle
markets.
5. Corio and BV intend to form a non-exclusive alliance under which Corio
will develop, market, license, install, integrate, host and manage
one-to-one extended enterprise relationship management solutions to ASP
Customers and to End-Users that combine the Software with the services
and technologies of Corio.
6. Corio and BV are executing a Reseller Agreement concurrently with the
execution of this Master Agreement. A copy of the Reseller Agreement is
attached to this Master Agreement
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
-1-
<PAGE> 2
and incorporated herein by this reference. All terms not otherwise
defined in this Master Agreement shall have the respective meanings
ascribed to them in the Reseller Agreement.
7. Additional Definitions: The following terminology is defined for use
throughout this Agreement:
"ASP Customer" is an entity which either (a) uses the Software
under a rental or other access only arrangement with Corio and
where Corio is the owner of the Software license or (b) acquires
sublicenses to the Development System Software for one or more
of the Software programs but uses the Deployment System for such
Software programs under a rental or other access only
arrangement with Corio where Corio owns the Deployment System
license. Any rental or other access only arrangement will
provide for payments to Corio by the ASP Customer on a monthly
basis.
"Consolidated Revenue" means the actual revenue recognized by a
Customer on a consolidated basis in accordance with generally
accepted accounting principles for the 12 months prior to the
date of Corio's initial transaction with the Customer for which
a fee will become payable to BroadVision in accordance with
Section 4 below. A Customer's Consolidated Revenue for purposes
of this Agreement shall not change by virtue of the Customer
being acquired by a third party; provided, however, that the
parties will negotiate in good faith the manner in which the
third party acquiring company will be sold Software licenses if
the third party acquiring company's actual revenue recognized by
it on a consolidated basis in accordance with GAAP for the 12
months prior to the acquisition is $750,000,00 or more.
"Customer" means any ASP Customer or End-User.
"Development System" means a Development System license to use
the specified Software product.
"Development Pool" means the SDKs that may be used by Corio in
accordance with the Licensing Practices defined in Section 2
below.
"Deployment System" means a Deployment System license to operate
a production system of the specified Software product.
"Corio Revenue" means the gross revenue payable to Corio by a
Customer for the right to access the Software, for support and
maintenance of the Software and for basic infrastructure support
(e.g., hardware, database software, and operating system
software) related to the Software included in Application minus
sales, use or similar taxes attributable of Customer's use or
access to the Software, freight, insurance, refunds or credits
arising from Customer's termination of its rights with respect
to the Software or other similar charges to the Customer so long
as they are related to the Software. Corio Revenue will not
include any fees charged by Corio for consulting, design,
network and network management or for third party applications
that are managed independently of the Software. Except for the
items specified in the previous sentence, all other fees of
Corio related to operational support of the Software will be
included within Corio
-2-
<PAGE> 3
Revenue. It is the intent of Corio that the amount it charges
ASP Customers will reflect a reasonable margin for the Software
and its maintenance. As part of the parties' quarterly Executive
Reviews, the parties may review the level of Revenue Fees paid
under this Agreement.
"SDK" means a software development kit comprised initially of
one copy of each of the products that comprise the Software.
NOW, THEREFORE, the parties agree as follows:
1. SCOPE OF AGREEMENT. Corio will design, develop, market, host and
manage Internet-based solutions incorporating the Software. The Corio hosted
solution is also known as the Application. BroadVision and Corio will work
together to identify leads appropriate for the Application. Notwithstanding the
use of the term "End-User", BroadVision and Corio agree that Corio shall have
the right to use the Software acquired hereunder and under the Reseller
Agreement to provide the Application to ASP Customers.
2. LICENSE PRACTICES. BroadVision's Licensing Terms as described in
Attachment B to the Reseller Agreement will apply to Software license as used by
Corio for its Customers or as sublicensed to Customers with the following
exceptions:
(a) Any Development System that is part of the Development Pool may be
used by multiple individuals provided no more than one individual is using any
Development System License at any given time for any ASP Customer. This
modification also includes the stipulation that at no time may the total number
of current developer individuals assigned to Customers using Development
Licenses exceed the total number of Development System Licenses purchased by
Corio, its Customers, and its professional services partners.
(b) Corio may allow ASP Customers to rent or have other access to the
Deployment System Software for that ASP Customer's use of the Application on a
periodic basis as described in Section 4 below.
If Corio transfers Software licenses to an ASP Customer so the Customer
becomes an End-User, the Licensing Terms as described in Attachment B shall
apply to the licenses being transferred. The parties agree to amend this
Agreement to define the terms under which such an ASP Customer is transitioned
to an End-User, including without limitation fixing at the date of transfer the
number of profiles for Deployment System licenses transferred to the Customer.
3. DEVELOPMENT LICENSES AND FEES.
(a) Initial Development Pool Purchases. Corio agrees to purchase ten
SDKs for a total license fee of [*]. These SDKs will be the initial SDKs in the
Development Pool. The license fee represents a [*] from BroadVision's current
list price for those products. The license fee does not include applicable taxes
or annual maintenance fees. The initial annual maintenance fee for these ten
SDKs will be [*].
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
-3-
<PAGE> 4
The charges (including the license and maintenance fees) for these ten SDKs is
payable "net thirty days" from time of signing.
(b) Subsequent Purchases of Development System Licenses. During the term
of this Agreement, Corio may purchase additional copies of Development System
licenses whether for use in connection with the Application for an ASP Customer
or for sublicense to an End-User (or to an ASP Customer as contemplated in
Section 4(a)(ii)(B) below). The amount Corio will pay BroadVision for each such
additional license purchased will be a percentage of BroadVision's local list
price for the particular Software product at the time the Software is shipped by
BroadVision. The percentage is determined as follows and depends on the
cumulative license fees that have been paid by Corio to BroadVision at the time
BroadVision ships the additional Software license:
<TABLE>
<CAPTION>
Cumulative Percent
License Fees of List
------------ -------
<S> <C> <C>
[*] [*]
</TABLE>
provided, that with respect to the sublicense of Development System licenses to
a BroadVision lead pursuant to Section 4(b), the percent of list will be [*].
(c) BroadVision will also provide Corio six additional SDKs at no
additional charge for use by Corio solely for purposes of demonstrating the
Software to prospective Customers. Corio will immediately notify BroadVision if
Corio uses any such SDK for any other purpose and Corio will be deemed to have
purchased such SDK for development purposes and will pay BroadVision the license
and annual maintenance fees determined in accordance with Sections 3(b) and 4 of
this Agreement.
4. DEPLOYMENT LICENSES AND FEES. With respect to transactions between Corio
and Customers, Corio will pay BroadVision fees as follows:
(a) Deployment Licenses (Corio Developed Leads): For leads that Corio
develops resulting in an Application sale to an ASP Customer, Corio will pay
BroadVision fees based on the Consolidated Revenue of the ASP Customer:
(i) ASP Customer with less than $750,000,000 of Consolidated Revenue: If
the ASP Customer has Consolidated Revenue less than US$750,000,000, then Corio
will use any available SDKs from the Development Pool to develop the resultant
Application for that Customer. Corio will pay BroadVision [*] of the Corio
Revenue due from the ASP Customer (the "Revenue Fee"). Fees relating to the use
of Deployment System licenses used in connection with the Application (including
the use of the Tools) to that ASP Customer and for maintenance relating to the
Deployment
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
-4-
<PAGE> 5
System licenses will be included in the Revenue Fee.
(ii) ASP Customer with $750,000,000 or more of Consolidated Revenue: If
the ASP Customer has Consolidated Revenue of US$750,000,000 or more, then.
(A) ASP Customer for whom Corio Retains Ownership of
Development System License. If the ASP Customer does not
initially wish to purchase a Development System license,
Corio shall purchase at least two additional Development
System licenses from BroadVision for use solely in
developing the Application for that ASP Customer. Corio
will pay BroadVision the Revenue Fee. Fees relating to
the use of Deployment System licenses used in connection
with the Application (including the use of the Tools) to
that ASP Customer and for maintenance relating to the
Deployment System licenses will be included in the
Revenue Fee.
(B) ASP Customer which Sublicenses Development System
License from Corio. If the ASP Customer wishes to
purchase Development System licenses, Corio shall
purchase at least two additional Development System
licenses from BroadVision and sublicense them to the ASP
Customer. Corio will pay BroadVision the Revenue Fee.
Fees relating to the use of Deployment System licenses
used in connection with the Application (including the
use of the Tools) for that ASP Customer and for
maintenance relating to the Deployment System licenses
will be included in the Revenue Fee.
(b) BroadVision Developed Leads: For customer leads that BroadVision
develops, BroadVision, at its sole discretion, may offer that lead to Corio.
BroadVision will provide Corio with a list of the Software licenses proposed to
be sold to the lead and the price at which BroadVision proposed to license the
Software. If BroadVision and Reseller agree to the Software to be licensed
(including the number of Development System licenses to be obtained for the
lead) and any other special provisions applicable to the lead, Reseller will
provide the Software to the lead either as an ASP Customer or as an End-User
pursuant to an agreement to be entered into between the lead and Corio. Corio
will purchase the number of Development System licenses so agreed to for use by
or for the lead at a price equal to [*] of the BroadVision's then current local
list price for the Software being ordered.
(i) In addition, if the Lead becomes an ASP Customer, then Corio
will pay BroadVision the Revenue Fee. Fees relating to the use
of Deployment System licenses used in connection with the
Application (including the use of the Tools) to that ASP
Customer and for maintenance relating to the Deployment System
licenses will be included in the Revenue Fee.
(ii) If the Lead becomes an End-User, the amount to be paid by
Reseller to BroadVision for the sublicense will be determined in
accordance with Section 3(b).
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
-5-
<PAGE> 6
(c) Sublicenses of Deployment Systems Licenses to other End-Users. If
Corio sublicenses Deployment System licenses to any other End-User, Corio will
pay BroadVision a license fee determined in accordance with Section 3(b) above.
(d) Any exception or waiver to the foregoing will be can be made in any
of the above cases provided it is given in writing and signed by Vice-Presidents
of both Corio and BroadVision.
4A. MAINTENANCE FEES. Maintenance fees for Software licensed and sublicensed
under the Master Agreement will be determined as follows:
(a) Software in the Development Pool: The annual maintenance fee for the
first year for the ten SDK's that comprise the initial Development Pool will be
[*]. After the first year, the annual maintenance fee for any renewal
maintenance period for each Software product in the Development Pool will be an
amount equal to the applicable percentage set forth in Section 3(b) at the time
of such renewal times [*] of BroadVision's then current local list price for
such Software product.
(b) Development System License Purchased by Corio for use for ASP
Customers: Corio will pay BroadVision an annual maintenance fee for each
Development System license that Corio purchases for use for an ASP Customer that
is not part of the Development Pool. The amount of such annual fee will be an
amount equal to the applicable percentage set forth in Section 3(b) at the time
of such renewal times [*] of BroadVision's then current local list price for
such Development System license.
(c) Development System Software Sublicensed. Corio will pay BroadVision
an annual maintenance fee for each Development System license that Corio
sublicenses for use by an ASP Customer or an End-User. The amount of such annual
fee will be an amount equal to [*] of BroadVision's then current local list
price for such Development System license.
(d) Deployment System Licenses used for an ASP Customer. Maintenance
fees for Deployment System licenses used by an ASP Customer will be paid through
the payment of the Revenue Fee.
(e) Additional Deployment System Licenses Purchased by Corio. Corio will
pay BroadVision an annual maintenance fee for each additional Deployment System
license that Corio purchases other than for sublicensing. The amount of such
annual fee will be an amount equal to the applicable percentage set forth in
Section 3(b) at the time of such renewal times [*] of BroadVision's then current
local list price for such Deployment System license.
(f) Deployment System Software Sublicensed. Corio will pay BroadVision
an annual
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
-6-
<PAGE> 7
maintenance fee for each Deployment System license that Corio sublicenses for
use by an End-User. The amount of such annual fee will be an amount equal to
[*] of BroadVision's then current local list price for such Deployment System
license.
5. APPLICATION FEES. Corio may charge ASP Customers or End-Users any price
for the Application.
6. REPORTING. Corio will submit a report within fifteen (15) days after
each calendar quarter with respect to Corio's Customer-related activities during
that quarter. The report will be in such form as the parties will agree to
promptly after execution of this Agreement. The report will include, without
limitation, a list of all Corio's Customers, the month the Customer signed an
agreement with Corio, the amount of Software each Customer has licensed, the
amount of Corio Revenue charged to the Customer, a status of the implementation
of the Application for the Customer (including the anticipated or actual date on
which the Customer began accessing the Software for production purposes), the
date Corio first charged Customer for Corio Revenue purposes, the inventory and
project assignment of the Development Pool, and the amount due to BroadVision.
Revenue Fees will begin accruing with respect to an ASP Customer when the ASP
Customer begins accessing the Software for production purposes. Within thirty
(30) days after each quarter, Corio will pay any Revenue Fees due for the
calendar quarter being reported. All other amounts will be due and payable, and
will be overdue if not paid within, thirty (30) days after BroadVision issues an
invoice therefor.
7. MARKETING ACTIVITIES. During the term of this Agreement, Corio and
BroadVision will participate in a number of joint marketing activities. These
are expected to include but are not limited to:
* Distributing each other's marketing collateral.
* Joint press release upon signing of this agreement.
* Development of joint data sheet
* Co-branding of BroadVision collateral and listing of Corio in
BroadVision corporate materials.
* Joint participation in selected marketing events such as trade shows,
targeted customer briefings, seminars and annual user group meetings.
* Feature on each other's respective Web sites.
* Leverage existing BroadVision 'partner' field marketing account
managers.
In addition, BroadVision will provide sales and marketing presentations, as well
as demonstration copies that are available. These copies may be tailored to
Corio's use. BroadVision will provide electronic source of marketing materials
directly to Corio.
8. MARKETING DEVELOPMENT FUND. BroadVision will create a Marketing
Development Fund to support the efforts described in Section 8 above. The amount
to be contributed by BroadVision into this Fund will be an amount equal to the
sums spent by Corio in marketing the Application and Software but will not
exceed on a cumulative basis five percent (5%) of the license fees paid by Corio
to BroadVision. Determination of the specific co-marketing fund amounts and
their
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
-7-
<PAGE> 8
usage will be determined by the partnership managers of Corio and BroadVision
who will co-manage, budget and report on a quarterly basis.
9. TRAINING. Corio may purchase training from BroadVision's training
catalog at a [*] of the then current local list price. BroadVision Channel Sales
agrees to support Corio with reasonable sales training as needed.
10. EXECUTIVE REVIEWS. Corio and BroadVision agree to hold executive reviews
on a quarterly basis. These quarterly meetings will review overall sales
pipeline and success, the state of the relationship and suggested improvements,
and opportunities to expand into new markets and geographies.
11. RULES OF ENGAGEMENT. Corio and BroadVision agree to assign relationship
owners within each company, and to document rules of engagement for both sales
forces. Initially, the respective relationship owners are Scott Albro for Corio
and Jon Peppler for BroadVision.
12. TERM AND TERMINATION. The initial term of this Agreement and the
Reseller Agreement will be [*] from the date hereof (unless terminated earlier
as provided in the Reseller Agreement).
13. CONFIDENTIAL INFORMATION. During the term of this Agreement, either
party may receive or have access to technical information, as well as
information about product plans and strategies, promotions, customers and
related non-technical business information which the disclosing party considers
to be confidential ("Confidential Information"). In the event such information
is disclosed, the parties shall first agree to disclose and receive such
information in confidence. If then disclosed, the information shall (i) be
marked as confidential at the time of disclosure, or (ii) if disclosed orally
but stated to be confidential, be designated as confidential in a writing by the
disclosing party summarizing the Confidential Information disclosed and sent to
the receiving party within a reasonable period of time after such oral
disclosure.
Nondisclosure. Confidential Information may be used by the receiving party only
with respect to performance of its obligations under this Agreement, and only by
those employees of the receiving party who have a need to know such information
for purposes related to this Agreement. The receiving party shall protect the
Confidential Information of the disclosing party by using the same degree of
care (but no less than a reasonable degree of care) to prevent the unauthorized
use, dissemination or publication of such Confidential Information, as the
receiving party uses to protect its own confidential information of like nature.
The foregoing obligation shall not apply to any information which is: (i)
already known by the receiving party prior to disclosure; (ii) publicly
available through no fault of the receiving party; (iii) rightfully received
from a third party without a duty of confidentiality; (iv) disclosed by the
disclosing party to a third party without a duty of confidentiality on such
third party; (v) independently developed by the receiving party prior to or
independent of the disclosure; (vi) disclosed under operation of law; or (vii)
disclosed by the receiving party with the disclosing party's prior written
approval.
-8-
<PAGE> 9
The receiving party's obligation under this Section shall be for a period of
five (5) years from the date this agreement is terminated or expires.
14. COUNTERPARTS; FACSIMILES. This Agreement may be executed in two or more
counterparts, all of which shall constitute one and the same Agreement and
become effective when one or more counterparts have been signed by each party
and delivered to each other party. The execution and delivery of this Agreement
by any party by facsimile shall constitute effective execution thereof.
CONFLICT OF PROVISIONS. This Master Agreement is intended to set forth certain
business terms that are specific to Corio's application service provider
business. In the event of a conflict between the provisions of this Master
Agreement and the Reseller Agreement and the Attachments thereto (other than the
provisions of the Master Preferred Escrow Agreement) with respect to a
particular matter covered by this Master Agreement, the applicable provision of
this Master Agreement will control. This Master Agreement, including the
Reseller Agreement and all Attachments hereto and thereto, constitute a single
agreement and are the complete and exclusive agreement between the parties with
respect to the subject matter hereof and supersedes all proposals, oral or
written, all previous negotiations, and all other communications between the
parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties have caused this Master Agreement to be executed
as of the day and date first set forth above.
CORIO, INC. BROADVISION, INC.
/s/ Signature Illegible /s/ Signature Illegible
Signed Signed
------------------------------ ----------------------------
Name: Laurent Pacalin Name: Randall Bolten
Title: VP Business Development Title: Chief Financial Officer
Date: 11/8/99 Date: 11/8/99
-9-
<PAGE> 1
Exhibit 10.4
Contract No ____________
RESELLER AGREEMENT
This Reseller Agreement ("Agreement") is made and entered into as of this 8th
day of November 1999, between BroadVision, Inc. ("BroadVision") and
Company Corio, Inc.
("Reseller")
Address 700 Bay Road, Suite 210
Redwood City, CA 94063
This Reseller Agreement is attached to and incorporated by reference into that
certain Master Agreement dated the date hereof between Reseller and BroadVision
(the "Master Agreement"). Terms defined in the Master Agreement and used herein
shall have the respective meanings ascribed to them in the Master Agreement. In
consideration of the mutual covenants and conditions contained in this Agreement
and in the Master Agreement, the parties agree as stated herein. The following
attachments, required when applicable, are also part of this Agreement:
A. Scope of License
B. Current Licensing Practices
C. Required Provisions of Sublicenses
D. Support Escalation Procedure
E. Master Preferred Escrow Agreement
1. LICENSE.
A. DEVELOPER LICENSE. BroadVision hereby grants to Reseller a
nonexclusive and nontransferable license ("Developer License"),
subject to the terms and conditions of this Agreement, to use
the object code for the Software. For the purpose of this
Agreement, "Software" shall mean the software products set forth
in Attachment A, including all versions, including current,
previous, and subsequent versions, of all software products,
together with operating instructions, user manuals, training
material, and other documentation as BroadVision supplies to
Reseller. Reseller's sole permitted uses of a Developer License
shall be to develop and demonstrate the application software
products and/or systems listed in Attachment A ("the
Application") that it intends to license to end-user customers
("End-Users"). Reseller's use of Developer Licenses shall be in
a manner consistent with Attachment B. Developer Licenses may
not be used to operate production versions of the Application,
or any other Reseller or End-User programs on a production
basis.
B. END-USER LICENSE. BroadVision also grants to Reseller a
nonexclusive and nontransferable license to sublicense and
distribute the Software to its End-Users, on a nonexclusive and
nontransferable basis ("End-User License"), on Reseller's
servers in a hosted environment for use solely in conjunction
with the Application, in the geographic areas specified in
Attachment A ("Territory"). Reseller shall require each
End-User, before it may use or install the Application, to
execute a written license agreement containing, at a minimum,
the required provisions specified in Attachment C. Reseller
shall indemnify BroadVision for all damages caused by Reseller's
failure to include required terms in its sublicense agreements
with its End-Users. Reseller may also obtain End-User Licenses
for its own use, in the event that it itself intends to operate
production versions of the Software; such End-User Licenses
shall be governed by the terms and conditions of this Agreement,
as if Reseller had sublicensed to an End-User.
C. PROHIBITED USES. Reseller may not (a) rent, lease, or loan the
Software other than allowed for in this Agreement; (b)
electronically transmit the Software over a network except as
necessary for Reseller's licensed use of the Software; (c) use
run-time versions of third-party products embedded in the
Software, if any, for any use other than the intended use of the
Software, (d) modify, disassemble, decompile, or reverse
engineer the Software; (e) transfer possession of any copy of
the Software to another party, except as expressly permitted
herein; (f) sublicense or permit the Software to be sublicensed
to any governmental entity without BroadVision's prior written
consent; or (g) use the Software in any way not expressly
provided for in this Agreement. There are no implied licenses.
Reseller agrees not to exceed the scope of the licenses granted
herein. Reseller acknowledges and agrees that BroadVision may,
at any time without notice, incorporate license management
software into the Software to prevent Reseller or End Users from
exceeding the scope of their respective licenses.
2. PAYMENT, PRICES. Except as set forth in the Master Agreement:
A. For Developer Licenses, consulting, training, and documentation,
invoices shall be issued upon delivery of the products or
services, unless agreed to the contrary, and shall be due and
payable in United States currency upon receipt by Reseller.
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
Page 1 of 8
<PAGE> 2
Payment shall be overdue thirty (30) days after the delivery
date specified on the invoice.
B. Within thirty (30) days of delivery of each copy of the Software
from BroadVision to Reseller or the End-User, or from Reseller
to the End-User if Reseller has reproduction rights as set forth
in Section 2.D below, Reseller shall pay BroadVision the
applicable license or sublicense fee as set forth in the Master
Agreement and as reported in Section 3 herein. Reseller is free
to determine unilaterally its own sublicense fees to its
End-Users. RESELLER'S OBLIGATION TO PAY SUBLICENSE FEES TO
BROADVISION IS NOT CONTINGENT UPON RESELLER'S COLLECTION FROM
ITS END-USERS.
C. Technical support fees are due annually in advance of the
anniversary date of each Developer License and End-User License,
including the first year, since BroadVision's technical support
fees are not bundled together with license fees. The annual
price for technical support for Developer Licenses shall be
BroadVision's then-current price for such services. Reseller
may, at its option, make all technical support fees payable a
common anniversary date, in which case only a prorated portion
of the technical support fee shall be due immediately upon
delivery of the license or sublicense.
D. Software will be shipped FOB BroadVision's facility in Redwood
City, California, U.S.A., by commercial surface transportation.
Transportation charges in excess of such rates will be billed to
Reseller. Except to the extent prohibited by law or contract,
BroadVision will permit Reseller to obtain its initial copy of
the Software by FTP transfer over the Internet in accordance
with instructions provided by BroadVision. Reseller will
download the initial copy of the Software promptly after
execution of this Agreement and will thereafter download any
separately priced version of Software promptly after the
issuance of its purchase order to BroadVision for such version.
Reseller will promptly notify BroadVision if it makes any copies
of the Software as downloaded if such copy would require the
payment of additional fees to BroadVision. Software shall be
deemed accepted upon delivery. Reseller may produce its own
copies of the Software for delivery to End-Users from a master
copy provided by BroadVision so long as it notifies BroadVision
in writing of any copies that it makes for such purpose and pays
any applicable fees.
E. The prices stated in BroadVision quotations are exclusive of any
federal, state, municipal, value-added, foreign withholding or
other governmental taxes, duties, fees, excises, or tariffs now
or hereafter imposed on the production, storage, licensing,
sale, transportation, import, export, or use of the Software or
any improvements, alterations, or amendments to the Software.
Reseller shall be responsible for, and if necessary reimburse,
BroadVision for all such taxes, duties, fees, excises, or
tariffs, except for governmental or local taxes imposed on
BroadVision's corporate net income. Overdue payments shall be
subject to a finance charge of one and one-half percent (1 1/2%)
for each month or fraction thereof that the invoice is overdue,
or the highest interest rate permitted by applicable law,
whichever is lower. BroadVision shall also be reimbursed for its
collection costs in the event of late payments, including
reasonable attorney's fees.
3. REPORTING.
Except as set forth in the Master Agreement, each month Reseller, within
fifteen (15) days following the end of such month, shall provide
BroadVision a report including the following:
i. a list of each End-User License delivered and each
End-User agreement executed, specifying the name and
location of the sublicensee;
ii. a detailed account of all fees due to BroadVision under
this Agreement.
4. SOFTWARE MAINTENANCE.
A. BroadVision agrees to provide Reseller with software maintenance
subject to the provisions and conditions listed below. Reseller
shall be solely responsible for installing and supporting its
Customers; BroadVision will refer back to Reseller any questions
BroadVision receives from Customers.
i. Software maintenance shall include (i) telephone and
electronic mail support provided during BroadVision's
normal working hours, and (ii) standard releases
containing improvements or modifications to the Software
that BroadVision provides to its maintenance customers
generally where such improvements or modifications are
not priced as separate new products or options
("Standard Release"). A copy of BroadVision's support
escalation
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<PAGE> 3
procedure, including targeted response times, is set
forth in Attachment D hereto.
ii. BroadVision shall provide software maintenance for any
Standard Release only until one year after shipment of
the subsequent Standard Release.
iii. Reseller shall designate one Support Contact Person for
each Customer, who shall be responsible for
communicating support issues to BroadVision; provided,
that in no event may the total number of such Support
Contact Persons exceed eight (8) unless otherwise agreed
by BroadVision. Reseller agrees to provide BroadVision
with timely written notification containing all details
of software problems necessary for BroadVision to
diagnose such problems. Reseller agrees to cooperate
fully in providing BroadVision with Reseller's source
code, in machine-readable form, and other materials
necessary to reproduce a reported software problem.
Subject to Reseller's security requirements, Reseller
agrees to provide BroadVision reasonable direct or
remote access and test time on Reseller's BroadVision
system, for the purpose of diagnosing reported software
problems. If BroadVision provides on-site services at
Reseller's request in connection with software
maintenance, Reseller shall reimburse BroadVision for
all travel and other reasonable out-of-pocket expenses
incurred with respect to such services.
iv. Software maintenance will also include any patch
releases ("Patch Releases") that BroadVision makes
available to its maintenance customers generally. Patch
Releases are intended to address material deviations
between the Software and its published specifications
until a Standard Release can be made available. Reseller
may install Patch Releases at its option.
v. BroadVision shall not be responsible for maintaining
Software that fails to comply with its published
specifications if such non-compliance is the result of
modification of the Software by Reseller or third
parties. If BroadVision expends its time on a
noncompliance found to be the result of any of the
preceding or due to the operation of the Application,
Reseller shall pay BroadVision for such time at
BroadVision's then-current hourly consulting rate.
B. BroadVision will give Reseller at least sixty days advance
notice of the expiration of the applicable annual maintenance
period and the annual maintenance fees for the ensuing annual
maintenance period. Such prices will be determined in accordance
with the Master Agreement and this Agreement. Reseller may renew
maintenance for all (but not less than all) copies of the
Software licensed to it by giving BroadVision written notice of
such renewal on or before the beginning of the applicable
maintenance renewal period. In the event of termination for
Reseller's breach or Reseller's convenience, all maintenance
fees shall be immediately due and payable without notice; in the
event of termination for any other reason, Reseller shall be
entitled to a refund of maintenance fees already paid, prorated
for the unused portion of such fees. If BroadVision determines
that it is in its best interests to cease providing its
customers generally with maintenance for any or all of the
Software, BroadVision may discontinue its maintenance
obligations to Reseller (and to Reseller's Customers if
BroadVision exercises its rights under Section 12 hereof) with
respect to such Software by giving Reseller at least one year's
prior written notice of such discontinuance.
C. Annual software maintenance fees are due and payable in advance;
in all other respects payments are subject to the terms and
conditions of the Agreement.
D. If Reseller initially declines software maintenance and then
subsequently elects to commence maintenance, or if maintenance
for an item of Software is discontinued at Reseller's request
and then subsequently renewed, Reseller shall pay the
maintenance fees that would have been due for the period during
which maintenance was not provided.
5. CONDUCT.
A. Reseller shall employee the highest reasonable professional
standards in selling and supporting the Application, and shall
avoid deceptive, misleading, or unethical practices that may be
detrimental to BroadVision or to the Software. Reseller
personnel shall obtain training from BroadVision, at
BroadVision's then-current standard rates, in the proper use of
the Software, and shall provide, or arrange for BroadVision to
provide, such training to Customers where appropriate. Reseller
and BroadVision shall
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<PAGE> 4
comply with all laws applicable to the subject matter of this
Agreement. Failure to honor the terms of this section shall
constitute a material breach of this Agreement; provided,
however, that prior to BroadVision terminating this Agreement
for any such failure, BroadVision and Reseller will promptly
attempt to resolve any disagreement over such failure in good
faith.
B. Subject to the terms and conditions of this Agreement,
BroadVision hereby grants to Reseller a non-exclusive,
non-transferable, non-sublicenseable license to use the
BroadVision trademarks, trade names, and logos (the "Marks") to
advertise the Software in the Territory. Reseller acknowledges
BroadVision's ownership and exclusive rights in the Marks.
Reseller's use of the Marks shall inure to the benefit of
BroadVision. Reseller shall not attempt to register the Marks or
adopt, use or attempt to register any confusingly similar marks.
BroadVision may immediately terminate this trademark license if
Reseller's use of the Marks does not conform to BroadVision's
then-current standards and usage policy. Reseller shall state at
the first instance of each use of a Mark that the Mark is
BroadVision's trademark and include the symbols TM or (R) as
appropriate. Reseller shall not use any trademark, word, symbol,
letter or design in combination with the Marks in any manner
which would create a combination mark.
C. Unless otherwise requested by BroadVision, Reseller shall ensure
that the phrase "Personalized by BroadVision One-To-One" shall
appear on the logon screen, splash screen, or other first view
of the Application seen by consumers or other end-users when
they enter the Application and will use all commercially
reasonable efforts to obtain the consent of Customers to the
foregoing in connection with their respective uses of the
Application. The above phrase shall be a hypertext link to a URL
specified by BroadVision. Reseller's use of the phrase shall be
in accordance with BroadVision's guidelines for use of the mark.
6. TITLE TO SOFTWARE.
Reseller shall include BroadVision's copyright or proprietary rights
notice on any copies of the Software or associated documentation,
including copyright or proprietary rights notices of third parties that
are included on media or in documentation provided by BroadVision.
Reseller acknowledges that the Software is the property of BroadVision
or its licensors.
Subject to BroadVision's ownership of any materials or technology
provided to Reseller, including without limitation the Software, the
results of all development efforts made solely by Reseller, including
all intellectual property rights in any software interface coding or
programs created solely by Reseller during the term of this Agreement to
enable the Software to operate within Reseller's hosted environment
("Developments"), shall be owned by Reseller, unless otherwise agreed or
unless such Developments are supported on an ongoing basis by
BroadVision, in which case BroadVision will have or retain all ownership
rights, including intellectual property rights in the Developments. To
the extent that BroadVision would otherwise have a claim of ownership in
Developments, BroadVision hereby assigns all rights in and to such
Developments to Reseller.
7. WARRANTY.
BroadVision warrants that the Software will conform in all material
respects to its written specifications when installed and for 90 days
thereafter. For purposes of this Agreement, the sole source of such
specifications shall be BroadVision's written user documentation as
provided to Reseller concurrently with the delivery of the Software.
BroadVision further warrants that the Software is and shall be "Year
2000 Compliant". For purposes of this Section 7, the term "Year 2000
Compliant" means that, through January 31, 2001 (a) no value for a
current date will cause any interruption in operation; (b) date-based
functionality will behave consistently for dates prior to, during, and
after year 2000; (c) in all interfaces and data storage, the century in
any date must be specified either explicitly or by unambiguous
algorithms or inferencing rules; and (d) year 2000 must be recognized as
a leap year. BroadVision further warrants, so long as Reseller is
purchasing maintenance services pursuant to Section 4 hereof, that its
maintenance services will be performed in a professional and workmanlike
manner. Reseller will notify BroadVision during or within thirty (30)
days after the expiration of the applicable warranty period set forth
above of any nonconformity. Where a material nonconformity exists within
the warranty period, and proper notice has been given to BroadVision,
BroadVision will use due diligence to correct the nonconformity and
provide Reseller with one copy of any such corrected version of the
Software, or, if BroadVision is unable to correct such nonconformance
within a reasonable period of time, refund all license fees paid to it
for the Software, or the most recent software maintenance fee paid for
the Software, if the nonconformity relates to a Standard
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<PAGE> 5
Release or maintenance services delivered pursuant to Section 4 herein.
THESE WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES AND CONDITIONS,
EXPRESSED OR IMPLIED, AND BROADVISION EXPRESSLY DISCLAIMS ANY IMPLIED
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE,
OR NONINFRINGEMENT.
8. LIMITATION OF LIABILITY.
Except for a party's liability under Section 9 hereof and for breaches
of Section 13 of the Master Agreement and Section 10 hereof, each
party's liability to the other under this Agreement or for any other
reason relating to the products and services provided under this
Agreement, including claims for contribution or indemnity, shall be
limited to the amount paid to BroadVision under this Agreement.
NOTWITHSTANDING THE FAILURE OF ESSENTIAL PURPOSE OF ANY REMEDY UNDER
THIS AGREEMENT, EACH PARTY AGREES THAT IN NO EVENT SHALL THE OTHER PARTY
BE LIABLE FOR SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES, INCLUDING
LOST PROFITS OR LOSS OF USE, HOWEVER ARISING INCLUDING NEGLIGENCE;
PROVIDED, HOWEVER, THAT LOST REVENUE OR LOST PROFITS ARISING FROM A
PARTY'S UNAUTHORIZED USE, DISCLOSURE OR DISTRIBUTION OF THE OTHER
PARTY'S CONFIDENTIAL INFORMATION (INCLUDING WITHOUT LIMITATION THE
SOFTWARE) SHALL BE DEEMED A DIRECT DAMAGE.
9. INTELLECTUAL PROPERTY RIGHTS INDEMNITY.
A. BroadVision will defend any action against Reseller claiming
that the Software constitutes infringement or misappropriation
of any patent, copyright, trademark, trade secret or
intellectual property right. BroadVision shall indemnify
Reseller for any reasonable expense incurred by Reseller in
connection with the foregoing. BroadVision's obligations under
this section are conditioned upon BroadVision having sole
control of any such action, and upon Reseller notifying
BroadVision immediately in writing of the claim and giving
authority, information, and assistance necessary to settle or
defend such claim. If the use of the Software infringes or is
enjoined, or BroadVision believes it is likely to infringe or be
enjoined, BroadVision may, at its sole option, (i) procure for
Reseller the right to continue use of the licensed Software as
furnished; (ii) replace the licensed Software; (iii) modify the
licensed Software to make it non-infringing, provided that the
Software still substantially conforms to the applicable
specifications; or (iv) if BroadVision, after using all
commercially reasonable efforts, is unable to accomplish the
foregoing remedies, terminate the license and refund the license
fee for the Software, less a proportional adjustment for the
time the Software was used by Reseller, equal to the ratio of
the time elapsed since the delivery date to five (5) years. The
indemnity provided herein shall not apply if the alleged
infringement arises from: (a) the use of other than a currently
supported, unaltered release of the licensed Software; (b) the
use of Software that has been modified or merged with other
programs by Reseller; or (c) the use of the licensed Software in
combination with software or hardware not provided under this
Agreement or with the Application. The foregoing states
BroadVision's sole and exclusive liability for patent,
copyright, or other proprietary rights infringement or for
breach of any express or implied warranty of title, ownership or
non-infringement.
B. Reseller will defend any action against BroadVision (a) claiming
that any software provided by Reseller to Customers (other than
the Software) infringes or misappropriates any patent,
copyright, trademark, trade secret or intellectual property
right; or (b) resulting from Reseller's acts, omissions, or
misrepresentations. Reseller shall indemnify BroadVision for any
reasonable expense incurred by BroadVision in connection with
the foregoing. Reseller's obligations under this section are
conditioned upon Reseller having sole control of any such
action, and upon BroadVision notifying Reseller immediately in
writing of the claim and giving authority, information, and
assistance necessary to settle or defend such claim.
10. CONFIDENTIALITY OF SOFTWARE AND DOCUMENTS.
A. Except to the extent permitted in the Master Agreement, Reseller
shall not reproduce, duplicate, copy, sell, or otherwise
disseminate the Software, including operating instructions, user
manuals, and training materials, in any medium except as
authorized herein.
B. Reseller acknowledges that the Software is BroadVision's
extremely valuable trade secret. With respect to any copies of
the Software retained by Reseller for its internal use, Reseller
shall not disclose the Software to any third parties
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<PAGE> 6
(other than onsite contractors who are subject to confidentiality
and use restrictions similar to those contained in this
Agreement) nor use the Software for any purpose other than as
expressly stated in this Agreement. With respect to copies of the
Software that Reseller procures or makes for redistribution, such
copies may only be redistributed so long as the recipient
satisfies the requirements of this Agreement and, without
limiting the foregoing, is subject to the use and disclosure
restrictions of Attachment C.
C. Reseller shall not release the results of any benchmark of the
Software, or of any third party products embedded in the
Software, without BroadVision's prior written approval.
11. AUDIT RIGHTS.
No more than once annually, BroadVision may audit Reseller's records to
ensure that license and other fees have been properly paid in compliance
with this Agreement. Any such audit will be conducted during regular
business hours at Reseller's offices and shall not interfere
unreasonably with Reseller's business activities. If an audit reveals
that Reseller has underpaid its total fees by more than five percent
(5%), then Reseller shall pay BroadVision's reasonable costs of
conducting the audit, in addition to the underpaid amount.
12. TERM/TERMINATION.
A. This Agreement shall be for an initial term of [*] unless the
Agreement is terminated previously as provided herein.
B. BroadVision may terminate this Agreement upon 30 days prior
written notice and an opportunity for Reseller to cure within
such 30 days: (a) any material breach of this Agreement by
Reseller; or (b) failure by Reseller to pay license fees for
Software under the payment terms specified in this Agreement or
as stated on BroadVision's invoice for such Software. Reseller
may terminate this Agreement upon 30 days written notice and an
opportunity for BroadVision to cure any material breach of this
Agreement by BroadVision with such 30 days.
C. Upon termination of this Agreement for any reason, the following
shall occur:
i. Reseller's rights under this Agreement shall
automatically cease, provided that all sublicenses shall
continue according to their terms. Reseller may continue
using the release of the Software then in its possession
solely for the purpose of continuing technical support
for sublicenses granted prior to termination.
ii. Reseller shall return to BroadVision or destroy the
Software and other marketing materials, software, and
data, except as required for the operation of Section
12.C.i above.
iii. BroadVision shall, within sixty (60) days after the
effective date of termination of this Agreement have the
option to assume the responsibility of providing
maintenance and support for the Software to any or all
of Reseller's customers pursuant to BroadVision's
standard terms and conditions for the performance of
such services, provided such customer requests such
assumption and BroadVision consents. Reseller shall
provide BroadVision with copies of all maintenance
agreements in force with End-Users. Reseller shall pay
to BroadVision a prorated portion of the maintenance
fees paid by such customers and retained by Reseller for
the remaining terms of such agreements. Notwithstanding
the foregoing, so long as Reseller is paying BroadVision
Revenue Fees and annual maintenance fees for other
copies of Software licensed to Reseller (including
Software subsequently sublicensed to Customers),
BroadVision will continue to provide maintenance
services to Reseller pursuant to Section 4 hereof
following termination or expiration of this Agreement
unless BroadVision terminates this Agreement (a) because
Reseller has not made payments under the Master
Agreement or this Agreement when due, or (b) for
Reseller's use, reproduction, disclosure or distribution
of any of the Software in a manner not authorized by
this Agreement or the Master Agreement.
iv. Reseller's obligations under Sections 2 (to the extent
that any amounts are owed to BroadVision as of the
termination date), and Sections 4, 6, 7, 8, 9, 10, 12,
and 13 will survive the termination of this Agreement.
All other rights and obligations of the parties will
cease upon termination of this Agreement.
13. GENERAL.
A. WAIVER/AMENDMENT. No waiver, amendment, or modification of any
provision of this Agreement shall be effective unless in writing
and signed by the party against whom such waiver, amendment, or
modification is sought to be enforced. No failure or delay by
either party in exercising any
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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<PAGE> 7
right, power or remedy under this Agreement, except as
specifically provided herein, shall be deemed as a waiver of any
such right, power, or remedy.
B. ASSIGNMENT. Either party may assign this Agreement to an entity
acquiring substantially all of its assets or merging with it,
provided that such assignee agree in writing to assume all
obligations under this Agreement. Except as set forth above,
neither party may assign any of its rights or delegate any of
its obligations under this Agreement to any third party without
the express written consent of the other. Any attempted
assignment in violation of the foregoing shall be void and of no
effect. Subject to the above, this Agreement shall be binding
upon and inure to the benefit of the successors and assigns of
the parties hereto.
C. DISPUTES. The rights of the parties hereunder shall be governed
by the laws of the State of California without giving effect to
principles of conflicts of laws. Any suits brought hereunder may
be brought in the federal or state courts in Santa Clara County,
California, and Reseller submits to the jurisdiction thereof.
The parties expressly exclude the application of the 1980 United
Nations Convention on Contracts for the International Sale of
Goods, if applicable.
Reseller acknowledges that the Software contains trade secrets,
the disclosure of which would cause substantial harm to
BroadVision that could not be remedied by the payment of damages
alone. Accordingly, BroadVision will be entitled to seek
preliminary and permanent injunctive relief and other equitable
relief for any breach of BroadVision's intellectual property
rights in the Software.
D. SEVERABILITY. If any provision of this Agreement shall be held
by a court of competent jurisdiction to be contrary to law, the
remaining provisions of this Agreement shall remain in full
force and effect.
E. EXPORT. Reseller acknowledges that the laws and regulations of
the United States restrict the export of the Software. Reseller
agrees that it will not export or re-export the Software in any
form without first obtaining the appropriate United States and
foreign government approvals.
F. NOTICE. Any notice, consent, or other communication hereunder
shall be in writing, and shall be given personally, by confirmed
fax or express delivery to either party at their respective
addresses:
(i) to BroadVision at:
BroadVision, Inc.
585 Broadway
Redwood City, CA 94063, USA
Attn: Chief Financial Officer
(ii) to Reseller at:
Corio, Inc.
700 Bay Road, Suite 210
Redwood City, CA 94063
Attn: Roger Lee
or such other address as may be designated by written notice of
either party. Notices shall be deemed given when delivered or
transmitted, or seven days after deposit in the mail.
G. INDEPENDENT CONTRACTORS. The parties' relationship shall be
solely that of independent contractor and nothing contained in
this Agreement shall be construed to make either party an agent,
partner, joint venturer, or representative of the other for any
purpose.
H. FORCE MAJEURE. If the performance of this Agreement, or any
obligation hereunder, except the making of payments, is
prevented, restricted, or interfered with by reason of any act
or condition beyond the reasonable control of the affected
party, the party so affected will be excused from performance to
the extent of such prevention, restriction, or interference.
I. ENTIRE AGREEMENT. All products and services delivered by
BroadVision to Reseller are subject to the terms of this
Agreement, unless specifically addressed in a separate
agreement.
14. ESCROW. If Reseller so elects within ninety (90) days after the
execution of this Agreement, Reseller may become a party to the
agreement pursuant to which BroadVision has deposited the source code to
the Software. Such escrow agreement is attached hereto as Attachment E.
Reseller shall bear the costs of opening and maintaining such escrow
account.
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<PAGE> 8
AGREED TO BY: BROADVISION, INC.
/s/ Signature Illegible
Signature
Randall Bolten
--------------
Printed Name
CFO
---
Title
RESELLER: CORIO, INC.
/s/ Signature Illegible
Signature
Laurent Pacalin
---------------
Printed Name
VP Business Development 11/8/99
-------------------------------
Title
Page 8 of 8
<PAGE> 9
Contract No. _____________________
ATTACHMENT A TO
RESELLER AGREEMENT
SCOPE OF LICENSE
The following BroadVision products may be licensed to and sublicensed by
Reseller under the terms and conditions of the Agreement, and are collectively
referred to as the "Software" in the Agreement:
BroadVision One-To-One Development System (aka BroadVision
One-To-One Enterprise)
BroadVision One-To-One Commerce Retail
BroadVision One-To-One Commerce Business
BroadVision One-To-One Deployment System
BroadVision One-To-One Command Center
BroadVision One-To-One Publishing Center
BroadVision One-To-One Instant Publisher
BroadVision One-To-One Design Center
Reseller may use the Software to develop the following programs, collectively
referred to as the "Application" in the Agreement, intended to be licensed to,
or operated on behalf of, End-Users:
Application is an eCommerce solution offering hosted and managed by
Reseller on behalf of its customers. The Reseller's eCommerce solution
is the Software integrated with the hardware, software, and services
that Reseller provides to its Customers on a hosted basis. Application
includes functionality related to multiple eCommerce businesses, malls,
and business to business applications. Reseller may use third parties in
development of the Application, provided they abide with this Agreement.
