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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Taleo Corporation
| Delaware | 52-2190418 | |
| (State of incorporation or organization) | (I.R.S. Employer Identification No.) | |
575 Market Street, Eighth Floor, San Francisco, CA 94105
(415) 538-9068
Securities to be registered pursuant to Section 12(b) of the Act:
None
Class A Common Stock, $0.00001 par value per share
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ITEM 1. BUSINESS.
COMPANY INFORMATION
We were incorporated in Delaware in 1999, and changed our name from Recruitsoft, Inc. to Taleo Corporation in March 2004. In October 2003, we acquired White Amber, Inc., a vendor of solutions to manage temporary staff, and in March 2005, we acquired Recruitforce.com, Inc., a provider of on-demand staffing management solutions for small to medium-sized organizations. Our principal offices are located at 575 Market Street, Eighth Floor, San Francisco, California 94105, and 330 St-Vallier East, Suite 400, Quebec City, QC, Canada, G1K 9C5. Our telephone numbers at these locations are (415) 538-9068 and (418) 524-5665, respectively. Our website address is http://www.taleo.com. Our website and the information contained therein or connected thereto is not a part of this registration statement.
BUSINESS
Overview
We deliver on demand talent management solutions to organizations of all sizes. We enable organizations to recruit, assess and manage their workforces for improved business performance. Organizations seek to improve their talent management processes not only to reduce the time and costs associated with these processes but, more importantly, to enhance the quality, productivity and satisfaction of their workforces. Taleo customers use our solutions to achieve these goals. Our solutions enable our customers to better align workforce skills and competencies with business needs, build a higher quality workforce, increase employee retention and productivity, reduce the time and costs associated with talent management, increase process consistency and ease the burden of regulatory compliance. Our solutions are highly configurable, enabling our customers to create variable workflows to address the unique talent management requirements associated with different employee types, locations, and regulatory environments. This flexibility allows us to deliver tailored solutions without the need for source code customization. Our solutions support workforce analytics, such as staffing metrics reporting, process benchmarking and employee skills inventory management. We deliver our solutions on demand through a standard web browser. Our vendor hosted model significantly reduces the time and costs associated with deployment of traditional software solutions by eliminating the need to install additional hardware and software to run our solutions.
We market our enterprise talent management solution, Taleo Enterprise Edition, to medium to large-sized organizations through our direct sales force and indirectly through our strategic partnerships with business process outsourcing providers. We market our talent management solution for small to medium-sized organizations, Taleo Business Edition, through our telesales team and Internet marketing efforts. We deliver our solutions to approximately 270 customers, including approximately 120 customers gained through our acquisition of Recruitforce.com, Inc. Our customers include many of the Fortune 500, as well as small to medium-sized organizations from a variety of industries. Some of our largest customers by revenue in the technology, manufacturing, business services, consumer goods, retail, energy, healthcare, financial services and transportation sectors are HP, Honeywell, Deloitte, P&G, Starbucks, Shell, UnitedHealth Group, Washington Mutual and Yellow Corporation.
We are a Delaware corporation and were incorporated in May 1999. In November 1999, we entered into an exchangeable share transaction with a Quebec corporation, 9090-5415 Quebec Inc. As a result of the transaction, the corporation became our subsidiary and its shareholders exchanged their shares for exchangeable shares as further described below in “Description of Capital Stock.” Taleo (Canada) Inc., our Canadian operating subsidiary, is a wholly owned subsidiary of 9090-5415 Quebec, Inc. and the majority of our research and development efforts are conducted through Taleo (Canada) Inc. In October 2003, we acquired White Amber, Inc. in order to expand our product offerings. The White Amber acquisition expanded our offerings to provide the technology and expertise to manage talent for contingent, or temporary, and contract workers. The White Amber solution has become Taleo ContingentTM, our solution for managing temporary staffing requirements of large organizations. We are in the process of integrating Taleo Contingent onto our technology platform to provide our customers with a single platform for their talent management needs. In March 2005, we acquired Recruitforce.com to expand our product offerings into the market for small to medium-sized organizations. Recruitforce.com’s product offering has become Taleo Business EditionTM, our talent management solution that can be accessed and used through a self-service model by small to medium-sized organizations, stand-alone departments and divisions of larger organizations, and staffing companies.
Industry Background
Talent management is a complex process with multiple, interconnected elements that together play a vital role in attracting, assessing and enhancing the quality and satisfaction of an organization’s valuable human capital. Organizations no longer view human capital solely as an expense to be minimized, but instead as an asset to be maximized. This shift in thinking has mirrored the evolution of talent management from a manual, paper-based practice to a technology-enabled, organization-wide process.
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Traditional Staffing Management
Over the past decade, organizations have begun to understand the need to invest in more sophisticated enterprise talent management solutions. Historically, companies used manual, paper-based processes and a variety of internally developed practices to manage distinct elements of enterprise staffing including recruiting, hiring, retention and internal mobility, as well as processes associated with non-permanent staff, whether project-based consultants or contingent staff. These inconsistent, inefficient, and time consuming processes resulted in significant expenses, a high degree of risk associated with regulatory non-compliance and variance in the quality of individual hires and deployment of personnel. The most qualified external candidates were often lost due to the inefficiency of the manual approach, and employees seeking advancement were often more apt to evaluate opportunities outside of their employer’s organization due to poor internal mobility processes. The manual practices related to talent management and particularly staffing practices, including paper resume exchange, spreadsheet-based candidate and employee databases, and manual workforce management practices, were particularly ineffective in both high growth and large, complex organizations. Furthermore, permanent and contingent talent acquisition and management processes have traditionally been managed by different departments: human resources and procurement, respectively. Although solutions to manage the temporary workforce existed, few were vendor neutral or provided advanced features such as project and vendor management and the ability to negotiate simultaneously with multiple vendors to help reduce costs and increase quality. These solutions also lacked accurate tracking of overall temporary workforce needs and compliance.
The Emergence of Online Job Boards and Applicant Tracking Systems
The proliferation of enterprise software applications and broad-based Internet adoption led to the emergence of first-generation staffing technologies and tools aimed at the basic automation of existing hiring processes within recruiting departments. During this time, electronic job boards emerged as an alternative to traditional print advertising as an important means by which companies disseminated employment opportunities and collected candidate resumes. Additionally, companies began to leverage corporate branding and websites with career sections to both advertise job openings and to allow for online job research and application submission by a broader audience of potentially interested candidates. The advent of electronic posting of both job opportunities and candidate resumes led to an unprecedented influx of applications and resumes to corporate recruiters and hiring managers. With this increase in the volume of applicants, manual screening of resumes and candidate relationship management became more cumbersome, time consuming and expensive.
Organizations began to recognize that their inability to consistently and effectively process, sort, screen and match the substantial inflow of candidates with job opportunities increased their cost of hire and time to hire. Additionally, organizations experienced a negative effect on their corporate reputations, and potentially increased their legal exposure, as a result of disenfranchised job applicants who often believed they did not receive fair evaluation or feedback. To address these issues, software vendors developed solutions known as applicant tracking systems, or ATSs, to collect and search candidate resumes and track candidate status. ATSs primarily enabled recruiters to organize and search resume content for key words or phrases. In recent years, large enterprise software companies, such as enterprise resource planning, or ERP, vendors including Oracle and SAP, added ATSs to their offerings.
These basic ATS offerings may enable companies to reduce the time and expense associated with hiring employees as organizations automate discrete, high volume transactions. However, neither electronic information exchange nor resume processing addresses the fundamental need to more effectively align workplace selection with business needs, and consistently attract, select, hire and retain top talent. As a result, these offerings do not significantly improve the return on investment in human capital or the quality of the workforce. Following the implementation of first- and second-generation ATSs, many organizations found that the simple automation of traditional and often flawed recruiting processes might only increase the frequency
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and quicken the pace at which sub-optimal candidates are hired, which increases the ongoing costs associated with training, turnover, and workforce inefficiency.
The Emergence of On Demand Software as a Service
While organizations attempted to address the changing environment of talent management, they also struggled to realize the expected functional and economic benefits of traditional client/server enterprise software applications. To support most enterprise applications, organizations were required to make sizable upfront and ongoing investments in IT infrastructure, including computer systems, networks, software licenses and maintenance fees. Additionally, customers generally require the services of internal staff and IT consultants to customize, maintain and upgrade traditional enterprise applications. In an attempt to address these challenges, some enterprise software application vendors have adapted their legacy products to be accessible over the Internet. However, as these products were not designed to be delivered over the Internet, they have generally suffered from performance and usability issues.
With dramatic declines in the pricing of computing technology and network bandwidth and more reliable Internet infrastructure, a new model for enterprise computing emerged: the on demand, or software as a service, model. On demand delivery allows substantial components of IT infrastructure to be provisioned and delivered dynamically as a service over the Internet. A wide variety of software applications that were developed specifically for Internet use are now being delivered on demand. The on demand model allows businesses to reduce their total cost of ownership by eliminating the need to install and manage hardware and third-party software in-house, and puts most of the accountability for the delivery and operation of the system on the vendor. The on demand model also allows the vendor to more efficiently share both the computing infrastructure and code base with a larger number of users, thus enabling better quality and a faster pace of innovation and upgrades.
Market Opportunity
Over the past few years, organizations have automated most critical business functions. While this automation has generated large volumes of data and business information, the critical knowledge within organizations resides with employees. Accordingly, much of the value of the organization resides in its human capital. To increase their return on investment in human capital, organizations have begun to shift their focus from traditional cost- and time-per-hire metrics to more strategic considerations such as time-to-productivity, internal mobility and employee retention, and employee contribution measures. Systematically pursuing these goals increases overall workforce productivity by enabling effective assignment and redeployment of talent more optimally aligned with business needs. A comprehensive view of talent management requires solutions that not only automate discrete recruiting transactions, but also improve the effectiveness and consistency of staffing processes through a more consistent competencies inventory management process, thereby increasing the quality of hire, employee retention, and productivity.
According to data from the Bureau of Economic Analysis, an agency of the U.S. Department of Commerce, the amount spent on U.S. labor in 2004 was approximately $6.6 trillion, or 57% of total gross domestic product. With labor comprising such a significant percentage of corporate cost structures, many organizations have acquired technologies and outsourced staffing-related functions in an effort to reduce costs and improve efficiency of their human capital assets. In October 2004, an independent market research firm, International Data Corporation, or IDC, estimated that recruiting and staffing service spending would grow from $29.9 billion in 2003 to $47.1 billion by 2008, a compound annual growth rate of 9.5% during that period. A fast growing component of this aggregate IDC forecast, the end-to-end hiring process automation solutions market, is expected to grow from $239 million in 2003 to approximately $727.9 million in 2008, which represents a compound annual growth rate of 24.9%. This estimate does not include the market for end-to-end hiring process automation solutions outside of the United States, but we believe that a market exists for these solutions outside of the United States.
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| Talent Management Requirements |
In order to sustain a competitive advantage in today’s knowledge economy, organizations must capitalize on human capital as their most important asset, not only optimizing staffing, but also talent management and employee mobility processes. These processes must enable organizations to:
Attract and Retain Top Talent. The process of attracting, hiring and retaining the best available staff is critical to every company’s long-term operational and financial success. Companies have acknowledged that the talent and satisfaction levels of their workforces have direct implications on product quality, customer service and relationships, brand equity, financial performance and competitive positioning. To maximize the long-term benefits of the staffing process, employers must hire employees that will make long lasting and substantial contributions. Real-time screening, assessment and communication are necessary capabilities to quickly capture the best internal and external candidates. Time-to-hire and cost-per-hire are ineffective performance metrics. Poor hires that stay with an organization are unproductive and have a recurring negative effect on the value of the organization. To retain top talent and place the right employees in the right positions, companies also require sophisticated processes and technology to enable employee career preference management and internal mobility.
Implement Effective and Consistent Talent Management Processes. Effective staffing processes exhibit a balanced combination of agility, low variance and defensibility. Managing the staffing process for large and complex organizations requires both extensive domain expertise and advanced technology that is configurable to support diverse business needs, candidate expectations, cultural norms and regulatory environments. The candidate facing processes and internal staffing processes must be aligned, comfortable to the candidate, and capable of supporting the business drivers of the organization. Slow screening processes often result in a more costly and lower quality of hire as top candidates are most likely to quickly find new employment opportunities elsewhere. In order to achieve consistently high quality outcomes, organizations’ hiring processes and technologies must deliver consistency and increased speed. In addition, they must enable defensible processes which can assist with regulatory compliance and protection against potential claims of discrimination.
Enable Extensive Talent Assessment. Beyond technical skills and work experience, the assessment of both employees’ and candidates’ behaviors, personalities and “soft” competencies ensures shorter training requirements, optimal fit with organizational and work-group cultures as well as fitness for particular work functions. Organizations are seeking advanced assessment tools that yield significant cost savings, elevate quality of workforces for increased productivity, and increase rates of retention. Integrating assessment into overall talent management processes and technologies further enables workforce optimization.
Match Skills and Job Requirements. To maximize their return and the alignment of their human capital with business needs, organizations must more effectively match skill sets against specific needs of unfilled job opportunities across an organization. Organizations with ineffective candidate screening processes will likely incur significant ongoing costs associated with extended learning curves for new hires, low productivity and high turnover. Organizations that record job specifications and update candidate and employee data structured by skills and competencies, rather than by resume content, are able to match skills against the immediate and longer-term needs of the organization. Skills-based matching requires innovative technologies that substantially increase the quality of hire, reduce time- and cost-to-productivity, enhance job satisfaction and enable internal mobility and workforce optimization.
Promote Workforce Agility. Building talent management processes that support workforce mobility enables organizations to become more agile in response to marketplace changes, with minimal disruption of current work. Empowering employees to manage and communicate their career preferences and aspirations increases retention of top talent and helps ensure that organization managers have an ample pool of current employees with the skills to support new and changing business and organizational initiatives.
Measure Talent Management Process Effectiveness. In order to drive continuous improvement in both talent management and return on human capital, organizations need to measure and analyze the
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effectiveness of end-to-end talent management processes. Organizations seek to quantify the contributions of their staff to the overall organization’s success, leading to greater focus on workforce management analytics. Workforce analytics tools enable organizations to identify the best sources for new hires, uncover deficiencies in staffing processes, and begin proactive workforce-planning efforts. Substantial investment in new technologies, tools and training are required to enable organizations to more effectively extract accurate information, evaluate absolute performance and trends, benchmark against competitor performance, and design and implement continuous staffing process improvements.
The Benefits of Our Approach
Just as supply chain optimization maximizes the return on physical assets, our talent management solutions help maximize the return on human capital by enhancing the alignment of workforce to business needs, increasing the quality and speed of hires, enabling the assessment and skills inventory of employees and promoting effective employee mobility. By driving organization-wide participation in the talent supply chain, we help our customers to establish systematic processes and enable these processes through the use of our configurable technology to increase the quality and satisfaction of their workforces.
The key benefits of our solutions include:
| Systematic Approach to Talent Management Processes. Our solutions standardize talent management to help organizations place the right individuals in the right positions, at the right time. This systematic approach enables an organization to significantly reduce the time and cost associated with talent management processes and the inevitable variance in the quality of employees that results from non-standard processes. Our solutions also document each step in the talent management processes, supporting auditability and thereby reducing the risk associated with failure to comply with various regulatory requirements established by government agencies. Our systematic approach extends to workforce mobility within the organization to increase the retention of strong performers. | |
| Comprehensive Suite of Solutions. Our talent management solutions address the needs of organizations of all sizes and those with diverse workforces that include professional, hourly and temporary staff. The extensive configurability of our solutions enables our customers to design workflows to meet the different needs of centralized and decentralized organizations within diverse business units and geographic regions. Our customers use our solutions to address their talent management needs as their businesses grow and evolve. | |
| Embedded Domain Expertise. We have developed an extensive knowledge base of staffing models that we call talent topologies. This knowledge base accelerates the recognition and implementation of industry-specific staffing processes within various geographic regions. The Taleo Talent Topologies Knowledge Base reflects years of industry experience which allows our customers to benefit from a diverse library of best practices, workflows and other solution content that we have developed in their industry through previous successes. | |
| Ease of Use and Integration. We have designed our solutions for ease-of-use by non-technical staffing professionals, managers, candidates and employees. The intuitive look, feel and operation of our applications allow users to rapidly realize the benefits of our solutions and reduce the amount of user training required to deploy our applications. The combination of the power and simplicity of our technology has driven high rates of user adoption within our customer deployments. We also provide integration solutions that enable our offerings to be quickly integrated with ERP systems and with the systems of additional staffing services providers. | |
| Talent Analytics. Our solutions include talent analytics tools that enable our customers to track the efficiency and effectiveness of their talent management processes. Our solutions allow customers to design different workflows for various human capital and staffing departments within their organizations. Our analytics tools provide an organization-wide view of the talent management processes and results. By measuring the results of talent management processes across an organization, |
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| our customers can refine best practices within their organizations, thereby improving the overall effectiveness of their talent management processes. | |
| Increased Workforce Productivity. Our customers use our solutions to reduce the time-to-hire and the time-to-productivity, and to increase the agility of the workforce. We maintain extensive databases of candidate and employee skill sets, assessments, and job requirements so our customers can more accurately match individuals to positions. Our solutions match individuals with the requisite skill sets to the appropriate jobs, thereby reducing the average learning curve and time to productivity for new hires and employee transfers. Our solutions allow employees to more easily transfer to new positions within the organization that match their skill sets and preferences, a process that fosters increased retention of employees. |
The key benefits of our business model include:
| Ease of Deployment through the On Demand Model. Our hosted, on demand delivery model enables our customers to deploy our solutions quickly, by avoiding the time required to procure, install, test, implement and maintain the hardware and software needed to support traditional client/server applications. Our consultants are available to assist customers in the deployment of our solutions and help them define and implement their talent management processes. Our delivery model also allows our customers to benefit from the ongoing improvements of our solutions without enduring the time consuming and costly process of a system-wide upgrade. Finally, we believe that our on-demand model facilitates the distribution of our solutions to geographically remote marketplaces. | |
| Single Version of Application Source Code. We maintain a single version of each release of our software applications. By eliminating the significant expense associated with customization, we are able to focus our development investment on improvements to our existing applications, as well as new applications, that benefit all of our customers. Our delivery model enables us to upgrade all of our customers to new versions of our solutions more quickly and easily than traditional software models. The standardization of our code base not only reduces the cost of our solution but also facilitates the rapid delivery of enhanced technology to our customers. Furthermore, through in-depth quality control and testing within our controlled IT environment, we believe our configurable solutions deliver higher levels of reliability than customized individual solutions. | |
| Configurability. We build extensive configurability into our solutions so that our customers can deploy our applications in a manner consistent with their business drivers. Such flexibility enables us to configure our functionality for a specific industry or type of hire, such as recent college graduates or experienced engineers, without the need for customized code. Our configurable solutions serve the needs of complex organizations that have different requirements in different locations and business segments, yet require organization-wide availability, reporting and employee mobility. Customers also have the ability to enable or disable specific functionalities, structuring their solutions to meet specific business needs. | |
| Secure, Scalable Infrastructure. We have designed our infrastructure to scale with the needs of our current and future customers. We maintain the security infrastructure to offer access to our solutions via a point-to-point virtual private network or a single-sign-on within our customers’ domains. Our Java-based applications run on standard hardware and software and are load-balanced across multiple servers to maximize availability. Each tier of our architecture has been configured for independent operation and scalability to provide customers with performance and reliability. | |
| Lower Total Cost of Ownership. Our hosted, on demand delivery model reduces the total cost of ownership for our customers by shifting the expense of designing, procuring, installing, testing and maintaining the infrastructure needed to support our applications to us. By delivering our solution on a shared, yet secure, infrastructure, we enjoy economies of scale in our deployments that our customers could not achieve through a proprietary implementation. | |
| Recurring Revenue. We sell our software using a subscription model that provides increased levels of recurring revenue and long-term predictability relative to perpetual license models. Our typical subscription agreements run approximately two to three years in duration and we have enjoyed high |
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| renewal rates since we began offering our solutions. We believe that the recurring nature of our subscription fees provides an ongoing base of revenue that helps us to better predict our financial performance in future periods. |
Our Strategy
Our strategy is to be the leading global provider of talent management solutions. Key elements of our strategy include:
| Extend our Technology Leadership. We believe we have established advanced technological capabilities and competitive advantages through extensive development on a single platform. As of March 31, 2005, we employed 222 professionals in our product management and development organizations. They support an integrated solution platform that is highly configurable to meet the diverse needs of our customers. We intend to leverage our experience and our development resources to enhance our technology and capitalize on the talent management market opportunity. | |
| Expand our Solution Offerings. We plan to expand our suite of solutions to deliver more value to our customers through our internal development initiatives, such as our Taleo HourlyTM solution enhancement introduced in February 2004. We may also pursue strategic acquisitions to broaden our suite of solutions, such as our acquisitions of White Amber in October 2003 to add a contingent staffing solution and Recruitforce.com in March 2005 to add a solution that addresses the needs of small to medium-sized organizations. We intend to develop solutions that address additional aspects of enterprise talent management, which involves the integration of comprehensive and dynamic sources of human capital demand and supply with decision support and business analytics. | |
| Build upon our Domain Expertise. We have compiled extensive industry-specific talent management knowledge in a structured platform that we call our Talent Topologies Knowledge Base. We will continue to work closely with our customers to further enhance our content and technology offerings to meet the unique needs of specific vertical markets. | |
| Increase Penetration of our Existing Customer Base. We have approximately 270 customers, many of which are large organizations that have not deployed all of our solutions throughout their entire organization. We intend to cross-sell our existing solutions and our future solutions to our existing customer base. | |
| Partner with Additional Leading Business Process Outsourcing Organizations. We intend to establish our solutions as the accepted standard for talent management practices at leading business process outsourcing, or BPO, organizations. We intend to invest in our partnership strategy to gain access to organizations that have chosen to broadly outsource human resource functions. | |
| Expand our Multinational Presence. We believe the increasing globalization of large organizations provides us with substantial opportunities to capitalize on our leadership in global deployments. We intend to expand our efforts to deploy our solutions to more companies that are based outside of North America. We also intend to enhance our multinational functionality and continue to invest in our international sales, marketing and customer support organizations. | |
| Expand our Target Market Opportunity. We intend to significantly expand our customer base beyond large organizations to include small to medium-sized organizations through marketing campaigns offering our Taleo Business Edition product line. |
Our Solutions
We offer two suites of talent management solutions: Taleo Enterprise Edition and Taleo Business Edition. Taleo Enterprise Edition is designed for medium to large-sized, multi-national organizations and addresses multiple staffing types, including professional, hourly, traditional contingent and project-based contractors with support for multiple languages as well as differing geographic and cultural requirements.
