<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30,1999
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number: 0-28166
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WHITTMAN-HART, INC.
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(Exact name of registrant as specified in its charter)
Delaware 36-3797833
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
311 South Wacker Drive, Suite 3500, Chicago, Illinois 60606-6618
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(Address of principal executive offices, including Zip Code)
(312) 922-9200
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
As of November 1, 1999 there were 56,595,855 shares of common stock of the
registrant outstanding.
<PAGE>
WHITTMAN-HART, INC.
FORM 10-Q
For the quarterly period ended September 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION Page
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1999
and December 31, 1998 (unaudited) 3
Consolidated Statements of Earnings and Comprehensive Income
for the three and nine months ended September 30, 1999
and September 30, 1998 (unaudited) 4
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1999 and September 30, 1998 (unaudited) 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosure About Market Risk 16
PART II: OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WHITTMAN-HART, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
--------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 72,209,817 $ 50,054,791
Short-term investments 65,941,091 70,478,919
Trade accounts receivable, net of allowance for
doubtful accounts of $1,678,513 and $1,132,419 in 1999
and 1998, respectively 79,427,862 58,179,901
Prepaid expenses and other current assets 8,228,019 3,860,764
Notes and interest receivable 134,023 168,847
Deferred income taxes 1,369,241 988,457
------------- ------------
Total current assets 227,310,053 183,731,679
------------- ------------
Property and equipment, net 62,022,981 34,975,299
Long-term investments 28,789,424 30,195,927
Deferred income taxes - 79,500
Other assets 1,428,982 1,332,814
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Total assets $ 319,551,440 $250,315,219
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------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,444,726 $ 2,447,248
Accrued compensation and related costs 33,129,570 22,102,115
Income taxes payable 1,905,292 2,724,015
Accrued expenses and other liabilities 8,161,620 8,856,151
Current maturities of long-term debt - 447,502
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Total current liabilities 45,641,208 36,577,031
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Deferred income taxes 175,046 879,226
Deferred rent 1,886,633 1,671,978
Deferred revenue 71,516 37,720
Long-term debt, less current maturities - 229,478
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Total liabilities 47,774,403 39,395,433
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Stockholders' equity:
Preferred stock, $.001 par value; 3,000,000 shares
authorized, none issued and outstanding - -
Common stock, $.001 par value; 75,000,000 shares authorized,
56,002,511 and 53,228,235 shares issued and
outstanding in 1999 and 1998, respectively 56,003 53,228
Additional paid-in capital 214,174,931 173,686,899
Retained earnings 58,411,066 37,945,309
Deferred compensation (861,055) (848,628)
Accumulated other comprehensive income (3,908) 82,978
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Total stockholders' equity 271,777,037 210,919,786
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Total liabilities and stockholders' equity $ 319,551,440 $ 250,315,219
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</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
WHITTMAN-HART, INC.
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------------- ----------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
--------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Revenues $ 121,248,763 $ 88,899,469 342,649,943 $ 232,638,012
Cost of services 67,657,206 50,328,073 192,938,373 134,396,801
--------------- -------------- --------------- ----------------
Gross profit 53,591,557 38,571,396 149,711,570 98,241,211
Costs and expenses:
Selling 6,237,565 4,017,319 16,322,246 9,707,660
Recruiting 2,687,882 3,389,604 7,988,492 8,627,735
General and administrative 30,559,982 22,576,943 87,467,684 59,755,243
Business combination costs 406,513 391,565 4,693,308 774,609
--------------- -------------- --------------- ----------------
Total costs and expenses 39,891,942 30,375,431 116,471,730 78,865,247
--------------- -------------- --------------- ----------------
Operating income 13,699,615 8,195,965 33,239,840 19,375,964
Other income (expense):
Interest expense -- (16,510) (13,465) (100,450)
Interest income 1,851,982 1,663,410 5,240,965 4,028,130
Other, net 15,894 1,362 5,065 18,783
--------------- -------------- --------------- ----------------
Total other income 1,867,876 1,648,262 5,232,565 3,946,463
--------------- -------------- --------------- ----------------
Income before income taxes 15,567,491 9,844,227 38,472,405 23,322,427
Income taxes:
Income tax 6,763,120 4,226,859 16,729,170 9,634,862
Initial deferred income tax -- -- 467,280 296,048
--------------- -------------- --------------- ----------------
Total income taxes 6,763,120 4,226,859 17,196,450 9,930,910
--------------- -------------- --------------- ----------------
Net income 8,804,371 5,617,368 21,275,955 13,391,517
Other comprehensive income-
Foreign currency translation
adjustments (18,214) 622 55,069 2,322
Unrealized depreciation of
available-for-sale securities 6,714 -- (141,955) --
--------------- -------------- --------------- ----------------
Comprehensive income $ 8,792,871 $ 5,617,990 $ 21,189,069 $ 13,393,839
=============== ============== =============== ================
Basic earnings per share $ 0.16 $ 0.11 0.39 $ 0.26
=============== ============== =============== ================
Diluted earnings per share $ 0.14 $ 0.10 0.35 $ 0.24
=============== ============== =============== ================
Weighted average number of
common shares outstanding 55,338,679 52,757,002 54,472,770 50,691,761
=============== ============== =============== ================
Weighted average number of
common and common equivalent
shares outstanding 61,115,729 57,742,449 61,005,585 55,543,514
=============== ============== =============== ================
</TABLE>
See accompanying notes to consolidated financial statements.
4
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WHITTMAN-HART, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
----------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 21,275,955 $ 13,391,517
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 4,071,566 2,915,357
Deferred income taxes (435,216) 59,255
Gain (loss) on sales of investments 2,297 (9,119)
Stock-based non-cash compensation expense 1,089,835 --
Unrealized holding loss on investments (141,955) --
Changes in assets and liabilities:
Trade accounts receivable, net (20,203,116) (24,293,114)
Prepaid expenses and other current assets (4,321,217) (1,140,469)
Other assets 76,426 (1,246,047)
Accounts payable (395,297) 2,119,271
Accrued compensation and related costs 10,681,468 4,030,131
Income taxes payable 15,540,529 7,042,724
Accrued expenses and other liabilities (929,228) 1,885,334
Other, net (609,496) 378,685
----------------- ----------------
Net cash provided by operating activities 25,702,551 5,133,525
----------------- ----------------
Cash flows from investing activities:
Purchases of investments (97,164,047) (125,921,849)
Sales and maturities of investments 103,106,081 94,223,867
Purchases of property and equipment (30,716,129) (11,068,109)
----------------- ----------------
Net cash used in investing activities (24,774,095) (42,766,091)
----------------- ----------------
Cash flows from financing activities:
Proceeds from exercise of stock options 22,347,818 9,222,314
Payment of long-term debt (1,493,998) (1,342,939)
S corporation distributions (1,685,341) (674,670)
Proceeds from issuance of common stock -- 69,686,452
Proceeds from employee stock purchase plan 2,058,091 754,303
----------------- ----------------
Net cash provided by financing activities 21,226,570 77,645,460
----------------- ----------------
Net increase in cash and cash equivalents 22,155,026 40,012,894
Cash and cash equivalents at beginning of period 50,054,791 10,273,743
----------------- ----------------
Cash and cash equivalents at end of period $ 72,209,817 $ 50,286,637
================= ================
Supplemental disclosures of cash flow information:
Interest paid $ 25,040 $ 74,749
Income taxes paid 2,478,773 1,309,668
Supplemental disclosure of noncash financing activities:
Tax benefit related to stock plans $ 16,359,252 6,357,220
Issuance of common stock for business combinations (shares) -- 300,000
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements of
Whittman-Hart, Inc. (the "Company") have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission for quarterly reports on
Form 10-Q and do not include all of the information and note disclosures
required by generally accepted accounting principles. The information furnished
herein includes all adjustments which are, in the opinion of management,
necessary for a fair presentation of results for these interim periods, and all
such adjustments are of a normal recurring nature. The results of operations for
the three and nine months ended September 30, 1999 are not necessarily
indicative of the results to be expected for the year ending December 31, 1999.
As described in Note 2, the Company acquired The Waterfield Technology
Group ("Waterfield") in March 1999 and BALR Technology Group ("BALR") in August
1999. The mergers were accounted for under the pooling-of-interests method of
accounting and, accordingly, the historical financial statements of the Company
have been restated to include the financial position and results of operations
of Waterfield and BALR for all periods presented.
These financial statements should be read in conjunction with the
Company's historical audited consolidated financial statements and notes thereto
for the year ended December 31, 1998, included in the Annual Report on Form 10-K
filed by the Company with the Securities and Exchange Commission.
2. BUSINESS COMBINATIONS
During March 1998, the Company issued 600,000 shares of its common stock
in exchange for all of the outstanding capital stock of QCC, Inc. ("QCC").
Headquartered in the Boston metropolitan area, QCC's approximately 75
professionals provided the following services: package software evaluation;
business process reengineering; data warehousing; implementation of software
packages developed by SSA(R), Oracle(R), and JDEdwards(R); application
development for AS/400 and client server applications; and Year 2000 compliance
services. This business combination has been accounted for as a
pooling-of-interests combination. The stockholders' equity and operations of QCC
were not material in relation to those of the Company. As such, the Company has
recorded the combination without restating prior periods' consolidated financial
statements to reflect the pooling-of-interests combination. In connection with
the acquisition of QCC, the Company recorded deferred income tax expense related
to the establishment of deferred income tax assets and liabilities which arose
due to the change in tax status from an S corporation to a C corporation.
6
<PAGE>
During July 1998, the Company issued 638,508 shares of its common stock in
exchange for all the outstanding capital stock of North Central Consulting
("NCC"), a Minneapolis-based IT services firm. The transaction was accounted for
as a pooling-of-interests combination and, accordingly, the Company's historical
consolidated financial statements have been restated to include the accounts and
results of operations of NCC for all periods presented. Headquartered in
Minnetonka, Minnesota, with a satellite office in Milwaukee, NCC's approximately
120 professionals specialized in providing ERP software implementations, custom
application development and internet-enabled solutions to middle-market
manufacturing, distribution and financial services companies, as well as some
divisions and departments of Fortune 500 companies. The combination of
Whittman-Hart's opened Minneapolis branch with approximately 40 employees and
NCC's four-year-old office accelerated Whittman-Hart's ability to provide a
full-suite of IT services to its target customer base.
On March 9, 1999, the Company acquired all of the outstanding stock of
the Waterfield Technology Group ("Waterfield") a Boston-based IT services firm
and strategic business partner of Kurt Salmon and Associates, a global
consulting firm, in exchange for 576,074 shares of the Company's common stock.
Headquarted in Lexington, Massachusetts, with a branch office in Parsippany, New
Jersey, Waterfield's approximately 90 employees specialize in client server and
internet-enabled application development. They have extensive experience with
Java and Java-based tools, Powerbuilder and the Microsoft suite of products.
This business combination was accounted for as a pooling-of-interests
combination and, accordingly, the Company's historical consolidated financial
statements have been restated to include the accounts and results of operations
of Waterfield for all periods presented.
On May 20, 1999, the Company issued 474,650 of its common shares in
exchange for all the outstanding capital stock of POV Partners, Inc. ("POV")
an Ohio-based IT services firm. Headquartered in Columbus, Ohio, with offices
in Phoenix, Arizona, and Charlotte, North Carolina, POV's approximately 90
employees provided a broad range of business strategy and IT services
including Internet-enabled application development and electronic commerce
solutions. This business combination has been accounted for as a pooling-of-
interest combination. The stockholders' equity and operations of POV were not
material in relation to those of the Company. As such, the Company has
recorded the combination without restating prior periods' consolidated
financial statements.
On August 27, 1999, the Company acquired all of the outstanding stock of
the BALR Corporation ("BALR"), an Oakbrook, Illinois-based IT services firm, in
exchange for 1,145,796 shares of the Company's common stock. BALR's
approximately 100 employees designed systems and provided technical consulting
services for a wide range of businesses. BALR's services included e-Business and
Web-enabled systems development, relational database management and
client-server application development. This business combination was accounted
for as a pooling-of-interests combination and, accordingly, the Company's
historical consolidated financial statements have been restated to include the
accounts and results of operations of BALR for all periods presented.
7
<PAGE>
3. STOCKHOLDERS' EQUITY
On May 8, 1998, the Company completed an offering of its common stock
in which an additional 3,400,000 shares were sold by the Company, resulting in
net proceeds to the Company of $69.6 million.
In July 1998, the Board of Directors approved a 2-for-1 split of the
Company's common shares. Stockholders received one additional common share for
every share held on the record date of July 12, 1998.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Whittman-Hart's revenues are generated primarily from professional fees,
which are generally billed at a contracted hourly rate and are recognized as
services are provided. Over the last three fiscal years, at least 90% of the
Company's revenues have been generated on a time and materials basis. The
Company's services may also be provided on a fixed-bid or fee-capped basis, in
which case revenues are recognized by the percentage of completion method. These
arrangements subject the Company to the risk of cost overruns; however,
historically, such overruns have not been significant. The Company typically
bills on a weekly basis to monitor client satisfaction and manage its
outstanding accounts receivable balances. The Company's most significant cost is
project personnel cost, which consists of consultant salaries and benefits.
Thus, the Company's financial performance is primarily based upon billing margin
(billable hourly rate less the consultant's hourly cost) and personnel
utilization rates (billable hours divided by paid hours).
To date, the Company has been able to maintain its billing margins by
offsetting increases in consultant salaries with increases in its hourly rates.
Because most of the Company's engagements are on a time and materials basis,
increases in its cost of services are generally passed along to the Company's
clients and, accordingly, do not have a significant impact on the Company's
financial results. In addition, the Company attempts to control expenses that
are not passed through to its clients. Furthermore, profitability is improved by
tying significant incentive compensation to achieving performance goals.
The Company establishes standard billing guidelines based on the type of
service offered. Actual billing rates are established on a project-by-project
basis and may vary from the standard guidelines. Over the last three years, the
Company's average revenue per assignment hour has steadily increased. The growth
in average revenue per assignment hour reflects a higher percentage of
value-added services, such as package software implementations and
solutions-oriented, strategic consulting projects.
Whittman-Hart manages its personnel utilization rates by monitoring
project requirements and timetables. The number of consultants assigned to a
project will vary according to the size, complexity, duration and demands of the
project. Project terminations, completions and scheduling delays may result in
periods when consultants are not fully utilized. An unanticipated termination of
a project could result in a higher than expected number of unassigned
consultants or, if the Company were to terminate such consultants, increased
severance expenses. Although the number of the Company's consultants can be
adjusted to correspond to the number of active projects, Whittman-Hart must
maintain a sufficient number of senior consultants to oversee existing client
projects and assist the Company's sales force in securing new client
assignments. Whittman-Hart consultants are subject to employment-at-will
contracts, which may be terminated upon two weeks' notice without substantial
penalty or further expense to the Company.
Historically, the Company's revenue growth has been attributable to the
addition of new clients and the growth of current client relationships at
existing and new branch locations. During 1997, 1998 and the first nine months
of 1999, the Company supplemented its internal revenue growth with acquisitions.
Looking forward, the Company intends to grow its existing branch locations and
expand its network through the traditional greenfield approach supplemented by
acquisitions. Each of the branches, originally developed by the Company, has
generated annual revenue and gross profit growth since inception.
9
<PAGE>
RESULTS OF OPERATIONS
-------------------------------------------------------------
The following table sets forth, for the periods indicated,
selected consolidated statements of earnings and comprehensive
income data as a percentage of revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------------- ----------------------------------
September 30, September 30, September 30, September 30
1999 1998 1999 1998
-------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF EARNINGS AND
COMPREHENSIVE INCOME DATA:
Revenues 100% 100% 100% 100%
Cost of services 56 57 56 58
-------------- --------------- ---------------- ---------------
Gross profit 44 43 44 42
Costs and expenses:
Selling 5 5 5 4
Recruiting 2 4 2 4
General and administrative 25 25 26 26
Business combination costs * * 1 *
-------------- --------------- ---------------- ---------------
Total costs and expenses 32 34 34 34
-------------- --------------- ---------------- ---------------
Operating income 12 9 10 8
Other income 1 2 1 2
-------------- --------------- ---------------- ---------------
Income before income taxes 13 11 11 10
Income taxes 6 5 5 4
Initial deferred income taxes -- -- * *
-------------- --------------- --------------- ---------------
Total income taxes 6 5 5 4
-------------- --------------- --------------- ---------------
Net income 7% 6% 6% 6%
============== =============== ================ ===============
</TABLE>
*- Less than 1% of total revenues.
REVENUES. Revenues increased $32.3 million to $121.2 million for the three
months ended September 30, 1999 from $88.9 million for the three months ended
September 30, 1998. Revenues for the nine months ended September 30, 1999
increased $110.1 million to $342.7 million from $232.6 million for the nine
months ended September 30, 1998. The increases were attributable to the addition
of new clients and the growth of current client relationships at existing and
new branch locations. Revenues from the Company's ten most significant clients
grew by 9%, but as a percentage of total revenues decreased to 10% and 11%,
respectively, for both the three and nine month periods ended September 30,
1999, as compared to 14% for the comparable periods in the prior year.
GROSS PROFIT. Gross profit consists of revenues less cost of services,
which includes consultant salaries and benefits. Gross profit as a percentage of
revenues were 44% for both the three and nine month periods ended September 30,
1999 as compared to 43% and 42% during the comparable periods in 1998. These
increases were attributable to a change in the sales mix toward higher-end
service offerings and the Company's established branches reaching critical mass,
partially offset by lower margins in recently opened branches.
10
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SELLING EXPENSES. Selling expenses include the salaries, benefits,
commissions, travel, entertainment and all other direct costs associated with
the Company's direct sales force. Selling expenses for the three months ended
September 30, 1999 increased 55% to $6.2 million from $4.0 million for the three
months ended September 30, 1998. Selling expenses for the nine months ended
September 30, 1999 increased 68% to $16.3 million from $9.7 million for the nine
months ended September 30, 1998. These increases were attributable to higher
commissions, an increased fixed cost structure related to newly acquired offices
and business development initiatives, and other costs associated with the
increase in revenues. As a percentage of revenues, selling expenses for the
three months ended September 30, 1999 were 5%, consistent with the three months
ended September 30, 1998. For the nine months ended September 30, 1999, selling
expenses as a percentage of revenues increased to 5% from 4% for the nine month
period ended September 30, 1998. The increase was due primarily to the increased
fixed cost structure related to newly acquired and newly opened offices.
RECRUITING EXPENSES. Recruiting expenses consist of costs related to
hiring new personnel. These costs include the salaries, benefits, bonuses and
other direct costs of in-house recruiters, outside recruiting agency fees,
sign-on bonuses, relocation fees and advertising costs. Recruiting expenses for
the three months ended September 30, 1999 decreased 21% to $2.7 million from
$3.4 million for the three months ended September 30, 1998. Recruiting costs for
the nine month period ended September 30, 1999 decreased 7% to $8.0 from $8.6
million during the nine months ended September 30, 1998. The number of employees
increased 30% to approximately 3,600 at September 30, 1999, from approximately
2,980 at September 30, 1998. Total recruiting costs per hire were in line with
the historical average of $6,000 to $7,000 for the three and nine month periods
ended September 30, 1999 and September 30, 1998. As a percentage of revenues,
recruiting expenses fell to 2% for the three and nine month periods ended
September 30, 1999 as compared to 4% for the three and nine month periods ended
September 30, 1998 due largely to the leveraging of fixed recruiting overhead on
a higher revenue base. As of September 30, 1999, approximately 76% of the
Company's total employees were consultants.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
include salaries and benefits of management and support personnel, facilities
costs, training, travel, outside professional fees and all other branch and
corporate costs. General and administrative expenses for the three month period
ended September 30, 1999 increased 35% to $ 30.6 million from $22.6 million for
the three months ended September 30, 1998. For the nine month period ended
September 30, 1999, general and administrative costs increased 46% to $87.5
million from $59.8 million for the nine month period ended September 30, 1998.
As a percentage of revenues, general and administrative expenses remained
constant at 25% and 26%, respectively, for the three and nine month periods
ended September 30, 1999 and 1998.
BUSINESS COMBINATION COSTS. Business combination costs were $0.4 million
for both three month periods ended September 30, 1999 and 1998. For the first
nine months of 1999, business combination costs totaled $4.7 million as compared
to $0.8 million for the same period in the prior year. As a percentage of
revenue, business combination costs accounted for less than 1% in both the three
month periods ended September 30, 1999 and 1998. During the nine month period
ended September 30, 1999, business combination costs, as a percentage of
revenue, were 1% and less than 1% during the comparable nine month period in the
prior year.
The business combination costs included legal, accounting, other
transaction-related fees and expenses, severance payments and expenses resulting
from non-cash compensation related to stock options.
11
<PAGE>
During the first nine months of 1999, these costs related to the Company's
acquisition of Waterfield in March 1999, POV in May 1999, and BALR in August
1999. In the first nine months of 1998, the Company incurred similar costs in
connection with the acquisition of QCC during March of 1998 and NCC in July of
1998.
OPERATING INCOME. Operating income increased 67% to $13.7 million for the
three months ended September 30, 1999 from $8.2 million in the three months
ended September 30, 1998. For the nine months ended September 30, 1999,
operating income increased 72% to $33.2 million from $19.4 million for the nine
months ended September 30, 1998. As a percentage of revenues after business
combination costs, operating income was 12% and 10% for the three and nine
months ended September 30, 1999, respectively, as compared to 8% and 7% for the
comparable periods in the prior year.
As a percentage of revenues, operating income before business
combination costs improved to 12% from 10% during the three month periods
ended September 30, 1999 and 1998, respectively. For the nine month period
ended September 30, 1999, operating income before business combination costs
increased to 11% from 9% in the prior year comparable period. The increases
in operating income were the result of higher gross profit and lower
recruiting costs.
OTHER INCOME. Other income increased 13% to $1.9 million for the three
month period ended September 30, 1999 from $1.6 million for the three month
period ended September 30, 1998. For the nine month period ended September 30,
1999, other income increased 33% to $5.2 million from $3.9 million for the nine
month period ended September 30, 1998. The nine month period ended September 30,
1999 included increased interest income on investments related to the net
proceeds of $69.6 million from the Company's public offering in May 1998.
INCOME TAXES. The Company's effective tax rate before non-deductible
business combination costs for the three and nine month periods ended September
30, 1999 was 42%, compared to 38% for the three and nine month periods ended
September 30, 1998. The increase in the effective tax rate relates primarily to
higher state tax rates of newly opened branch offices. The Company's effective
tax rate including non-deductible business combination costs was 43% and 45% for
the three and nine month periods ended September 30, 1999, respectively, as
compared to 43% for the three and nine month periods ended September 30, 1998.
The effective tax rate for the three and nine months ended September 30,
1999 reflects non-deductible business combination costs related to the
acquisition of Waterfield, POV, and BALR and initial deferred income taxes
related to POV. The effective tax rate for the nine months ended September 30,
1998 includes non-deductible business combination costs of QCC and NCC, and the
recording of initial deferred income tax expense related to the acquisition of
QCC.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company had approximately $166.9 million of
cash, cash equivalents, and short-term and long-term investments compared to
$150.7 million at December 31, 1998. The Company's primary source of liquidity
has been cash provided through equity offerings and cash from operations. On
April 30, 1999, the Company renewed its loan agreement with American National
Bank permitting borrowing up to $10.0 million of unsecured credit with interest,
at the Company's option, at LIBOR plus 1.5% or the lender's prime rate. There
were no borrowings under this loan agreement as of September 30, 1999. The
Company's loan agreement expires on April 30, 2000.
