Niku, Corporation Form 10-K 1-31-03

Position

Joshua Pickus

President, Chief Executive Officer and Chairman of the Board

Michael Shahbazian

Chief Financial Officer

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.0001 par value

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o No þ

The aggregate market value of the common stock held by non-affiliates of the registrant as of July 31, 2002, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $16,676,505 (based on the last reported sale price of $2.50 on July 31, 2002).

The number of shares outstanding of the registrant’s common stock as of April 14, 2003 was 11,853,646.

The registrant’s definitive Proxy Statement for the Annual Meeting of Stockholders to be held on June 25, 2003 is incorporated by reference in Part III of this Form 10-K to the extent stated herein.

This annual report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. A word such as “expects,” “anticipates,” “intends,” “believes” or similar language identifies forward-looking statements. These forward-looking statements include, among other things, statements about the trends we see in our business and the markets in which we operate, the features, functionality and market acceptance of our products and our expectations for our future operating results and cash flows. Forward-looking statements involve risks and uncertainties. Our actual results may differ materially from those contemplated by the forward-looking statements. Factors that might cause or contribute to these differences include, but are not limited to, those discussed in the section entitled “Item 1: Business — Factors That May Affect Future Results” and in other document filed with the SEC under similar caption. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report. We undertake no obligation to publicly revise or update any forward-looking statements to reflect events or circumstances after the date of this report.

We provide portfolio management software for large enterprises. Our principal customers within these enterprises are information technology departments, new product development groups and consulting organizations. Our software provides management and governance of projects, programs and portfolios for these customers, enabling them to achieve control and predictability in their key initiatives. Our software is based on a web services architecture and offers a broad range of functionality including project management, resource management, portfolio management, project costing and financial planning, as well as specific project-based methodologies such as Six Sigma.

We were incorporated in January 1998. We are headquartered in Redwood City, California and conduct operations worldwide directly and through our wholly-owned subsidiaries. Unless otherwise specified, references to “Niku,” “we,” “our,” “us,” or the Company are references to Niku and its consolidated subsidiaries. We operate in one industry segment: software.

Our flagship product is Niku 6. Niku 6 manages individual projects, project and program portfolios, and related resources, linking them in a single repository with the views necessary to categorize and assess current and future projects in the context of business imperatives. Niku 6 offers functionality for project management, resource management, program management (management of project interrelationships), as well as portfolio analysis (categorization and ranking of initiatives) and process improvement (methodologies and templates for project portfolio assessment).

Niku 6 is composed of a layer of core functionality as well as specific functional modules. Core functionality includes collaboration, workflow, knowledge management, reporting, calendaring and integration with Microsoft Outlook and Lotus Notes. Beyond the core functionality, Niku 6 is divided into a series of modules which may be licensed separately or as an integrated suite. The modules contained in Niku 6 are described below.


	•	*Project Management.* Niku 6 helps organizations manage projects from origination to completion. In the project management module, Niku 6 provides complete functionality for planning, estimating, scheduling, time capture and analysis, as well as bi-directional integration with Microsoft Project.

	•	*Resource Management.* Niku 6 offers capabilities to ensure that the right people are working on the right things at the right time. Included in Niku 6’s resource management module are capacity planning and demand management, as well as functionality for resource requisition, resource allocation and resource evaluation. Using this functionality, customers can view and manage resource schedules and


		can reserve and allocate resources in real time while tracking employee backgrounds and levels of experience in different specialties.

	•	*Portfolio Management.* Niku 6 allows customers to manage groups of projects, to aggregate them into programs and to analyze project portfolios on a return on investment, benefits stream and balanced scorecard basis. Niku 6 also offers a customizable portfolio dashboard that simplifies risk management across the portfolio.

	•	*Financial Planning.* Niku 6 offers project-based financial planning capabilities. Included in the financial planning module are project budgeting, forecasting and analysis functionality, as well as full support for interdepartmental and intercompany chargebacks and allocations.

	•	*Project Costing.* Niku 6 provides project costing capabilities. The core of these capabilities is a billing and invoicing engine that accommodates multiple bill and cost rate matrices and provides flexibility in financial organizational structuring. To support the needs of global operations, the project costing module has both multilingual and multicurrency capabilities.

	•	*Niku Studio.* Niku 6 contains an authoring environment known as Niku Studio. Using Niku Studio, customers can create custom pages, modify user interfaces and develop portlets tailored to their specific needs. Niku Studio also includes editing functionality for both menus and charts.

	•	*Methodology Author.* Customers wishing to create or customize project-based methodologies may license the methodology author module in Niku 6. This module contains delivery templates including forms, training documents and worksheets, task and role planning capabilities and best practice creation and modification tools. In addition to these methodology authoring tools, Niku offers separate products containing specific pre-packaged methodologies such as Six Sigma.

In addition to Niku 6, we continue to offer and support Niku Portfolio Manager, an established project management product.

The technology underlying Niku 6 is based upon a web services architecture. This architecture supports enterprise class scalability and security, as well as integration with other systems. Key elements of Niku 6 technology include the following:

Three-Tier Architecture. Within Niku 6’s data tier, all of the tables and data are housed in a standard relational database geared for high performance and scalability. In the middle tier, an application server enables the java-based application to be deployed across multiple application servers to easily accommodate global deployments. The application can also be externalized through the corporate firewall to allow internet access to the application. The client tier is a web browser that provides the interface between the user and the application. The client tier also includes traditional Windows clients for specialized functions such as complex project scheduling that are more easily performed with client software.

Web Services Standards. Niku 6 is designed to support leading web services standards. The software we use for the server computers that deliver our applications is written in the most robust version of the Java programming language, Java Two Platform Enterprise Edition (J2EE). We also support web services protocols such as extensible markup language (XML), extensible stylesheet language (XSL) and simple object access protocol (SOAP). As a result, data such as projects, human resource profiles, and financials may be shared with both up-stream and down-stream applications such as enterprise resource planning and customer relation management systems, regardless of architecture. Our support of open standards allows customers with disparate computer systems and networks to utilize our applications without the need to upgrade computer systems, software or equipment.

Scalability. Niku 6 is designed to provide horizontal scalability. The components which make up the product can be placed on separate servers allowing customers maximum flexibility in configuring hardware infrastructure for supporting global implementations.

Security. Niku 6 offers substantial data security. Niku 6 provides multilevel security, security enabled organizational breakdown structures (OBS), secure socket layer (SSL) support and lightweight directory access protocol (LDAP) Integration.

Internationalization. All Niku 6 modules support dynamic language and locale switching. This means that a user can enter and view data in multiple languages and see it displayed by a locale’s date, time and currency format.

Multi-Platform Support. Niku 6 accommodates our customers’ various vendor relationships, information technology budgets, and legacy experience. In particular, the product has been designed to support the major platforms of Sun Solaris, Windows 2000 and HP-UX along with database support for both Oracle and Microsoft SQL Server.

Our customers include the following companies, all of whom accounted for at least $150,000 of license revenue in the year ended January 31, 2003:

No customer accounted for more than 10% of our total revenue in fiscal 2003, 2002 and 2001. See Note 15 to our consolidated financial statements for disclosure regarding our international revenue.

Research and development expenses were $11.9 million, $34.9 million and $37.0 million in fiscal 2003, 2002 and 2001, respectively. In prior years, our research and development efforts focused on a large number of products. In fiscal 2003, these efforts were concentrated on Niku 6 and to a lesser extent Niku Portfolio Manager. In April 2003, we are releasing Niku 6.1, the most recent version of our Niku 6 product.

Sales and marketing expenses were $23.1 million, $70.9 million and $68.0 million in fiscal 2003, 2002 and 2001, respectively. We conduct our sales activities principally through our direct sales force, which includes account executives and pre-sale engineers who are organized in regions in the United States and Europe. In addition, we have a telesales organization based in Redwood City, California. In certain international markets, we offer our products indirectly through channel partners.

Our professional services consultants assist in the implementation and use of our software products. Our consultants provide assistance in all aspects of the implementation process, including requirements assessment, implementation planning and design, content design and creation, data migration, systems integration, deployment and training. We offer multiple customer support options, with customer support professionals on call daily from 8 a.m. to 5 p.m. local time, Monday through Friday in the United States and in Europe. We also offer a technical account manager who can oversees all support issues and drive resolution for the customer.

The market for our products and services is competitive, dynamic and subject to frequent technological changes. We expect the intensity of competition and the pace of change to increase in the future. Our products compete with products of varying functionality offered by competing software vendors and products that have been developed by potential customers’ in-house development and IT organizations. Competing software vendors include:


	•	providers of project management, portfolio management and portfolio analysis software;

	•	enterprise software providers such as JD Edwards, Lawson, Microsoft, Oracle, Peoplesoft, SAP and Siebel Systems; and

	•	providers of professional services automation software.

We do not believe that any one company has a dominant position in our particular market. However, we may not be able to maintain our competitive position against current or potential competitors, especially those with significantly greater financial, marketing, service, support, technical and other resources. Competitors with greater resources may be able to undertake more extensive marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to potential employees, distributors, resellers or other strategic partners. We expect additional competition from other established and emerging companies as our market continues to develop. We may not be able to compete successfully against current and future competitors.

We regard substantial elements of our products as proprietary, and protect them by relying primarily on copyright, trade secret, patent, trademark and service mark laws and restrictions, as well as confidentiality procedures and contractual provisions.

We license rather than sell all our software products and require our customers to enter into license agreements that impose restrictions on their ability to utilize the software or transfer the software to other users. Additionally, we seek to avoid disclosure of our trade secrets through a number of means, including, but not limited to, requiring those persons with access to our proprietary information to execute confidentiality agreements with us and restricting access to our source code.

We rely to a large degree on copyright laws with respect to our software, but we have not made any copyright registration with any government entity with respect to our products. Although registration is not required to obtain protection under copyright laws, our failure to register may limit our ability to seek certain remedies available under such laws. We are currently pursuing one patent application but no patent has issued. We received U.S. registration of the trademarks Niku, the Niku logo, and Do What Matters. These registrations may not provide us with significant protection for our trademarks.

The copyright and trade secret laws, which are the principal source of protection for our intellectual property, offer only limited protection. In addition, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights in software are uncertain and still evolving, and the future viability or value of any of our intellectual property rights is uncertain. Effective trademark, copyright and trade secret protection may not be available in every country in which our products are distributed or made available.

As of January 31, 2003, we had a total of 203 employees, including 68 employees in sales and marketing, 61 employees in services and support, 46 employees in research and development and 28 employees in general and administrative functions. Of these, 147 employees were located in the United States and 56 employees were located outside the United States. None of our employees is represented by a collective bargaining agreement, nor have we experienced any work stoppage. We consider our relations with our employees to be good.

We are subject to the informational requirements of the Securities Exchange Act of 1934. We therefore file periodic reports, proxy statements and other information with the Securities and Exchange Commission. Such reports may be obtained by visiting the Public Reference Room of the SEC at 450 Fifth Street, NW, Washington, D.C. 20549, or by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically.

Our internet address is www.niku.com. We make available, free of charge, through our internet website copies of our annual report on Form 10-K and quarterly reports on Form 10-Q and amendments to those reports, if any, filed or furnished pursuant to Section 13 (a) or 15 (d) of the Exchange Act, as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC.

The occurrence of any of the following risks could materially and adversely affect our business, financial condition and operating results. In the case of such an adverse effect, the trading price of our common stock, which has been extremely volatile, could decline and you might lose all or part of your investment.

Due to our limited operating history, it is difficult to predict our future operating results.

We were incorporated in January 1998 and began licensing our software in December 1998. We cannot forecast operating results based on our historical results because our operating history is limited and our business is changing rapidly. For example, in fiscal 2002, we introduced a major new release of our software and implemented a restructuring program, and in fiscal 2003 we continued our restructuring program. We have limited visibility into our future revenue, especially license revenue, which is heavily concentrated in the third month of each quarter. Since we forecast our expenses based in part on future revenue projections, our operating results would be adversely affected if we cannot meet those revenue projections.

We incurred losses throughout our operating history until recently, and we may incur losses in the future.

We reported net income under Generally Accepted Accounting Principles (GAAP) of $5.7 million in the quarter ended January 31, 2003. Without a gain of $5.0 million for proceeds from a legal settlement, the GAAP net income would have been $659,000. Prior to these results, we experienced GAAP losses for almost every quarter of our history, and we have yet to record a net income for any annual period. On a GAAP basis, we had net loss of $37.8 million in the year ended January 31, 2003. We had an accumulated deficit of $499.7 million as of January 31, 2003. Although our financial results have improved recently, no assurance can be given that these improvements will continue, and we may incur losses in the future.

Our quarterly financial results are subject to significant fluctuations, and if our future results are below the expectations of investors, the price of our common stock would likely decline.

Our operating results have in the past and could in the future vary significantly from quarter to quarter. Our quarterly operating results are likely to be particularly affected by the number of customers licensing our products during any quarter and the size of such licensing transactions. Other factors that could affect our quarterly operating results include:


	•	our ability to attract new customers and retain and sell additional products and services to current customers;

	•	changes in the pricing of our products and services or those of our competitors;

	•	the renewal or non-renewal of annual maintenance contracts to our customers;

	•	the demand for professional services to implement our products and our efficiency in rendering such services;


	•	the announcement or introduction of new products or services by us or our competitors;

	•	variability in the mix of our product and services revenue in any quarter; and

	•	the amount and timing of operating expenses and capital expenditures relating to the business.

Due to these and other factors, we believe that period-to-period comparisons of our results of operations are not meaningful and should not be relied upon as indicators of our future performance. If we are unable to meet the expectations of investors in the future, the price of our common stock would likely decline.

The decline in spending on information technology has impacted demand for our products and services and may adversely affect future revenue.

Our total revenue was $48.4 million in fiscal 2003, compared to $67.5 million in fiscal 2002. Our license revenue was $18.7 million in fiscal 2003, compared to $32.0 million in fiscal 2002. While we cannot specifically correlate the impact of macro-economic conditions on our sales activities, we believe that the economic conditions and international conflicts have contributed to a decrease in demand in our market, and in particular, have increased the average length of our sales cycles and decreased the size of our license transactions. To the extent that the current economic climate worsens or that the global economy fails to improve or information technology spending in our market does not increase due international conflicts or otherwise, the demand for our products and services, and therefore future revenue, may be further reduced. We may not be able to respond to future revenue reductions in a sufficiently timely manner to avoid increases in future losses. Even if the current decline abates, corporations may not increase their information technology spending or we may be unable to maintain or improve revenue levels.

Our products have a long sales cycle, which makes it difficult to predict our quarterly operating results and may cause these results to vary significantly.

The sales cycle for our products is long, typically from six to nine months, making it difficult to predict the quarter in which we may recognize revenue from a sale, if at all. Our lengthy sales cycle may cause license revenue and other operating results to vary significantly from period to period. Our products often are part of significant strategic decisions by our customers regarding their information systems. Accordingly, the decision to license our products typically requires significant pre-purchase evaluation. We spend substantial time providing information to prospective customers regarding the use and benefits of our products. During this evaluation period, we may expend significant funds in sales and marketing efforts. If anticipated sales from a specific customer for a particular quarter are not realized in that quarter, our operating results may be adversely affected.

We expect to experience seasonality in our sales, which could cause our quarterly operating results to fluctuate.

We expect to experience seasonality in the licensing of our products and sales of our services. For example, revenue is typically lower in our first fiscal quarter due to patterns in the capital budgeting and purchasing cycles of our current and prospective customers, as well as our sales commission structure. We also expect that revenue may decline during summer months, particularly in European markets. These seasonal variations in our revenue are likely to lead to fluctuations in our quarterly operating results.

Defects in our products could result in loss of or delay in revenue, failure to achieve market acceptance and increased costs.

Products as complex as those we offer or are developing frequently contain undetected defects or errors. Despite internal testing and testing by our customers or potential customers, defects or errors may occur in our existing or future products and services. From time to time in the past, versions of our software that have been delivered to customers have contained errors. In the future, if we are not able to detect and correct errors prior to release, we may experience a loss of or delay in revenue, failure to achieve market acceptance and increased costs to correct errors, any of which could significantly harm our business.

Defects or errors could also result in tort or warranty claims. Warranty disclaimers and liability limitation clauses in our customer agreements may not be enforceable. Furthermore, our errors and omissions insurance may not adequately cover us for claims. If a court were to refuse to enforce the liability-limiting provisions of our contracts for any reason, or if liabilities arose that were not contractually limited or adequately covered by insurance, our business could be harmed.

Implementation of our products may be difficult, costly and time-consuming, and customers could become dissatisfied if the implementation requires more time, expense or personnel than expected.

Implementation of our products may be difficult, costly and time-consuming. Customers could become dissatisfied with our products if implementation requires more time, expense or personnel than they expected. Additionally, our losses could increase if, for customer satisfaction and reputation reasons, we do not bill our customers for time and expenses we incur in connection with these implementation issues, which would adversely affect our operating results. As part of the implementation, our products must integrate with many of our customers’ existing computer systems and software programs. Integrating with a number of computer systems and software programs can be time consuming and expensive and could lead to customer dissatisfaction and increased expenses.

Market acceptance of our products and services may suffer if we are unable to enhance our products to meet the rapid technological changes in our industry.

Rapidly changing technology and standards may impede market acceptance of our products and services. Our new products have been designed based upon currently prevailing technologies such as extensible markup language (XML), extensible stylesheet language (XSL), Java Two Platform Enterprise Edition (J2EE) and Simple Object Access Protocol (SOAP). If new technologies emerge that are incompatible with our products, our products could become obsolete and our existing and potential customers might seek alternatives. We may not be able to adapt quickly to a new technology.

Additionally, we design our products to work with databases such as Oracle Database Server and SQL Server and server operating systems such as Sun Solaris, Windows 2000 and HP UX. Any changes to those databases or server operating systems, or increasing popularity of other databases or systems, might require us to modify our products or services and could cause us to delay releasing future products and enhancements. As a result, uncertainties related to the timing and nature of new product announcements or introductions or modifications by vendors of databases, operating systems, web servers and other enterprise and Internet-based applications could delay our product development, increase our research and development expenses and cause customers to delay evaluation, purchase and deployment of our products.

International activities expose us to additional operational challenges that we might not otherwise face.

In fiscal 2003, international revenue represented 36.5% of total revenue, compared to 47.5% of total revenue in fiscal 2002. International license revenue represented 26.6% of total license revenue in fiscal 2003, compared to 47.6% in fiscal 2002. Even with these reductions in the percentage of international revenue and international license revenue, international activities remain a significant part of our business.

As we operate internationally, we are exposed to operational challenges that we would not face if we conducted our operations only in the United States. These include:


	•	currency exchange rate fluctuations, particularly if we sell our products in denominations other than U.S. dollars;

	•	seasonal fluctuations in purchasing patterns in other countries, particularly declining sales during summer months in European markets;

	•	tariffs, export controls and other trade barriers;

	•	difficulties in collecting accounts receivable in foreign countries;

	•	the burdens of complying with a wide variety of foreign laws;


	•	reduced protection for intellectual property rights in some countries; and

	•	the need to develop internationalized versions of our products and marketing and sales materials.

There is competition in our market, which could make it difficult to attract customers, cause us to reduce prices and result in reduced gross margins or loss of market share.

The market for our products and services is competitive, dynamic and subject to frequent technological changes. We expect the intensity of competition and the pace of change to increase in the future. Our products compete with products of varying functionality offered by competing software vendors and products that have been developed by potential customers’ in-house developments and IT organizations. Competing software vendors include:


	•	providers of project management, portfolio management and portfolio analysis software; and

	•	enterprise software providers such as JD Edwards, Lawson, Microsoft, Oracle, Peoplesoft, SAP and Siebel Systems; and

	•	providers of professional services automation software.

A number of companies offer products that provide some of the functionality of our products. We may not be able to maintain our competitive position against current or potential competitors, especially those with significantly greater financial, marketing, service, support, technical and other resources. Competitors with greater resources may be able to undertake more extensive marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to potential employees, distributors, resellers or other strategic partners. We expect additional competition from other established and emerging companies as the market for our software continues to develop. We may not be able to compete successfully against current and future competitors.

We depend on implementation, marketing and technology relationships; if our current and future relationships are not successful, our business might be harmed.

We rely on implementation, marketing and technology relationships with a variety of companies. These implementation, marketing and technology relationships include relationships with:


	•	consulting firms;

	•	third-party hardware vendors, such as Sun, HP and IBM; and

	•	third-party software vendors, such as Actuate, HP, IBM, Ironflare, Microsoft, Oracle, Pumatech, Sun and Verity, whose products or technologies, such as reporting engines, operating systems, databases, application servers, search engines and other functionalities, we incorporate into or integrate with our products.

We depend on these companies to implement our products for customers and provide enhanced functionality to our products. Some of these relationships are not documented in writing, or are governed by agreements that can be terminated by either party with little or no penalty or prior notice. Companies with which we have an implementation, marketing or technology relationships may promote products or services of several different companies, including, in many cases, products or services that compete with our products and services. These companies may not devote adequate resources to selling or promoting our products and services. We may not be able to maintain these relationships or enter into additional relationships in the future.

In November 2002, Joshua Pickus, our chief financial officer, succeeded Farzad Dibachi as our president and chief executive officer. In January 2003, we hired Michael Shahbazian as our new chief financial officer. In November 2002, our executive vice president of strategy and planning, who was the wife of our former chief executive officer, also resigned. Our success will depend to a significant extent on the ability of these

executives to function effectively in their new roles and on our ability to retain the services of Mr. Pickus, Mr. Shahbazian and other key employees. We do not have employment contracts for a defined term with our employees. If we lose the services of one or more of our executives or key employees, including if one or more of our executives or key employees decided to join a competitor or otherwise compete directly or indirectly with us, this could harm our business.

As of January 31, 2003, we had cash and cash equivalents of $16.7 million, including bank borrowings under a term loan of $4.75 million as of January 31, 2003, of which $250,000 plus interest was repaid in March 2003. In addition, in the first quarter of fiscal 2004, we completed a private placement with net proceeds to us of approximately $10.3 million. We believe that cash from operations and existing cash will be sufficient to meet our current expectations for working capital and expense requirements for at least the next twelve months based on, among other things, our current revenue and expense projections. However, we may require additional financing. If we were unable to raise capital in the event of ongoing losses and depletion of our available cash resources, the absence of funding would have a material adverse effect on our business. If we issue additional equity securities, stockholders will experience additional dilution and the new equity securities may have rights, preferences or privileges senior to those of the then existing holders of our common stock.

We may continue to incur stock-based compensation expense or gain in future periods.

We may continue to incur stock-based compensation expense in future periods, which represents non-cash charges incurred as a result of the repricing of our stock options and the issuance of stock and stock options below fair market value. On November 12, 2001, our board of directors, acting pursuant to existing terms of our stock option plans, approved the repricing of approximately 890,000 outstanding stock options with exercise prices above $7.50. The exercise prices of all such stock options were repriced to $7.50, which was the fair market value of our stock on November 12, 2001. There were no changes to the vesting schedules of the repriced options. Options held by our former chief executive officer, former executive vice president of strategy and planning, board of directors and non-employees were not repriced. We are accounting for the repriced options using variable accounting whereby the aggregate intrinsic value of the repriced options is continuously remeasured and amortized to stock-based compensation expense over the vesting periods. Based on the stock price as of January 31, 2003, we recorded $4.8 million in recovery of stock-based compensation recognized in fiscal 2002 relating to these repriced stock options, offset by $1.2 million in other stock-based compensation in fiscal 2003. As of January 31, 2003, deferred stock-based compensation relating to these repriced options was zero, reflecting the intrinsic value of unexercised repriced options as of January 31, 2003. To the extent that our stock price increases above $7.50 in future periods, we will need to record additional stock-based compensation expense.

In October 2002, we cancelled options to purchase 55,000 shares of common stock held by our chief executive officer and immediately granted him options to purchase 150,000 shares of common stock at a price of $1.50, which was the closing price of our common stock on the grant date. As a result, based on the closing price of our common stock of $4.19 on January 31, 2003, we recorded $96,000 in stock-based compensation in fiscal 2003. To the extent that our stock price increases above $4.19 in future periods, we will need to record additional stock-based compensation expense.

On April 15, 2003, we announced a voluntary stock option exchange program for our employees. Under the program, our employees will be given the opportunity to exchange outstanding stock options previously granted to them with an exercise price greater than or equal to $7.50 per share for a new option exercisable for 1.15 shares for each share subject to the tendered options, to be granted at a future date, at least six months and a day from the cancellation date. The exercise price of these new stock options will be equal to the fair market value of our common stock on the date of grant. On the grant date, the new stock options will be vested as to the number of stock options that would have been vested on such date had the old stock options not been tendered plus the number of shares that would have been vested had the old option been exercisable for 15% more shares. Our chief executive officer, chief financial officer and members of the board of directors are not eligible to participate in the program. The exchange program is not expected to result in any additional

compensation charges or variable plan accounting. To the extent that our employees exchange outstanding stock options that were repriced on November 12, 2001, our stock-based compensation related to such repriced options will be reduced or eliminated, but no assurance can be given that employees will participate in the option exchange program.

We regard substantial elements of our products as proprietary and protect them by relying on copyright, trade secrets, patent, trademark and service mark laws and restrictions, as well as confidentiality procedures and contractual provisions. Any steps we take to protect our intellectual property may be inadequate, time-consuming and expensive. We may be unable to prevent third parties from infringing upon or misappropriating our intellectual property, which could harm our business.

On August 12, 2002, we filed a suit against Business Engine Corporation (“Business Engine”), a San Francisco-based software developer, in the United States District Court in San Francisco for alleged theft of trade secrets, computer fraud and other activities directed at the Company. On August 15, 2002, the Court entered a temporary restraining order against Business Engine, which among other things, prevented Business Engine from continuing to access or attempting to access our internal computer system, using or disclosing any information or documents gained from such access, or destroying, altering, deleting or tampering with any such documents or information derived from such access. On November 27, 2002, we entered into a settlement agreement with Business Engine. The agreement provided for a payment to us of $5.0 million from Business Engine which we received in December 2002. This agreement also provided for a permanent injunction against Business Engine prohibiting it from continuing to access or attempting to access our internal computer system and from using or disclosing any information or documents gained from any unauthorized access, a one year inspection procedure whereby a jointly appointed neutral expert will ensure protection of our intellectual property, and mutual releases.

Third parties might bring infringement claims against us or our customers that could harm our business.

In recent years, there has been significant litigation in the United States involving patents and other intellectual property rights, particularly in the software industry. We could become subject to intellectual property infringement claims as the number of our competitors grows and our products and services increasingly overlap with competitive offerings. In addition, as part of our product licenses, we agree to indemnify our customers against claims that our products infringe upon the intellectual property rights of

others. These claims, even if not meritorious, could be expensive and divert management’s attention from operating our business. We could incur substantial costs in defending ourselves and our customers against infringement claims. If we become liable to third parties for infringement of their intellectual property rights, we could be required to pay a substantial damage award and to develop non-infringing technology, obtain one or more licenses for us and our customers from third parties or cease selling the products that contain the infringing intellectual property. We may be unable to develop non-infringing technology or obtain a license at a reasonable cost, or at all.

We must continue to meet the listing requirements for the Nasdaq SmallCap Market to remain listed.

We must meet the continued listing criteria for the Nasdaq SmallCap Market to maintain our listing. Those criteria include (1) a $35 million market value of listed securities or stockholders’ equity of $2.5 million or $500,000 in net income from continuing operations, (2) a $1.00 bid price, (3) 500,000 public held shares, (4) a $1 million market value of public held shares, (5) two market makers, and (6) 300 round lot shareholders. Failure to maintain compliance with any of these standards could, after applicable grace periods, result in the delisting of our common stock, which would significantly limit the liquidity and trading market of our stock and could adversely affect its price.

The market price for our common stock is volatile and could result in a decline in the value of your investment.

The market price of our common stock is extremely volatile. The value of your investment in our common stock could decline due to the impact of any of the following factors upon the market price of our common stock:


	•	variation in our quarterly operating results, including our inability to increase revenues;

	•	changes in our cash flows;

	•	announcements of new product or service offerings by us or our competitors;

	•	announcement of new customer relationships by us or our competitors;

	•	delisting from the Nasdaq SmallCap Market;

	•	changes in market valuations of comparable companies;

	•	developments in litigation in which we are involved;

	•	additions to, or departures of, our executive officers; and

	•	conditions and trends in the software and information technology industries.

Further, the stock markets, particularly the Nasdaq SmallCap Market on which our common stock is listed, have experienced substantial price and volume fluctuations. These fluctuations have particularly affected the market prices of equity securities of many technology companies and have often been unrelated or disproportionate to the operating performance of these companies.

Provisions of Delaware law, our certificate of incorporation and bylaws could delay or prevent a takeover of us, even if doing so would benefit our stockholders.

Provisions of Delaware law, our certificate of incorporation and bylaws could have the effect of delaying or preventing a third party from acquiring us, even if a change in control would be beneficial to our stockholders. These provisions include:


	•	authorizing the issuance of preferred stock without stockholder approval;

	•	providing for a classified board of directors with staggered, three-year terms;

	•	prohibiting cumulative voting in the election of directors;


	•	requiring two-thirds of the outstanding shares to approve amendments to some provisions of our certificate of incorporation and bylaws;

	•	requiring a majority of the stockholders to call stockholders meetings; and

	•	prohibiting stockholder actions by written consent.

In addition, Farzad and Rhonda Dibachi, our former chief executive officer and executive vice president of strategy and planning, and Limar Realty Corp. #30, the landlord for a significant facility in Redwood City, California, whose lease we terminated in fiscal 2003, have entered into voting agreements in which they have agreed to vote as recommended by the board or in the same proportion as other votes cast on a given matter. These provisions could delay or prevent an attempt to replace or remove our management and may make it more difficult for another party to take over our company without the approval of our board.

The issuance of preferred stock could adversely affect the rights of holders of our common stock.

We are authorized, subject to limitations imposed by Delaware law, to issue preferred stock in one or more series, to establish from time to time the number of shares to be included in each series, and to fix the rights, preferences and privileges of the shares of each wholly unissued series and any of its qualifications, limitations or restrictions. Our board of directors can also increase or decrease the number of shares of any series, but not below the number of shares of such series then outstanding, without any further vote or action by the stockholders. Our board may authorize the issuance of preferred stock with voting, conversion or liquidation rights that could adversely affect the rights of the holders of our common stock and could also adversely affect the market price of our common stock.

Our principal executive office occupies approximately 37,247 square feet in Redwood City, California under a lease that expires in June 2005. We also occupy other leased facilities in the United States and Europe under leases that expire at various times through April 2009.

As part of our restructuring program in fiscal 2002 and 2003, we vacated various facilities and ceased to pay rent on these facilities. As a result of negotiations with the landlords, we terminated the leases for most of these facilities. We are currently seeking to sublease the remaining facilities or terminate the leases for these facilities. We may be unable to sublease these remaining facilities or terminate these leases on acceptable terms.

