<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 25, 1997
REGISTRATION NO.: 333-28365
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
HALL, KINION & ASSOCIATES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7370 77-0337705
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
19925 STEVENS CREEK BOULEVARD
CUPERTINO, CALIFORNIA 95014
(408) 863-5600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
BRENDA C. HALL
CHIEF EXECUTIVE OFFICER
HALL, KINION & ASSOCIATES, INC.
19925 STEVENS CREEK BOULEVARD
CUPERTINO, CALIFORNIA 95014
(408) 863-5600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
<TABLE>
<S> <C>
SCOTT C. DETTMER DAVID J. SEGRE
MARGARET E. NIBBI ROBERT G. O'CONNOR
ROBERT G. SPECKER MICHELLE L. WHIPKEY
CHRISTINE M. NAKATA WILSON SONSINI GOODRICH & ROSATI
GUNDERSON DETTMER STOUGH PROFESSIONAL CORPORATION
VILLENEUVE FRANKLIN & HACHIGIAN, LLP 650 PAGE MILL ROAD
155 CONSTITUTION DRIVE PALO ALTO, CALIFORNIA 94304
MENLO PARK, CALIFORNIA 94025 (415) 493-9300
(415) 321-2400
</TABLE>
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value............. 2,892,250 $13.00 $37,599,250 $11,394(3)
- -----------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Includes 377,250 shares that the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a).
(3) The registration fee was previously paid on May 28, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 25, 1997
2,515,000 SHARES
[LOGO OF HALL KINION]
COMMON STOCK
Of the 2,515,000 shares of Common Stock offered hereby, 1,666,667 shares are
being sold by Hall, Kinion & Associates, Inc. ("Hall Kinion" or the "Company")
and 848,333 shares are being sold by the Selling Stockholders. The Company will
not receive any of the proceeds from the sale of shares by the Selling
Stockholders. See "Principal and Selling Stockholders."
Prior to this offering (the "Offering"), there has been no public market for
the Common Stock of the Company. It is currently estimated that the initial
public offering price will be between $11.00 and $13.00 per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The Company has applied to have the Common
Stock approved for quotation on the Nasdaq National Market under the symbol
"HAKI."
SEE "RISK FACTORS" COMMENCING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
Proceeds to
Price to Underwriting Proceeds to Selling
Public Discount (1) Company (2) Stockholders
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share. $ $ $ $
Total (3). $ $ $ $
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</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company, estimated at $900,000.
(3) Certain Selling Stockholders have granted to the Underwriters a 30-day
option to purchase up to 377,250 additional shares of Common Stock solely
to cover over-allotments, if any. If the Underwriters exercise this option
in full, the Price to Public will total $ , the Underwriting Discount
will total $ and the Proceeds to Selling Stockholders will total $ .
See "Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and their right to reject any
order in whole or in part. It is expected that delivery of the certificates
representing such shares will be made against payment therefor at the office of
Montgomery Securities on or about , 1997.
-----------
MONTGOMERY SECURITIES
ROBERT W. BAIRD & CO.
Incorporated
THE ROBINSON-HUMPHREY COMPANY, INC.
, 1997
<PAGE>
HALL KINION:
IT PROFESSIONALS FOR THE NEXT
GENERATION OF TECHNOLOGY
[LOGO OF HALL KINION]
The Staffing Solutions People
[COLLAGE OF FOUR DIFFERENT ABSTRACT IMAGES]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF THE
COMPANY, INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET
PRICE, PURCHASES OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION
IN THE COMMON STOCK MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF
PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus, including information under "Risk Factors." Except as
otherwise specified, all information contained in this Prospectus: (i) assumes
no exercise of the Underwriters' over-allotment option; (ii) assumes the
retirement of 800,000 shares of the Company's Common Stock in satisfaction of
certain promissory notes; and (iii) except in the Consolidated Financial
Statements, assumes that each outstanding share of Series A Preferred Stock of
the Company will be converted into approximately 1.04 shares of Common Stock
upon the closing of this Offering assuming an offering price of $12.00 per
share. See "Description of Capital Stock" and "Underwriting." References to the
"TeamAlliance Acquisition" refer to the acquisition by the Company of certain
assets of TeamAlliance Technology Partners L.P. and certain limited liability
and management companies (collectively,"TeamAlliance").
THE COMPANY
Hall, Kinion & Associates, Inc. is a leading provider of specialized
information technology ("IT") professionals on a contract and permanent basis
in 14 major technology centers located throughout the United States and in
London. The Company provides its services primarily to high technology
companies, such as software developers, computer systems manufacturers and
telecommunications suppliers, primarily for use in their development of next
generation products. These companies require highly skilled technical personnel
in their engineering, product development and quality assurance functional
areas (collectively, "R&D departments"). To meet the specialized needs of these
clients, the Company provides its services through distinct technology practice
groups ("Practice Groups") organized around specific technologies (such as
Windows, Unix or CAD) frequently used by such clients. The Company believes
that this specialization enables it to respond rapidly to its clients and
provide leading-edge technology assignments for its IT professionals. In 1996,
the Company placed contract and permanent IT professionals with an extensive
group of high technology clients, including Borland, Cisco Systems, Microsoft,
Oracle and numerous emerging growth technology clients, with no single client
representing more than 5.0% of net revenues. With the Company's acquisition of
TeamAlliance in December 1996, the Company expanded its service offerings to
include traditional IT professional services for information systems ("IS")
departments of corporate clients. The Company believes that the IS business
complements its core R&D business and allows the Company to further leverage
its specialized Practice Groups and its national presence.
The high technology industry continues to experience substantial growth and
rapid rates of innovation. These trends, combined with intense competition,
have placed pressure on high technology companies to shorten product life
cycles and the time-to-market of new products. The development of next
generation products, however, often requires significant and highly specialized
technical talent which may not be available internally. As a result, high
technology companies are frequently turning to supplemental sources of IT
professionals with expertise in current technologies. Furthermore, as new
technologies and systems are introduced, businesses which rely on them for
mission-critical functions must implement these systems within their already
complex computing environments. Consequently, IS departments are faced with the
challenge of finding qualified IT professionals to design, develop, deploy and
maintain their systems. To address these demands for contract and permanent IT
professionals, both R&D departments of high technology companies and IS
departments of large corporations are turning to IT professional service
companies to augment their existing operations. In July 1996, Dataquest
estimated that the size of the IT professional services market in the United
States in 1995 was approximately $44.3 billion. Dataquest estimates that this
market will grow at a compound annual rate of approximately 15.0%, reaching
approximately $89.2 billion by the year 2000.
The Company's objective is to provide efficient and high quality contract and
permanent IT professionals to R&D departments of high technology clients and IS
departments of corporate clients and to become the "agent
3
<PAGE>
of choice" for IT professionals. To achieve this objective, the Company: (i)
focuses on technology-driven clients that typically require IT professionals
with more highly specialized skill sets than traditional supplemental IT
personnel; (ii) provides specialized IT services through distinct Practice
Groups that are focused on specific technologies and that operate relatively
autonomously with their own sales forces and recruiting personnel; (iii)
pursues cross-selling opportunities between permanent placement and contract
services; (iv) seeks to attract and retain qualified IT professionals; and (v)
provides strong corporate support to its 14 regional markets.
In late 1994, the Company implemented a growth strategy intended to create a
network of offices in regional markets, each comprised of multiple Practice
Groups. Key elements of this growth strategy are to:
. ADD PRACTICE GROUPS TO EXISTING REGIONAL MARKETS. The Company currently
has 11 different types of Practice Groups. However, only one of the
Company's 14 regional markets has more than four types of Practice
Groups currently operating. As a result, the Company believes that there
is a substantial opportunity to increase the number of Practice Groups
within each of its existing regional markets. The Company has begun to
add permanent and R&D contract services Practice Groups to selected
regional markets entered through the TeamAlliance Acquisition.
. HIRE ADDITIONAL REVENUE-GENERATING EMPLOYEES FOR EXISTING PRACTICE
GROUPS. The Company believes there is potential for revenue growth from
the addition of technical recruiting agents and account managers in
existing Practice Groups. The addition of these employees represents
increased opportunities to generate revenues by servicing a greater
number of current and prospective clients and IT professionals.
. OPEN ADDITIONAL LOCATIONS IN NEW REGIONAL TECHNOLOGY MARKETS. A key
element of the Company's growth strategy is to continue to enter new
regional markets with a concentration of high technology companies. The
Company currently has Practice Groups in 14 regional markets, including
Silicon Valley, the Research Triangle and certain other high technology
markets. The Company is currently considering entering other technology
markets, such as Atlanta, Boston and Dallas, and may in the future
consider further international expansion beyond London.
. ACQUIRE COMPLEMENTARY BUSINESSES. The Company intends to explore the
potential acquisition of businesses that would provide it with: (i) new
technology practices; (ii) strategically complementary businesses; (iii)
new geographical presences; or (iv) international recruiting
capabilities. For example, as a result of the TeamAlliance Acquisition,
the Company expanded its Practice Groups to include traditional IS
contract services and entered five new regional markets.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......1,666,667.shares.....
Common Stock offered by the Selling
Stockholders............................. 848,333.shares.....
Common Stock to be outstanding after the
Offering.................................8,933,619.shares.(1)....
Use of proceeds...........................To.repay.outstanding.indebtedness.and.for.
working capital and other general
corporate purposes, including possible
acquisitions. See "Use of Proceeds."
Proposed Nasdaq National Market symbol....HAKI......
</TABLE>
- --------
(1) Assumes the conversion of each outstanding share of Series A Preferred
Stock of the Company into approximately 1.04 shares of Common Stock upon
the closing of this Offering assuming an offering price of $12.00 per
share. See "Description of Capital Stock." Also assumes the retirement of
800,000 shares of the Company's Common Stock in satisfaction of certain
promissary notes. See "Certain Transactions." Excludes 2,438,186 shares of
Common Stock issuable upon exercise of outstanding stock options as of June
30, 1997 at a weighted average exercise price of $4.33 per share, and
250,000 shares of Common Stock issuable upon exercise of outstanding
warrants at an exercise price of $0.01 per share. Using the treasury stock
method, the outstanding options and warrants represent 1,510,590 shares
of Common Stock equivalents assuming an offering price of $12.00 per share.
Also excludes: (i) 300,000 shares of Common Stock reserved for future grant
under the Company's 1997 Stock Option Plan; (ii) 350,000 shares of Common
Stock reserved for future grant under the Company's IT Professional Plan;
and (iii) 150,000 shares of Common Stock reserved for future issuance under
the Company's Employee Stock Purchase Plan. See "Management--1997 Stock
Option Plan," "--Employee Stock Purchase Plan," "--IT Professional Plan"
and Note 8 of Notes to Consolidated Financial Statements.
5
<PAGE>
SUMMARY CONSOLIDATED AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------------- PRO FORMA ---------------
1992 1993 1994 1995 1996 1996 (1) 1996 1997
------ ------ ------- ------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net revenues............ $4,361 $9,780 $15,968 $29,385 $50,571 $65,091 $22,740 $42,691
Gross profit............ 2,058 3,394 5,240 10,176 20,229 24,237 9,101 16,758
Income (loss) from
operations............. (27) 125 262 1,307 1,996 1,697 1,532 1,162
Net income (loss)....... (107) 28 33 682 1,361 475 1,028 555
Net income (loss) per
share (2).............. $(0.01) $ -- $ -- $ 0.09 $ 0.15 $ 0.05 $ 0.11 $ 0.06
Shares used in per share
computations........... 7,227 7,227 7,227 7,272 9,351 9,351 8,941 9,503
SELECTED OPERATING DATA
(AT PERIOD END):
Regional markets........ 1 1 3 5 14 14 6 14
Total employees (3)..... 40 58 64 141 327 327 181 348
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------------------
ACTUAL PRO FORMA (4) AS ADJUSTED (5)
------- ------------- ---------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit)................ $ (850) $ (850) $14,350
Total assets............................. 26,826 26,826 36,011
Long-term debt........................... 5,998 5,998 3,498
Redeemable convertible preferred stock... 9,900 -- --
Total stockholders' equity (deficit)..... (2,190) 7,710 25,410
</TABLE>
- --------
(1) The pro forma consolidated statement of operations data reflects the
combined operations of the Company and TeamAlliance as if the acquisition,
which was completed on December 2, 1996, had been completed as of January
1, 1996. See "Unaudited Pro Forma Condensed Combining Statement of Income."
(2) Computed on the basis described in Note 1 of Notes to Consolidated
Financial Statements.
(3) Total employees excludes IT professionals performing contract assignments
for clients.
(4) Adjusted to reflect the conversion of all outstanding shares of Preferred
Stock into Common Stock.
(5) Adjusted to reflect the sale of 1,666,667 shares of Common Stock by the
Company hereby and the application of the estimated net proceeds therefrom.
Also reflects the tender of 800,000 shares of the Company's Common Stock in
payment of certain outstanding promissory notes. See "Use of Proceeds" and
"Capitalization."
6
<PAGE>
RISK FACTORS
The following risk factors should be considered carefully in addition to the
other information contained in this Prospectus before purchasing the shares of
Common Stock offered hereby. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from those projected in the forward-looking statements.
Factors that may cause such a difference include, but are not limited to,
those set forth in Risk Factors below and elsewhere in this Prospectus.
ABILITY TO ATTRACT AND RETAIN QUALIFIED IT PROFESSIONALS
The Company's success depends on its ability to attract and retain qualified
IT professionals with the technical skills and experience necessary to meet
its clients' requirements for technical personnel. Competition for individuals
with proven technical skills, particularly in the Windows, Unix, CAD and other
technology environments for which the Company provides services, is intense,
and the Company expects that competition for IT professionals will increase in
the future. Furthermore, IT professionals typically provide services on an
assignment-by-assignment basis and can terminate an assignment with the
Company at any time. The Company competes for such individuals with other
providers of technical staffing services, systems integrators, providers of
outsourcing services, computer consultants and temporary personnel agencies.
Many of the IT professionals who work with the Company also work with the
Company's competitors, and there can be no assurance that IT professionals
currently working on projects for the Company will not choose to work for
competitors on future assignments. There also can be no assurance that the
Company will be able to attract and retain qualified IT professionals in
sufficient numbers in the future. The Company's net revenues in any period are
related, among other factors, to the number of IT professionals it has on
staff and engaged on assignments. If the Company is unable to hire or retain
such personnel, the Company's business, operating results and financial
condition would be materially adversely affected. See "Business--Business
Strategy," "--IT Professionals" and "--Competition."
RISKS INHERENT IN ADDITION OF PRACTICE GROUPS AND EXPANSION INTO NEW MARKETS
The Company's growth depends on its ability to successfully expand existing
Practice Groups, add additional Practice Groups within its existing regional
markets and enter new regional markets. This expansion is dependent on a
number of factors, including the Company's ability to: attract, hire,
integrate and retain qualified revenue generating employees; develop, recruit
and maintain a base of qualified IT professionals within a regional market;
accurately assess the demand of a new market; and initiate, develop and
sustain corporate client relationships in each new regional market. There can
be no assurance that the addition of Practice Groups and entrance into new
regional markets will occur on a timely basis or achieve anticipated financial
results. The addition of new Practice Groups and entrance into new regional
markets typically results in increases in operating expenses, primarily due to
increased headcount. Expenses are incurred in advance of forecasted revenue,
and there is typically a delay before the Company's new recruiting personnel
and sales employees reach full productivity. If the Company is unable to add
Practice Groups or enter new regional markets in a cost-effective manner or if
those Practice Groups and regional markets do not achieve anticipated
financial results, the Company's business, operating results and financial
condition could be materially adversely affected. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business--
Growth Strategy."
FLUCTUATIONS IN QUARTERLY RESULTS; SEASONALITY
The Company's quarterly operating results have in the past and may in the
future fluctuate significantly depending on a number of factors, including but
not limited to: the rate of hiring and the productivity of revenue-generating
personnel; the availability of qualified IT professionals; changes in the
relative mix between the Company's contract services and permanent placement
services; changes in the pricing of the Company's
7
<PAGE>
services; the timing and rate of entrance into new regional markets and the
addition of practice groups; departures or temporary absences of key revenue-
generating personnel; the structure and timing of acquisitions; changes in the
demand for IT professionals; and general economic factors. In addition,
because the Company provides services on an assignment-by-assignment basis,
which clients can terminate at any time, there can be no assurance that
existing clients will continue to use the Company's services at historical
levels. Although the impact of seasonal factors will vary, the Company
experiences a certain amount of seasonality in its first quarter due primarily
to the number of holidays and the number of internal training and incentive
programs in the first quarter, which may reduce the number of days worked by
IT professionals and revenue-generating employees during such quarter. As a
result, the Company believes that period-to-period comparisons of its results
of operations are not necessarily meaningful and should not be relied upon as
any indication of future performance. In the event the Company's operating
results fall below the expectations of public market analysts and investors,
the price of the Company's Common Stock would likely be materially adversely
affected. Although the Company has experienced substantial revenue growth in
recent years, there can be no assurance that, in the future, the Company will
sustain revenue growth or profitability on a quarterly or annual basis at
historical levels. See "Selected Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
INTEGRATION OF TEAMALLIANCE
In December 1996, the Company acquired certain assets of TeamAlliance, which
was comprised of six affiliated but separate entities that were located in
five states. These management companies now operate as a separate practice
group within the Company's Contract Services Division. The integration of
TeamAlliance, its clients, IT professionals and employees has required a
significant amount of management time and attention, and has resulted in
significant integration-related expenses, including expenses associated with
training TeamAlliance employees and relocating certain TeamAlliance offices.
The Company expects that it may incur additional integration related expenses
in future periods, and there can be no assurance that the integration of
TeamAlliance will not involve disruptions or difficulties, such as departures
of clients, IT professionals or employees, resulting in a material adverse
impact on the Company's business, operating results and financial condition.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
DEPENDENCE ON KEY PERSONNEL
The Company's future business and operating results depend in significant
part upon the continued contributions of its key employees and senior
management personnel, many of whom would be difficult to replace. The loss or
temporary absence of any of the Company's senior management, significant
revenue generating employees, other key personnel and, in particular, Brenda
C. Hall, its Chief Executive Officer, or the inability to attract and retain
key employees or management personnel in the future, could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Management."
MANAGEMENT OF GROWTH
The Company has recently experienced a period of rapid growth that has
placed and will continue to place significant demands upon its management and
other resources. The Company's net revenues increased 72.1% from $29.4 million
in 1995 to $50.6 million in 1996, while headcount increased from 141 employees
to 327 employees in the same period. The Company's ability to effectively
manage future growth will require the Company to expand its operational,
financial and other internal systems. Implementing a new or expanded financial
and management information system can be time-consuming and expensive and
require significant management resources. There can be no assurance that the
Company's current personnel, systems, procedures and controls will be adequate
to support the Company's future operations or that any new system can be
implemented effectively. Any failure to manage its growth effectively could
have a material adverse effect on the Company's business, operating results
and financial condition. See "Business--Growth Strategy."
8
<PAGE>
RISKS OF ACQUISITIONS
A component of the Company's growth strategy is the acquisition of
complementary businesses. The successful implementation of this strategy is
dependent upon the Company's ability to identify suitable acquisition
candidates, obtain requisite financing, acquire such companies on suitable
terms and integrate their operations successfully with those of the Company.
To date, the Company has completed one acquisition and there can be no
assurance that the Company will be able to identify additional suitable
acquisition candidates or that the Company will be able to acquire such
candidates on favorable terms. Moreover, other providers of IT professional
services are also competing for acquisition candidates, which could result in
an increase in the price of acquisition targets and a diminished pool of
companies available for acquisition. Acquisitions also involve a number of
other risks, including adverse effects on the Company's reported operating
results from increases in amortized goodwill and interest expense, the
diversion of management attention and the subsequent integration of acquired
businesses. To the extent the Company seeks to acquire complementary
businesses for cash, the Company may be required to obtain additional
financing and there can be no assurance such financing will be available on
favorable terms, if at all. Due to all of the foregoing, acquisitions may have
a material adverse effect on the Company's business, operating results and
financial condition. In addition, if the Company issues stock to complete any
future acquisitions, existing stockholders will experience further ownership
dilution. See "Business--Growth Strategy."
INDUSTRY AND GEOGRAPHIC CONCENTRATION
The Company's business is dependent on the trends prevalent in, and the
continued growth and rate of change of, the high technology industry. In 1996,
substantially all of the Company's net revenues were derived by providing
services to clients in the high technology industry. In addition,
approximately 73.2% of the Company's net revenues in 1996 were derived from
services provided to clients located in Silicon Valley (56.9% on a pro forma
basis for the TeamAlliance Acquisition). A substantial deterioration in
general economic conditions in Silicon Valley or in the high technology
industry as a whole would materially and adversely affect the Company's
business, financial condition and operating results. See "Business--Clients."
HIGHLY COMPETITIVE MARKET
The IT staffing industry is highly competitive and fragmented and has low
barriers to entry. The Company competes for potential clients with providers
of outsourcing services, systems integrators, computer systems consultants,
other providers of IT staffing services and temporary personnel agencies. Many
of the Company's current and potential competitors have longer operating
histories, significantly greater financial and marketing resources, greater
name recognition and a larger installed base of IT professionals and clients
than the Company. In addition, many of these competitors, including numerous
smaller privately held companies, may be able to respond more quickly to
customer requirements and to devote greater resources to the marketing of
services than the Company. Because there are relatively low barriers to entry,
the Company expects that competition will increase in the future. Increased
competition could result in price reductions, reduced margins or loss of
market share, any of which could materially and adversely affect the Company's
business, operating results and financial condition. Further, there can be no
assurance that the Company will be able to compete successfully against
current and future competitors or that competitive pressures faced by the
Company will not have a material adverse effect on its business, operating
results and financial condition. See "Business--Competition."
CONCENTRATION OF OWNERSHIP BY PRINCIPAL STOCKHOLDERS
Upon completion of this Offering, the Company's principal stockholders,
Brenda C. Hall, Todd J. Kinion and entities affiliated with the Sprout Group,
will beneficially own approximately 70.8% of the Company's outstanding shares
of Common Stock (approximately 66.7% if the over-allotment option is exercised
in full). As a result, these stockholders as a group will be able to exercise
control over almost all matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions. This
concentration of ownership could have the effect of making it difficult for a
third party to acquire control of the
9
<PAGE>
Company and may discourage third parties from attempting to do so. See
"Management" and "Principal and Selling Stockholders."
LIABILITY RISKS
The Company is exposed to liability with respect to actions taken by its IT
professionals while on assignment, such as damages caused by errors of IT
professionals, misuse of client proprietary information or theft of client
property. The Company often indemnifies its clients from the foregoing.
Although the Company maintains insurance coverage, due to the nature of the
Company's assignments, and in particular the access by IT professionals to
client information systems and confidential information, and the potential
liability with respect thereto, there can be no assurance that such insurance
coverage will continue to be available on reasonable terms or that it will be
adequate to cover any such liability. The Company may be exposed to claims of
discrimination and harassment and other similar claims as a result of
inappropriate actions allegedly taken against IT professionals by corporate
clients. As an employer, the Company is also exposed to possible claims of
wrongful discharge and violations of immigration laws. Employment related
claims may result in negative publicity, litigation and liability for money
damages and fines. See "Business--Employees."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of substantial numbers of shares of Common Stock in the public market
after the Offering could adversely affect the market price of the Common
Stock. Upon completion of the Offering, the Company will have outstanding
8,933,619 shares of Common Stock. All of the 2,515,000 shares sold in this
Offering will be freely transferable as of the date of this Prospectus by
persons other than "affiliates" of the Company without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act") and an additional 28,550 shares held by an existing shareholder will be
eligible for sale in the public market in reliance on Rule 144(k) of the
Securities Act. The remaining 6,390,069 shares of Common Stock that will be
outstanding upon completion of this Offering (the "Restricted Shares") will be
held by officers, directors, employees, IT professionals and other
stockholders of the Company. The Restricted Shares were sold by the Company in
reliance upon exemptions from the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act") and are "restricted securities"
under the Securities Act. Beginning 90 days after the date of this Prospectus,
46,048 shares will be eligible for sale in the public market subject to Rule
144 and Rule 701 under the Securities Act. Certain holders of Restricted
Shares have agreed not to sell their shares without the prior written consent
of Montgomery Securities for a period of 180 days from the date of this
Prospectus. Beginning 180 days after commencement of the Offering unless
earlier released, in whole or in part, by Montgomery Securities, 6,344,021
Restricted Shares that are subject to lock-up agreements will become eligible
for sale in the public market subject to Rule 144 and Rule 701 under the
Securities Act. As of June 30, 1997, 2,438,186 shares were issuable upon
exercise of currently outstanding options. Certain holders of such options
have agreed pursuant to existing agreements with the Company not to sell or
otherwise transfer or dispose of any Common Stock for a period of 180 days
from the date of this Prospectus. In addition, certain holders of such options
have additionally agreed not to sell any Common Stock acquired without the
prior written consent of Montgomery Securities for a period of 180 days from
the date of this Prospectus. As of June 30, 1997, 250,000 shares were issuable
upon exercise of currently outstanding warrants, all of which are also subject
to the lock-up agreements described above and will become eligible for sale in
the public markets subject to Rule 144 beginning 180 days after commencement
of this Offering unless earlier released, in whole or in part, by Montgomery
Securities. Upon completion of this Offering, certain holders of 5,952,687
shares of Common Stock and securities convertible into or exercisable for
shares of Common Stock have certain registration rights under a registration
rights agreement among such holders and the Company and certain other
agreements. In addition, following completion of the Offering, the Company
intends to register under the Securities Act approximately 3,238,186 shares of
Common Stock subject to outstanding stock options or reserved for issuance
under the Company's 1997 Stock Option Plan, IT Professional Stock Option Plan
and Employee Stock Purchase Plan (the "Stock Plans") as well as stock options
granted outside the Stock Plans. See "Management--1997 Stock Option Plan," "--
IT Professional Plan," "--Employee Stock Purchase Plan," "Principal and
Selling Stockholders," "Description of Capital Stock--Registration Rights,"
"Shares Eligible for Future Sale" and "Underwriting."
10
<PAGE>
NO PRIOR TRADING MARKET FOR COMMON STOCK; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for the Company's
Common Stock. There can be no assurance that an active trading market will
develop or be sustained after this Offering or that the market price of the
Company's Common Stock will not fall below the offering price. The initial
public offering price will be determined through negotiations among the
Company, the Selling Stockholders and the Representatives of the Underwriters
based on several factors and may not be indicative of the market price of the
Common Stock after this Offering. The market price of the shares of Common
Stock is likely to be highly volatile and may be significantly affected by
factors such as actual or anticipated fluctuations in the Company's operating
results, announcements of acquisitions by the Company or its competitors,
conditions or trends in the IT staffing industry or in technology stocks
generally, adoption of new tax and accounting standards affecting the IT
staffing industry, changes in financial estimates by securities analysts,
general market conditions and other factors. In addition, the technology
sector of the stock market has experienced in recent years significant price
and volume fluctuations. Because the Company's business is dependent on the
trends prevalent in, and the continued growth and rate of change of, the high
technology industry, these broad market fluctuations may adversely affect the
market price of the Company's Common Stock following this Offering. See "--
Industry and Geographic Concentration" and "Underwriting."
EFFECT OF CERTAIN CHARTER PROVISIONS; ANTI-TAKEOVER EFFECTS OF CERTIFICATE OF
INCORPORATION, BYLAWS, DELAWARE LAW
Upon completion of this Offering, the Company's Amended and Restated
Certificate of Incorporation (the "Certificate") and Bylaws and Delaware law
contain provisions that could have the effect of delaying, deferring or
preventing an unsolicited change in control of the Company, which may
adversely affect the market price of the Common Stock or the ability of
shareholders to participate in a transaction in which they might otherwise
receive a premium for their shares over the then-current market price. Such
provisions also may have the effect of preventing changes in the management of
the Company. These provisions provide that all stockholder action must be
taken at an annual or special meeting of the stockholders, that only the Board
of Directors may call special meetings of the stockholders and that the Board
of Directors be divided into three classes to serve for staggered three-year
terms. In addition, the Certificate authorizes the Board of Directors to issue
up to 10,000,000 shares of preferred stock ("Preferred Stock") without
shareholder approval and on such terms as the Board of Directors may
determine. Although no shares of Preferred Stock will be outstanding upon the
closing of this Offering and the Company has no present plans to issue any
shares of Preferred Stock, the rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of holders of any
Preferred Stock that may be issued in the future. In addition, the Company is
subject to the anti-takeover provisions of Section 203 of the Delaware General
Corporation Law, which could have the effect of delaying or preventing a
change of control of the Company. See "Description of Capital Stock--Preferred
Stock" and "--Anti-Takeover Effects of Provisions of the Certificate of
Incorporation, Bylaws and Delaware Law."
IMMEDIATE AND SUBSTANTIAL DILUTION
Investors participating in this Offering will incur immediate, substantial
dilution in net tangible book value per share of $10.21 from the initial
public offering price per share. To the extent outstanding options or warrants
to purchase the Company's Common Stock are exercised, there will be further
dilution. See "Dilution."
11
<PAGE>
THE COMPANY
Hall Kinion was incorporated in December 1991 and intends to reincorporate
in Delaware in July 1997. The Company's operations were located in the Silicon
Valley from inception and began expanding to additional regional markets in
late 1994. The Company currently provides specialized IT professionals on a
contract and permanent basis through 21 offices located in 14 major technology
centers in the United States and London.
In January 1996, entities affiliated with the Sprout Group ("Sprout")
purchased 1,600,000 shares of Series A Preferred Stock and warrants to
purchase an aggregate of up to 250,000 shares of Common Stock for an aggregate
purchase price of $10.0 million. In connection with this transaction, Brenda
C. Hall, the Company's Chief Executive Officer and a director of the Company,
and Todd J. Kinion, a former officer and a current director of the Company,
borrowed from the Company $3.0 million and $2.0 million, respectively,
pursuant to certain secured promissory notes. Ms. Hall and Mr. Kinion may pay
their respective promissory notes by tendering to the Company 480,000 and
320,000 shares of Common Stock, respectively. Ms. Hall and Mr. Kinion have
agreed to tender such shares in payment of the promissory notes upon
completion of this Offering. See "Certain Transactions."
The Company is organized into two divisions: Contract Services, which has
historically provided supplemental staffing to R&D departments of high
technology companies, and Permanent Placement, which provides IT professionals
for placement on a permanent basis. In December 1996, the Company completed
the TeamAlliance Acquisition for a cash payment of $4.2 million at the date of
acquisition and the issuance of 52,000 shares of the Company's Common Stock.
In addition, the Company has agreed to pay the principals an aggregate of an
additional $4.2 million in installments over a three-year period and to make
additional monthly installments during 1997 aggregating approximately $500,000
to certain management companies and their shareholders. With the TeamAlliance
Acquisition, the Company expanded its Contract Services Division to provide
supplemental IT professionals to IS departments of corporate clients. As a
result of the TeamAlliance Acquisition, the Company commenced operations in
five regional markets not previously served.
The Company's principal office is located at 19925 Stevens Creek Boulevard,
Cupertino, California 95014, and its telephone number is (408) 863-5600. The
Company's web site is located at www.hallkinion.com.
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,666,667 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$17.7 million (assuming an offering price of $12.00 per share) and after
deducting the underwriting discount and estimated offering expenses. The
Company expects to use approximately $7.3 million of the net proceeds to repay
outstanding indebtedness under its loan agreements with Comerica Bank--
California ("Comerica"), of which $4.4 million was incurred in connection with
the TeamAlliance Acquisition and the balance of such indebtedness was incurred
for working capital purposes. The Company also intends to repay a cash
overdraft in the amount of approximately $1.2 million. The Company intends to
use the remaining net proceeds for working capital and other corporate
purposes, including the possible acquisition of complementary businesses. The
Company has no current plans, agreements or commitments and is not currently
engaged in any negotiations with respect to any such acquisitions. Pending
such uses, the Company plans to invest the net proceeds in investment grade
interest-bearing securities.
Under its loan agreements with Comerica, the Company has outstanding
revolving loans, which bear interest at the bank's prime rate (8.5% as of June
30, 1997) plus 0.5%, and term loans, which bear interest at the bank's prime
rate plus 1.0% and become due and payable on November 15, 1998. As of June 30,
1997, borrowings under these loan agreements were $7.3 million, consisting of
$3.8 million under the revolving credit facility and $3.5 million under the
term loan facility.
The Company will not receive any proceeds from the sale of shares of Common
Stock by the Selling Stockholders.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying cash dividends in the foreseeable future.
In addition, the Company's revolving line of credit agreement currently
restricts the Company's ability to pay cash dividends without the bank's
consent.
13
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company as of June 30, 1997: (i) on an actual basis; (ii) on a pro forma basis
giving effect to the conversion of all outstanding shares of Preferred Stock
into Common Stock; and (iii) as adjusted to reflect the receipt and the
application of the estimated net proceeds from this Offering of $17.7 million
at an assumed initial public offering price of $12.00 per share after
deducting the estimated underwriting discount and offering expenses, and the
tender of 800,000 shares of the Company's Common Stock in payment of certain
outstanding stockholder notes receivable.
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------
PRO AS
ACTUAL FORMA ADJUSTED
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt (1)................................. $ 7,400 $ 7,400 $ 1,385
======= ======= =======
Long-term debt (2).................................. $ 5,998 $ 5,998 $ 3,498
------- ------- -------
Redeemable convertible preferred stock: 1,600,000
shares, $0.001 par value, authorized, actual;
10,000,000 shares, authorized, pro forma and as
adjusted; 1,600,000 shares outstanding, actual; and
no shares outstanding, pro forma and as adjusted
(3)................................................ 9,900 -- --
------- ------- -------
Stockholders' equity (deficit):
Common stock; 10,000,000 shares, $0.001 par value,
authorized, actual; 100,000,000 shares, authorized,
pro forma and as adjusted; 6,400,288 shares
outstanding, actual; 8,066,952 shares outstanding,
pro forma; and 8,933,619 shares outstanding, as
adjusted (4)....................................... 521 10,421 28,111
Stockholder notes receivable........................ (5,496) (5,496) (6)
Accumulated translation adjustment.................. 9 9 9
Retained earnings (deficit)......................... 2,776 2,776 (2,704)
------- ------- -------
Total stockholders' equity (deficit).............. (2,190) 7,710 25,410
------- ------- -------
Total capitalization................................ $13,708 $13,708 $28,908
======= ======= =======
</TABLE>
- --------
(1) Short-term debt includes current portion of long-term debt, cash overdraft
and the line of credit.
(2) See Note 4 of Notes to Consolidated Financial Statements.
(3) See Note 7 of Notes to Consolidated Financial Statements.
(4) See Note 8 of Notes to Consolidated Financial Statements.
14
<PAGE>
DILUTION
The pro forma net tangible book value of the Company's Common Stock as of
June 30, 1997 was $(1.7) million, or approximately $(0.21) per share. Pro
forma net tangible book value per share represents the amount of the Company's
stockholders' equity, less intangible assets, divided by the pro forma number
of shares of Common Stock outstanding after giving effect to the conversion of
all outstanding shares of Preferred Stock into shares of Common Stock upon
completion of this Offering.
Net tangible book value dilution per share represents the difference between
the amount per share paid by purchasers of shares of Common Stock in this
Offering made hereby and the pro forma net tangible book value per share of
Common Stock immediately after completion of this Offering. After giving
effect to the sale of 1,666,667 shares of Common Stock in this Offering at an
assumed offering price of $12.00 per share and the application of the
estimated net proceeds therefrom, the pro forma net tangible book value of the
Company as of June 30, 1997 would have been $16.0 million, or $1.79 per share.
This represents an immediate increase in net tangible book value of $2.00 per
share to existing stockholders and an immediate dilution in net tangible book
value of $10.21 per share to purchasers of Common Stock in this Offering.
Investors participating in this Offering will incur immediate, substantial
dilution. This is illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed public offering price per share...................... $12.00
Pro forma net tangible book value per share as of June 30,
1997...................................................... $(0.21)
Increase per share attributable to new investors........... 2.00
------
Pro forma net tangible book value per share after the
Offering.................................................... 1.79
------
Net tangible book value dilution per share to new investors.. $10.21
======
</TABLE>
The following table sets forth as of June 30, 1997, after giving effect to
the conversion of all outstanding shares of Preferred Stock into Common Stock
upon completion of this Offering, the difference between the existing
stockholders and the purchasers of shares in the Offering with respect to the
number of shares purchased from the Company, the total consideration paid and
the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders
(1)(2).................... 7,266,952 81.3% $10,421,000 34.3% $ 1.43
New stockholders........... 1,666,667 18.7 20,000,000 65.7 $12.00
--------- ----- ----------- -----
Totals (2)............... 8,933,619 100.0% $30,421,000 100.0%
========= ===== =========== =====
</TABLE>
- --------
(1) After giving effect to the tender of 800,000 shares of the Company's
Common Stock in payment of certain outstanding stockholder notes
receivable.
(2) The sale of shares by the Selling Stockholders in the Offering will cause
the number of shares held by the existing stockholders to be reduced to
6,418,619 or approximately 71.8% of the total number of shares, and will
increase the number of shares to be purchased by new stockholders to
2,515,000 or 28.2% of the total number of shares.
As of June 30, 1997, there were options outstanding to purchase a total of
2,438,186 shares of Common Stock at a weighted average exercise price of $4.33
per share and warrants to purchase 250,000 shares of Common Stock at an
exercise price of $0.01 per share. To the extent outstanding options or
warrants are exercised, there will be further dilution to new investors. See
"Management--1997 Stock Option Plan," "Certain Transactions" and Note 8 of
Notes to Consolidated Financial Statements.
15
<PAGE>
SELECTED CONSOLIDATED AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected consolidated and pro forma consolidated financial
data should be read in conjunction with the Company's consolidated and pro
forma consolidated financial statements and related notes thereto and with
Management's Discussion and Analysis of Financial Condition and Results of
Operations, included elsewhere in this Prospectus. The consolidated statement
of operations data for the years ended December 31, 1994, 1995 and 1996, and
the consolidated balance sheet data at December 31, 1995 and 1996 are derived
from audited consolidated financial statements included elsewhere in this
Prospectus. The pro forma consolidated statement of operations data for the
year ended December 31, 1996 is derived from the unaudited pro forma condensed
combining statement of income included elsewhere in this Prospectus. The
consolidated balance sheet data at December 31, 1992 and 1993 and the
consolidated statement of operations data for the years ended December 31,
1992 and 1993 are derived from unaudited consolidated financial statements not
included in this Prospectus. The consolidated balance sheet data at December
31, 1994 is derived from audited consolidated financial statements not
included in this Prospectus. The consolidated balance sheet data at June 30,
1997 and the consolidated statement of operations data for the six months
ended June 30, 1996 and 1997 are derived from unaudited financial statements
included elsewhere in this Prospectus. The unaudited consolidated financial
statements have been prepared on the same basis as the audited consolidated
financial statements and, in the opinion of management, contain all
adjustments, consisting of only normal recurring adjustments, necessary for
the fair presentation of the results of operations for such period.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, PRO FORMA JUNE 30,
----------------------------------------- --------- ---------------
1992 1993 1994 1995 1996 1996 (1) 1996 1997
------ ------ ------- ------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net revenues:
Contract services...... $3,070 $8,376 $14,222 $25,660 $42,254 $56,774 $19,039 $37,422
Permanent placement.... 1,291 1,404 1,746 3,725 8,317 8,317 3,701 5,269
------ ------ ------- ------- ------- ------- ------- -------
Total net revenues..... 4,361 9,780 15,968 29,385 50,571 65,091 22,740 42,691
Cost of contract
services............... 2,303 6,386 10,728 19,209 30,342 40,854 13,639 25,933
------ ------ ------- ------- ------- ------- ------- -------
Gross profit............ 2,058 3,394 5,240 10,176 20,229 24,237 9,101 16,758
Operating expenses:
Selling, general and
administrative
expenses.............. 2,085 3,269 4,978 8,869 17,412 21,719 7,569 15,596
Other operating
expenses.............. -- -- -- -- 821 821 -- --
------ ------ ------- ------- ------- ------- ------- -------
Total operating
expenses.............. 2,085 3,269 4,978 8,869 18,233 22,540 7,569 15,596
------ ------ ------- ------- ------- ------- ------- -------
Income (loss) from
operations............. (27) 125 262 1,307 1,996 1,697 1,532 1,162
Other income (expense),
net.................... (20) (44) (203) (156) 369 (778) 183 (197)
------ ------ ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes........... (47) 81 59 1,151 2,365 919 1,715 965
Income taxes............ 60 53 26 469 1,004 444 687 410
------ ------ ------- ------- ------- ------- ------- -------
Net income (loss)....... $ (107) $ 28 $ 33 $ 682 $ 1,361 $ 475 $ 1,028 $ 555
====== ====== ======= ======= ======= ======= ======= =======
Net income (loss) per
share (2).............. $(0.01) $ -- $ -- $ 0.09 $ 0.15 $ 0.05 $ 0.11 $ 0.06
====== ====== ======= ======= ======= ======= ======= =======
Shares used in per share
computation............ 7,227 7,227 7,227 7,272 9,351 9,351 8,941 9,503
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------- JUNE 30,
1992 1993 1994 1995 1996 1997
---- ------ ------ ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit)........ $135 $ 251 $ (209) $ (114) $ 189 $ (850)
Total assets..................... 780 1,700 2,572 5,680 22,994 26,826
Long-term debt................... 71 244 -- -- 6,738 5,998
Redeemable convertible preferred
stock........................... -- -- -- -- 9,900 9,900
Total stockholders' equity
(deficit)....................... 198 226 259 941 (2,748) (2,190)
</TABLE>
- -------
(1) The pro forma consolidated statement of operations data reflects the
combined operations of the Company and TeamAlliance as if the acquisition,
which was completed on December 2, 1996, had been completed on January 1,
1996. See "Unaudited Pro Forma Condensed Combining Statement of Income."
(2) Computed on the basis described in Note 1 of Notes to Consolidated
Financial Statements.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Hall, Kinion & Associates, Inc. provides specialized IT professionals in 14
major technology centers located throughout the United States and in London.
The Company is organized into two divisions: Contract Services, which has
historically provided supplemental IT professionals to R&D departments of high
technology companies, and Permanent Placement, which places IT professionals
in permanent positions. With the acquisition of TeamAlliance in December 1996,
the Company expanded its Contract Services Division to provide IT
professionals to IS departments of corporate clients through a new IS Practice
Group.
During 1996, revenues from the Contract Services and Permanent Placement
Divisions accounted for 83.6% and 16.4% of net revenues, respectively. If the
TeamAlliance Acquisition had occurred on January 1, 1996, net revenues on a
pro forma basis for the Contract Services and Permanent Placement Divisions
would have accounted for 87.2% and 12.8% of 1996 net revenues, respectively.
During the six months ended June 30, 1997, revenues from the Contract
Services and Permanent Placement Divisions accounted for 87.7% and 12.3% of
net revenues, respectively.
The Company's net revenues are derived from hourly billings of IT
professionals performing contract assignments and fees received for permanent
placements. For contract services, assignments generally last from three to
nine months and revenues are recognized as services are provided. For its
permanent placement IT professionals, the Company receives a fee upon
placement of the candidate that is usually structured as a percentage of the
placed IT professional's first-year annual compensation. Permanent placement
revenues from these fees are recognized when the IT professional commences
employment.
Since late 1994, the Company has experienced rapid growth by adding
additional sales and recruiting employees, developing new Practice Groups and
entering new regional markets. As of December 31, 1994, the Company had 64
employees and seven Practice Groups in three regional markets. As of December
31, 1996, the Company had 327 employees and 42 Practice Groups in 14 regional
markets. During this two-year period, net revenues increased from $16.0
million to $50.6 million. Although contributing to the increase in net
revenues, the addition of new Practice Groups and the entry into new regional
markets resulted in substantial increases in operating expenses, primarily due
to increased headcount. These expenses are incurred in advance of any
recognized revenue and there is often a delay before the Company's new
recruiting personnel and sales employees reach full productivity.
The Company's gross profit margins are affected by changes in the mix of
services provided between Contract Services and Permanent Placement.
Consistent with industry practice, the Company recognizes all costs related to
permanent placement revenues as operating expenses. Accordingly, all costs of
revenues, which include compensation, statutory and other benefits, including
vacation days of IT professionals, and other direct costs of providing
services to clients, are associated with contract services. Because the
Company reports 100% gross margin for permanent placement revenues, changes in
the mix between permanent placement and contract services revenues can have a
significant effect on the Company's gross margins and operating expenses.
In December 1996, the Company completed the TeamAlliance Acquisition for a
cash payment of $4.2 million at the date of acquisition and the issuance of
52,000 shares of the Company's Common Stock. In addition, the Company has
agreed to pay the principals an aggregate of an additional $4.2 million in
installments over a three-year period and to make additional monthly
installments aggregating $500,000 to certain management companies and their
shareholders during 1997. With the acquisition of TeamAlliance, the Company
entered five new regional markets. The acquisition was accounted for under the
purchase method of accounting and, accordingly, the purchase price in excess
of the net tangible book value was allocated to goodwill. Such goodwill is
being amortized over 30 years. See Notes 1 and 2 of Notes to Consolidated
Financial Statements.
17
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth as a percentage of net revenues, except as
otherwise noted, the Company's results of operations for the periods shown:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
--------------------- ----------------
1994 1995 1996 1996 1997
----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C>
Net revenues:
Contract services............... 89.1 % 87.3 % 83.6% 83.7% 87.7 %
Permanent placement............. 10.9 12.7 16.4 16.3 12.3
----- ----- ----- ------- -------
Total net revenues............ 100.0 100.0 100.0 100.0 100.0
Cost of contract services......... 67.2 65.4 60.0 60.0 60.7
----- ----- ----- ------- -------
Gross profit(1)................... 32.8 34.6 40.0 40.0 39.3
Selling, general administrative
expenses......................... 31.2 30.2 34.4 33.3 36.5
Other operating expenses.......... -- -- 1.6 -- --
----- ----- ----- ------- -------
Income from operations............ 1.6 4.4 4.0 6.7 2.8
Other income (expense), net....... (1.3) (0.5) 0.7 0.8 (0.5)
----- ----- ----- ------- -------
Income before income taxes........ 0.3 % 3.9 % 4.7% 7.5% 2.3 %
===== ===== ===== ======= =======
</TABLE>
- --------
(1) Gross profit for contract services excluding permanent placement revenues
(as a percentage of net contract services revenues) was 24.6%, 25.1% and
28.2% for years ended December 31, 1994, 1995 and 1996, respectively, and
28.4% and 30.7% for the six months ended June 30, 1996 and 1997,
respectively.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Net revenues. Net revenues increased $19.9 million, or 87.7%, from $22.7
million for the six months ended June 30, 1996, to $42.7 million for the six
months ended June 30, 1997. The Company's net revenues from contract services
increased by $18.4 million, or 96.6%, and net revenues from permanent
placements increased by $1.6 million, or 42.4%, in the first half of 1997 from
the first half of 1996. The increase in revenue from contract services was
primarily due to revenues associated with the TeamAlliance Acquisition, growth
in existing regional markets including the addition of new Practice Groups,
and to a lesser extent, an increase in average hourly billing rates charged
for the Company's IT professionals. The Company also realized an increase in
revenues from permanent placements due primarily to the addition of revenues
from regional markets entered in 1996 and growth in sales within existing
regional markets.
Gross profit. Gross profit increased $7.7 million, or 84.1%, from $9.1
million for the first six months of 1996 to $16.8 million for the first six
months of 1997. As a percentage of net revenues, gross profits decreased to
39.3% in the first half of 1997 from 40.0% in the first half of 1996. This
decrease was primarily due to a change in the mix between contract services
and permanent placements. Contract services revenues increased as a percentage
of net revenues from 83.7% in the first six months of 1996 to 87.7% in the
first six months of 1997, while permanent placement revenues decreased as a
percentage of net revenues from 16.3% in the first half of 1996 to 12.3% in
the first half of 1997. Permanent placement revenues decreased as a percentage
of net revenues due primarily to the addition of the TeamAlliance operations.
Gross profit for contract services excluding permanent placement revenues
(as a percentage of net contract services revenues) increased to 30.7% in the
first six months of 1997 from 28.4% in the first six months of 1996. This
increase was primarily due to an increase in average hourly billing rates
charged for the Company's IT professionals.
Operating expenses. Operating expenses increased $8.0 million, or 106.1%,
from $7.6 million for the six months ended June 30, 1996 to $15.6 million for
the six months ended June 30, 1997. As a percentage of net revenues, operating
expenses increased to 36.5% in the first half of 1997 from 33.3% in the first
half of 1996.
18
<PAGE>
This increase was primarily due to increased headcount and operating expenses
from the integration of the TeamAlliance operations, including training costs
and office relocation costs incurred in the Houston, Tampa and Chicago
regional markets and in connection with relocating the Company's corporate
headquarters to Cupertino, California. To a lesser extent, operating expenses
increased due to expenses incurred from the addition of a permanent placement
Practice Group in Houston and the opening of a new office in Foster City,
California.
Other income (expense), net. Other expense was $197,000 for the first six
months of 1997 compared to other income of $183,000 for the first six months
of 1996. This decrease in other income was primarily due to an increase in
interest expense to $345,000 for the first six months of 1997 compared to
$29,000 in the first six months of 1996. This expense primarily reflects
indebtedness incurred in connection with the TeamAlliance Acquisition and for
additional working capital purposes. The Company's interest expense is
partially offset by interest income from certain secured promissory notes of
Ms. Hall and Mr. Kinion.