12
<PAGE>
On May 8, 1996, the Company completed an initial public offering of its
common stock, which resulted in net proceeds to the Company of $37.8 million. A
portion of the proceeds from the offering were used to retire the Company's term
loan facilities. On August 27, 1996, the Company completed a public offering of
its common stock, resulting in net proceeds to the Company of $27.8 million. On
May 8, 1998, the Company completed another public offering of its common stock,
resulting in net proceeds to the Company of $69.6 million.
Operating activities provided net cash flows of $25.7 million for the nine
months ended September 30, 1999 primarily as a result of increases in net
income, accrued compensation and income taxes payable which was partially offset
by an increase in accounts receivable and prepaid accounts.
Capital expenditures were $30.7 million for the nine month periods ended
September 30, 1999, which included approximately $12.2 million of purchases
relating to ongoing construction of facilities to house the Company's education
center, Chicago branch office, and to provide space for its corporate
headquarters. In addition, the Company incurred $11.6 million of capital
expenditures related to the implementation of the Company's new information
system, and the remainder was for purchases of computer equipment and software,
and office furniture and equipment to support the growth and expansion of the
Company.
During the nine months ended September 30, 1999 and 1998, cash provided by
financing activities from the exercise of stock options aggregated $22.3 million
and $9.2 million, respectively.
As of September 30, 1999, the Company had approximately $166.9 million of
cash equivalents, and short and long-term investments resulting principally from
cash provided by operations and public stock offerings during the last three
years. The Company believes that these funds and those generated from the
operation will provide adequate cash to fund its anticipated cash needs at least
through the next 12 months.
ACQUISITIONS
On March 9, 1999, the Company acquired the Waterfield Technology Group
("Waterfield") a Boston-based IT services firm and strategic business partner of
Kurt Salmon and Associates, a global consulting firm, for 576,074 shares of the
Company's common stock. Headquarted in Lexington, Massachusetts, with a branch
office in Parsippany, New Jersey, Waterfield's approximately 90 employees
specialized in client server and internet-enabled application development. They
have extensive experience with Java and Java-based tools, Powerbuilder and the
Microsoft suite of products. This business combination was accounted for as a
pooling-of-interests combination and, accordingly, the Company's historical
consolidated financial statements have been restated to include the accounts and
results of operations of Waterfield for all periods presented.
On May 20, 1999, the Company issued 474,650 of its common shares in
exchange for all the outstanding capital stock of POV Partners, Inc. ("POV") an
Ohio-based IT services firm. Headquartered in Columbus, Ohio, with offices in
Phoenix, Arizona, and Charlotte, North Carolina, POV's approximately 90
employees provided a broad range of business strategy and IT services including
Internet-enabled application development and electronic commerce solutions. This
business combination has been accounted for as a pooling-of-interests
combination. The stockholders' equity and operations of POV were not material in
relation to those of the Company. As such, the Company has recorded the
combination without restating prior periods' consolidated financial statements.
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On August 27, 1999, the Company acquired all of the outstanding stock
of the BALR Corporation ("BALR") an Oakbrook, Illinois-based IT services firm in
exchange for 1,145,796 shares of its common stock. BALR's approximately 100
employees designed systems and provided technical consulting services for a wide
range of businesses. BALR's services include e-Business and Web-enabled systems
development, relational database management and client-server application
development. This business combination was accounted for as a
pooling-of-interests combination and, accordingly, the Company's historical
consolidated financial statements have been restated to include the accounts and
results of operations of BALR for all periods presented.
STRATEGIC ALLIANCE
On September 29, 1999, Novell, Inc. agreed to purchase 3,294,893
shares of the Company's common stock for a purchase price of $100 million,
and the Company agreed to issue to Novell a warrant to purchase 400,000
shares of the Company's common stock, with an exercise price of $35.875 per
share (the "Warrant"). These transactions were consummated on November 12,
1999. This investment by Novell in the Company is intended to accelerate the
deployment of Novell Directory Services-Registered Trademark- (NDS -TM-) in
enterprise and e-business solutions. In addition, on September 29, 1999, the
Company and Novell formed a global alliance to jointly develop customized NDS
solutions for mid-sized businesses. Under the global alliance agreement, the
Company has agreed to establish a solutions deployment center and to train at
least 600 consultants in NDS and related Novell solutions. The Warrant will
become exercisable only if the Company fails to meet certain milestones under
the global alliance agreement.
YEAR 2000
The Company has identified three issues related to Year 2000
compliance; first is the effect on internal information systems, second are
issues related to vendors performing services for the Company, and finally are
the issues related to consulting activities performed by the Company.
The Company is in the process of replacing its existing internal
information systems. The system replacement was part of a strategic initiative
and was not accelerated to address Year 2000 issues. This initiative is expected
to be completed in the fourth quarter of 1999. A contingency plan exists to make
existing systems Year 2000 compliant in the unlikely event the new systems'
implementation cannot be completed. The cost of this implementation is not
expected to have a material adverse impact on the Company's results of
operations or financial condition.
The Company has relationships with several vendors who provide
administration of compensation and related employee benefits and other vendors
who perform banking and treasury services. The Company has completed an
evaluation of the state of readiness of these vendors and it believes that the
vendors are currently Year 2000 compliant or will become compliant during 1999.
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Contingency plans are in place to administer employee compensation and
benefits in the event of non-compliance by any of these vendors. The cost to the
Company in the event of non-compliance with Year 2000 issues by any of these
third parties is not expected to have material impact on the Company's result of
operations or its financial condition.
The Company believes that many middle-market companies have yet to
achieve Year 2000 compliance. To resolve the Year 2000 issue, many companies are
electing to install new package software applications, rather than modify
existing systems, thus creating significant demand for package software-related
services such as those provided by the Company. Consequently, the Company
believes that companies' need to address their Year 2000 compliance is creating
significant demand for IT products and services such as those provided by the
Company. There can be no assurance that the passage of the Year 2000 will not
have a material adverse effect on the demand for the Company's services. The
Company provides solutions for the IT systems that are critical to
companies'operations. Business interruptions, loss or corruption of data or
other major problems resulting form the failure of a client's IT system to
process year 2000 data correctly could have a significant adverse consequences
to that client. The Company cannot currently predict whether or to what extent
there will be any legal claims brought against the Company or whether there will
be any other material adverse effect on the Company's business, financial
condition or the results of operations, as a result of any such adverse
consequences to its clients.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," ("SFAS" No. 133) is effective
for financial statements for fiscal years beginning after June 15, 2000, but
may be adopted in earlier periods. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and hedging activities. The
Company does not believe that SFAS No. 133 will have a significant impact on
its financial statements.
SAFE HARBOR PROVISION
This Form 10-Q contains certain forward-looking statements (as defined
in Section 21E of the Securities Exchange Act of 1934, as amended) that involve
substantial risks and uncertainties. When used in this Form 10-Q, the words
"plans", "intends", "anticipates", and "expects" and similar expressions as they
relate to the Company or its management are intended to identify such
forward-looking statements. The Company's actual results, performance or
achievements could differ materially from the results, performance or
achievements expressed in, or implied by, these forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, difficulties in attracting and retaining highly skilled employees,
the Company's ability to manage rapid growth and expansion into new geographic
areas and service lines, the Company's ability to manage the risk associated
with client projects and risks related to possible acquisitions, the Company's
ability to develop IT solutions that keep pace with continuing changes in
technology, evolving industry standards and changing client preferences. In
addition, the Company's ability to manage issues relating to the passage of Year
2000, as discussed in the section entitled "Year 2000", of the "Management
Discussion and Analysis of Financial Condition and Results of Operation These
and other risks are more fully described in the "Risk Factors" section of the
Company's registration statement (No.333-87509) on Form S-3 filed by the Company
with the Securities and Exchange Commission on September 21, 1999, as amended.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company maintains investments in marketable securities. The securities
are classified as available for sale on the consolidated balance sheet at fair
value, with unrealized gains and losses reported as a separate component of
stockholders' equity, net of applicable deferred income taxes. As of September
30, 1999, the fair value of the Company's marketable securities portfolio was $
94.7 million, all of which was invested in debt securities.
The Company operates its only non-U.S. office in London, England, which
exposes the Company to market risk associated with foreign currency exchange
rate fluctuations; however, such risk is immaterial at this time to the
Company's consolidated financial statements.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On August 27, 1999, the Company acquired all of the outstanding capital
stock of BALR from the shareholders of BALR, in exchange for 1,145,796 shares of
the Company's Common Stock. The shares of Common Stock were issued in reliance
upon the exemption from registration provided by Section 4(2) of the Securities
Act of 1933. There were no underwriters or other distributors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
(10.1) Common Stock and Warrant Purchase Agreement dated as
September 29, 1999, between the Company and Novell (with form of
Warrant and form of Investor Rights Agreement)
(27) Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a report on Form 8-K dated October 15, 1999 to announce
that (a) Novell has agreed to invest $100 million in the Registrant and (b)
the Registrant and Novell have formed an alliance to jointly develop
customized Novell Directory Services/-Registered Trademark-/(NDS/-TM-/)
solutions for mid-sized businesses.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Whittman-Hart, Inc.
Date: November 15, 1999 By: /s/ Robert F. Bernard
----------------- ------------------------------
Robert F. Bernard
Chairman of the Board and
Chief Executive Officer
Date: November 15, 1999 By: /s/ Bert B. Young
----------------- ------------------------------
Bert B. Young
Chief Financial Officer and Treasurer
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COMMON STOCK AND WARRANT PURCHASE AGREEMENT
This Common Stock and Warrant Purchase Agreement (this "AGREEMENT") is made
and entered into to be effective as of September 29, 1999 ("EFFECTIVE DATE"), by
and between Novell, Inc., a Delaware corporation (the "INVESTOR"), and
Whittman-Hart, Inc., a Delaware corporation (the "COMPANY").
RECITALS
WHEREAS, the Company desires to sell to the Investor, and the Investor
desires to purchase from the Company, shares of common stock, par value $0.001
per share, of the Company (the "COMMON STOCK") and a Warrant to purchase
additional shares of the Company's Common Stock on the terms and conditions set
forth in this Agreement; and
WHEREAS, the Company and the Investor have entered into a Global Alliance
Agreement dated as of September 29, 1999 relating to certain business
transactions between the Company and the Investor (the "ALLIANCE AGREEMENT").
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
promises hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. AGREEMENT TO PURCHASE AND SELL STOCK.
(a) AUTHORIZATION. The Company's Board of Directors will, prior
to the Closing (as defined below), authorize the issuance, pursuant to the terms
and conditions of this Agreement, of 3,294,893 shares of Common Stock.
(b) AGREEMENT TO PURCHASE AND SELL SECURITIES. At the Closing,
the Company shall issue and sell to the Investor, and the Investor shall
purchase from the Company, 3,294,893 shares of Common Stock (the "PURCHASED
SHARES"). The aggregate purchase price to be paid by the Investor for all
Purchased Shares shall be One Hundred Million Dollars ($100,000,000) (the
"PURCHASE PRICE").
(c) AGREEMENT TO PURCHASE AND SELL WARRANT. At the Closing, the
Company shall issue to the Investor a warrant (the "WARRANT") to purchase all or
any portion of 400,000 shares of Common Stock (the "Warrant Shares") in the form
of attached hereto as EXHIBIT A.
(d) USE OF PROCEEDS. The Company intends to apply the net
proceeds received from the sale of the Purchased Shares to fund the
development, promotion and implementation of an NDS Solutions Practice (as
defined in the Alliance Agreement), which shall include, but not be limited
to, the hiring and/or redeployment, training and certification of the
Company's consulting personnel in Novell Directory Services-Registered
Trademark- (NDS-Registered Trademark-) and NDS-related technology, and the
development and implementation of methodologies, marketing strategies, public
relations programs and facilities, all as more specifically set forth in the
Alliance Agreement and the
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Services Agreement and other agreements anticipated by the Alliance Agreement
(collectively, the "BUSINESS AGREEMENTS").
(e) HSR COMPLIANCE.
(i) Promptly after the execution hereof, the Company and
Investor shall each complete and file their respective premerger notification
report forms under the Hart-Scott-Rodino Antitrust Improvements Acts of 1976, as
amended (the "HSR ACT"). After the filing thereof, the Company and the Investor
shall use all reasonable efforts to comply with any applicable requirements of
the HSR Act (herein the "HSR REQUIREMENTS"); provided, however, that neither the
Company nor the Investor shall be under any obligations to comply with any
request or requirement imposed by the Federal Trade Commission (the "FTC"), the
Department of Justice (the "DOJ") or any other governmental authority in
connection with the compliance with any HSR Requirement, if the Company or the
Investor, determines in its sound, good faith, reasonable business judgment that
compliance with the requirement would have an adverse impact on its business,
contracts, financial position, or prospects. Without limiting the generality of
the foregoing, neither the Company nor the Investor shall be obligated to comply
with any request by, or any requirement of the FTC, the DOJ or any other
governmental authority to; (i) disclose information the Company or the Investor,
as the case may be, in its sound, good faith, reasonable business judgment
believes must be kept confidential to avoid injury to its respective business;
(ii) dispose of any assets or operations; or (iii) comply with any restriction
on the manner in which it conducts its operations.
(ii) In the event an exercise or holding of the Warrant
would require a filing by the Investor under the HSR Act, the Investor and its
respective affiliates (including any "ultimate parent entity," as defined in the
HSR Act), and the Company and its respective affiliates (including any "ultimate
parent entity," as defined in the HSR Act), shall promptly prepare and make
their respective filings, and thereafter shall make all required or requested
submissions under the HSR Act or any analogous applicable law, if required. In
taking such actions or making any such filings, the parties hereto shall furnish
information required in connection therewith and seek timely to obtain any
applicable actions, consents, approvals or waivers of governmental authorities;
PROVIDED, HOWEVER, that the parties hereto shall cooperate with each other in
connection with the making of all such filings to the extent permitted by
applicable law. Without limiting the generality of the foregoing, to the extent
permitted by applicable law and so long as the following will not involve the
disclosure of confidential or proprietary information of one party hereto to
another, each party shall cooperate with the other by (a) providing copies of
all documents to be filed to the non-filing party and its advisors prior to
filing and, if requested, accepting reasonable additions, deletions or changes
suggested in connection therewith and (b) providing to each other party copies
of all correspondence from and to any governmental authority in connection with
any such filing.
2. CLOSING. The purchase and sale of the Purchased Shares shall take
place at the offices of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, 650 Page Mill Road, Palo Alto, California, at 10:00 a.m. California
time, within three (3) business days after the conditions set forth in Sections
5 and 6 have been satisfied, or at such other time and place as the Company and
the Investor mutually agree upon (which time and place are referred to in this
Agreement as the "CLOSING"). At the Closing, the Company will deliver to the
Investor the
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Warrant and certificate representing the Purchased Shares against delivery to
the Company by the Investor of the Purchase Price in cash, paid by wire transfer
of funds to the Company. Closing documents may be delivered by facsimile with
original signature pages sent by overnight courier. The date of the Closing is
referred to herein as the Closing Date.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Investor that, except as set forth in the
Disclosure Letter, delivered by the Company to Investor concurrently herewith,
or the SEC Documents (as defined below):
(a) ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all corporate power and authority required
to (a) carry on its business as presently conducted and (b) execute and enter
into this Agreement, the Warrant, the Investor Rights Agreement, the Alliance
Agreement, the Services Agreement, the Confidentiality Agreement, the other
Business Agreements, and the other agreements, instruments and documents
contemplated hereby and thereby (the "TRANSACTION DOCUMENTS"), and to consummate
the transactions contemplated hereby and thereby. The Company is qualified to do
business and is in good standing in each jurisdiction in which the failure to so
qualify, individually or in the aggregate, is reasonably likely to have a
Material Adverse Effect. As used in this Agreement, "MATERIAL ADVERSE EFFECT"
means (i) a material adverse effect on the execution, delivery, validity or
consummation of the Transaction Documents, (ii) a material adverse effect on the
performance of the Transaction Documents, or (ii) a material adverse effect on,
or a material adverse change in, or a group of such effects on or changes in,
the business, operations, financial condition, results of operations, assets or
liabilities of the applicable party and its subsidiaries, taken as a whole;
provided, however, that changes in the information technology consulting
services industry generally changes in economic conditions generally, or changes
in the securities market generally shall not in and of themselves be deemed a
Material Adverse Effect.
(b) CAPITALIZATION. The authorized stock and other securities of
the Company, without giving effect to the transactions contemplated by this
Agreement, consists only of the following.
(i) COMMON STOCK. The authorized Common Stock consists only
of 75,000,000 shares of Common Stock, of which 55,814,439 shares were issued and
outstanding as of September 21, 1999. All such shares of Common Stock have been
duly authorized, and all such issued and outstanding shares of Common Stock have
been validly issued, are fully paid and nonassessable. No such outstanding
shares of Common Stock were issued in violation of any pre-emptive rights.
(ii) RESERVED SHARES. As of the date hereof, the Company has
also reserved: 24,000,000 shares of Common Stock for issuance upon exercise of
options granted to employees, consultants and directors of the Company under the
Company's 1995 Incentive Stock Plan. As of the date hereof, 24,000,000 shares of
Common Stock reserved for issuance under the above plans, approximately
17,800,000 shares remained subject to outstanding options or warrants and have a
weighted average exercise price of approximately $19.11, and approximately
6,200,000 shares were reserved for future grant. In addition, the Company has
reserved
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<PAGE>
approximately 1,100,000 shares of Common Stock for issuance to employees of the
Company under the Company's Employee Stock Purchase Plan. All shares of Common
Stock subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
will be duly authorized, validly issued, fully paid and nonassessable. There are
no other equity securities, options, warrants, calls, rights, commitments or
agreements of any character to which the Company is a party or by which it is
bound, obligating the Company to issue, deliver, sell, repurchase or redeem, or
cause to be issued, delivered, sold, repurchased or redeemed, any shares of the
capital stock of the Company or obligating the Company to grant, extend or enter
into any such equity security, option, warrant, call, right, commitment or
agreement.
(c) SUBSIDIARIES. The Company does not have any subsidiaries,
nor does the Company own any capital stock, assets comprising the business of,
obligations of, or any other interest (including any equity, limited liability
company, joint venture or partnership interest) in, or any outstanding loan or
advance to or from, any person or entity, except as described in Section 3(c) of
the Disclosure Letter. Each such identified subsidiary is duly organized,
validly existing and in good standing under the laws of the state indicated for
such subsidiary in the Disclosure Letter and has all corporate power and
authority required to carry on its business as presently conducted. Each such
identified subsidiary is qualified to do business and is in good standing in
each jurisdiction in which the failure to so qualify has had or is reasonably
likely to have, individually or collectively, a Material Adverse Effect.
(d) DUE AUTHORIZATION. All corporate actions on the part of the
Company necessary for the authorization, execution, delivery of, and the
performance of all obligations of the Company under, the Transaction Documents,
and the authorization, issuance, reservation for issuance, and delivery of all
of the Purchased Shares being sold under this Agreement and all of the Warrant
Shares issuable upon exercise of the Warrant have been taken. The Transaction
Documents, when executed, will constitute, legal, valid and binding obligations
of the Company, enforceable against the Company in accordance with their terms,
except (a) as may be limited by (i) applicable bankruptcy, insolvency,
reorganization or others laws of general application relating to or affecting
the enforcement of creditors' rights generally and (ii) the effect of rules of
law governing the availability of equitable remedies, and (b) as rights to
indemnity or contribution may be limited under federal or state securities laws
or by principles of public policy thereunder.
(e) VALID ISSUANCE OF STOCK.
(i) VALID ISSUANCE. The Purchased Shares and the Warrant
Shares have been duly and validly reserved for issuance and, upon payment of the
Purchase Price therefor by the Investor in accordance with this Agreement or the
Warrant, will be duly authorized, validly issued, fully paid and non-assessable
and free of any lien, claim, encumbrance or transfer restriction, except as
expressly provided in the Warrant and/or the Investor Rights Agreement. The
Warrant Shares have been duly and validly reserved for issuance and, upon
issuance, sale and delivery in accordance with the terms of the Warrant, for the
consideration provided for therein, will be duly and validly issued, fully paid
and nonassessable.
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(ii) COMPLIANCE WITH SECURITIES LAWS. Assuming the
correctness of the representations made by the Investor in Section 4, the
Purchased Shares, the Warrant and (assuming no change in applicable law and no
unlawful distribution of Purchased Shares or the Warrant by the Investor or
other parties) the Warrant Shares will be issued to the Investor in compliance
with applicable exemptions from (i) the registration and prospectus delivery
requirements of the Securities Act of 1933, as amended (the "SECURITIES Act"),
and (ii) the registration and qualification requirements of all applicable
securities laws of the states of the United States.
(f) GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration qualification, designation, declaration or
filing with, or notice to, any federal, state or local governmental authority on
the part of the Company is required in connection with the issuance of the
Purchased Shares, the Warrant or the Warrant Shares to the Investor, or the
consummation of the other transactions contemplated by the Transaction
Documents, except for (i) compliance with the HSR Requirements, (ii) any filing
that may be required pursuant to Regulation D promulgated under the Securities
Act and (iii) such other consents, approvals, orders, authorizations,
qualifications, registrations, designations, declarations or filings as are not
material. All such qualifications and filings will, in the case of
qualifications, be effective on the Closing and will, in the case of filings, be
made within the time prescribed by law.
(g) NON-CONTRAVENTION. The execution, delivery and performance
of the Transaction Documents by the Company, and the consummation by the Company
of the transactions contemplated hereby and by the Warrant (including issuance
of the Purchased Shares and the Warrant, and the issuance of the Warrant Shares
upon exercise of the Warrant), do not and will not (i) contravene or conflict
with the Certificate of Incorporation or Bylaws of the Company or its
subsidiaries; (ii) constitute a material violation of any provision of any
federal, state, local or foreign law binding upon or applicable to the Company
or its subsidiaries; or (iii) constitute a default or require any consent under,
give rise to any right of termination, cancellation or acceleration of, or to a
loss of any material benefit to which the Company or its subsidiaries is
entitled under, or result in the creation or imposition of any lien, claim or
encumbrance on any assets of the Company or its subsidiaries under, any contract
to which the Company or its subsidiaries is a party or any material permit,
license or similar right relating to the Company or its subsidiaries or by which
the Company or its subsidiaries may be bound or affected, except, in each of the
foregoing cases, as has not had and is not reasonably likely to have,
individually or collectively, a Material Adverse Effect.
