<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 3, 1997
REGISTRATION NO.: 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
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 3661 77-0337705
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
5300 STEVENS CREEK BOULEVARD
SAN JOSE, CALIFORNIA 95129
(408) 241-2100
(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.
5300 STEVENS CREEK BOULEVARD
SAN JOSE, CALIFORNIA 95129
(408) 241-2100
(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>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
<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
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</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).
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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 JUNE 3, 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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). $ $ $ $
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company, estimated at $800,000.
(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>
[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, a leader in professional IT and IS staffing services, provides
highly skilled personnel to high technology clients. Our practice groups
specialize in different areas of technical expertise, supporting companies
throughout the world.
CONTRACT SERVICES
Our team of technical managers are intimately aware of customer requirements
and thus work to ensure that only the most qualified personnel are placed in
appropriate contract positions. Hall Kinion practice groups provide expertise
in the following areas:
CAD
MIS
INTERNET
NET
QA
UNIX
WINDOWS
WRITERS
RECRUITING SERVICES
Our knowledge of the industry and our broad network of highly talented and
technical individuals puts us in an excellent position for quickly
and efficiently recruiting direct hires for our clients.
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
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................................. 8,933,579 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
- --------
(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." Excludes 2,429,556 shares of
Common Stock issuable upon exercise of outstanding stock options as of
March 31, 1997 at a weighted average exercise price of $4.19 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 1,569,624 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>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------- 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 $10,296 $19,193
Gross profit............ 2,058 3,394 5,240 10,176 20,229 24,237 4,083 7,173
Income (loss) from
operations............. (27) 125 262 1,307 1,996 1,697 633 109
Net income (loss)....... (107) 28 33 682 1,361 475 416 20
Net income (loss) per
share (2).............. $(0.01) $ -- $ -- $ 0.09 $ 0.15 $ 0.05 $ 0.05 $ --
Shares used in per share
computations........... 7,227 7,227 7,227 7,326 9,371 9,371 8,796 9,510
SELECTED OPERATING DATA
(AT PERIOD END):
Regional markets........ 1 1 3 5 14 14 5 14
Total employees (3)..... 35 45 70 140 329 329 176 334
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------------------------
ACTUAL PRO FORMA (4) AS ADJUSTED (5)
------- ------------- ---------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit)................ $ (989) $ (989) $14,061
Total assets............................. 26,120 26,120 35,201
Long-term debt........................... 6,368 6,368 3,618
Redeemable convertible preferred stock... 9,900 -- --
Total stockholders' equity (deficit)..... (2,788) 7,112 24,912
</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 stockholder notes receivable. 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 140 employees
to 329 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 71.3% of the Company's net revenues in 1996 were derived from
services provided to clients located in Silicon Valley (55.3% 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 Company and may discourage third parties
from attempting to do so. See "Management" and "Principal and Selling
Stockholders."
9
<PAGE>
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
8,933,579 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"). The remaining 6,418,579 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. 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, 6,372,531 Restricted Shares that are subject to lock-up
agreements will become eligible for sale in the public markets subject to Rule
144 and Rule 701 under the Securities Act. The remaining 46,048 Restricted
Shares will become eligible for sale under Rule 144 at various dates
thereafter as the holding period provisions of Rule 144 are satisfied. As of
March 31, 1997, 2,429,556 shares were issuable upon exercise of currently
outstanding options. As of March 31, 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 5,947,686
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 2,729,556 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."
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
10
<PAGE>
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 June 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. 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.