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Taleo Business Edition is designed for small to medium-sized organizations, stand-alone departments and divisions of larger organizations, and staffing companies.
We specifically design solutions to be delivered primarily on demand through a standard web browser. Our solutions are accessed through intuitive applications designed for corporate recruiters, managers and system administrators. The candidate-facing portions of Taleo Enterprise Edition are available in 13 languages, including Chinese and Japanese. Taleo Business Edition is currently available in 2 languages.
Taleo Enterprise Edition
Taleo Enterprise Edition includes three primary product offerings that enable large, complex organizations to successfully manage talent. We also provide add-on modules that allow our solutions to be tailored, meeting the specific needs of our customers. Our three primary product offerings are:
| Taleo Professional TM enables organizations to manage professional, non-hourly talent management functions, including attracting and evaluating candidates and employees, matching skills against job opportunities, candidate relationship management and internal employee mobility. Taleo Professional provides many-to-many matching of all candidates and employees against available job opportunities, and includes variable workflows for different types of workers, locations, workgroups and regulatory environments, as well as resume processing capabilities and third-party integration capabilities. | |
| Taleo HourlyTM provides screening and validated assessment content, skills matching and resume processing capabilities, in-depth reporting, configurable workflows and third-party integration capabilities. The Taleo Hourly solution can be configured to fit unique and dynamic business requirements for hourly workers across various industries. Our solution provides customers with a variety of candidate application methods, such as in-store staffing stations, digital pen and paper, voice and online applications. | |
| Taleo ContingentTM automates and simplifies temporary labor procurement and management. Taleo Contingent integrates an organization’s existing staffing supplier bases and provides the flexibility to select any supplier, including only preferred suppliers, based on needs, preferences and negotiated contracts. The solution gives hiring managers easy access to data on vendor past performance, rankings and billing rates, as well as detailed information about individual temporary workers. The solution efficiently matches qualified temporary workers to tasks, and measures their performance against organizational standards. Taleo Contingent provides a combination of application functionality and managed services that facilitates the ongoing management of temporary workforce programs on a vendor neutral basis. Sold as a module with Taleo Contingent,Taleo ProjectsTM helps organizations manage large consulting projects. |
| The additional modules that we offer to complement our primary product offerings include: |
| Taleo Workforce MobilityTM helps effectively align an organization’s existing workforce with changing business needs by matching the key elements of employee capabilities, training, and future career preferences with job requirements. Career preference management provides organizations with the ability to understand not only employee skills but also their future career plans. Employees are able to update their profiles, receive notices of matching opportunities, and access corporate-wide opportunities through internal career sites. | |
| Taleo CampusTM automates the logistical and administrative burden of campus recruitment programs through school and program-based candidate categorization and workflow. The solution allows organizations to better attract and build relationships with the right students, reduce candidate obsolescence and better match students with jobs, to decrease time-to-productivity, as well as to increase retention. | |
| Taleo AgencyTM directly links organizations with staffing agencies, allowing pre-approved third-party recruiters to directly submit candidates to our skills-based platform, saving significant time and |
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| costs for screening and selection. Recruiters and hiring managers use a single system to source and prescreen the best candidates, compare agency candidates with those currently in a customer’s database, and ensure that there is no duplication between the candidates agencies submit and those that apply directly to the organization, regardless of application method. | |
| Taleo Regulatory & DiversityTM provides organizations with the ability to create consistent and scalable staffing processes that help to reduce exposure to lawsuits and regulatory actions, comply with the requirements of certain government contracts, support auditability reduce administrative costs and improve the quality of hire through support of diversity programs. | |
| Taleo AssessmentTM enables organizations to systematically assess candidates’ and employees’ fit with organizational cultures and the needs of specific positions, by using either their own, third-party, or our proprietary behavioral and personality tests. The solution includes an application for either third-party or customer-employed industrial organization psychologists to define and manage assessment content, scoring algorithms and hiring bands. The output of this application is included in the overall candidate profile. The solution also includes the ability for a candidate to easily complete assessments online or via in-store staffing stations, such as those used in retail stores, or other alternative means. | |
| Taleo IntegrationTM includes our toolkit, which integrates our solutions with leading ERP solution providers such as Oracle, including former PeopleSoft applications, and SAP, enabling organizations to leverage their investment in such solutions and benefit from our best-of-breed functionality. Our solution also integrates staffing and assessment services from third-party providers such as background checking, tax credit screening and more on our common platform. | |
| Taleo ReportingTM provides comprehensive data analysis capabilities that enable our customers to make continuous process improvements. Taleo Reporting transforms talent data into the critical information necessary to manage critical processes, allocate staffing and sourcing funds, identify procedural bottlenecks and inefficiencies, and measure return on investment. The Talent Metrics Reporter offers standard proprietary reports as well as ad-hoc and custom reports that can be generated in real time. The standard reports focus on commonly used metrics that allow customers to observe and analyze staffing processes and results across the organization. | |
| Taleo ACE BenchmarkingTM provides a strategic view of enterprise staffing initiatives across all of our clients, providing a means to benchmark individual company performance in relationship to other companies. |
Taleo Business Edition
Taleo Business Edition is our on demand talent management solution for small to medium-sized organizations, stand-alone departments and divisions of larger organizations, and staffing companies. The intuitive nature of the user interface allows users to create a custom talent management system with easily configurable fields, layouts, views, workflow, reports, and integration. We offer four service options:
| Taleo Business Edition — Personal provides applicant tracking for individual users. It includes candidate recruiting life-cycle management, requisition management and contact management. With our Personal Service offering, recruiters can have a hosted career website, multilingual support, and access to both standard and customized reports. | |
| Taleo Business Edition — Standard makes all the functionality of the Personal Service available to recruiting departments and teams. Additional features include interview management and agency access. | |
| Taleo Business Edition — Plus includes all the functionality of the Standard Service with additional capabilities to have multiple career websites, multiple application forms and multi-lingual support. |
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| Taleo Business Edition — Premium contains all the advantages of the Standard Service in a more scalable package for corporate needs. Features of Premium Service include unlimited reports, web APIs for integration and additional customization options. |
Technology
Historically, we have maintained our solutions on a common technology infrastructure. Integration efforts for our Taleo Contingent solution, obtained through our acquisition of White Amber in October 2003, are scheduled for substantial completion in 2005. The technology we obtained in our acquisition of Recruitforce.com in March 2005 is in the process of being integrated into our hosting and support infrastructure while remaining on its current single code base.
Our solutions reside on a common proprietary platform, configurable for complex operations, that provides organizations with a comprehensive view of their workforces. Together, the Structured Enterprise Talent Platform and the Configurable Staffing Process Platform represent the foundation for Taleo Enterprise Edition.
| The Structured Enterprise Talent Platform maintains the data elements required by our solutions. The data structure within the Structured Enterprise Talent Platform, or Talent Master, includes information on skills, competencies, experience, behaviors and level of interest in a skill or competency that can be matched to job requirements. This platform also allows candidates and current employees to submit their skills profiles to a company to be matched to jobs as they become available. The platform also enables an organization to inventory and search the skills of its candidates and current employees to decide between internal and external hires for new business initiatives and measure gaps in skills existing in its current workforce. | |
| The Configurable Staffing Process Platform provides the foundation for deploying our solutions throughout an organization while adapting it locally according to the organization, location, applicable laws, local staffing model, types of hires and internal mobility requirements. Our platform allows our customers to configure our solution to meet their specific needs according to their internal staffing workflows. |
We deliver our solutions on a hosted, on demand basis. Our technology infrastructure is designed to achieve high levels of security, scalability, performance and availability. We believe that our architecture allows us to deliver our solutions to customers more cost effectively and faster than traditional enterprise software providers. We maintain a single version of each release of our software applications within our controlled IT infrastructure. All of our solutions are accessed through a web browser and are non-intrusive. Our solutions provide a rich, intuitive interface that our customers use to access their data with secure user names, passwords and role-based access rights. Our Java-based applications run on standard hardware and software and are load balanced across multiple servers to provide consistent availability and performance. We license technology from third-party software vendors, including Business Objects, Oracle and webMethods.
Our solutions operate on Linux operating systems and common open-source components for enhanced reliability and a scalable and secure computing environment that can accommodate significant increases in activity. Our secure infrastructure includes web transaction monitoring Secure Socket Layer offload and anti-virus appliances and systems that help us to detect and prevent unauthorized access. Our multi-tier application architecture has been configured for independent operation and scalability to provide customers with performance and reliability.
We maintain our primary technology infrastructure in two third-party hosting facilities in the United States, operated by Internap in New York City and IBM in San Jose, California. Internap also provides us with our Internet connectivity at both facilities. Under the terms of these collocation agreements, our third-party hosting providers agree to provide space, electrical power and Internet connectivity for our hosting infrastructure, including web servers, database servers and application servers. These agreements are renewable annually unless either party terminates the contract or does not consent to renewal upon
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prior notice. The agreements may be terminated by the hosting provider in the case of material breach by us of the terms of the agreement or, in the case of our agreement with Internap, insolvency, failure to operate in the ordinary course, a breach of confidentiality provisions, a change in pricing terms not agreed to by the parties, or force majeure. The infrastructure for Taleo Business Edition is hosted in our facilities in Mountain View, California.
Our customers benefit from the use of a shared computing infrastructure and leverage the flexibility and security of independent application and database tier configurations. At the systems level, customers share the use of specialized servers and their software components, including web, application, integration and database servers as well as storage, search and reporting engines. Our systems architecture and technology enable us to spread the computing load required by our customers across servers for optimal performance. Our customers use our solutions independently from each other at both the application and database layers. At the database layer, each customer’s data is stored in distinct database schemas and data files, providing increased manageability and security.
Professional Services
Our professional services organization leverages our consultants’ domain expertise and our proprietary methodologies to provide implementation services, solution optimization and training. Many of our consultants have held talent management positions at Global 2000 corporations, or senior level consulting positions at major consulting agencies and other enterprise software companies.
| Taleo Methodologies |
We have developed methodologies that enable us to accelerate the deployment of our solutions across a variety of industries and talent management environments:
| ACE Methodology. Working with Fortune 500 companies, we developed a supply chain approach to talent management and identified methods to optimize critical business processes, while maintaining the integrity of our customers’ business drivers. We call this approach our ACE Methodology. Our ACE Methodology addresses specific staffing processes for position management, requisition management, candidate management, collaborative workflow, new hire on-boarding review and staffing performance analysis. Our consultants work with our customers, as a component of our consulting engagements, to implement the ACE Methodology through a complete review of current business practices, mapping our solution and workflows to the organization’s structure and processes, and ultimately configuring a skills-based platform for complete talent management, from entry to redeployment. | |
| Talent Topologies. Our Talent Topologies templates enable us to understand an organization’s overall talent management environment, including internal and external business drivers, talent management models, hire types and talent management processes and to recommend best practices to optimize resulting talent management processes. Our Talent Topologies Knowledge Base is a searchable database of descriptions of the complex enterprise talent management challenges faced within different industries and geographies. Our Talent Topologies Knowledge Base also provides specific details of the solutions our consultants implemented to address these challenges, and the results obtained. This knowledge base reflects years of talent management experience across a wide variety of industries. Our consultants use the collective data from our Talent Topologies Knowledge Base, as a component of our consulting engagements, to help our new customers solve their complex staffing challenges, and to help our existing customers hone their talent management practices and processes. |
| Implementation Services |
Our implementation services begin with a complete evaluation of a customer’s current talent management practices. They include process engineering to leverage the configuration of the solutions and integration with existing applications to fit each organization’s dynamic business requirements. We support a consulting certification program and have a project management office that equips our consultants with a
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library of toolkits, forms, training documentation and workshop templates. The project management office also oversees the management of customer deployments to help enable smooth, systematic and on-time implementations and maximize success and financial returns.
| Solution Optimization |
We provide ongoing solution optimization services to help our customers achieve desired results in quality improvement, increased productivity, cost savings and operational effectiveness after the initial deployment of our solution. As a service component of our software subscription agreements, we work with our customers to measure improvement in their talent management processes. If necessary, we modify customer usage or configuration of our solutions to increase their effectiveness. In collaboration with customer project leaders, we establish an ongoing process for continual evolution and solution optimization. Using this process, our customers can promote best practice usage and end user adoption long after our solutions have been deployed.
| Training |
Through Taleo University, we offer a full range of educational services including pre-deployment classroom training, train-the-trainer programs, system administrator training, post-deployment specialty training, upgrade training and eLearning/web-based training. We also offer a variety of training tools to drive user adoption, including solution user manuals, process user guides, feature training exercises, a self-service website for training scheduling and registration, post-training assessments and synchronous, web-based training tools for remote users.
Customer Support
Our global customer care organization provides both proactive and customer-initiated support. We deliver our multilingual technical assistance via telephone, e-mail and our web-based customer care portal, 24 hours a day, seven days a week. Our customer care organization tracks all customer support requests and reports the status of these requests to the user through our customer care portal, enabling users to know the status of their support requests, the person responsible for resolving them, and the targeted timing and process for resolution. Our senior executives review customer satisfaction reports and support and response metrics and take action when necessary to ensure that we maintain a high level of customer satisfaction.
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Customers
We currently have approximately 270 corporate customers with more than 400,000 registered users located in over 85 countries. We market Taleo Enterprise Edition to medium to large-sized organizations with more than 5,000 employees. We market Taleo Business Edition to small to medium-sized organizations with fewer than 10,000 employees. Our customers include organizations in the technology, manufacturing, business services, consumer goods, retail, energy, healthcare, financial services and transportation sectors. None of our customers has accounted for more than ten percent of our revenue in any of the last three years. Some of our largest customers by revenue in a variety of different industries include:
| Technology Dell HP SAS Manufacturing Dow Chemical DuPont Honeywell Business Services Deloitte Touche McGraw-Hill Pitney Bowes | Consumer Goods Colgate-Palmolive P&G Pepsi Retail Blockbuster Family Dollar Stores Starbucks Energy Chevron PacifiCorp Shell | Healthcare Intermountain Health Care Sutter Health UnitedHealth Group Financial Services Harris Thomson Washington Mutual Transportation American Airlines United Airlines Yellow Corporation |
In 2004, 2003 and 2002, respectively, 6%, 3% and 2% of our revenue came from countries outside of North America. We base our determination of revenue attributable to a country on the location of the contracting party. Many of our customers for which the contracting party was based in North America have deployed our solution internationally.
Customer User Groups
We have established customer user groups to provide a forum for sharing talent management strategies and best practices, reviewing new features of our solution and identifying new customer requirements. We currently have eight self-governed, self-financed Taleo Regional Users Groups throughout the United States, Europe, Asia-Pacific and Canada. The elected leader of each Regional User Group becomes a member of the Taleo Product Council and in that capacity works directly with our product management group to guide the development of our solutions. The Regional Users Groups support several Taleo Special Interest Groups focused on best practices and technology in specific areas such as campus recruiting or university relations, hourly and retail staffing, reporting and skills-based staffing. These groups benefit our customers by enabling them to share their knowledge and benefit us by providing powerful input into our product development process as well as a valuable opportunity to deepen our relationships. We host an annual user conference called Taleo WORLD. We also maintain an advisory board with members from the following organizations: the Wharton School of Business; Fidelity Employer Services Company; Limited Brands; Hewlett-Packard; UnitedHealth Group; Fidelity Investments; Johnson & Johnson; and Dow Chemical.