We believe that our current facilities will be adequate to meet our needs for the foreseeable future.

In August 2001, Goldman, Sachs and Co., Dain Rauscher Wessels, U.S. Bancorp Piper Jaffray and Thomas Weisel Partners, the managing underwriters of our initial public offering (the “IPO”), Niku, and certain of our officers and directors, were named as defendants in a number of purported securities class actions in United States District Court for the Southern District of New York arising out of our initial public offering in February 2000. The complaints in these actions allege, among other things, that the registration statement and prospectus filed with the Securities and Exchange Commission for purposes of the IPO were false and misleading because they failed to disclose that Goldman, Sachs and Co., Dain Rauscher Wessels, U.S. Bancorp Piper Jaffray and Thomas Weisel Partners, the managing underwriters, allegedly (i) solicited and received commissions from certain investors in exchange for allocating to them shares of Company stock in connection with the IPO and (ii) entered into agreements with their customers to allocate such stock to those customers in exchange for the customers agreeing to purchase additional shares of ours in the aftermarket at pre-determined prices. On August 8, 2001 the Court ordered that these actions, along with hundreds of IPO allocation cases against other issuers and underwriters, be transferred to one judge for coordinated pre-trial proceedings. In July 2002, omnibus motions to dismiss the complaints based on common legal issues were filed on behalf of all issuers and underwriters. By order dated October 8, 2002, the Court dismissed our officers and directors from the case without prejudice. In an opinion issued on February 19,

2003, the Court granted in part and denied in part the motions to dismiss. The complaints against us were not dismissed as a matter of law. These cases remain at a preliminary stage and no discovery proceedings have taken place in relation to the issuers. We believe that the claims asserted against us in these cases are without merit and we intend to defend vigorously against them. These cases seek compensatory damages in unspecified amounts as well as other relief.

A Special Meeting of ours was held on April 10, 2003, during which the following two proposals were voted upon as follows:

Proposal 1: The issuance and sale of 1,538,495 shares of common stock and warrants to purchase 192,314 shares of common stock, including the issuance of 1,117,302 shares of common stock and warrants to purchase 139,664 shares of common stock to Walden VC.

Proposal 2: The issuance and sale of 29,412 shares of common stock and warrants to purchase 3,677 shares of common stock to Mr. Ravi Chiruvolu, a member of our board of directors.

On November 21, 2002, we effected a one-for-ten reverse stock split of our outstanding common stock.

On December 3, 2002, we transferred the listing of our common stock from the Nasdaq National Market to the Nasdaq SmallCap Market, where it is traded under the symbol “NIKU”. The table below represents the high and low closing sales prices for our common stock as reported by the Nasdaq National Market or Nasdaq SmallCap Market for each quarter in fiscal 2003 and 2002. The price per share has been adjusted to give effect to our reverse stock split.

Our present policy is to retain earnings, if any, to finance future growth. We have never declared or paid any cash dividends on our capital stock and have no present intention of paying any cash dividends in the foreseeable future.

In February 2002, we issued 40,000 shares of our common stock to founders of ABT Corporation, a company we acquired in August 2000. These shares were valued at $21.80 per share based on our stock price on the date of their issuance. These shares were issued in a private placement exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) of the Act. On April 9, we filed a Registration Statement on Form S-3 (No 333-85918) to register these shares. The Securities and Exchange Commission declared the Registration Statement, as amended, effective on June 4, 2002.

In May 2002, we issued 4,841 shares of our common stock to former employees of Proamics Corporation, a company we acquired in December 1998. These shares were valued at $7.70 per share based on our stock price on the date of their issuance. These shares were issued in a private placement exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) of the Act. On June 11, we filed a Registration Statement on Form S-3 (No 333-90224) to register these shares. The Securities and Exchange Commission declared the Registration Statement effective on June 28, 2002.

In July 2002, we issued a warrant to purchase 15,000 shares of our common stock with an exercise price of $0.10 in connection with the termination of a facility lease in Danville, California. The warrant was issued in a private placement exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) of the Act.

In October 2002, we issued a warrant to purchase 1,445,000 shares of our common stock with an exercise price of $0.001 in connection with the termination of a facility lease in Redwood City, California. The warrant was issued in a private placement exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) of the Act. The warrant was exercised on November 27, 2002.

In February 2003, we issued 1,549,735 shares of our common stock at a price of $3.35 per share and issued warrants to purchase 193,720 shares of our common stock at a price of $0.40 per warrant share in connection with the initial closing of a private placement. The aggregate offering price for the securities issued in the initial closing was $5.3 million, resulting in net proceeds of approximately $5.2 million. The warrants have an exercise price of $3.40. These shares and warrants were issued in a private placement exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) and Regulation D of the Act. In April 2003, we issued 1,538,495 shares of common stock at a price of $3.35 per share and warrants to purchase 192,314 shares of common stock at a price of $0.40 per warrant share in connection with the subsequent closing of the private placement. The aggregate offering price for the securities issued in the subsequent closing was $5.2 million, resulting in net proceeds of approximately $5.1 million. These warrants have an exercise price of $3.40. These shares and warrants were issued in a private placement exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) and Regulation D of the Act. Total net proceeds from the private placement were approximately $10.3 million.

At March 31, 2003, we had approximately 800 holders of record of our common stock. This does not include the number of persons whose stock is in nominee or “street name” accounts through brokers.

The following selected consolidated financial data should be read in conjunction with our consolidated financial statements and related notes to our consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this annual report on Form 10-K. The consolidated statement of operations data for each of the three years ended January 31, 2003, 2002 and 2001 and the consolidated balance sheet data as of January 31, 2003 and 2002 are derived from our audited financial statements included in this 10-K. The consolidated statement of operations data for the year ended January 31, 2000 and 1999 and the balance sheet data as of January 31, 2001, 2000 and 1999 are derived from our audited financial statements previously filed with the SEC. Prior to fiscal 2003, we had a fiscal year that ended on the Saturday preceding January 31. In fiscal 2003, we changed our fiscal calendar to a

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto and the pro forma financial data included elsewhere in this prospectus.

Accounting policies, methods and estimates are an integral part of the consolidated financial statements prepared by management and are based upon management’s current judgments. Those judgments are normally based on knowledge and experience with regard to past and current events and assumptions about future events. Certain accounting policies, methods and estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ markedly from management’s current judgments. While there are a number of accounting policies, methods and estimates affecting our financial statements, areas that are particularly significant include revenue recognition, allowance for doubtful accounts, impairment of long-lived assets and restructuring reserves for vacated leased facilities.

We derive our revenue principally from licenses of our products, maintenance and support, and delivery of implementation services. We offer our products primarily through our direct sales force. In certain international markets, we also offer our products indirectly through channel partners.

Revenue from license fees is recognized in accordance with Statement of Position 97-2, Software Revenue Recognition (SOP 97-2), as amended by SOP 98-9, which permits revenue recognition when (1) persuasive evidence of an arrangement exists, (2) delivery of the product has occurred and no significant obligations of ours with regard to implementation remain, (3) the fee is fixed or determinable, and (4) collectibility is probable. If there are sales to channel partners, they are recognized upon sell-through to the end-user customer. We define each of the four criteria above as follows:

Persuasive evidence of an arrangement exists. Our customary practice is to have a written contract, which is signed by both the customer and us, or a purchase order from those customers who have previously negotiated a license agreement with us.

Delivery has occurred. Our software may be either physically or electronically delivered to the customer. Delivery is deemed to have occurred upon meeting one of the following criteria as set forth in the revenue contract: (1) the shipment or electronic delivery of the product, (2) notification of receipt of the product by the customer or (3) notification by the customer of acceptance. If undelivered products or services exist in an arrangement that are essential to the functionality of the delivered product, revenue is recognized when these products or services are delivered.

The fee is fixed or determinable. We negotiate the fees for our products at the outset of an arrangement. In these arrangements, the majority of the licenses are perpetual and related fees are nonrefundable. The fees are generally due within six months or less. We consider fees relating to arrangements with payment terms extending beyond six months not to be fixed or determinable. If the fee is not fixed or determinable, revenue is recognized as payments become due from the customer.

Collectibility is probable. Collectibility is evaluated on a customer-by-customer basis. A customer’s purchase order or waiver of purchase order is generally required with each arrangement. Where appropriate, new customers are subject to a credit review process, which evaluates the customers’ financial position (e.g. cash position and credit rating) and their ability to pay, and existing customers are subject to a review of payment histories. If collectibility is not considered probable at the outset of an arrangement in accordance with our credit review process, revenue is recognized when the fee is collected.

Revenue from multiple-element software arrangements is recognized using the residual value method. The determination of the fair value of maintenance and support and implementation services is based on the objective evidence of the fair value of each element that is specific to us. Our determination of fair value of each element in multiple-element arrangements is based on vendor-specific objective evidence (VSOE). The VSOE for each element is established when the same element is sold separately. We have analyzed and determined that we have sufficient VSOE to allocate revenue to the maintenance and support services and implementation services components of our perpetual license arrangements. VSOE for maintenance and

Assuming all other revenue recognition criteria are met, revenue from licenses is recognized upon delivery using the residual method in accordance with SOP 98-9. Our software products are fully functional upon delivery and implementation and do not require significant modifications. The customer may implement using their own resources or obtain the services of other implementation service organizations to provide these services. Therefore, our implementation services are not considered essential to the functionality of the other elements of the arrangement. The revenue allocable to the implementation services is generally recognized as services are performed. Maintenance and support revenue is deferred and recognized on a straight-line basis over the contractual service period, which is typically one year.

We have never engaged in a transaction in which we provided product licenses or services to a customer in exchange for an equity interest. We recognized no revenue under any type of reciprocal arrangements in fiscal 2003 or in fiscal 2002. Revenue recognized under reciprocal arrangements was $16.4 million in the year ended January 31, 2001, of which approximately $630,000 involved nonmonetary exchanges.

Deferred revenue includes amounts billed to customers for which revenue has not been recognized. Deferred revenue generally results from the following: (1) maintenance and support, (2) implementation services not yet rendered for which we have been paid, (3) amounts billed to customers with extended payment terms, which amounts are not yet due, and (4) transactions in which one of the four revenue recognition criteria has not been met.

Accounts receivable are recorded net of allowances for doubtful accounts and totaled $7.2 million and $12.8 million as of January 31, 2003 and 2002, respectively. The allowances for doubtful accounts were $1.0 million and $3.0 million as of January 31, 2003 and 2002, respectively. We regularly review the adequacy of our allowance for doubtful accounts after considering the amount of the aged accounts receivable, the age of each invoice, each customer’s expected ability to pay and our collection history with each customer. We review any invoice greater than 30 days past due to determine if an allowance is appropriate based on the risk category using the factors discussed above. In addition, we maintain a reserve for all invoices by applying a percentage to aging categories based on historical loss experience. The allowance for doubtful accounts represents our best estimate, but changes in circumstances such as our customers’ financial positions may result in a requirement for additional allowances in the future.

We evaluate our long-lived assets, including goodwill and identifiable intangibles, for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Factors we consider important that could trigger an impairment review include, but are not limited to, a significant decline in our stock price for a sustained period, our market capitalization relative to net book value, significant underperformance relative to historical or projected future operating results, significant changes in the manner of use of the acquired assets or the strategy for our overall business, and significant negative industry or economic trends. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If these assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. The estimate of fair value of an asset considers prices for similar assets and the results of valuation techniques to the extent available under the circumstances. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

There were no asset impairment and other charges in fiscal 2003 except for an impairment charge of a strategic equity investment made in April 2000. We have regularly performed an impairment assessment of this $500,000 investment. In performing an impairment assessment, we consider the private company’s current solvency, future access to capital and recent equity transactions. Based on an analysis of these factors in fiscal

Asset impairment and other charges in fiscal 2002 were as follows: In the first quarter of fiscal 2002, we performed an impairment assessment of our goodwill and other intangible assets recorded in connection with our acquisitions of Legal Anywhere, bSource.com, 600 Monkeys and Alyanza Software due to a change in our product plan related to certain acquired technologies. This assessment was based on the expected future cash flows from goodwill and intangible assets over their remaining useful lives. As a result of this assessment, we recorded $24.5 million in asset impairment charges. This amount included $21.7 million to write down the net book value of certain goodwill and other intangible assets from our acquisitions of Legal Anywhere, bSource, 600 Monkeys and Alyanza to zero except for the carrying value of Legal Anywhere’s goodwill and customer lists, which was reduced to their estimated fair value of $1.8 million. In the second quarter of fiscal 2002, we performed an additional impairment assessment of goodwill and other intangible assets recorded in connection with our acquisitions of ABT, Proamics and Legal Anywhere. This assessment was performed primarily due to a significant decline in our stock price, which resulted in the net book value of our assets significantly exceeding our market capitalization. As a result of this assessment, we recorded $114.4 million in asset impairment charges in the second quarter of fiscal 2002 which reduced the fair value of goodwill and other intangible assets related to our acquisitions of ABT, Proamics and Legal Anywhere to zero. The estimate of the fair value was based on the estimated future discounted cash flows for the remaining life of the goodwill and other intangible assets with a discount rate of 25% and an estimated terminal value. The assumptions supporting the estimated cash flows, including the discount rate and an estimated terminal value, reflected management’s best estimates. The discount rate was based upon the weighted average cost of capital for comparable companies. In fiscal 2002, we recorded $138.9 million in asset impairment charges, consisting of $136.1 million relating to goodwill and other intangible assets, $1.9 million in accelerated depreciation for internally used software and $874,000 to write off fixed assets that we no longer utilized.

We have recorded restructuring charges in connection with vacating certain leased facilities pursuant to our restructuring program. Costs associated with vacated leased facilities include remaining lease liabilities and brokerage fees, offset by estimated sublease income. Estimated sublease income is determined by taking into consideration the type and condition of the subject property, information regarding the local commercial real estate market and expectations about time to obtain a sublessee provided by local commercial real estate brokerages. We regularly review these estimates and to the extent that these estimates change due to changes in market conditions, the ultimate restructuring expenses for vacated leases could vary by material amounts. For example, we recorded $2.4 million in net lease commitment costs on vacated leases in fiscal 2003 related to restructuring activities in fiscal 2002 primarily due to adjustments to estimated future sublease income for certain facilities vacated in fiscal 2002.

Future lease payments, net of estimated sublease income, relating to facilities that we vacated or terminated (but had not yet paid as of January 31, 2003) pursuant to our restructuring program, amounted to $3.5 million, $609,000, $1.0 million, $928,000 and $1.3 million for the twelve months ending January 31, 2004, 2005, 2006, 2007 and 2008, respectively, and $2.4 million thereafter. The $3.5 million in payments mentioned above for the twelve months ended January 31, 2004 for leases we have either vacated or terminated (but had not yet paid as of January 31, 2003) included the final $2.0 million cash payment related to the termination of a major lease in Redwood City, California. This $2.0 million was paid in February 2003.

of the remaining 1,538,495 shares of our common stock and warrants to purchase 192,314 shares of common stock in connection with the subsequent closing of this private placement and we issued such common stock and warrants. Total estimated net proceeds from the private placement approximated $10.3 million. Total shares and warrants outstanding following the private placement were approximately 11,853,646 (including options exercised subsequent to January 31, 2003) and 405,617, respectively.


	•	On an actual basis; and

	•	On a pro forma basis to reflect the issuance of 3,088,230 shares of our common stock in connection with the private placement discussed above resulting in total net proceeds of approximately $10.3 million.


	•	1,496,642 shares of our common stock subject to options outstanding as of January 31, 2003 at a weighted average exercise price of $9.74 per share.

	•	Warrants to purchase 19,583 shares of common stock as of January 31, 2003 at a weighted average exercise price of $27.18 per share.

	•	Warrants to purchase 386,034 shares of common stock as noted above with an exercise price of $3.40 per share.

On November 21, 2002, we effected a one-for-ten reverse stock split of our outstanding common stock. All information regarding common stock, stock options, warrants and loss per share amounts in this annual report on Form 10-K has been restated to reflect the reverse stock split.

On November 12, 2001, our board of directors, acting pursuant to existing terms of our stock option plans, approved the repricing of approximately 890,000 outstanding stock options with exercise prices above $7.50. The exercise prices of all such stock options were repriced to $7.50, which was the fair market value of our stock on November 12, 2001. There were no changes to the vesting schedules of the repriced options. Options held by our former chief executive officer, former executive vice president of strategy and planning, board of directors and non-employees were not repriced. We are accounting for the repriced options using variable accounting whereby the aggregate intrinsic value of the repriced options is continuously remeasured and amortized to stock-based compensation expense over the vesting periods. Based on the stock price as of January 31, 2003, we recorded $4.8 million in recovery of stock-based compensation recognized in fiscal 2002 relating to these repriced stock options, offset by $1.2 million in other stock-based compensation in fiscal 2003. As of January 31, 2003, deferred stock-based compensation relating to these repriced options was zero, reflecting the intrinsic value of unexercised repriced options as of January 31, 2003. To the extent that our stock price increases above $7.50 in future periods, we will need to record additional stock-based compensation expense.

In October 2002, we cancelled options to purchase 55,000 shares of common stock held by our chief executive officer and granted him options to purchase 150,000 shares of common stock at a price of $1.50, which was the closing price of our common stock on the grant date. As a result, based on the closing price of our common stock of $4.19 on January 31, 2003, we recorded $96,000 in stock-based compensation in fiscal 2003. To the extent that our stock price increases above $4.19 in future periods, we will need to record additional stock-based compensation expense.

We prepare and release quarterly unaudited financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). We also disclose and discuss certain pro forma financial information in the quarterly and annual financial results press release and investor conference call. This pro forma financial information excludes certain non-cash and special charges, consisting primarily of stock-based compensation, restructuring and other charges, impairment charges and amortization of goodwill and other intangible assets. We believe the disclosure of the pro forma financial information helps investors evaluate the results of our ongoing operations. However, we urge investors to carefully review the US GAAP financial information included as part of our quarterly reports on Form 10-Q and our annual reports on Form 10-K. The investors should also read the portions of our quarterly and annual financial results press releases which compare US GAAP financial information with the pro forma financial results, and include a reconciliation of the US GAAP and pro forma financial information.

License. License revenue consists of revenue from licenses of our software products. License revenue was $18.7 million, $32.0 million and $47.6 million in fiscal 2003, 2002 and 2001, respectively, decreasing 41.5% in fiscal 2003 from fiscal 2002 and decreasing 32.8% in fiscal 2002 from fiscal 2001. The year-over-year decrease in license revenue in absolute dollars was primarily attributable to a slowdown in corporate information technology spending.

Services. Services revenue consists of revenue from the delivery of implementation services and maintenance and support contracts. Services revenue from implementation services in fiscal 2003, 2002 and 2001 was $11.5 million, $14.8 million and $12.9 million, respectively, decreasing 22.7% in fiscal 2003 from fiscal 2002 and increasing 14.9% in fiscal 2002 from fiscal 2001. The decrease in services revenue from implementation services in absolute dollars in fiscal 2003 from fiscal 2002 was primarily attributable to a decrease in the size of the implementation services organization pursuant to the restructuring program we implemented in fiscal 2002 and 2003 and a decrease in license revenue that led to a decrease in demand for implementation services. The increase in services revenue from implementation services in absolute dollars in fiscal 2002 from fiscal 2001 was primarily attributable to an increase in customer implementations. Service

revenue from maintenance and support contracts was $18.2 million, $20.7 million and $8.4 million in fiscal 2003, 2002 and 2001, respectively, decreasing 11.8% in fiscal 2003 from fiscal 2002 and increasing 145.6% in fiscal 2002 from fiscal 2001. The decrease in services revenue from maintenance and support in absolute dollars in fiscal 2003 from fiscal 2002 was primarily attributable to a decrease in the number of supported users for maintenance renewals and a decrease in amortization of deferred maintenance revenue we assumed from the ABT acquisition in August 2000. The increase in services revenue from maintenance and support contracts in absolute dollars in fiscal 2002 from fiscal 2001 was primarily attributed to new maintenance contracts and maintenance renewals relating to a larger installed base.

Cost of license revenue. Cost of license revenue includes royalties due to third parties and product packaging, documentation and shipping costs. Cost of license revenue was $977,000, $1.7 million and $3.0 million in fiscal 2003, 2002 and 2001, respectively, representing 5.2%, 5.3% and 6.4% of total license revenue in the respective year. The decrease in cost of license revenue in absolute dollars in fiscal 2003 from fiscal 2002 was primarily attributable to a decline in license revenue and the introduction of Niku 6 in fiscal 2002, which required lower royalties due to third parties than certain prior products. The decrease in absolute dollars in fiscal 2002 from fiscal 2001 was primarily attributable to a decline in license revenue that decreased royalties due to third parties.

Cost of services revenue. Cost of services revenue includes salaries and related expenses for our implementation services and maintenance and support personnel and the costs of third parties contracted to provide implementation services to our customers. Cost of services revenue was $12.8 million, $24.4 million and $17.6 million in fiscal 2003, 2002 and 2001, respectively, representing 43.0%, 68.8% and 82.5% of total services revenue in each respective year. The decrease in cost of services revenue in absolute dollars in fiscal 2003 from fiscal 2002 was primarily attributable to reductions in headcount pursuant to the restructuring program we implemented in fiscal 2002 and 2003, reduction in costs for third parties contracted to implement our products and increased efficiencies within the implementation services organization. The increase in cost of services revenue in absolute dollars in fiscal 2002 from fiscal 2001 was primarily attributable to an increase in costs for third parties contracted to implement our products and increases in personnel and personnel-related expenses in the first six months of fiscal 2002 compared to the first six months of fiscal 2001, offset in part by later reductions in headcount. Cost of services revenue as a percentage of total services revenue decreased in each sequential year primarily as a result of the reductions in headcount.

Impairment of licensed technology. There was no impairment of licensed technology in fiscal 2003 or fiscal 2001. In fiscal 2002, we determined that the carrying value of certain royalties that we had prepaid for the right to third party licensed technology would not be realized. We recorded $9.4 million in impairment of licensed technology, including $8.5 million from prepaid royalties and $850,000 from royalties paid in fiscal 2002, in each case on third-party technologies which we did not include with our products to the extent required under the applicable contracts or at all due to a change in our product plan.

Sales and marketing. Sales and marketing expenses consist primarily of salaries, advertising, commissions, bonuses, travel and bad debt expense. Sales and marketing expenses were $23.1 million, $70.9 million and $68.0 million in fiscal 2003, 2002 and 2001, respectively, representing 47.7%, 105.1% and 98.7% of total revenue in each respective year. The decrease in sales and marketing expenses in absolute dollars in fiscal 2003 from fiscal 2002 was primarily attributable to a $17.9 million reduction in salaries, benefits and other employer related costs resulting from reductions in headcount and salary reductions effected pursuant to the restructuring program we implemented in fiscal 2002 and 2003 and a decrease of $9.0 million in bad debt expense resulting from an increase in collection rates. Sales and marketing expenses also decreased due to a $6.1 million decrease in commissions and bonuses, a $3.7 million decrease in advertising, a $2.8 million decrease in travel and a $2.7 million decrease in outside travel. The increase in sales and marketing expenses in absolute dollars in fiscal 2002 from fiscal 2001 was primarily attributable to an increase of $6.6 million in bad debt expenses necessitated primarily by the deterioration in the credit of certain customer accounts caused

by a significant downturn in the industries in which we sell and a contraction of the overall economy. Sales and marketing expenses in absolute dollars in fiscal 2002 also increased from fiscal 2001 due to higher salaries attributable to higher headcount in the first six months of fiscal 2002 compared to the first six months of fiscal 2001 and increases of $1.8 million in commissions and bonuses, offset in part by later reductions in headcount and a decrease of $9.7 million in advertising costs.

Research and development. Research and development expenses consist primarily of personnel and related expenses associated with the development of new products, the enhancement of existing products and quality assurance and testing costs. Research and development expenses were $11.9 million, $34.9 million and $37.0 million in fiscal 2003, 2002 and 2001, respectively, representing 24.6%, 51.7% and 53.7% of total revenue in each respective year. The decrease in research and development expenses in absolute dollars in fiscal 2003 from fiscal 2002 was primarily attributable to a $17.9 million reduction in salaries, benefits and other employer related costs resulting from reductions in headcount and salary reductions effected pursuant to the restructuring program we implemented in fiscal 2002 and 2003, a decrease of $6.2 million in facilities allocation and a $2.2 million decrease in outside services primarily related to third-party development services. The decrease in research and development expenses in absolute dollars in fiscal 2002 from 2001 was primarily attributable to a $2.2 million decrease in outside services, a $1.3 million decrease in travel costs relating to the development of our products and a $919,000 decrease in salaries, benefits and other employer related costs resulting from reductions in headcount, offset in part by a $2.8 million increase in facilities allocation.

General and administrative. General and administrative expenses consist primarily of salaries and other related costs for finance, human resource, information technology and legal department employees, as well as professional services fees. General and administrative expenses were $8.4 million, $15.2 million and $13.1 million in fiscal 2003, 2002 and 2001, respectively, representing 17.4%, 22.5% and 19.0% of total revenue in each respective year. The decrease in general and administrative expenses in absolute dollars in fiscal 2003 from 2002 was primarily attributable to a $5.3 million reduction in salaries, benefits and other employer related costs resulting from reductions in headcount and salary reduction effected pursuant to the restructuring program we implemented in fiscal 2002 and 2003, a $7.1 million decrease in facilities expense and a $1.5 million decrease in professional services fees, offset in part by a decrease in facilities allocation to other departments. The increase in general and administrative expenses in absolute dollars in fiscal 2002 from 2001 was primarily attributable to a $1.4 million increase in salaries, benefits and other employer related costs and a $768,000 increase in bonus expenses.

Asset impairment and other. In fiscal 2003, we performed an impairment assessment of a $500,000 strategic equity investment we made in a private company in April 2000. In performing an impairment assessment, we consider the private company’s current solvency, future access to capital and recent equity transactions. Based on an analysis of these factors in fiscal 2003, we determined that the investment impairment was other than temporary and recorded $500,000 in asset impairment charges.

In the first quarter of fiscal 2002, we performed an impairment assessment of our goodwill and other intangible assets recorded in connection with our various acquisitions due to a change in our product plan related to certain acquired technologies. This assessment was based on the expected future cash flows from goodwill and intangible assets over their remaining useful lives. As a result of this assessment, we recorded $24.5 million in asset impairment charges. This amount included $21.7 million to write down the net book value of certain goodwill and other intangible assets from our acquisitions of Legal Anywhere, bSource, 600 Monkeys and Alyanza to zero except for the carrying value of Legal Anywhere’s goodwill and customer lists which was reduced to their estimated fair value of $1.8 million. In the second quarter of fiscal 2002, we also performed an additional impairment assessment of goodwill and other intangible assets recorded in connection with our acquisitions of ABT, Proamics and Legal Anywhere. This assessment was performed primarily due to a significant decline in our stock price which resulted in the net book value of our assets significantly exceeding our market capitalization. As a result of this assessment, we recorded $114.4 million in asset impairment charges in the second quarter of fiscal 2002 which reduced the fair value of goodwill and other intangible assets related to our acquisitions of ABT, Proamics and Legal Anywhere to zero. The estimate of the fair value was based on the estimated future discounted cash flows for the remaining life of the goodwill and other intangible assets with a discount rate of 25% and an estimated terminal value. The assumptions supporting the

estimated cash flows, including the discount rate and an estimated terminal value, reflect management’s best estimates. The discount rate was based upon the weighted average cost of capital for comparable companies. In fiscal 2002, we recorded $138.9 million in asset impairment charges, consisting of $136.1 million relating to goodwill and other intangible assets, $1.9 million in accelerated depreciation for internally used software and $874,000 to write off fixed assets that we no longer utilized.

Amortization of goodwill and other intangible assets. There was no amortization of goodwill and other intangible assets in fiscal 2003 because all goodwill and other intangibles assets were written off in fiscal 2002. Amortization of goodwill and other intangible asset was $27.3 million and $35.9 million in fiscal 2002 and 2001, respectively. Amortization of goodwill and other intangible assets included amortization of developed and core technologies of approximately $6.5 million and $10.2 million in fiscal 2002 and 2001, respectively.

Restructuring and other. In fiscal 2003, we implemented a restructuring program and recorded the following charges:

We restructured our operations and reduced our workforce by approximately 147 employees in fiscal 2003. These headcount reductions affected all of our functional groups. We recorded $3.9 million in severance costs, of which $1.0 million related to the severance and related charges for our former chief executive officer and former executive vice president of planning and strategy.

Loss on Retirement of Property and Equipment and Other Assets No Longer in Use

We retired $8.6 million in property and equipment in connection with vacating certain facilities. We terminated an equipment lease and acquired the equipment for $2.0 million, of which $1.1 million was written off as a restructuring cost due to equipment no longer in use as a result of reductions in headcount.

We also vacated certain facilities and terminated certain leases, including the lease for a significant facility in Redwood City, California. The $23.0 million in net lease commitments on vacated leases recorded in fiscal 2003 includes $21.8 million related to the termination of the Redwood City lease. The $21.8 million in termination costs include lease termination payments of $7.4 million, the release to the landlord of cash securing a $5.9 million letter of credit that was previously classified as restricted cash, the release of a $2.9 million security deposit and $5.6 million in estimated fair value for warrant issued for 1,445,000 shares of common stock with an exercise price of $0.001. We also recorded a $2.2 million credit in net lease commitment costs related to previously recorded deferred rent relating to the lease. The estimated fair value of the warrant was determined using the Black-Scholes options pricing model with a contractual life of five years, risk-free interest rate of 1.70%, volatility of 150% and expected dividend of 0%. Our future liabilities under the Redwood City lease prior to our termination were approximately $121.7 million.

We also terminated a facility lease in Danville, California. Our future liabilities under this lease, net of estimated sublease income prior to termination, approximated $2.7 million. The termination costs included a $534,000 security deposit released to the landlord, a cash payment of $216,000 and warrants to purchase 15,000 shares of common stock with an exercise price of $0.10 and a fair value of $42,000. The value of these warrants was determined using the Black-Scholes options pricing model with an expected life of five years, risk-free interest rate of 1.70%, volatility of 150% and expected dividend of 0%. We also terminated a facility lease in Atlanta, Georgia for $481,000, consisting of lease termination payment of $181,000 and the release to the landlord of cash securing a $300,000 letter of credit that was previously classified as restricted cash. We also terminated a facility lease in Bellevue, Washington for $10,000, offset by $80,000 for the reversal of future lease payments that had been previously accrued relating to this lease.

