BVD owns,
indirectly through its ownership of all of the outstanding shares of BVB, all of
the outstanding shares of the Company's China subsidiary, BroadVision OnDemand
(Beijing) Ltd. ("BVOD"). BVOD has developed and is beginning to commercialize
the Company's new "CHRM" family of workforce relationship management solutions
that are offered to customers through a licensing model known as software as a
service, or SaaS. The concept underlying the CHRM product family originated as a
new stand-alone company idea that was initiated in China in 2005 by a group of
engineers and business executives that included Dr. Pehong Chen, the Company's
Chairman, Chief Executive Officer and largest stockholder. At the time the CHRM
product idea was conceived, the Company was actively seeking to be acquired in a
transaction that was publicly announced but ultimately abandoned in late 2005.
Shortly after the acquisition transaction was abandoned, the CHRM development
project, which was then at an early stage, was absorbed into the Company.
The CHRM
family of products was commercially launched in China by BVOD in November 2007
and in the United States by the Company in January 2008. Revenues related to the
CHRM product family were not material in 2007 and are not expected to be
material in 2008. The Company and BVOD are in the process of entering into
license, distribution and services agreements with respect to the
commercialization of the CHRM product family and related services. In support of
BVOD's efforts to commercialize the CHRM product family in China, the Company is
appointing BVOD as its exclusive licensee to operate its Kona * Kukini, or K
2, software for purposes of offering the CHRM products on a SaaS
basis to customers in China. The Company is also appointing BVOD as its
exclusive sales representative for purposes of licensing the K
2 products on an enterprise license basis to customers in China. In
return, BVOD is appointing the Company as its exclusive licensee for the purpose
of offering the CHRM family of products on a SaaS basis to customers everywhere
in the world except China. The Company and BVOD are also each providing various
types of professional and business services to each other.
In view of
the origins of the CHRM project outside the Company and in order to ensure that
the Company and its subsidiaries have full ownership of the product, in 2007 the
Company advised Dr. Chen and certain other individuals involved in the CHRM
development project that a limited liability company owned by them would have an
indirect 20% interest in BVOD and, accordingly, the CHRM product family. The
Purchase Agreement and the BVD Operating Agreement were entered into in order to
implement that understanding. CHRM LLC's principal owner is Honu Holdings LLC
("Honu"), a Delaware limited liability company that is wholly owned by Dr. Chen.
Honu owns all of the Class A Shares of CHRM LLC, representing the right to
control CHRM LLC and to receive approximately 85% of the net profit from a
"capital transaction" of CHRM LLC (defined in the same way as in the BVD
Operating Agreement) and 100% of CHRM LLC's net profit or loss other than from a
capital transaction. The other membership interests in CHRM LLC are held by
certain employees of the Company or its subsidiaries who played key roles in the
CHRM development project. Each of the direct or indirect owners of CHRM LLC has
assigned to CHRM LLC any and all rights he or it may have in the CHRM product
family, and, under the Purchase Agreement, CHRM LLC has assigned all of those
rights to BVD in payment for its Class B Shares of BVD.
Copies of the
Purchase Agreement and the BVD Operating Agreement are filed herewith as
exhibits and incorporated by reference herein.