Sales and Marketing
We sell our software and services primarily through our global direct sales force and in conjunction with our partners. In North America, we have sales and services offices across the United States, including Boston, Chicago, Dallas, New York and San Francisco, and in Canada, including Montreal and Toronto. Outside of North America we have sales and services offices in Amsterdam, London, Paris, Melbourne and Sydney. Our Taleo Business Edition offerings are currently sold through a telesales team and through self-registration on our website.
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| Sales Team |
Our direct sales force consists of a team of account executives, solutions consultants and business development executives that sell our solutions across multiple industries and geographies. Our sales professionals possess comprehensive technology and talent management expertise and domain knowledge to educate potential clients on the benefits of our solutions. We also maintain a separate team of account executives that focuses on selling new solutions and services to existing customers. Our solutions consultants work in tandem with our account executives to provide technical and product expertise in support of the sales process. Our business development executives assist our direct sales force in identifying and penetrating new accounts. In addition, we have developed indirect sales relationships with BPO providers and anticipate that a growing number of sales will be made through these and similar relationships in the future. Our BPO partners use our solutions to manage talent management for their customers as part of their broader human resource offerings.
| Marketing |
Our marketing initiatives include market research, product and strategy updates with industry analysts, public relations activities, web marketing, direct mail and relationship marketing programs, seminars, industry specific trade shows, speaking engagements and cooperative marketing with customers and partners. Our marketing team generates qualified leads and provides programs for prospects and customers that build awareness of our existing solutions as well as new products and services. Our marketing department also produces materials that include brochures, data sheets, white papers, presentations, demonstrations and other marketing tools on our corporate website. We also generate awareness through electronic and print advertising in trade magazines, websites, search engines, seminars and direct customer and partner events.
| Taleo Research Institute |
Our Taleo Research Institute, formerly iLogos, consulting and metrics development organization, focuses on the financial aspects of talent management and consults with large organizations to help them optimize financial return from global talent management processes and technologies. The Taleo Research Institute serves large organizations throughout the world with business analytics that tie talent management technology and process improvements to reduced costs and improved financial results.
Research and Development
Our research and development organization consists of product management and development employees. We employed 222 professionals in these areas as of March 31, 2005. Our research and development organization is primarily located in our Quebec City facility, which enables us to benefit from lower staffing costs and higher retention rates. Our development methodology allows us to implement adjustable development cycles that result in more timely and efficient delivery of new solutions and enhancements to existing solutions. We focus our research and development efforts on improving and enhancing our existing solution offerings as well as developing new solutions. The responsibilities of our research and development organization include product management, product development, solution release management and software maintenance. We allocate a portion of our research and development expenses to the development of our technology infrastructure, including our Structured Enterprise Talent Platform and Configurable Staffing Process Platform. Our research and development expenditures, net of tax credits we received in Quebec, totaled 16.0 million, $11.0 million and $6.5 million in 2004, 2003 and 2002, respectively.
Competition
The market for talent management solutions is highly competitive and rapidly evolving. We believe that the principal competitive factors in this market include:
| • | product performance and functionality; |
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| • | breadth and depth of functionality; | |
| • | ease of implementation and use; | |
| • | on demand business model; | |
| • | ability to integrate; | |
| • | scalability; | |
| • | company reputation; and | |
| • | price. |
We believe that we compete favorably with respect to these factors. We compete with both smaller companies that provide point solutions such as BrassRing, Deploy Solutions, Hire.com, Hodes iQ, Kenexa, PeopleClick, Recruitmax, Resumix, Unicru, VirtualEdge, Webhire and Workstream and with large enterprise resource planning software providers, such as Oracle and SAP. We also compete with contingent staffing solution providers, such as Beeline, Chimes, Elance, Fieldglass, IQNavigator and ProcureStaff.
Our current and potential competitors include large, established companies with a larger installed base of users, longer operating histories, and greater name recognition and resources. In addition, we compete with smaller companies who may adapt better to changing conditions in the market. We cannot provide assurance that competitors will not develop products or services that will be superior to ours or that will achieve greater market acceptance.
Intellectual Property
Our success is dependent in part on our ability to protect our proprietary technology. We rely on a combination of trademark, copyright and trade secret laws in the United States and other jurisdictions as well as confidentiality procedures and contractual provisions to protect our proprietary technology, services methodology and brand. We have registered trademarks for certain of our products and services and will continue to evaluate the registration of additional trademarks as appropriate. We also enter into confidentiality and proprietary rights agreements with our employees, consultants and other third parties and control access to software, documentation and other proprietary information.
Despite these efforts, it may be possible for unauthorized third parties to copy certain portions of our products or to reverse engineer or otherwise obtain and use our proprietary information. We do not have any patents or patents pending, and existing copyright laws afford only limited protection. In addition, we cannot be certain that others will not develop substantially equivalent or superior proprietary technology, or that equivalent products will not be marketed in competition with our products, thereby substantially reducing the value of our proprietary rights. Furthermore, confidentiality agreements between us and our employees or any license agreements with our clients may not provide meaningful protection of our proprietary information in the event of any unauthorized use or disclosure of it. In addition, the laws of certain countries do not protect our proprietary rights to the same extent as do the laws of the United States. Accordingly, the steps we have taken to protect our intellectual property rights may not be adequate and we may not be able to protect our proprietary software in the United States or abroad against unauthorized third party copying or use, which could significantly harm our business.
In addition, we license third-party technologies that are incorporated into some elements of our services. Licenses from third-party technologies may not continue to be available to us at a reasonable cost, or at all.
Trademark registration for “Taleo” is pending. “Recruitsoft” and our logo are our registered trademarks. This registration statement also includes trademarks of other persons.
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Employees
As of March 31, 2005, we had 525 employees, as compared to 541 as of December 31, 2004 and 479 as of December 31, 2003. None of our employees is represented by a collective bargaining agreement and we have never experienced a strike or similar work stoppage. We consider our relationship with our employees to be good.
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FORWARD-LOOKING STATEMENTS
We have made statements in this registration statement that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “could,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “forecasts,” “projects,” “predicts,” “intends,” “potential,” “continue,” the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial performance, our anticipated growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including those factors discussed under the caption entitled “Risk Factors.”
Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. We undertake no obligation to update any of these forward-looking statements after the date of this registration statement to conform our prior statements to actual results or revised expectations.
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RISK FACTORS
Risks Related to Our Business and Industry
We have a history of losses, and we cannot be certain that we will achieve or sustain profitability.
We have incurred annual losses since our inception. As of March 31, 2005, we had incurred cumulative net losses of $38.8 million. We may incur operating losses at least in the short term as a result of expenses associated with the continued development and expansion of our business. Our expenses include those related to sales and marketing, general and administrative, research and development and others related to the development, marketing and sale of products and services that may not generate revenue until later periods, if at all. As we implement initiatives to grow our business, which include, among other things, plans for international expansion and new product development, any failure to increase revenue or manage our cost structure could prevent us from completing these initiatives and achieving or sustaining profitability. As a result, our business could be harmed and our stock price could decline. We cannot be certain that we will be able to achieve or sustain profitability on a quarterly or annual basis.
We participate in a new and evolving market, which makes it difficult to evaluate our current business and future prospects.
You must consider our business and prospects in light of the risks and difficulties we encounter in the new, uncertain and rapidly evolving talent management market. Because this market is new and evolving, it is difficult to predict with any assurance the future growth rate and size of this market, which, in comparison with the overall market for enterprise software applications, is relatively small. The rapidly evolving nature of the markets in which we sell our products and services, as well as other factors that are beyond our control, reduce our ability to accurately evaluate our future prospects and forecast quarterly or annual performance.
If our existing customers do not renew their software subscriptions and buy additional solutions from us, our business will suffer.
We expect to continue to derive a significant portion of our revenue from renewal of software subscriptions and, to a lesser extent, service and maintenance fees from our existing customers. As a result, maintaining the renewal rate of our existing software subscriptions is critical to our future success. Factors that may affect the renewal rate for our solutions include:
| • | the price, performance and functionality of our solutions; | |
| • | the availability, price, performance and functionality of competing products and services; | |
| • | the effectiveness of our maintenance and support services; and | |
| • | our ability to develop complementary products and services. |
Most of our existing enterprise customers entered into software subscription agreements that expire between two and five years from the initial contract date. The small to medium-sized customers we obtained through our acquisition of Recruitforce.com, Inc. generally enter into annual contracts. Our customers have no obligation to renew their subscriptions for our solutions after the expiration of the initial term of their agreements. In addition, our customers may negotiate terms less advantageous to us upon renewal, which may reduce our revenue from these customers, or may request that we license our software to them on a perpetual basis, which may, after we have ratably recognized the revenue for the perpetual license over the relevant term in accordance with our revenue recognition policies, reduce recurring
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revenue from these customers. Under certain circumstances, our customers may cancel their subscriptions for our solutions prior to the expiration of the term. Our future success also depends in part on our ability to sell new products and services to our existing customers. If our customers terminate their agreements, fail to renew their agreements, renew their agreements upon less favorable terms, or fail to buy new products and services from us, our revenue may decline or our future revenue may be constrained.
If our efforts to attract new customers are not successful, our revenue growth will be adversely affected.
In order to grow our business, we must continually add new customers. Our ability to attract new customers will depend in large part on the success of our sales and marketing efforts. However, our prospective customers may not be familiar with our solutions, or may have traditionally used other products and services for their talent management requirements. In addition, our prospective customers may develop their own solutions to address their talent management requirements, purchase competitive product offerings, or engage third-party providers of outsourced talent management services that do not use our solution to provide their services. Additionally, some new customers may request that we license our software to them on a perpetual basis or that we allow them the contractual right to convert from a term license to a perpetual license during the contract term, which may reduce recurring revenue from these customers. To date, we have completed a limited number of agreements with such terms. If our prospective customers do not perceive our products and services to be of sufficiently high value and quality, we may not be able to attract new customers.
Our financial performance may be difficult to forecast as a result of our historical focus on large customers and the long sales cycle associated with our solutions.
The majority of our revenue is currently derived from organizations with complex talent management requirements. Accordingly, in a particular quarter the majority of our new customer sales represent large sales made to a relatively small number of customers. As such, our failure to close a sale in a particular quarter will impede expected revenue growth unless and until the sale closes. In addition, our sales cycles for our enterprise clients are generally between six months and one year, and in some cases can be longer. As a result, substantial time and cost may be spent attempting to secure a sale that may not be successful. The period between an initial sales contact and a contract signing is relatively long due to several factors, including:
| • | the complex nature of our solutions; | |
| • | the need to educate potential customers about the uses and benefits of our solutions; | |
| • | the relatively long duration of our contracts; | |
| • | the discretionary nature of our customers’ purchase and budget cycles; | |
| • | the competitive evaluation of our solutions; | |
| • | fluctuations in the staffing management requirements of our prospective customers; | |
| • | announcements or planned introductions of new products by us or our competitors; and | |
| • | the lengthy purchasing approval processes of our prospective customers. |
If our sales cycle unexpectedly lengthens, our ability to accurately forecast the timing of sales in a given period will be adversely affected and we may not meet our forecasts for that period.
If we fail to develop or acquire new products or enhance our existing products to meet the needs of our existing and future customers, our sales will decline.
To keep pace with technological developments, satisfy increasingly sophisticated customer requirements and achieve market acceptance, we must enhance and improve existing products and continue to introduce new products and services. Any new products we develop or acquire may not be introduced in a timely manner and may not achieve the broad market acceptance necessary to generate significant revenue. If we are unable to successfully develop or acquire new products or enhance our existing products or if we fail to price our products to meet market demand, our business and operating results will be adversely
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affected. To date, we have focused our business on providing solutions for the talent management market, but we may seek to expand into other markets in the future. Our efforts to expand our solutions beyond the talent management market may divert management resources from existing operations and require us to commit significant financial resources to an unproven business, which may harm our existing business.
We expect to incur significant expense to develop software products and to integrate acquired software products into existing platforms to maintain our competitive position. These efforts may not result in commercially viable solutions. If we do not receive significant revenue from these investments, our business will be adversely affected. Additionally, we intend to maintain a single version of each release of our software applications that is configurable to meet the needs of our customers. Customers may require customized solutions or features and functions that we do not yet offer and do not intend to offer in future releases, which may cause them to choose a competing solution.
Fluctuation in the demand for temporary workers will affect the revenue associated with our Taleo Contingent solution, which may harm our business and operating results.
We generate revenue from our Taleo Contingent solution based on a fixed percentage of the dollar amount invoiced for temporary labor procured and managed through this solution. We anticipate that our Taleo Contingent solution will account for a significant portion of our revenue in future periods. If our customers’ demand for temporary workers declines, or if the general wage rates for temporary workers decline, so will our customers’ associated spending for temporary workers, and, as a result, revenue associated with our Taleo Contingent solution will decrease and our business may suffer.
Because we recognize revenue from software subscriptions over the term of the agreement, a significant downturn in our business may not be reflected immediately in our operating results, which makes it more difficult to evaluate our prospects.
We recognize revenue from software subscription agreements monthly over the terms of these agreements, which are typically between two and five years for our Taleo Enterprise Edition customers and one year for our Taleo Business Edition customers. As a result, a significant portion of the revenue we report in each quarter is generated from software subscription agreements entered into during previous periods. Consequently, a decline in new or renewed subscriptions in any one quarter may not affect our financial performance in that quarter but will negatively affect our revenue in future quarters. If a number of contracts expire and are not renewed in the same quarter, our revenue would decline significantly in that quarter and subsequent quarters. In addition, we may be unable to adjust our costs in response to reduced revenue. Accordingly, the effect of significant declines in sales and market acceptance of our solutions may not be reflected in our short-term results of operations, which would make our reported results less indicative of our future prospects.
If we do not compete effectively with companies offering talent management solutions, our revenue may not grow and could decline.
We have experienced, and expect to continue to experience, intense competition from a number of companies. We compete with vendors of enterprise resource planning software such as Oracle and SAP. We also compete with niche point solution vendors such as BrassRing, Deploy Solutions, Hire.com, Hodes iQ, Kenexa, Peopleclick, Recruitmax, Resumix, Unicru, VirtualEdge, Webhire and Workstream that offer products that compete with one or more modules in our suite of solutions. In the area of talent management solutions for temporary employees, we compete primarily with companies such as Beeline, Chimes, Elance, Fieldglass, IQNavigator, and ProcureStaff. Our Taleo Business Edition competes primarily with Hiredesk.com, Hire.com and others. Our competitors may announce new products, services or enhancements that better meet changing industry standards or the price or performance needs of customers. Increased competition may cause pricing pressure and loss of market share, either of which could have a material adverse effect on our business, results of operations and financial condition.
Many of our competitors and potential competitors, especially vendors of enterprise resource planning software, have significantly greater financial, technical, development, marketing, sales, service and other resources than we have. Many of these companies also have a larger installed base of users, longer
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operating histories and greater name recognition than we have. Our enterprise resource planning software competitors provide products that may incorporate capabilities in addition to staffing management, such as automated payroll and benefits. Products with such additional functionalities may be appealing to some customers because they can reduce the number of different types of software or applications used to run their business. Our niche competitors’ products may be more effective than our products at performing particular talent management functions or may be more customized for particular customer needs in a given market. Further, our competitors may be able to respond more quickly than we can to changes in customer requirements.
In some cases, our products may need to be integrated with software provided by our existing or potential competitors. These competitors could alter their products in ways that inhibit integration with our products, or they could deny or delay access by us to advance software releases, which would restrict our ability to adapt our products to facilitate integration with these new releases and could result in lost sales opportunities. In addition, many organizations have developed or may develop internal solutions to address talent management requirements that may be competitive with our solutions.
We may lose sales opportunities if we do not successfully develop and maintain strategic relationships to sell and deliver our solutions.
We intend to partner with business process outsourcing, or BPO, providers that resell our staffing solution as a component of their outsourced human resource services. We currently have relationships with several of these companies. If customers or potential customers begin to outsource their talent management functions to BPOs that do not resell our solutions, or to BPOs that choose to develop their own solutions, our business will be harmed. In addition, we have relationships with third-party consulting firms, system integrators and software and service vendors who provide us with customer referrals, cooperate with us in marketing our products and provide our customers with system implementation or maintenance services. If we fail to establish new strategic relationships or expand our existing relationships, or should any of these partners fail to work effectively with us or go out of business, our ability to sell our products into new markets and to increase our penetration into existing markets may be impaired.
We may not be able to finance future needs or adapt our business plan to changes because of restrictions placed on us by our secured credit facility.
The agreements governing our existing debt contain various covenants that limit our ability to, among other things:
| • | use restricted cash in an amount up to $8.125 million for a period of time; | |
| • | incur additional debt, including guarantees by us or our subsidiaries; | |
| • | make investments, pay dividends on our capital stock or redeem or repurchase our capital stock, subject to certain exceptions; | |
| • | create specified liens; | |
| • | make capital expenditures in excess of specified amounts that range between $4.75 million and $6.1 million during quarterly periods through the period ending March 31, 2008; | |
| • | sell assets; | |
| • | make acquisitions; | |
| • | create or permit restrictions on the ability of our subsidiaries to pay dividends or make other distributions to us; | |
| • | engage in transactions with affiliates; | |
| • | engage in sale and leaseback transactions; and | |
| • | consolidate or merge with or into other companies or sell all or substantially all of our assets. |
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Our ability to comply with covenants contained in our secured credit facility may be affected by events beyond our control, including prevailing economic, financial and industry conditions. For example, we were unable to provide financial statements as required pursuant to the original terms of the agreement and therefore had to amend our agreement. Our secured credit facility requires us to comply with limits on capital expenditures ranging from $2.9 to $5.5 million, a minimum current ratio ranging from 1.20:1.00 to 1.00:1.00, minimum EBITDA ranging from $1 to $9 million, minimum liquidity ranging from $15.6 to $3.6 million, minimum application revenue ranging from $10.7 to $68.8 million and minimum cash levels ranging from $8.2 to $1.3 million. Additionally, the secured credit facility contains numerous affirmative covenants, including covenants regarding delivery of certain financial statements and other reports, compliance with applicable laws, inspections of our properties and assets, and maintenance of insurance, our properties and the lender’s security interest in our assets.
Our failure to comply with these covenants could result in a default. If a default occurs under our secured credit facility, the lender could cause all of the outstanding obligations under the secured credit facility to become due and payable. Upon a default, the lender under the secured credit facility could proceed against the collateral, which includes the Company’s intellectual property. Even if we are able to comply with all of the applicable covenants, the restrictions on our ability to manage our business in our sole discretion could adversely affect our business by, among other things, limiting our ability to take advantage of financings, mergers, acquisitions and other corporate opportunities that we believe would be beneficial to us.
Mergers of or other strategic transactions by our competitors could weaken our competitive position or reduce our revenue.
If one or more of our competitors were to merge or partner with another of our competitors, the change in the competitive landscape could adversely affect our ability to compete effectively. Our competitors may also establish or strengthen cooperative relationships with our current or future business process outsourcing, or BPO, partners, systems integrators, third-party consulting firms or other parties with whom we have relationships, thereby limiting our ability to promote our products and limiting the number of consultants available to implement our solutions. Disruptions in our business caused by these events could reduce our revenue.