(h) LITIGATION. There is no action, suit, proceeding, claim,
arbitration or investigation ("ACTION") pending or, to the Company's knowledge,
threatened nor is there any basis for any action: (a) against the Company or its
subsidiaries, with respect to their activities, properties or assets, or against
any officer, director or employee of the Company or its subsidiaries in
connection with such officer's, director's or employee's relationship with, or
actions taken on behalf of, the Company or its subsidiaries, (b) that seeks to
prevent, enjoin, alter or delay the transactions contemplated by the Transaction
Documents (including issuance of the Purchased Shares, the Warrant and the
Warrant Shares), or which is reasonably likely to have a material adverse effect
on the execution, delivery, validity or consummation of the Transaction
Documents or the performance of the Transaction Documents by the Company, or (c)
relating to the current or prior employment of a current or former employee or
consultant of the Company
5
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or its subsidiaries, their use of any information in connection with the
business, technology, techniques, or other assets allegedly proprietary to any
person other than the Company or its wholly owned subsidiaries of the Company to
which the Company is, or, to the Company's knowledge, would likely be, a party.
Neither the Company nor its subsidiaries is a party to or is subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. No Action by the Company or any of its
subsidiaries is pending.
(i) COMPLIANCE WITH LAW AND CHARTER DOCUMENTS. Neither the
Company nor any of its subsidiaries is in violation or default of any provisions
of its Certificate of Incorporation or Bylaws, both as amended. The Company and
its subsidiaries have complied in all respects and are in compliance with all
applicable statutes, laws, rules, regulations and orders of the United States of
America and all states thereof, foreign countries and other governmental bodies
and agencies having jurisdiction over their business or properties, except for
any instance of non-compliance that has not had, and would not reasonably be
expected to have, individually or collectively, a Material Adverse Effect.
(j) SEC DOCUMENTS.
(i) REPORTS. The Company has furnished to the Investor
prior to the date hereof (or the Investor can obtain from the internet) copies
of its Annual Report on Form 10-K for the fiscal year ended December 31, 1998
(the "FORM 10-K"), and all other registration statements, reports and proxy
statements, including the exhibits thereto, filed by the Company with the
Securities and Exchange Commission ("SEC") on or after said date (the Form 10-K
and such registration statements, reports and proxy statements, including the
exhibits thereto, are collectively referred to herein as the "SEC DOCUMENTS").
Since the Balance Sheet Date (as defined below), the Company has duly filed with
the SEC all registration statements, reports and proxy statements required to be
filed by it under the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT"). Each of the SEC Documents, as of the respective date thereof (or if
amended or superseded by a filing prior to the Closing Date, then on the date of
such filing), did not, and each of the registration statements, reports and
proxy statements filed by the Company with the SEC after the date hereof and
prior to the Closing will not, as of the date thereof (or if amended or
superseded by a filing after the date of this Agreement, then on the date of
such filing), contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading. Neither the
Company nor any of its subsidiaries is a party to any material contract,
agreement or other arrangement that was required to have been filed as an
exhibit to the SEC Documents that was not so filed.
(ii) FINANCIAL STATEMENTS. The Form 10-K includes the
Company's audited balance sheet ("DECEMBER 31 BALANCE SHEET") and its other
financial statements (collectively, the "AUDITED FINANCIAL STATEMENTS") for the
fiscal year ended December 31, 1998. The SEC Documents also include the
Company's unaudited balance sheet (the "JUNE 30 BALANCE SHEET") as of June 30,
1999 (the "BALANCE SHEET DATE"), and its other unaudited financial statements
(collectively, the "UNAUDITED 1999 QUARTERLY FINANCIAL STATEMENTS") for the
quarters ending March 31, 1999 and June 30, 1999. The Audited Financial
Statements, the June 30 Balance Sheet, and the Unaudited 1999 Quarterly
Financial Statements of the Company included
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in the SEC Documents filed prior to the date hereof fairly presented, as of
their issuance, in conformity with generally accepted accounting principles
("GAAP") applied on a consistent basis, the financial position of the Company as
at the dates thereof and the results of its operations and cash flows for the
periods covered thereby.
(k) ABSENCE OF CERTAIN CHANGES SINCE BALANCE SHEET DATE. Since
the Balance Sheet Date, the business and operations of the Company and its
subsidiaries have been conducted in the ordinary course consistent with past
practice, and there has not been:
(i) any declaration, setting aside or payment of any dividend or
other distribution of the assets of the Company or its subsidiaries
with respect to any shares of capital stock of the Company or any
repurchase, redemption or other acquisition by the Company or its
subsidiaries of any outstanding shares of the Company's capital stock;
(ii) any damage, destruction or loss, whether or not covered by
insurance, which has had or is reasonably likely to have, individually
or collectively, a Material Adverse Effect;
(iii) any waiver by the Company or any of its subsidiaries of a
valuable right or of a material debt owed to any of them, except for
such waivers, that have not had nor are reasonably likely to have,
individually or collectively, a Material Adverse Effect;
(iv) any change or amendment to, or any waiver of any right under
a contract or arrangement by which the Company or any of its assets or
properties is bound or subject which has had or is reasonably likely
to have, individually or collectively, a Material Adverse Effect;
(v) any change by the Company in its accounting principles,
methods or practices or in the manner it keeps its accounting books
and records, except any such change required by a change in GAAP which
has not had and is not reasonably likely to have, individually or
collectively, a Material Adverse Effect;
(vi) any other circumstance, condition or event of any character
which constitutes, either individually or collectively, a Material
Adverse Effect.
(l) INVENTION ASSIGNMENT AND CONFIDENTIALITY AGREEMENT. Each
employee and consultant or independent contractor of the Company or its
subsidiaries whose duties include the development of products or Intellectual
Property (as defined below), and each former employee and consultant or
independent contractor whose duties included the development of products or
Intellectual Property, has entered into and executed an invention assignment and
confidentiality agreement in the form provided to the Investor prior to the
Effective Date, or an employment or consulting agreement containing
substantially similar terms, except where the absence of such assignment and/or
agreement has not had and is not reasonably likely to have, individually or
collectively, a Material Adverse Effect.
(m) INTELLECTUAL PROPERTY
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(i) COMPANY RIGHTS TO INTELLECTUAL PROPERTY. The Company or
its wholly owned subsidiaries have sole title to and own, or are licensed or
otherwise possess valid, subsisting, and legally enforceable rights to use, all
(i) patents, and applications therefor and all reissues, divisions, renewals,
extensions, provisionals, continuations and continuations-in-part thereof
("PATENTS"); (ii) inventions (whether patentable or not), invention disclosures,
improvements, trade secrets, proprietary information, know how, technology,
technical data and customer lists, and all documentation relating to any of the
foregoing ("TRADE SECRETS"); (iii) copyrights, copyright registrations and
applications therefor, and all other rights corresponding thereto throughout the
world ("COPYRIGHTED WORKS"); (iv) domain names, uniform resource locators and
other names and locators associated with the Internet; (v) industrial designs
and any registrations and applications therefor; (vi) trade names, logos, common
law trademarks and service marks, trademark and service mark registrations and
applications therefor ("TRADEMARKS"); (vii) all databases and data collections
and all rights therein; (viii) all moral and economic rights of authors and
inventors, however denominated; (ix) mask work rights and other rights in
semiconductor designs; and (x) any similar or equivalent rights to any of the
foregoing (collectively "INTELLECTUAL PROPERTY") necessary to enable the Company
and its subsidiaries to carry on their business as currently conducted in all
material respects ("COMPANY INTELLECTUAL PROPERTY"). All licenses, sublicenses,
agreements, and permissions relating to such Company Intellectual Property are
in full force and effect and there exists no breach or default on the part of
the Company or, to the Company's knowledge, any other party thereunder, except
for such circumstances of unenforceability, invalidity, or breach that, have not
had and are not reasonably likely to have, individually or collectively, a
Material Adverse Effect. The Company Intellectual Property is free and clear of
any lien, license, lease, claim or encumbrance (other than non-exclusive
out-licenses granted by the Company in the ordinary course of business which do
not materially reduce the value or utility to the Company or its subsidiaries of
such Company Intellectual Property), except as had not had, and is not
reasonably likely to have, a Material Adverse Effect.
(ii) MAINTENANCE OF RIGHTS. After the Closing, the Company
and its subsidiaries will use all reasonable business efforts to obtain and
maintain protection for all Patents, Trade Secrets, Copyrighted Works,
Trademarks, and other Company Intellectual Property.
(iii) OTHER CLAIMS. No person, other than the Company and
its subsidiaries, holds any license, agreement or other right of any kind in or
to the Company Intellectual Property, to manufacture, modify, or create
derivative works of any of the Company Intellectual Property, or to receive any
copy of any source code or any software included within the Company Intellectual
Property, except for such licenses, agreements and rights that, have not had and
are not reasonably likely to have, individually or collectively, a Material
Adverse Effect.
(iv) NO INFRINGEMENT. Neither the Company nor any of its
subsidiaries has violated or infringed in any respect, and is not currently
violating or infringing in any respect the Intellectual Property of any third
party in any manner that, has had and is reasonably likely to have, individually
or collectively, a Material Adverse Effect. Neither the Company nor any of its
subsidiaries has received any written communications and has no other basis to
believe that any person is (a) alleging that the Company (or any of its
employees or consultants) has violated or infringed, any Intellectual Property
of any other person or entity in any material respect, (b)
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seeking to restrict in any manner the use, transfer, or licensing of any
Company Intellectual Property, (c) which may reasonably be expected to effect
the validity or enforceability of any Company Intellectual Property, (d)
restricting the provision of any material product or service of the Company
or its subsidiaries, or (e) otherwise relating to the Company Intellectual
Property, except where such violations, infringements, restrictions or other
effects, have not had and are not reasonably likely to have, individually or
collectively, a Material Adverse Effect. The Company knows of no information,
material facts, or circumstances that would render any of the Company
Intellectual Property invalid or unenforceable and the Company has not made
any material misrepresentation or concealment in any application for
registration of any Company Intellectual Property.
(v) JOINT DEVELOPMENT. To the extent that any Company
Intellectual Property has been developed or created independently or jointly by
a third party for the Company or any of its subsidiaries, or is incorporated
into any of the products or services of the Company or any of its subsidiaries,
the Company has a written agreement with such third party with respect thereto
and the Company thereby either: (a) has obtained ownership of, and is the
exclusive owner of, or (b) has obtained a perpetual, non-terminable license
(sufficient for the conduct of the business of the Company and its subsidiaries
as currently conducted and as required to be conducted under the Transaction
Documents) to all of such third party's right title and interest in said
Intellectual Property by operation of law or by valid assignment, to the fullest
extent legally possible, except where the absence of such ownership or
agreement, has not had and is not reasonably likely to have, individually or
collectively, a Material Adverse Effect
(vi) OUT-LICENSES. Neither the Company nor any of its
subsidiaries has transferred ownership of, or granted any exclusive license with
respect to, any Company Intellectual Property to any third party (herein "OUT
LICENSE"), except where such transfer or license has not had and is not
reasonably likely to have, individually or collectively, a Material Adverse
Effect.
(vii) NO CONFLICT. The consummation of the transactions
contemplated by the Transaction Documents will not violate nor result in the
breach, modification, cancellation, termination or suspension of any Out License
or of any material license, contract or other agreement to which the Company or
any of its subsidiaries is a party pursuant to which a third party has licensed
or transferred Intellectual Property to the Company or any of its subsidiaries
("IN LICENSE"), except where the violation, breach, modification, cancellation,
termination, or suspension has not had and is not reasonably likely to have,
individually or collectively, a Material Adverse Effect.
(vii) MISAPPROPRIATION. To the Company's knowledge, no third
party is infringing or misappropriating the Company's Intellectual Property in
any manner that, has had or is reasonably likely to have, individually or
collectively, a Material Adverse Effect.
(ix) TRADE SECRETS, EMPLOYEES AND CONSULTANTS. The Company
and its subsidiaries have taken reasonable and practicable steps designed to
safeguard and maintain the secrecy and confidentiality of, and their proprietary
rights in, all trade secrets or other confidential information constituting
Intellectual Property, except where the absence of such measures, has not had
and is not reasonably likely to have, individually or collectively, a Material
Adverse Effect.
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To the Company's knowledge, no employee of or consultant to the
Company or its subsidiaries is in default under any term of any employment
contract, agreement or arrangement relating to Intellectual Property of the
Company or its subsidiaries or any non-competition arrangement, other contract
or restrictive covenant relating to Intellectual Property, except where such
default, has not had and is not reasonably likely to have, individually or
collectively, a Material Adverse Effect.
(x) INDEPENDENT DEVELOPMENT. The Company Intellectual
Property (other than any Company Intellectual Property duly acquired or licensed
from third parties) was developed entirely by the employees of or consultants to
the Company and its subsidiaries during the time they were employed or retained
by the Company or its subsidiaries, except under circumstances that, have not
had and are not reasonably likely to have, individually or collectively, a
Material Adverse Effect.
(xi) YEAR 2000 ISSUES. Except where a failure has not had
and is not reasonably likely to have, individually or collectively, a Material
Adverse Effect, (a) all of the products of the Company and its subsidiaries
(including products currently under development) will record, store, process,
calculate and present calendar dates falling on and after January 1, 2000, and
will calculate any information dependent on or relating to such dates in the
same manner and with the same functionality, data integrity and performance as
the products record, store, process, calculate and present calendar dates on or
before December 31, 1999, or calculate any information dependent on or relating
to such dates (collectively "YEAR 2000 COMPLIANT"), and (b) none of the products
of the Company and its subsidiaries will lose functionality with respect to the
introduction of records containing dates falling on or after January 1, 2000.
(n) REGISTRATION RIGHTS. Except as provided in the Investor
Rights Agreement, neither the Company nor any of its subsidiaries is subject to
any agreement providing any person or entity any rights (including piggyback
registration rights) to have any securities of the Company or its subsidiaries
registered with the SEC or registered or qualified with any other governmental
authority.
(o) TITLE TO PROPERTY AND ASSETS. The properties and assets of
the Company and its subsidiaries reasonably necessary for the Company to conduct
its business as currently conducted are owned or leased by the Company free and
clear of all mortgages, deeds of trust, liens, charges, encumbrances and
security interests, except for statutory liens for the payment of current taxes
that are not yet delinquent and liens, encumbrances and security interests that
arise in the ordinary course of business and are not reasonably likely to have,
individually or collectively, a Material Adverse Effect. With respect to the
property and assets it leases, the Company is in compliance with such leases and
such leases are in full force and effect, except where such non-compliance or
invalidity has not had and is not reasonably likely to have, individually or
collectively, a Material Adverse Effect.
(p) TAX MATTERS. Except as has not had and is not reasonably
likely to have, individually or collectively, a Material Adverse Effect, the
Company and its subsidiaries have filed all tax returns required to be filed,
which returns are true and correct in all material respects, and the Company and
its subsidiaries have paid in full all federal, state, local an other net
income, gross income, gross receipts, sales, use, ad valorem, value added,
intangible unitary,
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capital gains, transfer, franchise, profits, license, permit, lease, service,
service use, withholding, backup withholding, payroll employment, estimated,
excise, severance stamp, occupation, premium, property, prohibited transaction,
windfall, or excess profits, customs, duties, or other taxes, fees, assessment
or charges of any kind whatsoever, together with any penalties and interest,
assessments, fees and other charges, addition to tax or additional amount with
respect thereto due and owing to any governmental or quasi-governmental
authority and has discharged any obligations for payment of the foregoing under
any tax sharing, tax indemnity or other arrangement binding upon the Company or
its subsidiaries, other than those being contested in good faith and for which
adequate reserves have been provided for in the June 30 Balance Sheet. Neither
the Company nor any of its subsidiaries has received notice that the Internal
Revenue Service (IRS) or any other taxing authority has asserted against the
Company or its subsidiaries any deficiency or claim for additional taxes, and no
issues have been raised (and are currently pending) by any taxing authority in
connection with any tax return filed by the Company or any of its subsidiaries
which have had or are reasonably likely to have, individually or collectively, a
Material Adverse Effect. Neither the Company nor any of its subsidiaries has
received notice that it is or may be subject to tax in a jurisdiction in which
it has not filed or does not currently file tax returns.
(q) FINDER'S FEE. The Company neither is, nor will be, obligated
for any finder's or broker's fee or commission in connection with this
transaction, other than the fee payable to Donaldson, Lufkin & Jenrette
Securities Corporation in the amount disclosed to Investor in the Disclosure
Letter.
(r) ERISA.
(i) As used in this Section 3(r), the following terms have
the following meanings: (1) "BENEFIT ARRANGEMENT" means any material benefit
arrangement that is not an Employee Benefit Plan, including (i) each material
employment or consulting agreement, (ii) each material arrangement providing for
insurance coverage or workers' compensation benefits, (iii) each material bonus
or deferred bonus arrangement, (iv) each material arrangement providing any
termination allowance, severance or similar benefits, (v) each equity
compensation plan, (vi) each deferred compensation plan and (vii) each material
compensation policy and practice maintained by the Company or ERISA Affiliate
covering the employees, former employees, officers, former officers, directors
and former directors of the Company, any ERISA Affiliate, and the beneficiaries
of any of them; (2) "BENEFIT PLAN" means an Employee Benefit Plan or Benefit
Arrangement; (3) "COBRA" means the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended, as set forth in Section 4980B of the Internal Revenue
Code (the "Code") and Part 6 of Title I of ERISA; (4) "EMPLOYEE BENEFIT PLAN"
means any employee benefit plan, as defined in Section 3(3) of ERISA, that is
sponsored or contributed to by the Company, any ERISA Affiliate, or any ERISA
Affiliate covering employees or former employees of the Company; (5) "EMPLOYEE
PENSION BENEFIT PLAN" means any employee pension benefit plan, as defined in
Section 3(2) of ERISA that is regulated under Title IV or ERISA, other than a
Multiemployer Plan; (6) "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended; (7) "ERISA AFFILIATE" of the Company means any other
person or entity that, together with the Company as of the relevant measuring
date under ERISA, was or is required to be treated as a single employer under
Section 414 of the Code; (8) "GROUP HEALTH PLAN" means any group health plan, as
defined in Section 5000(b)(1) of the Code;
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(9) "MULTIEMPLOYER PLAN" means a multiemployer plan, as defined in Section 3(37)
and 4001(a)(3) of ERISA; and (10) "PROHIBITED TRANSACTION means a transaction
that is prohibited under Section 4975 of the Code or Section 406 of ERISA and
not exempt under Section 4975 of the Code or Section 408 of ERISA, respectively.
(ii) No Employee Benefit Plan has participated in, engaged
in or been a party to any Prohibited Transaction which has had or is reasonably
likely to have a Material Adverse Effect, and neither the Company nor any of its
ERISA Affiliates has had asserted against it any claim for any material tax or
material penalty imposed under ERISA or the Code with respect to any Employee
Benefit Plan nor, to the Company's knowledge, is there a basis for any such
claim. To the Company's knowledge, no officer, director or employee of the
Company has committed a breach of any responsibility or obligation imposed upon
fiduciaries by Title I of ERISA with respect to any Employee Benefit Plan, with
respect to which breach the Company is directly or indirectly liable which has
had or is reasonably likely to have, individually or collectively, a Material
Adverse Effect.
(iii) No violation of any reporting or disclosure
requirement imposed by ERISA or the Code and which has had or is reasonably
likely to have, individually or collectively, a Material Adverse Effect exists
with respect to any Employee Benefit Plan.
(iv) Except for non-compliance which has not had and is not
reasonably likely to have, individually or collectively, a Material Adverse
Effect, each Benefit Plan has been maintained in all material respects, by its
terms and in operation, in accordance with ERISA (if applicable), the Code and
all other applicable federal, state, local and foreign laws. The Company and its
ERISA Affiliates have made full and timely payment of all amounts required to be
(i) contributed under the terms of each Benefit Plan and such laws, or (ii)
required to be paid as expenses under such Benefit Plan except for
non-compliance which has not had and is not reasonably likely to have,
individually or collectively, a Material Adverse Effect. Each Employee Benefit
Plan that is intended to be qualified under Section 401(a) of the Code either
has received a favorable determination letter with respect to such qualified
status from the IRS or has filed a request for such a determination letter with
the IRS within the remedial amendment period such that such determination of
qualified status will apply from and after the effective date of any such
Employee Benefit Plan, except where the failure to qualify such plan has not had
and is not reasonably likely to have, individually or collectively, a Material
Adverse Effect.
(v) With respect to any Group Health Plans maintained by
the Company or its ERISA Affiliates, whether or not for the benefit of the
Company's employees, the Company and its ERISA Affiliates have complied with the
provisions of COBRA, except for non-compliance which has not had and is not
reasonably likely to have, individually or collectively, a Material Adverse
Effect.
(s) LABOR MATTERS.
(i) No collective bargaining agreement exists that is
binding on the Company or any of its subsidiaries, and no petition has been
filed or proceedings instituted against the Company or any of its subsidiaries
by an employee or group of employees with any labor relations board seeking
recognition of a bargaining representative. To the Company's
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knowledge, no organizational effort is currently being made or threatened by or
on behalf of any labor union to organize any employees of the Company.
(ii) There is no labor strike, dispute, slow down or
stoppage pending or threatened against or directly affecting the Company or any
of its subsidiaries. No grievance or arbitration proceedings arising out of or
under any collective bargaining agreement is pending, and no claims therefor
exist. Neither the Company nor any of its subsidiaries has received any notice,
and they have no knowledge of any threatened labor or civil rights dispute,
controversy or grievance or any other unfair labor practice proceeding, or
breach of contract claims or action with respect to claims of, or obligations
to, any employee or group of employees of the Company or its subsidiaries, which
in any such case is reasonably likely to have, individually or collectively, a
Material Adverse Effect.
(iii) All individuals who are performing or have performed
services for the Company or any of its subsidiaries, and who are or were
classified by the Company as "independent contractors," qualify for such
classification under Section 530 of the Revenue Act of 1978 or Section 1706 of
the Tax Reform Act of 1986, as applicable, except for such instances which are
not, reasonably likely to have, individually or collectively, a Material Adverse
Effect.
(t) FULL DISCLOSURE. The representations made in this Section 3
and in the Company Disclosure Letter with respect to the matters therein
addressed, are true and complete in all material respects and do not omit to
state any material fact or facts necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
4. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF THE
INVESTOR. The Investor hereby represents and warrants to the Company, and agrees
that, except as disclosed in the Disclosure Letter delivered by the Investor to
the Company concurrently herewith:
(a) ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Investor
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all corporate power and authority required
to enter into the Transaction Documents and to consummate the transactions
contemplated hereby and thereby.
(b) AUTHORIZATION. The execution, delivery and performance of
the Transaction Documents have been duly authorized by all necessary corporate
action on the part of the Investor. This Agreement and the Alliance Agreement
constitutes, and the Warrant, Investor Rights Agreement and other Transaction
Documents to which the Investor will be a party, when executed, will constitute
the Investor's legal, valid and binding obligations, enforceable in accordance
with their terms, except (i) as may be limited by (A) applicable bankruptcy,
insolvency, reorganization or other laws of general application relating to or
affecting the enforcement of creditors' rights generally and (B) the effect of
rules of law governing the availability of equitable remedies and (ii) as rights
to indemnity or contribution may be limited under federal or state securities
laws or by principles of public policy thereunder. The Investor has full
corporate power and authority to enter into the Transaction Documents.
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(c) LITIGATION. There is no Action pending, or to the Investor's
knowledge, threatened, that seeks to prevent, enjoin, alter or delay the
transactions contemplated by the Transaction Documents or which is reasonably
likely to have a Material Adverse Effect on the execution, delivery, validity,
consummation or performance of the Transaction Documents by the Company.