We ceased to pay rent on a lease in New York, New York for a facility we vacated in fiscal 2002, and the landlord has drawn upon a letter of credit of $2.6 million secured by a certificate of deposit. We also creased to

In addition to above restructuring charges relating to facility leases, we recorded $2.4 million in net lease commitment costs on vacated leases in fiscal 2003 related to restructuring activities in fiscal 2002 primarily due to adjustments to estimated future sublease income for certain facilities vacated in fiscal 2002. We also terminated a facility lease in Lincolnshire, Illinois for $388,000, consisting of a lease termination payment of $63,000 and the release to the landlord of cash securing a $325,000 letter of credit that was previously classified as restricted cash. The Company’s future liabilities under this lease, net of estimated sublease income prior to termination, approximated $692,000.

We recorded $346,000 relating to lease payments for computer equipment and car leases that are no longer being utilized as a result of the reductions in headcount.

We recorded a credit of $812,000 for the value of 40,518 escrow shares of our common stock recovered from escrow accounts in which such shares had been placed in conjunction with the acquisitions of ABT Corporation, bSource, Inc., Proamics Corporation and 600 Monkeys Inc. in fiscal 2001.

We also recorded a credit of $1.2 million for the adjustment of stock-based compensation expenses related to the reversal of previously recorded stock-based compensation expenses for employees terminated pursuant to the restructuring program.

We also recorded other restructuring costs related primarily to legal and administrative costs for liquidation of various foreign subsidiaries.

In fiscal 2002, we initiated a restructuring program. We restructured our operations and reduced our workforce by approximately 665 employees and recorded $7.5 million in severance and related charges. These reductions in workforce affected all our functional groups. We vacated 17 leased facilities and recorded $11.0 million in net lease commitment costs. We also recorded $11.8 million in loss on retirement of property and equipment and other assets, including a $1.7 million write-off of prepaid expenses associated with a consulting service arrangement due to the reduction in headcount. We recorded an additional $725,000 in other exit costs to terminate this consulting service arrangement, of which $225,000 represents the value of 300,000 shares of common stock that we issued as part of this termination agreement. We recorded $8.6 million in stock-based compensation adjustment related to the reversal of previously recorded stock-based compensation expenses for employees terminated pursuant to the restructuring program.

Stock-based compensation. Amortization of stock-based compensation was $(3.6) million, $14.4 million and $29.0 million in fiscal 2003, 2002 and 2001, respectively. The recovery of stock-based compensation in fiscal 2003 was attributable to variable accounting applied to our stock options that were repriced in the fourth quarter of fiscal 2002, which resulted in $4.8 million in recovery of stock-based compensation in fiscal 2003, offset by $1.2 million in other stock-based compensation. The decrease in amortization of stock-based compensation in fiscal 2002 from fiscal 2001 was primarily attributed to employee terminations and the effects of having applied Financial Accounting Standard Board (FASB) Interpretation No. 28, offset in part by additional $5.4 million in stock-based compensation we recorded in connection with the repricing of our stock options in the fourth quarter of fiscal 2002. Out stock-based compensation may decrease in future periods if a majority of our employees participate in the option exchange program that was recently commenced.

Merger related expenses. Merger related expenses of $4.3 million in fiscal 2001 were incurred in conjunction with the acquisition and integration of ABT in August 2000.

Interest income and other income (expense), net. Interest income and other income (expense), net, consists of interest income and other non-operating expenses. Interest income and other income (expense), net was $5.9 million, $2.8 million and $10.5 million in fiscal 2003, 2002 and 2001, respectively. The net increase in absolute dollars in fiscal 2003 from fiscal 2002 was primarily attributable to a $5.0 million proceeds from a legal settlement payment to us from Business Engine, offset in part by lower interest income as a result of lower invested cash balances. The net decrease in absolute dollars in fiscal 2002 from 2001 was primarily attributable to lower average invested cash and short-term investment balances, which yielded lower interest income.

Interest expense. Interest expense was $202,000, $324,000 and $311,000 in fiscal 2003, 2002 and 2001, respectively. Interest expense decreased 37.6% in fiscal 2003 from 2002. This decrease in absolute dollars was primarily attributable to higher balances on capital leases and other loans outstanding in fiscal 2002. Interest expense remained constant in fiscal 2002 from 2001.

Since inception, we have financed our operations through private and public sales of our capital stock, bank loans, equipment leases, and cash from sales of our products and delivery of related services. The cash from these sources is used for working capital for our business. As of January 31, 2003, we had cash and cash equivalents of $16.7 million. We also had current portion of restricted cash and restricted cash in the amount of $229,000 and $1.1 million, respectively, in the form of certain certificates of deposit securing letters of credit for two leased facilities. We had bank borrowings under a term loan of $4.75 million as of January 31, 2003, of which $250,000 plus interest was repaid in March 2003. As of January 31, 2003, we had working capital of $1.2 million, compared to working capital of $11.0 million as of January 31, 2002. The decrease in working capital as of January 31, 2003 was primarily attributed to decreases in cash and cash equivalents, current portion of restricted cash, net accounts receivable, and prepaid expenses and other current assets, offset in part by decreases in bank borrowings and accrued liabilities.

In February 2003, we entered into a common stock and warrant purchase agreement with various investors led by Walden VC, providing for the issuance of 3,088,230 shares of our common stock at a price of $3.35 per share and warrants to purchase 386,034 shares of common stock at a price of $0.40 per share in a connection with a private placement. The warrants have an exercise price of $3.40. In February 2003, we issued 1,549,735 shares of our common stock and warrants to purchase 193,720 shares of common stock in connection with initial closing of this private placement. In April 2003, our stockholders approved the issuance of the remaining 1,538,495 shares of our common stock and warrants to purchase 192,314 shares of common stock in connection with the subsequent closing of this private placement and we issued such common stock and warrants. Total estimated net proceeds from the private placement approximated $10.3 million. Total shares and warrants outstanding following the private placement were approximately 11,853,646 (included options exercised subsequent to January 31, 2003) and 405,617, respectively.


	•	On an actual basis; and

	•	On a pro forma basis to reflect the issuance of 3,088,230 shares of our common stock in connection with the private placement discussed above resulting in total net proceeds of approximately $10.3 million.


	•	1,496,642 shares of our common stock subject to options outstanding as of January 31, 2003 at a weighted average exercise price of $9.74 per share.

	•	Warrants to purchase 19,583 shares of common stock as of January 31, 2003 at a weighted average exercise price of $27.18 per share.

	•	Warrants to purchase 386,034 shares of common stock as noted above with an exercise price of $3.40 per share.

Net cash used in operating activities was $23.9 million, $73.9 million and 87.0 million in fiscal 2003, 2002 and 2001, respectively. Net cash used in operating activities in fiscal 2003 was primarily attributed to a net loss of $37.8 million and a decrease in accrued liabilities, offset in part by non-cash restructuring charges, and a decrease in accounts receivable, depreciation expenses and a decrease in prepaid expenses and other current assets. Net cash used in operating activities in fiscal 2002 was primarily attributable to a net loss of $291.5 million, offset in part by impairment charges, amortization of goodwill and other intangible assets, restructuring charges, stock-based compensation, provision for doubtful account receivable and a decrease in net accounts receivable. Net cash used in operating activities in fiscal 2001 was primarily attributable to a net loss of $130.9 million and increases in net accounts receivable and prepaid and other current assets, offset in part by amortization of goodwill and other intangible assets and stock-based compensation.

Net cash provided by (used in) investing activities was $11.0 million, $32.3 million and $(63.2) million in fiscal 2003, 2002 and 2001, respectively. Net cash provided by investing activities in fiscal 2003 was primarily attributable to releases of investments for restricted cash, offset in part by purchases of property and equipment. Net cash provided by investing activities in fiscal 2002 was primarily attributable to net sales and maturities of short-term investments, offset in part by purchases of property and equipment. Net cash used in investing activities in fiscal 2001 was primarily attributable to net purchases of short-term investments, purchases of investments for restricted cash and purchases of property and equipment.

Net cash (used in) provided by financing activities was $(22.1) million, $(251,000) and $216.2 million in fiscal 2003, 2002 and 2001, respectively. Net cash used in financing activities in fiscal 2003 was primarily attributable to net repayment of bank line of credit, offset in part by proceeds from a bank term loan. Net cash used in financing activities in fiscal 2002 was primarily attributable to treasury stock repurchased in the open market and repayment of debt and capital lease obligations, offset by net proceeds from bank line of credit and issuance of common stock. Cash provided by financing activities in fiscal 2001 resulted from net proceeds from our initial public offering and net proceeds from bank line of credit, offset in part by repayments of debt and capital lease obligations.

In fiscal 2003, we terminated a lease for a significant facility in Redwood City, California. We entered into the lease for this facility in March 2000. The lease term commenced upon possession of the facility in August 2001 and had a term of 15 years. Prior to its termination, the agreement required us to hold a letter of credit drawable by the lessor totaling approximately $5.9 million and $2.9 million in security deposits. We vacated this facility in July 2002 and terminated the lease on October 31, 2002. The total termination costs amounted to $21.8 million, offset by $2.2 million for the reversal of previously recorded deferred rent. Our future commitments under the Redwood City lease prior to the termination were approximately $121.7 million. As of February 2003, we had paid all termination costs related to the lease.

We currently have a term loan for $5.0 million from a financial institution. We entered into this loan in September 2002. The term loan is secured by our tangible and intangible assets, accrues interest at 7.50% per annum and matures on February 15, 2004. We are required to make quarterly payments of principal and interest on a five-year amortization schedule. We repaid $250,000 plus interest in December 2002 and $250,000 plus interest in March 2003. On the maturity date, the remaining principal balance of $3.5 million is due. This term loan has certain financial covenants, including covenants relating to cash on hand, revenue and operating expenses. In January 2003, we agreed with the financial institution that we would not repay a portion of the term loan with the proceeds of a legal settlement we received in December 2002. As of January 31, 2003, we were not in compliance with a covenant relating to revenue. We received a waiver for such covenant in February 2003.

Future minimum lease and termination payments under operating leases and payments under bank borrowings are as follows as of January 31, 2003 (in thousands):

Lease payments above, net of estimated sublease income, relating to facilities that we have either vacated or terminated pursuant to our restructuring program, amounted to $3.5 million, $609,000, $1.0 million, $928,000 and $1.3 million for the twelve months ended January 31, 2004, 2005, 2006, 2007 and 2008, respectively, and $2.4 million thereafter. We regularly review the estimates for sublease income and to the extent that these estimates change due to changes in market condition, the ultimate restructuring payments could vary by material amounts. The $3.5 million in payments mentioned above for the twelve months ended January 31, 2004 for leases we have either vacated or terminated (but had not yet paid as of January 31, 2003) include the final $2.0 million cash payments related to the termination of a major lease in Redwood City, California. This 2.0 million was paid in February 2003.

We have working capital of $1.2 million as of January 31, 2003. We believe that cash from operations and existing cash, including approximately $10.3 million in net proceeds from a private placement we completed in

the first quarter of fiscal 2004, will be sufficient to meet our current expectations for working capital and expense requirements for at least the next twelve months based on, among other things, our current revenue and expense projections. However, we may require additional financing in the future. If we were unable to raise capital in the event of ongoing losses and depletion of our available cash resources, the absence of funding would have a material adverse effect on our business. If we issue additional equity securities, stockholders will experience additional dilution and the new equity securities may have rights, preferences or privileges senior to those of the then existing holders of our common stock.

In October 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 requires that the fair value of retirement obligations be recognized as a liability when they are incurred and that the associated retirement costs be capitalized as a long-term asset and expensed over its useful life. The provisions of SFAS No. 143 will be effective for fiscal years beginning after June 15, 2002. We do not expect that the adoption of SFAS No. 143 will have a significant effect on our financial position or results of operations.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. The provisions of SFAS No. 145 relating to the rescission of SFAS No. 4 are effective for financial statements issued for fiscal years beginning after May 15, 2002, and the provisions relating to SFAS No. 13 are effective for transactions occurring after May 15, 2002. SFAS No. 145 rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment of that Statement, SFAS No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. SFAS No. 145 also rescinds SFAS No. 44, Accounting for Intangible Assets of Motor Carriers, and amends SFAS No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. SFAS No. 145 also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. We do not believe the adoption of SFAS No. 145 will have a material effect on our financial position or results of operations.

In June 2002, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards No. 146, or SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). This Statement requires that a liability for costs associated with an exit or disposal activity be recognized and measured at fair value only when the liability is initially incurred. SFAS No. 146 will be effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of SFAS No. 146 did not have a material effect on our financial position or results of operations.

In November 2002, the Financial Accounting Standards Board (FASB) issued FASB Interpretation (FIN) No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN No. 45 provides expanded accounting guidance surrounding liability recognition and disclosure requirements related to guarantees, as defined by this Interpretation. We had no existing guarantees as of January 31, 2003, and we do not expect that the adoption of FIN No. 45 will have a material effect on our financial position or results of operations. Indemnification and warranty provisions within our customer license and service agreements are generally consistent with those prevalent in our industry. The duration of our product warranties generally does not exceed 90 days following delivery of our products. We have not incurred significant obligations under customer indemnification or warranty provision historically and do not expect to incur significant obligations in the future. Accordingly, we do not maintain accruals for potential customer indemnification or warranty-related obligations.

statements the assets, liabilities and activities of another entity. A variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN No. 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or is entitled to receive a majority of the entity’s residual returns or both. The consolidation requirements of FIN No. 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. We are currently evaluating the impact of FIN No. 46 on our financial statements and related disclosures.

We develop products in the United States and market our products in North America and Europe and to a lesser degree in Asia. As a result, our financial results may be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. Approximately 36.5% of our total revenue was made in currencies other than U.S. dollars in fiscal 2003. Although we are exposed to the general foreign currency exchange rate risk described above, we do not expect any material adverse effect on our consolidated financial position, results of operations or cash flows due to movements in any specific foreign currency. We currently do not use financial instruments to hedge operating expenses of our European subsidiaries. We will continue to assess the need to utilize financial instruments to hedge currency exposures on an ongoing basis.

Our exposure to market risk for changes in interest rates relates primarily to our cash and cash equivalents and outstanding debt obligations. We do not use derivative financial instruments for speculative or trading purposes. Our cash and cash equivalents consist primarily of demand deposits, certificates of deposits and money market accounts that mature in three months or less. Due to the short-term nature of our cash and cash equivalents, we believe that there is no material market or interest rate risk exposure on our cash and cash equivalents. Due to the fixed interest rate of our indebtedness, a 5% decrease in interest rate would not have a material effect on our consolidated financial position and results of operations. Therefore, no quantitative tabular disclosures are required.

We have audited the accompanying consolidated balance sheets of Niku Corporation and subsidiaries (the “Company”) as of January 31, 2003 and 2002, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity (deficit), and cash flows for each of the years in the three-year period ended January 31, 2003. In connection with our audits of the consolidated financial statements, we have also audited the related financial statement schedule listed in Item 15(a). These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Niku Corporation and subsidiaries at January 31, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended January 31, 2003, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the consolidated financial statements taken as a whole, presents fairly, in all material respects the information set forth therein.

Niku Corporation (Niku or the Company) was incorporated in Delaware on January 8, 1998. Niku designs, develops and markets portfolio management software for large enterprises. Niku’s operations for the period from January 8, 1998 (inception) through January 31, 1998 were not significant and are included in the Company’s results of operations for the year ended January 31, 1999.

Prior to fiscal 2003, the Company had a fiscal year that ended on the Saturday preceding January 31. In the first quarter of fiscal 2003, the Company changed its fiscal calendar to a calendar month end so fiscal 2003 ended on January 31, 2003. For presentation purposes, the financial statements and notes for the twelve months ended January 31, 2002 and 2001 refer to the period’s calendar month end.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Unless otherwise specified, references to the Company are references to the Company and its consolidated subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported consolidated results of operations during the reporting period. Estimates are used for, but are not limited to, revenue recognition, allowance for doubtful accounts, depreciation and amortization, sales returns, taxes, impairment, restructuring, accrued liabilities and contingencies. Actual results could differ from those estimates.

Certain reclassifications have been made to prior period amounts to conform to the current period presentation.

On November 21, 2002, the Company effected a one-for-ten reverse stock split of its outstanding common stock. All information regarding common stock, stock options, warrants and loss per share amounts has been restated within this Form 10-K to reflect the reverse stock split.

The Company considers all highly liquid investments with remaining maturities of 90 days or less at the date of acquisition to be cash equivalents. Cash equivalents consist of money market funds, commercial paper, government notes and bonds and corporate notes and bonds and certificates of deposit.

In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities as amended by SFAS No. 137 and 138. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those

instruments at fair value. For a derivative not designated as a hedging instrument, changes in the fair value of the derivative are recognized in earnings in the period of change. The Company adopted SFAS No. 133 effective February 1, 2001 and it did not have a material effect on the Company’s consolidated financial position or results of operations.

The carrying value of the Company’s financial instruments, including cash and cash equivalents, short-term investments, accounts receivable and short-term liabilities approximates fair value. Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. Management believes the financial risks associated with these financial instruments are minimal. The Company maintains its cash and cash equivalents with high quality financial institutions. Where appropriate, the Company performs credit evaluations of its customers, and generally does not require collateral on accounts receivable. The Company regularly reviews the adequacy of its accounts receivable allowance after considering the amount of aged accounts receivable, the age of each invoice, each customer’s expected ability to pay and its collection history with each customer. The Company reviews any invoice greater than 30 days past due to determine if an allowance is appropriate based on the risk category using the factors discussed above. In addition, the Company maintains a general reserve for all invoices by applying a percentage to each aging category. The allowance for doubtful accounts represents the Company’s best estimate, but changes in circumstances such as our customers’ financial positions may result in a requirement for additional allowances in the future.

Property and equipment are recorded at cost less accumulated depreciation. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets, generally three years. Leasehold improvements are amortized over the lease term. Gains and losses on disposals are included in income at amounts equal to the difference between the net book value of the disposed assets and the proceeds received upon disposal. Expenditures for replacements and improvements are capitalized, while expenditures for maintenance and repairs are charged to operations as incurred.

In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 superseded SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and Assets to be Disposed of and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS No. 144 established a single accounting model for impairment or disposal by sale of long-lived assets. The adoption of SFAS No. 144 in fiscal 2003 did not have a material impact on the Company’s financial position or results of operations.

The Company derives its revenue principally from licenses of its products, maintenance and support, and delivery of implementation services. The Company offers its products primarily through its direct sales force. In certain international markets, the Company also offers its products indirectly through channel partners.

Revenue from license fees is recognized in accordance with Statement of Position 97-2, Software Revenue Recognition (SOP 97-2), as amended by SOP 98-9, which permits revenue recognition when (1) persuasive evidence of an arrangement exists, (2) delivery of the product has occurred and no significant obligations of the Company’s with regard to implementation remain, (3) the fee is fixed or determinable, and

(4) collectibility is probable. If there are sales to channel partners, they are recognized upon sell-through to the end-user customer. We define each of the four criteria above as follows:

Persuasive evidence of an arrangement exists. The Company’s customary practice is to have a written contract, which is signed by both the customer and the Company, or a purchase order from those customers who have previously negotiated a license agreement with the Company.

Delivery has occurred. The Company’s software may be either physically or electronically delivered to the customers. Delivery is deemed to have occurred upon meeting one of the following criteria as set forth in the revenue contract: (1) the shipment or electronic delivery of the product, (2) notification of receipt of the product by the customer or (3) notification by the customer of acceptance. If undelivered products or services exist in an arrangement that are essential to the functionality of the delivered product, revenue is recognized when these products or services are delivered.

The fee is fixed or determinable. The Company negotiates the fees for its products at the outset of an arrangement. In these arrangements, the majority of the licenses are perpetual and related fees are nonrefundable. The fees are generally due within six months or less. The Company considers fees relating to arrangements with payment terms extending beyond six months not to be fixed or determinable. If the fee is not fixed or determinable, revenue is recognized as payments become due from the customer.

Collectibility is probable. Collectibility is evaluated on a customer-by-customer basis. A customer’s purchase order of waiver of purchase order is generally required with each arrangement. Where appropriate, new customers are subject to a credit review process, which evaluates the customers’ financial position (e.g. cash position and credit rating) and their ability to pay, and existing customers are subject to a review of payment histories. If collectibility is not considered probable at the outset of an arrangement in accordance with our credit review process, revenue is recognized when the fee is collected.

Revenue from multiple-element software arrangements is recognized using the residual value method. The determination of the fair value of maintenance and support and implementation services is based on the objective evidence of the fair value of each element that is specific to the Company. The Company’s determination of fair value of each element in multiple-element arrangements is based on vendor-specific objective evidence (VSOE). The VSOE for each element is established when the same element is sold separately. The Company has analyzed and determined that it has sufficient VSOE to allocate revenue to the maintenance and support services and implementation services components of its perpetual license arrangements. VSOE for maintenance and support is determined based upon the customer’s annual renewal rates for this element. The Company sells its implementation services separately and have established VSOE on that basis.

Assuming all other revenue recognition criteria are met, revenue from licenses is recognized upon delivery using the residual method in accordance with SOP 98-9. Our software products are fully functional upon delivery and implementation and do not require significant modifications. The customer may implement using their own resources or obtain the services of other implementation service organizations to provide these services. Therefore, the Company’s implementation services are not considered essential to the functionality of the other elements of the arrangement. The revenue allocable to the implementation services is generally recognized as services are performed. Maintenance and support revenue is deferred and recognized on a straight-line basis over the contractual service period, which is typically one year.

The Company has never engaged in a transaction in which it provided product licenses or services to a customer in exchange for an equity interest. The Company recognized no revenue under any type of reciprocal arrangements in fiscal 2003 or in fiscal 2002. Revenue recognized under reciprocal arrangements was $16.4 million in the year ended January 31, 2001, of which approximately $630,000 involved nonmonetary exchanges.

Capitalized license fees relate to royalties that the Company has paid in advance to third parties for the right to incorporate their technologies in the Company’s products. Prepaid royalties are expensed to cost of license revenue when the products are sold to customers.

Research and development costs are expensed as incurred until technological feasibility in the form of a working model has been established. Development costs are capitalized beginning when a product’s technological feasibility has been established and ending when the product is available for general release to customers. Technological feasibility is reached when the product reaches the working model stage. To date, the Company’s software has become available for general release concurrent with the establishment of technological feasibility and, accordingly, no development costs have been capitalized.

Advertising costs are expensed as incurred and totaled $631,000, $4.4 million and $14.0 million in the years ended January 31, 2003, 2002 and 2001, respectively.

The Company uses the intrinsic-value method to account for all of its employee stock-based compensation plans including FASB Interpretation No. 44 (FIN 44), which is an interpretation of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Stock-based compensation is being amortized over the vesting period of individual award in a manner consistent with the method described in Financial Accounting Standards Board (FASB) Interpretation No. 28. The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 and EITF 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.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure. This statement amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. This statement also amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company adopted the disclosure requirements of SFAS No. 148 in fiscal 2003.

Under the intrinsic-value method used by the Company to account for its employee stock-based compensation, no compensation cost has been recognized for any of stock options granted or restricted stock sold because the exercise price of each option or purchase price of each share of restricted stock equaled or exceeded the fair value of the underlying common stock as of the grant date for each stock option or purchase date of each restricted stock share, except for stock options granted and restricted stock sold from January 31, 1998 through February 28, 2000 and in November 2001. With respect to the stock options granted and restricted stock sold from January 31, 1998 to February 28, 2000 and in November 2001, the Company

recorded deferred stock compensation for the difference at the grant or issuance date between the exercise price of each stock option granted or purchase price of each restricted share sold and the fair value of the underlying common stock and such difference is being amortized over the vesting period, consistent with the method described in FASB Interpretation No. 28.

Had compensation costs been recorded by the Company in its consolidated statements of operations in accordance with SFAS No. 123 for all of the Company’s stock-based compensation plans, net loss and basic and diluted net loss per share would have been as follows (in thousands, except per share data):

The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model after the IPO, with no expected dividends and the following weighted-average assumptions:

The fair value of purchase rights under the Employee Stock Purchase Plan is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for shares issued in the year ended January 31, 2003, 2002 and 2001, respectively:

The weighted average fair value of purchase rights granted under the Employee Stock Purchase Plan was $3.56, $21.80 and $136.00 per share in the year ended January 31, 2003, 2002 and 2001, respectively.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement

carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be recovered.

Basic net loss per share is computed using the weighted-average number of outstanding shares of common stock, excluding shares of restricted stock subject to repurchase summarized below. Diluted net loss per share is computed using the weighted-average number of shares of common stock outstanding and, when dilutive, potential common shares from options and warrants to purchase common stock and unvested restricted stock using the treasury stock method. The following potential common shares have been excluded from the computation of diluted net loss per share because the effect would have been antidilutive (in thousands):

The weighted-average exercise price of options outstanding as of January 31, 2003, 2002 and 2001 was $9.74, $16.21 and $109.10 per share, respectively. The weighted-average purchase price of restricted stock subject to repurchase as of January 31, 2002 and 2001 was $10.00 and $31.30 per share, respectively. The weighted-average exercise price of warrants as of January 31, 2003, 2002 and 2001 was $27.18, $96.80 and $115.80 per share, respectively.

Comprehensive loss includes, in addition to net loss, foreign currency translation adjustments and unrealized gains or losses on short-term investments. Tax effects of the “other” components of comprehensive loss have not been material. The Company has reported components of comprehensive loss in the accompanying consolidated statements of operations and comprehensive loss.

The functional currencies of the Company’s foreign subsidiaries is the local currency of the country in which the respective subsidiary operates. Assets and liabilities are translated using the exchange rate on the balance sheet date. Revenue, expenses, gains and losses are translated at the average exchange rate in effect during the period. Translation adjustments are included in the consolidated balance sheet caption “Accumulated other comprehensive income.” Foreign currency transaction gains and losses are included in interest income and other income (expense), net, and to date, have not been material.

In October 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 requires that the fair value of retirement obligations be recognized as a liability when they are incurred and that the associated retirement costs be capitalized as a long-term asset and expensed over its useful life. The provisions of SFAS No. 143 will be effective for fiscal years beginning after June 15, 2002. The

Company does not expect that the adoption of SFAS No. 143 will have a significant effect on its financial position or results of operations.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. The provisions of SFAS No. 145 relating to the rescission of SFAS No. 4 are effective for financial statements issued for fiscal years beginning after May 15, 2002, and the provisions relating to SFAS No. 13 are effective for transactions occurring after May 15, 2002. SFAS No. 145 rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment of that Statement, SFAS No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. SFAS No. 145 also rescinds SFAS No. 44, Accounting for Intangible Assets of Motor Carriers, and amends SFAS No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. SFAS No. 145 also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The Company does not believe the adoption of SFAS No. 145 will have a material effect on its financial position or results of operations.

In June 2002, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards No. 146, or SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). This Statement requires that a liability for costs associated with an exit or disposal activity be recognized and measured at fair value only when the liability is initially incurred. SFAS No. 146 will be effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of SFAS No. 146 did not have a material effect on the Company’s financial position or results of operations.

In November 2002, the Financial Accounting Standards Board (FASB) issued FASB Interpretation (FIN) No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN No. 45 provides expanded accounting guidance surrounding liability recognition and disclosure requirements related to guarantees, as defined by this Interpretation. The Company had no existing guarantees as of January 31, 2003 and it does not expect that the adoption of FIN No. 45 will have a material effect on its financial position or results of operations. Indemnification and warranty provisions within the Company’s customer license and service agreements are generally consistent with those prevalent in our industry. The duration of the Company’s product warranties generally does not exceed 90 days following delivery of our products. The Company has not incurred significant obligations under customer indemnification or warranty provision historically and does not expect to incur significant obligations in the future. Accordingly, the Company does not maintain accruals for potential customer indemnification or warranty-related obligations.

In January 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest Entities. FIN No. 46 expands upon existing accounting guidance that addresses when a company should include in its financial statements the assets, liabilities and activities of another entity. A variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN No. 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or is entitled to receive a majority of the entity’s residual returns or both. The consolidation requirements of FIN No. 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. We are currently evaluating the impact of FIN No. 46 on our financial statements and related disclosures.

In November 2001, the FASB issued Emerging Issues Task Force Issue (“EITF”) No. 01-14, Income Statement Characterization of Reimbursements Received for Out of Pocket Expenses Incurred, which requires the Company to report reimbursements of out of pocket expenses as revenue and the corresponding expenses incurred as cost of revenue within the condensed consolidated statements of operations. The Company adopted EITF No. 01-14 in the first quarter of fiscal 2003 and reclassified reimbursable expenses into services revenue with a corresponding increase in cost of services revenue. The impact of the reclassification was to increase services revenue and cost of services revenue by $1.2 million and $1.5 million in fiscal 2003 and 2002, respectively. It is impracticable for the Company to determine the impact of EITF No. 01-14 for fiscal 2001.

On November 12, 2001, the Company’s board of directors, acting pursuant to existing terms of the Company’s stock option plans, approved the repricing of approximately 890,000 outstanding stock options with exercise prices above $7.50. The exercise prices of all such stock options were repriced to $7.50, which was the fair market value of the Company’s stock on November 12, 2001. There were no changes to the vesting schedules of the repriced options. Options held by the Company’s former chief executive officer, former executive vice president of strategy and planning, board of directors and non-employees were not repriced. The Company is accounting for the repriced options using variable accounting whereby the aggregate intrinsic value of the repriced options is continuously remeasured and amortized to stock-based compensation expense over the vesting periods. Based on the stock price as of January 31, 2003, the Company recorded $4.8 million in recovery of stock-based compensation recorded in fiscal 2002 relating to these repriced stock options, offset by $1.2 million in other stock-based compensation in fiscal 2003. As of January 31, 2003, deferred stock-based compensation relating to these repriced options was zero, reflecting the intrinsic value of unexercised repriced options as of January 31, 2003.

In October 2002, the Company cancelled options to purchase 55,000 shares of common stock held by our chief executive officer and immediately granted him options to purchase 150,000 shares of common stock at a price of $1.50, which was the closing price of our common stock on the grant date. As a result, based on the closing price of our common stock of $4.19 on January 31, 2003, the Company recorded $96,000 in stock-based compensation in fiscal 2003.

In fiscal 2003, the Company implemented a restructuring program. The Company restructured its operations and reduced its workforce by approximately 147 employees in fiscal 2003. These headcount reductions affected all functional groups of the Company. The Company recorded $3.9 million in severance costs, of which $1.0 million related to the severance and related charges for the Company’s former chief executive officer and former executive vice president of planning and strategy.

The Company retired $8.6 million in property and equipment in connection with vacating certain facilities. The Company terminated an equipment lease and acquired the equipment for $2.0 million, of which $1.1 million was written off as a restructuring cost due to equipment no longer in use as a result of reductions in headcount.