If we are required to reduce our prices to compete successfully, our margins and operating results could be adversely affected.
The intensely competitive market in which we do business may require us to reduce our prices. If our competitors offer discounts on certain products or services we may be required to lower prices or offer our solutions at less favorable terms to us to compete successfully. Several of our larger competitors have significantly greater resources than we have and are better able to absorb short-term losses. Any such changes would likely reduce our margins and could adversely affect our operating results. Some of our competitors may provide fixed price implementations or bundle product offerings that compete with ours for promotional purposes or as a long-term pricing strategy. These practices could, over time, limit the prices that we can charge for our products. If we cannot offset price reductions with a corresponding increase in the number of sales, our margins and operating results would be adversely affected.
If our security measures are breached and unauthorized access is obtained to customer data, customers may curtail or stop their use of our solutions, which would harm our business, operating results and financial condition.
Our solutions involve the storage and transmission of customers’ proprietary information, and security breaches could expose us to loss of this information, litigation and possible liability. If our security measures are breached as a result of third-party action, employee error, criminal acts by an employee, malfeasance or otherwise, and, as a result, someone obtains unauthorized access to customer data, our reputation will be damaged, our business may suffer and we could incur significant liability. Techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until launched against a target. As a result, we may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of our security occurs, the market perception of our security measures could be harmed and we could lose sales and customers.
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Defects or errors in our products could affect our reputation, result in significant costs to us and impair our ability to sell our products, which would harm our business.
Our products may contain defects or errors, which could materially and adversely affect our reputation, result in significant costs to us and impair our ability to sell our products in the future. The costs incurred in correcting any product defects or errors may be substantial and could adversely affect our operating results. While we test our products for defects or errors prior to product release, defects or errors are also identified from time to time by our internal team and by our customers. Such defects or errors are likely to occur in the future.
Any defects that cause interruptions to the availability of our solutions could result in:
| • | lost or delayed market acceptance and sales of our products; | |
| • | loss of customers; | |
| • | product liability suits against us; | |
| • | diversion of development resources; | |
| • | injury to our reputation; and | |
| • | increased maintenance and warranty costs. |
While our software subscription agreements typically contain limitations and disclaimers that purport to limit our liability for damages related to defects in our software, such limitations and disclaimers may not be enforced by a court or other tribunal or otherwise effectively protect us from such claims.
Widespread market acceptance of the on demand delivery model is uncertain, and if it does not continue to develop, or develops more slowly than we expect, our business may be harmed.
The market for hosted enterprise software is new and, to a large extent, unproven, and it is uncertain whether hosted software will achieve and sustain high levels of demand and market acceptance. The overwhelming majority of our customers access and use our software as a web-based solution that is hosted by us. If the preferences of our customers change and our customers elect to host our software themselves, either upon the initiation of a new agreement or upon the renewal of an existing agreement, we would experience a decrease in revenue from hosting fees, and potentially higher costs and greater complexity in providing maintenance and support for our software. Additionally, a very limited number of our customers has the contractual right to elect to host our software themselves prior to the expiration of their subscription agreements with us. If the number of customers purchasing hosting services from us decreases, we might not be able to decrease our expenses related to hosting infrastructure in the short term if the demand for such hosting services decreases. Potential customers may be reluctant or unwilling to allow a vendor to host software or internal data on their behalf for a number of reasons, including security and data privacy concerns. If such organizations do not recognize the benefits of the on demand delivery model, then the market for our solutions may not develop at all, or may develop more slowly than we expect.
If we fail to adequately manage our hosting infrastructure capacity, our existing customers may experience service outages and our new customers may experience delays in the deployment of our solution.
We have experienced significant growth in the number of users, transactions and data that our hosting infrastructure supports. Failure to adequately address the increasing demands on our hosting infrastructure may result in service outages or disruptions. For example, we have experienced downtimes in our hosting facilities, some of which have been significant, which prevented customers from using our solutions for a period of time. We seek to maintain sufficient excess capacity in our hosting infrastructure to meet the needs of all of our customers. We also maintain excess capacity to facilitate the rapid provisioning of new customer deployments and expansion of existing customer deployments. The provisioning of new hosting infrastructure to keep pace with expanding storage and processing requirements could be a significant cost to us that we are not able to adequately predict, and for which we are not able to budget significantly in
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advance. Such outlays could raise our cost of goods sold and negatively affect our financial results. At the same time, the provisioning of new hosting infrastructure requires significant lead time. If we do not accurately predict our infrastructure capacity requirements, our existing customers may experience service outages that may subject us to financial penalties, financial liabilities and customer losses. If our hosting infrastructure capacity fails to keep pace with sales, customers may experience delays as we seek to obtain additional capacity, which could harm our reputation and adversely affect our revenue growth.
Any significant disruption in our computing and communications infrastructure could harm our reputation, result in a loss of customers and adversely affect our business.
Our computing and communications infrastructure is a critical part of our business operations. The vast majority of our customers access our solutions through a standard web browser. Our customers depend on us for fast and reliable access to our applications. Much of our software is proprietary, and we rely on the expertise of members of our engineering and software development teams for the continued performance of our applications. We may experience serious disruptions in our computing and communications infrastructure. Factors that may cause such disruptions include:
| • | human error; | |
| • | physical or electronic security breaches; | |
| • | telecommunications outages from third-party providers; | |
| • | computer viruses; | |
| • | acts of terrorism or sabotage; | |
| • | fire, earthquake, flood and other natural disasters; and | |
| • | power loss. |
Although we back up data stored on our systems at least daily, our infrastructure does not currently include real-time, or near real-time, mirroring of data storage and production capacity in more than one geographically distinct location. Thus, in the event of a physical disaster, or certain other failures of our computing infrastructure, customer data from recent transactions may be permanently lost.
We have computing and communications hardware operations located at third-party facilities with Internap in New York City and with IBM in San Jose, California. We do not control the operation of these facilities and must rely on these vendors to provide the physical security, facilities management and communications infrastructure services to ensure the reliable and consistent delivery of our solutions to our customers. Although we believe we would be able to enter into a similar relationship with another third party should one of these relationships fail or terminate for any reason, we believe our reliance on any third-party vendor exposes us to risks outside of our control. If these third-party vendors encounter financial difficulty such as bankruptcy or other events beyond our control that cause them to fail to adequately secure and maintain their hosting facilities or provide the required data communications capacity, our customers may experience interruptions in our service or the loss or theft of important customer data.
We have experienced system failures in the past. If our customers experience service interruptions or the loss or theft of customer data, we may be subject to financial penalties, financial liability or customer losses. Our insurance policies may not adequately compensate us for any losses that may occur due to any failures or interruptions in our systems.
We must retain key employees and recruit qualified technical and sales personnel or our future success and business could be harmed.
We believe that our success will depend on the continued employment of our senior management and other key employees, such as our chief executive officer and our chief financial officer. For example, we recently hired several senior management positions, including our chief executive officer and chief financial officer in the first quarter of 2005, and our continued success will depend on their effective integration into
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and management of us. There can be no assurance that our management team will be able to be integrated into our business and work together effectively. Our current senior management and employees have only worked together for a relatively short period of time as a result of recent changes in senior management. We do not maintain key man life insurance on any of our executive officers. Additionally, our continued success depends, in part, on our ability to retain qualified technical, sales and other personnel. In particular, we have recently hired a significant number of sales personnel who may take some period of time to become fully productive. We generally find it difficult to find qualified personnel with relevant experience in both technology sales and human capital management. Because our future success is dependent on our ability to continue to enhance and introduce new products, we are particularly dependent on our ability to retain qualified engineers with the requisite education, background and industry experience. In particular, because our research and development facilities are primarily located in Quebec, we are substantially dependent on that labor market to attract qualified engineers. The loss of the services of a significant number of our engineers or sales people could be disruptive to our development efforts or business relationships. If we lose the services of one or more of our senior management or key employees, or if one or more of them decides to join a competitor or otherwise to compete with us, our business could be harmed.
We currently derive a material portion of our revenue from international operations, and may expand our international operations but do not have substantial experience in international markets, and may not achieve the expected results.
During the year ended December 31, 2004, revenue generated outside the United States was 15% of total revenue, with Canada accounting for 9% of total revenue. We currently have international offices in Australia, Canada, France, the Netherlands and the United Kingdom. We may expand our international operations, which will involve a variety of risks, including:
| • | unexpected changes in regulatory requirements, taxes, trade laws, tariffs, export quotas, custom duties or other trade restrictions; | |
| • | differing regulations in Quebec with regard to maintaining operations, products and public information in both French and English; | |
| • | differing labor regulations, especially in France and Quebec, where labor laws are generally more advantageous to employees as compared to the United States; | |
| • | more stringent regulations relating to data privacy and the unauthorized use of, or access to, commercial and personal information, particularly in Europe and Canada; | |
| • | greater difficulty in supporting and localizing our products; | |
| • | changes in a specific country’s or region’s political or economic conditions; | |
| • | challenges inherent in efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits and compliance programs; | |
| • | limited or unfavorable intellectual property protection; and | |
| • | restrictions on repatriation of earnings. |
We have limited experience in marketing, selling and supporting our products and services abroad. If we invest substantial time and resources to expand our international operations and are unable to do so successfully and in a timely manner, our business and operating results will suffer.
Fluctuations in the exchange rate of foreign currencies could result in currency transactions losses, which could harm our operating results and financial condition.
We currently have foreign sales denominated in the Canadian dollar, Australian dollar, euro, New Zealand dollar and Swiss franc, and may in the future have sales denominated in the currencies of additional countries in which we establish or have established sales offices. In addition, we incur a
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substantial portion of our operating expenses in Canadian dollars and, to a much lesser extent, other foreign currencies. Any fluctuation in the exchange rate of these foreign currencies may negatively affect our business, financial condition and operating results. For example, in 2004, the Canadian dollar increased in value by approximately 8% over the U.S. dollar on an average annual basis. This change resulted in a net decrease to our earnings of $1.5 million. This decrease was comprised of increased revenues of $0.4 million, offset by $0.3 million of additional cost of sales and incremental operating expenses of $1.4 million. The increase in value of the Canadian dollar for the 12-month period ended December 31, 2004 as compared to the same period in 2003 was nearly 8%. We have not previously engaged in foreign currency hedging. If we decide to hedge our foreign currency exposure, we may not be able to hedge effectively due to lack of experience, unreasonable costs or illiquid markets.
If we fail to adequately protect our proprietary rights, our competitive advantage could be impaired and we may lose valuable assets, experience reduced revenue and incur costly litigation to protect our rights.
Our success is dependent, in part, upon protecting our proprietary technology. We rely on a combination of copyrights, trademarks, service marks, trade secret laws and contractual restrictions to establish and protect our proprietary rights in our products and services. We have no issued or pending patents and do not rely on patent protection. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. Despite our precautions, it may be possible for unauthorized third parties to copy our products and use information that we regard as proprietary to create products and services that compete with ours. Some license provisions protecting against unauthorized use, copying, transfer and disclosure of our licensed products may be unenforceable under the laws of certain jurisdictions and foreign countries in which we operate. Further, the laws of some countries do not protect proprietary rights to the same extent as the laws of the United States. To the extent we expand our international activities, our exposure to unauthorized copying and use of our products and proprietary information may increase.
We enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with the parties with whom we have strategic relationships and business alliances. No assurance can be given that these agreements will be effective in controlling access to and distribution of our products and proprietary information. Further, these agreements do not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our products. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Litigation, whether successful or unsuccessful, could result in substantial costs and diversion of management resources, either of which could seriously harm our business.
Our results of operations may be adversely affected if we are subject to a protracted infringement claim or a claim that results in a significant damage award.
We expect that software product developers, such as ourselves, will increasingly be subject to infringement claims as the number of products and competitors grows and the functionality of products in different industry segments overlaps. Our competitors or other third parties may challenge the validity or scope of our intellectual property rights. For example, the holder of a patent has verbally asserted that he believes our software products infringe upon his patent. We have reviewed this matter and we believe that our software products do not infringe any valid and enforceable claim of the patent. No legal claim has been filed against us regarding this matter. A claim may also be made relating to technology that we acquire or license from third parties. If we were subject to a claim of infringement, regardless of the merit of the claim or our defenses, the claim could:
| • | require costly litigation to resolve and the payment of substantial damages; | |
| • | require significant management time; | |
| • | cause us to enter into unfavorable royalty or license agreements; |
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| • | require us to discontinue the sale of our products; | |
| • | require us to indemnify our customers or third-party service providers; or | |
| • | require us to expend additional development resources to redesign our products. |
We may also be required to indemnify our customers and third-party service providers for third-party products that are incorporated into our products and that infringe the intellectual property rights of others. Although many of these third parties are obligated to indemnify us if their products infringe the rights of others, this indemnification may not be adequate.
In addition, from time to time there have been claims challenging the ownership of open source software against companies that incorporate open source software into their products. We use open source software in our products and may use more open source software in the future. As a result, we could be subject to suits by parties claiming ownership of what we believe to be open source software. Litigation could be costly for us to defend, have a negative effect on our operating results and financial condition or require us to devote additional research and development resources to change our products.
We employ technology licensed from third parties for use in or with our solutions, and the loss or inability to maintain these licenses or errors in the software we license could result in increased costs, or reduced service levels, which would adversely affect our business.
We include in the distribution of our solutions certain technology obtained under licenses from other companies, such as Oracle for database software, Business Objects for reporting software and webMethods for integration software. We anticipate that we will continue to license technology and development tools from third parties in the future. Although we believe that there are commercially reasonable software alternatives to the third-party software we currently license, this may not always be the case, or we may license third-party software that is more difficult or costly to replace than the third party software we currently license. In addition, integration of our products with new third-party software may require significant work and require substantial allocation of our time and resources. Also, to the extent our products depend upon the successful operation of third-party products in conjunction with our products, any undetected errors in these third-party products could prevent the implementation or impair the functionality of our products, delay new product introductions and injure our reputation. Our use of additional or alternative third-party software would require us to enter into license agreements with third parties, which could result in higher costs.
If we fail to develop our brand cost-effectively, our customers may not recognize our brand and we may incur significant expenses, which would harm our business and financial condition.
In March 2004 we changed our name from Recruitsoft, Inc. to Taleo Corporation. Our existing customers and business partners may not recognize our new brand. We may need to incur substantial expense and it may require more time than we anticipate before our new name gains broad recognition within our industry. We believe that developing and maintaining awareness of our brand in a cost-effective manner is critical to achieving widespread acceptance of our existing and future solutions and is an important element in attracting new customers. Furthermore, we believe that the importance of brand recognition will increase as competition in our market intensifies. Successful promotion of our brand will depend largely on the effectiveness of our marketing efforts and on our ability to provide reliable and useful solutions at competitive prices. In the past, our efforts to build our brand have involved significant expense, and we expect to increase that expense in connection with our re-branding process. Brand promotion activities may not yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incur in building our brand. If we fail to successfully promote and maintain our brand, we may fail to attract enough new customers or retain our existing customers to the extent necessary to realize a sufficient return on our brand-building efforts, and our business could suffer.
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Failure to implement the appropriate controls and procedures to manage our growth could harm our growth, business, operating results and financial condition.
We are currently experiencing a period of rapid growth in our operations, which has placed, and will continue to place, a significant strain on our management, administrative, operational, technical and financial infrastructure. We have increased our employee base from 345 on December 31, 2002, to 479 on December 31, 2003, and to 541 at December 31, 2004. To manage our growth, we will need to continue to improve our operational, financial and management processes and controls and our reporting systems and procedures. This effort may require us to make significant capital expenditures or incur significant expenses, and divert the attention of our personnel from our core business operations, any of which may adversely affect our financial performance. If we fail to successfully manage our growth, our business, operating results and financial condition will be adversely affected.
Failure to effectively manage our customer deployments could increase our expenses and cause customer dissatisfaction.
Enterprise deployments of our products require a substantial understanding of our customers’ businesses, and the resulting configuration of our solutions to their business processes and integration with their existing systems. It may be difficult for us to manage the timeliness of these deployments and the allocation of personnel and resources by us or our customers. In certain situations, we also work with, third-party service providers in the implementation or software integration-related services of our solutions, and we may experience difficulties managing such third parties. Failure to successfully manage customer implementation or software integration-related services by us or our third-party service providers could harm our reputation and cause us to lose existing customers, face potential customer disputes or limit the rate at which new customers purchase our solutions.
Difficulties that we may encounter in managing changes in the size of our business could adversely affect our operating results.
Our business has experienced rapid growth in employee count through both internal expansion and acquisitions. Beginning in 2005, we are taking steps to better align our resources with our operating requirements in order to increase our efficiency. Through these steps, we have reduced our headcount and incurred charges for employee severance. As many employees are located in Quebec, Canada, we will have to pay the severance amounts legally required in such jurisdiction, which may exceed those of the United States. While we believe that these steps help us achieve greater operating efficiency, we have limited history with such measures and the results of these measures are difficult to predict. Additional restructuring efforts may be required. To manage our business effectively, we must continue managing headcount in an efficient manner. Our productivity and the quality of our products may be adversely affected if we do not integrate and train our employees quickly and effectively and coordinate among our executive, engineering, finance, marketing, sales, operations and customer support organizations, all of which add to the complexity of our organization. We believe workforce reductions, management changes and facility consolidation create anxiety and uncertainty, and may adversely affect employee morale. These measures could adversely affect our employees that we wish to retain and may also adversely affect our ability to hire new personnel. They may also negatively affect customers. In addition, our revenues may not grow in alignment with our headcount.
Acquisitions and investments present many risks, and we may not realize the anticipated financial and strategic goals for any such transactions, which would harm our business, operating results and financial condition.
We have made, and may continue to make, acquisitions or investments in companies, products, services and technologies to expand our product offerings, customer base and business. For example, in October 2003, we acquired White Amber, Inc., a privately-held company that provided a temporary talent management solution, which we introduced as our Taleo Contingent solution, and in March 2005, we
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acquired Recruitforce.com to enable us to extend our offerings to small and medium-sized organizations. Such acquisitions and investments involve a number of risks, including the following:
| • | we may find that we are unable to achieve the anticipated benefits from our acquisitions; | |
| • | we may have difficulty integrating the operations and personnel of the acquired business, and may have difficulty retaining the key personnel of the acquired business; | |
| • | our ongoing business and management’s attention may be disrupted or diverted by transition or integration issues and the complexity of managing geographically and culturally diverse locations; | |
| • | we may have difficulty incorporating the acquired technologies or products, including our Taleo Contingent solution and the software acquired in the Recruitforce acquisition, into our existing code base; | |
| • | there may be customer confusion regarding the positioning of acquired technologies or products; | |
| • | we may have difficulty maintaining uniform standards, controls, procedures and policies across locations; | |
| • | we may have difficulty retaining the acquired business’ customers; and | |
| • | we may experience significant problems or liabilities associated with product quality, technology and legal contingencies. |
For example, with respect to our acquisition of White Amber, we expended significant management time in attending to integration activities relating to employee relations and benefits matters, integration of product pricing, and the consolidation of other infrastructure to common systems. From time to time, we may enter into negotiations for acquisitions or investments that are not ultimately consummated. Such negotiations could result in significant diversion of management time, as well as out-of-pocket costs.