Income Taxes. Income taxes as a percentage of income before taxes were 42.5%
and 40.1% for the six month periods ending June 30, 1997 and June 30, 1996,
respectively. The Company's income taxes as a percentage of income before
taxes varies somewhat from period to period due primarily to changes in
nondeductible expenses.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net revenues. Net revenues increased $21.2 million, or 72.1%, to $50.6
million in 1996 from $29.4 million in 1995. The Company's net revenues from
contract services increased by $16.6 million, or 64.7%, and net revenues from
permanent placements increased by $4.6 million, or 123.3%, in 1996 from 1995.
The increase in revenues was primarily due to growth in sales within existing
regional markets, including a full year of revenue from the Portland and
Denver regional markets which the Company entered in 1995. To a lesser extent,
revenues increased due to expansion into additional regional markets,
including, with respect to contract services, one month of net revenues from
the TeamAlliance operations. During 1996, the Company expanded into Austin
(April), Phoenix (July), Raleigh (September) and London (November). Due to the
delay typically experienced by the Company before new employees reach full
productivity, the Company did not recognize significant revenues from these
regional markets in 1996. As a result, the number of Company employees
(excluding IT professionals) increased by 132.0% in 1996, while net revenues
increased by only 72.1%. In addition, in December 1996 the Company entered the
New York City, Chicago, Houston, Orlando and Tampa regional markets, as a
result of the TeamAlliance Acquisition.
Gross profit. Gross profit increased $10.0 million, or 98.8%, to $20.2
million in 1996 from $10.2 million in 1995. As a percentage of net revenues,
gross profit increased to 40.0% in 1996 from 34.6% in 1995. This increase as a
percentage of net revenues was primarily due to a change in the mix between
contract services and permanent placements. Contract services decreased as a
percentage of net revenues from 87.3% in 1995 to 83.6% in 1996, while
permanent placement increased as a percentage of net revenues from 12.7% in
1995 to 16.4% in 1996.
Gross profit for contract services excluding permanent placement revenues
(as a percentage of net contract services revenues) increased to 28.2% in 1996
from 25.1% in 1995. This increase was due to an increase in average hourly
billing rates charged for the Company's IT professionals beginning in late
1995.
Operating expenses. Operating expenses increased $9.4 million, or 105.6%, to
$18.2 million in 1996 from $8.9 million in 1995. As a percentage of net
revenues, operating expenses increased to 36.0% in 1996 from 30.2% in 1995.
This increase was primarily due to an increase in permanent placement revenues
as a percentage of total net revenues, as all expenses associated with
permanent placement revenues are recognized as operating expenses. In
addition, the increase was the result of a substantial increase in new sales
employees, who are typically less productive in their first year, and the
Company's opening of Practice Groups in four additional regional markets in
1996.
19
<PAGE>
Other operating expenses. In 1996, the Company incurred other operating
expenses of $821,000. Of this amount, approximately $370,000 was associated
with reserves for pending litigation and approximately $270,000 was associated
with severance obligations to former executive officers of the Company.
Other income (expense), net. During 1996, the Company reported interest
income net of expense of $369,000 as compared to interest expense of $156,000
in 1995. This income reflects the investment of proceeds received from the
Company's sale of redeemable convertible preferred stock in January 1996 and
the repayment of the outstanding balance on the Company's credit line.
Income taxes. Income taxes as a percentage of income before taxes increased
to 42.5% in 1996 from 40.7% in 1995. This increase was primarily due to
certain nondeductible expenses incurred by the Company in the fourth quarter
of 1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net revenues. Net revenues increased $13.4 million, or 84.0%, to $29.4
million in 1995 from $16.0 million in 1994. The Company's net revenues from
contract services increased by $11.4 million, or 80.4%, and net revenues from
permanent placements increased by $2.0 million, or 113.3%, in 1995 from 1994.
This increase resulted primarily from internal growth attributable to the
addition of new specialized Practice Groups, the Company's initial expansion
outside of California and increased net revenues for permanent placement
services. During 1995, the Company expanded its operations into Denver
(November) and Portland (July). During November 1994, the Company entered the
Seattle regional market. Due to the delay typically experienced by the Company
before new employees reach full productivity, the Company did not recognize
significant revenues from those regional markets in 1995. As a result, the
number of Company employees (excluding IT professionals) increased by 120.0%
in 1995, while net revenues increased by only 84.0%.
Gross profit. Gross profit increased $4.9 million, or 94.2%, to $10.2
million in 1995 from $5.2 million for 1994. As a percentage of net revenues,
gross profit increased to 34.6% in 1995 from 32.8% in 1994. This increase was
primarily due to a change in the mix between contract services and permanent
placements. Contract services decreased as a percent of net revenues from
89.1% in 1994 to 87.3% in 1995, while permanent placements increased as a
percent of net revenues from 10.9% in 1994 to 12.7% in 1995.
Gross profit for contract services excluding permanent placement revenues
(as a percentage of net contract services revenues) increased to 25.1% in 1995
from 24.6% in 1994.
Operating expenses. Operating expenses increased $3.9 million, or 78.2%, to
$8.9 million in 1995 from $5.0 million in 1994. As a percentage of net
revenues, operating expenses decreased to 30.2% in 1995 from 31.2% in 1994.
This decline was primarily attributable to the Company's ability to allocate
its costs over a much greater revenue base. However, this operating leverage
was partially offset by a significant increase in new employees, and the costs
associated with the Company's entrance into the Denver and Portland regional
markets during 1995.
Income taxes. Income taxes as a percentage of income before taxes decreased
to 40.7% in 1995 from 44.1% in 1994. This decrease was attributable to the
effect of nondeductible expenses which had a greater proportional impact on
the tax provision in 1994 than in 1995.
20
<PAGE>
SELECTED QUARTERLY OPERATING RESULTS
The following tables set forth certain unaudited quarterly consolidated
statement of operations data, both in dollar amount and as a percentage of
total net revenues, for each of the ten quarters ended June 30, 1997. In the
opinion of management, this information has been presented on the same basis
as the audited consolidated financial statements appearing elsewhere in this
Prospectus, and all necessary adjustments, consisting only of normal recurring
adjustments, have been included in the amounts stated below to present fairly
the unaudited quarterly results when read in conjunction with the audited
consolidated financial statements of the Company and related notes thereto.
The operating results for any quarter should not be relied upon as any
indication of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995 1995 1995 1995 1996 1996 1996 1996 1997 1997
-------- -------- --------- -------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Contract services...... $4,364 $5,491 $7,169 $8,636 $8,628 $10,411 $10,275 $12,940 $17,037 $20,385
Permanent placement.... 637 769 1,076 1,243 1,668 2,033 2,109 2,507 2,156 3,113
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Total net revenues.... 5,001 6,260 8,245 9,879 10,296 12,444 12,384 15,447 19,193 23,498
Cost of contract
services............... 3,359 4,227 5,299 6,324 6,213 7,426 7,399 9,304 12,020 13,913
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Gross profit............ 1,642 2,033 2,946 3,555 4,083 5,018 4,985 6,143 7,173 9,585
Selling, general and
administrative
expenses............... 1,638 1,900 2,369 2,962 3,450 4,119 4,220 5,623 7,064 8,532
Other operating
expenses............... -- -- -- -- -- -- 721 100 -- --
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Income from operations.. 4 133 577 593 633 899 44 420 109 1,053
Net income (loss)....... $ (22) $ 64 $ 326 $ 314 $ 416 $ 612 $ 100 $ 233 $ 20 $ 535
====== ====== ====== ====== ====== ======= ======= ======= ======= =======
Net income (loss) per
share (1).............. $ -- $ 0.01 $ 0.05 $ 0.04 $ 0.05 $ 0.06 $ 0.01 $ 0.02 $ -- $ 0.06
====== ====== ====== ====== ====== ======= ======= ======= ======= =======
Shares used in per share
computation............ 7,227 7,227 7,227 7,412 8,447 9,420 9,523 9,523 9,506 9,509
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995 1995 1995 1995 1996 1996 1996 1996 1997 1997
-------- -------- --------- -------- -------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Contract services...... 87.3 % 87.7% 86.9% 87.4% 83.8% 83.7% 83.0% 83.8% 88.8% 86.8%
Permanent placement.... 12.7 12.3 13.1 12.6 16.2 16.3 17.0 16.2 11.2 13.2
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Total net revenues...... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of contract
services............... 67.2 67.5 64.3 64.0 60.3 59.7 59.7 60.2 62.6 59.2
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Gross profit............ 32.8 32.5 35.7 36.0 39.7 40.3 40.3 39.8 37.4 40.8
Operating expenses...... 32.7 30.4 28.7 30.0 33.5 33.1 34.1 36.4 36.8 36.3
Other operating expenses -- -- -- -- -- -- 5.8 0.6 -- --
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Income from operations.. 0.1 2.1 7.0 6.0 6.2 7.2 0.4 2.8 0.6 4.5
Net income (loss)....... (0.4)% 1.0% 4.0% 3.2% 4.0% 4.9% 0.8% 1.5% 0.1% 2.3%
====== ====== ====== ====== ====== ======= ======= ======= ======= =======
Gross profit: contract
services (2)........... 23.0 % 23.0% 26.1% 26.8% 28.0% 28.7% 28.0% 28.1% 29.4% 31.7%
</TABLE>
- --------
(1) See Note 1 of Notes to Consolidated Financial Statements.
(2) Represents gross profit for contract services (excluding permanent
placement revenues) as a percentage of net contract services revenues.
The Company's quarterly operating results have in the past and may in the
future fluctuate significantly depending on a number of factors, including but
not limited to: the rate of hiring and the productivity of additional revenue-
generating personnel; the availability of qualified IT professionals; changes
in the relative mix
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<PAGE>
between the Company's contract and permanent services; changes in the pricing
of the Company's services; the timing and rate of entrance into new regional
markets and addition of Practice Groups; temporary absences of key revenue-
generating personnel; the structure and timing of acquisitions; changes in the
demand for IT professionals; and general economic factors, among others. See
"Risk Factors--Fluctuations in Quarterly Results; Seasonality."
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirement is to fund working capital. The
Company has utilized various sources to fund this working capital including
cash flow from internal operations, bank credit lines and the sale of
preferred stock.
During 1996, 1995 and 1994, the Company used cash in operations of
approximately $1.6 million, $193,000 and $180,000, respectively, and $1.2
million for the six months ended June 30, 1997. The principal use of cash
during each of these periods was to support growth in accounts receivable
resulting from the Company's growth in net revenues and to fund operating
expenses associated with entering new markets and adding Practice Groups. In
the first six months of 1997, the Company experienced an increase in accounts
receivable in part from TeamAlliance, which was purchased in December 1996. In
connection with this acquisition, the Company did not purchase the existing
accounts receivable balances. This growth was financed using external sources,
such as bank financing and the sale of preferred stock and internal sources,
including net income and accrued expenses. The Company pays its IT
professionals on a weekly basis, while corporate clients are generally billed
at the end of the applicable pay period. Corporate clients typically remit
payments 30 to 40 days after invoice date. These working capital requirements
are somewhat mitigated by permanent placement revenues as the sales
commissions associated with such revenues are not paid until fees are
collected from the Company's client.
During 1996, 1995 and 1994, the Company made capital expenditures of $2.6
million, $634,000 and $332,000, respectively, and $963,000 during the six
months ended June 30, 1997. In October 1996, the Company purchased a corporate
training facility in Park City, Utah. The purchase price consisted of $1.0
million in cash plus a note payable to the seller in the amount of $1.1
million. The note bears interest at 8.75% per annum, matures in the year 2026
and requires installments of principal and interest totaling $9,023 each
month. The note is fully secured by a deed of trust against the property. See
Note 3 of Notes to Consolidated Financial Statements.
In December 1996, the Company completed the TeamAlliance Acquisition for a
cash payment of $4.2 million at the date of acquisition and the issuance of
52,000 shares of the Company's Common Stock. In addition, the Company has
agreed to pay the principals an aggregate of an additional $4.2 million in
installments over a three-year period and to make additional monthly
installments aggregating approximately $500,000 to certain management
companies and their shareholders during 1997. The Company financed the cash
portion of the purchase price with available borrowings under the term loan
facility. See Note 2 of Notes to Consolidated Financial Statements.
In January 1996, entities affiliated with the Sprout Group ("Sprout")
purchased 1,600,000 shares of Series A Preferred Stock and warrants to
purchase an aggregate of up to 250,000 shares of Common Stock. In connection
with this transaction, Brenda C. Hall, the Company's Chief Executive Officer
and a director of the Company, and Todd J. Kinion, a former officer and a
current director of the Company, borrowed from the Company $3.0 million and
$2.0 million, respectively, pursuant to secured promissory notes. Each of
these promissory notes becomes due and payable in January 2001 or upon the
occurrence of certain events, including the closing of this Offering. Ms. Hall
and Mr. Kinion may pay their respective promissory notes by tendering to the
Company 480,000 and 320,000 shares of Common Stock, respectively. Ms. Hall and
Mr. Kinion have agreed to tender such shares in payment of the promissory
notes upon completion of this Offering. See "Certain Transactions."
At June 30, 1997, the Company had $161,000 in cash and cash equivalents and
$850,000 of negative working capital. The Company has a term loan and
revolving line of credit facility enabling the Company to
22
<PAGE>
borrow a stated percentage of eligible accounts receivable up to a maximum of
$12.0 million. As of June 30, 1997, borrowings under these loan agreements
were $7.3 million, consisting of $3.8 million under the revolving credit
facility and $3.5 million under the term loan. All borrowings under these loan
agreements are secured by the assets of the Company. The term loan bears
interest at the bank's prime rate plus 1.0% (9.5% in total at June 30, 1997),
and the revolving line of credit bears interest at the bank's prime rate plus
0.5%. As of June 30, 1997, the Company also had a cash overdraft of $1.2
million. The Company intends to repay all borrowings under these facilities
and the cash overdraft using the proceeds from this Offering. See Note 4 of
Notes to Consolidated Financial Statements.
The Company believes that the proceeds from this Offering together with cash
flow from operations and borrowings under the Company's credit facility, or
other credit facilities that may become available to the Company in the
future, will be adequate to meet the Company's presently anticipated working
capital requirements for at least the next 18 months. The Company's estimate
of the period of time the proceeds of this Offering will fund its working
capital requirements is a forward-looking statement that is subject to risks
and uncertainties. Actual results could differ from those indicated as a
result of a number of factors, including the use of such proceeds to fund the
acquisition of complementary businesses. The Company has no current plans,
agreements or commitments and is not currently engaged in any negotiations
with respect to any acquisitions. See "Use of Proceeds."
23
<PAGE>
BUSINESS
Hall, Kinion & Associates, Inc. is a leading provider of specialized IT
professionals on a contract and permanent basis in 14 technology centers
located throughout the United States and in London. The Company provides its
services primarily to high technology companies, such as software developers,
computer systems manufacturers and telecommunications suppliers, primarily for
use in their development of next generation products. These companies require
highly skilled technical personnel in their engineering, product development
and quality assurance functional areas (collectively, "R&D departments"). To
meet the specialized needs of these clients, the Company provides its services
through distinct Practice Groups organized around specific technologies (such
as Windows, Unix or CAD) frequently used by such clients. The Company believes
that this specialization enables it to respond rapidly to its clients and
provide leading-edge technology assignments for its IT professionals. In 1996,
the Company placed contract and permanent professionals with a broad range of
high technology clients, including Borland, Cisco Systems, Microsoft, Oracle
and numerous emerging growth technology clients, with no single client
representing more than 5.0% of net revenues. With the TeamAlliance Acquisition
in December 1996, the Company expanded its client base and service offerings
to include traditional IT professional services to IS departments for
corporate clients. The Company believes that the IS business complements its
core R&D business and allows the Company to further leverage its specialized
service offerings and its national presence.
INDUSTRY BACKGROUND
The high technology industry continues to experience substantial growth as
constant innovation, such as open and distributed computing, client/server
technology, the Internet, relational databases and object-oriented
programming, shortens product lifecycles and accelerates the demand for
computer-related products. These trends, combined with the intense competition
faced by high technology companies, have put considerable pressure on such
companies to shorten the time-to-market of their products. The development of
these next generation products often requires highly specialized technical
talent which may not be available internally. This need for IT professionals
is particularly critical during the months or year before release of a new
software or hardware product. As a result, these high technology companies are
frequently utilizing supplemental sources of IT professionals with expertise
in current technologies.
As high technology companies continue to develop and introduce new
technologies and systems, businesses are attempting to integrate and implement
these systems into their already complex computing environments. As these
systems are being deployed on an enterprise-wide basis and on multiple
hardware and software platforms, the process of systems design and
implementation has become more complex. As a result, IS departments are faced
with a similar challenge of finding qualified IT professionals to design,
develop, deploy and maintain their systems. Frequently, however, qualified IT
professionals do not exist in-house or it may be impractical to redeploy and
retrain in-house personnel. Consequently, IS departments, like high technology
companies, are increasingly seeking to augment their staffs with IT
professionals skilled in the management and operation of such systems.
Despite increased demand for IT professionals, there continues to be a
shortage of IT professionals proficient in the most current computer languages
and applications. For example, according to the U.S. Department of Education,
the number of students graduating annually from United States universities
with bachelor degrees in computer and information sciences has decreased
approximately 43% from 42,000 in 1986 to 24,000 in 1994. Due to the high
demand for their services, many IT professionals have a variety of
opportunities in the job market. While the majority choose to pursue full-time
employment, an increasing number are attracted to the benefits of working on a
contract basis. Such benefits include more flexible work schedules,
accelerating cash compensation and the opportunity to work with emerging and
challenging technologies in a variety of industries.
To address their increasing demand for contract and permanent IT
professionals, both R&D departments of technology companies and IS departments
of large corporations are turning to IT professional services companies
24
<PAGE>
to augment their existing operations. In July 1996, Dataquest estimated that
the size of the IT professional services market in the United States in 1995
was $44.3 billion. Dataquest estimated that this market will grow at a
compound annual rate of approximately 15.0%, reaching approximately $89.2
billion by the year 2000. Technology-dependent companies are increasingly
utilizing outside consultants to: (i) meet critical product deadlines;
(ii) focus on their core businesses; (iii) access specialized technical
skills; (iv) better match staffing levels to current needs; and (v) reduce the
costs of recruiting, training and terminating employees.
BUSINESS STRATEGY
The Company's objective is to (i) provide efficient and high quality
contract and permanent IT professional services to R&D departments of high
technology clients and IS departments of corporate clients and (ii) become the
"agent of choice" for IT professionals. To achieve this objective, the Company
focuses on the following key elements of its business strategy:
. FOCUS ON TECHNOLOGY-DRIVEN CLIENTS. Historically, the Company has focused
on providing its services primarily to R&D departments of high technology
companies. As a result, the Company frequently provides services for critical
projects such as the development of next generation software and hardware
products. These projects require IT professionals with more highly specialized
skill sets than traditional supplemental IT personnel, enabling the Company to
realize higher margins for its services. In addition, because many technology
companies are concentrated in certain regional markets across the United
States, such as Silicon Valley, the Research Triangle and Austin, Texas, the
Company is able to effectively market its services nationally through a
limited network of regional markets. To complement its core R&D business, the
Company recently acquired TeamAlliance which has broadened its service
offerings to include providing IT professionals to IS departments of corporate
clients. This acquisition enables the Company both to cross-recruit IT
professionals and to facilitate the introduction of its R&D service offerings
to new regional markets.
. PROVIDE SPECIALIZED IT SERVICES THROUGH DISTINCT PRACTICE GROUPS. The core
of the Company's operating model is the "Practice Group." The Company has
organized its Contract Services Division into Practice Groups focused on
specialized technologies (such as Windows, Unix and CAD) frequently used by
its clients. To a more limited extent, the Company has begun to focus its
Permanent Placement Division and revenue generating employees within the IS
Practice Group in a similarly specialized manner. While the Company has
multiple Practice Groups in many of its regional markets, each Practice Group
operates relatively autonomously and compensates its revenue generating
employees based on the performance of the particular Practice Group. These
Practice Groups enable account managers and technical recruiting agents to
focus on and develop a better understanding of client requirements and the
different skill levels of the Company's IT professionals. This organization is
also designed to allow for quicker and more efficient placement, to require
fewer interviews of IT professionals and ultimately to result in the provision
of better qualified candidates.
. LEVERAGE PERMANENT PLACEMENT BUSINESS. While a significant percentage of
the Company's net revenues in 1996 were generated by its contract services,
permanent placements remain an important component of the Company's overall
business strategy. By offering both contract services and permanent
placements, the Company is able to provide more comprehensive personnel
services to its clients and pursue cross-selling opportunities. In 1996, the
Company provided contract services to approximately 250 of its clients for
whom it also provided permanent placements. In addition, the permanent
placement business is typically a more expedient means to achieve
profitability in the opening of new regional markets than contract services.
Of the Company's nine regional markets existing prior to the TeamAlliance
Acquisition, eight were initially developed with permanent placement services
prior to adding contract services to such regional markets.
. ATTRACT AND RETAIN QUALIFIED IT PROFESSIONALS. A key element of the
Company's success has been its ability to attract and retain qualified IT
professionals. The Company believes that it has developed a reputation among
IT professionals for efficient and high quality placements by: (i) focusing on
an IT professional's particular field of technical specialization; (ii)
identifying and delivering high quality assignments involving leading-edge
technologies; and (iii) providing access for IT professionals to cash
compensation levels
25
<PAGE>
comparable to or higher than that of similarly skilled, full-time employees.
The Company's goal is to become the "agent of choice" for IT professionals and
the Company has developed programs to increase the retention of IT
professionals, such as its Star Campaign and the granting of stock options
under the Company's IT Professional Plan.
. PROVIDE STRONG CORPORATE SUPPORT TO REGIONAL MARKETS. The Company commits
significant resources in support of its regional markets while allowing them
to operate with minimal centralized management. Practice groups in each
regional market are responsible for their own profitability and management. In
support of these Practice Groups, the Company provides centralized training,
information systems and financial and accounting services. Managers from the
corporate office regularly visit each regional market, monitor results of each
Practice Group and oversee the addition of new employees. The Company also
provides communication links through an extensive video conferencing system,
allowing its corporate office to communicate with many of its regional markets
on a frequent and more personal basis. Management and sales training is
provided throughout the year on a weekly basis at its corporate headquarters
in San Jose, California and at its training facility in Park City, Utah.
GROWTH STRATEGY
In late 1994, the Company implemented a growth strategy intended to create a
network of offices in regional markets, each comprised of multiple Practice
Groups. Key elements of this strategy are to:
. ADD PRACTICE GROUPS TO EXISTING REGIONAL MARKETS. The Company currently
has 11 different types of Practice Groups and only one of the Company's 14
regional markets has more than four types of Practice Groups. As a result, the
Company believes that there is a substantial opportunity to increase the
number of Practice Groups within its existing regional markets. Historically,
the Company has entered a new market with the Permanent Placement Division and
then added additional Practice Groups to leverage that office's reputation and
relationships and to take advantage of cross-selling opportunities. The
Company will continue to implement a focused expansion of its Practice Groups
in existing regional markets in order to meet the needs of new and existing
clients.
26
<PAGE>
The following table illustrates the Practice Groups currently located in
each of the Company's existing regional markets. Although the Company does not
expect to add every Practice Group to each regional market, the Company
believes that there are opportunities to add Practice Groups in each regional
market, particularly those that have been recently entered.
PRACTICE GROUPS BY REGIONAL MARKET
<TABLE>
<CAPTION>
SILICON SALT LAKE NEW YORK
VALLEY SEATTLE PORTLAND PHOENIX CITY DENVER AUSTIN HOUSTON CHICAGO TAMPA ORLANDO RALEIGH CITY LONDON
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONTRACT
SERVICES
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HK WINDOWS . . . . . .
--------------------------------------------------------------------------------------------------------------------
HK UNIX .
--------------------------------------------------------------------------------------------------------------------
HK QA .
--------------------------------------------------------------------------------------------------------------------
HK CAD . . . . .
--------------------------------------------------------------------------------------------------------------------
HK WRITERS .
--------------------------------------------------------------------------------------------------------------------
HK INTERNET .
--------------------------------------------------------------------------------------------------------------------
HK TECH SUPPORT .
--------------------------------------------------------------------------------------------------------------------
HK NET . . . . .
--------------------------------------------------------------------------------------------------------------------
HK IS . . . . . . . .
--------------------------------------------------------------------------------------------------------------------
PERMANENT
PLACEMENT
SERVICES
--------------------------------------------------------------------------------------------------------------------
HK SOFTWARE . . . . . . . . . . .
--------------------------------------------------------------------------------------------------------------------
HK HARDWARE . .
--------------------------------------------------------------------------------------------------------------------
</TABLE>
. HIRE ADDITIONAL REVENUE-GENERATING EMPLOYEES FOR EXISTING PRACTICE
GROUPS. The Company believes that there is potential for revenue growth from
the addition of technical recruiting agents and account managers in existing
Practice Groups. The addition of these employees represents increased
opportunities to generate revenues by servicing a greater number of current
and prospective clients and IT professionals. During 1996 and the first six
months of 1997, the Company increased the number of revenue-generating
employees from 123 to 275 employees. In large part, this internal expansion
has been implemented according to a growth model based on the Company's
experience expanding in regional markets with substantially similar
characteristics. By using its growth model, decisions to make additional
investments, such as increasing headcount, advertising expense and the number
and type of Practice Groups, are determined based on objective performance
criteria. The Company believes that its growth model provides its managers
with an effective tool for executing and monitoring an expansion strategy and
schedule.
. OPEN ADDITIONAL LOCATIONS IN NEW REGIONAL TECHNOLOGY MARKETS. A key
element of the Company's growth strategy is to continue to enter new regional
high technology markets. The Company currently has Practice Groups in 14
regional markets, including Silicon Valley, the Research Triangle and certain
other high technology markets. The Company is currently considering entering
other technology markets, such as Atlanta, Boston and Dallas, and may in the
future consider further international expansion beyond London.
. ACQUIRE COMPLEMENTARY BUSINESSES. The Company intends to explore the
potential acquisition of businesses that would provide it with: (i) new
technology practices; (ii) strategically complementary businesses; (iii) new
geographical presences; or (iv) international recruiting capabilities. For
example, as a result of the TeamAlliance Acquisition, the Company expanded its
Practice Groups to include traditional IS contract services and entered five
new regional markets.
27
<PAGE>
HALL KINION'S SERVICES
The Company provides contract and permanent placement services for the
critical needs of R&D departments of high technology companies and IS
departments of corporate clients. In 1996, on a pro forma basis for the
TeamAlliance Acquisition, approximately 87.2% and 12.8% of the Company's net
revenues were derived from its Contract Services Division and Permanent
Placement Division, respectively. In the first six months of 1997,
approximately 87.7% and 12.3% of the Company's net revenues were derived from
its Contract Services Division and Permanent Placement Division, respectively.
CONTRACT SERVICES
The Company's Contract Services Division provides supplemental IT
professionals. In a typical R&D contract, an IT professional is contracted to
a high technology client, usually in connection with a specific application or
project. In a typical IS contract, an IT professional is contracted to an IS
department for the implementation and maintenance of corporate computer
systems. The Company's IT professionals usually work on assignments with a
maturity of approximately three to nine months, with all work billed on an
hourly basis and performed at the direction of the client.
The Company has organized its Contract Services Division into seven types of
Practice Groups focused on those technologies widely used by its high
technology clients in the development of their products (HK Windows, HK QA, HK
CAD, HK Unix, HK NET, HK Writers and HK Internet). In addition, through its HK
Technology Support Practice Group, the Company offers its high technology
clients access to IT professionals providing administrative support, data
entry, help desk and customer support. The Company expects this Practice Group
to represent a declining percentage of the Company's net revenues as the
Company focuses on more specialized, higher margin Practice Groups. In
conjunction with its TeamAlliance Acquisition in December 1996, the Company
has also added an HK IS Practice Group, which provides IT professionals,
programmers and analysts to corporate clients' IS departments.
28
<PAGE>
Set forth below is a table which describes the typical technology skill sets
provided by the Company's IT professionals, as well as an example of a
representative client assignment completed by such IT professionals.
PRACTICE GROUP TYPES OF IT PROFESSIONAL REPRESENTATIVE HALL KINION
CLIENT ASSIGNMENT
- --------------------------------------------------------------------------------
HK Windows Developers of Microsoft IT professional developed a
Windows 3.1, Windows NT, portion of a GUI for database
Windows 95 and Macintosh software using Windows NT,
providing services related C++, OLE, DLL and DDE
to: GUI, applications, device
drivers, BIOS, RDBMS/CS, test
development and diagnostics
- --------------------------------------------------------------------------------
HK Unix Developers and engineers for IT professional participated
the many types of Unix in the development of a
providing services related system verification program
to: GUI, application, device utilizing C, C++, Perl,
driver, kernal, RDBMS/CS, diagnostics and device driver
test development, diagnostics experience
and Realtime
- --------------------------------------------------------------------------------
HK QA Software testers and test IT professional was assigned
engineers for quality as a software test engineer
assurance, including leading the project to
application testers, develop QA scripts for fault
compatibility testers, black tolerance data transaction
and white box testers, system using C and C++ in a
network testers, test Windows environment
automation, test developers
and web application testers
- --------------------------------------------------------------------------------
All levels of design and IT professional with
HK CAD support for computer-aided mechanical engineering
design systems, including background helped design a
engineers, designers, handheld medical device using
drafters, engineering the 3D solid modeling tool
technicians, digital/analog Pro-E
hardware designers and ASIC
designers
- --------------------------------------------------------------------------------
HK Writers Technical writers of IT professional documented
software, computer and online software installation
networking systems and user manuals for new
documentation product release using
RoboHelp, FrameViewer,
Hyperhelp and Framemaker
documentation tools
- --------------------------------------------------------------------------------
HK Net Engineers providing services IT professional serviced a
with respect to network client's software/hardware
design, engineering, support migration from a Windows 95
and administration, such as to a Windows NT environment
Unix system administrators, utilizing Windows 95
PC support engineers, PC troubleshooting and
system administrators, NT configuration skills to
system administrators, configure workstations and
Macintosh system provide connectivity
administrators, LAN/WAN
analysts, CNE/CAN and DBA
analysts
- --------------------------------------------------------------------------------
HK Tech SupportWindows and Macintosh IT professional provided
administrative support, data Macintosh support to a
entry, help desk, customer client's engineering
service, graphic designers, department and developed
desktop publishers, multimedia presentations for
illustrators, technicians and software developer relations
multimedia experts using PowerPoint, MS Word and
Excel
- --------------------------------------------------------------------------------
HK IS Consultants, programmers and IT professional with
analysts for the MIS extensive relational database
environment, including system skills delivered a mission-
analysts, legacy systems, critical project for systems
mainframe applications, integrity
Oracle services, relational
databases, Powerbuilder
programmers, database
administrators and client
server analysts
- --------------------------------------------------------------------------------
Engineers providing services A team of IT professionals
HK Internet with respect to Java, CGI constructed a web site,
(Common Gateway Interface), facilitating delivery of
HTML, Netscape server, information to the general
Microsoft server, Oracle public
server, Sybase server, Unix-
based server software,
Shockwave, VRML and ActiveX
29
<PAGE>
PERMANENT PLACEMENT SERVICES
The Company provides IT professionals for permanent placement with its
corporate clients. The Company currently delivers such services in 11 of the
Company's 14 regional markets. The Company recognizes revenue when the IT
professional commences employment. The Company typically guarantees this
placement for a period of 90 days. This placement fee is usually structured as
a percentage of the IT professional's first-year annual compensation. While
the Permanent Placement Division has historically offered its services to R&D
departments of high technology firms, the Company has begun to leverage the
client relationships from TeamAlliance to offer permanent placement services
to IS departments. The Permanent Placement Division currently markets its
services to the same client base as the Contract Services Division. The
Company plans to develop distinct hardware and software Practice Groups within
its Permanent Placement Division in certain regional markets.
HALL KINION'S OPERATING AND SALES APPROACH
CONTRACT SERVICES DIVISION
Within the Contract Services Division, Technical Recruiting Agents ("TRAs")
and Account Managers are typically organized and work in teams of four or more
individuals within a Practice Group. This specialization enables TRAs and
Account Managers to focus on and develop a better understanding of client
requirements and the different skill levels of the Company's IT professionals.
Each team is managed by one of its members who reports to the director of the
Practice Group to which the team belongs. At each of the Company's offices,
sales teams work together in an open environment. In general, TRAs and Account
Managers are compensated through a combination of base salary and bonus
incentives based on overall Practice Group performance and gross profit. The
Company's team approach is designed to develop a culture that encourages
teamwork and cross-selling among Practice Groups.
Technical Recruiting Agents
TRAs are responsible for recruiting and assessing the Company's IT
professionals, understanding their preferences and capabilities and monitoring
their availability, progress and job satisfaction. The Company's goal is for
its TRAs to build long-term relationship with IT Professionals in their
particular fields of specialization. Each experienced TRA is responsible for
up to approximately 20 IT professionals under contract at any time and
monitors the job status and availability of approximately 40 additional IT
professionals. TRAs operate only within a particular division or Practice
Group and are required to attend Company training programs to keep current on
the latest technologies within their particular specialization. As of June 30,
1997, the Company employed 81 TRAs located throughout its regional markets.
Account Managers
Account Managers are responsible for relationships with the Company's
clients. The Company's Account Managers do not form exclusive relationships
with the Company's clients, but rather operate within a particular technical
specialization. If an Account Manager learns of an opportunity at one of the
Company's clients in a specialization outside his or her own, the Account
Manager refers the lead to an Account Manager in the appropriate technological
specialization. The Company believes that its organization based on
specialization rather than client accounts enables Account Managers to develop
relationships in different departments of clients and at different levels and
to the transfer job requisitions to Account Managers familiar with the
appropriate specialization, leading to quicker, more accurate placements. As
of June 30, 1997, the Company employed approximately 78 Account Managers
throughout its regional markets.
IT Professionals
A major challenge facing IT services companies is the identification and
retention of highly qualified software engineers, computer programmers,
technical writers and designers. The Company believes that it has
30
<PAGE>
developed a reputation among IT professionals for efficient and high quality
placements by: (i) focusing on an IT professional's particular field of
technical specialization; (ii) identifying and delivering high quality
assignments involving leading-edge technologies; and (iii) providing access
for IT professionals to cash compensation levels comparable to or higher than
that of similarly skilled, full-time employees. The Company's goal is to
become the "agent of choice" for IT professionals and is developing programs
to increase the retention of IT professionals such as the Star Campaign and
the granting of stock options. The Star Campaign is designed to enable the
Company to attract and retain the highest quality IT professionals available
by providing these selected professionals with, among other things, advance
notice of state-of-the-art assignments and perquisites, including
participation in the Company's 401(k) plan, access to medical and dental
benefits and Company stock options under the IT Professional Plan. See "--
Business Strategy," "--Competition" and "Management--IT Professional Plan."
PERMANENT PLACEMENT DIVISION
Recruiters
Recruiters are primarily responsible for establishing relationships with
clients needing permanent IT professional services and matching the needs of
the Company's clients with the preferences and skills of the Company's
permanent placement job candidates. Recruiters frequently engage in other
activities to enhance their knowledge of the IT industry and issues that are
relevant to clients. Many Recruiters are members of industry trade
organizations and participate with clients in Company-sponsored seminars. In
addition, from time to time Recruiters will bring clients together to discuss
mutual technical issues or challenges. The Company believes these types of
activities strengthen client relationships and help to build alliances or
partnerships. The Company employed a total of approximately 116 Recruiters as
of June 30, 1997.
Recruiters are paid primarily on a commission basis. The Company's
compensation for Recruiters encourages communication and cooperation among
Recruiters by sharing compensation among Recruiters involved in an individual
placement. The Company establishes performance standards based on revenue
generation and other factors, such as the number of sales calls completed by
Recruiters.
CORPORATE SUPPORT SERVICES
In support of its Practice Groups, the Company provides centralized
training, information systems and financial and accounting services. Managers
from the corporate office regularly visit each regional market, monitor
results of each Practice Group and oversee the addition of new employees.
Performance is measured at the division and Practice Group level and not at
the office or regional market level. The Company believes that this management
structure fosters synergy among divisions and Practice Groups, as well as
cooperation and cross-referrals from regional market to regional market.
In addition to administrative support functions, the Company makes
substantial annual investments in training for its Vice Presidents, Directors,
TRAs, Account Managers and Recruiters. The Company provides management and
sales training throughout the year at its corporate headquarters in San Jose,
California and at its training facility in Park City, Utah.
The Company has developed a business growth model and related best practices
training program. Developed from in-house historical data, the model consists
of a set of detailed guidelines for use by the Company's divisions and
Practice Groups to expand within the Company's regional markets. By using the
growth model, decisions to make additional investments, such as increasing
headcount, advertising expense and the number and type of Practice Groups, are
determined based on objective performance criteria. The Company believes that
the growth model provides its managers with an effective tool for executing
and monitoring an expansion strategy and schedule. The Company applied the
growth model to its entrance into the Austin, Denver and Phoenix regional
markets during 1996.
31
<PAGE>
CLIENTS
The Company's R&D Contract Services and Permanent Placement clients are
predominantly high technology companies and include software developers,
computer systems manufacturers and telecommunications suppliers. In addition to
technology companies, the Company's IS Practice Group provides services to
financial services, pharmaceutical and industrial companies. In the last 12
months, the Company has provided services to approximately 1,600 clients in a
variety of industries, including those listed below. The Company's largest
client represented no more than 5.0% of the Company's net revenues in 1996. See
"Risk Factors--Industry and Geographic Concentration."
SOFTWARE COMPUTER SYSTEMS
Adobe Systems, Inc. 3Com Corporation
Borland International, Inc. Apple Computer, Inc.
Cable-Sat Systems, Inc. Creative Labs, Inc.
cc:Mail Credence Systems Corporation
Claris Corporation Diba, Inc.
ENlighten Software Solutions, Inc. Evans & Sutherland Computer
Filoli Information Systems Corporation
GT Interactive Software Corporation HAL Computer Systems, Inc.
Informix Corporation Net Frame Systems, Inc.
IPC Software Oliver Design, Inc.
Lotus Development Corp. Silicon Graphics, Inc.
McAfee Associates, Inc. Sun Microsystems, Inc.
Microsoft Corp. Tandem(R) Computers Incorporated
Network Computing Devices, Inc. Unisys Corporation
Oracle Corporation Wyse Technology, Inc.
The Perkin-Elmer Corporation
Presidio
Remedy Corporation TELECOMMUNICATIONS
Resumix, Inc.
Sybase, Inc. Aspect Telecommunications Corporation
Wall Data Incorporated AT&T Wireless Services
Cisco Systems, Inc.
GTE Wireless Data Services; GTE
Mobilnet
SOFTWARE INTERNET
International Tapetronics Corporation
Enterprise Integration Technologies Jones Cyber Solutions, Ltd.
Exodus Communication, Inc. Magellan Communications, Inc.
ITOCHU Corporation NEC America, Inc.
Knight Ridder, Inc. Nextel Communications, Inc.
ON Technology Corporation On Command Video
Web TV Network P-Com, Inc.
Worlds Inc. TCI
Verifone, Inc.
SEMICONDUCTOR
MEDICAL TECHNOLOGIES
Hitachi America, Ltd.
Hitachi Computer Products Abbott Diagnostics Division, Abbott
Kevex X-Ray Division of Kevex Laboratories
Instruments, Inc. Abbott Laboratories
KLA Instruments Corporation ADAC Laboratories
Motorola, Inc. Cemax-Icon, Inc.
OZ Technologies, Inc. Genentech, Inc.
Pioneer Technical Horizon Systems, Inc.
Silicon Systems, Inc. Immunex Corporation
Pfizer, Inc.
MISCELLANEOUS
Comerica, Inc.
Hughes Aerospace & Electronics Company
Minolta Co, Ltd.
Raytek Corporation
Trimble Navigation Ltd.
32
<PAGE>
COMPETITION
The IT staffing industry is highly competitive and fragmented and has low
barriers to entry. The Company competes for potential clients with providers
of outsourcing services, systems integrators, computer systems consultants,
other providers of IT staffing services and temporary personnel agencies. Many
of the Company's current and potential competitors have longer operating
histories, significantly greater financial and marketing resources, greater
name recognition and a larger installed base of IT professionals and clients
than the Company. In addition, many of these competitors, including numerous
smaller privately held companies, may be able to respond more quickly to
customer requirements and to devote greater resources to the marketing of
services than the Company. Because there are relatively low barriers to entry,
the Company expects that competition will increase in the future. Increased
competition could result in price reductions, reduced margins or loss of
market share, any of which could materially and adversely affect the Company's
business, operating results and financial condition. Further, there can be no
assurance that the Company will be able to compete successfully against
current and future competitors or that competitive pressures faced by the
Company will not have a material adverse effect on its business, operating
results and financial condition. The Company believes that the principal
factors relevant to competition in the IT staffing services industry are the
recruitment and retention of highly qualified IT professionals, rapid and
accurate response to client requirements and, to a lesser extent, price. The
Company believes that it competes favorably with respect to these factors. See
"Risk Factors--Highly Competitive Market."
EMPLOYEES
As of June 30, 1997, approximately 1,100 IT professionals placed by the
Company were providing contract services to the Company's clients. The
Company's corporate staff at June 30, 1997 consisted of 348 full-time
employees, of whom 81 are TRAs, 78 are Account Managers, 116 are Recruiters
and 73 serve in various administrative and accounting capabilities. The
Company is not a party to any collective bargaining agreements covering any of
its employees, has never experienced any material labor disruption and is
unaware of any current efforts or plans to organize its employees. The Company
considers its relationships with its employees to be good. See "Risk Factors--
Ability to Attract and Retain Qualified IT Professionals."
PROPERTIES
The Company's principal executive offices are currently located in
Cupertino, California and occupy an aggregate of approximately 16,375 square
feet of office space pursuant to a sublease that expires in August 2000. The
Company also leases or subleases offices for its operations in Austin, Texas;
Capitola, Foster City, Fremont and Mountain View, California; Chicago,
Illinois; Denver, Colorado; Houston, Texas; London, England; New York, New
York; Orlando, Florida; Phoenix, Arizona; Portland, Oregon; Raleigh, North
Carolina; Sandy, Utah; Seattle, Washington; and Tampa, Florida. In addition,
the Company owns a training facility located in Park City, Utah.
33
<PAGE>
The table below indicates as of June 30, 1997, the location of the Company's
offices and the month and years in which they were opened by the Company or
TeamAlliance:
<TABLE>
<CAPTION>
OFFICES OPENED
----------------------------------------------------------- --------------
<S> <C>
Cupertino (San Jose), California........................... July 1987
Capitola................................................. January 1993
Fremont.................................................. January 1994
Mountain View............................................ August 1996
Foster City.............................................. January 1997
Salt Lake City, Utah....................................... August 1993
Seattle, Washington........................................ November 1994
Chicago, Illinois.......................................... January 1995
Tampa, Florida............................................. March 1995
Portland, Oregon........................................... July 1995
Orlando, Florida........................................... August 1995
Denver, Colorado........................................... November 1995
New York, New York......................................... February 1996
Austin, Texas.............................................. April 1996
Phoenix, Arizona........................................... July 1996
Raleigh, North Carolina.................................... September 1996
London, England............................................ November 1996
Houston, Texas............................................. December 1996
</TABLE>
LEGAL PROCEEDINGS
The Company is from time to time engaged in or threatened with litigation in
the ordinary course of its business. The Company is not currently a party to
any material litigation.
34
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and directors of the Company as of the date of this Prospectus:
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------ --- -----------------------------------------------------
<S> <C> <C>
Brenda C. Hall***....... 44 Chief Executive Officer and Director
Paul H. Bartlett**...... 36 President and Director
Martin A. Kropelnicki... 31 Vice President, Chief Financial Officer and Secretary
Rita S. Hazell.......... 31 Vice President, R&D Contract Services
Craig J. Silverman...... 36 Vice President, Permanent Placement
Mordecai Levine......... 38 Vice President, IS Contract Services
Todd J. Kinion (2)**.... 35 Director
Kathleen D. LaPorte
(1)*................... 35 Director
Jon H. Rowberry
(1)(2)***.............. 50 Director
</TABLE>
- --------
(1) Member of Audit Committee
(2) Member of Compensation Committee
*Class I Director
**Class II Director
***Class III Director
BRENDA C. HALL co-founded the Company and has been a director since the
Company's incorporation in 1991. From December 1992 to the present, Ms. Hall
has served as Chief Executive Officer of the Company. Ms. Hall served as
President and Assistant Secretary of the Company from December 1991 to October
1996 and from December 1991 to September 1996, respectively. From August 1981
to June 1987, Ms. Hall was general manager of a Snelling & Snelling franchise,
a personnel services company.
PAUL H. BARTLETT joined the Company in October 1996 as President. Mr.
Bartlett has served as a director of the Company since January 1996. Prior to
joining the Company, Mr. Bartlett was affiliated with the Sprout Group, a
venture capital firm, from February 1991 until October 1996, having served as
a general partner before joining the Company. Mr. Bartlett received an A.B.
degree in economics from Princeton University and an M.B.A. degree from the
Stanford Graduate School of Business.
MARTIN A. KROPELNICKI joined the Company in February 1997 as Vice President,
Chief Financial Officer and Secretary. Prior to joining the Company, Mr.
Kropelnicki was a Director at Deloitte & Touche Consulting Group-ICS, a
consulting firm, from February 1996 to February 1997. From June 1989 to
February 1996, Mr. Kropelnicki held various positions, most recently as a
Director in the financial organization at Pacific Gas & Electric Company, a
natural gas and electric utility. Mr. Kropelnicki holds a B.A. degree and an
M.A. degree in business economics from San Jose State University.
RITA S. HAZELL has served as Vice President, R&D Contract Services since
April 1996. Prior to assuming her current position, Ms. Hazell served in a
variety of positions, including Director, R&D Contract Services and Manager,
R&D Contract Services, since joining the Company in September 1993. From
November 1987 to September 1993, Ms. Hazell served as a manager for Oxford &
Associates, Inc., a technical contract services firm.
CRAIG J. SILVERMAN joined the Company in April 1996 as Vice President,
Permanent Placement. Prior to joining the Company, Mr. Silverman served as
Vice President, Sales at Strategic Mapping, Inc., a software development
company, from September 1989 to February 1996.
MORDECAI LEVINE joined the Company in December 1996 as Vice President, IS
Contract Services. Since March 1994, Mr. Levine has served as Chief Operating
Officer of TeamAlliance. From January 1991 to February 1994, Mr. Levine served
as President of Berkeley Software, Inc., a software development company. Mr.
Levine received a B.A. degree in economics from Brandeis University and an
M.B.A. degree from the University of Chicago Graduate School of Business.
35
<PAGE>
TODD J. KINION co-founded the Company and has served as a director of the
Company since the Company's incorporation in 1991. Since August 1996, Mr.
Kinion has been a private investor. Mr. Kinion served as Vice President,
Recruitment Services of the Company from December 1995 to August 1996. Prior
to that time, Mr. Kinion served as Chief Financial Officer and Treasurer of
the Company from December 1991 to December 1995. Mr. Kinion also served as
Secretary from December 1991 to February 1997. Mr. Kinion holds a B.A. degree
in political science from the University of California at Santa Barbara.
KATHLEEN D. LAPORTE has served as a director of the Company since November
1996. From January 1993 to the present, Ms. LaPorte has been affiliated with
the Sprout Group, a venture capital firm, and has served as a general partner
since December 1993. From September 1987 to December 1992, Ms. LaPorte was a
principal of Asset Management Company, a venture capital firm. Ms. LaPorte
currently serves on the Board of Directors of Onyx Pharmaceuticals, Inc.,
FemRx, Inc., Lynx Therapeutics, Inc. and a number of privately held companies.
Ms. LaPorte holds a B.S. degree in biology from Yale University and an M.B.A.
degree from the Stanford Graduate School of Business.
JON H. ROWBERRY has served as a director of the Company since August 1996.
Mr. Rowberry currently serves as President and Chief Operating Officer of the
Franklin Covey ("Franklin"), a provider of time management products and
training. Prior to assuming his current positions, Mr. Rowberry was Chief
Financial Officer of Franklin from August 1995 to August 1996. From 1985 to
1995, Mr. Rowberry was employed in several executive positions with Adia S.A.
and Adia Services, Inc., providers of personnel services. Mr. Rowberry
currently serves on the Board of Directors of Franklin. Mr. Rowberry holds a
B.S. degree in accounting from Brigham Young University.
The Company's Board of Directors will be divided into three classes upon the
closing of this Offering. The initial term of the Class I directors expires at
the Company's annual meeting of stockholders in 1998; the initial term of the
Class II directors expires at the Company's annual meeting of stockholders in
1999; and the initial term of the Class III directors expires at the Company's
annual meeting of stockholders in 2000. Thereafter, the term of each class of
directors shall be three years. All directors hold office until the annual
meeting of stockholders at which their respective class is subject to
reelection and until their successors are duly elected and qualified, or until
their earlier resignation or removal. Except for grants of stock options,
directors of the Company generally do not receive any compensation for their
services as directors. See "--1997 Stock Option Plan."
Under the employment agreement between the Company and Paul H. Bartlett, the
Company will nominate Mr. Bartlett for election as a member of its Board of
Directors as long as he remains employed, and Brenda C. Hall has agreed to
cause her shares of the Company's stock to be voted in favor of Mr. Bartlett's
election. See "--Employment Agreements; Termination of Employment and Change
in Control Arrangements."
Officers serve at the discretion of the Board and are elected annually.
There are no family relationships among the directors or officers of the
Company.
COMMITTEES OF THE BOARD OF DIRECTORS
On May 23, 1997, the Board of Directors established a Compensation Committee
and an Audit Committee. The Compensation Committee makes recommendations
concerning the salaries and incentive compensation of employees of, and IT
professionals to, the Company and will administer the IT Professional Stock
Option Plan, and the 1997 Stock Option Plan. See "--IT Professional Plan" and
"--1997 Stock Option Plan." The Audit Committee is responsible for reviewing
the results and scope of audits and other services provided by the Company's
independent auditors.