The Company also vacated certain facilities and terminated certain leases, including the lease for a significant facility in Redwood City, California. The $23.0 million in net lease commitments on vacated leases recorded in fiscal 2003 includes $21.8 million related to the termination of the Redwood City lease. The $21.8 million in termination costs include lease termination payments of $7.4 million, the release to the landlord of cash securing a $5.9 million letter of credit that was previously classified as restricted cash, the release of a $2.9 million security deposit and $5.6 million in estimated fair value for warrant issued for 1,445,000 shares of common stock with an exercise price of $0.001. The Company also recorded a $2.2 million credit in net lease commitment costs related to previously recorded deferred rent relating to the lease. The estimated fair value of the warrant was determined using the Black-Scholes options pricing model with a contractual life of five years, risk-free interest rate of 1.70%, volatility of 150% and expected dividend of 0%. The Company’s future liabilities under the Redwood City lease prior to the termination were approximately $121.7 million.

The Company also terminated a facility lease in Danville, California. The Company’s future liabilities under this lease, net of estimated sublease income prior to termination, approximated $2.7 million. The termination costs included the release to the landlord of a $534,000 security deposit, a cash payment of $216,000 and warrants to purchase 15,000 shares of common stock with an exercise price of $0.10 and a fair value of $42,000. The value of these warrants was determined using the Black-Scholes options pricing model with an expected life of five years, risk-free interest rate of 1.70%, volatility of 150% and expected dividend of 0%. The Company also terminated a facility lease in Atlanta, Georgia for $481,000, consisting of lease termination payment of $181,000 and the release to the landlord of cash securing a $300,000 letter of credit that was previously classified as restricted cash. The Company also terminated a facility lease in Bellevue, Washington for $10,000, offset by $80,000 for the reversal of future lease payments that had been previously accrued relating to this lease.

The Company has ceased to pay rent on a lease in New York, New York for a facility we vacated in fiscal 2002, and the landlord has drawn upon a letter of credit of $2.6 million secured by a certificate of deposit. The Company also creased to pay rent on the leases for certain other smaller facilities that it has vacated. The Company is seeking to terminate these leases or sublease these facilities.

In addition to above restructuring charges relating to facility leases, the Company recorded $2.4 million in net lease commitment costs on vacated leases in fiscal 2003 related to restructuring activities in fiscal 2002 primarily due to adjustments to estimated future sublease income for certain facilities vacated in fiscal 2002. The Company also terminated a facility lease in Lincolnshire, Illinois for $388,000, consisting of a lease termination payment of $63,000 and the release to the landlord of cash securing a $325,000 letter of credit that was previously classified as restricted cash. The Company’s future liabilities under this lease, net of estimated sublease income prior to termination, approximated $692,000.

The Company recorded $346,000 relating to lease payments for computer equipment and car leases that are no longer being utilized as a result of the reductions in headcount.

The Company recorded a credit of $812,000 for the value of 40,518 escrow shares of the Company’s common stock recovered from escrow accounts in which such shares had been placed in conjunction with the acquisitions of ABT Corporation, bSource, Inc., Proamics Corporation and 600 Monkeys Inc. in fiscal 2001.

The Company also recorded a credit of $1.2 million for the adjustment of stock-based compensation expenses related to the reversal of previously recorded stock-based compensation expenses for employees terminated pursuant to the restructuring program.

The table below represents the restructuring activities in fiscal 2003 (in thousands):

The Company expects that of the restructuring and other charges accrued as of January 31, 2003, severance costs will be paid by the second quarter of fiscal 2004, exit costs for business line (related to legal vertical market) will be paid no later than May 2003, and the net lease commitments on vacated leased facilities will be paid no later than February 2011. Other exit costs related primarily to legal and administrative costs for liquidation of various foreign subsidiaries.

In fiscal 2002, the Company initiated a restructuring program. The Company restructured its operations and reduced its workforce by approximately 665 employees and recorded $7.5 million in severance and related charges. These reductions in workforce affected all of the Company’s functional groups. The Company vacated 17 leased facilities and recorded $11.0 million in net lease commitment costs. The Company also recorded $11.8 million in loss on retirement of property and equipment and other assets, including a $1.7 million write-off of prepaid expenses associated with a consulting service arrangement due to the reduction in headcount. The Company recorded an additional $725,000 in other exit costs to terminate this consulting service arrangement, of which $225,000 represents the value of 300,000 shares of common stock that the Company issued as part of this termination agreement. The Company recorded $8.6 million in stock-based compensation adjustment related to the reversal of previously recorded stock-based compensation expenses for employees terminated pursuant to the restructuring program. The Company recorded $24.4 mil-

lion in restructuring and other charges in the year ended January 31, 2002 and consisted of the following (in thousands):

There were no asset impairment and other charges in fiscal 2003 except for an impairment charge of the Company’s strategic equity investment made in April 2000. The Company regularly performs an impairment assessment of this $500,000 investment. In performing an impairment assessment, the Company considers the private company’s current solvency, future access to capital and recent equity transactions. Based on an analysis of these factors in fiscal 2003, the Company determined that the investment impairment was other than temporary and recorded such impairment in asset impairment and other charges in the accompanying consolidated statement of operations and comprehensive loss in fiscal 2003. The carrying value of the Company’s strategic equity investment was zero at January 31, 2003.

Asset impairment and other charges in fiscal 2002 were as follows: In the first quarter of fiscal 2002, the Company performed an impairment assessment of its goodwill and other intangible assets recorded in connection with its acquisitions of Legal Anywhere, bSource.com, 600 Monkeys and Alyanza Software due to a change in the Company’s product plan related to certain acquired technologies. This assessment was based on the expected future cash flows from goodwill and intangible assets over their remaining useful lives. As a result of this assessment, the Company recorded $24.5 million in asset impairment charges. This amount included $21.7 million to write down the net book value of certain goodwill and other intangible assets from our acquisitions of Legal Anywhere, bSource, 600 Monkeys and Alyanza to zero except for the carrying value of Legal Anywhere’s goodwill and customer lists which was reduced to their estimated fair value of $1.8 million. In the second quarter of fiscal 2002, the Company performed an additional impairment assessment of goodwill and other intangible assets recorded in connection with its acquisitions of ABT, Proamics and Legal Anywhere. This assessment was performed primarily due to a significant decline in the Company’s stock price, which resulted in the net book value of its assets significantly exceeding its market capitalization. As a result of this assessment, the Company recorded $114.4 million in asset impairment charges in the second quarter of fiscal 2002, which reduced the fair value of goodwill and other intangible assets related to its acquisitions of ABT, Proamics and Legal Anywhere to zero. The estimate of the fair value was based on the estimated future discounted cash flows for the remaining life of the goodwill and other intangible assets with a discount rate of 25% and an estimated terminal value. The assumptions supporting the estimated cash flows, including the discount rate and an estimated terminal value, reflect management’s best estimates. The discount rate was based upon the weighted average cost of capital for comparable companies. In fiscal 2002, the Company recorded $138.9 million in asset impairment charges, consisting of $136.1 million relating to goodwill and other intangible assets, $1.9 million in accelerated depreciation for internally used software and $874,000 to write off fixed assets that the Company no longer utilized.

In fiscal 2002, the Company determined that the carrying value of certain royalties that the Company had prepaid for the right to third party licensed technology would not be realized. The Company recorded $9.4 million in cost of revenue for impairment of licensed technology, including $8.5 million from prepaid royalties on third-party technologies and $850,000 from royalties paid in fiscal 2002, in each case on third-party technologies which the Company would not be including with its products at all or at the extent required under the applicable contracts due to a change in the Company’s product plan.

In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets, which supersedes APB Opinion No. 17, Intangible Assets. SFAS No. 142 requires that goodwill and other intangibles with an indefinite useful life not be amortized, but be tested for impairment at least annually by applying a fair-value-based test. Also, if the benefit of an intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented or exchanged, the intangible asset should be separately recognized and amortized over its estimated useful life. The Company adopted SFAS No. 142 in fiscal 2003. The adoption of SFAS No. 142 did not have a material effect on the Company’s consolidated financial position or results of operations. To facilitate comparison with prior periods, the following table shows the Company’s results for fiscal 2003, 2002 and 2001, if goodwill and other intangible assets with indefinite useful lives were not amortized for those periods (in thousands, except per share data):

There were no short-term investments as of January 31, 2003. Short-term investments as of January 31, 2002 consisted of $400,000 in government bonds and are included in the caption “Restricted Cash.”

In October 2001, the Company entered into two loan agreements with a financial institution secured generally by certain of the Company’s tangible and intangible assets and providing lines of credit up to $30.0 million, of which a $5.0 million line of credit is secured by qualifying accounts receivables. As of January 31, 2002, the Company had $27.0 million outstanding under these lines of credit. These lines of credit were repaid in full in fiscal 2003. Interest on each of these lines of credit accrued at the rate of 7.0% per annum. These lines of credit expired in July 2002.

In conjunction with the acquisition of ABT in August 2000, the Company assumed a $744,000 loan that bears interest at the rate of 8.25% per annum. This loan was repaid in full in fiscal 2003.

The Company has a term loan for $5.0 million from a financial institution. The Company entered into this term loan in September 2002. The term loan is secured by the Company’s tangible and intangible assets, accrues interest at 7.50% per annum and matures on February 15, 2004. The Company is required to make quarterly payments of principal and interest on a five-year amortization schedule. The Company repaid $250,000 plus interest in December 2002 and $250,000 plus interest in March 2003. On the maturity date, the remaining principal balance of $3.5 million is due. This term loan has certain financial covenants, including covenants relating to cash on hand, revenue and operating expenses. In January 2003, the Company agreed with the financial institution that the Company would not repay a portion of the term loan with the proceeds of a legal settlement received in December 2002. As of January 31, 2003, the Company was not in compliance with a covenant relating to revenue. The Company received a waiver for such covenant in February 2003.

The Company’s principal executive office occupies approximately 37,247 square feet in Redwood City, California under a lease that expires in June 2005. We currently occupy various leases in United States and Europe. These leases expire at various dates through April 2009.

Rental expense was approximately $7.0 million, $12.5 million and $4.4 million for the years ended January 31, 2003, 2002 and 2001, respectively.

Future minimum lease payments under noncancelable operating leases are as follows as of January 31, 2003 (in thousands):

Lease payments above, net of estimated sublease income, relating to facilities that the Company has either vacated or terminated pursuant to its restructuring program, amounted to $3.5 million, $609,000, $1.0 million, $928,000 and $1.3 million for the twelve months ended January 31, 2004, 2005, 2006, 2007 and 2008, respectively, and $2.4 million thereafter. The $3.5 million in payments mentioned above for the twelve months ended January 31, 2004 for leases we have either vacated or terminated (but had not yet paid as of January 31, 2003) included the final $2.0 million cash payments related to the termination of a major lease in Redwood City, California. This $2.0 million was paid in February 2003. These amounts were recorded in accrued restructuring and long-term accrued restructuring as of January 31, 2003.

In November 1999, the Company loaned $1,250,000 to its then president, vertical markets, Joshua Pickus, who is now its chief executive officer, secured by a stock pledge agreement and personal assets, in connection with his purchase of 125,000 shares of the Company’s restricted common stock. The loan initially accrued interest at 6.08% and was to mature in November 2002. In May 2002, the Company extended the maturity date of the loan to November 2004 and reduced the interest rate to 3.21%. In July 2002, the Company repurchased these 125,000 shares of common stock from Mr. Pickus for $675,000, the fair market value of the common stock at that time, and Mr. Pickus used all of this consideration to repay the equivalent principal amount of the note. In connection with this repayment, the Company cancelled $116,000 in accrued interest, which was recorded as compensation expense. The remaining amount of the loan of $674,000, including $99,000 in accrued interest, was reclassified to other assets in the second quarter of fiscal 2003 as there was no longer common stock to secure the loan. This loan remains secured by the personal assets of Mr. Pickus. On March 16, 2003, Mr. Pickus made a $150,000 payment against this loan which reduced the interest outstanding as of the date of repayment to zero and reduced the principal outstanding to $537,000.

In March 2001, the Company’s board of directors authorized the Company, from time to time and as business conditions warrant, with no expiration date, to repurchase shares of common stock at market price having an aggregate value of up to $10.0 million in open market, negotiated or block transactions. In fiscal 2002, the Company repurchased 454,166 shares of common stock at an average price per share of $7.86. The Company did not repurchase shares of common stock in open market in fiscal 2003.

In January 1998, the Company adopted the 1998 Stock Option Plan (1998 Plan). There were initially 800,000 shares of common stock reserved for issuance to directors, employees and consultants under the 1998 Plan. The 1998 Plan provides for the issuance of stock purchase rights, incentive stock options or nonstatutory stock options.

The stock purchase rights are subject to a restricted stock purchase agreement whereby the Company has the right to repurchase the stock at the original issuance price upon the voluntary or involuntary termination of the purchaser’s employment with the Company. The Company’s repurchase right lapses at a rate of 25% per year over four years or 1/3 per year over three years. Through January 31, 2003, the Company had issued 339,975 shares under restricted stock purchase agreements, of which approximately 255,564 shares had been repurchased. No shares were subject to repurchase at January 31, 2003. Certain of these restricted shares were issued to officers of the Company for full recourse promissory notes with interest rates ranging from 4.44% to 8.00% in the period from July 1998 to February 2000.

Under the 1998 Plan, the exercise price for incentive stock options is at least 100% of the stock’s fair market value on the date of grant for employees owning 10% or less of the voting power of all classes of stock, and at least 110% of the fair market value on the date of grant for employees owning more than 10% of the voting power of all classes of stock. For nonstatutory stock options, the exercise price is also at least 110% of the fair market value on the date of grant for employees owning more than 10% of the voting power of all classes of stock and no less than 85% for employees owning 10% or less of the voting power of all classes of stock.

Under the 1998 Plan, options generally expire in ten years. However, the term of the options may be limited to five years if the optionee owns stock representing more than 10% of the voting power of all classes of stock. Vesting periods are determined by the Company’s Board of Directors and generally provided for shares to vest ratably over a four-year period. Pursuant to a stockholder action dated January 24, 2000, shares issued under the 1998 Plan that are subsequently canceled or repurchased by the Company or that are issuable upon exercise of options granted under the 1998 Plan that expire or become exercisable without being exercised in full, will become available under the 2000 Equity Incentive Plan. Such shares are added to common stock reserved for issuance under the 2000 Equity Incentive Plan.

As of January 31, 2003, there were 37,454 options outstanding and no additional options available for grant under the 1998 Plan.

In December 1999, the Company adopted the 2000 Equity Incentive Plan (2000 Plan). The Company initially reserved 600,000 shares of common stock for issuance under the 2000 Plan. Shares issued under the 1998 Plan that are subsequently canceled or repurchased by the Company or that are issuable upon exercise of options granted under the 1998 Plan that expire or become exercisable without being exercised in full, will become available under the 2000 Plan. On each January 1, the aggregate number of shares reserved for

issuance under the 2000 Plan will increase automatically by a number of shares equal to 5% of the Company’s total outstanding shares on December 31 of the preceding year. The 2000 Plan will terminate in 2010.

Under the 2000 Plan, the exercise price for incentive stock options is at least 100% of the stock’s fair market value on the date of grant for employees owning 10% or less of the voting power of all classes of stock, and at least 110% of the fair market value on the date of grant for employees owning more than 10% of the voting power of all classes of stock. For nonstatutory stock options, the exercise price is also at least 110% of the fair market value on the date of grant for employees owning more than 10% of the voting power of all classes of stock and no less than 85% for employees owning 10% or less of the voting power of all classes of stock.

Under the 2000 Plan, options generally expire in ten years. However, the term of the options may be limited to five years if the optionee owns stock representing more than 10% of the voting power of all classes of stock. Vesting periods are determined by the Company’s Board of Directors and generally provide for shares to vest ratably over a four-year period.

As of January 31, 2003, the Company had 851,656 shares available for grant and 1,375,228 shares of common stock reserved to issue under the 2000 Plan, respectively.

In August 2000, the Company adopted the 2000 Stock Incentive Plan (2000 Incentive Plan) to provide incentives to eligible employees, including employees hired in connection with the Company’s acquisition of ABT, bSource and 600 Monkeys. The Company reserved 260,000 shares of common stock for issuance under the 2000 Incentive Plan. The exercise price of the incentive stock is determined by the Board of Directors when the option is granted and may not be less than the par value of the shares on the date of grant. Under the 2000 Incentive Plan, options generally expire in ten years. Vesting periods are determined by the Company’s Board of Directors.

As of January 31, 2003, the Company had 120,002 shares available for grant and 83,960 shares of common stock reserved for issuance only under the 2000 Incentive Plan.

In December 1999, the Company adopted the 2000 Employee Stock Purchase Plan (Purchase Plan) and initially reserved a total of 100,000 shares of the Company’s common stock for issuance under the Purchase Plan. On July 31, 2002, the Company suspended the Purchase Plan. The Company’s board of directors has the authority to reinstate the Purchase Plan in the future. Withholdings under the Purchase Plan since the last purchase period in February 2002 have been refunded to the Company’s employees. On each January 1, the aggregate number of shares reserved for issuance under the Purchase Plan increases automatically by a number of shares equal to 1% of the Company’s total outstanding shares on December 31 of the preceding year. The aggregate number of shares reserved for issuance under the Purchase Plan may not exceed 1,000,000 shares. Generally, the offering period is 24 months in length. The Purchase Plan permits eligible employees to purchase common stock through payroll deductions at a purchase price of 85% of the lower of the fair market value of the common stock at the beginning of the applicable offering period or the end of the applicable purchase period. The Company issued 21,741 and 42,559 shares of common stock under the Purchase Plan in the years ended January 31, 2003 and 2002 at a weighted-average purchase price of $4.60 and $29.20 per share, respectively. On July 31, 2002, the Company suspended the Purchase Plan. The Company’s board of directors has the authority to reinstate the Purchase Plan in the future. Withholdings under the Purchase Plan since the last purchase period in February 2002 have been refunded to the Company’s employees.

A summary of the status of the Company’s stock option plans as of January 31, 2003, 2002 and 2001 and changes during the years ended on those dates is presented below (excluding Purchase Plan):

Options granted and canceled for the year ended January 31, 2002, included approximately 890,000 stock options repriced.

The following table summarizes information about stock options outstanding as of January 31, 2003:

The Company’s income tax expense (benefit) for the years ended January 31, 2003, 2002 and 2001 are as follows (in thousands):

The reconciliations between the income tax amounts computed by applying the U.S. federal statutory tax rate of 35% to income (loss) before income taxes and actual income taxes are as follows (in thousands):

As of January 31, 2003 and 2002, the tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are set out below:

The net changes in the total valuation allowance for the years ended January 31, 2003 and 2002 were an increase of approximately $17.4 million and $72.3 million, respectively. The Company believes sufficient uncertainty exists regarding its ability to realize its deferred tax assets and, accordingly, a valuation allowance has been established against the net deferred tax assets.

Approximately $3.3 million of the valuation allowance for deferred tax assets is attributable to employee stock option deductions, the benefit from which will be allocated to paid-in capital rather than current earnings if and when subsequently realized.

As of January 31, 2003 the Company had approximately $265.2 million and $87.3 million of net operating loss carryforwards for both federal and state purposes, respectively, available to offset taxable income in future years. The federal net operating loss carryforwards expire if not utilized by 2022 and the state net operating loss carryforwards expire if not utilized by 2012. In addition, the Company had approximately $4.2 million and $2.3 million of tax credit carryforwards for increased research expenditures for federal and state purposes, respectively. The increased research credit for federal purposes expires if not utilized by 2022 and the increased research credit for state purposes can be carried over indefinitely. The Company also had approximately $266,000 of manufacturer’s investment credit carryforwards for state purposes, which expire if not utilized by 2010.

Federal and state laws impose substantial restrictions on the utilization of net operating loss and tax credit carryforwards in the event of an “ownership change,” as defined in Section 382 of the Internal Revenue Code. The Company has not yet determined whether an ownership change occurred due to significant stock transactions in each of the reporting years disclosed. If an ownership change has occurred, utilization of the net operating loss and tax credit carryforwards could be significantly reduced.

SFAS No. 131, Disclosure About Segments of an Enterprise and Related Information, establishes standards for the reporting by public business enterprises of information about operating segments, products and services, geographic areas and major customers. The method for determining what information to report is based on the way that management organizes the operating segments within the Company for making operational decisions and assessments of financial performance.

The Company’s chief operating decision makers are considered to be the chief executive officer and the chief financial officer. The chief executive officer and the chief financial officer review financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance. The Company operates in a single segment: software.

The Company markets its products primarily from its operations in the United States. International sales are primarily to customers in the United Kingdom and the rest of Europe. Revenue is attributed to the location of the customers. Geographic information regarding the Company’s revenue is as follows (in thousands):

It is impracticable to determine the breakdown of fiscal 2001 revenue between United Kingdom and Europe and other. The Company’s long-lived assets residing in countries other than in the United States are insignificant.

There were no customers individually representing more than 10% of gross accounts receivables (including unbilled accounts receivable) as of January 31, 2003 and 2002, respectively. There were no customers individually representing more than 10% of total revenue in fiscal 2003, 2002 and 2001, respectively.

On February 7, 2002, the Company settled an arbitration with two founders of ABT Corporation, a company we acquired in August 2000, in connection with their consulting agreements entered with the Company in August 2000. The Company agreed to pay a total of $2.8 million and the issuance of 40,000 shares of its common stock with a value of $872,000 based on the stock price on the date of the issuance of the common stock. In fiscal 2003, the Company paid $2.6 million and the remaining balance was paid by March 2003. These amounts were included in accrued liabilities as of January 31, 2003.

In May 2002, the Company issued 4,841 shares of common stock to former employees of Proamics Corporation, a company we acquired in December 1998. Theses shares were valued at $7.70 per share based on the stock price on the date of issuance.

In August 2001, Goldman, Sachs and Co., Dain Rauscher Wessels, U.S. Bancorp Piper Jaffray and Thomas Weisel Partners, the managing underwriters of the Company’s initial public offering (the “IPO”), the Company, and certain of the Company’s officers and directors, were named as defendants in a number of purported securities class actions in United States District Court for the Southern District of New York arising out of the Company’s initial public offering in February 2000. The complaints in these actions allege, among other things, that the registration statement and prospectus filed with the Securities and Exchange Commission for purposes of the IPO were false and misleading because they failed to disclose that Goldman, Sachs and Co., Dain Rauscher Wessels, U.S. Bancorp Piper Jaffray and Thomas Weisel Partners, the managing underwriters, allegedly (i) solicited and received commissions from certain investors in exchange for allocating to them shares of Company stock in connection with the IPO and (ii) entered into agreements with their customers to allocate such stock to those customers in exchange for the customers agreeing to purchase additional shares of ours in the aftermarket at pre-determined prices. On August 8, 2001 the Court ordered that these actions, along with hundreds of IPO allocation cases against other issuers and underwriters, be transferred to one judge for coordinated pre-trial proceedings. In July 2002, omnibus motions to dismiss the complaints based on common legal issues were filed on behalf of all issuers and underwriters. By order dated October 8, 2002, the Court dismissed the Company’s officers and directors from the case without prejudice. In an opinion issued on February 19, 2003, the Court granted in part and denied in part the motions to dismiss. The complaints against the Company were not dismissed as a matter of law. These cases remain at a preliminary stage and no discovery proceedings have taken place in relation to the issuers. The Company believes that the claims asserted against it in these cases are without merit and the Company intends to defend vigorously against them. These cases seek compensatory damages in unspecified amounts as well as other relief.

On August 12, 2002, the Company filed a suit against Business Engine Corporation (“Business Engine”), a San Francisco-based software developer, in the United States District Court in San Francisco for alleged theft of trade secrets, computer fraud and other activities directed at the Company. On August 15, 2002, the Court entered a temporary restraining order against Business Engine, which among other things, prevented Business Engine from continuing to access or attempting to access the Company’s internal computer system, using or disclosing any information or documents gained from such access, or destroying, altering, deleting or tampering with any such documents or information derived from such access. On November 27, 2002, the Company and Business Engine entered into a settlement agreement. The agreement provided for a payment to the Company of $5.0 million from Business Engine which the Company received in December 2002 and recorded in other income. The agreement also provided for a permanent injunction against Business Engine prohibiting it from continuing to access or attempting to access the Company’s internal computer system and from using or disclosing any information or documents gained from any unauthorized access, a one year inspection procedure whereby a jointly appointed neutral expert will ensure protection of Niku intellectual property, and mutual releases.

On February 12, 2003, the Company entered into a common stock and warrant purchase agreement with various investors led by Walden VC, providing for the issuance of 3,088,230 shares of the Company’s common stock at a price of $3.35 per share and warrants to purchase 386,034 shares of common stock at a price of $0.40 per share in a connection with a private placement. These warrants have an exercise price of $3.40. In February 2003, the Company issued 1,549,735 shares of its common stock and warrants to purchase 193,720

shares of common stock in connection with this private placement. In April 2003, the Company’s stockholders approved the issuance of the remaining 1,538,495 shares of the Company’s common stock and warrants to purchase 192,314 shares of common stock in connection with this private placement and we issued such common stock and warrants to purchase common stock. Total estimated net proceeds from the private placement approximated $10.3 million. Total shares and warrants outstanding following the private placement were 11,853,646 (including options exercised subsequent to January 31, 2003) and 405,617, respectively.

On April 15, 2003, the Company announced a voluntary stock option exchange program for its employees. Under the program, the Company’s employees will be given the opportunity to exchange outstanding stock options previously granted to them with an exercise price greater than or equal to $7.50 per share for a new option exercisable for 1.15 shares for each share subject to the tendered options, to be granted at a future date, at least six months and a day from the cancellation date. The exercise price of these new stock options will be equal to the fair market value of our common stock on the date of grant. On the grant date, the new stock options will be vested as to the number of stock options that would have been vested on such date had the old stock options not been tendered plus the number of shares that would have been vested had the old option been exercisable for 15% more shares. The Company’s chief executive officer, chief financial officer and members of the board of directors are not eligible to participate in the program. The exchange program is not expected to result in any additional compensation charges or variable plan accounting.

The selected unaudited quarterly financial data are as follows (in thousands, except per share data):


(1)	Revenue and cost of revenue reclassified for Emerging Issues Task Force Issue (“EITF”) No. 01-14, Income Statement Characterization of Reimbursements Received for Out of Pocket Expenses Incurred.

The information required by Item 10 and included in the proxy statement for our 2003 annual meeting of stockholders under the headings “Proposal No. 1 — Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” is incorporated into this report by reference.

Our executive officers and their ages and positions as of March 31, 2003 were as follows:

Joshua Pickus has served as our president and chief executive officer since November 2002. Mr. Pickus was our chief financial officer from February 2001 to January 2003 and our president, worldwide business relations from January 2001 to January 2003. From November 1999 to January 2001, Mr. Pickus served as our president, vertical markets. From April 1999 to November 1999, Mr. Pickus was a general partner in the private equity group at Bowman Capital Management, a technology investment firm. From January 1994 to March 1999, he was a partner at Venture Law Group, a Silicon Valley law firm. Mr. Pickus holds an A.B. in public and international affairs from Princeton University and a J.D. from the University of Chicago Law School.

Michael Shahbazian has served as our chief financial officer since January 2003. From November 2000 to November 2002, Mr. Shahbazian served as the chief financial officer of ANDA Networks, a telecommunications equipment company. From February 2000 to November 2000, Mr. Shahbazian served as the chief financial officer of Inventa Technologies, an internet professional services company. From April 1999 to January 2000, Mr. Shahbazian served as the chief financial officer for Walker Interactive, a software company. From June 1979 to April 1999, Mr. Shahbazian served in a variety of senior finance positions at Amdahl Corporation, including corporate treasurer and European CFO. Mr. Shahbazian hold a BS in Business from California State University at Fresno and a MBA from the University of Southern California.

The information required by Item 11 and included in the proxy statement for our 2003 annual meeting of stockholders under the headings “Proposal No. 1 — Election of Directors,” “Executive Compensation and Related Matters” and “Compensation Committee Interlocks and Insider Participation” is incorporated into this report by reference.

The information required by Item 12 and included in the proxy statement for our 2003 annual meeting of stockholders under the heading “Stock Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” is incorporated into this report by reference.

The information required by Item 13 and included in the proxy statement for our 2003 annual meeting of stockholders under the heading “Certain Relationships and Related Transactions” is incorporated into this report by reference.

Our chief executive officer and chief financial officer have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of a date within 90 days prior to the filing date of this annual report on Form 10-K (the “Evaluation Date”). Based on such evaluation, they have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in alerting management on a timely basis to material information relating to the Company required to be included in our reports filed or submitted under the Exchange Act.

Since the Evaluation Date, there have not been any significant changes in our internal controls or in other factors that could affect such controls.


	(a)	The following exhibits are filed as part of, or incorporated by reference into, this annual report on Form 10-K


	On December 3, 2002, we filed a current report on Form 8-K to announce that our common stock will trade on The Nasdaq SmallCap Market beginning December 3, 2002.

	On November 7, 2002, we filed a current report on Form 8-K to announce the termination of the lease for our former headquarters at 350 Convention Way, Redwood City, California.


(1)	Incorporated by reference to the Registrant’s Fiscal 2000 Annual Report on Form 10-K filed on April 28, 2000.

(2)	Incorporated by reference to the Registrant’s Registration Statement on Form S-8 dated November 17, 2001.

(3)	Incorporated by reference to the Registrant’s Fiscal 2001 Annual Report on Form 10-K filed on April 19, 2001.

(4)	Incorporated by reference to the Current Report on Form 8-K filed on November 7, 2002.

(5)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed on June 13, 2002.

(6)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed on September 12, 2002.

(7)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed December 13, 2002.

(8)	Incorporated by reference to the Current Report on Form 8-K filed on November 21, 2002.

(9)	Incorporated by reference to the Current Report on Form 8-K filed on April 14, 2003.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this annual report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.


	By:	/s/ JOSHUA PICKUS



	Joshua Pickus
	President, Chief Executive Officer
	and Chairman of the Board
	(Principal Executive Officer)

	Dated: April 15, 2003

KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears below constitutes and appoints Joshua Pickus and Michael Shahbazian and each of them, his true lawful attorneys-in-fact and agents, with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this annual report on Form 10-K and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, 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 premises, as fully 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 Exchange Act of 1934, this annual report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:


	(a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

	(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

	(c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):


	(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


	(a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

	(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

	(c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;


	(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and


(1)	Write-offs included $2,606 relating to write off of allowance for doubtful accounts from acquisitions.