The consideration paid in connection with an investment or acquisition also affects our financial results. If we were to proceed with one or more significant acquisitions in which the consideration included cash, we could be required to use a substantial portion of our available cash, including proceeds of our contemplated initial public offering, to consummate any acquisition. To the extent we issue shares of stock or other rights to purchase stock, including options or other rights, existing stockholders may be diluted and earnings per share may decrease. In addition, acquisitions may result in the incurrence of debt, large one-time write-offs or purchase accounting adjustments and restructuring charges. They may also result in goodwill and other intangible assets which may be subject to future impairment charges or ongoing amortization costs.
Unfavorable economic conditions and reductions in information technology spending could limit our ability to grow our business.
Our operating results may vary based on the impact of changes in global economic conditions on our customers. The revenue growth and profitability of our business depends on the overall demand for enterprise application software and services. A majority of our revenue is currently derived from large organizations whose businesses fluctuate with general economic and business conditions. As a result, a softening of demand for enterprise application software and services, and in particular enterprise talent management solutions, caused by a weakening global economy may cause a decline in our revenue. Historically, economic downturns have resulted in overall reductions in corporate information technology spending. In the future, potential customers may decide to reduce their information technology budgets by deferring or reconsidering product purchases, which would negatively affect our operating results.
Our reported financial results may be adversely affected by changes in generally accepted accounting principles.
Generally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board, or FASB, the American Institute of Certified Public Accountants, the Securities and Exchange Commission, or SEC, and various bodies formed to promulgate and interpret
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appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our historical or projected financial results.
For example, we currently are not required to record stock-based compensation charges if the employee’s stock option exercise price is equal to or exceeds the deemed fair value of the underlying security at the date of grant. However, several companies have recently elected to change their accounting policies and begun to record the fair value of stock options as an expense and in December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment,” or SFAS 123R, which requires companies to expense the fair value of employee stock options and similar awards. SFAS 123R is effective for publicly-traded companies on their next fiscal year or quarter that begins after June 15, 2005. In April 2005, the SEC announced a new rule that amends the compliance date for adoption of SFAS 123R. The new rule extends the required adoption of SFAS 123R for companies with calendar fiscal years to the first quarter of 2006. SFAS 123R focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS 123R requires entities to recognize stock compensation expense for awards of equity instruments to employees based on the grant-date fair value of those awards, with limited exceptions. We expect to implement SFAS 123R on a modified prospective basis whereby all new awards granted after the date of adoption, as well as the vesting relating to all prior grants, will be recorded as an expense in the statements of operations. The effect of this pronouncement to our results of operations will be material. We are currently in the process of evaluating the impact and implementation of SFAS 123R. In 2004, if we had adopted SFAS 123R, our cost of revenue and operating expenses would have increased by approximately $2.0 million.
If tax benefits currently available under the tax laws of Quebec are reduced or repealed or if we have taken an incorrect position with respect to tax matters under discussion with the Canadian Revenue Authority, our business could suffer.
The majority of our research and development activities are conducted through our Canadian subsidiary, Taleo (Canada) Inc. We participate in a government program in Quebec that provides investment credits based upon qualifying research and development expenditures. These expenditures primarily consist of the salaries for the persons conducting research and development activities. We have participated in the program for five years, and expect that we will continue to receive these investment tax credits through September 2008. In 2004, we recorded a $2.4 million reduction in our research and development expenses as a result of this program. We anticipate the continued reduction of our research and development expenses through 2008. If these investment tax benefits are reduced or eliminated, our financial condition and operating results may be adversely affected. In addition, we are in the process of an audit by the Canadian Revenue Authority relating to transfer pricing for the transfer of intellectual property between our subsidiaries. If our application of relevant tax laws was incorrect, our financial results would be adversely affected.
Evolving regulation of the Internet may increase our expenditures related to compliance efforts, which may adversely affect our financial condition.
As Internet commerce continues to evolve, increasing regulation by federal, state or foreign agencies becomes more likely. We are particularly sensitive to these risks because the Internet is a critical component of our business model. For example, we believe increased regulation is likely in the area of data privacy, and laws and regulations applying to the solicitation, collection, processing or use of personal or consumer information could affect our customers’ ability to use and share data, potentially reducing demand for solutions accessed via the Internet and restricting our ability to store, process and share data with our customers via the Internet. In addition, taxation of services provided over the Internet or other charges imposed by government agencies or by private organizations for accessing the Internet may also be imposed. Any regulation imposing greater fees for internet use or restricting information exchange over the Internet could result in a decline in the use of the Internet and the viability of internet-based services, which could harm our business.
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Current and future litigation against us could be costly and time consuming to defend.
We are regularly subject to legal proceedings and claims that arise in the ordinary course of business. For example, in the fourth quarter of 2004 we settled a lawsuit with Bernard Hodes Group. Litigation may result in substantial costs and may divert management’s attention and resources, which may seriously harm our business, financial condition, operating results and cash flows. For more information regarding our current legal proceedings, please see the information under the section entitled “Legal Proceedings” contained elsewhere in this registration statement.
Risks Related to the Securities Markets and Ownership of our Class A Common Stock
Our stock price is likely to be volatile and could decline following our contemplated initial public offering, resulting in a substantial loss on your investment.
Prior to our contemplated initial public offering, there has not been a public market for our Class A common stock. An active trading market for our Class A common stock may never develop or be sustained, which could affect your ability to sell your shares and could depress the market price of your shares. In addition, the initial public offering price will be determined through negotiations among us, the selling stockholders and the representatives of the underwriters and may bear no relationship to the price at which the Class A common stock will trade upon the completion of the offering. The stock market in general, and the market for technology-related stocks in particular, has been highly volatile. As a result, the market price of our Class A common stock is likely to be similarly volatile, and investors in our Class A common stock may experience a decrease in the value of their stock, including decreases unrelated to our operating performance or prospects. The price of our Class A common stock could be subject to wide fluctuations in response to a number of factors, including those listed in this “Risk Factors” section of this registration statement and others such as:
| • | our operating performance and the performance of other similar companies; | |
| • | the overall performance of the equity markets; | |
| • | developments with respect to intellectual property rights; | |
| • | publication of unfavorable research reports about us or our industry or withdrawal of research coverage by securities analysts; | |
| • | speculation in the press or investment community; | |
| • | terrorist acts; and | |
| • | announcements by us or our competitors of significant contracts, new technologies, acquisitions, commercial relationships, joint ventures or capital commitments. |
Our principal stockholders will have a controlling influence over our business affairs and may make business decisions with which you disagree and which may adversely affect the value of your investment.
Based on share ownership as of March 31, 2005, including shares issuable upon exercise of outstanding options and warrants exercisable within 60 days of March 31, 2005, our officers, directors, major stockholders and their affiliates will beneficially own or control, directly or indirectly, 7,604,563 shares of our Class A common stock, which in the aggregate represents approximately 42.4% of the outstanding shares of Class A common stock. As a result, if some of these persons or entities act together, they will have the ability to control matters submitted to our stockholders for approval, including the election and removal of directors, amendments to our certificate of incorporation and bylaws and the approval of any business combination. These actions may be taken even if they are opposed by other stockholders. This concentration of ownership may also have the effect of delaying or preventing a change of control of our company or discouraging others from making tender offers for our shares, which could prevent our stockholders from receiving a premium for their shares.
Some of these persons or entities may have interests different than yours. For example, because many of these stockholders purchased their shares at prices substantially below the price at which shares are
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contemplated to be sold in the offering and have held their shares for a relatively longer period, they may be more interested in selling our company to an acquiror than other investors or may want us to pursue strategies that deviate from the interests of other stockholders.
There may be sales of a substantial number of shares of our Class A common stock after our contemplated initial public offering, which could cause our Class A common stock price to decline significantly.
Additional sales of our Class A common stock in the public market after our contemplated initial public offering, or the perception that such sales could occur, could cause the market price of our Class A common stock to decline. Upon the completion of the offering, we will have a significantly greater number of shares of Class A common stock outstanding. The shares to be sold in the offering will be freely tradeable without restriction or further registration under the Securities Act of 1933, as amended. Substantially all of our existing stockholders are subject to lock-up agreements with the underwriters or us that restrict their ability to transfer their stock for 180 days from the date of the prospectus. After the lock-up agreements expire additional shares will be eligible for sale in the public market, subject in most cases to the limitations of either Rule 144 or Rule 701 under the Securities Act.
In addition, Citigroup, on behalf of the underwriters, may in its sole discretion, at any time without notice, release all or any portion of the shares subject to the lock-up agreements, which would result in more shares being available for sale in the public market at earlier dates. Sales of Class A common stock by existing stockholders in the public market, the availability of these shares for sale, our issuance of securities or the perception that any of these events might occur could materially and adversely affect the market price of our Class A common stock. In addition, the sale of these shares by these stockholders could impair our ability to raise capital through the sale of additional stock.
We may need to raise additional capital, which may not be available, which would adversely affect our ability to operate our business.
We expect that the net proceeds from our contemplated initial public offering, together with our other capital resources, including income from our operations, will be sufficient to meet our working capital and capital expenditure needs for the foreseeable future. If we need to raise additional funds due to unforeseen circumstances or material expenditures, we cannot be certain that we will be able to obtain additional financing on favorable terms, if at all, and any additional financings could result in additional dilution to our existing stockholders. If we need additional capital and cannot raise it on acceptable terms, we may
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not be able to meet our business objectives, our stock price may fall and you may lose some or all of your investment.
Provisions in our charter documents and Delaware law may delay or prevent an acquisition of our company.
Our certificate of incorporation and bylaws contain provisions that could make it harder for a third party to acquire us without the consent of our board of directors. For example, if a potential acquiror were to make a hostile bid for us, the acquiror would not be able to call a special meeting of stockholders to remove our board of directors or act by written consent without a meeting. In addition, our board of directors has staggered terms, which means that replacing a majority of our directors would require at least two annual meetings. The acquiror would also be required to provide advance notice of its proposal to replace directors at any annual meeting, and will not be able to cumulate votes at a meeting, which will require the acquiror to hold more shares to gain representation on the board of directors than if cumulative voting were permitted.
Our board of directors also has the ability to issue preferred stock that could significantly dilute the ownership of a hostile acquiror. In addition, Section 203 of the Delaware General Corporation Law limits business combination transactions with 15% or greater stockholders that have not been approved by the board of directors. These provisions and other similar provisions make it more difficult for a third party to acquire us without negotiation. These provisions may apply even if the offer may be considered beneficial by some stockholders.
The requirements of being a public company might strain our resources, which may adversely affect our business and financial condition.
As a public company, we will be subject to a number of additional requirements, including the reporting requirements of the Securities Exchange Act of 1934, as amended, the Sarbanes-Oxley Act of 2002 and the listing standards of The Nasdaq Stock Market, Inc. These requirements might place a strain on our systems and resources. The Securities Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls for financial reporting. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal controls over financial reporting, significant resources and management oversight will be required. As a result, our management’s attention might be diverted from other business concerns, which could have a material adverse effect on our business, financial condition, and operating results. In addition, we might need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge, and we might not be able to do so in a timely fashion. The listing standards of the Nasdaq Stock Market require, among other things, that within a year of the date of our initial public offering all of the members of committees of our board of directors, including our audit committee, consist of independent directors. We might not be able to retain our independent directors, or attract new independent directors, for our committees.
Holders of our Class B common stock vote with our Class A common stock, which dilutes the voting power of our Class A common stockholders.
4,038,287 shares of our Class B common stock are held by holders of our exchangeable shares in order to allow them voting rights in Taleo without having to exchange their shares and suffer the corresponding Canadian tax consequences. These shares vote as a class with our Class A common stock and, upon exchange of the exchangeable shares for Class A common stock, will be redeemed on the basis of one share of Class B common stock redeemed for each one share of Class A common stock issued. Therefore, approximately 25% of the voting power of our outstanding shares as of March 31, 2005, is held by the Class B common stockholders and will continue to be held by them until they decide to exchange their exchangeable shares. Accordingly, our Class B common stock constitutes, and is expected to continue to constitute, a significant portion of the shares entitled to vote on all matters requiring approval by our stockholders.
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WHERE YOU CAN FIND MORE INFORMATION
A copy of this registration statement and the exhibits and schedules filed herewith may be inspected without charge at the public reference room maintained by the SEC, located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549, and copies of all or any part of the registration statement may be obtained from such offices upon the payment of the fees prescribed by the SEC. Please call the SEC at 1-800-SEC-0330 for further information about the public reference room. The SEC also maintains an Internet web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the site is http://www.sec.gov.
After the earlier of the effective date of this registration statement on Form 10 or the effective date of our registration statement on Form
S-1, we will become subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934, and, in accordance therewith, will file periodic reports, proxy statements and other information with the SEC. Such periodic reports, proxy statements and other information will be available for inspection and copying at the public reference room and web site of the SEC referred to above. We maintain a web site at http://www.taleo.com. You may access our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 with the SEC free of charge at our web site as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The reference to our web address does not constitute incorporation by reference of the information contained at that site.
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ITEM 2. FINANCIAL INFORMATION.
SELECTED CONSOLIDATED FINANCIAL DATA
To be filed by amendment.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
To be filed by amendment.
ITEM 3. PROPERTIES.
Our principal offices are in San Francisco, where we lease approximately 12,000 square feet of space, and in Quebec City, where we lease approximately 48,000 square feet of space used primarily by our research and development group. In North America, we have additional offices across the United States, including Boston, Chicago, Dallas and the greater New York area, and Canada, including Montreal and Toronto. Outside of North America we have sales and services offices in Amsterdam, London, Paris and Sydney. We believe that our facilities are adequate for current needs and that suitable additional or substitute space will be available as needed to accommodate foreseeable expansion of our operations.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the beneficial ownership of our Class A common stock as of March 31, 2005, for the following persons:
| • | Each person who we know beneficially owns more than 5% of our Class A common stock; | |||
| • | Each of our directors; | |||
| • | Each of our named executive officers; and | |||
| • | All of our directors and executive officers as a group. | |||
We have determined beneficial ownership in accordance with the rules of the SEC. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below
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have sole voting and investment power with respect to all shares of Class A common stock that they beneficially own, subject to applicable community property laws.
Applicable beneficial ownership is based on 16,450,451 shares of Class A common stock, assuming the exchange of all of the outstanding exchangeable shares of 9090-5415 Quebec Inc. into our Class A common stock and the corresponding one for one redemption of our Class B common stock and the conversion of all outstanding shares of our preferred stock into shares of our Class A common stock. The number of shares beneficially owned and the percentage of ownership of each person or entity includes shares of Class A common stock subject to options, warrants or other convertible securities held by that person or entity that are exercisable within 60 days of March 31, 2005. Those shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person.
| Shares Beneficially Owned | ||||||||
| Class A Common Stock | ||||||||
| Name of Beneficial Owner (1) | Shares | % | ||||||
5% Stockholders: | ||||||||
| Bain Capital Funds (2) | 3,362,306 | 20.4 | % | |||||
| General Catalyst Group LLC (3) | 1,698,135 | 10.3 | % | |||||
| Martin Ouellet (4) | 1,092,743 | 6.6 | % | |||||
| Seneca Investments LLC (5) | 2,399,978 | 14.2 | % | |||||
| Telesystem Ltd. (6) | 3,420,886 | 20.8 | % | |||||
Named Executive Officers and Directors: | ||||||||
| Michael Gregoire | — | — | ||||||
| Louis Tetu (7) | 1,197,421 | 7.1 | % | |||||
| Guy Gauvin (8) | 182,500 | 1.1 | % | |||||
| Tom Lavey (9) | 53,472 | * | ||||||
| Jean Lavigueur (10) | 388,330 | 2.3 | % | |||||
| Mark A. Bertelsen | 5,000 | * | ||||||
| Howard Gwin | — | — | ||||||
| Eric Herr (11) | 7,778 | * | ||||||
| James Maikranz (12) | 7,778 | * | ||||||
| Jeffrey Schwartz (2) | 3,362,306 | 20.4 | % | |||||
| Michael Tierney (5) | 2,399,978 | 14.2 | % | |||||
| All directors and executive officers as a group (14 persons)(13) | 7,604,563 | 42.4 | % | |||||
| * | Less than 1% | |
| (1) | Unless otherwise indicated, the address of each beneficial owner listed below is c/o Taleo Corporation, 575 Market Street, Eighth Floor, San Francisco, California 94105. | |
| (2) | Shares beneficially owned by the Bain Capital Funds represent (i) 2,889,648 shares of record held by Bain Capital Venture Fund, L.P. (the “Bain Venture Fund”), whose sole general partner is Bain Capital Venture Partners, L.P. (“BCVP”), whose sole general partner is Bain Capital Venture Investors, LLC (“BCVI”), (ii) 399,921 shares held of record by BCIP Associates II (“BCIP II”), whose sole managing partner is Bain Capital Investors, LLC (“BCI”) and (iii) 72,737 shares held of record by BCIP Associates II-B (BCIP II-B, and together with BCIP II, the BCIP Entities), whose sole managing partner is BCI. BCI has granted BCVI a power of attorney with respect to the shares held by the BCIP Entities. Michael A. Krupka is the sole managing member and a Managing Director of BCVI, a limited partner of BCVP, a member of BCI, and a partner of BCIP II. BCVP, BCVI and Mr. Krupka, by virtue of these relationships with respect to the Bain Venture Fund, may each be deemed to beneficially own the shares held by the Bain Venture Fund, and BCI, BCVI and Mr. Krupka, by virtue of these relationship with respect to the BCIP Entities, may each be deemed to beneficially own the shares held by the BCIP Entities. BCVP, BCVI, Mr. Krupka and BCI each disclaims beneficial ownership of such shares except to the extent of its or his pecuniary interest therein. Mr. Schwartz is a limited partner of BCVP, a member of BCI, a member and a Managing Director of BCVI and a partner of BCIP II and also serves as a member of our board of directors. Accordingly, he may be deemed to beneficially own the shares held by the Bain |
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| Venture Fund and the BCIP Entities. Mr. Schwartz disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein. The address of these entities is 111 Huntington Avenue, Boston, MA 02199. | ||
| (3) | General Catalyst Partners, LLC is the managing member of General Catalyst Group, LLC. Joel Cutler and David Fialkow are members of the Board of Managers of General Catalyst Group, LLC and, as such, may be deemed to share voting and dispositive power over the shares beneficially owned by General Catalyst Group, LLC. Messrs. Cutler and Fialkow disclaim beneficial ownership of any such shares. The address for this entity is 20 University Road, Suite 450, Cambridge, MA 02138. | |
| (4) | Includes options held by Mr. Ouellet to purchase 130,625 shares of Class A common stock that are exercisable within sixty (60) days of March 31, 2005. In addition, 962,118 of these shares represent our exchangeable shares. | |
| (5) | Shares beneficially owned by Seneca Investments LLC represent (i) 1,918,056 shares held of record by E-Services Investments Private Sub LLC (“E-Services”) and (ii) 481,922 shares of Class A common stock that are issuable upon exercise of a warrant held by E-Services that is exercisable within sixty (60) days of March 31, 2005. E-Services is a wholly owned subsidiary of Seneca Investments LLC. Seneca Investments LLC holds voting and dispositive power for the shares held by E-Services. Mr. Tierney is the chief executive officer of Seneca Investments LLC and serves as a member of our board of directors. Accordingly, he may be deemed to have voting and dispositive power and beneficially own the shares held of record by E-Services. Mr. Tierney disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein. The address of these entities is 437 Madison Avenue, New York, NY 10022. | |
| (6) | Shares beneficially owned by Telesystem Ltd. represent 1,358,508 shares held of record by Telesystem Ltd. and 2,062,378 shares held of record by Telesystem Software Ventures Limited Partnership. Of these, 1,058,400 shares represent our exchangeable shares. Telesystem Software Ventures Limited Partnership is an indirect subsidiary of Telesystem Ltd. Telesystem Ltd. holds voting and dispositive power for the shares held by Telesystem Software Ventures Limited Partnership, and Charles Sirois, the Chairman and President of Telesystem Ltd., may be deemed to have voting and dispositive power for the shares held directly or indirectly by Telesystem Ltd. Mr. Sirois disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein. The address of these entities is 1250 René-Lévesque Blvd. West, 38th Floor, Montreal, QC, Canada H3B 4W8. | |
| (7) | Shares beneficially owned by Mr. Tetu represent (i) 146,906 shares held of record by Louise Couture, Mr. Tetu’s wife, (ii) 458,169 shares held of record by 9020-8828 Quebec Inc. and (iii) options held by Mr. Tetu to purchase 494,444 shares of Class A common stock that are exercisable within sixty (60) days of March 31, 2005. Of these, 702,977 shares represent our exchangeable shares. Mr. Tetu is the sole shareholder of 9020-8828 Quebec Inc. | |
| (8) | Includes options held by Mr. Gauvin to purchase 182,500 shares of Class A common stock that are exercisable within sixty (60) days of March 31, 2005. | |
| (9) | Includes options held by Mr. Lavey to purchase 53,472 shares of Class A common stock that are exercisable within sixty (60) days of March 31, 2005. | |
| (10) | Shares beneficially owned by Mr. Lavigueur represent 147,025 shares held of record by Christine Johnson, Mr. Lavigueur’s wife, and options held by Mr. Lavigueur to purchase 241,305 shares of Class A common stock that are exercisable within sixty (60) days of March 31, 2005. Of these, 147,025 shares represent our exchangeable shares. | |
| (11) | Includes options held by Mr. Herr to purchase 7,778 shares of Class A common stock that are exercisable within sixty (60) days of March 31, 2005. | |
| (12) | Includes options held by Mr. Maikranz to purchase 7,778 shares of Class A common stock that are exercisable within sixty (60) days of March 31, 2005. | |
| (13) | Shares beneficially owned by all executive officers and directors as a group include options to purchase 1,469,199 shares of Class A common stock that are exercisable within sixty (60) days of March 31, 2005. |
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ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
The following table sets forth certain information with respect to our executive officers and directors as of April 30, 2005.