(d) PURCHASE FOR OWN ACCOUNT. The Purchased Shares and the
Warrant are being acquired for investment for the Investor's own account, not as
a nominee or agent, and not with a view to the public resale or distribution
thereof within the meaning of the Securities Act, and the Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same. The Investor also represents that it has not been formed
for the specific purpose of acquiring the Purchased Shares and the Warrant.
(e) INVESTMENT EXPERIENCE. The Investor understands that the
purchase of the Purchased Shares and the Warrant involves substantial risk. The
Investor has experience as an investor in securities of companies and
acknowledges that it is able to fend for itself, can bear the economic risk of
its investment in the Purchased Shares and the Warrant and has such knowledge
and experience in financial or business matters that it is capable of evaluating
the merits and risks of this investment in the Purchased Shares and the Warrant
and protecting its own interests in connection with this investment. The
foregoing, however, does not in any way limit or modify the representations or
warranties of the Company in Section 3 or any rights of the Investor under the
Transaction Documents entered into or benefiting Investor in connection with the
transactions contemplated by the Transaction Documents.
(f) ACCREDITED INVESTOR STATUS. The Investor is an "accredited
investor" within the meaning of Regulation D promulgated under the Securities
Act.
(g) RESTRICTED SECURITIES. The Investor understands that the
Purchased Shares and the Warrant to be purchased by the Investor hereunder, and
any Warrant Shares to be purchased by the Investor upon exercise of the Warrant,
are characterized as "restricted securities" under the Securities Act, inasmuch
as they are being acquired from the Company in a transaction not involving a
public offering and that under the Securities Act and applicable regulations
thereunder, such securities may be resold without registration under the
Securities Act only in certain limited circumstances. The Investor is familiar
with Rule 144 of the SEC, as presently in effect, and understands the resale
limitations imposed thereby and by the Securities Act. The Company understands
that, except as required by the Investors Rights Agreement executed concurrently
herewith, the Company is under no obligation to register any of the securities
sold hereunder.
(h) LEGENDS. The Investor agrees that the certificates for the
Purchased Shares, the Warrant and the Warrant Shares shall bear the following
legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR WITH ANY
STATE SECURITIES COMMISSION, AND MAY NOT BE TRANSFERRED OR
DISPOSED OF BY THE HOLDER IN THE ABSENCE OF A REGISTRATION
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STATEMENT WHICH IS EFFECTIVE UNDER THE SECURITIES ACT OF
1933 AND APPLICABLE STATE LAWS AND RULES, OR, UNLESS,
IMMEDIATELY PRIOR TO THE TIME SET FOR TRANSFER, SUCH
TRANSFER MAY BE EFFECTED WITHOUT VIOLATION OF THE SECURITIES
ACT OF 1933 AND OTHER APPLICABLE STATE LAWS AND RULES.
THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS SPECIFIED IN A CERTAIN INVESTOR RIGHTS
AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL HOLDER OF
THESE SECURITIES, A COPY OF WHICH IS AVAILABLE FOR
EXAMINATION AT THE ISSUER'S PRINCIPAL OFFICE."
The appropriate portion of the legend will be removed promptly upon delivery to
the Company of an opinion of counsel reasonably satisfactory to the Company or
such other satisfactory evidence as reasonably may be required by the Company,
that such legend is not required to ensure compliance with the Securities Act or
that the security is hereby freely transferable in a public sale under the
Securities Act.
(i) GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration qualification, designation, declaration or
filing with, or notice to, any federal, state or local governmental authority on
the part of the Investor is required for the performance by the Investor of its
obligations under the Transaction Documents, except for (i) compliance with HSR
Requirements, (ii) any filing that may be required pursuant to Regulation D
promulgated under the Securities Act and (iii) such other consents, approvals,
orders, authorizations, qualifications, registrations, designations,
declarations, or filings as are not material. All such qualifications and
filings will, in the case of qualifications, be effective on the Closing and
will, in the case of filings, be made within the time prescribed by law.
(j) NON-CONTRAVENTION. The execution, delivery and performance
of the Transaction Documents by the Investor, and the consummation by the
Investor of the transactions contemplated thereby do not and will not (i)
contravene or conflict with the Certificate of Incorporation or Bylaws of the
Investor, (ii) constitute a material violation of any provision of federal,
state, local or foreign law binding upon or applicable to the Investor, or (iii)
constitute a default or require any consent under, give rise to any right of
termination, cancellation or acceleration of, or to a loss of any material
benefit to which the Investor is entitled under any contract to which the
Investor is a party in a manner which is reasonably likely to have, individually
or collectively, an adverse impact on the Investor's ability to perform its
obligations under said Transaction Documents.
(k) FULL DISCLOSURE. The representation made in this Section 4
and in the Investor Disclosure Letter with respect to the matters therein
addressed, are true and complete in all material respects and do not omit to
state any material fact or facts necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
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5. CONDITIONS TO THE INVESTOR'S OBLIGATIONS AT CLOSING. The obligations
of the Investor under Sections l and 2 of this Agreement are subject to the
fulfillment or waiver, on or before the Closing, of each of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. Each of the
representations and warranties of the Company contained in Section 3 shall be
true and correct on and as of the date of the Disclosure Letter and on and as of
the date of the Closing, with the same effect as though such representations and
warranties had been made as of the Closing.
(b) PERFORMANCE. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing in
all material respects and shall have obtained all approvals, consents and
qualifications necessary to complete the purchase and sale described herein.
(c) COMPLIANCE CERTIFICATE. The Company will have delivered to
the Investor at the Closing a certificate signed on its behalf by its Chief
Executive Officer or Chief Financial Officer certifying that the conditions
specified in Sections 5(a) and 5(b) hereof have been fulfilled.
(d) SECURITIES EXEMPTIONS. The offer and sale of the Purchased
Shares and the Warrant to the Investor pursuant to this Agreement and/or the
Warrant shall be exempt from the registration requirements of the Securities
Act, and the registration and/or qualification requirements of all applicable
state securities laws, except to the extent such failure to be exempted results
from the inaccuracy of any of the representations made by the Investor pursuant
to Section 4.
(e) HSR COMPLIANCE. The HSR Requirements applicable to the
transactions contemplated hereby shall have been fulfilled.
(f) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to the Investor, and the Investor shall have received all such
counterpart originals, and certified or other copies of such documents, as it
may reasonably request. Such documents shall include but not be limited to the
following:
(i) CERTIFIED CHARTER DOCUMENT. A copy of (i) the Restated
Certificate of Incorporation of the Company, as amended, certified as of a
recent date by the secretary of state for Delaware as a complete and correct
copy thereof and (ii) the Bylaws of the Company (as amended through the date of
the Closing), certified by the Secretary of the Company as a true and correct
copy thereof as of the Closing.
(ii) BOARD RESOLUTIONS. A copy, certified by the Secretary
of the Company, of the resolutions of the Board of Directors of the Company
providing for the approval of the Transaction Documents and the issuance of the
Purchased Shares and the Warrant and the other matters contemplated hereby and
thereby.
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(g) OPINION OF COMPANY COUNSEL. The Investor will have received
an opinion on behalf of the Company, dated as of the date of the Closing, from
Katten Muchin & Zavis, counsel to the Company, as to the matters attached in
EXHIBIT B-1, with such customary assumptions and qualifications as is
appropriate to such matters.
(h) NO MATERIAL ADVERSE EFFECT. Between the date hereof and the
Closing, there shall not have occurred any Material Adverse Effect to the
Company.
(i) NASDAQ REQUIREMENTS. All requirement of the Nasdaq National
Market in connection with the transactions contemplated by this Agreement and
the Warrant shall have been complied with by the Company.
(j) BUSINESS AGREEMENTS. The Company shall have entered into the
Business Agreements and shall have timely performed the obligations on its part
to be performed under the Alliance Agreement prior to the Closing in all
material respects.
(k) WARRANT. The Company will have issued the Warrant
substantially in the form attached hereto as EXHIBIT A.
(l) INVESTOR RIGHTS AGREEMENT. The Company will have executed
and delivered the Investor Rights Agreement substantially in the form attached
hereto as EXHIBIT C (the "INVESTOR RIGHTS AGREEMENT").
(m) OTHER ACTIONS. The Company shall have executed such
certificates, agreements, instruments and other documents, and taken such other
actions as shall be customary or reasonably requested by the Investor in
connection with the transactions contemplated hereby.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The
obligations of the Company to the Investor under this Agreement are subject to
the fulfillment or waiver, on or before the Closing, of each of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of the Investor contained in Section 4 shall be true and correct in
all respects on and as of the date hereof and on and as of the date of the
Closing with the same effect as though such representations and warranties had
been made as of the Closing.
(b) PERFORMANCE. The Investor shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing in
all material respects and shall have obtained any approvals, consents and
qualifications necessary to perform its obligations to purchase the Purchased
Shares and Warrant at the Closing.
(c) COMPLIANCE CERTIFICATE. The Investor will have delivered to
the Company at the Closing a certificate signed on its behalf by its Chief
Executive Officer or Chief Financial Officer, certifying that the conditions
specified in Sections 6(a) and 6(b) hereof have been fulfilled.
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<PAGE>
(d) HSR COMPLIANCE. The HSR Requirements applicable to the
transactions contemplated hereby shall have been fulfilled.
(e) PAYMENT OF PURCHASE PRICE. The Investor shall have delivered
to the Company (if directed to do so by the Company) the Purchase Price as
specified in Section 1.
(f) BUSINESS AGREEMENTS. The Investor shall have entered into
the Business Agreements and shall have timely performed the obligations on its
part to be performed under the Alliance Agreement prior to the Closing in all
material respects.
(g) OPINION OF COUNSEL. The Company shall have received an
opinion on behalf of the Company, dated as of the date of the Closing, from
Wilson Sonsini Goodrich & Rosati, counsel to the Investor, as to matters
attached in Exhibit B-2, with such customary assumptions and qualifications as
is appropriate to such matters.
(h) OTHER ACTIONS. The Investor shall have executed such
certificates, agreements, instruments and other documents, and taken such other
actions as shall be customary or reasonably requested by the Company in
connection with the transactions contemplated hereby.
7. INDEMNIFICATION.
(a) AGREEMENT TO INDEMNIFY.
(i) COMPANY INDEMNITY. The Investor, its Affiliates and
Associates, any successor in interest to the Purchased Shares, Warrant and
Warrant Shares, and each of the officers, directors, shareholders, employees,
representatives and agents of any of the foregoing (collectively, the "INVESTOR
INDEMNITEES") shall each be indemnified and held harmless to the extent set
forth in this Section by the Company with respect to any and all Damages (as
defined below) incurred by any Investor Indemnitee as a proximate result of (i)
any inaccuracy or misrepresentation in, or breach of, any representation,
warranty, covenant or agreement made by the Company in the Transaction
Documents.
(ii) INVESTOR INDEMNITY. The Company, its respective
Affiliates and Associates, and each officer, director, shareholder, employer,
representative and agent of any of the foregoing (collectively, the "COMPANY
INDEMNITEES") shall each be indemnified and held harmless to the extent set
forth in this Section, by the Investor, in respect of any and all Damages
incurred by any Company Indemnitee as a proximate result of any inaccuracy or
misrepresentation in, or breach of, any representation warranty, covenant or
agreement made by the Investor in the Transaction Documents.
(iii) EQUITABLE RELIEF. Nothing set forth in this Section
shall be deemed to prohibit or limit any Investor Indemnitee's or Company
Indemnitee's right at any time before, on or after the Closing, to seek
injunctive or other equitable relief for the failure of a party required to
provide indemnity pursuant to subparts (i) and (ii) above (a "INDEMNIFYING
PARTY") to perform or comply with any covenant or agreement contained herein.
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<PAGE>
(b) SURVIVAL. All representations and warranties of the Investor
and the Company contained herein or in the Warrant and all claims of any
Investor Indemnitee or Company Indemnitee (each an "Indemnitee") in respect of
any inaccuracy or misrepresentation in or breach hereof, shall survive the
Closing until the third anniversary of the Closing, regardless of whether the
applicable statute of limitations, including extensions thereof, may expire. All
covenants and agreements of the Investor and the Company contained in this
Agreement or the Warrant shall survive the Closing in perpetuity (except to the
extent any such covenant or agreement shall expire by its terms). All claims of
any Indemnitee in respect of any breach of such covenants or agreements shall
survive the Closing until the expiration of three (3) years following the
non-breaching party's obtaining actual knowledge of such breach.
(c) CLAIMS FOR INDEMNIFICATION. If any Indemnitee shall believe
that such Indemnitee is entitled to indemnification pursuant to this Section in
respect of any Damages, such Indemnitee shall give the appropriate Indemnifying
Party (which for purposes hereof, in the case of an Investor Indemnitee, means
the Company, and in the case of a Company Indemnitee, means the Investor) prompt
written notice thereof. Any such notice shall set forth in reasonable detail and
to the extent then known the basis for such claim for indemnification. The
failure of such Indemnitee to give notice of any claim for indemnification
promptly shall not adversely affect such Indemnitee's right to indemnity
hereunder except to the extent that such failure adversely affects the right of
the Indemnifying Party to assert any reasonable defense to such claim. Each such
claim for indemnity shall expressly state that the Indemnifying Party shall have
only the twenty (20) business day period referred to in the next sentence to
dispute or deny such claim. The Indemnifying Party shall have twenty (20)
business days following its receipt of such notice either (a) to acquiesce in
such claim by giving such Indemnitee written notice of such acquiescence or (b)
to object to the claim by giving such Indemnitee written notice of the
objection. If the Indemnifying Party does not object thereto within such twenty
(20) business day period, such Indemnitee shall be entitled to be indemnified
for all Damages reasonably and proximately incurred by such Indemnitee in
respect of such claim. If the Indemnifying Party objects to such claim in a
timely manner, the senior management of the Company and the Investor shall meet
to attempt to resolve such dispute. If the dispute cannot be resolved by the
senior management, either party may make a written demand for formal dispute
resolution and specify therein the scope of the dispute. Within thirty (30) days
after such written notification, the parties agree to meet for one (1) day with
an impartial mediator and consider dispute resolution alternatives other than
litigation. If an alternative method of dispute resolution is not agreed upon
within thirty (30) days after the one (1) day mediation, either party may begin
litigation proceedings. Nothing in this Section shall be deemed to require
arbitration.
(d) DEFENSE OF CLAIMS. In connection with any claim that may
give rise to indemnity under this Section resulting from or arising out of any
claim or Proceeding against an Indemnitee by a person or entity that is not a
party hereto, the Indemnifying Party may (unless such Indemnitee elects not to
seek indemnity hereunder for such claim), but shall not be obligated to, upon
written notice to the relevant Indemnitee, assume the defense of any such claim
or Proceeding if the Indemnifying Party provides assurances, reasonably
satisfactory to such Indemnitee, that the Indemnifying Party will be financially
able to satisfy such claim to the extent provided herein if such claim or
Proceeding is decided adversely; PROVIDED, HOWEVER, that nothing set forth
herein shall be deemed to require the Indemnifying Party to waive any
crossclaims or counterclaims the Indemnifying Party may have against the
Indemnitee for
19
<PAGE>
damages. The Indemnitee shall be entitled to retain separate counsel, reasonably
acceptable to the Indemnifying Party, if the Indemnitee shall determine, upon
the written advice of counsel, that an actual or potential conflict of interest
exists between the Indemnifying Party and the Indemnitee in connection with such
Proceeding. The Indemnifying Party shall be obligated to pay the reasonable fees
and expenses of such separate counsel to the extent the Indemnitee is entitled
to indemnification by the Indemnifying Party with respect to such claim or
Proceeding under this subpart (d). If the Indemnifying Party assumes the defense
of any such claim or Proceeding, the Indemnifying Party shall select counsel
reasonably acceptable to such Indemnitee to conduct the defense of such claim or
Proceeding, shall take all steps necessary in the defense or settlement thereof
and shall at all times diligently and promptly pursue the resolution thereof. If
the Indemnifying Party shall have assumed the defense of any claim or Proceeding
in accordance with this subpart (d), the Indemnifying Party shall be authorized
to consent to a settlement of, or the entry of any judgment arising from, any
such claim or Proceeding, with the prior written consent of such Indemnitee, not
to be unreasonably withheld; PROVIDED, HOWEVER, that the Indemnifying Party
shall pay or cause to be paid all amounts arising out of such settlement or
judgment concurrently with the effectiveness thereof; PROVIDED, FURTHER, that
the Indemnifying party shall not be authorized to encumber any of the assets of
any Indemnitee or to agree to any restriction that would apply to any Indemnitee
or to its conduct of business; and PROVIDED, FURTHER, that a condition to any
such settlement shall be a complete release of such Indemnitee and its
Affiliates, directors, officers, employees and agents with respect to such
claim, including any reasonably foreseeable collateral consequences thereof.
Such Indemnitee shall be entitled to participate in (but not control) the
defense of any such action, with its own counsel and at its own expense. Each
Indemnitee shall, and shall cause each of its Affiliates, directors, officers,
employees and agents to, cooperate fully with the Indemnifying Party in the
defense of any claim or Proceeding being defended by the Indemnifying Party
pursuant to this subpart (d). If the Indemnifying Party does not assume the
defense of any claim or Proceeding resulting therefrom in accordance with the
terms of this subpart (d), such Indemnitee may defend against such claim or
Proceeding in such manner as it may deem appropriate, including settling such
claim or Proceeding after giving notice of the same to the Indemnifying Party,
on such terms as such Indemnitee may deem appropriate. If any Indemnifying Party
seeks to question the manner in which such Indemnitee defended such claim or
Proceeding or the amount of or nature of any such settlement, such Indemnifying
Party shall have the burden to prove by a preponderance of the evidence that
such Indemnitee did not defend such claim or Proceeding in a reasonably prudent
manner.
(e) CERTAIN DEFINITIONS. As used in this Section, (i)
"AFFILIATE" means, with respect to any person or entity, any person or entity
directly or indirectly controlling, controlled by or under direct or indirect
common control with such other person or entity; (ii) "ASSOCIATE" means, when
used to indicate a relationship with any person or entity, (A) any other person
or entity of which such first person or entity is an officer, director or
partner or is, directly or indirectly, beneficial owner of ten percent (10%) or
more of any class of equity securities, membership interests or other comparable
ownership interests issued by such other person or entity, (B) any trust or
other estate in which such first person or entity has a ten percent (10%) or
more beneficial interest or as to which such first person or entity serves as
trustee or in a similar fiduciary capacity, and (C) any relative or spouse of
such first person or entity who has the same home as such first person or entity
or who is a director or officer of such first person or entity; (iii) "DAMAGES"
means all demands, claims, actions or causes of action, assessments, losses,
20
<PAGE>
damages, costs, expenses, liabilities, judgments, awards, fines, response costs,
sanctions, taxes, penalties, charges and amounts paid in settlement, including
(A) interest on cash disbursements in respect of any of the foregoing at the
prime rate of the Bank of America, as in effect from time to time, compounded
quarterly, from the date each such cash disbursement is made until the date the
party incurring such cash disbursement shall have been indemnified in respect
thereof, and (B) reasonable out-of-pocket costs, fees and expenses (including
reasonable costs, fees and expenses of attorneys, accountants and other agents
of, or other parties retained by, such party), and (iv) "PROCEEDING" means any
action, suit, hearing, arbitration, audit, proceeding (public or private) or
investigation that is brought or initiated by or against any federal, state,
local or foreign governmental authority or any other person or entity.
8. TERMINATION. Prior to the Closing, this Agreement may be
terminated and the purchase and sale of the Common Stock and the issuance of the
Warrant as contemplated by this Agreement may be abandoned only in accordance
with the following provisions:
(a) by mutual written consent of the Investor and the Company;
(b) by the Investor or the Company if any court of competent
jurisdiction in the United States or other United States federal or state
governmental authority shall have issued a final order, decree or ruling, or
taken any other final action, restraining, enjoining or otherwise prohibiting
the purchase and sale of the Common Stock, and such order, decree, ruling or
other action is or shall have become nonappealable;
(c) by the Investor or the Company, upon five (5) days written
notice to the other party, if the Closing shall not have occurred by December
14, 1999 (the "OUTSIDE DATE"); PROVIDED, HOWEVER, that neither the Investor nor
the Company may terminate this Agreement pursuant to this clause (c) if such
party's failure to fulfill any of its obligations under this Agreement shall
have been a principal reason that the Closing shall not have occurred on or
before said date;
In the event of the termination of this Agreement, this Agreement shall
forthwith become void and have no effect, without any liability on the part of
any party hereto or its affiliates, directors, officers or stockholders;
PROVIDED, HOWEVER, nothing contained herein shall relieve any party from
liability for any breach of this Agreement prior to such termination.
9. MISCELLANEOUS.
(a) SUCCESSORS AND ASSIGNS. The terms and conditions of this
Agreement will inure to the benefit of and be binding upon the respective
successors and permitted assigns of the parties.
(b) GOVERNING LAW. This Agreement will be governed by, and
construed under, the internal laws of the State of Delaware, without reference
to principles of conflict of laws or choice of laws.
(c) COUNTERPARTS. This Agreement may be executed in two (2) or
more counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
21
<PAGE>
(d) HEADINGS. The headings and captions used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement. All references in this Agreement to sections,
paragraphs, exhibits and schedules will, unless otherwise provided, refer to
sections and paragraphs hereof and exhibits and schedules attached hereto, all
of which exhibits and schedules are incorporated herein by this reference.
(e) NOTICES. Any notice required or permitted under this
Agreement shall be given in writing, shall be effective when received, and shall
in any event be deemed received and effectively given upon personal delivery to
the party to be notified or three (3) business days after deposit with the
United States Post Office, by registered or certified mail, postage prepaid, or
one (1) business day after deposit with a nationally recognized courier service
(such as Federal Express) for next business day delivery under circumstances in
which such service guarantees next business day delivery at the address for
notices set forth at the end of this Agreement, or at such other address as the
Investor or the Company may designate by giving at least ten (10) days advance
written notice pursuant to this Section.
(f) NO FINDER'S FEES. The parties acknowledge that they have
dealt with no finder, broker or investment banker in this transaction, other
than Donaldson, Lufkin & Jenrette Securities Corporation, on behalf of the
Company, and Morgan Stanley Dean Witter, on behalf of the Investor. The Investor
will be solely responsible for any compensation owing to Morgan Stanley Dean
Witter and shall indemnify and hold harmless the Company from any liability for
any commission or compensation in the nature of a finders' or broker's fee
asserted by any finder, broker or investment banker (other than Donaldson,
Lufkin & Jenrette Securities Corporation) with whom Investor or any of its
officers, partners, employees, consultants, or representatives has dealt in
connection with this transaction. The Company will be solely responsible for any
compensation owing to Donaldson, Lufkin & Jenrette Securities Corporation and
shall indemnify and hold harmless the Investor from any liability for any
commission or compensation in the nature of a finder's or broker's fee asserted
by any broker, finder, or investment banker (other than Morgan Stanley Dean
Witter) with whom the Company or any of its officers, employees, consultants or
representatives has dealt in connection with this transaction.