36
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth in summary form information concerning the
compensation awarded to, earned by, or paid for services rendered to the
Company in all capacities during 1996 by: (i) the Company's Chief Executive
Officer; (ii) the Company's next two most highly compensated executive
officers whose salary and bonus for such year exceeded $100,000 and who served
as executive officers of the Company at December 31, 1996; and (iii) two
additional individuals for whom disclosure would have been provided pursuant
to (ii) above but for the fact that such individuals were not serving as
executive officers of the Company on December 31, 1996 (collectively, the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION (2) AWARDS
------------------------- ---------------------
NAME AND SECURITIES UNDERLYING ALL OTHER
PRINCIPAL POSITION SALARY (3) BONUS OPTIONS (#) COMPENSATION
(1)
- ------------------ ------------------------- --------------------- ------------
<S> <C> <C> <C> <C>
Brenda C. Hall.... $ 313,231 $ 60,000 0 0
Chief Executive
Officer
Keith Corbin (4).. 163,077 106,000 0 0
Former Chief
Financial Officer
and Assistant
Secretary
Todd J. Kinion
(5).............. 108,820 7,989 0 36,132 (6)
Former Vice
President and
Secretary
Rita S. Hazell
(7).............. 85,500 109,229 0 0
Vice President,
R&D Contract
Services
Craig J. Silverman
(8).............. 63,750 71,412 50,000 0
Vice President,
Permanent
Placement
</TABLE>
- --------
(1) Paul H. Bartlett joined the Company as President in October 1996. His
annual base salary is currently set at $240,000.
Mordecai Levine joined the Company as Vice President, IS Contract Services
in December 1996 and his annual base salary is currently set at $125,000.
Martin A. Kropelnicki joined the Company as Vice President, Chief Financial
Officer and Secretary in February 1997 and his annual base salary is
currently set at $150,000.
(2) The aggregate amount of all other compensation in the form of perquisites
and other personal benefits does not exceed the lesser of either $50,000
or 10% of the total annual salary and bonus for each officer.
(3) Salary includes amounts deferred under the Company's 401(k) Plan.
(4) Mr. Corbin was Chief Financial Officer and Assistant Secretary of the
Company through December 1996 and currently provides consulting services
to the Company.
(5) Mr. Kinion was Vice President and Secretary of the Company until August
1996 and February 1997, respectively.
(6) Represents monthly payments of $9,033 paid to Mr. Kinion commencing
September 1996 pursuant to the terms and conditions of a settlement
agreement between Mr. Kinion and the Company. See "Certain Transactions."
(7) Ms. Hazell joined the Company in September 1993 and has served as Vice
President, R&D Contract Services since April 1996. Her annual base salary
is currently set at $125,000.
(8) Mr. Silverman joined the Company as Vice President, Permanent Placement in
April 1996. His annual base salary is currently set at $100,000.
37
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options made during 1996
to each of the Named Executive Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM (3)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ----------------
NAME (1) GRANTED FISCAL YEAR SHARE (2) DATE 5% 10%
- ---------------- ---------- ------------- --------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Brenda C. Hall.. 0 -- -- -- -- --
Keith Corbin.... 0 -- -- -- -- --
Todd J. Kinion.. 0 -- -- -- -- --
Rita S. Hazell.. 0 -- -- -- -- --
Craig J.
Silverman (4).. 50,000 2.7% $1.50 05/02/06 $47,167 $119,531
</TABLE>
- --------
(1) Except for Mr. Silverman, no other Named Executive Officer received an
option grant in 1996. In October 1996, the Company granted an option to
Paul H. Bartlett to purchase 974,000 shares of Common Stock at $4.00 per
share. Mr. Bartlett is 50% vested in such shares and will vest in the
balance of the shares in a series of 24 monthly installments commencing on
January 1, 1998. In December 1996, the Company granted options to Mordecai
Levine to purchase 92,000 shares of Common Stock at $5.10 per share.
Mr. Levine is vested in 52,000 shares, vests in 8,000 shares upon the
completion of one year of service from the date of grant and vests in the
balance of the shares in equal monthly installments over the 48 months of
service beginning December 2, 1997. In February 1997, the Company granted
an option to Martin A. Kropelnicki to purchase 175,000 shares at $10.00
per share. Mr. Kropelnicki's option vests with respect to 20% of the
shares upon the completion of one year of service from the grant date and
vests with respect to the balance of the shares in a series of 48 monthly
installments thereafter. See "--Employment Agreements; Termination of
Employment and Change in Control Arrangements."
(2) The option was granted at an exercise price equal to the fair market value
of the Company's Common Stock, as determined by the Board of Directors on
the date of grant. The exercise price may be paid in cash, in shares of
the Company's Common Stock valued at fair market value on the exercise
date or through a cashless exercise procedure involving a same-day sale of
the purchased shares. The Company may also finance the option exercise by
loaning the optionee sufficient funds to pay the exercise price for the
purchased shares, together with any federal and state income tax liability
incurred by the optionee in connection with such exercise.
(3) The 5% and 10% assumed rates of appreciation are mandated by rules of the
Securities and Exchange Commission. The potential realizable value is
calculated based on the term of the option at its time of grant (10 years)
and is calculated by assuming that the stock price on the date of grant as
determined by the Board of Directors appreciates at the indicated annual
rate compounded annually for the entire term of the option and that the
option is sold on the last day of its term for the appreciated price.
There can be no assurance provided to any Named Executive Officer or any
other holder of the Company's securities that the actual stock price
appreciation over the 10-year term will be at the assumed 5% and 10%
levels or at any other defined level.
(4) Mr. Silverman's option was granted on May 2, 1996 and is immediately
exercisable. The shares purchasable thereunder are subject to repurchase
by the Company at the original exercise price paid per share upon the
optionee's cessation of service prior to vesting in such shares. The
repurchase right lapses and the optionee vests as to 25% of the option
shares upon completion of one year of service from the date of grant and
the balance in a series of equal monthly installments over the next 36
months of service thereafter. The option shares will vest upon an
acquisition of the Company by merger or asset sale, unless the Company's
repurchase right with respect to the unvested option shares is transferred
to the acquiring entity. The option has a maximum term of 10 years,
subject to earlier termination in the event of the optionee's cessation of
employment or service with the Company.
38
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information with respect to the value of
stock options held as of December 31, 1996 by each of the Named Executive
Officers. There were no stock option exercises by such individuals during
1996.
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR END AT FISCAL YEAR END (1)
--------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Brenda C. Hall............ 0 0 0 0
Keith Corbin.............. 46,048 92,096 $221,030 $442,061
Todd J. Kinion............ 0 0 0 0
Rita S. Hazell............ 24,000 36,000 115,200 172,800
Craig J. Silverman........ 50,000 (2) 0 180,000 0
</TABLE>
- --------
(1) Based on the estimated fair market value of the Company's Common Stock as
of December 31, 1996 of $5.10 per share, less the exercise price payable
upon exercise of such options.
(2) The option is immediately exercisable. The shares purchasable thereunder
are subject to repurchase by the Company at the original exercise price
paid per share upon the optionee's cessation of service prior to vesting
in such shares. The repurchase right lapses and the optionee vests as to
25% of the option shares upon completion of one year of service from the
date of grant and the balance in a series of equal monthly installments
over the next 36 months of service thereafter. None of the shares issuable
upon exercise of such option were vested as of December 31, 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the formation of the Compensation Committee in January 1997, the
Company's Board of Directors ("Board") established levels of compensation for
the Company's executive officers. Brenda C. Hall, Paul H. Bartlett and Keith
Corbin participated in deliberations of the Board regarding executive
compensation during 1996. The Company's Compensation Committee currently
consists of Todd J. Kinion and Jon H. Rowberry. Mr. Rowberry was not at any
time during 1996 or at any other time an officer or employee of the Company.
Mr. Kinion served as Vice President and Secretary of the Company until August
1996 and February 1997, respectively. See "Management--Executive Officers and
Directors."
1997 STOCK OPTION PLAN
The Company's 1997 Stock Option Plan (the "1997 Plan") was adopted by the
Board of Directors on May 23, 1997, subject to stockholder approval, as the
successor to the Company's 1996 Stock Option Plan (the "1996 Plan"). The total
number of shares of Common Stock authorized for issuance under the 1997 Plan
consists of (i) the 1,464,186 shares subject to outstanding options under the
1996 Plan as of June 30, 1997, (ii) an additional 300,000 shares of Common
Stock and (iii) an additional number of shares of Common Stock equal to 3% of
the number of shares of Common Stock outstanding on the first day of 1998,
1999 and 2000. As of June 30, 1997, no shares had been issued under the 1997
Plan. Shares of Common Stock subject to outstanding options, including options
granted under the 1996 Plan, which expire or terminate prior to exercise will
be available for future issuance under the 1997 Plan.
Under the 1997 Plan, employees, officers, directors and independent
consultants may, at the discretion of the plan administrator, be granted
options to purchase shares of Common Stock at an exercise price not less than
85% of the fair market value of such shares on the grant date. Non-employee
members of the Board will also be eligible for automatic option grants under
the 1997 Plan.
39
<PAGE>
The 1997 Plan will be administered by the Board or the Compensation
Committee of the Board after this Offering. The plan administrator has
complete discretion to determine which eligible individuals are to receive
option grants, the number of shares subject to each such grant, the status of
any granted option as either an incentive option or a non-statutory option
under the federal tax laws, the vesting schedule to be in effect for each
option grant and the maximum term for which each granted option is to remain
outstanding. In no event, however, may any one participant in the 1997 Plan
acquire shares of Common Stock under the 1997 Plan in excess of 500,000 shares
each calendar year over the term of the Plan.
The exercise price for options granted under the 1997 Plan may be paid in
cash or in outstanding shares of Common Stock. Options may also be exercised
on a cashless basis through the same-day sale of the purchased shares. The
plan administrator may also permit the optionee to pay the exercise price
through a promissory note payable in installments over a period of years. The
amount financed may include any federal or state income and employment taxes
incurred by reason of the option exercise.
The plan administrator has the authority to effect, from time to time, the
cancellation of outstanding options under the 1997 Plan in return for the
grant of new options for the same or different number of option shares with an
exercise price per share based upon the fair market value of the Common Stock
on the new grant date.
In the event the Company is acquired by merger, consolidation or asset sale,
each option outstanding at the time under the 1997 Plan will terminate to the
extent not assumed by the acquiring entity. In addition, the plan
administrator generally has the discretion to accelerate the vesting of
options.
Under the automatic grant program, each individual who first joins the Board
as a non-employee director after the date of this Offering will receive at
that time, an automatic option grant for 20,000 shares of Common Stock. The
optionee will vest in the automatic option grant in a series of four annual
installments over the optionee's period of Board service, beginning one year
from the grant date. Each option will have an exercise price equal to the fair
market value of the Common Stock on the automatic grant date and a maximum
term of ten years, subject to earlier termination following the optionee's
cessation of Board service.
The Board may amend or modify the 1997 Plan at any time. The 1997 Plan will
terminate on May 22, 2007, unless sooner terminated by the Board.
IT PROFESSIONAL PLAN
The Company's IT Professional Stock Option Plan (the "IT Professional Plan")
was adopted by the Board of Directors on May 23, 1997. The Company has
reserved 350,000 shares of Common Stock for issuance under the IT Professional
Plan, plus an additional number of shares equal to 1.5% of the number of
shares of Common Stock outstanding on the first day of each calendar year
beginning January 1, 1998. As of June 30, 1997, no shares had been issued
under the IT Professional Plan and no options were outstanding. Shares of
Common Stock subject to outstanding options which expire or terminate prior to
exercise will be available for future issuance under the IT Professional Plan.
Under the IT Professional Plan, independent consultants may, at the
discretion of the plan administrator, be granted options to purchase shares of
Common Stock at an exercise price not less than 85% of the fair market value
of such shares on the grant date.
The IT Professional Plan will be administered by the Board or the
Compensation Committee of the Board after this Offering. The plan
administrator has complete discretion to determine which eligible individuals
are to receive option grants, the number of shares subject to each such grant,
the vesting schedule to be in effect for each option grant and the maximum
term for which each granted option is to remain outstanding. The plan
administrator has the authority to effect, from time to time, the cancellation
of outstanding options under the IT Professional Plan in return for the grant
of new options for the same or different number of option shares with an
exercise price per share based upon the fair market value of the Common Stock
on the new grant date.
40
<PAGE>
The exercise price for options granted under the IT Professional Plan may be
paid in cash or in outstanding shares of Common Stock. Options may also be
exercised on a cashless basis through the same-day sale of the purchased
shares.
In the event the Company is acquired by merger, consolidation or asset sale,
each option outstanding at the time under the IT Professional Plan will
terminate to the extent not assumed by the acquiring entity. In addition, the
plan administrator generally has the discretion to accelerate the vesting of
options.
The Board may amend or modify the IT Professional Plan at any time. The IT
Professional Plan will terminate on May 22, 2007, unless sooner terminated by
the Board.
EMPLOYEE STOCK PURCHASE PLAN
The Company expects to adopt before this Offering an Employee Stock Purchase
Plan (the "Purchase Plan"), subject to approval by the stockholders. A total
of 150,000 shares of Common Stock will be reserved for issuance under the
Purchase Plan. The Purchase Plan, which is intended to qualify under Section
423 of the Internal Revenue Code, will be implemented by six-month offerings
commencing after the closing of this Offering. The Purchase Plan will be
administered by the Compensation Committee of the Board. Employees will be
eligible to participate if they are employed by the Company for more than 20
hours per week and have been employed by the Company for at least ninety days.
The Purchase Plan permits eligible employees to purchase Common Stock through
payroll deductions, which may not exceed 10% of an employee's cash
compensation, nor more than 1,000 shares per participant on any purchase date.
The price of stock purchased under the Purchase Plan will be 85% of the lower
of the fair market value of the Common Stock at the beginning of the six-month
offering period or on the purchase date. Employees may end their participation
in the offering at any time during the offering period, and participation ends
automatically on termination of employment with the Company. Each outstanding
purchase right will be exercised immediately prior to a merger or
consolidation. The Board may amend or terminate the Purchase Plan immediately
after the close of any purchase date. However, the Board may not, without
stockholder approval, materially increase the number of shares of Common Stock
available for issuance. The Purchase Plan will in all events terminate in May
2007.
EMPLOYMENT AGREEMENTS; TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
In October 1996, the Company entered into an employment agreement with Paul
H. Bartlett. The employment agreement is for an unspecified term and
terminates when all obligations of the parties thereto have been satisfied.
Under the agreement, Mr. Bartlett will be employed as the Company's President,
reporting to its Chief Executive Officer. The agreement provides for an annual
base salary of $240,000. Mr. Bartlett is also eligible for an annual bonus,
subject to a maximum limitation of 75% of his annual base salary. In addition,
the Company granted to Mr. Bartlett an immediately exercisable stock option to
purchase 974,000 shares of Common Stock at an exercise price of $4.00 per
share, subject to certain repurchase rights of the Company. Mr. Bartlett is
50% vested in such shares and will vest in the balance of the shares in a
series of 24 monthly installments commencing January 1, 1998. In addition, all
unvested option shares automatically vest upon the occurrence of certain
events, including a merger of the Company after which 50% or less of the
surviving corporation's voting securities are owned by the Company's
stockholders, a sale by the Company of all or substantially all of its assets,
or a constructive discharge of Mr. Bartlett. Either the Company or Mr.
Bartlett may terminate Mr. Bartlett's employment with the Company at any time
by giving the other party 30 days prior written notice. If Mr. Bartlett is
terminated other than for cause or disability, or if Mr. Bartlett is
constructively discharged, Mr. Bartlett will receive his salary for an
additional 12 months from the date of termination, provided he does not engage
in certain competitive activities. Under the employment agreement, the Company
will nominate Mr. Bartlett for election as a member of its Board of Directors
as long as he remains employed, and Brenda C. Hall has agreed to cause her
shares of the Company's stock to be voted in favor of Mr. Bartlett's election.
41
<PAGE>
In December 1996, the Company entered into an employment agreement with
Mordecai Levine in connection with the TeamAlliance Acquisition which provides
for a base salary of $125,000. For the period ending on the first, second and
third anniversary of Mr. Levine's employment with the Company, he is eligible
to receive a monthly bonus based upon gross margin dollars generated by the IS
Contract Services, which bonus aggregated $46,000 for the first six months of
1997. In addition, the Company granted to Mr. Levine stock options to purchase
92,000 shares of Common Stock of the Company at an exercise price of $5.10 per
share subject to certain repurchase rights of the Company. Mr. Levine is
currently vested in 52,000 of such shares, and he will vest in an additional
8,000 shares on December 2, 1997, with the balance of the shares vesting in a
series of 48 equal monthly installments commencing December 2, 1997. Upon Mr.
Levine's exercise of such options, the Company has agreed to pay to him an
amount equal to the aggregate exercise price of such options. Either the
Company or Mr. Levine may terminate Mr. Levine's employment with the Company
at any time and for any reason by giving the other party written notice. If
Mr. Levine voluntarily terminates employment with the Company for good cause
or is terminated other than for cause, he will receive his salary and bonus
for an additional six months from the date of termination. The employment
agreement terminates upon the earlier of the satisfaction of all of the
obligations thereunder or December 2, 2000.
In March 1997, the Company entered into an employment agreement with Brenda
C. Hall, which provides for a base salary of $260,000. Ms. Hall is also
eligible for an annual bonus subject to a maximum limitation of 75% of her
annual base salary. Either the Company or Ms. Hall may terminate Ms. Hall's
employment with the Company at any time by giving the other party 30 days
prior written notice. If Ms. Hall is terminated other than for cause or is
constructively discharged, and provided that she does not engage in certain
competitive activities, Ms. Hall will receive her base salary for an
additional 24 months from the date of termination, and the Company will pay
for her COBRA continuation coverage until the date that is the earlier of 12
months after her termination or the date on which her COBRA eligibility
ceases. The employment agreement is for an unspecified term and terminates
when all obligations of the parties thereto have been satisfied.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Pursuant to the Company's Certificate of Incorporation and under Delaware
law, directors of the Company are not liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty, except for
liability in connection with a breach of duty of loyalty, for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, for dividend payments or stock repurchase illegal
under Delaware law or any transaction in which a director has derived an
improper personal benefit.
The Company intends to enter into indemnification agreements with its
directors and executive officers.
42
<PAGE>
CERTAIN TRANSACTIONS
In January 1996, Brenda C. Hall, the Company's Chief Executive Officer and a
director of the Company, and Todd J. Kinion, a former officer and a current
director of the Company, borrowed from the Company $3.0 million and $2.0
million, respectively, pursuant to certain secured promissory notes. Each of
these promissory notes bears interest at an annual rate of the lesser of 6.91%
or the maximum amount permitted by law and become due and payable in January
2001 or upon the occurrence of certain events. The promissory notes were
initially secured by an aggregate of 2,000,000 shares of Common Stock owned by
Ms. Hall and Mr. Kinion. Pursuant to the terms of certain pledge agreements,
on each of July 30, 1996 and January 30, 1997, an aggregate of 400,000 such
shares were released. The promissory notes are currently secured by an
aggregate of 1,200,000 shares of Common stock (720,000 shares owned by Ms.
Hall and 480,000 shares owned by Mr. Kinion). Ms. Hall and Mr. Kinion may pay
their promissory notes by tendering to the Company 480,000 and 320,000 shares
of Common Stock, respectively. Ms. Hall and Mr. Kinion have agreed to tender
such shares in payment of their respective promissory notes upon completion of
this Offering.
In January 1996, the Company sold an aggregate of 1,600,000 shares of Series
A Preferred Stock, at a price of $6.25 per share, and in connection therewith
warrants to purchase an aggregate of up to 250,000 shares of Common Stock, at
an exercise price of $0.01 per share, to three entities affiliated with the
Sprout Group ("Sprout"). In connection with the purchase of the Series A
Preferred Stock, Brenda C. Hall, Todd J. Kinion and Sprout were granted
certain registration rights with regard to the shares of Common Stock held by
Ms. Hall and Mr. Kinion, the shares of Common Stock issuable upon conversion
of the shares of Series A Preferred Stock and the shares of Common Stock
issuable upon exercise of the warrants. The Company also sold warrants to
purchase an aggregate of up to 242,215 shares of Common Stock, at an exercise
price of $0.01 per share, to Sprout, which warrants are exercisable only in
the event that (i) Ms. Hall does not tender at least 480,000 shares of the
Company's Common Stock held by her in full payment of the secured promissory
note issued by her or (ii) Mr. Kinion does not tender at least 320,000 shares
of the Company's Common Stock held by him in full payment of the secured
promissory note issued by him. In connection with this transaction, Paul H.
Bartlett, a general partner of Sprout at the time, was appointed a director of
the Company in January 1996 and was subsequently succeeded by Kathleen D.
LaPorte, a general partner of Sprout, when Mr. Bartlett joined the Company as
President in October 1996. In addition, Ms. Hall and Mr. Kinion entered into a
Voting Trust Agreement with the Company, which has been subsequently amended
in connection with the settlement agreement and general release entered into
between the Company and Mr. Kinion and which terminates upon the occurrence of
certain events, including the consummation of the sale of the shares offered
hereby. See "Management--Employment Agreements; Termination of Employment and
Change in Control Arrangements."
In July 1996, the Company granted Jon H. Rowberry, a non-employee member of
the Board of Directors, an option to acquire 25,000 of shares of Common Stock
of the Company at an exercise price of $4.00 per share. This option vests over
five years.
In August 1996, the Company granted to Rita S. Hazell, Vice President, R&D
Contract Services, a loan in the principal amount of $100,000 plus interest.
Such loan is secured by a deed of trust in favor of the Company on the real
property purchased partially with such borrowed funds. The principal amount of
the loan and any accrued interest thereon will be forgiven by the Company
ratably over four years so long as Ms. Hazell remains employed by the Company.
In October 1996, the Company entered into a settlement agreement and general
release with Todd J. Kinion, a former officer and a current director of the
Company, which obligates the Company to make monthly payments of $9,033 to him
until the earlier of February 29, 1998 or the occurrence of certain events. A
lump sum payment of $11,239, representing full payment of all unpaid bonus
obligations and business expense reimbursements, was made to Mr. Kinion in
connection with the settlement agreement. In addition, as part of the terms of
the settlement agreement, Mr. Kinion agreed to deposit 1,795,100 of the shares
of Common Stock he holds with Ms. Hall, as trustee of the voting trust (the
"Voting Trust") created pursuant to that certain Voting Trust Agreement dated
January 30, 1996 among the Company, Brenda C. Hall, and Mr. Kinion and agreed
to amend
43
<PAGE>
the Voting Trust to grant Ms. Hall as voting trustee, the right to vote such
shares in all matters with certain exceptions. The Voting Trust Agreement and
the Voting Trust created thereby terminate upon the occurrence of certain
events including the consummation of the sale of the shares offered hereby.
Keith Corbin resigned from the Company as Chief Financial Officer effective
December 31, 1996, pursuant to a consulting and settlement agreement, which
obligates the Company to make monthly payments to
Mr. Corbin of $13,333 per month through May 1997 and $3,333 per week from May
1997 through August 1997 provided that he continues to provide services to the
Company and is not terminated for cause. In addition, as part of the terms of
the consulting and settlement agreement, Mr. Corbin's incentive stock option
will continue to vest through August 1997 provided that he continues to
provide services to the Company and is not terminated for cause.
In December 1996, a wholly owned subsidiary of the Company acquired certain
assets of TeamAlliance Technology Partners, L.P. ("TA") and related entities
for a total purchase price of approximately $8.6 million pursuant to an Asset
Purchase Agreement dated as of November 26, 1996 by and among the Company, TA
Acquisition Company, TA, TeamAlliance Technology Partners, Inc., Team Visions,
Inc., certain limited liability companies affiliated with TA, Richard F.
Harmon, Mordecai Levine and Frederick Lenz. Messrs. Harmon and Levine are
officers and directors of TeamAlliance Technology Partners, Inc., the General
Partner of TA. In connection with the TeamAlliance Acquisition, Messrs. Harmon
and Levine each entered into an Employment Agreement with the Company and were
granted options to acquire shares of Common Stock of the Company. See
"Management--Employment Agreements, Termination of Employment and Change in
Control Arrangements."
The Company entered into employment agreements with each of Paul H. Bartlett
and Brenda C. Hall in October 1996 and March 1997, respectively. See
"Management--Employment Agreements, Termination of Employment and Change in
Control Arrangements."
In June 1997, Richard Harmon terminated his employment with the Company. Mr.
Harmon served as Vice President, Internet Services of the Company from
December 1996. Pursuant to the terms of the employment agreement entered into
between the Company and Mr. Harmon in December 1996 in connection with the
TeamAlliance Acquisition, the Company is obligated to continue to pay Mr.
Harmon his base annual salary of $125,000 and annual bonus of not less than
$75,000 for 180 days following his termination. In addition, pursuant to the
terms of the employment agreement, the Company paid to Mr. Harmon $265,200,
the amount equal to the aggregate exercise price of the 52,000 stock options
he exercised in July 1997.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been otherwise
obtained from unaffiliated third parties. All future transactions, including
loans (if any), between the Company and its officers, directors and principal
stockholders and their affiliates will be approved by a majority of the Board
of Directors, including a majority of the independent and disinterested
outside directors of the Board of Directors, and will be on terms no less
favorable to the Company than could be obtained from unaffiliated third
parties.
44
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of June 30, 1997, and as
adjusted to reflect the sale of the shares of Common Stock offered hereby, by:
(i) each person (or group of affiliated persons) who is known by the Company
to own beneficially more than 5% of the Company's Common Stock; (ii) each of
the Company's directors; (iii) each of the Named Executive Officers; (iv) all
current executive officers and directors as a group; and (v) each Selling
Stockholder. Unless otherwise indicated below, to the knowledge of the
Company, all persons listed below have sole voting and investment power with
respect to their shares of Common Stock, subject to community property laws
where applicable. Except as otherwise provided below, the address of each
person listed below is c/o Hall, Kinion & Associates, Inc., 19925 Stevens
Creek Boulevard, Cupertino, CA 95014.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE NUMBER OF AFTER THE OFFERING
OFFERING (1) SHARES TO BE (1)
NAME AND ADDRESS OF -------------------- SOLD IN THE --------------------
BENEFICIAL OWNER SHARES PERCENTAGE OFFERING SHARES PERCENTAGE
- ----------------------- --------- ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Brenda C. Hall (2)..... 3,432,800 47.2% 210,000 3,182,800 35.5%
Todd J. Kinion (3)..... 1,994,100 27.4% 131,666 1,827,434 20.5%
36 Playa Boulevard
La Selva Beach, CA
95076
Entities Affiliated
with the Sprout Group
(4) 1,911,666 25.4% 416,667 1,494,999 16.3%
3000 Sand Hill Road
Bldg. 4, Suite 270
Menlo Park, CA 94025-
7114
Kathleen D. LaPorte
(5)................... 1,911,666 25.4% 416,667 1,494,999 16.3%
3000 Sand Hill Road
Bldg. 4, Suite 270
Menlo Park, CA 94025-
7114
Paul H. Bartlett (6)... 974,000 11.8% 974,000 9.8%
Keith Corbin (7)....... 92,096 1.3% 92,096 1.0%
Craig J. Silverman (8). 50,000 * 50,000 *
Rita S. Hazell (9)..... 24,000 * 24,000 *
Jon H. Rowberry (10)... 25,000 * 25,000 *
All executive officers
and directors as a
group (9 persons)
(11).................. 8,687,566 98.4% 7,839,233 74.3%
Other Selling
Stockholders
- -------------
Dean Call Voting Trust
(12).................. 399,996 5.5% 40,000 359,996 4.0%
Kinion Voting Trust
(13).................. 199,000 2.7% 35,000 164,000 1.8%
Richard Swanson........ 10,000 * 10,000 0 0
c/o Camerlengo & John-
son
500 Airport Blvd.,
Suite 230
Burlingame, CA 94010
Camerlengo & Johnson... 5,000 * 5,000 0 0
500 Airport Blvd.,
Suite 230
Burlingame, CA 94010
</TABLE>
- --------
* Less than 1%.
(1) Percentage of beneficial ownership is calculated assuming 7,266,952
shares of Common Stock were outstanding on June 30, 1997. This percentage
also includes Common Stock of which such individual or entity has the
right to acquire beneficial ownership within 60 days of June 30, 1997,
including but not limited to the exercise of an option; however, such
Common Stock shall not be deemed outstanding for the purpose of computing
the percentage owned by any other individual or entity. The number of
shares outstanding after this Offering includes the 1,666,667 shares of
Common Stock being offered for sale by
45
<PAGE>
the Company in this Offering, and assumes no exercise of the Underwriters'
over-allotment option. See "Underwriting."
(2) Includes 399,996 shares held by the Dean Call Voting Trust and 28,500
shares held by Virgil Hall. Ms. Hall is co-trustee of the Dean Call
Voting Trust and Virgil Hall is Ms. Hall's spouse. Excludes 1,795,100
shares held by Todd J. Kinion and deposited into the Voting Trust over
which Ms. Hall has voting power pursuant to the terms of the settlement
agreement between the Company and Mr. Kinion; such Voting Trust
terminates upon the occurrence of certain events, including the
consummation of the sale of shares offered hereby. Also excludes 480,000
shares pledged in connection with a secured promissory note executed by
Ms. Hall. See "Certain Transactions." If the over-allotment is exercised
in full, Ms. Hall will sell an additional 113,175 shares.
(3) Includes 199,000 shares held by the Kinion Voting Trust, but excludes
320,000 shares pledged in connection with a secured promissory note
executed by Mr. Kinion. If the overallotment is exercised in full, Mr.
Kinion will sell an additional 75,450 shares. See "Certain Transactions."
(4) Includes 1,488,882, 151,625 and 21,159 shares of Common Stock held by
Sprout Growth II, L.P. ("Sprout II"), DLJ Capital Corporation ("DLJ") and
Sprout CEO Fund, L.P. ("Sprout CEO"), respectively. Also includes
warrants to purchase 224,004, 22,812 and 3,184 shares of Common Stock
held by Sprout II, DLJ and Sprout CEO, respectively. Excludes warrants to
purchase an aggregate of up to 242,215 shares of Common Stock, which are
exercisable only in the event that Ms. Hall does not tender at least
480,000 shares or Mr. Kinion does not tender at least 320,000 shares in
full payment of their respective promissory notes. See "Certain
Transactions." DLJ is the general partner of Sprout CEO. Ms. LaPorte, a
director of the Company, is a general partner of the Sprout Group. Ms.
LaPorte disclaims beneficial ownership of the shares held by such
entities, except to the extent of her pecuniary interest therein. Ms.
LaPorte may be deemed to exercise voting and investment power over the
shares held by affiliates of the Sprout Group. If the overallotment is
exercised in full, Sprout II, DLJ and Sprout CEO will sell an additional
188,625 shares.
(5) Includes shares described in Note 4 above. Ms. LaPorte, a director of the
Company, disclaims beneficial ownership of the shares held by such
entities, except to the extent of her pecuniary interest therein.
(6) Represents shares in the form of stock options exercisable within 60 days
of June 30, 1997.
(7) Includes 46,048 shares in the form of stock options exercisable within 60
days of June 30, 1997.
(8) Represents shares in the form of stock options exercisable within 60 days
of June 30, 1997.
(9) Ms. Hazell holds an option to purchase an aggregate of 60,000 shares of
Common Stock, of which 24,000 shares are exercisable within 60 days of
June 30, 1997.
(10) Represents shares in the form of stock options exercisable within 60 days
of June 30, 1997. Mr. Rowberry's mailing address is c/o Franklin Covey,
2200 West Parkway Boulevard, Salt Lake City, Utah 84119.
(11) Includes warrants to purchase 250,000 shares of Common Stock and
1,308,000 shares in the form of stock options exercisable within 60 days
of June 30, 1997.
(12) See Note 2 above.
(13) See Note 3 above.
46
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company will consist of 100,000,000
shares of Common Stock, par value $0.001 per share, and 10,000,000 shares of
Preferred Stock, par value $0.001 per share, after giving effect to the
amendment of the Company's Certificate of Incorporation to delete references
to Series A Preferred Stock which will occur upon conversion of such Preferred
Stock into Common Stock upon the closing of this Offering and the subsequent
authorization of shares of undesignated Preferred Stock as described below.
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of the Company's Amended and
Restated Certificate of Incorporation, which is included as an exhibit to the
Registration Statement of which this Prospectus is a part, and by the
provisions of applicable law.
COMMON STOCK
As of June 30, 1997, there were 6,400,288 shares of Common Stock outstanding
that were held of record by approximately 16 stockholders, as well as options
and warrants to purchase an aggregate of approximately 2,688,186 shares of
Common Stock. The holders of Common Stock are entitled to one vote per share
on all matters to be voted upon by the stockholders. Subject to preferences
that may be applicable to outstanding shares of Preferred Stock, if any, the
holders of Common Stock are entitled to receive ratably such dividends as may
be declared from time to time by the Board of Directors out of funds legally
available therefor. In the event of the liquidation, dissolution or winding up
of the Company, the holders of Common Stock are entitled to share ratably in
all assets remaining after payment of liabilities, subject to prior
liquidation rights of Preferred Stock, if any then outstanding. The Common
Stock has no preemptive conversion rights or other subscription rights. There
are not redemption or sinking funds provisions applicable to the Common Stock.
All outstanding shares of Common Stock are fully paid and non-assessable, and
the shares of Common Stock to be outstanding upon completion of this Offering
will be fully paid and non-assessable.
PREFERRED STOCK
As of June 30, 1997, there were 1,600,000 shares of Series A Preferred Stock
of the Company outstanding. Such shares of Series A Preferred Stock will be
converted into Common Stock upon the closing of this Offering, with a
conversion rate that adjusts based on the per share price of the Common Stock
in this Offering. If the per share offering price is $12.50, or more, each
share of Series A Preferred Stock will convert into one share of Common Stock.
If the per share offering price is less than $12.50, each share of Series A
Preferred Stock will instead convert into that number of shares of Common
Stock equal to $12.50 divided by the per share offering price. If the per
share offering price is $12.00, the 1,600,000 shares of outstanding Series A
Preferred Stock will convert into 1,666,667 shares of Common Stock,
representing a conversion rate of approximately 1.0416 to one. If the per
share offering price is $11.00, the Series A Preferred Stock will convert into
1,818,182 shares of Common Stock, representing a conversion rate of
approximately 1.1363 to one.
Effective upon the closing of this Offering and the conversion of
outstanding Series A Preferred Stock into Common Stock, the Company's
Certificate of Incorporation will authorize 10,000,000 shares of Preferred
Stock. The Board of Directors has the authority to issue the Preferred Stock
in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the
designation of such series, without further vote or action by the
stockholders. The issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of the Company without further
action by the stockholders and may adversely affect the voting and other
rights of the holders of Common Stock. The issuance of Preferred Stock with
voting and conversion rights may adversely affect the voting power of the
holders of Common Stock, including the loss of voting control to others. The
Company has no present plan to issue Preferred Stock.
47
<PAGE>
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION,
BYLAWS AND DELAWARE LAW
Certificate of Incorporation and Bylaws
Upon completion of this Offering, the Company's Amended and Restated
Certificate of Incorporation (the "Certificate") and Bylaws will contain
provisions that could have the effect of delaying, deferring or preventing an
unsolicited change in control of the Company, which may adversely affect the
market price of the Common Stock or the ability of shareholders to participate
in a transaction in which they might otherwise receive a premium for their
shares over the then-current market price. Such provisions also may have the
effect of preventing changes in the management of the Company. These
provisions provide that all stockholder action must be taken at an annual or
special meeting of the stockholders, that only the Board of Directors may call
special meetings of the stockholders and that the Board of Directors be
divided into three classes to serve for staggered three-year terms. In
addition, the Certificate authorizes the Board of Directors to issue up to
10,000,000 shares of preferred stock ("Preferred Stock") without stockholder
approval and on such terms as the Board of Directors may determine. Although
no shares of Preferred Stock are currently outstanding and the Company has no
present plans to issue any shares of Preferred Stock, the rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of holders of any Preferred Stock that may be issued in the future.
See "Risk Factors--Effect of Certain Charter Provisions; Anti-Takeover Effects
of Certificate of Incorporation, Bylaws and Delaware Law."
Delaware Takeover Statute
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years following the date that
such stockholder became an interested stockholder, unless: (i) prior to such
date, the board of directors of the corporation approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder; (ii) upon consummation of the transaction that
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (x) by persons
who are directors and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or (iii) on or subsequent to such date, the business
combination is approved by the board of directors and authorized at an annual
or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock that is
not owned by the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii)
any sale, transfer, pledge or other disposition of 10% or more of the assets
of the corporation involving the interested stockholder; (iii) subject to
certain exceptions, any transaction that results in the issuance or transfer
by the corporation of any stock of the corporation to the interested
stockholder; (iv) any transaction involving the corporation that has the
effect of increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested stockholder; or
(v) the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation. In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person
affiliated with or controlling or controlled by such entity or person.
REGISTRATION RIGHTS
After this Offering, the holders of 5,702,687 shares of Common Stock
(5,325,437 if the over-allotment is exercised in full) and the holders of
warrants to purchase 250,000 shares of Common Stock will be entitled upon
expiration of lock-up agreements with the Underwriters to certain rights with
respect to the registration of such
48
<PAGE>
shares under the Securities Act. Under the terms of the agreement between the
Company and the holders of such registrable securities, if the Company
proposes to register any of its securities under the Securities Act, either
for its own account or for the account of other security holders exercising
registration rights, such holders are entitled to notice of such registration
and are entitled to include shares of such Common Stock therein. Certain of
such stockholders benefiting from these rights may also require the Company to
file a registration statement under the Securities Act at the Company's
expense with respect to their shares of Common Stock, and the Company is
required to use its diligent reasonable efforts to effect such registration.
Further, holders may require the Company to file additional registration
statements on Form S-3 at the Company's expense. These rights are subject to
certain conditions and limitations, among them the right of the underwriters
of an offering to limit the number of shares included in such registration in
certain circumstances.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is U.S. Stock
Transfer. Its telephone number is (818) 502-1404.
49
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 8,933,619 shares of
Common Stock outstanding (assuming no exercise of the Underwriters' over-
allotment option, of options or of warrants). Of these shares, the 2,515,000
shares sold in this Offering will be freely tradeable without restriction or
further registration under the Securities Act, except that any shares
purchased by "affiliates" of the Company, as that term is defined under the
Securities Act ("Affiliates"), may generally only be sold in compliance with
the limitations of Rule 144 described below.
SALES OF RESTRICTED SHARES
Upon completion of this Offering, the remaining 6,418,619 shares of Common
Stock are deemed "restricted securities" under Rule 144. Of these shares,
28,550 shares will be eligible for sale in the public market upon the
effective date of the registration statement filed in connection with this
Offering in reliance on Rule 144(k) of the Securities Act. Beginning 90 days
after the date of this Prospectus, 46,048 shares will be eligible for sale
pursuant to Rule 144 or Rule 701 promulgated under the Securities Act, subject
to the volume and other resale limitations of Rule 144. Beginning 180 days
after the date of this Prospectus (or earlier with the consent of Montgomery
Securities), upon the expiration of transfer restrictions specified in
existing agreements with the Company or lock-up agreements with the
representatives of the underwriters, approximately 6,344,021 shares will be
eligible for sale in reliance upon Rule 144 or Rule 701 promulgated under the
Securities Act, some of which will be subject to the volume and other resale
limitations of Rule 144, other than the one year holding period. The remaining
shares are eligible for sale in the public market more than 180 days after the
date of this Prospectus.
In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after this Offering, a person (or persons whose shares are
aggregated) who has beneficially owned Restricted Shares for at least one year
(including the holding period of any prior owner other than an Affiliate),
including a person who may be deemed an Affiliate of the Company, is entitled
to sell within any three-month period a number of shares that does not exceed
the greater of (i) 1% of the then outstanding shares of the Company's Common
Stock or (ii) the average weekly trading volume of the Company's Common Stock
in the over the counter market during the four calendar weeks preceding the
date on which notice of the sale is filed with the Securities and Exchange
Commission. Sales under Rule 144 are also subject to certain manner of sales
provisions, notice requirements and the availability of current public
information about the Company. Any person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the 90 days preceding a sale, and who owns shares within the
definition of "restricted securities" under Rule 144 that were purchased from
the Company (or any affiliate) at least two years, would be entitled to sell
such shares under Rule 144(k) without regard to the volume limitations, manner
of sale provision, public information requirements or notice requirements.
However, the transfer agent may require an opinion of counsel that a proposed
sale of shares comes within the terms of Rule 144 of the Securities Act prior
to effecting a transfer of such shares. Rule 701 under the Securities Act
provides that shares of Common Stock acquired on the exercise of outstanding
options may be resold by persons other than Affiliates, beginning 90 days
after the date of this Prospectus, subject only to the manner of sale
provisions of Rule 144, and by Affiliates, beginning 90 days after the date of
this Prospectus, subject to all provisions of Rule 144 except its one year
minimum holding period.
Prior to this Offering, there has been no public market for the Common Stock
of the Company and no predictions can be made of the effect, if any, that the
sale or availability for sale of shares of additional Common Stock will have
on the market price of the Common Stock. Nevertheless, sales of substantial
amounts of such shares in the public market, or the perception that such sales
could occur, could adversely affect the market price of the Common Stock and
could impair the Company's future ability to raise capital through an offering
of its equity securities.
OPTIONS
As of June 30, 1997, options to purchase a total of 2,438,186 shares of
Common Stock were outstanding. See "--Lock-up Agreements." In addition,
300,000 shares were available for future grant under the 1997 Plan
50
<PAGE>
as of June 30, 1997. Shares of Common Stock subject to outstanding options,
including options granted under the 1996 Plan, which expire or terminate prior
to exercise will be available or future issuance under the 1997 Plan. An
additional number of shares of Common Stock equal to 3% of the number of
shares of Common Stock outstanding on the first day of 1998, 1999 and 2000
will also become available for future grant under the 1997 Plan. Furthermore,
150,000 shares have been reserved for issuance under the Purchase Plan and
350,000 shares have been reserved for issuance under the IT Professional Plan.
"Management--1997 Stock Option Plan," "IT Professional Plan" "--Employee Stock
Purchase Plan," and Note 8 to Consolidated Financial Statements.
Rule 701 under the Securities Act provides that shares of Common Stock
acquired on the exercise of outstanding options may be resold by persons other
than Affiliates, beginning 90 days after the date of this Prospectus, subject
only to the manner of sale provisions of Rule 144, and by Affiliates,
beginning 90 days after the date of this Prospectus, subject to all provisions
of Rule 144 except its one year minimum holding period. The Company intends to
file one or more registration statements on Form S-8 under the Securities Act
to register all shares of Common Stock subject to outstanding stock options
and Common Stock issued or issuable pursuant to the Company's 1997 Plan. The
Company expects to file the registration statement on or shortly after the
effectiveness of this Offering covering 3,238,186 shares of Common Stock
subject to outstanding stock options or reserved for issuance under the 1997
Plan, IT Professional Plan and Employee Stock Purchase Plan as well as stock
options granted outside such plans. Such registration statements are expected
to become effective upon filing. Shares covered by these registration
statements will thereupon be eligible for sale in the public markets, subject
to the lock-up agreements, if applicable.
LOCK-UP AGREEMENTS
All officers and directors and certain holders of Common Stock and holders
of options and warrants to purchase Common Stock have agreed pursuant to
certain "lock-up" agreements that they will not offer, pledge, sell, contract
to sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase, or otherwise
dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible or exercisable or exchangeable for Common Stock, or
enter into any swap or similar agreement that transfers, in whole or in part,
the economic risk of ownership of the Common Stock for a period 180 days after
the transfer or date of this Prospectus without the prior written consent of
Montgomery Securities. Certain other holders of Common Stock and options to
purchase Common Stock have agreed pursuant to existing agreements with the
Company not to sell or otherwise transfer or dispose of any Common Stock for a
period of 180 days after the effective date of this Offering.
51
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters"), represented by Montgomery
Securities, Robert W. Baird & Co. Incorporated and The Robinson-Humphrey
Company, Inc. (the "Representatives"), have severally agreed, subject to the
terms and conditions set forth in the underwriting agreement (the
"Underwriting Agreement"), by and between the Company and the Underwriters to
purchase from the Company and the Selling Stockholders the aggregate number of
shares of Common Stock indicated below opposite their respective names, at the
initial public offering price less the underwriting discount set forth on the
cover page of this Prospectus. The Underwriting Agreement provides that the
obligations of the Underwriters are subject to certain conditions precedent
and that the Underwriters are committed to purchase all of the shares of
Common Stock, if they purchase any.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
Montgomery Securities..............................................
Robert W. Baird & Co. Incorporated.................................
The Robinson-Humphrey Company, Inc. ...............................
---------
Total............................................................ 2,515,000
=========
</TABLE>
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters initially propose to offer the Common Stock to the
public on the terms set forth on the cover page of this Prospectus. The
Underwriters may allow selected dealers a concession of not more than $ per
share; and the Underwriters may allow, and such dealers may reallow, a
concession of not more than $ per share to certain other dealers. After the
initial public offering, the offering price and other selling terms may be
changed by the Representatives. The Common Stock is offered subject to receipt
and acceptance by the Underwriters, and to certain other conditions, including
the right to reject orders in whole or in part.
The Selling Stockholders have granted an option to the Underwriters,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to a maximum of 377,250 additional shares of Common Stock,
respectively, to cover over-allotments, if any, at the same price per share as
the initial shares to be purchased by the Underwriters. To the extent that the
Underwriters exercise such option, the Underwriters will be committed, subject
to certain conditions, to purchase such additional shares in approximately the
same proportion as set forth in the above table. The Underwriters may purchase
such shares only to cover over-allotments made in connection with this
Offering.
The Company, the Selling Stockholders and the Company's executive officers
and directors have agreed that for a period of 180 days after the date of this
Prospectus they will not, without the prior written consent of Montgomery
Securities, directly or indirectly offer for sale, sell, solicit an offer to
sell, contract or grant an option to sell, pledge, transfer, establish an open
put equivalent position or otherwise dispose of any shares of Common Stock,
options or warrants to acquire shares of Common Stock or securities
exchangeable or exercisable for or convertible into shares of Common Stock.
The Company has also agreed not to issue, offer, sell, grant options to
purchase or otherwise dispose of any of the Company's equity securities for a
period of 180 days after the effective date of this Offering without the prior
written consent of Montgomery Securities, other than pursuant to the 1997
Stock Option Plan, IT Professional Plan and the Employee Stock Purchase Plan
and certain issuances in connection with acquisitions of businesses. In
evaluating any request for a waiver of the 180-day lock-up period, Montgomery
Securities will consider, in accordance with their customary practice, all
relevant facts and circumstances at the time of the request, including,
without limitation, the recent trading market for the Common Stock, the size
of the request and, with respect to a request by the Company to issue
additional equity securities, the purpose of such an issuance. See "Shares
Eligible for Future Sale."
In connection with the Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common
52
<PAGE>
Stock. Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M under the Securities and Exchange Act
of 1934, pursuant to which such persons may bid for or purchase Common Stock
for the purpose of stabilizing its market price. The Underwriters also may
create a short position for the account of the Underwriters by selling more
Common Stock in connection with the Offering than they are committed to
purchase from the Company and, in such case, may purchase Common Stock in the
open market following completion of the Offering to cover all or a portion of
such short position. The Underwriters may also cover all or a portion of such
short position, up to 377,250 shares of Common Stock, by exercising the
Underwriters' over-allotment option referred to above. In addition, Montgomery
Securities, may impose "penalty bids" under contractual arrangements with the
Underwriters whereby it may reclaim from an Underwriter (or dealer
participating in the offering) for the account of the other Underwriters, the
selling concession with respect to Common Stock that is distributed in the
Offering but subsequently purchased for the account of the Underwriters in the
open market. Any of the transactions described in this paragraph may result in
the maintenance of the price of the Common Stock at a level above that which
might otherwise prevail in the open market. None of the transactions described
in this paragraph is required, and, if they are undertaken, they may be
discontinued at any time.
The Representatives have informed the Company that the Underwriters do not
expect to make sales of Common Stock offered by this Prospectus to accounts
over which they exercise discretionary authority in excess of 5% of the number
of shares of Common Stock offered hereby.
The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the Underwriters against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the Underwriters may be required to make in respect thereof.
Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock
will be determined by negotiations between the Company and the
Representatives. Among the factors to be considered in such negotiations will
be prevailing market conditions, the results of operations of the Company in
recent periods, the market capitalizations and stages of development of other
companies that the Company and the Representatives believe to be comparable to
the Company, estimates of the business potential of the Company, the present
state of the Company's development and other factors deemed relevant. See
"Risk Factors--No Prior Trading Market for Common Stock; Potential Volatility
of Stock Price."
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
Menlo Park, California. Certain legal matters in connection with this Offering
will be passed upon for the Underwriters by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California.
53
<PAGE>
EXPERTS
The consolidated financial statements of the Company as of December 31, 1996
and for each of the three years in the period ended December 31, 1996, and the
consolidated financial statements of TeamAlliance as of December 1, 1996 and
for the eleven-month period then ended appearing in this Prospectus and the
related financial statement schedule included elsewhere in the Registration
Statement have been audited by Deloitte & Touche LLP, independent auditors, as
set forth in their reports appearing herein and elsewhere in the Registration
Statement, and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of TeamAlliance as of December 31,
1994 and 1995, and for the period from inception (May 1, 1994) through
December 31, 1994 and for the year ended December 31, 1995 included in this
prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules to the Registration
Statement. For further information with respect to the Company and such Common
Stock offered hereby, reference is made to the Registration Statement and the
exhibits and schedules filed as a part of the Registration Statement.