| Name | Age | Position(s) | ||||
| Michael Gregoire | 39 | President, Chief Executive Officer and Director | ||||
| Louis Tetu | 40 | Executive Chairman of the Board of Directors | ||||
| Bradford Benson | 43 | Executive Vice President, Products and Technology | ||||
| Jeffrey Carr | 46 | Executive Vice President, Global Sales and Marketing | ||||
| Guy Gauvin | 37 | Executive Vice President, Global Services | ||||
| Divesh Sisodraker | 36 | Chief Financial Officer and Secretary | ||||
| Mark Bertelsen | 61 | Director | ||||
| Howard Gwin | 46 | Director | ||||
| Eric Herr | 57 | Director | ||||
| James Maikranz | 57 | Director | ||||
| Jeffrey Schwartz | 40 | Director | ||||
| Michael Tierney | 52 | Director | ||||
Michael Gregoire has served as our president and chief executive officer since March 2005. Prior to joining us, Mr. Gregoire worked at PeopleSoft, an enterprise software company, from May 2000 to January 2005, most recently as executive vice president, global services. Prior to PeopleSoft, Mr. Gregoire served as managing director for the Global Financial Markets at Electronic Data Systems, Inc, a technology services provider, from 1996 to April 2000. Mr. Gregoire has a master’s degree from California Coast University, and holds a bachelor’s degree in physics and computing from Wilfred Laurier University in Ontario, Canada.
Louis Tetu has served as our executive chairman of the board since April 2005. Prior to serving as executive chairman of the board, Mr. Tetu served as our chairman of the board of directors from July 1999 to April 2005, our chief executive officer from July 1999 to March 2005 and as our president from March 2004 to March 2005. Prior to joining us, Mr. Tetu served as president of Baan Supply Chain Solutions, an enterprise applications vendor, from May 1996 to December 1998, following its acquisition of Berclain Group Inc., a supply chain management solutions vendor. Mr. Tetu co-founded and served as vice president of Berclain Group from 1987 to April 1996. Mr. Tetu also serves on the board of directors of L’Entraide Mutual Life Insurance Company of Canada. Mr. Tetu holds a bachelor’s degree in mechanical engineering from Laval University in Canada.
Bradford Benson has served as our executive vice president, products and technology since January 2005. Prior to joining us, Mr. Benson served as the senior vice president of research and development at Lawson Software, an enterprise software company, from November 2001 to July 2004. Prior to Lawson, Mr. Benson served as the vice president of engineering at Avolent, a software company, from September 1999 to November 2001. Prior to Avolent, Mr. Benson served in various management positions, including multiple vice president positions in application development at PeopleSoft, an enterprise software company, from January 1993 to August 1999. Prior to joining PeopleSoft, Mr. Benson served as a financial development manager of The Gap, a retail clothing company, from August 1991 to January 1993. Prior to joining The Gap, Mr. Benson served in various capacities in software development at Oracle, an enterprise software and database company, from September 1989 to July 1991. Prior to Oracle, Mr. Benson served in various consulting capacities at Andersen Consulting, a management consulting company, from January 1986 to August 1989. Mr. Benson holds a bachelor’s degree in business administration from Iowa State University.
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Jeffrey Carr has served as our executive vice president, global marking and sales since April 2005. Prior to serving as executive vice president, global marketing and sales, Mr. Carr served as our executive vice president, global marketing, and chief strategy officer from November 2004 to April 2005. Prior to joining us, Mr. Carr served as chairman and chief executive officer of Motiva, Inc., a software vendor, from August 2001 to December 2003. Prior to Motiva, Mr. Carr served as president of RightWorks Corporation, a business applications provider, from March 2000 to July 2001. Prior to RightWorks, Mr. Carr served in a variety of positions at PeopleSoft, Inc., an enterprise software company, from January 1991 to January 2000, most recently as executive vice president, worldwide marketing, strategy and emerging markets. Mr. Carr holds a bachelor’s degree in business from Miami University (Ohio).
Guy Gauvin has served as our executive vice president, global services, since April 2005. Prior to serving as our executive vice president, global services, Mr. Gauvin served as our executive vice president, worldwide operations, from March 2002 to April 2005. Prior to serving as executive vice president, worldwide operations, Mr. Gauvin served as our vice president, customer services, from August 1999 to March 2002. Prior to joining us, from May 1995 to August 1999, Mr. Gauvin served as vice president of global services at Baan Supply Chain Solutions. Mr. Gauvin holds a bachelor’s degree in mechanical engineering from Laval University in Canada.
Divesh Sisodraker has served as our chief financial officer and secretary since April 2005. From January 2000 to March 2005, Mr. Sisodraker served in various roles with Pivotal Corporation, a customer relationship management software provider, including president and chief executive officer, chief financial officer, and vice-president, corporate development. Prior to joining Pivotal, Mr. Sisodraker served as director, finance, and treasurer of A.L.I. Technologies Inc., a digital image management solution provider, from September 1998 to December 1999. Prior to joining A.L.I. Technologies Inc., Mr. Sisodraker held roles as an investment analyst with HSBC Capel Asia Limited, a banking and financial services company, and West Shore Ventures Limited, a financial services company, from September 1995 to February 1998. Prior to this, Mr. Sisodraker worked at KPMG, an accounting firm, from January 1991 to September 1995. Mr. Sisodraker holds a Bachelor of Business Administration degree, Honours, from Simon Fraser University of Vancouver, Canada and is a Chartered Accountant.
Mark Bertelsen has served as a director since June 2000. Mr. Bertelsen joined the law firm of Wilson Sonsini Goodrich & Rosati in 1972, was the firm’s managing partner from 1991 to 1996 and is currently a member of the firm’s Policy Committee of Senior Partners. Mr. Bertelsen also serves on the boards of directors of Autodesk, Inc. and Informatica Corporation. Mr. Bertelsen holds a bachelor’s degree in political science from the University of California, Santa Barbara, and a law degree from the University of California, Berkeley.
Howard Gwin has served as a director since December 2004. Mr. Gwin is an executive management consultant, advising chief executive officers in the technology industry. Prior to being an executive management consultant, Mr. Gwin served as a consultant to Solect Technology Group, a provider of billing, customer care and service management software, from May 2000 to December 2000 and as president and chief executive officer of Solect from February 2000 to April 2000. Prior to Solect, Mr. Gwin served as executive vice president, worldwide operations, at PeopleSoft, Inc., an enterprise software company, from February 1999 to January 2000, as senior vice president, international, from January 1998 to January 1999, as vice president, Europe from May 1996 to December 1997 and as vice president, Canada, from September 1994 to May 1996. Prior to PeopleSoft, Mr. Gwin served as general manager of strategic operations at Xerox Corporation, a technology and services enterprise, from October 1992 to August 1994. Mr. Gwin also serves on the boards of directors of MKS Inc. and several private companies. Mr. Gwin holds a bachelor’s degree in business administration from Simon Fraser University in Canada.
Eric Herr has served as a director since March 2004. Mr. Herr has served as an executive-in-residence at the Whittemore School of Business at the University of New Hampshire since September 1999. Mr. Herr previously served as president and chief operating officer of Autodesk, Inc., a design software and digital content company, from September 1996 to September 1999. Mr. Herr also served as
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Autodesk’s chief financial officer from May 1992 until September 1996, as vice president, finance and administration, from January 1995 to May 1995, and as vice president, emerging businesses, from December 1992 through January 1995. Mr. Herr holds a bachelor’s degree in economics from Kenyon College and a master’s degree in economics from Indiana University.
James Maikranz has served as a director since November 2003. Mr. Maikranz previously served as senior vice president, worldwide sales, at J.D. Edwards & Company, an enterprise software company, from 1998 to 2001. Prior to joining J.D. Edwards, Mr. Maikranz served as senior vice president of worldwide sales for SAP, an enterprise software company, from 1991 to 1998. Mr. Maikranz also serves on the board of directors of IONA Technologies PLC.
Jeffrey Schwartz has served as a director since January 2001. Mr. Schwartz is a managing director of Bain Capital Investors, LLC, a private investment firm. Prior to joining Bain Capital Investors in March 2000, Mr. Schwartz was a vice president of Wellington Management Company, LLP, an investment management firm, from January 1999 to February 2000, and a vice president with Merrill Lynch, Pierce, Fenner & Smith Incorporated, an investment banking firm, from August 1994 to January 1999. Mr. Schwartz holds a bachelor’s degree in economics from Dartmouth College and a master’s degree in business administration from Harvard University.
Michael Tierney has served as a director since February 2001. Mr. Tierney is the chief executive officer of Seneca Investments LLC, the successor in interest to the investments formerly held by Communicade, LLC, a division of Omnicom Group Inc., a global marketing and corporate communications company. Prior to joining Seneca Investments in May 2001, Mr. Tierney was president of Communicade from October 2000 to May 2001. From 1995 until October 2000, Mr. Tierney was an investment and merchant banker with Ecoban Finance Limited, a trade finance and corporate advisory company. From 1983 to 1995, Mr. Tierney was an investment and merchant banker with Lehman Brothers Inc., an investment banking firm. Mr. Tierney holds a bachelor’s degree in English from the University of Maryland and a law degree from the University of Chicago.
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ITEM 6. EXECUTIVE COMPENSATION.
The following table sets forth information regarding the compensation of our chief executive officer and our four other most highly compensated executive officers during the fiscal years ended December 31, 2003 and December 31, 2004. We refer to these executive officers, together with the chief executive officer, as the named executive officers. Amounts derived from Canadian dollars contained in this table have been expressed in U.S. dollars based on the noon buying rate for the Canadian dollar of $1.2923 per U.S. dollar on December 31, 2003 and $1.2034 per U.S. dollar on December 31, 2004.
The compensation committee of the board of directors sets the specific goals and amount for incentive bonus compensation on an annual basis for the chief executive officer and the other executive officers. Incentive bonus compensation is based upon a subjective consideration of factors including the executive officer’s level of responsibility, individual performance, contributions to our success and our general financial performance.
| Annual Compensation | Awards | ||||||||||||||||||||||||
| Securities | |||||||||||||||||||||||||
| Other Annual | Underlying | All Other | |||||||||||||||||||||||
| Name and Principal Position | Year | Salary($) | Bonus($) | Compensation($)(1) | Options(#) | Compensation($)(2) | |||||||||||||||||||
| Michael Gregoire(3) | 2004 | — | — | — | — | — | |||||||||||||||||||
| President and Chief | 2003 | — | — | — | — | — | |||||||||||||||||||
| Executive Officer | |||||||||||||||||||||||||
| Louis Tetu | 2004 | 207,745 | 195,280 | 1,221 | 50,000 | 253 | |||||||||||||||||||
| Executive Chairman | 2003 | 193,454 | 146,390 | 1,136 | 33,333 | 237 | |||||||||||||||||||
| of the Board of Directors | |||||||||||||||||||||||||
| Guy Gauvin | 2004 | 138,774 | 89,380 | 1,669 | 12,500 | 217 | |||||||||||||||||||
| Executive Vice President, | 2003 | 129,227 | 66,115 | 1,136 | 20,000 | 237 | |||||||||||||||||||
| Global Services | |||||||||||||||||||||||||
| Tom Lavey(4) | 2004 | 215,000 | 153,102 | 9,539 | — | 1,662 | |||||||||||||||||||
| Former Executive Vice | 2003 | 62,708 | 263 | — | 133,333 | 470 | |||||||||||||||||||
| President, Sales and Business Development | |||||||||||||||||||||||||
| Jean Lavigueur | 2004 | 141,267 | 29,084 | 1,669 | 12,500 | 221 | |||||||||||||||||||
| Vice President, Finance | 2003 | 123,810 | 43,363 | 1,136 | 11,666 | 237 | |||||||||||||||||||
| (1) | Includes medical insurance premiums paid by us pursuant to employee benefit programs available to all employees. |
| (2) | Includes life insurance premiums paid by us pursuant to employee benefit programs available to all employees. |
| (3) | Mr. Gregoire joined us in March 2005. |
| (4) | Mr. Lavey joined us in September 2003 and left in April 2005. |
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Stock Option Grants in Last Fiscal Year
The following table sets forth information regarding grants of stock options to each of the named executive officers during the fiscal year ended December 31, 2004. The percentage of total options set forth below is based on an aggregate of 697,256 options granted to employees during the fiscal year ended December 31, 2004. All options were granted at the fair market value of our Class A common stock, as determined by our board of directors, on the date of grant.
| Individual Grants(1) | ||||||||||||||||||||||||
| Potential Realizable | ||||||||||||||||||||||||
| Percentage | Value at Assumed | |||||||||||||||||||||||
| of Total | Annual Rates of | |||||||||||||||||||||||
| Number of | Options | Stock Price | ||||||||||||||||||||||
| Securities | Granted to | Appreciation for | ||||||||||||||||||||||
| Underlying | Employees | Option Term(2) | ||||||||||||||||||||||
| Options | in Fiscal | Exercise | Expiration | |||||||||||||||||||||
| Name | Granted | Year | Price | Date | 5% | 10% | ||||||||||||||||||
| Michael Gregoire | — | — | — | — | — | — | ||||||||||||||||||
| Louis Tetu | 50,000 | 7.17 | % | $ | 18.00 | 03/17/14 | $ | 566,005 | $ | 1,434,368 | ||||||||||||||
| Guy Gauvin | 12,500 | 1.79 | % | $ | 18.00 | 03/17/14 | $ | 141,501 | $ | 358,592 | ||||||||||||||
| Tom Lavey | — | — | — | — | — | — | ||||||||||||||||||
| Jean Lavigueur | 12,500 | 1.79 | % | $ | 18.00 | 03/17/14 | $ | 141,501 | $ | 358,592 | ||||||||||||||
| (1) | These options were granted under our 1999 Stock Plan. The options vest over a four-year period at a rate of 25% upon the first anniversary of their vesting commencement dates and 1/48 per month thereafter. In addition, the stock options granted to certain of our officers are subject to vesting acceleration provisions. See “Employment Agreements and Change of Control Arrangements.” |
| (2) | Potential realizable values are net of exercise price, but before taxes associated with exercise. Amounts representing hypothetical gains are those that could be achieved if options are exercised at the end of the option term. The assumed 5% and 10% rates of stock price appreciation are provided in accordance with SEC rules do not represent our estimate or projection of the future stock price. |
Option Exercises In Last Fiscal Year and Fiscal Year-End Option Values
None of the named executive officers exercised options during the fiscal year ended December 31, 2004. The following table sets forth the number and value of securities underlying options held by our named executive officers as of December 31, 2004:
| Number of Securities | Value of Unexercised | |||||||||||||||||||||||
| Underlying Unexercised Options | In-The-Money Options | |||||||||||||||||||||||
| Shares | at Fiscal Year End | at Fiscal Year End(1) | ||||||||||||||||||||||
| Acquired on | Value | |||||||||||||||||||||||
| Name | Exercise | Realized | Exercisable | Unexercisable | Exercisable | Unexercisable | ||||||||||||||||||
| Michael Gregoire | — | — | — | — | — | — | ||||||||||||||||||
| Louis Tetu | — | — | 474,305 | 67,361 | $ | 4,755,203 | $ | 182,291 | ||||||||||||||||
| Guy Gauvin | — | — | 176,249 | 22,917 | $ | 1,806,315 | $ | 109,379 | ||||||||||||||||
| Tom Lavey | — | — | 29,167 | 104,166 | $ | 306,254 | $ | 1,093,743 | ||||||||||||||||
| Jean Lavigueur | — | — | 235,923 | 18,576 | $ | 2,829,992 | $ | 63,798 | ||||||||||||||||
| (1) | There was no public trading market for our Class A common stock as of December 31, 2004. Accordingly, as permitted by the SEC’s rules, these values have been calculated based on a fair market value of our Class A common stock of $13.50 per share, less the applicable exercise price. |
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Employment Agreements and Change of Control Arrangements
| Employment Agreements with Certain Executive Officers |
Michael Gregoire, our president and chief executive officer, entered into an employment agreement in March 2005. The employment agreement provides for an annual base salary of $300,000, which is subject to annual review and may be adjusted by the board of directors, and an annual target bonus of 100% of base salary. Mr. Gregoire’s annual bonus will be determined based upon based upon the achievement of performance goals approved by the board of directors. Under the employment agreement, in the event Mr. Gregoire’s employment is terminated by us without cause or Mr. Gregoire resigns for good reason, as such terms are defined in the employment agreement, Mr. Gregoire will receive a severance payment equal to 12 months of his then current annual base salary payable in one lump-sum within 30 days of such termination or resignation, and continued participation in our health insurance plan for 12 months. In addition, the vesting schedule of Mr. Gregoire’s outstanding equity awards will accelerate by 12 months, and he will be permitted to exercise vested options for 12 months following termination of employment. In addition to the foregoing severance benefits, upon a change of control, as such term is defined in the employment agreement, Mr. Gregoire will receive immediate vesting with respect to half of his outstanding equity awards. If, within 60 days before or 18 months following a change of control, Mr. Gregoire’s employment is terminated without cause or Mr. Gregoire resigns for good reason, he will be entitled to receive a severance payment equal to 12 months of his then current annual base salary plus 100% of his target bonus for the year of termination, and all of Mr. Gregoire’s unvested stock options will vest immediately. Also, under the employment agreement, Mr. Gregoire is subject to a nonsolicitation covenant for one year following termination of employment, as well as customary confidentiality and nondisclosure covenants for the term of employment and thereafter.