(g) AMENDMENTS AND WAIVERS. This Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and, prior to the Closing, the Investor, and
after the Closing, the holders of Purchased Shares and Warrant Shares
representing at least a majority of the total aggregate number of Purchased
Shares and Warrant Shares then outstanding (excluding any of such shares that
have been sold in a transaction in which registration rights are not assigned in
accordance with the Investor Rights Agreement or sold to the public pursuant to
SEC Rule 144 or otherwise). Any amendment or waiver effected in accordance with
this Section 10(g) will be binding upon the Investor, the Company and their
respective successors and assigns. Notwithstanding the foregoing, the provisions
of Section 8 may not be amended without the written consent of the Company and
the Investor, which may be withheld in either of their sole and absolute
discretion.
(h) SEVERABILITY. If any provision of this Agreement is held to
be unenforceable under applicable law, such provision will be excluded from this
Agreement and
22
<PAGE>
the balance of the Agreement will be interpreted as if such provision was so
excluded and will be enforceable in accordance with its terms.
(i) ENTIRE AGREEMENT. This Agreement, together with the
other Transaction Documents and all exhibits and schedules hereto and thereto
constitute the entire agreement and understanding of the parties with respect to
the subject matter hereof and supersedes any and all prior negotiations,
correspondence, agreements, understandings, duties or obligations between the
parties with respect to the subject matter hereof.
(j) FURTHER ASSURANCES. From and after the date of this
Agreement upon the request of the Company or the Investor, the Company and the
Investor will execute and deliver such instruments, documents or other writings,
and take such other actions, as may be reasonably necessary or desirable to
confirm and carry out and to effectuate fully the intent and purposes of this
Agreement.
(k) MEANING OF INCLUDE AND INCLUDING. Whenever in this Agreement
the word "include" or "including" is used, it shall be deemed to mean "include,
without limitation" or "including, without limitation," as the case may be, and
the language following "include" or "including" shall not be deemed to set forth
an exhaustive list.
(l) FEES, COSTS AND EXPENSES. All fees, costs and expenses
(including attorneys' fees and expenses) incurred by either party hereto in
connection with the preparation, negotiation and execution of the Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby (including the costs associated with any filings with, or compliance
with any of the requirements of, any governmental authorities), shall be the
sole and exclusive responsibility of such party.
(m) COMPETITION. Nothing set forth herein shall be deemed to
preclude, limit or restrict the Company's or the Investor's ability to compete
with the other.
(n) STOCK SPLITS, DIVIDENDS AND OTHER SIMILAR EVENTS. The
provisions of this Agreement (including the number of shares of Common Stock and
other securities described herein) shall be appropriately adjusted to reflect
any stock split, stock dividend, reorganization, or other similar event that may
occur with respect to the Company after the date hereof.
(o) JOINT PRESS RELEASE. Prior to the execution of this
Agreement, the parties will agree on the content of a joint press release
announcing the existence of this Agreement, which press release will be issued
as mutually agreed by the parties. Thereafter, the Company and the Investor
shall cooperate and consult, to the extent feasible, concerning any additional
press release, conference, advertising, announcements, professional or trade
publication, mass marketing materials, with respect to Transaction Documents and
the transactions contemplated thereby.
(p) ATTORNEYS' FEES. If Investor or the Company institutes any
action, suit or other Proceeding to enforce or interpret any Transaction
Document, then the prevailing party in such action, suit or Proceeding shall be
entitled to recover its attorneys' fees, experts' fees and court costs as
awarded by the court in the proceeding or a separate proceeding.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
<TABLE>
<CAPTION>
NOVELL, INC. WHITTMAN-HART, INC.
<S> <C>
By: /s/Dennis Raney By: /s/ Robert F. Bernard
------------------------------------------- ------------------------------------------
Name: Dennis Raney Name: Robert F. Bernard
Title: Senior Vice President and Title: Chairman of the Board and
Chief Financial Officer Chief Executive Officer
Novell, Inc. Whittman-Hart, Inc.
Date Signed: September 29, 1999 Date Signed: September 29, 1999
----------------------------------- ----------------------------------
Address: 122 East 1700 South Address: 311 South Wacker Dr.,
Provo, Utah 84606 Suite 3500
Chicago, Illinois 60606-6618
Telephone No: 801-861-7000 Telephone No: 312-922-9200
with copies to: with copies to:
Wilson Sonsini Goodrich & Rosati Mark D. Wood, Esq.
650 Page Mill Rd. Katten Muchin & Zavis
Palo Alto, California 94304 525 West Monroe St., Suite 1600
Attn: Debra S. Summers, Esq. Chicago, Illinois 60661
David Shelow, Esq.
Whittman-Hart, Inc.
311 South Wacker Dr.,
Suite 3500
Chicago, Illinois 60606-6618
</TABLE>
<PAGE>
EXHIBIT A
WARRANT
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER
OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS
IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT TO PURCHASE COMMON STOCK OF WHITTMAN-HART, INC.
INITIAL NUMBER OF SHARES 400,000 SHARES
DATE OF GRANT NOVEMBER 12, 1999
EXPIRATION DATE: JUNE 30, 2005
THIS CERTIFIES THAT, for value received pursuant to that certain Common
Stock and Warrant Purchase Agreement, dated as of September 29, 1999 (the
"PURCHASE AGREEMENT"), Novell, Inc., a Delaware corporation, or any person to
whom this interest in this Warrant is lawfully transferred in accordance with
the terms hereof (the original holder hereof and such transferees herein
collectively referred to as "HOLDER") is entitled, subject to the terms and
conditions of this Warrant, at any time or from time to time on and after July
1, 2000 (the "EFFECTIVE DATE"), and before 5:00 p.m. Pacific Time on June 30,
2005 (the "EXPIRATION DATE"), to purchase from Whittman-Hart, Inc., a Delaware
corporation (the "COMPANY"), Four Hundred Thousand (400,000) shares of Common
Stock of the Company at a price per share of Thirty-Five and 875/1000 Dollars
($35.875) (the "PER SHARE PURCHASE PRICE"). Both the number of shares of Common
Stock purchasable upon exercise of this Warrant and the Per Share Purchase Price
are subject to adjustment and change as provided herein. This Warrant is issued
pursuant to the Purchase Agreement. Unless otherwise provided for herein, all
capitalized terms in this Warrant shall have the meanings set forth in the
Purchase Agreement.
<PAGE>
1. CERTAIN DEFINITIONS. As used in this Warrant, the following terms shall
have the following respective meanings:
1.1 "FAIR MARKET VALUE" of a share of Common Stock as of a particular
date shall mean:
(a) If the Common Stock is traded on a securities exchange or the
Nasdaq National or SmallCap Market, the Fair Market Value shall be deemed to be
the average of the closing prices of the Common Stock of the Company on such
exchange or market over the three (3) consecutive trading days of such exchange
or market ending on the trading day immediately preceding the applicable date of
valuation;
(b) If subpart (a) above does not apply and if the Common Stock
is actively traded over-the-counter, the Fair Market Value shall be the average
of the closing bid prices for each trading day in the thirty (30)-day period
ending immediately prior to the applicable date of valuation; and
(c) If there is no active public market for the Common Stock, the
Fair Market Value shall be the value thereof, as agreed upon by the Company and
the Holder; PROVIDED, HOWEVER, that if the Company and the Holder cannot agree
on such value within fifteen (15) days following either party's written demand
for an agreement, then, upon demand by either party, such value shall be
determined by an independent valuation firm experienced in valuing businesses
such as the Company and jointly selected in good faith by the Company and the
Holder. The determination of the valuation firm shall be final and binding on
the Company and the Holder, and the fees and expenses of the valuation firm
shall be paid for by the Company.
1.2 "HSR ACT" shall mean the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
1.3 "REGISTERED HOLDER" shall mean any Holder in whose name this
Warrant is registered upon the books and records maintained by the Company.
1.4 "WARRANT" as used herein, shall include this Warrant and any
warrant delivered in substitution or exchange therefor as provided herein.
1.5 "COMMON STOCK" shall mean the Common Stock of the Company and any
other securities at any time receivable or issuable upon exercise of this
Warrant.
2. EXERCISE OF WARRANT
2.1 INITIAL WARRANT SHARES. The Holder shall have the right to
exercise its rights under this Warrant and to purchase Two Hundred Thousand
(200,000) shares of Common Stock (the "INITIAL WARRANT SHARES") at any time on
and after the Effective Date, and on or prior to the Expiration Date, if, but
only if, the Company does not meet any one of the following milestones on or
before June 30, 2000, to wit:
(a) The Company shall employ on a full-time basis at least one
hundred twenty-five (125) billable consultants in its NDS
Solutions Practice (as said term is defined in the Global
Alliance
2
<PAGE>
Agreement, dated as of September 29, 1999, between the Company
and the Investor (the "Alliance Agreement")); or
(b) The Company shall enter into NDS Solutions Practice
assignments with at least twenty (20) individual customers,
PROVIDED, HOWEVER, for this purpose, that affiliated companies
shall be deemed one customer; or
(c) The Company's revenue from its NDS Solutions Practice for the
period commencing on September 29, 1999 and ending on the
Effective Date shall be equal to at least $3,000,000.
The Holder's right to exercise the Warrant and purchase the Initial Warrant
Shares shall expire and be of no force and effect, if: (i) the Company meets all
the above milestones on or before the Effective Date, (ii) the Alliance
Agreement is terminated in accordance with the terms thereof on or before the
Effective Date as a consequence of a breach or default by the Investor under the
Alliance Agreement, or (iii) as of the Effective Date, the Investor is in breach
of, or default under, the Alliance Agreement, Investor fails to cure such breach
or default within any time allowed for cure by the Alliance Agreement, and, as a
consequence of such breach or default, the Company terminates the Alliance
Agreement as permitted thereby; PROVIDED, HOWEVER, that, in the case of this
subpart (iv), the Investor shall not be entitled to exercise its right to
purchase the Initial Warrant Shares during any such cure period. Further, the
Investor shall have no right to exercise its rights to purchase the Initial
Shares at any time when (A) the Company is performing its obligations under the
Alliance Agreement in all material respects and (B) Novell is failing to perform
its obligations under Section 3(a) of the Alliance Agreement in any material
respect, in which case, the time period permitted for the Company to achieve the
above milestones shall be extended by a period equal to the length of any period
of such failure to perform in accordance with the claim of delay procedures
attached hereto as Exhibit A.
2.2 REMAINING WARRANT SHARES: The Holder shall have the right to
exercise its rights under this Warrant and to purchase Two Hundred Thousand
(200,000) shares of Common Stock (the "REMAINING WARRANT SHARES") at any time
after June 30, 2001, and on or prior to the Expiration Date, if, but only if,
the Company does not meet any one of the following milestones on or before June
30, 2001, to wit:
(a) The Company shall employ on a full time basis at least three
hundred (300) billable consultants in its NDS Solutions Practice;
or
(b) The Company shall enter into NDS Solutions Practice
assignments with at least eighty (80) individual customers,
PROVIDED, HOWEVER, for this purpose, that affiliated companies
shall be deemed one customer; or
(c) The Company's revenue from its NDS Solutions Practice for the
period commencing on September 29, 1999 and ending on June 30,
2001 shall be equal to at least $35,000,000.
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The Holder's right to exercise and purchase the Remaining Warrant Shares shall
expire and be of no force and effect, if: (i) the Company meets all the above
milestones on or before June 30, 2001, (ii) the Alliance Agreement is terminated
in accordance with the terms thereof on or before June 30, 2001 as a consequence
of an event of default by the Investor under the Alliance Agreement, (iii) as of
June 30, 2001, the Investor is in breach of, or default under, the Alliance
Agreement, Investor fails to cure such breach or default within any time allowed
for cure by the Alliance Agreement, and, as a consequence of such breach or
default, the Company terminates the Alliance Agreement as permitted thereby,
PROVIDED, HOWEVER, that, in the case of this subpart (iii), the Investor shall
not be entitled to exercise its right to purchase the Remaining Warrant Shares
during any such cure period, or (iv) despite good faith negotiations by the
Company, the Alliance Agreement terminates pursuant to Section 12.c(ii) thereof.
Further, the Investor shall have no right to exercise its rights to purchase the
Remaining Warrant Shares at any time when (A) the Company is performing its
obligations under the Alliance Agreement in all material respects and (B) Novell
is failing to perform its obligations under Section 3(a) or 3(d) of the Alliance
Agreement in any material respect, in which case the time period permitted for
the Company to achieve the above milestones shall be extended by a period equal
to the length of any period of such failure to perform in accordance with the
claim of delay procedures attached hereto as Exhibit A.
2.3 ADDITIONAL LIMITATION. The rights to purchase the Initial Warrant
Shares and the Remaining Warrant Shares pursuant to this Warrant shall expire on
the Expiration Date.
2.4 PAYMENT. Subject to compliance with the terms and conditions of
this Warrant and applicable securities laws, this Warrant may be exercised on or
before the Expiration Date by:
(a) the delivery (including, without limitation, delivery by
facsimile) of the form of Notice of Exercise attached hereto as EXHIBIT 1 (the
"NOTICE OF EXERCISE"), duly executed by the Holder, at the principal office of
the Company, and as soon as practicable after such date, surrendering this
Warrant at the principal office of the Company, and
(b) payment, (i) in cash (by check) or by wire transfer, (ii) by
cancellation by the Holder of indebtedness of the Company to the Holder; or
(iii) by a combination of (i) and (ii), of an amount (the "PURCHASE PRICE")
equal to the product obtained by multiplying the number of shares of Common
Stock being purchased upon such exercise by the Per Share Purchase Price, except
that if Holder is subject to the HSR Requirements (as defined in Section 2.5
below), the Exercise Amount shall be paid to the Company within five (5)
business days of the termination of all HSR Requirements.
2.5 NET ISSUE EXERCISE. In lieu of the payment methods set forth in
Section 2.4 above, the Holder may elect to exchange all or some of the Warrant
for a number of shares (rounded down to the nearest whole share) of Common Stock
equal to the value of the amount of the Warrant being exchanged on the date of
exchange. If Holder elects to exchange this Warrant as provided in this Section,
Holder shall tender to the Company the Warrant for the amount being exchanged,
along with written notice of Holder's election to exchange some or all of the
Warrant, and the Company shall issue to Holder the number of shares (rounded
down to the nearest whole share) of the Common Stock computed using the
following formula:
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X= Y (A-B)
-------
A
Where X = the number of shares of Common Stock to be issued
to Holder.
Y = the number of shares of Common Stock purchasable
under the amount of the Warrant being exchanged (as
adjusted to the date of such calculation).
A = the Fair Market Value of one share of Common Stock.
B = the Per Share Purchase Price in effect under this
Warrant on the date the net issue exercise election is
made pursuant to this Section.
All references herein to an "exercise" of the Warrant shall include an exchange
pursuant to this Section.
2.6 "EASY SALE" EXERCISE. In lieu of the payment methods set forth in
Section 2.4 above, when permitted by law and applicable regulations (including
Nasdaq and NASD rules), the Holder may pay the Per Share Purchase Price through
a "same day sale" commitment from the Holder (and if applicable a broker-dealer
that is a member of the National Association of Securities Dealers (a "NASD
DEALER")), whereby the Holder irrevocably elects to exercise this Warrant and to
sell a portion of the Common Stock so purchased to pay for the Purchase Price
and the Holder (or, if applicable, the NASD Dealer) commits upon sale (or, in
the case of the NASD Dealer, upon receipt) of such Common Stock to forward the
Purchase Price directly to the Company.
2.7 STOCK CERTIFICATES; FRACTIONAL SHARES. As soon as practicable on
or after the date this Warrant is exercised, the Company shall issue and deliver
to the person or persons entitled to receive the same a certificate or
certificates for the number of whole shares of Common Stock issuable upon such
exercise, rounded down to the nearest whole share. No fractional shares or scrip
representing fractional shares shall be issued upon an exercise of this Warrant.
2.8 HSR ACT.
(a) The Company hereby acknowledges that exercise of this Warrant
by Holder may subject the Company and/or the Holder to the filing requirements
of the HSR Act and that Holder may be prevented from exercising this Warrant
until the expiration or early termination of all waiting periods imposed by the
HSR Act ("HSR REQUIREMENTS"). If on or before the Expiration Date, Holder has
sent a Notice of Exercise to Company and Holder has not been able to complete
the exercise of this Warrant prior to the Expiration Date because of the
non-fulfillment of HSR Requirements, the Holder shall be entitled to complete
the process of exercising this Warrant, for a period of ten (10) business days
following fulfillment or irrevocable termination of the HSR Requirements, in
accordance with the procedures contained herein, notwithstanding the fact that
completion of the exercise of this Warrant would take place after the Expiration
Date.
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(b) Promptly after any exercise of the Holder's rights under this
Warrant, the Company and the Holder shall each complete and file any premerger
notification report forms under the HSR Act applicable to the issuance of the
Warrant Shares and shall use all reasonable efforts to comply with any
applicable HSR Requirements; PROVIDED, HOWEVER, that neither the Company nor the
Holder shall be under any obligation to comply with any request or requirement
imposed by the Federal Trade Commission (the "FTC"), the Department of Justice
("DOJ") or any other governmental authority in connection with its compliance
with such HSR Requirements, if the Company or the Holder reasonably determines
in its sound, good faith and reasonable business judgment, that such compliance
would have an adverse impact on its business, contracts, financial position or
prospects. Without limiting the generality of the foregoing, neither the Company
nor the Holder shall be obligated to comply with any request by, or any
requirement of the FTC, the DOJ or any other governmental authority (i) to
disclose information the Company or the Holder, as the case may be, in its
sound, good faith and reasonable business judgment believes must be kept
confidential to avoid injury to its business; (ii) to dispose of any assets or
operations; or (iii) to comply with any restriction on the manner in which it
conducts its operations. In the event that the Company shall elect not to comply
with any of the HSR Requirements pursuant to the immediately preceding sentence,
it shall be obligated to pay to the Holder in cash (by check or wire transfer),
within ninety (90) days following written election by the Holder, an amount
equal to the number of shares that were to be issued pursuant to the Holder's
Notice of Exercise times that value equal to the difference between: (1) the
closing price of the Common Stock of the Company on the date of delivery of
Holder's Notice of Exercise of its rights hereunder, and (2) the Per Share
Purchase Price.
2.9 PARTIAL EXERCISE; EFFECTIVE DATE OF EXERCISE. In case of any
partial exercise of this Warrant, the Company shall cancel this Warrant upon
surrender hereof and shall execute and deliver a new Warrant of like tenor and
date for the balance of the shares of Common Stock purchasable hereunder. This
Warrant shall be deemed to have been exercised immediately prior to the close of
business on the date of its surrender for exercise as provided above. However,
if Holder is subject to HSR Requirements, this Warrant shall be deemed to have
been exercised on the date immediately following the date of the expiration or
termination of all HSR Requirements. The person entitled to receive the shares
of Common Stock issuable upon exercise of this Warrant shall be treated for all
purposes as the holder of record of such shares as of the close of business on
the date the Holder is deemed to have exercised this Warrant.
3. VALID ISSUANCE; TAXES. All shares of Common Stock issued upon the
exercise of this Warrant shall be validly issued, fully paid and non-assessable,
and the Company shall pay all transfer or stamp taxes and other similar
governmental charges that may be imposed in respect of the issue or delivery
thereof. The Company shall not be required to pay any tax or other charge
imposed in connection with any transfer involved in the issuance of any
certificate for shares of Common Stock in any name other than that of the
Registered Holder of this Warrant, and in such case the Company shall not be
required to issue or deliver any stock certificate or security until such tax or
other charge has been paid, or it has been established to the Company's
reasonable satisfaction that no tax or other charge is due.
4. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES. The number of shares
of Common Stock issuable upon exercise of this Warrant (or any shares of stock
or other securities or property receivable or issuable upon exercise of this
Warrant), the Per
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Share Purchase Price and the Purchase Price are subject to adjustment upon
occurrence of the following events:
4.1 ADJUSTMENT FOR STOCK SPLITS, STOCK SUBDIVISIONS OR COMBINATIONS OF
SHARES. The Per Share Purchase Price of this Warrant shall be proportionally
decreased, and the number of shares of Common Stock issuable upon exercise of
this Warrant (or any shares of stock or other securities at the time issuable
upon exercise of this Warrant) shall be proportionally increased, to reflect any
forward stock split or subdivision of the Common Stock of the Company. The Per
Share Purchase Price of this Warrant shall be proportionally increased, and the
number of shares of Common Stock issuable upon exercise of this Warrant (or any
shares of stock or other securities at the time issuable upon exercise of this
Warrant) shall be proportionally decreased, to reflect any reverse stock split
or combination of the Common Stock of the Company.
4.2 ADJUSTMENT FOR DIVIDENDS OR DISTRIBUTIONS OF STOCK OR OTHER
SECURITIES OR PROPERTY. In case the Company shall make or issue, or shall fix a
record date for the determination of eligible holders entitled to receive, a
dividend or other distribution with respect to the Common Stock (or any shares
of stock or other securities at the time issuable upon exercise of the Warrant)
payable in (a) securities of the Company or (b) assets (excluding cash dividends
paid or payable solely out of retained earnings), then, in each such case, the
Holder on exercise hereof, at any time after the consummation, effective date or
record date of such dividend or other distribution, shall receive, in addition
to the shares of Common Stock (or such other stock or securities) issuable on
such exercise prior to such date, and without the payment of additional
consideration therefor, the securities or such other assets of the Company to
which such Holder would have been entitled upon such date, if such Holder had
exercised this Warrant on the date hereof and had thereafter, during the period
from the date hereof to and including the date of such exercise, retained such
shares and/or all other additional stock available by it as aforesaid during
such period, giving effect to all adjustments called for by this Section 4.2.
4.3 RECLASSIFICATION. If the Company, by reclassification of
securities or otherwise, shall change any of the securities as to which purchase
rights under this Warrant exist into the same or a different number of
securities of any other class or classes, this Warrant shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable as the result of such change with respect to the securities that
were subject to the purchase rights under this Warrant immediately prior to such
reclassification or other change, and the Per Share Purchase Price therefore
shall be appropriately adjusted, all subject to further adjustment as provided
in this Section 4. No adjustment shall be made pursuant to this Section 4.3 upon
any conversion or redemption of the Common Stock, which is the subject of
Section 4.5.
4.4 ADJUSTMENT FOR CAPITAL REORGANIZATION, MERGER OR CONSOLIDATION. In
case of any capital reorganization of the capital stock of the Company (other
than a combination, reclassification, exchange or subdivision of shares
otherwise provided for herein), or any merger or consolidation of the Company
with or into another corporation, or the sale of all or substantially all the
assets of the Company, then, and in each such case, as a part of such
reorganization, merger, consolidation, sale or transfer, lawful provision shall
be made so that the Holder of this Warrant shall thereafter be entitled to
receive upon exercise of this Warrant, during the period specified herein and
upon payment of the Purchase Price, the number of shares
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<PAGE>
of stock or other securities or property of the successor corporation resulting
from such reorganization, merger, consolidation, sale or transfer that a holder
of the shares deliverable upon exercise of this Warrant would have been entitled
to receive in such reorganization, consolidation, merger, sale or transfer, as
if this Warrant had been exercised immediately before such reorganization,
merger, consolidation, sale or transfer, all subject to further adjustment as
provided in this Section 4. The foregoing provisions of this Section 4.4 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation that are
at the time receivable upon the exercise of this Warrant. If the per-share
consideration payable to the Holder for shares in connection with any such
transaction is in a form other than cash or marketable securities, then the
value of such consideration shall be determined in good faith by the Company's
Board of Directors. In all events, appropriate adjustment (as determined in good
faith by the Company's Board of Directors) shall be made in the application of
the provisions of this Warrant with respect to the rights and interests of the
Holder after the transaction, to the end that the provisions of this Warrant
shall be applicable after that event, as near as reasonably may be, in relation
to any shares or other property deliverable after that event upon exercise of
this Warrant.