67 EX-3.03 3 f88965exv3w03.txt EXHIBIT 3.03 EXHIBIT 3.03 AMENDED AND RESTATED BYLAWS OF NIKU CORPORATION TABLE OF CONTENTS

TABLE OF CONTENTS (Continued)

3 ARTICLE I STOCKHOLDERS Section 1.1 Annual Meetings. An annual meeting of stockholders shall be held for the election of directors at such date, time and place, either within or without the State of Delaware, as the Board of Directors shall each year fix. Any other proper business may be transacted at the annual meeting. Section 1.2 Special Meetings. Special meetings of stockholders for any purpose or purposes may be called at any time by the Chairperson of the Board of Directors, the Chief Executive Officer, or if there is no Chief Executive Officer, the President, by a majority of the members of the Board of Directors or by holders of at least a majority of the outstanding voting stock then entitled to vote at an election of directors. Special meetings may not be called by any other person or persons. If a special meeting of stockholders is called at the request of any person or persons other than by a majority of the members of the Board of Directors, then such person or persons shall request such meeting by delivering a written request to call such meeting to each member of the Board of Directors, and the Board of Directors shall then determine the time, date and place of such special meeting, which shall be held not more than one hundred twenty (120) nor less than thirty-five (35) days after the written request to call such special meeting was delivered to each member of the Board of Directors. Section 1.3 Notice of Meetings. Written notice of all meetings of stockholders shall be given stating the place, date and time of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise required by applicable law or the Certificate of Incorporation of the Corporation, such notice shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder of record entitled to vote at such meeting. Such notice shall be given by the Secretary of the Corporation or by an officer of the Corporation designated by the Board of Directors, or in the case of a special meeting of stockholders, by the officer or persons calling such meeting. The business to be transacted at any special meeting of stockholders shall be limited to matters relating to the purpose or purposes stated in the notice of meeting. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. Section 1.4 Adjournments. Any meeting of stockholders may adjourn from time to time to reconvene at the same or another place, and notice need not be given of any such adjourned meeting if the time, date and place thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, then a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. At the adjourned meeting the Corporation may transact any business that might have been transacted at the original meeting. Section 1.5 Quorum. At each meeting of stockholders the holders of a majority of the shares of stock entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business, except if otherwise required by applicable law or the Certificate of Incorporation. If a quorum shall fail to attend any meeting, the chairperson of the meeting or the holders of a majority of the shares entitled to vote who are present, in person or by proxy, at the meeting may adjourn the meeting. The shares of the capital stock of the Corporation belonging to the Corporation, or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation are held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the Corporation or any other corporation to vote any shares of the capital stock of the Corporation held by it in a fiduciary capacity. Section 1.6 Organization. The meetings of stockholders shall be presided over by such person as the Board of Directors may designate, or, in the absence of such a person, the Chairperson of the Board of Directors, or, in the absence of such person, the President of the Corporation, or, in the absence of such person, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or represented by proxy, at the meeting. Such person shall be chairperson of the meeting and, subject to Section 1.11 hereof, shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seems to him or her to be in order. The Secretary of the Corporation shall act as secretary of the meeting, but in such person's absence the chairperson of the meeting may appoint any person to act as secretary of the meeting. Section 1.7 Voting; Proxies. Unless otherwise provided by law or the Certificate of Incorporation, and subject to the provisions of Section 1.8 of these Bylaws, each stockholder shall be entitled to one (1) vote for each share of stock held by such stockholder. Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy. Such a proxy may be prepared, transmitted and delivered in any manner permitted by applicable law. The voting at meetings of stockholders need not be by written ballot unless such is demanded at the meeting before voting begins by a stockholder or stockholders holding shares, either directly or represented by proxy, representing at least one percent (1%) of the votes entitled to vote at such meeting; provided, however, that an election of directors shall be by written ballot if demand is so made by any stockholder at the meeting before voting begins. If a vote is to be taken by written ballot, then each such ballot shall state the name of the stockholder or proxy voting and such other information as the chairperson of the meeting deems appropriate. The directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Unless otherwise provided by applicable law, the Certificate of Incorporation or these Bylaws, every matter other than the election of directors shall be decided by the affirmative vote of the holders of a majority of the shares of stock entitled to vote thereon that are present in person or represented by proxy at the meeting and are voted for or against the matter. Section 1.8 Fixing Date for Determination of Stockholders of Record. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not precede the 5 date upon which the resolution fixing the record date is adopted by the Board of Directors and which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. If no record date is fixed by the Board of Directors, then the record date shall be as provided by applicable law. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 1.9 List of Stockholders Entitled to Vote. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present at the meeting. Section 1.10 Inspectors of Elections. (a) Applicability. Unless otherwise provided in the Certificate of Incorporation or required by the Delaware General Corporation Law, the following provisions of this Section 1.10 shall apply only if and when the Corporation has a class of voting stock that is: (i) listed on a national securities exchange; (ii) authorized for quotation on an automated interdealer quotation system of a registered national securities association; or (iii) held of record by more than two thousand stockholders. In all other cases, observance of the provisions of this Section 1.10 shall be optional, and at the discretion of the Corporation. (b) Appointment. The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors of election to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. (c) Inspector's Oath. Each inspector of election, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of such inspector's ability. (d) Duties of Inspectors. At a meeting of stockholders, the inspectors of election shall (i) ascertain the number of shares outstanding and the voting power of each share, (ii) determine the shares represented at a meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period of time a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors. 6 (e) Opening and Closing of Polls. The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced by the chairperson of the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery upon application by a stockholder shall determine otherwise. (f) Determinations. In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted with those proxies, any information provided in connection with proxies in accordance with Section 212(c)(2) of the Delaware General Corporation Law, ballots and the regular books and records of the Corporation, except that the inspectors may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspectors consider other reliable information for the limited purpose permitted herein, the inspectors at the time they make their certification of their determinations pursuant to this Section 1.10 shall specify the precise information considered by them, including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors' belief that such information is accurate and reliable. Section 1.11 Notice of Stockholder Business; Nominations. (a) Annual Meeting of Stockholders. (i) Nominations of persons for election to the Board of Directors and the proposal of business to be considered by the stockholders shall be made at an annual meeting of stockholders (A) pursuant to the notice of such meeting, (B) by or at the direction of the Board of Directors or (C) by any stockholder of the Corporation who was a stockholder of record at the time of giving of the notice provided for in this Section 1.11, who is entitled to vote at such meeting and who complies with the notice procedures set forth in this Section 1.11. (ii) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (C) of subparagraph (a)(i) of this Section 1.11, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and such other business must otherwise be a proper matter for stockholder action. To be timely, a stockholder's notice must be in writing and delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the sixtieth (60th) day nor earlier than the close of business on the ninetieth (90th) day prior to the first anniversary of the preceding year's annual meeting, except in the case of the first annual meeting after the adoption of these Bylaws, for which such notice shall be timely if delivered in the same time period as if such meeting were a special meeting governed by subparagraph (b) of this Section 1.11; provided, however, that in the event that the date of the annual meeting is more than thirty (30) days before or more than sixty (60) days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the ninetieth (90th) day prior to such annual meeting and not later than the close of business on the 7 later of the sixtieth (60th) day prior to such annual meeting or the close of business on the tenth (10th) day following the day on which public announcement of the date of such meeting is first made by the Corporation. Such stockholder's notice shall set forth: (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected, as well as such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as a director of the Corporation; (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (1) the name and address of such stockholder, as they appear on the books of the Corporation, and of such beneficial owner, and (2) the class and number of shares of the Corporation that are owned beneficially and held of record by such stockholder and such beneficial owner. (iii) Notwithstanding anything in the second sentence of subparagraph (a)(ii) of this Section 1.11 to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement by the Corporation naming all of the nominees for director or specifying the size of the increased Board of Directors at least seventy (70) days prior to the first anniversary of the preceding year's annual meeting (or, if the annual meeting is held more than thirty (30) days before or sixty (60) days after such anniversary date, at least seventy (70) days prior to such annual meeting), a stockholder's notice required by this Section 1.11 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary of the Corporation at the principal executive office of the Corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the Corporation. (b) Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the notice of such meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the notice of such meeting (i) by or at the direction of the Board of Directors or (ii) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice of the special meeting, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 1.11. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder may nominate a person or persons, as the case may be, for election to such positions as specified in the notice of meeting, if the stockholder's notice required by subparagraph (a)(ii) of this Section 1.11 shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation not earlier than the ninetieth (90th) day prior to such special meeting and not later than the close of business on the later of the 8 sixtieth (60th) day prior to such special meeting or the tenth (10th) day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. (c) General. (i) Only such persons who are nominated in accordance with the procedures set forth in this Section 1.11 shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 1.11. Except as otherwise provided by law or these Bylaws, the chairperson of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 1.11 and, if any proposed nomination or business is not in compliance herewith, to declare that such defective proposal or nomination shall be disregarded. (ii) For purposes of this Section 1.11, the term "PUBLIC ANNOUNCEMENT" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (iii) Notwithstanding the foregoing provisions of this Section 1.11, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth herein. Nothing in this Section 1.11 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the proxy statement pursuant to Rule 14a-8 under the Exchange Act and any stockholder proposal which complies with Rule 14a-8 of the proxy rules, or any successor provision, promulgated under the Securities Exchange Act of 1934, as amended, and is to be included in the proxy statement of this Corporation for an annual meeting of stockholders shall be deemed to comply with the requirements of this Section 1.11. ARTICLE II BOARD OF DIRECTORS Section 2.1 Number; Qualifications. The Board of Directors shall consist of one or more members and shall be fixed from time to time by resolution of the Board of Directors, but in no event shall the number of directors be less than three. No decrease in the authorized number of directors constituting the Board of Directors shall shorten the term of any incumbent director. The directors need not be stockholders of the Corporation. Section 2.2 Election; Resignation; Removal; Vacancies. The Board of Directors shall initially consist of the person or persons elected by the incorporator or named in the initial Certificate of Incorporation. Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, following the closing of the initial public offering of the Corporation pursuant to an effective registration statement 9 under the Securities Act of 1933, as amended, covering the offer and sale of common stock to the public (the "Initial Public Offering"), the directors shall be divided, with respect to the time for which they severally hold office, into three classes designated as Class I, Class II and Class III, respectively. The directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors, with the number of directors in each class to be divided as equally as reasonably possible. No one class shall have more than one director more than any other class. The term of office of the Class I directors shall expire at the first annual meeting of stockholders following the closing of the Initial Public Offering, the term of office of the Class II directors shall expire at the second annual meeting of stockholders following the closing of the Initial Public Offering, and the term of office of the Class III directors shall expire at the third annual meeting of stockholders following the closing of the Initial Public Offering. At each annual meeting of stockholders commencing with the first annual meeting of stockholders following the closing of the Initial Public Offering, directors elected to succeed those directors of the class whose terms then expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election. Prior to the closing of the Initial Public Offering, or in the event the Corporation is prohibited from dividing its Board of Directors in the manner described above through the operation of Section 2115 of the California General Corporation Law following the record date of the first annual meeting of stockholders following the closing of the Initial Public Offering, each director shall hold office until the next annual meeting of stockholders and until such director's successor is elected and qualified, or until such director's earlier death, resignation or removal. Any director may resign at any time upon written notice to the Corporation. Subject to the rights of the holders of any series of Preferred Stock any director or the entire Board of Directors may be removed only for cause by the holders of at least sixty-six and two-thirds percent (66 2/3%) of the shares then entitled to vote at an election of directors; provided, however, any director or the entire Board of Directors may be removed without cause, in accordance with the provisions of Section 303 of the California Corporations Code if and so long as such section is applicable to the Company. Subject to the rights of the holders of any series of Preferred Stock, any vacancy occurring in the Board of Directors for any cause, and any newly created directorship resulting from any increase in the authorized number of directors, shall be filled only by the affirmative vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director, and not by the stockholders. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office, and a director chosen to fill a position resulting from an increase in the number of directors shall hold office until the next election of the class for which such director shall have been chosen, subject to the election and qualification of his successor and to his earlier death, resignation or removal. In the event of any increase or decrease in the authorized number of directors, (i) each director then serving as such shall nevertheless continue as a director of the class of which he is a member and (ii) the newly created or eliminated directorships resulting from such increase or decrease shall be apportioned by the Board of Directors among the three classes of directors so as to ensure that no one class has more than one director more than any other class. To the extent possible, consistent with the foregoing rule, any newly created directorships shall be added to those classes whose terms of office are to expire at the latest dates following such allocation, and any newly eliminated directorships shall be subtracted from those classes whose terms of offices are to expire at the earliest dates following such allocation, unless otherwise provided from time to time by resolution adopted by the Board of Directors. 10 Section 2.3 Regular Meetings. The regular meetings of the Board of Directors may be held at such places, within or without the State of Delaware, and at such times as the Board of Directors may from time to time determine. The notice of regular meetings need not be given if the date, times and places thereof are fixed by resolution of the Board of Directors. Section 2.4 Special Meetings. Special meetings of the Board of Directors may be called by the Chairperson of the Board of Directors, the President or a majority of the members of the Board of Directors then in office and may be held at any time, date or place, within or without the State of Delaware, as the person or persons calling the meeting shall fix. Notice of the time, date and place of such meeting shall be given, orally or in writing, by the person or persons calling the meeting to all directors at least four (4) days before the meeting if the notice is mailed, or at least twenty-four (24) hours before the meeting if such notice is given by telephone, hand delivery, telegram, telex, mailgram, facsimile or similar communication method. Unless otherwise indicated in the notice, any and all business may be transacted at a special meeting. Section 2.5 Telephonic Meetings Permitted. Members of the Board of Directors, or any committee of the Board of Directors, may participate in a meeting of the Board of Directors or such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to conference telephone or similar communications equipment shall constitute presence in person at such meeting. Section 2.6 Quorum; Vote Required for Action. At all meetings of the Board of Directors, a majority of the total number of authorized directors shall constitute a quorum for the transaction of business. Except as otherwise provided herein or in the Certificate of Incorporation, or required by applicable law, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Section 2.7 Organization. The meetings of the Board of Directors shall be presided over by the Chairperson of the Board of Directors, or in such person's absence by the President, or in such person's absence by a chairperson chosen at the meeting. The Secretary shall act as secretary of the meeting, but in such person's absence the chairperson of the meeting may appoint any person to act as secretary of the meeting. Section 2.8 Written Action by Directors. Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee, respectively. Section 2.9 Powers. The Board of Directors may, except as otherwise required by law or the Certificate of Incorporation, exercise all such powers and do all such acts and things as may be exercised or done by the Corporation. Section 2.10 Compensation of Directors. Directors, as such, may receive, pursuant to a resolution of the Board of Directors, fees and other compensation for their services 11 as directors, including without limitation their services as members of committees of the Board of Directors. ARTICLE III COMMITTEES Section 3.1 Committees. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of the committee, the member or members thereof present at any meeting of such committee who are not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent provided in a resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation and may authorize the seal of the Corporation to be affixed to all papers that may require it. No such committee, however, shall have the power or authority in reference to the following matters: (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the Delaware General Corporation Law to be submitted to stockholders for approval or (ii) adopting, amending or repealing any bylaw of the Corporation. Section 3.2 Committee Rules. Unless the Board of Directors otherwise provides, each committee designated by the Board of Directors may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to Article II of these Bylaws. ARTICLE IV OFFICERS Section 4.1 Generally. The officers of the Corporation shall consist of a Chief Executive Officer and/or a President, one or more Vice Presidents, a Secretary, a Treasurer and such other officers, including a Chairperson of the Board of Directors and/or Chief Financial Officer, as may from time to time be appointed by the Board of Directors. All officers shall be elected by the Board of Directors; provided, however, that the Board of Directors may empower the Chief Executive Officer of the Corporation to appoint officers other than the Chairperson of the Board, the Chief Executive Officer, the President, the Chief Financial Officer or the Treasurer. Each officer shall hold office until such person's successor is elected and qualified or until such person's earlier resignation or removal. Any number of offices may be held by the same person. Any officer may resign at any time upon written notice to the Corporation. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise may be filled by the Board of Directors. 12 Section 4.2 Chief Executive Officer. Subject to the control of the Board of Directors and such supervisory powers, if any, as may be given by the Board of Directors, the powers and duties of the Chief Executive Officer of the Corporation are: (a) to act as the general manager and, subject to the control of the Board of Directors, to have general supervision, direction and control of the business and affairs of the Corporation; (b) to preside at all meetings of the stockholders; (c) to call meetings of the stockholders to be held at such times and, subject to the limitations prescribed by law or by these Bylaws, at such places as he or she shall deem proper; and (d) to affix the signature of the Corporation to all deeds, conveyances, mortgages, guarantees, leases, obligations, bonds, certificates and other papers and instruments in writing which have been authorized by the Board of Directors or which, in the judgment of the Chief Executive Officer, should be executed on behalf of the Corporation; to sign certificates for shares of stock of the Corporation; and, subject to the direction of the Board of Directors, to have general charge of the property of the Corporation and to supervise and control all officers, agents and employees of the Corporation. The President shall be the Chief Executive Officer of the Corporation unless the Board of Directors shall designate another officer to be the Chief Executive Officer. If there is no President, and the Board of Directors has not designated any other officer to be the Chief Executive Officer, then the Chairperson of the Board of Directors shall be the Chief Executive Officer. Section 4.3 Chairperson of the Board. The Chairperson of the Board of Directors shall have the power to preside at all meetings of the Board of Directors and shall have such other powers and duties as provided in these Bylaws and as the Board of Directors may from time to time prescribe. Section 4.4 President. The President shall be the Chief Executive Officer of the Corporation unless the Board of Directors shall have designated another officer as the Chief Executive Officer of the Corporation. Subject to the provisions of these Bylaws and to the direction of the Board of Directors, and subject to the supervisory powers of the Chief Executive Officer, if the Chief Executive Officer is an officer other than the President, and subject to such supervisory powers and authority as may be given by the Board of Directors to the Chairperson of the Board of Directors, and/or to any other officer, the President shall have the responsibility for the general management the control of the business and affairs of the Corporation and the general supervision and direction of all of the officers, employees and agents of the Corporation, other than the Chief Executive Officer, if the Chief Executive Officer is an officer other than the President, and shall perform all duties and have all powers that are commonly incident to the office of President or that are delegated to the President by the Board of Directors. Section 4.5 Vice President. Each Vice President shall have all such powers and duties as are commonly incident to the office of Vice President, or that are delegated to him or her by the Board of Directors or the Chief Executive Officer. A Vice President may be designated by the Board of Directors to perform the duties and exercise the powers of the Chief Executive Officer in the event of the absence or disability of the Chief Executive Officer. Section 4.6 Chief Financial Officer. The Chief Financial Officer shall be the Treasurer of the Corporation unless the Board of Directors shall have designated another officer 13 as the Treasurer of the Corporation. Subject to the direction of the Board of Directors and the Chief Executive Officer, the Chief Financial Officer shall perform all duties and have all powers that are commonly incident to the office of Chief Financial Officer. Section 4.7 Treasurer. The Treasurer shall have custody of all monies and securities of the Corporation. The Treasurer shall be the Chief Financial Officer of the Corporation unless the Board of Directors shall have designated another officer as Chief Financial Officer of the Corporation. The Treasurer shall make such disbursements of the funds of the Corporation as are authorized and shall render from time to time an account of all such transactions. The Treasurer shall also perform such other duties and have such other powers as are commonly incident to the office of Treasurer, or as the Board of Directors or the Chief Executive Officer may from time to time prescribe. Section 4.8 Secretary. The Secretary shall issue or cause to be issued all authorized notices for, and shall keep, or cause to be kept, minutes of all meetings of the stockholders and the Board of Directors. The Secretary shall have charge of the corporate minute books and similar records and shall perform such other duties and have such other powers as are commonly incident to the office of Secretary, or as the Board of Directors or the Chief Executive Officer may from time to time prescribe. Section 4.9 Delegation of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding any provision hereof. Section 4.10 Removal. Any officer of the Corporation shall serve at the pleasure of the Board of Directors and may be removed at any time, with or without cause, by the Board of Directors. Such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation. ARTICLE V STOCK Section 5.1 Certificates. Every holder of stock shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairperson or Vice-Chairperson of the Board of Directors, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the Corporation, certifying the number of shares owned by such stockholder in the Corporation. Any or all of the signatures on the certificate may be a facsimile. Section 5.2 Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates. The Corporation may issue a new certificate of stock in the place of any certificate previously issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or such owner's legal representative, to agree to indemnify the Corporation and/or to give the Corporation a bond sufficient to indemnify it, against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. 14 Section 5.3 Other Regulations. The issue, transfer, conversion and registration of stock certificates shall be governed by such other regulations as the Board of Directors may establish. ARTICLE VI INDEMNIFICATION Section 6.1 Indemnification of Officers and Directors. Each person who was or is made a party to, or is threatened to be made a party to, or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "PROCEEDING"), by reason of the fact that such person, or a person of whom such person is the legal representative, is or was a director or officer of the Corporation or a Reincorporated Predecessor, as defined below, or is or was serving at the request of the Corporation or a Reincorporated Predecessor, as defined below, as a director or officer of another corporation, or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, shall be indemnified and held harmless by the Corporation to the fullest extent permitted by the Delaware General Corporation Law, against all expenses, liability and loss, including attorneys' fees, judgments, fines, ERISA excise taxes and penalties and amounts paid or to be paid in settlement, reasonably incurred or suffered by such person in connection therewith, provided such person acted in good faith and in a manner which the person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person's conduct was unlawful. Such indemnification shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of such person's heirs, executors and administrators. Notwithstanding the foregoing, the Corporation shall indemnify any such person seeking indemnity in connection with a Proceeding (or part thereof) initiated by such person only if such Proceeding or part thereof was authorized by the Board of Directors of the Corporation. As used herein, the term "REINCORPORATED PREDECESSOR" means a corporation that is merged with and into the Corporation in a statutory merger where (a) the Corporation is the surviving corporation of such merger and (b) the primary purpose of such merger is to change the corporate domicile of the Reincorporated Predecessor to Delaware. Section 6.2 Advance of Expenses. The Corporation shall pay all expenses, including attorneys' fees, incurred by such a director or officer in defending any such Proceeding as they are incurred in advance of its final disposition; provided, however, that if the Delaware General Corporation Law then so requires, the payment of such expenses incurred by such a director or officer in advance of the final disposition of such Proceeding shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it should be determined ultimately that such director or officer is not entitled to be indemnified under this Article VI or otherwise; and provided, further, that the Corporation shall not be required to advance any expenses to a person against whom the Corporation directly brings a claim, in a Proceeding, alleging that such person has breached such person's duty of loyalty to the Corporation, committed an act or omission not in good faith or that involves intentional misconduct or a knowing violation of law, or derived an improper personal benefit from a transaction. 15 Section 6.3 Non-Exclusivity of Rights. The rights conferred on any person in this Article VI shall not be exclusive of any other right that such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaw, agreement, vote or consent of stockholders or disinterested directors, or otherwise. Additionally, nothing in this Article VI shall limit the ability of the Corporation, in its discretion, to indemnify or advance expenses to persons whom the Corporation is not obligated to indemnify or advance expenses pursuant to this Article VI. Section 6.4 Indemnification Contracts. The Board of Directors is authorized to cause the Corporation to enter into indemnification contracts with any director, officer, employee or agent of the Corporation, or any person serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, providing indemnification rights to such person. Such rights may be greater than those provided in this Article VI. Section 6.5 Effect of Amendment. Any amendment, repeal or modification of any provision of this Article VI shall be prospective only, and shall not adversely affect any right or protection conferred on a person pursuant to this Article VI and existing at the time of such amendment, repeal or modification. ARTICLE VII NOTICES Section 7.1 Notice. Except as otherwise specifically provided herein or required by law, all notices required to be given pursuant to these Bylaws shall be in writing and may in every instance be effectively given by hand delivery, including use of a delivery service, by depositing such notice in the mail, postage prepaid, or by sending such notice by prepaid telegram, telex, overnight express courier, mailgram or facsimile. Any such notice shall be addressed to the person to whom notice is to be given at such person's address as it appears on the records of the Corporation. The notice shall be deemed given (i) in the case of hand delivery, when received by the person to whom notice is to be given or by any person accepting such notice on behalf of such person, (ii) in the case of delivery by mail, upon deposit in the mail, (iii) in the case of delivery by overnight express courier, when dispatched, and (iv) in the case of delivery via telegram, telex, mailgram or facsimile, when dispatched. Section 7.2 Waiver of Notice. Whenever notice is required to be given under any provision of these Bylaws, a written waiver of notice, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any written waiver of notice. 16 ARTICLE VIII INTERESTED DIRECTORS Section 8.1 Interested Directors; Quorum. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof that authorizes the contract or transaction, or solely because his, her or their votes are counted for such purpose, if: (i) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; (ii) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof, or the stockholders. Interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. ARTICLE IX MISCELLANEOUS Section 9.1 Fiscal Year. The fiscal year of the Corporation shall be determined by resolution of the Board of Directors. Section 9.2 Seal. The Board of Directors may provide for a corporate seal, which shall have the name of the Corporation inscribed thereon and shall otherwise be in such form as may be approved from time to time by the Board of Directors. Section 9.3 Form of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account and minute books, may be kept on, or be in the form of, magnetic tape, diskettes, photographs, microphotographs or any other information storage device, provided that the records so kept can be converted into clearly legible form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same. Section 9.4 Reliance Upon Books and Records. A member of the Board of Directors, or a member of any committee designated by the Board of Directors shall, in the performance of such person's duties, be fully protected in relying in good faith upon records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of the officers or employees of the Corporation, or committees of the Board of Directors, or by any other person as to matters the member reasonably believes are within 17 such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation. Section 9.5 Certificate of Incorporation Governs. In the event of any conflict between the provisions of the Certificate of Incorporation and Bylaws of the Corporation, the provisions of the Certificate of Incorporation shall govern. Section 9.6 Severability. If any provision of these Bylaws shall be held to be invalid, illegal, unenforceable or in conflict with the provisions of the Certificate of Incorporation of the Corporation, then such provision shall nonetheless be enforced to the maximum extent possible consistent with such holding and the remaining provisions of these Bylaws, including without limitation, all portions of any section of these Bylaws containing any such provision held to be invalid, illegal, unenforceable or in conflict with the Certificate of Incorporation, that are not themselves invalid, illegal, unenforceable or in conflict with the Certificate of Incorporation, shall remain in full force and effect. ARTICLE X AMENDMENT Section 10.1 Amendments. Notwithstanding any other provision of law, the Certificate of Incorporation or these Bylaws, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of at least sixty six and two-thirds percent (66 2/3%) of the outstanding voting stock then entitled to vote at an election of directors shall be required to alter, amend or repeal any provision of these Bylaws or to adopt new Bylaws. To the extent provided in the Certificate of Incorporation, the Board of Directors of the Corporation shall also have the power to adopt, amend or repeal these Bylaws or to adopt new Bylaws; provided, however, Article II Section 2.1 of these Bylaws may be amended only in accordance with the provisions of Section 212(a) of the California Corporations Code if and so long as such section is applicable to the Company. 18 EX-10.03 4 f88965exv10w03.txt EXHIBIT 10.03 EXHIBIT 10.03 NIKU CORPORATION 2000 EQUITY INCENTIVE PLAN As Adopted December 8, 1999 As Amended and Restated Effective February 11, 2003 1. PURPOSE. The purpose of this Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, its Parent and Subsidiaries, by offering them an opportunity to participate in the Company's future performance through awards of Options, Restricted Stock and Stock Bonuses. Capitalized terms not defined in the text are defined in Section 23. 2. SHARES SUBJECT TO THE PLAN. 2.1 Number of Shares Available. Subject to Sections 2.2 and 18, the total number of Shares reserved and available for grant and issuance pursuant to this Plan will be 6,000,000 Shares plus Shares that are subject to: (a) issuance upon exercise of an Option but cease to be subject to such Option for any reason other than exercise of such Option; (b) an Award granted hereunder but are forfeited or are repurchased by the Company at the original issue price; and (c) an Award that otherwise terminates without Shares being issued. In addition, any authorized shares not issued or subject to outstanding grants under the Company's 1998 Stock Plan (the "PRIOR PLAN") on the Effective Date (as defined below) and any shares issued under the Prior Plan that are forfeited or repurchased by the Company or that are issuable upon exercise of options granted pursuant to the Prior Plan that expire or become unexercisable for any reason without having been exercised in full, will no longer be available for grant and issuance under the Prior Plan, but will be available for grant and issuance under this Plan. In addition, on each January 1, the aggregate number of Shares reserved and available for grant and issuance pursuant to this Plan will be increased automatically by a number of Shares equal to 5% of the total outstanding shares of the Company as of the immediately preceding December 31, provided that no more than 20,000,000 shares shall be issued as ISOs (as defined in Section 5 below). At all times the Company shall reserve and keep available a sufficient number of Shares as shall be required to satisfy the requirements of all outstanding Options granted under this Plan and all other outstanding but unvested Awards granted under this Plan. 2.2 Adjustment of Shares. In the event that the number of outstanding shares is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company without consideration, then (a) the number of Shares reserved for issuance under this Plan, (b) the number of Shares that may be granted pursuant to Sections 3 and 9 below, (c) the Exercise Prices of and number of Shares subject to outstanding Options, and (d) the number of Shares subject to other outstanding Awards will be proportionately adjusted, subject to any required action by the Board or the stockholders of the Company and compliance with applicable securities laws; provided, however, that fractions of a Share will not be issued but will either be replaced by a cash payment equal to the Fair Market Value of such fraction of a Share or will be rounded up to the nearest whole Share, as determined by the Committee. 3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted only to employees (including officers and directors who are also employees) of the Company or of a Parent or Subsidiary of the Company. All other Awards may be granted to employees, officers, directors, consultants and advisors of the Company or any Parent or Subsidiary of the Company; provided such consultants and advisors render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction. No person will be eligible to receive more than 2,000,000 Shares in any calendar year under this Plan pursuant to the grant of Awards hereunder, other than new employees of the Company or of a Parent or Subsidiary of the Company (including new employees who are also officers and directors of the Company or any Parent or Subsidiary of the Company), who are eligible to receive up to a maximum of 2,500,000 Shares in the calendar year in which they commence their employment. A person may be granted more than one Award under this Plan. 4. ADMINISTRATION. 4.1 Committee Authority. This Plan will be administered by the Committee or by the Board acting as the Committee. Except for automatic grants to Outside Directors pursuant to Section 9 hereof, and subject to the general purposes, terms and conditions of this Plan, and to the direction of the Board, the Committee will have full power to implement and carry out this Plan. Except for automatic grants to Outside Directors pursuant to Section 9 hereof, the Committee will have the authority to: (a) construe and interpret this Plan, any Award Agreement and any other agreement or document executed pursuant to this Plan; (b) prescribe, amend and rescind rules and regulations relating to this Plan or any Award; (c) select persons to receive Awards; (d) determine the form and terms of Awards; (e) determine the number of Shares or other consideration subject to Awards; (f) determine whether Awards will be granted singly, in combination with, in tandem with, in replacement of, or as alternatives to, other Awards under this Plan or any other incentive or compensation plan of the Company or any Parent or Subsidiary of the Company; (g) grant waivers of Plan or Award conditions; (h) determine the vesting, exercisability and payment of Awards; (i) correct any defect, supply any omission or reconcile any inconsistency in this Plan, any Award or any Award Agreement; (j) determine whether an Award has been earned; and (k) make all other determinations necessary or advisable for the administration of this Plan. 4.2 Committee Discretion. Except for automatic grants to Outside Directors pursuant to Section 9 hereof, any determination made by the Committee with respect to any Award will be made in its sole discretion at the time of grant of the Award or, unless in contravention of any express term of this Plan or Award, at any later time, and such determination will be final and binding on the Company and on all persons having an interest in any Award under this Plan. The Committee may delegate to one or more officers of the Company the authority to grant an Award under this Plan to Participants who are not Insiders of the Company. 