Reseller may sublicense the Software in the following geographic areas,
collectively referred to as the "Territory" in the Agreement:
[*]
Any request by Reseller to expand the Territory is subject to BroadVision's
agreement, which agreement will not be unreasonably withheld. BroadVision will
not condition such expansion on the payment of any expansion fee or to a change
in the Revenue Fee methodology described in the Master Agreement. If BroadVision
consents to any such expansion of the Territory and BroadVision offers a
localized version of all or part of the Software on its local price list,
Reseller will have the right to acquire licenses for such localized versions on
the terms set forth in the price list, subject to the discount structure set
forth in the Master Agreement.
Notwithstanding anything to the contrary herein, Reseller may not sublicense
Software or permit Software to be sublicensed to the following countries,
corporations and their affiliates:
(a) in the countries of [*] prior to December 1, 1999;
(b) to the following financial services End-Users, prior to July 1, 2000,
for applications relating to consumer or corporate financial services:
[*]
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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<PAGE> 10
[*]
(c) [*]
Initialed by: BroadVision
Reseller
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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<PAGE> 11
Contract No. _____________
ATTACHMENT B TO
RESELLER AGREEMENT
BROADVISION LICENSING PRACTICES
BroadVision's current standard licensing practices are as follows for the
products listed below. These practices are in effect as of June 15, 1999.
* ONE-TO-ONE DEVELOPMENT SYSTEM -- licensed on a per-user basis.
In other words, each individual who will use the One-To-One
Development System to develop BroadVision One-To-One
applications must be separately licensed. Customer may reassign
One-To-One Development System licenses within reason, for
example as employees terminate employment or transfer to other
departments. One-To-One Development System products include:
* ENTERPRISE DEVELOPMENT SYSTEM -- the basic BroadVision
development system
* APPLICATION DEVELOPMENT SYSTEM -- includes the
Enterprise Development System and the objects and other
products necessary to develop ONE of the BroadVision
Applications (Retail Commerce, Financial, or Knowledge)
* TWO APPLICATION DEVELOPMENT SYSTEM -- same as the
Application Development System, but for TWO of the
BroadVision Applications
(NOTE: Business Commerce by itself is counted as a Two
Application Development System)
THREE APPLICATION DEVELOPMENT SYSTEM -- same as the
Application Development System, but for THREE of the
BroadVision Applications
* ONE-TO-ONE DEPLOYMENT SYSTEM -- licensing is based on the
maximum number of Profiled Users permitted to be tracked by
BroadVision One-To-One applications. A Profiled User corresponds
to a record in the BroadVision user profile database. The record
maintains information about the user's profile and may refer to
external sources for additional profile information. The number
of Profiled Users represents the number of one-to-one
relationships that Customer wants to maintain with its users. By
licensing a number of profiled users the customer is paying for
the right to keep that many records in the BroadVision user
profile database at any point in time. Examples of Profiled
Users include, but are not limited to customers, partners and
employees.
* ONE-TO-ONE TOOLS -- licensed on a per-user basis, similar to the
One-To-One Development System products. One-To-One Tools
include:
* ONE-TO-ONE COMMAND CENTER, formerly known as the
Dynamic Command Center, or DCC
* ONE-TO-ONE PUBLISHING CENTER, formerly known as
the Content Management Center, or CMC
* ONE-TO-ONE INSTANT PUBLISHER
* ONE-TO-ONE DESIGN CENTER, formerly known as the
Visual Design Center, or VDC
[NOTE: The One-To-One Command Center, the One-To-One Publishing Center,
and the One-To-One Instant Publisher may be sublicensed to third parties
using Customer's application software in accordance with the terms of
this Agreement.]
Page 1 of 1
<PAGE> 12
Contract No ________________________
ATTACHMENT C TO
RESELLER AGREEMENT
REQUIRED PROVISIONS OF SUBLICENSE AGREEMENTS
This Attachment C is incorporated into the Reseller Agreement (the "Agreement")
dated the 8th day of November, 1999 between BroadVision, Inc. ("BroadVision")
and Corio, Inc. ("Reseller"). The terms and conditions contained herein are
subject in all respects to the terms and conditions of that Agreement, except
that in the event of a conflict between the terms of this Attachment C and the
Agreement, the terms of this Attachment C shall govern.
Each agreement sublicensing the Software entered into between Reseller and its
End-Users shall contain provisions that are at least as protective of
BroadVision's interests as the following:
1. End-Users shall be licensed to use the object code of the Software only
in accordance with BroadVision's licensing practices. Unless stated
otherwise in the licensing practices, End-Users shall have the right to
duplicate the Software only for backup or archival purposes and as
necessary to transfer the Software to a backup computer in the event of
computer malfunction.
2. End-Users shall not (i) rent, lease, or loan the Software; (ii)
electronically transmit the Software over a network except as necessary
for End-User's licensed use of the Software; (iii) use run-time versions
of third-party products embedded in the Software, if any, for any use
other than the intended use of the Software, (iv) modify, disassemble,
decompile, or reverse engineer the Software; (v) sublicense or transfer
possession of any copy of the Software to another party, except as
expressly permitted by BroadVision; or (vi) use the Software in any way
not expressly provided for.
3. Title to the Software shall not pass to the End-User. End-User shall
include BroadVision's copyright or proprietary rights notice on any
copies of the Software or associated documentation, including copyright
or proprietary rights notices of third parties that are included on
media or in documentation provided by BroadVision. End-User shall
acknowledge that the Software is the property of BroadVision or its
licensors.
4. End-User may be permitted to grant nontransferable sublicenses to
portions of the Software, where such grants are explicitly permitted by
BroadVision's licensing practices. End-User shall require each such
sublicensee, before it may use or install the sublicensed Software, to
execute a written license agreement containing, at a minimum, the
required provisions specified in this Attachment. End-User shall
indemnify BroadVision for all losses, costs, damages, expenses, and
liabilities caused by a sublicensee's failure to honor the terms of such
sublicense, or by End-User's failure to include required terms in its
sublicense agreements with its sublicensees.
5. Unless otherwise requested by BroadVision, End-User shall ensure that
the phrase "Personalized by BroadVision One-To-One" shall appear
prominently on the logon screen, splash screen, or other first view of
the End-User's application seen by consumers or other end-users when
they enter such application. The above phrase shall be a hypertext link
to a URL specified by BroadVision. End-User's use of the phrase shall be
in accordance with BroadVision's guidelines for use of the mark.
6. BroadVision disclaims all warranties, express or implied, to End-Users.
7. BroadVision shall not be liable for any damages, whether direct,
indirect, incidental, or consequential, arising from the use of the
Software.
8. End-User shall not reproduce, duplicate, copy, sell, or otherwise
disclose, or disseminate the Software, including operating instructions,
user manuals, and training materials, in any medium except as expressly
permitted pursuant to BroadVision's licensing practices or this
Attachment. End-User expressly undertakes, using reasonable efforts not
less than it exercises for its own confidential materials, to retain in
confidence, and to require its employees or consultants to retain the
Software in confidence, and will make no use of such information, except
under the terms and during the existence of its Agreement with Reseller,
and only to the extent that such use is necessary to End-User's
employees or consultants in the course of their employment.
9. At the termination of the End-User License, the End-User shall
discontinue use and shall destroy or return
Page 1 of 2
<PAGE> 13
the Software to BroadVision, including all archival or other copies.
10. BroadVision is a third-party beneficiary of the End-User License
agreement with Reseller.
11. The End-User shall not publish any result of benchmark tests run on the
Software.
12. End-User may assign its license to the Software only to an entity
acquiring substantially all of its assets or merging with it, provided
that such assignee agree in writing to assume all associated
obligations. Otherwise, End-User may not assign its rights in the
Software to any third party, and any attempted assignment in violation
of the foregoing shall be void and of no effect.
13. The End-User shall comply fully with all relevant regulations of the
United States Department of Commerce and with the U.S. Export
Administration to assure that the Software is not exported in violation
of the code and regulations.
Page 2 of 2
<PAGE> 14
Attachment D
To Software License and Services Agreement
BROADVISION SUPPORT POLICY
Case tracking is the procedure of tracking customer-reported problems.
BroadVision support engineers open cases in the order in which they are
received. Cases have different priorities and will be treated accordingly.
Standard support is provided from 9am to 6pm PT in America, and 9am to 6pm GMT
in Europe. (For enhanced support coverage see the section below concerning
After-hours support.) If a case hasn't been opened after 1 day the Support
manager will be notified. After 2 days the Support Director will be notified.
CASE ESCALATION AND 'HOT SITE' STATUS
The support engineer opening a case will set case priority. A customer may
request that a case be escalated at any time by contacting the Support engineer
or the Support Manager.
Unusually important site problems will be considered 'hot sites'. This includes
such issues as serious reliability problems or significant performance problems
on production systems. To escalate a case, the customer may notify their Support
engineer or the Support Manager. A 'hot site' will gain Executive level
attention and all necessary resources to resolve the issue as quickly as
possible.
A hot site will have a dedicated Support engineer until it is resolved. The
customer is expected to provide technical resources, remote access and
reproducible cases as necessary. BroadVision will manage a list of issues to be
resolved in the escalation to be communicated daily by the assigned Support
engineer. Once all the issues are resolved, the escalation to 'hot site' will be
closed.
The response and turnaround times indicated below are BroadVision's most
reasonable estimates of such times. Such times may be impacted by a number of
factors beyond BroadVision's reasonable control, including without limitation
the fact that the source of the problem may exist with a component not provided
by BroadVision. BroadVision will not be deemed to be in breach of its
maintenance obligations to Reseller if it fails to meet such response or
turnaround times due to factors beyond BroadVision's reasonable control.
PRIORITY 1
The highest level is reserved for site-down type failures. Once BroadVision
support is notified that a site is down they will start work to restore the site
as soon as possible. If a site is not restored after 4 hrs of work the Support
engineer will move the site to 'hot site' status. The WPSO engineer who worked
on the site will be contacted and Support Director notified of escalation. After
1 day of escalation VP WPSO and VP Engineering will be notified. The VPs will
identify additional resources to work on the problem. After 2 days of escalation
the CEO will be notified.
PRIORITY 2
Level 2 is for serious problems on a site not causing total failure. BroadVision
Support will start work on the site as soon as they are aware of the problem. If
a workaround has not been developed after 1 day of work by Support then the
Support Director will be notified. After 3 days of work VP WPSO and VP
Engineering will be notified.
PRIORITY 3
The third level is for general issues on a site not causing serious problems. If
a case isn't resolved after 2 days the Support Manager will be notified. After 3
days the Support Director will be notified.
<PAGE> 15
PRIORITY 4
The lowest level is for questions or issues on a site not requiring immediate
action. If a case isn't resolved after 3 days the Support Manager will be
notified. After 5 days the Support Director will be notified.
AFTER-HOURS SUPPORT
An optional support package is available to provide support 7 days a week, 24
hrs a day for assistance with serious problems on live-sites. It will not
support development questions/issues. Customers with this support will be
provided with a single pager number to contact the on-call Support person in the
case of a priority 1 support call. It is preferred that the customer must
provide BroadVision dialup access to the site in order to for support to able to
provide assistance in the recovery process. The Support engineer on call will
have a laptop so that he/she can then dial into the website and help effect
system recovery.
DOCUMENTING KNOWN PROBLEMS
This note is to announce BroadVision's policy of sharing bug lists with
customers. Several customers and the field have requested that we share an
edited version of the bug list with our customers. The intent is to pro-actively
let the customers know about known problems and document workarounds. Support,
engineering and product management will decide which problems to report.
Today we publish some of this information in the Known Problems section of the
Release Notes. The following is our policy of enhancing this information as well
as updating the known bugs every month and making it available through the
support section of the BroadVision web site.
1. Currently we provide the following information in the Known Problems
section of the Release Notes. The Release Notes will be updated upon
every release.
Bug Information: problem ID, brief description, any known workaround
2. Starting with version 4.1 Technical Support will update the Known Bugs
section to include known bugs reported since the last release. This will
be updated once a month. Since the updates will be written by Technical
Support, it will be directed to an engineering audience. At product
release time, Tech Pubs will roll them into the formal Release Notes.
3. We will also make the following patch information available on our Tech
support site:
Patch Number:
Date released: <can also list those in preparation, with a planned release date>
Required previous patches: <patch numbers or 'none'>
Resolved problems: <list of problem numbers>
PRODUCT ENHANCEMENT REQUEST PROCEDURE
TO SUBMIT AN ENHANCEMENT REQUEST
Log in to Broadvision.com\login.html. Select Support, and then click "Submit a
new ticket". Include the text "Enhancement" in the description before submitting
the request, and the product you wish to submit an enhancement request for.
PM will review enhancements on a weekly basis and respond to you, the submitter,
with the status
<PAGE> 16
GETTING ENHANCEMENTS INTO AN UPCOMING PRODUCT RELEASE
At the start of each project Product Manager will go through the enhancement
list with ISG and engineering to determine which should be included in the next
release. If there are specific features that need to be included to satisfy a
project need, please include that information in the ER when submitted, and
email the appropriate Product Manager.
<PAGE> 17
COMPATIBILITY POLICY
This note clarifies BroadVision's policy on compatibility between production
releases. BV will provide a migration path between the objects, templates, and
scripts, components and content that customers have created with a production
release of One-To-One to the next production release of One-To-One. Addressing
these in turn:
1. BroadVision Standard objects - if we change the tag syntax of BV standard
objects we will provide tools and procedures needed to migrate those objects
from one release to the next. This will provide migration path for templates
using BV standard objects.
2. BroadVision Standard components - if we change the signature of BV standard
components we will provide tools and procedures needed to migrate scripts from
one release to the next. This will provide migration path for scripts using BV
standard components.
3. BroadVision APIs - we will in general maintain backward compatibility between
BroadVision APIs. In cases, where this is not possible or desirable we will
provide tools and procedures to migrate the APIs. This will provide migration
path for custom dynamic objects that use our APIs.
4. Database - when we make the schema changes we will provide migration tools to
update older schema and content from one production release of One-To-One to the
next.
Please note that we do not guarantee compatibility between Beta and FCS versions
of any given release. However, we will strive to not have major API, tag-syntax
or schema changes between Beta and FCS releases.
If you have any questions or suggestions please send email to
[email protected].
SUPPORT POLICY FOR THIRD-PARTY SOFTWARE PRODUCTS
Broadvision's policy is to certify One-To-One products against the versions of
third-party products that are released and available sufficiently in advance of
Broadvision's release date to allow for complete testing. This often means that
third-party vendors will release new versions of their products prior to the
next release of One-To-One. While Broadvision would prefer that customers use
the software versions with which One-To-One was tested, we also understand that
customers will, for various reasons, want to use these new versions of
third-party products.
Broadvision will support customers who use newer versions of third-party
products as long as the vendor guarantees forward compatibility. One-To-One
products should work on these new versions. By support we mean that we will work
with the customer to resolve compatibility problems with the third-party vendor.
Broadvision will also consider, at our option, developing and releasing minor
fixes for our products in order to resolve problems with new versions of
third-party products.
Broadvision will usually test and certify these newer versions of third-party
products in the next release of One-To-One. This can be a good indicator that
the newer versions will work with the current release of One-To-One. In
exceptional cases Broadvision may determine that the newer version of a
third-party product can not be used with One-To-One because it fails in some way
during the testing cycle. In this case we will continue to certify the older
version.
<PAGE> 18
Contract No ________
ATTACHMENT E TO RESELLER AGREEMENT
MASTER PREFERRED ESCROW AGREEMENT
Master Number _____________________
THIS ESCROW AGREEMENT is effective June ______, 1996 among DATA
SECURITIES INTERNATIONAL, INC. ("DSI"), BROADVISION, INC. ("BroadVision") and
any party signing the Acceptance Form attached to this Agreement ("Licensee").
WHEREAS, BroadVision and Licensee have entered or will enter into a
License Agreement or other agreement pertaining to BroadVision software (the
"License Agreement");
WHEREAS, BroadVision desires to avoid disclosure of its software except
under certain limited circumstances;
WHEREAS, Licensee may need access to the software under certain limited
circumstances;
WHEREAS, BroadVision and Licensee desire to establish an escrow with DSI
to provide for the retention of, administration of and access to specified
BroadVision software; and
WHEREAS, the parties desire this Agreement to be supplementary to the
License Agreement pursuant to 11 United States [Bankruptcy] Code, Section
365(n).
1. DEPOSITS.
1.1 OBLIGATION TO MAKE DEPOSIT. Upon the signing of this Agreement by
the parties, including the signing of the Acceptance Form, BroadVision shall
deliver to DSI the software and other materials ("Deposit Materials") required
to be deposited by the License Agreement or, if the License Agreement does not
identify the materials to be deposited with DSI, then the materials identified
on an Exhibit A. If Exhibit A is applicable, BroadVision and Licensee shall sign
it. DSI shall have no obligation with respect to the preparation, signing or
delivery of Exhibit A.
1.2 IDENTIFICATION OF TANGIBLE MEDIA. Prior to the delivery of the
Deposit Materials to DSI, BroadVision shall conspicuously label for
identification each document, magnetic tape, disk, or other tangible media upon
which the Deposit Materials are written or stored. Additionally, BroadVision
shall complete Exhibit B to this Agreement by listing each such tangible media
by the item label description, the type of media and the quantity. The Exhibit B
must be signed by BroadVision and delivered to DSI with the Deposit Materials.
Unless and until BroadVision makes the initial deposit with DSI, DSI shall have
no obligation with respect to this Agreement, except the obligation to notify
the parties regarding the status of the deposit account as required in Section
2.2 below.
1.3 DEPOSIT INSPECTION. When DSI receives the Deposit Materials and the
Exhibit B, DSI will conduct a deposit inspection by visually matching the
labeling of the tangible media containing the Deposit Materials to the item
descriptions and quantity listed on the Exhibit B.
1.4 ACCEPTANCE OF DEPOSIT. At completion of the deposit inspection, if
DSI determines that the labeling of the tangible media matches the item
descriptions and quantity on Exhibit B, DSI will date and sign the Exhibit B and
mail a copy thereof to BroadVision and Licensee. If DSI determines that the
labeling does not match the item descriptions or quantity on the Exhibit B, DSI
will (a) note the discrepancies in writing on the Exhibit B; (b) date and sign
the Exhibit B with the exceptions noted; and (c) provide a copy of the Exhibit B
to BroadVision and each Licensee. DSI's acceptance of the deposit occurs upon
the signing of the Exhibit B by DSI. Delivery of the signed Exhibit B to
Licensee is Licensee's notice that the Deposit Materials have been received and
accepted by DSI. Licensee understands and agrees that it will receive the most
recent copy or copies of Exhibit B, which may predate the License Agreement.
1.5 DEPOSIT UPDATES. Unless otherwise provided by the License Agreement,
BroadVision shall update the Deposit Materials within 30 days of each standard
release (as defined in the License Agreement) of the Deposit Materials. Such
updates will be added to the existing deposit. All deposit updates shall be
listed on a new Exhibit B and the new Exhibit B shall be signed by
Page 1 of 10
<PAGE> 19
BroadVision. Each Exhibit B will be held and maintained separately within the
escrow account. An independent record will be created which will document the
activity for each Exhibit B. The processing of all deposit updates shall be in
accordance with Sections 1.2 through 1.4 above. All references in this Agreement
to the Deposit Materials shall include the initial Deposit Materials and any
updates.
1.6 REMOVAL OF DEPOSIT MATERIALS. The Deposit Materials may be removed
or exchanged only on written instructions signed by BroadVision and Licensee, or
as otherwise provided in this Agreement.
2. CONFIDENTIALITY AND RECORD KEEPING.
2.1 CONFIDENTIALITY. DSI shall maintain the Deposit Materials in a
secure, environmentally safe, locked receptacle which is accessible only to
authorized employees of DSI. DSI shall have the obligation to reasonably protect
the confidentiality of the Deposit Materials. Except as provided in this
Agreement, DSI shall not disclose, transfer, make available, or use the Deposit
Materials. DSI shall not disclose the content of this Agreement to any third
party. If DSI receives a subpoena or other order of a court or other judicial
tribunal pertaining to the disclosure or release of the Deposit Materials, DSI
will immediately notify the parties to this Agreement. It shall be the
responsibility of BroadVision and Licensee to challenge any such order;
provided, however, that DSI does not waive its rights to present its position
with respect to any such order. DSI will not be required to disobey any court or
other judicial tribunal order.
2.2 STATUS REPORTS. DSI will issue to BroadVision and each Licensee a
report profiling the account history at least semi-annually. DSI may provide
copies of the account history pertaining to this Agreement upon the request of
any party to this Agreement.
2.3 AUDIT RIGHTS. During the term of this Agreement, BroadVision and
Licensee shall each have the right to inspect the written records of DSI
pertaining to this Agreement. Any inspection shall be held during normal
business hours and following reasonable prior notice.
3. GRANT OF RIGHTS TO DSI.
3.1 TITLE TO MEDIA. BroadVision hereby transfers to DSI the title to the
media upon which the Deposit Materials are written or stored. However, this
transfer does not include the ownership of the proprietary information and
materials contained on the media, such as any copyright, trade secret, patent or
other intellectual property rights.
3.2 RIGHT TO MAKE COPIES. DSI shall have the right to make copies of the
Deposit Materials as reasonably necessary to perform this Agreement. DSI shall
copy all copyright, nondisclosure and other proprietary notices and titles
contained on the Deposit Materials onto any copies made by DSI. With all Deposit
Materials submitted to DSI, BroadVision shall provide any and all instructions
as may be necessary to duplicate the Deposit Materials, including but not
limited to the hardware and/or software needed.
3.3 RIGHT TO SUBLICENSE UPON RELEASE. BroadVision hereby grants to DSI a
non-exclusive, irrevocable, perpetual, and royalty-free license to sublicense
the Deposit Materials to Licensee upon the release, if any, of the Deposit
Materials in accordance with Section 4.5 below. Except upon such a release, DSI
shall not sublicense or otherwise transfer the Deposit Materials.
4. RELEASE OF DEPOSIT.
4.1 RELEASE CONDITIONS. As used in this Agreement, "Release Conditions"
shall mean the following:
(a) BroadVision's failure to perform maintenance services as
specified in the applicable attachment to the License Agreement, which failure
has not been cured within the applicable cure period specified in the License
Agreement; or
(b) BroadVision's failure to continue to do business in the
ordinary course.
4.2 FILING FOR RELEASE. If Licensee believes in good faith that a
Release Condition has occurred, Licensee may provide to DSI written notice
<PAGE> 20
of the occurrence of the Release Condition and a request for the release of the
Deposit Materials. Upon receipt of such notice, DSI shall provide a copy of the
notice to BroadVision, by a nationally recognized overnight courier.
4.3 CONTRARY INSTRUCTIONS. From the date DSI mails the notice requesting
release of the Deposit Materials, BroadVision shall have ten business days to
deliver to DSI Contrary Instructions. "Contrary Instructions" shall mean the
written representation by BroadVision that a Release Condition has not occurred
or has been cured. Upon receipt of Contrary Instructions, DSI shall send a copy
to Licensee by a nationally recognized overnight courier. Additionally, DSI
shall notify both BroadVision and Licensee that there is a dispute to be
resolved pursuant to Section 7.3. Subject to Section 5.2, DSI will continue to
store the Deposit Materials without release pending (a) joint instructions from
BroadVision and Licensee, (b) resolution pursuant to Section 7.3, or (c) order
of a court.
4.4 RELEASE OF DEPOSIT. If DSI does not receive Contrary Instructions
from the BroadVision, DSI is authorized to release the Deposit Materials to
Licensee or, if more than one beneficiary is registered to the deposit, to
release a copy of the Deposit Materials to the Licensee. However, DSI is
entitled to receive any fees due DSI before making the release. This Agreement
with respect to a particular Licensee will terminate upon the release of the
Deposit Materials held by DSI to such Licensee.
4.5 USE LICENSE FOLLOWING RELEASE. Unless otherwise provided in the
License Agreement, upon release of the Deposit Materials in accordance with this
Section 4, BroadVision hereby grants to Licensee a non-exclusive,
non-transferable, non-sublicenseable license to use the Deposit Materials to
maintain and support the Software (as defined in the License Agreement) in order
for Licensee to continue using the Software in accordance with the terms of the
License Agreement. Licensee may not reproduce, distribute, create derivative
works of, publicly perform, publicly display or digitally perform the Deposit
Materials. Licensee shall not have the right to enhance the Software or add any
new functionality to the Software. Licensee shall continue to pay all royalties
which accrue under the License Agreement based on continued use of the Software
(including without limitation any fees attributable to the number of profiled
users), and Licensee's failure to make such payments when due shall terminate
this license. The Deposit Materials shall be deemed Confidential Information
under the License Agreement, and all confidentiality obligations therein shall
apply to the Deposit Materials in perpetuity.
5. TERM AND TERMINATION.
5.1 TERM OF AGREEMENT. The initial term of this Agreement is for a
period of one year. Thereafter, this Agreement shall automatically renew from
year-to-year unless (a) with respect to a Licensee, BroadVision and such
Licensee jointly instruct DSI in writing that the Agreement is terminated; or
(b) the Agreement is terminated by DSI for nonpayment in accordance with Section
5.2. If the Acceptance Form has been signed at a date later than this Agreement,
the initial term of the Acceptance Form will be for one year with subsequent
terms to be adjusted to match the anniversary date of this Agreement. If the
deposit materials are subject to another escrow agreement with DSI, DSI reserves
the right, after the initial one year term, to adjust the anniversary date of
this Agreement to match the then prevailing anniversary date of such other
escrow arrangements.
5.2 TERMINATION FOR NONPAYMENT. In the event of the nonpayment of fees
owed to DSI, DSI shall provide written notice of delinquency to all parties to
this Agreement. Any party to this Agreement shall have the right to make the
payment to DSI to cure the default. If the past due payment is not received in
full by DSI within one month of the date of such notice, then DSI shall have the
right to terminate this Agreement at any time thereafter by sending written
notice of termination to all parties. DSI shall have no obligation to take any
action under this Agreement so long as any payment due to DSI remains unpaid.
5.3 DISPOSITION OF DEPOSIT MATERIALS UPON TERMINATION. Upon termination
of this Agreement by joint instruction of BroadVision and a Licensee, DSI shall
destroy, return, or otherwise deliver the Deposit Materials in accordance with
such instructions. Upon termination for nonpayment, DSI may, at its sole
discretion, destroy the Deposit Materials or return them to BroadVision. DSI
shall have no obligation to return or destroy the Deposit
Page 3 of 10
<PAGE> 21
Materials if the Deposit Materials are subject to another escrow agreement with
DSI.
5.4 SURVIVAL OF TERMS FOLLOWING TERMINATION. Upon termination of this
Agreement, Sections 3.3, 4.5, 6.2 and 7 of this Agreement shall survive:
6. DSI'S FEES.
6.1 FEE SCHEDULE. Each Licensee shall pay to DSI its standard fees and
expenses applicable to the services provided for Licensee. DSI shall notify
Licensee at least 90 days prior to any increase in fees. For any service not
listed on DSI's standard fee schedule, DSI will provide a quote prior to
rendering the service, if requested.
6.2 PAYMENT TERMS. DSI shall not be required to perform any service
unless the payment for such service and any outstanding balances owed to DSI are
paid in full. All other fees are due upon receipt of invoice. If invoiced fees
are not paid, DSI may terminate this Agreement in accordance with Section 5.2.
Late fees on past due amounts shall accrue at the lesser of the rate of one and
one-half percent per month (18% per annum) from the date of the invoice or the
maximum rate allowable under applicable law.
7. LIABILITY AND DISPUTES.
7.1 RIGHT TO RELY ON INSTRUCTIONS. DSI may act in reliance upon any
instruction, instrument, or signature reasonably believed by DSI to be genuine.
DSI may assume that any employee of a party to this Agreement who gives any
written notice, request, or instruction has the authority to do so. DSI shall
not be responsible for failure to act as a result of causes beyond the
reasonable control of DSI.
7.2 INDEMNIFICATION. DSI shall be responsible to perform its obligations
under this Agreement and to act in a reasonable and prudent manner with regard
to this escrow arrangement. Provided DSI has acted in the manner stated in the
preceding sentence, BroadVision and Licensee each agree to indemnify, defend and
hold harmless DSI from any and all claims, actions, damages, arbitration fees
and expenses, costs, attorney's fees and other liabilities incurred by DSI
relating in any way to this escrow arrangement.
7.3 DISPUTE RESOLUTION. Any dispute relating to or arising from this
Agreement shall be resolved by arbitration under the Commercial Rules of the
American Arbitration Association. Unless otherwise agreed by BroadVision and
Licensee, arbitration will take place in Palo Alto, California, U.S.A. Any court
having jurisdiction over the matter may enter judgment on the award of the
arbitrator(s). Service of a petition to confirm the arbitration award may be
made by nationally recognized overnight courier to the attorney for the party
or, if unrepresented, to the party at the last known business address.
7.4 CONTROLLING LAW. This Agreement is to be governed and construed in
accordance with the laws of the State of California, without regard to its
conflict of law provisions.
7.5 NOTICE OF REQUESTED ORDER. If any party intends to obtain an order
from the arbitrator or any court of competent jurisdiction which may direct DSI
to take, or refrain from taking any action, that party shall:
(a) Give DSI at least two business days' prior notice of the
hearing;
(b) Include in any such order that, as a precondition to DSI's
obligation, DSI be paid in full for any past due fees and be paid for the
reasonable value of the services to be rendered pursuant to such order; and
(c) Ensure that DSI not be required to deliver the original (as
opposed to a copy) of the Deposit Materials if DSI may need to retain the
original in its possession to fulfill any of its other escrow duties.
8. GENERAL PROVISIONS.
8.1 ENTIRE AGREEMENT. This Agreement, which includes the Acceptance Form
and the Exhibits described herein, embodies the entire understanding between all
of the parties with respect to its subject matter and supersedes all previous
communications, representations or understandings,
Page 4 of 10
<PAGE> 22
either oral or written. No amendment or modification of this Agreement shall be
valid or binding unless signed by all the parties hereto, except Exhibit A need
not be signed by DSI and Exhibit B need not be signed by Licensee.
8.2 NOTICES. All notices, invoices, payments, deposits and other
documents and communications shall be given to the parties at the addresses
specified in the attached Exhibit C and Acceptance Form. It shall be the
responsibility of the parties to notify each other as provided in this Section
in the event of a change of address. The parties shall have the right to rely on
the last known address of the other parties. Unless otherwise provided in this
Agreement, all documents and communications may be delivered by certified mail,
return receipt requested.
8.3 SEVERABILITY. In the event any provision of this Agreement is found
to be invalid, voidable or unenforceable, the parties agree that unless it
materially affects the entire intent and purpose of this Agreement, such
invalidity, voidability or unenforceability shall affect neither the validity of
this Agreement nor the remaining provisions herein, and the provision in
question shall be deemed to be replaced with a valid and enforceable provision
most closely reflecting the intent and purpose of the original provision.
8.4 SUCCESSORS. This Agreement shall be binding upon and shall inure to
the benefit of the successors and assigns of the parties. However, DSI shall
have no obligation in performing this Agreement to recognize any successor or
assign of BroadVision or Licensee unless DSI receives clear, authoritative and
conclusive written evidence of the change of parties.
BROADVISION, INC. DATA SECURITIES INTERNATIONAL, INC.
By: By:
------------------------------- -------------------------------
Name: Name:
----------------------------- -----------------------------
Title: Title:
---------------------------- ----------------------------
Date: Date:
----------------------------- -----------------------------
Page 5 of 10
<PAGE> 23
ACCEPTANCE FORM
Account Number _________________________
__________________ hereby (i) acknowledges that it is a Licensee referred to in
the Master Preferred Escrow Agreement effective June ____, 1996 with Data
Securities International, Inc. as the escrow agent and BroadVision, Inc. as the
Depositor and (ii) agrees to be bound by all provisions of such Agreement.
[Licensee]
By:
- ---------------------------------
Name:
------------------------------
Title:
-----------------------------
Date:
------------------------------
Notices and communications
should be addressed to: Invoices should be addressed to:
Licensee Name:
----------------------- -----------------------------------
Address:
----------------------------- -----------------------------------
- ------------------------------------- ------------------------------------
- ------------------------------------- ------------------------------------
Designated Contact: Contact:
------------------ ---------------------------
Telephone:
--------------------------- -----------------------------------
Facsimile:
--------------------------- -----------------------------------
BroadVision hereby enrolls Licensee to the following account(s):
Account Name Account Number
- ------------ --------------
- ------------------------------------- ------------------------------------
- ------------------------------------- ------------------------------------
- ------------------------------------- ------------------------------------
BROADVISION, INC. DATA SECURITIES INTERNATIONAL, INC.
By: By:
---------------------------------- --------------------------------
Name: Name:
-------------------------------- ------------------------------
Title: Title:
------------------------------- -----------------------------
Date: Date:
-------------------------------- ------------------------------
Page 6 of 10
<PAGE> 24
EXHIBIT A
MATERIALS TO BE DEPOSITED
Account Number ______________________
BroadVision represents to Licensee that Deposit Materials delivered to DSI shall
consist of the following:
BROADVISION, INC. LICENSEE
By: By:
------------------------------- -------------------------------
Name: Name:
----------------------------- -----------------------------
Title: Title:
---------------------------- ----------------------------
Date: Date:
----------------------------- -----------------------------
Page 7 of 10
<PAGE> 25
EXHIBIT B
DESCRIPTION OF DEPOSIT MATERIALS
Account Number:_______________________________
Company Name: BROADVISION, INC.
DEPOSIT TYPE: _________Initial__________ Supplemental
ENVIRONMENT
Host System CPU/OS_____________________ Version_______________
Backup________________ Source System CPU/OS___________________
Version_______________ Compiler________________ Special
Instructions:_____________________________________
DEPOSIT COPYING REQUIREMENT:
Hardware needed:________________________________________________________________
Software needed/Instructions:___________________________________________________
DEPOSIT MATERIALS:
Exhibit B Name________________________________ Version__________________________
Item label description Media Quantity
For BroadVision, I certify that the above For DSI, I certify that the deposit
described Deposit Materials have been inspection has been completed transmitted
to DSI: (any exceptions are noted above):
By By
------------------------------- -------------------------------
Print Name Print Name
----------------------- -----------------------
Date Date of Acceptance
----------------------------- ---------------
ISE EX. B#
------------ -----------
Send materials to: DSI, 9555 Chesapeake Dr. #200, San Diego, CA 92123
Page 8 of 10
<PAGE> 26
EXHIBIT C
DESIGNATED CONTACT
Master Number ___________________________
Notices and communications
should be addressed to: Invoices should be addressed to:
Company Name: BroadVision, Inc. 333 Distel Circle
Address: 333 Distel Circle Los Altos, CA 94022
Los Altos, CA 94022 Contact: Chief Financial Officer
Designated Contact: Controller
Telephone: (415) 943-3600
Facsimile: (415) 943-____
Requests to change the designated contact should be given in writing by the
designated contact or an authorized employee.
Contracts, Deposit Materials and notices Invoice inquiries and fee remittances
to DSI should be addressed to: to DSI should be addressed to:
DSI DSI
Contract Administration Accounts Receivable
Suite 200 Suite 1450
9555 Chesapeake Drive 425 California Street
San Diego, CA 92123 San Francisco, CA 94104
Telephone: (619) 694-1900 (415) 398-7900
Facsimile: (619) 694-1919 (415) 398-7914
Date:
-------------------------------
Page 9 of 10
<PAGE> 27
ADDITIONAL ESCROW ACCOUNT AMENDMENT
TO MASTER PREFERRED ESCROW AGREEMENT
Master Number __________________
New Account Number _________________
BroadVision, Inc. ("BroadVision") has entered into a Master Preferred Escrow
Agreement with Data Securities International, Inc. ("DSI"). Pursuant to that
Agreement, BroadVision may deposit certain Deposit Materials with DSI.
BroadVision desires that new Deposit Materials be held in a separate account and
be maintained separately from the existing account. By execution of this
Amendment, DSI will establish a separate account for the new Deposit Materials.
The new account will be referenced by the following name:____________________.
BroadVision hereby agrees that all terms and conditions of the existing Master
Preferred Escrow Agreement previously entered into by BroadVision and DSI will
govern this account. The termination or expiration of any other account of
BroadVision will not affect this account.
BROADVISION, INC. DATA SECURITIES INTERNATIONAL, INC.
By: By:
------------------------------- -------------------------------
Name: Name:
----------------------------- -----------------------------
Title: Title:
---------------------------- ----------------------------
Date: Date:
----------------------------- -----------------------------
Page 10 of 10
<PAGE> 1
Exhibit 10.6
CONCENTRIC NETWORK CORPORATION
10590 N. TANTAU AVENUE, CUPERTINO, CA 95014
CONCENTRIC HOST SERVER SOLUTIONS SERVICE AGREEMENT
This Concentric Host Server Solutions Service Agreement ("Agreement") is made
and entered into on this 29th day of January, 1999 ("Effective Date"), by and
between Concentric Network Corporation, Inc., a Delaware corporation
("Concentric"), and Corio Corporation ("Customer"), a Delaware corporation with
its principal place of business at 700 Bay Road, Suite 210, Redwood City, CA
94063.
The Parties hereto agree as follows:
1.0 SERVICES
Subject to the terms and conditions of this Agreement, during the term of this
Agreement, Concentric will provide to Customer the goods and services
(collectively, the "Services") as described and selected in the applicable
Co-location Order Form(s), and/or the Managed Server Order Form(s) (each an
"Order Form") attached hereto as Exhibit A.
2.0 PAYMENT AND INVOICES
2.1 Fees. Customer shall pay Concentric all fees indicated on the applicable
Order Form. These fees and charges may include a one-time set-up charge, as well
as certain monthly fees. During the term of this Agreement the fees shall be
fixed; however, should Concentric's general fees for the Services decrease
during the term, Customer's fees will be adjusted accordingly.
2.2 Payment Terms. Concentric shall invoice Customer monthly, at the end of
each month, for the fees payable under this Agreement pursuant to the applicable
Order Form, and Customer shall pay Concentric such fees no later than thirty
(30) days after the invoice date. If Concentric does not receive payment in full
for each invoice within thirty (30) days after the invoice date, Concentric may
add to Customer's account a late charge of 1.5% per month, or the maximum amount
allowed by law, whichever is less.
2.3 Taxes. All fees are in United States dollars and exclude any applicable
taxes. Customer shall pay, indemnify and hold Concentric harmless from all
sales, use, value added or other taxes of any nature, other than taxes on
Concentric's net income, including penalties and interest, and all government
permit or license fees assessed upon or with respect to any fees due under this
Agreement (except to the extent Customer provides Concentric with a valid tax
exemption certificate). If any applicable foreign law requires Customer to
withhold amounts from any payments to Concentric hereunder: (a) Customer shall
affect such withholding, remit such amounts to the appropriate taxing
authorities and promptly furnish Concentric with tax receipts evidencing the
payments of such amounts; and (b) the sum payable by Customer upon which the
deduction or withholding is based shall be increased to the extent necessary to
ensure that, after such deduction or withholding, Concentric receives and
retains, free from liability for such deduction or withholding, a net amount
equal to the amount Concentric would have received and retained in the absence
of such required deduction or withholding.
3.0 REPRESENTATIONS AND WARRANTIES
3.1 General. Each party represents and warrants that it has the right and
authority to enter into this Agreement, and that by entering into this
Agreement, it will not violate, conflict with or cause a material default under
any other contract, agreement, indenture, decree, judgment, undertaking,
conveyance, lien or encumbrance to which it is a party or by which it or any of
its property is or may become subject or bound. Each party shall, at its own
expense, make, obtain, and maintain in force at all times during the term of
this Agreement, all applicable filings, registrations, reports, licenses,
permits and authorizations necessary to perform its obligations under this
Agreement.
3.2 Compliance with Laws. Customer represents and warrants that no consent,
approval or authorization of or designation, declaration or filing with any
governmental authority is required in connection with the valid execution,
delivery and performance of this Agreement. Each party shall, at its own
expense, comply with all laws, regulations and other legal requirements that
apply to it and this Agreement, including copyright, privacy and communications
decency laws.
3.3 Acceptable Use.
(a) Customer is solely responsible for the content of any postings, data or
transmissions using the Services, or any other use of the Services by Customer
or by any person or entity Customer permits to access the Services. Customer
represents and warrants that it will: (a) not use any Concentric equipment or
services in a manner that: (i) is prohibited by any law or regulation or
Concentric policy, or to facilitate the violation of any law or regulation or
such policy; or (ii) will disrupt third parties' use or enjoyment of any
communications service or outlet; (b) not violate or tamper with the security of
any Concentric computer equipment or program; and (c) enter into an agreement
with each of its end-users sufficient to comply with the terms herein. If
Concentric has reasonable grounds to believe that Customer is utilizing the
Services for any such illegal purpose, as stated above in (a)(i), or disruptive
purpose, as stated above in (a)(ii) or (b), Concentric may suspend or terminate
Services immediately upon notice to Customer. Except for actions requiring
immediate action as required by government regulation or by law, or required to
protect Concentric's network, Concentric will make best efforts to notify
Customer in advance of actions it may take to limit Customer's or its User's
access to the network.
(b) Customer acknowledges and expressly agrees that Concentric will not be
liable to Customer or its customers for any action Concentric takes to remove or
restrict access to obscene, indecent or offensive content made available by
Customer, not for
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
ServerSolutions092298 Confidential Page 1 of 5
<PAGE> 2
any action taken to restrict access to material made available in violation of
any law, regulation or rights of a third party, including but not limited to,
rights under the copyright law and prohibitions on libel, slander and invasion
of privacy.
3.4 Facilities
Concentric warrants that the data center facilities in which Customer's
server(s) reside will maintain the following features:
* Secure, scalable areas including cabinets, racks, shelves, locked cages
and suites
* Telco hardened
* Environmental controls
* Redundant heating, ventilation and air condition systems'
* Physically secure with escorted access at all times
* Fire Master 200 Fire Suppression System
* Redundant, built-in, clean, continuous power distribution units to
servers
* Redundant power: UPS and diesel generator power back-up
3.5 DISCLAIMER. THE WARRANTIES SET FORTH IN THIS SECTION 3 ARE THE ONLY
WARRANTIES MADE BY CONCENTRIC. CONCENTRIC MAKES NO OTHER WARRANTIES OF ANY KIND,
EXPRESS OR IMPLIED, WITH RESPECT TO ITS SERVICES, ANY RELATED SERVICE OR
SOFTWARE, OR THE FITNESS OF THE SPACE FOR CUSTOMER'S USE CONCENTRIC HEREBY
EXPRESSLY DISCLAIMS ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, OR NON-INFRINGEMENT, OR IMPLIED WARRANTIES ARISING FROM A
COURSE OF DEALING OR COURSE OF PERFORMANCE. NO ORAL OR WRITTEN INFORMATION GIVEN
BY CONCENTRIC, ITS EMPLOYEES, LICENSORS OR THE LIKE WILL CREATE A. WARRANTY.
4.0 LIMITATION OF LIABILITY
EXCEPT FOR CUSTOMER'S OBLIGATIONS TO PROVIDE NON LIABILITY FOR CONCENTRIC
PURSUANT TO SECTION 3.3(b), UNDER NO CIRCUMSTANCES, INCLUDING NEGLIGENCE, WILL
(A) EITHER PARTY OR ANYONE ELSE INVOLVED IN ADMINISTERING, DISTRIBUTING OR
PROVIDING THE SERVICES, OR (B) WITH REGARD TO THIRD-PARTY SOFTWARE, THE
APPLICABLE LICENSOR, BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR
CONSEQUENTIAL DAMAGES THAT RESULT FROM THE USE OF OR INABILITY TO USE THE
SERVICES, OR, IF APPLICABLE, THE THIRD-PARTY SOFTWARE, INCLUDING BUT NOT LIMITED
TO LOSS OF REVENUE OR LOST PROFITS, OR DAMAGES THAT RESULT FROM MISTAKES,
OMISSIONS, INTERRUPTIONS, DELETION OF FILES OR EMAIL, ERRORS, DEFECTS, VIRUSES,
DELAYS IN OPERATION OR TRANSMISSION, FAILURE OF PERFORMANCE, THEFT, DESTRUCTION
OR UNAUTHORIZED ACCESS TO CONCENTRIC'S RECORDS, PROGRAMS OR SERVICES, EVEN IF
SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN THE EVENT OF
ANY BREACH BY CONCENTRIC OF THIS AGREEMENT, CONCENTRIC'S LIABILITY TO CUSTOMER
WILL NOT EXCEED THE AMOUNT PAID TO CONCENTRIC BY CUSTOMER DURING THE PREVIOUS
TWELVE MONTHS. IN THE EVENT OF ANY BREACH BY THE THIRD-PARTY LICENSOR OF THIS
AGREEMENT, SUCH LICENSOR'S LIABILITY TO CUSTOMER WILL NOT EXCEED THE AMOUNT PAID
FOR SUCH THIRD-PARTY SOFTWARE.