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 5300 Stevens Creek Boulevard,
San Jose, California 95129, and its telephone number is (408) 241-2100. 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
$17.8 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 $7.6 million of the net proceeds to repay
outstanding indebtedness under its loan agreements with Comerica Bank--
California ("Comerica"), all of which was incurred in connection with the
TeamAlliance Acquisition. The Company also intends to repay a cash overdraft
in the amount of approximately $1.1 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
March 31, 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
March 31, 1997, borrowings under these loan agreements were $7.6 million,
consisting of $3.8 million under the revolving credit facility and $3.8
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 March 31, 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 $17.8 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>
MARCH 31, 1997
--------------------------
PRO AS
ACTUAL FORMA ADJUSTED
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt (1)................................. $ 7,354 $ 7,354 $ 1,385
======= ======= =======
Long-term debt (2).................................. $ 6,368 $ 6,368 $ 3,618
------- ------- -------
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; 6,385,248 shares
outstanding, actual; 8,051,912 shares outstanding,
pro forma; and 8,918,579 shares outstanding, as
adjusted (4)....................................... 371 10,271 28,061
Stockholder notes receivable........................ (5,409) (5,409) (6)
Accumulated translation adjustment.................. 9 9 9
Retained earnings (deficit)......................... 2,241 2,241 (3,152)
------- ------- -------
Total stockholders' equity (deficit).............. (2,788) 7,112 24,912
------- ------- -------
Total capitalization................................ $13,480 $13,480 $28,530
======= ======= =======
</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
March 31, 1997 was $(1.9) million, or approximately $(0.23) 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 March 31, 1997 would have been $15.9 million, or $1.79 per
share. This represents an immediate increase in net tangible book value of
$2.02 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 March 31,
1997...................................................... $(0.23)
Increase per share attributable to new investors........... 2.02
------
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 March 31, 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).................... 7,251,912 81.3% $10,261,000 33.9% $ 1.41
New stockholders........... 1,666,667 18.7 20,000,000 66.1 $12.00
--------- ----- ----------- -----
Totals (2)............... 8,918,579 100.0% $30,261,000 100.0%
========= ===== =========== =====
</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
6,418,579 or approximately 72.0% 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 March 31, 1997, there were options outstanding to purchase a total of
2,429,556 shares of Common Stock at a weighted average exercise price of $4.19
per share under the Company's 1997 Stock Option Plan 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 AND OPERATING 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 March 31,
1997 and the consolidated statement of operations data for the three months
ended March 31, 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>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, PRO FORMA MARCH 31,
----------------------------------------- --------- --------------
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 $8,628 $17,037
Permanent placement.... 1,291 1,404 1,746 3,725 8,317 8,317 1,668 2,156
------ ------ ------- ------- ------- ------- ------ -------
Total net revenues..... 4,361 9,780 15,968 29,385 50,571 65,091 10,296 19,193
Cost of contract
services............... 2,303 6,386 10,728 19,209 30,342 40,854 6,213 12,020
------ ------ ------- ------- ------- ------- ------ -------
Gross profit............ 2,058 3,394 5,240 10,176 20,229 24,237 4,083 7,173
Operating expenses:
Selling, general and
administrative
expenses.............. 2,085 3,269 4,978 8,869 17,412 21,719 3,450 7,064
Other operating
expenses.............. -- -- -- -- 821 821 -- --
------ ------ ------- ------- ------- ------- ------ -------
Total operating
expenses.............. 2,085 3,269 4,978 8,869 18,233 22,540 3,450 7,064
------ ------ ------- ------- ------- ------- ------ -------
Income (loss) from
operations............. (27) 125 262 1,307 1,996 1,697 633 109
Other income (expense),
net.................... (20) (44) (203) (156) 369 (778) 61 (36)
------ ------ ------- ------- ------- ------- ------ -------
Income (loss) before
income taxes........... (47) 81 59 1,151 2,365 919 694 73
Income taxes............ 60 53 26 469 1,004 444 278 53