5. OPTIONS. The Committee may grant Options to eligible persons and will determine whether such Options will be Incentive Stock Options within the meaning of the Code ("ISO") or Nonqualified Stock Options ("NQSOS"), the number of Shares subject to the Option, the Exercise Price of the Option, the period during which the Option may be exercised, and all other terms and conditions of the Option, subject to the following: 5.1 Form of Option Grant. Each Option granted under this Plan will be evidenced by an Award Agreement which will expressly identify the Option as an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and, except as otherwise required by the terms of Section 9 hereof, will be in such form and contain such provisions (which need not be the same for each Participant) as the Committee may from time to time approve, and which will comply with and be subject to the terms and conditions of this Plan. 2 NIKU Corporation 2000 Equity Incentive Plan 5.2 Date of Grant. The date of grant of an Option will be the date on which the Committee makes the determination to grant such Option, unless otherwise specified by the Committee. The Stock Option Agreement and a copy of this Plan will be delivered to the Participant within a reasonable time after the granting of the Option. 5.3 Exercise Period. Options may be exercisable within the times or upon the events determined by the Committee as set forth in the Stock Option Agreement governing such Option; provided, however, that no Option will be exercisable after the expiration of ten (10) years from the date the Option is granted; and provided further that no ISO granted to a person who directly or by attribution owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any Parent or Subsidiary of the Company ("TEN PERCENT STOCKHOLDER") will be exercisable after the expiration of five (5) years from the date the ISO is granted. The Committee also may provide for Options to become exercisable at one time or from time to time, periodically or otherwise, in such number of Shares or percentage of Shares as the Committee determines; provided, however, if and to the extent required by applicable law in that State at the time of grant, Options granted to individuals other than officers, directors or consultants of the Company residing in the State of California (the "CALIFORNIA OPTIONS") shall be exercisable at the rate of at least 20% per year over five years from the date of grant. 5.4 Exercise Price. The Exercise Price of an Option will be determined by the Committee when the Option is granted and may be not less than 85% of the Fair Market Value of the Shares on the date of grant; provided that: (i) the Exercise Price of an ISO will be not less than 100% of the Fair Market Value of the Shares on the date of grant; and (ii) the Exercise Price of any ISO granted to a Ten Percent Stockholder will not be less than 110% of the Fair Market Value of the Shares on the date of grant. Payment for the Shares purchased may be made in accordance with Section 8 of this Plan. 5.5 Method of Exercise. Options may be exercised only by delivery to the Company of a written stock option exercise agreement (the "EXERCISE AGREEMENT") in a form approved by the Committee (which need not be the same for each Participant), stating the number of Shares being purchased, the restrictions imposed on the Shares purchased under such Exercise Agreement, if any, and such representations and agreements regarding Participant's investment intent and access to information and other matters, if any, as may be required or desirable by the Company to comply with applicable securities laws, together with payment in full of the Exercise Price for the number of Shares being purchased. 5.6 Termination. Notwithstanding the exercise periods set forth in the Stock Option Agreement, exercise of an Option will always be subject to the following: (a) If the Participant is Terminated for any reason except death or Disability, then the Participant may exercise such Participant's Options only to the extent that such Options would have been exercisable upon the Termination Date no later than three (3) months after the Termination Date (or such shorter or longer time period, which period may not be less than thirty (30) days nor more than five (5) years as may be determined by the Committee, with any exercise beyond three (3) months after the Termination Date deemed to be an NQSO), but in any event, no later than the expiration date of the Options. (b) If the Participant is Terminated because of Participant's death or Disability (or the Participant dies within three (3) months after a Termination other than for Cause or because of Participant's Disability), then Participant's Options may be exercised only to the extent that such Options would have been exercisable by Participant on the Termination Date and must be exercised by Participant (or Participant's legal representative or authorized assignee) no later than twelve (12) months after the Termination Date (or such shorter or longer time period, which period may not be less than six (6) months nor more than five (5) years as may be determined by the Committee, with any such exercise beyond (a) three (3) months after the Termination Date when the Termination is for any reason other 3 than the Participant's death or Disability, or (b) twelve (12) months after the Termination Date when the Termination is for Participant's death or Disability, deemed to be an NQSO), but in any event no later than the expiration date of the Options. (c) Notwithstanding the provisions in paragraph 5.6(a) above, if a Participant is terminated for Cause, neither the Participant, the Participant's estate nor such other person who may then hold the Option shall be entitled to exercise any Option with respect to any Shares whatsoever, after termination of service, whether or not after termination of service the Participant may receive payment from the Company or Subsidiary for vacation pay, for services rendered prior to termination, for services rendered for the day on which termination occurs, for salary in lieu of notice, or for any other benefits. In making such determination, the Board shall give the Participant an opportunity to present to the Board evidence on his behalf. For the purpose of this paragraph, termination of service shall be deemed to occur on the date when the Company dispatches notice or advice to the Participant that his service is terminated. 5.7 Limitations on Exercise. Except with respect to California Options, the Committee may specify a reasonable minimum number of Shares that may be purchased on any exercise of an Option, provided that such minimum number will not prevent Participant from exercising the Option for the full number of Shares for which it is then exercisable. 5.8 Limitations on ISO. The aggregate Fair Market Value (determined as of the date of grant) of Shares with respect to which ISO are exercisable for the first time by a Participant during any calendar year (under this Plan or under any other incentive stock option plan of the Company, Parent or Subsidiary of the Company) will not exceed $100,000. If the Fair Market Value of Shares on the date of grant with respect to which ISO are exercisable for the first time by a Participant during any calendar year exceeds $100,000, then the Options for the first $100,000 worth of Shares to become exercisable in such calendar year will be ISO and the Options for the amount in excess of $100,000 that become exercisable in that calendar year will be NQSOs. In the event that the Code or the regulations promulgated thereunder are amended after the Effective Date of this Plan to provide for a different limit on the Fair Market Value of Shares permitted to be subject to ISO, such different limit will be automatically incorporated herein and will apply to any Options granted after the effective date of such amendment. 5.9 Modification, Extension or Renewal. The Committee may modify, extend or renew outstanding Options and authorize the grant of new Options in substitution therefor, provided that any such action may not, without the written consent of a Participant, impair any of such Participant's rights under any Option previously granted. Any outstanding ISO that is modified, extended, renewed or otherwise altered will be treated in accordance with Section 424(h) of the Code. 5.10 No Disqualification. Notwithstanding any other provision in this Plan, no term of this Plan relating to ISO will be interpreted, amended or altered, nor will any discretion or authority granted under this Plan be exercised, so as to disqualify this Plan under Section 422 of the Code or, without the consent of the Participant affected, to disqualify any ISO under Section 422 of the Code. 6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company to sell to an eligible person Shares that are subject to restrictions. To the extent required at the time of grant by the California "Blue Sky" law, Restricted Stock Awards shall be granted in accordance with Section 260.140.42 of Title 10 of the California Code of Regulations. The Committee will determine to whom an offer will be made, the number of Shares the person may purchase, the price to be paid (the "PURCHASE PRICE"), the restrictions to which the Shares will be subject, and all other terms and conditions of the Restricted Stock Award, subject to the following: 6.1 Form of Restricted Stock Award. All purchases under a Restricted Stock Award made pursuant to this Plan will be evidenced by an Award Agreement ("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, 4 and will comply with and be subject to the terms and conditions of this Plan. The offer of Restricted Stock will be accepted by the Participant's execution and delivery of the Restricted Stock Purchase Agreement and full payment for the Shares to the Company within thirty (30) days from the date the Restricted Stock Purchase Agreement is delivered to the person. If such person does not execute and deliver the Restricted Stock Purchase Agreement along with full payment for the Shares to the Company within thirty (30) days, then the offer will terminate, unless otherwise determined by the Committee. 6.2 Purchase Price. The Purchase Price of Shares sold pursuant to a Restricted Stock Award will be determined by the Committee on the date the Restricted Stock Award is granted, except in the case of a sale to a Ten Percent Stockholder, in which case the Purchase Price will be 100% of the Fair Market Value. Payment of the Purchase Price may be made in accordance with Section 8 of this Plan. 6.3 Terms of Restricted Stock Awards. Restricted Stock Awards shall be subject to such restrictions as the Committee may impose subject to the applicable requirements of California law. These restrictions may be based upon completion of a specified number of years of service with the Company or upon completion of the performance goals as set out in advance in the Participant's individual Restricted Stock Purchase Agreement. Restricted Stock Awards may vary from Participant to Participant and between groups of Participants. Prior to the grant of a Restricted Stock Award, the Committee shall: (a) determine the nature, length and starting date of any Performance Period for the Restricted Stock Award; (b) select from among the Performance Factors to be used to measure performance goals, if any; and (c) determine the number of Shares that may be awarded to the Participant. Prior to the payment of any Restricted Stock Award, the Committee shall determine the extent to which such Restricted Stock Award has been earned. Performance Periods may overlap and Participants may participate simultaneously with respect to Restricted Stock Awards that are subject to different Performance Periods and having different performance goals and other criteria. 6.4 Termination During Performance Period. If a Participant is Terminated during a Performance Period for any reason, then such Participant will be entitled to payment (whether in Shares, cash or otherwise) with respect to the Restricted Stock Award only to the extent earned as of the date of Termination in accordance with the Restricted Stock Purchase Agreement, unless the Committee will determine otherwise. 7. STOCK BONUSES. 7.1 Awards of Stock Bonuses. A Stock Bonus is an award of Shares (which may consist of Restricted Stock) for services rendered to the Company or any Parent or Subsidiary of the Company. A Stock Bonus may be awarded for past services already rendered to the Company, or any Parent or Subsidiary of the Company pursuant to an Award Agreement (the "STOCK BONUS AGREEMENT") that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. A Stock Bonus may be awarded upon satisfaction of such performance goals as are set out in advance in the Participant's individual Award Agreement (the "PERFORMANCE STOCK BONUS AGREEMENT") that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. Stock Bonuses may vary from Participant to Participant and between groups of Participants, and may be based upon the achievement of the Company, Parent or Subsidiary and/or individual performance factors or upon such other criteria as the Committee may determine subject to the applicable requirements of California law. 7.2 Terms of Stock Bonuses. The Committee will determine the number of Shares to be awarded to the Participant. If the Stock Bonus is being earned upon the satisfaction of performance goals pursuant to a Performance Stock Bonus Agreement, then the Committee will: (a) determine the nature, length and starting date of any Performance Period for each Stock Bonus; (b) select from among the Performance Factors to be used to measure the performance, if any; and (c) determine the number of Shares that may be awarded to the Participant. Prior to the payment of any Stock Bonus, the Committee shall determine the extent to which such Stock Bonuses have been earned. Performance Periods may overlap and Participants may participate simultaneously with respect to Stock Bonuses that are subject to different Performance Periods and different performance goals and other criteria. 5 The number of Shares may be fixed or may vary in accordance with such performance goals and criteria as may be determined by the Committee. The Committee may adjust the performance goals applicable to the Stock Bonuses to take into account changes in law and accounting or tax rules and to make such adjustments as the Committee deems necessary or appropriate to reflect the impact of extraordinary or unusual items, events or circumstances to avoid windfalls or hardships. 7.3 Form of Payment. The earned portion of a Stock Bonus may be paid currently or on a deferred basis with such interest or dividend equivalent, if any, as the Committee may determine. Payment may be made in the form of cash or whole Shares or a combination thereof, either in a lump sum payment or in installments, all as the Committee will determine. 8. PAYMENT FOR SHARE PURCHASES. 8.1 Payment. Payment for Shares purchased pursuant to this Plan may be made in cash (by check) or, where expressly approved for the Participant by the Committee and where permitted by law: (a) by cancellation of indebtedness of the Company to the Participant; (b) by surrender of shares that either: (1) have been owned by Participant for more than six (6) months and have been paid for within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares); or (2) were obtained by Participant in the public market; (c) by tender of a full recourse promissory note having such terms as may be approved by the Committee and bearing interest at a rate sufficient to avoid imputation of income under Sections 483 and 1274 of the Code; provided, however, that Participants who are not employees or directors of the Company will not be entitled to purchase Shares with a promissory note unless the note is adequately secured by collateral other than the Shares; (d) by waiver of compensation due or accrued to the Participant for services rendered; (e) with respect only to purchases upon exercise of an Option, and provided that a public market for the Company's stock exists: (1) through a "same day sale" commitment from the Participant and a broker-dealer that is a member of the National Association of Securities Dealers (an "NASD DEALER") whereby the Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased to pay for the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or (2) through a "margin" commitment from the Participant and a NASD Dealer whereby the Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or (f) by any combination of the foregoing. 8.2 Loan Guarantees. The Committee may help the Participant pay for Shares purchased under this Plan by authorizing a guarantee by the Company of a third-party loan to the Participant. 6 NIKU Corporation 2000 Equity Incentive Plan 9. AUTOMATIC GRANTS TO OUTSIDE DIRECTORS. 9.1 Types of Options and Shares. Options granted under this Plan and subject to this Section 9 shall be NQSOs. 9.2 Eligibility. Options subject to this Section 9 shall be granted only to Outside Directors. 9.3 Initial Grant. Each Outside Director who first becomes a member of the Board on or after the Effective Date will automatically be granted an Option for 50,000 Shares (an "INITIAL GRANT") on the date such Outside Director first becomes a member of the Board, unless such Outside Director received a grant of Options before the Effective Date. Each Outside Director who became a member of the Board prior to the Effective Date and who did not receive a prior Option grant will receive an Initial Grant immediately following the Effective Date. 9.4 Succeeding Grant. Immediately following each Annual Meeting of stockholders, each Outside Director will automatically be granted an Option for 25,000 Shares (a "SUCCEEDING GRANT"), provided the Outside Director is a member of the Board on such date and has served continuously as a member of the Board for a period of at least one year since the date of such Outside Director's Initial Grant. Notwithstanding anything in this Section 9.4 to the contrary, the Board may make discretionary supplemental grants to an Outside Director who has served for less than one year from the date of such Outside Director's Initial Grant, provided that no Outside Director may receive more than 75,000 Shares in any calendar year pursuant to this Section 9. 9.5 Vesting. The date an Outside Director receives an Initial Grant or a Succeeding Grant is referred to in this Plan as the "START DATE" for such Option. (a) Initial Grants. Each Initial Grant will vest as to 2.778% of the Shares on each monthly anniversary of the Start Date, so long as the Outside Director continuously remains a director or a consultant of the Company. (b) Succeeding Grants. Each Succeeding Grant will vest as to 2.778% of the Shares on each monthly anniversary of the Start Date, so long as the Outside Director continuously remains a director or a consultant of the Company. Notwithstanding any provision to the contrary, in the event of a Corporate Transaction described in Section 18.1, the vesting of all options granted to Outside Directors pursuant to this Section 9 will accelerate and such options will become exercisable in full prior to the consummation of such event at such times and on such conditions as the Committee determines, and must be exercised, if at all, within three months of the consummation of said event. Any options not exercised within such three-month period shall expire. 9.6 Exercise Price. The exercise price of an Option pursuant to an Initial Grant and Succeeding Grant shall be the Fair Market Value of the Shares, at the time that the Option is granted. 10. WITHHOLDING TAXES. 10.1 Withholding Generally. Whenever Shares are to be issued in satisfaction of Awards granted under this Plan, the Company may require the Participant to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for such Shares. Whenever, under this Plan, payments in satisfaction of Awards are to be made in cash, such payment will be net of an amount sufficient to satisfy federal, state, and local withholding tax requirements. 10.2 Stock Withholding. When, under applicable tax laws, a Participant incurs tax liability in connection with the exercise or vesting of any Award that is subject to tax withholding and the Participant is obligated to pay the Company the amount required to be withheld, the Committee may in its sole discretion allow the Participant to satisfy the minimum withholding tax obligation by electing to have the Company withhold from the 7 NIKU Corporation 2000 Equity Incentive Plan Shares to be issued that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld, determined on the date that the amount of tax to be withheld is to be determined. All elections by a Participant to have Shares withheld for this purpose will be made in accordance with the requirements established by the Committee and be in writing in a form acceptable to the Committee. 11. TRANSFERABILITY. 11.1 Except as otherwise provided in this Section 11, Awards granted under this Plan, and any interest therein, will not be transferable or assignable by Participant, and may not be made subject to execution, attachment or similar process, otherwise than by will or by the laws of descent and distribution or as determined by the Committee and set forth in the Award Agreement with respect to Awards that are not ISOs. 11.2 All Awards other than NQSO's. All Awards other than NQSO's shall be exercisable: (i) during the Participant's lifetime, only by (A) the Participant, or (B) the Participant's guardian or legal representative; and (ii) after Participant's death, by the legal representative of the Participant's heirs or legatees. 11.3 NQSOs. Unless otherwise restricted by the Committee, an NQSO shall be exercisable: (i) during the Participant's lifetime only by (A) the Participant, (B) the Participant's guardian or legal representative, (C) a Family Member of the Participant who has acquired the NQSO by "permitted transfer;" and (ii) after Participant's death, by the legal representative of the Participant's heirs or legatees. "Permitted transfer" means, as authorized by this Plan and the Committee in an NQSO, any transfer effected by the Participant during the Participant's lifetime of an interest in such NQSO but only such transfers which are by gift or domestic relations order. A permitted transfer does not include any transfer for value and neither of the following are transfers for value: (a) a transfer of under a domestic relations order in settlement of marital property rights or (b) a transfer to an entity in which more than fifty percent of the voting interests are owned by Family Members or the Participant in exchange for an interest in that entity. 12. PRIVILEGES OF STOCK OWNERSHIP; RESTRICTIONS ON SHARES. 12.1 Voting and Dividends. No Participant will have any of the rights of a stockholder with respect to any Shares until the Shares are issued to the Participant. After Shares are issued to the Participant, the Participant will be a stockholder and have all the rights of a stockholder with respect to such Shares, including the right to vote and receive all dividends or other distributions made or paid with respect to such Shares; provided, that if such Shares are Restricted Stock, then any new, additional or different securities the Participant may become entitled to receive with respect to such Shares by virtue of a stock dividend, stock split or any other change in the corporate or capital structure of the Company will be subject to the same restrictions as the Restricted Stock; provided, further, that the Participant will have no right to retain such stock dividends or stock distributions with respect to Shares that are repurchased at the Participant's Purchase Price or Exercise Price pursuant to Section 12. 12.2 Financial Statements. The Company will provide financial statements to each Participant prior to such Participant's purchase of Shares under this Plan, and to each Participant annually during the period such Participant has Awards outstanding; provided, however, the Company will not be required to provide such financial statements to Participants whose services in connection with the Company assure them access to equivalent information. Additionally, to the extent required, pursuant to the provisions of Section 260.140.46 of Title 10 of the California Code of Regulations, the Company shall provide to each Participant and to each individual who acquires Shares pursuant to the Plan, not less frequently than annually during the period such Participant or purchaser has one or more outstanding Awards, and, in the case of an individual who acquires Shares pursuant to the Plan, during the period such individual owns such Shares, copies of the Company's annual financial statements. The Company shall not be required to provide such statements to key employees of the Company whose duties in connection with the Company assure their access to equivalent information. 12.3 Restrictions on Shares. At the discretion of the Committee, the Company may reserve to itself and/or its assignee(s) in the Award Agreement a right to repurchase (the "Repurchase Right") a portion of or all 8 Unvested Shares held by a Participant following such Participant's Termination at any time within ninety (90) days after the later of Participant's Termination Date and the date Participant purchases Shares under this Plan, for cash and/or cancellation of purchase money indebtedness, at the Participant's Exercise Price or Purchase Price, as the case may be; provided, however, that the repurchase price of any Repurchase Right reserved in an Award subject to California law at the time of grant shall comply with the provisions of Section 260.140.41(k) of Title 10 of the California Code of Regulations to the extent required. 13. CERTIFICATES. All certificates for Shares or other securities delivered under this Plan will be subject to such stock transfer orders, legends and other restrictions as the Committee may deem necessary or advisable, including restrictions under any applicable federal, state or foreign securities law, or any rules, regulations and other requirements of the SEC or any stock exchange or automated quotation system upon which the Shares may be listed or quoted. 14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a Participant's Shares, the Committee may require the Participant to deposit all certificates representing Shares, together with stock powers or other instruments of transfer approved by the Committee, appropriately endorsed in blank, with the Company or an agent designated by the Company to hold in escrow until such restrictions have lapsed or terminated, and the Committee may cause a legend or legends referencing such restrictions to be placed on the certificates. Any Participant who is permitted to execute a promissory note as partial or full consideration for the purchase of Shares under this Plan will be required to pledge and deposit with the Company all or part of the Shares so purchased as collateral to secure the payment of Participant's obligation to the Company under the promissory note; provided, however, that the Committee may require or accept other or additional forms of collateral to secure the payment of such obligation and, in any event, the Company will have full recourse against the Participant under the promissory note notwithstanding any pledge of the Participant's Shares or other collateral. In connection with any pledge of the Shares, Participant will be required to execute and deliver a written pledge agreement in such form as the Committee will from time to time approve. The Shares purchased with the promissory note may be released from the pledge on a pro rata basis as the promissory note is paid. 15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from time to time, authorize the Company, with the consent of the respective Participants, to issue new Awards in exchange for the surrender and cancellation of any or all outstanding Awards. The Committee may at any time buy from a Participant an Award previously granted with payment in cash, Shares (including Restricted Stock) or other consideration, based on such terms and conditions as the Committee and the Participant may agree. 16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not be effective unless such Award is in compliance with all applicable federal and state securities laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed or quoted, as they are in effect on the date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any other provision in this Plan, the Company will have no obligation to issue or deliver certificates for Shares under this Plan prior to: (a) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable; and/or (b) completion of any registration or other qualification of such Shares under any state or federal law or ruling of any governmental body that the Company determines to be necessary or advisable. The Company will be under no obligation to register the Shares with the SEC or to effect compliance with the registration, qualification or listing requirements of any state securities laws, stock exchange or automated quotation system, and the Company will have no liability for any inability or failure to do so. 17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted under this Plan will confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Parent or Subsidiary of the Company or limit in any way the right of the Company or any Parent or Subsidiary of the Company to terminate Participant's employment or other relationship at any time, with or without cause. 9 18. CORPORATE TRANSACTIONS. 18.1 Assumption or Replacement of Awards by Successor. Except for automatic grants to Outside Directors pursuant to Section 9 hereof, in the event of (a) a dissolution or liquidation of the Company, (b) a merger or consolidation in which the Company is not the surviving corporation (other than a merger or consolidation with a wholly-owned subsidiary, a reincorporation of the Company in a different jurisdiction, or other transaction in which there is no substantial change in the stockholders of the Company or their relative stock holdings and the Awards granted under this Plan are assumed, converted or replaced by the successor corporation, which assumption will be binding on all Participants), (c) a merger in which the Company is the surviving corporation but after which the stockholders of the Company immediately prior to such merger (other than any stockholder that merges, or which owns or controls another corporation that merges, with the Company in such merger) cease to own their shares or other equity interest in the Company, (d) the sale of substantially all of the assets of the Company, or (e) the acquisition, sale, or transfer of more than 50% of the outstanding shares of the Company by tender offer or similar transaction (each, a "CORPORATE TRANSACTION"), (i) the vesting of all outstanding Awards will accelerate as to an additional 25% of the Shares that are unvested on the date of the Corporate Transaction and, (ii) thereafter, unless otherwise set forth below, all unvested shares subject to outstanding Awards will continue to vest in equal monthly installments over the remaining original vesting term as set forth in the Award Agreement. Upon a Corporate Transaction, all outstanding Awards shall be assumed by the successor or acquiring corporation (if any), which assumption will be binding on all Participants. In the alternative, the successor or acquiring corporation may substitute equivalent Awards or provide substantially similar consideration to Participants as was provided to shareholders (after taking into account the existing provisions of the Awards). The successor corporation may also issue, in place of outstanding unvested Shares of the Company held by the Participants, substantially similar shares or other property subject to repurchase restrictions no less favorable to the Participant. In the event such successor corporation (if any) refuses to assume or substitute Awards, as provided above, pursuant to a Corporate Transaction described in this Subsection 18.1, such Awards will expire on such Corporate Transaction at such time and on such conditions as the Committee will determine. Notwithstanding anything in this Plan to the contrary, the Committee may, in its sole discretion, provide that the vesting of any or all Awards granted pursuant to this Plan will accelerate upon a Corporate Transaction described in this Section 18. If the Committee exercises such discretion with respect to Options, such Options will become exercisable in full prior to the consummation of such event at such time and on such conditions as the Committee determines, and if such Options are not exercised prior to the consummation of the Corporate Transaction, they shall terminate at such time as determined by the Committee. 18.2 Other Treatment of Awards. Subject to any greater rights granted to Participants under the foregoing provisions of this Section 18, in the event of the occurrence of any Corporate Transaction described in Section 18.1, any outstanding Awards will be treated as provided in the applicable agreement or plan of merger, consolidation, dissolution, liquidation, or sale of assets. 18.3 Assumption of Awards by the Company. The Company, from time to time, also may substitute or assume outstanding awards granted by another company, whether in connection with an acquisition of such other company or otherwise, by either; (a) granting an Award under this Plan in substitution of such other company's award; or (b) assuming such award as if it had been granted under this Plan if the terms of such assumed award could be applied to an Award granted under this Plan. Such substitution or assumption will be permissible if the holder of the substituted or assumed award would have been eligible to be granted an Award under this Plan if the other company had applied the rules of this Plan to such grant. In the event the Company assumes an award granted by another company, the terms and conditions of such award will remain unchanged (except that the exercise price and the number and nature of Shares issuable upon exercise of any such option will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects to grant a new Option rather than assuming an existing option, such new Option may be granted with a similarly adjusted Exercise Price. 19. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become effective upon the first date on which grants are made of Shares reserved under the Plan (the "EFFECTIVE DATE"). This Plan shall be approved by the stockholders of the Company (excluding Shares issued pursuant to this Plan), consistent with applicable laws, within twelve (12) months before or after the date this Plan is adopted by the Board. Upon the 10 NIKU Corporation 2000 Equity Incentive Plan Effective Date, the Committee may grant Awards pursuant to this Plan; provided, however, that: (a) no Option may be exercised prior to initial stockholder approval of this Plan; (b) no Option granted pursuant to an increase in the number of Shares subject to this Plan approved by the Board will be exercised prior to the time such increase has been approved by the stockholders of the Company; (c) in the event that initial stockholder approval is not obtained within the time period provided herein, all Awards granted hereunder shall be cancelled, any Shares issued pursuant to any Awards shall be cancelled and any purchase of Shares issued hereunder shall be rescinded; and (d) in the event that stockholder approval of such increase is not obtained within the time period provided herein, all Awards granted pursuant to such increase will be cancelled, any Shares issued pursuant to any Award granted pursuant to such increase will be cancelled, and any purchase of Shares pursuant to such increase will be rescinded. 20. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided herein, this Plan will terminate ten (10) years from the date this Plan is adopted by the Board or, if earlier, the date of stockholder approval. This Plan and all agreements thereunder shall be governed by and construed in accordance with the laws of the State of California. 21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate or amend this Plan in any respect, including without limitation amendment of any form of Award Agreement or instrument to be executed pursuant to this Plan; provided, however, that the Board will not, without the approval of the stockholders of the Company, amend this Plan in any manner that requires such stockholder approval. 22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the Board, the submission of this Plan to the stockholders of the Company for approval, nor any provision of this Plan will be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options and bonuses otherwise than under this Plan, and such arrangements may be either generally applicable or applicable only in specific cases. 23. DEFINITIONS. As used in this Plan, the following terms will have the following meanings: "AWARD" means any award under this Plan, including any Option, Restricted Stock or Stock Bonus. "AWARD AGREEMENT" means, with respect to each Award, the signed written agreement between the Company and the Participant setting forth the terms and conditions of the Award. "BOARD" means the Board of Directors of the Company. "CAUSE" means the commission of an act of theft, embezzlement, fraud, dishonesty or a breach of fiduciary duty to the Company or a Parent or Subsidiary of the Company. "CODE" means the Internal Revenue Code of 1986, as amended. "COMMITTEE" means the Compensation Committee of the Board. "COMPANY" means NIKU Corporation or any successor corporation. "DISABILITY" means a disability, whether temporary or permanent, partial or total, as determined by the Committee. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXERCISE PRICE" means the price at which a holder of an Option may purchase the Shares issuable upon exercise of the Option. "FAIR MARKET VALUE" means the value of a share of the Company's Common Stock determined as follows: 11 NIKU Corporation 2000 Equity Incentive Plan (a) if such Common Stock is then quoted on the Nasdaq National Market, its closing price on the Nasdaq National Market as reported in The Wall Street Journal; (b) if such Common Stock is publicly traded and is then listed on a national securities exchange, its closing price on the principal national securities exchange on which the Common Stock is listed or admitted to trading as reported in The Wall Street Journal; (c) if such Common Stock is publicly traded but is not quoted on the Nasdaq National Market nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices as reported in The Wall Street Journal; (d) in the case of an Award made on the Effective Date, the price per share at which shares of the Company's Common Stock are initially offered for sale to the public by the Company's underwriters in the initial public offering of the Company's Common Stock pursuant to a registration statement filed with the SEC under the Securities Act; or (e) if none of the foregoing is applicable, by the Committee in good faith. "FAMILY MEMBER" includes any of the following: (a) child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of the Participant, including any such person with such relationship to the Participant by adoption; (b) any person (other than a tenant or employee) sharing the Participant's household; (c) a trust in which the persons in (a) and (b) have more than fifty percent of the beneficial interest; (d) a foundation in which the persons in (a) and (b) or the Participant control the management of assets; or (e) any other entity in which the persons in (a) and (b) or the Participant own more than fifty percent of the voting interest. "INSIDER" means an officer or director of the Company or any other person whose transactions in the Company's Common Stock are subject to Section 16 of the Exchange Act. "OPTION" means an award of an option to purchase Shares pursuant to Section 5. "OUTSIDE DIRECTOR" means a member of the Board who is not an employee of the Company or any Parent, Subsidiary or Affiliate of the Company. "PARENT" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if each of such corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "PARTICIPANT" means a person who receives an Award under this Plan. "PERFORMANCE FACTORS" means the factors selected by the Committee from among the following measures to determine whether the performance goals established by the Committee and applicable to Awards have been satisfied: (a) Net revenue and/or net revenue growth; 12 NIKU Corporation 2000 Equity Incentive Plan (b) Earnings before income taxes and amortization and/or earnings before income taxes and amortization growth; (c) Operating income and/or operating income growth; (d) Net income and/or net income growth; (e) Earnings per share and/or earnings per share growth; (f) Total stockholder return and/or total stockholder return growth; (g) Return on equity; (h) Operating cash flow return on income; (i) Adjusted operating cash flow return on income; (j) Economic value added; and (k) Individual confidential business objectives. "PERFORMANCE PERIOD" means the period of service determined by the Committee, not to exceed five (5) years, during which years of service or performance is to be measured for Restricted Stock Awards or Stock Bonuses. "PLAN" means this NIKU Corporation 2000 Equity Incentive Plan, as amended from time to time. "RESTRICTED STOCK AWARD" means an award of Shares pursuant to Section 6. "SEC" means the Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SHARES" means shares of the Company's Common Stock reserved for issuance under this Plan, as adjusted pursuant to Sections 2 and 18, and any successor security. "STOCK BONUS" means an award of Shares, or cash in lieu of Shares, pursuant to Section 7. "SUBSIDIARY" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "TERMINATION" or "TERMINATED" means, for purposes of this Plan with respect to a Participant, that the Participant has for any reason ceased to provide services as an employee, officer, director, consultant or advisor to the Company or a Parent or Subsidiary of the Company. An employee will not be deemed to have ceased to provide services in the case of (i) sick leave, (ii) military leave, or (iii) any other leave of absence approved by the Committee, provided, that such leave is for a period of not more than 90 days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute or unless provided otherwise pursuant to formal policy adopted from time to time by the Company and issued and promulgated to employees in writing. In the case of any employee on an approved leave of absence, the Committee may make such provisions respecting suspension of vesting of the Award while on leave from the employ of the Company or a Subsidiary as it may deem appropriate, except that in no event may an Option be exercised after the expiration of the term set forth in the Option agreement. The Committee will have sole discretion to determine whether a Participant has ceased to provide services and the effective date on which the Participant ceased to provide services (the "TERMINATION DATE"). 13 NIKU Corporation 2000 Equity Incentive Plan "UNVESTED SHARES" means "Unvested Shares" as defined in the Award Agreement. "VESTED SHARES" means "Vested Shares" as defined in the Award Agreement. 14 EX-10.04 5 f88965exv10w04.txt EXHIBIT 10.04 EXHIBIT 10.04 NIKU CORPORATION 2000 EMPLOYEE STOCK PURCHASE PLAN As Adopted December 8, 1999 Amended May 15, 2002 Amended and Restated February 11, 2003 1. ESTABLISHMENT OF PLAN. NIKU Corporation (the "COMPANY") proposes to grant options for purchase of the Company's Common Stock to eligible employees of the Company and its Participating Subsidiaries (as hereinafter defined) pursuant to this Employee Stock Purchase Plan (this "PLAN"). For purposes of this Plan, "PARENT CORPORATION" and "SUBSIDIARY" shall have the same meanings as "parent corporation" and "subsidiary corporation" in Sections 424(e) and 424(f), respectively, of the Internal Revenue Code of 1986, as amended (the "CODE"). "PARTICIPATING SUBSIDIARIES" are Parent Corporations or Subsidiaries that the Board of Directors of the Company (the "BOARD") designates from time to time as corporations that shall participate in this Plan. The Company intends this Plan to qualify as an "employee stock purchase plan" under Section 423 of the Code (including any amendments to or replacements of such Section), and this Plan shall be so construed. Any term not expressly defined in this Plan but defined for purposes of Section 423 of the Code shall have the same definition herein. A total of 1,000,000 shares of the Company's Common Stock is reserved for issuance under this Plan. In addition, on each January 1, the aggregate number of shares of the Company's Common Stock reserved for issuance under the Plan shall be increased automatically by a number of shares equal to 1% of the total number of outstanding shares of the Company Common Stock on the immediately preceding December 31; provided, that the Board or the Committee may in its sole discretion reduce the amount of the increase in any particular year; and, provided further, that the aggregate number of shares issued over the term of this Plan shall not exceed 10,000,000 shares. Such number shall be subject to adjustments effected in accordance with Section 14 of this Plan. 2. PURPOSE. The purpose of this Plan is to provide eligible employees of the Company and Participating Subsidiaries with a convenient means of acquiring an equity interest in the Company through payroll deductions, to enhance such employees' sense of participation in the affairs of the Company and Participating Subsidiaries, and to provide an incentive for continued employment. 