5.0 CONFIDENTIAL INFORMATION
5.1 Definition. For purposes of this Agreement "Confidential Information"
shall mean information including, without limitation, computer programs, code,
algorithms, names and expertise of employees and consultants, know-how,
formulas, processes, ideas, inventions (whether patentable or not), schematics
and other technical, business, financial and product development plans,
forecasts, strategies and information marked "Confidential", or if disclosed
verbally, is identified as confidential at the time of disclosure. In addition
to the foregoing, with respect to Third-Party Software (as defined below),
Confidential Information shall also include any source or object codes,
technical data, data output of such software, Documentation (as defined below),
or correspondence owned by the applicable Licensor. Confidential Information
excludes information that: (i) was or becomes publicly known through no fault of
the receiving party; (ii) was rightfully known or becomes rightfully known to
the receiving party without confidential or proprietary restriction from a
source other than the disclosing party; (iii) is independently developed by the
receiving party without the participation of individuals who have had access to
the Confidential Information; (iv) is approved by the disclosing party for
disclosure without restriction in a written document which is signed by a duly
authorized officer of such disclosing party; and (v) the receiving party is
legally compelled to disclose; provided, however, that prior to any such
compelled disclosure, the receiving party will (a) assert the privileged and
confidential nature of the Confidential Information against the third party
seeking disclosure and (b) cooperate fully with the disclosing party in
protecting against any such disclosure and/or obtaining a protective order
narrowing the scope of such disclosure and/or use of the Confidential
Information. In the event that such protection against disclosure is not
obtained, the receiving party will be entitled to disclose the Confidential
Information, but only as, and to the extent, necessary to legally comply with
such compelled disclosure.
5.2 Nondisclosure. Until the later of three (3) years from the Effective
Date, or the expiration of the then current term as set forth on the Order From,
each party agrees to maintain all Confidential Information in confidence to the
same extent that it protects its own similar Confidential Information, but in no
event less than reasonable care, and to use such Confidential Information only
as permitted under this Agreement; in addition, with respect to the Confidential
Information of the Third-Party Software Licensor, Customer agrees that it shall
not use or disclose such information at any time either during the Term or after
the termination of this Agreement, except as required by law. Each party agrees
to take all reasonable precautions to prevent any unauthorized disclosure or use
of Confidential Information including, without limitation disclosing
Confidential Information only to its employees: (a) with a need to know to
further permitted uses of such information: (b) who are parties to appropriate
agreements sufficient to comply with this Section 5; and (c) who are informed of
the nondisclosure/non-use obligations imposed by this Section 5; and both
parties shall take appropriate steps to implement and enforce such
non-disclosure/non-use obligations.
5.3 Terms of Agreement Confidential. Subject to Section 7.1, each of the
parties agrees not to disclose to any third party the terms of this Agreement
without the prior written consent of the other party hereto, except to advisors,
investors and others on a need-to-know basis under circumstances that reasonably
ensure the confidentiality thereof, or to the extent required by law.
5.4 Injunctive Relief. In the event of an actual or threatened breach of the
above confidentiality provisions, the nonbreaching party will have no adequate
remedy at law and will
ServerSolutions092298 Confidential Page 2 of 5
<PAGE> 3
be entitled to immediate injunctive and other equitable relief, without bond and
without the necessity of showing actual money damages.
6.0 TERM AND TERMINATION
6.1 Term. The term of this Agreement will commence on the Effective Date and
continue for the term for [*]. Upon written notice thirty (30) days or more
prior to the expiration of the initial term, Customer will indicate whether to
extend the term for an additional [*] or such term as Customer may request, or
let the Agreement expire. Absent written notice by either party thirty (30) days
prior to the end of the initial term, this Agreement will automatically renew
for successive one (1) year terms under the prices then in effect for the
Services.
6.2 Termination. A party may terminate this Agreement upon written notice to
the other party;
(a) For any material breach of this Agreement, which the defaulting party
fails to cure within thirty (30) days following written notice by the
non-defaulting party of such breach; or
(b) Upon the other party's insolvency or liquidation as a result of which
such party ceases to do business for a continuous period of at least three (3)
months.
6.3 Effect of Termination.
(a) If Customer terminates this Agreement for its convenience prior to the
expiration of the initial term or any renewal term, Customer will be liable for
and pay Concentric the difference between the fees paid and calculated at the
discount level corresponding to the term elected by Customer and the fees paid
and calculated at the discount level earned.
(b) Customer shall comply with all applicable procedures related to
equipment removal upon termination. The obligations of Sections 3, 4, 5, 6.3 and
9 will survive any expiration or earlier termination of this Agreement. In the
event of any expiration or earlier termination of this Agreement, Customer will
(a) if applicable, immediately stop using the Third-Party Software, and in the
applicable Licensor's sole discretion, return or destroy all copies of the
Third-Party Software, Documentation (each as defined below) and data output of
such software; and (b) be obligated to pay to Concentric fees and charges
incurred prior to termination. In addition, if Customer fails to pay any
invoice(s) for forty five (45) days or more from the date of such invoice,
Customer shall be denied access to the Space (as defined below) until such time
as the invoice(s) has been paid in full. Finally, within ten (10) days after the
termination of this Agreement, if requested, Customer shall return to the
disclosing party all originals and copies of all Confidential Information which
has been fixed in any tangible medium of expression. If return of digital copies
is impractical, Customer may destroy the digital copies and send the disclosing
party written certification of such destruction.
7.0 MARKETING AND PROMOTION
7.1 Press Release. The parties may agree to cooperate to prepare and release
a joint press release regarding this Agreement, subject to the approval of each
party, which must not be unreasonably withheld or delayed.
8.0 FACILITIES
8.1 The following terms and conditions will apply only if Customer has
filled out the Co-Location Order Form:
(a) License to Occupy. For purposes of this Agreement, "Space" means the
Concentric facilities where Customer's hardware and software are stored and
operated. Concentric grants to Customer a non-exclusive license to occupy the
Space. Customer acknowledges that it has been granted only a license to occupy
the Space and that it has not been granted any real property interests in the
Space.
(b) Services. Concentric will provide Customer with the services
("Services") as specified in the Order Form (i.e., "Remote Hands").
(c) Exclusions. Services shall not include services for problems arising out
of modification, alteration or addition or attempted modification, alteration or
addition of hardware undertaken by persons other than Concentric or Concentric's
authorized representatives.
(d) Material and Changes. Customer shall comply with all applicable rules
and regulations, including equipment installation or de-installation, and
alteration of the Space. Customer shall not make any changes or material
alterations to the interior or exterior portions of the Space, including any
cabling or power supplies for its hardware. Customer agrees not to erect any
signs or devices to the exterior portion of the Space.
(e) Damage. Customer agrees to reimburse Concentric for all reasonable
repair or restoration costs associated with damage or destruction caused by
Customer's personnel, Customer's agents, Customer's suppliers/contractors, or
Customer's visitors during the term or as a consequence of Customer's removal of
its hardware or property installed in the Space.
(f) Insurance. Unless otherwise agreed, Customer shall maintain, at
Customer's expense, (i) Comprehensive General Liability Insurance in an amount
not less than one million dollars ($1,000,000) per occurrence for bodily injury
or property damage; (ii) Employer's Liability in an amount not less than one
million dollars ($1,000,000) per occurrence, (iii) Worker's Compensation in an
amount not less than that prescribed by statutory limits and (iv) Property
Insurance on an "all risk" form covering equipment and personal property owned
or leased by Customer and used or stored on Concentric's premises. Such
Comprehensive General Liability Insurance shall have an additional insured
endorsement naming Concentric Network Corporation, and shall be primary and
non-contributing with any insurance policies carried by Concentric. Customer
shall also maintain insurance covering the equipment or property owned or leased
by Customer against loss or physical damage. If so requested, Customer will
provide CNC written evidence of insurance coverage consistent with the
requirements of this subsection.
(g) Customer Duties. Customer shall document and promptly report all errors
or malfunctions of the hardware to Concentric. Concentric shall take all steps
necessary to carry out procedures for the rectification of errors or
malfunctions within a reasonable time. Customer shall maintain a current backup
copy of all programs and data. Customer shall properly train its personnel in
the use of the hardware.
ServerSolutions092298 Confidential Page 3 of 5
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 4
(h) Third-Party Software. For purposes of this Agreement, "Third-Party
Software" means those products indicated as such on the Order Form. If Customer
purchases any Third-Party Software, Customer hereby agrees to be bound by the
following terms and conditions, and further agrees to enter into all applicable
agreements, if any, which such third-party requires of Concentric:
i. Customer is granted a non-exclusive, nontransferable right to install
and use the Third-Party Software in object code form only, accompanying
documentation ("Documentation"), and data output of such software solely for
Customer's internal use. Such license is not transferable or assignable by
Customer, in whole or in part, whether voluntarily or by merger, consolidation
or sale, or otherwise by operation of law. Customer may make one backup copy of
the Third-Party Software for archival purposes only.
ii. Title to the Third-Party Software shall be retained by the applicable
Licensor of such software. No right, title, or interest in the Third-Party
Software or Documentation is granted or conveyed to Customer by implication or
otherwise.
iii. Customer acknowledges that the applicable Licensor can only control such
Licensor's servers and therefore such Licensor cannot guarantee delivery of all
data output requested by Customer in any given time period.
iv. Except for any backup archival copies permitted herein, Customer may
not, and shall not allow others to, copy, modify, translate, disassemble,
decompile, reverse engineer or create derivative works of the Third-Party
Software, Documentation or data output of such software.
v. Customer shall not disclose the results of any, benchmark tests of the
Third-Party Software or data output of such software to any third party; provide
third parties access to the Third-Party Software, Documentation or data output;
sublicense, rent, lease, barter, sell, or otherwise distribute the Third-Party
Software, Documentation or any data output; or use any technical information in
any way related to or acquired by use of the Third-Party Software for the
prospective economic advantage of any third-party. Notwithstanding the
foregoing, Customer may publish and disseminate summaries of the data output
performed and transmitted by the Third-Party Software provided that Customer
attributes the applicable Licensor as the source of the data output or
information on which such summaries are based.
vi. CUSTOMER HEREBY ACCEPTS THE SOFTWARE AND DATA "AS IS" WITH NO EXPRESS OR
IMPLIED WARRANTIES OR CONDITIONS OF ANY KIND, INCLUDING, WITHOUT LIMITATION,
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. THE
APPLICABLE LICENSOR NEITHER ASSUMES, NOR AUTHORIZES ANY OTHER PERSON TO ASSUME
FOR IT, ANY OTHER LIABILITY IN CONNECTION WITH THE SOFTWARE, DATA OR ANY OTHER
INFORMATION, INCLUDING, WITHOUT LIMITATION, LIABILITY ARISING OUT OF THE
DELIVERY, INSTALLATION, SUPPORT OR USE OF THE SOFTWARE, INFORMATION OR DATA.
SUCH LICENSOR DOES NOT WARRANT THE RESULTS OF ANY PROGRAM OR SERVICE OR THAT ANY
ERRORS IN THE SOFTWARE WILL BE CORRECTED, OR THAT THE SOFTWARE WILL MEET
CUSTOMER'S REQUIREMENTS OR EXPECTATIONS. SUCH LICENSOR CANNOT GUARANTEE AND DOES
NOT WARRANT THE ACCURACY OF THE DATA DELIVERED TO CUSTOMER OR THAT DATA IS
TRANSMITTED TO CUSTOMER WITHOUT INTERRUPTION OR DELAY. Customer asserts and
acknowledges that prior to execution of this Agreement, Customer had sufficient
opportunity to evaluate the Third-Party Software, Documentation, and data output
delivery of such software to become familiar with their performance and
operation.
8.2 The following terms and conditions will apply only if Customer has
filled out the Managed Server Order Form:
(a) Services, Concentric will provide Customer with the services as
specified in the Order Form.
(b) Service Level Agreement. Concentric agrees that its Managed Server
downtime will not exceed 4.33 minutes per day, or 30.3 minutes per week, or 130
minutes per month. If in any calendar month. Customer's server is down for more
than 130 minutes (exclusive of (i) scheduled maintenance windows and (ii)
customer enabled faults), Concentric will credit to Customer's account
twenty-five percent (25%) of such month's Managed Server fee, as set forth in
the Order Form.
8.3 Regulations. Customer shall comply with all applicable operational rules
and regulations, while on Concentric's premises and while under Concentric
escort. Concentric may, in its sole discretion, limit Customer's access to a
reasonable number of authorized Customer employees or designees. Customer shall
not interfere with any other customers of Concentric, or such other customers'
use of Concentric's facilities.
8.4 Assumption of Risk. Customer hereby assumes any and all risks associated
with Customer, its agents (including contractors and sub-contractors) or
employees' use of the Space and shall indemnify, defend and hold harmless
Concentric from any and all claims, liabilities, judgments, causes of action,
damages, costs, and expenses (including reasonable attorneys' and experts'
fees), caused by or arising in connection with such use.
9.0 GENERAL PROVISIONS
9.1 Assignment. This Agreement will be binding upon, and inure to the
benefit of, the parties hereto and their respective successors and assigns.
Notwithstanding the above, neither party may assign its rights or obligations
under this Agreement without the prior written consent of the other party. Any
assignment in violation of this Section shall be null and void. Notwithstanding
the above, either party, without approval from the other party, may reassign
this Agreement through merger or acquisition where a third party acquires a
majority interest in the assets of such party.
9.2 Independent Contractors. The parties will have the status of independent
contractors, and nothing in this Agreement should be deemed to place the parties
in the relationship of employer-employee, principal-agent, or partners or in a
joint venture.
9.3 Waiver. The failure of either party to enforce at any time any of the
provisions of this Agreement, or the failure to require at any time performance
by the other party of any of the provisions of this Agreement, should in no way
be construed to be a present or future waiver of such provisions, nor in any way
affect the right of either party to enforce each and every such provision
thereafter. The express waiver by either party of any provision, condition or
requirement of this Agreement will not constitute a waiver of any future
obligation to comply with such provision, condition or requirement.
ServerSolutions092298 Confidential Page 4 of 5
<PAGE> 5
9.4 Severability. If any provision of this Agreement is held by a court of
competent jurisdiction to be invalid, illegal, or unenforceable under present or
future laws, such provision will be struck from the Agreement and the remaining
provisions of this Agreement shall remain in full force and effect.
9.5 Indemnity.
(a) Customer shall indemnify, defend and hold harmless Concentric, and/or,
if applicable, the Licensor of the Third-Party Software, from any and all
damages, liabilities, costs and expenses (including but not limited to
reasonable attorneys' fees) incurred (a) by Concentric as a result of any
threatened or actual suit against Concentric arising out of or in connection
with information or content provided, accessed or made available by Customer on
Concentric's network; and (b) by the applicable Third-Party Software Licensor as
a result of any threatened or actual suit against such Licensor arising from
Customer's use, summarization, or dissemination of any data output of such
software, including, without limitation, trade libel and slander.
(b) Each of Concentric and Customer shall indemnify, defend and hold
harmless the other, from any and all damages, liabilities, costs and expenses
(including but not limited to reasonable attorneys' fees) incurred by the other
party's gross negligence or deliberate wrongdoing in performance under this
Agreement.
9.6 Force Majeure. Either party will be excused from any delay or failure to
perform any obligation under this Agreement if such failure is caused by the
occurrence of any event beyond the reasonable control of such party, including
but not limited to, acts of God, earthquake, labor disputes and strikes, riots
or war. The obligations and rights of the party so excused shall be extended on
a day-to-day basis for the period of time equal to that of the underlying cause
of the delay.
9.7 Governing Law. This Agreement will be deemed to have been made in the
State of California, and the provisions and conditions of this Agreement will be
governed by and interpreted in accordance with the laws of the State of
California, without regard to conflict of laws principles thereof.
9.8 Arbitration. Any dispute or claim arising out of or in connection with
this Agreement or the performance, breach or termination thereof, will be
finally settled by binding arbitration in San Jose, California under the Rules
of Arbitration of the American Arbitration Association by an arbitrator
appointed in accordance with those rules. Judgment on the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof.
Notwithstanding the foregoing, either party may apply to any court of competent
jurisdiction for equitable relief without breach of this arbitration provision.
9.9 Entire Agreement. This Agreement sets forth the entire agreement and
understanding of the parties with respect to the subject matter hereof, and
supersedes all prior agreements and understandings between the parties, whether
written or oral with respect to the subject matter hereof. No modification of
this Agreement shall be binding upon the parties hereto unless evidenced in
writing duly signed by authorized representatives of the respective parties
hereto.
9.10 Notices. Any required notices hereunder shall be given in writing via
electronic mail and by certified mail or overnight express delivery service
(such as DHL) at the address of each party above or as indicated on the
applicable Order Form, or to such other address as either party may from time to
time substitute by written notice. Notice shall be deemed served when delivered
or, if delivery is not accomplished by reason of some fault of the addressee,
when tendered.
Customer and Concentric's authorized representatives have read the foregoing and
all documents incorporated therein and agree and accept such terms.
CUSTOMER REPRESENTATIVE CONCENTRIC NETWORK CORPORATION
(Corio Corporation)
By: /s/ Signature Illegible By: /s/ Signature Illegible
(Authorized Signature) (Authorized Signature)
Print Name: Jonathan Lee Print Name: W.C. Etheredge
------------------- -------------------------
Title: CEO Title: Sr. V.P.
----------------------- -----------------------------
ServerSolutions092298 Confidential Page 5 of 5
<PAGE> 6
Exhibit A - Products and Services Quotation
Server Co-location
Enterprise 5 year
Issue Date: 1/27/99
Expiration Date: 2/27/99
<TABLE>
<CAPTION>
Customer Information
<S> <C> <C> <C>
Corio VAR Torry Da La Cruz Quota ID:
Source Email
Voice URL
Scott Albro Fax Voice
Fax
Site Information
Site Location
NPA/NXX
</TABLE>
<TABLE>
<CAPTION>
One Time Set Up Fees List Price Qty Subtotal Discount Total
<S> <C> <C> <C> <C> <C>
Installation
- ------------
Co-location Server Setup [*] [*] [*] [*] [*]
Options Setup
- -------------
Aquas Bazaar 2.0 [*]
Balanced Server - Setup [*]
Dally System Back-up [*] [*]
</TABLE>
<TABLE>
<CAPTION>
Monthly Recurring Fees List Price Qty Subtotal Discount Total
<S> <C> <C> <C> <C> <C> <C>
Monthly Fees
- ------------
500Kbps Bandwidth [*] [*] [*] [*] [*]
Burstable Service* 500Kbps - 10Mbps [*]
Rack space [*] [*] [*] [*] [*]
Options
- -------
Keynote 10 City [*]
Keynote 25 City [*]
Balanced Server - Local [*]
Balanced Server - Global [*]
[*]
</TABLE>
<TABLE>
<CAPTION>
Other Fees List Price Discount Net Price
<S> <C> <C> <C> <C>
Remote Hands
- ------------
Service Level 1000 [*]
Service Level 2000 [*]
Service Level 3000 [*]
[*] [*]
Add 1.5 hours/month [*] [*]
Add 1.10 hours/month [*] [*]
Add 1.15 hours/month [*] [*]
</TABLE>
These discounts shall apply to the Burstable pricing.
<TABLE>
<CAPTION>
Order Volume Discount Applied
<S> <C>
<$160k/month [*]
$161K/month - $750K/month [*]
$751K/month - $1.5M/month [*]
>$1.5M/month [*]
</TABLE>
Signature: /s/ Signature Illegible
Date: 1-29-99
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 1
Exhibit 10.7
AMENDMENT NO. 1
THIS AMENDMENT NO. 1 (the "Amendment") is entered into effective as of the
__ day of August 1999, between Corio Corporation ("Customer") and Concentric
Network Corporation ("Concentric").
WHEREAS, Customer and Concentric are parties to a ConcentricHost Server
Solutions Service Agreement, dated 29 January 1999 ("Agreement").
WHEREAS, Customer and Concentric wish to amend the Agreement to
incorporate specific, additional terms addressing the establishment of a
multi-server, dedicated area hosting environment at Concentric's data center,
NOW, THEREFORE, in consideration of the mutual covenants and conditions
in this Amendment, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Services. Section 1.0, Services, is deleted in its entirety and
replaced with the following new section:
"Subject to the terms and conditions of this Agreement, during
the term of this Agreement, Concentric will provide to Customer
the goods and services (collectively, the "Services") as
described in the Statement of Work, attached hereto, as Exhibit
B."
2. Services. Section 1.0, Services: The additional provision is added
as follows:
"During the term of this Agreement, Customer agrees that
[*]
3. Payment and Invoices. Subsection 2.1, Fees, is deleted in its
entirety and replaced with the following new subsection:
"Customer shall pay Concentric the fees and charges as set forth
in Exhibit A, Pricing, attached hereto. These fees and charges
may include one-time set-up charges, one-time engineering design
fees, engineering support fees, sustaining engineering fees,
cross connection fees, as well as certain monthly recurring
fees. During the term of this Agreement the fees shall be fixed;
however, should Concentric's general fees for the Services
decrease during the term, Customer's fees will be adjusted
accordingly. In addition, the parties agree, on an annual basis,
to discuss pricing to insure such pricing is competitive in the
market. If such pricing is not competitive, then the pricing
will be decreased accordingly."
4. Marketing and Promotion. A new subsection, 7.2 is added as follows:
7.2 During the term of this Agreement, [*]
Corio Hosting Confidential Page 1 of 10
Amendment One
23 August 1999
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the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 2
5. Term and Termination. Subsection 6.1, Term, is deleted in its entirety
and replaced with the following new Subsection:
"The term of this Agreement will commence on the Effective Date and
continue for the term of [*]
6. Term and Termination. Subsection 6.2(a), After the first clause, ending
with the word "breach", add the following:
[*]
7. Term and Termination. Subsection 6.3(a), Effect of Termination, is
deleted in its entirety.
8. General Provisions. A new subsection 9.11 is added as follows:
[*]
9. Defined Terms. All capitalized terms in this Amendment, not otherwise
defined herein, shall have the meanings ascribed to them in the Agreement.
10. Ratification and Affirmation. The Agreement, as modified by the express
terms of this Amendment, is hereby ratified and affirmed by Customer and
Concentric, and shall remain in full force and effect.
IN WITNESS WHEREOF, the Parties have executed this Amendment effective as
of the date first above written.
CUSTOMER: CONCENTRIC:
CORIO CORPORATION CONCENTRIC NETWORK CORPORATION
By: /s/ GEORGE KADIFA /s/ HENRY R. NOTHHAFT
----------------- -------------------
Name: George Kadifa Name: Henry R. Nothhaft
--------------- -----------------
Title: President & CEO Title: CEO
--------------- -----------------
Corio Hosting Confidential Page 2 of 10
Amendment One
23 August 1999
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 3
EXHIBIT A
PRICING
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
POINT TO POINT CONNECTION TO DATA CENTER SETUP MONTHLY
- --------------------------------------------------------------------------------
<S> <C> <C>
o Cross Connection [*] [*]
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NETWORK PERFORMANCE DATA FEEDS TO CORIO SETUP MONTHLY
- --------------------------------------------------------------------------------
<S> <C> <C>
o Management System setup and use for
1,000 end points [*]
- --------------------------------------------------------------------------------
o Pinging of alternate connections
data feed [*] [*]
- --------------------------------------------------------------------------------
o Vertical notification per data feed if
requested at the time of installation [*]
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TAPE BACK UP TAPES 30-60 GBS OF STORAGE PER TAPE
- --------------------------------------------------------------------------------
<S> <C>
o Per tape (30 to 60 GBs) [*]
- --------------------------------------------------------------------------------
</TABLE>
CORIO PER SERVER HOSTING SERVICE:
[*]
(per server per month charge to include the following components found on this
page and the next page)
Server Management
o Server management up to the OS level
ASSET MANAGEMENT SYSTEM
Corio specific asset management system
Corio Hosting Confidential Page 3 of 10
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the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 4
REPORTING SERVICES
o Server outage reporting
o Bandwidth utilization reporting
o Corio specific tape backup reporting
o Corio specific asset management reporting
TAPE BACKUP
o All physical effort involved with tape backups
o Management of tape backup system as defined in the statement of work
SYSTEM ENGINEERING SERVICES
o Up to 1 hours per server per month
ENVIRONMENT (16 FT. X 16 FT. CORIO CAGE)
o Secure, scalable areas including locked cabinets, racks, shelves, locked
cages and private suites
o Telco hardened
o Environmental controls
o Redundant heating, ventilation and air condition systems
o Physically secure with escorted access at all times
o Fire Master 200 Fire Suppression System
o Redundant, built-in, clean, continuous power distribution units to servers
o Redundant power. UPS & diesel generator power back-up
o Telco Relay Racks.
o standard 19" rack mount
o cable guides on both sides of each rack
o circuit drops directly to their network cabinet.
***ASSUMPTIONS: CORIO PROVIDES "CORIO SPECIFIC": SERVERS, ROUTERS, SWITCHES, AND
TAPE BACKUP EQUIPMENT
***SUSTAINED ENGINEERING WORK TO BE BILLED AT $150.00 PER HOUR
Corio Hosting Confidential Page 4 of 10
Amendment One
23 August 1999
<PAGE> 5
- --------------------------------------------------------------------------------
SERVER SETUP:
[*]
o Drop Shipment receipt of server
o Inventory of server
o Corio specific asset tagging of server
o Server assembly
o All installation and configuration of Corio specific software
o Installation of server within Corio data center
o Configuration of all server specific monitoring systems
o Management and storage of Corio equipment
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRELIMINARY ENGINEERING DESIGN WORK:
[*]
o [*]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
START UP ENGINEERING SUPPORT:
[*]
o Implementation plan defining of all Corio specific procedures
o Please refer to implementation plan for all items covered
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INFRASTRUCTURE RACK: 1 RACK FOR EACH 16 X 16 SPACE
[*]
o Concentric will provide 1 open telco rack for Corio installed
infrastructure machines in a 16 X 16 foot space.
o Machines on this rack will be installed by Corio and maintained by Corio.
o If Corio elects to have Concentric install and manage servers, then the
per server price will apply
- -------------------------------------------------------------------------------
Corio Hosting Confidential Page 5 of 10
Amendment One
23 August 1999
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 6
MONTHLY RECURRING CHARGES: CO-LOCATION BANDWIDTH FOR INTERNET ACCESS NOT ACCESS
TO CONCENTRIC DAF LINES.
Monthly Recurring Charges
<TABLE>
<CAPTION>
Description
Bandwidth Options (includes first 8" rack space) [*]
- ----------------- ------------------------------ -----------
<S> <C> <C>
o 500 Kbps Dedicated Switched Ethernet [*]
o 1 Mbps Dedicated Switched Ethernet
o 2 Mbps Dedicated Switched Ethernet
o 4 Mbps Dedicated Switched Ethernet
o 10 Mbps Dedicated Ethernet
10 Mbps
11 Mbps
12 Mbps
13 Mbps
14 Mbps
15 Mbps
16 Mbps
17 Mbps
18 Mbps
19 Mbps
20 Mbps
30 Mbps
40 Mbps
50 Mbps
60 Mbps
70 Mbps
80 Mbps
90 Mbps
100 Mbps
</TABLE>
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[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 7
DISCOUNTS & INCENTIVE OFFER TERMS
DISCOUNTS
Concentric will provide Corio with the following discount schedule for
dedicated hosting services.
<TABLE>
<CAPTION>
<S> <C>
[*] [*]
</TABLE>
[*]
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Amendment One
23 August 1999
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 8
EXHIBIT B
STATEMENT OF WORK
CUSTOM CO-LOCATION AND NETWORK SERVICES
In accordance with the specifications & requirements provided in this Exhibit,
Concentric will be a networking and hosting partner for Customer. Concentric
will manage a Customer specific hosting environment and provide various forms
of data connectivity to the hosted environment. Concentric will manage Customer
servers, provide Customer specific reports on: server, bandwidth, tape
backup and assets. Concentric will also manage the complete data backup
procedures. The Concentric support center will provide helpdesk to helpdesk
incident identification, escalation and management of server and network events.
1) SECTION ONE: CO-LOCATION SERVICES
a) Corio provided components:
i) Hardware:
(1) If Corio procures and owns their own equipment it may
consist of a combination of Approximately 20 Sun E250,
E450, D1000 and Ultra servers for Infrastructure (WWW, mail,
ftp, etc.), Implementation (staging of new Corio customers
before production), and Production.
(2) Corio can supply tape backup equipment for a dedicated
backup application. Additionally, acquisition of backup
systems can be transferred to Concentric if required.
ii) Application level software (People soft, Oracle database server,
mail server and FTP server)
iii) Corio staff to be present at Concentric Network for the first 10
installs of production systems for Corio co-located services.
iv) Ownership, installation and management of the Operating Systems
and patches until otherwise requested. At some point, it may
become advantageous for Corio to transfer this responsibility to
Concentric Network.
v) Corio can provide management of all access lists on the router
gateway to and from the co-located service. This includes the
routers and switches associated with defining the data path of
all Corio customers. This means that Corio will construct all
changes to the access lists for each customer site and each
internal VLAN.
vi) Management software for a "Manager of Management Tools"
application. Concentric can provide monitoring feeds to Corio.
Corio will provide a software environment where those feeds are
assembled and reported.
b) Concentric provided components:
i) Space within the Concentric Network HQ for a Corio
representative to work while the initial set (10) of
installations takes place.
ii) Hardware and associated services.
(1) 16 X 16 Co-location cage
(2) Up to 19 open Telco racks and associated switches and
cables. At least one of the racks will be dedicated to
network equipment.
(3) Power, fire detection and suppression systems, environmental
controls, and 7 X 24 site security including online cameras,
breach alarms, automated police notification and limited
card key access to all secure zones.
(4) CNC may lease to Corio, A Router, switch and associated
cabling for incoming network connections both from
Concentric and alternate service providers.
(5) Firewall and encryption boxes plus configuration and
management of these services can be supplied by Concentric
if required by Corio.
(6) Concentric can procure and lease to Corio the Hardware for
the production co-located services if required.
Corio Hosting Confidential Page 8 of 10
Amendment One
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<PAGE> 9
(7) Tape backup service components to include:
(a) Can include the procurement of equipment to perform
backup where Concentric Network will bill Corio back for
the dedicated hardware.
(b) Physical tape swapping once a week
(c) Off site storage of tapes
(d) Tape rotation
(e) Coding of tapes for retrieval of backup
(f) Administration of the backup servers
(g) Tape backup equipment
(h) Retrieval and loading of tapes for restoration.
(i) Legato Tape data identification library.
iii) Software
(1) Legato Software and management thereof for tape backup
systems
(2) Micromuse software for the retrieval of data to facilitate
monitoring of the co-located server environment as well as
Corio end users CPE. The service provided by the use of this
software allows for Concentric to send a simple "ping" to a
port of a Co-located machine or to an end customer site and
report the status of that machine to a log where it can then
be fed to an agreed upon monitoring tool. This will allow
Concentric Network to determine the status of the machines
and escalate to Corio if there is a non-response. This will
also allow Corio a "view" into the status of all the above
mentioned devices.
iv) Server Staging and Installation:
(1) Installation of all hardware for Corio co-located
environment whether procured by Concentric Network or Corio.
(2) Auto install of base software/operating systems from a Corio
provided master can be provided by Concentric. As a
benchmark for an installation process the first 10 machines
(approximately) will be staged and installed by a
collaborative effort between Concentric Network and Corio.
If an auto installation can be mutually agreed upon
Concentric will provide auto loading of master systems onto
the Corio production servers.
(3) Asset Management system to distinguish between and manage
Concentric and Corio hardware components. Components to
include:
(a) Tagging
(b) Tracking
(c) Update reports provided either via email or an updated
web site.
2) SECTION TWO: NETWORK SERVICE
a) Concentric Provided Components:
i) Network design specification and diagram of proposed LAN, WAN,
and VPN components to be provided by Concentric. Corio and
Concentric Network to jointly develop the final versions of the
network design specification and diagram once the overall
concepts are agreed upon.
ii) Cross Connections of Corio customer dedicated access from
alternate network service providers into the Corio custom
co-location server environment. Components of this service
include;
(1) Acceptance of the alternate provider demarcation in the
Concentric Network Telco room and patching of that line into
the Corio designated server port.
(2) Monitoring of the cross connected patch panels and cables.
iii) Concentric network Dedicated Access Facilities service to Corio
customers for access to the Corio co-located server environment.
iv) Installation and management of the Corio custom router
environment excluding the management of the actual access lists.
v) Security Services:
(1) Firewall configuration, installation, monitoring and
management to be provided if required.
(2) VPNet Encryption configuration, installation, monitoring and
management for both the co-location environment and for
customer sites (CNC DAF and alternate provider sites) if
required.
vi) Network Monitoring of all co-located devices.
vii) Monitoring of all customer premise sites.
viii) Proactive notification of outages.
Corio Hosting Confidential Page 9 of 10
Amendment One
23 August 1999
<PAGE> 10
3) SECTION THREE: SUPPORT SERVICE
Parties will mutually agree upon Corio specific support and escalation
procedures to address all of the following components:
a) Data Center Support provided by Concentric:
i) Managed server support for Corio co-located servers to include:
(1) Tape backup management
(2) Full backups in time frames to be provided by Corio.
(3) Server installation and upkeep
(4) Router and switch installation and upkeep
(5) Cross-connection of alternate providers into the co-located
server environment
(6) Power cycle of downed machines
(7) Loading of base applications if required.
ii) Varying levels of escalation of detected outages of Corio servers
(all escalation notification to be provided to Corio. Corio to
then escalate to their customers if needed). Notification to
include:
(1) Infrastructure outages
(2) Implementation server outages
(3) Corio customer production server outages (of the highest
priority)
(4) Customer premise outages
iii) Direct intervention in error correction of Corio server outages
up to the basic OS level
iv) Reporting on bandwidth usage, backup usage and status, outages
and errors. Reports to include:
(1) MRTG online report tool for bandwidth usage out of the
co-location facility
(2) Micromuse reports and logs
(3) A Read Only view into Open View of the Corio servers and
customers.
b) Network Operations Center support services
i) Concentric Network to provide direct access (read only) to
systems monitoring tools for their co-location and end customer
sites.
ii) Concentric Network to provide, in accordance to mutually agreed
upon support procedures, monitoring down to the customer premise
router for Corio customers cross connected to the co-location
servers via Alternate Provider access, and reporting to Corio
when Concentric is unable to "ping" remote devices.
iii) Concentric Network to provide monitoring down to the customer
premise router for all Concentric Provided DAF lines to Corio
customers.
iv) Concentric to provide a dedicated contact for access into the
trouble tracking system for the Corio systems and their customer
connections.
c) Operations Desk support service
i) Concentric to provide help desk to help desk escalation of
problems to the first tier Corio support staff for escalation to
Corio customers and vice versa. Ops desk would be the mouth-piece
and trouble ticket contact for both co-location and DAF/Alternate
provider escalation services.
ii) Maintenance policies to be defined to Corio and any possible
customer effecting maintenance service notifications to be
provided proactively to Corio.
Corio Hosting Confidential Page 10 of 10
Amendment One
23 August 1999
<PAGE> 1
EXHIBIT 10.11
OUTSOURCER ALLIANCE AGREEMENT
WITH
CORIO, INC.
This Outsourcer Alliance Agreement ("Agreement") is made as of the Effective
Date by and between PeopleSoft USA, Inc., a California corporation having its
principal place of business at 4305 Hacienda Drive, Pleasanton, CA 94588
("PeopleSoft") and Corio, Inc., a Delaware corporation with offices at 700 Bay
Road, Suite 210, Redwood City, CA 94063 ("Service Provider"). As used herein,
the term "Parties" shall refer to PeopleSoft and Service Provider collectively,
and the term "Party" shall refer to PeopleSoft or Service Provider.
Whereas, the Parties intend to develop a business relationship to provide
Service Provider with rights to leverage its expertise in the outsourcing
service business by remotely hosting the Software to provide a solution within
its outsourcing business to offer the Software under sublicense as provided in
this Agreement as part of an integrated solution (the "Solution Offering");
Whereas, in every situation with a Designated Customer, the Designated Customer
will procure, or will have procured, either a license to use the Software from
Service Provider pursuant to a Sublicense Agreement;
Whereas, the Parties intend that this Agreement be entirely independent of other
agreements between the Parties or that may be contemplated by the Parties, and
that any payments under this Agreement be non-refundable and non-cancelable; and
Whereas, the Parties intend that this Agreement shall replace and supersede in
its entirety that certain Outsourcer Alliance Agreement dated as of September
30, 1998 by and between the Parties (the "Prior Agreement").
Therefore, the Parties agree as follows:
1. DEFINITIONS
"ACTIVE USER" means a Designated User to whom a user identification number and
password has been assigned, which permits that user to access and use the
Software on a designated Service Provider server, and that is not a Casual User
(as defined below).
"APPLICATION MANAGEMENT" ("AM") means Service Provider's management of Software
for a Designated Customer on Service Provider's owned, leased, or subcontracted
for premises or premises otherwise under Service Provider's control, such that
Service Provider manages the Designated Customer's Software, applications
upgrades, performs routine maintenance, applies fixes, performance tuning, and
system enhancements, using PeopleTools, and other functions typically performed
by an in-house IT staff. These services may also include the performance of such
functions as DBA and OS administration, in connection with the Software and
business processes supported by the Software.
"CASUAL USER" means a Designated Customer who is authorized to use the Software
solely to complete a limited group of functional tasks, which will change from
time to time and initially includes the following tasks: report execution,
inquiry and remote order entry.
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
Page 1 of 33
<PAGE> 2
"COMMERCIAL ENTERPRISE" means only enterprises within the Market Segments with
annual revenues of not more than [*], as reported on a consolidated basis in (1)
such enterprise's most recent fiscal year end audited financials, or if not
available, (2) by the One Source database, or comparable database, with the
exception of enterprises in the higher education and government (public sector
and federal) segments where only a right of first refusal to a third party is in
effect.
"COMPETITIVE ASP" means any company that offers ERP Software on a hosted and
subscription basis delivered over the World Wide Web or a private network to
Commercial Enterprises.
"DESIGNATED CUSTOMER(S)" means only End Users which, at the date of execution of
an Outsourcing Agreement with Service Provider, is a Commercial Enterprise which
has corporate headquarters in North America.
"DEVELOPMENT CENTER" means the location(s) of facilities owned, leased,
subcontracted for, or otherwise under Service Provider's control, including a
Designated Customer's location where Service Provider uses or utilizes the
Software pursuant to the subsections entitled Internal Use License or
Development License.
"DOCUMENTATION" means the user guides and manuals for installation and use of
the Software in computer readable or bound hard copy form, if computer readable
form is unavailable.
"EFFECTIVE DATE" means January 1, 1999.
"END USER" means a third party sublicensee of the Software that acquires rights
from PeopleSoft through a sublicense from Service Provider pursuant to section
2(d) to use the Software solely for such party's own internal business purposes
and not for distribution, further sublicensing, or other commercial purposes.
"FEES" means the fees set forth on Exhibit A hereto.
"INTELLECTUAL PROPERTY RIGHTS" means any patent, patent application, copyright,
moral right, trade name, trademark, trade secret, copyright, and any
applications or right to apply for registration therefor, know-how, mask work,
schematics, computer software programs or applications, tangible or intangible
proprietary information, or any other intellectual property right or proprietary
information or technology, whether registered or unregistered and whether first
made or created before or after the Effective Date.
"MARKET SEGMENTS" are limited under this agreement to all industries within the
Territory, with the exception of the higher education and government (public
sector and federal) segments where only a right of first refusal is in effect.
"OUTSOURCING AGREEMENT" means a separate agreement between Service Provider and
a Designated Customer for the provision by Service Provider to the Designated
Customer of Outsourcing Services, which includes a Sublicense Agreement.
"OUTSOURCING CENTER" means the location(s) under Service Provider's control,
owned, leased, subcontracted for or otherwise, including at which Service
Provider may perform Outsourcing Services.
"OUTSOURCING SERVICES" means the provision of Applications Management (AM)
services to a Designated Customer.
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
Page 2 of 33
<PAGE> 3
"PREFERRED ASP PARTNER" shall mean an applications service provider that has
been granted the following preferential rights by PeopleSoft: (i) the right to
be referenced as a "Preferred ASP Partner" and (ii) the right to freely and
independently market, sell and host the Software without PeopleSoft
participation.
"SOFTWARE" means the then current release or version of the products listed in
Exhibit A as "Software, and includes updated or enhanced versions of such
programs that PeopleSoft provides only as part of Support Services. Software
does not include any third party software or new software or technology for
which PeopleSoft generally charges a separate fee, but does include left of
decimal changes to the current Software products. Software shall include any
third party software components to which PeopleSoft has certain ongoing rights
pursuant to the terms of an existing specific written license agreement between
PeopleSoft and the third party developer of such components, and which third
party software components shall be provided to Service Provider only to the
extent provided by PeopleSoft pursuant to the terms of the standard PeopleSoft
License Agreement then in effect to any licensee licensing any commercially
available software programs and products from PeopleSoft. Software includes
Documentation.
"SUBLICENSE" means a non-exclusive, non-transferable, term (non-perpetual) right
granted by Service Provider under a Sublicense Agreement to a Designated
Customer or End User, as the case maybe, to use the Software solely for such
Designated Customer's or End User's internal business purposes, in accordance
with the Documentation, and pursuant to a Sublicense Agreement.
"SUBLICENSE ADDENDUM" shall mean an addendum to this Agreement specifying
additional Sublicense terms and which may be granted by Service Provider.
"SUBLICENSE AGREEMENT" means a written agreement between Service Provider and an
End User whereby a Sublicense is granted, and that complies with the provisions
of Section 2(d).
"SUPPORT SERVICES" means PeopleSoft's then current technical support services
for Service Provider. A statement of Support Services offered as of the
Effective Date is attached hereto as Exhibit B.
"TERRITORY" means [*]. The prior written consent of PeopleSoft shall be required
to provide Outsourcing Services to any Designated Customers headquartered
outside of the Territory.
"USER FEE(S)" means the aggregate Active User Fee and Casual User Fee.
2. LICENSE GRANTS
(A) OUTSOURCING SERVICES LICENSE.
Subject to the terms and conditions of this Agreement (including Service
Provider's obligation to pay PeopleSoft Fees), PeopleSoft hereby grants to
Service Provider a worldwide, non-exclusive (except in accordance with section
3(b)(1)), non-transferable, restricted license during the term of this Agreement
to use the Software solely to perform the Outsourcing Services at an Outsourcing
Center and to make a reasonable number of laptop (single user) and server
(multi-user) copies solely for demonstration purposes. Service Provider may
copy, distribute and/or electronically distribute the Software within Service
Provider for the purposes set forth in this subsection. For the fees set forth
in section 1 of Exhibit A, Service Provider shall have the right to make a
reasonable number of copies of the Software for such purposes. Service Provider
shall reproduce all titles, trademarks, and copyright and restricted rights
notices in the Software in all such copies. Except as set forth above, Service
Provider may not transfer or duplicate the Software except for (i) temporary
transfer in the event of a CPU malfunction and (ii) a single backup and archival
copy. Service Provider will not
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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<PAGE> 4
allow any third party, including an employee or other representative of a
Designated Customer, to use the Software under this license grant. Service
Provider further agrees to use the Software only in accordance with the
Documentation, on a computer and operating system configuration specified in the
Documentation and in accordance with the obligations imposed by this Agreement.
Service Provider warrants to PeopleSoft that it will perform the Outsourcing
Services with due care and skill and in accordance with generally accepted
professional standards for providing similar services. Service Provider will not
disclose or publish to any third party any results of benchmark tests run on the
Software.
(B) RESTRICTIONS ON USE.
Service Provider agrees not to translate the Software into another computer
language, in whole or in part. Except as set forth above, Service Provider shall
not make copies or make media translations of the Software or the Documentation,
in whole or in part without PeopleSoft's prior written approval. Service
Provider agrees that if, for any reason, it comes into possession of any
Software source code, or portion thereof, for any PeopleSoft product, which it
knows or reasonably should know is source code not generally provided by
PeopleSoft as a part of the Software or provided under the terms of a license
grant in this Agreement, it will immediately deliver all copies of such source
code to PeopleSoft. Service Provider acknowledges PeopleSoft's representation
that the Software and its structure, organization and source code constitute
valuable trade secrets that belong to PeopleSoft. Service Provider agrees that
it shall not reverse compile, disassemble or otherwise reverse engineer the
Software and that it shall not use the Software or Documentation except as
expressly permitted by this Agreement.
(C) MARKETING AS PART OF OUTSOURCING SERVICES
PeopleSoft hereby grants to Service Provider the non-exclusive, nontransferable
right to market and distribute the Software to End Users solely as part of
Service Provider's provision of Outsourcing Services.
(D) SUBLICENSE TRANSACTIONS.