Statements contained in this Prospectus concerning the contents of any
contract or any other document referred to are not necessarily complete.
Although all material features of such contracts and other documents required
to be disclosed in this Prospectus are so disclosed in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement of which this Prospectus forms a part,
each such statement being qualified in all respects by such reference. The
Registration Statement, including exhibits and schedules thereto, may be
inspected without charge at the Commission's principal office in Washington,
D.C., and at the regional offices of the Commission located at Seven World
Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of all or any
part of such materials may be obtained from the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of the Commission's web site
is http://www.sec.gov.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent public accountants and
with quarterly reports for the first three fiscal quarters of each fiscal year
containing unaudited financial information.
54
<PAGE>
INDEX TO CONSOLIDATED AND PRO FORMA COMBINING
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES:
Independent Auditors' Report............................................ F-2
Consolidated Balance Sheets at December 31, 1995 and 1996 and June 30,
1997 (Unaudited)....................................................... F-3
Consolidated Statements of Income for the Years Ended December 31, 1994,
1995 and 1996 and the Six Months Ended June 30, 1996 and 1997
(Unaudited)............................................................ F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the Years
Ended December 31, 1994, 1995 and 1996 and the Six Months Ended June
30, 1997 (Unaudited)................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1994, 1995 and 1996 and the Six Months Ended June 30, 1996 and 1997
(Unaudited)............................................................ F-6
Notes to Consolidated Financial Statements.............................. F-7
TEAMALLIANCE TECHNOLOGY PARTNERS, L.P. AND SUBSIDIARIES:
Report of Independent Public Accountants................................ F-16
Independent Auditors' Report............................................ F-17
Consolidated Balance Sheets at December 31, 1994 and 1995 and December
1, 1996................................................................ F-18
Consolidated Statements of Income for the Period from Inception (May 1,
1994) through December 31, 1994 and for the Year Ended December 31,
1995 and for the Period from January 1, 1996 through December 1, 1996.. F-19
Consolidated Statement of Changes in Partners' Capital for the Period
from Inception (May 1, 1994) through December 31, 1994 and for the Year
Ended December 31, 1995 and for the Period from January 1, 1996 through
December 1, 1996....................................................... F-20
Consolidated Statements of Cash Flows for the Period from Inception (May
1, 1994) through December 31, 1994, for the Year Ended December 31,
1995 and for the Period from January 1, 1996 through December 1, 1996.. F-21
Notes to Consolidated Financial Statements.............................. F-22
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF INCOME:
Pro Forma Condensed Combining Statement of Income for the Year Ended
December 31, 1996 (Unaudited).......................................... F-27
Notes to Unaudited Pro Forma Condensed Combining Statement of Income for
the Year Ended December 31, 1996....................................... F-28
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Hall, Kinion & Associates, Inc.:
We have audited the accompanying consolidated balance sheets of Hall, Kinion
& Associates, Inc. and Subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of income, stockholders' equity (deficit) and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Hall, Kinion & Associates, Inc. and
Subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
San Jose, California
May 16, 1997
F-2
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------- JUNE 30, 1997
1995 1996 1997 PRO FORMA
---------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(NOTE 1)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and equivalents....... $ 4,000 $ 56,000 $ 161,000
Accounts receivable, net of
allowance for doubtful
accounts of $296,000 in
1995, and $403,000 in 1996
and $354,000 in 1997...... 4,270,000 7,621,000 10,814,000
Prepaid expenses and other
current assets............ 72,000 490,000 491,000
Prepaid income taxes....... -- 786,000 190,000
Deferred income taxes...... 279,000 340,000 612,000
---------- ----------- -----------
Total current assets..... 4,625,000 9,293,000 12,268,000
Property and equipment, net.. 834,000 4,431,000 4,959,000
Goodwill, net................ -- 9,054,000 8,903,000
Deferred IPO costs........... -- -- 403,000
Other assets................. 221,000 216,000 293,000
---------- ----------- -----------
Total assets............. $5,680,000 $22,994,000 $26,826,000
========== =========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current Liabilities:
Cash overdraft............. $ 338,000 $ 1,229,000 $ 1,187,000
Line of credit............. 1,734,000 418,000 3,828,000
Accounts payable........... 957,000 1,516,000 1,969,000
Accrued salaries,
commissions and related
payroll taxes............. 1,550,000 2,255,000 3,093,000
Accrued liabilities........ 15,000 1,301,000 656,000
Income taxes payable....... 145,000 -- --
Current portion of long-
term debt................. -- 2,385,000 2,385,000
---------- ----------- -----------
Total current
liabilities............. 4,739,000 9,104,000 13,118,000
Long-term debt............... -- 6,738,000 5,998,000
---------- ----------- -----------
Total liabilities........ 4,739,000 15,842,000 19,116,000
---------- ----------- -----------
Commitments and contingencies
(Notes 6 and 10)
Redeemable convertible
preferred stock; 1,600,000
shares authorized, issued,
and outstanding (liquidation
preference $20,000,000, Note
7).......................... -- 9,900,000 9,900,000 $ --
---------- ----------- ----------- -----------
Stockholders' Equity
(deficit):
Common stock; 10,000,000
shares authorized; shares
outstanding: 1995--
6,282,000; 1996--
6,339,000; 1997--6,400,000
(8,000,000 pro forma)..... 81,000 357,000 521,000 10,421,000
Stockholder notes
receivable................ -- (5,323,000) (5,496,000) (5,496,000)
Accumulated translation
adjustment................ -- (3,000) 9,000 9,000
Retained earnings.......... 860,000 2,221,000 2,776,000 2,776,000
---------- ----------- ----------- -----------
Total stockholders'
equity (deficit)........ 941,000 (2,748,000) (2,190,000) 7,710,000
---------- ----------- ----------- -----------
Total liabilities and
stockholders' equity
(deficit)................... $5,680,000 $22,994,000 $26,826,000 $26,826,000
========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------- ------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues:
Contract services..... $14,222,000 $25,660,000 $42,254,000 $19,039,000 $37,422,000
Permanent placement... 1,746,000 3,725,000 8,317,000 3,701,000 5,269,000
----------- ----------- ----------- ----------- -----------
Net revenues........ 15,968,000 29,385,000 50,571,000 22,740,000 42,691,000
Cost of contract
services............... 10,728,000 19,209,000 30,342,000 13,639,000 25,933,000
----------- ----------- ----------- ----------- -----------
Gross profit............ 5,240,000 10,176,000 20,229,000 9,101,000 16,758,000
Selling, general and
administrative
expenses............... 4,978,000 8,869,000 17,412,000 7,569,000 15,596,000
Other operating
expenses............... -- -- 821,000 -- --
----------- ----------- ----------- ----------- -----------
Total operating
expenses........... 4,978,000 8,869,000 18,233,000 7,569,000 15,596,000
----------- ----------- ----------- ----------- -----------
Income from operations.. 262,000 1,307,000 1,996,000 1,532,000 1,162,000
----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest income....... -- -- 434,000 207,000 172,000
Interest expense...... (122,000) (122,000) (65,000) (29,000) (345,000)
Other expenses, net... (81,000) (34,000) -- 5,000 (24,000)
----------- ----------- ----------- ----------- -----------
Total other income
(expenses), net.... (203,000) (156,000) 369,000 183,000 (197,000)
----------- ----------- ----------- ----------- -----------
Income before income
taxes.................. 59,000 1,151,000 2,365,000 1,715,000 965,000
Income taxes............ 26,000 469,000 1,004,000 687,000 410,000
----------- ----------- ----------- ----------- -----------
Net income.............. $ 33,000 $ 682,000 $ 1,361,000 $ 1,028,000 $ 555,000
=========== =========== =========== =========== ===========
Net income per share.... $ -- $ 0.09 $ 0.15 $ 0.11 $ 0.06
=========== =========== =========== =========== ===========
Shares used in per share
computation............ 7,227,000 7,272,000 9,351,000 8,941,000 9,503,000
=========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK STOCKHOLDER ACCUMULATED
------------------ NOTES TRANSLATION RETAINED
SHARES AMOUNT RECEIVABLE ADJUSTMENT EARNINGS TOTAL
--------- -------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, January 1,
1994................... 6,282,000 $ 81,000 $ -- $ -- $ 145,000 $ 226,000
Net income.............. -- -- -- -- 33,000 33,000
--------- -------- ----------- ------- ---------- -----------
BALANCE, December 31,
1994................... 6,282,000 81,000 -- -- 178,000 259,000
Net income.............. -- -- -- -- 682,000 682,000
--------- -------- ----------- ------- ---------- -----------
BALANCE, December 31,
1995................... 6,282,000 81,000 -- -- 860,000 941,000
Notes to stockholders
secured by stock....... -- -- (5,000,000) -- -- (5,000,000)
Interest on stockholder
notes receivable....... -- -- (317,000) -- -- (317,000)
Issuance of common stock
in connection with
acquisition............ 52,000 260,000 -- -- -- 260,000
Exercise of stock
options................ 5,000 6,000 (6,000) -- -- --
Compensation charge for
acceleration of the
vesting of stock
options................ -- 10,000 -- -- -- 10,000
Accumulated translation
adjustment............. -- -- -- (3,000) -- (3,000)
Net income.............. -- -- -- -- 1,361,000 1,361,000
--------- -------- ----------- ------- ---------- -----------
BALANCES, December 31,
1996................... 6,339,000 357,000 (5,323,000) (3,000) 2,221,000 (2,748,000)
Exercise of stock
options (Unaudited).... 61,000 164,000 -- -- -- 164,000
Interest on stockholder
notes receivable
(Unaudited)............ -- -- (173,000) -- -- (173,000)
Accumulated translation
adjustment (Unaudited). -- -- -- 12,000 -- 12,000
Net income (Unaudited).. -- -- -- -- 555,000 555,000
--------- -------- ----------- ------- ---------- -----------
BALANCES, June 30, 1997
(Unaudited)............ 6,400,000 $521,000 $(5,496,000) $ 9,000 $2,776,000 $(2,190,000)
========= ======== =========== ======= ========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------- ------------------------
1994 1995 1996 1996 1997
--------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income............. $ 33,000 $ 682,000 $ 1,361,000 $ 1,028,000 $ 555,000
Adjustments to
reconcile net income
to net cash provided
by (used for)
operating activities:
Depreciation and
amortization......... 86,000 208,000 448,000 160,000 570,000
Deferred income taxes. (103,000) (173,000) (61,000) -- (272,000)
Compensation expense
on stock options..... -- -- 10,000 -- --
Interest on
stockholder notes
receivable........... -- -- (317,000) (144,000) (173,000)
Changes in assets and
liabilities:
Accounts receivable.. (639,000) (2,410,000) (3,352,000) (695,000) (3,193,000)
Prepaid expenses and
other assets........ 114,000 25,000 (482,000) (28,000) (61,000)
Prepaid income taxes. -- -- (786,000) -- 596,000
Accounts payable and
accrued expenses.... 265,000 1,411,000 1,754,000 621,000 807,000
Income taxes payable. 64,000 64,000 (145,000) (45,000) --
--------- ----------- ----------- ----------- -----------
Net cash provided by
(used for)
operating
activities......... (180,000) (193,000) (1,570,000) 897,000 (1,171,000)
--------- ----------- ----------- ----------- -----------
Cash flows from
investing activities:
Purchase of property
and equipment......... (332,000) (634,000) (2,581,000) (414,000) (963,000)
Deposits for property
and equipment......... -- (192,000) 122,000 (93,000) --
Cash paid for business
acquisition........... -- -- (4,323,000) -- --
--------- ----------- ----------- ----------- -----------
Net cash used for
investing
activities......... (332,000) (826,000) (6,782,000) (507,000) (963,000)
--------- ----------- ----------- ----------- -----------
Cash flows from
financing activities:
Cash overdraft, net.... (155,000) 272,000 891,000 (332,000) (42,000)
Line of credit, net.... 768,000 801,000 (1,316,000) (1,735,000) 3,410,000
Note payable
repayments............ (122,000) (122,000) -- -- --
Borrowings on debt..... -- -- 4,000,000 -- --
Repayments of debt..... -- -- (71,000) -- (740,000)
Proceeds from sale of
common stock.......... -- -- -- -- 14,000
Proceeds from sale of
preferred stock, net
of issuance costs..... -- -- 9,900,000 9,900,000 --
Stockholder notes
receivable............ -- -- (5,000,000) (5,000,000) --
Deferred IPO Costs..... -- -- -- -- (403,000)
--------- ----------- ----------- ----------- -----------
Net cash provided by
financing
activities......... 491,000 951,000 8,404,000 2,833,000 2,239,000
--------- ----------- ----------- ----------- -----------
Net increase (decrease)
in cash and
equivalents............ (21,000) (68,000) 52,000 3,223,000 105,000
Cash and equivalents,
beginning of period.... 93,000 72,000 4,000 4,000 56,000
--------- ----------- ----------- ----------- -----------
Cash and equivalents,
end of period.......... $ 72,000 $ 4,000 $ 56,000 $ 3,227,000 $ 161,000
========= =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND SIX MONTHS ENDED JUNE 30,
1996 AND 1997
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND 1997 IS UNAUDITED)
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Business--Hall, Kinion & Associates, Inc. ("the Company") is an information
technology staffing company specializing in placing high technology personnel
on both a contract and permanent basis. In April 1994, The Stellar Group, Inc.
and Kinion Hall, companies under common ownership, were merged into the
Company in a transaction treated similarly to a pooling-of-interests. The
accompanying financial statements include the results of the combined
companies from January 1, 1994. In December 1996, the Company acquired certain
assets of TeamAlliance Technology Partners, L.P. (Note 2).
Principles of Consolidation--The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Certain Significant Risks and Uncertainties--The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Such management
estimates include the allowance for doubtful accounts receivable and certain
accruals. Actual results could differ from those estimates.
The Company operates in a dynamic industry, and accordingly, can be affected
by a variety of factors. For example, management of the Company believes that
changes in any of the following areas could have a negative effect on the
Company in terms of its future financial position and results of operations:
ability to obtain additional financing, regulatory changes, uncertainty
relating to the performance of the U.S. economy, competition, demand for the
Company's services, litigation or other claims against the Company, and the
hiring, training and retention of key employees.
The Company's financial instruments that are exposed to credit risk are
primarily cash and equivalents and accounts receivable. The Company places its
cash with what it believes are high credit quality financial institutions. In
granting credit, the Company routinely evaluates the financial strength of its
customers.
Cash and Equivalents--The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents. Cash
equivalents, consisting primarily of money market funds and bank accounts, are
stated at cost which approximates fair value.
Property and Equipment--Property and equipment are stated at cost and
depreciated on a straight-line basis over the estimated useful lives of the
assets, generally three to twenty-five years. Leasehold improvements are
amortized over the shorter of the estimated life of the asset or the lease
term.
Goodwill--Goodwill representing the cost in excess of the fair value of net
assets acquired related to the acquisition of TeamAlliance (Note 2) is being
amortized on a straight-line basis over a thirty-year period. Accumulated
amortization equaled $25,000 at December 31, 1996. The Company calculates the
recoverability of goodwill on a quarterly basis based upon estimated
undiscounted future cash flows.
Revenue Recognition--Revenue from contract placements is recognized as
services are performed. Revenue from permanent placements is recognized upon
commencement of employment.
Other Operating Expenses--Other operating expenses include certain non-
recurring charges including litigation settlement and related costs and
severance costs.
F-7
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1994, 1995 AND 1996 AND SIX MONTHS ENDED JUNE 30, 1996
AND 1997
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND 1997 IS UNAUDITED)
Income Taxes--The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, which requires an asset and liability approach of accounting for income
taxes. The Company's tax filing year ends on June 30.
Stock-Based Compensation--The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to
Employees.
Net Income Per Share--Net income per share is based on the weighted average
number of common and dilutive common equivalent shares (common stock options
using the treasury stock method) during the periods presented. Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin No. 83, all stock
issued and options to purchase shares of common stock granted by the Company
at a price less than the initial filing price during the twelve months
preceding the initial public offering date (using the treasury stock method
and an assumed public offering price of $12.00 per share) have been included
in the computation of common and common equivalent shares outstanding for all
periods presented. Pro forma net income per share is not presented for 1996 as
it does not differ from historical net income per share.
Unaudited Interim Financial Information--The unaudited interim financial
information as of June 30, 1997 and for the six months ended June 30, 1996 and
1997 has been prepared on the same basis as the audited financial statements.
In the opinion of management, such unaudited information includes all
adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation of this interim information. Operating results for the six
months ended June 30, 1997 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1997.
Unaudited Pro Forma Information--Unaudited pro forma information in the
accompanying consolidated balance sheet reflects the conversion of each of the
outstanding shares of Series A redeemable preferred stock into 1.041667 shares
of common stock at an assumed public offering price of $12.00 per share, and
the related decrease in the number of shares of authorized preferred stock,
upon the closing of the initial public offering (see Notes 7 and 8).
Fiscal Year--The Company's fiscal year ends on the Sunday closest to
December 31. For convenience, the fiscal year-end is referred to herein as
December 31. Fiscal years 1994, 1995 and 1996 all consisted of 52 weeks.
RECENTLY ISSUED ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128).
The Company is required to adopt SFAS 128 in the fourth quarter of fiscal 1997
and will restate at that time earnings per share (EPS) data for prior periods
to conform with SFAS 128. Earlier application is not permitted.
SFAS 128 replaces current EPS reporting requirements and requires a dual
presentation of basic and diluted EPS. Basic EPS excludes dilution and is
computed by dividing net income attributable to common stockholders by the
weighted average of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
However, the SEC rules regarding share issuances and option and other rights
granted to acquire shares prior to an initial public offering, as stated
above, are still applicable and such amounts are included in both basic and
diluted EPS.
F-8
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1994, 1995 AND 1996 AND SIX MONTHS ENDED JUNE 30, 1996
AND 1997
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND 1997 IS UNAUDITED)
Pro forma amounts for basic and diluted EPS assuming SFAS 128 had been in
effect for the periods presented are as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DEC. 31, ENDED JUNE 30,
-------------------- ---------------
1994 1995 1996 1996 1997
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Basic EPS............................... $ -- $0.09 $0.15 $0.12 $0.06
Diluted EPS............................. $ -- $0.09 $0.15 $0.11 $0.06
</TABLE>
2. ACQUISITION
In December 1996, the Company completed the acquisition of certain assets of
TeamAlliance Technology Partners, L.P. and its related limited liability
companies ("TeamAlliance"), a provider of staffing services to information
technology companies. The acquisition was accounted for as a purchase. The
consolidated financial statements of the Company include the results of
operations of TeamAlliance for the month of December 1996. The total
consideration for this purchase was $9,424,000 including $949,000 of costs
attributable to the acquisition. Terms of the acquisition included a cash
payment of $4,168,000 at the date of acquisition and the issuance of 52,000
shares of Company common stock valued at $260,000. In addition, the Company
has agreed to pay the sellers an aggregate of $4,200,000 in three future
annual installments as follows: October 31, 1997--$1,250,000; October 31,
1998--$1,250,000; and October 31, 1999--$1,700,000. In addition, payments for
the limited liability companies are being made in twelve monthly installments
aggregating $502,000 and are included in accrued liabilities.
Had the acquisition of TeamAlliance been completed at the beginning of 1996,
the Company's pro forma revenues, net income and earnings per share for 1996
would have been approximately $65,091,000, $475,000, and $0.05. Had the
acquisition of TeamAlliance been completed at the beginning of 1995, the
Company's pro forma revenues, net loss and loss per share for 1995 would have
been approximately $39,574,000, $(95,000), and $(0.01). Pro forma adjustments
reflect the elimination of TeamAlliance revenues for offices not acquired by
the Company, the interest on the cash paid in the acquisition and the
amortization of goodwill as well as the dilution attributable to the shares
issued and stock options granted.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------- ----------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Property and equipment.................. $1,206,000 $3,071,000 $3,986,000
Land and building....................... -- 2,047,000 2,047,000
Leasehold improvements.................. 38,000 99,000 137,000
---------- ---------- ----------
1,244,000 5,217,000 6,170,000
Accumulated depreciation and
amortization........................... (410,000) (786,000) (1,211,000)
---------- ---------- ----------
$ 834,000 $4,431,000 $4,959,000
========== ========== ==========
</TABLE>
In October 1996, the Company purchased land, building and furniture in Park
City, Utah to serve as a training facility. The purchase price consisted of
cash of $1,000,000 and a seller-financed mortgage note payable
F-9
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1994, 1995 AND 1996 AND SIX MONTHS ENDED JUNE 30, 1996
AND 1997
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND 1997 IS UNAUDITED)
in the amount of $1,147,000. The note bears interest at a fixed rate of 8.75%
per annum and is payable in monthly installments of principal and interest
through 2026.
4. DEBT
The Company has a term loan and revolving line of credit facility enabling
the Company to borrow a stated percentage of eligible accounts receivable up
to a maximum of $12,000,000. Borrowings under this facility in the form of the
term loan bear interest at the bank's prime rate (8.25% at December 31, 1996)
plus one percent, and borrowings under the revolving line of credit bear
interest at the bank's prime rate plus one-half percent. All borrowings under
this facility are collateralized by substantially all of the assets of the
Company. During the period from June 30, 1997 to June 30, 1998, the Company is
required to maintain an interest-bearing deposit at the bank averaging
$3,000,000. If the average balance falls below this amount in any of the four
quarters covered by this period, the Company has agreed to pay the bank $5,000
for such quarter. At December 31, 1996, in connection with the acquisition of
TeamAlliance, the Company borrowed $4,000,000 under the term loan facility and
$418,000 under the revolving line of credit. Commencing in January 1997, the
term loan requires monthly installments of $83,000 plus interest; the
revolving line of credit requires monthly payments of interest only. At June
30, 1997, the Company had $3,828,000 outstanding under the revolving line of
credit.
The facility contains certain covenants requiring the Company to maintain a
minimum level of profitability and net worth and maintain specific ratios of
working capital and current portion of debt to operating cash flow. The
Company was not in compliance with all covenants as of December 31, 1996;
however, such noncompliance at that date has been waived by the bank.
Debt consists of the following at December 31, 1996:
<TABLE>
<S> <C>
Bank term loan, due 1998.................................... $ 4,000,000
Present value of installments due in connection with
acquisition of TeamAlliance (discounted at 8.34%) (Note 2). 3,977,000
Mortgage note payable (Note 3).............................. 1,146,000
-----------
9,123,000
Current portion of debt..................................... (2,385,000)
-----------
Long-term debt.............................................. $ 6,738,000
===========
</TABLE>
Future payment requirements in connection with debt are: 1997, $2,385,000;
1998, $2,037,000; 1999, $2,583,000; 2000, $1,011,000; 2001, $12,000;
thereafter, $1,095,000.
5. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) profit-sharing plan covering substantially all
employees with at least 90 days of continuous service. Employees may
contribute up to 15% of their eligible compensation to a maximum amount as
provided under the Internal Revenue Code. At the discretion of the Board of
Directors, the Company may match employee contributions. For 1994 and 1995,
the Company contributed approximately $9,000 and $37,000, respectively. The
Company has accrued $55,000 for a matching contribution in 1996.
F-10
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1994, 1995 AND 1996 AND SIX MONTHS ENDED JUNE 30, 1996
AND 1997
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND 1997 IS UNAUDITED)
6. LEASE COMMITMENTS
The Company leases its office facilities under various noncancellable
operating leases which expire through 2002. Rent expense included in operating
expenses for 1994, 1995 and 1996 was approximately $170,000, $295,000 and
$802,000, respectively. Future minimum payments under all operating leases at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Years Ending December 31,
-------------------------
<S> <C>
1997.............................................................. $1,387,000
1998.............................................................. 1,311,000
1999.............................................................. 1,148,000
2000.............................................................. 784,000
2001.............................................................. 504,000
Thereafter........................................................ 190,000
----------
Total.......................................................... $5,324,000
==========
</TABLE>
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK
In January 1996, the Company completed the sale of 1,600,000 shares of
Series A redeemable preferred stock for an aggregate price of $10,000,000 less
costs of approximately $100,000 associated with the issuance.
Significant terms of the redeemable preferred stock are as follows:
Conversion--Each share of preferred stock may be converted into common
stock at any time at the option of the preferred stockholder or
automatically upon consummation of a public offering of common stock with
an offering price of at least $12.50 per share and $20,000,000 in the
aggregate. Each preferred share may be converted to one share of common
stock subject to adjustments as defined in the agreement.
Dividends--Noncumulative cash dividends at the rate of $0.56 per share
per annum payable in preference to any declaration or payment of any
dividend on common stock if and when declared by the Board of Directors.
Liquidation Preference--In the event of any liquidation, dissolution or
winding up of the Company, the holders of the preferred shares are entitled
to receive, prior and in preference to any distributions to holders of
common stock, an amount per share equal to the greater of:
. $12.50 per preferred share plus any and all declared but unpaid
dividends,
. $6.25 per preferred share plus $1.56 per share for each 12 months
that have passed since January 26, 1996, compounded annually, plus
any and all declared but unpaid dividends, or
. The amount that would be distributable to each share of common stock
assuming the conversion of all such Series A preferred stock on a
one-for-one basis plus any and all declared but unpaid dividends.
Redemption--Beginning on January 26, 2000, the preferred shares may be
redeemed at the liquidation preference amount. The Company may elect to
redeem the preferred stock in three equal annual installments.
F-11
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1994, 1995 AND 1996 AND SIX MONTHS ENDED JUNE 30, 1996
AND 1997
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND 1997 IS UNAUDITED)
8. STOCKHOLDERS' EQUITY
CAPITAL STOCK--The Company is authorized to issue 11,600,000 shares of
capital stock consisting of 10,000,000 shares of common stock and 1,600,000
shares of preferred stock.
STOCKHOLDER NOTES RECEIVABLE--On January 30, 1996, the Company loaned to its
two principal common stockholders, an aggregate of $5,000,000 under non-
recourse promissory notes collateralized by a total of 1,600,000 shares of the
Company's common stock. Each promissory note bears interest at 6.91% per annum
and principal and interest are due and payable on January 30, 2001 or earlier
in the event, among other things, the Company were sold or merged resulting in
a change in control, the Company were to consummate a public offering of its
common stock, or the respective stockholder voluntarily terminates employment
with the Company. At maturity, or earlier in the event of acceleration, the
two principal common stockholders may tender at least an aggregate of 800,000
shares of Common Stock (the number of shares to be based upon the then fair
market value) as full payment of the principal and interest due on the
promissory notes.
STOCK OPTIONS--The Company's 1996 Stock Option Plan (the Plan), as amended
authorizes the issuance of up to 2,300,000 shares of common stock for the
grant of incentive or nonqualified stock options to key employees,
nonemployees, directors and consultants who provide services to the Company.
Under the Plan, options are generally granted at fair market value at the date
of grant as determined by the Board of Directors. Such options are immediately
exercisable and vest over periods ranging from two to five years and expire up
to ten years from the grant date. Prior to the adoption of the Plan, the
Company was authorized to grant options to purchase 625,000 shares of common
stock. These options become exercisable over periods ranging from three to
five years and expire up to ten years from the grant date. In 1996, the
Company issued 974,000 options outside of the Plan to an employee of which 50%
were vested at year ended December 31, 1996 and 50% will vest ratably over 24
months commencing January 1998 with acceleration clauses. Option activity is
as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Balance, January 1, 1995.......................... -- $ --
Granted (weighted average fair value of $26,000).. 454,000 $ 0.30
Canceled.......................................... (13,000) $ 0.30
---------
Balance, December 31, 1995 (none exercisable)..... 441,000 $ 0.30
Granted (weighted average fair value of
$1,054,000)...................................... 1,828,000 $ 4.07
Canceled.......................................... (63,000) $ 3.00
Exercised......................................... (5,000) $ 1.26
---------
Balance, December 31, 1996........................ 2,201,000 $ 3.35
Granted........................................... 342,000 $10.00
Canceled.......................................... (59,000) $ 4.10
Exercised......................................... (46,000) $ 0.30
---------
Balance, June 30, 1997............................ 2,438,000 $ 4.33
=========
</TABLE>
F-12
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1994, 1995 AND 1996 AND SIX MONTHS ENDED JUNE 30, 1996
AND 1997
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND 1997 IS UNAUDITED)
Additional information regarding options outstanding as of December 31, 1996
is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------
OPTIONS EXERCISABLE
WEIGHTED --------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
--------------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.30................. 418,000 8.63 $0.30 140,000 $0.30
$1.50................. 94,000 9.35 $1.50 94,000 $1.50
$4.00................. 1,366,000 9.74 $4.00 1,366,000 $4.00
$5.10................. 323,000 9.92 $5.10 323,000 $5.10
--------- ---------
2,201,000 9.54 $3.35 1,923,000 $3.79
========= =========
</TABLE>
At December 31, 1996 and June 30, 1997, 1,068,000 and 785,000 options,
respectively, were available for future grant.
ADDITIONAL STOCK PLAN INFORMATION--As discussed in Note 1, the Company
continues to account for its stock-based awards using the intrinsic value
method in accordance with APB 25, Accounting for Stock Issued to Employees and
its related interpretations. Accordingly, no compensation expense has been
recognized in the financial statements for employee stock arrangements.
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation, (SFAS 123) requires the disclosure of pro forma net income
and earnings per share had the Company adopted the fair value method as of the
beginning of fiscal 1995. Under SFAS 123, the fair value of stock-based awards
to employees is calculated through the use of option pricing models, even
though models were developed to estimate the fair value of freely tradable,
fully transferable options without vesting restrictions, which significantly
differ from the Company's stock option awards. These models also require
subjective assumptions, including future stock price volatility and expected
time to exercise, which affect the calculated values. The Company's
calculations were made using the Black-Scholes option pricing model with the
following weighted average assumptions: expected life, 12 months following
vesting; volatility, zero in 1995 and 1996; risk free interest rates, 6.5% in
1995 and 1996; and no dividends during the expected term. The Company's
calculations are based on a multiple option valuation approach and forfeitures
are recognized as they occur. If the computed fair values of the 1995 and 1996
awards had been amortized to expense over the vesting period of the awards,
pro forma net income and pro forma net income per share would have been
$678,000, $0.09 per share, and $1,087,000, $0.12 per share, in 1995 and 1996,
respectively.
COMMON STOCK WARRANTS--Common stock warrants have been issued in conjunction
with the issuance of the preferred stock in January 1996. At December 31,
1996, the Company had outstanding warrants to purchase 250,000 shares of
common stock at $0.01 per share. In addition, the Company has outstanding
warrants held by the preferred stockholder to purchase up to 242,000 shares of
common stock at $0.01 per share in the event the Company's two principal
stockholders tender less than an aggregate of 800,000 common shares as full
satisfaction of their outstanding notes.
F-13
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1994, 1995 AND 1996 AND SIX MONTHS ENDED JUNE 30, 1996
AND 1997
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND 1997 IS UNAUDITED)
9. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
--------- --------- ----------
<S> <C> <C> <C>
Current:
Federal.................................. $ 96,000 $ 494,000 $ 808,000
State.................................... 33,000 148,000 257,000
--------- --------- ----------
129,000 642,000 1,065,000
--------- --------- ----------
Deferred:
Federal.................................. (76,000) (134,000) (41,000)
State.................................... (27,000) (39,000) (20,000)
--------- --------- ----------
(103,000) (173,000) (61,000)
--------- --------- ----------
$ 26,000 $ 469,000 $1,004,000
========= ========= ==========
</TABLE>
The Company's effective tax rate differs from the federal statutory rate as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Income tax expense at statutory rate....................... 34.0% 34.0% 34.0%
State income taxes, net of federal benefit................. 6.8 6.3 6.5
Other items, net........................................... 3.3 0.4 2.0
----- ----- -----
44.1% 40.7% 42.5%
===== ===== =====
</TABLE>
The components of net deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
-------- --------
<S> <C> <C>
Deferred tax assets--
Accruals and reserves recognized in different periods... $350,000 $364,000
Deferred tax liabilities--accrual to cash conversion..... (71,000) (24,000)
-------- --------
Net deferred tax assets.................................. $279,000 $340,000
======== ========
</TABLE>
10. CONTINGENCIES
The Company is party to various legal actions in the normal course of
business. Although the ultimate outcome of these matters is not presently
determinable, management believes that the resolution of all such pending
matters will not have a material adverse effect on the Company's financial
position or results of operations.
F-14
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1994, 1995 AND 1996 AND SIX MONTHS ENDED JUNE 30, 1996
AND 1997
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND
1997 IS UNAUDITED)
11. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The following provides additional information concerning supplemental
disclosures of cash flow activities:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------- -----------------
1994 1995 1996 1996 1997
-------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
Cash paid during the
period for:
Income taxes............ $ 49,000 $577,000 $ 1,956,000 $431,000 $ 86,000
Interest ............... 115,000 117,000 46,000 29,000 345,000
Noncash investing and
financing activities:
Purchase of land,
building and furniture
for note payable....... -- -- 1,147,000 -- --
Exercise of stock
options................ -- -- 6,000 -- --
Common Stock issued..... -- -- -- -- 150,000
Effect of business
acquisition:
Intangible assets and
equipment acquired... -- -- $ 9,424,000 -- --
Installment
obligations issued... -- -- (4,047,000) -- --
Common stock issued... -- -- (260,000) -- --
Accrued expenses in
connection with
acquisition.......... -- -- (794,000) -- --
-----------
Cash paid for
business
acquisition........ $ 4,323,000
===========
</TABLE>
F-15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To TeamAlliance Technology Partners, L.P.:
We have audited the accompanying consolidated balance sheets of TeamAlliance
Technology Partners, L.P. and Subsidiaries as of December 31, 1994 and 1995,
and the related statements of income, changes in partners' capital and cash
flows for the period from inception (May 1, 1994) through December 31, 1994
and for the year ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TeamAlliance Technology
Partners, L.P. and Subsidiaries as of December 31, 1994 and 1995, and the
results of its operations and its cash flows for the period from inception
(May 1, 1994) through December 31, 1994 and for the year ended December 31,
1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
October 30, 1996 (except with
respect to Note 10, as to which the
date is December 4, 1996)
F-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
To TeamAlliance Technology Partners, L.P. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of TeamAlliance
Technology Partners, L.P. and Subsidiaries as of December 1, 1996, and the
related consolidated statements of income, changes in partners' capital and
cash flows for the period from January 1, 1996 through December 1, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of TeamAlliance Technology
Partners, L.P. and Subsidiaries, as of December 1, 1996 and the results of
their operations and their cash flows for the above-stated period then ended
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Jose, California
May 20, 1997
F-17
<PAGE>
TEAMALLIANCE TECHNOLOGY PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
DECEMBER 1,
1994 1995 1996
-------- ---------- -----------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash.......................................... $ 67,155 $ 86,296 $ 224,822
Accounts receivable, net of allowance for
doubtful accounts of $0, $84,529 and
$165,903, respectively....................... 581,585 3,031,537 2,687,122
Prepaid expenses and other.................... 14,373 134,998 22,900
-------- ---------- ----------
Total current assets..................... 663,113 3,252,831 2,934,844
Fixed assets, net.............................. 18,489 199,326 240,722
Organization costs, net of accumulated amorti-
zation of $1,110 and $12,120 and $103,938, re-
spectively.................................... 10,491 91,788 --
Other assets................................... 9,250 28,130 24,380
-------- ---------- ----------
Total assets............................. $701,343 $3,572,075 $3,199,946
======== ========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Short term borrowings......................... $ -- $2,227,963 $2,148,958
Accounts payable and accrued expenses......... 528,088 803,891 1,043,885
Related party loans payable and advances...... 18,525 120,000 39,940
Obligation under capital lease................ -- 95,904 --
-------- ---------- ----------
Total current liabilities................ 546,613 3,247,758 3,232,783
Related party loans payable and advances--long
term.......................................... -- 29,941 --
Partners' Capital:
General Partner............................... 77,365 128,354 (16,418)
Limited Partner............................... 77,365 166,022 (16,419)
-------- ---------- ----------
Total partners' capital.................. 154,730 294,376 (32,837)
-------- ---------- ----------
Total liabilities and partners' capital.. $701,343 $3,572,075 $3,199,946
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
TEAMALLIANCE TECHNOLOGY PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION PERIOD FROM
(MAY 1, 1994) JANUARY 1, 1996
THROUGH YEAR ENDED THROUGH
DECEMBER 31, DECEMBER DECEMBER 1,
1994 31, 1995 1996
------------- ----------- ---------------
<S> <C> <C> <C>
Revenues............................. $1,674,949 $14,191,153 $19,198,731
Expenses:
Direct costs of revenues............ 969,560 9,090,526 13,775,073
Selling, general and administrative
expenses........................... 473,857 3,426,972 4,346,927
Legal fees related to sale (see Note
9)................................. -- -- 151,657
Interest and financing costs........ 248 311,786 505,983
Write-off of organization costs..... -- 54,900 91,788
---------- ----------- -----------
Income before provision for income
taxes............................... 231,284 1,306,969 327,303
Provision for income taxes........... 10,554 27,323 22,830
---------- ----------- -----------
Net income........................... $ 220,730 $ 1,279,646 $ 304,473
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
TEAMALLIANCE TECHNOLOGY PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNER TOTAL
-------- -------- ----------
<S> <C> <C> <C>
Initial Contribution, May 1, 1994.............. $ 15,000 $ 15,000 $ 30,000
Net Income..................................... 110,365 110,365 220,730
Distributions.................................. (48,000) (48,000) (96,000)
-------- -------- ----------
Balances, December 31, 1994................. 77,365 77,365 154,730
Net Income..................................... 540,989 738,657 1,279,646
Distributions.................................. (490,000) (650,000) (1,140,000)
-------- -------- ----------
Balances, December 31, 1995................. 128,354 166,022 294,376
Net Income .................................... 213,914 90,559 304,473
Distributions ................................. (358,686) (273,000) (631,686)
-------- -------- ----------
Balances, December 1, 1996 ................. $(16,418) $(16,419) $ (32,837)
======== ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
TEAMALLIANCE TECHNOLOGY PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION (MAY 1, JANUARY 1, 1996
1994) THROUGH YEAR ENDED THROUGH
DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 1, 1996
----------------- ----------------- ----------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net Income............... $ 220,730 $ 1,279,646 $ 304,473
Adjustments to reconcile
net income to net cash
provided (used) by
operating activities:
Depreciation and
amortization........... 6,117 44,396 82,759
Write-off of
organization costs..... -- 54,900 91,788
(Increase) decrease in
accounts receivable.... (581,585) (2,449,952) 344,415
(Increase) decrease in
prepaid expenses and
other.................. (14,373) (120,625) 112,098
(Increase) decrease in
other assets........... (9,250) (18,880) 3,750
Increase in accounts
payable and accrued
expenses............... 528,088 275,803 239,994
--------- ----------- ---------
Net cash provided
(used) by operating
activities........... 149,727 (934,712) 1,179,277
--------- ----------- ---------
Cash flows from investing
activities:
Acquisition of fixed
assets.................. (23,496) (129,673) (124,155)
Increase in organization
costs................... (11,601) (153,305) --
--------- ----------- ---------
Net cash used by in-
vesting activities... (35,097) (282,978) (124,155)
--------- ----------- ---------
Cash flows from financing
activities:
Increase (decrease) in
short term borrowings,
net..................... -- 2,227,963 (79,005)
Proceeds from related
party loans and
advances................ 18,525 256,079 --
Repayments of related
party loans and
advances................ -- (70,595) (110,001)
Repayments of obligation
under capital leases.... -- (36,616) (95,904)
Initial contribution..... 30,000 -- --
Distributions to
partners................ (96,000) (1,140,000) (631,686)
--------- ----------- ---------
Net cash provided
(used) by financing
activities........... (47,475) 1,236,831 (916,596)
--------- ----------- ---------
Increase in cash.......... 67,155 19,141 138,526
Cash--Beginning of period. -- 67,155 86,296
--------- ----------- ---------
Cash--End of period....... $ 67,155 $ 86,296 $ 224,822
========= =========== =========
SUPPLEMENTAL INFORMATION
Interest and other
financing costs paid..... $ -- $ 309,949 $ 491,204
Income taxes paid......... -- 7,712 22,830
Non-cash investing and
financing activities
Capital lease
obligations............. -- 132,521 --
Payment of debt with
fixed assets............ -- 54,069 --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
TEAMALLIANCE TECHNOLOGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM INCEPTION (MAY
1, 1994)
THROUGH DECEMBER 31, 1994, FOR THE YEAR ENDED DECEMBER 31, 1995 AND FOR THE
PERIOD FROM JANUARY 1, 1996 THROUGH DECEMBER 1, 1996
1. ORGANIZATION AND NATURE OF BUSINESS
TeamAlliance Technology Partners, L.P. (the "Partnership") was formed on May
1, 1994 by TeamAlliance Technology Partners, Inc. (the "General Partner") and
Team Visions, Inc. (the "Limited Partner") for the purpose of providing
temporary and permanent personnel in the high technology industries.
TeamAlliance Technology Partners, L.P. and its general partner formed numerous
limited liability companies throughout the United States in which their
respective ownership interest is 99% and 1% and whose period of duration is
thirty years. (The Partnership and limited liability companies collectively
are herein referred to as the "Company.")
Pursuant to the terms of the Partnership Agreement between TeamAlliance
Technology Partners, Inc. and Team Visions, Inc., the Partnership shall
continue until December 31, 2006 unless terminated prior to that date.
The consolidated financial statements included herein do not reflect a
reduction to income nor a liability to the minority owner (TeamAlliance
Technology Partners, Inc.) of the limited liability companies as such amount
has been deemed to be immaterial.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation--The consolidated financial statements include
the accounts of TeamAlliance Technology Partners, L.P. and its majority owned
and controlled limited liability companies (subsidiaries). All material
intercompany transactions have been eliminated (see Note 1 relating to
minority interest).
Revenue recognition--Revenue relating to the placement of temporary
personnel is recognized upon performance of the service. Revenue relating to
the placement of permanent personnel is recognized when the individual
commences employment.
Fixed Assets--Fixed assets are recorded at cost and primarily consists of
computer equipment. Depreciation is provided for under the double declining
method over an expected useful life of 5 years. Assets under the capital lease
obligation are capitalized and depreciated using the straight line method over
3 years.
Fixed Assets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 1,
1994 1995 1996
------------ ------------ -----------
<S> <C> <C> <C>
Computer Equipment.................... $23,496 $225,120 $353,893
Furniture & Fixtures.................. -- 6,500 6,500
------- -------- --------
23,496 231,620 360,393
Less: Accumulated depreciation......... (5,007) (32,294) (119,671)
------- -------- --------
$18,489 $199,326 $240,722
======= ======== ========
</TABLE>
The gross and net book value of assets under the capital lease obligation
was $132,521 and $126,999 at December 31, 1995 and nil at December 1, 1996.
Organization costs--Organization costs are amortized under the straight-line
method over a period of five years.
Advertising and promotion expenses--The cost of advertising and promotion is
expensed when incurred.
Software--The cost to develop internally used software is expensed as
incurred.
F-22
<PAGE>
TEAMALLIANCE TECHNOLOGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM INCEPTION
(MAY 1, 1994)
THROUGH DECEMBER 31, 1994, FOR THE YEAR ENDED DECEMBER 31, 1995 AND FOR THE
PERIOD FROM JANUARY 1, 1996 THROUGH DECEMBER 1, 1996--(CONTINUED)
Direct cost of revenues--Direct cost of revenues consist of payroll and the
related benefits costs for the placement of temporary personnel.
Income Taxes--The Partnership and limited liabilities companies are not
taxable entities for federal and state income tax purposes. Accordingly, for
financial reporting purposes, no recognition has been given to income taxes
related to such operations. The tax on company's income is borne by the
individual partners and members through the allocation of taxable income or
loss. Such taxable income or loss may vary substantially from net income or
net loss reported in the consolidated statements of income. Income taxes
reflected in the accompanying financial statements consist predominantly of
unincorporated business taxes. The Company has adopted the cash basis of
accounting for income tax purposes. A deferred tax liability results from
timing differences in the recognition of income and expenses between financial
statement income and taxable income, which was not material.
Concentration of credit risks--The Company operates throughout the United
States, with approximately one half of its revenues generated from companies
in the New York Metropolitan area. The Company grants credit to its customers,
who are principally in the financial services and technology industries.
Use of estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
3. ACCOUNTS RECEIVABLE FINANCING
On March 7, 1995 the Company entered into an agreement to sell, on a
revolving basis, an undivided interest in a designated pool of accounts
receivable relating to its temporary placement business. The factoring charge
(administration fee) amounts to 2% of the receivables sold. In addition,
interest is charged (financing fee) at 0.4% of the total receivables sold
which remain unpaid by the customer for 1 day but less than 31 days plus an
additional 0.5% of the receivables which remain unpaid for 31 days but not
more than 60 days. After 60 days, the Company is obligated to repurchase the
unpaid receivables. The rights, title and interest in receivables sold remain
with the lender until the termination of the agreement. Upon termination of
this agreement, amounts of receivables not yet paid by the Company's customers
are returned to the Company for payment. The amount of accounts receivables
outstanding under this agreement has been reflected as short term borrowings
in the accompanying financial statements. The average amount of borrowings and
average interest rate for the year while this agreement was in effect was
approximately $1,850,000 and 16%, respectively, for 1995 and $3,268,000 and
15%, respectively, for the period from January 1, 1996 through December 1,
1996.
In connection with this agreement, the Company has agreed to maintain a
certain level of positive tangible net worth as defined by the agreement. At
December 31, 1995 the Company was not in compliance with this covenant. In
October 1996, the Company obtained a waiver regarding compliance with this
covenant through December 31, 1996, and amended the covenant, commencing
January 1, 1997, to make it less restrictive and to include a net worth
covenant based upon financial statements prepared in accordance with generally
accepted accounting principles.
4. LOANS AND ADVANCES PAYABLE
The Company is indebted to the limited partner in the amount of
approximately $39,940 relating to borrowings from the partner and from
payments made by the partner on behalf of the Company relating to the purchase
of computer equipment. The loan bears interest at 8% per annum and is due
through January 1, 1997.
F-23
<PAGE>
TEAMALLIANCE TECHNOLOGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM INCEPTION
(MAY 1, 1994)
THROUGH DECEMBER 31, 1994, FOR THE YEAR ENDED DECEMBER 31, 1995 AND FOR THE
PERIOD FROM JANUARY 1, 1996 THROUGH DECEMBER 1, 1996--(CONTINUED)
5. OBLIGATION UNDER CAPITAL LEASE
During 1995 the Company leased certain computer equipment and software under
a capital lease agreement at an interest rate of approximately 15%. The lease
was paid in 1996. The debt was secured by the assets underlying the agreement.
6. COMMITMENTS AND CONTINGENCIES
Operating Leases--The Company leases office space under operating leases and
subleases expiring through January 2001. Future minimal rental payments under
these agreements are as follows:
<TABLE>
<S> <C>
1997................................................................ $139,000
1998................................................................ 139,000
1999................................................................ 139,000
2000................................................................ 139,000
2001................................................................ 12,000
--------
$568,000
========
</TABLE>
Rent expense, net of subrental income of $76,500 in 1995, was approximately
$41,000, $180,000 and $155,000 in 1994, 1995 and 1996, respectively.
Letter of Credit--The Company issued an irrevocable standby letter of credit
in the amount of $420,000, which expired on March 7, 1997 as security of its
liability resulting from the Accounts Receivable Financing (see Note 3). The
letter of credit is guaranteed by an individual who is the sole stockholder of
the limited partner. The Company has agreed to indemnify and hold harmless the
guarantor in connection with his guarantee.
7. RELATED PARTY TRANSACTIONS
The Company leased space to a company affiliated with the limited partner at
the rate of $8,500 per month which commenced in March 1995 and terminated in
February 1996. In addition, companies affiliated with the limited partner
conduct educational seminars for the training and support of Company
employees, which amounted to approximately $78,000, $173,000 and $7,000 in
1994, 1995 and 1996, respectively and has been reflected in selling, general
and administrative expenses in the accompanying statements of income.
Companies either wholly or partially owned by stockholders of the general
partner performed services in connection with the placement of temporary
personnel. These amounts totaled approximately $37,000, $69,000 and nil in
1994, 1995 and 1996, respectively.
The Company incurred approximately $40,000 in 1995 and $42,000 in 1996 of
legal fees relating to the general partner. These amounts were treated as
distributions to the general partner.
F-24
<PAGE>
TEAMALLIANCE TECHNOLOGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM INCEPTION
(MAY 1, 1994)
THROUGH DECEMBER 31, 1994, FOR THE YEAR ENDED DECEMBER 31, 1995 AND FOR THE
PERIOD FROM JANUARY 1, 1996 TO DECEMBER 1, 1996--(CONTINUED)
8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- DECEMBER 1,
1994 1995 1996
-------- -------- -----------
<S> <C> <C> <C>
Accrued payroll and benefits................ $402,625 $488,616 $ 411,524
Accrued taxes other than income............. 10,554 30,165 15,818
Accrued commissions......................... 48,466 22,959 60,644
Accrued professional services............... 16,430 105,522 242,837
Sales tax payable........................... 18,902 49,696 55,881
Other....................................... 31,111 106,933 257,181
-------- -------- ----------
$528,088 $803,891 $1,043,885
======== ======== ==========
</TABLE>
9. MAJOR CUSTOMERS
During 1994 one customer accounted for 15% of revenues.