------ ------ ------- ------- ------- ------- ------ -------
Net income (loss)....... $ (107) $ 28 $ 33 $ 682 $ 1,361 $ 475 $ 416 $ 20
====== ====== ======= ======= ======= ======= ====== =======
Net income (loss) per
share (2).............. $(0.01) $ -- $ -- $ 0.09 $ 0.15 $ 0.05 $ 0.05 $ --
====== ====== ======= ======= ======= ======= ====== =======
Shares used in per share
computation............ 7,227 7,227 7,227 7,326 9,371 9,371 8,796 9,510
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------- MARCH 31,
1992 1993 1994 1995 1996 1997
---- ------ ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital................. $135 $ 251 $ (209) $ (114) $ 189 $ (989)
Total assets.................... 780 1,700 2,572 5,680 22,994 26,120
Long-term debt.................. 71 244 -- -- 6,738 6,368
Redeemable convertible preferred
stock.......................... -- -- -- -- 9,900 9,900
Total stockholders' equity
(deficit)...................... 198 226 259 941 (2,748) (2,788)
</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 three months ended March 31, 1997, revenues from the Contract
Services and Permanent Placement Divisions accounted for 88.8% and 11.2% 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 70
employees and seven Practice Groups in three regional markets. As of December
31, 1996, the Company had 329 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 THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------- ----------------
1994 1995 1996 1996 1997
----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C>
Net revenues:
Contract services.................. 89.1% 87.3% 83.6% 83.8% 88.8%
Permanent placement................ 10.9 12.7 16.4 16.2 11.2
----- ----- ----- ------- -------
Total net revenues............... 100.0 100.0 100.0 100.0 100.0
Cost of contract services............ 67.2 65.4 60.0 60.3 62.6
----- ----- ----- ------- -------
Gross profit (1)..................... 32.8 34.6 40.0 39.6 37.4
Selling, general administrative
expenses............................ 31.2 30.2 34.4 33.5 36.8
Other operating expenses............. -- -- 1.6 -- --
----- ----- ----- ------- -------
Income from operations............... 1.6 4.4 4.0 6.1 0.6
Other income (expense), net.......... (1.3) (0.5) 0.7 0.6 (0.2)
----- ----- ----- ------- -------
Income before income taxes........... 0.3% 3.9% 4.7% 6.7% 0.4%
===== ===== ===== ======= =======
</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
28.0% and 29.4% for the three months ended March 31, 1996 and 1997,
respectively.
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31,
1996
Net revenues. Net revenues increased $8.9 million, or 86.4%, from $10.3
million for the three months ended March 31, 1996, to $19.2 million for the
three months ended March 31, 1997. The Company's net revenues from contract
services increased by $8.4 million, or 97.5%, and net revenues from permanent
placements increased by $488,000, or 29.3%, in the first quarter of 1997 from
the first quarter of 1996. The increase in revenue from contract services was
primarily due to the addition of revenues from regional markets entered in
1996, including through the TeamAlliance Acquisition, from growth in sales
within existing regional markets, 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 $3.1 million, or 75.7%, from $4.1
million for the first quarter 1996 to $7.2 million for the first quarter 1997.
As a percentage of net revenues, gross profits decreased to 37.4% in the first
quarter 1997 from 39.6% in the first quarter 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
83.8% in the first quarter of 1996 to 88.8% in the first quarter 1997, while
permanent placement revenues decreased as a percentage of net revenues from
16.2% in the first quarter 1996 to 11.2% in the first quarter 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 29.4% in the
first quarter 1997 from 28.0% in the first quarter 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 $3.6 million, or 104.8%,
from $3.5 million for the three months ended March 31, 1996 to $7.1 million
for the three months ended March 31, 1997. As a percentage of net revenues,
operating expenses increased to 36.8% in the first quarter 1997 from 33.5% in
the first quarter 1996. 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
18
<PAGE>
and Chicago regional markets. 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. During the first quarter of 1997, the Company
reported interest expense of $135,000 as compared to interest expense of
$29,000 in the first quarter of 1996. This expense primarily reflects
indebtedness incurred in connection with the TeamAlliance Acquisition.
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 135.0% 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.
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.
19
<PAGE>
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 100.0%
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.