As further set forth in the applicable Sublicense Addendum and subject to the
terms and conditions of this Agreement (including Service Provider's obligation
to pay PeopleSoft the Fees), PeopleSoft hereby grants to Service Provider a
worldwide, non-exclusive, non-transferable license during the term of this
Agreement to market and grant Sublicenses to the Software to sublicensees (each
a "Sublicensee") as set forth in such Sublicense Addendum ("Sublicense
Transaction"). Service Provider shall only have the right to Sublicense the
Software pursuant to a written Sublicense Agreement, for such term as the
parties will mutually agree from time to time and, which is substantially in the
form of the Alliance Partner License Agreement attached hereto as Exhibit C.
Service Provider shall have to right to (i) notify any Designated Customer of a
migration option that would permit a Designated Customer who has been a Service
Provider Designated Customer for at least three (3) years to migrate from
Service Provider's Outsourcing Services to licensing the Software pursuant to a
perpetual license at a discounted rate; and (ii) sell the Software to that
Designated Customer for a discounted rate not to be less than [*] of the
then-current standard PeopleSoft perpetual license list price. If Service
Provider executes any such sales transactions, Service Provider shall remit to
PeopleSoft an amount equal to [*] of the then-current standard PeopleSoft
perpetual license price and any additional amount received by Service Provider
from the Designated Customer shall be retained by Service Provider.
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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3. EXCLUSIVITY
(A) BY SERVICE PROVIDER.
For [*] following the Effective Date, Service Provider shall not market, sell,
host, or otherwise provide access to, any software in connection with the
Outsourcing Services which could compete or does compete directly with
PeopleSoft's core current Software products. The Parties agree that they will
meet as necessary to discuss the scope of the products included in this
exclusivity section prior to Service Provider marketing, selling, hosting, or
otherwise providing access to, any software in connection with the Outsourcing
Services. This exclusivity applies solely to the Software and not to any new
products PeopleSoft may introduce which are beyond the scope of PeopleSoft's
Software offerings as of the Effective Date.
(B) BY PEOPLESOFT.
(1) For [*] following the Effective Date, PeopleSoft shall not start, fund,
or otherwise invest in any Competitive ASP. If PeopleSoft breaches the
provision of this section 3 (b)(1), as the sole and exclusive remedy of
Service Provider, Service Provider's obligations under section 3(a)
shall immediately cease to apply and to have effect, and Service
Provider shall only be free to offer any other software, including,
without limitation, software products that are competitive with the
Software, in connection with its provision of outsourcing services. For
the avoidance of doubt, this subsection shall not in any event apply in
any way to PeopleSoft's right to start, fund or invest in any
technology, software or services that is not based upon PeopleSoft's
PeopleTools architecture.
(2) Notwithstanding anything to the contrary in this Agreement, as
consideration for the Technology Access Fee set forth in Exhibit A, for
[*] following the Effective Date, PeopleSoft grants Service Provider a
worldwide, exclusive, non-transferable, restricted license during the
term of this Agreement to use the Software solely to perform outsourcing
services at Outsourcing Centers; provided, however that exceptions to
the foregoing exclusive license and exclusivity rights and obligations
shall be: (a) the PeopleSoft/Usinternetworking outsourcing agreement as
amended during March 1999; and (b) PeopleSoft's right, in its sole
discretion to grant during such period of exclusivity licenses for
outsourcing services to not more than three (3) new third party entities
that are not Preferred ASP Partners. All non-conflicting terms and
conditions of section 2(c) shall apply and govern with respect to this
license grant.
(3) If PeopleSoft breaches either section 3(b)(1) or (b)(2), as the sole and
exclusive remedies of Service Provider, (i) Service Provider's
obligations under section 3(a) shall immediately cease to apply and to
have effect, and Service Provider shall only be free to offer any other
software, including, without limitation, software products that are
competitive with the Software, in connection with the its provision of
outsourcing services, and (ii) Service Provider may cease making any
quarterly payments as set forth in Section 2 of Exhibit A for amounts
due for the period after the effective date of breach by PeopleSoft;
provided, however, that Service Provider shall remain obligated to make
any payments due to PeopleSoft for the period up to and including such
effective date of termination.
4. TECHNICAL SERVICES
(A) SOFTWARE INSTALLATION.
PeopleSoft shall ship the Software for installation at Service Provider's Santa
Clara Outsourcing Center at the prevailing rates for installations taking up to
five days. Additional installations will occur at the other Service
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the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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Provider Outsourcing Centers thereafter as the parties agree in writing. Under
any other circumstance, installation will be at PeopleSoft's then current
standard commercial time and materials hourly or daily rates.
(B) TRAINING.
PeopleSoft shall provide Software training to Service Provider at a PeopleSoft
training center on a mutually agreeable date(s) during the first year following
the Effective Date at the rates set forth in Exhibit A hereto. At the Designated
Customer's request, Software training for the Designated Customer will be
provided as part of the implementation either Service Provider, a third party,
or PeopleSoft at their respective then-current prevailing rates.
(C) IMPLEMENTATION.
Service Provider shall be responsible for the Designated Customer's Software
implementation efforts. Service Provider may choose to subcontract some or all
of the implementation to PeopleSoft but in that event, PeopleSoft, as a
subcontractor, shall be contractually obligated only to Service Provider
pursuant to the terms of the relevant subcontract, and not to any third party.
The fees for any such implementation by PeopleSoft shall be as set forth in
Exhibit A hereto.
(D) SUPPORT SERVICES.
Service Provider will provide Designated Customers with the first level of
software support to the Designated Customers. In consideration of the fees set
forth in Exhibit A, PeopleSoft will provide Service Provider with Support
Services as set forth in Exhibit A. With respect to support, the Parties agree
to meet bi-annually for engineering/architecture meetings. The appropriate
personnel and topics of discussion for each meeting shall be determined on a
meeting-by-meeting basis.
(E) CONSULTING.
Service Provider will provide ongoing consulting to Designated Customers which
will include the application of Software fixes and upgrades.
(F) INCIDENTAL EXPENSES.
For any on-site services requested by Service Provider, Service Provider shall
reimburse PeopleSoft for actual, reasonable travel and out-of-pocket expenses
incurred.
5. DELIVERY
All Software and Documentation for which delivery from PeopleSoft is required
under this Agreement shall be shipped by PeopleSoft FOB PeopleSoft's
manufacturing facility. Software and Documentation will be deemed accepted upon
shipment by PeopleSoft.
6. TERMS
(A) LICENSE FEES.
Service Provider shall pay PeopleSoft the applicable fees as set forth in
Exhibit A.
(B) MINIMUM FEES
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<PAGE> 7
During years 3, 4, 5 and 6 of the term of this Agreement, if applicable, Service
Provider shall pay annual fees to PeopleSoft equal to the greater of: (i) the
total amount of User Fees attributable to its Designated Customers or (ii) [*]
(the "Annual Minimum"). During years 7, 8, 9 and 10 of the term of this
Agreement, if applicable, Service Provider shall pay annual fees to PeopleSoft
equal to the greater of: (i) the total amount of User Fees attributable to its
Customers or (ii) [*] (the "Annual Minimum"). Upon the anniversary of the
Effective Date during these aforementioned contract term years, if Service
Provider has not paid PeopleSoft the applicable Annual Minimum in User Fees.
within thirty (30) days of the applicable anniversary of the Effective Date,
Service Provider shall pay to PeopleSoft the difference between the Annual
Minimum and the actual amount of User Fees paid to PeopleSoft in the previous
twelve (12) month period.
(C) REPORTING.
Within ten (10) days after the end of each month, Service Provider shall provide
PeopleSoft with a written report in a form to be agreed by the Parties within a
reasonable time after the Effective Date. Such reports shall, at a minimum,
contain Service Provider information detailing: operational information, service
customer data and demographics, software modules licensed for service, customer
support operational information, customer performance information, and all other
information tracked by Service Provider and needed, in PeopleSoft's sole, but
reasonable discretion, to calculate and verify the Fees owed to PeopleSoft
during such reporting period, including without limitation break down by month,
product and on a cumulative basis. The Parties agree that they will specify such
information to be included in such reports on an on-going basis during the term
of the Agreement.
(D) TIMING OF PAYMENTS.
All User Fees shall be due and payable within thirty (30) days of the end of a
month and shall be made without deductions based on any taxes or withholdings,
except where such deduction is based on PeopleSoft's net income.
(E) PAYMENT MECHANICS.
All payments made by Service Provider shall be in United States Dollars and
directed to:
<TABLE>
<S> <C>
Wire Instructions: Lockbox
Wells Fargo Bank Regular Mail: PeopleSoft USA, Inc.
ABA# 121000248 Dept. CH10699
Commercial Banking Office Palatine, IL 60055-0699
One Kaiser Plaza, Suite 850
Oakland, CA 94612 FEDEX: PeopleSoft USA, Inc.
For Account of: PeopleSoft, Inc. c/o Mellon Financial Svcs
Account # 4103-135729 5505 N. Cumberland, #307
(*Please reference PeopleSoft name and invoice Chicago, IL 60656-60656
on the reference line of the wire) (Pls ref. Invoice # on check)
</TABLE>
(F) OVERDUE AMOUNTS AND TAXES.
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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<PAGE> 8
Any amounts not paid within thirty (30) days will be subject to interest accrued
at the lower of the prime rate as published by Bank of America, NT & SA (or
successor) or twelve percent (12%) p.a. compounded quarterly, which interest
will be immediately due and payable from the due date for payment until the date
of actual receipt of the amount in cleared funds by PeopleSoft. In addition to
any other payments due under this Agreement, Service Provider agrees to pay,
indemnify and hold PeopleSoft harmless from, any sales, use, excise, import or
export, value added or similar tax or duty, and any other tax not based on
PeopleSoft's net income, including penalties and interest and all government
permit fees, license fees, customs fees and similar fees levied upon the
delivery of the Software or other deliverables which PeopleSoft may incur in
respect of this Agreement, and any costs associated with the collection or
withholding of any of the foregoing items.
(G) NEW VERSIONS.
PeopleSoft may, at its sole discretion, modify the Software. For purposes of
this Agreement, PeopleSoft shall have sole discretion as to whether a product is
deemed to be a new version of an existing Software program to be provided to
Service Provider under the terms of this Agreement, or a new product. Once a new
version of an existing Software program begins shipping but before PeopleSoft
ceases support of said prior version in accordance with its Support Services,
Service Provider shall cease to use the prior version and will remove the prior
versions from its servers and destroy such prior version; provided, however,
that in no event shall the foregoing obligate or commit PeopleSoft in any way
regarding the availability of new versions.
7. MARKETING OBLIGATIONS.
(A) PARTIES OBLIGATIONS.
(1) Service Provider shall use its all commercially reasonable efforts to
promote, market and offer Outsourcing Services to potential Designated
Customers.
(2) Each Party shall promptly refer all sales or outsourcing leads, as
applicable, to the other Party's designated sales contact.
(3) Upon execution of this Agreement, and thereafter on each anniversary
date of the Effective Date of this Agreement, Service Provider shall
provide a business plan for the ensuing year containing at least the
minimum information specified in the initial business plan. PeopleSoft
acknowledges and agrees that such information is Confidential
Information (as defined in section 11 below) and agrees to protect such
information in accordance with the provisions of section 11.
(4) Preferred ASP Partner. During the 18 month exclusivity period set forth
in Section (3)(b)(2) above, PeopleSoft shall designate Service Provider
as its "Preferred ASP Partner" and each Party shall refer to Service
Provider as such in all applicable public communications, including
announcements, press releases, marketing materials, trade shows and
product brochures.
(5) The Parties agree that during the term of this Agreement, Service
Provider or PeopleSoft may periodically issue press releases or other
marketing statements indicating that: (i) PeopleSoft is an equity
investor in Service Provider, (ii) Mr. Aneel Bhusri is seated on the
Service Provider Board of Directors, and (iii) Service Provider has the
option to offer Outsourcing Services under a long term agreement between
the Parties. The Parties agree that during the eighteen month (18)
period of exclusivity set forth in section 3(b) hereof, Service Provider
or PeopleSoft may periodically issue press releases or other marketing
statements indicating that Service Provider is a Preferred ASP Provider.
Notwithstanding anything to the contrary contained in this Agreement, to
ensure correct usage of trademarks and accuracy of content, each
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<PAGE> 9
Party shall allow the other Party to review all public communications,
announcements, press releases, marketing materials and product brochures
pertaining to the other Party's products prior to their release to the
public or press, and shall incorporate all changes that the other Party
may reasonably request. A Party's failure to respond to the submission
of material with either approval or with any recommended changes within
three (3) business days of the other Party's verified receipt shall be
deemed an approval of the submitted material as submitted. Any repeated
or willful violations of this Section 7(a)(5) shall be deemed a material
breach of this Agreement as set forth in the section entitled
TERMINATION FOR CAUSE below, and shall permit termination of this
Agreement in accordance with that Section.
(6) Alliance Governance. PeopleSoft and Service Provider agree to allocate
the appropriate resources for ensuring the success and constant
improvement of the strategic alliance by establishing an Alliance
Steering Committee. With respect to Outsourcing Services transactions,
components of the Alliance Steering Committee will include, but not be
limited to:
(a) Equal representation from PeopleSoft and Service Provider
management; and
(b) Annual face-to-face reviews covering the following topics (at a
minimum): (1) Market assessment; (2) Client acquisition
progress; (3) Pricing evaluation, (4) Implementation progress
review; and (5) Review of business terms.
(B) SALES OBLIGATIONS
(1) PeopleSoft and Service Provider agree to compensate PeopleSoft sales
representatives for Designated Customers reported to PeopleSoft by
Service Provider for which Service Provider has executed a Sublicense
Agreement and paid to PeopleSoft the Fees as set forth in Exhibit A.
This compensation will be consistent with PeopleSoft's then-current
standard sales compensation policies.
(2) If Service Provider desires to offer Outsourcing Services to a potential
customer that is not a Commercial Enterprise because it has annual
revenues greater than [*], Service Provider must receive PeopleSoft's
prior written consent to pursue such customer, which request shall be
reviewed on a case by case basis Service Provider may continue to
provide Outsourcing Services for any Designated Customer that: (i) after
the date of signing an Outsourcing Agreement, is no longer a Commercial
Enterprise because its annual revenues are greater than [*]; or (ii) is
acquired by an acquiring entity, that is not a Commercial Enterprise
because it has annual revenues greater than [*]; provided, however, that
Service Provider must obtain PeopleSoft's prior written consent to
provide Outsourcing Services to the entity acquiring the Designated
Customer, which request shall be reviewed on a case by case basis.
PeopleSoft's General Manager of PeopleSoft Middle Market and
PeopleSoft's Regional Vice President of Middle Market Sales will be
jointly responsible for granting any written consents required by this
section. PeopleSoft agrees it shall not unreasonably withhold its
consent and shall respond to Service Provider with respect to any
written consent within four (4) business days of receipt of Service
Provider's notice of a potential customer. PeopleSoft's failure to
respond to the request for consent within this four (4) business day
period shall be deemed an approval of Service Provider's request.
(3) PeopleSoft and any third parties that have entered into outsourcer
alliance agreements with PeopleSoft shall retain the right to continue
to market and distribute the Software to the Market Segments. Any
potential channel conflict arising therefrom should be brought
immediately to the attention of PeopleSoft's General Manager of
PeopleSoft Select for resolution.
(4) PeopleSoft and Service Provider agree not to market, sell or otherwise
distribute the Software or
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
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Outsourcing Services to existing end user customers of the other Party
without the prior written consent of such other Party, which consent
shall not be unreasonably withheld.
(C) USE OF TRADEMARKS.
(1) Trademarks. PeopleSoft hereby grants to Service Provider and Service
Provider hereby grants to PeopleSoft a non-exclusive, limited license to
use the PeopleSoft or Service Provider trademarks and logos,
respectively and any other applicable trademarks of each Party
(collectively, the "Trademarks" and singularly the "PeopleSoft
Trademarks" and the "Service Provider Trademarks") solely on the
Software and in advertising and printed materials for the Software or
Outsourcing Services in connection with the Software. All
representations of the other Party's Trademarks that a Party intends to
use shall be exact copies of those used by the owning Party or shall
first be submitted to the owning Party for approval, which shall not be
unreasonably withheld, of design, color and other details. Each party
acknowledges that utilization of the other Party's Trademarks will not
create in it, nor will it represent it has any right, title or interest
in or to the other Party's Trademarks. Each Party acknowledges the other
Party's exclusive ownership of, or right to use, its own Trademarks and
agrees not to do anything to impair or dilute the other Party's rights
in its own Trademarks. Each Party agrees to display the acknowledgment
of the other Party's trademark ownership of the Trademark clearly the
first time it is used in any advertising. Service Provider agrees to
include the PeopleSoft Trademarks on all copies, advertisements,
brochures, manuals, and other appropriate uses made in the promotion,
license or use of the Software.
(2) Quality. Each party agrees that the nature and quality of any products
or services it supplies in connection with the Trademarks shall conform
to the standards set by the owner of the Trademark. Each Party agrees to
cooperate with the other Party in facilitating monitoring and control of
the nature and quality of such products and services.
8. SERVICE PROVIDER OBLIGATIONS
(A) RECORDS.
Each Party agrees to maintain a complete, clear and accurate record for three
(3) years relating to its use and marketing of the Software and Documentation
under this Agreement in accordance with generally accepted accounting
principles.
(B) AUDIT.
Service Provider shall permit an independent certified public accountant agreed
to by Service Provider, who has executed a nondisclosure agreement and who is
not compensated based on the outcome of the audit,, to inspect records
pertaining solely to the Software and any other materials provided to Service
Provider by PeopleSoft to ensure compliance by Service Provider with its payment
obligations to PeopleSoft. Any such inspection and audit shall be conducted not
more frequently than annually, during regular business hours, upon reasonable
prior written notice, and in such a manner as not to interfere with normal
business activities of Service Provider. If an audit reveals that Service
Provider has underpaid applicable Fees to PeopleSoft, Service Provider shall be
invoiced directly for such underpaid applicable Fees, which shall be due and
payable within thirty (30) days of receipt of such invoice. If the underpaid
applicable Fees are in excess of five percent (5%), the Service Provider shall
pay PeopleSoft's reasonable costs of conducting the audit. If an audit reveals
that Service Provider has overpaid applicable Fees to PeopleSoft, PeopleSoft
shall refund any overpayments within thirty (30) days. At PeopleSoft's written
request, not more frequently than annually, Service Provider shall furnish
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<PAGE> 11
PeopleSoft with a signed certification verifying that the Software and
Documentation are being used it accordance with the provisions of this
Agreement.
(C) NOTIFICATION OF INFRINGEMENT.
Service Provider shall promptly inform PeopleSoft by telephone, telex or
facsimile, with written confirmation by mail, if it becomes aware of any facts
indicating that any person is infringing any Intellectual Property Rights of
PeopleSoft or is engaging in unauthorized distribution of any Software or
Documentation.
(D) COMPLIANCE WITH LAWS.
In exercising its rights and performing its obligations under this Agreement,
each Party will comply with all applicable international, national and local
laws and regulations. Each Party further agrees not to violate any provisions of
the U.S. Foreign Corrupt Practices Act of 1977 as amended, which generally
prohibits the payment of moneys or anything of value to government officials in
order to obtain benefits from such government officials or their governments.
Without limiting the generality of the foregoing, neither Party will use or
re-export, or permit any person to use or re-export the Software or
Documentation, without all required licenses, and each Party will comply, and
will require all of the Designated Customers to comply, with all applicable
export and import control laws. Each Party will defend, indemnify and hold
harmless the other Party and its successors, agents, officers, directors and
employees from and against any violation of any laws or regulations by such
Party or any of its agents, officers, directors, employees or customers.
9. MODIFICATIONS
The Parties agree and acknowledge, subject to PeopleSoft's underlying
proprietary rights, that Service Provider may create Software modifications for
a certain Designated Customers at such Designated Customer's request which
modifications would not compete with any of PeopleSoft's product offerings
solely and exclusively for Service Providers' Designated Customers' internal
business operations ("Modifications"). As between Service Provider and
PeopleSoft, subject to PeopleSoft's underlying proprietary rights in PeopleTools
and/or PepperTools, Service Provider shall own all right, title, and interest in
and to any such Modification developed by Service Provider and all Intellectual
Property Rights therein and thereto. Service Provider agrees to use such
Modification only for Service Provider's internal business operations and/or the
internal use by its Designated Customers. Further, Service Provider shall not
sell, distribute or license such Modification to any other third parties.
To the extent that Service Provider desires to have PeopleSoft provide support
for such Modification consistent with PeopleSoft's Support Services, Service
Provider will notify PeopleSoft and deliver to PeopleSoft the source and object
code versions of such Modification, and any updates or further modifications
thereto, and if PeopleSoft accepts the Modification for the provision of Support
Services, PeopleSoft shall then have a perpetual, irrevocable, worldwide,
royalty free license from Service Provider to use, enhance, distribute,
sublicense and incorporate such Modification into PeopleSoft's software
products.
If Service Provider elects to undergo development during the term of this
Agreement of a technical or functional addition to the Software, designed to
improve functionality and/or operations, which is not a Modification
("Enhancement"), Service Provider and PeopleSoft shall negotiate in good faith a
separate software development and license agreement which would provide for, at
a minimum, ownership of and licenses to any such Enhancement as well as
intellectual property indemnification with respect to such Enhancements. For the
avoidance of doubt, all Modifications and Enhancements that include PeopleTools
or
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PepperTools shall be subject to PeopleSoft's underlying proprietary interests in
PeopleTools and PepperTools.
10. OWNERSHIP OF INTELLECTUAL PROPERTY RIGHTS
(a) Service Provider acknowledges that the structure, organization and code of
the Software are proprietary to PeopleSoft and that PeopleSoft retains exclusive
ownership of the Software, Documentation and Trademarks Service Provider will
take reasonable measures to protect PeopleSoft's Intellectual Property Rights in
the Software, Documentation and Trademarks, including such assistance and
measures as are reasonably requested by PeopleSoft from time to time. Except as
provided herein, Service Provider is not granted any other Intellectual Property
Rights, or any other rights, franchises or licenses, with respect to the
Software. Documentation or Trademarks.
(b) Except as provided in the Section entitled Modifications, any Intellectual
Property Rights developed by Service Provider with PeopleSoft's direct
assistance in connection with the license grants shall be owned by PeopleSoft,
and therefore Service Provider irrevocably assigns to PeopleSoft all right,
title and interest worldwide in and to such Intellectual Property Rights. If
Service Provider has any rights to such Intellectual Property Rights that cannot
be assigned to PeopleSoft, Service Provider unconditionally and irrevocably
waives the enforcement of such rights, and all claims and causes of action of
any kind against PeopleSoft with respect to such rights, and agrees, at
PeopleSoft's request and expense, to consent in writing to and join in any
action to enforce such rights. If Service Provider has any rights to such
Intellectual Property Rights that cannot be assigned to PeopleSoft or waived by
Service Provider, Service Provider unconditionally and irrevocably grants to
PeopleSoft during the term of such rights, an exclusive, (subject to Service
Provider's own right to use as set forth above) irrevocable, perpetual,
worldwide, fully paid and royalty-free license, with rights to sublicense
through multiple levels of sublicense, to reproduce, create derivative works of,
distribute, publicly perform and publicly display by all means now known or
later developed, such rights.
(c) Service Provider shall indemnify and hold harmless PeopleSoft from and
against any suits, actions, losses, damages and other expenses arising out of or
in connection with any claim that any Software Modifications, as delivered by
Service Provider to a Designated Customer infringes or violates a U.S. or
Canadian patent, copyright, trademark, trade secret or other proprietary right
of any third party; provided PeopleSoft (i) notifies Service Provider in writing
within ten (10) days of such claim, suit or proceeding, (ii) gives Service
Provider the right to control and direct the investigation, preparation, defense
and settlement of any claim, suit or proceeding; and (iii) gives assistance and
full cooperation for the defense of same. If PeopleSoft's use of the
Modifications is prevented in any way by an injunction or court order because of
any claim of infringement or misappropriation, Service Provider shall, at its
sole expense, use reasonable commercial efforts to: (a) replace or modify such
software so that it is no longer subject to a claim of infringement; or (b)
procure for the benefit of PeopleSoft the right to use such software. Service
Provider shall have liability under this Section 10(c) for the claim of
infringement based only on the percentage or portion the infringement claim is
(or alleged to be) attributable to such software. The provisions of the
foregoing indemnity shall not apply with respect to any instances of alleged
infringement based upon or arising out of the use of such Modification in any
manner for which the Modification was not designed, or for use of Modification
for other than the uses and distributions designated by Service Provider, for
use of any Modification which has been modified by PeopleSoft or any third
party, or for use of any Modification in connection with or in combination with
any equipment, devices or software which have not been approved by Service
Provider, where such alleged infringement would not have occurred but for the
use of such Modification in connection with or in combination with such
equipment devices or software.
11. CONFIDENTIALITY
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<PAGE> 13
During the term of this Agreement, Service Provider and PeopleSoft may be
exposed to certain information. including know-how and trade secrets, proposed
new products and services, and/or the business or affairs which are the
confidential and proprietary information of the other Party and not generally
known to the public (herein "Confidential Information"). The Parties agree that
during and after the term of this Agreement, they will not use or disclose any
Confidential Information to any third party without the prior written consent of
the other Party. The Parties hereby consent to the disclosure of its
Confidential Information to the employees, contractors or consultants of the
other Party as is reasonably necessary in order to allow the other Party to
perform its obligations under this Agreement and to obtain the benefits hereof,
provided that each such employee, contractor or consultant who will have access
to any Confidential Information has executed a non-disclosure agreement which
prohibits the unauthorized use or disclosure of any such Confidential
Information. This section shall not apply, or shall cease to apply, to data and
information supplied by a Party if the other party can establish that such data
or information: (a) was already known to it, (b) has come into the public domain
without a breach of confidence by that party, (c) was received by that party
from a third party without restrictions on its use in favor of the other party,
(d) was developed independently by that party without reliance on or any
reference to the other party's Confidential Information or (e) is required to be
disclosed pursuant to any statutory or regulatory provision or court order,
provided, however, that the party provides notice thereof to the other party,
together with the statutory or regulatory provision, or court order, on which
such disclosure, is based, as soon as practicable prior to such disclosure so
that the other party has the opportunity to obtain a protective order or take
other protective measures as it may deem necessary with respect to such
information.
12. WARRANTY AND INDEMNITY
(A) SOFTWARE WARRANTY.
For each copy of Software that Service Provider licenses and receives Support
Services hereunder, PeopleSoft warrants to Service Provider that for a period of
one (1) year from the date on which, such Software is shipped by PeopleSoft that
the Software, unless modified by Service Provider, will perform the functions
described in the associated Documentation in all material respects when operated
on a system which meets the requirements specified by PeopleSoft in the
Documentation. PeopleSoft will undertake to correct any reported error condition
in accordance with its technical support policies. Provided that Service
Provider gives PeopleSoft written notice of a breach of the foregoing warranty
during the warranty period, Service Provider's sole and exclusive remedy shall
be for PeopleSoft to correct any reproducible errors pursuant to the Support
Services terms and conditions.
(B) MEDIA WARRANTY.
PeopleSoft warrants the Software media to be free of defects in materials and
workmanship under normal use for ninety (90) days from the date the Software is
shipped by PeopleSoft. In any breach of the foregoing warranty, and provided
that Service Provider gives written notice thereof during the warranty period,
Service Provider's sole and exclusive remedy shall be to require PeopleSoft to
replace defective media returned within such warranty period.
(C) SERVICES WARRANTY.
PeopleSoft warrants any services provided hereunder shall be performed in a
professional and workmanlike manner in accordance with generally accepted
industry practices. PeopleSoft's sole and exclusive obligation pursuant to this
warranty shall be to re-perform any work not in compliance with this warranty
that is brought to its attention by written notice within thirty (30) days after
such services are performed.
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<PAGE> 14
(D) YEAR 2000 WARRANTY
PeopleSoft warrants for a period beginning with the Effective Date and ending on
January 31, 2001 that, provided that Service Provider continuously receives
Software Support Services through January 31, 2001 and is utilizing a
then-supported release of the Software, the Software shall operate in accordance
with the Documentation with respect to date calculations before, during, and
after the Year 2000 in that it will be Compliant to correctly address and
operate accurately: (1) the change of the century in a standard compliant
manner, including both the Year 2000 and beyond; (2) the existence and absence
of leap years; and (3) date related operations. Compliant means that the
Software operates and correctly processes in a manner that: (i) calculations
using dates execute utilizing a four digit year; (ii) the Software
functionality, including but not limited to, entry, inquiry, maintenance and
update (whether on-line, batch or otherwise) supports four digit year
processing; (iii) successful transition to the Year 2000 using the correct
system date occurs without human intervention; (iv) after the transition to the
Year 2000, processing with a four digit year shall occur without human
intervention; (v) all leap years shall be calculated correctly; and (vi) correct
results shall be produced in forward and backward date calculation spanning
century boundaries (there are no years stored as two digits).
(E) DISCLAIMER OF WARRANTIES.
EXCEPT AS SET FORTH IN SECTIONS ENTITLED SOFTWARE WARRANTY, MEDIA WARRANTY,
SERVICES WARRANTY, YEAR 2000 WARRANTY ABOVE, PEOPLESOFT EXPRESSLY DISCLAIMS TO
THE EXTENT PERMITTED BY LAW ALL WARRANTIES, WHETHER EXPRESS, IMPLIED OR
STATUTORY BY ANY TERRITORY OR JURISDICTION, RELATING TO THE SOFTWARE,
DOCUMENTATION OR RELATED SERVICES AND FURTHER EXPRESSLY EXCLUDES TO THE EXTENT
PERMITTED BY LAW ANY WARRANTY OF NON-INFRINGEMENT, FITNESS FOR A PARTICULAR
PURPOSE OR MERCHANTABILITY.
PeopleSoft does not warrant that the Software will operate in combinations other
than as specified in the Documentation or that the operation of the Software
will be uninterrupted or error-free. Pre-production releases of Software are
distributed "AS IS."
SERVICE PROVIDER DOES NOT WARRANT ANY OF THE ENHANCEMENTS OR MODIFICATIONS AND
EXPRESSLY DISCLAIMS TO THE EXTENT PERMITTED BY LAW ALL WARRANTIES, WHETHER
EXPRESS, IMPLIED OR STATUTORY BY ANY TERRITORY OR JURISDICTION, RELATING TO THE
ENHANCEMENTS, MODIFICATIONS, DOCUMENTATION OR RELATED SERVICES AND FURTHER
EXPRESSLY EXCLUDES TO THE EXTENT PERMITTED BY LAW ANY WARRANTY OF
NONINFRINGEMENT, FITNESS FOR A PARTICULAR PURPOSE OR MERCHANTABILITY.
MODIFICATIONS AND ENHANCEMENTS, IF ANY, ARE PROVIDED "AS IS."
(F) INDEMNITY.
Subject to the limitations set forth herein below, PeopleSoft shall indemnify
and defend Service Provider with respect to all claims, suits, losses,
liabilities, damages, costs and expenses (inclusive of Service Provider's
reasonable attorney's fees) or proceedings with respect to any claim that the
Software, as designed and licensed to Service Provider in furtherance of this
Agreement, infringe upon any U.S. and Canadian patent, trademark or copyright
trade secret or other proprietary right; provided, however, that Service
Provider (i) notifies PeopleSoft in writing within ten (10) days of such claim,
suit or proceeding, (ii) gives PeopleSoft the right to control and direct the
investigation, preparation, defense and settlement of any claim, suit or
proceeding; and (iii) gives assistance and full cooperation for the defense of
same and further provided that PeopleSoft's liability with respect to third
party software embedded in the Software will be limited to the extent PeopleSoft
is indemnified
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<PAGE> 15
by such third parties. PeopleSoft shall pay any resulting damages, costs and
expenses finally awarded to a third party but PeopleSoft is not liable for
settlements incurred by Service Provider without PeopleSoft's written
authorization. If such claim, suit or proceeding has occurred or, in
PeopleSoft's opinion, is likely to occur, PeopleSoft may, at its election and
expense, either obtain for Service Provider the right to continue distributing
such allegedly infringing Software or replace or modify the Software so it is
not infringing.
(G) EXCLUSIONS.
The provisions of the foregoing indemnity shall not apply with respect to any
instances of alleged infringement based upon or arising out of the use of such
Software in any manner for which the Software were not designed, or for use of
Software for other than the uses and distributions designated by PeopleSoft, for
use of any Software which has been modified by Service Provider or any third
party, or for use of any Software in connection with or in combination with any
equipment, devices or software which have not been approved by PeopleSoft, where
such alleged infringement would not have occurred but for the use of such
Software in connection with or in combination with such equipment devices or
software.
(H) ENTIRE LIABILITY.
THE FOREGOING SECTIONS ENTITLED INDEMNITY AND EXCLUSIONS STATE THE SOLE AND
EXCLUSIVE REMEDY OF SERVICE PROVIDER AND THE ENTIRE LIABILITY AND OBLIGATION OF
PEOPLESOFT WITH RESPECT TO INFRINGEMENT OR CLAIMS OF INFRINGEMENT OF ANY
INTELLECTUAL PROPERTY RIGHT BY THE SOFTWARE, BUNDLED SOFTWARE, DOCUMENTATION,
RELATED SERVICES OR ANY PART THEREOF.
(I) LIMITATIONS AND DISCLAIMER.
Service Provider shall make no warranty, express or implied, on behalf of
PeopleSoft. Nothing contained in this Agreement shall prejudice the statutory
rights of any party dealing as a consumer.
(J) INDEMNITY BY SERVICE PROVIDER.
Service Provider agrees to indemnify and hold PeopleSoft harmless from any
claims, suits, proceedings, losses, liabilities, damages, costs and expenses
(inclusive of PeopleSoft's reasonable attorneys' fees) made against or incurred
by PeopleSoft as a result of negligence, misrepresentation, error or omission on
the part of Service Provider or representatives of Service Provider. Service
Provider shall be solely responsible for, and shall indemnify and hold
PeopleSoft harmless from, any claims, warranties or representations made by
Service Provider or Service Provider's employees or agents that differ from the
warranty provided by PeopleSoft in its then current PeopleSoft License
Agreement; provided, however, that PeopleSoft (i) notifies Service Provider in
writing within ten (10) days of such claim, suit or proceeding, (ii) gives
Service Provider the right to control and direct the investigation, preparation,
defense and settlement of any claim suit or proceeding; and (iii) gives
assistance and full cooperation for the defense of same. Service Provider shall
pay any resulting damages, costs and expenses finally awarded to a third party
but Service Provider is not liable for settlements incurred by PeopleSoft
without Service Provider's written authorization.
13. TERM AND TERMINATION
(A) TERM.
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<PAGE> 16
The term of this Agreement shall commence as of the Effective Date of this
Agreement and continue for an initial term of [*] unless sooner terminated as
set forth below. This Agreement shall be reviewed annually (the "Annual Review")
by the Parties. The Annual Review shall include such criteria as performance in
the marketplace (as determined by comparison against PeopleSoft's standard
support, quality and referencability guidelines, which guidelines shall be made
reasonably available to Service Provider) and a review of the business terms
herein. This Agreement will automatically renew for eight (8) successive one (1)
year terms unless Service Provider gives the other Party written notice of its
intent to allow the Agreement to terminate at its expiration. Such notice shall
be given not less than twelve (12) months prior to the end of the Agreement's
term.
(B) TERMINATION WITH CAUSE.
Any of the following shall constitute an event of default:
(1) Either Party fails to perform any of its material obligations
under this Agreement and such failure remains uncured for
forty-five (45) days after receipt of written notice thereof; or
(2) Either Party ceases to conduct business, becomes or is declared
insolvent or bankrupt, is the subject of any proceeding relating
to its liquidation or insolvency which is not dismissed within
ninety (90) days or makes an assignment for the benefit or its
creditors.
If an event of default occurs, the non-defaulting Party in addition to any other
rights available to it under law or equity, may withhold its performance
hereunder or may terminate this Agreement and the licenses granted hereunder by
written notice to the defaulting Party. Unless otherwise provided in this
Agreement, remedies shall be cumulative and there shall be no obligation to
exercise a particular remedy.
(C) RIGHTS UPON TERMINATION.
Upon termination of this Agreement pursuant to Section 13(b) or by expiration of
this Agreement, all Service Provider's rights to market Outsourcing Services and
use the Software as set forth in this Agreement shall cease, except that Service
Provider shall be permitted to continue to use the Software solely to fulfill
existing contractual obligations for the greater of: (a) eighteen (18) months;
or (b) PeopleSoft's then current standard Support Services cycle for supporting
the then-current release (the "Migration Period") and PeopleSoft agrees and
acknowledges its obligations to honor such Sublicense Agreements for such
Migration Period. The intent of this section is not to force Designated
Customers to migrate from Service Provider's support in a manner that unduly
disrupts a Designated Customer's business operations, rather the intent of this
section to dramatically limit the likelihood that Service Provider will take
actions that materially breach this Agreement and then fail to satisfactorily
cure the material breach in a timely manner.
(D) PAYMENT UPON TERMINATION.
If Service Provider terminates this Agreement, the payment date of all moneys
due to PeopleSoft shall automatically be accelerated so that they shall become
due and payable on the effective date of termination, even if longer terms had
been provided previously; provided, however, that in no event shall the
foregoing obligate Service Provider to accelerate and make payments to
PeopleSoft for obligations beyond the end of the Migration Period. If PeopleSoft
terminates this Agreement, Service Provider shall immediately pay PeopleSoft all
payments due as of the date of termination.
(E) LIABILITY UPON TERMINATION.
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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<PAGE> 17
ADVISED OF THE POSSIBILITY OF SUCH LOSSES OR DAMAGES. EXCEPT FOR DAMAGES
INCURRED BY SERVICE PROVIDER UNDER SECTION 12(f), AND EXCEPT FOR DAMAGES
INCURRED BY PEOPLESOFT UNDER SECTION 10(c), OR SECTION 2(B), IN NO EVENT WILL
EITHER PARTY'S AGGREGATE CUMULATIVE LIABILITY TO THE OTHER PARTY FOR ANY CLAIMS
ARISING OUT OF OR RELATED TO THIS AGREEMENT EXCEED THE AMOUNTS PAID TO
PEOPLESOFT BY SERVICE PROVIDER PURSUANT TO THIS AGREEMENT.
16. NON-SOLICITATION
During the Term and for a period of one year subsequent to the expiration or
termination of this Agreement, neither Service Provider nor PeopleSoft shall,
without the prior written consent of the other engage for recruitment, either
directly or indirectly as an employee, consultant, or independent contractor any
of the personnel of the other who is directly involved in the provision of
Outsourcing Services or the support of such Outsourcing Services at the time of
such expiration or termination; provided, however, that the foregoing
prohibitions of this section shall apply only to recruitment conducted or
directed by personnel of Service Provider or PeopleSoft who have directly or
indirectly acquired knowledge of recruitment prospects by reason of such
prospects' involvement in such activities; and provided further that the sole,
exclusive remedy for violations of this provision shall be monetary and shall be
equal to 20% of any such person's annual salary plus twenty percent (20%) of any
guaranteed bonus.
17. GENERAL.
(A) NOTICES.
All notices or reports permitted or required under this Agreement shall be in
writing and shall be by personal delivery, telegram, telex, telecopier,
facsimile transmission, or by certified or registered mail, return receipt
requested, and shall be deemed given upon personal delivery, five (5) days after
deposit in the mail, or upon acknowledgment of receipt of electronic
transmission. Notices shall be sent to the addresses set forth at the beginning
of this Agreement or such other address as either Party may specify in writing.
Notices shall be sent to the person bearing the title set forth below the
Party's signature to this Agreement.
(B) FORCE MAJEURE.
Neither Party shall be liable hereunder by reason of any failure or delay in the
performance of its obligations hereunder (except for the payment of money) on
account of strikes, shortages, riots, insurrection, fires, flood, storm,
explosions, acts of God, war governmental action, labor conditions, earthquakes,
material shortages or any other cause which is beyond the reasonable control of
such Party; provided however, that problems resulting from PeopleSoft's failure
to be Year 2000 Compliant shall not be deemed to be a force majeure event.
(C) ASSIGNMENT.
Service Provider may not assign this Agreement, delegate any duty or assign any
right hereunder without the prior written consent of PeopleSoft, which shall not
be unreasonably withheld or delayed. Any assignment in violation of this section
shall be void and of no effect.
(D) WAIVER.
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<PAGE> 18
The failure of either Party to require performance by the other Party of any
provision hereof shall not affect the full right to require such performance at
any time thereafter; nor shall the waiver by either Party of a breach of any
provision hereof be taken or held to be a waiver of the provision itself.
(E) SEVERABILITY.
In the event that any provision of this Agreement shall be unenforceable or
invalid under any applicable law or be so held by applicable court decision,
such unenforceability or invalidity shall not render this Agreement
unenforceable or invalid as a whole and, in such event, any such provision shall
be changed and interpreted so as to best accomplish the objectives of such
unenforceable or intended provision within the limits of applicable law or
applicable court decisions.
(F) INJUNCTIVE RELIEF.
It is understood and agreed that notwithstanding any other provisions of this
Agreement, a breach by Service Provider of Section 2 ("License Grants") or by
either Party of Section 11 ("Confidentiality"), may cause either Party
irreparable damage for which recovery of money damages would be inadequate, and
that, in addition to any and all remedies available at law, either Party shall
be entitled to seek timely injunctive relief to protect its rights under this
Agreement.
(G) CONTROLLING LAW.
This Agreement shall be governed in all respects by the laws of the United
States of America and the State of California as such laws are applied to
agreements entered into and to be performed entirely within California between
California residents. The Parties agree that the United Nations Convention on
Contracts for the International Sale of Goods is specifically excluded from
application to this Agreement.
(H) NO AGENCY.
Nothing contained herein shall be construed as creating any agency, partnership
or other form of joint enterprise between the Parties.
(I) HEADINGS.
The section headings appearing in this Agreement are inserted only as a matter
of convenience and in no way define, limit, construe or describe the scope or
extent of such section or in any way affect such section.
(J) WARRANTY.
Each Party warrants that it has full power and authority to enter into and
perform this Agreement, and that the person signing this Agreement on such
Party's behalf has been duly authorized and empowered to enter into this
Agreement. Each Party further acknowledges that it has read this Agreement,
understands it and agrees to be bound by it.
(K) CHOICE OF FORUM AND VENUE.
The Superior Court of Alameda County and the United States District Court for
the Northern District of California shall together have non-exclusive
jurisdiction over disputes under this Agreement. Service Provider consents to
personal jurisdiction of the above courts.
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<PAGE> 19
(L) CONFIDENTIALITY OF AGREEMENT.
Neither Party will disclose any terms, conditions, or pricing of this Agreement,
except: (i) pursuant to a mutually agreeable press release; (ii) to its
accountants, legal, business, financial advisors and/or potential investors, all
under non-disclosure; or (iii) as otherwise required by law.
(M) COUNTERPARTS.
This Agreement may be executed simultaneously in two or more counterparts, each
of which will be considered an original, but all of which together will
constitute one and the same instrument.
(N) DISCLAIMER.
The Software is not specifically developed or licensed for use in any nuclear,
aviation, mass transit or medical application or in any other inherently
dangerous applications. Service Provider agrees that PeopleSoft and its
suppliers shall not be liable for any claims or damages arising from Service
Provider's use of the Software for such applications. Service Provider agrees to
indemnify and hold PeopleSoft harmless from any claims for losses, costs,
damages or liability arising out of or in connection with its use of the
Software in such applications.
(O) ENTIRE AGREEMENT.
This Agreement, together with any schedules, exhibits and addenda completely and
exclusively states the agreement of the Parties regarding Service Provider's
rights to provide Outsourcing Services. In the event of any conflict between the
terms of this Agreement and an addendum hereto, the terms of the addendum shall
control with respect to the subject matter of the addendum only. This Agreement
supersedes, and its terms govern, all prior proposals, agreements or other
communications between the Parties, oral or written, regarding the subject
matter of this Agreement. The Parties agree that this Agreement shall replace
and supersede in its entirety the Prior Agreement. This Agreement shall not be
modified except by a subsequently dated written amendment signed on behalf of
PeopleSoft and Service Provider by their duly authorized representatives, and
any purchase order or other document purporting to supplement the provisions
hereof shall be void.
In Witness Whereof, the Parties hereto have caused this Agreement to be executed
by their duly authorized representatives as of the Effective Date.
Corio, Inc. PeopleSoft USA, Inc.
Authorized Signature Authorized Signature
/s/ Signature Illegible /s/ Signature Illegible
Printed Name Jonathan Printed Name Ken Horowitz
Title EVP & ?? Title Vice President
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<PAGE> 20
EXHIBIT A
FEES AND USE
1. ASP MONTHLY USER FEES.
For each Active User or Casual User of each Designated Customer, Service
Provider shall pay to PeopleSoft the monthly per-user fee set forth below:
1a. Active Users. During the first [*] of the term of the Agreement, Service
Provider shall pay to PeopleSoft a monthly Active User Fee in the amount of [*]
per Active User, unless otherwise mutually agreed. Following the [*] after the
Effective Date, and throughout the remaining months of the term of this
Agreement, Service Provider shall pay to PeopleSoft a monthly Active User Fee
not to exceed [*] per Active User unless otherwise mutually agreed.