10. SUBSEQUENT EVENT
On November 26, 1996, the Partnership and six of its majority-owned limited
liability companies entered into an Asset Purchase Agreement whereby they sold
to TA Acquisition Corporation, a wholly owned subsidiary of Hall, Kinion and
Associates, Inc. ("Hall Kinion"), the assets and the business of the
Partnership and a majority of its limited liability companies. The
consideration received by the Partnership includes $4,168,000 in cash and
52,000 shares of common stock of Hall Kinion upon closing, $1,250,000 on
October 31, 1997, $1,250,000 on October 31, 1998 and $1,700,000 on October 31,
1999. Payments to be received after closing are conditioned upon the continued
employment of shareholders of the General Partner. Upon completion of this
transaction, the operating activities of the Partnership will be significantly
less than that reflected in the accompanying financial statements.
F-25
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES AND
TEAMALLIANCE TECHNOLOGY PARTNERS, L.P. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION
On December 2, 1996, Hall, Kinion & Associates, Inc. (the "Company" or "HK")
acquired certain assets of TeamAlliance Technology Partners, L.P. and
Subsidiaries ("TA") including the assets of related regional limited liability
corporations (the LLC's) of which TA was a majority owner. The following
unaudited pro forma condensed combining financial information reflects this
business combination which has been accounted for under the purchase method of
accounting.
The unaudited pro forma condensed combining financial information should be
read in conjunction with the accompanying notes to the pro forma condensed
combining financial information and in conjunction with the historical
consolidated financial statements and the related notes thereto of the Company
and the historical financial statements and related notes thereto of TA
included herein.
The unaudited pro forma condensed combining statement of income combines the
Company's results of operations for the year ended December 31, 1996 with the
operating results of TA for the comparable periods and have been prepared as
if the merger was completed as of January 1, 1996. The unaudited pro forma
information is presented for illustrative purposes only and is not necessarily
indicative of the operating results that would have occurred had the merger
been consummated at the beginning of the period prescribed, nor is it
necessarily indicative of future operating results.
F-26
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES AND
TEAMALLIANCE TECHNOLOGY PARTNERS, L.P. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINING STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------
PRO FORMA PRO FORMA
HK TA ADJUSTMENTS COMBINED
------- ------- ----------- ---------
(A) (B)
<S> <C> <C> <C> <C>
Net revenues......................... $50,571 $19,199 $(4,679)(c) $65,091
Cost of revenues..................... 30,342 13,775 (3,263)(d) 40,854
------- ------- ------- -------
Gross profit......................... 20,229 5,424 (1,416) 24,237
Operating expenses................... 18,233 4,499 (192)(e) 22,540
------- ------- ------- -------
Income from operations............... 1,996 925 (1,224) 1,697
Other income (expense):
Interest income.................... 434 -- -- 434
Interest expense................... (65) (506) (563)(f) (1,134)
Other expenses, net................ -- (92) 14 (g) (78)
------- ------- ------- -------
Total other income (expense),
net............................. 369 (598) (549) (778)
------- ------- ------- -------
Income before income taxes........... 2,365 327 (1,773) 919
Income taxes......................... 1,004 23 (583)(h) 444
------- ------- ------- -------
Net income........................... $ 1,361 $ 304 $(1,190) $ 475
======= ======= ======= =======
Net income per share:
Primary............................ $ 0.15 $ 0.05
======= =======
Fully diluted...................... $ 0.15 $ 0.05
======= =======
Shares used in per share computation:
Primary............................ 9,351 9,351
======= =======
Fully diluted...................... 9,371 9,371
======= =======
</TABLE>
See notes to unaudited pro forma condensed combining statement of income.
F-27
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(a) The amounts for HK are derived from audited financial statements and
include the activity of TA from December 2, 1996 (date of acquisition).
(b) The amounts for TA are derived from audited financial statements and
include activity from January 1, 1996 through December 1, 1996.
(c) Elimination of revenues related to the regional LLC's that were not
acquired by HK on December 2, 1996.
(d) Elimination of cost of revenues related to the regional LLC's that were
not acquired by HK on December 2, 1996.
(e) Adjustments to operating expenses:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Expenses associated with regional LLC's not acquired......... $(721,000)
Compensation and bonuses of former TA General Partners in
lieu of distributions....................................... 424,000
Amortization of acquired goodwill, over 30 years............. 256,000
Legal fees associated with purchase of TA.................... (151,000)
---------
$(192,000)
=========
</TABLE>
(f) Additional interest expense associated with the use of cash or
additional borrowings for the purchase of TA.
(g) The elimination of other expenses related to the regional LLC's that
were not acquired by HK on December 2, 1996.
(h) Additional corporate income taxes at a rate of 48% net of state tax
deductions, as TA was a partnership taxed at the individual partner's
level prior to acquisition, netted with tax benefits realized from
amortization of acquired goodwill.
F-28
<PAGE>
[PHOTOGRAPH OF GLOBE]
SAN JOSE
AUSTIN
CHICAGO
DENVER
HOUSTON
LONDON
NEW YORK
ORLANDO
PHOENIX
PORTLAND
RALEIGH
SALT LAKE CITY
SEATTLE
TAMPA
HALL KINION:
Hall Kinion is a leading provider of IT Professionals for the next generation of
technology with offices in 14 major technology centers located throughout the
United States and London. Our practice groups provide services in specialized
areas of technical expertise.
CONTRACT SERVICES
Our team of account managers and technical recruiting agents focuses on the
specialized needs of our customers to better ensure that only the most qualified
personnel are matched to contract positions.
CAD
MIS
INTERNET
NET
QA
UNIX
WINDOWS
WRITERS
RECRUITING SERVICES
Our network of specialized IT professionals and knowledge of the industry enable
us to more quickly and efficiently place direct hires for our clients.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with the
Offering other than those contained in this Prospectus and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company, any of the Selling Stockholders or any of the
Underwriters. This Prospectus does not constitute an offer to sell or a
solicitation of any offer to buy the securities offered hereby to any person
or by anyone in any jurisdiction in which it is unlawful to make such offer or
solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any time subsequent to the date
hereof.
-------------------
TABLE OF CONTENTS
-------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
The Company............................................................... 12
Use of Proceeds........................................................... 13
Dividend Policy........................................................... 13
Capitalization............................................................ 14
Dilution.................................................................. 15
Selected Consolidated and Pro Forma Consolidated Financial Data........... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 17
Business.................................................................. 24
Management................................................................ 35
Certain Transactions...................................................... 43
Principal and Selling Stockholders........................................ 45
Description of Capital Stock.............................................. 47
Shares Eligible for Future Sale........................................... 50
Underwriting.............................................................. 52
Legal Matters............................................................. 53
Experts................................................................... 54
Additional Information.................................................... 54
Index to Consolidated Financial Statements................................ F-1
</TABLE>
Until , 1997 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,515,000 SHARES
[LOGO OF HALL KINION]
COMMON STOCK
----------------
PROSPECTUS
----------------
Montgomery Securities
Robert W. Baird & Co.
Incorporated
The Robinson-Humphrey Company, Inc.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates
except the SEC registration fee and the NASD filing fees.
<TABLE>
<S> <C>
SEC Registration fee............................................... $ 11,394
NASD fee........................................................... 5,260
Nasdaq National Market listing fee................................. 1,000
Printing and engraving expenses.................................... 155,000
Legal fees and expenses............................................ 350,000
Accounting fees and expenses....................................... 290,000
Blue sky fees and expenses......................................... 15,000
Transfer agent fees................................................ 10,000
Miscellaneous fees and expenses.................................... 62,346
--------
Total............................................................ $900,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article VII, Section 6, of the Registrant's
Bylaws provides for mandatory indemnification of its directors and officers
and permissible indemnification of employees and other agents to the maximum
extent permitted by the Delaware General Corporation Law. The Registrant's
Certificate of Incorporation provides that, pursuant to Delaware law, its
directors shall not be liable for monetary damages for breach of the
directors' fiduciary duty as directors to the Company and its stockholders.
This provision in the Certificate of Incorporation does not eliminate the
directors' fiduciary duty, and in appropriate circumstances equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Company for acts
or omissions not in good faith or involving intentional misconduct, for
knowing violations of law, for actions leading to improper personal benefit to
the director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws. The Registrant intends
to enter into Indemnification Agreements with its officers and directors, a
form of which is attached as Exhibit 10.1 hereto and incorporated herein by
reference. The Indemnification Agreements provide the Registrant's officers
and directors with further indemnification to the maximum extent permitted by
the Delaware General Corporation Law. Reference is made to Section 8 of the
Underwriting Agreement contained in Exhibit 1.1 hereto, indemnifying officers
and directors of the Registrant against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of transactions by the Registrant during the last
three years preceding the date hereof involving sales of the Registrant's
securities that were not registered under the Securities Act.
1. On January 30, 1996, the Registrant issued and sold 1,600,000 shares
of its Series A Preferred Stock to a group of three investors for aggregate
cash consideration of $10,000,000.00.
II-1
<PAGE>
2. On January 30, 1996, the Registrant issued and sold warrants to
purchase an aggregate of 250,000 shares of its Common Stock at an exercise
price of $0.01 per share to the same group of three investors referenced in
1 above. No cash consideration was paid for these warrants.
3. On January 30, 1996, the Registrant issued and sold warrants to
purchase an aggregate of 242,215 shares of its Common Stock at an exercise
price of $0.01 per share to the same group of three investors referenced in
1 and 2 above. The consideration paid for these warrants was $30.00.
4. On December 2, 1996, in connection with the TeamAlliance Acquisition,
the Registrant issued 52,000 shares of its Common Stock to TeamAlliance
Technology Partners, L.P. and Subsidiaries as part of the consideration
paid by the Registrant for certain assets purchased.
5. On June 6, 1997, the Registrant issued an aggregate of 15,000 shares
of its Common Stock to Richard E. Swanson and Camerlengo & Johnson pursuant
to the terms of a settlement agreement.
6. The Registrant has issued and sold 51,088 shares (assuming no exercise
of stock options after June 30, 1997) of its Common Stock to employees
pursuant to exercises of options under its 1996 Stock Option Plan.
7. As of June 30, 1997 the Registrant has granted options to purchase an
aggregate of 1,464,186 shares of Common Stock to employees of the Company
under its 1996 Stock Option Plan and 974,000 shares of Common Stock to an
employee and director of the Company outside of 1996 Stock Option Plan.
The issuances described in Items 15(1)-(5) were deemed exempt from
registration under the Securities Act in reliance on Section 4(2) of such Act
as transactions by an issuer not involving any public offering. In addition,
the recipients of securities in each such transaction represented their
intentions to acquire the securities for investment only and not with a view
to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the share certificates issued in such transactions.
All recipients had adequate access, through their relationships with the
Registrant, to information about the Registrant. The issuances described in
Items 15(6)-(7) were deemed exempt from registration under the Securities Act
in reliance upon 701 promulgated under the Securities Act or Section 4(2) of
the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
+1.1 Form of Underwriting Agreement.
2.1 Agreement and Plan of Merger dated July 9, 1997, for the merger of
Hall, Kinion & Associates, Inc., a California corporation into Hall,
Kinion & Associates, Inc., a Delaware corporation (the "Registrant").
+2.2 Asset Purchase Agreement dated November 26, 1996, among the Registrant
and the other parties named therein.
+3.1 Certificate of Incorporation of the Registrant.
3.2 Amended and Restated Certificate of Incorporation of the Registrant.
+3.3 Bylaws of the Registrant.
3.4 Form of Amended and Restated Certificate of Incorporation to be filed
upon the closing of the Offering made pursuant to this Registration
Statement.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.
+4.2 Investors' Rights Agreement, dated January 26, 1996, among the
Registrant, certain stockholders and investors named therein.
+4.3 Right of First Refusal and Co-Sale Agreement, dated January 30, 1996,
among the Registrant, certain stockholders and investors named
therein.
4.4 Specimen Common Stock certificate.
5.1 Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
+9.1 Dean Call Voting Trust Agreement, dated January 15, 1996, among Brenda
Hall, Virgil Hall and the stockholders of the Registrant named
therein.
+9.2 Kinion Voting Trust Agreement, dated January 17, 1996, among Todd
Kinion and the stockholders of the Registrant named therein.
+9.3 Amended and Restated Voting Trust Agreement, dated October 29, 1996,
among the Registrant, Brenda C. Hall and Todd J. Kinion.
+10.1 Form of Indemnification Agreement to be entered into between the
Registrant and its directors and certain officers.
10.2 The Registrant's 1997 Stock Option Plan.
10.3 The Registrant's Employee Stock Purchase Plan.
+10.4 Pledge Agreement, dated January 30, 1996, among the Registrant, Brenda
Hall and the investors named therein.
+10.5 Pledge Agreement, dated January 30, 1996, among the Registrant, Todd
Kinion and the investors named therein.
+10.6 Secured Promissory Note, dated January 30, 1996, made by Brenda Hall
in favor of the Registrant.
+10.7 Secured Promissory Note, dated January 30, 1996, made by Todd Kinion
in favor of the Registrant.
+10.8 Escrow Agreement, dated January 30, 1996, among the Registrant, Brenda
Hall and the other parties named therein.
+10.9 Escrow Agreement, dated January 30, 1996, among the Registrant, Todd
Kinion and the other parties named therein.
+10.10 Series A Preferred Stock and Warrant Purchase Agreement, dated January
30, 1996, among the Registrant, certain stockholders and investors
named therein.
10.11 Employment Agreement, dated October 18, 1996, among the Registrant,
Paul Bartlett and
Brenda C. Hall.
10.12 Stock Option Agreement, dated October 18, 1996, between the Registrant
and Paul Bartlett.
+10.13 Settlement Agreement and General Release, dated October 29, 1996 among
the Registrant, Brenda Hall, as Voting Trustee of the Voting Trust,
and Todd Kinion.
+10.14 Employment Agreement, dated December 2, 1996, between the Registrant
and Mordecai Levine.
+10.15 Employment Agreement, dated December 2, 1996, between the Registrant
and Richard Harmon.
+10.16 Consulting and Settlement Agreement, dated February 28, 1997, between
the Registrant and Keith Corbin.
+10.17 Loan & Security Agreement (Accounts and Inventory), dated April 26,
1995, between the Registrant and Comerica Bank-California (the "Loan &
Security Agreement"); Addendum to Loan & Security Agreement; Second
Addendum to Loan & Security Agreement; Modification to Loan & Security
Agreement, dated December 20, 1995; Second Modification to Loan &
Security Agreement, dated October 21, 1996; Borrower's Authorization
dated October 16, 1996; Borrowers Authorization dated October 21,
1996; and Guaranty, dated April 26, 1995.
+10.18 Assumption and Assignment of Sublease, dated December 2, 1996, between
the Registrant and TeamAlliance Technology Partners, L.P.
+10.19 Standard Sublease, dated March 1, 1997, between the Registrant and
Seagate Technology, Inc.
+10.20 Employment Agreement, dated May 23, 1997, between the Registrant and
Brenda C. Hall.
+10.21 Agreement to Tender Shares dated May 23, 1997, between the Registrant
and Brenda C. Hall.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
+10.22 Agreement to Tender Shares, dated May 23, 1997, between the Registrant
and Todd J. Kinion.
+10.23 Promissory Note Secured by Deed of Trust, dated August 5, 1996, made
by Rita S. Hazell and Quentin D. Hazell in favor of the Registrant.
+10.24 Settlement Agreement with Mutual Release, dated May, 1997, between
Richard E. Swanson and the Registrant, Brenda C. Hall and Todd J.
Kinion.
10.25 The Registrant's IT Professional Plan.
+11.1 Computation of Earnings Per Share.
+21.1 Subsidiary of the Registrant.
23.1 Consent of Independent Auditors (see page II-7).
23.2 Consent of Independent Public Accountants (see page II-8).
23.3 Consent of Counsel. Reference is made to Exhibit 5.1.
+24.1 Power of Attorney.
+27.1 Financial Data Schedule.
</TABLE>
- --------
+ Previously filed.
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
consolidated financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Certificate
of Incorporation or the Bylaws of the Registrant, the Underwriting Agreement,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer, or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered
hereunder, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
II-4
<PAGE>
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this amendment to registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Cupertino, State of California, on this 24th day of July, 1997.
HALL, KINION & ASSOCIATES, INC.
By
/s/ Brenda C. Hall
___________________________________
Brenda C. Hall
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<C> <S> <C>
/s/ Brenda C. Hall Chief Executive Officer, July 24, 1997
______________________________________ Chairman of the Board
Brenda C. Hall (Principal Executive
Officer) and Director
/s/ Martin A. Kropelnicki Chief Financial Officer July 24, 1997
______________________________________ and Vice President
Martin A. Kropelnicki (Principal Financial
and Accounting Officer)
/s/ Paul H. Bartlett President and Director July 24, 1997
______________________________________
Paul H. Bartlett
* Director July 24, 1997
______________________________________
Todd J. Kinion
* Director July 24, 1997
______________________________________
Kathleen D. LaPorte
* Director July 24, 1997
______________________________________
Jon H. Rowberry
/s/ Paul H. Bartlett
*By: _________________________________
Paul H. Bartlett
(Attorney-in-Fact)
</TABLE>
II-6
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-28365 of Hall, Kinion & Associates, Inc. on Form S-1 of our report dated
May 16, 1997, appearing in the Prospectus, which is part of this Registration
Statement, and of our report dated May 16, 1997 relating to the financial
statement schedule appearing elsewhere in this Registration Statement.
We also consent to the use in this Amendment No. 2 to Registration Statement
No. 333-28365 of our report on TeamAlliance Technology Partners, L.P. dated
May 20, 1997, appearing in the Prospectus, which is part of this Registration
Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
San Jose, California
July 24, 1997
II-7
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our firm) included in or made a part of this
Registration Statement (File No. 333-28365).
ARTHUR ANDERSEN LLP
New York, New York
July 24, 1997
II-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Shareholders of
Hall, Kinion & Associates, Inc.:
We have audited the consolidated financial statements of Hall, Kinion &
Associates, Inc. and Subsidiaries as of December 31, 1995 and 1996, and for
each of the three years in the period ended December 31, 1996, and have issued
our report thereon dated May 16, 1997 included elsewhere in this Registration
Statement. Our audits also included the financial statement schedule of Hall,
Kinion & Associates, Inc. listed in Item 16(b)II of this Registration
Statement. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
San Jose, California
May 16, 1997
II-9
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
---------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE AT
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
----------- ------------ ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
December 31,
1994.................. $ 21 $100 $-- $ -- $121
1995.................. 121 175 -- -- 296
1996.................. 296 145 31 (69) 403
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
+1.1 Form of Underwriting Agreement.
2.1 Agreement and Plan of Merger dated July 9, 1997, for
the merger of Hall, Kinion & Associates, Inc., a
California corporation into Hall, Kinion & Associates,
Inc., a Delaware corporation (the "Registrant").
+2.2 Asset Purchase Agreement dated November 26, 1996, among
the Registrant and the other parties named therein.
+3.1 Certificate of Incorporation of the Registrant.
3.2 Amended and Restated Certificate of Incorporation of
the Registrant.
+3.3 Bylaws of the Registrant.
3.4 Form of Amended and Restated Certificate of
Incorporation to be filed upon the closing of the
Offering made pursuant to this Registration Statement.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.
+4.2 Investors' Rights Agreement, dated January 26, 1996,
among the Registrant, certain stockholders and
investors named therein.
+4.3 Right of First Refusal and Co-Sale Agreement, dated
January 30, 1996, among the Registrant, certain
stockholders and investors named therein.
4.4 Specimen Common Stock certificate.
5.1 Opinion of Gunderson Dettmer Stough Villeneuve Franklin
& Hachigian, LLP.
+9.1 Dean Call Voting Trust Agreement, dated January 15,
1996, among Brenda Hall, Virgil Hall and the
stockholders of the Registrant named therein.
+9.2 Kinion Voting Trust Agreement, dated January 17, 1996,
among Todd Kinion and the stockholders of the
Registrant named therein.
+9.3 Amended and Restated Voting Trust Agreement, dated
October 29, 1996, among the Registrant, Brenda C. Hall
and Todd J. Kinion.
+10.1 Form of Indemnification Agreement to be entered into
between the Registrant and its directors and certain
officers.
10.2 The Registrant's 1997 Stock Option Plan.
10.3 The Registrant's Employee Stock Purchase Plan.
+10.4 Pledge Agreement, dated January 30, 1996, among the
Registrant, Brenda Hall and the investors named
therein.
+10.5 Pledge Agreement, dated January 30, 1996, among the
Registrant, Todd Kinion and the investors named
therein.
+10.6 Secured Promissory Note, dated January 30, 1996, made
by Brenda Hall in favor of the Registrant.
+10.7 Secured Promissory Note, dated January 30, 1996, made
by Todd Kinion in favor of the Registrant.
+10.8 Escrow Agreement, dated January 30, 1996, among the
Registrant, Brenda Hall and the other parties named
therein.
+10.9 Escrow Agreement, dated January 30, 1996, among the
Registrant, Todd Kinion and the other parties named
therein.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
+10.10 Series A Preferred Stock and Warrant Purchase
Agreement, dated January 30, 1996, among the
Registrant, certain stockholders and investors named
therein.
10.11 Form of Employment Agreement, dated October 18, 1996,
among the Registrant, Paul Bartlett and Brenda C. Hall
as amended.
10.12 Form of Stock Option Agreement, dated October 18, 1996,
between the Registrant and Paul Bartlett as amended.
+10.13 Settlement Agreement and General Release, dated October
29, 1996 among the Registrant, Brenda Hall, as Voting
Trustee of the Voting Trust, and Todd Kinion.
+10.14 Employment Agreement, dated December 2, 1996, between
the Registrant and Mordecai Levine.
+10.15 Employment Agreement, dated December 2, 1996, between
the Registrant and Richard Harmon.
+10.16 Consulting and Settlement Agreement, dated February 28,
1997, between the Registrant and Keith Corbin.
+10.17 Loan & Security Agreement (Accounts and Inventory),
dated April 26, 1995, between the Registrant and
Comerica Bank-California (the "Loan & Security
Agreement"); Addendum to Loan & Security Agreement;
Second Addendum to Loan & Security Agreement;
Modification to Loan & Security Agreement, dated
December 20, 1995; Second Modification to Loan &
Security Agreement, dated October 21, 1996; Borrower's
Authorization dated October 16, 1996; Borrowers
Authorization dated October 21, 1996; and Guaranty,
dated April 26, 1995.
+10.18 Assumption and Assignment of Sublease, dated December
2, 1996, between the Registrant and TeamAlliance
Technology Partners, L.P.
+10.19 Standard Sublease, dated March 1, 1997, between the
Registrant and Seagate Technology, Inc.
+10.20 Employment Agreement, dated May 23, 1997, between the
Registrant and
Brenda C. Hall.
+10.21 Agreement to Tender Shares dated May 23, 1997, between
the Registrant and
Brenda C. Hall.
+10.22 Agreement to Tender Shares, dated May 23, 1997, between
the Registrant and
Todd J. Kinion.
+10.23 Promissory Note Secured by Deed of Trust, dated August
5, 1996, made by Rita S. Hazell and Quentin D. Hazell
in favor of the Registrant.
+10.24 Settlement Agreement with Mutual Release, dated May,
1997, between Richard E. Swanson and the Registrant,
Brenda C. Hall and Todd J. Kinion.
10.25 The Registrant's IT Professional Plan.
+11.1 Computation of Earnings Per Share.
+21.1 Subsidiary of the Registrant.
23.1 Consent of Independent Auditors (see page II-7).
23.2 Consent of Independent Public Accountants (see page II-
8).
23.3 Consent of Counsel. Reference is made to Exhibit 5.1.
+24.1 Power of Attorney.
+27.1 Financial Data Schedule.
</TABLE>
- --------
+ Previously filed.
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
OF HALL, KINION & ASSOCIATES, INC.,
A DELAWARE CORPORATION
AND
HALL, KINION & ASSOCIATES, INC.,
A CALIFORNIA CORPORATION
THIS AGREEMENT AND PLAN OF MERGER, dated as of July 9, 1997, (the
"Agreement"), is between Hall, Kinion & Associates, Inc., a Delaware corporation
("Hall, Kinion-Delaware") and Hall, Kinion & Associates, Inc., a California
corporation ("Hall, Kinion-California"). Hall, Kinion-Delaware and Hall, Kinion-
California are sometimes referred to herein as the "Constituent Corporations."
R E C I T A L S
- - - - - - - -
A. Hall, Kinion-Delaware is a corporation duly organized and
existing under the laws of the State of Delaware and has an authorized capital
stock of 110,000,000 shares, 100,000,000 of which are designated "Common Stock,"
par value $.001 per share, and 10,000,000 shares of Preferred Stock, 1,600,000
of which are designated as "Series A Preferred Stock," par value $.001 per
share. As of July 9, 1997, and as of the date of this Agreement, 1,000 shares of
Common Stock are issued and outstanding, all of which are held by Hall, Kinion-
California. No shares of Preferred Stock are issued and outstanding.
B. Hall, Kinion-California is a corporation duly organized and
existing under the laws of the State of California and has an authorized capital
stock of 13,600,000 shares, 12,000,000 of which are designated "Common Stock,"
par value $.001 per share, and 1,600,000 of which are designated "Preferred
Stock," par value $.001 per share. Of such authorized shares of Preferred Stock,
1,600,000 shares are designated as Series A Preferred Stock. As of June 9, 1997,
6,433,579 shares of Common Stock and 1,600,000 shares of Series A Preferred
Stock were issued and outstanding.
C. The Board of Directors of Hall, Kinion-California has determined
that, for the purpose of effecting the reincorporation of Hall, Kinion-
California in the State of Delaware, it is advisable and in the best interests
of Hall, Kinion-California that Hall, Kinion-California merge with and into
Hall, Kinion-Delaware upon the terms and conditions herein provided.
D. The respective Boards of Directors of Hall, Kinion-Delaware and
Hall, Kinion-California have approved this Agreement and have directed that this
Agreement be submitted to a vote of their respective sole stockholder and
shareholders, and executed by the undersigned officers.
E. Hall, Kinion-Delaware is a wholly owned subsidiary of Hall,
Kinion-California.
NOW, THEREFORE, in consideration of the mutual agreements and
covenants set forth herein, Hall, Kinion-Delaware and Hall, Kinion-California
hereby agree, subject to the terms and conditions hereinafter set forth, as
follows:
<PAGE>
I. MERGER
1.1 Merger. In accordance with the provisions of this Agreement, the
------
Delaware General Corporation Law and the California Corporations Code, Hall,
Kinion-California shall be merged with and into Hall, Kinion-Delaware (the
"Merger"), the separate existence of Hall, Kinion-California shall cease and
Hall, Kinion-Delaware shall be, and is herein sometimes referred to as, the
"Surviving Corporation," and the name of the Surviving Corporation shall be
"Hall, Kinion & Associates, Inc."
1.2 Filing and Effectiveness. The Merger shall become effective when the
------------------------
following actions shall have been completed:
A. This Agreement and the Merger shall have been adopted and approved by
the shareholders of Hall, Kinion-California and the sole stockholder of Hall,
Kinion-Delaware in accordance with the requirements of the Delaware General
Corporation Law and the California Corporations Code;
B. All of the conditions precedent to the consummation of the Merger
specified in this Agreement shall have been satisfied or duly waived by the
party entitled to satisfaction thereof; and
C. An executed Certificate of Merger or an executed counterpart of this
Agreement meeting the requirements of the Delaware General Corporation Law shall
have been filed with the Secretary of State of the State of Delaware.
The date and time when the Merger shall become effective, as
aforesaid, is herein called the "Effective Date of the Merger."
1.3 Effect of the Merger. Upon the Effective Date of the Merger, the
--------------------
separate existence of Hall, Kinion-California shall cease and Hall, Kinion-
Delaware, as the Surviving Corporation (i) shall continue to possess all of its
assets, rights, powers and property as constituted immediately prior to the
Effective Date of the Merger, (ii) shall be subject to all actions previously
taken by its and Hall, Kinion-California's Board of Directors, (iii) shall
succeed, without other transfer, to all of the assets, rights, powers and
property of Hall, Kinion-California, including all shares of any subsidiary held
by Hall, Kinion-California, in the manner more fully set forth in Section 259 of
the Delaware General Corporation Law, (iv) shall continue to be subject to all
of the debts, liabilities and obligations of Hall, Kinion-California as
constituted immediately prior to the Effective Date of the Merger, and (v) shall
succeed, without other transfer, to all of the debts, liabilities and
obligations of Hall, Kinion-California in the same manner as if Hall, Kinion-
Delaware had itself incurred them, all as more fully provided under the
applicable provisions of the Delaware General Corporation Law and the California
Corporations Code.
2
<PAGE>
II. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 Certificate of Incorporation. The Certificate of Incorporation of
----------------------------
Hall, Kinion-Delaware as in effect immediately prior to the Effective Date of
the Merger shall continue in full force and effect as the Certificate of
Incorporation of the Surviving Corporation until duly amended in accordance with
the provisions thereof and applicable law.
2.2 Bylaws. The Bylaws of Hall, Kinion-Delaware as in effect immediately
------
prior to the Effective Date of the Merger shall continue in full force and
effect as the Bylaws of the Surviving Corporation until duly amended in
accordance with the provisions thereof and applicable law.
2.3 Directors and Officers. The directors and officers of Hall, Kinion-
----------------------
Delaware immediately prior to the Effective Date of the Merger shall be the
directors and officers of the Surviving Corporation until their successors shall
have been duly elected and qualified or until as otherwise provided by law, the
Amended and Restated Certificate of Incorporation of the Surviving Corporation
or the Bylaws of the Surviving Corporation.
III. MANNER OF CONVERSION OF STOCK
3.1 Hall, Kinion-California Common Shares. Upon the Effective Date of the
-------------------------------------
Merger, each share of Hall, Kinion-California Common Stock, par value $.001 per
share, issued and outstanding immediately prior to the Merger shall, by virtue
of the Merger and without any action by the Constituent Corporations, the holder
of such shares or any other person, be converted into and exchanged for one (1)
fully paid and nonassessable share of Common Stock, par value $.001 per share,
of the Surviving Corporation. No fractional share interests of the Surviving
Corporation's Common Stock shall be issued but shall, instead, be paid in cash
or check by Hall, Kinion-Delaware to the holder of such shares in that amount
equal to the fair market value of such fractional shares.
3.2 Hall, Kinion-California Preferred Shares. Upon the Effective Date of
----------------------------------------
the Merger each share of Series A Preferred Stock of Hall, Kinion-California,
par value $.001 per share, issued and outstanding immediately prior to the
Merger shall, by virtue of the Merger and without any action by the Constituent
Corporations, the holder of such shares or any other person, be converted into
or exchanged for one (1) fully paid and nonassessable share of Series A
Preferred Stock of the Surviving Corporation, par value $.001 per share. The
rights, preferences and privileges of the Series A Preferred Stock of the
Surviving Corporation are as set forth in the Certificate of Incorporation of
the Surviving Corporation. No fractional share interests of the Surviving
Corporation's Preferred Stock shall be issued but shall, instead, be paid in
cash or check by Hall, Kinion-Delaware to the holder of such shares in that
amount equal to the fair market value of such fractional shares.
3.3 Hall, Kinion-California Warrants to Purchase Common Shares. Upon the
----------------------------------------------------------
Effective Date of the Merger each warrant to purchase one (1) share of Common
Stock of Hall, Kinion-California issued and outstanding immediately prior to the
Merger ("Common Warrant"), shall, by virtue of the Merger and without any action
by the Constituent Corporations, the holder of such Warrant or any other person,
be converted into a warrant to purchase one (1) share of
3
<PAGE>
Common Stock of the Surviving Corporation, par value $.001 per share ("New
Warrant"); provided, however, that no New Warrant shall be exercisable for
fractional shares of the Surviving Corporation's Common Stock, but instead shall
be rounded-down to and exercisable for the nearest whole number of shares of the
Surviving Corporation's Common Stock. The per share exercise price of each of
the New Warrant shall be the same as the original Common Warrant.
3.4 Hall, Kinion-California 1996 Incentive Stock Option Plan.
--------------------------------------------------------
(a) Upon the Effective Date of the Merger, the Surviving
Corporation shall assume the obligations of Hall, Kinion-California under its
1996 Incentive Stock Option Plan (the "1996 Plan"). Each outstanding and
unexercised option to purchase one (1) share of Common Stock of Hall, Kinion-
California (an "Option") under the 1996 Plan shall be converted into, subject to
the provisions in paragraph (b) of this section 3.4, an option to purchase one
(1) share of the Surviving Corporation's Common Stock (a "New Option") on the
same terms and described above.
(b) Following the Effective Date of the Merger, the number of
shares of the Surviving Corporation's Common Stock to which an Option holder
would be otherwise entitled upon exercise of an assumed Option shall be rounded
down to the nearest whole number. In addition, no "additional benefits" (within
the meaning of Section 424(a)(2) of the Internal Revenue Code of 1986, as
amended) shall be accorded to the optionees pursuant to the assumption of their
options.
3.5 Hall, Kinion-Delaware Common Stock. Upon the Effective Date of the
----------------------------------
Merger, each share of Common Stock, par value $.001 per share, of Hall, Kinion-
Delaware issued and outstanding immediately prior thereto shall, by virtue of
the Merger and without any action by Hall, Kinion-Delaware, the holder of such
shares or any other person, be canceled and returned to the status of authorized
but unissued shares.
3.6 Exchange of Certificates. After the Effective Date of the Merger,
------------------------
each holder of an outstanding certificate representing shares of Hall, Kinion-
California Common Stock or Preferred Stock may be asked to surrender the same
for cancellation to an exchange agent, whose name will be delivered to holders
prior to any requested exchange (the "Exchange Agent"), and each such holder
shall be entitled to receive in exchange therefor a certificate or certificates
representing the number of shares of the Surviving Corporation's Common Stock or
Preferred Stock, as the case may be, into which the surrendered shares were
converted as herein provided. Until so surrendered, each outstanding certificate
theretofore representing shares of Hall, Kinion-California Common Stock or
Preferred Stock shall be deemed for all purposes to represent the number of
shares of the Surviving Corporation's Common Stock or Preferred Stock,
respectively, into which such shares of Hall, Kinion-California Common Stock or
Preferred Stock, as the case may be, were converted in the Merger.
The registered owner on the books and records of the Surviving
Corporation or the Exchange Agent of any such outstanding certificate shall,
until such certificate shall have been surrendered for transfer or conversion or
otherwise accounted for to the Surviving Corporation or the Exchange Agent, have
and be entitled to exercise any voting and other rights
4
<PAGE>
with respect to and to receive dividends and other distributions upon the shares
of Common Stock or Preferred Stock of the Surviving Corporation represented by
such outstanding certificate as provided above.
Each certificate representing Common Stock or Preferred Stock of the
Surviving Corporation so issued in the Merger shall bear the same legends, if
any, with respect to the restrictions on transferability as the certificates of
Hall, Kinion-California so converted and given in exchange therefore, unless
otherwise determined by the Board of Directors of the Surviving Corporation in
compliance with applicable laws, or other such additional legends as agreed upon
by the holder and the Surviving Corporation.
If any certificate for shares of Hall, Kinion-Delaware stock is to be
issued in a name other than that in which the certificate surrendered in
exchange therefor is registered, it shall be a condition of issuance thereof
that the certificate so surrendered shall be properly endorsed and otherwise in
proper form for transfer, that such transfer otherwise be proper and comply with
applicable securities laws and that the person requesting such transfer pay to
the Exchange Agent any transfer or other taxes payable by reason of issuance of
such new certificate in a name other than that of the registered holder of the
certificate surrendered or establish to the satisfaction of Hall, Kinion-
Delaware that such tax has been paid or is not payable.
IV. GENERAL
4.1 Covenants of Hall, Kinion-Delaware. Hall, Kinion-Delaware covenants
----------------------------------
and agrees that it will, on or before the Effective Date of the Merger:
(a) Qualify to do business as a foreign corporation in the State
of California and in connection therewith irrevocably appoint an agent for
service of process as required under the provisions of Section 2105 of the
California Corporations Code.
(b) File any and all documents with the California Franchise Tax
Board necessary for the assumption by Hall, Kinion-Delaware of all of the
franchise tax liabilities of Hall, Kinion-California.
(c) Take such other actions as may be required by the California
Corporations Code.
4.2 Further Assurances. From time to time, as and when required by Hall,
------------------
Kinion-Delaware or by its successors or assigns, there shall be executed and
delivered on behalf of Hall, Kinion-California such deeds and other instruments,
and there shall be taken or caused to be taken by it such further and other
actions as shall be appropriate or necessary in order to vest or perfect in or
conform of record or otherwise by Hall, Kinion-Delaware the title to and
possession of all the property, interests, assets, rights, privileges,
immunities, powers, franchises and authority of Hall, Kinion-California and
otherwise to carry out the purposes of this Agreement, and the officers and
directors of Hall, Kinion-Delaware are fully authorized in the name and on
behalf of Hall, Kinion-California or otherwise to take any and all such action
and to execute and deliver any and all such deeds and other instruments.
5
<PAGE>
4.3 Abandonment. At any time before the Effective Date of the Merger,
-----------
this Agreement may be terminated and the Merger may be abandoned for any reason
whatsoever by the Board of Directors of either Hall, Kinion-California or of
Hall, Kinion-Delaware, or of both, notwithstanding the approval of this
Agreement by the shareholders of Hall, Kinion-California.
4.4 Amendment. The Boards of Directors of the Constituent Corporations
---------
may amend this Agreement at any time prior to the filing of this Agreement (or
certificate in lieu thereof) with the Secretary of State of the State of
Delaware, provided that an amendment made subsequent to the adoption of this
Agreement by the stockholders of either Constituent Corporation shall not:
(1) alter or change the amount or kind of shares, securities, cash, property
and/or rights to be received in exchange for or on conversion of all or any of
the shares of any class or series thereof of such Constituent Corporation,
(2) alter or change any term of the Certificate of Incorporation of the
Surviving Corporation to be effected by the Merger, or (3) alter or change any
of the terms and conditions of this Agreement if such alteration or change would
adversely affect the holders of any class or series of capital stock of any
Constituent Corporation.
4.5 Registered Office. The registered office of the Surviving Corporation
-----------------
in the State of Delaware is 1209 Orange Street, Wilmington, Delaware 19801 and
The Corporation Trust Company is the registered agent of the Surviving
Corporation at such address.
4.6 Agreement. Executed copies of this Agreement will be on file at the
---------
principal place of business of the Surviving Corporation at 5300 Stevens Creek
Boulevard, Suite 320, San Jose, CA 95129 and copies thereof will be furnished
to any stockholder of either Constituent Corporation, upon request and without
cost.
4.7 Governing Law. This Agreement shall in all respects be construed,
-------------
interpreted and enforced in accordance with and governed by the laws of the
State of Delaware and, so far as applicable, the merger provisions of the
California Corporations Code.
4.8 Counterparts. In order to facilitate the filing and recording of this
------------
Agreement, the same may be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which together shall constitute one
and the same instrument.
6
<PAGE>
IN WITNESS WHEREOF, this Agreement having first been approved by the
resolutions of the Board of Directors of Hall, Kinion-Delaware and Hall, Kinion-
California is hereby executed on behalf of each of such two corporations and
attested by their respective officers thereunto duly authorized.
HALL, KINION & ASSOCIATES, INC.,
a Delaware corporation
By:/s/ Brenda C. Hall
------------------
Brenda C. Hall,
President
ATTEST:
/s/ Martin A. Kropelnicki
- -------------------------
Martin A. Kropelnicki
Secretary
HALL, KINION & ASSOCIATES, INC.
a California corporation
By:/s/ Brenda C. Hall
------------------
Brenda C. Hall,
President
ATTEST:
/s/ Martin A. Kropelnicki
- -------------------------
Martin A. Kropelnicki
Secretary
7
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF HALL, KINION & ASSOCIATES, INC.,
a Delaware Corporation
(PURSUANT TO SECTIONS 228, 242 AND 245
OF THE DELAWARE GENERAL CORPORATION LAW)
Hall, Kinion & Associates, Inc. (the "Corporation") a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the "General Corporation Law") originally incorporated on January 27,
1997.
DOES HEREBY CERTIFY:
FIRST: The name of the corporation is Hall, Kinion & Associates, Inc.
SECOND: That the Board of Directors of the Corporation adopted
resolutions proposing to amend and restate the Certificate of Incorporation of
the Corporation (the "Certificate"), declaring said amendment and restatement to
be advisable and in the best interests of the Corporation and its stockholders
and authorizing the appropriate officer of the Corporation to solicit the
consent of the stockholders therefor, which resolution setting forth the
proposed amendment and restatement is as follows:
"RESOLVED, that the Certificate of Incorporation of the Corporation
(the "Certificate") be amended and restated in its entirety as follows:
ARTICLE I
The name of this corporation is Hall, Kinion & Associates, Inc.
ARTICLE II
The address of the registered officer of the corporation in the State
of Delaware is 15 East North Street, in the City of Dover, 19901, County of
Kent. The name of the corporation's registered agent is Incorporating Services,
Inc.
ARTICLE III
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
<PAGE>
ARTICLE IV
A. Classes of Stock. This corporation is authorized to issue two
----------------
classes of stock to be designated, respectively, "Common Stock" and "Series A
Preferred Stock." The total number of shares which the corporation is authorized
to issue is one hundred ten million (110,000,000) shares. One hundred million
(100,000,000) shares shall be Common Stock, par value $.001 per share and ten
million (10,000,000) shares shall be Preferred Stock, par value $.001 per share.
B. Rights, Preferences and Restrictions of Preferred Stock. The
-------------------------------------------------------
Preferred Stock authorized by these Restated Articles of Incorporation may be
issued from time to time in one or more series. The rights, preferences,
privileges, and restrictions granted to and imposed on the Series A Preferred
Stock, which series shall consist of one million six hundred thousand
(1,600,000) shares, are as set forth below in this Article IV. The Board of
Directors is hereby authorized to fix or alter the rights, preferences,
privileges and restrictions granted to or imposed upon additional series of
Preferred Stock, and the number of shares constituting any such series and the
designation thereof, or of any of them. Subject to compliance with applicable
protective voting rights which have been or may be granted to the Preferred
Stock or series thereof in Certificates of Determination or the corporation's
Articles of Incorporation ("Protective Provisions"), but notwithstanding any
other rights of the Preferred Stock or any series thereof, the rights,
privileges, preferences and restrictions of any such additional series may be
subordinated to, pari passu with (including, without limitation, inclusion in
provisions with respect to liquidation and acquisition preferences, redemption
and/or approval of matters by vote or written consent), or senior to any of
those of any present or future class or series of Preferred or Common Stock.
Subject to compliance with applicable Protective Provisions, the Board of
Directors is also authorized to increase or decrease the number of shares of any
series (other than the Series A Preferred Stock), prior or subsequent to the
issue of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.
C. Rights, Preferences and Restrictions of Preferred Stock. The
-------------------------------------------------------
rights, preferences, restrictions and other matters relating to the Series A
Preferred Stock are as follows:
1. Dividend Provisions. Subject to the rights of series of Preferred
-------------------
Stock that may from time to time come into existence, the holders of shares of
Series A Preferred Stock shall be entitled to receive dividends, out of any
assets legally available therefor, prior and in preference to any declaration or
payment of any dividend (payable other than in Common Stock or other securities
and rights convertible into or entitling the holder thereof to receive, directly
or indirectly, additional shares of Common Stock of this corporation) on the
Common Stock of this corporation, at the rate of $0.56 per share per annum or,
if greater (as determined on a per annum basis and an as converted basis for the
Series A Preferred Stock), an amount equal to that paid on any other outstanding
shares of this corporation, payable quarterly when, as and if declared by the
Board of Directors. Such dividends shall not be cumulative.
2
<PAGE>
2. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up of
this corporation, either voluntary or involuntary, the holders of Series A
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets of this corporation to the holders of Common
Stock by reason of their ownership thereof, an amount per share of Series A
Preferred Stock (the "Series A Liquidation Preference") equal to the greater of
(i) $12.50 for each outstanding share of Series A Preferred Stock (the "2x
Preference") plus the amount of any and all declared but unpaid dividends, (ii)
the sum of $6.25 (the "Original Series A Issue Price") plus an amount equal to
25% of the Original Series A Issue Price for each 12 months that has passed
since January 26, 1996, compounded annually (such sum being referred to herein
as the "Rate of Return Preference") plus the amount of any and all declared but
unpaid dividends; provided however, that the 25% rate shall be reduced to 22.5%
for all periods since January 26, 1996 if the corporation has, after completion
of an audit by the corporation's independent public accountants, net revenues of
at least $56,000,000 and earnings before interest and taxes, including all
compensation expenses paid to officers and directors, as a percentage of net
revenues equal to at least 9.5% at the end of calendar year 1996 (all such
financial terms being determined in accordance with generally accepted
accounting principles), or (iii) the amount that would be distributable to each
share of Common Stock assuming the conversion of all such Series A Preferred
Stock on a one-for-one basis plus the amount of any and all declared but unpaid
dividends. If upon the occurrence of such event, the assets and funds thus
distributed among the holders of the Series A Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then the entire assets and funds of the corporation
legally available for distribution shall be distributed ratably among the
holders of the Series A Preferred Stock in proportion to the amount of such
stock owned by each such holder.
(b) Upon the completion of the distribution required by subparagraph
(a) of this Section 2 and any other distribution that may be required with
respect to series of Preferred Stock that may from time to time come into
existence, if assets remain in this corporation, the holders of the Common Stock
of this corporation, shall receive all of the remaining assets of this
corporation.
(c) (i) For purposes of this Section 2, a liquidation, dissolution or
winding up of this corporation shall be deemed to be occasioned by, or to
include, (A) the acquisition of the corporation by another entity by means of
any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation but, excluding any
merger effected exclusively for the purpose of changing the domicile of the
corporation); or (B) a sale of all or substantially all of the assets of the
corporation; unless the corporation's shareholders of record as constituted
------
immediately prior to such acquisition or sale will, immediately after such
acquisition or sale (by virtue of securities issued as consideration for the
corporation's acquisition or sale or otherwise) hold at least 50% of the voting
power of the surviving or acquiring entity.
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<PAGE>
(ii) In any of such events, if the consideration received by the
corporation is other than cash, its value will be deemed its fair market value.
Any securities shall be valued as follows:
(A) Securities not subject to investment letter or other
similar restrictions on free marketability covered by (B) below:
(1) If traded on a securities exchange or through
NASDAQ-NMS, the value shall be deemed to be the average of the closing prices of
the securities on such exchange over the thirty-day period ending three (3) days
prior to the closing;
(2) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or sale prices (whichever
is applicable) over the thirty-day period ending three (3) days prior to the
closing; and
(3) If there is no active public market, the value
shall be the fair market value thereof, as mutually determined by the Board of
Directors of the corporation and the holders of at least a majority of the
voting power of all then outstanding shares of Preferred Stock and if they
cannot agree then the appraisal procedure set forth in subsection 4(a) (ii)
shall be used to determine the value thereof.
(B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a shareholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (A) (1), (2) or (3) to reflect the approximate fair
market value thereof, as mutually determined by the corporation and the holders
of at least a majority of the voting power of all then outstanding shares of
such Preferred Stock.
(iii) In the event the requirements of this subsection 2(c) are
not complied with, this corporation shall forthwith either:
(A) cause such closing to be postponed until such time as
the requirements of this Section 2 have been complied with; or
(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series A Preferred Stock shall
revert to and be the same as such rights, preferences and privileges existing
immediately prior to the date of the first notice referred to in subsection
2(c)(iv) hereof.
(iv) The corporation shall give each holder of record of Series A
Preferred Stock written notice of such impending transaction not later than
twenty (20) days prior to the shareholders' meeting called to approve such
transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section 2, and the
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corporation shall thereafter give such holders prompt notice of any material
changes. The transaction shall in no event take place sooner than twenty (20)
days after the corporation has given the first notice provided for herein or
sooner than ten (10) days after the corporation has given notice of any material
changes provided for herein; provided, however, that such periods may be
shortened upon the written consent of the holders of Preferred Stock that are
entitled to such notice rights or similar notice rights and that represent at
least a majority of the voting power of all then outstanding shares of such
Preferred Stock.
3. Redemption.
-----------
(a) Subject to the rights of series of Preferred Stock that may
from time to time come into existence, on or at any time after January 26, 2000,
within thirty (30) days (the "Series A Redemption Date") after the receipt by
this corporation of a written request from the holders of not less than a
majority of the then outstanding Series A Preferred Stock that all or some of
such holders' shares be redeemed, and concurrently with surrender by such
holders of the certificates representing such shares, this corporation shall, to
the extent it may lawfully do so, redeem the shares specified in such request by
paying in cash therefor a sum per share equal to the Series A Liquidation
Preference (as adjusted for any stock dividends, combinations or splits with
respect to such shares) plus all declared or accumulated but unpaid dividends on
such shares (the "Series A Redemption Price"); provided, however, that the
corporation may elect to defer the redemption of all of the shares and instead
redeem (subject to the provisions of subsection (3)(b) hereof) the shares of
Series A Preferred Stock in three (3) equal installments on an annual basis
beginning thirty (30) days after the date of the written request for redemption
by paying in cash therefor a sum per share equal to the Series A Redemption
Price relating to the shares redeemed. Any redemption effected pursuant to this
subsection 3(a) shall be made on a pro rata basis among the holders of the
Series A Preferred Stock in proportion to the number of shares of Series A
Preferred Stock then held by such holders.