Louis Tetu, our executive chairman of the board, entered into an employment agreement in March 2005. The employment agreement provides for an annual base salary of CAD $250,000 and an annual target bonus of CAD $50,000. Mr. Tetu’s annual bonus will be determined based upon the achievement of performance goals approved by the board of directors. Under the employment agreement, in the event Mr. Tetu’s employment is terminated by us without cause or Mr. Tetu resigns for good reason, as such terms are defined in the employment agreement, Mr. Tetu will receive a severance payment, payable in one lump-sum within 30 days of such termination or resignation, equal to the lesser of Mr. Tetu’s annual base salary or the amount of base salary owed for the remainder of the employment term, as such term is defined in the employment agreement. Mr. Tetu will also receive continued participation in our health insurance plan for the lesser of twelve months or the remainder of the employment term. In addition, Mr. Tetu’s outstanding equity awards will become fully vested, and he will be permitted to exercise his options for twelve months following termination of employment. If, within 60 days before or 12 months following a change of control, as such term is defined in the employment agreement, Mr. Tetu’s employment is terminated without cause or Mr. Tetu resigns for good reason, he will be entitled to receive a severance payment equal to the lesser of his annual base salary or the amount of base salary owed for the remainder of the employment term, plus 100% of his target bonus for the year of termination, and all of his unvested stock options will vest immediately. Also, under the employment agreement, Mr. Tetu is subject to a nonsolicitation covenant for one year following termination of employment, as well as customary confidentiality and nondisclosure covenants for the term of employment and thereafter.
Bradford Benson, our executive vice president, products and technology, executed an offer letter in December 2004. Under the offer letter, in the event Mr. Benson’s employment is terminated without cause, as such term is defined in the offer letter, Mr. Benson will be entitled to receive a severance payment equal to three months of his then current base salary, and his outstanding equity awards will continue to vest for a period of three months. If, within one year following a change of control, as such term is defined in the offer letter, Mr. Benson’s employment is terminated other than for cause, he will be entitled to receive a severance payment equal to six months of his then current base salary.
Jeffrey Carr, our executive vice president, global sales and marketing, executed an offer letter in November 2004. Under Mr. Carr’s offer letter, if, prior to Mr. Carr’s promotion to the position of chief
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operating officer, his employment is terminated other than for cause or he resigns for good reason, as such terms are defined in the offer letter, Mr. Carr will be entitled to receive a severance payment equal to six months of his then current base salary, and his outstanding equity awards will continue to vest for a period of six months. If, after Mr. Carr’s promotion to the position of chief operating officer, his employment is terminated other than for cause or he resigns for good reason, Mr. Carr will be entitled to receive a severance payment equal to six months of his then current base salary and six months of his aggregate target bonuses, and his outstanding equity awards will continue to vest for a period of twelve months. If, within one year following a change of control, as such term is defined in the offer letter, Mr. Carr’s employment is terminated other than for cause or he resigns with good reason, he will be entitled to receive a severance payment equal to 12 months of his then current base salary and 12 months of his aggregate target bonuses.
Divesh Sisodraker, our chief financial officer, executed an offer letter in March 2005. Under the offer letter, in the event Mr. Sisodraker’s employment is terminated without cause, as such term is defined in the offer letter, Mr. Sisodraker will be entitled to receive a severance payment equal to six months of his then current base salary, and his outstanding equity awards will continue to vest for a period of three months. If, within one year following a change of control, as such term is defined in the offer letter, Mr. Sisodraker’s employment is terminated other than for cause, he will be entitled to receive a severance payment equal to 12 months of his then current base salary.
Tom Lavey, our former executive vice president, sales and business development, executed an offer letter in September 2003. Under Mr. Lavey’s offer letter, in the event Mr. Lavey’s employment was terminated without cause, he would be entitled to receive a severance payment equal to six months of his salary based on on-target earnings. Upon the termination of Mr. Lavey’s employment with the Company, he received the severance payment as specified in his letter.
Jean Lavigueur, our vice president, finance, has entered into an employment agreement with our subsidiary, Taleo (Canada) Inc. Under the employment agreement, in the event his employment is involuntarily terminated other than for cause, as such term is defined in the employment agreement, he will receive a severance payment equal to six months of his then current base salary payable in equal monthly installments, and continued participation in our health, dental and life insurance programs for six months. In addition, the employment agreement provides for an annual base salary that may be adjusted from time to time by the board of directors. Also, under the employment agreement, he is subject to noncompetition and nonsolicitation covenants during the term of employment and for three years following termination of employment, as well as customary confidentiality and nondisclosure covenants for the term of employment and thereafter.
| Management Stock Option Agreements |
In September 2002, the board of directors authorized us to amend the stock option agreements of certain executive officers in an effort to ensure the continued service of our key executives in the event of a change of control of the company. The stock option agreements between us and Louis Tetu, Guy Gauvin and Jean Lavigueur provide that, if, within one year following a change of control, such officer is involuntarily terminated, which includes a termination other than for cause (as each term is defined in the stock option agreement), each such option will become fully vested and exercisable.
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Director Compensation
In connection with their election to our board of directors, Howard Gwin, Eric Herr and James Maikranz were each granted an option to purchase 13,333 shares of our Class A common stock at exercise prices of $13.50, $18.00 and $3.00, respectively. These options vest over a four-year period, at a rate of 25% upon the first anniversary of their vesting commencement dates and then at a rate of 1/48th per month thereafter. In addition, for fiscal 2004, Mr. Herr was awarded cash compensation of $15,000 and an additional $25,000 for serving as chairman of our audit committee.
Effective upon the completion of our contemplated initial public offering, our non-employee directors who are not affiliated with our venture capital investors will receive $3,000 per physical meeting attended in person and $1,000 per physical meeting attended via teleconference and will be entitled to reimbursement of business, travel and other related expenses incurred in connection with their attendance at meetings of the board of directors and committee meetings. For telephonic meetings of the board of directors, non-employee directors who are not affiliated with our venture capital investors will receive $500 per meeting. Non-employee directors who are not affiliated with our venture capital investors will receive $500 per committee meeting attended, whether physical or telephonic, and the chairman of each committee will receive an additional $500 per committee meeting attended. In addition, our directors, including non-employee directors who are not affiliated with our venture capital investors, will be eligible to receive stock options under our 2004 Stock Plan. Non-employee directors who are not affiliated with our venture capital investors and join our board of directors after completion of our contemplated initial public offering will receive automatic, non-discretionary initial options to acquire 25,000 shares of our Class A common stock, subject to three-year vesting. Directors who have served at least six months with us will also receive an annual option of 6,000 shares beginning at the first annual meeting following the completion of our contemplated initial public offering, which will be subject to annual vesting.
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ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
We describe below transactions and a series of similar transactions, during our last three fiscal years, to which we were a party or will be a party, in which:
| • | the amounts involved exceeded or will exceed $60,000; and | |
| • | a director, executive officer, holder of more than 5% of our Class A common stock or any member of their immediate family had or will have a direct or indirect material interest. |
Certain Transactions
Pursuant to an investor rights agreement between us and certain of our stockholders, certain entities affiliated with Bain Capital Investors, LLC have the right to purchase up to five percent of an aggregate of the securities offered by us in a public offering, at the offering price per share, net of underwriting discounts and commissions. These entities have not informed us whether they intend to exercise this right in connection with the contemplated initial public offering of our Class A common stock. If such entities do exercise this right in connection with the offering, we will register the issuance of the shares of Class A common stock purchased by them.
The law firm of Wilson Sonsini Goodrich & Rosati, Professional Corporation, acts as our principal outside counsel. Mark Bertelsen, one of our directors, is a member of Wilson Sonsini Goodrich & Rosati. Payments by us to Wilson Sonsini Goodrich & Rosati did not exceed five percent of the firm’s gross revenues in the last fiscal year. We believe that the services performed by Wilson Sonsini Goodrich & Rosati were provided on terms no more or less favorable than those with unrelated parties.
Indemnification and Employment Agreements
We have entered into indemnification agreements with each of our directors and officers. We have also entered into employment agreements with certain of our executive officers. See “Item 6 — Executive Compensation — Employment Agreements and Change of Control Arrangements.”
Registration Rights
Holders of our preferred stock are entitled to certain registration rights with respect to the Class A common stock issued or issuable upon conversion of the preferred stock. See “Item 11 — Description of Registrant’s Securities to be Registered — Registration Rights.”
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ITEM 8. LEGAL PROCEEDINGS.
We are involved in various legal proceedings arising from the normal course of business activities. In our opinion, resolution of these proceedings are not expected to have a material adverse effect on our operating results or financial condition. However, depending on the amount and timing, an unfavorable resolution of a matter could materially affect our future operating results or financial condition in a particular period.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
As of the date of this Form 10, there is no established public trading market for our Class A Common Stock. As of March 31, 2005, 2,986,065 shares of our Class A Common Stock are subject to outstanding options granted under our 1999 Stock Plan, Viasite Stock Plan, and 2003 Series D Stock Plan and 16,450,451 shares of our Class A Common Stock could be sold pursuant to Rule 144 under the Securities Act. Holders of our preferred stock are entitled to certain registration rights with respect to the Class A common stock issued or issuable upon conversion of the preferred stock. See “Item 11 — Description of Registrant’s Securities to be Registered — Registration Rights.” On March 31, 2004, we filed a registration statement on Form S-1 with the Securities and Exchange Commission, relating to the proposed initial public offering of our Class A Common Stock. The proposed offering will be consummated only if the prevailing market conditions are favorable. As of the date of this registration statement, the number of shares of Class A Common Stock proposed to be sold in the offering has not been determined.
HOLDERS
As of March 31, 2005, there were approximately 31 holders of record of our Class A common stock and 18 holders of record of our Class B common stock.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We currently expect to retain any future earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends on our Class A common stock in the foreseeable future. Our credit facility with Goldman Sachs prohibits the declaration or payment of dividends on our capital stock, other than the existing dividend obligations with respect to our outstanding preferred stock, which will be converted or paid in connection with our contemplated initial public offering.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 31, 2004 with respect to the shares of our Class A common stock and Series D preferred stock that may be issued under our existing equity compensation plans. Each share of Series D preferred stock converts into one-sixth of a share of Class A common stock.
| (c) | ||||||||||||||||
| Number of | ||||||||||||||||
| securities | ||||||||||||||||
| remaining | ||||||||||||||||
| (a) | available for | |||||||||||||||
| Number of | (b) | future issuance | ||||||||||||||
| securities to be | Weighted- | under equity | ||||||||||||||
| issued upon | average exercise | compensation | ||||||||||||||
| exercise of | price of | plans (excluding | ||||||||||||||
| outstanding | outstanding | securities | ||||||||||||||
| Class of | options, warrants | options, warrants | reflected in | |||||||||||||
| Plan category | Stock | and rights | and rights | column (a)) | ||||||||||||
| Equity compensation plans approved by security holders | Common Stock | 3,025,116 | $ | 5.95 | 1,146,154 | (1) | ||||||||||
| Equity compensation plans approved by security holders | Preferred Stock | 183,412 | (2) | $ | .90 | 0 | ||||||||||
| Total | 3,208,528 | $ | 5.66 | 1,146,154 | ||||||||||||
| (1) | Includes an aggregate of 1,000,000 shares available for issuance under our 2004 Stock Plan and 2004 Employee Stock Purchase Plan. | |
| (2) | On an as-converted to common stock basis. |
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ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years prior to the filing of this registration statement, the registrant issued the following unregistered securities:
| (a) On March 14, 2005, the registrant issued a warrant to purchase 41,667 shares of the registrant’s Class A common stock to a sophisticated investor at an exercise price of $13.50 per share. Such investor had information regarding the registrant’s business affairs and financial condition, access to the registrant for the opportunity to ask questions and receive answers and to obtain any additional information, and information on the limitations on resale of the securities issued. | |
| (b) In connection with the registrant’s acquisition of White Amber, Inc., on October 21, 2003, the registrant issued an aggregate of 10,624,723 shares of Series D preferred stock to a total of 16 private accredited investors in exchange for shares of Series C preferred stock of White Amber, Inc. | |
| (c) On October 3, 2003, the registrant issued and sold 150,000 shares of Series C preferred stock to an accredited investor in connection with the exercise of a warrant at an exercise price of $0.36810 per share. | |
| (d) On May 31, 2004, the registrant issued and sold 1,388 shares of Class A common stock to a sophisticated investor in connection with the exercise of a warrant at an exercise price of $3.00 per share. Such investor had information regarding the registrant’s business affairs and financial condition, access to the registrant for the opportunity to ask questions and receive answers and to obtain any additional information, and information on the limitations on resale of the securities issued. | |
| (e) As of June 1, 2005, the registrant has issued and sold an aggregate of 93,524 shares of Class A common stock upon exercise of options issued to certain employees, directors and consultants under the registrant’s 1999 Stock Plan and Viasite Inc. Stock Plan for an aggregate consideration of $279,181.62. |
None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering, and the registrant believes that each transaction was exempt from the registration requirements of the Securities Act in reliance on Section 4(2) thereof or Regulation D promulgated thereunder, with respect to items (a)-(d) above, and Rule 701 or Regulation D, with respect to item (e) above, as transactions by an issuer not involving a public offering or transactions pursuant to compensatory benefit plans and contracts relating to compensation as provided under such Rule 701. The recipients of securities in each such transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were affixed to the share certificates and instruments issued in such transactions. All recipients either received adequate information about the registrant or had access, through their relationships with the registrant, to such information.
ITEM 11. DESCRIPTION OF REGISTRANT’S SECURITIES TO BE REGISTERED.
The following is a summary of the rights of our Class A and Class B common stock and preferred stock and related provisions of our certificate of incorporation and bylaws.
Our authorized capital stock consists of 353,763,458 shares, each with a par value of $0.00001 per share, of which:
| • | 250,000,000 shares are designated Class A common stock; | |||
| • | 24,229,762 shares are designated Class B common stock; and | |||
| • | 79,533,696 shares are designated preferred stock. | |||
Class A and Class B Common Stock
As of March 31, 2005, there were 77,747 shares of Class A common stock outstanding that were held of record by 31 stockholders, and 4,038,287 shares of Class B common stock outstanding that were held of record by 18 stockholders.
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Other than the voting rights and our redemption right described in this section, holders of Class B common stock are not entitled to any rights, economic or otherwise, as a result of their ownership of Class B common stock, including but not limited to any rights as to dividends, payment upon our liquidation, dissolution or winding up or any other economic benefits. However, each holder of Class B common stock also owns an equivalent number of exchangeable shares, which cumulatively replicates the rights of a holder of our Class A common stock.
Voting Rights
Holders of our Class A and Class B common stock are entitled to one vote per share. Holders of our Class B common stock have voting rights and powers equal to the voting rights and powers of the Class A common stock, and vote together as a single class with holders of our Class A common stock and preferred stock on all matters (including the election of directors) submitted to a vote of stockholders, unless otherwise required by law or our certificate of incorporation. Holders of Class B common stock have no separate class or series vote on any matter except as expressly required by law.
Redemption Rights
The Class A common stock is not redeemable. One share of our Class B common stock is redeemable by us for $0.00001 per share in connection with the issuance of one share of Class A common stock in exchange for Class A preferred exchangeable shares or Class B preferred exchangeable shares of 9090-5415 Quebec Inc. See “Exchangeable Shares.”
Dividends
Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of Class A common stock shall be entitled to share equally with the Series A preferred stock in any dividends that our board of directors may determine to issue from time to time.
Liquidation Rights
In the event we are sold by way of merger, reorganization or asset sale, or in the event we decide to liquidate, dissolve or wind-up, the holders of Class A common stock shall be entitled to share with the Series A preferred stock as set forth below all assets remaining after the payment of any preferential liquidation preferences.
Preferred Stock
As of March 31, 2005, there were no shares of Series A preferred stock outstanding, 7,132,441 shares of Series B preferred stock outstanding, 52,112,931 shares of Series C preferred stock outstanding, and 10,624,723 shares of Series D preferred stock outstanding that were held of record by 48 stockholders, and which are convertible into an aggregate of 12,334,417 shares of Class A common stock.
Voting Rights
The holder of each share of our preferred stock is entitled to notice of any stockholder’s meeting in accordance with our bylaws and any other matter submitted to the vote of stockholders and shall be entitled to vote, together with the holders of our Class A and Class B common stock, with respect to any matters upon which the holders of our Class A common stock have the right to vote. Holders of preferred stock are entitled to one vote for each share of Class A common stock into which such share of preferred stock could be converted. The holders of Series A preferred stock have no separate class or series vote on any matter except as expressly required by law.
Redemption Rights
Our Series C preferred stock is redeemable by us in three annual installments upon the written request of the holders of a majority of the outstanding shares of Series C preferred stock delivered to us between 10 and 90 days prior to October 25, 2008, in exchange for an amount of cash equal to $0.4907 per share (as adjusted for stock dividends,
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combinations or splits) plus all accrued but unpaid dividends. Holders of a majority of the Series C preferred stock may elect to waive or defer one or more redemption payments with respect to all holders of Series C preferred stock.