1b. Casual Users. During the term of the Agreement, Service Provider shall
pay to PeopleSoft a monthly Casual User Fee not to exceed [*] per Casual User,
unless otherwise mutually agreed.
2. TECHNOLOGY ACCESS FEE.
In consideration for the market access, distribution, Preferred ASP Partner
status and bundled back-end user services provided by PeopleSoft to Service
Provider under the Agreement, Service Provider shall pay to PeopleSoft a
non-refundable, non-cancelable aggregate fee of [*], which shall be payable on a
PeopleSoft fiscal quarterly basis for the term of the [*] exclusivity period set
forth in section 3(b). In the event that the exclusivity period is terminated
pursuant to section 3(b) prior to the expiration of such [*] exclusivity period,
Service Provider shall not be responsible for payments hereunder for fees
payable for periods after such termination; provided, however that Service
Provider shall continue to be responsible to pay PeopleSoft all fees payable up
to and including such termination date, including any prorata payment, as
applicable, for the quarter in which such termination occurs.
3. USER FEE ADJUSTMENTS.
3a. Review. PeopleSoft and Service Provider agree to re-evaluate the User
Fees on no less than an annual basis to ensure the User Fees and pricing model
are competitive in the market and consistent with changes in PeopleSoft pricing.
Any changes shall be agreed to in writing by the Parties.
3b. Effect of PeopleSoft Increases. PeopleSoft agrees that in no event shall
a User Fee increase effect any existing Designated Customers. Any User Fee
increases will only be applied to new Designated Customers as of the effective
date of the User Fee increase.
3c. Effect of Service Provider Increases. Service Provider shall
proportionately increase the fee payable to PeopleSoft in situations whereby
Service Provider has increased the pricing of the User Fees at any time after
execution of an Outsourcing Agreement with a Designated Customer (whether in
accordance with the terms of such Outsourcing Agreement or by amendment of such
Outsourcing Agreement) due to an increase in the application component. In such
situations, Service Provider shall pay PeopleSoft the pro-rata share increase
for
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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<PAGE> 21
the Software increase.
For the avoidance of doubt, the Parties agree that any renewals of any
Outsourcing Agreement with a Designated Customer shall be priced at then current
User Fees.
4. TRAINING FEES.
PeopleSoft shall provide up to two hundred (200) standard training units at no
additional fees to Service Provider for the first fifteen months after the
Effective Date. Thereafter, Service Provider shall receive Software training at
a rate of $350 per standard unit for the first year after the Effective Date.
For each year thereafter, PeopleSoft shall have the discretion to amend the rate
applicable for such year; provided the new rates are consistent with the changes
to PeopleSoft's standard training fees.
5. PROFESSIONAL SERVICES GROUP.
Service Provider shall receive services from Professional Service Group at a [*]
price reduction from the rates set forth in Addendum 1 hereto for the first
fifteen months after the Effective Date. For each year thereafter, PeopleSoft
shall have the discretion to amend the rates applicable for such year.
6. DEFINITIONS.
The following definition shall apply to the Agreement and all exhibits thereto.
"SOFTWARE" consists of the following products:
PEOPLESOFT HRMS
HUMAN RESOURCES
PAYROLL
BENEFITS ADMINISTRATION
FSA ADMINISTRATION
PAYROLL INTERFACE
TIME AND LABOR
EXPENSES (FINANCIALS PRODUCT)
PEOPLESOFT FINANCIALS
GENERAL LEDGER
RECEIVABLES
PAYABLES
ASSET MANAGEMENT
PROJECTS
BUDGETS (EMBEDDED ESSBASE IN 7.5)
TREASURY - CASH MANAGEMENT
PEOPLESOFT DISTRIBUTION
ORDER MANAGEMENT
REMOTE ORDER ENTRY
ORDER PROMISING
BILLING
PURCHASING
INVENTORY
ENTERPRISE PLANNING
PRODUCT CONFIGURATOR
PEOPLESOFT MANUFACTURING
ENGINEERING
BILLS AND ROUTINGS
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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<PAGE> 22
QUALITY
PRODUCTION MANAGEMENT
COST MANAGEMENT
PRODUCTION PLANNING
ACCEPTED BY: ACCEPTED BY:
CORIO, INC. PEOPLESOFT USA, INC.
/s/ Signature Illegible /s/ Signature Illegible
- --------------------------- --------------------------
Authorized Signature Authorized Signature
Jonathan Lee, EVP Ken Horowitz Vice President
- --------------------------- --------------------------
Printed Name and Title Printed Name and Title
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<PAGE> 23
Addendum 1
PSG Rates
<TABLE>
<CAPTION>
CONSULTING RESOURCE LEVEL STANDARD HOURLY RATE
<S> <C>
Associate Consultant $150.00
Consultant $190.00
Senior Consultant $225.00
Project Manager $250.00
Practice Manager $250.00
Process/Product Specialist $250.00
Systems Engineer $250.00
Senior Project Manager $275.00
Senior Systems Engineer $275.00
Enterprise Solutions Specialist $275.00
Enterprise Implementation Manager $300.00
</TABLE>
ACCEPTED BY: ACCEPTED BY:
CORIO, INC. PEOPLESOFT USA, INC.
/s/ Signature Illegible /s/ Signature Illegible
- --------------------------- --------------------------
Authorized Signature Authorized Signature
Jonathan Lee, EVP Ken Horowitz - Vice President
- --------------------------- --------------------------
Printed Name and Title Printed Name and Title
Page 24 of 33
<PAGE> 24
EXHIBIT B
SOFTWARE SUPPORT SERVICES TERMS AND CONDITIONS
Software Support Services Terms and Conditions ("SUPPORT SERVICES") are
referenced in and incorporated into the Outsourcer Alliance Agreement
("Agreement") between PeopleSoft and Corio, Inc. ("Service Provider").
Capitalized terms have the same meaning as they do in the Agreement. Upon
reasonable notice, PeopleSoft reserves the right to modify the terms and
conditions of Support Services on an annual basis to reflect current market
conditions.
1. COVERAGE
PeopleSoft provides Service Provider with Support Services for the Software for
the Outsourcing Center at __________ in exchange for payment of the applicable
Support Services fees. Only designated Service Provider employees may contact
PeopleSoft for the provision of Support Services in exchange for payment of the
applicable Support Services fees.
2. SOFTWARE MAINTENANCE
PeopleSoft will periodically issue the following technical and functional
improvements to Software:
(1) Fixes to Errors; (2) Updates; and (3) Enhancements
3. PRIORITY LEVEL OF ERRORS
PeopleSoft shall address Errors in accordance with the following protocols:
Priority 1-Critical Level: PeopleSoft promptly: (1) designates PeopleSoft
specialist(s) to correct Error; (2) provides expanded communication on
correction status; and (3) escalates troubleshooting a Workaround or Fix.
Priority 2-Urgent Level: PeopleSoft promptly: (1) designates PeopleSoft
specialist(s) to correct Error; (2) provides ongoing communication on correction
status; and (3) initiates troubleshooting a Workaround or Fix.
Priority 3-Standard Level: PeopleSoft: (1) assigns PeopleSoft specialist(s) to
commence correction of Error; and (2) exercises all commercially reasonable
efforts to include the Fix for Error in the next Update.
Priority 4-Base Level: PeopleSoft: (1) assigns Error to case management and
tracking; and (2) may include the Fix for Error in the next Update.
4. TELEPHONE SUPPORT
PeopleSoft provides telephone support concerning Software installation and use.
Except for designated holidays, PeopleSoft's standard Global Support Center
telephone hours are Monday through Friday, 4:00 a.m. to 6:30 p.m., Pacific Time.
Consult PeopleSoft's then-current Customer Services Guide for Global Support
Center locations and local operating hours. Telephone Support is also available
24-hours-a-day, 7-days-a-week for in-production customers who need to resolve
critical production problems outside of standard support hours.
5. PEOPLESOFT CUSTOMER CONNECTION SM
a. PeopleSoft Customer Connection is an on-line, self-service system that
features postings by PeopleSoft and customers regarding technical and
non-technical topics of interest. Service Provider may access PeopleSoft
Customer Connection via Internet access at its own expense.
b. Software Updates, Enhancements, and Fixes may be delivered to Service
Provider through PeopleSoft Customer Connection, or by mail from
PeopleSoft on Service Provider's written request. PeopleSoft information
posted to Customer Connection is confidential and proprietary and shall
only be used in
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<PAGE> 25
connection with Service Provider's use of the Software and informational
communications with other PeopleSoft Customer Connection participants.
PeopleSoft shall have the right to publish, modify and distribute any
information or software provided by Service Provider to Customer
Connection in all languages. Service Provider shall not use PeopleSoft
Customer Connection for advertising or public relations purposes and
shall only submit information to PeopleSoft Customer Connection that
Service Provider owns or has permission to use in such manner.
c. To diminish exposure to software viruses, PeopleSoft tests and scans all
information entered by PeopleSoft for software viruses prior to
submitting it to PeopleSoft Customer Connection. Service Provider shall
also use a reliable virus detection system on any software or
information posted to PeopleSoft Customer Connection, utilize back-up
procedures, monitor access to PeopleSoft Customer Connection, promptly
notify PeopleSoft of any virus detected within Service Provider's
systems associated with PeopleSoft Customer Connection and generally
exercise a reasonable degree of caution when utilizing information from
PeopleSoft Customer Connection. PeopleSoft does not warrant that
PeopleSoft Customer Connection will operate without interruption or
without errors. PeopleSoft reserves the right to modify or suspend
PeopleSoft Customer Connection service in connection with PeopleSoft's
provision of Support Services. PeopleSoft assumes no responsibility for
anything posted by anyone other than PeopleSoft, including, but not
limited to, information about PeopleSoft software, modification code, or
portions thereof.
6. FEES
PeopleSoft shall provide Service Provider with Support Services for the Software
for the Outsourcing Center set forth in the section 1 above in consideration of
Service Provider's payment to PeopleSoft of the applicable fees in Exhibit A. In
the event Service Provider elects to receive Support Services outside of the
scope of the foregoing, Service Provider shall pay PeopleSoft fees to be agreed
upon by the Parties. Unless Service Provider has provided proof of tax-exempt
status, Service Provider shall be responsible for all taxes associated with
payment for Support Services, exclusive of taxes based on PeopleSoft's income.
In the event Service Provider elects not to renew Support Services and
subsequently request Support Services, PeopleSoft shall reinstate Support
Services only after Service Provider pays PeopleSoft the annual then current fee
plus all cumulative fees that would have been payable had Service Provider not
suspended Support Services.
7. TERM AND TERMINATION
Unless otherwise expressly set forth in the Agreement or Schedule, Support
Services shall be provided for a period of [*] from the Schedule Effective Date,
and shall be extended each additional year unless terminated by either Party.
Each one (1) year term shall commence on the anniversary of the Schedule
Effective Date.
Either Party may terminate the Support Services provisions at the end of any
support term by giving the other Party written notice at least ninety (90) days
prior to the end of the term.
In the event Service Provider fails to make payment pursuant to the section 6 of
the Agreement, or in the event Service Provider breaches the Support Services
provisions and such breach has not been cured within thirty (30) days of written
receipt of notice of breach, PeopleSoft may suspend or cancel Support Services.
8. EXCLUSIONS
PeopleSoft shall have no obligation to support:
a. Substantially altered, damaged or modified Software;
b. Software that is not the then-current release, or a Previous
Sequential Release;
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c. Errors caused by Service Provider's negligence, hardware
malfunction, or other causes beyond PeopleSoft's reasonable
control;
d. Software installed in a hardware or operating environment not
supported by PeopleSoft; and
e. Third party software not licensed through PeopleSoft.
9. GENERAL
All Updates, Enhancements and Fixes provided to Service Provider are subject to
the terms and conditions of the Agreement. PeopleSoft may modify Support
Services on an annual basis to reflect current market condition upon reasonable
notice.
10. DEFINITIONS
"ENHANCEMENT" means a technical or functional addition to the Software delivered
with a new Software release to improve functionality and/or operations.
Enhancements are delivered to Service Provider only on an if and when available
basis.
"ERROR" means a Software malfunction that degrades the use of the Software.
"FIX" means the repair or replacement of source, object or executable code
Software versions to remedy an Error.
"PREVIOUS SEQUENTIAL RELEASE" means a Software release for a particular
operating environment that has been replaced by a subsequent Software release in
the same operating environment. PeopleSoft will support a Previous Sequential
Release for a period of eighteen (18) months after release of the subsequent
release. Multiple Previous Sequential Releases may be supported at any given
time.
"PRIORITY 1" means an Error that renders the Software inoperative or causes the
Software to fail catastrophically.
"PRIORITY 2" means an Error that affects performance of the Software and
degrades Service Provider's use of the Software.
"PRIORITY 3" means an Error that affects performance of the Software, but does
not degrade Service Provider's use of the Software.
"PRIORITY 4" means an Error that causes only a minor impact on the use of the
Software.
"UPDATE" means all published revisions to the Documentation and one (1) copy of
the new Software release not designated by PeopleSoft as new products or
functionality for which it charges separately. Updates are delivered to Service
Provider only on an if and when available basis.
"WORKAROUND" means a change in the procedures followed or data supplied to avoid
an Error without significantly impairing Software performance.
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EXHIBIT C
FORM OF ALLIANCE PARTNER LICENSE AGREEMENT
This Software License and Services Agreement ("Agreement") is made as of the
Effective Date, by and between the PeopleSoft entity ("PeopleSoft") and the
Licensee entity ("Licensee") set forth below.
1. LICENSE
1.1 PeopleSoft grants Licensee a non-exclusive, non-transferable license to
use the Software during the Term on one or more servers at Licensee's facilities
located in the Named Country, solely for Licensee's internal data processing
operations (including PeopleSoft's extended enterprise capabilities) per the
Operating Metrics specified in the Schedule(s). Licensee shall use any third
party Software products or modules provided by PeopleSoft solely with PeopleSoft
Software. Licensee may modify or merge the Software with other software,
provided, however, that no modification, however extensive, shall diminish
PeopleSoft's title or interest in the Software or constitute a waiver of moral
rights in the Software.
1.2 PeopleSoft grants Licensee the right, solely for Licensee's internal
data processing operations, to permit Software access to a Designate, provided
such access does not include permitting Designate to copy the Software or access
the source code.
1.3 PeopleSoft shall provide Licensee with the number of Software copies as
specified in the Schedule. Licensee may make a reasonable number of copies of
the Software solely for Licensee's internal use, including back-up and archive
purposes, in accordance with the terms of this Agreement, provided all copyright
and proprietary notices are reproduced.
2. LICENSE EXCLUSIONS
2.1 Except as otherwise provided here, Licensee shall not:
a. Cause or permit reverse compilation or assembly of all or any portion of
the Software;
b. Distribute, disclose, market, rent, lease or transfer to any third party
any portion of the Software (including Tools) or use the Software in any
service bureau arrangement, facility management, or third party
training;
c. Disclose the results of Software performance benchmarks to any third
party without PeopleSoft's prior written consent;
d. Transfer the Software to a different database platform or operating
system, or use the Software outside the Named Country, without Notice to
PeopleSoft and payment of any additional fees that may be due;
e. Export Software in violation of U.S. Dept. of Commerce, Canadian, or
applicable export administration regulations; or,
f. Use Tools except with the licensed PeopleSoft applications.
2.2 No license, right, or interest in any PeopleSoft trademark, trade name,
or service mark is granted.
3. FEES AND PAYMENT
3.1 Licensee shall pay PeopleSoft the fees as specified in each Schedule.
Unless Licensee provides PeopleSoft with a valid tax exemption or direct pay
certificate, Licensee is responsible for all taxes, duties and customs fees
concerning the Software and/or services, excluding taxes based on PeopleSoft's
income. Overdue payments shall be subject to a finance charge equal to the
lesser of twelve percent per year or the maximum rate allowed under applicable
law.
3.2 Software license fees are based on Operating Metrics. Expansion of
Licensee's level of use requires payment of additional fees to PeopleSoft, as
set forth in the Schedule.
3.4 PeopleSoft shall provide Licensee with annual statements of its
Operating Metrics. Licensee agrees to certify its then-current Operating Metrics
to PeopleSoft. If Licensee's then-current Operating Metrics are such that an
additional fee is required for Licensee's then-current level of use, PeopleSoft
shall invoice Licensee for the applicable fee. Any failure to pay such
applicable fee and continued utilization of the Software above or beyond the
licensed level of use is unauthorized.
4. TITLE AND PROTECTION
4.1 PeopleSoft (or its third-party providers) retains title to all portions
of the Software, derivative works, and any copies thereof. If Licensee creates a
Software modification ("Licensee Modification"), Licensee shall have a
perpetual, royalty-free license to use Licensee Modification in accordance with
this Agreement. Licensee may, at its option, disclose Licensee Modification to
PeopleSoft or PeopleSoft customers through PeopleSoft Customer Connection.
PeopleSoft shall have no obligation to support Licensee Modification.
4.2 Title to Software physical media vests in Licensee upon delivery.
PeopleSoft represents that Software contains valuable proprietary information.
Software has been developed at private expense and is provided to U.S.
Government agencies/ subcontractors subject to applicable restrictions of FAR
52.227-19(c) or DFAR 227.7202-32, for defense-related agencies.
The parties' authorized representatives have signed this Agreement:
[LICENSEE] PEOPLESOFT USA, INC.
ADDRESS: ADDRESS:
/s/ Signature Illegible /s/ Signature Illegible
Authorized Signature Authorized Signature
- --------------------------- --------------------------
- --------------------------- --------------------------
Printed Name and Title Printed Name and Title
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PSFT LEGAL
EFFECTIVE DATE: [MONTH] [DAY], 1998 APPROVAL:
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5. INDEMNITY
PeopleSoft shall indemnify and defend Licensee against any claims that the
Software infringes any United States or Canadian patent or copyright, provided
that PeopleSoft is given prompt Notice of such claim and is given information,
reasonable assistance, and sole authority to defend or settle the claim. In the
defense or settlement of the claim, PeopleSoft may, in its reasonable judgment
and at its option and expense: (1) obtain for Licensee the right to continue
using the Software; or (2) replace or modify the Software so that it becomes
noninfringing while giving equivalent performance. PeopleSoft shall have no
liability to indemnify or defend Licensee to the extent the alleged infringement
is based on any Software: (a) modification by anyone other than PeopleSoft; or
(b) use other than in accordance with the Documentation or this Agreement.
6. DEFAULT AND TERMINATION
6.1 Default is either party's failure to comply with any material obligation
of this Agreement where such non-compliance remains uncured for more than 30
days after Notice.
6.2 If a default occurs, the nondefaulting party, in addition to any other
rights available to it under law or equity, may terminate this Agreement and all
licenses granted here by giving Notice to the defaulting party. Except as
otherwise specifically stated herein, remedies shall be cumulative and there
shall be no obligation to exercise a particular remedy.
6.3 Within fifteen days after termination of this Agreement, Licensee shall
certify in writing to PeopleSoft that all Software copies in any form, including
partial copies within modified versions, have been destroyed or returned to
PeopleSoft.
7. LIMITED WARRANTY
7.1 PeopleSoft warrants that it has title to the Software and/or the
authority to grant licenses to use the Software.
7.2 PeopleSoft warrants that the Software will perform substantially in
accordance with the Documentation for a period of one year from the date of
initial installation and that the Software media is free from material defects.
PeopleSoft does not warrant that the Software is error-free.
7.3 PeopleSoft's sole obligation is limited to repair or replacement of the
defective Software, provided Licensee notifies PeopleSoft of the deficiency
within the one-year period and provided Licensee has installed all Software
updates provided pursuant to PeopleSoft's Support Services.
7.4 PEOPLESOFT DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING
BUT NOT LIMITED TO THE WARRANTIES OF MERCHANT-ABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
8. LIMITATION OF LIABILITY
PEOPLESOFT SHALL NOT BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR
CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOST DATA OR LOST PROFITS,
HOWEVER ARISING, EVEN IF PEOPLESOFT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. EXCLUDING DAMAGES INCURRED BY LICENSEE UNDER THE SECTION ENTITLED,
"INDEMNITY," PEOPLESOFT'S LIABILITY FOR DAMAGES UNDER THIS AGREEMENT (WHETHER IN
CONTRACT OR TORT) SHALL IN NO EVENT EXCEED THE AMOUNT PAID BY LICENSEE TO
PEOPLESOFT FOR THE SOFTWARE OR SERVICES FROM WHICH THE CLAIM AROSE. THE PARTIES
AGREE TO THE LIABILITY RISK ALLOCATION SET FORTH HERE.
9. SUPPORT SERVICES
PeopleSoft shall provide Licensee with Support Services as set forth in the
Schedule.
10. INSTALLATION SUPPORT
At no additional charge, PeopleSoft shall provide Licensee with installation
support for one copy of the Software in accordance with PeopleSoft's
then-current standard installation procedures, up to the number of installation
hours set forth in the Schedule. Licensee must use this installation support
within six months from the Schedule Effective Date. Any additional installation
support requested by Licensee shall be provided at PeopleSoft's then-current
Professional Services hourly rate. Licensee shall reimburse PeopleSoft for all
reasonable travel and living expenses associated with any installation support.
11. TRAINING
PeopleSoft shall provide Licensee with the number of training units set forth in
the Schedule for use at a PeopleSoft training facility. Licensee may use
training units for training at Licensee's site only as the parties mutually
agree in writing. Licensee must use these training units within one year from
the Schedule Effective Date.
12. NOTICES
All notices shall be made in advance, in writing, and sent by registered mail,
overnight mail, courier, or facsimile (if confirmed by mailing), to the
addresses above ("NOTICE"). Notice to PeopleSoft shall be sent "Attn: PeopleSoft
Legal" with a copy to Licensee's assigned PeopleSoft account manager.
13. ASSIGNMENT
Licensee may not assign this Agreement (by operation of law or otherwise) or
sublicense the Software without the prior written consent of PeopleSoft, and any
prohibited assignment or sublicense shall be null and void.
14. NONDISCLOSURE OBLIGATION
14.1 Each party ("RECIPIENT") shall protect the other party's ("DISCLOSER")
Confidential Information with at least the same degree of care and
confidentiality, but not less than a reasonable standard of care, that Recipient
uses for its own Confidential Information. Licensee may provide Software access
and use to third parties that: (1) need to use and access the Software to
provide services to Licensee for its
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Software use; and (2) have agreed to Licensee's non-disclosure obligations
substantially similar to those contained in these sections.
14.2 Notwithstanding the foregoing, this Agreement and its terms, conditions
and pricing are confidential and shall not be disclosed orally or in writing by
Licensee to any third party without PeopleSoft's prior written consent. If
Licensee is a government entity subject to disclosure obligations under a public
records statute or similar regulation, Licensee agrees that the terms,
conditions, and pricing under this Agreement shall be disclosed only pursuant to
requests made in accordance with such statute or regulation, and that any other
information marked "confidential" under this Agreement, including the Software,
shall be treated as confidential, trade secret, and commercially sensitive, and
shall not be disclosed without affording PeopleSoft a full opportunity to
establish such information's exemption from disclosure.
14.3 Recipient has no confidentiality obligation with respect to information
it establishes by legally sufficient evidence: (1) was in the possession of, or
was rightfully known by Recipient without a confidentiality obligation prior to
receipt from Discloser; (2) is or becomes generally known to the public without
this Agreement's violation; (3) is obtained by Recipient in good faith from a
third party having the right to disclose it without a confidentiality
obligation; (4) is independently developed by Recipient without the
participation of individuals who have had access to the Confidential
Information; or (5) is required to be disclosed by court order or applicable
law, provided Recipient (a) ensures a proper request has been made in accordance
with the relevant statute and promptly notifies Discloser, (b) diligently
undertakes to limit disclosure providing Discloser a full opportunity to
establish such information as exempt from any disclosure obligation.
15. GENERAL
Section headings are provided for convenience and do not affect this Agreement's
construction. No purchase order or other ordering document that purports to
modify or supplement this Agreement's printed text or a Schedule shall add to or
vary this Agreement's terms. All such proposed variations or additions are
objected to and deemed material unless agreed to in writing. Except for
Licensee's obligation to pay PeopleSoft, neither party shall be liable for any
failure to perform due to causes beyond its reasonable control. Sections 3 (Fees
and Payment), 4 (Title and Protection), 5 (Indemnity), 8 (Limitation of
Liability), 14 (Nondisclosure Obligation), 15 (General), and 16 (Definitions),
shall survive this Agreement's termination. This Agreement shall be construed
without any provision held to be unenforceable. A party's failure to exercise
any right hereunder shall not operate as a waiver of that right or any other
right in the future. Except for actions for non-payment or breach of
PeopleSoft's proprietary rights in the Software, no action, regardless of form,
arising out of this Agreement may be brought by either party more than one year
after the cause of action has accrued. PeopleSoft reserves the right to audit
Licensee's Software use no more frequently than once annually at PeopleSoft's
expense. All audits shall be conducted during regular business hours at
Licensee's site and shall not unreasonably interfere with Licensee's business
activities. PeopleSoft shall schedule any such audits at least fifteen days in
advance. This Agreement and the Schedule(s) constitute the entire agreement
between the parties concerning Licensee's Software use. This Agreement replaces
and supersedes any prior verbal or written understandings, communications, and
representations between the parties. This Agreement may be amended only by a
written document executed by each party's duly authorized representative. Copies
under this Agreement shall be considered original documents. Les parties ont
convenu a ce que ce Contrat soit redige en anglais. (The parties have agreed
that this Agreement be written in English.) This Agreement shall be governed by
the laws of the State of California, without regard to its choice of law rules.
Venue shall be in San Francisco, California.
16. DEFINITIONS
"CONFIDENTIAL INFORMATION" includes, but is not limited to, trade secrets,
computer programs, documentation, formulas, data, inventions, techniques,
marketing plans, strategies, forecasts, customer lists, employee information,
financial information, and information concerning Discloser's organization,
products or methods, research, development, engineering, purchasing,
manufacturing, accounting, marketing, selling, leasing, Software (including
third party software), or any other information that is marked as confidential:
"DESIGNATES" means those Licensee customers, suppliers, vendors, students,
benefits providers, PeopleSoft Certified Outsourcing Partners, and other
external parties, with whom Licensee interfaces to conduct Licensee's business
and whose access to the Software is necessary to effect Licensee's internal data
processing operations.
"DOCUMENTATION" means technical publications such as reference, user, install,
systems administration and/or technical guides, relating to the use and
documented functionality of the Software, delivered by PeopleSoft to Licensee as
part of the Software on CD-ROM.
"NAMED COUNTRY" means the software language(s), functionality, and territory as
set forth in the Schedule and in accordance with the Documentation, for which
Licensee is authorized to use the Software.
"OPERATING METRICS" means Licensee's current operating figures such as employee
or student/faculty count, annual revenue or budget, and the like, as set forth
in the Schedule and as Licensee certifies annually in writing to PeopleSoft.
"SCHEDULE(S)" means the applicable, independent Software module schedule(s)
signed by the parties and referencing this Agreement. Each Schedule is a
separate and independent contractual obligation from any other Schedule.
"SOFTWARE" means all or any portion of the global version of the binary computer
software programs and updates and enhancements thereto, (including corresponding
source code, unless specifically excluded elsewhere in the Agreement) and
Documentation delivered by PeopleSoft to Licensee as listed in the Schedule.
Software includes the third-party software delivered by PeopleSoft as specified
in the Schedule, and modifications made to the Software. Software does not
include source code to: (1) Tools; (2) third party Software; (3) PeopleSoft's
Supply Chain Software; or (4) PeopleSoft's Intrepid Software. Unless
specifically stated otherwise, all Software is delivered
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to Licensee only if and when generally commercially available.
"TERM" means the term of Software use as set forth in the attached Schedule.
"TOOLS" mean the Software's underlying design architecture, called PeopleTools
and/or PepperTools, and include application programming tools and code.
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EXHIBIT D
BENEFICIARY ACKNOWLEDGEMENT FOR ESCROW AGREEMENT
The Beneficiary Acknowledgement for Escrow Agreement can be found attached as
Exhibit B to the Software Source Code Escrow Agreement between PeopleSoft and
SourceFile, Inc. Such Escrow Agreement (with exhibits) can be found at the
following web site for Sourcefile:
http://www.sourcefile.com/private/index.html.
The PeopleSoft Escrow Account number is 7339. The USER ID IS Sourceweb. The
PASSWORD IS ps97. Note that both the ID and password are case-sensitive.
Please print out Exhibit B of the Software Source Code Escrow Agreement entitled
"Form of Acknowledgement by Beneficiary" and complete and return per the
instructions on such Form.
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Exhibit 10.12
MARKETING ALLIANCE AGREEMENT
THIS MARKETING ALLIANCE AGREEMENT (the "Agreement"), is made and entered into as
of February 10, 2000 (the "Effective Date"), by and between Corio, Inc. ("AP"),
a Delaware corporation, and SAP America, Inc. ("SAP"), a Delaware corporation.
WITNESSETH
WHEREAS, AP and SAP desire to develop, market, sell and deliver SAP's
application software products and AP's systems management services together as a
combined service offering to prospective customers (more further defined herein
as the "Alliance Offering"); and
WHEREAS, AP and SAP desire to define the respective rights, duties and
obligations of the parties with respect to the development and delivery of the
Alliance Offering that are more fully described herein; and
NOW THEREFORE, in consideration of the promises and the mutual covenants
herein contained, the parties hereby agree as follows:
ARTICLE I. DEFINITION AND SCOPE OF OFFERING
1.1 GENERAL. The Alliance Offering consists of (i) SAP offering a SAP R/3
and SAP On-Line Store software application (the "SAP Software") and (ii)
AP providing the hardware location at which the SAP Software would be
run and AP's "CORIO HOSTED SOLUTION FOR SAP R/3 AND SAP ONLINE STORE"
(collectively "AP Services"). As a result, AP and SAP will be offering
to certain companies a SAP Software environment (the "SAP Environment")
as a "hosted application" service. SAP will license the SAP Software
pursuant to a mutually agreeable SAP End User Agreement. The AP Services
will be made available pursuant to a mutually agreeable AP End User
Agreement which may include the delivery and support of other third
party products. This Agreement is in effect only for the delivery of the
Alliance Offering, to the extent presently defined in this Agreement, to
only those companies which are located in [*] and their parent company's
global headquarters, if any, located within [*]. The roles and
activities of each party are more fully described herein. In the event
AP requests that the Alliance Offering be extended into [*], SAP shall
use reasonable efforts to assist AP and the respective SAP sister
company to execute an agreement which is substantially the same as this
Agreement. AP acknowledges that SAP America does not have distribution
rights in these countries and does not have the authority to execute
agreements in the name of such sister companies and, further, that the
decision to extend the Alliance Offering into these countries is solely
that of the respective SAP sister company.
ARTICLE II. TERM AND TERMINATION
2.1 TERM. This Agreement shall commence as of the Effective Date and will
continue for a period of [*] from the Effective Date unless otherwise
terminated in accordance with this Section. This Agreement may be
extended by mutual agreement of the parties for successive one year
periods.
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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2.2 TERMINATION FOR CAUSE. If either party materially defaults in the
performance of any of its duties or obligations under this Agreement,
which default is not cured within 60 days after written notice is given
to the defaulting party specifying such default or, with respect to
those defaults that cannot reasonably be cured within 60 days, should
the defaulting party fail to proceed within 60 days to commence curing
the default and thereafter to proceed with reasonable diligence to cure
the default, the party not in default may, by giving written notice
thereof to the defaulting party, terminate this Agreement as of the date
of receipt by the defaulting party of such notice or as of a future date
specified in such notice of termination. Notwithstanding the above,
material breaches as related to the disclosure of a party's proprietary
information shall give rise to a right to terminate for cause if such
default is not cured within 30 days after written notice is given to the
defaulting party specifying such default.
2.3 TERMINATION FOR BANKRUPTCY AND RELATED EVENTS. Subject to Title 11,
United States Code, if either party becomes or is declared insolvent or
bankrupt, is the subject of any proceedings relating to its liquidation,
insolvency or for the appointment of a receiver or similar officer for
it, makes an assignment for the benefit of all or substantially all of
its creditors or enters into an agreement for the composition, extension
or readjustment of all or substantially all of its obligations, then the
other party may, by giving written notice thereof to such party,
terminate this Agreement as of a date specified in such notice of
termination.
2.4 INTENTIONALLY BLANK.
2.5 RIGHTS AND OBLIGATIONS FOR EXPIRATION OF THIS AGREEMENT. Upon expiration
of this Agreement, the parties agree to the following:
(A) OUTSTANDING END USER AGREEMENTS. When one or more End User
Agreements are outstanding there shall be a three year wind-down
period whereby the terms of this Agreement, other than as
specified in sections (b) and (c) below, will remain in full
force and effect solely for purposes of allowing the Customers
which are subject to current End User Agreements to receive the
Integrated Customer Services set forth in Section 4.10. This
Agreement shall terminate 3 years from the date of notice of
termination pursuant to the mutual agreement of the parties or
expiration. In the event AP desires to continue to provide
hosted application services to any current End Users of AP and
SAP under contract pursuant to this Agreement (hereinafter
"Customers") once the terms and conditions of this Agreement are
no longer in effect, AP and SAP shall execute the non-disclosure
agreement in the form of Exhibit 1 listing those Customers.
(B) OUTSTANDING SALES LEADS. The parties agree to cease any joint
marketing and selling of the Alliance Offering either directly
or through any indirect sales channel(s) immediately. AP will
not be permitted to offer the services described in Section 4.10
to any prospect or non-Customers. The parties may continue to
market and sell their respective products and services
separately.
(C) NEW BUSINESS. Any End User Agreements executed prior to such
termination notification date or expiration date will be
considered an outstanding End User
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Agreement under Section 2.5(a) herein. For those companies which
are subject to an SAP End User Agreement only and become
customers of AP and who desire the AP Services after such
termination or expiration, AP and such customer must execute a
standard Outsource Nondisclosure Agreement (attached hereto as
Exhibit 2) in order to continue to provide AP Services to such
customers, and AP will not be permitted to provide the services
described in Section 4.10.
2.6 RIGHTS AND OBLIGATIONS FOR TERMINATION OF THIS AGREEMENT FOR CAUSE.
(A) In the event that either party terminates this Agreement
pursuant to Section 2.2, this Agreement shall terminate
immediately after the cure period and the parties agree to the
following:
(I) OUTSTANDING END USER AGREEMENTS. The services described
in Section 4.10 will be discontinued under all AP End
User Agreements as of the effective date of termination
of this Agreement. In the event AP desires to continue
to provide hosted application services to any Customers
under contract pursuant to this Agreement once the terms
and conditions of this Agreement are no longer in
effect, AP and SAP shall execute the non-disclosure
agreement in the form of Exhibit 1 listing those
Customers which will continue to receive such services.
Notwithstanding the foregoing, in the event the
termination of this Agreement was the result of an AP
breach then, SAP shall be entitled to require additional
terms and conditions be added to the non-disclosure
agreement to provide additional, reasonable safeguards
to SAP considering the nature and severity of the
breach.
(II) OUTSTANDING SALES LEADS. The parties agree to cease the
joint marketing and selling of the Alliance Offering
through the indirect sales channels(s) and its own
internal sales channel. AP will not be permitted to
offer the services described in Section 4.10 to
prospects or non-Customers. The parties remain free to
continue to market and sell their respective products
and services separately.
(B) In the event that SAP terminates this Agreement pursuant to
Section 2.2 due to AP's material violation of SAP's Proprietary
Information, the parties agree that the provisions of 2.6(a)
shall apply in addition to the following:
(I) AP shall immediately cease Use of the SAP Proprietary
Information and shall irretrievably delete the SAP
Software, third-party database and documentation from
all AP computer hardware, including CPU, application
servers, terminals, workstations, and data files (to the
extent permitted by law). Within thirty days after any
such termination, AP shall deliver to SAP at AP's
expense (adequately packaged and insured for safe
delivery) or, at SAP's request, destroy all copies of
the Proprietary Information in every form. AP further
agrees to erase the SAP Software and documentation from
any storage media. AP shall certify in writing to SAP
that it has performed the foregoing. AP shall be solely
liable to its Customers and shall hold SAP harmless as a
result of having to comply with this Section 2.6(b)(i).
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(II) Prior to termination of this Agreement for AP's material
violation relating to SAP Proprietary Information, SAP
will provide AP with an additional thirty days to cure
such violation and avoid termination hereunder so long
as AP acknowledges that SAP does not waive any rights to
damages which have accrued or may continue to accrue by
permitting continued Use during the attempted cure
period and SAP shall remain entitled to all damages
available pursuant to this Agreement for any breach of
the Agreement.
2.7 RIGHTS AND OBLIGATIONS FOR TERMINATION OR EXPIRATION OF END-USER
AGREEMENTS. Upon expiration or termination for any reason of any
Customer's SAP End User Agreement, AP shall immediately cease Use of the
SAP Proprietary Information and shall irretrievably delete the SAP
Software, third-party database and documentation from all AP computer
hardware, including CPU, application servers, terminals, workstations,
and SAP data files (to the extent allowed by law and after having the
opportunity to provide such SAP data files to the Customer) all as it
relates to such Customer. Upon SAP's request, AP shall certify in
writing to SAP that it has performed the foregoing.
ARTICLE III. GENERAL ROLES AND RESPONSIBILITIES
3.1 ALLIANCE GENERAL MANAGERS; ALLIANCE TEAM. SAP and AP will each assign a
representative who will be the primary point of contact in dealing with
the other under this Agreement and will have the authority to make
decisions with respect to actions taken under this Agreement (the
"Alliance General Managers"), provided however, that this Agreement may
only be amended by authorized representatives of AP and SAP. AP and SAP
will assign resources to develop required business plans and sales plans
and will cooperate to meet any mutually determined target completion
dates.
3.2 EXECUTIVE STEERING COMMITTEE. Each of SAP and AP will provide the other
with the names of up to three members of its senior management staff
(inclusive of the Alliance General Managers) who will serve on an
executive steering committee ("Executive Steering Committee"). The
Executive Steering Committee will be responsible for (a) generally
overseeing the performance of each party's obligation under this
Agreement, and (b) making, and providing continuity for making,
strategic decisions regarding the Alliance Offering. The Executive
Steering Committee will meet quarterly. Topics of these meetings may
include the strategic objectives of the parties and long-range planning.
3.3 JOINT BRANDING AND ADVERTISING. It is the parties' intent to jointly
brand the Alliance Offering and associated promotional, marketing, and
advertising materials as jointly agreed upon by the Alliance General
Managers and subject to each party's corporate approvals.
3.4 PROSPECTIVE CUSTOMER COMMUNICATIONS. All SAP and/or AP communications
with any prospective Customers pertaining to the Alliance Offering (and
any subsequent End User Agreements) will be in accordance with the Sales
Plan and coordinated through the Alliance General Managers or their
designees unless AP and SAP otherwise mutually agree in writing.
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3.5 EXPENSES. Each party shall bear its own respective costs, expenses,
risks and liabilities arising out of performance hereunder, except where
the parties agree in writing to share in such expenses.
3.6 INVESTMENT. If AP consummates a private placement of series D preferred
stock (the "Financing") prior to consummation of its initial public
offering of common stock pursuant to a registration statement on Form
S-1 (the "IPO"), AP will permit SAP to participate in the Financing on
terms substantially similar to those pursuant to which other
participants participate and in an amount to be agreed upon by AP and
SAP prior to consummation of the Financing. As consideration for the
SAP's actual participation in the Financing, SAP agrees to develop, with
AP, a joint strategic initiative to be agreed upon by the parties that
will further the objectives of the Alliance. Except for the foregoing
sentence, this section shall terminate at the earlier of the IPO and the
termination of this Agreement.
3.7 COMPETITOR OWNERSHIP CHANGE. In the event an SAP competitor, where a
competitor is defined as an entity which distributes software product(s)
which compete with SAP software which currently includes SAP R/3, SAP
B2B, SAP BW, SAP APO, SAP CRM, mySAP.com and SAP Knowledge Warehouse,
obtains direct or indirect ownership, or control of, five percent or
more of the equity of Corio or an SAP competitor's employee or officer
becomes a member of the Corio board of directors, SAP shall have the
right to terminate this agreement upon sixty days prior written notice
to Corio. A termination pursuant to this provision shall be treated in
the same manner as the expiration of the agreement as related to the
section 2. transition period.
ARTICLE IV. DELIVERY OF THE ALLIANCE OFFERING
4.1 MARKETING, COMMUNICATION & PROMOTIONAL PLANS. The parties agree to
jointly develop and execute marketing, communications, and promotional
plans and/or policies that are compatible ("Marketing Plan").
Promotional activities will likely consist of direct telephone and mail
marketing, direct print advertising in trade journals, Internet
advertising, public and media relations, third party industry analyst
briefings and relations, and select trade conference joint activities.
The parties agree to appoint a "Marketing Lead" representative, who
reports to the Alliance General Manager for purposes of Alliance
activities, who will be the primary point of contact in dealing with the
other under this paragraph and will have the authority to make decisions
with respect to actions taken under this paragraph. Any changes made to
these plans must be approved in writing by the Alliance General
Managers. These plans will be reviewed at the Executive Steering
Committee meetings.
4.2 SAP END USER AGREEMENT. SAP will create its own end user agreement (the
"SAP End User Agreement") and will utilize the SAP End User Agreement to
contract directly with Customers for the SAP Software used in the
Alliance Offering and related software support services. SAP will
license the SAP software to Customers on a "per user/per month" basis as
its primary pricing structure. SAP may, at its own discretion, offer
paid-up licenses and/or the ability to accelerate monthly payments as an
option.
4.3 AP END USER AGREEMENT. AP will create its own end user agreement (the
"AP End User Agreement") and will utilize the AP End User Agreement to
contract directly with Customers for the provision of the AP Services on
a "per user/per month" basis as its primary pricing structure.
Configuration and implementation services may not be subject to the "per
user/per month" pricing structure.
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4.4 MODIFICATIONS TO END USER AGREEMENTS. The SAP and AP End User Agreements
attached hereto as Attachments A and B respectively have been jointly
agreed upon as of the Effective Date. Unless otherwise agreed, any party
making a change to its End User Agreement (other than changes that
correct errors in grammar, typos, and format or changes made for a
specific customer which do not impact the offering of the other party or
otherwise materially change the Alliance Offering) must give the other
party notice of such change and any objection to such change must be
provided to the other party in writing within 10 business days from the
receipt of such notification. Objections will be addressed by the
Alliance General Managers and the Executive Steering Committee as
appropriate. In the event of any change to a party's standard End User
Agreement, such party will promptly provide an updated version of its
End User Agreement to the other party. Neither party may bind or impose
any liabilities, obligations, responsibilities or conditions on the
other party in any way under their respective End User Agreement.
4.5 PERFORMANCE. SAP and AP will each execute their own respective End User
Agreements with each Customer and will be responsible for their own
performance under each End User Agreement.
4.6 CERTIFIED BUSINESS SOLUTION PARTNER AGREEMENTS. In the event the
Alliance Offering is extended to prospects with annual revenues less
than $200 million, the parties agree that the Alliance Offering will be
marketed via the SAP Certified Business Solution Partners ("CBS
Partners"). The SAP Certified Business Solution Partners who elect to
participate as the primary sales channel of the Alliance Offering, as
described in Section 4.9(a), will execute an agreement between
themselves and SAP and a separate agreement between themselves and AP
which will govern any such sale of the Alliance Offering (the "Certified
Business Solution Partner Agreement"). The parties agree that their
respective Certified Business Solution Partner Agreements will contain
at a minimum the compensation models and sales targets related to that
Certified Business Solution Partner for the Alliance Offering and will
provide such compensation models and sales targets to the other party.
Each party will be solely responsible for all payments due to the
Certified Business Solution Partners under their respective Certified
Business Solution Partner Agreements.
4.7 SALES PLAN. AP and SAP agree to jointly develop a sales plan that will
more definitively define the roles and responsibilities pertaining to
any sale of the Alliance Offering (the "Sales Plan"). Such Sales Plan
shall allocate the responsibility between the parties to provide lead
qualification and tracking and shall specify the conditions, manner and
amount of compensation to be paid by each party in the event that a
Customer is signed up which was, at that time, an active sales prospect
of SAP, AP or SAP Certified Business Solutions Partner as defined in the
Sales Plan. Any changes made to the Sales Plan must be approved in
writing by the Alliance General Managers. The Sales Plan will be
reviewed at the Executive Steering Committee meetings and updated
periodically, such period to be specified in the Sales Plan.
4.8 SALES TARGETS. In accordance with the Sales Plan, the parties agree to
establish joint sales volume targets, the channel sales model, and rules
of engagement as mutually agreed upon in writing. The parties agree to
assign professional staff (such as sales representatives, sales support
representatives, or pre-sales technical representatives) who
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will have individual performance objectives and personal compensation
metrics (commission or bonus plans) connected to the achievement of the
sales targets.