3. ADMINISTRATION. This Plan shall be administered by the Compensation Committee of the Board (the "COMMITTEE"). Subject to the provisions of this Plan and the limitations of Section 423 of the Code or any successor provision in the Code and, where applicable, the provisions of California law. All questions of interpretation or application of this Plan shall be determined by the Committee and its decisions shall be final and binding upon all participants. Members of the Committee shall receive no compensation for their services in connection with the administration of this Plan, other than standard fees as established from time to time by the Board for services rendered by Board members serving on Board committees. All expenses incurred in connection with the administration of this Plan shall be paid by the Company. 4. ELIGIBILITY. Any employee of the Company or the Participating Subsidiaries is eligible to participate in an Offering Period (as hereinafter defined) under this Plan except the following: (a) employees who are not employed by the Company or a Participating Subsidiary prior to the beginning of such Offering Period or prior to such other time period as specified by the Committee, except that employees who are employed on the Effective Date of the Registration Statement filed by the Company with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as amended (the "SECURITIES ACT") registering the initial public offering of the Company's Common Stock shall be eligible to participate in the first Offering Period under the Plan; (b) employees who are customarily employed for twenty (20) hours or less per week; (c) employees who are customarily employed for five (5) months or less in a calendar year; NIKU Corporation 2000 Employee Stock Purchase Plan (d) employees who, together with any other person whose stock would be attributed to such employee pursuant to Section 424(d) of the Code, own stock or hold options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or any of its Participating Subsidiaries or who, as a result of being granted an option under this Plan with respect to such Offering Period, would own stock or hold options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or any of its Participating Subsidiaries; and (e) individuals who provide services to the Company or any of its Participating Subsidiaries as independent contractors who are reclassified as common law employees for any reason except for federal income and employment tax purposes. 5. OFFERING DATES. The offering periods of this Plan (each, an "OFFERING PERIOD") shall be of twenty-four (24) months duration commencing on March 1 and September 1 of each year and ending on February 28 and August 31 of each year; provided, however, that the first such Offering Period shall commence on the first business day on which price quotations for the Company's Common Stock are available on the Nasdaq National Market (the "FIRST OFFERING DATE") and shall end on February 28, 2002. Except for the first Offering Period, each Offering Period shall consist of four (4) six month purchase periods (individually, a "PURCHASE PERIOD") during which payroll deductions of the participants are accumulated under this Plan. The first Offering Period shall consist of no more than five and no fewer than three Purchase Periods, any of which may be greater or less than six months as determined by the Committee. The first business day of each Offering Period is referred to as the "OFFERING DATE". The last business day of each Purchase Period is referred to as the "PURCHASE DATE". The Committee shall have the power to change the Offering Dates, the Purchase Dates and the duration of Offering Periods or Purchase Periods without stockholder approval if such change is announced prior to the relevant Offering Period or prior to such other time period as specified by the Committee. 6. PARTICIPATION IN THIS PLAN. Eligible employees may become participants in an Offering Period under this Plan on the first Offering Date after satisfying the eligibility requirements by delivering a subscription agreement to the Company prior to such Offering Date, or such other time period as specified by the Committee. Notwithstanding the foregoing, the Committee may set a later time for filing the subscription agreement authorizing payroll deductions for all eligible employees with respect to a given Offering Period. An eligible employee who does not deliver a subscription agreement to the Company by such date after becoming eligible to participate in such Offering Period shall not participate in that Offering Period or any subsequent Offering Period unless such employee enrolls in this Plan by filing a subscription agreement with the Company prior to such Offering Date, or such other time period as specified by the Committee. Once an employee becomes a participant in an Offering Period, such employee will automatically participate in the Offering Period commencing immediately following the last day of the prior Offering Period unless the employee withdraws or is deemed to withdraw from this Plan or terminates further participation in the Offering Period as set forth in Section 11 below. Such participant is not required to file any additional subscription agreement in order to continue participation in this Plan. 7. GRANT OF OPTION ON ENROLLMENT. Enrollment by an eligible employee in this Plan with respect to an Offering Period will constitute the grant (as of the Offering Date) by the Company to such employee of an option to purchase on the Purchase Date up to that number of shares of Common Stock of the Company determined by dividing (a) the amount accumulated in such employee's payroll deduction account during such Purchase Period by (b) the lower of (i) eighty-five percent (85%) of the Fair Market Value of a share of the Company's Common Stock on the Offering Date (but in no event less than the par value of a share of the Company's Common Stock), or (ii) eighty-five percent (85%) of the Fair Market Value of a share of the Company's Common Stock on the Purchase Date (but in no event less than the par value of a share of the Company's Common Stock), provided, however, that the number of shares of the Company's Common Stock subject to any option granted pursuant to this Plan shall not exceed the lesser of (x) the maximum number of shares set by the Committee pursuant to Section 10(c) below with respect to the applicable Purchase Date, or (y) the maximum number of shares which may be purchased pursuant to Section 10(b) below with respect to the applicable Purchase Date. The Fair Market Value of a share of the Company's Common Stock shall be determined as provided in Section 8 below. 2 NIKU Corporation 2000 Employee Stock Purchase Plan 8. PURCHASE PRICE. The purchase price per share at which a share of Common Stock will be (i) sold in any Offering Period shall be (1) eighty-five percent (85%) of the lesser of: (a) The Fair Market Value on the Offering Date; or (b) The Fair Market Value on the Purchase Date, or (2) in the case of any participant who owns securities of the Company possessing more than 10% of the total combined voting power of all classes of securities of the Company, Parent Corporation or Subsidiaries, 100% of the lesser of: (a) The Fair Market Value on the Offering Date; or (b) The Fair Market Value on the Purchase Date. For purposes of this Plan, the term "FAIR MARKET VALUE" means the value of a share of the Company's Common Stock determined as follows: (a) if such Common Stock is then quoted on the Nasdaq National Market, its closing price on the Nasdaq National Market as reported in The Wall Street Journal; (b) if such Common Stock is publicly traded and is then listed on a national securities exchange, its closing price on the principal national securities exchange on which the Common Stock is listed or admitted to trading as reported in The Wall Street Journal; (c) if such Common Stock is publicly traded but is not quoted on the Nasdaq National Market nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices as reported in The Wall Street Journal; or (d) if none of the foregoing is applicable, by the Board in good faith, which in the case of the First Offering Date will be the price per share at which shares of the Company's Common Stock are initially offered for sale to the public by the Company's underwriters in the initial public offering of the Company's Common Stock pursuant to a registration statement filed with the SEC under the Securities Act. 9. PAYMENT OF PURCHASE PRICE; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE OF SHARES. (a) The purchase price of the shares is accumulated by regular payroll deductions made during each Offering Period. The deductions are made as a percentage of the participant's compensation in one percent (1%) increments not less than one percent (1%), nor greater than ten percent (10%) or such lower limit set by the Committee; provided, however, that no participant shall be entitled to deduct more than $10,000 on any Purchase Period (or such other maximum amount as determined by the Committee prior to or during any Purchase Period). Compensation shall mean all W-2 cash compensation, including, but not limited to, base salary, wages, commissions, overtime, shift premiums and bonuses, plus draws against commissions, provided, however, that for purposes of determining a participant's compensation, any election by such participant to reduce his or her regular cash remuneration under Sections 125 or 401(k) of the Code shall be treated as if the participant did not make such election. Payroll deductions shall commence on the first payday of the Offering Period and shall continue to the end of the Offering Period unless sooner altered or terminated as provided in this Plan. (b) A participant may increase or decrease the rate of payroll deductions during an Offering Period by filing with the Company a new authorization for payroll deductions, in which case the new rate shall become effective for the next payroll period commencing after the Company's receipt of the authorization and shall continue for the remainder of the Offering Period unless changed as described below. Such change in the rate of payroll deductions may be made at any time during an Offering Period, but not more than one (1) change may be made effective during any Purchase Period. A participant may increase or decrease the rate of payroll deductions for 3 NIKU Corporation 2000 Employee Stock Purchase Plan any subsequent Offering Period by filing with the Company a new authorization for payroll deductions prior to the beginning of such Offering Period, or such other time period as specified by the Committee. (c) A participant may reduce his or her payroll deduction percentage to zero during an Offering Period by filing with the Company a request for cessation of payroll deductions. Such reduction shall be effective beginning with the next payroll period after the Company's receipt of the request and no further payroll deductions will be made for the duration of the Offering Period. Payroll deductions credited to the participant's account prior to the effective date of the request shall be used to purchase shares of Common Stock of the Company in accordance with Section (e) below. A participant may not resume making payroll deductions during the Offering Period in which he or she reduced his or her payroll deductions to zero. (d) All payroll deductions made for a participant are credited to his or her account under this Plan and are deposited with the general funds of the Company. No interest accrues on the payroll deductions. All payroll deductions received or held by the Company may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions. (e) On each Purchase Date, so long as this Plan remains in effect and provided that the participant has not submitted a signed and completed withdrawal form before that date which notifies the Company that the participant wishes to withdraw from that Offering Period under this Plan and have all payroll deductions accumulated in the account maintained on behalf of the participant as of that date returned to the participant, the Company shall apply the funds then in the participant's account to the purchase of whole shares of Common Stock reserved under the option granted to such participant with respect to the Offering Period to the extent that such option is exercisable on the Purchase Date. The purchase price per share shall be as specified in Section 8 of this Plan. Any cash remaining in a participant's account after such purchase of shares shall be refunded to such participant in cash, without interest; provided, however that any amount remaining in such participant's account on a Purchase Date which is less than the amount necessary to purchase a full share of Common Stock of the Company shall be carried forward, without interest, into the next Purchase Period or Offering Period, as the case may be. In the event that this Plan has been oversubscribed, all funds not used to purchase shares on the Purchase Date shall be returned to the participant, without interest. No Common Stock shall be purchased on a Purchase Date on behalf of any employee whose participation in this Plan has terminated prior to such Purchase Date. (f) As promptly as practicable after the Purchase Date, the Company shall issue shares for the participant's benefit representing the shares purchased upon exercise of his or her option. (g) During a participant's lifetime, his or her option to purchase shares hereunder is exercisable only by him or her. The participant will have no interest or voting right in shares covered by his or her option until such option has been exercised. 10. LIMITATIONS ON SHARES TO BE PURCHASED. (a) No participant shall be entitled to purchase stock under this Plan at a rate which, when aggregated with his or her rights to purchase stock under all other employee stock purchase plans of the Company or any Subsidiary, exceeds $25,000 in Fair Market Value, determined as of the Offering Date (or such other limit as may be imposed by the Code) for each calendar year in which the employee participates in this Plan. The Company shall automatically suspend the payroll deductions of any participant as necessary to enforce such limit provided that when the Company automatically resumes such payroll deductions, the Company must apply the rate in effect immediately prior to such suspension. (b) No participant shall be entitled to purchase more than the Maximum Share Amount (as defined below) on any single Purchase Date. All participants shall not be entitled to purchase more than 500,000 shares (or such other maximum number of shares as determined by the Committee) of the Company's Common Stock in the aggregate on any single Purchase Date. Prior to the commencement of any Offering Period, or prior to such time period as specified by the Committee, the Committee may, in its sole discretion, set a maximum number of shares which may be purchased by any employee at any single 4 NIKU Corporation 2000 Employee Stock Purchase Plan Purchase Date (hereinafter the "MAXIMUM SHARE AMOUNT"). The Maximum Share Amount shall be 2,000 shares of the Company's Common Stock (or such other Maximum Share Amount as determined by the Committee). If a new Maximum Share Amount is set, then all participants must be notified of such Maximum Share Amount prior to the commencement of the next Offering Period. The Maximum Share Amount shall continue to apply with respect to all succeeding Purchase Dates and Offering Periods unless revised by the Committee as set forth above. (c) If the number of shares to be purchased on a Purchase Date by all employees participating in this Plan exceeds the number of shares then available for issuance under this Plan, then the Company will make a pro rata allocation of the remaining shares in as uniform a manner as shall be reasonably practicable and as the Committee shall determine to be equitable. In such event, the Company shall give written notice of such reduction of the number of shares to be purchased under a participant's option to each participant affected. (d) Any payroll deductions accumulated in a participant's account which are not used to purchase stock due to the limitations in this Section 10 shall be returned to the participant as soon as practicable after the end of the applicable Purchase Period, without interest. 11. WITHDRAWAL. (a) Each participant may withdraw from an Offering Period under this Plan by signing and delivering to the Company a written notice to that effect on a form provided for such purpose. Such withdrawal may be elected at any time prior to the end of an Offering Period, or such other time period as specified by the Committee. (b) Upon withdrawal from this Plan, the accumulated payroll deductions shall be returned to the withdrawn participant, without interest, and his or her interest in this Plan shall terminate. In the event a participant voluntarily elects to withdraw from this Plan, he or she may not resume his or her participation in this Plan during the same Offering Period, but he or she may participate in any Offering Period under this Plan which commences on a date subsequent to such withdrawal by filing a new authorization for payroll deductions in the same manner as set forth in Section 6 above for initial participation in this Plan. (c) If the Fair Market Value on the first day of the current Offering Period in which a participant is enrolled is higher than the Fair Market Value on the first day of any subsequent Offering Period, the Company will automatically enroll such participant in the subsequent Offering Period. Any funds accumulated in a participant's account prior to the first day of such subsequent Offering Period will be applied to the purchase of shares on the Purchase Date immediately prior to the first day of such subsequent Offering Period, if any. 12. TERMINATION OF EMPLOYMENT. Termination of a participant's employment for any reason, including retirement, death or the failure of a participant to remain an eligible employee of the Company or of a Participating Subsidiary, immediately terminates his or her participation in this Plan. In such event, the payroll deductions credited to the participant's account will be returned to him or her or, in the case of his or her death, to his or her legal representative, without interest. For purposes of this Section 12, an employee will not be deemed to have terminated employment or failed to remain in the continuous employ of the Company or of a Participating Subsidiary in the case of sick leave, military leave, or any other leave of absence approved by the Board; provided that such leave is for a period of not more than ninety (90) days or reemployment upon the expiration of such leave is guaranteed by contract or statute. 13. RETURN OF PAYROLL DEDUCTIONS. In the event a participant's interest in this Plan is terminated by withdrawal, termination of employment or otherwise, or in the event this Plan is terminated by the Board, the Company shall deliver to the participant all payroll deductions credited to such participant's account. No interest shall accrue on the payroll deductions of a participant in this Plan. 14. CAPITAL CHANGES. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each option under this Plan which has not yet been exercised and the number 5 of shares of Common Stock which have been authorized for issuance under this Plan but have not yet been placed under option (collectively, the "RESERVES"), as well as the price per share of Common Stock covered by each option under this Plan which has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of issued and outstanding shares of Common Stock of the Company resulting from a stock split, reverse stock split, distribution, recapitalization, combination, reclassification or the payment of a stock dividend (but only on the Common Stock) or any other increase or decrease in the number of issued and outstanding shares of Common Stock effected without receipt of any consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration". Such adjustment shall be made by the Committee, whose determination shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option. In the event of the proposed dissolution or liquidation of the Company, the Offering Period will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Committee. The Committee may, in the exercise of its sole discretion in such instances, declare that this Plan shall terminate as of a date fixed by the Committee and give each participant the right to purchase shares under this Plan prior to such termination. In the event of (i) a merger or consolidation in which the Company is not the surviving corporation (other than a merger or consolidation with a wholly-owned subsidiary, a reincorporation of the Company in a different jurisdiction, or other transaction in which there is no substantial change in the stockholders of the Company or their relative stock holdings and the options under this Plan are assumed, converted or replaced by the successor corporation, which assumption will be binding on all participants), (ii) a merger in which the Company is the surviving corporation but after which the stockholders of the Company immediately prior to such merger (other than any stockholder that merges, or which owns or controls another corporation that merges, with the Company in such merger) cease to own their shares or other equity interest in the Company, (iii) the sale of all or substantially all of the assets of the Company or (iv) the acquisition, sale, or transfer of more than 50% of the outstanding shares of the Company by tender offer or similar transaction, the Plan will continue with regard to Offering Periods that commenced prior to the closing of the proposed transaction and shares will be purchased based on the Fair Market Value of the surviving corporation's stock on each Purchase Date, unless otherwise provided by the Committee consistent with pooling of interests accounting treatment. The Committee may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the Reserves, as well as the price per share of Common Stock covered by each outstanding option, in the event that the Company effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of shares of its outstanding Common Stock, or in the event of the Company being consolidated with or merged into any other corporation. 15. NONASSIGNABILITY. Neither payroll deductions credited to a participant's account nor any rights with regard to the exercise of an option or to receive shares under this Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 22 below) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be void and without effect. 16. REPORTS. Individual accounts will be maintained for each participant in this Plan. Each participant shall receive promptly after the end of each Purchase Period a report of his or her account setting forth the total payroll deductions accumulated, the number of shares purchased, the per share price thereof and the remaining cash balance, if any, carried forward to the next Purchase Period or Offering Period, as the case may be. Additionally, to the extent required, pursuant to the provisions of Section 260.140 of Title 10 of the California Code of Regulations, the Company shall provide to each individual who acquires shares pursuant to the Plan, not less frequently than annually during the period such individual participates in the Plan or owns such shares, copies of the Company's annual financial statements. The Company shall not be required to provide such statements to key employees of the Company whose duties in connection with the Company assure their access to equivalent information. 6 NIKU Corporation 2000 Employee Stock Purchase Plan 17. NOTICE OF DISPOSITION. Each participant shall notify the Company in writing if the participant disposes of any of the shares purchased in any Offering Period pursuant to this Plan if such disposition occurs within two (2) years from the Offering Date or within one (1) year from the Purchase Date on which such shares were purchased (the "NOTICE PERIOD"). The Company may, at any time during the Notice Period, place a legend or legends on any certificate representing shares acquired pursuant to this Plan requesting the Company's transfer agent to notify the Company of any transfer of the shares. The obligation of the participant to provide such notice shall continue notwithstanding the placement of any such legend on the certificates. 18. NO RIGHTS TO CONTINUED EMPLOYMENT. Neither this Plan nor the grant of any option hereunder shall confer any right on any employee to remain in the employ of the Company or any Participating Subsidiary, or restrict the right of the Company or any Participating Subsidiary to terminate such employee's employment. 19. EQUAL RIGHTS AND PRIVILEGES. All eligible employees shall have equal rights and privileges with respect to this Plan so that this Plan qualifies as an "employee stock purchase plan" within the meaning of Section 423 or any successor provision of the Code and the related regulations. Any provision of this Plan which is inconsistent with Section 423 or any successor provision of the Code shall, without further act or amendment by the Company, the Committee or the Board, be reformed to comply with the requirements of Section 423. This Section 19 shall take precedence over all other provisions in this Plan. 20. NOTICES. All notices or other communications by a participant to the Company under or in connection with this Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 21. TERM; STOCKHOLDER APPROVAL. After this Plan is adopted by the Board, this Plan will become effective on the First Offering Date (as defined above). This Plan shall be approved by the stockholders of the Company, in any manner permitted by applicable corporate law, within twelve (12) months before or after the date this Plan is adopted by the Board. No purchase of shares pursuant to this Plan shall occur prior to such stockholder approval. This Plan shall continue until the earlier to occur of (a) termination of this Plan by the Board (which termination may be effected by the Board at any time), (b) issuance of all of the shares of Common Stock reserved for issuance under this Plan, or (c) ten (10) years from the earlier of the adoption of this Plan by the Board or the approval of the Plan by the stockholders of the Company. 22. DESIGNATION OF BENEFICIARY. (a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant's account under this Plan in the event of such participant's death subsequent to the end of an Purchase Period but prior to delivery to him of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under this Plan in the event of such participant's death prior to a Purchase Date. (b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under this Plan who is living at the time of such participant's death, the Company shall deliver such shares or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. 23. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES. Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange or automated quotation system upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. 7 24. PRIVILEGES OF STOCK OWNERSHIP. No participant will have any of the rights of a stockholder with respect to any shares of Common Stock until such shares are issued to the participant. After shares are issued to the participant, the participant will be a stockholder and have all the rights of a stockholder with respect to such shares, including the right to vote and receive all dividends or other distributions made or paid with respect to such shares. 25. APPLICABLE LAW. The Plan shall be governed by the substantive laws (excluding the conflict of laws rules) of the State of California. 26. AMENDMENT OR TERMINATION OF THIS PLAN. The Board may at any time amend, terminate or extend the term of this Plan, except that any such termination cannot affect options previously granted under this Plan, nor may any amendment make any change in an option previously granted which would adversely affect the right of any participant, nor may any amendment be made without approval of the stockholders of the Company obtained in accordance with Section 21 above within twelve (12) months of the adoption of such amendment (or earlier if required by Section 21) if such amendment would: (a) increase the number of shares that may be issued under this Plan; or (b) change the designation of the employees (or class of employees) eligible for participation in this Plan. Notwithstanding the foregoing, the Board may make such amendments to the Plan as the Board determines to be advisable, if the continuation of the Plan or any Offering Period would result in financial accounting treatment for the Plan that is different from the financial accounting treatment in effect on the date this Plan is adopted by the Board. 8 EX-10.20 6 f88965exv10w20.txt EXHIBIT 10.20 Exhibit 10.20 NIKU CORPORATION VOTING AGREEMENT THIS VOTING AGREEMENT (the "AGREEMENT") is entered into as of November 6, 2002 between Niku Corporation, a Delaware corporation (the "COMPANY") and Farzad Dibachi, Rhonda Dibachi and the Dibachi Family Trust UDT dated 2/11/98 (the "STOCKHOLDERS"). RECITALS: WHEREAS, the Stockholders hold 10,362,546 shares of the Company's common stock, par value $0.0001 per share (the "COMMON STOCK"); and WHEREAS, Farzad Dibachi and Rhonda Dibachi each previously entered into an Employment Agreement with the Company (the "EMPLOYMENT AGREEMENTS") providing for, among other things, the execution of this Voting Agreement in exchange for the payment of certain consideration as specified in the Employment Agreements. NOW, THEREFORE, in consideration of the promises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE 1 VOTING 1.1 WARRANT SHARES. The Stockholders agree, and each Stockholder severally agrees, to hold all 10,362,546 shares beneficially owned by them as of the date hereof (the "COMMON SHARES") subject to, and to vote the Common Shares in accordance with, the provisions of this Agreement. 1.2 VOTING; IRREVOCABLE PROXY. The Stockholders agree, and each Stockholder severally agrees, to vote the Common Shares on any matter presented to stockholders of the Company (and to consent in respect of the Common Shares on any matter in respect of which written consents are solicited) in any case where the Company's Board of Directors has made a unanimous recommendation to the Company's stockholders to vote in favor of or against any matter presented at such meeting (or has made a unanimous recommendation to the Company's stockholders to deliver a written consent to any matter in respect of which written consents are solicited) in the manner so recommended by the Company's Board of Directors (it being understood, in the case where the Company's Board of Directors shall have changed its recommendation in respect of such matter to the Company's stockholders, that such vote (or consent) shall be in the manner most recently unanimously recommended by the Company's Board of Directors). Contemporaneously with the execution of this Agreement, the Stockholders shall deliver to the Company a proxy in the form attached to this Agreement as Exhibit A, which (except as 1 provided therein) shall be irrevocable prior to the Expiration Date (as defined below) to the fullest extent permitted by law, with respect to the Common Shares (the "PROXY"). 1.3 LEGEND. 1.3.1. The Stockholders acknowledge that there shall be imprinted or otherwise placed, on certificates representing the Common Shares the following restriction legend (the "LEGEND"): "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO TERMS AND CONDITIONS OF A VOTING AGREEMENT ("VOTING AGREEMENT") WHICH PLACES CERTAIN RESTRICTIONS ON THE VOTING OF THE SHARES REPRESENTED HEREBY. SUBJECT TO CERTAIN EXCEPTIONS AS SET FORTH IN THE VOTING AGREEMENT, ANY PERSON ACCEPTING ANY INTEREST IN SUCH SHARES SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF SUCH AGREEMENT. A COPY OF SUCH VOTING AGREEMENT WILL BE FURNISHED TO THE RECORD HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS." 1.3.2. Subject to the provisions of Section 1.4 below, the Company agrees that, during the term of this Agreement, it will not remove, and will not permit to be removed (upon registration of transfer, reissuance or otherwise) the Legend for any such certificate and will place or cause to be placed the Legend on any new certificate issued to represent Common Shares theretofore represented by a certificate carrying the Legend. 1.4 SUCCESSORS. Except in respect of any sale or sales of any Common Shares effected pursuant to any public trading market for the Common Stock to a third party unaffiliated with the Stockholders (including, without limitation, any Nasdaq market), which shares shall no longer be deemed "Common Shares" for purposes of this Agreement or any proxy granted pursuant hereto, (a) the provisions of this Agreement shall be binding upon the successors in interest to any of the Common Shares and (b) the Company shall not permit the transfer of any of the Common Shares on its books or issue a new certificate representing any of the Common Shares unless and until the person to whom such security is to be transferred shall have executed a written Agreement, substantially in the form of this Agreement, pursuant to which such person becomes a party to this Agreement and agrees to be bound by all the provisions hereof as if such person were the Stockholders. 1.5 OTHER RIGHTS. Except as provided by this Agreement, the Stockholders can exercise the full rights of a stockholder with respect to the Common Shares. 2 ARTICLE 2 TERMINATION This Agreement shall continue in full force and effect from the date hereof through the earlier of (such date, the "EXPIRATION DATE") (a) the date upon which the Stockholders and their affiliates shall have sold the last of the Common Shares, or (b) the closing of any merger or consolidation of the Company with any other corporation or other entity, or other corporate reorganization of the Company, in which the holders of the Company's outstanding voting stock immediately prior to such transaction own, immediately after such transaction, securities representing less than fifty percent (50%) of the voting power of the corporation or other entity surviving such transaction or the closing of the sale of all or substantially all of the assets of the Company. ARTICLE 3 MISCELLANEOUS 3.1 OWNERSHIP. The Stockholders represent and warrant to the Company, and each Stockholders severally represents and warrants to the Company, that (a) they own the Common Shares, free and clear of liens or encumbrances, and have not and will not execute or deliver any proxy or enter into any other voting agreement or similar arrangement in respect of the Common Shares, and (b) they have full power and capacity to execute, deliver and perform this Agreement, which has been duly executed and delivered by, and evidences the valid and binding obligation, of the Stockholders, and each of them, enforceable in accordance with its terms. 3.2 FURTHER ACTION. Except in respect of any sale or sales of Common Shares effected pursuant to any public trading market for the Common Stock (including, without limitation, any Nasdaq market), if and whenever any beneficial ownership interest in the Common Shares is transferred, the Stockholders shall do all things and execute and deliver all documents and make all transfers and cause any transferee of the Common Shares to do all things and execute and deliver all documents, as may be necessary to consummate such sale consistent with this Agreement. 3.3 SPECIFIC PERFORMANCE. The parties hereto hereby declare that is impossible to measure in money the damages which will accrue to a party hereto or to their heirs, personal representatives, or assigns by reason of a failure to perform any of the obligations under Agreement and agree that the terms of this Agreement shall be specially enforceable. If any party hereto or his heirs, personal representatives, or assigns institutes any action or proceeding to specifically enforce the provisions hereto, any person against whom such action or proceeding is brought hereby waives the claim or defense therein that such party or such personal representative has an adequate remedy at law, and such person shall not offer in any such action or proceeding the claim or defense that such remedy at law exists. 3.4 GOVERNING LAW. This Agreement, and the rights of the parties hereto, shall be governed by and construed in accordance with the laws of the State of Delaware as such apply 3 to agreements among Delaware residents made and to be performed entirely within the State of Delaware. 3.5 AMENDMENT. This Agreement may be amended only by an instrument in writing signed by the Company and the Stockholders. 3.6 SEVERABILITY. If any provision of this Agreement is held to be invalid or unenforceable, the validity and enforceability of the remaining provisions of this Agreement shall not be affected thereby. 3.7 SUCCESSORS. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors, assigns other legal representatives. 3.8 ADDITIONAL SHARES. In the event that subsequent to the date of this Agreement any shares or other securities (other than any share or security of another corporation issued to the Company's stockholders pursuant to a plan of merger or other reorganization satisfying the description in Article 2) are issued on, or in exchange for, Common Shares by reasons of any stock dividend, stock split, consolidation of shares, reclassification or consolidation involving the Company, such shares or securities which are issued to Stockholders shall be deemed to be Common Shares for purposes of this Agreement, and each certificate representing such shares shall bear the legend set forth in Section 1.3.1. 3.9 COUNTERPARTS. This Agreement may be executed in or more counterparts, each of which will be deemed an original but all of which together shall constitute one and the same agreement. 3.10 WAIVER. No waivers of any breach of this Agreement extended by any party hereto any other party shall be construed as a waiver of any rights or remedies of any other party hereto or with respect to any subsequent breach. 3.11 ENTIRE AGREEMENT. This Agreement and the exhibits hereto, along with the Employment Agreements, constitute the full and entire understanding and agreement between the parties with regard to the subject hereof and thereof and no party shall be liable or bound to any other in any manner by any representations, warranties, covenants, and agreements except as specifically set forth herein and therein. 4 IN WITNESS WHEREOF, the parties hereto have executed the Voting Agreement as of the date set forth in the first paragraph hereof. COMPANY STOCKHOLDERS NIKU CORPORATION By: ________________________ ____________________________ Name: Farzad Dibachi Title: ____________________________ Rhonda Dibachi The Dibachi Family Trust UDT dated 2/11/98 By: ____________________________ Name: Farzad Dibachi Title: Trustee 5 EXHIBIT A FORM OF IRREVOCABLE PROXY The undersigned, Farzad Dibachi, Rhonda Dibachi, and the Dibachi Family Trust UDT dated 2/11/98 (the "STOCKHOLDERS"), and each of them, hereby irrevocably (to the fullest extent permitted by law) appoint and constitute Niku Corporation, a Delaware corporation (the "COMPANY"), the attorney and proxy of the undersigned with full power of substitution and resubstitution, to the full extent of the undersigned's rights with respect to all the outstanding shares of capital stock of the Company owned of record or beneficially by the undersigned as of the date of this proxy, which shares are specified on the final page of this proxy (the "COMMON SHARES"). Upon the execution hereof, all prior proxies given by the undersigned with respect to any of the Common Shares. This proxy is irrevocable, is coupled with an interest, is granted pursuant to the undersigned's obligations under the Voting Agreement dated as of November 6, 2002, between the Company and the undersigned (the "VOTING AGREEMENT") and is granted in consideration of the Company having entered into the Employment Agreements (as defined in the Voting Agreement) with each of Farzad Dibachi and Rhonda Dibachi and providing the consideration specified therein. Capitalized terms used but not defined in this irrevocable proxy have the meanings ascribed to them in the Voting Agreement. The attorney and proxy named above (and its successor(s)) will be empowered, and may exercise this irrevocable proxy, to vote the Common Shares at any meeting of the stockholders of the Company, however called, and at every adjournment or postponement thereof, or in connection with any solicitation of written consents from stockholders of the Company, to vote the Common Shares (or consent in respect of the Common Shares) in any case where the Company's Board of Directors has made a unanimous recommendation to the Company's stockholders to vote in favor of or against any matter presented at such meeting (or has made a unanimous recommendation to the Company's stockholders to deliver a written consent to any matter in respect of which written consents are solicited) in the manner so recommended by the Company's Board of Directors (it being understood, in the case where the Company's Board of Directors shall have changed its recommendation in respect of such matter to the Company's stockholders, that such vote (or consent) shall be in the manner most recently unanimously recommended by the Company's Board of Directors). The undersigned acknowledges that it may not vote (or grant any consent with respect to) the Common Shares on any matter except as specified herein. Except in respect of any sale or sales of any Common Shares effected pursuant to any public trading market for the Common Stock to a third party unaffiliated with the Stockholders (including, without limitation, any Nasdaq market), which shares shall no longer be deemed "Common Shares" for purposes of this Agreement or any proxy granted pursuant hereto, this proxy shall be binding upon the estate, executors, successors and assigns of the undersigned (including any transferee of any of the Common Shares. 6 If any provision of this proxy or any part of any such provision is held under any circumstances to be invalid or unenforceable in any jurisdiction, then (a) such provision or part thereof shall, with respect to such circumstances and in such jurisdiction, be deemed amended to conform to applicable laws so as to be valid and enforceable to the fullest possible extent, (b) the invalidity or unenforceability of such provision or part thereof under such circumstances and in such jurisdiction shall not affect the validity or enforceability of such provision or part thereof under any other circumstances or in any other jurisdiction, and (c) the invalidity or unenforceability of such provision or part thereof shall not affect the validity or enforceability of the remainder of such provision or the validity or enforceability of any other provision of this proxy. Each provision of this proxy is separable from every other provision of this proxy, and each part of each provision of this proxy is separable from every other part of such provision. This proxy shall terminate, and be of no further force and effect, automatically upon the Expiration Date (as defined in the Voting Agreement). [Continued on next page] 7 Number of shares of common stock of the Company owned of record as of the date of this proxy, giving effect to the exercise of the Warrant in connection with which this proxy is being delivered: 10,362,546 Dated: November 6, 2002 /s/ Farzad Dibachi ------------------------- Farzad Dibachi /s/ Rhonda Dibachi ------------------------- Rhonda Dibachi The Dibachi Family Trust UDT dated 2/11/98 By: /s/ Farzad Dibachi --------------------- Name: Farzad Dibachi Title: Trustee 8 EX-23.01 7 f88965exv23w01.txt EXHIBIT 23.01 EXHIBIT 23.01 INDEPENDENT AUDITORS' CONSENT The Board of Directors and Stockholders of Niku Corporation: We consent to incorporation by reference in the registration statements (Nos. 333-31318, 333-44988, 333-50184, 333-54404, 333-56402, 333-69196, 333-85918, 333-90224, 333-90554, and 333-102891) on Forms S-8 and S-3 of Niku Corporation of our report dated February 21, 2003, except as to Note 12, which is as of March 16, 2003, and Note 18, which is as of April 15, 2003, relating to the consolidated balance sheets of Niku Corporation and subsidiaries as of January 31, 2003 and 2002, and the related consolidated statements of operations and comprehensive loss, stockholders' equity (deficit), and cash flows for each of the years in the three-year period ended January 31, 2003, and the related schedule, which report appears in the January 31, 2003, annual report on Form 10K of Niku Corporation. /s/ KPMG LLP Mountain View, California April 15, 2003 EX-99.01 8 f88965exv99w01.txt EXHIBIT 99.01 EXHIBIT 99.01 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K of Niku Corporation (the "Company") for the period ended January 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Joshua Pickus, as Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge, that: (1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

This certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. A signed original of this written statement required by Section 906 has been provided to Niku Corporation and will be retained by Niku Corporation and furnished to the Securities and Exchange Commission or its staff upon request. EX-99.02 9 f88965exv99w02.txt EXHIBIT 99.02 EXHIBIT 99.02 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K of Niku Corporation (the "Company") for the period ended January 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Michael Shahbazian, as Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge, that: (1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


(Mark One)
þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the fiscal year ended January 31, 2003

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from to


Delaware		77-0473454
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

305 Main Street, Redwood City, CA		94063
(Address of principal executive offices)		(Zip Code)


TABLE OF CONTENTS
PART I
	Item 1. Business
	Item 2. Properties
	Item 3. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
Part II
	Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
	Item 6. Selected Consolidated Financial Data
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A. Quantitative and Qualitative Disclosures About Market Risk
	Item 8. Financial Statements and Supplementary Data
INDEPENDENT AUDITORS’ REPORT
	Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
PART III
	Item 10. Directors and Executive Officers of the Registrant
	Item 11. Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management
	Item 13. Certain Relationships and Related Transactions
	Item 14. Controls and Procedures
	Item 15. Exhibits, Financial Statement Schedules and Reports on 8-K
SIGNATURES
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Exhibit Index
EXHIBIT 3.03
EXHIBIT 10.03
EXHIBIT 10.04
EXHIBIT 10.20
EXHIBIT 23.01
EXHIBIT 99.01
EXHIBIT 99.02


		Page

PART I
Item 1.	Business		2
Item 2.	Properties		13
Item 3.	Legal Proceedings		13
Item 4.	Submission of Matters to a Vote of Security Holders		14
PART II
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters		14
Item 6.	Selected Consolidated Financial Data		15
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		31
Item 8.	Financial Statements and Supplementary Data		31
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		60
PART III
Item 10.	Directors and Executive Officers of the Registrant		60
Item 11.	Executive Compensation		60
Item 12.	Security Ownership of Certain Beneficial Owners and Management		60
Item 13.	Certain Relationships and Related Transactions		60
Item 14.	Controls and Procedures		61
PART IV
Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K		61
Signatures			63
Certifications			64


3M Company	BT (British Telecom)	Openwave Systems
Affiliated Computer Services (ACS)	Cendant	Overture
Allmerica	DST	Quest Diagnostics
Banco Popular	Dynegy	Sony Pictures
Bank of America	Eastman Chemical	Standard Chartered Bank
Barclaycard	Emerson Process (Fisher Controls International)	Target
Best Buy	Equant	Toyota
Blue Cross Blue Shield	Nationwide Insurance


Item 4.	*Submission of Matters to a Vote of Security Holders*


Item 5.	*Market for Registrant’s Common Equity and Related Stockholder Matters*



	Price Range Per Share

	High		Low

Quarter Ended:
January 31, 2003	$	7.80	$	3.57
October 31, 2002	$	3.90	$	1.00
July 31, 2002	$	11.50	$	2.50
April 30, 2002	$	35.70	$	9.90
January 31, 2002	$	29.40	$	5.50
October 31, 2001	$	9.00	$	4.70
July 31, 2001	$	27.10	$	8.00
April 30, 2001	$	108.10	$	11.20



	Years Ended January 31,

	2003			2002			2001			2000			1999


	(in thousands, except per share data)
Total revenue	$	48,410		$	67,466		$	68,922		$	8,157		$	15
Cost of revenue		13,739			35,481			20,622			2,620			4
Gross profit		34,671			31,985			48,300			5,537			11
Operating loss		(43,530	)		(294,014	)		(141,000	)		(37,036	)		(3,150	)
Net loss		(37,794	)		(291,546	)		(130,876	)		(36,487	)		(3,020	)
Basic and diluted net loss per share	$	(4.96	)	$	(39.20	)	$	(19.57	)	$	(56.08	)	$	(6.19	)
Shares used in computing basic and diluted net loss per share		7,618			7,437			6,687			651			488



	January 31,

	2003			2002			2001			2000			1999


	(in thousands)
Cash, cash equivalents and short-term investments	$	16,670		$	51,585		$	138,892		$	44,515		$	5,147
Current portion of restricted cash		229			4,665			—			—			—
Working capital		1,219			11,028			121,350			32,691			4,786
Restricted cash		1,108			9,822			14,487			—			—
Goodwill and other intangible assets, net		—			—			157,831			49,684			—
Total assets		30,563			101,575			393,067			112,525			6,555
Long-term accrued restructuring		6,209			6,758			—			—			—
Long-term obligations, less current portion		3,750			—			268			1,725			—
Redeemable convertible preferred stock and warrants		—			—			—			100,919			8,259
Accumulated deficit		(499,723	)		(461,929	)		(170,383	)		(39,507	)		(3,020	)
Total stockholders’ equity (deficit)		(3,974	)		31,557			318,393			(12,269	)		(2,363	)


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*



			January 31, 2003

			Actual			Pro Forma


			(in thousands, except per
			share data)
Total current assets			$	25,797		$	36,097
Total assets				30,563			40,863
Total current liabilities				24,578			24,578
Total liabilities				34,537			34,537
Stockholders’ equity (deficit):
	Preferred stock: $0.0001 par value; 10,000,000 shares authorized; no shares issued and outstanding			—			—
	Common stock; $0.0001 par value; 250,000,000 shares authorized, actual and pro forma, as of January 31, 2003 respectively; actual, 9,380,760 issued and 8,761,076 issued and outstanding as of January 31, 2003; pro forma, 12,468,990 shares issued and 11,849,306 shares issued and outstanding as of January 31, 2003			1			1
	Treasury stock, at cost: actual and pro forma, 619,684 shares as of January 31, 2003			(5,057	)		(5,057	)
	Additional paid-in capital			500,981			511,281
	Deferred stock-based compensation			(107	)		(107	)
	Accumulated other comprehensive loss			(69	)		(69	)
	Accumulated deficit			(499,723	)		(499,723	)

		Total stockholders’ (deficit) equity		(3,974	)		6,326

		Total liabilities and stockholders’ (deficit) equity	$	30,563		$	40,863


	Operating		Bank
Year Ended January 31,	Leases		Borrowings		Total

2004	$	6,536	$	1,000	$	7,536
2005		2,804		3,750		6,554
2006		2,120		—		2,120
2007		1,252		—		1,252
2008		1,464		—		1,464
Thereafter		2,537		—		2,537

Total payments	$	16,713	$	4,750	$	21,463


Item 7A.	*Quantitative and Qualitative Disclosures About Market Risk*


Item 8.	*Financial Statements and Supplementary Data*


Item 1.	*Business*


Item 2.	*Properties*


Item 3.	*Legal Proceedings*


For	Against		Abstain

5,157,364		38,995		1,541,586


	Page

Independent Auditors’ Report		32
Consolidated Balance Sheets as of January 31, 2003 and 2002		33
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended January 31, 2003, 2002 and 2001		34
Consolidated Statements of Stockholders’ Equity (Deficit) for the Years Ended January 31, 2003, 2002 and 2001		35
Consolidated Statements of Cash Flows for the Years Ended January 31, 2003, 2002 and 2001		36
Notes to Consolidated Financial Statements		37


																		Notes			Accumulated
	Common Stock					Treasury Stock						Additional			Deferred			Receivable			Other						Total
												Paid-in			Stock-Based			from			Comprehensive			Accumulated			Stockholders’
	Shares			Amount		Shares			Amount			Capital			Compensation			Stockholders			(Loss) Income			Deficit			Equity (Deficit)

Balances as of January 31, 2000		1,235,542		$	—		—		$	—		$	46,797		$	(17,745	)	$	(1,814	)	$	—		$	(39,507	)	$	(12,269	)
Issuance of common stock in connection with the acquisition of Legal Anywhere, Inc.		85,369			—		—			—			19,998			—			—			—			—			19,998
Issuance of common stock in connection with initial public offering, net of offering costs of $18,319		920,000			—		—			—			202,481			—			—			—			—			202,481
Conversion of redeemable convertible preferred stock into common stock		4,822,981			1		—			—			100,918			—			—			—			—			100,919
Issuance of common stock in connection with the acquisition of 600 Monkeys, Inc.		16,999			—		—			—			4,101			—			—			—			—			4,101
Issuance of common stock in connection with the acquisition of bSource, Inc.		39,999			—		—			—			7,916			—			—			—			—			7,916
Issuance of common stock and stock options in connection with the acquisition of ABT Corporation		395,268			—		—			—			94,447			—			—			—			—			94,447
Issuance of common stock and options in connection with the exercise of employee stock options		133,041			—		—			—			1,201			—			—			—			—			1,201
Issuance of common stock in connection with the exercise of employee stock options for services received		1,200											132			—			—			—			—			132
Repurchase of common stock in settlement of notes receivable from stockholders		(24,256	)		—		—			—			(40	)		—			40			—			—			—
Issuance of common stock for notes receivable		30,100			—		—			—			3,321			—			(3,321	)		—			—			—
Interest accrued on notes receivable from stockholders		—			—		—			—			—			—			(282	)		—			—			(282	)
Repayment of notes receivable from stockholders		—			—		—			—			—			—			24			—			—			24
Issuance of common stock in connection with employee stock purchase plan		7,524			—		—			—			1,532			—			—			—			—			1,532
Deferred stock compensation related to stock option grants		—			—		—			—			30,665			(30,665	)		—			—			—			—
Amortization of stock-based compensation		—			—		—			—			—			29,045			—			—			—			29,045
Unrealized gain on short-term investments		—			—		—			—			—			—			—			26			—			26
Foreign currency translation adjustment		—			—		—			—			—			—			—			(2	)		—			(2	)
Net loss		—			—		—			—			—			—			—			—			(130,876	)		(130,876	)

Balances as of January 31, 2001		7,663,767			1		—			—			513,469			(19,365	)		(5,353	)		24			(170,383	)		318,393
Issuance of common stock in connection with the exercise of employee stock options		87,397			—		—			—			551			—			—			—			—			551
Issuance of common stock in connection with the acquisition of ABT Corporation		46,228			—		—			—			314			—			—			—			—			314
Issuance of common stock in connection with employee stock purchase plan		42,559			—		—			—			1,244			—			—			—			—			1,244
Issuance of common stock in connection with restructuring activities		30,000			—		—			—			225			—			—			—			—			225
Repurchase of common stock in open market		—			—		(454,166	)		(3,570	)		—			—			—			—			—			(3,570	)
Repurchase of common stock in settlement of notes receivable from stockholders		(43,808	)		—		—			—			(3,546	)		—			3,546			—			—			—
Repurchase of common stock		(10,938	)		—		—			—			(11	)		—			—			—			—			(11	)
Forgiveness of notes receivable from stockholders		—			—		—			—			—			—			248			—			—			248
Interest forgiven on notes receivable from stockholders		—			—		—			—			—			—			141			—			—			141
Deferred stock compensation related to stock option grants (related to repriced options)		—			—		—			—			19,403			(19,403	)		—			—			—			—
Reversal of stock-based compensation due to employee terminations		—			—		—			—			(17,624	)		9,041			—			—			—			(8,583	)
Amortization of stock-based compensation		—			—		—			—			—			14,402			—			—			—			14,402
Unrealized loss on short-term investments		—			—		—			—			—			—			—			(26	)		—			(26	)
Foreign currency translation adjustment		—			—		—			—			—			—			—			(225	)		—			(225	)
Net loss		—			—		—			—			—			—			—			—			(291,546	)		(291,546	)

Balances as of January 31, 2002		7,815,205			1		(454,166	)		(3,570	)		514,025			(15,325	)		(1,418	)		(227	)		(461,929	)		31,557
Issuance of common stock in connection with the exercise of employee stock options		52,973			—		—			—			286			—			—			—			—			286
Issuance of common stock in connection with employee stock purchase plan		21,741			—		—			—			100			—			—			—			—			100
Issuance of common stock in connection with exercise of warrant		1,446,000			—		—			—			11			—			—			—			—			11
Issuance of common stock in connection with the acquisition of ABT Corporation (See Note 16)		40,000			—		—			—			872			—			—			—			—			872
Issuance of common stock in connection with the settlement with former employees of Proamics (See Note 16)		4,841			—		—			—			37			—			—			—			—			37
Repurchase of common stock in settlement of notes receivable from stockholder (See Note 12)		—			—		(125,000	)		(675	)		—			—			1,349			—			—			674
Recovery of escrow shares from acquisitions		—			—		(40,518	)		(812	)		—			—			—			—			—			(812	)
Issuance of warrants in connection with restructuring activities (See Note 4)		—			—		—			—			5,677			—			—			—			—			5,677
Interest forgiven on notes receivable from stockholders		—			—		—			—			—			—			69			—			—			69
Deferred stock compensation related to stock option grants (related to repriced options)		—			—		—			—			(18,666	)		18,666			—			—			—			—
Reversal of stock-based compensation due to employee terminations		—			—		—			—			(1,820	)		658			—			—			—			(1,162	)
Amortization of stock-based compensation		—			—		—			—			459			(4,106	)		—			—			—			(3,647	)
Unrealized loss on short-term investments		—			—		—			—			—			—			—			—			—			—
Foreign currency translation adjustment		—			—		—			—			—			—			—			158			—			158
Net loss		—			—		—			—			—			—			—			—			(37,794	)		(37,794	)

Balances as of January 31, 2003		9,380,760		$	1		(619,684	)	$	(5,057	)	$	500,981		$	(107	)	$	—		$	(69	)	$	(499,723	)	$	(3,974	)


1.	Description of Business and Summary of Significant Accounting Policies



	Years Ended
	January 31,

	2003			2002			2001

Expected life (years)		2.0			3.0			3.5
Risk-free interest rate		1.70	%		3.67	%		4.76	%
Volatility		158	%		150	%		100	%


	Loss on Retirement of Property and Equipment and Other Assets No Longer in Use


			Restructuring and			Reclassifications and
	Accrued		Other Charges in			Write Offs in the			Paid in the			Accrued
	as of		the Year Ended			Year Ended			Year Ended			as of
	January 31,		January 31,			January 31,			January 31,			January 31,
	2002		2003			2003			2003			2003

Restructuring initiated in fiscal 2003
Loss on retirement of property and equipment and other assets no longer in use	$	—	$	9,684		$	(9,907	)	$	223		$	—
Severance		—		3,912			—			(2,881	)		1,031
Net lease commitment costs on vacated facilities		—		23,015			(6,459	)		(12,921	)		3,635
Computer and car leases		—		346						(43	)		303
Other exit costs		—		517			82			(11	)		588
Stock-based compensation adjustment		—		(1,162	)		1,162			—			—
Restructuring initiated in fiscal 2002
Severance		265		91			—			(356	)		—
Net lease commitment costs on vacated facilities		10,666		2,437			(25	)		(7,049	)		6,029
Exit costs for business line		643		(169	)		—			(301	)		173
Other exit costs		424		57			(35	)		(446	)		—
Escrow shares adjustment		—		(812	)		812			—			—

	$	11,998	$	37,916		$	(14,370	)	$	(23,785	)	$	11,759


5.	Asset Impairment and Other and Impairment of Licensed Technology



	Options Outstanding

			Weighted-				Options Exercisable
			Average
			Remaining		Weighted-				Weighted-
	Number		Contractual		Average		Number		Average
Range of	of		Life		Exercise		of		Exercise
Exercise Price	Shares		(Years)		Price		Shares		Price

$00.00 — $30.56		1,464,680		7.80	$	6.85		520,224	$	9.84
$30.57 — $61.13		1,200		1.60		31.86		1,000		31.35
$91.70 — $122.25		22,862		0.40		110.49		22,766		110.54
$244.51 — $275.07		7,900		0.50		250.00		7,900		250.00

		1,496,642		7.60		9.74		551,890		17.47



			Quarter Ended,

			January 31,		October 31,			July 31,			April 30,			January 31,			October 31,			July 31,			April 30,
			2003		2002			2002			2002			2002(1)			2001(1)			2001(1)			2001(1)


			(in thousands, except per share data)
Revenue			$	12,015	$	11,774		$	10,494		$	14,127		$	18,280		$	14,476		$	17,237		$	17,473
Cost of revenue				2,787		3,050			3,820			4,082			4,053			7,437			7,331			16,660

Gross Profit				9,228		8,724			6,674			10,045			14,227			7,039			9,906			813

Operating expenses:
	Sales and marketing			4,103		3,438			7,414			8,147			9,034			12,308			17,181			32,404
	Research and development			1,907		1,967			3,993			4,029			4,319			8,963			10,532			11,042
	General and administrative			1,664		2,232			2,331			2,207			1,929			3,126			4,051			6,099
	Asset impairment and other			—		75			425			—			—			—			114,379			24,544
	Amortization of goodwill and other intangible assets			—		—			—			—			—			—			14,505			12,828
	Restructuring and other			880		7,469			30,405			(838	)		9,374			4,138			7,749			3,092
	Stock-based compensation			135		165			(301	)		(3,646	)		6,395			1,134			2,188			4,685
	Merger related expenses			—		—			—			—			—			—			—			—

		Total operating expenses		8,689		15,346			44,267			9,899			31,051			29,669			170,585			94,694

		Operating loss		539		(6,622	)		(37,593	)		146			(16,824	)		(22,630	)		(160,679	)		(93,881	)
Interest and other income, net				5,120		184			312			120			3			395			1,071			999

		Net income (loss)	$	5,659	$	(6,438	)	$	(37,281	)	$	266		$	(16,821	)	$	(22,235	)	$	(159,608	)	$	(92,882	)

Basic net income (loss) per share			$	0.68	$	(0.88	)	$	(5.03	)	$	0.04		$	(2.31	)	$	(3.01	)	$	(21.19	)	$	(12.30	)

Shares used in computing basic net income (loss) per share				8,338		7,312			7,414			7,386			7,292			7,375			7,533			7,550

Diluted net income (loss) per share			$	0.63	$	(0.88	)	$	(5.03	)	$	0.03		$	(2.31	)	$	(3.01	)	$	(21.19	)	$	(12.30	)

Shares used in computing diluted net income (loss) per share				9,023		7,312			7,414			7,766			7,292			7,375			7,533			7,550


Item 9.	*Changes in and Disagreements With Accountants on Accounting and Financial Disclosure*


Item 10.	*Directors and Executive Officers of the Registrant*


Item 12.	*Security Ownership of Certain Beneficial Owners and Management*


Item 13.	*Certain Relationships and Related Transactions*


Item 15.	*Exhibits, Financial Statement Schedules and Reports on 8-K*


Number		Exhibit Title

	3.01(1)	Amended and Restated Certificate of Incorporation.
	3.02(8)	Certificate of Amendment to the Amended and Restated Certificate of Incorporation, dated November 20, 2002
	3.03	Registrant’s Amended and Restated Bylaws.
	4.01(1)	Fourth Amended and Restated Investors’ Rights Agreement, dated November 18, 1999, as amended December 8, 1999.
	4.02(4)	Warrant to Purchase Common Stock of the Registrant by and between in Limar Realty Corp. #30 and the Registrant, dated October 31, 2002.
	4.03(9)	Form of Warrant to Purchase Common Stock of the Registrant, dated February 12, 2003.
	4.04(9)	Registration Rights Agreement by and between various Investors and the Registrant, dated February 12, 2003.
	10.01(1)	Form of Indemnification Agreement by and between Registrant and its directors and executive officers.
	10.02(1)	1998 Stock Plan, as amended.
	10.03	2000 Equity Incentive Plan, as amended.


Number		Exhibit Title

	10.04	2000 Employee Stock Purchase Plan, as amended.
	10.05(2)	2000 Stock Incentive Plan.
	10.11(1)	Restricted Stock Purchase Agreement by and between Joshua Pickus and the Registrant, dated November 1, 1999.
	10.12(1)	Full Recourse Promissory Note by and between Joshua Pickus and the Registrant, dated November 11, 1999.
	10.13(3)	Office Lease by and between Brugger Corporation and the Registrant, dated May 7, 1999.
	10.14(5)	Amended and Restated Secured Full Recourse Promissory Note by and between Joshua Pickus and the Registrant, dated May 15, 2002.
	10.15(6)	Amended to the Lease by and between Brugger Corporation and the Registrant, dated July 29, 2002.
	10.16(6)	Business Loan Agreement, Commercial Security Agreement and Promissory Note by and between Mid Peninsula Bank and the Registrant, dated September 9, 2002.
	10.17(7)	Employment Agreement by and between Farzad Dibachi and the Registrant, dated October 18, 2002.
	10.18(7)	Employment Agreement by and between Rhonda Dibachi and the Registrant, dated October 18, 2002.
	10.19(4)	Voting Agreement by and between Limar Realty Corp. #30 and the Registrant, dated October 31, 2002.
	10.20	Voting Agreement by and between Farzad and Rhonda Dibachi and the Registrant, dated November 6, 2002.
	10.21(9)	Common Stock and Warrant Purchase Agreement by and between various Investors and the Registrant, dated February 12, 2003.
	21.01(3)	List of Subsidiaries.
	23.01	Consent of KPMG LLP
	99.01	Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002.
	99.02	Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002.



Signature	Title	Date


/s/ JOSHUA PICKUS Joshua Pickus	President, Chief Executive Officer and Chairman of the Board	April 15, 2003

/s/ MICHAEL SHAHBAZIAN Michael Shahbazian	Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	April 15, 2003

/s/ RAVI CHIRUVOLU Ravi Chiruvolu	Director	April 15, 2003

/s/ MATT MILLER Matt Miller	Director	April 15, 2003

/s/ EDWARD F. THOMPSON Edward F. Thompson	Director	April 15, 2003

/s/ PETER THOMPSON Peter Thompson	Director	April 15, 2003

/s/ VAL E. VADEN Val E. Vaden	Director	April 15, 2003


Date: April 15, 2003		/s/ JOSHUA PICKUS Joshua Pickus Chief Executive Officer


			Balance
	Balance		Acquired		Charged to					Balance at
	Beginning of		Through		Operating					End of
	Period		Acquisition		Expenses		Write-offs			Period

Allowance for doubtful accounts:
January 31, 2000	$	—	$	1,983	$	200	$	—		$	2,183
January 31, 2001	$	2,183	$	2,734	$	2,429	$	906		$	6,440
January 31, 2002	$	6,440	$	—	$	9,010	$	12,413	(1)	$	3,037
January 31, 2003	$	3,037	$	—	$	59	$	2,097		$	999