4.5 CONVERSION OF COMMON STOCK. In case all or any portion of the
authorized and outstanding shares of Common Stock of the Company are redeemed or
converted or reclassified into other securities or property pursuant to the
Company's Certificate of Incorporation or otherwise, or the Common Stock
otherwise ceases to exist, then, in such case, the Holder, upon exercise hereof
at any time after the date on which the Common Stock is so redeemed or
converted, reclassified or ceases to exist (the "TERMINATION DATE"), shall
receive, in lieu of the number of shares of Common Stock that would have been
issuable upon such exercise immediately prior to the Termination Date, the
securities or property that would have been received if this Warrant had been so
exercised and the Common Stock received thereupon had been simultaneously
converted immediately prior to the Termination Date, all subject to further
adjustment as provided in this Warrant. Additionally, the Per Share Purchase
Price shall be immediately adjusted to equal the quotient obtained by dividing
(x) the aggregate Purchase Price of the maximum number of shares of Common Stock
for which this Warrant was exercisable immediately prior to the Termination Date
by (y) the number of shares of Common Stock of the Company for which this
Warrant is exercisable immediately after the Termination Date, all subject to
further adjustment as provided herein.
4.6 CERTAIN EVENTS. If (i) any event occurs of a type that would have
an effect on the rights granted under this Warrant similar to the effect of any
event described by the other provisions of this Section 4 and (ii) such event is
not expressly provided for by such other provisions, then an appropriate
adjustment in the Per Share Purchase Price and the number of shares of Common
Stock obtainable upon exercise of this Warrant, so as to protect the rights of
the Holder, shall be made.
4.7 CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment in
the Per Share Purchase Price, or number or type of shares issuable upon exercise
of this Warrant, the Chief Financial Officer of the Company shall compute such
adjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment and showing in reasonable detail the
facts upon which such adjustment is based, including a statement of the adjusted
Per Share Purchase Price, which shall be conclusive absent fraud, negligence or
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<PAGE>
manifest error. The Company shall promptly send (by facsimile and by either
first class mail, postage prepaid or overnight delivery) a copy of each such
certificate to the Holder.
5. LOSS OR MUTILATION. Upon receipt of evidence reasonably satisfactory to
the Company of the ownership of, and the loss, theft, destruction or mutilation
of, this Warrant, and of an indemnity reasonably satisfactory to it, and (in the
case of mutilation) upon surrender and cancellation of this Warrant, the Company
will execute and deliver in lieu thereof a new Warrant of like tenor as the
lost, stolen, destroyed or mutilated Warrant.
6. RESERVATION OF COMMON STOCK. The Company hereby covenants that at all
times there shall be reserved for issuance and delivery upon exercise of this
Warrant such number of shares of Common Stock or other shares of capital stock
of the Company as are from time to time issuable upon exercise of this Warrant
and, from time to time, will take all steps necessary to amend its Certificate
of Incorporation to provide sufficient authorized shares of Common Stock
issuable upon exercise of this Warrant. All such shares shall be duly
authorized, and when issued upon such exercise, shall be validly issued, fully
paid and non-assessable, free and clear of all liens, security interests,
charges, encumbrances or limitations on sale, and free and clear of all
preemptive rights, except non-monetary encumbrances and limitations on sale
arising under federal or state securities laws. Issuance of this Warrant shall
constitute full authority to the Company's officers who are charged with the
duty of executing stock certificates to execute and issue the necessary
certificates for shares of Common Stock upon the exercise of this Warrant.
7. TRANSFER AND EXCHANGE.
7.1 RIGHT TO TRANSFER. Subject to the terms and conditions of this
Warrant and compliance with all applicable securities laws, this Warrant and all
rights hereunder (and any shares of Common Stock acquired on exercise of the
Warrant) may be transferred, in whole or in part, only (a) to a Majority Owned
Subsidiary (as defined below) of the Registered Holder, (b) to an Institutional
Investor (as defined below) or (c) in a sale effectuated pursuant to Rule 144
promulgated under the Securities Act of 1933, as amended (the "1933 ACT"), or
(d) in an offering registered under Section 5 of the 1933 Act. Any such transfer
shall be made on the books of the Company maintained for such purpose at the
principal office of the Company referred to above, by the Registered Holder
hereof in person, or by duly authorized attorney, upon surrender of this Warrant
properly endorsed and upon payment of any necessary transfer tax or other
governmental charge imposed upon such transfer. Upon any permitted partial
transfer of the Warrant, the Company will issue and deliver to the Registered
Holder a new Warrant or Warrants with respect to the shares of Common Stock not
so transferred. Each taker and holder of this Warrant, by taking or holding the
same, consents and agrees that when this Warrant shall have been so endorsed,
the person in possession of this Warrant may be treated by the Company, and all
other persons dealing with this Warrant, as the absolute owner hereof for any
purpose and as the person entitled to exercise the rights represented hereby,
any notice to the contrary notwithstanding; PROVIDED, HOWEVER, that, until a
transfer of this Warrant is duly registered on the books of the Company, the
Company may treat the Registered Holder hereof as the owner for all purposes.
Upon any full or partial transfer of the Warrant or the shares of Common Stock
acquired on exercise of the Warrant pursuant to clauses (b) through (d),
inclusive, of the first sentence of this Section 7.1, all restrictions
applicable to the transfer of the Warrant or such Common Stock, or portion
thereof, so transferred shall cease, including without limitation, the
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restrictions on transfer contained the Investor Rights Agreement of even date
herewith, executed by the Company and the Investor.
7.2 MAJORITY OWNED SUBSIDIARY. A "MAJORITY OWNED SUBSIDIARY" shall
mean a subsidiary of which the Registered Holder beneficially owns, either
directly or indirectly, at least fifty percent (50%) of the voting securities.
7.3 INSTITUTIONAL INVESTOR. An "INSTITUTIONAL INVESTOR" shall mean any
person considered to be an "accredited investor" under Rule 501(a)(i) of
Regulation D under the 1933 Act; PROVIDED, HOWEVER, that "Institutional
Investor" shall not include (i) any entity that the Company, in its good faith
and reasonable business judgment, determines is a significant competitor of the
Company or (ii) any Majority Owned Subsidiary.
8. SECURITIES LAW REQUIREMENTS ON TRANSFER. The Holder, by acceptance
hereof, agrees that such Holder will not sell, transfer, pledge or hypothecate
any or all such Warrants or Common Stock issued pursuant to such Warrant, as the
case may be, unless either (i) this Warrant and/or said Common Stock is
registered for sale in accordance with applicable federal and state securities
laws or (ii) the Company has received an opinion of counsel, in form and
substance reasonably satisfactory to the Company, to the effect that such
registration is not required in connection with such disposition or (iii) the
sale of such securities is made pursuant to Rule 144 under the 1933 Act.
9. COMPLIANCE WITH SECURITIES LAWS. By acceptance of this Warrant, the
Holder hereby represents, warrants and covenants that any shares of Common Stock
purchased upon exercise of this Warrant or acquired upon conversion thereof
shall be acquired for investment only and not with a view to, or for sale in
connection with, any distribution thereof; that the Holder has had such
opportunity as such Holder has deemed adequate to obtain from representatives of
the Company such information as is necessary to permit the Holder to evaluate
the merits and risks of its investment in the company; that the Holder is able
to bear the economic risk of holding such shares as may be acquired pursuant to
the exercise of this Warrant for an indefinite period; that the Holder
understands that the shares of Common Stock acquired pursuant to the exercise of
this Warrant will not be registered under the 1933 Act (unless otherwise
required pursuant to exercise by the Holder of the registration rights, if any,
previously granted to the Registered Holder) and will be "restricted securities"
within the meaning of Rule 144 under the 1933 Act and that the exemption from
registration under Rule 144 will not be available for at least one (1) year from
the date of exercise of this Warrant, subject to any special treatment by the
SEC for exercise of this Warrant pursuant to Section 2.2, and even then will not
be available unless a public market then exists for the Common Stock, adequate
information concerning the Company is then available to the public and other
terms and conditions of Rule 144 are complied with; and that all stock
certificates representing shares of Common Stock issued to the Holder upon
exercise of this Warrant may have affixed thereto a legend substantially in the
following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES
LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
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OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS
SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF
THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE
SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR
RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
10. NO RIGHTS OR LIABILITIES AS STOCKHOLDERS. This Warrant shall not
entitle the Holder to any voting rights or other rights as a stockholder of the
Company. In the absence of affirmative action by such Holder to purchase Common
Stock by exercise of this Warrant, no provisions of this Warrant, and no
enumeration herein of the rights or privileges of the Holder hereof, shall cause
such Holder hereof to be a stockholder of the Company for any purpose.
11. REGISTRATION RIGHTS. All shares of Common Stock issuable upon exercise
of this Warrant shall be "Registrable Securities" or such other definition of
securities entitled to registration rights pursuant to the Investor Rights
Agreement, dated as of the date hereof, between the Company and the Holder, and
are entitled, subject to the terms and conditions of that agreement, to all
registration rights granted to holders of Registrable Securities thereunder.
12. NOTICES. Unless otherwise provided in this Warrant, any notice required
or permitted under this Warrant shall be given in writing, shall be effective
when received, and shall in any event be deemed received and effectively given
upon personal delivery to the party to be notified or three (3) business days
after deposit with the United States Post Office, by registered or certified
mail, postage prepaid, or one (1) business day after deposit with a nationally
recognized courier service such as Federal Express, at the address indicated for
such party on the signature page hereof or at such other address as the Investor
or the Company may designate by giving at least ten (10) days advance written
notice pursuant to this Section.
13. HEADINGS. The headings in this Warrant are for purposes of convenience
in reference only and shall not be deemed to constitute a part hereof.
14. LAW GOVERNING. This Warrant shall be construed and enforced in
accordance with, and governed by, the laws of the State of Delaware.
15. NO IMPAIRMENT. The Company will not, by amendment of its Certificate of
Incorporation or bylaws, or through reorganization, consolidation, merger,
dissolution, issue or sale of securities, sale of assets or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Registered Holder of this
Warrant against impairment. Without limiting the generality of the foregoing,
the Company (a) will not increase the par value of any shares of stock issuable
upon the exercise of this Warrant above the
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amount payable therefor upon such exercise, and (b) will take all such action as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and non-assessable shares of Common Stock upon exercise
of this Warrant.
16. NOTICES OF RECORD DATE. In case:
16.1 the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time receivable upon the exercise of
this Warrant), for the purpose of entitling them to receive any dividend or
other distribution, or any right to subscribe for or purchase any shares of
stock of any class or any other securities or to receive any other right; or
16.2 of any consolidation or merger of the Company with or into
another corporation, any capital reorganization of the Company, any
reclassification of the Capital Stock of the Company, or any conveyance of all
or substantially all of the assets of the Company to another corporation in
which holders of the Company's stock are to receive stock, securities or
property of another corporation; or
16.3 of any voluntary dissolution, liquidation or winding-up of the
Company; or
16.4 of any redemption or conversion of all outstanding Common Stock;
then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holder a notice specifying, as the case may be, (i) the date on which
a record is to be taken for the purpose of such dividend, distribution or right
or (ii) the date on which such reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation, winding-up, redemption or
conversion is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock (or such stock or securities as at the
time are receivable upon the exercise of this Warrant) shall be entitled to
exchange their shares of Common Stock (or such other stock or securities) for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding-up. Such notice shall be delivered at least twenty (20) days prior to
the date therein specified.
17. SEVERABILITY. If any term, provision, covenant or restriction of this
Warrant is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
requirements of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
18. COUNTERPARTS. For the convenience of the parties, any number of
counterparts of this Warrant may be executed by the parties hereto, and each
such executed counterpart shall be, and shall be deemed to be, an original
instrument.
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19. NO INCONSISTENT AGREEMENTS. The Company will not, on or after the date
of this Warrant, enter into any agreement with respect to its securities that is
inconsistent with the rights granted to the Holder or otherwise conflicts with
the provisions hereof. The rights granted to the Holder hereunder do not in any
way conflict with and are not inconsistent with the rights granted to holders of
the Company's securities under any other agreements, except rights that have
been waived.
20. SATURDAYS, SUNDAYS AND HOLIDAYS. If the Expiration Date falls on a
Saturday, Sunday or legal holiday, the Expiration Date shall automatically be
extended until 5:00 p.m. the next business day.
21. SUCCESSORS AND ASSIGNS. The terms and conditions of this Warrant are
binding upon and will insure to the benefit of the Company, the Holders and
their respective successors and assigns.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, THE PARTIES HERETO HAVE EXECUTED THIS AGREEMENT AS OF
THE DATE AND YEAR FIRST ABOVE WRITTEN.
<TABLE>
<CAPTION>
NOVELL, INC. WHITTMAN-HART, INC.
<S> <C>
By: By:
------------------------------------------- ------------------------------------------
Name: Dennis Raney Name: Robert F. Bernard
Title: Senior Vice President and Title: Chairman of the Board and
Chief Financial Officer Chief Executive Officer
Novell, Inc. Whittman-Hart, Inc.
Date Signed: Date Signed:
----------------------------------- ----------------------------------
Address: 122 East 1700 South Address: 311 South Wacker Dr.,
Provo, Utah 84606 Suite 3500
Chicago, Illinois 60606-6618
Telephone No: 801-861-7000 Telephone No: 312-922-9200
with copies to: Wilson Sonsini Goodrich & Rosati with copies to: David P. Shelow, Esq.
650 Page Mill Rd. Whittman-Hart, Inc.
Palo Alto, California 94304 311 South Wacker Dr.,
Attn: Aaron A. Hen, Esq. Suite 3500
Chicago, Illinois 60606-6618
Katten Muchin & Zavis
525 West Monroe St., Suite 1600
Chicago, Illinois 60661
Attn: Mark D. Wood, Esq.
</TABLE>
<PAGE>
EXHIBIT 1
NOTICE OF EXERCISE
(TO BE EXECUTED UPON EXERCISE OF WARRANT)
[COMPANY]
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant Certificate for, and to purchase thereunder,
the Common Stock of Whittman-Hart, Inc. as provided for therein, and (check the
applicable box):
/ / Tenders herewith payment of the exercise price in full in the form of cash
or a certified or official bank check in same-day funds in the amount of
$____________ for _________ shares of Common Stock.
/ / Elects the net issue exercise option pursuant to Section 2.5 of the Warrant
with respect to ________ shares of Common Stock, and accordingly requests
delivery of a net of ______________ shares of such Common Stock, according to
the following calculation:
X = Y (A-B) ( ) = (____) [(_____) - (_____)]
------- ---------------------------
A (_____)
Where X = the number of shares of Common Stock to be issued to
Holder.
Y = the number of shares of Common Stock purchasable under the
amount of the Warrant being exchanged (as adjusted to the
date of such calculation).
A = the Fair Market Value of one share of Common Stock.
B = the Per Share Purchase Price in effect under this Warrant
on the date the net issue exercise election is made pursuant
to Section 2.5.
/ / Elects the easy sale exercise option pursuant to Section 2.6 of the Warrant
with respect to ___________ shares of Common Stock, and (i) hereby irrevocably
elects to sell such number of shares of Common Stock (the "Additional Shares")
as is necessary to pay the Purchase Price for all of the shares of Common Stock
to be issued pursuant to this exercise, (ii) hereby irrevocably commits that the
Purchase Price shall be forwarded directly to the Company from the proceeds of
such sale and (iii) if applicable, a NASD Dealer concurrently herewith makes the
commitment required by Section 2.6 of the Warrant.
Please issue a certificate or certificates for Common Stock in the name of, and
pay any cash for any fractional share to (please print name, address, and
taxpayer identification number):
Name:
-----------------------------------------------
Address:
--------------------------------------------
--------------------------------------------
Taxpayer Identification Number:
---------------------
Signature:
------------------------------------------
Note: The above signature should correspond exactly with the name on the first
page of this Warrant Certificate or with the name of the assignee appearing in
the assignment form below.
If said number of shares shall not be all the shares purchasable under the
within Warrant Certificate, a new Warrant Certificate is to be issued in the
name of said undersigned for the balance remaining of the shares purchasable
thereunder rounded up to the next higher whole number of shares.
<PAGE>
EXHIBIT 2
ASSIGNMENT
(TO BE EXECUTED ONLY UPON ASSIGNMENT OF WARRANT CERTIFICATE)
For value received, the undersigned hereby sells, assigns and transfers
unto ________________ the within Warrant Certificate, together with all right,
title and interest therein, and does hereby authorize [WARRANT AGENT], to
transfer said Warrant Certificate on the books of Whittman-Hart, Inc. with
respect to the number of shares of the Common Stock set forth below, with full
power of substitution in the premises:
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<CAPTION>
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Name(s) of Assignee(s) Address # of Shares
- --------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
If said number of shares of Common Stock shall not be all the shares
represented by the Warrant Certificate, a new Warrant Certificate is to be
issued in the name of said undersigned for the balance remaining of the shares
of Common Stock covered by said Warrant Certificate.
Dated: , 200
--------------------------------------
Signature:
----------------------------------
NOTICE: The signature to the foregoing Assignment must correspond to the
name as written upon the face of this security in every particular, without
alteration or any change whatsoever; signature(s) must be guaranteed by an
eligible guarantor institution (banks, stock brokers, savings and loan
associations and credit unions with membership in an approved signature
guarantee medallion program) pursuant to Securities and Exchange Commission Rule
17Ad-15.
<PAGE>
EXHIBIT A
CLAIM OF DELAY PROCEDURES
1. NOTICE OF DEFAULT AND DELAY. If Novell fails to perform its obligations
under Section 3(a) or Section 3(d), as the case may be, of the Alliance
Agreement the Company shall notify Novell of the nature of the failure to
perform and the steps that can be taken by Novell to alleviate the delay
within ten (10) days following the date the Company becomes reasonably
aware of the default (the "Delay Notice"). If Novell objects to any such
notice, it shall notify the Company of such fact and of the nature of the
dispute, within ten (10) days following receipt of the Delay Notice by
Novell and any such objection shall be resolved in accordance with Section
4.
2. COMPANY NOTICE. If Novell failure to perform is cured or waived in writing,
then Novell shall notify the Company of such fact (a "Delay Termination
Notice"). If the Company objects to any such notice, it shall notify the
Company of such fact and of the nature of the dispute, within ten (10) days
following receipt of the Delay Termination Notice by the Company and any
such objection shall be resolved in accordance with Section 4.
3. EXTENSION OF DATE(S) FOR ACHIEVEMENT OF MILESTONES. If the Company delivers
a valid Delay Notice, then the date (s) for achievement of the milestones
under Section 2.1 and/or 2.2 of the Warrant, as the case may be, shall be
extended by the number of days commencing on the date for onset of the
failure to perform specified by the Company in its Delay Notice and ending
on the date the delay ended, as specified by Novell in a valid Delay
Termination Notice.
4. DISPUTES. A Delay Notice or a Delay Termination Notice delivered by a party
in accordance with the foregoing for which no valid objection is delivered
in accordance with Section 1 or 2, as the case may be, shall be deemed a
valid notice for the purpose of Section 3. If an objection to any such
notice is timely delivered then the parties shall meet and confer for a
period of at least fifteen (15) business days following the notice of the
dispute in order to reach agreement on the disputed matter. If the parties
are unable to agree, then at any time after the end of said fifteen day
period, either party may submit the disputed matter to arbitration in
accordance with the rules established by the American Arbitration
Association in Chicago, Illinois. The finding of the arbitrator in such
action as to the number of days of extension for achievement of a milestone
as a consequence of an associated default by Novell shall be binding on the
parties and shall by appealable solely for fraud and undue influence.
<PAGE>
EXHIBIT C
INVESTOR RIGHTS AGREEMENT
This Investor Rights Agreement (this "AGREEMENT") is made and entered into
to be effective as of November 12, 1999 ("EFFECTIVE DATE"), by and between
Whittman-Hart, Inc., a Delaware corporation (the "COMPANY"), and Novell, Inc., a
Delaware corporation (the "INVESTOR"). Unless otherwise provided herein, all
capitalized terms shall have the meanings set forth in that certain Common Stock
and Warrant Purchase Agreement, dated as of September 29, 1999, between the
Company and Investor (the "PURCHASE AGREEMENT").
RECITALS
A. The Investor desires to purchase 3,294,893 shares (the "PURCHASED
SHARES") of the common stock, par value $0.001 per share, of the Company (the
"COMPANY COMMON STOCK") and a Warrant (the "WARRANT") to purchase additional
shares (the "WARRANT SHARES") of the Company Common Stock on the terms and
conditions set forth in the Purchase Agreement, provided it receives the
additional information rights, registration rights and other rights as more
fully set forth in this Agreement.
B. The Company desires to sell the Purchased Shares to the Investor on the
terms and conditions set forth in the Purchase Agreement and is willing to
provide the additional rights requested by the Investor, subject to the
additional limitations set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
promises hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. INFORMATION RIGHTS.
The Company covenants and agrees that, commencing on the date of this
Agreement and continuing for so long as the Investor holds at least 500,000
shares, in the aggregate, of the Purchased Shares and Warrant Shares (including
those shares issued or issuable pursuant to exercise of the Warrant), then:
1.1 ANNUAL REPORTS. If the following information is not available on
the Internet, the Company, upon demand by the Investor, shall furnish to the
Investor promptly following the filing of such report with the Securities and
Exchange Commission ("SEC"), a copy of the Company's Annual Report on Form 10-K
for each fiscal year, which shall include a consolidated balance sheet as of the
end of such fiscal year, a consolidated statement of income and a consolidated
statement of cash flows of the Company and its subsidiaries for such year,
setting forth in each case in comparative form the figures from the Company's
previous fiscal year, all prepared in accordance with generally accepted
accounting principles and practices and audited by nationally recognized
independent certified public accountants. In the event the Company shall no
longer be required to file or does not file Annual Reports on Form 10-K with the
SEC, then within ninety (90) days following the end of each respective fiscal
year, the Company shall deliver to the Investor a consolidated balance sheet as
of the end of such fiscal year, a consolidated statement of income and a
consolidated statement of cash flows of the
<PAGE>
Company and its subsidiaries for such year, setting forth in each case in
comparative form the figures from the Company's previous fiscal year, all
prepared in accordance with generally accepted accounting principles and
practices and audited by nationally recognized independent certified public
accountants.