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 nine quarters ended March 31, 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,
1995 1995 1995 1995 1996 1996 1996 1996 1997
-------- -------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <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
Permanent placement.... 637 769 1,076 1,243 1,668 2,033 2,109 2,507 2,156
------ ------ ------ ------ ------ ------- ------- ------- -------
Total net revenues.... 5,001 6,260 8,245 9,879 10,296 12,444 12,384 15,447 19,193
Cost of contract
services............... 3,359 4,227 5,299 6,324 6,213 7,426 7,399 9,304 12,020
------ ------ ------ ------ ------ ------- ------- ------- -------
Gross profit............ 1,642 2,033 2,946 3,555 4,083 5,018 4,985 6,143 7,173
Selling, general and
administrative
expenses............... 1,638 1,900 2,369 2,962 3,450 4,119 4,220 5,623 7,064
Other operating
expenses............... -- -- -- -- -- -- 721 100 --
------ ------ ------ ------ ------ ------- ------- ------- -------
Income from operations.. 4 133 577 593 633 899 44 420 109
Net income (loss)....... $ (22) $ 64 $ 326 $ 314 $ 416 $ 612 $ 100 $ 233 $ 20
====== ====== ====== ====== ====== ======= ======= ======= =======
Net income (loss) per
share (1).............. $ -- $ 0.01 $ 0.05 $ 0.04 $ 0.05 $ 0.06 $ 0.01 $ 0.02 $ --
====== ====== ====== ====== ====== ======= ======= ======= =======
Shares used in per share
computation............ 7,227 7,227 7,227 7,486 8,796 9,492 9,523 9,543 9,510
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1995 1995 1995 1995 1996 1996 1996 1996 1997
-------- -------- --------- -------- -------- -------- --------- -------- --------
<S> <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%
Permanent placement.... 12.7 12.3 13.1 12.6 16.2 16.3 17.0 16.2 11.2
------ ------ ------ ------ ------ ------- ------- ------- -------
Total net revenues...... 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
------ ------ ------ ------ ------ ------- ------- ------- -------
Gross profit............ 32.8 32.5 35.7 36.0 39.7 40.3 40.3 39.8 37.4
Operating expenses...... 32.7 30.4 28.7 30.0 33.5 33.1 34.1 36.4 36.8
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
Net income (loss)....... (0.4)% 1.0% 4.0% 3.2% 4.1% 4.9% 0.9% 1.6% 0.1%
====== ====== ====== ====== ====== ======= ======= ======= =======
Gross profit: contract
services (2)........... 23.0% 23.0% 26.1% 26.8% 28.0% 28.7% 28.0% 28.1% 29.4%
</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.
21
<PAGE>
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 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 $2.0
million for the three months ended March 31, 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 three 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 $726,000 during the three
months ended March 31, 1997. Additionally, 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.
22
<PAGE>
At March 31, 1997, the Company had $98,000 in cash and cash equivalents and
$989,000 of negative working capital. 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 $12.0 million.
As of March 31, 1997, borrowings under these loan agreements were $7.6
million, consisting of $3.8 million under the revolving credit facility and
$3.8 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 March 31, 1997), and the
revolving line of credit bears interest at the bank's prime rate plus 0.5%. As
of March 31, 1997, the Company also had a cash overdraft of $1.1 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.
24
<PAGE>
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 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
25
<PAGE>
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 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 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
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONTRACT
SERVICES
--------------------------------------------------------------------------------------------------------------------
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 through the
first three months of 1997, the Company increased the number of revenue-
generating employees from 123 to 264 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 three months of 1997,
approximately 88.8% and 11.2% 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 (HKWindows, HKQA,
HKCAD, HKUnix, HKNET, HKWriters and HKInternet). In addition, through its
HKTechnology 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 HKIS 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
- --------------------------------------------------------------------------------
HKWindows 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
- --------------------------------------------------------------------------------
HKUnix Developers and engineers for IT professional participated
the many types of Unix in the development of system
providing services related verification program
to: GUI, application, device utilizing C, C++, Perl,
driver, kernal, RDBMS/CS, diagnostics and device driver
test development, diagnostics experience
and Realtime
- --------------------------------------------------------------------------------
HKQA 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
network testers, test Windows environment
automation, test developers
and web application testers
- --------------------------------------------------------------------------------
All levels of design and IT professional with
HKCAD 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
- --------------------------------------------------------------------------------
HKWriters 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
- --------------------------------------------------------------------------------
HKNet 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
- --------------------------------------------------------------------------------
HKTech Support Windows 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
- --------------------------------------------------------------------------------
HKIS 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
HKInternet 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 March
31, 1997, the Company employed 88 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 March 31, 1997, the Company employed approximately 75 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 developed a
reputation among IT professionals for efficient and high quality placements
by: (i) focusing on an
30
<PAGE>
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 101 Recruiters as
of March 31, 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
International Tapetronics Corporation
SOFTWARE INTERNET Jones Cyber Solutions, Ltd.
Magellan Communications, Inc.
Enterprise Integration Technologies NEC America, Inc.
Exodus Communication, Inc. Nextel Communications, Inc.
ITOCHU Corporation On Command Video
Knight Ridder, Inc. P-Com, Inc.