(b) As used herein and in subsection (3)(c) and (d) below, the
term "Redemption Date" shall refer to each date of redemption of the Series A
Preferred Stock, whether immediate or deferred over three years, and the
"Redemption Price" shall refer to the "Series A Redemption Price." Subject to
the rights of series of Preferred Stock that may from time to time come into
existence, at least fifteen (15) but no more than thirty (30) days prior to each
Redemption Date, written notice shall be mailed, first class postage prepaid, to
each holder of record (at the close of business on the business day next
preceding the day on which notice is given) of the Series A Preferred Stock to
be redeemed, at the address last shown on the records of this corporation for
such holder, notifying such holder of the redemption to be effected, specifying
the number of shares to be redeemed from such holder, the Redemption Date, the
Redemption Price, the place at which payment may be obtained and calling upon
such holder to surrender to this corporation, in the manner and at the place
designated, his, her or its certificate or certificates representing the shares
to be redeemed (the "Redemption Notice"). Except as provided in subsection
(3)(c) on or after the Redemption Date, each holder of Series A Preferred Stock
to be redeemed shall surrender to this corporation the certificate or
certificates representing such shares, in the manner and at the place designated
in the Redemption Notice, and thereupon the Redemption Price of such shares
shall be payable to the order of the person whose name
5
<PAGE>
appears on such certificate or certificates as the owner thereof and each
surrendered certificate shall be canceled. In the event less than all the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
(c) From and after the Redemption Date, unless there shall have
been a default in payment of the Redemption Price, all rights of the holders of
shares of Series A Preferred Stock designated for redemption in the Redemption
Notice as holders of Series A Preferred Stock (except the right to receive the
Redemption Price without interest upon surrender of their certificate or
certificates) shall cease with respect to such shares, and such shares shall not
thereafter be transferred on the books of this corporation or be deemed to be
outstanding for any purpose whatsoever. Subject to the rights of series of
Preferred Stock that may from time to time come into existence, if the funds of
the corporation legally available for redemption of shares of Series A Preferred
Stock on any Redemption Date are insufficient to redeem the total number of
shares of Series A Preferred Stock to be redeemed on such date, those funds
which are legally available will be used to redeem the maximum possible number
of such shares ratably among the holders of such shares to be redeemed based
upon their holdings of Series A Preferred Stock. The shares of Series A
Preferred Stock not redeemed shall remain outstanding and entitled to all the
rights and preferences provided herein. Subject to the rights of series of
Preferred Stock which may from time to time come into existence, at any time
thereafter when additional funds of the corporation are legally available for
the redemption of shares of Series A Preferred Stock, such funds will
immediately be used to redeem the balance of the shares which the corporation
has become obliged to redeem on any Redemption Date but which it has not
redeemed.
(d) On or prior to each Redemption Date, this corporation shall
deposit the Redemption Price of all shares of Series A Preferred Stock
designated for redemption in the Redemption Notice, and not yet redeemed or
converted, with a bank or trust corporation having aggregate capital and surplus
in excess of $100,000,000 as a trust fund for the benefit of the respective
holders of the shares designated for redemption and not yet redeemed, with
irrevocable instructions and authority to the bank or trust corporation to
publish the notice of redemption thereof and pay the Redemption Price for such
shares to their respective holders on or after the applicable Redemption Date,
upon receipt of notification from the corporation that such holder has
surrendered his, her or its share certificate to the corporation pursuant to
subsection (3)(b) above. As of the date of such deposit (even if prior to the
applicable Redemption Date), the deposit shall constitute full payment of the
shares to their holders, and from and after the date of the deposit the shares
so called for redemption shall be redeemed and shall be deemed to be no longer
outstanding, and the holders thereof shall cease to be shareholders with respect
to such shares and shall have no rights with respect thereto except the rights
to receive from the bank or trust corporation payment of the Redemption Price of
the shares, without interest, upon surrender of their certificates therefor, and
the right to convert such shares as provided in Article IV(C)(4) hereof. Such
instructions shall also provide that any moneys deposited by the corporation
pursuant to this subsection (3)(d) for the redemption of shares thereafter
converted into shares of the corporation's Common Stock pursuant to Article
IV(C)(4) hereof prior to the Redemption Date shall be returned to the
corporation forthwith upon such conversion. The balance of any moneys deposited
by this corporation
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<PAGE>
pursuant to this subsection (3)(d) remaining unclaimed at the expiration of two
(2) years following the applicable Redemption Date shall thereafter be returned
to this corporation upon its request expressed in a resolution of its Board of
Directors.
4. Conversion. The holders of the Series A Preferred Stock shall
----------
have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert.
----------------
(i) Each share of Series A Preferred Stock shall be
convertible into shares of Common Stock, at the option of the holder thereof, at
any time that (a) a majority of the holders thereof consider the FMV (as defined
below) of one share of Common Stock to be less than $6.25 (and the FMV is
determined as described below, to be less than $6.25) or (b) such holders elect
to enforce their rights to sell such stock pursuant to Section 4 of the Right of
First Refusal and Co-Sale Agreement dated January 26, 1996 or (c) following any
initial public offering of the corporation's common stock, and on or prior to
the fifth day prior to the Redemption Date, if any, as may have been fixed in
any Redemption Notice with respect to the Series A Preferred Stock, at the
office of this corporation or any transfer agent for such stock, into the
greater of (a) $12.50 divided by the then-current FMV (as defined below), (b)
the Rate of Return Preference divided by the then-current FMV, or (c) one;
provided however, that the number of shares issuable shall be subject to further
adjustment as set forth in subsection 4(d). The Corporation shall promptly
notify all holders of Series A Preferred Stock if it receives notice from any
holder of Series A Preferred Stock that such holder believes that the FMV of a
share of Common Stock is less than $6.25.
(ii) For purposes of this subsection 4(a), FMV shall be equal
to (a) at the time of a public offering pursuant to which such shares would be
automatically converted pursuant to subsection 4(b), the price per share that
represents the price of the corporation's Common Stock on the effective date and
time of a Qualified Public Offering (as defined below), (b) at the time of a
merger as described in subsection 2(c)(i), the FMV of the Common Stock will be
as determined in that subsection, (c) at any other time, the FMV will be as
determined by a financial appraiser that shall be mutually acceptable to the
Board of Directors of the corporation and the holders of a majority of the
Series A Preferred Stock, the expenses of such appraisal to be borne equally by
the corporation and the holders of Series A Preferred Stock. If the Board and
the holders of a majority of the Series A Preferred Stock cannot agree upon a
single appraiser, the Board shall choose an appraiser, the holders of a majority
of the Preferred Stock shall choose an appraiser and these two appraisers shall
select a third appraiser. Those three appraisers shall each determine a fair
market value for the Common Stock and FMV shall be equal to the average of these
three appraisals, the expenses of such appraisal to be borne equally by the
corporation and the holders of Series A Preferred Stock.
(b) Automatic Conversion. Each share of Series A Preferred Stock
--------------------
shall automatically be converted into that number of shares of Common Stock as
provided above, immediately upon the earlier of (ii), except as provided below
in subsection 4(c), the corporation's sale of its Common Stock in a firm
commitment underwritten public offering
7
<PAGE>
pursuant to a registration statement on Form S-1 under the Securities Act of
1933, as amended, the public offering price of which was not less than $12.50
per share (adjusted to reflect subsequent stock dividends, stock splits or
recapitalization) and $20,000,000 in the aggregate (a "Qualified Public
Offering) or (ii) the date specified by written consent or agreement of the
holders of a majority of the then outstanding shares of Series A Preferred
Stock.
(c) Mechanics of Conversion. Before any holder of Series A
-----------------------
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of this corporation or of any transfer agent for the
Series A Preferred Stock, and shall give written notice to this corporation at
its principal corporate office, of the election to convert the same and shall
state therein the name or names in which the certificate or certificates for
shares of Common Stock are to be issued. This corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Series A Preferred Stock, or to the nominee or nominees of such holder, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of such
surrender of the shares of Series A Preferred Stock to be converted, and the
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of such date. If the conversion is in
connection with an underwritten offering of securities registered pursuant to
the Securities Act of 1933, the conversion may, at the option of any holder
tendering Series A Preferred Stock for conversion, be conditioned upon the
closing with the underwriters of the sale of securities pursuant to such
offering, in which event the person(s) entitled to receive the Common Stock upon
conversion of the Series A Preferred Stock shall not be deemed to have converted
such Series A Preferred Stock until immediately prior to the closing of such
sale of securities.
(d) Splits and Combinations. The number of shares issuable upon a
-----------------------
conversion of the Series A Preferred Stock shall be subject to adjustment from
time to time as follows:
(i) In the event the corporation should at any time or from
time to time after January 26, 1996, (the "Purchase Date") fix a record date for
the effectuation of a split or subdivision of the outstanding shares of Common
Stock, or the determination of holders of Common Stock entitled to receive a
dividend or other distribution payable in additional shares of Common Stock or
other securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the number of shares of Common Stock issuable upon conversion of the Series A
Preferred Stock shall be appropriately increased in proportion to such increase
of the aggregate of shares of Common Stock outstanding and those issuable with
respect to such Common Stock Equivalents.
8
<PAGE>
(ii) If the number of shares of Common Stock outstanding at
any time after the Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the number of shares of Common Stock issuable upon conversion of
the Series A Preferred Stock shall be appropriately decreased.
(e) Other Distributions. In the event this corporation shall
-------------------
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by this corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 4(d)(i), then, in
each such case for the purpose of this subsection 4(e), the holders of the
Series A Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the corporation into which their shares of Series A Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the corporation entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time there
-----------------
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4 or Section 2) provision shall be made so that the holders of the
Series A Preferred Stock shall thereafter be entitled to receive upon conversion
of the Series A Preferred Stock the number of shares of stock or other
securities or property of the Company or otherwise, to which a holder of Common
Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 4 with respect to the rights of
the holders of the Series A Preferred Stock after the recapitalization to the
end that the provisions of this Section 4 (including adjustment of the number of
shares issuable upon conversion of the Series A Preferred Stock) shall be
applicable after that event as nearly equivalent as may be practicable.
(g) No Impairment. This corporation will not, by amendment of its
-------------
Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by this
corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series A Preferred Stock against impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
------------------------------------------------------
(i) No fractional shares shall be issued upon the conversion
of any share or shares of the Series A Preferred Stock, and the number of shares
of Common Stock to be issued shall be rounded to the nearest whole share.
Whether or not fractional shares are issuable upon such conversion shall be
determined on the basis of the total number of shares of
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Series A Preferred Stock the holder is at the time converting into Common Stock
and the number of shares of Common Stock issuable upon such aggregate
conversion.
(ii) Upon the occurrence of each adjustment or readjustment
of the numbers of shares issuable upon conversion of Series A Preferred Stock
pursuant to subsection 4(d), this corporation, at its expense, shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to each holder of Series A Preferred Stock a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. This corporation shall,
upon the written request at any time of any holder of Series A Preferred Stock,
furnish or cause to be furnished to such holder a like certificate setting forth
(C) such adjustment and readjustment, and (B) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of a share of Series A Preferred Stock.
(i) Notices of Record Date. In the event of any taking by this
----------------------
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Series A Preferred Stock, at least 20
days prior to the date specified therein, a notice specifying the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. This
---------------------------------------------
corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series A Preferred Stock; and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of the
Series A Preferred Stock, in addition to such other remedies as shall be
available to the holder of such Preferred Stock, this corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes, including, without limitation, engaging
in best efforts to obtain the requisite shareholder approval of any necessary
amendment to these articles.
(k) Notices. Any notice required by the provisions of this
-------
Section 4 to be given to the holders of shares of Series A Preferred Stock shall
be deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of this
corporation.
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5. Voting Rights.
----------------
(a) The holder of each share of Series A Preferred Stock shall
have the right to one vote for each share of Common Stock into which such Series
A Preferred Stock could then be converted pursuant to Section 4 (it being
presumed that the conversion rate is one to one, at all times prior to the
conclusion of the appraisal procedures set forth in subsection 4(a)(ii)), and
with respect to such vote, such holder shall have full voting rights and powers
equal to the voting rights and powers of the holders of Common Stock, and shall
be entitled, notwithstanding any provision hereof, to notice of any
shareholders' meeting in accordance with the bylaws of this corporation, and
shall be entitled to vote, together with holders of Common Stock, with respect
to any question upon which holders of Common Stock have the right to vote
(except for directors elected by the Common Stock). Fractional votes shall not,
however, be permitted and any fractional voting rights available on an as-
converted basis (after aggregating all shares into which shares of Series A
Preferred Stock held by each holder could be converted) shall be rounded to the
nearest whole number (with one-half being rounded upward).
(b) As long as fifty-one percent (51%) or more of the shares of
Series A Preferred Stock originally issued remain outstanding, the holders of
such Series A Preferred Stock shall be entitled to elect one (1) director of
this corporation at each annual election of directors. In the case of any
vacancy (other than a vacancy caused by removal) in the office of a director
elected by the holders of Series A Preferred Stock, such vacancy shall be filled
by the affirmative vote of the holders of a majority of the Series A Preferred
Stock who shall elect a successor or successors to hold office for the unexpired
term of the director whose place shall be vacant. Any director who shall have
been elected by the holders of Series A Preferred Stock may be removed during
the aforesaid term of office, either with or without cause, by, and only by, the
affirmative vote of the holders of a majority of the Series A Preferred Stock
given either at a special meeting of such shareholders duly called for that
purpose or pursuant to a written consent of shareholders, and any vacancy
thereby created may be filled by the holders of the Series A Preferred Stock
represented at the meeting or pursuant to unanimous written consent.
6. Protective Provisions. Subject to the rights of series of
---------------------
Preferred Stock which may from time to time come into existence, so long as any
shares of Series A Preferred Stock are outstanding, this corporation shall not
without first obtaining the approval (by vote or written consent, as provided by
law) of the holders of at least a majority of the then outstanding shares of
Series A Preferred Stock:
(a) sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly-owned subsidiary corporation) or
effect any transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the corporation is disposed of;
provided, however, that such approval will not be required, other than pursuant
to California General Corporation Law and subject to compliance with the
provisions of Article IV(C)(2) and/or (4), if the consideration to be received
in such transaction is cash or
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securities in a publicly traded company which are (i) freely tradeable or (ii)
issued pursuant to an agreement which grants holders of Series A Preferred Stock
the right to register such shares within six (6) months of the closing of such
transaction;
(b) purchase or acquire the assets or stock of any other
corporation which requires (i) the payment by the corporation or any subsidiary
thereof of more than $7,500,000 in individual transactions, or $15,000,000 in
the aggregate, in cash or (ii) the issuance of more than 1,200,000 shares of
Common Stock in individual transactions, or 1,800,000 shares, in the aggregate,
of Common Stock (as determined on an as-converted basis and as adjusted for
stock splits and combinations);
(c) alter or change the rights, preferences or privileges of the
shares of Series A Preferred Stock so as to affect adversely the shares;
(d) increase or decrease (other than by redemption or conversion)
the total number of authorized shares of Series A Preferred Stock;
(e) authorize or issue, or obligate itself to issue (i) any debt,
other than in the ordinary course of business which shall include credit
arrangements with banks in the principal amount of up to $12,000,000 or (ii) any
other security, convertible into or exercisable for any equity security, having
a preference over, or being on a parity with, the Series A Preferred Stock with
respect to voting, dividends or upon liquidation;
(f) redeem, purchase or otherwise acquire (or pay into or set
aside for a sinking fund for such purpose) any share or shares of Preferred
Stock or Common Stock; provided, however, that this restriction shall not apply
to (i) the repurchase of shares of Common Stock from employees, officers,
directors, consultants or other persons (other than Brenda Hall or Todd Kinion
for which such restriction shall continue to apply) performing services for the
Company or any subsidiary pursuant to agreements under which the Company has the
option to repurchase such shares at cost or fair market value, upon the
occurrence of certain events, such as the termination of employment, provided
further, however, that the total amount applied to the repurchase of shares of
Common Stock shall not exceed $50,000 during any twelve (12) month period; or
(g) pay or set aside payment for dividends to any other class or
series of stock;
7. Status of Converted or Redeemed Stock. In the event any shares of
-------------------------------------
Series A Preferred Stock shall be redeemed or converted pursuant to Section 3 or
Section 4 hereof, the shares so converted or redeemed shall be canceled and
shall not be issuable by the corporation. The Articles of Incorporation of this
corporation shall be appropriately amended to effect the corresponding reduction
in the corporation's authorized capital stock.
12
<PAGE>
D. Common Stock.
------------
1. Dividend Rights. Subject to the prior rights of holders of all
---------------
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding
------------------
up of the corporation, the assets of the corporation shall be distributed as
provided in Section 2 of Division (C) of this Article IV hereof.
3. Redemption. The Common Stock is not redeemable.
4. Voting Rights. The holder of each share of Common Stock shall
-------------
have the right to one vote, and shall be entitled to notice of any shareholders'
meeting in accordance with the bylaws of this corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law. The
holders of Common Stock shall be entitled to elect two (2) directors of the
corporation at each annual election of directors. In the case of any vacancy
(other than a vacancy caused by removal) in the office of a director elected by
the holders of Common Stock, such vacancy shall be filled by the affirmative
vote of the holders of a majority of the Common Stock who shall elect a
successor or successors to hold office for the unexpired term of the director
whose place shall be vacant. Any director who shall have been elected by the
holders of Common Stock may be removed during the aforesaid term of office,
either with or without cause, by, and only by, the affirmative vote of the
holders of a majority of the Common Stock given either at a special meeting of
such shareholders duly called for that purpose or pursuant to a written consent
of shareholders, and any vacancy thereby created may be filled by the holders of
the Common Stock represented at the meeting or pursuant to unanimous written
consent.
ARTICLE V
The name and mailing address of the incorporator is Brett Pletcher,
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, 155 Constitution
Drive, Menlo Park, California 94025.
ARTICLE VI
Except as otherwise provided in this Amended and Restated Certificate
of Incorporation, in furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized to make, repeal,
alter, amend and rescind any or all of the Bylaws of the corporation.
13
<PAGE>
ARTICLE VII
The number of directors of the corporation shall be fixed from time to
time by a Bylaw or amendment thereof duly adopted by the Board of Directors or
by the stockholders. Except as provided by applicable law and the Protective
Provisions, the Board of Directors shall have the exclusive power and authority
to fill any vacancies or an newly created directorships on the Board of
Directors and the stockholders shall have no right to fill such vacancies. A
director appointed by the Board of Directors to fill a vacancy shall serve for
the remainder of the term of the vacated directorship he is filling.
Following the closing of the Corporation's initial public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "1933 Act"), covering the offer and sale of Common Stock
of the corporation (the "Initial Public Offering"), the directors shall be
divided into three classes, as nearly equal in number as reasonably possible,
with the term of office of the first class to expire at the 1998 annual meeting
of stockholders, the term of office of the second class to expire at the 1999
annual meeting of stockholders and the term of office of the third class to
expire at the 2000 annual meeting of stockholders. At each annual meeting of
stockholders following such initial classification and election, directors
elected to succeed those directors whose terms expire shall be elected for a
term of office to expire at the third succeeding annual meeting of stockholders
after their election. The foregoing notwithstanding, each director shall serve
until his successor shall have been duly elected and qualified, unless he shall
resign, become disqualified, disabled or shall otherwise be removed.
At each annual election, directors chosen to succeed those whose terms
then expire shall be of the same class as the directors they succeed, unless by
reason of any intervening changes in the authorized number of directors, the
Board shall designate one or more directorships whose term then expires as
directorships of another class in order more nearly to achieve equality of
number of directors among the classes.
Notwithstanding the rule that the three classes shall be as nearly
equal in number of directors as possible, in the event of any change in the
authorized number of directors each director then continuing to serve as such
shall nevertheless continue as a director of the class of which he is a member
until the expiration of his current term, or his prior death, resignation or
removal. If any newly created directorship may, consistently with the rule that
the three classes shall be as nearly equal in number of directors as possible,
be allocated to either class, the Board shall allocate it to that of the
available class whose term of office is due to expire at the earliest date
following such allocation.
ARTICLE VIII
Elections of directors need not be by written ballot unless the Bylaws
of the corporation shall so provide.
14
<PAGE>
ARTICLE IX
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the corporation.
ARTICLE X
Any action required to be taken or that may be taken at any annual or
special meeting of the stockholders of this corporation may be taken without a
meeting. Following the closing of the Corporation's Initial Public Offering,
all action required to be taken or that may be taken at any annual or special
meeting of the Stockholders of this corporation shall not be taken without a
meeting.
ARTICLE XI
A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Certificate to authorize corporation action
further eliminating or limiting the personal liability of directors then
liability of a director of the corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law as so amended.
Any repeal or modification of the foregoing provisions of this Article
XI by the stockholders of the corporation shall not adversely affect any right
or protection of a director of the corporation existing at the time of such
repeal or modification.
ARTICLE XII
To the fullest extent permitted by applicable law, this corporation is
also authorized to provide indemnification of (and advancement of expenses to)
such agents (and any other persons to which Delaware law permits this
corporation to provide indemnification) through Bylaw provisions, agreements
with such agents or other persons, vote of stockholders or disinterested
directors or otherwise, in excess of the indemnification and advancement
otherwise permitted by Section 145 of the General Corporation Law of the State
of Delaware, subject only to limits created by applicable Delaware law
(statutory or non-statutory), with respect to actions for breach of duty to this
corporation, its stockholders, and others.
Any repeal or modification of any foregoing provisions of this Article
XII shall not adversely affect any right or protection of a director, officer,
agent or other person existing at
15
<PAGE>
the time of, or increase the liability of any director of this corporation with
respect to any acts or omissions of such director, officer or agent occurring
prior to such repeal or modification.
ARTICLE XIII
This corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation."
* * *
THIRD: That thereafter said amendment and restatement was duly
adopted in accordance with the provisions of Section 242 and Section 245 of the
General Corporation Law by obtaining a majority vote of each of the Common Stock
and Preferred Stock, in favor of said amendment and restatement.
16
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Certificate
this 9th day of July, 1997.
/s/ Brenda C. Hall
----------------------------------
Brenda C. Hall
President
ATTEST:
/s/ Martin A. Kropelnicki
- ----------------------------------
Martin A. Kropelnicki
Secretary
<PAGE>
EXHIBIT 3.4
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF HALL, KINION & ASSOCIATES, INC.,
a Delaware Corporation
(PURSUANT TO SECTIONS 228, 242 AND 245
OF THE DELAWARE GENERAL CORPORATION LAW)
Hall, Kinion & Associates, Inc. (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the "General Corporation Law"), originally incorporated on January 27,
1997.
DOES HEREBY CERTIFY:
FIRST: The name of the corporation is Hall, Kinion & Associates, Inc.
SECOND: That the Board of Directors of the Corporation adopted
resolutions proposing to amend and restate the Certificate of Incorporation of
the Corporation (the "Certificate"), declaring said amendment and restatement to
be advisable and in the best interests of the Corporation and its stockholders
and authorizing the appropriate officer of the Corporation to solicit the
consent of the stockholders therefor, which resolution setting forth the
proposed amendment and restatement is as follows:
"RESOLVED, that the Certificate of Incorporation of the Corporation
(the "Certificate") be amended and restated in its entirety as follows:
ARTICLE I
The name of this corporation is Hall, Kinion & Associates, Inc.
ARTICLE II
The address of the registered officer of the corporation in the State
of Delaware is 15 East North Street, in the City of Dover, 19901, County of
Kent. The name of the corporation's registered agent is Incorporating Services,
Inc.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
ARTICLE IV
A. This corporation is authorized to issue two classes of stock to
be designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is one hundred ten
million (110,000,000) shares. One
<PAGE>
hundred million (100,000,000) shares shall be Common Stock, par value $.001 per
share and ten million (10,000,000) shares shall be Preferred Stock, par value
$.001 per share.
The Preferred Stock may be issued from time to time in one or more
series, without further stockholder approval. The Board of Directors is hereby
authorized, in the resolution or resolutions adopted by the Board of Directors
providing for the issue of any wholly unissued series of Preferred Stock, within
the limitations and restrictions stated in this Amended and Restated Certificate
of Incorporation, to fix or alter the dividend rights, dividend rate, conversion
rights, voting rights, rights and terms of redemption (including sinking fund
provisions), the redemption price or prices, and the liquidation preferences of
any wholly unissued series of Preferred Stock, and the number of shares
constituting any such series and the designation thereof, or any of them, and to
increase or decrease the number of shares of any series subsequent to the issue
of shares of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status that they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.
ARTICLE V
Except as otherwise provided in this Amended and Restated Certificate
of Incorporation, in furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized to make, repeal,
alter, amend and rescind any or all of the Bylaws of the corporation.
ARTICLE VI
The number of directors of the corporation shall be fixed from time to
time by a Bylaw or amendment thereof duly adopted by the Board of Directors or
by the stockholders. Except as provided by applicable law and the Protective
Provisions, the Board of Directors shall have the exclusive power and authority
to fill any vacancies or an newly created directorships on the Board of
Directors and the stockholders shall have no right to fill such vacancies. A
director appointed by the Board of Directors to fill a vacancy shall serve for
the remainder of the term of the vacated directorship he is filling.
The directors shall be divided into three classes, as nearly equal in
number as reasonably possible, with the term of office of the first class to
expire at the 1998 annual meeting of stockholders, the term of office of the
second class to expire at the 1999 annual meeting of stockholders and the term
of office of the third class to expire at the 2000 annual meeting of
stockholders. At each annual meeting of stockholders following such initial
classification and election, directors elected to succeed those directors whose
terms expire shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders after their election. The foregoing
notwithstanding, each director shall serve until his successor shall have been
duly elected and qualified, unless he shall resign, become disqualified,
disabled or shall otherwise be removed.
2
<PAGE>
At each annual election, directors chosen to succeed those whose terms
then expire shall be of the same class as the directors they succeed, unless by
reason of any intervening changes in the authorized number of directors, the
Board shall designate one or more directorships whose term then expires as
directorships of another class in order more nearly to achieve equality of
number of directors among the classes.
Notwithstanding the rule that the three classes shall be as nearly equal
in number of directors as possible, in the event of any change in the authorized
number of directors each director then continuing to serve as such shall
nevertheless continue as a director of the class of which he is a member until
the expiration of his current term, or his prior death, resignation or removal.
If any newly created directorship may, consistently with the rule that the three
classes shall be as nearly equal in number of directors as possible, be
allocated to either class, the Board shall allocate it to that of the available
class whose term of office is due to expire at the earliest date following such
allocation.
ARTICLE VII
Elections of directors need not be by written ballot unless the Bylaws
of the corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the corporation.
ARTICLE IX
No action required to be taken or that may be taken at any annual
meeting or special meeting of the stockholders of this corporation may be taken
without a meeting, and the power of stockholders to consent in writing, without
a meeting, to the taking of any action is specifically denied.
ARTICLE X
A director of this corporation shall, to the full extent permitted by
the Delaware General Corporation Law as it now exists or as it may hereafter by
amended, not be liable to this corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director. Neither any amendment nor
repeal of this Article, nor the adoption of any provision of this Amended and
Restated Certificate of Incorporation inconsistent with this Article, shall
eliminate or reduce the effect of this Article in respect of any matter
occurring, or any cause of action, suit or claim that, but for this Article,
would accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision.
3
<PAGE>
ARTICLE XI
To the fullest extent permitted by applicable law, this corporation is
also authorized to provide indemnification of (and advancement of expenses to)
such agents (and any other persons to which Delaware law permits this
corporation to provide indemnification) through Bylaw provisions, agreements
with such agents or other persons, vote of stockholders or disinterested
directors or otherwise, in excess of the indemnification and advancement
otherwise permitted by Section 145 of the General Corporation Law of the State
of Delaware, subject only to limits created by applicable Delaware law
(statutory or non-statutory), with respect to actions for breach of duty to this
corporation, its stockholders, and others.
Any repeal or modification of any foregoing provisions of this Article
shall not adversely affect any right or protection of a director, officer, agent
or other person existing at the time of, or increase the liability of any
director of this corporation with respect to any acts or omissions of such
director, officer or agent occurring prior to such repeal or modification.
ARTICLE XII
This corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
* * *
THIRD: That thereafter said amendment and restatement was duly
adopted in accordance with the provisions of Section 242 and Section 245 of the
General Corporation Law by obtaining a majority vote of each of the Common Stock
and Preferred Stock, in favor of said amendment and restatement.
4
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Certificate this
___ day of _____________, 1997.
_________________________________
Brenda C. Hall
Chief Executive Officer
ATTEST:
__________________________________
Martin A. Kropelnicki
Secretary
<PAGE>
EXHIBIT 4.4
[LOGO] HALL KINION
The Staffing Solutions People
[Number] [Shares]
INCORPORATED UNDER THE LAWS OF SEE REVERSE FOR STATEMENTS
THE STATE OF DELAWARE RELATING TO RIGHTS, PREFERENCES,
PRIVILEGES AND RESTRICTIONS, IF ANY
CUSIP 409069 10 4
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK,
PAR VALUE $.001 PER SHARE, OF
HALL, KINION & ASSOCIATES, INC.
transferable only on the books of the Corporation by the holder hereof in
person or by duly authorized Attorney upon surrender of this certificate
properly endorsed. This certificate is not valid until countersigned and
registered by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated
/s/ Martin A. Kropelnicki /s/ Brenda C. Ha1l
VICE PRESIDENT, CHIEF FINANCIAL OFFICER CHAIRMAN OF THE BOARD
AND CORPORATE SECRETARY AND CHIEF EXECUTIVE OFFICER
[CORPORATE SEAL]
COUNTERSIGNED AND REGISTERED:
U.S. STOCK TRANSFER CORPORATION
TRANSFER AGENT AND REGISTRAR
BY:_____________________________
AUTHORIZED SIGNATURE
<PAGE>
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights as established, from time to time, by the Certificate of
Incorporation of the Corporation and by any certificate of determination, the
number of shares constituting each class and series, and the designations
thereof, may be obtained by the holder hereof upon request and without charge at
the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- Custodian
_________________________________
(Cust.) (Minor)
Under Uniform Gifts to Minors
Act______________________________
(State)
UNIF TRF MIN ACT -- ___________Custodian (Until age ________________)
(Cust.)
___________under Uniform Transfers
(Minor)
to Minors Act____________________________________
(State)
ADDITIONAL ABBREVIATIONS MAY ALSO BE USED THOUGH NOT IN THE ABOVE LIST.
FOR VALUE RECEIVED, ______________________ hereby sell assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint______________________________________________
_____________________________Attorney to transfer the said stock on the books of
the within named Corporation with full power of substitution in the premises.
Dated___________________________________
X__________________________________________
X__________________________________________
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON
NOTICE: THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By____________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS,SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 7AQ-10.
<PAGE>
EXHIBIT 5.1
July 25, 1997
Hall, Kinion & Associates, Inc.
19925 Stevens Creek Boulevard
Cupertino, California 95014
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 (File No. 333-
28365) originally filed by Hall, Kinion & Associates, Inc. (the "Company") with
the Securities and Exchange Commission (the "Commission") on June 3, 1997, as
thereafter amended or supplemented (the "Registration Statement"), in connection
with the registration under the Securities Act of 1933, as amended, of up to
2,892,250 shares of the Company's Common Stock (the "Shares"). The Shares,
which include an over-allotment option granted by certain stockholders of the
Company to the Underwriters to purchase up to 377,250 additional shares of the
Company's Common Stock, are to be sold to the Underwriters by the Company and
certain stockholders of the Company as described in the Registration Statement
for resale to the public. As your counsel in connection with this transaction,
we have examined the proceedings taken and are familiar with the proceedings
proposed to be taken by you in connection with the sale and issuance of the
Shares.
It is our opinion that, upon completion of the proceedings being taken
or contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares and upon completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the securities laws of
the various states where required, the Shares, when issued and sold in the
manner described in the Registration Statement, will be legally and validly
issued, fully paid and non-assessable. The Shares being sold by the stockholders
of the Company have been validly issued, are non-assessable and, to our
knowledge, are fully paid. Our opinion with respect to the Shares being sold by
the stockholders of the Company being fully paid is based solely upon your
written representations to us with respect to the consideration received for
such Shares.
We consent to the use of this opinion as an exhibit to said
Registration Statement, and further consent to the use of our name wherever
appearing in said Registration Statement, including the prospectus constituting
a part thereof, and in any amendment or supplement thereto.
Very truly yours,
Gunderson Dettmer Stough,
Villeneuve Franklin & Hachigian, LLP.
<PAGE>
EXHIBIT 10.2
HALL, KINION & ASSOCIATES, INC.
1997 STOCK OPTION PLAN
----------------------
ARTICLE ONE
GENERAL PROVISIONS
------------------
I. PURPOSE OF THE PLAN
This 1997 Stock Option Plan is intended to promote the interests
of Hall, Kinion & Associates, Inc., a Delaware corporation, by providing
eligible persons with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms
in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into two separate equity programs:
(i) the Discretionary Option Grant Program under
which eligible persons may, at the discretion of the Plan Administrator,
be granted options to purchase shares of Common Stock, and
(ii) the Automatic Option Grant Program under which
Eligible Directors shall automatically receive option grants at periodic
intervals to purchase shares of Common Stock.
B. The provisions of Articles One and Four shall apply to all
equity programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have authority to administer the
Discretionary Option Grant Program with respect to Section 16 Insiders.
Administration of the Discretionary Option Grant Program with respect to all
other persons eligible to participate in that program may, at the Board's
discretion, be vested in the Primary Committee or a Secondary Committee. In
addition, the Board may retain the power to administer the Plan with respect to
all persons. The members of the Secondary Committee may be Board members who are
Employees eligible to receive discretionary option grants under the Plan or any
stock option, stock appreciation, stock bonus or other stock plan of the
Corporation (or any Parent or Subsidiary).
B. Members of the Primary Committee or any Secondary Committee
shall serve for such period of time as the Board may determine and shall be
subject to removal by the Board at
<PAGE>
any time. The Board may also at any time terminate the functions of any
committee and reassume all powers and authority previously delegated to such
committee.
C. The Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority to
establish such rules and regulations as it may deem appropriate for proper
administration of the Plan and to make such determinations under, and issue such
interpretations of, the provisions of any program and any outstanding options
thereunder as it may deem necessary or advisable. Decisions of the Plan
Administrator within the scope of its administrative functions under the Plan
shall be final and binding on all parties who have an interest in the Plan under
its jurisdiction or any option thereunder.
D. Service on the Primary Committee or Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary or
Secondary Committee shall be liable for any act or omission made in good faith
with respect to the Plan or any option grants made under the Plan.
E. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the terms of that program; however, the Plan
Administrator (other than the Secondary Committee) may exercise any
discretionary functions it deems advisable with respect to option grants made
thereunder.
IV. ELIGIBILITY
A. The persons eligible to participate in the Plan are as follows:
(i) Employees,
(ii) non-employee members of the Board or of the
board of directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who
provide services to the Corporation (or any Parent or Subsidiary).
B. The Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority (subject to the
provisions of the Plan) to determine, with respect to the option grants under
the Discretionary Option Grant Program, which eligible persons are to receive
option grants, the time or times when such option grants are to be made, the
number of shares to be covered by each such grant, the status of the granted
option as either an Incentive Option or a Non-Statutory Option, the time or
times at which each option is to become exercisable and the vesting schedule (if
any) applicable to the option shares and the maximum term for which the option
is to remain outstanding.
C. The individuals eligible to receive option grants under the
Automatic Option Grant Program shall be (i) those individuals who are first
elected or appointed as non-employee Board members after the Plan Effective
Date, whether through appointment by the Board or
2
<PAGE>
election by the Corporation's stockholders. A non-employee Board member who has
previously been in the employ of the Corporation (or any Parent or Subsidiary)
shall not be eligible to receive an initial option grant under the Automatic
Option Grant Program at the time he or she first becomes a non-employee Board
member.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall initially not exceed
1,764,186 shares. Such authorized share reserve is comprised of (i) the number
of shares which remained available for issuance, as of the Plan Effective Date,
under the Predecessor Plan as last approved by the Corporation's stockholders
prior to such date, including the shares subject to the outstanding options
incorporated into the Plan and any other shares which would have been available
for future option grants under the Predecessor Plan, plus (ii) an additional
increase of 300,000 shares authorized by the Board under the Plan, subject to
stockholder approval.
B. The number of shares of Common Stock available for issuance
under the Plan shall automatically increase on the first trading day each
calendar year beginning January 1, 1998, by an amount equal to three percent
(3%) of the shares of Common Stock outstanding on the trading day immediately
preceding January 1; but in no event shall any such annual increase exceed
500,000 shares.
C. No one person participating in the Plan may receive options for
more than 500,000 shares of Common Stock in the aggregate each calendar year.
D. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
(including any options incorporated from the Predecessor Plan) expire or
terminate for any reason prior to exercise in full or (ii) the options are
canceled in accordance with the cancellation-regrant provisions of Article Four.
All shares issued under the Plan (including shares issued upon exercise of
options incorporated from the Predecessor Plan), whether or not those shares are
subsequently repurchased by the Corporation pursuant to its repurchase rights
under the Plan, shall reduce on a share-for-share basis the number of shares of
Common Stock available for subsequent issuance under the Plan. In addition,
should the exercise price of an option under the Plan (including any option
incorporated from the Predecessor Plan) be paid with shares of Common Stock or
should shares of Common Stock otherwise issuable under the Plan be withheld by
the Corporation in satisfaction of the withholding taxes incurred in connection
with the exercise of an option under the Plan, then the number of shares of
Common Stock available for issuance under the Plan shall be reduced by the gross
number of shares for which the option is exercised, and not by the net number of
shares of Common Stock issued to the holder of such option.
E. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of
3
<PAGE>
consideration, appropriate adjustments shall be made to (i) the maximum number
and/or class of securities issuable under the Plan, (ii) the maximum number
and/or class of securities for which the share reserve is to increase
automatically each year, (iii) the number and/or class of securities for which
any one person may be granted options over the term of the Plan, (iv) the number
and/or class of securities for which automatic option grants are to be
subsequently made per Eligible Director under the Automatic Option Grant Program
and (v) the number and/or class of securities and the exercise price per share
in effect under each outstanding option (including any option incorporated from
the Predecessor Plan) in order to prevent the dilution or enlargement of
benefits thereunder. The adjustments determined by the Plan Administrator shall
be final, binding and conclusive.
4
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
----------------------------------
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the
form approved by the Plan Administrator; provided, however, that each such
--------
document shall comply with the terms specified below. Each document evidencing
an Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
--------------
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Four and the documents evidencing the option, be payable in one or more
of the forms specified below:
(i) cash or check made payable to the
Corporation,
(ii) shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market
Value on the Exercise Date, or
(iii) to the extent the option is exercised
for vested shares, through a special sale and remittance procedure
pursuant to which the Optionee shall concurrently provide irrevocable
written instructions to (a) a Corporation-designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate exercise price payable for the
purchased shares plus all applicable Federal, state and local income and
employment taxes required to be withheld by the Corporation by reason of
such exercise and (b) the Corporation to deliver the certificates for
the purchased shares directly to such brokerage firm in order to
complete the sale.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable
----------------------------
at such time or times, during such period and for such number of shares as shall
be determined by the Plan Administrator and set forth in the documents
evidencing the option. However, no option shall have a term in excess of ten
(10) years measured from the option grant date.
5
<PAGE>
C. EFFECT OF TERMINATION OF SERVICE.
--------------------------------
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the
Optionee's cessation of Service for any reason shall remain exercisable
for such period of time thereafter as shall be determined by the Plan
Administrator and set forth in the documents evidencing the option, but
no such option shall be exercisable after the expiration of the option
term.
(ii) Any option exercisable in whole or in part by
the Optionee at the time of death may be subsequently exercised by the
personal representative of the Optionee's estate or by the person or
persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and distribution.
(iii) During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for more than
the number of vested shares for which the option is exercisable on the
date of the Optionee's cessation of Service. Upon the expiration of the
applicable exercise period or (if earlier) upon the expiration of the
option term, the option shall terminate and cease to be outstanding for
any vested shares for which the option has not been exercised. However,
the option shall, immediately upon the Optionee's cessation of Service,
terminate and cease to be outstanding to the extent it is not
exercisable for vested shares on the date of such cessation of Service.
(iv) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.
(v) In the event of a Corporate Transaction, the
provisions of Section III of this Article Two shall govern the period
for which the outstanding options are to remain exercisable following
the Optionee's cessation of Service and shall supersede any provisions
to the contrary in this section.
2. The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the option
is to remain exercisable following the Optionee's cessation of Service
from the period otherwise in effect for that option to such greater
period of time as the Plan Administrator shall deem appropriate, but in
no event beyond the expiration of the option term, and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the
number of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee's
6
<PAGE>
cessation of Service but also with respect to one or more additional
installments in which the Optionee would have vested under the option
had the Optionee continued in Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no
------------------
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the
-----------------
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
----------------------------------
Optionee, the option shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death. However, a Non-Statutory Option may
be assigned (i) to a member of the immediate family of the Optionee or to a
trust established for the benefit of one or more members of the immediate family
of the Optionee, provided that the assignment shall not be effective until
written notice of the assignment is received by the Plan Administrator, or (ii)
in accordance with terms approved in advance by the Plan Administrator. The
terms applicable to the assigned option (or portion thereof) shall be the same
as those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Four shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to
-----------
Employees.
B. EXERCISE PRICE. The exercise price per share shall not be less
--------------
than 100% of the Fair Market Value per share of Common Stock on the option grant
date.
C. DOLLAR LIMITATION. To the extent required by Code Section 422,
-----------------
the aggregate Fair Market Value of the shares of Common Stock (determined as of
the respective date or dates of grant) for which one or more options granted to
any Employee under the Plan (or any other option plan of the Corporation or any
Parent or Subsidiary) may for the first time become exercisable as Incentive
Options during any one (1) calendar year shall not exceed the sum of $100,000.
To the extent the Employee holds two (2) or more such options which become
7
<PAGE>
exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.
D. 10% STOCKHOLDER. If any Employee to whom an Incentive Option is
---------------
granted is a 10% Stockholder, then to the extent required by Code Section 422,
the exercise price per share shall not be less than 110% of the Fair Market
Value per share of Common Stock on the option grant date, and the option term
shall not exceed five (5) years measured from the option grant date.
III. CORPORATE TRANSACTION
A. In the event of any Corporate Transaction, each outstanding
option shall automatically terminate. However, an outstanding option shall not
so terminate if and to the extent such option is, in connection with the
Corporate Transaction, either to be assumed by the successor corporation (or
parent thereof) or to be replaced with a comparable option to purchase shares of
the capital stock of the successor corporation (or parent thereof). The
determination of option comparability shall be made by the Plan Administrator,
and its determination shall be final, binding and conclusive.
B. All outstanding repurchase rights shall terminate automatically,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except to
the extent: (i) those repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.
C. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration of one or more
outstanding options (and the automatic termination of one or more outstanding
repurchase rights with the immediate vesting of the shares of Common Stock
subject to those rights) upon the occurrence of a Corporate Transaction.
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan on both an aggregate and per
Optionee basis following the consummation of such Corporate Transaction and (ii)
the exercise price payable per share under each outstanding option, provided the
--------
aggregate exercise price payable for such securities shall remain the same.
E. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction shall remain exercisable as an Incentive Option
only to the extent the applicable $100,000 limitation is not exceeded. To the
extent such dollar limitation is exceeded, the
8
<PAGE>
accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.
F. The grant of options under the Discretionary Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
9
<PAGE>
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
------------------------------
I. OPTION TERMS
A. GRANT DATES. Each Eligible Director who is first elected or
-----------
appointed as a non-employee Board member after the Plan Effective Date shall
automatically be granted on the date of such initial election or appointment (as
the case may be), a Non-Statutory Option to purchase 20,000 shares of Common
Stock.
B. EXERCISE PRICE.
--------------
1. The exercise price per share shall be equal to 100% of
the Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall be payable in one or more of
the alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. OPTION TERM. Each option shall have a term of ten (10) years
-----------
measured from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each option shall become
-------------------------------
exercisable for the option shares in a series of four (4) equal and successive
annual installments over the Optionee's period of Service, with the first such
installment to vest upon the Optionee's completion of one (1) year of Service
measured from the option grant date.
E. EFFECT OF TERMINATION OF BOARD SERVICE. The following
provisions shall govern the exercise of any options held by the Optionee at the
time the Optionee ceases Service:
(i) The Optionee (or, in the event of Optionee's
death, the personal representative of the Optionee's estate or the
person or persons to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent and
distribution) shall have a twelve (12)-month period following the date
of such cessation of Service in which to exercise each such option.
(ii) During the twelve (12)-month exercise period,
the option may not be exercised in the aggregate for more than the
number of shares of Common Stock for which the option is exercisable at
the time of the Optionee's cessation of Service.
(iii) In no event shall the option remain exercisable
after the expiration of the option term. Upon the expiration of the
twelve (12)-month exercise period or (if earlier) upon the expiration of
the option term, the option shall terminate and
10
<PAGE>
cease to be outstanding for any shares for which the option has not been
exercised. However, the option shall, immediately upon the Optionee's
cessation of Service, terminate and cease to be outstanding to the
extent it is not exercisable on the date of such cessation of Service.
II. CORPORATE TRANSACTION
A. In the event of any Corporate Transaction, each outstanding
automatic option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable for all of the shares of Common Stock at
the time subject to such option and may be exercised for all or any portion of
such shares of Common Stock. Immediately following the consummation of the
Corporate Transaction, each automatic option grant shall terminate and cease to
be outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
B. The grant of options under the Automatic Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
11
<PAGE>
ARTICLE FOUR
MISCELLANEOUS
-------------
1. FINANCING
A. The Plan Administrator may permit any Optionee to pay the option
exercise price under the Plan by delivering a promissory note payable in one or
more installments. The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan Administrator
in its sole discretion. Promissory notes may be authorized with or without
security or collateral. In all events, the maximum credit available to the
Optionee may not exceed the sum of (i) the aggregate option exercise price
payable for the purchased shares plus (ii) any Federal, state and local income
and employment tax liability incurred by the Optionee in connection with the
option exercise.
B. The Plan Administrator may, in its discretion, determine that
one or more such promissory notes shall be subject to forgiveness by the
Corporation in whole or in part upon such terms as the Plan Administrator may
deem appropriate.
II. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at
any time and from time to time, with the consent of the affected option holders,
the cancellation of any or all outstanding options under the Plan (including
outstanding options incorporated from the Predecessor Plan) and to grant in
substitution new options covering the same or different number of shares of
Common Stock but with an exercise price per share based on the Fair Market Value
per share of Common Stock on the new option grant date
III. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options under the Plan shall be subject to the satisfaction
of all applicable Federal, state and local income and employment tax withholding
requirements.
B. The Plan Administrator may, in its discretion, provide any or
all holders of Non-Statutory Options under the Plan with the right to use shares
of Common Stock in satisfaction of all or part of the Taxes incurred by such
holders in connection with the exercise of their options. Such right may be
provided to any such holder in either or both of the following formats:
(i) Stock Withholding: The election to have the
-----------------
Corporation withhold, from the shares of Common Stock otherwise issuable
upon the exercise of such Non-Statutory Option, a portion of those
shares with an aggregate Fair Market Value equal to the percentage of
the Taxes (not to exceed 100%) designated by the holder.
12
<PAGE>
(ii) Stock Delivery: The election to deliver to the
--------------
Corporation, at the time the Non-Statutory Option is exercised, one or
more shares of Common Stock previously acquired by such holder (other
than in connection with the option exercise triggering the Taxes) with
an aggregate Fair Market Value equal to the percentage of the Taxes (not
to exceed 100%) designated by the holder.
IV. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective on the Plan Effective Date and
options may be granted under the Plan from and after the Plan Effective Date.
However, no options granted under the Plan may be exercised until the Plan is
approved by the Corporation's stockholders. If such stockholder approval is not
obtained within twelve (12) months after the Plan Effective Date, then all
options previously granted under this Plan shall terminate and cease to be
outstanding, and no further options shall be granted and no shares shall be
issued under the Plan.
B. The Plan shall serve as the successor to the Predecessor Plan,
and no further option grants shall be made under the Predecessor Plan after the
Plan Effective Date. All options outstanding under the Predecessor Plan as of
such date shall, immediately upon approval of the Plan by the Corporation's
stockholders, be incorporated into the Plan and treated as outstanding options
under the Plan. However, each outstanding option so incorporated shall continue
to be governed solely by the terms of the documents evidencing such option, and
no provision of the Plan shall be deemed to affect or otherwise modify the
rights or obligations of the holders of such incorporated options with respect
to their acquisition of shares of Common Stock.
C. The Plan shall terminate upon the earliest of (i) May 22, 2007,
(ii) the date on which all shares available for issuance under the Plan shall
have been issued pursuant to the exercise of the options under the Plan or (iii)
the termination of all outstanding options in connection with a Corporate
Transaction. Upon such Plan termination, all options outstanding on such date
shall thereafter continue to have force and effect in accordance with the
provisions of the documents evidencing such options.
V. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, no such amendment
or modification shall adversely affect the rights and obligations with respect
to options at the time outstanding under the Plan unless the Optionee consents
to such amendment or modification. Notwithstanding the foregoing, the Plan
Administrator may amend an outstanding option to reduce the number of option
shares previously granted to an optionee provided the reduction applies solely
to unvested shares or shares which have not yet become exercisable as of the
date of the amendment. An amendment of the Plan shall be subject to the approval
of the Corporation's stockholders only to the extent required by applicable
laws, regulations or rules.
B. Options to purchase shares of Common Stock may be granted under
the Plan that are in excess of the number of shares then available for issuance
under the Plan, provided any excess shares actually issued are held in escrow
until there is obtained stockholder approval of an
13
<PAGE>
amendment sufficiently increasing the number of shares of Common Stock available
for issuance under the Plan. If such stockholder approval is not obtained within
twelve (12) months after the date the first such excess issuances are made, then
(i) any unexercised options granted on the basis of such excess shares shall
terminate and cease to be outstanding and (ii) the Corporation shall promptly
refund to the Optionees the exercise price paid for any excess shares issued
under the Plan and held in escrow, together with interest (at the applicable
Short Term Federal Rate) for the period the shares were held in escrow, and such
shares shall thereupon be automatically canceled and cease to be outstanding.