Dividends
Holders of Series C preferred stock and Series D preferred stock are entitled to receive dividends prior and in preference to any dividends on our common stock, Series A preferred stock and Series B preferred stock, whether or not declared by our board of directors, at the rate of $0.039256 per share per year (as adjusted for any stock dividends, combinations or splits). The right to such dividends is cumulative. Such dividends may be payable in cash or stock except that the holders of Series C preferred stock may only elect to have their dividends paid in stock while our line of credit with Goldman Sachs Specialty Lending Group is outstanding. Holders of Series B preferred stock are entitled to receive dividends prior and in preference to any dividends on our common stock and Series A preferred stock, when and if declared by our board of directors, at the rate of $0.0973 per share per year (as adjusted for any stock dividends, combinations or splits). Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of Series A preferred stock shall be entitled to share equally with the Class A common stock in any dividends that our board of directors may determine to issue from time to time.
Liquidation Rights
In the event we are sold by way of merger, reorganization or asset sale, or in the event we decide to liquidate, dissolve or wind-up, the holders of our Series C preferred stock and Series D preferred stock shall be entitled to receive, prior to any distribution of any of our assets to the holders of the common stock, Series A preferred stock or Series B preferred stock, an amount equal to the greater of (a) the amount that would be payable to each holder of Series C preferred stock in respect of the common stock if all outstanding shares of Series C preferred stock were converted into common stock immediately prior to such event or (b) the sum of $0.4907 per share (as adjusted for any subdivisions, combinations or stock dividends) and any accrued but unpaid dividends. In the event the assets and funds available for distribution to the holders of our Series C preferred stock and Series D preferred stock shall be insufficient to permit the payment of full preferential amounts, then our entire assets shall be distributed ratably among the holders of our Series C preferred stock and Series D preferred stock.
Subject to the preferences of the Series C preferred stock and Series D preferred stock, the holders of our Series B preferred stock shall be entitled to receive, prior to any distribution to the holders of the common stock and Series A preferred stock, an amount equal to $1.40 per share plus all declared but unpaid dividends. In the event the assets and funds available for distribution to the holders of our Series B preferred stock shall be insufficient to permit the payment of full preferential amounts, then the assets shall be distributed ratably among the holders of our Series B preferred stock.
Subject to the preferences of the Series B preferred stock, Series C preferred stock and Series D preferred stock, the holders of our Series A preferred stock shall be entitled to receive, prior to any distribution of any of our assets to the holders of the Class A common stock, an aggregate amount based on the amount to be distributed pro rata based on the number of shares of Class A common stock held by each holder (assuming conversion of all Series A preferred stock) and thereafter, the holders of the Series A preferred stock shall receive, equally with the holders of Class A common stock, the balance of the amount to be distributed. If the total value of the distribution exceeds CAD $20,000,000, the holders of Series A preferred stock shall receive, equally with the holders of Class A common stock, the full amount of the distribution pro rata based on the number of shares of Class A common stock held by each holder (assuming conversion of all Series A preferred stock).
Voluntary Conversion
At the option of the holder, each share of our preferred stock is convertible into shares of our Class A common stock at the then effective and applicable conversion rate. Each share of our preferred stock currently is convertible into one share of our Class A common stock.
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Automatic Conversion
Each share of our preferred stock automatically converts into shares of our Class A common stock at the then effective and applicable conversion rate immediately upon the effectiveness of a firm commitment underwritten public offering covering the offer and sale of common stock to the public, in which the aggregate net proceeds equal or exceed $25,000,000 and the price per share is equal to or greater than $1.4721 (as adjusted for any subdivisions, combinations or stock dividends). Each share of a series of preferred stock is also automatically convertible into shares of Class A common stock at the then effective and applicable conversion rate upon the affirmative vote of the holders of at least a majority of the outstanding shares of such series of preferred stock.
Antidilution Protection
In the event we issue certain additional securities without consideration or for consideration per share less than the applicable conversion price of any series of our preferred stock, then the conversion rate of any such series of preferred stock shall be reduced concurrently with such issuance.
Protective Provisions
Our certificate of incorporation contains provisions that limit our ability to take certain actions without the approval of holders of at least two-thirds of the outstanding shares of Series A preferred stock and Series B preferred stock or a majority of Series C preferred stock. These actions include, among other things: (i) adversely altering or changing the preferences, rights, privileges of the preferred stock, or increasing or decreasing the number of authorized shares of Class A common stock, Class B common stock, Series A preferred stock, Series B preferred stock and Series C preferred stock, and (ii) authorizing shares of any class or series of stock having any preference or priority as to voting, dividends or liquidation rights which are superior to any preferences of the Series A preferred stock, Series B preferred stock and Series C preferred stock.
Exchangeable Shares
In November 1999, we entered into an exchangeable share transaction with 9090-5415 Quebec Inc., formerly known as Viasite Inc., a corporation organized under the laws of Quebec, Canada. In connection with this transaction, we were issued 1,000 Class A common shares of 9090-5415 Quebec. The remaining shares of 9090-5415 Quebec are non-voting exchangeable shares, entitling the holder to exchange each exchangeable share for a share of our Class A common stock on a one-for-six basis. There are 17,879,362 Class A preferred exchangeable shares and 6,350,400 Class B preferred exchangeable shares outstanding as of March 31, 2004. We refer to these Class A preferred exchangeable shares and Class B preferred exchangeable shares together as the exchangeable shares.
In the event we declare a dividend on our shares, 9090-5415 Quebec is obligated to provide the holders of exchangeable shares with cash, exchangeable shares, or other property which would mirror the distribution they would have received had they exchanged their exchangeable shares into our stock. In addition, if our holders experience a liquidation event, 9090-5415 Quebec is obligated to pay an equivalent liquidation preference to its shareholders. We have entered into a covenant agreement with 9090-5415 Quebec which obligates us to fund both the dividend and liquidation payments that 9090-5415 provides to its holders.
These exchangeable shares were issued so that the holders of the outstanding capital stock of 9090-5415 Quebec could defer the imposition of certain taxes under Canadian law until such time as they elected to exchange their exchangeable shares for shares of our Class A common stock but could otherwise maintain their economic rights. In order to give the holders of these exchangeable shares the ability to vote on matters which may be voted on by our stockholders during the period prior to when they exchange their exchangeable shares for shares of our Class A common stock, we have issued to the holders of exchangeable shares one share of our Class B common stock for each six exchangeable shares held by them, which shares of Class B common stock are redeemable, one-for-six, for nominal value by us upon and simultaneously with the exchange of the exchangeable shares. 4,038,287 shares of our Class B common stock were outstanding as of March 31, 2005. Other than the rights described in this section, the holders of exchangeable shares have no further powers, preferences or rights with respect to our capital stock.
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Warrants
As of March 31, 2005, the following warrants to purchase Class A common stock were outstanding:
| • | Beauchesne, Ostiguy & Simard Inc. holds a warrant to purchase 2,583 shares at an exercise price of $3.00 per share, which is fully exercisable at any time through the earlier of (i) November 20, 2006, (ii) the closing of an initial public offering of our Class A common stock, or (iii) a change of control of us; | |||
| • | E-Services Investments Private Sub LLC holds a warrant to purchase 481,922 shares at an exercise price of $3.6312 per share, which is fully exercisable at any time through January 25, 2007; and | |||
| • | Heidrick & Struggles holds a warrant to purchase 41,667 shares at an exercise price of $13.50 per share, which is fully exercisable at any time through the earlier of (i) March 14, 2010, or (ii) a change of control of us. | |||
As of March 31, 2005, the following warrants to purchase Series D preferred stock were also outstanding:
| • | Comdisco, Inc. and Comdisco Ventures, Inc. hold a series of warrants to purchase 587,976 shares at an exercise price of $1.23 per share, which are fully exercisable at any time through the earlier of (i) seven to ten years from the original date of issuance, or (ii) a three to five-year period from the effective date of our initial public offering and which are convertible into 97,995 shares of our Class A common stock (at an implied exercise price of $7.38 per share); and | |||
| • | Comerica Bank-California holds a warrant to purchase 92,496 shares at an exercise price of $1.23 per share, which is fully exercisable at any time through the earlier of (i) seven years from its original date of issuance, or (ii) three years from the effective date of our initial public offering and which is convertible into 15,416 shares of our Class A common stock (at an implied exercise price of $7.38 per share). | |||
Registration Rights
The holders of an aggregate of 11,622,038 shares of our Class A common stock or shares exchangeable into our Class A common stock will be entitled to the following rights with respect to registration of such shares under the Securities Act of 1933. These shares are referred to as registrable securities.
Demand Registration Rights. If holders of at least 30% of the Class A common stock issued upon conversion of the Series C preferred stock or Series B preferred stock request that an amount of securities having an aggregate offering price of at least $5,000,000 be registered, we may be required to register their shares. We are only obligated to affect two registrations in response to these demand registration rights for the holders of Class A common stock issued upon conversion of our Series C preferred stock and one registration for the holders of Class A common stock issued upon conversion of our Series B preferred stock. The underwriters of any underwritten offering have the right to limit the number of shares registered by these holders for marketing reasons.
Piggyback Registration Rights. If at anytime we propose to register any of our Class A common stock under the Securities Act of 1933, the holders of registrable securities will be entitled to notice of the registration and to include their shares of our Class A common stock in the registration. The underwriters of any underwritten offering have the right to limit the number of shares registered by these holders for marketing reasons. The holders of an additional 10,624,723 shares convertible into 1,770,779 shares of our Class A common stock are entitled to these piggyback registration rights.
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S-3 Registration Rights. The holders of registrable securities may require us, on not more than two occasions in any 365-day period, to file a registration statement on Form S-3 under the Securities Act covering their shares of our Class A common stock when registration of our shares under this form becomes possible. Depending on certain conditions, however, we may defer such registration for up to 90 days.
Registration of shares of Class A common stock because of the exercise of demand registration rights, piggyback registration rights or S-3 registration rights under the Securities Act of 1933 would result in the holders being able to trade these shares without restriction under the Securities Act of 1933 when the applicable registration statement is declared effective. We generally must pay all expenses, other than underwriting discounts and commissions, related to any registration.
The registration rights terminate upon the earlier of (1) five years after completion of an initial public offering, or (2) with respect to the registration rights of an individual holder, when the holder holds less than one percent of our outstanding stock and when the holder can sell all of the holder’s shares in any three-month period under Rule 144 under the Securities Act of 1933 or another similar exception.
Also, certain entities affiliated with Bain Capital Investors, LLC have the right to purchase up to an aggregate of five percent of the securities offered by us in a public offering, at the offering price per share, net of underwriting discounts and commissions. These entities have not currently informed us whether they intend to exercise this right in connection with the contemplated initial public offering of our Class A common stock. If such entities do exercise this right in connection with the offering, we will register the issuance of the shares of Class A common stock purchased by them.
Anti-takeover Effects of Delaware Law
We are subject to Section 203 of the Delaware General Corporation Law. This provision generally prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date such stockholder became an interested stockholder, unless:
| • | prior to such date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; | |||
| • | upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or | |||
| • | at or subsequent to such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock not owned by the interested stockholder. | |||
Section 203 defines a business combination to include:
| • | any merger or consolidation involving the corporation and the interested stockholder; |
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| • | any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder; | |||
| • | subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; | |||
| • | any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or | |||
| • | the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. | |||
In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by such entity or person.
These provisions are intended to enhance the likelihood of continuity and stability in the composition of the board and in the policies formulated by the board and to discourage certain types of transactions that may involve an actual or threatened change of control of us. These provisions are designed to reduce our vulnerability to an unsolicited proposal for a takeover that does not contemplate the acquisition of all of our outstanding shares or an unsolicited proposal for the restructuring or sale of all or part of our company. These provisions, however, could discourage potential acquisition proposals and complicate, delay or prevent a change of control. They may also have the effect of preventing changes in our management. We believe that the benefits of the increased protection of our negotiating abilities with proponents of unfriendly or unsolicited proposals to acquire or restructure us outweighs the disadvantages of discouraging these proposals, including proposals that are priced above the then current market value of our Class A common stock, because, among other things, negotiation of these proposals could result in an improvement of their terms.
Listing
We are not listed on any stock market or exchange.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation’s board of directors to grant, indemnity to officers, directors and other corporate agents in terms sufficiently broad to permit such indemnification under certain circumstances and subject to certain limitations.
The registrant’s certificate of incorporation and bylaws provide that the registrant shall indemnify its directors, officers, employees and agents to the full extent permitted by Delaware General Corporation Law, including in circumstances in which indemnification is otherwise discretionary under Delaware law.
In addition, the registrant has entered into separate indemnification agreements with its directors, officers and certain employees which requires the registrant, among other things, to indemnify them against certain liabilities which may arise by reason of their status as directors, officers or certain other employees. The registrant also intends to maintain director and officer liability insurance, if available on reasonable terms.
These indemnification provisions and the indemnification agreements entered into between the registrant and its officers and directors may be sufficiently broad to permit indemnification of the registrant’s officers and directors for liabilities (including reimbursement of expenses incurred) arising under the Securities Act.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
To be filed by amendment.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
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ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements.
See Item 13 above.
(b) Exhibits.
| Exhibit | ||
| Number | Description | |
| 2.1** | Agreement and Plan of Merger dated October 21, 2003, between the registrant, Kangaroo Acquisition Corporation and White Amber, Inc. | |
| 2.2‡ | Agreement and Plan of Merger dated March 10, 2005, between the registrant, Butterfly Acquisition Corporation and Recruitforce.com, Inc. | |
| 3.1‡ | Certificate of Incorporation of the registrant. | |
| 3.2‡ | Bylaws of the registrant, as amended and restated. | |
| 4.1** | Form of registrant’s Class A common stock certificate. | |
| 4.2** | Form of registrant’s Class B common stock certificate. | |
| 4.3** | Second Amended and Restated Investor Rights Agreement dated October 21, 2003, between the registrant and the individuals and entities listed therein. | |
| 4.4‡ | Covenant Agreement dated November 24, 1999, between the registrant and Viasite Inc. | |
| 10.1** | 1999 Stock Plan and form of agreements thereunder. | |
| 10.2** | Viasite Inc. Stock Plan. | |
| 10.3** | 2003 Series D Preferred Stock Plan and form of agreement thereunder. | |
| 10.4** | 2004 Stock Plan and form of agreement thereunder. | |
| 10.5** | 2004 Employee Stock Purchase Plan. | |
| 10.6** | Form of Indemnification Agreement entered into by registrant with each of its directors and officers. | |
| 10.7 | Employment Agreement effective March 25, 2005, between the registrant, Taleo (Canada) Inc. and Louis Tetu. | |
| 10.8** | Employment Agreement dated April 30, 1999, between Taleo (Canada) Inc. and Jean Lavigueur. | |
| 10.10** | Lease for 330 St. Vallier East, Suite 400, Quebec, QC, Canada, G1K 9C5. | |
| 10.12** | e-business Hosting Agreement dated June 30, 2003, between the registrant and International Business Machines Corporation. | |
| 10.13** | Agreement dated September 1, 2002, between the registrant and Internap Network Services Corporation. | |
| 10.14** | Offer Letter dated September 12, 2003, between the registrant and Tom Lavey. | |
| 10.15** | Offer Letter dated November 17, 2004, between the registrant and Jeffrey Carr. | |
| 10.16‡ | Employment Agreement dated March 14, 2005, between the registrant and Michael P. Gregoire. | |
| 10.17‡ | Offer Letter dated December 16, 2004, between the registrant and Bradford Benson. | |
| 10.18‡ | Offer Letter dated March 15, 2005, between the registrant and Divesh Sisodraker. | |
| 10.19 | Credit and Guaranty Agreement dated as of April 25, 2005, between the registrant, various lenders, and Goldman Sachs Specialty Lending Group, L.P., as amended. | |
| 10.20‡ | Pledge and Security Agreement dated as of April 25, 2005 between the registrant and Goldman Sachs Specialty Lending Group, L.P. |
| 21.1** | List of subsidiaries. | |
| 99.1** | Consent of IDC. | |
| ‡ | Previously filed | |
| ** | Incorporated by reference to our registration statement on Form S-1 (File No. 333-114093). |
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SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereto duly authorized.
| Date: July 1, 2005 | TALEO CORPORATION | |||
| By: | /s/ Divesh Sisodraker | |||
| Divesh Sisodraker | ||||
| Chief Financial Officer | ||||
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EXHIBIT INDEX
| Exhibit | ||
| Number | Description | |
| 2.1** | Agreement and Plan of Merger dated October 21, 2003, between the registrant, Kangaroo Acquisition Corporation and White Amber, Inc. | |
| 2.2‡ | Agreement and Plan of Merger dated March 10, 2005, between the registrant, Butterfly Acquisition Corporation and Recruitforce.com, Inc. | |
| 3.1‡ | Certificate of Incorporation of the registrant. | |
| 3.2‡ | Bylaws of the registrant as amended and restated. | |
| 4.1** | Form of registrant’s Class A common stock certificate. | |
| 4.2** | Form of registrant’s Class B common stock certificate. | |
| 4.3** | Second Amended and Restated Investor Rights Agreement dated October 21, 2003, between the registrant and the individuals and entities listed therein. | |
| 4.4‡ | Covenant Agreement dated November 24, 1999, between the registrant and Viasite Inc. | |
| 10.1** | 1999 Stock Plan and form of agreements thereunder. | |
| 10.2** | Viasite Inc. Stock Plan. | |
| 10.3** | 2003 Series D Preferred Stock Plan and form of agreement thereunder. | |
| 10.4** | 2004 Stock Plan and form of agreement thereunder. | |
| 10.5** | 2004 Employee Stock Purchase Plan. | |
| 10.6** | Form of Indemnification Agreement entered into by registrant with each of its directors and officers. | |
| 10.7 | Employment Agreement dated March 25, 2005, between the registrant, Taleo (Canada) Inc. and Louis Tetu. | |
| 10.8** | Employment Agreement effective April 30, 1999, between Taleo (Canada) Inc. and Jean Lavigueur. | |
| 10.10** | Lease for 330 St. Vallier East, Suite 400, Quebec, QC, Canada, G1K 9C5. | |
| 10.12** | e-business Hosting Agreement dated June 30, 2003, between the registrant and International Business Machines Corporation. | |
| 10.13** | Agreement dated September 1, 2002, between the registrant and Internap Network Services Corporation. | |
| 10.14** | Offer Letter dated September 12, 2003, between the registrant and Tom Lavey. | |
| 10.15** | Offer Letter dated November 17, 2004, between the registrant and Jeffrey Carr. | |
| 10.16‡ | Employment Agreement dated March 14, 2005, between the registrant and Michael P. Gregoire. | |
| 10.17‡ | Offer Letter dated December 16, 2004, between the registrant and Bradford Benson. | |
| 10.18‡ | Offer Letter dated March 15, 2005, between the registrant and Divesh Sisodraker. | |
| 10.19 | Credit and Guaranty Agreement dated as of April 25, 2005, between the registrant, various lenders, and Goldman Sachs Specialty Lending Group, L.P., as amended. | |
| 10.20‡ | Pledge and Security Agreement dated as of April 25, 2005 between the registrant and Goldman Sachs Specialty Lending Group, L.P. |
| 21.1** | List of subsidiaries. | |
| 99.1** | Consent of IDC. | |
| ‡ | Previously filed. | |
| ** | Incorporated by reference to our registration statement on Form S-1 (File No. 333-114093). |