4.9 ALLIANCE OFFERING SALES CHANNELS. AP and SAP mutually agree to make the
Alliance Offering generally available through the following:
(A) PRIMARY SALES CHANNEL. The primary sales channel for the
Alliance Offering will be each parties' direct sales force. Each
party may utilize third party sales agents and/or marketing
representatives to fulfill some of their sales responsibilities
after receiving the prior written consent of the other party.
Such consent shall be not be unreasonably withheld and shall
consider factors such as the sales agent's or marketing
representative's ability to properly represent and demonstrate
the offering from a technical, business and support perspective.
A party may withhold consent if, in that party's sole
determination, it believes that the use of such sales agent or
marketing representative may result in a business conflict or is
otherwise not in the best interest if the offering. All sales
agents and marketing representatives must execute a
confidentiality agreement acceptable to the parties. Use of the
CBS Partners as sales agents and/or marketing representative
shall not require the consent of the other party. AP and SAP
will jointly establish requirements and a certification process
for SAP Certified Business Solutions Partners who participate in
the sale of the Alliance Offering. The parties agree that any
such Certified Business Solutions Partner must execute a
Certified Business Solutions Partner Agreement in order to be
authorized to sell the Alliance Offering. Any such agreement
entered into by the Certified Business Solutions Partner must
include, among other items, a provision requiring the Certified
Business Solutions Partner to comply with its sales targets. In
the event that an SAP Certified Business Solutions Partner
elects not to execute the SAP Certified Business Solutions
Partner Agreement with SAP or fails to meet its Alliance
Offering sales targets, SAP agrees to take reasonable steps to
implement a plan to meet the sales targets in that specific
Certified Business Solutions Partner's territory.
4.10 INTEGRATED CUSTOMER SUPPORT PLAN. The parties agree to share customer
support knowledge, processes and tools in an effort to design, execute,
and jointly manage a process whereby Alliance Offering Customer support
requests may be shared or transferred from one party to the other in
accordance with the following:
(A) INTEGRATED CUSTOMER SUPPORT ENVIRONMENT PLAN. The parties agree
that the Integrated Customer Support Environment ("Customer
Support Plan") plan is to be jointly developed to meet the
mutual service level requirements of the parties utilizing the
support infrastructures of the Alliance Offering Customer, AP,
SAP, and the Certified Business Solutions Partner.
(B) CHANGE PROCESS. The parties acknowledge and agree that the
procedures, processes, and technology used to implement the
Integrated Customer Support Environment plan may change over
time. Any changes to the Integrated Customer Support Environment
plan shall be mutually agreed to by the Customer Support Leads.
The Integrated Customer Support Environment plan may be reviewed
at the Executive Steering Committee meetings as required.
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(C) CUSTOMER SUPPORT LEAD. Each party will designate a Customer
Support Lead who will be the point of contact for Integrated
Customer Support Environment related matters. The Integrated
Customer Support Environment plan will identify each party's
Customer Support Lead.
4.11 POST TERMINATION ACCESS. Upon the expiration or termination of this
Agreement and the section 2.5(a) wind-down period, if any, or upon
termination of this Agreement by AP due to SAP's material breach under
section 2.6, AP access to the Software for the purpose of performing
customer support shall arise pursuant to the SAP End User Agreement with
a Customer and the executed Outsource Non-Disclosure Agreement to be
executed by SAP and AP.
ARTICLE V. CONFIDENTIALITY AND INTELLECTUAL PROPERTY
5.1 CONFIDENTIALITY.
(A) DEFINITION OF PROPRIETARY INFORMATION. For purposes of this
Agreement, "Proprietary Information" means (i) with respect to
SAP, the software and documentation and any complete or partial
copies thereof, the concepts, techniques, ideas and know-how
embodied and expressed in any computer programs or modules
included in the SAP software, including the structure, sequence,
and organization of such programs or modules ("Program
Concepts"), SAP licensors' third-party database, any other
third-party software licensed with or as part of the SAP
software, benchmark results, information contained in SAP's
Customer Support systems (CSS, CSU, and OSS), customer support
metrics and methodologies, customer list, marketing lead
information, and any other information identified or reasonably
identifiable as confidential and proprietary information of SAP,
or its licensors ("SAP Proprietary Information"); (ii) with
respect to AP, customer support metrics and methodologies,
customer list, marketing lead information and information
identified or reasonably identifiable as the confidential and
proprietary information of AP ("AP Proprietary Information");
and provided that, any part of the SAP or AP 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; or (d) already known to a party without an
obligation of confidentiality; or (e) is independently developed
without use of the other party's Proprietary Information; or (f)
disclosed without similar restrictions by SAP to a third party;
or (g) approved by the party for disclosure; or (h) is required
to be disclosed pursuant to the requirement of a government
agency or by operation of law subject to prior consultation with
the disclosing party's legal counsel shall be excluded.
(B) LIMITS OF DISCLOSURE. 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 of 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
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will obtain from that consultant a written acknowledgment that
such consultant will be bound by the same terms as specified in
this Section 5 with respect to the Proprietary Information.
(C) PROTECTIVE PRECAUTIONS. AP agrees to maintain a log of the
number and location of all originals and copies of the SAP
software which it comes into possession as related to the
Alliance Offering. AP and SAP 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.
5.2 CERTAIN DEFINITIONS.
(A) "Extension" means an addition to the Software which does not
require a Modification.
(B) "Modification" means a change to the Software which changes the
source code.
5.3 OWNERSHIP.
(A) Each party will retain all rights it possessed prior to the
Effective Date in any software, ideas, concepts, know-how,
development tools, techniques or any other proprietary material
or information that may be used by such party in connection with
its role relating to the development or delivery of the Alliance
Offering. All software that is licensed by a party from a third
party vendor will be and remain the property of such vendor.
Notwithstanding anything to the contrary in this Agreement, (I)
AP (i) will retain all right, title and interest in and to all
development tools, know-how, methodologies, processes,
technologies or algorithms used in performing the AP Services
which are based on trade secrets or proprietary information of
AP or are otherwise owned or licensed by AP and developed
without the assistance of SAP or are not based on SAP
Proprietary Information, (ii) will be free to use the ideas,
concepts and know-how which are developed by AP in the course of
performing the AP Services and may be retained by AP's employees
in intangible form so long such ideas, concepts or know-how are
not based on SAP Proprietary Information, and (iii) will retain
ownership of any AP-owned software or development tools that are
used in the Alliance Offering and become embedded in any
components of the Alliance Offering; and (II) SAP (i) will
retain all right, title and interest in and to all development
tools, know-how, methodologies, processes, technologies or
algorithms used in performing the SAP services which are based
on trade secrets or proprietary information of SAP or are
otherwise owned or licensed by SAP and developed without the
assistance of AP or are not based AP Proprietary Information,
(ii) will be free to use the ideas, concepts and know-how which
are developed by SAP in the course of performing the SAP
services and may be retained by SAP employees in intangible
form, and (iii) will retain ownership of any SAP-owned software
or development tools that are used in the Alliance Offering and
become embedded in any components of the Alliance Offering.
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(B) In the event AP without SAP's participation develops any
Modification or Extension (hereinafter referred to as "AP
Extension" or "AP Modification") to the SAP Software for an
Alliance Offering Customer, AP agrees that ownership of such AP
Extension or AP Modification shall be in accordance with the SAP
End User Agreement with such Customer.
(C) Unless otherwise agreed to in writing, in the event SAP develops
either independently, or jointly with AP, any Modification or
Extension to the SAP Software, such Modifications or Extensions
will be the exclusive property of SAP and SAP AG, and AP will
not grant, either expressly or impliedly, any rights, title,
interest, or licenses to such Modifications or Extensions to any
third party. AP shall be entitled to Use such Modifications and
Extensions solely in support of Alliance Offering Customers as
contemplated in this Agreement.
(D) AP agrees that it will not modify any provided third-party
software hereunder, unless expressly authorized in writing by
such third-party vendor.
(E) AP shall register all Modifications to the SAP Software, using
OSS (Online Software Service), with SAP prior to making such
Modifications.
(F) AP agrees to: (i) keep and maintain adequate and current records
of all Software Modifications (which records shall be made
reasonably available to SAP); (ii) promptly disclose to SAP and
provide copies to SAP of any Software Modifications in which SAP
has ownership rights; and (iii) insert in all copies of the SAP
Software as modified all copyright, trade secret, or other
notices thereon or therein as SAP may from time to time direct.
(G) No licenses will be deemed to have been granted by either party
to any of its patents, trade secrets, trademarks or copyrights,
except as otherwise expressly provided in this Agreement.
Nothing in this Agreement will require AP or SAP to violate the
proprietary rights of any third party in any software or
otherwise. The furnishing of the Proprietary Information for the
purposes set forth in this Agreement does not constitute the
grant, option, license, sublicense, assignment, or other form of
transfer to the other party of any rights, title or interest in
or to such Proprietary Information. AP expressly warrants and
represents on its behalf, and on behalf of its agents and
employees, that no Modifications and Extensions for the licensed
SAP Software will be performed without providing prior written
notice to SAP. All Modifications and Extensions to the SAP
Software shall be considered part of the SAP Software and SAP
Proprietary Information for the purposes of this Agreement.
5.4 AP RIGHT TO ACCESS SAP SOFTWARE. SAP grants AP a right to use, load,
execute, employ, utilize, store, and display ("Use") the SAP Software
which is licensed to Alliance Offering Customers pursuant to an SAP End
User Agreement at a designated AP location. AP agrees that it will Use
such SAP Software solely for providing AP Services to such Customers. AP
agrees that such Use is contingent upon the SAP End User Customer
licensing the appropriate type and number of Users for AP's Use. AP will
not Use the SAP Software to process its own business information or to
provide processing or facilities management or other services to any
other parties other than Alliance Offering Customers unless there is a
separate agreement executed by AP for purposes other than the Alliance
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Offering. All SAP software Used by AP pursuant to this Agreement shall
be protected from disclosure in accordance with the terms and conditions
of this Agreement.
AP shall be entitled to a reasonable number of copies of the SAP
Software in various configurations (e.g. R/3 on NT with Oracle, R/3 on
HP Unix with Informix) solely for non-productive Alliance Offering use
such as demonstration purposes and preparation of Alliance Offering
roll-out on these configurations. Such SAP Software shall be provided at
no charge and AP agrees that it is responsible to secure all third party
software and database licenses, if any, associated with the
configurations. AP shall execute an SAP provided Appendix and Schedule
for each copy of the Software licensed pursuant to this provision.
5.5 SURVIVAL OF ARTICLE V. The provisions of Sections 5.1, 5.2, 5.3, and 5.4
will survive the expiration or termination of this Agreement for any
reason.
ARTICLE VI. INDEMNITIES AND LIABILITIES
6.1 NO REPRESENTATION REGARDING COMBINATION USE. SAP makes no representation
with respect to the possibility of infringement by Combination Use of
the SAP Software. The parties agree that SAP has no duty to investigate
nor to warn AP of any such possibility. As used herein, Combination Use
means Use of the SAP Software in conjunction with any of the following:
(i) any software other than the SAP Software or (ii) any apparatus other
than a Designated Unit (each individual computer in which the Software
and Third-Party Database are installed), unless such Use is prescribed
in the Documentation.
6.2 INTELLECTUAL PROPERTY INDEMNIFICATION.
(A) Except for Combination Use, each party shall indemnify the
other, up to the maximum amount described in Section 6.2(c),
against all claims, liabilities, awards, and costs, including
reasonable attorneys' fees reasonably incurred in the defense of
any claim brought against a party by third parties alleging that
the other party's software and documentation (other than third
party software and documentation) infringes or misappropriates:
(i) any United States patent; or (ii) a United States copyright;
or (iii) trade secret rights, provided that, the party seeking
indemnification promptly notifies the other party in writing of
any such claim and the indemnitor is permitted to control fully
the defense and any settlement of such claim. The indemnitee
shall reasonably cooperate in the defense of such claim and may
appear, at its own expense, through counsel. The indemnitor may,
in its sole discretion, settle any such claim on a basis
requiring indemnitor to substitute for the infringing software
and documentation alternative substantially equivalent
non-infringing programs and supporting documentation.
(B) If software or documentation becomes the subject of a claim
under this Section 6.2, or in the indemnitor's opinion is likely
to become the subject of such a claim, then, in addition to
defending the claim and paying any damages and attorneys' fees
as required above in this Section 6.2, the indemnitor will
either (A) replace or modify the software or confidential
information to make it noninfringing or cure any claimed misuse
of another's trade secret or (B) procure for the indemnitee the
right
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to continue using the software or confidential information
pursuant to this Agreement. Any costs associated with
implementing either of the above alternatives will be borne by
the indemnitor but will be subject to Section 6.2(c). If neither
option is available to the indemnitor through the use of
reasonable, diligent efforts, (x) the indemnitee will return
such software or confidential information to the indemnitor and
(y) if requested by the indemnitee in good faith, the parties
will negotiate, pursuant to Section 7.2 but subject to Section
6.2(c), to reach a written agreement on what, if any, monetary
damages (in addition to the indemnitor's obligation to defend
the claim and pay any damages and attorneys' fees as required
above in this Section 6.2) are reasonably owed by the indemnitor
to the indemnitee as a result of the indemnitee no longer having
use of such software or confidential information.
(C) The maximum aggregate liability of the indemnifying party under
the indemnity provided in this Section 6.2 shall be a sum equal
to ten million dollars. If there should be more than one claim
of infringement, the amount payable under such indemnity in
respect of each claim shall be divided pro rata.
6.3 PROCEDURES TO COMMENCE INFRINGEMENT ACTIONS. The indemnifying 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 pursuant to
6.2. The indemnitee shall not undertake any action in response to any
infringement or alleged infringement without the prior written consent
of the indemnitor, which consent shall not be unreasonably withheld. The
indemnitee agrees to cooperate with and assist the indemnitor in taking
whatever action (including consenting to being named as a party to any
suit or other proceeding) which the indemnitor determines to be
reasonably necessary or desirable.
6.4 SOLE REMEDY. THE PROVISIONS OF SECTION 6.2 AND 6.3 STATE THE SOLE,
EXCLUSIVE, AND ENTIRE LIABILITY OF THE PARTIES TO EACH OTHER, TO SAP AG
AND THEIR LICENSORS TO THE OTHER PARTY AND THE OTHER PARTY'S SOLE REMEDY
WITH RESPECT TO THE INFRINGEMENT OF THIRD-PARTY INTELLECTUAL PROPERTY
RIGHTS.
6.5 UNAUTHORIZED USE INDEMNITY. AP shall indemnify SAP, and its licensors,
against all third party claims, liabilities, and costs, including
reasonable legal fees, reasonably incurred in the defense of any claim
(other than for the infringement of intellectual property rights
specified in Section 6.2 above), arising out of AP's unauthorized Use of
the Software or third-party software, provided that, SAP promptly
notifies AP in writing of such claim and that AP is permitted to control
fully the defense and any settlement of the claim. Further, SAP agrees
to cooperate with and assist AP in taking whatever action (including
consenting to being named as a party to any suit or other proceeding)
which the AP determines to be reasonably necessary or desirable.
6.6 LIMIT OF LIABILITY. Except for the infringement indemnity obligations
set forth in Sections 6.2 and for damages resulting from a breach of
Section 5, neither party will be liable to the other for an amount in
excess of $5,000,000. FURTHER, EXCEPT FOR DAMAGES RESULTING FROM
UNAUTHORIZED USE OR DISCLOSURE OF THE PROPIETARY INFORMATION, NEITHER
PARTY WILL BE LIABLE TO THE OTHER FOR ANY AMOUNTS FOR LOSS OF INCOME,
PROFIT OR SAVINGS OR
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INDIRECT, INCIDENTAL, CONSEQUENTIAL, EXEMPLARY, PUNITIVE OR SPECIAL
DAMAGES IN ADVANCE, AND ALL SUCH DAMAGES ARE EXPRESSLY DISCLAIMED. NO
CLAIM, DEMAND FOR MEDIATION OR ARBITRATION OR CAUSE OF ACTION WHICH
AROSE OUT OF AN EVENT OR EVENTS WHICH OCCURRED MORE THAN TWO YEARS PRIOR
TO THE FILING OF A DEMAND FOR MEDIATION OR ARBITRATION OR SUIT ALLEGING
A CLAIM OR CAUSE OF ACTION MAY BE ASSERTED BY EITHER PARTY AGAINST THE
OTHER.
6.7 END USER AGREEMENT: CERTIFIED BUSINESS SOLUTION PARTNER AGREEMENTS
INDEMNIFICATION. Subject to Section 6.6, each party shall indemnify the
other against all claims, liabilities, awards, and costs, including
reasonable attorneys' fees, reasonably incurred in the defense of any
claim brought against a party (the party seeking indemnification) by end
user customers and/or third parties relating to the indemnifying party's
End User Agreement (as contemplated in Sections 4.2 and 4.3) or
Certified Business Solution Partner Agreements (as contemplated in
Section 4.6), provided that, the party seeking indemnification promptly
notifies the other party in writing of any such claim and the
indemnifying party is permitted to control fully the defense and any
settlement of such claim. The party seeking indemnification shall
reasonably cooperate in the defense of such claim and may appear, at its
own expense, through counsel.
6.8 SURVIVAL OF ARTICLE VI. The provision of this Article VI will survive
the expiration or termination of this Agreement for any reason.
ARTICLE VII. MISCELLANEOUS
7.1 ASSIGNMENT: SUBCONTRACTING.
(A) ASSIGNMENT. Neither party shall assign or in any manner transfer
any obligation assumed or contemplated by this Agreement without
the prior written consent of the other party to this Agreement,
the granting of which shall not be unreasonably withheld;
provided, that a change of control or acquisition of a party
shall be considered an assignment for the purposes of this
Section 7.1. Notwithstanding the foregoing, consent to the
assignment to a competitor can be withheld for any reason.
(B) SUBCONTRACTING. Notwithstanding the forgoing and subject to
Section 4.9(a), each party shall be reasonably permitted to
subcontract its services in the performance of its obligations
hereunder so long as all or substantially all of a core
obligation is not subcontracted.
7.2. MEDIATION: ARBITRATION. Any dispute, controversy or claim arising under,
out of, in connection with or in relation to this Agreement, or the
breach, termination, validity or enforceability of any provision hereof
(a "Dispute"), if not resolved informally through negotiation between
the parties, will be submitted to non-binding mediation. The parties
will mutually determine who the mediator will be from a list of
mediators obtained from the American Arbitration Association office
located in the city determined as set forth below in this Section 7.2
(the "AAA"). If the parties are unable to agree on the mediator, the
mediator will be selected by the AAA. If any Dispute is not resolved
through mediation, it will be resolved by final and binding arbitration
conducted in accordance with
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and subject to the Commercial Arbitration Rules of the AAA then
applicable. One arbitrator will be selected in accordance with such
rules, and the arbitrators will allow such discovery as is appropriate,
consistent with the purposes of arbitration in accomplishing fair,
speedy and cost effective resolution of disputes. The arbitrator will
reference the rules of evidence of the Federal Rules of Civil Procedure
then in effect in setting the scope of discovery. Judgment upon the
award rendered in any such arbitration may be entered in any court
having jurisdiction thereof, or application may be made to such court
for a judicial acceptance of the award and an enforcement, as the law of
such jurisdiction may require or allow. Any negotiation, mediation or
arbitration conducted pursuant to this Section 7.2 will take place in
Palo Alto, California, if initiated by SAP, and in Philadelphia, Pa, if
initiated by AP. Other than those matters involving injunctive relief,
claims relating to the ownership or title to intellectual property
rights in the Proprietary Information or any action necessary to enforce
the award of the arbitrator, the parties agree that the provisions of
this Section 7.2 are a complete defense to any suit, action or other
proceeding instituted in any court or before any administrative tribunal
with respect to any Dispute or the performance of the AP Services by AP.
Nothing in this Section 7.2 prevents the parties from exercising their
right to terminate this Agreement in accordance with Article II.
7.3 RIGHT TO ENGAGE IN OTHER ACTIVITIES. This Agreement relates exclusively
to the development, marketing, sales and delivery efforts of the
Alliance Offering. In no way does this Agreement (i) constitute an
understanding in regard to other programs or business activities of
either party, (ii) constitute an understanding as to any other
procurements by one party from the other, nor (iii) prevent either party
from engaging in similar activities with other companies.
7.4 RELATIONSHIP. Nothing in this Agreement shall be deemed to constitute,
create, give effect to, or otherwise recognize a joint venture,
partnership, pooling arrangement, formal business entity or any type of
permanent arrangement, and the employees of one party shall not be
deemed employees of the other. SAP and AP shall be acting in their
respective capacities as independent contractors and under no
circumstances will either party be deemed to be in any relationship with
the other carrying with it fiduciary or trust responsibilities, whether
through partnership or otherwise, and neither party undertakes by this
Agreement or otherwise to perform any obligation of the other party,
whether regulatory or contractual, or to assume any responsibility for
the other party's business or operations. Each party has the sole right
and obligation to supervise, manage, contract, direct, procure, perform
or cause to be performed, all work to be performed by it hereunder.
Nothing in this Agreement shall grant to either party the right to make
commitments of any kind for or on behalf of the other party without the
prior written consent of the other party.
7.5 MEDIA RELEASES: ADVERTISING. All media releases, public announcements
and public disclosures by SAP or AP relating to this Agreement or its
subject matter, including, without limitation, promotional or marketing
material (but not including any announcement intended solely for
internal distribution at SAP or AP, as the case may be, or any
disclosure required by legal, accounting or regulatory requirements
beyond the reasonable control of SAP or AP, as the case may be) shall be
coordinated and jointly agreed upon by the Alliance General Managers
(subject to both company's corporate approvals) prior to the release
thereof.
Page 14
<PAGE> 15
7.6 AUDIT RIGHT. During normal business hours and at any time during which
the SAP Software, documentation, third-party software, or other SAP
Proprietary Information are being utilized, SAP or its authorized
representative or licensors, shall have the right upon reasonable
advance notice to audit and inspect AP's utilization of such items, in
order to verify compliance with the terms of this Agreement. Such
inspection right shall occur no more frequently than once per year
unless the results of an inspection reveal non-compliance with the
license in which case SAP shall be permitted re-audit within any year.
Upon SAP's reasonable request, AP shall deliver to SAP a report, as
defined by SAP, evidencing AP's and Customers' usage of the Software
licensed pursuant to the SAP end User Agreement
7.7 EXCUSED PERFORMANCE. Each party shall be excused from performance
hereunder (other than performance of obligations to make payment, if
any) for any period and to the extent that it is prevented from
performing pursuant hereto, in whole or in part, as a result of delays
caused by the other or third parties or an act of God, war, civil
disturbance, court order, labor dispute, or other cause beyond its
reasonable control, including failures or fluctuations in electrical
power, heat, light, air conditioning or telecommunications equipment,
and such nonperformance shall not be a default hereunder or a ground for
termination hereof.
7.8 NOTICES. All notices under this Agreement will be in writing and will be
deemed to have been duly given if delivered personally or by a
nationally recognized courier service, faxed or mailed by registered or
certified mail, return receipt requested, postage prepaid, to the
parties at the addresses set forth below. All notices under this
Agreement that are addressed as provided in this Section 7.8, (a) if
delivered personally or by a nationally recognized courier service, will
be deemed given upon delivery, (b) if delivered by facsimile, will be
deemed given when confirmed and (c) if delivered by mail in the manner
described above, will be deemed given on the fifth business day after
the day it is deposited in a regular depository of the United States
mail. Either party may change its address or designee for notification
purposes by giving notice to the other of the new address or designee
and the date upon which such change will become effective.
Page 15
<PAGE> 16
In the case of AP: In the case of SAP:
------------------------------- -------------------------------
AP Alliance General Manager SAP Alliance General Manager
(Address) (Address)
------------------------------- -------------------------------
------------------------------- -------------------------------
7.9 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect
to principles of conflict of laws.
7.10 ENTIRE AGREEMENT. This Agreement, including any Schedules or Exhibits
referred to herein and attached hereto, each of which is incorporated in
this Agreement for all purposes, constitutes the entire agreement
between the parties with respect to the subject matter of this Agreement
and there are no representations, understandings or agreements relating
to this Agreement which are not fully expressed herein. No amendment,
modification, waiver or discharge hereof shall be valid unless in
writing and signed by an authorized representative of the party against
which such amendment, modification, waiver or discharge is sought to be
enforced.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed by its duly authorized representative as of the day and year first
above written.
CORIO, INC. SAP AMERICA, INC.
/s/ Signature Illegible /s/ Signature Illegible
BY: BY:
NAME: LAURENT PACALIN NAME: ERIC RUBINO
------------------------- -------------------------
TITLE: VP Business Development TITLE: COO
------------------------- -------------------------
Page 16
<PAGE> 17
EXHIBIT 1
CONFIDENTIALITY AGREEMENT
This Confidentiality Agreement ("Agreement") made this ____th day of ______,
20___ between SAP America, Inc. having its principal place of business at 3999
West Chester Pike, Newtown Square, Pennsylvania 19073 (hereinafter referred to
as "SAP"), and ________________, having its principal place of business at
________________________ (hereinafter referred to as "AP").
WHEREAS, SAP is in the business of providing proprietary software,
documentation, and related services to its Customers;
WHEREAS, pursuant to the Marketing Alliance Agreement dated ________ __, 200___,
between SAP and AP (Marketing Agreement"), SAP and AP have jointly developed a
customer base (Customers) for which SAP has licensed its Software, Documentation
and other Proprietary Information to Company for Use in its business operations
and AP has provided hosted application services (the list of permissibly
Customers are listed on Exhibit A, attached hereto);
WHEREAS, Customers have engaged AP to perform certain facilities and/or
information systems management services as set forth in the Agreements between
AP and Customers ("Services") that will require AP to access to the Software;
and
WHEREAS, the Marketing Agreement has been terminated and Customers continue to
want to receive hosted application services from AP;
WHEREAS, SAP and/or Customers will disclose to AP the Software, whether in
source or object code, including unique concepts or techniques embodied therein,
Documentation, any Third-Party Database or Third-Party Software sublicensed from
SAP, and any other Proprietary Information for the sole purpose of allowing AP
to provide the Services to Company;
NOW THEREFORE, in consideration of disclosure to AP of such Proprietary
Information, and intending to be legally bound, the parties agree as follows:
1. Permissible Users.
AP agrees that it will Use the Proprietary Information solely for
providing the Services to Customers. AP shall be permitted to use, load,
execute, employ, utilize, store, and display ("Use") the SAP Software which is
licensed to a Customers listed on Exhibit A pursuant to an SAP End User
Agreement at a designated AP location. AP agrees that such Use is contingent
upon the SAP End User Customer licensing the appropriate type and number of
Users for AP's Use. AP will not Use the SAP Software to process its own business
information or to provide processing or facilities management or other services
to any other parties other than Customers listed on Exhibit A unless there is a
separate agreement executed by AP for such purposes.
2. SAP Proprietary Information.
(a) AP acknowledges SAP's assertion that ownership of and title in and
to all intellectual property rights, including patent, trademark, service mark,
copyright, and trade secret rights, in the Proprietary Information are and shall
remain in SAP and SAP AG and their respective licensors. AP acquires only the
right to use the Proprietary Information under the terms and conditions of this
Agreement and does not acquire any ownership rights or title in or to the
Proprietary Information and that of their respective licensors.
(b) SAP agrees that no restrictions are made upon AP with respect to any
Proprietary Information that: (a) is already rightfully possessed by AP without
obligation of confidentiality; or (b) is developed independently by AP without
breach of this Agreement; or (c) is rightfully received by AP from a third party
without obligation of Confidentiality; or (d) is, or becomes, publicly available
without breach of this Agreement.
(c) AP shall not remove any proprietary, copyright, trademark, or
service mark legend from the Software, Documentation or other provided
Proprietary Information.
<PAGE> 18
(d) AP shall maintain a log of the number and location of all originals
and copies of the Software. The inclusion of a copyright notice on any portion
of the Software or Documentation shall not cause or be construed to cause it to
be a published work.
3. Protection of Proprietary Information.
(a) AP agrees that it will not disclose, provide, or make available any
of the Proprietary Information in any form to any person, except to bona fide
employees, officers, or directors whose access is necessary to enable AP to
exercise its rights hereunder, without the SAP's prior written consent.
(b) AP shall not copy, translate, disassemble, or decompile, nor create
or attempt to create the source code from the object code of the Software
licensed hereunder or use it to create a derivative work, unless authorized in
writing by SAP.
(c) AP acknowledges that any disclosure to third parties of Proprietary
Information may cause immediate and irreparable harm to SAP, therefore, AP
agrees to take the same protective precautions to protect the Proprietary
Information from disclosure to third parties as it takes with its own
proprietary and Proprietary information of a similar nature.
4. Duties Upon Termination.
Upon any termination of the License Agreement between a Customer and SAP
or the agreement for the Services between a Customer and AP, AP shall
immediately cease Use of the Proprietary Information and shall irretrievably
delete the Software, Third-Party Database and Documentation from all AP computer
hardware, including CPU, application servers, terminals, workstations, and data
files with respect to that Customer. Within thirty days after any termination,
AP shall deliver to SAP at AP's expense (adequately packaged and insured for
safe delivery) or, at SAP's request, destroy all copies of the Proprietary
Information in every form. AP further agrees to erase the Software and
Documentation from any storage media. AP shall certify in writing to SAP that it
has performed the foregoing. Upon termination of this Agreement, AP shall
perform the above duties in regards to all Customers.
5. No Rights Transferred.
The furnishing of the Proprietary Information for the limited purposes
set forth herein does not constitute the grant, option, license, sublicense,
assignment, or other form of transfer to AP of any rights, title or interest in
or to such Proprietary Information.
6. Indemnification.
(a) AP agrees to indemnify and defend SAP, its parent, affiliates, its
and their officers, directors and employees, from and against any and all loss,
claim or damage, including attorney's fees and costs, which SAP may suffer, that
arise from or are in any way connected with AP's provision of the Services to
Company or breach of AP's obligations hereunder provided that, SAP promptly
notifies AP in writing of any third party claim and that AP is permitted to
control fully the defense and any settlement of the third party claim. Further,
SAP agrees to cooperate with and assist AP in taking whatever action (including
consenting to being named as a party to any suit or other proceeding) which the
AP determines to be reasonably necessary or desirable.
(b) ANYTHING TO THE CONTRARY HEREIN NOTWITHSTANDING, UNDER NO
CIRCUMSTANCES SHALL SAP BE LIABLE TO AP, COMPANY OR ANY OTHER PERSON OR ENTITY
FOR SPECIAL, INCIDENTAL, CONSEQUENTIAL, 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.
THE FOREGOING LIMITATIONS OF LIABILITY DOES NOT APPLY TO PERSONAL INJURY OR
DEATH CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SAP.
7. Assignment.
AP shall not assign or in any manner transfer any obligation assumed or
contemplated by this Agreement without the prior written consent of SAP, the
granting of which shall not be unreasonably withheld; provided, that a change of
control or acquisition of a party shall be considered an assignment for the
purposes of this Section 7. Notwithstanding the foregoing, consent to the
assignment to a competitor of SAP can be withheld for any reason.
<PAGE> 19
8. Miscellaneous.
(a) This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their permitted successors assigns.
(b) The provisions of this Agreement, together with any agreements
incorporated or referred to herein, shall (i) with regard to the subject matter
hereof, supersede all prior agreements and negotiations, and (ii) be modified
only by a written agreement.
(c) In the event that any provision of this Agreement shall, for any
reason, be determined to be invalid, illegal, or unenforceable in any respect,
the parties hereto shall negotiate in good faith and agree to such amendments,
modifications, or supplements of or to this Agreement or such other appropriate
actions as shall, to the maximum extent practicable in light of such
determination, implement and give effect to the intentions of the parties as
reflected herein, and the other provisions of this Agreement shall, as so
amended, modified, or supplemented, or otherwise affected by such action, remain
in full force and effect.
(d) This Agreement shall be governed by and construed under the
Commonwealth of Pennsylvania law without reference to its conflicts of law
principles.
This Agreement shall be in effect beginning on the date first above written and
shall continue in effect until otherwise agreed upon by the parties in writing.
IN WITNESS HEREOF, and intending to be legally bound, the parties have executed
this Agreement on the date and year first written above.
SAP AMERICA, INC. Corio Inc (AP)
By: By: /s/ Signature Illegible
------------------------------ ---------------------------
Title: Title: VP Business ??.
--------------------------- -------------------------
Date: Date: 2/14/00
--------------------------- ---------------------------
<PAGE> 20
EXHIBIT 2
CONFIDENTIALITY AGREEMENT
This Confidentiality Agreement ("Agreement") made this ____th day of____, 200__
between SAP America, Inc. having its principal place of business at 3999 West
Chester Pike, Newtown Square, Pennsylvania 19073 (hereinafter referred to as
"SAP"), _____________________, having its principal place of business at
_________________ (hereinafter referred to as "AP") and ______________________,
having its principal place of business at _________________, hereinafter
referred to as ("Company").
All terms as set forth in the SAP America, Inc. R/3 End-User Value License
Agreement ("License Agreement") and referred to herein, shall have the same
meaning as set forth in the License Agreement unless otherwise modified herein.
WHEREAS, SAP is in the business of providing proprietary software,
documentation, and related services to its Customers;
WHEREAS, Pursuant to the License Agreement dated _____ __, 200__, between SAP
and Company, SAP has licensed its Software, Documentation and other Proprietary
Information to Company for Use in its business operations;
WHEREAS, Company has engaged AP to perform certain facilities and/or information
systems management services as set forth in the ____________________ Agreement
between AP and Company dated ______________ ("Services") that will require AP to
have access to the Software; and
WHEREAS, SAP and/or Company will disclose to AP the Software, whether in source
or object code, including unique concepts or techniques embodied therein,
Documentation, any Third-Party Database or Third-Party Software sublicensed from
SAP, and any other Proprietary Information for the sole purpose of allowing AP
to provide the Services to Company;
NOW THEREFORE, in consideration of disclosure to AP of such Proprietary
Information, and intending to be legally bound, the parties agree as follows:
1. Permissible Users.
AP agrees that it will Use the Proprietary Information solely for
providing the Services to Company. AP shall be permitted to use, load, execute,
employ, utilize, store, and display ("Use") the SAP Software which is licensed
to Company pursuant to an SAP End User Agreement listed at a designated AP
location. AP agrees that such Use is contingent upon Company licensing the
appropriate type and number of Users for AP's Use. AP will not Use the SAP
Software to process its own business information or to provide processing or
facilities management or other services to any other parties other than Company
unless there is a separate agreement executed by AP for such purposes.
2. SAP Proprietary Information.
(a) AP acknowledges SAP's assertion that ownership of and title in and
to all intellectual property rights, including patent, trademark, service mark,
copyright, and trade secret rights, in the Proprietary Information are and shall
remain in SAP and SAP AG and their respective licensors. AP acquires only the
right to use the Proprietary Information under the terms and conditions of this
Agreement and does not acquire any ownership rights or title in or to the
Proprietary Information and that of their respective licensors.
(b) SAP agrees that no restrictions are made upon AP with respect to any
Proprietary Information that: (a) is already rightfully possessed by AP without
obligation of confidentiality; or (b) is developed independently by AP without
breach of this Agreement; or (c) is rightfully received by AP from a third party
without obligation of Confidentiality; or (d) is, or becomes, publicly available
without breach of this Agreement.
(c) AP shall not remove any proprietary, copyright, trademark, or
service mark legend from the Software, Documentation or other provided
Proprietary Information.
<PAGE> 21
(d) AP shall maintain a log of the number and location of all originals
and copies of the Software. The inclusion of a copyright notice on any portion
of the Software or Documentation shall not cause or be construed to cause it to
be a published work.
3. Protection of Proprietary Information.
(a) AP agrees that it will not disclose, provide, or make available any
of the Proprietary Information in any form to any person, except to bona fide
employees, officers, or directors whose access is necessary to enable AP to
exercise its rights hereunder, without the SAP's prior written consent.
(b) AP shall not copy, translate, disassemble, or decompile, nor create
or attempt to create the source code from the object code of the Software
licensed hereunder or use it to create a derivative work, unless authorized in
writing by SAP.
(c) AP acknowledges that any disclosure to third parties of Proprietary
Information may cause immediate and irreparable harm to SAP, therefore, AP
agrees to take the same protective precautions to protect the Proprietary
Information from disclosure to third parties as it takes with its own
proprietary and Proprietary information of a similar nature.
4. Duties Upon Termination.
Upon any termination of the License Agreement of the Services hereunder,
AP shall immediately cease Use of the Proprietary Information and shall
irretrievably delete the Software, Third-Party Database and Documentation from
all AP computer hardware, including CPU, application servers, terminals,
workstations, and data files. Within thirty days after any termination, AP shall
deliver to SAP at AP's expense (adequately packaged and insured for safe
delivery) or, at SAP's request, destroy all copies of the Proprietary
Information in every form. AP further agrees to erase the Software and
Documentation from any storage media. AP shall certify in writing to SAP that it
has performed the foregoing.
5. No Rights Transferred.
The furnishing of the Proprietary Information for the limited purposes
set forth herein does not constitute the grant, option, license, sublicense,
assignment, or other form of transfer to AP of any rights, title or interest in
or to such Proprietary Information.
6. Modifications and Extensions.
AP, under the terms of this Agreement, expressly warrants and represents
on its behalf, and on behalf of its agents and employees, that no Modifications
or Extensions for the licensed Software will be performed without providing
prior written notice to SAP. All Modifications and Extensions to the Software
owned by SAP shall be considered part of the Software for purposes of this
Agreement.
7. Indemnification.
(a) AP agrees to indemnify and defend SAP, its parent, affiliates, its
and their officers, directors and employees, from and against any and all loss,
claim or damage, including attorney's fees and costs, which SAP may suffer, that
arise from or are in any way connected with AP's provision of the Services to
Company or breach of AP's obligations hereunder provided that, SAP promptly
notifies AP in writing of any third party claim and that AP is permitted to
control fully the defense and any settlement of the third party claim. Further,
SAP agrees to cooperate with and assist AP in taking whatever action (including
consenting to being named as a party to any suit or other proceeding) which the
AP determines to be reasonably necessary or desirable.
(b) ANYTHING TO THE CONTRARY HEREIN NOTWITHSTANDING, UNDER NO
CIRCUMSTANCES SHALL SAP BE LIABLE TO AP, COMPANY OR ANY OTHER PERSON OR ENTITY
FOR SPECIAL, INCIDENTAL, CONSEQUENTIAL, 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.
THE FOREGOING LIMITATIONS OF LIABILITY DOES NOT APPLY TO PERSONAL INJURY OR
DEATH CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SAP.
<PAGE> 22
8. Assignment.
AP shall not assign or in any manner transfer any obligation assumed or
contemplated by this Agreement without the prior written consent of SAP, the
granting of which shall not be unreasonably withheld; provided, that a change of
control or acquisition of a party shall be considered an assignment for the
purposes of this Section 8. Notwithstanding the foregoing, consent to the
assignment to a competitor of SAP can be withheld for any reason.
9. Miscellaneous.
(a) This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their permitted successors assigns.
(b) The provisions of this Agreement, together with any agreements
incorporated or referred to herein, shall (i) with regard to the subject matter
hereof, supersede all prior agreements and negotiations, and (ii) be modified
only by a written agreement.
(c) In the event that any provision of this Agreement shall, for any
reason, be determined to be invalid, illegal, or unenforceable in any respect,
the parties hereto shall negotiate in good faith and agree to such amendments,
modifications, or supplements of or to this Agreement or such other appropriate
actions as shall, to the maximum extent practicable in light of such
determination, implement and give effect to the intentions of the parties as
reflected herein, and the other provisions of this Agreement shall, as so
amended, modified, or supplemented, or otherwise affected by such action, remain
in full force and effect.
(d) This Agreement shall be governed by and construed under the
Commonwealth of Pennsylvania law without reference to its conflicts of law
principles.
This Agreement shall be in effect beginning on the date first above written and
shall continue in effect until otherwise agreed upon by the parties in writing.
IN WITNESS HEREOF, and intending to be legally bound, the parties have executed
this Agreement on the date and year first written above.
SAP AMERICA, INC. (AP)
--------------------
By: By:
------------------------------- -----------------------
Title: Title:
---------------------------- --------------------
Date: Date:
----------------------------- ---------------------
(Company)
- ---------------------
By:
------------------------
Title:
---------------------
Date:
----------------------
<PAGE> 1
Exhibit 10.13
VALUE ADDED INDUSTRY REMARKETER AGREEMENT
THIS VALUE ADDED INDUSTRY REMARKETER AGREEMENT (the "Agreement") is between
SIEBEL SYSTEMS, INC. with its principal place of business at 1855 South Grant
Street, San Mateo, CA 94402 ("Siebel"), and CORIO, INC. ("Distributor"), with
its principal place of business at 700 Bay Street, Suite 210.
Redwood City, CA 94063
1. DEFINITIONS
1.1 "AFFILIATE" shall mean any corporation, company or other entity
controlled by, controlling, or under common control with Distributor. Such
entity shall be deemed to be an "Affiliate" only so long as such control exists.
Upon request, Distributor agrees to confirm the Affiliate status of a particular
entity.
1.2 "ANCILLARY PROGRAMS" shall mean the third party software delivered with
the Licensed Software as specified in EXHIBIT A. an Order Form, or the
Documentation
1.2A "APPLICATION HOSTING SERVICES" shall mean professional information
processing and hosting services provided to a Customer by Distributor at
Distributor's site in connection with such Customer's use of the License
Programs.
1.3 "CUSTOMER" or "END USER" means an entity to whom Distributor provides a
valid license to use the Licensed Software in accordance with the terms of this
Agreement for such entity's internal business purposes in accordance with the
End User License Agreement, and not for redistribution or resale.
1.4 "DOCUMENTATION" shall mean Siebel's then current on-line help, guides,
and manuals published by Siebel and made generally available by Siebel for the
Licensed Software.
1.5 "EFFECTIVE DATE" shall mean the effective date set forth at the end of
this Agreement.
1.6 "END USER LICENSE AND SERVICES AGREEMENT" shall mean Distributor's
standard license and services agreement accompanying each copy of the Licensed
Software resold under this Agreement which includes the minimum terms and
conditions set forth in EXHIBIT F and the terms relating to Distributor's
provision of Application Hosting Services.
1.7 "ERROR" shall mean the failure of the Programs to perform in all
material respects the functions described in the Documentation when operated on
a Supported Platform.
1.8 "FIRST-LINE SUPPORT" shall mean direct technical support of Licensed
Software provided to Users, as set forth in Section 3.5(a).
1.9 "INITIAL TERM" means the period commencing on the Effective Date and
continuing as set forth in EXHIBIT A, unless earlier terminated as set forth in
Section 12.
1.10 "LICENSED SOFTWARE" means the object code form of the software programs
listed on EXHIBIT A attached hereto excluding the Ancillary Programs listed on
EXHIBIT A
1.11 "MARKETING MATERIALS" means Siebel's standard brochures, data sheets,
collateral, magazines, article reprints, industry analyst reports, videotapes,
books and other marketing materials that Siebel, in its discretion, makes
available to Distributor to assist in its marketing and promotion of the
Licensed Software.
1.12 "MAINTENANCE AND SUPPORT SERVICES" shall mean the services set forth in
Section 3.4.
1.13 "ORDER FORM" shall mean the document, substantially in the form included
in the Minimum Terms of End User License Agreement set forth at EXHIBIT F, that
is signed by both the Customer and distributor and specifies the Licensed
Software licensed to a particular Customer by Distributor.
1.14 "PRE-PRODUCTION PROGRAM" shall mean a software program which is (i) not
generally licensed for commercial use by Siebel, (ii) not listed as generally
available in Siebel's marketing literature, or (iii) designated by Siebel as an
"Alpha," "Beta," or "Pre-Production" program or release. Siebel shall notify
Customer in writing that a particular software program is a Pre-Production
Program
1.15 "SECOND-LINE SUPPORT" shall mean direct technical support of Licensed
Software provided to Customers, as set forth in Section 3.4(b).
1.16 "SOLUTION" means the Licensed Software integrated with the Value Added
Offering integrated as provided in Section 3.1.
1.17 "SUBLICENSE FEE" means the sublicense fee set forth in EXHIBIT A due and
payable to Siebel for each license of the Licensed Software to a Customer.
1.18 "SUPPORTED PLATFORM" shall mean the hardware and software platforms
(e.g., database server systems, application server systems, and client systems)
that are supported by Siebel as expressly set forth in the Documentation. The
requirements for the Supported Platform are subject to change as specified by
Siebel in its discretion with ninety (90) days prior written notice to Customer
or Distributor.
1.19 [*]
1.20 "THIRD-LINE SUPPORT" shall mean technical support of Licensed Software,
as set forth in Section 3.5(c).
1.21 "TRAINING MATERIALS" shall mean the standard generally available Siebel
training materials, as set forth in Technical Services schedule in effect at the
time such training materials are ordered by Distributor.