VI. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
VII. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option under
the Plan and the issuance of any shares of Common Stock upon the exercise of any
option shall be subject to the Corporation's procurement of all approvals and
permits required by regulatory authorities having jurisdiction over the Plan,
the options granted under it and the shares of Common Stock issued pursuant to
it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VIII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining such person) or of the Optionee, which rights
are hereby expressly reserved by each, to terminate such person's Service at any
time for any reason, with or without cause.
14
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option
------------------------------
grant program in effect under the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
-----
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
----
D. COMMON STOCK shall mean the Corporation's common stock.
------------
E. CORPORATE TRANSACTION shall mean either of the following
---------------------
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction; or
(ii) the sale, transfer or other disposition of all
or substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
F. CORPORATION shall mean Hall, Kinion & Associates, Inc., a
-----------
Delaware corporation.
G. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary
----------------------------------
option grant program in effect under the Plan.
H. ELIGIBLE DIRECTOR shall mean a non-employee Board member
-----------------
eligible to participate in the Automatic Option Grant Program in accordance with
the eligibility provisions of Article One.
I. EMPLOYEE shall mean an individual who is in the employ of the
--------
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
J. EXERCISE DATE shall mean the date on which the Corporation shall
-------------
have received written notice of the option exercise.
K. FAIR MARKET VALUE per share of Common Stock on any relevant date
-----------------
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as such
price is reported by the National Association of Securities Dealers on
the Nasdaq National Market or any successor
A-1
<PAGE>
system. If there is no closing selling price for the Common Stock on the
date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation
exists.
(ii) If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the Stock
Exchange determined by the Plan Administrator to be the primary market
for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no closing
selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(iii) For purposes of option grants made on the date
the Underwriting Agreement is executed and the initial public offering
price of the Common Stock is established, the Fair Market Value shall be
deemed to be equal to the established initial offering price per share.
For purposes of option grants made prior to such date, the Fair Market
Value shall be determined by the Plan Administrator after taking into
account such factors as the Plan Administrator shall deem appropriate.
L. INCENTIVE OPTION shall mean an option which satisfies the
----------------
requirements of Code Section 422.
M. MISCONDUCT shall mean the commission of any act of fraud,
----------
embezzlement or dishonesty by the Optionee, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary), or any other intentional misconduct by such
person adversely affecting the business or affairs of the Corporation (or any
Parent or Subsidiary) in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Corporation (or
any Parent or Subsidiary) may consider as grounds for the dismissal or discharge
of any Optionee or other person in the Service of the Corporation (or any Parent
or Subsidiary).
N. 1934 ACT shall mean the Securities Exchange Act of 1934, as
--------
amended.
O. NON-STATUTORY OPTION shall mean an option not intended to
--------------------
satisfy the requirements of Code Section 422.
P. OPTIONEE shall mean any person to whom an option is granted
--------
under the Discretionary Option Grant or Automatic Option Grant Program.
Q. PARENT shall mean any corporation (other than the Corporation)
------
in an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
A-2
<PAGE>
R. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
--------------------------------------------
inability of the Optionee to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment expected to
result in death or to be of continuous duration of twelve (12) months or more.
S. PLAN shall mean the Corporation's 1997 Stock Option Plan, as set
----
forth in this document.
T. PLAN ADMINISTRATOR shall mean the particular entity, whether the
------------------
Committee or the Board, which is authorized to administer the Plan with respect
to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under the Plan with respect to the
persons under its jurisdiction.
U. PLAN EFFECTIVE DATE shall mean the Section 12(g) Registration
-------------------
Date.
V. PREDECESSOR PLAN shall mean the Corporation's existing 1996
----------------
Stock Option Plan.
W. PRIMARY COMMITTEE shall mean the committee of two (2) or more
-----------------
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant Program with respect to Section 16 Insiders.
X. SECONDARY COMMITTEE shall mean a committee of one (1) or more
-------------------
Board members appointed by the Board to administer the Discretionary Option
Grant Program with respect to eligible persons other than Section 16 Insiders.
Y. SECTION 16 INSIDER shall mean an officer or director of the
------------------
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
Z. SECTION 12(g) REGISTRATION DATE shall mean the first date on
-------------------------------
which the Common Stock is registered under Section 12(g) of the 1934 Act.
AA. SERVICE shall mean the provision of services to the Corporation
-------
(or any Parent or Subsidiary) by a person in the capacity of an Employee, a non-
employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant.
BB. STOCK EXCHANGE shall mean either the American Stock Exchange or
--------------
the New York Stock Exchange.
CC. STOCKHOLDER shall mean the owner of stock (as determined under
-----------
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
DD. SUBSIDIARY shall mean any corporation (other than the
----------
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock
A-3
<PAGE>
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
EE. TAXES shall mean the Federal, state and local income and
-----
employment tax liabilities incurred by the holder of Non-Statutory Options or
unvested shares of Common Stock in connection with the exercise of those options
or the vesting of those shares.
A-4
<PAGE>
EXHIBIT 10.3
HALL, KINION & ASSOCIATES, INC.
EMPLOYEE STOCK PURCHASE PLAN
----------------------------
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the interests
of Hall, Kinion & Associates, Inc. by providing eligible employees with the
opportunity to acquire a proprietary interest in the Company through
participation in a payroll-deduction based employee stock purchase plan designed
to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares of Common
Stock purchased on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall not exceed 150,000 shares.
B. Should any change be made to the Common Stock by reason of
any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class without the Company's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and class of securities issuable under
the Plan, (ii) the maximum number and class of securities purchasable per
Participant on any one Purchase Date and (iii) the number and class of
securities and the price per share in effect under each outstanding Purchase
Right in order to prevent the dilution or enlargement of benefits thereunder.
IV. PURCHASE PERIODS
A. Shares of Common Stock shall be offered for purchase under
the Plan through a series of Purchase Periods until such time as (i) the maximum
number of shares of Common Stock available for issuance under the Plan shall
have been purchased or (ii) the Plan shall have been sooner terminated.
B. Each Purchase Period shall be of such duration as determined
by the Plan Administrator prior to the start date. Until otherwise established
by the Plan
<PAGE>
Administrator, each Purchase Period shall have a duration of six (6) months. The
initial Purchase Period shall commence on a date after the Effective Time to be
designated by the Plan Administrator.
V. ELIGIBILITY
A. Each Eligible Employee shall be eligible to enter a Purchase
Period under the Plan on the start date of any Purchase Period beginning on or
after the date that the Eligible Employee has completed 90 days of employment or
such shorter or longer period of employment as is specified from time to time by
the Plan Administrator.
B. To participate in the Plan for a particular Purchase Period,
the Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a stock purchase agreement and a payroll deduction
authorization form) and file such forms with the Plan Administrator (or its
designate) on or before the start date.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for
purposes of acquiring shares of Common Stock under the Plan may be any multiple
of one percent (1%) of the Cash Compensation paid to the Participant during each
Purchase Period, up to a maximum of ten percent (10%). The deduction rate so
authorized shall continue in effect for each subsequent Purchase Period, except
to the extent such rate is changed. The Participant may, at any time during the
Purchase Period, change his or her rate of payroll deduction to become effective
as soon as possible after filing the appropriate form with the Plan
Administrator. The Participant may not, however, effect more than two (2) such
changes per Purchase Period.
B. Payroll deductions shall begin on the first pay day
following the start date for the Purchase Period and shall (unless sooner
terminated by the Participant) continue through the pay day ending with or
immediately prior to the last day of that Purchase Period. The amounts so
collected shall be credited to the Participant's book account under the Plan,
but no interest shall be paid on the balance from time to time outstanding in
such account. The amounts collected from the Participant shall not be held in
any segregated account or trust fund and may be commingled with the general
assets of the Company and used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the
termination of the Participant's Purchase Right in accordance with the
provisions of the Plan.
D. The Participant's acquisition of Common Stock under the Plan
on any Purchase Date shall neither limit nor require the Participant's
acquisition of Common Stock on any subsequent Purchase Date, whether within the
same or a different Purchase Period.
2
<PAGE>
VII. PURCHASE RIGHTS
A. Grant of Purchase Right. A Participant shall be granted a
-----------------------
separate Purchase Right for each Purchase Period in which he or she
participates. The Purchase Right shall be granted on the start date for the
Purchase Period and shall provide the Participant with the right to purchase
shares of Common Stock on the Purchase Date for such Purchase Period, upon the
terms set forth below. The Participant shall execute a stock purchase agreement
embodying such terms and such other provisions (not inconsistent with the Plan)
as the Plan Administrator may deem advisable.
Under no circumstances shall Purchase Rights be granted under the Plan
to any Eligible Employee if such individual would, immediately after the grant,
own (within the meaning of Code Section 424(d)) or hold outstanding options or
other rights to purchase, stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Company or
any Corporate Affiliate.
B. Exercise of the Purchase Right. Each Purchase Right shall
------------------------------
be automatically exercised on the Purchase Date, and shares of Common Stock
shall accordingly be purchased on behalf of each Participant on each such
Purchase Date. The purchase shall be effected by applying the Participant's
payroll deductions for the Purchase Period ending on such Purchase Date to the
purchase of whole shares of Common Stock (subject to the limitation on the
maximum number of shares purchasable per Participant on any one Purchase Date)
at the purchase price in effect for that Purchase Date. Certificates
representing the shares of Common Stock purchased by a Participant under the
Plan shall be issued to him or her as soon as reasonably practicable after the
close of the applicable Purchase Period, except that the Plan Administrator may
determine that such shares shall be held for each Participant's benefit by a
broker designated by the Plan Administrator (unless the Participant has elected
that certificates be issued to him or her). Shares may be registered in the name
of the Participant or jointly in the name of the Participant and his or her
spouse as joint tenants with right of survivorship or as community property.
Except for any Permitted Transfer, a Participant shall not transfer, assign,
encumber or otherwise dispose of any of the shares of Common Stock acquired
under the Purchase Plan within six months of the Purchase Date for those shares.
The Company may impose a legend on stock certificates representing purchased
shares to reflect this transfer restriction. The Plan Administrator may, at any
time, waive this transfer restriction and permit one or more Participants to
sell or otherwise dispose of shares immediately following a Purchase Date.
Permitted Transfer shall mean (i) a bona fide gratuitous transfer of the
Purchased Shares, provided and only if Participant obtains the Company's prior
written consent to such transfer or (ii) a transfer of title to the Purchased
Shares following Participant's death effected pursuant to Participant's
beneficiary designation or, if no beneficiary is designated by the Participant
on a form prescribed for that purpose by and filed with the Plan Administrator
prior to the Participant's death, then pursuant to the Participant's will or the
laws of intestate succession.
C. Purchase Price. The purchase price per share at which
--------------
Common Stock will be purchased on the Participant's behalf on each Purchase Date
within the Purchase
3
<PAGE>
Period shall be equal to eighty-five percent (85%) of the lower of (i) the Fair
-----
Market Value per share of Common Stock on the start date for that Purchase
Period or (ii) the Fair Market Value per share of Common Stock on that Purchase
Date.
D. Number of Purchasable Shares. The number of shares of
----------------------------
Common Stock purchasable by a Participant on each Purchase Date during the
Purchase Period shall be the number of shares obtained by dividing the amount
collected from the Participant through payroll deductions during the Purchase
Period ending with that Purchase Date by the purchase price in effect for the
Participant for that Purchase Date. However, the maximum number of shares of
Common Stock purchasable per Participant on any one Purchase Date shall not
exceed ONE THOUSAND (1,000) shares, subject to periodic adjustments in the event
of certain changes in the Company's capitalization.
E. Excess Payroll Deductions. Any payroll deductions not
-------------------------
applied to the purchase of shares of Common Stock on any Purchase Date because
they are not sufficient to purchase a whole share of Common Stock shall be held
for the purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable by the Participant on the
Purchase Date, or the $25,000 limitation of Subsection VIII.A below, shall be
refunded to the Participant in cash, without interest.
F. Termination of Employment; Withdrawal. The following
-------------------------------------
provisions shall govern the termination of outstanding Purchase Rights:
(i) A Participant may, at any time prior to the next
Purchase Date, terminate his or her outstanding Purchase Right by filing the
appropriate form with the Plan Administrator (or its designate), and no further
payroll deductions shall be collected from the Participant with respect to the
terminated Purchase Right. Any payroll deductions collected during the Purchase
Period in which such termination occurs shall, at the Participant's election, be
immediately refunded or held for the purchase of shares on the next Purchase
Date. If no such election is made at the time such Purchase Right is terminated,
then the payroll deductions collected with respect to the terminated right shall
be refunded as soon as possible.
(ii) The termination of such Purchase Right shall be
irrevocable, and the Participant may not subsequently rejoin the Purchase Period
for which the terminated Purchase Right was granted. In order to resume
participation in any subsequent Purchase Period, such individual must re-enroll
in the Plan (by making a timely filing of the prescribed enrollment forms) on or
before the start date for that Purchase Period.
(iii) Should the Participant cease to remain an Eligible
Employee for any reason (including death, disability or change in status) while
his or her Purchase Right remains outstanding, then that Purchase Right shall
immediately terminate, and all of the Participant's payroll deductions for the
Purchase Period in which the Purchase Right so terminates shall be immediately
refunded. However, should the Participant cease to remain in active service by
reason of an approved unpaid leave of absence, then the Participant shall have
4
<PAGE>
the election, exercisable up until the last business day of the Purchase Period
in which such leave commences, to (a) withdraw all the funds in the
Participant's payroll account at the time of the commencement of such leave or
(b) have such funds held for the purchase of shares at the end of such Purchase
Period. In no event, however, shall any further payroll deductions be added to
the Participant's account during such leave. Upon the Participant's return to
active service, his or her payroll deductions under the Plan shall automatically
resume at the rate in effect at the time the leave began.
For purposes of the Plan, employment shall not be deemed to terminate
when the Participant goes on a military leave, a sick leave or another bona fide
leave of absence, if the leave was approved by the Company in writing and if
continued crediting of service for such purpose is expressly required by the
terms of such leave or by applicable law (as determined by the Company).
Employment, however, shall be deemed to terminate 90 days after the Participant
commences a leave, unless the Participant has a guaranteed right to re-
employment by contract or statute. Employment shall be deemed to terminate in
any event when the approved leave ends, unless the Participant immediately
returns to employment.
G. Corporate Transaction. Each outstanding Purchase Right
---------------------
shall automatically be exercised, immediately prior to the effective date of any
Corporate Transaction, by applying the payroll deductions of each Participant
for the Purchase Period in which such Corporate Transaction occurs to the
purchase of shares of Common Stock at a purchase price per share equal to
eighty-five percent (85%) of the lower of (i) the Fair Market Value per share of
-----
Common Stock on the start date for the Purchase Period in which such Corporate
Transaction occurs or (ii) the Fair Market Value per share of Common Stock
immediately prior to the effective date of such Corporate Transaction. However,
the applicable limitation on the number of shares of Common Stock purchasable
per Participant shall continue to apply to any such purchase.
The Company shall use its best efforts to provide at least ten (10)-
days prior written notice of the occurrence of any Corporate Transaction, and
Participants shall, following the receipt of such notice, have the right to
terminate their outstanding Purchase Rights prior to the effective date of the
Corporate Transaction.
H. Proration of Purchase Rights. Should the total number of
----------------------------
shares of Common Stock which are to be purchased pursuant to outstanding
Purchase Rights on any particular date exceed the number of shares then
available for issuance under the Plan, the Plan Administrator shall make a pro-
rata allocation of the available shares on a uniform and nondiscriminatory
basis, and the payroll deductions of each Participant, to the extent in excess
of the aggregate purchase price payable for the Common Stock pro-rated to such
individual, shall be refunded.
I. Assignability. During the Participant's lifetime, the
-------------
Purchase Right shall be exercisable only by the Participant and shall not be
assignable or transferable by the Participant.
5
<PAGE>
J. Stockholder Rights. A Participant shall have no
------------------
stockholder rights with respect to the shares subject to his or her outstanding
Purchase Right until the shares are purchased on the Participant's behalf in
accordance with the provisions of the Plan and the Participant has become a
holder of record of the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire
Common Stock pursuant to any Purchase Right outstanding under this Plan if and
to the extent such accrual would otherwise permit such Participant to purchase
more than: (A) in the case of Common Stock purchased during a Purchase Period
that commenced in the current calendar year, $25,000 minus the Fair Market Value
of Common Stock that the Participant previously purchased in the current
calendar year (under this Plan and all other employee stock purchase plans of
the Company or any Corporate Affiliate) and (B) in the case of Common Stock
purchased during a Purchase Period that commenced in the immediately preceding
calendar year, $50,000 minus the Fair Market Value of Common Stock that the
Participant previously purchased in the current calendar year and in the
immediately preceding calendar year (under this Plan and all other employee
stock purchase plans of the Company or any Corporate Affiliate). For purposes of
this Paragraph VIII.A, the Fair Market Value of shares of Common Stock shall be
determined on the basis of the Fair Market Value of such stock on the date such
Purchase Rights are granted. Employee stock purchase plans not described in
Section 423 of the Code shall be disregarded. If a Participant is precluded from
purchasing additional Common Stock under the Plan as a result of this provision
then his or her payroll deductions shall automatically be discontinued and shall
resume at the beginning of the earliest Purchase Period ending in the next
calendar year (if he or she is then an Eligible Employee).
B. In the event there is any conflict between the provisions of
this Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on May 23, 1997 and
approved by the stockholders on July 9, 1997. The Plan shall become effective at
the Effective Time, provided no Purchase Rights granted under the Plan shall be
--------
exercised, and no shares of Common Stock shall be issued hereunder, until the
Company shall have complied with all applicable requirements of the 1933 Act
(including the registration of the shares of Common Stock issuable under the
Plan on a Form S-8 registration statement filed with the Securities and Exchange
Commission), all applicable listing requirements of any stock exchange (or the
Nasdaq National Market, if applicable) on which the Common Stock is listed for
trading and all other applicable requirements established by law or regulation.
B. Unless sooner terminated by the Board, the Plan shall
terminate upon the earliest of (i) the last business day in May, 2007, (ii) the
date on which all shares available for issuance under the Plan shall have been
sold pursuant to Purchase Rights exercised
6
<PAGE>
under the Plan or (iii) the date on which all Purchase Rights are exercised in
connection with a Corporate Transaction. No further Purchase Rights shall be
granted or exercised, and no further payroll deductions shall be collected,
under the Plan following its termination.
X. AMENDMENT OF THE PLAN
The Board may alter, amend, suspend or discontinue the Plan at
any time to become effective immediately following the close of any Purchase
Period. However, the Board may not, without the approval of the Company's
stockholders, materially increase the number of shares of Common Stock issuable
under the Plan. Any other amendment of the Plan shall require a vote of the
stockholders of the Company only to the extent required by an applicable law or
regulation.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the
Plan shall be paid by the Company.
B. Nothing in the Plan shall confer upon the Participant any
right to continue in the employ of the Company or any Corporate Affiliate for
any period of specific duration or interfere with or otherwise restrict in any
way the rights of the Company (or any Corporate Affiliate employing such person)
or of the Participant, which rights are hereby expressly reserved by each, to
terminate such person's employment at any time for any reason, with or without
cause.
C. The provisions of the Plan shall be governed by the laws of
the State of California without resort to that State's conflict-of-laws rules.
7
<PAGE>
SCHEDULE A
----------
COMPANIES PARTICIPATING IN EMPLOYEE
STOCK PURCHASE PLAN AS OF THE EFFECTIVE TIME:
HALL, KINION & ASSOCIATES, INC.
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. Board shall mean the Company's Board of Directors.
-----
B. Cash Compensation shall mean the (i) regular base salary paid to
-----------------
a Participant by one or more Participating Companies during such individual's
period of participation in the Plan, plus (ii) any pre-tax contributions made by
the Participant to any Code Section 401(k) salary deferral plan or any Code
Section 125 cafeteria benefit program now or hereafter established by the
Corporation or any Corporate Affiliate, plus (iii) all of the following amounts
to the extent paid in cash: overtime payments, bonuses, commissions, profit-
sharing distributions and other incentive-type payments. However, Eligible
Earnings shall NOT include any contributions (other than Code Section 401(k) or
Code Section 125 contributions) made on the Participant's behalf by the Company
or any Corporate Affiliate to any deferred compensation plan or welfare benefit
program now or hereafter established.
C. Code shall mean the Internal Revenue Code of 1986, as amended.
----
D. Common Stock shall mean the Company's common stock.
------------
E. Company shall mean Hall, Kinion & Associates, Inc., a Delaware
-------
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Hall, Kinion & Associates, Inc. which shall by
appropriate action adopt the Plan
F. Corporate Affiliate shall mean any parent or subsidiary
-------------------
corporation of the Company (as determined in accordance with Code Section 424),
whether now existing or subsequently established.
G. Corporate Transaction shall mean either of the following
---------------------
stockholder-approved transactions to which the Company is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Company's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to such
transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company in complete liquidation or
dissolution of the Company.
H. Effective Time shall mean the time at which the Underwriting
--------------
Agreement is executed and finally priced. Any Corporate Affiliate which becomes
a Participating Company after such Effective Time shall designate a subsequent
Effective Time with respect to its employee-Participants.
<PAGE>
I. Eligible Employee shall mean any person who is engaged, on a
-----------------
regularlyscheduled basis of more than twenty (20) hours per week for more than
five (5) months per calendar year, in the rendition of personal services to any
Participating Company as an employee for earnings considered wages under Code
Section 3401(a).
J. Fair Market Value per share of Common Stock on any relevant date
-----------------
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question, as such price is reported by
the National Association of Securities Dealers on the Nasdaq National Market or
any successor system. If there is no closing selling price for the Common Stock
on the date in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange determined
by the Plan Administrator to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of transactions on such
exchange. If there is no closing selling price for the Common Stock on the date
in question, then the Fair Market Value shall be the closing selling price on
the last preceding date for which such quotation exists.
(iii) If the initial Purchase Period begins at the Effective
Time, the Fair Market Value shall be deemed to be equal to the price per share
at which the Common Stock is sold in the initial public offering pursuant to the
Underwriting Agreement.
K. 1933 Act shall mean the Securities Act of 1933, as amended.
--------
L. Participant shall mean any Eligible Employee of a Participating
-----------
Company who is actively participating in the Plan.
M. Participating Company shall mean the Company and such Corporate
---------------------
Affiliate or Affiliates as may be authorized from time to time by the Board to
extend the benefits of the Plan to their Eligible Employees. The Participating
Companies in the Plan as of the Effective Time are listed in attached Schedule
A.
N. Plan shall mean the Company's Employee Stock Purchase Plan, as
----
set forth in this document.
O. Plan Administrator shall mean the committee of one (1) or more
------------------
Board members appointed by the Board to administer the Plan.
P. Purchase Date shall mean the last business day of each Purchase
-------------
Period. The initial Purchase Date shall be designated by the Plan Administrator.
<PAGE>
Q. Purchase Period shall mean the approximately six (6) month period
---------------
commencing on the first business day after a Purchase Date and ending with the
next Purchase Date.
R. Purchase Right shall mean the right granted to each Participant
--------------
who enrolls on the start date for a Purchase Period and which provides the
Participant with the right to purchase shares of Common Stock on the Purchase
Date for such Purchase Period, upon the terms set forth herein.
S. Stock Exchange shall mean either the American Stock Exchange or
--------------
the New York Stock Exchange.
T. Underwriting Agreement shall mean the agreement between the
----------------------
Company and the underwriter or underwriters managing the initial public offering
of the Common Stock.
<PAGE>
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
This Agreement is entered into as of October 18, 1996, by and between
PAUL BARTLETT (the "Employee"), HALL, KINION & ASSOCIATES, INC., a California
corporation (the "Company"), and BRENDA HALL.
1. Term of Employment.
------------------
(a) Basic Rule. The Company agrees to continue the Employee's
----------
employment, and the Employee agrees to remain in employment with the Company,
from the date of this Agreement until the date when the Employee's employment
terminates pursuant to Subsection (b), (c) or (d) below.
(b) Without Cause. Subject to Section 7, the Company may terminate
-------------
the Employee's employment at any time by giving the Employee 30 days' advance
notice in writing. The Employee may terminate his employment by giving the
Company 30 days' advance notice in writing. The Employee's employment shall
terminate automatically in the event of his death. Any waiver of notice shall
be valid only if it is made in writing and expressly refers to the applicable
notice requirement of this Section 1.
(c) Cause. The Company may terminate the Employee's employment at any
-----
time for Cause. For all purposes under this Agreement, "Cause" shall mean one
of the following:
(i) A failure by the Employee to perform his material duties hereunder
which continues for more than 30 days after receipt of a written warning
from the Company specifying the act or omission that constitutes Cause,
other than a failure resulting from the Employee's complete or partial
incapacity due to physical or mental illness or impairment;
(ii) Gross misconduct or fraud; or
(iii) Conviction of, or a plea of "guilty" or "no contest" to, a
felony.
(d) Disability. The Company may terminate the Employee's active
----------
employment due to Disability by giving the Employee 30 days' advance notice in
writing. For all purposes under this Agreement, "Disability" shall mean that
the Employee, at the time notice is given, has performed substantially none of
his duties under this Agreement for a period of not less than three consecutive
months as the result of his incapacity due to physical or mental illness. In
the event that the Employee resumes the performance of substantially all of his
duties hereunder before the termination of his active employment under this
Subsection (d) becomes effective, the notice of termination shall automatically
be deemed to have been revoked.
(e) Rights Upon Termination. Except as expressly provided in Section
-----------------------
7, upon the termination of the Employee's employment pursuant to this Section 1,
the Employee shall only be entitled to the compensation, benefits and
reimbursements described in Sections 3,
1
<PAGE>
4 and 5 for the period preceding the effective date of the termination. The
payments under this Agreement shall fully discharge all responsibilities of the
Company to the Employee.
(f) Termination of Agreement. This Agreement shall terminate when all
------------------------
obligations of the parties hereunder have been satisfied.
2. Duties and Scope of Employment.
------------------------------
(a) Position. The Company agrees to employ the Employee as its
--------
President for the term of his employment under this Agreement ("Employment").
The Employee shall report to the Company's Chief Executive Officer. The Company
agrees to use its best efforts to cause the Employee to be nominated for
election as a member of the Company's Board of Directors (the "Board")
throughout the term of his Employment. Brenda Hall agrees to vote, or to
instruct the Voting Trustee to vote, all of her shares of the Company's stock in
favor of the Employee's election as a member of the Board throughout the term of
his Employment.
(b) Obligations. During the term of his Employment, the Employee
-----------
shall devote his full business efforts and time to the Company and its
subsidiaries (if any). He shall not render services to any other person or
entity without the express prior approval of the Board or the Company's Chief
Executive Officer. Such approval shall not be withheld unreasonably, provided
that service on the boards of directors of other corporations will be approved
only if (i) such other corporations are not engaged in activities that are
competitive, or potentially competitive, with the Company and (ii) such other
corporations are of a quality and stature commensurate, in the sole judgment of
the Board, with the Employee's position under this Agreement and with the
Company's objectives.
3. Compensation.
------------
(a) Salary. During the term of his Employment, the Company agrees to
------
pay the Employee as compensation for his services a base salary at the annual
rate of $240,000 or at such higher rate as the Company may determine from time
to time. Such salary shall be payable in accordance with the Company's standard
payroll procedures. (The annual compensation specified in this Subsection (a),
together with any increases in such compensation that the Company may grant from
time to time, is referred to in this Agreement as "Base Compensation.")
(b) Bonus Program. The Employee shall be eligible to receive a bonus
-------------
of up to 75% of his Base Compensation by participating in a bonus program for
fiscal year 1997 and subsequent years during the term of his Employment, subject
to the generally applicable terms and conditions of such program and to the
determinations of the Board or any committee administering such program.
(c) Car Allowance. During the term of his Employment, the Company
-------------
agrees to pay the Employee a car allowance at the monthly rate of $600.
2
<PAGE>
4. Employee Benefits.
-----------------
(a) Vacation. During the term of his Employment, the Employee shall
--------
be entitled to four weeks of paid vacation per year. Vacation time shall accrue
in accordance with the Company's generally applicable vacation policies.
(b) Group Insurance. During the term of his Employment, the Employee
---------------
shall be eligible to participate in the employee benefit plans maintained by the
Company, subject in each case to the generally applicable terms and conditions
of the plan in question and to the determinations of any person or committee
administering such plan. The Employee shall be eligible to commence
participation in the Company's medical, dental and group life insurance program
effective as of November 1, 1996.
5. Business Expenses.
-----------------
During the term of his Employment, the Employee shall be
authorized to incur necessary and reasonable travel, entertainment and other
business expenses in connection with his duties hereunder. The Company shall
reimburse the Employee for such expenses upon presentation of an itemized
account and appropriate supporting documentation, all in accordance with the
Company's generally applicable policies.
6. Option Grant.
------------
(a) General. The Company shall grant the Employee a nonstatutory
-------
stock option (the "Option") covering 974,000 shares of the Company's common
stock, subject to the approval of the Board. The date of grant of the Option
shall be the later of (i) the Employee's first day of Employment or (ii) the
date when the Board approves the option grant. The exercise price of the Option
shall be equal to the fair market value of the Company's common stock on the
date of grant. The Option shall be exercisable immediately upon grant. The
term of the Option shall be 10 years. Except as otherwise provided in this
Section 6, the grant of the Option shall be subject to the terms and conditions
set forth in the Company's standard form of nonstatutory stock option agreement.
(b) Vesting of Option Shares. The shares subject to the Option shall
------------------------
become vested in 24 equal monthly installments over the two-year period
commencing on January 1, 1998. However, 50% of the shares initially subject to
the Option shall become vested on the date of the closing of the acquisition
contemplated by the Asset Purchase Agreement by and among the Company,
TeamAlliance Technology Partners, L.P., TeamAlliance Technology Partners, Inc.,
Team Visions, Inc., certain related entities and certain individuals. In such
event, the remaining shares shall become vested in equal monthly installments
over the two-year period commencing on January 1, 1998. In addition, all of the
shares subject to the Option shall become vested if one of the following events
occurs:
(i) The Company is subject to a Change in Control (as defined in
Subsection (c) below); or
3
<PAGE>
(ii) The Employee is subject to a Constructive Discharge (as defined
in Section 7(b)).
Not less than 50% of the shares initially subject to the Option shall be vested
in the event that the Company terminates the Employee's Employment without his
consent for any reason other than Cause or Disability.
(c) Definition of "Change in Control." For purposes of this Agreement,
--------------------------------
the term "Change in Control" shall mean:
(i) The consummation of a merger or consolidation of the Company with
or into another entity or any other corporate reorganization, if more than
50% of the combined voting power of the continuing or surviving entity's
securities outstanding immediately after such merger, consolidation or
other reorganization is owned by persons who were not shareholders of the
Company immediately prior to such merger, consolidation or other
reorganization; or
(ii) The sale, transfer or other disposition of all or substantially
all of the Company's assets.
A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.
7. Involuntary or Constructive Termination.
---------------------------------------
(a) Salary Continuation. The Company shall continue to pay the
-------------------
Employee's Base Compensation (at the annual rate then in effect) for 12 months
following a termination of the Employee's Employment at any time during the term
of this Agreement for one of the following reasons, subject to the terms of
Section 8 below:
(i) The Company terminates the Employee's Employment without his
consent for any reason other than Cause or Disability; or
(ii) The Employee is subject to a Constructive Discharge (as defined
in Subsection (b) below).
The payments under this Subsection (a) shall cease in the event of the
Employee's death.
(b) Definition of "Constructive Discharge." For purposes of this
-------------------------------------
Agreement, the term "Constructive Discharge" shall mean that one of the
following events occurs:
(i) Brenda Hall ceases to be the Company's Chief Executive Officer for
any reason and is succeeded as Chief Executive Officer by any individual
other than the Employee;
4
<PAGE>
(ii) The Employee' responsibilities are materially diminished, the
Employee is assigned duties that are inconsistent with his position under
this Agreement, the Employee's title is changed without his consent, or the
Employee's reporting relationship is changed without his consent; or
(iii) The Employee's Base Compensation is reduced.
8. Non-Competition.
---------------
(a) Competitive Activities. The Employee shall not engage in
----------------------
Competitive Activities during the 12-month period in which he receives the
salary continuation set forth in Section 7(a). The Employee shall be deemed to
be engaged in "Competitive Activities" if he, directly or indirectly, engages in
any business or activity in which the Company or any subsidiary of the Company
is engaged ("Competitive Businesses") or is employed by, renders services of any
kind to, advises, or receives compensation in any form from, or invests or
participates in any manner or capacity in, any entity or person which directly
or indirectly engages in a Competitive Business.
(b) Exception. Subsection (a) above shall not preclude investments in
---------
a corporation whose stock is traded on a public market and of which the Employee
owns less than one percent.
(c) Purpose of Restrictions. It is agreed by the Employee and the
-----------------------
Company that the restrictions contained in Subsection (a) above are reasonable
and necessary to protect the confidentiality of the customer lists and trade
secrets, and other confidential information concerning the Company, acquired by
the Employee.
(d) Modification. If any of the restrictions contained in Subsection
------------
(a) above is determined to be unenforceable because of the duration of such
restrictions or the area covered thereby, then the arbitrator or court making
the determination shall have the power to reduce the duration of such
restrictions and/or the area covered thereby, and such restrictions, in their
reduced form, shall be enforceable.
9. Successors.
----------
(a) Company's Successors. The Company shall require any successor
--------------------
(whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Company's business and/or assets, by an agreement in substance and form
satisfactory to the Employee, to assume this Agreement and to agree expressly to
perform this Agreement in the same manner and to the same extent as the Company
would be required to perform it in the absence of a succession. The Company's
failure to obtain such agreement prior to the effectiveness of a succession
shall be a breach of this Agreement and shall entitle the Employee to the
compensation to which he would have been entitled hereunder if the Company had
involuntarily terminated his Employment without Cause immediately after such
succession becomes effective. For all purposes under this Agreement, the term
"Company" shall include any successor to the Company's business and/or assets
which executes and delivers
5
<PAGE>
the assumption agreement described in this Subsection (a) or which becomes bound
by this Agreement by operation of law.
(b) Employee's Successors. This Agreement and all rights of the
---------------------
Employee hereunder shall inure to the benefit of, and be enforceable by, the
Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
10. Nondisclosure.
-------------
Prior to the commencement of Employee's Employment, Employee shall
have entered into an Employee Proprietary Information and Inventions Agreement
with the Company.
11. Miscellaneous Provisions.
------------------------
(a) Notice. Notices and all other communications contemplated by this
------
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered mail, return receipt
requested and postage prepaid. In the case of the Employee, mailed notices
shall be addressed to him at the home address which he most recently
communicated to the Company in writing. In the case of the Company, mailed
notices shall be addressed to its corporate headquarters, and all notices shall
be directed to the attention of its Secretary.
(b) Waiver. No provision of this Agreement shall be modified, waived
------
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by the Employee and by an authorized officer of the Company
(other than the Employee). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.
(c) Whole Agreement; Modifications. No agreements, representations or
------------------------------
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof. This Agreement and the
Employee Proprietary Information and Inventions Agreement contain the entire
understanding of the parties with respect to the subject matter hereof. A
modification of this Agreement shall be valid only if it is made in writing and
executed by both parties hereto.
(d) Withholding Taxes. All payments made under this Agreement shall
-----------------
be subject to reduction to reflect taxes or other charges required to be
withheld by law.
(e) Choice of Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
California (except their provisions governing the choice of law).
(f) Severability. The invalidity or unenforceability of any provision
------------
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision hereof, which shall remain in full force and effect.
6
<PAGE>
(g) Arbitration. Any controversy or claim arising out of or relating
-----------
to this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, and judgment on the award rendered by the arbitrator may be entered
in any court having jurisdiction thereof. All fees and expenses of the
arbitrator and such Association shall be paid equally by the parties.
(h) Employment at Will. Nothing in this Agreement shall confer upon
------------------
the Employee any right to continue in Employment for any period of specific
duration or interfere with or otherwise restrict in any way the rights of the
Company or of the Employee, which rights are hereby expressly reserved by each,
to terminate his or her Employment at any time and for any reason, with or
without Cause.
(i) No Assignment. The rights of any person to payments or benefits
-------------
under this Agreement shall not be made subject to option or assignment, either
by voluntary or involuntary assignment or by operation of law, including
(without limitation) bankruptcy, garnishment, attachment or other creditor's
process, and any action in violation of this Subsection (i) shall be void.
(j) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7
<PAGE>
IN WITNESS WHEREOF, all of the parties have executed this Agreement,
in the case of the Company by its duly authorized officer, as of the day and
year first above written.
______________________________________
Paul Bartlett
HALL, KINION AND ASSOCIATES, INC.
By:___________________________________
Chief Executive Officer
______________________________________
Brenda Hall
<PAGE>
EXHIBIT 10.12
HALL, KINION & ASSOCIATES, INC.
STOCK OPTION AGREEMENT
----------------------
THIS AGREEMENT is entered into as of October 18, 1996, by and between
PAUL BARTLETT (the "Optionee") and HALL, KINION & ASSOCIATES, INC., a California
corporation (the "Corporation").
WHEREAS Optionee and the Corporation have entered into an Employment
Agreement as of October 18, 1996, which provides that the Corporation shall
grant Optionee a Non-Statutory Option covering 974,000 shares of Common Stock.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. The Corporation hereby grants to Optionee, as
---------------
of the Grant Date, an option to purchase up to 974,000 Option Shares. The
Option Shares shall be purchasable from time to time during the option term
specified in Paragraph 2 at the Exercise Price of $4.00 per share. This option
is not intended to qualify as an Incentive Option.
2. OPTION TERM. This option shall have a term of ten (10) years
-----------
measured from the Grant Date and shall accordingly expire at the close of
business on October 17, 2006, unless sooner terminated in accordance with
Paragraph 5 or 6.
3. LIMITED TRANSFERABILITY. This option shall be neither
-----------------------
transferable nor assignable by Optionee other than by will or by the laws of
descent and distribution following Optionee's death and may be exercised, during
Optionee's lifetime, only by Optionee. However, this option may be assigned in
whole or in part during Optionee's lifetime in accordance with the terms of a
Qualified Domestic Relations Order. The assigned portion shall be exercisable
only by the person or persons who acquire a proprietary interest in the option
pursuant to such Qualified Domestic Relations Order. The terms applicable to
the assigned portion shall be the same as those in effect for this option
immediately prior to such assignment and shall be set forth in such documents
issued to the assignee as the Administrator may deem appropriate.
4. DATES OF EXERCISE. All or part of this option may be exercised
-----------------
at any time before the Expiration Date (or the earlier termination of the option
term under Paragraph 5 or 6).
5. DEATH AND OTHER CESSATION OF SERVICE. Should Optionee die while
------------------------------------
this option is outstanding, then the option term specified in Paragraph 2 shall
terminate (and this option shall cease to be outstanding) prior to the
Expiration Date and the personal representative of Optionee's estate or the
person or persons to whom the option is transferred pursuant to Optionee's will
or in accordance with the laws of descent and distribution shall have the right
to exercise this option. Such right shall lapse and this option shall cease to
be outstanding upon the earlier of (i) the expiration of the twelve (12)-month
-------
period measured from the date of Optionee's death or (ii) the Expiration Date.
During the limited period of post-death exercisability, this option may not be
exercised in the aggregate for more than the number of vested Option Shares for
which the option is exercisable at the time of Optionee's death. To the extent
Optionee is not
1
<PAGE>
vested in the Option Shares at the time of Optionee's death, this option shall
immediately terminate and cease to be outstanding with respect to those shares.
Should Optionee cease to remain in Service for any reason other than death while
this option is outstanding, then Optionee shall have the entire period prior to
the Expiration Date during which to exercise this option.
6. SPECIAL TERMINATION OF OPTION.
-----------------------------
(a) In the event of a Corporate Transaction, the unexercised
portion of this option shall either (i) be assumed by the successor corporation
or parent thereof or (ii) terminate and cease to be outstanding in consideration
of a cash payment to Optionee in an amount equal to (A) the Fair Market Value of
the Option Shares subject to the unexercised portion of this option, determined
as of the effective time of such Corporate Transaction, minus (B) the aggregate
Exercise Price of such Option Shares.
(b) If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, provided the aggregate Exercise Price shall remain the same.
--------
(c) This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
7. ADJUSTMENT IN OPTION SHARES. Should any change be made to the
---------------------------
Common Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
8. STOCKHOLDER RIGHTS. The holder of this option shall not have any
------------------
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of record
of the purchased shares.
9. MANNER OF EXERCISING OPTION.
---------------------------
(a) In order to exercise this option with respect to all or any
part of the Option Shares for which this option is at the time exercisable,
Optionee (or any other person or persons exercising the option) must take the
following actions:
(i) Execute and deliver to the Corporation a Purchase
Agreement for the Option Shares for which the option is exercised.
2
<PAGE>
(ii) Pay the aggregate Exercise Price for the purchased
shares in cash or with a check made payable to the Corporation. Should the
Common Stock be registered under Section 12(g) of the 1934 Act at the time the
option is exercised, then the Exercise Price may also be paid as follows:
(A) in shares of Common Stock held by Optionee (or any other
person or persons exercising the option) for the requisite period necessary to
avoid a charge to the Corporation's earnings for financial reporting purposes
and valued at Fair Market Value on the Exercise Date; or
(B) to the extent the option is exercised for vested Option
Shares, through a special sale and remittance procedure pursuant to which
Optionee (or any other person or persons exercising the option) shall
concurrently provide irrevocable written instructions (a) to a Corporation-
designated brokerage firm to effect the immediate sale of the purchased shares
and remit to the Corporation, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate Exercise Price payable
for the purchased shares plus all applicable Federal, state and local income and
employment taxes required to be withheld by the Corporation by reason of such
exercise and (b) to the Corporation to deliver the certificates for the
purchased shares directly to such brokerage firm in order to complete the sale.
Except to the extent the sale and remittance procedure is utilized in connection
with the option exercise, payment of the Exercise Price must accompany the
Purchase Agreement delivered to the Corporation in connection with the option
exercise.
(iii) Furnish to the Corporation appropriate documentation
that the person or persons exercising the option (if other than Optionee) have
the right to exercise this option.
(iv) Execute and deliver to the Corporation such written
representations as may be requested by the Corporation in order for it to comply
with the applicable requirements of Federal and state securities laws.
(v) Make appropriate arrangements with the Corporation (or
Parent or Subsidiary employing or retaining Optionee) for the satisfaction of
all Federal, state and local income and employment tax withholding requirements
applicable to the option exercise.
(b) As soon as practical after the Exercise Date, the Corporation
shall issue to or on behalf of Optionee (or any other person or persons
exercising this option) a certificate for the purchased Option Shares, with the
appropriate legends affixed thereto.
(c) In no event may this option be exercised for any fractional
shares.
10. REPURCHASE RIGHTS. ALL OPTION SHARES ACQUIRED UPON THE EXERCISE
-----------------
OF THIS OPTION SHALL BE SUBJECT TO CERTAIN RIGHTS OF THE CORPORATION AND ITS
ASSIGNS TO REPURCHASE THOSE
3
<PAGE>
SHARES IN ACCORDANCE WITH THE TERMS SPECIFIED IN THE PURCHASE AGREEMENT.
11. COMPLIANCE WITH LAWS AND REGULATIONS.
------------------------------------
(a) The exercise of this option and the issuance of the Option
Shares upon such exercise shall be subject to compliance by the Corporation and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange (or The Nasdaq National Market, if
applicable) on which the Common Stock may be listed for trading at the time of
such exercise and issuance.
(b) The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been obtained.
The Corporation, however, shall use its best efforts to obtain all such
approvals.
12. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided
----------------------
in Paragraphs 3 and 6, the provisions of this Agreement shall inure to the
benefit of, and be binding upon, the Corporation and its successors and assigns
and Optionee, Optionee's assigns and the legal representatives, heirs and
legatees of Optionee's estate.
13. NOTICES. Any notice required to be given or delivered to the
-------
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to
be given or delivered to Optionee shall be in writing and addressed to Optionee
at the address indicated below Optionee's signature line on the Grant Notice.
All notices shall be deemed effective upon personal delivery or upon deposit in
the U.S. mail, postage prepaid and properly addressed to the party to be
notified.
14. CONSTRUCTION. All decisions of the Administrator with respect to
------------
any question or issue arising under this Agreement shall be conclusive and
binding on all persons having an interest in this option.
15. GOVERNING LAW. The interpretation, performance and enforcement
-------------
of this Agreement shall be governed by the laws of the State of California
without resort to that State's conflict-of-laws rules.
4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first indicated above.
HALL, KINION & ASSOCIATES, INC.
By:____________________________
Title:_________________________
_______________________________
OPTIONEE
Address:_______________________
_______________________________
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Agreement:
A. ADMINISTRATOR shall mean either the Board or a committee of Board
-------------
members.
B. AGREEMENT shall mean this Stock Option Agreement.
---------
C. BOARD shall mean the Corporation's Board of Directors.
-----
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
----
E. COMMON STOCK shall mean the Corporation's common stock.
------------
F. CORPORATE TRANSACTION shall mean:
---------------------
(i) the consummation of a merger or consolidation of the
Corporation with or into another entity or any other corporate reorganization,
if more than fifty percent (50%) of the combined voting power of the continuing
or surviving entity's securities outstanding immediately after such merger,
consolidation or other reorganization is owned by persons who were not
shareholders of the Corporation immediately prior to such merger, consolidation
or other reorganization, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets.
A transaction shall not constitute a Corporate Transaction if its sole purpose
is to change the state of the Corporation's incorporation or to create a holding
company that will be owned in substantially the same proportions by the persons
who held the Corporation's securities immediately before such transaction.
G. CORPORATION shall mean Hall, Kinion & Associates, Inc., a
-----------
California corporation.
H. DISABILITY shall mean the inability of Optionee to engage in any
----------
substantial gainful activity by reason of any medically determinable physical or
mental impairment and shall be determined by the Administrator on the basis of
such medical evidence as the Administrator deems warranted under the
circumstances.
I. DOMESTIC RELATIONS ORDER shall mean any judgment, decree or order
------------------------
(including approval of a property settlement agreement) which provides or
otherwise conveys, pursuant to applicable State domestic relations laws
(including community property laws), marital property rights to any spouse or
former spouse of the Optionee.
<PAGE>
J. EMPLOYEE shall mean an individual who is in the employ of the
--------
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
K. EXERCISE DATE shall mean the date on which the option shall have
-------------
been exercised in accordance with Paragraph 9 of the Agreement.
L. EXERCISE PRICE shall mean the exercise price per share as
--------------
specified in Paragraph 1.
M. EXPIRATION DATE shall mean the date on which the option expires
---------------
as specified in Paragraph 2.
N. FAIR MARKET VALUE per share of Common Stock on any relevant date
-----------------
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on The Nasdaq
National Market, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question, as the price is reported by
the National Association of Securities Dealers on The Nasdaq National Market or
any successor system. If there is no closing selling price for the Common Stock
on the date in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange determined
by the Administrator to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of transactions on such
exchange. If there is no closing selling price for the Common Stock on the date
in question, then the Fair Market Value shall be the closing selling price on
the last preceding date for which such quotation exists.
(iii) If the Common Stock is at the time neither listed on any
Stock Exchange nor traded on The Nasdaq National Market, then the Fair Market
Value shall be determined by the Administrator after taking into account such
factors as the Administrator shall deem appropriate.
O. GRANT DATE shall mean the date of grant of this option and the
----------
date as of which this Agreement is entered into.
P. GRANT NOTICE shall mean the Notice of Grant of Stock Option
------------
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.
Q. INCENTIVE OPTION shall mean an option which satisfies the
----------------
requirements of Code Section 422.
2
<PAGE>
R. 1934 ACT shall mean the Securities Exchange Act of 1934, as
--------
amended.
S. NON-STATUTORY OPTION shall mean an option not intended to satisfy
--------------------
the requirements of Code Section 422.
T. OPTION SHARES shall mean the number of shares of Common Stock
-------------
subject to this option.
U. PARENT shall mean any corporation (other than the Corporation) in
------
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
V. PURCHASE AGREEMENT shall mean the stock purchase agreement in
------------------
substantially the form of Exhibit A to this Agreement.
W. QUALIFIED DOMESTIC RELATIONS ORDER shall mean a Domestic
----------------------------------
Relations Order which substantially complies with the requirements of Code
Section 414(p). The Administrator shall have the sole discretion to determine
whether a Domestic Relations Order is a Qualified Domestic Relations Order.
X. SERVICE shall mean the Optionee's performance of services for the
-------
Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a non-
employee member of the board of directors or a consultant.
Y. STOCK EXCHANGE shall mean the American Stock Exchange or the New
--------------
York Stock Exchange.
Z. SUBSIDIARY shall mean any corporation (other than the
----------
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
3
<PAGE>
EXHIBIT A
HALL, KINION & ASSOCIATES, INC.
STOCK PURCHASE AGREEMENT
------------------------
AGREEMENT made as of this _______ day of _____________, _____, by and
among HALL, KINION & ASSOCIATES, INC., a California corporation, PAUL BARTLETT,
Optionee under the Option Agreement, and ________________________________,
Optionee's spouse.
All capitalized terms in this Agreement shall have the meaning
assigned to them in this Agreement or in the attached Appendix.
A. EXERCISE OF OPTION
------------------
1. EXERCISE. Optionee hereby purchases _____________ shares of
--------
Common Stock (the "Purchased Shares") pursuant to that certain option (the
"Option") granted Optionee on October 18, 1996 (the "Grant Date"), to purchase
up to 974,000 shares of Common Stock at the exercise price of $4.00 per share
(the "Exercise Price").
2. PAYMENT. Concurrently with the delivery of this Agreement to the
-------
Corporation, Optionee shall pay the Exercise Price for the Purchased Shares in
accordance with the provisions of the Option Agreement and shall deliver
whatever additional documents may be required by the Option Agreement as a
condition for exercise, together with a duly-executed blank Assignment Separate
from Certificate (in the form attached hereto as Exhibit I) with respect to the
Purchased Shares.