1.2 QUARTERLY REPORTS. If the following information is not available
on the Internet, the Company, upon demand by the Investor, shall furnish to the
Investor promptly following the filing of such report with the SEC, a copy of
each of the Company's Quarterly Reports on Form 10-Q, which shall include a
consolidated balance sheet as of the end of the respective fiscal quarter,
consolidated statements of income and consolidated statements of cash flows of
the Company and its subsidiaries for the respective fiscal quarter and for the
year-to-date period, setting forth in each case in comparative form the figures
from the comparable periods in the Company's immediately preceding fiscal year,
all prepared in accordance with generally accepted accounting principles and
practices (except, in the case of any Form 10-Q, as may otherwise be permitted
by Form 10-Q), but all of which may be unaudited. In the event the Company shall
no longer be required to file or does not file Quarterly Reports on Form 10-Q
with the SEC, then within forty-five (45) days following the end of each of the
first three (3) fiscal quarters of each fiscal year, the Company shall deliver
to the Investor a consolidated balance sheet, consolidated statement of income,
and consolidated statement of cash flows, of the Company and its subsidiaries
for the respective fiscal quarter and for the year-to-date period, setting forth
in each case in comparative form the figures from the comparable periods in the
Company's immediately preceding fiscal year, all prepared in accordance with
generally accepted accounting principles and practices and consistent with the
requirements of Form 10-Q, but all of which may be unaudited.
1.3 SEC FILINGS. QUARTERLY REPORTS. If the following information is
not available on the Internet, the Company shall deliver to the Investor copies
of each other document filed with the SEC on a non-confidential basis promptly
following the filing of such document with the SEC.
2. REGISTRATION RIGHTS.
2.1 DEFINITIONS. For purposes of this Section 2:
(a) REGISTRATION. The terms "REGISTER," "REGISTERED," and
"REGISTRATION" refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act of 1933, as amended
(the "SECURITIES ACT"), and the declaration or ordering of effectiveness of such
registration statement
(b) REGISTRABLE SECURITIES. The term "INVESTOR SECURITIES" means:
(x) the Purchased Shares and the Warrant Shares; and (y) any shares of Company
Common Stock or other securities of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security that is issued as
a dividend or other distribution with respect to, or in exchange for, or in
replacement of, any of the securities described in the immediately preceding
clause (x). The term "REGISTRABLE SECURITIES" means the Investor Securities
other than the Investor Securities sold by a person in a transaction in which
rights under this Section 2 are not assigned in accordance with this Agreement
or any Investor
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<PAGE>
Securities sold in a public offering, whether sold pursuant to Rule 144
promulgated under the Securities Act, or in a registered offering, or otherwise.
(c) INVESTOR SECURITIES THEN OUTSTANDING. The number of shares of
"INVESTOR SECURITIES THEN OUTSTANDING" shall mean the number of shares of
Investor Securities which are then issued and outstanding or are issuable
pursuant to exercise of the Warrant.
(d) HOLDER. For purposes of this Section 2, the term "HOLDER"
means any holder owning of record Investor Securities that have not been sold to
the public or pursuant to Rule 144 promulgated under the Securities Act or any
permitted assignee of record of such Investor Securities to whom rights under
this Section 2 have been duly assigned in accordance with Section 4 of this
Agreement.
(e) FORM S-3. The term "FORM S-3" means such form under the
Securities Act as is in effect on the date hereof or any successor registration
form under the Securities Act subsequently adopted by the SEC that permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
2.2 FORM S-3 REGISTRATION. The Company shall cause to be filed with
the SEC a registration statement on Form S-3 (and, to the extent applicable and
reasonably requested by the Holder, for sale or transfer of the Registrable
Securities, any related qualification or compliance under "blue sky" law with
respect to all or any portion of the Registrable Securities) as soon as
practicable after the date hereof, but not later than December 31, 1999, and
shall use its reasonable best efforts to effect such registration and all such
qualifications and compliances as are reasonably required to permit or
facilitate the sale and distribution of all the Registrable Securities not later
than March 31, 2000. Notwithstanding the foregoing, the Company shall not be
obligated to effect any such registration, qualification or compliance pursuant
to this Section:
(i) on Form S-3, if Form S-3 is not available for such
offering by the Holders of the Registrable Securities to be
included in the offering (but in such event the Company shall
cause to be filed and become effective a Form S-1 registration
statement in accordance with Section 2.3); or
(ii) under any "blue sky" law in any particular jurisdiction
(other than Delaware and Illinois) where it is not otherwise
required to qualify to do business, if such registration,
qualification or compliance in said jurisdiction would require
the Company to qualify to do business in such jurisdiction; or
(iii) under any "blue sky" law in any particular
jurisdiction, if such registration, qualification or compliance
in said jurisdiction would require the Company to execute a
general consent to service of process that it would not otherwise
be required to execute.
(b) EXPENSES. The Company shall pay all expenses incurred in
connection with each registration requested pursuant to this Section, excluding
underwriters' or brokers' discounts and commissions relating to shares sold by
the Holders and any fees and
3
<PAGE>
disbursements of counsel to the Holders, but including federal and "blue sky"
registration, filing and qualification fees, printers' and accounting fees, and
fees and disbursements of counsel to the Company.
(c) DEFERRAL. Notwithstanding the foregoing, if the Company shall
furnish to Holders a certificate signed by the Chief Executive Officer of the
Company stating that, in the good faith judgment of the Board, it would be
materially detrimental to the Company and its stockholders for such registration
statement to be filed within the time allowed by this Section, then the Company
shall have the right to defer such filing for a period of not more than an
additional ninety (90) days (until March 31, 2000 for the filing and until June
30, 2000 for the effectiveness of the registration) to permit sale of the
Registrable Securities; provided, however, that in such event the period of time
that the Company is obligated to maintain the effectiveness of any registration
statement under this Section shall be similarly extended by the amount of such
additional time allowed for the filing and effectiveness of the registration of
the Registrable Securities.
(d) NOT DEMAND REGISTRATION. The Form S-3 registration required
by this Section shall not be deemed to be a demand registration for the purposes
of Section 2.3.
(e) MAINTENANCE. The Company shall maintain the effectiveness of
any Form S-3 registration statement filed under this Section until the earlier
of: (i) the date on which no Investor Securities continue to be "Registrable
Securities" (as defined in Section 2.1(b)), (ii) all Registrable Securities then
outstanding can be sold in a single three (3) month period pursuant to Rule 144,
or (iii) the second anniversary of the Effective Date of this Agreement. Upon
demand by a Holder in connection with a proposed sale of Registrable Securities,
the Company shall provide to the Holder a legal opinion that the Form S-3 is
effective and that no further registrations of the Registrable Securities are
required in connection with a sale of the Registrable Securities.
2.3 DEMAND REGISTRATION.
(a) REQUEST BY HOLDERS. If the Company receives a written request
from the Holders of twenty-five percent (25%) of the Registrable Securities then
outstanding (the "INITIATING HOLDERS") that the Company file a registration
statement under the Securities Act on Form S-1, then the Company shall, within
ten (10) business days of the receipt of such written request, give written
notice of such request ("REQUEST NOTICE") to all Holders that a registration
statement on Form S-1 (or such other form, including Form S-3, as shall be
determined by the Company in its good faith, reasonable business judgment, which
shall allow sales of the Registrable Securities by the Holders) (the "Requested
Form") is being initiated and, thereafter, shall use its reasonable best efforts
to effect, as soon as practicable, the registration on the Requested Form under
the Securities Act of all Registrable Securities that Holders request to be
registered and included in such registration. The Company shall maintain the
effectiveness of any such registration statement for a period of at least (a)
forty-five (45) days or (b) with respect to an underwritten offering, for such
time as the underwriters may take to complete the distribution of Registrable
Securities in the offering. To be included in the registration, any Holder
(other than the Initiating Holders) must provide, within twenty (20) days after
receipt of the Request Notice, written notice to the Company of the number of
shares of Company
4
<PAGE>
Common Stock such Holder has elected to include in the registration.
Notwithstanding the foregoing, the Company shall not be obligated to effect any
such Form S-1 or other form of registration as required by this subpart:
(i) if the Company demonstrates to the reasonable
satisfaction of the Initiating Holders that the Form S-3 filed
pursuant to Section 2.2 is effective and available to permit sale
and transfer of the Registrable Securities by the Initiating
Holders to the public in the manner proposed by the Initiating
Holders and certifies to the Investor that the prospectus
relating to such Form S-3 does not include any untrue statement
of a material fact and does not omit to state a material fact
required to be stated therein or otherwise necessary to make the
statements therein not misleading in light of the circumstances
then existing; or
(ii) if the Company has, within the six (6) month period
preceding the date of such request, already effected a
registration under the Securities Act pursuant to Section 2.3 or
Section 2.2 herein that continues in full force and effect (other
than a registration from which the Registrable Securities of
Holders requesting participation in the registration pursuant to
this Section have been previously excluded with respect to any or
all of the Registrable Securities that the Holders are requesting
be included in a registration pursuant to this Section).
(b) NUMBER OF DEMAND REGISTRATIONS. The Company shall be
obligated to effect only three (3) registrations upon the request of the Holders
under this Section 2.3.
(c) DEFERRAL. Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting the filing of a registration statement pursuant to
this Section a certificate signed by the Chief Executive Officer of the Company
stating that, in the good faith and reasonable judgment of the Board, it would
be materially detrimental to the Company and its stockholders for such
registration statement to be filed, then the Company shall have the right to
defer such filing for the period of such detriment, but not more than ninety
(90) days after receipt of the request of the Initiating Holders; PROVIDED,
HOWEVER, that the Company may not utilize this right (i) more than twice in any
twelve (12) month period for an aggregate period of ninety (90) days for both
such suspensions, nor (ii) during any period when the Company's executive
officers and directors are not restrained from disposing of shares of Company
Common Stock.
(d) EXPENSES. All expenses incurred in connection with any
registration pursuant to this Section, including all federal and "blue sky"
registration, filing and qualification fees, printer's and accounting fees, and
fees and disbursements of counsel for the Company and the reasonable fees and
disbursements of counsel to the Holders (but excluding underwriters' discounts
and commissions relating to shares of Company Common Stock sold by the Holders
and, if the registration occurs at any time after the second anniversary of the
Effective Date of this Agreement, any fees and disbursements of counsel to the
Holders), shall be borne by the Company. Each Holder participating in a
registration pursuant to this Section shall bear such Holder's proportionate
share (based on the total number of shares of Company
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Common Stock sold in such registration) of all discounts, commissions or other
amounts payable to underwriters or brokers in connection with such offering by
the Holders. Notwithstanding the foregoing, the Company shall not be required to
pay for any expenses of any registration proceeding begun pursuant to this
Section if the registration request is subsequently withdrawn at the request of
the Initiating Holders who hold a majority of the Registrable Securities to be
registered, unless the Initiating Holders of a majority of the Registrable
Securities agree that such registration constitutes the use by the Holders of
one (1) demand registration pursuant to this Section (in which case such
registration shall also constitute the use by all Holders of Registrable
Securities of one (l) such demand registration); PROVIDED FURTHER, HOWEVER, that
if at the time of such withdrawal, the Holders have learned of a material
adverse change relating to the business or operations of the Company not known
to the Holders at the time of their request for such registration and have
withdrawn their request for registration after learning of such material adverse
change, then the Holders shall not be required to pay (and the Company shall
pay) any of such expenses and such registration shall not constitute the use of
a demand registration pursuant to this Section.
(e) TIME LIMITATION. The rights of the Holders under this Section
2.3 shall terminate, and the Company shall have no obligation to effect a
registration statement on a Form S-1 or other form of registration hereunder on
or after the earlier of: (a) the date on which no Investor Securities continue
to be "Registrable Securities" (as defined in Section 2.1(b)), or (b) all
Registrable Securities then outstanding can be sold in a single three (3) month
period pursuant to Rule 144.
2.4 PIGGYBACK REGISTRATIONS.
(a) NOTIFICATION AND RIGHTS. The Company shall notify all Holders
of Registrable Securities in writing at least twenty (20) days prior to filing
any registration statement under the Securities Act for purposes of effecting a
public offering of securities of the Company (including registration statements
relating to secondary offerings of securities of the Company, but EXCLUDING
registration statements relating to any employee benefit plan, any merger, other
corporate reorganization or other business combination) and will afford each
such Holder an opportunity to include in such registration statement all or any
part of the Registrable Securities then held by such Holder. Each Holder
desiring to include in any such registration statement all or any part of the
Registrable Securities held by such Holder shall, within twenty (20) days after
receipt of the above-described notice from the Company, so notify the Company in
writing, and in such notice shall inform the Company of the number of
Registrable Securities such Holder wishes to include in such registration
statement. If a Holder decides not to include all of its Registrable Securities
in any registration statement thereafter filed by the Company, such Holder shall
nevertheless continue to have (a) the right to include any Registrable
Securities in any subsequent registration statement and (b) its rights hereunder
to demand a registration of Registrable Securities and to include their
Registrable Securities in such registration statements as may be filed by the
Company with respect to offerings of its securities, all upon the terms and
conditions set forth herein. Notwithstanding the foregoing, the piggy-back
rights granted herein shall not apply (a) to issuances, sales and exchanges by
and for employee benefit plans, in connection with any merger, consolidation,
corporate reorganization, or business combination affecting the Company, or of
the Company Common Stock held by a third party stockholder (I.E., any holder
other than the Company or its subsidiaries), or (b) when that amount of
Registrable
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<PAGE>
Shares that would be included in the piggy-back offering may also be sold under
any Form S-1, Form S-3 or other form of registration statement applicable to the
Registrable Shares.
(b) EXPENSES. All expenses incurred in connection with a
registration pursuant to this Section (excluding underwriters' and brokers'
discounts and commissions relating to securities sold by the Holders and any
fees and disbursements to counsel to the Holders), including all federal and
"blue sky" registration, filing and qualification fees, printers' and accounting
fees, and fees and disbursements to counsel for the Company, shall be borne by
the Company.
(c) NOT DEMAND REGISTRATION. Registration pursuant to this
Section shall not be deemed to be a demand registration as described in Section
2.3 above. Except as otherwise provided herein, there shall be no limit on the
number of times the Holders may request registration of Registrable Securities
under this Section 2.4.
2.5 UNDERWRITING. If the Initiating Holders elect an underwritten
offering pursuant to the Form S-3 registration under Section 2.2 or pursuant to
a Form S-1 or other registration under Section 2.3 or if the Company has elected
an underwriting for a piggy-back registration pursuant to Section 2.4, the
parties shall reasonably cooperate to fulfill the requirements for such
underwriting. In this regard, if the Company gives notice under Section 2.3 or
2.4 of the registration to Holders, then the Company shall also advise the
Holders whether the offering is to be underwritten and, if so, the right of any
such Holder's Registrable Securities to be included in such a registration shall
be conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their Registrable
Securities through such underwriting shall enter into an underwriting agreement
in customary form with the managing underwriter or underwriters selected for
such underwriting (including, as appropriate, a market stand-off agreement of up
to ninety (90) days, if required by such underwriters and if, during the
stand-off period, all directors and officers of the Company are similarly
subject to the market stand-off provisions); PROVIDED, HOWEVER, that it shall
not be considered customary to require any of the Holders to provide
representations and warranties regarding the Company or indemnification of the
underwriters for material misstatements or omissions in the registration
statement or prospectus for such offering made by anyone other than the Holders
giving the indemnity. Notwithstanding any other provision of this Agreement, if
the indemnity is being made in or the managing underwriter determine(s) in good
faith that marketing factors require a limitation of the number of shares of
Company Common Stock to be underwritten, then the managing underwriter(s) may
exclude shares of Company Common Stock from the registration and the
underwriting; PROVIDED; HOWEVER, that if the offering is a demand offering
pursuant to Section 2.3, then the limitation on the number of shares of Company
Common Stock included in the offering shall be reduced in proportion to the
respective holdings, and FURTHER PROVIDED, that in the case of a piggy-back
offering, the securities to be included in the registration and the underwriting
shall be allocated, (A) FIRST to any other holder of a registration demand which
is participating in the offering; (B) SECOND, to the Company, provided, however,
that a minimum of fifteen percent (15%) of the number of Registrable Securities
of each Holder (where any Registrable Securities that are not shares of Company
Common Stock but are exercisable or exchangeable for, or convertible into,
shares of Company Common Stock, shall be deemed to have been so exercised,
exchanged or converted for such purpose) must also in any
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event be included, (C) THIRD, to the extent the managing underwriter determines
additional securities can be included after compliance with clauses (A) and (B),
to each of the Holders (to the extent not included pursuant to clause (B))
requesting inclusion of their Registrable Securities in such registration
statement on a pro rata basis, based on the total number of Registrable
Securities and other securities entitled to registration then held by each such
Holder, and (D) FOURTH, to the extent the managing underwriter determines
additional securities can be included after compliance with clauses (A), (B) and
(C), any other shares of Company Common Stock or other securities of the
Company. Any Registrable Securities excluded or withdrawn from an underwriting
shall be excluded and withdrawn from the registration. For any Holder that is a
partnership or limited liability company, the Holder and the partner/member and
each retired partner/member of such Holder, or the estates and family members of
any such partner/member and retired partner/member and any trusts for the
benefit of any of the foregoing persons, shall be deemed to be a single Holder,
and any pro rata reduction with respect to a Holder shall be based upon the
aggregate amount of shares of Company Common Stock carrying registration rights
owned by all entities and individuals included in such Holder, as defined in
this sentence, notwithstanding any provision of law or other contract binding
upon such partners/members to the contrary.
2.6 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities under this Agreement, the Company
shall, as expeditiously as reasonably possible:
(a) REGISTRATION STATEMENT. Promptly and diligently prepare and
file with the SEC a registration statement on the appropriate form with respect
to such Registrable Securities and use commercially reasonable efforts to cause
such registration statement to become effective.
(b) AMENDMENTS AND SUPPLEMENTS. Prepare and file with the SEC
such amendments and supplements to such registration statement and the
prospectus used in connection with such registration statement as may be
necessary to comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement.
(c) PROSPECTUSES. Furnish to the Holders such number of copies of
a prospectus (including a preliminary prospectus) in conformity with the
requirements of the Securities Act and such other documents as they may
reasonably request, in order to facilitate the disposition of the Registrable
Securities owned by them that are included in such registration.
(d) BLUE SKY. To the extent applicable, register and qualify the
securities covered by such registration statement under such other securities or
"blue sky" laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions in which the Company
is not otherwise required to qualify or provide such consent to service in order
to carry on its business.
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(e) UNDERWRITING. In the event of any underwritten public
offering, enter into and perform its obligations under an underwriting agreement
in usual and customary form (including customary indemnification of the
underwriters by the Company) with the managing underwriter(s) of such offering.
Each Holder participating in such underwriting shall also enter into and perform
its obligations under such an agreement as otherwise required by this Agreement.
(f) NOTIFICATION. Notify each Holder of Registrable Securities
covered by such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the happening
of any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing. Upon receipt of any such notice, the Holders will suspend their
use of the registration statement and the Company shall promptly, and in all
events within thirty (30) days, amend the statement to meet the aforesaid
standard of care.
(g) OPINION AND COMFORT LETTER. Furnish, at the request of any
Holder requesting registration of Registrable Securities, on the date that such
Registrable Securities are delivered to the underwriters for sale, if such
securities are being sold through underwriters, or, if such securities are not
being sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (i) an opinion, dated as of
such date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering and reasonably satisfactory to a majority in
interest of the Holders requesting registration, and (ii) a "comfort" letter (or
if the offering is not underwritten, an "agreed upon procedures" letter), dated
as of such date, from the independent certified public accountants of the
Company, in the form and with the substance as is customarily given by
independent certified public accountants in a comparable public offering and
reasonably satisfactory to a majority in interest of the Holders requesting
registration, in both cases addressed to the underwriters, if any, and to the
Holders requesting registration of Registrable Securities.
2.7 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Sections 2.2 through
2.6 that the selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them, and the intended
method of disposition of such securities as shall be required to timely effect
the registration of their Registrable Securities.
2.8 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under
Sections 2.2 through 2.6, then:
(a) BY THE COMPANY. To the extent permitted by law, the Company
will indemnify and hold harmless the Holder, the partners, officers,
stockholders, employees, representatives and directors of each Holder, any
underwriter (as determined in the Securities Act) for such Holder and each
person, if any, who controls such Holder or underwriter within the meaning of
the Securities Act or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), (herein each a "COMPANY INDEMNIFIED PARTY"), against any
losses, claims,
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damages, or Liabilities (joint or several) to which they may become subject
under the Securities Act, the Exchange Act, or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively "VIOLATIONS"):
(i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein
or in any amendments or supplements thereto;
(ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make
the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of
the Securities Act, the Exchange Act, any federal or state
securities law or any rule or regulation promulgated under the
Securities Act, the Exchange Act or any federal or state
securities law in connection with the offering covered by such
registration statement;
and the Company will reimburse each such Company Indemnified Party for any legal
or other expenses reasonably incurred by it, as incurred, in connection with
investigating or defending any such loss, claim, damage, liability or action;
PROVIDED, HOWEVER, that the indemnity agreement contained in this subsection
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action, if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or action to the extent that it arises out of or is based upon a Violation that
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by such Company
Indemnified Party.
(b) BY SELLING HOLDERS. To the extent permitted by law, each
selling Holder ("INDEMNIFYING HOLDER") will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed the
registration statement, each person, if any, who controls the Company within the
meaning of the Securities Act, any underwriter, any other Holder selling
securities under such registration statement, any of such other Holder's
partners, officers, stockholders, employees, representatives and directors, and
any person who controls such other Holder within the meaning of the Securities
Act or the Exchange Act (herein each a "HOLDER INDEMNIFIED PARTY"), against any
losses, claims, damages or liabilities (joint or several) to which the Holder
Indemnified Party may become subject under the Securities Act, the Exchange Act
or other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Indemnifying Holder expressly for use in connection with such
registration; and each such Indemnifying Holder will reimburse any legal or
other expenses reasonably incurred by the Company or any other Holder
Indemnified Party in connection with investigating or defending any such loss,
claim, damage, liability or action. Notwithstanding the foregoing, (1) the
indemnity agreement contained in this subsection shall not apply to amounts
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paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Indemnifying Holder, which
consent shall not be unreasonably withheld, and (2) the total amounts payable in
indemnity by an Indemnifying Holder under this subsection or otherwise in
respect of any and all Violations shall not exceed in the aggregate the net
proceeds received by such Indemnifying Holder in the registered offering out of
which such Violations arise.
(c) NOTICE. Promptly after receipt by a Company Indemnified Party
or a Holder Indemnified Party (each an "INDEMNIFIED PARTY") of notice of the
commencement of any action (including any governmental action subject to
indemnification hereunder), such Indemnified Party will, if a claim in respect
thereof is to be made against any indemnifying party under this section, deliver
to the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; PROVIDED, HOWEVER, that an Indemnified Party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the Indemnifying Party, to the extent that representation of such Indemnified
Party by the counsel retained by the Indemnifying Party would be inappropriate
due to actual or potential conflict of interests between such Indemnified Party
and any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action shall not relieve such indemnifying party of
liability under this Section 2.8, except to the extent the indemnifying party is
prejudiced as a result thereof.
(d) DEFECT ELIMINATED IN FINAL PROSPECTUS. The foregoing
indemnity agreements of the Company and Indemnifying Holders are subject to the
condition that, insofar as they relate to any Violations made in a prospectus
but eliminated or remedied in the amended prospectus on file with the SEC at the
time the registration statement in question becomes effective or in any amended
prospectus filed with the SEC pursuant to SEC Rule 424(b) (a "FINAL
PROSPECTUS"), such indemnity agreement shall not inure to the benefit of any
Indemnified Party, if a copy of the Final Prospectus was timely furnished to
such Indemnified Party and was not furnished by the Indemnified Party to a
person asserting the loss, liability, claim or damage at or prior to the time
such action is required by the Securities Act.