1.22 "UPDATES" shall mean (a) subsequent releases of the Programs that (i)
add new features, functionality, and/or improved performance, (ii) operate on
new or other databases, (iii) add new foreign language capabilities, or (iv) are
new foreign language versions of the Programs; (b) bug or Error fixes, patches,
Workarounds, and maintenance releases; (c) new point releases, including those
denoted by a change to the right of the first decimal point (e.g., v3.0 to 3.1),
and (d) new major version releases, regardless of the version name or number,
but including those denoted by (i) a change to the left of the first decimal
point (e.g., v3.0 to 4.0) and/or (ii) the addition of a date designation or a
change in an existing date designation (e.g., v1999 to 2000). Updates shall not
include separate products which Siebel offers only for an additional fee to its
customers generally, including those customers purchasing Maintenance Services.
1.23 "USER" shall mean the named or specified (by password or other user
identification) individuals authorized by Customer to use Licensed Software,
regardless of whether the individual is actively using the Licensed Software at
any given time. The maximum number of Users that may use the Licensed Software
shall be specified in an Order Form signed by Customer and Distributor. Users
may include the employees of Customer or third parties, provided that such third
party is limited to use of the Licensed Software (i) only as configured and
deployed by Customer, and (ii) solely in connection with Customer's business
operations as conducted by or through such third party, including but not
limited to the installation, administration or implementation of the Licensed
Software for Customer. Distributor agrees that it is responsible for ensuring
that any third party usage is authorized by Customer in accordance with the
terms and conditions of this Agreement. Notwithstanding the foregoing, Users
shall exclude any individuals employed by, or acting on behalf or under the
direction or control of, a direct competitor of Siebel Upon request, Siebel
shall provide Distributor with a listing of its direct competitors
1.24 "VALUE ADDED OFFERING" means the hardware, software, and/or services, as
described in EXHIBIT A, that Distributor provides to Customers in connection
with the Licensed Software.
1.25 "WORKAROUND" shall mean a resolution of an Error which enables Customer
to access similar but not equivalent functionality to that described in the
Documentation which does not introduce additional Errors to the operation of the
Licensed Software.
2. GRANT OF RIGHTS
2.1 LICENSE GRANT. Subject to the terms and conditions of this Agreement,
Siebel hereby appoints Distributor as a distributor of the Licensed Software and
grants to Distributor the following non-transferable rights, all of which may be
exercised only by Distributor in the Territory and during the License Term. This
appointment shall be on a non-exclusive basis. These rights may not be
sublicensed except as expressly permitted in this Section 2.1.
(a) To reproduce, exactly as provided by Siebel, object code copies of
the Licensed Software and Ancillary Programs or portions thereof solely to
exercise the rights granted in this Section 2.1;
(b) To distribute and sublicense to Customers the right to use the
Licensed Software and Ancillary Programs or portions thereof on a limited term
basis in accordance with the terms of the End User License Agreement, subject to
the restrictions in Section 5;
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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(c) To use the Licensed Software and Ancillary Programs for the sole
purposes of operating the Licensed Software on Distributor's computer hardware
and operating system(s) to (i) test and evaluate the Licensed Software, (ii)
train Distributor's personnel in the marketing and sales of the Licensed
Software, (iii) demonstrate and promote the Licensed Software to potential
Customers, and (v) provide First-Line Support and Second-Line Support to
Customers by using the License Software in a test environment to (1) diagnose
reported problems or performance deficiencies of the Licensed Software, and (2)
resolve such problems or deficiencies. Notwithstanding the foregoing,
Distributor may (i) not use the Licensed Software internally in a production
capacity to run any of its business operations including the sales and customer
service activities associated with its End User Customers, or (ii) use the
Siebel Tools Programs set forth in EXHIBIT A solely in accordance with the
Documentation for the limited purpose of configuring the Licensed Software for
distribution with the Value Added Offering and not for general application
development purposes,
(d) To copy the Licensed Software for archival or backup purposes, and
to make a sufficient number of copies for the use by Distributor as permitted in
this Section 2.1, provided that all titles and trademark, copyright, and
restricted rights notices are reproduced on all such copies;
(e) To distribute to Customers, exactly as provided by Siebel, any
Documentation, Training Materials and Marketing Materials provided by Siebel,
subject to the payment of fees set forth in Section 6.2. Distributor shall not
reproduce the Documentation, Training Materials, or Marketing Materials for any
purpose
2.2 END USER LICENSE AGREEMENT. Distributor shall enter into a written End
User License and Services Agreement with each Customer to whom Distributor
grants any rights to use Licensed Software or Ancillary Programs. Each End User
License and Services Agreement shall (i) contain the minimum terms attached
hereto as EXHIBIT F and (ii) be at least as protective of Siebel's rights and
interests as the terms of EXHIBIT F. Each End User License Agreement and
Services Agreement shall specify the maximum number of Users permitted to use
the Licensed Software. Distributor shall use its reasonable efforts to ensure
that Customer does not exceed the maximum number of Users set forth in the End
User License and Services Agreement.
2.3 SOURCE CODE ESCROW. Customer shall have the right to become a
beneficiary to the Master Preferred Escrow Agreement between Siebel and Data
Securities International, Inc., a copy of which will be provided to Customer
upon request and which will be incorporated by reference into this Agreement
when Customer executes an Acceptance Form pursuant to the Master Preferred
Escrow Agreement. All rights and licenses granted under or pursuant to this
Agreement are and shall otherwise be deemed to be, for purposes of Section
365(n) of the U.S. Bankruptcy Code, licenses of rights to "intellectual
property" as defined under section 101(56) of the U.S. Bankruptcy Code.
3. DISTRIBUTOR OBLIGATIONS
3.1 DISTRIBUTOR'S VALUE ADDED OFFERING. Notwithstanding anything to the
contrary in this Agreement, Distributor understands and agrees that during the
License Term, Distributor shall distribute the Licensed Software to Customers
only in conjunction and concurrently with a Value Added Offering and not on a
standalone basis; provided, however, that this requirement shall not apply to
Distributor's distribution of Updates to the Licensed Software to an existing
Customer who has licensed the Licensed Software in connection with the Value
Added Offering. The Value Added Offering shall materially differentiate the
Solution from the Licensed Software; provided, however, that nothing contained
in this Section or in this Agreement shall in any way limit or restrict the
freedom of Distributor to determine the resale price for the Solution as set
forth in Section 3.2. Distributor agrees that it shall provide and maintain the
Value Added Offering in a manner consistent with generally accepted industry
standards and Distributor's best practices.
3.2 DISTRIBUTOR'S PRICING OF THE SOLUTION. Distributor shall be free to
determine list pricing and any volume or other applicable discounts for the
Solution.
3.3 INSTALLATION AND TRAINING SERVICES. Distributor shall be responsible for
conducting all activities required to install the Licensed Software at its
Customers' locations and for providing training to such Customers and any system
integrators involved in such installation. All such installation and training
shall be conducted in accordance with generally accepted industry standards and
Distributor's best practices. At Distributor's request, Siebel shall provide to
Distributor the Documentation and Training Materials at Siebel's list prices in
effect as of the date such Documentation and Training Materials are ordered.
3.4 MAINTENANCE AND SUPPORT SERVICES. Distributor shall provide Maintenance
and Support Services to all of its Customers of Licensed Software as set forth
in Sections 3.4(a) and 3.4(b) below. Distributor may require Customers to
provide the own First-Line Support: however, in no event shall Siebel be
responsible for First-Line or Second-Line Support. Subject to Distributor's
payment of the Maintenance Fees set forth in EXHIBIT A Siebel shall provide
Third-Line Support to Distributor in accordance with Siebel's then current
Maintenance and Support Services Policy. Distributor shall be responsible for
all support related to the Value Added Offering.
(a) FIRST-LINE SUPPORT. Distributor shall either (1) provide First-Line
Support to all of its Customers of the Licensed Software or (2) inform its
Customers that they must provide their own First-Line Support. First-Line
Support means direct technical support of Licensed Software, including but not
limited to (a) a direct response to Customer and User inquiries concerning the
performance, functionality or operation of the Licensed Software, (b) a direct
response to reported problems or performance deficiencies with the Licensed
Software, (c) a diagnosis of problems or performance deficiencies of the
Licensed Software, and (d) a resolution of problems or performance deficiencies
of the Licensed Software. First Line Support includes the support described as
"First Line Support" in EXHIBIT B. First-Line Support shall include the
provision of telephone and other appropriate contact points so that Customers
may contact Distributor regarding technical and support questions and other
problems regarding use of the Licensed Software. Distributor shall inform
Customers that if, after using its reasonable commercial efforts, the Customer
is not able to answer a support question or to correct a reported problem in the
Licensed Software, the Customer may contact Distributor for Second-Line Support,
as provided below.
(b) SECOND-LINE SUPPORT. Distributor will offer second line support
("Second-Line Support") to Customers in the form of web-based and telephone and
other support at least at the level of Second Line Support described in Siebel's
then current Maintenance and Support Services Policy. A copy of Siebel's
Maintenance Policy as of the date of this Agreement is set forth in EXHIBIT B.
Siebel reserves the right to alter such policies from time to time, in its
reasonable discretion, on ninety (90) days' prior notice to Distributor.
Distributor is hereby authorized to distribute to its Customers, as a part of
Second-Line Support, any and all Updates that Siebel provides Distributor.
(c) THIRD-LINE SUPPORT. In consideration for the payment of Siebel
Maintenance Fees set forth in EXHIBIT A, Siebel shall provide Distributor third
line support ("Third-Line Support") for the Licensed Software in accordance with
Siebel's then current Maintenance and Support Services Policy. This shall
include web-based and telephone support to respond to questions that are due
solely to the failure of the Licensed Software to perform in any material
respect the functions described in the Documentation when operated on a
Supported Platform. Before requesting Third-Line Support, Distributor shall use
reasonable commercial efforts to resolve support questions and to correct
reported problems in the Licensed Software and to ensure that the issue is not
related to any other part of the Solution. If Distributor requests Siebel to
provide services at a customer site or at Distributor, Distributor agrees to pay
Siebel for such services in accordance with Siebel's list prices for such
services as of the date such services are delivered and to reimburse Siebel for
all its out-of-pocket expenses, including travel and accommodations, in
providing such services.
3.5 SIEBEL CERTIFICATION OF DISTRIBUTOR TECHNICAL SUPPORT STAFF. Distributor
shall hire and maintain sufficient technical support personnel as are needed to
support the Licensed Software and achieve the Customer satisfaction levels
required under Section 3.7. Distributor agrees to hire and maintain at all times
during the term of this Agreement, at a minimum, two technical support engineers
who have successfully completed the following Siebel training certification
("Siebel Certification Training"): (i) the Siebel training program as described
in Siebel's then current program description, (ii) the required competency
testing, and (iii) one week of additional training with Siebel technical support
engineers at the Siebel support center designated by Siebel. Distributor will be
responsible for all training fees and costs associated with obtaining Siebel
Certification Training. Distributor's support staff must be fluent in English
and all Customer languages spoken in the Territory.
3.6 DISTRIBUTOR MAINTENANCE REPORTING REQUIREMENTS. Distributor will
maintain proper records of Maintenance and Support Services provided to
Customers. Siebel may, at its expense, audit (using personnel with auditing
experience) any such records to verify Distributor's performance of its support
obligations. On a monthly basis, Distributor will provide Siebel a report to
Siebel containing the following new customer information: (i) Customer name,
(ii) Customer hardware and software configurations, (iii) Customer contact
names, (iv) Customer contact information, including address, telephone number,
and email address, and (v) term of Customer's Maintenance and Support Services
Agreement. Within thirty (30) days of the end of each quarter, Distributor shall
provide Siebel a report in a form specified by Siebel showing in detail (i) the
number of support calls received during such quarterly period with the
associated seventy level, (ii) the overall average response time
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by seventy level for such support calls, (iii) the overall average resolution
time by seventy level for such support calls; and (iv) other information
reasonably requested by Siebel.
3.7 CUSTOMER SATISFACTION REQUIREMENT. Siebel may, at its discretion, survey
Customers to determine the level of Customer satisfaction with the Maintenance
and Support Services and other services provided by Distributor Siebel shall
reasonably determine after consultation with Distributor the questions to be
asked in the survey and the measurement scale. If the results of the survey
indicate a level of dissatisfaction with Distributor's Customers (e.g. a gap of
more than 2 on a 10 point scale in any surveyed category where the gap
represents the difference between the importance level to the customer and
customer's satisfaction, then (i) Siebel will notify Distributor, (ii) the
parties will work together to develop a improvement plan to improve Customer
satisfaction. In the event Distributor Customer satisfaction levels fall
substantially below Siebel's (i.e. where the difference in the gap is more than
2) for two consecutive calendar quarters after Distributor has received written
notice of the deficiency, then Siebel shall have the option to terminate the
Agreement for cause upon written notice to Distributor.
3.8 SIEBEL TECHNICAL SERVICES. Siebel shall provide Technical Services to
Distributor, subject to availability, as agreed to from time to time by the
parties, in accordance with Siebel's Technical Services schedule in effect at
the time such services are ordered (available upon request). Distributor shall
pay Siebel's reasonable and actual out-of-pocket expenses associated with
Siebel's delivery of Technical Services.
3.9 CUSTOMER VISITS. Siebel may visit Distributor's Customers from time to
time upon reasonable advance notice and with Customer's approval, to stay
abreast of customer requirements and to evaluate features for potential future
products. Distributor agrees to provide Siebel reasonable assistance in
arranging such visits with Customers. Siebel agrees that it will involve
Distributor in such visits in the event Siebel reasonably determines such
involvement is reasonably appropriate.
3.10 DISTRIBUTOR WARRANTIES. Distributor represents and warrants that as of
the Effective Date and continuing throughout the License Term:
(A) Distributor will maintain the facilities, resources and experienced
personnel necessary to market and distribute Licensed Software and to perform
the necessary installation, training and maintenance services related to such
Licensed Software and otherwise to fulfill its obligations under this Agreement;
(B) Distributor is not precluded by any existing arrangement,
contractual or otherwise, from entering into this Agreement and performing
hereunder,
(C) Distributor will make no representations or warranties related to
the Licensed Software in excess of Siebel's representations or warranties
contained in Section 10 of this Agreement;
(D) Distributor has not relied on any promises or representations other
than those promises or representations expressly made in writing in this
Agreement;
(E) If Distributor becomes aware of any actual or suspected unauthorized
use, copying or disclosure of the Licensed Software or Anciliary Programs.
Distributor will promptly notify Siebel and will assist Siebel, at Siebel's
expense and request, in the investigation and prosecution of such unauthorized
use, copying or disclosure; and
(F) Distributor has the full right, power and authority to enter into
this Agreement and to carry out its obligations hereunder, and there are no
impediments known to Distributor which would prevent Distributor compliance with
all the terms of this Agreement.
3.11 DISTRIBUTOR INDEMNITY. Subject to the limitation of liability set forth
in Section 11 ("Limitation of Liability"), Distributor will indemnify Siebel
for, and hold Siebel harmless from, any loss, expense, damages, claims, demands,
or liability arising from any claim, suit, action or demand resulting from: (a)
the material uncured breach of any terms of this Agreement: (b) the use of the
Licensed Software and Ancillary Programs by any Customer of Distributor except
for claims which arise directly from or relate directly to material uncured
breaches of Siebel's obligations under this Agreement or fall within Siebel's
indemnification obligations under this Agreement, including but not limited to
Siebel's warranties with respect to the Licensed Software; or (c) any claim
related to the Value Added Offering.
3.12 MARKETING AND SALES EFFORTS. Distributor and Siebel shall meet to
jointly prepare a mutually agreeable marketing plan (the "Marketing Plan") to
promote and market the Licensed Software as part of a solution to Customers and
potential Customers in order to maximize the licensing and distribution of the
Licensed Software to Customers. Such Marketing Plan will include an annual
commitment by Distributor of $100,000 to be spent on the marketing efforts
described in the marketing Plan Distributor agrees further that its marketing
and advertising efforts with respect to the Licensed Software will be of the
highest quality and shall preserve the professional image and reputation of
Siebel and the Licensed Software. Within ninety (90) calendar days from the
Effective Date, Distributor agrees to appoint and train, to the reasonable
satisfaction of Siebel, sufficient sales persons and/or technical support
consultants as are needed to satisfy Distributor's obligation to use its
reasonable efforts to market and sell the Licensed Software. Distributor agrees
that its staff shall achieve a level of competence in the Licensed Software and
will participate in applicable certification programs that Siebel may establish
Each party shall appoint a channel manager to manage the relationship described
in this Agreement and to assist in addressing issues that may arise. Each party
shall use reasonable efforts to provide the other party with qualified leads
related to the products and services distributed by the other party.
3.13 POLICY CHANGES From time to time Siebel may institute new or revised
policies and procedures regarding the distribution and licensing of the Licensed
Software, Updates, Documentation and Ancillary Programs. Siebel will provide
written notice of such policies and procedures to Distributor, and Distributor
agrees to use its reasonable efforts to implement such policies and procedures.
4. DELIVERY
Within ten (10) days of the Effective Date, Siebel will use its reasonable
efforts to deliver the License Software and Siebel's Documentation
electronically provided (i) Distributor agrees to set up a secure FTP site or to
take other reasonable measures to assist Siebel in the secure delivery of the
Licensed Software and Documentation (i.e., establishing a FTP server), and (ii)
Siebel and Distributor each will provide the other party with tangible evidence
that the Licensed Software and Documentation were electronically transmitted and
received. Siebel will provide Distributor with electronic copies any Updates
Siebel makes available as promptly as practicable following the general release
thereto, and Distributor agrees that it will incorporate such Updates into the
Licensed Software which it provide to new Customers as promptly as reasonably
possible; provided, however, Distributor shall only offer "Supported Programs"
to its Customers as such term is defined in EXHIBIT B. From time to time during
the License Term, Siebel will, upon request and subject to availability, provide
Distributor a reasonable number of copies of Marketing Materials for
distribution to potential customers.
5. RESTRICTIONS REGARDING THE LICENSED SOFTWARE
5.1 LICENSE RESTRICTIONS. Distributor acknowledges that, except as
explicitly stated in this Agreement, the Agreement does not grant Distributor
any right or license to the Licensed Software or Ancillary Programs or any
proprietary rights therein, and no license or other rights shall be created by
implication or estoppel. In particular, but without limiting the generality of
the foregoing, no right or license in or to source code for the Licensed
Software or Ancillary Programs is granted hereunder. Distributor covenants that
it shall not prepare, and it shall not permit any others under Distributor's
control to prepare, any derivative works of the Licensed Software or Ancillary
Programs, or otherwise modify or revise any materials received from Siebel.
Distributor covenants that it shall not use, reproduce, distribute or sell the
Licensed Software or Ancillary Programs in any manner or for any purpose except
as specifically permitted under this Agreement.
5.2 PROHIBITION ON DECOMPILING. Distributor acknowledges that the Licensed
Software and Ancillary Programs contain the valuable information of Siebel and
its licensors, and Distributor agrees not to cause or permit the modification,
reverse engineering, translation, disassembly, or decompilation of, or otherwise
to attempt to derive the source code of the Licensed Software or Ancillary
Programs, whether in whole or in part. If required under applicable law, upon
Customer's request, Siebel shall provide information necessary for Customer to
achieve interoperability between the Licensed Software and other software for a
nominal administrative charge.
5.3 PROPRIETARY NOTICES. In order to protect Siebel's and its licensors'
copyright and other ownership interests in the Licensed Software and Ancillary
Programs, Distributor agrees that as a condition of its rights hereunder, each
copy of the Licensed Software or Ancillary Programs reproduced by or on behalf
of Distributor shall contain the same proprietary notices on the media, within
the code and on the Documentation which appear on the media or within the code
of the Licensed Software or Ancillary Programs, or on the Documentation
delivered by Siebel to Distributor and as otherwise reasonably required by
Siebel. Distributor will not remove or obscure any proprietary notices from any
Documentation, Training Materials, or Marketing Materials provided by Siebel.
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5.4 CHANNEL MANAGEMENT. Distributor and Siebel will meet at least monthly to
jointly review the list of qualified sales opportunities that Distributor is
pursuing to identify any potential sales channel conflicts and determine the
appropriate party to handle the sales opportunity. In the event of a
disagreement with respect to a particular sales opportunity, the resolution of
which party should be responsible for handling the sales opportunity will be
escalated within Distributor's and Siebel's respective organizations for
resolution after consideration of all relevant factors including the best
interests of the prospective customer and the resources previously allocated to
the sales opportunity by both parties. As soon as reasonably possible after
signature of this Agreement, the parties will meet to jointly establish
procedures for managing sales channel conflicts.
5.5 [*]
5.6 [*]
6. PAYMENT
6.1 SUBLICENSE FEES. For each copy of all or any portion of the Licensed
Software distributed to, produced, deployed, made available to or otherwise used
by a Customer pursuant to any agreement or understanding with Distributor,
Distributor shall pay the Sublicense Fees set forth in EXHIBIT A. Distributor
shall report any distribution, reproduction or use of the Licensed Software by
an Customer as set forth in Sections 6.4. In addition, Distributor shall make
the payments to Siebel for Distributor's Minimum Payments set forth in EXHIBIT A
6.2 DOCUMENTATION AND TRAINING MATERIALS. For each copy of Documentation or
Training Materials provided to Distributor by Siebel, Distributor shall pay
Siebel's list prices in effect as of the date such Documentation and Training
Materials are ordered.
6.3 PAYMENT TERMS. Sublicense Fees are payable within thirty (30) days of
the end of each calendar quarter in which they accrued, accompanied by the
report set forth in Section 6.4. Except as otherwise provided in EXHIBIT A, all
fees or other charges shall be payable thirty (30) days from receipt of the
applicable invoice.
6.4 REPORTS AND PAYMENTS. Within thirty (30) days of the end of each
calendar quarter within the License Term, Distributor shall render a report in a
form specified by Siebel, the current version of which is set forth at EXHIBIT
G, showing in detail (i) the number of copies or units of Licensed Software
reproduced, distributed, deployed or otherwise used by a Customer of Distributor
during the previous month, (ii) the amount owing Siebel therefor including the
Distributor Sublicense Fees and Distributor Maintenance Fees, and (iii) the
names and locations of the Customers. Within thirty (30) days before the end of
each calendar quarter, Distributor will use its reasonable efforts to provide
Siebel a non-binding forecast of Sublicense Fees and other fees to be due to
Siebel for that quarter.
6.5 TAXES. The specified listed in this Agreement do not include taxes,
duties or fees; if Siebel is required by the tax authorities to pay (i) sales,
use, property, value-added, or other taxes (excluding withholding taxes), (ii)
any customs or other duties, or (iii) any import, warehouse or other fees
associated with the importation or delivery of the Licensed Software,
Documentation, or Training Materials or based on the rights and licenses granted
by Siebel to Distributor in this Agreement or on Distributor's use of Licensed
Software, Documentation or Training Materials or any services provided by Siebel
to Distributor hereunder, then such taxes, duties or fees shall be billed to and
paid by Distributor. If Distributor is permitted to declare any such taxes.
Distributor shall declare and pay such taxes and Siebel shall not be required to
invoice Distributor. This Section shall not apply to taxes based on Siebel's net
income. Notwithstanding the foregoing, Siebel acknowledges that Distributor may
be required to withhold amounts in respect of taxes from the fees and charges
payable to Siebel under the local governing laws, rules and regulations and to
remit the sum to the applicable taxing authorities. Distributor shall not be
liable to Siebel in any manner for such amounts withheld and remitted, which
amounts shall be credited towards amounts due and owing to Siebel provided (i)
Distributor shall reasonably assist Siebel in obtaining the benefits of any
reduced withholding taxes under any applicable income tax treaty with the United
States, and (ii) Distributor shall timely furnish Siebel with any tax
withholding certificates and other evidence as may be required by the United
States or other relevant taxing authorities to establish that such taxes have
been paid ("Withholding Tax Documentation").
6.6 RECORDS AND INSPECTION RIGHTS. Distributor will keep and maintain proper
records and books of account relating to its distribution and sublicensing of
Licensed Software to Customers. Siebel may have an independent audit firm
inspect and audit on its behalf, any such records to verify Distributor's
compliance with its payment obligations hereunder. Any such inspection will be
conducted during regular business hours, upon at least five (5) business days
advance written notice, at Distributor's offices in a manner that does not
unreasonably interfere with Distributor's business activities. The person or
entity conducting such audit must execute an appropriate confidentiality
agreement with respect to Distributor's non-public or proprietary information.
Such inspection shall be at Siebel's cost and expense, unless the inspection
reveals that Distributor underpaid the amount actually owing by ten percent
(10%) or more, in which case Distributor shall pay such costs and expenses. Such
audits may be conducted no more than once in any twelve (12) month period. In
the event that Siebel wishes to inspect such books and records. Distributor will
make all relevant records available. Distributor shall use reasonable commercial
efforts to compel its Customers to permit Siebel to inspect the records of such
Customer as provided in this Section.
7. LIMITED RIGHT TO USE TRADEMARKS
7.1 GRANT OF LICENSE. Siebel hereby grants to Distributor under the terms
set forth in this Section 7, a non-exclusive license to use the trademarks and
trade names set forth in EXHIBIT D (the "Trademarks"), solely in connection with
the marketing, distribution and support of the Licensed Software and only in the
manner prescribed in this Agreement. Distributor agrees that it will use the
appropriate Trademarks to refer to the Licensed Software in connection with its
marketing, distribution and support of the Licensed Software. Distributor agrees
that the Licensed Software and any related services will be marketed under the
Siebel brand name and Trademarks in the United States. Any other proposed use of
the Trademarks must be approved in writing by Siebel in advance of such use.
7.2 FORM OF USE. Distributor shall only use the Trademarks in the form(s)
approved in writing by Siebel, including the TM symbol (and, upon registration
of any registered trademark, the (R) symbol), and an indication that Siebel is
the owner of the Trademarks.
7.3 NO USE OF IDENTICAL OR SIMILAR NAMES. Distributor shall not use as its
company name or a component thereof or on other products a mark or name
identical with or confusingly similar to the Trademarks.
7.4 PRIOR SUBMISSION OF SAMPLES. Distributor shall submit to Siebel samples
of advertising or other items bearing the Trademarks prior to the use of such
advertising or other items. Siebel shall have the right to make reasonable
objections to any such sample within seven (7) days of its submission on the
grounds that Siebel believes in good faith that the use of such advertising or
other items by Distributor will be damaging to the recognition value or
reputation for quality associated with the Trademarks or that the advertising or
other items do not meet the standards of quality required by Siebel. In the
event of such an objection, Distributor shall modify the advertising or other
items in accordance with the objection of Siebel prior to the use of such
advertising or other items.
7.5 LOCAL REGISTRATION OF TRADEMARKS; NO OBJECTIONS TO VALIDITY. Siebel
will, in its sole discretion, retain the exclusive right to register the
Trademarks. Distributor agrees not to raise or cause to be raised any questions
concerning or objections to the validity of the Trademarks or to the respective
rights of Siebel.
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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7.6 NOTIFICATION OF ADVERSE USE. Distributor shall promptly notify Siebel of
any adverse use by a third party of any of the Trademarks or of a mark or name
confusingly similar to any of the Trademarks and agrees to take no action of any
kind with respect thereto except with the prior written authorization of Siebel
Distributor further agrees to provide full cooperation with any legal or
equitable action by Siebel to protect its rights, title and interest in the
Trademarks.
7.7 INFRINGEMENT PROCEEDINGS. In the event of infringement of the Trademarks
by a third party, Siebel shall have the sole right to bring proceedings
(including notifications to the Customs Department objecting to the importation
of infringing goods) against the infringing party and to retain any damages
recovered in such proceedings. Distributor shall cooperate with Siebel in the
prosecution of any such infringement proceedings. Distributor shall promptly
notify Siebel in writing of any such proceeding and shall provide complete
authority, information and assistance to Siebel in connection with such
proceeding Siebel shall have the sole and exclusive authority and obligation to
defend and/or settle any proceeding with respect to the Trademarks
8. OWNERSHIP AND PROPRIETARY RIGHTS
Siebel and its suppliers shall retain all title, copyright and other proprietary
rights in and to the Licensed Software. Distributor does not acquire any rights,
express or implied, in the Licensed Software, other than those specified in this
Agreement. In the event that Distributor makes suggestions to Siebel regarding
new features, functionality or performance that Siebel adopts for the Licensed
Software, such new features, functionality or performance shall become the sole
and exclusive property of Siebel, free from any restriction imposed upon Siebel
by the provisions of Section 13.1.
In the event Siebel requests Distributor to furnish Siebel with engineering or
other technical resources in connection with future development work for the
Licensed Software (above and beyond suggestions to Siebel regarding new
features, functionality or performance), Distributor's development role,
compensation and ownership rights, if any, for the provision of such services
will be addressed in a separate written agreement. In the event Distributor (i)
has independently developed or acquired rights to products or other works which
it believes may be complementary to the Licensed Software, and (ii) desires
Siebel to evaluate the usefulness of such products or other works, the parties
shall enter into an evaluation and non-disclosure agreement before Distributor
makes any disclosures of proprietary or confidential information to Siebel in
connection with such products or other works.
9. INTELLECTUAL PROPERTY INFRINGEMENT
If a third party makes a claim against Customer that the Licensed Software or
Documentation directly infringe any patent issued as of the two years following
the Effective Date or any copyright, trade secret or trademark ("IP Claim");
Siebel will defend Customer or Distributor against the IP Claim and pay all
costs, damages and expenses (including reasonable legal fees) awarded against
Customer or Distributor by a court of competent jurisdiction or agreed to in a
written settlement agreement signed by Siebel arising out of such IP Claim;
provided that: (i) Customer or Distributor promptly notifies Siebel in writing
no later than sixty (60) days after Customer's or Distributor's receipt of
notification of a potential claim, (ii) Siebel may assume sole control of the
defense of such claim and all related settlement negotiations; and (iii)
Customer or Distributor provides Siebel, at Siebel's request and expense, with
the assistance, information and authority necessary to perform Siebel's
obligations under this Section. Notwithstanding the foregoing, Siebel shall have
no liability for any claim of infringement based on (a) the use of a superseded
or altered release of Licensed Software if the infringement would have been
avoided by the use of a current unaltered release of the Licensed Software,
which Siebel provided to Distributor, (b) the modification of the Licensed
Software, or (c) the use of the Licensed Software other than in accordance with
the Documentation.
If, due to an IP Claim, (i) the Licensed Software is held by a court of
competent jurisdiction or are believed by Siebel to infringe, or (ii) Customer
or Distributor receives a valid court order enjoining Customer or Distributor
from using the Licensed Software, Siebel shall in its reasonable judgment, and
at its expense, (a) replace or modify the Licensed Software to be
non-infringing; (b) obtain for Distributor and/or its Customers a license to
continue using the Licensed Software, or (c) if Siebel cannot reasonably obtain
the remedies in (a) or (b), terminate the license for the infringing Licensed
Software and refund the license fees paid to Siebel for such Licensed Software
upon its return by Distributor. This Section 9 states Siebel's entire liability
and Distributor's exclusive remedy for any claim of infringement.
10. LIMITED WARRANTIES AND DISCLAIMERS
10.1 LIMITED PROGRAM WARRANTY. Siebel warrants for a period of one (1) year
from the date on which the copy of the Licensed Software is first delivered to a
Customer, that the ?? modified version of the Licensed Software will perform in
all materials respects the functions described in the Documentation when
operated on a Supported Platform. The parties agree and acknowledge that the
foregoing warranty only applies to Licensed Software first delivered to
Distributor or to a Customer and not to any Updates subsequently provided to
Distributor or such Customer. In the event of a breach of this warranty
Distributor's sole and exclusive remedy and Siebel's sole liability shall be for
Siebel to use its commercially reasonable efforts to correct or provide a
Workaround for reproducible Errors that cause breach of this warranty or if
Siebel is unable to make the Program operate as warranted within a reasonable
period of time considering the seventy of the Error and its impact on the
Distributor, Distributor shall be entitled to recover the fees paid to Siebel
for the applicable Licensed Software.
10.2 LIMITED MEDIA WARRANTY. Siebel warrants that the tapes, diskettes or
other media upon which the master copy of the Licensed Software is delivered by
Siebel to Distributor to be free of defects in materials and workmanship under
normal use for one hundred and eighty (180) days from the date of delivery by
Siebel. In the event of a breach of this warranty, Distributor's sole and
exclusive remedy and Siebel's sole liability shall be the replacement of the
defective media, provided that Distributor shall acquire an RMA number from
Siebel before returning defective media to Siebel.
10.3 LIMITED SERVICES WARRANTY. Siebel warrants that any services contracted
to be performed by Siebel pursuant to this Agreement shall be performed in a
professional and workmanlike manner consistent with generally accepted industry
standards. This warranty shall be valid for one hundred and eighty (180) days
from performance of service. In the event of a breach of this warranty,
Distributor's sole and exclusive remedy and Siebel's sole liability shall be the
reperformance of the services, or if Siebel is unable to perform the services as
warranted, Distributor shall be entitled to recover the fees paid to Siebel for
the unsatisfactory services.
10.4 ANTI-VIRUS WARRANTY. Siebel represents and warrants that to the best of
its knowledge after employing reasonable technical means to detect computer
viruses, the Licensed Software does not contain any virus or other computer
software code, routines or hardware components (other than as set forth in the
Documentation) designed to disable, damage, impair, or erase the Licensed
Software or other software or data. In the event of a breach of this warranty,
Distributor's sole and exclusive remedy and Siebel's sole liability shall be to
immediately replace all copies of the affected Licensed Software. If Siebel
becomes aware of any breach of the Programs to comply with the foregoing
Anti-Virus Warranty, Siebel agrees to use its reasonable efforts to notify
Customer in writing or by other appropriate means.
10.5 ANCILLARY PROGRAM WARRANTIES. Siebel assigns to Distributor and
Distributor shall have the benefit of any and all third party warranties,
service agreements and infringement indemnities available to end users of the
Ancillary Programs; provided, however, that Distributor's sole remedy for breach
of any such warranty, indemnification, service agreement, or other rights and
causes of action shall be against the third party offering such rights and not
against Siebel.
10.6 YEAR 2000 WARRANTY. Siebel warrants that the Licensed Software, as
provided by Siebel, is capable of correctly processing, recording, storing and
presenting data containing four-digit years after December 31, 1999 in
substantially the same manner and with substantially the same functionality as
before January 1, 2000. Notwithstanding the generality of the foregoing Year
2000 warranty, Siebel warrants that the Programs, as provided by Siebel, are
capable of correctly processing, recording, storing and presenting (i) Year 2000
dates; (ii) dates before and after January 1, 2000; (iii) four digit dates
ending in 99, 00 or 01, (iv) Year 2000 as a leap year. Siebel assumes no
responsibilities or obligations to cause third-party products or services,
including but not limited to the Value Added Offering, to function with the
Licensed Software. Siebel will not be in breach of this warranty for any failure
of the Licensed Software to correctly create or process date-related data if
such failure results from the inability of any software, hardware, or systems of
Distributor or Customer or any other third party (including any underlying
database engines, operating systems, and related drivers) either to correctly
create or process date-related data or to create or process such date-related
data in a manner consistent with the method in which the Licensed Software
create or process date-related data. In the event of a breach of this warranty,
Distributor's sole and exclusive remedy and Siebel's sole liability shall be to
use its commercially reasonable efforts to correct or provide a Workaround for
reproducible Errors in the Licensed Software that cause breach of this warranty,
or if Siebel is unable to make the Licensed Software operate as warranted within
a reasonable time considering the severity of the Error and its impact on the
Distributor, Distributor shall be entitled to return the affected Licensed
Software to Siebel and recover the sublicense fees paid to Siebel for such
Licensed Software. If Siebel becomes aware of any breach of the Programs to
comply with the foregoing
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Year 2000 warranty, Siebel agrees to use its reasonable efforts to notify
Customer in writing or by other appropriate means
3.10 SIEBEL WARRANTIES. Siebel represents and warrants that as of the
Effective Date and continuing throughout the License Term
(a) Siebel is not precluded by any existing arrangement, contractual or
otherwise, from entering into this Agreement and performing hereunder,
(b) Siebel has not relied on any promises or representations other than
those promises or representations expressly made in writing in this Agreement.
(c) Siebel has the full right, power and authority to enter into this
Agreement and to carry out its obligations hereunder, and there are no
impediments known to Siebel which would prevent Siebel compliance with all the
terms of this Agreement.
10.7 DISCLAIMERS. Distributor must report in writing (with a written notice
to Siebel as set forth in Section 13.3) any breach of the warranties (that
Distributor becomes aware of) contained in this Section 10 during the relevant
warranty period Subject to Siebel's obligations under Section 10.1 ("Limited
Program Warranty"), Siebel does not warrant that the Licensed Software will meet
Distributor's or any Customer's requirements, that the Licensed Software will
operate in the combinations which Distributor or any Customer may select for
use, that the operation of the Licensed Software will be uninterrupted or
defect-free, or that all defects will be corrected; provided, however, that if
Distributor is current on Maintenance Services fees, Siebel shall be obligated
to provide Maintenance Services. Siebel shall have no Year 2000-related
liabilities for any products or services except as expressly stated in this
Agreement. Pre-Production Programs, limited releases of Licensed Software,
Training Materials, and computer-based training products are distributed "AS IS"
THE WARRANTIES ABOVE ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES, WHETHER
EXPRESS OR IMPLIED OR STATUTORY, INCLUDING WITHOUT LIMITATION THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
11. LIMITATION OF LIABILITY
EXCEPT FOR A PARTY'S LIABILITY UNDER SECTION 9 OR 13.1, IN NO EVENT SHALL EITHER
PARTY BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES,
INCLUDING WITHOUT LIMITATION DAMAGES FOR LOSS OF PROFITS. DATA OR USE, INCURRED
BY THE OTHER PARTY OR ANY THIRD PARTY, WHETHER IN AN ACTION IN CONTRACT OR TORT,
EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES except
that in the event Distributor makes unauthorized copies of the Licensed
Software, Siebel shall be entitled to recover the full amount of any license
fees that would relate to such copies
Except for Siebel's liability under Section 9 and 13.1, Siebel's aggregate and
cumulative liability for damages hereunder shall in no event exceed the amount
of fees paid by Distributor under this Agreement, and if such damages relate to
Distributor's use of the Program or services, such liability shall be limited to
fees paid for the relevant Program or services giving rise to the liability.
Except for any breach of its obligations under Sections 2, 5, 6, 7 and 13.1, or
its obligations under Section 3.10 or 3.11, Distributor's aggregate and
cumulative liability for damages hereunder shall in no event exceed the amount
of fees paid by Distributor under this Agreement.
12. TERM AND TERMINATION
12.1 TERM. This Agreement shall commence on the Effective Date and shall
continue in force through the Initial Term, as defined in EXHIBIT A, unless
sooner terminated as provided in this Agreement. This Agreement may be extended
after the Initial Term for one (1) year terms by mutual written agreement of the
parties. Siebel shall have no obligation to renew or extend the term of the
Agreement, and no payments, liabilities or damages shall be due Distributor, or
shall be imposed upon Siebel, for its decision to terminate or not to renew the
Agreement.
12.2 TERMINATION FOR CAUSE. Either party may terminate this Agreement, by
written notice to the other party: (a) upon the material failure of the other
party to observe, keep or perform any of the covenants, terms or conditions
herein (including the failure to pay sums owed to the other party when due), if
such default continues for sixty (60) days after written notice by the other
party, (b) upon the institution by or against either party of insolvency,
receivership or bankruptcy proceedings or any other proceedings for the
settlement of its debts, (c) upon either party's assignment for the benefit of
creditors, (d) if all or substantially all of the assets of a party are acquired
by a direct competitor of the other party, or (e) upon either party's
dissolution or ceasing to do business.
12.3 EFFECT OF TERMINATION. Upon expiration or termination of this Agreement:
(a) all licenses and rights granted to the parties shall terminate, except as
set forth below of in Section 12.5 (b) each party shall refrain from
representing themselves as a party to this Agreement: (c) any Customer
sublicenses previously granted hereunder will not be affected: and (d) any other
rights of either party which may have accrued up to the date of termination
shall not be affected Siebel shall not be obligated to provide Distributor any
Updates or Software Maintenance and Support Services to Distributor under this
Agreement past the expiration date of Distributor's support plan with its
Customer in effect as of the date of termination, provided, that (i) in no event
shall, the expiration date be longer than five (5) years from expiration of this
Agreement without Siebel's advance written consent, (ii) Siebel and its third
party partners are not restricted from providing Updates or other maintenance
and support directly to such customers if requested by such customers, and (iii)
in the event of a termination by Siebel due to an uncured material breach by
Distributor of Sections 2, 3, 5, 6, 7, 12.5, 13.1 herein or Sections 1, 3, 4 and
7 of EXHIBIT A, Siebel's support obligation shall terminate as of the effective
termination date. In the event of a termination by Siebel due to an uncured
material breach by Distributor, the parties agree to discuss and negotiate in
good faith a transitional agreement regarding the provision of Updates and
Software Maintenance and Support Services to Customers to whom Distributor is
contractually obligated to provide such Updates and Software Maintenance and
Support Services provided that Distributor is required to obtain Siebel's
advance written approval before entering into any such obligations that have a
term greater than five (5) years.
12.4 LIMITATION OF LIABILITY ON TERMINATION. Notwithstanding the foregoing,
upon expiration or lawful termination, neither party will be liable to the other
party, because of such termination, for compensation (except for accrued
compensation), reimbursement or damages on account of the loss of prospective
profits or anticipated sales or on account of expenditures, inventory,
investments, leases or commitments in connection with the business or goodwill
of Siebel or Distributor.
12.5 DISCONTINUATION OF LICENSED SOFTWARE, DOCUMENTATION, TRAINING MATERIALS,
MARKETING MATERIALS AVAILABILITY. When Siebel reasonably determines that the
market demand or other business factors for any Licensed Software,
Documentation, Training Materials or Marketing Materials no longer warrants
continued availability to end users, Siebel may at its reasonable discretion and
without liability to Distributor, remove such Licensed Software, Documentation,
Training Materials or Marketing Materials from general availability in which
case Distributor shall discontinue all marketing and distribution of such
Licensed Software, Documentation, Training Materials, Marketing Materials within
ninety (90) days of Siebel's notification to discontinue general availability
for such Licensed Software, Documentation, Training Materials or Marketing
Materials.
12.6 SURVIVAL. Sections 3.11 ("Distributor Indemnity"), 5.2 ("Prohibition on
Decompiling"), 6 ("Payments"), 7.7 ("Infringement Proceedings"), 8 ("Ownership
and Proprietary Rights"), 9 ("Infringement Indemnity"), 11 ("Limitation of
Liability"), the third sentence of Section 12.1 ("Term"), 12.3 ("Effects of
Termination"), 12.6 ("Survival") and 13 ("General") shall survive the
termination of this Agreement.
13. GENERAL
13.1 NONDISCLOSURE. Each party may have access to information that is
confidential to the other party ("Confidential Information"). Siebel's
Confidential Information shall include, but not be limited to, the Licensed
Software, Documentation, Training Materials, Ancillary Programs, formulas,
methods, know how, processes, designs, new products, developmental work,
marketing requirements, marketing plans, customer names, prospective customer
names, the terms and pricing under this Agreement, and all information clearly
identified in writing at the time of disclosure as confidential. Distributor's
Confidential Information shall include, but not be limited to, its software
programs, formulas, methods, know-how, processes, designs, new products,
developmental work, marketing requirements, marketing plans, customer names,
prospective customer names, and all information clearly identified in writing at
the time of disclosure as confidential. Notwithstanding the foregoing, in the
event of a termination of this Agreement, Siebel shall be free to use any
Customer related information in its possession or knowledge (e.g., customer
lists or prospective customer lists, pricing) to market and promote the Licensed
Software including, without limitation, soliciting business or supporting any
business transactions with Customers or prospective end users. Confidential
Information includes all information received from third parties that either
party is obligated to treat as confidential and oral information that is
identified by either party as confidential.
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A party's Confidential Information shall not include information that (i) is or
becomes a part of the public domain through no act or omission of the other
party; (ii) was in the other party's lawful possession prior to the disclosure
and had not been obtained by the other party either directly or indirectly from
the disclosing party (iii) is lawfully disclosed to the other party by a third
party without restriction on disclosure; (iv) is independently developed by the
other party without use of or reference to the other party's Confidential
Information, or In addition, this Section will not be construed to prohibit
disclosure of Confidential Information to the extent that such disclosure is
required by law or valid order of a court or other governmental authority;
provided, however, that the responding party shall first have given notice to
the other party and shall have made a reasonable effort to obtain a protective
order requiring that the Confidential Information so disclosed be used only for
the purposes for which the order was issued.