3. DELIVERY OF CERTIFICATES. The certificates representing any
------------------------
Purchased Shares which are subject to the Repurchase Right shall be held in
escrow in accordance with the provisions of this Agreement.
4. STOCKHOLDER RIGHTS. Until such time as the Corporation exercises
------------------
the Repurchase Right, the First Refusal Right or the Special Purchase Right,
Optionee (or any successor in interest) shall have all the rights of a
stockholder (including voting, dividend and liquidation rights) with respect to
the Purchased Shares, including the Purchased Shares held in escrow hereunder,
subject, however, to the transfer restrictions of Articles B and C.
B. SECURITIES LAW COMPLIANCE
-------------------------
1. RESTRICTED SECURITIES. The Purchased Shares have not been
---------------------
registered under the 1933 Act and are being issued to Optionee in reliance upon
the exemption from such registration provided by Section 4(2) of the 1933 Act.
Optionee hereby confirms that Optionee has been informed that the Purchased
Shares are restricted securities under the 1933 Act and may not be resold or
transferred unless the Purchased Shares are first registered under the Federal
securities laws or unless an exemption from such registration is available.
Accordingly,
<PAGE>
Optionee hereby acknowledges that Optionee is prepared to hold the Purchased
Shares for an indefinite period and that Optionee is aware that SEC Rule 144
issued under the 1933 Act, which exempts certain resales of unrestricted
securities, is not presently available to exempt the resale of the Purchased
Shares from the registration requirements of the 1933 Act.
2. RESTRICTIONS ON DISPOSITION OF PURCHASED SHARES. Optionee shall
-----------------------------------------------
make no disposition of the Purchased Shares (other than a Permitted Transfer)
unless and until there is compliance with all of the following requirements:
(i) Optionee shall have complied with all requirements of this
Agreement applicable to the disposition of the Purchased Shares.
(ii) Unless SEC Rule 144 issued under the 1933 Act is available,
Optionee shall have provided the Corporation with written assurances, in form
and substance satisfactory to the Corporation, that (a) the proposed disposition
does not require registration of the Purchased Shares under the 1933 Act or (b)
all appropriate action necessary for compliance with the registration
requirements of the 1933 Act or any exemption from registration available under
the 1933 Act (other than Rule 144) has been taken.
The Corporation shall not be required (i) to transfer on its books any
---
Purchased Shares which have been sold or transferred in violation of the
provisions of this Agreement or (ii) to treat as the owner of the Purchased
--
Shares, or otherwise to accord voting, dividend or liquidation rights to, any
transferee to whom the Purchased Shares have been transferred in contravention
of this Agreement.
3. RESTRICTIVE LEGENDS. The stock certificates for the Purchased
-------------------
Shares shall be endorsed with one or more of the following restrictive legends:
(i) "The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares may not be sold or
offered for sale in the absence of (a) an effective registration statement for
the shares under such Act, (b) a 'no action' letter of the Securities and
Exchange Commission with respect to such sale or offer or (c) satisfactory
assurances to the Corporation that registration under such Act is not required
with respect to such sale or offer."
(ii) "It is unlawful to consummate a sale or transfer of this
security, or any interest therein, or to receive any consideration therefor,
without the prior written consent of the Commissioner of Corporations of the
State of California, except as permitted in the Commissioner's Rules."
(iii) "The shares represented by this certificate are subject to
certain repurchase rights and rights of first refusal granted to the Corporation
and accordingly may not be sold, assigned, transferred, encumbered, or in any
manner disposed of except in conformity with the terms of a written agreement
dated ____________ ___, ____, between the Corporation and the registered holder
of the shares (or the predecessor in interest to the shares). A copy of such
agreement is maintained at the Corporation's principal corporate offices."
2
<PAGE>
C. TRANSFER RESTRICTIONS
---------------------
1. RESTRICTION ON TRANSFER. Except for any Permitted Transfer,
-----------------------
Optionee shall not transfer, assign, encumber or otherwise dispose of any of the
Purchased Shares which are subject to the Repurchase Right. In addition,
Purchased Shares which are released from the Repurchase Right shall not be
transferred, assigned, encumbered or otherwise disposed of in contravention of
the First Refusal Right, the Market Stand-Off or the Special Purchase Right.
2. TRANSFEREE OBLIGATIONS. Each person (other than the Corporation)
----------------------
to whom the Purchased Shares are transferred by means of a Permitted Transfer
must, as a condition precedent to the validity of such transfer, acknowledge in
writing to the Corporation that such person is bound by the provisions of this
Agreement and that the transferred shares are subject to (i) the Repurchase
Right, (ii) the First Refusal Right and (iii) the Market Stand-Off, to the same
extent such shares would be so subject if retained by Optionee.
3. MARKET STAND-OFF.
----------------
(a) In connection with any underwritten public offering by the
Corporation of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Corporation's initial public
offering, Owner shall not sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose or transfer
for value or otherwise agree to engage in any of the foregoing transactions with
respect to, any Purchased Shares without the prior written consent of the
Corporation or its underwriters. Such restriction (the "Market Stand-Off")
shall be in effect for such period of time from and after the effective date of
the final prospectus for the offering as may be requested by the Corporation or
such underwriters. In no event, however, shall such period exceed one hundred
eighty (180) days. Owner's obligations with respect to the Market Stand-Off
shall in all events terminate two (2) years after the effective date of the
Corporation's initial public offering.
(b) Owner shall be subject to the Market Stand-Off provided and
------------
only if the officers and directors of the Corporation are also subject to
- -------
similar restrictions.
(c) Any new, substituted or additional securities which are by
reason of any Recapitalization or Reorganization distributed with respect to the
Purchased Shares shall be immediately subject to the Market Stand-Off, to the
same extent the Purchased Shares are at such time covered by such provisions.
(d) In order to enforce the Market Stand-Off, the Corporation may
impose stop-transfer instructions with respect to the Purchased Shares until the
end of the applicable stand-off period.
D. REPURCHASE RIGHT
----------------
1. GRANT. The Corporation is hereby granted the right (the
-----
"Repurchase Right"), exercisable at any time during the sixty (60)-day period
following the date Optionee ceases for any reason to remain in Service or (if
later) during the sixty (60)-day period following
3
<PAGE>
the execution date of this Agreement, to repurchase at the Exercise Price all or
(at the discretion of the Corporation and with the consent of Optionee) any
portion of the Purchased Shares in which Optionee is not, at the time of his or
her cessation of Service, vested in accordance with the Vesting Schedule (such
shares to be hereinafter referred to as the "Unvested Shares").
2. VESTING SCHEDULE. Optionee shall acquire a vested interest in,
----------------
and the Repurchase Right shall accordingly lapse with respect to, the Option
Shares as follows:
(a) Unless Subparagraph (b), (c), (d) or (e) below applies, the
Option Shares shall become vested in twenty-four (24) equal monthly installments
over the two (2)-year period commencing on January 1, 1998.
(b) If there is a closing of the acquisition contemplated by the
Asset Purchase Agreement by and among the Corporation, TeamAlliance Technology
Partners, L.P., TeamAlliance Technology Partners, Inc., Team Visions, Inc.,
certain related entities and certain individuals, then fifty percent (50%) of
the original number of Option Shares shall become vested on the date of such
closing. After the date of such closing, the remaining fifty percent (50%) of
the original number of Option Shares shall become vested in equal monthly
installments over the two (2)-year period commencing on January 1, 1998.
(c) All of the Option Shares shall become vested in the event of
a Corporate Transaction.
(d) All of the Option Shares shall become vested in the event
that the Employee is subject to a "constructive discharge," as such term is
defined in the Employment Agreement entered into by the Corporation and Optionee
as of October 18, 1996.
(e) Not less than fifty percent (50%) of the Option Shares shall
be vested in the event that the Corporation terminates Optionee's Service
without his consent for any reason other than "cause" or "disability," as such
terms are defined in the Employment Agreement entered into by the Corporation
and Optionee as of October 18, 1996.
3. EXERCISE OF THE REPURCHASE RIGHT. The Repurchase Right shall be
--------------------------------
exercisable by written notice delivered to each Owner of the Unvested Shares
prior to the expiration of the sixty (60)-day exercise period. The notice shall
indicate the number of Unvested Shares to be repurchased and the date on which
the repurchase is to be effected, such date to be not more than thirty (30) days
after the date of such notice. The certificates representing the Unvested
Shares to be repurchased shall be delivered to the Corporation prior to the
close of business on the date specified for the repurchase. Concurrently with
the receipt of such stock certificates, the Corporation shall pay to Owner, in
cash or cash equivalents (including the cancellation of any purchase-money
indebtedness), an amount equal to the Exercise Price previously paid for the
Unvested Shares which are to be repurchased from Owner.
4. TERMINATION OF THE REPURCHASE RIGHT. The Repurchase Right shall
-----------------------------------
terminate with respect to any Unvested Shares for which it is not timely
exercised under Paragraph D.3. In addition, the Repurchase Right shall
terminate and cease to be exercisable
4
<PAGE>
with respect to any and all Purchased Shares in which Optionee vests in
accordance with the Vesting Schedule. All Purchased Shares as to which the
Repurchase Right lapses shall, however, remain subject to (i) the First Refusal
Right, (ii) the Market Stand-Off and (iii) the Special Purchase Right.
5. AGGREGATE VESTING LIMITATION. If the Option is exercised in more
----------------------------
than one increment so that Optionee is a party to one or more other Stock
Purchase Agreements (the "Prior Purchase Agreements") which are executed prior
to the date of this Agreement, then the total number of Purchased Shares as to
which Optionee shall be deemed to have a fully-vested interest under this
Agreement and all Prior Purchase Agreements shall not exceed in the aggregate
the number of Purchased Shares in which Optionee would otherwise at the time be
vested, in accordance with the Vesting Schedule, had all the Purchased Shares
(including those acquired under the Prior Purchase Agreements) been acquired
exclusively under this Agreement.
6. RECAPITALIZATION. Any new, substituted or additional securities
----------------
or other property (including cash paid other than as a regular cash dividend)
which is by reason of any Recapitalization distributed with respect to the
Purchased Shares shall be immediately subject to the Repurchase Right, but only
to the extent the Purchased Shares are at the time covered by such right.
Appropriate adjustments to reflect such distribution shall be made to the number
and/or class of Purchased Shares subject to this Agreement and to the price per
share to be paid upon the exercise of the Repurchase Right in order to reflect
the effect of any such Recapitalization upon the Corporation's capital
structure; provided, however, that the aggregate purchase price shall remain the
--------
same.
E. RIGHT OF FIRST REFUSAL
----------------------
1. GRANT. The Corporation is hereby granted the right of first
-----
refusal (the "First Refusal Right"), exercisable in connection with any proposed
transfer of the Purchased Shares in which Optionee has vested in accordance with
the Vesting Schedule. For purposes of this Article E, the term "transfer" shall
include any sale, assignment, pledge, encumbrance or other disposition of the
Purchased Shares intended to be made by Owner, but shall not include any
Permitted Transfer.
2. NOTICE OF INTENDED DISPOSITION. In the event any Owner of
------------------------------
Purchased Shares in which Optionee has vested desires to accept a bona fide
third-party offer for the transfer of any or all of such shares (the Purchased
Shares subject to such offer to be hereinafter referred to as the "Target
Shares"), Owner shall promptly (i) deliver to the Corporation written notice
(the "Disposition Notice") of the terms of the offer, including the purchase
price and the identity of the third-party offeror, and (ii) provide satisfactory
proof that the disposition of the Target Shares to such third-party offeror
would not be in contravention of the provisions set forth in Articles B and C.
3. EXERCISE OF THE FIRST REFUSAL RIGHT. The Corporation shall, for
-----------------------------------
a period of twenty-five (25) days following receipt of the Disposition Notice,
have the right to repurchase any or all of the Target Shares subject to the
Disposition Notice upon the same terms as those specified therein or upon such
other terms (not materially different from those specified in the
5
<PAGE>
Disposition Notice) to which Owner consents. Such right shall be exercisable by
delivery of written notice (the "Exercise Notice") to Owner prior to the
expiration of the twenty-five (25)-day exercise period. If such right is
exercised with respect to all the Target Shares, then the Corporation shall
effect the repurchase of such shares, including payment of the purchase price,
not more than five (5) business days after delivery of the Exercise Notice; and
at such time the certificates representing the Target Shares shall be delivered
to the Corporation.
Should the purchase price specified in the Disposition Notice be
payable in property other than cash or evidences of indebtedness, the
Corporation shall have the right to pay the purchase price in the form of cash
or cash equivalents equal in amount to the value of such property. If Owner and
the Corporation cannot agree on such cash value within ten (10) days after the
Corporation's receipt of the Disposition Notice, the valuation shall be made by
an appraiser of recognized standing selected by Owner and the Corporation or, if
they cannot agree on an appraiser within twenty (20) days after the
Corporation's receipt of the Disposition Notice, each shall select an appraiser
of recognized standing and the two (2) appraisers shall designate a third
appraiser of recognized standing, whose appraisal shall be determinative of such
value. The cost of such appraisal shall be paid by the Corporation. The
closing shall then be held on the later of (i) the fifth (5th) business day
-----
following delivery of the Exercise Notice or (ii) the fifth (5th) business day
after such valuation shall have been made.
4. NON-EXERCISE OF THE FIRST REFUSAL RIGHT. In the event the
---------------------------------------
Exercise Notice is not given to Owner prior to the expiration of the twenty-five
(25)-day exercise period, Owner shall have a period of thirty (30) days
thereafter in which to sell or otherwise dispose of the Target Shares to the
third-party offeror identified in the Disposition Notice upon terms (including
the purchase price) no more favorable to such third-party offeror than those
specified in the Disposition Notice; provided, however, that any such sale or
--------
disposition must not be effected in contravention of the provisions of Articles
B and C. The third-party offeror shall acquire the Target Shares free and clear
of the Repurchase Right and the First Refusal Right, but the acquired shares
shall remain subject to the provisions of Article B and Paragraph C.3. In the
event Owner does not effect such sale or disposition of the Target Shares within
the specified thirty (30)-day period, the First Refusal Right shall continue to
be applicable to any subsequent disposition of the Target Shares by Owner until
such right lapses.
5. PARTIAL EXERCISE OF THE FIRST REFUSAL RIGHT. In the event the
-------------------------------------------
Corporation makes a timely exercise of the First Refusal Right with respect to a
portion, but not all, of the Target Shares specified in the Disposition Notice,
Owner shall have the option, exercisable by written notice to the Corporation
delivered within five (5) business days after Owner's receipt of the Exercise
Notice, to effect the sale of the Target Shares pursuant to either of the
following alternatives:
(i) sale or other disposition of all the Target Shares to the
third-party offeror identified in the Disposition Notice, but in full compliance
with the requirements of Paragraph E.4, as if the Corporation did not exercise
the First Refusal Right; or
6
<PAGE>
(ii) sale to the Corporation of the portion of the Target Shares
which the Corporation has elected to purchase, such sale to be effected in
substantial conformity with the provisions of Paragraph E.3. The First Refusal
Right shall continue to be applicable to any subsequent disposition of the
remaining Target Shares until such right lapses.
Failure of Owner to deliver timely notification to the
Corporation shall be deemed to be an election by Owner to sell the Target Shares
pursuant to alternative (i) above.
6. RECAPITALIZATION/REORGANIZATION.
-------------------------------
(a) Any new, substituted or additional securities or other
property which is by reason of any Recapitalization distributed with respect to
the Purchased Shares shall be immediately subject to the First Refusal Right,
but only to the extent the Purchased Shares are at the time covered by such
right.
(b) In the event of a Reorganization, the First Refusal Right
shall remain in full force and effect and shall apply to the new capital stock
or other property received in exchange for the Purchased Shares in consummation
of the Reorganization, but only to the extent the Purchased Shares are covered
by the First Refusal Right at the time of the Reorganization.
7. LAPSE. The First Refusal Right shall lapse upon the earliest to
----- --------
occur of (i) the first date on which shares of the Common Stock are held of
record by more than five hundred (500) persons, (ii) a determination is made by
the Board that a public market exists for the outstanding shares of Common Stock
or (iii) a firm-commitment underwritten public offering, pursuant to an
effective registration statement under the 1933 Act, covering the offer and sale
of the Common Stock in the aggregate amount of at least ten million dollars
($10,000,000). However, the Market Stand-Off shall continue to remain in full
force and effect following the lapse of the First Refusal Right.
F. MARITAL DISSOLUTION OR LEGAL SEPARATION
---------------------------------------
1. GRANT. In connection with the dissolution of Optionee's marriage
-----
or the legal separation of Optionee and Optionee's spouse, the Corporation shall
have the right (the "Special Purchase Right") to purchase from Optionee's
spouse, in accordance with the provisions of Paragraph F.3, all or any portion
of the Purchased Shares which would otherwise be awarded to such spouse in
settlement of any community property or other marital property rights such
spouse may have in such shares.
2. NOTICE OF DECREE OR AGREEMENT. Optionee shall promptly provide
-----------------------------
the Corporation with written notice (the "Dissolution Notice") of (i) the entry
of any judicial decree or order resolving the property rights of Optionee and
Optionee's spouse in connection with their marital dissolution or legal
separation or (ii) the execution of any contract or agreement relating to the
distribution or division of such property rights. The Dissolution Notice shall
be accompanied by a copy of the actual decree or order of dissolution or
contract or agreement
7
<PAGE>
between Optionee and Optionee's spouse which provides for the award to the
spouse of one or more Purchased Shares in settlement of any community property
or other marital property rights such spouse may have in such shares.
3. EXERCISE OF THE SPECIAL PURCHASE RIGHT. The Special Purchase
--------------------------------------
Right shall be exercisable by delivery of written notice (the "Purchase
Notice") to Optionee and Optionee's spouse within thirty (30) days after the
Corporation's receipt of the Dissolution Notice. The Purchase Notice shall
indicate the number of shares to be purchased by the Corporation, the date such
purchase is to be effected (such date to be not less than five (5) business
days, nor more than ten (10) business days, after the date of the Purchase
Notice) and the Fair Market Value to be paid for such Purchased Shares. Optionee
(or Optionee's spouse, to the extent such spouse has physical possession of the
Purchased Shares) shall, prior to the close of business on the date specified
for the purchase, deliver to the Corporation the certificates representing the
shares to be purchased. The Corporation shall, concurrently with the receipt of
the stock certificates, pay to Optionee's spouse (in cash or cash equivalents)
an amount equal to the Fair Market Value specified for such shares in the
Purchase Notice.
If Optionee's spouse does not agree with the Fair Market Value
specified for the shares in the Purchase Notice, then the spouse shall promptly
notify the Corporation in writing of such disagreement and the fair market value
of such shares shall thereupon be determined by an appraiser of recognized
standing selected by the Corporation and the spouse. If they cannot agree on an
appraiser within twenty (20) days after the date of the Purchase Notice, each
shall select an appraiser of recognized standing, and the two (2) appraisers
shall designate a third appraiser of recognized standing whose appraisal shall
be determinative of such value. The cost of the appraisal shall be shared
equally by the Corporation and Optionee's spouse. The closing shall then be
held on the fifth (5th) business day following the completion of such appraisal;
provided, however, that if the appraised value is more than twenty-five percent
- --------
(25%) greater than the Fair Market Value specified for the shares in the
Purchase Notice, the Corporation shall have the right, exercisable prior to the
expiration of such five (5) business day period, to rescind the exercise of the
Special Purchase Right and thereby revoke its election to purchase the shares
awarded to the spouse. In the event the Corporation so revokes its election,
the Corporation shall bear the entire cost of the appraisal.
4. LAPSE. The Special Purchase Right shall lapse upon the earlier
----- -------
to occur of (i) the lapse of the First Refusal Right or (ii) the expiration of
the exercise period specified in Paragraph F.3, to the extent the Special
Purchase Right is not timely exercised in accordance with such paragraph.
G. ESCROW
------
1. DEPOSIT. Upon issuance, the certificates for the Purchased
-------
Shares which are subject to the Repurchase Right shall be deposited in escrow
with the Corporation to be held in accordance with the provisions of this
Article G. Each deposited certificate shall be accompanied by a duly-executed
Assignment Separate from Certificate in the form of Exhibit I. The deposited
certificates, together with any other assets or securities from time to time
8
<PAGE>
deposited with the Corporation pursuant to the requirements of this Agreement,
shall remain in escrow until such time or times as the certificates (or other
assets and securities) are to be released or otherwise surrendered for
cancellation in accordance with Paragraph G.3. Upon delivery of the
certificates (or other assets and securities) to the Corporation, Owner shall be
issued a receipt acknowledging the number of Purchased Shares (or other assets
and securities) delivered in escrow.
2. RECAPITALIZATION/REORGANIZATION. Any new, substituted or
-------------------------------
additional securities or other property which is by reason of any
Recapitalization or Reorganization distributed with respect to the Purchased
Shares shall be immediately delivered to the Corporation to be held in escrow
under this Article G, but only to the extent the Purchased Shares are at the
time subject to the escrow requirements hereunder. However, all regular cash
dividends on the Purchased Shares (or other securities at the time held in
escrow) shall be paid directly to Owner and shall not be held in escrow.
3. RELEASE/SURRENDER. The Purchased Shares, together with any other
-----------------
assets or securities held in escrow hereunder, shall be subject to the following
terms relating to their release from escrow or their surrender to the
Corporation for repurchase and cancellation:
(i) Should the Corporation elect to exercise the Repurchase Right
with respect to any Unvested Shares, then the escrowed certificates for those
Unvested Shares (together with any other assets or securities attributable
thereto) shall be surrendered to the Corporation concurrently with the payment
to Owner of an amount equal to the aggregate Exercise Price for such Unvested
Shares, and Owner shall cease to have any further rights or claims with respect
to such Unvested Shares (or other assets or securities attributable thereto).
(ii) Should the Corporation elect to exercise the First Refusal
Right with respect to any Target Shares held at the time in escrow hereunder,
then the escrowed certificates for those Target Shares (together with any other
assets or securities attributable thereto) shall be surrendered to the
Corporation concurrently with the payment of the Paragraph E.3 purchase price
for such Target Shares to Owner, and Owner shall cease to have any further
rights or claims with respect to such Target Shares (or other assets or
securities attributable thereto).
(iii) Should the Corporation elect not to exercise the Repurchase
---
Right with respect to any Unvested Shares or the First Refusal Right with
respect to any Target Shares held at the time in escrow hereunder, then the
escrowed certificates for those shares (together with any other assets or
securities attributable thereto) shall be immediately released to Owner.
(iv) As the Purchased Shares (or any other assets or securities
attributable thereto) vest in accordance with the Vesting Schedule, the
certificates for those vested shares (as well as all other vested assets and
securities) shall be released from escrow upon Owner's request, but not more
frequently than once every six (6) months.
9
<PAGE>
(v) All Purchased Shares which vest (and any other vested assets
and securities attributable thereto) shall be released within thirty (30) days
after the earlier to occur of (a) Optionee's cessation of Service or (b) the
-------
lapse of the First Refusal Right.
(vi) All Purchased Shares (or other assets or securities)
released from escrow shall nevertheless remain subject to (a) the First Refusal
Right, to the extent such right has not otherwise lapsed, (b) the Market Stand-
Off, until such restriction terminates, and (c) the Special Purchase Right, to
the extent such right has not otherwise lapsed.
H. SPECIAL TAX ELECTION
--------------------
The acquisition of the Purchased Shares may result in adverse tax
consequences which may be avoided or mitigated by filing an election under Code
Section 83(b). Such election must be filed within thirty (30) days after the
date of this Agreement. A description of the tax consequences applicable to the
acquisition of the Purchased Shares and the form for making the Code Section
83(b) election are set forth in Exhibit II. OPTIONEE SHOULD CONSULT WITH HIS OR
HER TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES OF ACQUIRING THE PURCHASED
SHARES AND THE ADVANTAGES AND DISADVANTAGES OF FILING THE CODE SECTION 83(B)
ELECTION. OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY, AND
NOT THE CORPORATION'S, TO FILE A TIMELY ELECTION UNDER CODE SECTION 83(B), EVEN
IF OPTIONEE REQUESTS THE CORPORATION OR ITS REPRESENTATIVES TO MAKE THIS FILING
ON HIS BEHALF.
I. GENERAL PROVISIONS
------------------
1. ASSIGNMENT. The Corporation may assign the Repurchase Right, the
----------
First Refusal Right and/or the Special Purchase Right to any person or entity
selected by the Board, including (without limitation) one or more stockholders
of the Corporation.
If the assignee of the Repurchase Right is other than (i) a wholly
owned subsidiary of the Corporation or (ii) the parent corporation owning one
hundred percent (100%) of the Corporation's outstanding capital stock, then such
assignee must make a cash payment to the Corporation, upon the assignment of the
Repurchase Right, in an amount equal to the excess (if any) of (i) the Fair
Market Value of the Purchased Shares at the time subject to the assigned
Repurchase Right over (ii) the aggregate repurchase price payable for the
Purchased Shares.
2. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement
---------------------------------
shall confer upon Optionee any right to continue in Service for any period of
specific duration or interfere with or otherwise restrict in any way the rights
of the Corporation (or any Parent or Subsidiary employing or retaining Optionee)
or of Optionee, which rights are hereby expressly reserved by each, to terminate
Optionee's Service at any time for any reason, with or without cause.
10
<PAGE>
3. NOTICES. Any notice required to be given under this Agreement
-------
shall be in writing and shall be deemed effective upon personal delivery or upon
deposit in the U.S. mail, registered or certified, postage prepaid and properly
addressed to the party entitled to such notice at the address indicated below
such party's signature line on this Agreement or at such other address as such
party may designate by ten (10) days advance written notice under this paragraph
to all other parties to this Agreement.
4. NO WAIVER. The failure of the Corporation in any instance to
---------
exercise the Repurchase Right, the First Refusal Right or the Special Purchase
Right shall not constitute a waiver of any other repurchase rights and/or rights
of first refusal that may subsequently arise under the provisions of this
Agreement or any other agreement between the Corporation and Optionee or
Optionee's spouse. No waiver of any breach or condition of this Agreement shall
be deemed to be a waiver of any other or subsequent breach or condition, whether
of like or different nature.
5. CANCELLATION OF SHARES. If the Corporation shall make available,
----------------------
at the time and place and in the amount and form provided in this Agreement, the
consideration for the Purchased Shares to be repurchased in accordance with the
provisions of this Agreement, then from and after such time, the person from
whom such shares are to be repurchased shall no longer have any rights as a
holder of such shares (other than the right to receive payment of such
consideration in accordance with this Agreement). Such shares shall be deemed
purchased in accordance with the applicable provisions hereof, and the
Corporation shall be deemed the owner and holder of such shares, whether or not
the certificates therefor have been delivered as required by this Agreement.
J. MISCELLANEOUS PROVISIONS
------------------------
1. OPTIONEE UNDERTAKING. Optionee hereby agrees to take whatever
--------------------
additional action and execute whatever additional documents the Corporation may
deem necessary or advisable in order to carry out or effect one or more of the
obligations or restrictions imposed on either Optionee or the Purchased Shares
pursuant to the provisions of this Agreement.
2. AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the
----------------------------
entire contract between the parties hereto with regard to the subject matter
hereof.
3. GOVERNING LAW. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of California without resort
to that State's conflict-of-laws rules.
4. COUNTERPARTS. This Agreement may be executed in counterparts,
------------
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
5. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
----------------------
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and upon
11
<PAGE>
Optionee, Optionee's permitted assigns and the legal representatives, heirs and
legatees of Optionee's estate, whether or not any such person shall have become
a party to this Agreement and have agreed in writing to join herein and be bound
by the terms hereof.
6. POWER OF ATTORNEY. Optionee's spouse hereby appoints Optionee
-----------------
her true and lawful attorney in fact, for her and in her name, place and stead,
and for her use and benefit, to agree to any amendment or modification of this
Agreement and to execute such further instruments and take such further actions
as may reasonably be necessary to carry out the intent of this Agreement.
Optionee's spouse further gives and grants unto Optionee as her attorney in fact
full power and authority to do and perform every act necessary and proper to be
done in the exercise of any of the foregoing powers as fully as she might or
could do if personally present, with full power of substitution and revocation,
hereby ratifying and confirming all that Optionee shall lawfully do and cause to
be done by virtue of this power of attorney.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first indicated above.
HALL, KINION & ASSOCIATES, INC.
By:______________________________
Title:___________________________
Address:_________________________
_________________________________
_________________________________
OPTIONEE
Address:_________________________
_________________________________
12
<PAGE>
SPOUSAL ACKNOWLEDGMENT
The undersigned spouse of Optionee has read and hereby approves the
foregoing Stock Purchase Agreement. In consideration of the Corporation's
granting Optionee the right to acquire the Purchased Shares in accordance with
the terms of such Agreement, the undersigned hereby agrees to be irrevocably
bound by all the terms of such Agreement, including (without limitation) the
right of the Corporation (or its assigns) to purchase any Purchased Shares in
which Optionee is not vested and the right of the Corporation (or its assigns)
to purchase any and all interest or right the undersigned may otherwise have in
the Purchased Shares pursuant to community property laws or other marital
property rights.
_________________________________
OPTIONEE'S SPOUSE
Address:_________________________
_________________________________
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Purchase Agreement.
---------
B. BOARD shall mean the Corporation's Board of Directors.
-----
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
----
D. COMMON STOCK shall mean the Corporation's common stock.
------------
E. CORPORATE TRANSACTION shall mean:
---------------------
(i) the consummation of a merger or consolidation of the Corporation
with or into another entity or any other corporate reorganization, if more than
fifty percent (50%) of the combined voting power of the continuing or surviving
entity's securities outstanding immediately after such merger, consolidation or
other reorganization is owned by persons who were not shareholders of the
Corporation immediately prior to such merger, consolidation or other
reorganization, or
(ii) the sale, transfer or other disposition of all or substantially
all of the Corporation's assets.
A transaction shall not constitute a Corporate Transaction if its sole purpose
is to change the state of the Corporation's incorporation or to create a holding
company that will be owned in substantially the same proportions by the persons
who held the Corporation's securities immediately before such transaction.
F. CORPORATION shall mean Hall, Kinion & Associates, Inc., a California
-----------
corporation.
G. DISPOSITION NOTICE shall have the meaning assigned to such term in
------------------
Paragraph E.2.
H. DISSOLUTION NOTICE shall have the meaning assigned to such term in
------------------
Paragraph F.2.
I. EXERCISE NOTICE shall have the meaning assigned to such term in
---------------
Paragraph E.3.
J. EXERCISE PRICE shall have the meaning assigned to such term in
--------------
Paragraph A.1.
K. FAIR MARKET VALUE of a share of Common Stock on any relevant date,
-----------------
prior to the initial public offering of the Common Stock, shall be determined
either by the Board
<PAGE>
or by a committee of Board members after taking into account such factors as it
shall deem appropriate.
L. FIRST REFUSAL RIGHT shall mean the right granted to the Corporation in
-------------------
accordance with Article E.
M. GRANT DATE shall have the meaning assigned to such term in Paragraph
----------
A.1.
N. MARKET STAND-OFF shall mean the market stand-off restriction specified
----------------
in Paragraph C.3.
O. 1933 ACT shall mean the Securities Act of 1933, as amended.
--------
P. OPTION shall have the meaning assigned to such term in Paragraph A.1.
------
Q. OPTION AGREEMENT shall mean all agreements and other documents
----------------
evidencing the Option.
R. OPTIONEE shall mean the person to whom the Option is granted.
--------
S. OPTION SHARES shall mean the number of shares of Common Stock subject
-------------
to the Option on the Grant Date.
T. OWNER shall mean Optionee and all subsequent holders of the Purchased
-----
Shares who derive their chain of ownership through a Permitted Transfer from
Optionee.
U. PARENT shall mean any corporation (other than the Corporation) in
------
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
V. PERMITTED TRANSFER shall mean (i) a gratuitous transfer of the
------------------
Purchased Shares, provided and only if Optionee obtains the Corporation's prior
written consent to such transfer, (ii) a transfer of title to the Purchased
Shares effected pursuant to Optionee's will or the laws of intestate succession
following Optionee's death or (iii) a transfer in pledge as security for any
purchase-money indebtedness incurred by Optionee in connection with the
acquisition of the Purchased Shares.
W. PRIOR PURCHASE AGREEMENT shall have the meaning assigned to such term
------------------------
in Paragraph D.5.
X. PURCHASE NOTICE shall have the meaning assigned to such term in
---------------
Paragraph F.3.
2
<PAGE>
Y. PURCHASED SHARES shall have the meaning assigned to such term in
----------------
Paragraph A.1.
Z. RECAPITALIZATION shall mean any stock split, stock dividend,
----------------
recapitalization, combination of shares, exchange of shares or other change
affecting the Corporation's outstanding Common Stock as a class without the
Corporation's receipt of consideration.
AA. REORGANIZATION shall mean any of the following transactions:
--------------
(i) a merger or consolidation in which the Corporation is not the
surviving entity,
(ii) a sale, transfer or other disposition of all or substantially all
of the Corporation's assets,
(iii) a reverse merger in which the Corporation is the surviving
entity but in which the Corporation's outstanding voting securities are
transferred in whole or in part to a person or persons different from the
persons holding those securities immediately prior to the merger, or
(iv) any transaction effected primarily to change the state in which
the Corporation is incorporated or to create a holding company structure.
BB. REPURCHASE RIGHT shall mean the right granted to the Corporation in
----------------
accordance with Article D.
CC. SEC shall mean the Securities and Exchange Commission.
---
DD. SERVICE shall mean the provision of services to the Corporation (or
-------
any Parent or Subsidiary) by a person in the capacity of an employee, subject to
the control and direction of the employer entity as to both the work to be
performed and the manner and method of performance, a non-employee member of the
board of directors or a consultant.
EE. SPECIAL PURCHASE RIGHT shall mean the right granted to the Corporation
----------------------
in accordance with Article F.
FF. SUBSIDIARY shall mean any corporation (other than the Corporation)
----------
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
GG. TARGET SHARES shall have the meaning assigned to such term in
-------------
Paragraph E.2.
3
<PAGE>
HH. VESTING SCHEDULE shall mean the vesting schedule specified in
----------------
Paragraph D.2.
II. UNVESTED SHARES shall have the meaning assigned to such term in
---------------
Paragraph D.1.
4
<PAGE>
EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED Paul Bartlett hereby sells, assigns and transfers
unto Hall, Kinion & Associates, Inc. (the "Corporation") _______________________
(________) shares of the Common Stock of the Corporation standing in his name on
the books of the Corporation represented by Certificate No._____________________
herewith and does hereby irrevocably constitute an appoint ______________
Attorney to transfer the said stock on the books of the Corporation with full
power of substitution in the premises.
Dated: _____________ _____, ________
Signature ______________________________
INSTRUCTION: Please do not fill in any blanks other than the signature line.
Please sign exactly as you would like your name to appear on the issued stock
certificate. The purpose of this assignment is to enable the Corporation to
exercise the Repurchase Right without requiring additional signatures on the
part of Optionee.
<PAGE>
EXHIBIT II
SECTION 83(b) ELECTION
This statement is being made under Section 83(b) of the Internal
Revenue Code, pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name: Paul Bartlett
Address:
Taxpayer Ident. No.:
(2) The property with respect to which the election is being made is
____________ shares of the common stock of Hall, Kinion & Associates,
Inc.
(3) The property was issued on _____________ _____, ________.
(4) The taxable year in which the election is being made is the calendar year
_________.
(5) The property is subject to a repurchase right pursuant to which the
issuer has the right to acquire the property at the original purchase
price if for any reason taxpayer's employment with the issuer is
terminated. The issuer's repurchase right lapses in a series of
installments pursuant to a stock purchase agreement between the issuer
and taxpayer.
(6) The fair market value of the property at the time of transfer (determined
without regard to any restriction other than a restriction which by its
terms will never lapse) is $___________ per share.
(7) The amount paid for such property is $4.00 per share.
(8) A copy of this statement was furnished to Hall, Kinion & Associates,
Inc., for whom taxpayer rendered the services underlying the transfer of
property.
(9) This statement is executed on _________________ ______, __________.
_____________________________ _______________________________________
Spouse (if any) Taxpayer
This election must be filed with the Internal Revenue Service Center with which
taxpayer files his Federal income tax returns and must be made not later than
thirty (30) days after the execution date of the Stock Purchase Agreement. This
filing should be made by registered or certified mail, return receipt requested.
Optionee must retain two (2) copies of the completed form for filing with his
Federal and state tax returns for the current tax year and an additional copy
for his records.
<PAGE>
EXHIBIT 10.25
HALL, KINION & ASSOCIATES, INC.
IT PROFESSIONAL STOCK OPTION PLAN
---------------------------------
ARTICLE ONE
GENERAL PROVISIONS
------------------
I. PURPOSE OF THE PLAN
This IT Professional Stock Option Plan is intended to promote the
interests of Hall, Kinion & Associates, Inc., a Delaware corporation, by
providing eligible persons with the opportunity to acquire a proprietary
interest, or otherwise increase their proprietary interest, in the Corporation
as an incentive for them to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in the
attached Appendix.
II. ADMINISTRATION OF THE PLAN
A. The Committee shall have authority to administer the plan. In
addition, the Board may retain the power to administer the Plan with respect to
all persons.
B. Members of the Committee shall serve for such period of time as
the Board may determine and shall be subject to removal by the Board at any
time.
C. The Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority to
establish such rules and regulations as it may deem appropriate for proper
administration of the Plan and to make such determinations under, and issue such
interpretations of, the provisions of any program and any outstanding options
thereunder as it may deem necessary or advisable. Decisions of the Plan
Administrator within the scope of its administrative functions under the Plan
shall be final and binding on all parties who have an interest in the Plan under
its jurisdiction or any option thereunder.
D. Service on the Committee shall constitute service as a Board
member, and members of the Committee shall accordingly be entitled to full
indemnification and reimbursement as Board members for their service on such
Committee. No member of the Committee shall be liable for any act or omission
made in good faith with respect to the Plan or any option grants made under the
Plan.
III. ELIGIBILITY
A. The persons eligible to participate in the Plan are IT
Professionals who provide services to the Corporation (or any Parent or
Subsidiary).
B. The Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority (subject to the
provisions of the Plan) to determine, which
<PAGE>
eligible persons are to receive option grants, the time or times when such
option grants are to be made, the number of shares to be covered by each such
grant, the time or times at which each option is to become exercisable and the
vesting schedule (if any) applicable to the option shares and the maximum term
for which the option is to remain outstanding.
IV. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall initially not exceed 350,000
shares.
B. The number of shares of Common Stock available for issuance
under the Plan shall automatically increase on the first trading day after
January 1 each calendar year beginning January 1, 1998, by an amount equal to
one and one half percent (1.5%) of the shares of Common Stock outstanding on the
trading day immediately preceding January 1 (or if there is no trading day, on
the first such business day).
C. No one person participating in the Plan may receive options for
more than 100,000 shares of Common Stock in the aggregate each calendar year.
D. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
expire or terminate for any reason prior to exercise in full or (ii) the options
are canceled in accordance with the cancellation-regrant provisions of Article
Three. All shares issued under the Plan, shall reduce on a share-for-share basis
the number of shares of Common Stock available for subsequent issuance under the
Plan. In addition, should the exercise price of an option under the Plan be paid
with shares of Common Stock or should shares of Common Stock otherwise issuable
under the Plan be withheld by the Corporation in satisfaction of the withholding
taxes incurred in connection with the exercise of an option under the Plan, then
the number of shares of Common Stock available for issuance under the Plan shall
be reduced by the gross number of shares for which the option is exercised, and
not by the net number of shares of Common Stock issued to the holder of such
option.
E. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan, (ii) the maximum number and/or class of securities for which the
share reserve is to increase automatically each year, (iii) the number and/or
class of securities for which any one person may be granted options over the
term of the Plan, and (iv) the number and/or class of securities and the
exercise price per share in effect under each outstanding option in order to
prevent the dilution or enlargement of benefits thereunder. The adjustments
determined by the Plan Administrator shall be final, binding and conclusive.
2
<PAGE>
ARTICLE TWO
OPTION GRANT PROGRAM
--------------------
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
--------
shall comply with the terms specified below.
A. EXERCISE PRICE.
--------------
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the option grant date. An individual
who owns more than 10% of the total combined voting power of all classes of
outstanding stock of the Corporation, its Parent or any of its Subsidiaries
shall not be eligible for designation as an Optionee unless the exercise price
is at least 110% of the Fair Market Value of a share of Common Stock on the date
of grant.
2. The exercise price shall become immediately due upon
exercise of the option and shall subject to the documents evidencing the option,
be payable in one or more of the forms specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date, or
(iii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to
which the Optionee shall concurrently provide irrevocable written
instructions to (a) a Corporation-designated brokerage firm to effect
the immediate sale of the purchased shares and remit to the Corporation,
out of the sale proceeds available on the settlement date, sufficient
funds to cover the aggregate exercise price payable for the purchased
shares plus all applicable Federal, state and local income and
employment taxes required to be withheld by the Corporation by reason of
such exercise and (b) the Corporation to deliver the certificates for
the purchased shares directly to such brokerage firm in order to
complete the sale.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable
----------------------------
at such time or times, during such period and for such number of shares as shall
be determined by the Plan
3
<PAGE>
Administrator and set forth in the documents evidencing the option. However, no
option shall have a term in excess of ten (10) years measured from the option
grant date.
C. EFFECT OF TERMINATION OF SERVICE.
--------------------------------
1. The following provisions shall govern the exercise of
any options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the
Optionee's cessation of Service for any reason shall remain exercisable
for such period of time thereafter as shall be determined by the Plan
Administrator and set forth in the documents evidencing the option, but
no such option shall be exercisable after the expiration of the option
term.
(ii) Any option exercisable in whole or in part by
the Optionee at the time of death may be subsequently exercised by the
personal representative of the Optionee's estate or by the person or
persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and distribution.
(iii) During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for more than
the number of vested shares for which the option is exercisable on the
date of the Optionee's cessation of Service. Upon the expiration of the
applicable exercise period or (if earlier) upon the expiration of the
option term, the option shall terminate and cease to be outstanding for
any vested shares for which the option has not been exercised. However,
the option shall, immediately upon the Optionee's cessation of Service,
terminate and cease to be outstanding to the extent it is not
exercisable for vested shares on the date of such cessation of Service.
(iv) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.
(v) In the event of a Corporate Transaction, the
provisions of Section II of this Article Two shall govern the period for
which the outstanding options are to remain exercisable following the
Optionee's cessation of Service and shall supersede any provisions to
the contrary in this section.
2. The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the option
is to remain exercisable following the Optionee's cessation of Service
from the period otherwise in effect for that option to such greater
period of time as the Plan Administrator shall deem appropriate, but in
no event beyond the expiration of the option term, and/or
4
<PAGE>
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the
number of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee's cessation of Service but also
with respect to one or more additional installments in which the
Optionee would have vested under the option had the Optionee continued
in Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no
------------------
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
----------------------------------
Optionee, the option shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death.
II. CORPORATE TRANSACTION
A. In the event of any Corporate Transaction, each outstanding
option shall automatically terminate and cease to be outstanding, except to the
extent assumed by the successor corporation (or parent thereof).
B. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration of one or more
outstanding options upon the occurrence of a Corporate Transaction, whether or
not those options are to be assumed or replaced (or those repurchase rights are
to be assigned) in the Corporate Transaction.
C. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan on both an aggregate and per
Optionee basis following the consummation of such Corporate Transaction and (ii)
the exercise price payable per share under each outstanding option, provided the
--------
aggregate exercise price payable for such securities shall remain the same.
D. The grant of options under the Plan shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
5
<PAGE>
ARTICLE THREE
MISCELLANEOUS
-------------
I. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at
any time and from time to time, with the consent of the affected option holders,
the cancellation of any or all outstanding options under the Plan and to grant
in substitution new options covering the same or different number of shares of
Common Stock but with an exercise price per share based on the Fair Market Value
per share of Common Stock on the new option grant date
II. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective on the Plan Effective Date and
options may be granted under the Plan from and after the Plan Effective Date.
However, no options granted under the Plan may be exercised until the Plan is
approved by the Corporation's stockholders. If such stockholder approval is not
obtained within twelve (12) months after the Plan Effective Date, then all
options previously granted under this Plan shall terminate and cease to be
outstanding, and no further options shall be granted and no shares shall be
issued under the Plan.
B. The Plan shall terminate upon the earliest of (i) May 22, 2007,
(ii) the date on which all shares available for issuance under the Plan shall
have been issued pursuant to the exercise of the options under the Plan or (iii)
the termination of all outstanding options in connection with a Corporate
Transaction. Upon such Plan termination, all options outstanding on such date
shall thereafter continue to have force and effect in accordance with the
provisions of the documents evidencing such options.
III. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, no such amendment
or modification shall adversely affect the rights and obligations with respect
to options or stock appreciation rights at the time outstanding under the Plan
unless the Optionee consents to such amendment or modification. Notwithstanding
the foregoing, the Plan Administrator may amend an outstanding option to reduce
the number of option shares previously granted to an optionee provided the
reduction applies solely to unvested shares or shares which have not yet become
exercisable as of the date of the amendment. An amendment of the Plan shall be
subject to the approval of the Corporation's stockholders only to the extent
required by applicable laws, regulations or rules.
B. Options to purchase shares of Common Stock may be granted under
the Plan that are in excess of the number of shares then available for issuance
under the Plan, provided any excess shares actually issued are held in escrow to
the extent that the Board deems it necessary to obtain stockholder approval of
an amendment sufficiently increasing the number of shares of Common Stock
available for issuance under the Plan. If such stockholder approval, if
required, is not obtained within twelve (12) months after the date the first
such excess issuances are made,
6
<PAGE>
then (i) any unexercised options granted on the basis of such excess shares
shall terminate and cease to be outstanding and (ii) the Corporation shall
promptly refund to the Optionees the exercise price paid for any excess shares
issued under the Plan and held in escrow, together with interest (at the
applicable Short Term Federal Rate) for the period the shares were held in
escrow, and such shares shall thereupon be automatically canceled and cease to
be outstanding.
IV. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
V. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option under
the Plan and the issuance of any shares of Common Stock upon the exercise of any
option shall be subject to the Corporation's procurement of all approvals and
permits required by regulatory authorities having jurisdiction over the Plan,
the options granted under it and the shares of Common Stock issued pursuant to
it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including (as
applicable) the filing and effectiveness of a Form S-8 registration statement
for the shares of Common Stock issuable under the Plan, and all applicable
listing requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which Common Stock is then listed for trading.
VI. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining such person) or of the Optionee, which rights
are hereby expressly reserved by each, to terminate such person's Service at any
time for any reason, with or without cause.
7
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
-----
B. CODE shall mean the Internal Revenue Code of 1986, as amended.
----
C. COMMITTEE shall mean the committee of Board members appointed by
---------
the Board to administer the Plan. The Committee shall be comprised of not less
than the minimum number of members required by applicable state law.
D. COMMON STOCK shall mean the Corporation's common stock.
------------
E. CORPORATE TRANSACTION shall mean either of the following
---------------------
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction; or
(ii) the sale, transfer or other disposition of all
or substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
F. CORPORATION shall mean Hall, Kinion & Associates, Inc., a
-----------
Delaware corporation.
G. EXERCISE DATE shall mean the date on which the Corporation shall
-------------
have received written notice of the option exercise.
H. FAIR MARKET VALUE per share of Common Stock on any relevant date
-----------------
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as such
price is reported by the National Association of Securities Dealers on
the Nasdaq National Market or any successor system. If there is no
closing selling price for the Common Stock on the date in question, then
the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the Stock
Exchange determined by the Plan Administrator to be the primary market
for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no closing
A-1
<PAGE>
selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(iii) For purposes of option grants made on the date
the Underwriting Agreement is executed and the initial public offering
price of the Common Stock is established, the Fair Market Value shall be
deemed to be equal to the established initial offering price per share.
For purposes of option grants made prior to such date, the Fair Market
Value shall be determined by the Plan Administrator after taking into
account such factors as the Plan Administrator shall deem appropriate.
I. IT PROFESSIONAL means consultants who provide services to the
---------------
Corporation (or any Parent or Subsidiary).
J. MISCONDUCT shall mean the commission of any act of fraud,
----------
embezzlement or dishonesty by the Optionee, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary), or any other intentional misconduct by such
person adversely affecting the business or affairs of he Corporation (or any
Parent or Subsidiary) in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Corporation (or
any Parent or Subsidiary) may consider as grounds for the dismissal or discharge
of any Optionee or other person in the Service of the Corporation (or any Parent
or Subsidiary).
K. 1934 ACT shall mean the Securities Exchange Act of 1934, as
--------
amended.
L. NON-STATUTORY OPTION shall mean an option not intended to
--------------------
satisfy the requirements of Code Section 422 .
M. OPTIONEE shall mean any person to whom an option is granted
--------
under the Plan.
N. PARENT shall mean any corporation (other than the Corporation)
------
in an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
O. PLAN shall mean the Corporation's IT Professional Stock Option
----
Plan, as set forth in this document.
P. PLAN ADMINISTRATOR shall mean the particular entity, whether the
------------------
Committee or the Board, which is authorized to administer the Plan with respect
to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under the Plan with respect to the
persons under its jurisdiction.
Q. PLAN EFFECTIVE DATE shall mean May 23, 1997.
-------------------
A-2
<PAGE>
R. SERVICE shall mean the provision of services to the Corporation
-------
(or any Parent or Subsidiary) by a person in the capacity of an employee, a non-
employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant.
S. STOCK EXCHANGE shall mean either the American Stock Exchange or
--------------
the New York Stock Exchange.
T. SUBSIDIARY shall mean any corporation (other than the
----------
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
A-3