(e) CONTRIBUTION. In order to provide for just and equitable
contribution to joint liability under the Securities Act in any case in which
either (i) any Holder exercising rights under this Agreement, or any controlling
person of any such Holder, makes a claim for indemnification pursuant to this
section, but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this section provides for
indemnification in such case, or (ii) contribution under the Securities Act may
be required on the part of any such selling Holder or any such controlling
person in circumstances for which indemnification is provided under this
Section; then, and in each such case, the Company and such Holder will
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (after contribution from others) in such proportion so that such
Holder is responsible for the portion represented by the percentage that the
public offering price of its Registrable Securities offered by and sold
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under the registration statement bears to the public offering price of all
securities offered by and sold under such registration statement, and the
Company and other selling Holders are responsible for the remaining portion;
PROVIDED, HOWEVER, that, in any such case: (A) no such Holder will be required
to contribute any amount in excess of the public offering price of all such
Registrable Securities offered and sold by such Holder pursuant to such
registration statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not also
guilty of fraudulent misrepresentation.
(f) SURVIVAL. The obligations of the Company and Holders under
this Section 2.8 shall survive until the third anniversary of the completion of
any offering of Registrable Securities in a registration statement, regardless
of the expiration of any statutes of limitation or extensions of such statutes.
2.9 TERMINATION OF THE COMPANY'S OBLIGATIONS. The Company shall have
no obligations pursuant to this Section 2 to register any Registrable Securities
or to maintain the effectiveness of any Form S-3 registration beyond JUNE 30,
2005.
2.10 NO REGISTRATION RIGHTS TO THIRD PARTIES. Without the prior
written consent of the Holders of a majority in interest of the Registrable
Securities then outstanding, the Company covenants and agrees that it shall not
grant, or cause or permit to be created, for the benefit of any person or entity
any registration rights of any kind (whether similar to the demand, "piggyback"
or Form S-3 registration rights described in this Section 2, or otherwise)
relating to shares of the Company Common Stock or any other securities of the
Company that would conflict with or take precedence over the rights granted to
the Holders hereunder.
2.11 SUSPENSION PROVISIONS. Notwithstanding the foregoing subsections
of this Section 2, the Company shall not be required to take any action with
respect to the registration or the declaration of effectiveness of the
registration statement following written notice to the Holders from the Company
(a "SUSPENSION NOTICE") of the existence of any state of facts or the happening
of any event (including pending negotiations relating to, or the consummation
of, a transaction, or the occurrence of any event that the Company believes, in
good faith, requires additional disclosure of material, non-public information
by the Company in the registration statement) with regard to which the Company
believes it has a bona fide business purpose for preserving confidentiality or
that renders the Company unable to comply with the published rules and
regulations of the SEC promulgated under the Securities Act or the Exchange Act,
as in effect at any relevant time (the "RULES AND REGULATIONS") the failure to
disclose of which would result in (i) the registration statement, any amendment
or post-effective amendment thereto, or any document incorporated therein by
reference containing an untrue statement of a material fact or omitting to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (ii) the prospectus issued under the
registration statement, any prospectus supplement, or any document incorporated
therein by reference including an untrue statement of material fact or omitting
to state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
PROVIDED that (A) the Company shall not issue a Suspension Notice more than
twice in any twelve (12) month period and, any such suspensions shall not
continue for more than an aggregate of ninety (90) days for all such suspensions
in any twelve (12) month period, (B) the
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Company shall use its best efforts to remedy, as promptly as practicable, but in
any event within ninety (90) days of the date on which the Suspension Notice was
delivered, the circumstances that gave rise to the Suspension Notice and,
thereupon, shall deliver to the Holders notification that the Suspension Notice
is no longer in effect and (C) the Company shall not issue a Suspension Notice
for any period during which the Company's executive officers and directors are
not similarly restrained from disposing of shares of the Company Common Stock.
Upon receipt of a Suspension Notice from the Company, all time limits applicable
to the Holders under this Section 2 shall automatically be extended by an amount
of time equal to the amount of time the Suspension Notice is in effect, and the
Holders will forthwith discontinue disposition of all such shares of Company
Common Stock pursuant to the registration statement until the Company notifies
the Holders that the Suspension Notice is no longer in effect (which the Company
shall promptly deliver) and until receipt from the Company of copies of any
prospectus supplements or amendments prepared by or on behalf of the Company
(which the Company shall promptly prepare). If so directed by the Company in
such Suspension Notice, the Holders will deliver to the Company all copies in
their possession of the prospectus covering such shares of Company Common Stock
current at the time of receipt of any Suspension Notice.
3. [INTENTIONALLY DELETED.]
4. ASSIGNMENT AND AMENDMENT.
4.1 INFORMATION RIGHTS. Notwithstanding anything herein to the
contrary, the rights of the Investor under Section 1 of this Agreement are
transferable, subject to all the terms and conditions of this Agreement
(including without limitation the provisions of this Section) to any person who
will acquire from the Investor that number of Investor Securities equal to least
one percent (1%) of the Company Common Stock stated to be outstanding in the
Company's most recently published Form 10-Q or 10-K (appropriately adjusted for
all stock splits, dividends, combination, and recapitalization where all Holders
of the Company Common Stock participate on a pro rata basis since the date of
such publication); PROVIDED that such assignment of information rights hereunder
shall not be effective until the Investor gives written notice to the Company of
the assignment of such rights, stating the name and address of the assignee and
identifying the Investor Securities as to which of the rights in question are
being assigned.
4.2 REGISTRATION RIGHTS. Notwithstanding anything herein to the
contrary, the registration rights of the Investor under Section 2 hereof may be
assigned to any Holder; PROVIDED, HOWEVER, that such assignment of registration
rights shall not be effective, unless and until the Company is given written
notice by the assigning party, stating the name and address of the assignee and
identifying the securities of the Company as to which the rights in question are
being assigned; and PROVIDED FURTHER that any such assignee shall receive such
assigned rights subject to all the terms and conditions of this Agreement,
including without limitation the provisions of this Section 4.
5. AMENDMENT OF RIGHTS.
Any provision of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investor (or, in the case of an amendment or waiver
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of any provision of Section 2 hereof, only with the written consent of the
Company and the Holders of a majority of the Investor Securities then
outstanding and entitled to the registration rights set forth in Section 2
hereof). Any amendment or waiver effected in accordance with this Section shall
be binding upon the Investor, each Holder, each permitted successor or assignee
of such Investor or Holder and the Company.
6. LIMITATION ON INVESTOR'S RIGHT TO BUY AND SELL.
6.1 SALES LIMITATION. During the three (3) year period commencing on
the Effective Date, in no event may more than the "Maximum Quarterly Sale
Amount" (as defined below) of the Company Common Stock included in the Investor
Securities be sold by all Holders to any person or entity. However, the
aforesaid sales limitation shall not apply to a sale of the Company Common Stock
(i) in a transaction which a majority of the Company Common Stock (other than
the Company Common Stock held by all Holders) held by other stockholders or a
majority of Company Common Stock held by affiliates of the Company (as defined
in Rule 144 of the Securities Act) is being sold, (ii) in a piggy-back offering
by the Company of its own Company Common Stock in accordance with Section 2.4
above, (iii) in a tender offer, merger, consolidation, reorganization, or other
business combination of the Company or (iv) to a company controlled by, under
common control with, or which controls the Investor, provided in such case that
the terms, conditions, and limitations on sale of Company Common Stock set forth
in this Agreement continue to apply to such transferred Company Common Stock. As
used herein the term "MAXIMUM QUARTERLY SALE AMOUNT" for any calendar quarter is
equal to that number of shares of the Company Common Stock equal to the greater
of (A) seven-tenths of one percent (0.7%) of the total number of the then
outstanding shares of the Company Common Stock (the "THEN OUTSTANDING SHARES")
or (B) two and one-tenth percent (2.1%) of the Then Outstanding Shares minus the
number of shares of the Company Common Stock sold by all Holders pursuant to
this provision in the two (2) calendar quarters preceding the quarter in which
the sale occurs; provided that the Investor shall be deemed for the purpose of
this calculation to have sold that number of shares of Company Common Stock
equal to seven-tenths of one percent (0.7%) of the Then Outstanding Shares in
each of the two calendar quarters prior to the date of this Warrant. Any sale of
Company Common Stock by the Investor during the three (3) year period commencing
on the Effective Date shall be executed through Donaldson, Lufkin & Jenrette
Securities Corporation, if it provides competitive market terms for such
transaction.
6.2 STANDSTILL.
(a) DEFINITIONS. As used in this Section, the following terms
shall have the following meanings: "VOTING STOCK" shall mean the Company Common
Stock or other securities issued by the Company having the ordinary power to
vote in the election of directors of the Company (other than securities having
such power only upon the happening of a contingency that has not occurred as of
the relevant time); "VOTING POWER" of any Voting Stock shall mean the number of
votes such Voting Stock is entitled to cast for directors of the Company at any
meeting of the stockholders of the Company; and "TOTAL VOTING POWER" means the
total number of votes which may be cast in the election of directors of the
Company at any meeting of the stockholders of the Company, if all Voting Stock
was represented and voted to the fullest extent possible at such meeting, other
than the votes that may be cast only upon the happening of a contingency that
has not occurred as of the relevant time.
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(b) The Investor hereby agrees that the Investor and its Majority
Owned Subsidiaries shall neither acquire, nor enter into discussions,
negotiations, arrangements or understandings with any third party to acquire,
beneficial ownership (as defined in Rule 13d-3 promulgated under the Exchange
Act) of any Voting Stock, any securities convertible into or exchangeable for
Voting Stock, or any other right to acquire Voting Stock (except, in any case,
by way of dividends or other distributions or offerings of Company securities
made available to holders of any class of Voting Stock generally) without the
written consent of the Company, if the effect of such acquisition would be to
increase the Voting Power (as defined below) of all Voting Stock then
beneficially owned (as defined above) by the Investor and its Majority Owned
Subsidiaries at the time of such Voting Stock acquisition (the "STANDSTILL
PERCENTAGE"). Notwithstanding the foregoing, nothing in this Section shall
affect any of the registration rights, piggy-back rights, rights with respect to
corporate events and other rights granted to the Investor and its assignees
under this Agreement or the Warrant.
6.3 EXCEPTIONS. The Investor will not be obligated to dispose of any
Voting Stock to the extent that the aggregate percentage of the Total Voting
Power of the Company represented by Voting Stock beneficially owned by the
Investor or which the Investor has a right to acquire is increased beyond the
Standstill Percentage (a) as a result of a recapitalization of the Company or a
repurchase or exchange of securities by the Company or any other action taken by
the Company or its affiliates; (b) as a result of any tender offer, merger,
consolidation, or reorganization of the Company; (c) by way of stock dividends
or other distributions or rights or offerings made available to holders of
shares of Voting Stock generally; (d) with the consent of a simple majority of
the authorized members of the Company's Board of Directors; or (e) as part of a
transaction on behalf of any defined benefit pension plan, profit sharing Plan,
401(k) savings plan, sheltered employee retirement plan, or any other retirement
plan of the Investor or its Majority Owned Subsidiaries (collectively, the
"RETIREMENT PLANS"), where the Company securities in such Retirement Plans are
voted by a trustee, the Investor or its Majority Owned Subsidiary for the
benefit of employees or, for those Retirement Plans where Investor or this
Majority Owned Subsidiary agrees not to vote any Company Voting Stock that would
otherwise cause the Standstill Percentage to be exceeded.
6.4 TERMINATION OF STANDSTILL. The provisions of Section 6.2 shall
terminate upon the third anniversary of the Effective Date of this Agreement.
7. COMPANY RIGHT OF FIRST REFUSAL.
7.1 RIGHT OF FIRST REFUSAL UPON TRANSFER OF FIVE PERCENT STAKE. If the
Investor (a) intends to sell Investor Securities (including the Investor
Securities underlying any portion of the Warrants proposed to be sold) with
Voting Power constituting five percent (5%) or more of the Total Voting Power of
the Company, or (b) intends to sell Investor Securities, (including the Investor
Securities underlying any such portion of the Warrant) with Voting Power
constituting less than five percent (5%) of the Total Voting Power of the
Company to any person that beneficially owns five percent (5%) or more of the
Total Voting Power of the Company, as indicated on a Schedule 13D or 13G filed
with the SEC, in either case in a transaction other than in (i) an underwritten
piggy-back offering in accordance with Section 2.4,
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above, (ii) an underwritten public offering pursuant to Sections 2.2 or 2.3
above, (iii) a tender offer, merger, reorganization, or consolidation of the
Company, or (iv) a sale of the Company Common Stock in a transaction where a
majority of the Company Common Stock held by stockholders other than the Holders
or a majority of Company Common Stock held by affiliates of the Company as
defined in Rule 144 of the Securities Act is being sold, then Investor shall
provide written notice thereof to the Company (the "INVESTOR NOTICE") providing
the Company with the first right to acquire the Company Common Stock the Holder
intends to sell. The Investor Notice shall specify the number of Investor
Securities involved, the name and address of the proposed purchaser, and the
proposed price per share. For a period of seven (7) business days after delivery
of the Investor Notice, the Company shall be entitled to elect to purchase all,
but not less than all, of the Investor Securities described in the Investor
Notice, at the price per share described in such notice. The Company may
exercise such right by delivery of a written notice (a "COMPANY PURCHASE
ELECTION") to the Investor, irrevocably electing to purchase such Investor
Securities that the Holder intends to sell and shall have thirty (30) days to
consummate said purchase from the Investor. In the event that the Company has
not delivered a Company Purchase Election prior to the expiration of such seven
(7) day period or has failed to purchase and pay for such Investor Securities
within said thirty (30) day period, the Company's right to purchase such
Investor Securities shall expire, and the Investor or its Majority Owned
Subsidiary shall be entitled to sell the Investor Securities described in the
Investor Notice for a period of one hundred twenty (120) days following the date
of the Investor Notice, but only to the proposed purchaser set forth in the
Investor Notice (or any Majority Owned Subsidiary thereof) and only for a
purchase price of at least ninety-five percent (95%) of the purchase price set
forth in the Investor Notice. In the event the Investor or Majority Owned
Subsidiary has not sold such Investor Securities by the end of such ninety (90)
day period, the rights of the Company set forth above in this Section shall
apply to any subsequent sale of the Company Common Stock in excess of the
threshold amount by the Investor or its Majority Owned Subsidiary.
Notwithstanding the foregoing, the provisions of this Section shall not apply to
any sales or other transfers by the Investor to any of its Majority Owned
Subsidiaries.
7.2 TERMINATION OF RIGHT OF FIRST REFUSAL. The provisions of this
Section shall terminate upon the third anniversary of the Effective Date of this
Agreement.
8. SECURITIES ACT & EXCHANGE ACT REPORTS. The Company agrees to:
8.1 FILINGS. Use commercially reasonable efforts to file with the SEC
in a timely manner all reports and other documents required of the Company under
the Securities Act and the Exchange Act.
8.2 COMPLIANCE CERTIFICATE. Furnish to each Holder forthwith upon
request a written statement by the Company that it has complied with the
reporting requirements of the Securities Act and the Exchange Act, or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3.
8.3 PUBLIC INFORMATION. Make and keep public information available as
those terms are understood and defined in Rule 144 under the Securities Act.
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8.4 RULE 144. So long as Investor owns the Investor Securities, or any
portion thereof, furnish to the Investor upon request (a) a written statement by
the Company as to its compliance with the company information requirements of
Rule 144, and of the Securities Act and the Exchange Act, and (b) such other
reports and documents so filed with the SEC as an Investor may reasonably
request in availing itself of any rule or regulation of the SEC allowing an
Investor to sell any such securities without registration.
9. MISCELLANEOUS.
9.1 SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement
will inure to the benefit of and be binding upon the respective successors and
permitted assigns of the parties.
9.2 GOVERNING LAW. This Agreement will be governed by and construed
under the internal laws of the State of Delaware, without reference to
principles of conflict of laws or choice of laws.
9.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute the same instrument.
9.4 HEADINGS. The headings and captions used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement. All references in this Agreement to sections,
paragraphs, exhibits and schedules will, unless otherwise provided, refer to
sections and paragraphs hereof and exhibits and schedules attached hereto, all
of which exhibits and schedules are incorporated herein by this reference.
9.5 NOTICES. Any notice required or permitted under this Agreement
shall be given in writing, shall be effective when received, and shall in any
event be deemed received and effectively given upon personal delivery to the
party to be notified or three (3) business days after deposit with the United
States Post Office, by registered or certified mail, postage prepaid, or one (1)
business day after deposit with a nationally recognized courier service such as
Federal Express for next business day delivery under circumstances in which such
service guarantees next business day delivery, in any case, postage prepaid and
addressed to the party to be notified at the address indicated for such party on
the signature page hereof or at such other address as the Investor or the
Company may designate by giving at least ten (10) days advance written notice
pursuant to this Section.
9.6 [Intentionally Deleted.]
9.7 SEVERABILITY. If any provision of this Agreement is held to be
unenforceable under applicable law, such provision will be excluded from this
Agreement and the balance of the Agreement will be interpreted as if such
provision was so excluded and will be enforceable in accordance with its terms.
9.8 ENTIRE AGREEMENT. This Agreement, together with the Purchase
Agreement and all exhibits and schedules hereto and thereto constitutes the
entire agreement and understanding of the parties with respect to the subject
matter hereof and supersedes any and all
17
<PAGE>
prior negotiations, correspondence, agreements, understandings, duties or
obligations between the parties with respect to the subject matter hereof.
9.9 FURTHER ASSURANCES. From and after the date of this Agreement upon
the request of the Company or the Investor, the Company and the Investor will
execute and deliver such instruments, documents or other writings, and take such
other actions, as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement.
9.10 MEANING OF INCLUDE AND INCLUDING. Whenever in this Agreement the
word "include" or "including" is used, it shall be deemed to mean "include,
without limitation" or "including, without limitation," as the case may be, and
the language following "include" or "including" shall not be deemed to set forth
an exhaustive list.
9.11 FEES, COSTS AND EXPENSES. All fees, costs and expenses (including
attorneys' fees and expenses) incurred by either party hereto in connection with
the preparation, negotiation and execution of this Agreement and the Purchase
Agreement and the consummation of the transactions contemplated hereby and
thereby (including the costs associated with any filings with, or compliance
with any of the requirements of, any governmental authorities) shall be the sole
and exclusive responsibility of such party.
9.12 COMPETITION. Nothing set forth herein shall be deemed to
preclude, limit or restrict the Company's or the Investor's ability to compete
with the other.
9.13 STOCK SPLITS, DIVIDENDS, AND OTHER SIMILAR EVENTS. The provisions
of this Agreement (including the number of shares of Company Common Stock and
other securities described herein) shall be appropriately adjusted to reflect
any stock split, stock dividend, reorganization, or other similar event that may
occur with respect to the Company after the date hereof.
9.14 ATTORNEYS' FEES. If any action, suit or proceeding is brought by
the Investor or the Company to interpret or enforce this Agreement, then the
prevailing party in such action shall be entitled to recover its attorneys'
fees, experts' fees, and court costs as awarded by the court in the action or a
separate action.
[Signatures On Next Page]
18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
<TABLE>
<CAPTION>
NOVELL, INC. WHITTMAN-HART, INC.
<S> <C>
By: By:
------------------------------------------- ------------------------------------------
Name: Dennis Raney Name: Bert Young
Title: Senior Vice President and Title: Chairman Financial Officer
Chief Financial Officer Whittman-Hart, Inc.
Novell, Inc. Whittman-Hart, Inc.
Date Signed: Date Signed:
----------------------------------- ----------------------------------
Address: 122 East 1700 South Address: 311 South Wacker Dr.,
Provo, Utah 84606 Suite 3500
Chicago, Illinois 60606-6618
Telephone No: 801-861-7000 Telephone No: 312-922-9200
With copies to: With copies to:
Wilson Sonsini Goodrich & Rosati Mark D. Wood, Esq.
650 Page Mill Rd. Katten Muchin & Zavis
Palo Alto, California 94304 525 West Monroe St., Suite 1600
Attn: Debra S. Summers, Esq. Chicago, Illinois 60661
David Shelow, Esq.
Whittman-Hart, Inc.
311 South Wacker Dr.,
Suite 3500
Chicago, Illinois 60606-6618
</TABLE>
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet and the statement of earnings and comprehensive income for the three and
nine months ended September 30, 1999 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JUL-01-1999 JAN-01-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<CASH> 72,210 72,210
<SECURITIES> 65,941 65,941
<RECEIVABLES> 81,106 81,106
<ALLOWANCES> 1,678 1,678
<INVENTORY> 0 0
<CURRENT-ASSETS> 227,310 227,310
<PP&E> 76,332 76,332
<DEPRECIATION> 14,309 14,309
<TOTAL-ASSETS> 319,551 319,551
<CURRENT-LIABILITIES> 45,641 45,641
<BONDS> 0 0
0 0
0 0
<COMMON> 56 56
<OTHER-SE> 271,721 271,721
<TOTAL-LIABILITY-AND-EQUITY> 319,551 319,551
<SALES> 0 0
<TOTAL-REVENUES> 121,248 342,650
<CGS> 0 0
<TOTAL-COSTS> 67,657 192,938
<OTHER-EXPENSES> 39,892 116,472
<LOSS-PROVISION> 462 1,914
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 15,567 38,472
<INCOME-TAX> 6,763 17,196
<INCOME-CONTINUING> 8,804 21,275
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 8,804 21,275
<EPS-BASIC> 0.16 0.39
<EPS-DILUTED> 0.14 0.35
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet and the statement of earnings and comprehensive income for the three and
nine months ended September 30, 1998 and have been restated to reflect the
effect of the acquisitions of Waterfield, and BALR which were accounted for as
poolings-of-interests.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JUL-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 50,287 50,287
<SECURITIES> 90,447 90,447
<RECEIVABLES> 65,241 65,241
<ALLOWANCES> 1,132 1,132
<INVENTORY> 0 0
<CURRENT-ASSETS> 210,607 210,607
<PP&E> 34,247 34,247
<DEPRECIATION> 9,121 9,121
<TOTAL-ASSETS> 237,988 237,988
<CURRENT-LIABILITIES> 35,209 35,209
<BONDS> 210 210
0 0
0 0
<COMMON> 53 53
<OTHER-SE> 200,077 200,077
<TOTAL-LIABILITY-AND-EQUITY> 237,988 237,988
<SALES> 0 0
<TOTAL-REVENUES> 88,899 232,638
<CGS> 0 0
<TOTAL-COSTS> 50,328 134,397
<OTHER-EXPENSES> 30,375 78,865
<LOSS-PROVISION> 834 1,436
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 9,844 23,322
<INCOME-TAX> 4,226 9,930
<INCOME-CONTINUING> 5,617 13,391
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,617 13,391
<EPS-BASIC> 0.11 0.26
<EPS-DILUTED> 0.10 0.24
</TABLE>