The parties agree, unless required by law, not to make each other's Confidential
Information available in any form to any third party (except that Distributor
may disclose Siebel's Confidential Information to Customers provided that such
disclosure is pursuant to a written nondisclosure agreement at least as
protective of Siebel's Confidential Information as this Section 13.1) or to use
each other's Confidential Information for any purpose other than in the
performance of this Agreement Distributor shall not disclose the results of any
performance tests of the Licensed Software to any third party without Siebel's
prior written approval. Each party agrees to take all reasonable steps to ensure
that Confidential Information is not disclosed or distributed by its employees
or agents in breach of this Agreement. The parties agree to hold each other's
Confidential Information in confidence during the term of this Agreement and for
a period of three (3) years thereafter; provided, however, that with respect to
source code, the Siebel Data Model Reference Manual, the Siebel Data Mart Data
Model Reference, and other highly sensitive confidential information clearly
identified as such at the time of disclosure by either party, the nondisclosure
obligations set forth herein shall continue indefinitely. Each party's
additional obligations regarding the Siebel Data Model Reference Manual and
Siebel Data Mart Data Model Reference are set forth in EXHIBIT C Each party
acknowledges and agrees that, due to the unique nature of Confidential
Information, there can be no adequate remedy at law for breach of this Section
13.1 and that such breach would cause irreparable harm to the non-breaching
party; therefore, the non-breaching party shall be entitled to seek immediate
injunctive relief, in addition to whatever remedies it might have at law or
under this Agreement. This Section 13.1 constitutes the entire understanding of
the parties and supersedes all prior or contemporaneous agreements,
representations or negotiations, whether oral or written, with respect to
Confidential Information.
13.2 GOVERNING LAW. This Agreement shall be governed in all respects by the
laws of the United States of America and the State of California. The parties
agree that the United Nations Convention on Contracts for the International Sale
of Goods is specifically excluded from application to this Agreement.
13.3 NOTICES. All notices required to be sent hereunder shall be in writing
and shall be deemed to have been given upon (i) the date sent by confirmed
facsimile, (ii) on the date it was delivered by courier, or (iii) if by
certified mail return receipt requested, on the date received, to the addresses
set forth above and to the attention of the signatory of this Agreement or to
such other address or individual as the parties may specify from time to time by
written notice to the other party.
13.4 DELIVERY. All materials provided by Siebel hereunder shall be delivered
to Distributor on a F.O.B. Siebel's San Francisco Bay Area basis for
destinations within the United States, or on a FCA (Incoterms 1990) Siebel's San
Francisco Bay Area Headquarters (or the address of Siebel's designee) basis for
destinations outside the United States; at which point title to the carrier
media and risk of loss or damage to the materials shall be transferred from
Siebel to Distributor. Nothing in this Section shall be deemed to transfer title
to, or provide Distributor with any rights in, the Licensed Software,
Documentation, or Training Materials, except as specifically provided in this
Agreement.
13.5 INJUNCTIVE RELIEF. It is expressly agreed that a breach of Sections 2.1
or 13.1 of this Agreement by Distributor may cause irreparable harm to Siebel
and that a remedy at law would be inadequate. Therefore, in addition to any and
all remedies available at law, Siebel will be entitled to seek an injunction or
other equitable remedies in all legal proceedings in the event of any threatened
or actual violation of any or all of the above provisions.
13.6 RELATIONSHIP BETWEEN THE PARTIES. Siebel is an independent contractor;
nothing in this Agreement shall be construed to create a partnership, joint
venture or agency relationship between the parties.
13.7 FORCE MAJEURE. Neither party shall be liable hereunder by reason of any
failure or delay in the performance of its obligations hereunder (except for the
payment of money) in account of strikes, shortages, riots, insurrection, fires,
flood, storm, explosions, acts of God war, governmental action, labor
conditions, earthquakes, material shortages, or any other cause which is beyond
the reasonable control of such party
13.8 WAIVER. The failure of either party to require performance by the other
party of any provision hereof shall not affect the full right to require such
performance at any time thereafter, nor shall the waiver by either party of a
breach of any provision hereof be taken or held to be a waiver of the provision
itself.
13.9 SEVERABILITY. In the event any provision of this Agreement is held to be
invalid or unenforceable, the remaining provisions of this Agreement will remain
in full force.
13.10 HEADINGS. The paragraph headings appearing in this Agreement are
inserted only as a matter of convenience and in no way define, limit, construe,
or describe the scope or extent of such paragraph, or in any way affect this
Agreement.
13.11 ASSIGNMENT. Neither this Agreement nor any rights or obligations of
either party hereunder may be assigned in whole or in part without the prior
written approval of the other party, which shall not be unreasonably withheld or
delayed, except that no consent shall be required in the event of an assignment
of this Agreement to a successor corporation by merger, sale of all or
substantially all of the assets or capital stock, provided that the successor
corporation (i) is not a direct competitor of the other party, and (ii) agrees
in writing to be bound by the terms of this Agreement.
13.12 COMPLIANCE WITH LAW AND REGULATIONS. Both parties shall act in strict
compliance with all applicable laws, ordinances, regulations and other
requirements of any government authority pertaining to their activities under
the Agreement and shall provide, pay for, and keep in good standing all permits,
licenses or other consents necessary for such activities.
13.13 EXPORT CONTROL. The parties agree that the export of Licensed Software
is subject to the export control laws of the United States of America and each
party agrees to abide by all such export control laws and regulations. Without
limiting the generality of the foregoing, Distributor expressly agrees that it
shall not, and shall cause its representatives to agree not to, export, directly
or indirectly, re-export, divert, or transfer the Licensed Software,
Documentation or any direct product thereof to any destination, company or
person restricted or prohibited by U.S. Export Controls.
13.14 CONFIDENTIAL AGREEMENT. Neither party will disclose any terms or the
existence of this Agreement, except that the parties may issue a jointly
approved press release announcing Distributor's rights to distribute and market
the Licensed Software. Siebel shall have the right to use Distributor's name in
customer lists or promotional documents that incorporate such lists.
13.15 COUNTERPARTS AND EXCHANGES BY FAX. This Agreement may be executed
simultaneously in two (2) or more counterparts, each of which will be considered
an original, but all of which together will constitute one and the same
instrument. The exchange of a fully executed Agreement (in counterparts or
otherwise) by fax shall be sufficient to bind the parties to the terms and
conditions of this Agreement.
13.16 MUTUAL NON-SOLICITATION/RECRUITING FEE AGREEMENT. During the term of
this Agreement, Siebel agrees not to entice, solicit, recruit, hire or engage
any employee, consultant, or independent contractor of Distributor to leave the
employ of Distributor or terminate its relationship with Distributor for any
purpose whatsoever, whether for Siebel's benefit or the benefit of a third
party. During the term of this Agreement, Distributor agrees not to entice,
solicit, recruit, any employee, consultant, or independent contractor of Siebel
for any leave the employ of Siebel or terminate its relationship with Siebel for
any purpose whatsoever, whether for Distributor's benefit or the benefit of a
third party. For each person who was employed by either party on or before
August 10, 1999, and is hired by the other party as an employee at any time
during the term of this Agreement, the party hiring such employee will pay to
the other party a recruiting fee as follows: (i) [*] for anyone who was
employed by or under contract as a representative in the sales, engineering,
product marketing, or marketing departments or as a manager, director, vice
president, or any similar or higher-ranking employee, or (ii) [*] for any
other employee. The payment shall be due and owing on the first day of work for
the party hiring such employee. Payments that have not been made by the 16th day
of the individual's work shall be delinquent and subject to 15% interest per
annum. The parties agree and acknowledge that the purpose of this mutual
non-solicitation and recruiting fee agreement is to protect and safeguard each
party's Confidential Information.
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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13.17 ENTIRE AGREEMENT. This Agreement, together with the attached exhibits
which are incorporated by reference, constitutes the complete agreement between
the parties and supersedes all prior or contemporaneous agreements or
representations, written or oral, concerning the subject matter of this
Agreement and such exhibits. This Agreement may not be modified or amended
except in writing signed by a duly authorized representative of each party. No
other act. document, usage or custom shall be deemed to amend or modify this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives.
The Effective Date of this Agreement shall be August 13, 1999
EXECUTED BY: CORIO, INC.
/s/ Signature Illegible
Signature:
Name
-------------------------------------
Title:
-----------------------------------
Date:
------------------------------------
EXECUTED BY: SIEBEL SYSTEMS, INC.
/s/ Signature Illegible
Signature:
Name: Kevin A. Johnson
------------------------------------
Title: Vice President, Legal Affairs
------------------------------------
Date: August 13, 1999
------------------------------------
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EXHIBIT A
LICENSED SOFTWARE
1. FEES.
(A) SUBLICENSE FEES FOR SIEBEL FOR WORKGROUPS Subject to the additional
terms set forth in subsection (b) below Distributor may sublicense
Siebel for Workgroups software to Customers with (i) an installed base
of no greater than [*] Users, or (ii) with annual revenue which does not
exceed [*]. The Sublicense Fees payable by Distributor to Siebel in
consideration of the use of the Licensed Programs by Customers in
accordance with and during the term of their respective End User License
and Services Agreements will be the respective amounts set forth in the
table below, [*]. The parties agree that such Sublicense Fees shall be
subject to adjustment in proportion to adjustments in Siebel s published
perpetual license list price therefor. The Sublicense Fee will accrue
upon the earlier of (i) the delivery of the Licensed Programs to the
Customer or (ii) the reproduction, deployment or use of the Licensed
Programs by the Customer. Siebel may offer Gold- or Platinum-level Third
Line Support to Distributor in accordance with terms to be mutually
agreed to by the parties in good faith following the execution of this
Agreement
[*]
[*]
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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[*]
(C) TARGET QUOTA. Distributor shall use its best efforts to achieve the
following revenue targets for the listed time period. If Distributor does not
meet the minimum Target Quota of [*] for any of the three annual periods
specified below, Siebel may terminate this Agreement for cause pursuant to
Section 12.2, [*]
2. INITIAL TERM. The Initial Term of the Agreement shall begin on the Effective
Date and end on the [*] anniversary thereafter; provided, however, that the
Agreement may be extended for additional one (1) year terms upon the mutual
agreement of the parties.
3. VALUE ADDED OFFERING Distributor (either directly or indirectly) shall offer
a hardware, software and connectivity solution for Application Hosting Services
for Customers in connection with such Customers' use of the Licensed Programs;
which shall include, [*]. The "Value Added Offering" shall consist of whatever
components of the foregoing that are purchased from Distributor by Customer, but
shall include at a minimum the Application Hosting Services.
4. TERRITORY. [*].
5. LICENSED SOFTWARE The Licensed Software shall consist of the following
software programs
[*]
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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6. ANCILLARY PROGRAMS 5. The Ancillary Programs currently consist of the
following software programs and such other programs as may be listed in Siebel's
Documentation from time to time.
[*]
7. ADDITIONAL TERMS AND CONDITIONS:
[*]
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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EXHIBIT B
MAINTENANCE POLICY
[*]
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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EXHIBIT C
DOCUMENTATION
DESCRIPTION OF DOCUMENTATION:
[*]
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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EXHIBIT D
TRADEMARKS
[*]
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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EXHIBIT E
RESERVED COMPANIES
[*]
1 Company shall include the parent companies, subsidiaries, overseas
branches and overseas offices of the Companies listed above and any company
which is involved in the sale or distribution of the products offered by the
Companies listed above. [*]
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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EXHIBIT F
MINIMUM TERMS OF END USER LICENSE AGREEMENT
[*]
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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[*]
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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[*]
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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EXHIBIT G
ROYALTY REPORTING FORM
DISTRIBUTOR SALES/ROYALTY
1. Sales Date: Month Year Name of Distributor
2. End User:
Company Title Note/Comments
Name
Division Tel No
Contact Fax No
Address
3. Version of Programs ________________4.Client Operating system:_________
5. Database Server Hardware____________6.RDBMS (Version) _________________
7. Database Server Location____________
8. Royalties/Fees
License
[*] Number of Users List Price(USD) Total Sales Price(USD) Royalty%
[*]
Maintenance New [ ] Renewal [ ]
List Price (USD) Total (USD) Royalty (USD) Note
Siebel Sales and Service Enterprise
Siebel Encyclopedia
Siebel Office
Siebel Calendar
Siebel TeleBusiness
Siebel Remote
Siebel Reports
Siebel EIS
Siebel Anywhere
Siebel System Software
Royalty Total
Term of maintenance
____month___date____year
10. Training Material Royalty
Training Material
Material Name List Price (USD) Copy Transfer Royalty (USD)
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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Exhibit 10.14
CHANGE IN CONTROL AGREEMENT
This Change in Control Agreement (the "Agreement") is entered into as of
______________, 2000, by and between ___________________, an individual
("Executive") and Corio, Inc., a Delaware corporation (the "Company").
RECITALS
A. Executive is currently a member of senior management of the Company,
serving in the capacity of ________________________________.
B. The Company desires to provide certain protection to Executive in the
event of a change in control or potential change in control of the Company, in
order to induce Executive to remain in the employ of the Company notwithstanding
any risks and uncertainties created by a potential change in control of the
Company, as set forth in this Agreement.
AGREEMENT
THEREFORE, in consideration of the mutual covenants contained herein, the
parties hereby agree as follows:
1. Benefits Upon a Change in Control. If (i) during the term of this
Agreement and while Executive remains an employee of the Company, the Company
shall be subject to a Change in Control and (ii) within one (1) year following
such Change in Control the Company terminates the employment of Executive
involuntarily and without Business Reasons or a Constructive Termination occurs,
then in such case Executive shall be entitled to receive the following: (A)
Executive's base salary and vacation accrued through the Termination Date, (B)
vesting of all outstanding stock options and other equity arrangements subject
to vesting and held by Executive through the Termination Date, plus acceleration
of an additional 12 months of vesting of such options and other equity
arrangements, and (C) to the extent required by COBRA only, continuation of
group health benefits pursuant to the Company's standard programs or in effect
at the Termination Date, for a period of not less than 18 months (or such longer
period as may be required by COBRA), provided that Executive makes the necessary
conversion.
2. Exclusivity. The provisions of this Agreement are intended to be and
are exclusive and in lieu of any other rights or remedies to which Executive or
the Company may otherwise be entitled, either at law, tort or contract, in
equity, under Company policies in effect now or hereafter, or under this
Agreement, in the event that (i) during the term of this Agreement and while
Executive remains an employee of the Company, the Company shall be subject to a
Change in Control and (ii) within one (1) year following such Change in Control
the Company terminates the employment of Executive involuntarily and without
Business Reasons or a Constructive Termination occurs. In such circumstances,
Executive shall be entitled to no benefits, compensation or other payments or
rights upon termination of employment other than those benefits expressly set
forth in Section 1.
<PAGE> 2
The provisions of this Agreement shall not affect the terms of employment
between the Company and Executive or the rights and obligations of the parties
under such relationship except as expressly provided herein, it being understood
however that Executive's employment is and shall continue to be at-will, as
defined under applicable law. Either the Company or Executive may terminate this
agreement and Executive's employment at any time, with or without Business
Reasons (as defined in subsection 3(a) below), in its or his/her sole
discretion, upon fourteen (14) days' prior written notice of termination. If
Executive's employment terminates for any reason, Executive shall not be
entitled to any payments, benefits, damages, awards or compensation other than
as provided by this Agreement (in circumstances to which this Agreement applies,
as set forth in Section 1), or (in circumstances to which this Agreement does
not apply) as may otherwise be available in accordance with the Company's
established employee plans and policies at the time of termination.
3. Definition of Terms. The following terms referred to in this Agreement
shall have the following meanings:
(a) "Business Reasons" shall mean (i) any act of personal dishonesty
taken by Executive in connection with his/her responsibilities as an employee
and intended to result in substantial personal enrichment of Executive, (ii)
commission of a felony or other offense which involves moral turpitude or is
otherwise injurious to the Company or its reputation, (iii) a willful act by
Executive which constitutes gross misconduct and which is injurious to the
Company or its reputation, (iv) material breach of this Agreement by Executive,
including any material breach of the provisions of Section 4 or 5 hereof, or (v)
continued violation by Executive of Executive's obligations and duties as an
Executive of the Company that are demonstrably willful and deliberate on
Executive's part after there has been delivered to Executive a written demand
for performance from the Company which describes the basis for the Company's
belief that Executive has not substantially performed his/her duties.
(b) "Constructive Termination" shall be deemed to occur if (A)
without the consent of Executive, (i) there is a significant reduction in
Executive's overall scope of duties, authorities and responsibilities (it being
understood that a new position within a larger combined company is not a
constructive termination if it is in the same area of operations and involves
similar scope of management responsibility notwithstanding that the individual
may not retain as senior a position overall within the larger combined
corporation as Executive's prior position within the Company), (ii) Executive is
required to relocate his/her place of employment, other than a relocation within
50 miles of Executive's current business location, or (iii) there is a reduction
of more than 20% of Executive's base salary or target bonus (other than any such
reduction consistent with a general reduction of pay across the Executive staff
as a group, as an economic or strategic measure due to poor financial
performance by the Company) and (B) within the thirty (30) day period
immediately following such material adverse change or reduction Executive elects
to terminate his/her employment voluntarily.
(c) "Change in Control" shall mean any merger, consolidation, sale of
assets or other similar transaction or series of transactions involving the
Company, other than any such transaction or transactions following which the
Company or its stockholders continue to own a majority of the combined voting
power of the outstanding securities of the corporation or other entity surviving
or succeeding to the business of the Company.
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<PAGE> 3
4. Confidential Information.
(a) Executive acknowledges that the Confidential Information (as
defined below) relating to the business of the Company and its subsidiaries
which Executive has obtained or will obtain during the course of his/her
association with the Company and subsidiaries and his/her performance under this
Agreement are the property of the Company and its subsidiaries. Executive agrees
that he/she will not disclose or use at any time, either during or after the
Employment period, any Confidential Information without the written consent of
the Board of Directors of the Company. Executive agrees to deliver to the
Company at the end of the Employment period, or at any other time that the
Company may request, all memoranda, notes, plans, records, documentation and
other materials (and copies thereof) containing Confidential Information
relating to the business of the Company and its subsidiaries, no matter where
such material is located and no matter what form the material may be in, which
Executive may then possess or have under his/her control. If requested by the
Company, Executive shall provide to the Company written confirmation that all
such materials have been delivered to the Company or have been destroyed.
Executive shall take all appropriate steps to safeguard Confidential Information
and to protect it against disclosure, misuse, espionage, loss and theft.
(b) "Confidential Information" shall mean information which is not
generally known to the public and which is used, developed, or obtained by the
Company or its subsidiaries relating to the businesses of any of the Company and
its subsidiaries or the business of any customer thereof including, but not
limited to: products or services; fees, costs and pricing structure; designs;
analyses; formulae; drawings; photographs; reports; computer software, including
operating systems, applications, program listings, flow charts, manuals and
documentation; databases; accounting and business methods; inventions and new
developments and methods, whether patentable or unpatentable and whether or not
reduced to practice; all copyrightable works; the customers of any of the
Company and its subsidiaries and the Confidential Information of any customer
thereof; and all similar and related information in whatever form. Confidential
Information shall not include any information which (i) was rightfully known by
Executive prior to the Employment Period; (ii) is publicly disclosed by law or
in response to an order of a court or governmental agency; (iii) becomes
publicly available through no fault of Executive or (iv) has been published in a
form generally available to the public prior to the date upon which Executive
proposes to disclose such information. Information shall not be deemed to have
been published merely because individual portions of the information have been
separately published, but only if all the material features comprising such
information have been published in combination.
(c) Inventions and Patents. In the event that Executive, as a part of
Executive's activities on behalf of the Company, generates, authors or
contributes to any invention, new development or method, whether or not
patentable and whether or not reduced to practice, any copyrightable work, any
trade secret, any other Confidential Information, or any information that gives
any of the Company and its subsidiaries an advantage over any competitor, or
similar or related developments or information related to the present or future
business of any of the Company and its subsidiaries (collectively "Developments
and Information"), Executive acknowledges that all Developments and Information
are the exclusive property of the Company. Executive hereby assigns to the
Company, its nominees, successors or assigns, all rights, title and interest to
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<PAGE> 4
Developments and Information. Executive shall cooperate with the Company's Board
of Directors to protect the interests of the Company and its subsidiaries in
Developments and Information. Executive shall execute and file any document
related to any Developments and Information requested by the Company's Board of
Directors including applications, powers of attorney, assignments or other
instruments which the Company's Board of Directors deems necessary to apply for
any patent, copyright or other proprietary right in any and all countries or to
convey any right, title or interest therein to any of the Company's nominees,
successors or assigns.
5. Non-Competition Agreement.
(a) Executive acknowledges that his/her services are of a special,
unique and extraordinary value to the Company and that he/she has access to the
Company's trade secrets, Confidential Information and strategic plans of the
most valuable nature. Accordingly, Executive agrees that during the term of the
Agreement and for a period of one (1) year following the occurrence of both
events discussed in subsections 1(i) and 1(ii) hereof, Executive shall not
directly or indirectly own, manage, control, participate in, consult with,
render services for, or in any manner engage in any business competing with the
businesses of the Company or any of its subsidiaries as such businesses exist or
are in process of development on the Termination Date, including without
limitation the publication of periodic research and analysis of the information
technology industries. Nothing herein shall prohibit Executive from being a
passive owner of not more than 1% of the outstanding stock of any class of a
corporation which is publicly traded, so long as Executive has no active
participation in the business of such corporation.
(b) In addition, during the term of the Agreement and for a period of
one (1) year following the occurrence of both events discussed in subsections
1(i) and 1(ii) hereof, Executive shall not (i) induce or attempt to induce any
employee of the Company or any subsidiary to leave the employ of the Company or
such subsidiary, or in any way interfere with the relationship between the
Company or any subsidiary and any employee thereof, (ii) hire directly or
through another entity any person who was an employee of the Company or any
subsidiary at any time during the Employment Period, or (iii) induce or attempt
to induce any customer, supplier, licensee or other business relation of the
Company or any subsidiary to cease doing business with the Company or such
subsidiary, or in any way interfere with the relationship between any such
customer, supplier, licensee or business relation and the Company or any
subsidiary.
(c) Executive agrees that these restrictions on competition and
solicitation shall be deemed to be a series of separate covenants not-to-compete
and a series of separate non-solicitation covenants for each month within the
specified periods, separate covenants not-to-compete and non-solicitation
covenants for each state within the United States and each country in the world,
and separate covenants not-to-compete for each area of competition. If any court
of competent jurisdiction shall determine any of the foregoing covenants to be
unenforceable with respect to the term thereof or the scope of the subject
matter or geography covered thereby, such remaining covenants shall nonetheless
be enforceable by such court against such other party or parties or upon such
shorter term or within such lesser scope as may be determined by the court to be
enforceable.
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<PAGE> 5
(d) Because Executive's services are unique and because Executive has
access to Confidential Information and strategic plans of the Company of the
most valuable nature, the parties agree that the covenants contained in this
Section 5 are necessary to protect the value of the business of the Company and
that a breach of any such covenant would result in irreparable and continuing
damage for which there would be no adequate remedy at law. The parties agree
therefore that in the event of a breach or threatened breach of this Agreement,
the Company or its successors or assigns may, in addition to other rights and
remedies existing in their favor, apply to any court of competent jurisdiction
for specific performance and/or injunctive or other relief in order to enforce,
or prevent any violations of, the provisions hereof.
6. Term of Agreement. This Agreement shall commence as of the date first
set forth above and shall continue until the date (the "Termination Date") which
is the earlier of (i) the date that Executive ceases to be an employee of the
Company, for any reason, and (ii) December 31, 2004. Any benefits accruing to
Executive under Section 1 hereof prior to or upon the Termination Date shall
survive termination of the Agreement, and any obligations of Executive under
Sections 1, 4 and 5 hereof shall survive any such termination.
7. Miscellaneous Provisions.
(a) Notice. Notices and all other communications contemplated by this
Agreement shall be in writing, shall be effective when given, and in any event
shall be deemed to have been duly given (i) when delivered, if personally
delivered, (ii) three (3) business days after deposit in the U.S. mail, if
mailed by U.S. registered or certified mail, return receipt requested, or (iii)
one (1) business day after the business day of deposit with Federal Express or
similar overnight courier, if so delivered, freight prepaid. In the case of
Executive, notices shall be addressed to him at the home address which he/she
most recently communicated to the Company in writing. In the case of the
Company, notices shall be addressed to its corporate headquarters, and all
notices shall be directed to the attention of its Corporate Secretary.
(b) Successors.
(i) Company's Successors. Any successor to the Company (whether
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets shall be entitled to assume the rights and shall be obligated to
assume the obligations of the Company under this Agreement and shall agree to
perform the Company's obligations under this Agreement in the same manner and to
the same extent as the Company would be required to perform such obligations in
the absence of a succession. For all purposes under this Agreement, the term
"Company" shall include any successor to the Company's business and/or assets
which executes and delivers the assumption agreement described in this
subsection (i) or which becomes bound by the terms of this Agreement by
operation of law.
(ii) Executive's Successors. The terms of this Agreement and all
rights of Executive hereunder shall inure to the benefit of, and be enforceable
by, Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
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<PAGE> 6
(iii) No Other Assignment of Benefits. Except as provided in this
Section 7(b), the rights of any person to payments or benefits under this
Agreement shall not be made subject to option or assignment, either by voluntary
or involuntary assignment or by operation of law, including (without limitation)
bankruptcy, garnishment, attachment or other creditor's process, and any action
in violation of this subsection (iii) shall be void.
(c) Waiver. No provision of this Agreement shall be modified, waived
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by Executive and by an authorized officer of the Company
(other than Executive). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.
(d) Entire Agreement. Executive acknowledges and reaffirms his/her
obligations contained in the Company's standard form of Employment, Confidential
Information and Invention Assignment Agreement, which was previously executed by
Executive (or, if Executive has not previously executed such agreement, by which
Executive hereby agrees to be bound in consideration for the mutual agreements
herein), and offer letter or employment agreement, if any, which was previously
executed by Executive, which documents include, without limitation, obligations
regarding confidential information, non-competition and non-solicitation. If
there is any conflict between the terms of this Agreement, the Employment,
Confidential Information and Invention Assignment Agreement, and any offer
letter or employment agreement, the terms of the more restrictive provisions
shall control. This Agreement, the Employment, Confidential Information and
Invention Assignment Agreement, any offer letter or employment agreement and any
stock option agreements collectively contain the entire understanding of the
parties with respect to the subject matter hereof and supersede any prior
understandings or agreements between the parties with respect to such subject
matter.
(e) Severability. The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision hereof, which shall remain in full force and effect.
(f) Governing Law; Arbitration. This Agreement shall be construed in
accordance with and governed by the laws of the State of California as they
apply to contracts entered into and wholly to be performed within such state by
residents of such state. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration
within the federal Northern District of California, in accordance with the rules
of the American Arbitration Association then in effect. Judgment may be entered
on the arbitrator's award in any court having jurisdiction. No party shall be
entitled to seek or be awarded punitive damages. All attorneys' fees and costs
shall be allocated or apportioned by the parties, and in the absence of any
agreement or allocation or apportionment shall be awarded to the prevailing
party.
(g) Employment Taxes. All payments made pursuant to this Agreement
will be subject to withholding of applicable taxes.
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<PAGE> 7
(h) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, as of the day and year first
above written.
COMPANY
CORIO, INC.
By:
-----------------------
Its:
-----------------------
EXECUTIVE
-----------------------
<PAGE> 1
Exhibit 16.1
[PRICEWATERHOUSECOOPERS LLP LETTERHEAD]
April 18, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Commissioners:
We have read the statements regarding our Firm made by Corio, Inc. which we
understand will be filed with the Commission, pursuant to Item 11 of Form S-1
dated on or about April 18, 2000. We agree with the statements concerning our
Firm in the paragraph under "Change in Independent Accountants" included in
such Form S-1.
Very truly yours,
/s/ PricewaterhouseCoopers LLP
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PricewaterhouseCoopers LLP
<PAGE> 1
EXHIBIT 20.1
CORIO, INC.
1998 STOCK PLAN
(AS AMENDED APRIL 2000)
1. Purposes of the Plan. The purposes of this 1998 Stock Plan are:
- to attract and retain the best available personnel for
positions of substantial responsibility,
- to provide additional incentive to Employees, Directors
and Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a committee of Directors appointed by the
Board in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
(g) "Company" means Corio, Inc., a Delaware corporation.
(h) "Consultant" means any person, including an advisor, engaged
by the Company or a Parent or Subsidiary to render services to such entity.
(i) "Director" means a member of the Board.
<PAGE> 2
(j) "Disability" means total and permanent disability as defined
in Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be an Employee in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the last market trading day prior
to the day of determination, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable; or
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(p) "Notice of Grant" means a written or electronic notice
evidencing certain terms and conditions of an individual Option or Stock
Purchase Right grant. The Notice of Grant is part of the Option Agreement.
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<PAGE> 3
(q) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
(s) "Option Agreement" means an agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby
outstanding Options are surrendered in exchange for Options with a lower
exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option
or Stock Purchase Right.
(v) "Optionee" means the holder of an outstanding Option or
Stock Purchase Right granted under the Plan.
(w) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 1998 Stock Plan.
(y) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.
(z) "Restricted Stock Purchase Agreement" means a written
agreement between the Company and the Optionee evidencing the terms and
restrictions applying to stock purchased under a Stock Purchase Right. The
Restricted Stock Purchase Agreement is subject to the terms and conditions of
the Plan and the Notice of Grant.
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(bb) "Section 16(b)" means Section 16(b) of the Exchange Act.
(cc) "Service Provider" means an Employee, Director or
Consultant.
(dd) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(ee) "Stock Purchase Right" means the right to purchase Common
Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "Subsidiary" means a "subsidiary corporation", whether now
or hereafter existing, as defined in Section 424(f) of the Code.
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<PAGE> 4
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
the Plan, the maximum aggregate number of Shares that may be optioned and sold
under the Plan is 18,500,000 Shares plus an annual increase to be added on the
first day of the Company's fiscal year beginning December 31, 2001, equal to the
lesser of (i) 6,000,000 shares, (ii) 6% of the outstanding shares on such date
or (iii) a lesser amount determined by the Board. The Shares may be authorized,
but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
the Plan, whether upon exercise of an Option or Stock Purchase Right, shall not
be returned to the Plan and shall not become available for future distribution
under the Plan, except that if Shares of Restricted Stock are repurchased by the
Company at their original purchase price, such Shares shall become available for
future grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. Different Committees
with respect to different groups of Service Providers may administer the Plan.
(ii) Section 162(m). To the extent that the
Administrator determines it to be desirable to qualify Options granted hereunder
as "performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided above,
the Plan shall be administered by (A) the Board or (B) a Committee, which
committee shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of
the Plan, and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee, the Administrator shall have the
authority, in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and
Stock Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock
to be covered by each Option and Stock Purchase Right granted hereunder;
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<PAGE> 5
(iv) to approve forms of agreement for use under the
Plan;
(v) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Option or Stock Purchase Right
granted hereunder. Such terms and conditions include, but are not limited to,
the exercise price, the time or times when Options or Stock Purchase Rights may
be exercised (which may be based on performance criteria), any vesting
acceleration or waiver of forfeiture restrictions, and any restriction or
limitation regarding any Option or Stock Purchase Right or the shares of Common
Stock relating thereto, based in each case on such factors as the Administrator,
in its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan
and awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred tax treatment
under foreign tax laws;
(x) to modify or amend each Option or Stock Purchase
Right (subject to Section 15(c) of the Plan), including the discretionary
authority to extend the post-termination exercisability period of Options longer
than is otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined. All elections by an
Optionee to have Shares withheld for this purpose shall be made in such form and
under such conditions as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of
the Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary
or advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
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<PAGE> 6
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. Limitations.
(a) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right
shall confer upon an Optionee any right with respect to continuing the
Optionee's relationship as a Service Provider with the Company, nor shall they
interfere in any way with the Optionee's right or the Company's right to
terminate such relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal
year of the Company, Options to purchase more than 1,500,000 Shares.
(ii) In connection with his or her initial service, a
Service Provider may be granted Options to purchase up to an additional
1,500,000 Shares, which shall not count against the limit set forth in
subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.
(iv) If an Option is cancelled in the same fiscal year
of the Company in which it was granted (other than in connection with a
transaction described in Section 13), the cancelled Option will be counted
against the limits set forth in subsections (i) and (ii) above. For this
purpose, if the exercise price of an Option is reduced, the transaction will be
treated as a cancellation of the Option and the grant of a new Option.
7. Term of Plan. The Plan became effective on September 25, 1998, and
shall continue in effect until September 25, 2008, unless terminated earlier
under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option
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<PAGE> 7
shall be five (5) years from the date of grant or such shorter term as may be
provided in the Option Agreement.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares
to be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an
Employee described in paragraph (A) immediately above, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option, the per
Share exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be
granted with a per Share exercise price of less than 100% of the Fair Market
Value per Share on the date of grant pursuant to a merger or other corporate
transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions that must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six months on the date of surrender, and
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<PAGE> 8
(B) have a Fair Market Value on the date of surrender equal to the aggregate
exercise price of the Shares as to which said Option shall be exercised;
(v) consideration received by the Company under a
cashless exercise program implemented by the Company in connection with the
Plan;
(vi) a reduction in the amount of any Company liability
to the Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;
(vii) any combination of the foregoing methods of
payment; or
(viii) such other consideration and method of payment
for the issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance with the
Option Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the
number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Relationship as a Service Provider. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the
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<PAGE> 9
Optionee's termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified by the
Administrator, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a
Service Provider as a result of the Optionee's Disability, the Optionee may
exercise his or her Option within such period of time as is specified in the
Option Agreement to the extent the Option is vested on the date of termination
(but in no event later than the expiration of the term of such Option as set
forth in the Option Agreement). In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months following
the Optionee's termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is specified
in the Option Agreement (but in no event later than the expiration of the term
of such Option as set forth in the Notice of Grant), by the Optionee's estate or
by a person who acquires the right to exercise the Option by bequest or
inheritance, but only to the extent that the Option is vested on the date of
death. In the absence of a specified time in the Option Agreement, the Option
shall remain exercisable for twelve (12) months following the Optionee's
termination. If, at the time of death, the Optionee is not vested as to his or
her entire Option, the Shares covered by the unvested portion of the Option
shall immediately revert to the Plan. The Option may be exercised by the
executor or administrator of the Optionee's estate or, if none, by the person(s)
entitled to exercise the Option under the Optionee's will or the laws of descent
or distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer
to buy out for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing or electronically, by means of a Notice of Grant,
of the terms, conditions and restrictions related to the offer, including the
number of Shares that the offeree shall be entitled to purchase, the price to be
paid, and the time within which the offeree must accept such offer. The offer
shall be accepted by execution of a Restricted Stock Purchase Agreement in the
form determined by the Administrator.
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<PAGE> 10
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
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<PAGE> 11
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the
Company with or into another corporation, or the sale of substantially all of
the assets of the Company, each outstanding Option and Stock Purchase Right
shall be assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase
Right shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.
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<PAGE> 12
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment,
alteration, suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee and
the Company. Termination of the Plan shall not affect the Administrator's
ability to exercise the powers granted to it hereunder with respect to Options
granted under the Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise
of an Option or Stock Purchase Right, the Company may require the person
exercising such Option or Stock Purchase Right to represent and warrant at the
time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is
required.
17. Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
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<PAGE> 1
EXHIBIT 20.2
CORIO, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean Corio, Inc., a Delaware corporation, and
any Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross
earnings and commissions, payments for overtime, shift premium, incentive
compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary that has
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering
Period.
(i) "Exercise Date" shall mean the last day of each Offering
Period.
(j) "Fair Market Value" shall mean, as of any date, the value of
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price
<PAGE> 2
for such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or system for the last market trading day on the date of such
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable, or;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable, or;
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board; or
(4) For purposes of the Enrollment Date of the first
Offering Period under the Plan, the Fair Market Value shall be the initial price
to the public as set forth in the final prospectus included within the
registration statement in Form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Company's Common Stock (the
"Registration Statement").
(k) "Offering Period" shall mean a period of approximately six (6)
months during which an option granted pursuant to the Plan may be exercised,
commencing on the first Trading Day on or after February 1 and terminating on
the last Trading Day in the period ending the following July 31, or commencing
on the first Trading Day on or after August 1 and terminating on the last
Trading Day in the period ending the following January 31; provided, however,
that the first Offering Period under the Plan shall commence with the first
Trading Day on or after the date on which the Securities and Exchange Commission
declares the Company's Registration Statement effective and ending on the last
Trading Day on or before January 31, 2001. The duration of Offering Periods may
be changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
(m) "Purchase Price" shall mean an amount equal to 85% of the Fair
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower; provided, however, that the Purchase Price
may be adjusted by the Board pursuant to Section 20.
(n) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(o) "Subsidiary" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(p) "Trading Day" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
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<PAGE> 3
3. Eligibility.
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive
Offering Periods with a new Offering Period commencing on the first Trading Day
on or after February 1 and August 1 each year, or on such other date as the
Board shall determine, and continuing thereafter until terminated in accordance
with Section 20 hereof; provided, however, that the first Offering Period under
the Plan shall commence with the first Trading Day on or after the date on which
the Securities and Exchange Commission declares the Company's Registration
Statement effective and ending on the last Trading Day on or before January 31,
2001. The Board shall have the power to change the duration of Offering Periods
(including the commencement dates thereof) with respect to future offerings
without stockholder approval if such change is announced at least five (5) days
prior to the scheduled beginning of the first Offering Period to be affected
thereafter.
5. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding fifteen percent (15%) of
the Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
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<PAGE> 4
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at any
time during an Offering Period. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Offering Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or
at the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering
Period, each eligible Employee participating in such Offering Period shall be
granted an option to purchase on the Exercise Date of such Offering Period (at
the applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Offering Period more than
10,000 shares (subject to any adjustment pursuant to Section 19), and provided
further that such purchase shall be subject to the limitations set forth in
Sections 3(b) and 12 hereof. Exercise of the option shall occur as provided in
Section 8 hereof, unless the participant has withdrawn pursuant to Section 10
hereof. The Option shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the
Plan as provided in Section 10 hereof, his or her option for the purchase of
shares shall be exercised automatically on the Exercise Date, and the maximum
number of full shares subject to option shall be purchased for such participant
at the applicable Purchase Price with the accumulated payroll deductions in his
or her account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10 hereof. Any other monies left over in a participant's account
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<PAGE> 5
after the Exercise Date shall be returned to the participant. During a
participant's lifetime, a participant's option to purchase shares hereunder is
exercisable only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, the shares purchased upon exercise of his or
her option.
10. Withdrawal.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account shall be paid to such participant
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.
11. Termination of Employment. Upon a participant's ceasing to be an
Employee for any reason, he or she shall be deemed to have elected to withdraw
from the Plan and the payroll deductions credited to such participant's account
during the Offering Period but not yet used to exercise the option shall be
returned to such participant or, in the case of his or her death, to the person
or persons entitled thereto under Section 15 hereof, and such participant's
option shall be automatically terminated. The preceding sentence
notwithstanding, a participant who receives payment in lieu of notice of
termination of employment shall be treated as continuing to be an Employee for
the participant's customary number of hours per week of employment during the
period in which the participant is subject to such payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. Stock.
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 1,000,000 shares, plus an annual increase to be added on the first day
of the Company's fiscal year beginning in 2001 equal to the lesser of (i)
2,500,000 shares, (ii) 2.5% of the outstanding shares on such date, or (iii) a
lesser amount determined by the Board. If, on a given Exercise Date, the number
of shares with respect to which options are to be exercised exceeds the number
of shares then available under the Plan, the Company shall make a pro rata
allocation of the shares remaining available for purchase in as uniform a manner
as shall be practicable and as it shall determine to be equitable.
-5-
<PAGE> 6
(b) Notwithstanding anything to the contrary in the Plan, the
maximum number of shares of the Company's Common Stock that shall be made
available for sale under the first Offering Period of the Plan shall not exceed
2.0% of the outstanding shares of the Company's capital stock on the first day
of such Offering Period, and the maximum number of shares of the Company's
Common Stock that shall be made available for sale under each Offering Period
thereafter shall not exceed 1.5% of the outstanding shares of the Company's
capital stock on the first day of each such Offering Period.
(c) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
(d) Shares to be delivered to a participant under the Plan shall
be registered in the name of the participant or in the name of the participant
and his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to such
participant of such shares and cash. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to exercise of the option. If a participant is married and the designated
beneficiary is not the spouse, spousal consent shall be required for such
designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
-6-
<PAGE> 7
17. Use of Funds. All payroll deductions received or held by the Company
under the Plan may be sed by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the stockholders of the Company, the Reserves, the maximum number of shares each
participant may purchase per Offering Period (pursuant to Section 7), as well as
the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all
or substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, the Offering Period
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date"). The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option
-7-
<PAGE> 8
shall be exercised automatically on the New Exercise Date, unless prior to such
date the participant has withdrawn from the Offering Period as provided in
Section 10 hereof.
20. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and for
any reason terminate or amend the Plan. Except as provided in Section 19 hereof,
no such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its stockholders. Except as provided
in Section 19 and Section 20 hereof, no amendment may make any change in any
option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the Code (or
any other applicable law, regulation or stock exchange rule), the Company shall
obtain shareholder approval in such a manner and to such a degree as required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation
of the Plan may result in unfavorable financial accounting consequences, the
Board may, in its discretion and, to the extent necessary or desirable, modify
or amend the Plan to reduce or eliminate such accounting consequence including,
but not limited to:
(1) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(2) shortening any Offering Period so that Offering Period
ends on a new Exercise Date, including an Offering Period underway at the time
of the Board action; and
(3) allocating shares.
Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
-8-
<PAGE> 9
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
-9-
<PAGE> 10
EXHIBIT A
CORIO, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ____________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________________________________ hereby elects to participate in the
Corio, Inc. 2000 Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") and subscribes to purchase shares of the Company's Common
Stock in accordance with this Subscription Agreement and the Employee
Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 0 to 15%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to stockholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):
____________________.
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares), I will be treated
for federal income tax purposes as having received ordinary income at the
time of such disposition in an amount equal to the excess of the fair
market value of the shares at the time such shares were purchased by me
over the price which I paid for the shares. I hereby agree to notify the
Company in writing within 30 days after the date of any disposition of
shares and I will make adequate provision for Federal, state or other tax
withholding obligations, if any, which arise upon the disposition of the
Common Stock. The Company may, but will not be obligated to, withhold from
my compensation the amount necessary to meet any applicable withholding
obligation including any withholding necessary to make available to the
Company any tax deductions or benefits attributable to sale or early
<PAGE> 11
disposition of Common Stock by me. If I dispose of such shares at any time
after the expiration of the 2-year holding period, I understand that I
will be treated for federal income tax purposes as having received income
only at the time of such disposition, and that such income will be taxed
as ordinary income only to the extent of an amount equal to the lesser of
(1) the excess of the fair market value of the shares at the time of such
disposition over the purchase price which I paid for the shares, or (2)
15% of the fair market value of the shares on the first day of the
Offering Period. The remainder of the gain, if any, recognized on such
disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)
------------------------------------------
(First) (Middle) (Last)
------------------------- ------------------------------------------
Relationship
------------------------------------------
(Address)
Employee's Social
Security Number: ------------------------------------------
------------------------------------------
Employee's Address:
------------------------------------------
-2-
<PAGE> 12
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:
----------------------------
--------------------------------------
Signature of Employee
-------------------------------------
Spouse's Signature (If beneficiary
other than spouse)
-3-
<PAGE> 13
EXHIBIT B
CORIO, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Corio, Inc.
2000 Employee Stock Purchase Plan which began on ___________, ______ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
------------------------------------
------------------------------------
------------------------------------
Signature:
------------------------------------
Date: _______________________________
<PAGE> 1
EXHIBIT 23.2
REPORT ON FINANCIAL STATEMENT SCHEDULE AND CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Corio, Inc.
The audits referred to in our report dated March 31, 2000, except as to
Note 15, which is as of April 20, 2000, included the related financial statement
schedule as of December 31, 1998 and 1999, and for the period from September 1,
1998 through December 31, 1998 and for the year ended December 31, 1999 of
Corio, Inc. along with the year ended September 30, 1997, and the period from
October 1, 1997 through September 4, 1998 of Data Systems Connectors, Inc.,
included in the registration statement. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits. In our
opinion, such financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
We consent to the use of our reports included herein and to the reference
to our firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.
/s/ KPMG LLP
Mountain View, California
April 20, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
BALANCE SHEET AS OF DECEMBER 31, 1999 AND STATEMENT OF OPERATIONS FOR THE YEAR
ENDED DECEMBER 31, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 37,177
<SECURITIES> 0
<RECEIVABLES> 3,174
<ALLOWANCES> 233
<INVENTORY> 0
<CURRENT-ASSETS> 42,225
<PP&E> 14,380
<DEPRECIATION> 4,668
<TOTAL-ASSETS> 61,596
<CURRENT-LIABILITIES> 17,777
<BONDS> 0
0
30
<COMMON> 2
<OTHER-SE> 36,452
<TOTAL-LIABILITY-AND-EQUITY> 61,596
<SALES> 5,782
<TOTAL-REVENUES> 5,782
<CGS> 0
<TOTAL-COSTS> 14,052
<OTHER-EXPENSES> 36,252
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 928
<INCOME-PRETAX> (45,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (45,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (45,000)
<EPS-BASIC> (38.96)
<EPS-DILUTED> (38.96)
</TABLE>