ON Technology Corporation TCI
Web TV Network Verifone, Inc.
Worlds Inc.
SEMICONDUCTOR
MEDICAL TECHNOLOGIES
Hitachi America, Ltd.
Hitachi Computer Products Abbot Diagnostics Division, Abbot
Kevex X-Ray Division of Kevex Laboratories
Instruments, Inc. Abbot 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 March 31, 1997, approximately 1,200 IT professionals placed by the
Company were providing contract services to the Company's clients. The
Company's corporate staff at March 31, 1997 consisted of 334 full-time
employees, of whom 88 are TRAs, 75 are Account Managers, 101 are Recruiters
and 70 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 San Jose,
California and occupy an aggregate of approximately 9,400 square feet of
office space pursuant to a lease that expires in August 1998. The Company has
entered into a sublease, which terminates in August 2000, providing for 16,375
square feet of office space located in Cupertino, California. The Company
intends to move its principal executive offices to such location in June 1997
and sublease its current facility. The Company also leases or subleases
offices for its operations in Austin, Texas; 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 March 31, 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>
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
Richard F. Harmon....... 41 Vice President, Internet Services
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
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
Director of Finance, 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.
RICHARD F. HARMON joined the Company in December 1996 as Vice President,
Internet Services. Since March 1994, Mr. Harmon has served as President and
Chief Executive Officer of TeamAlliance, the General Partner of TeamAlliance
Technology Partners, L.P., a staffing services firm. From June 1990 to
December 1994,
35
<PAGE>
Mr. Harmon served as President and Chief Executive Officer of Berkshire
Systems International Corporation, a systems consulting firm. Mr. Harmon
received a B.S. degree in business administration from the University of
Southern California.
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.
TODD J. KINION co-founded the Company and has served as a director of the
Company since the Company's incorporation in 1991. 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 Quest Co. ("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."
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 January 31, 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 and (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(1) SALARY (3) BONUS OPTIONS (#) COMPENSATION
- -------------------- ---------- ----------- --------------------- ------------
<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
Division
</TABLE>
- --------
(1) Paul H. Bartlett joined the Company as President in October 1996. His
annual base salary is currently set at $240,000.
Richard F. Harmon joined the Company as Vice President, Internet Services
in December 1996 and his annual base salary is currently set at $125,000.
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 each of
Richard F. Harmon and Mordecai Levine to purchase 92,000 shares of Common
Stock at $5.10 per share. Each of Messrs. Levine and Harmon are vested in
52,000 shares and vest in 8,000 shares upon the completion of one year of
service from the date of grant and vest 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 1,455,556 shares subject to outstanding options under the
1996 Plan as of March 31, 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 March 31, 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.
39
<PAGE>
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.
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 the date of this Prospectus, 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
40
<PAGE>
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.
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 has the discretion to accelerate the vesting of options
that are assumed by the acquiring entity.
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 which 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 or a
sale by the Company of all or substantially all of its assets. If Mr. Bartlett
is terminated other than for cause or substantial nonperformance, 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.
In December 1996, the Company entered into an employment agreement with each
of Richard F. Harmon and Mordecai Levine in connection with the TeamAlliance
Acquisition which provides for a base salary of $125,000. Mr. Harmon is
eligible to receive an annual bonus of not less than $75,000 at the end of the
first, second and third years of his employment with the Company. For the
period ending on the first, second and
41
<PAGE>
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. In addition, the Company granted to each of Messrs. Harmon
and 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. Each of Messrs. Levine and Harmon are currently vested
in 60,000 of such shares, and each 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. If Mr. Harmon or 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.
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. 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.
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. 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 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.
43
<PAGE>
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 $8.7 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 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 March 31, 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., 5300 Stevens Creek
Boulevard, San Jose, California 95129.
<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 47.3% 250,000 3,182,800 35.6%
Todd J. Kinion (3)...... 1,994,100 27.5% 166,666 1,827,434 20.5%
36 Playa Boulevard
La Selva Beach, CA
95076
Entities Affiliated with
the Sprout Group (4) 1,911,666 25.5% 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 25.5% 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............ 46,048 * 46,048 *
Craig J. Silverman (7).. 50,000 * 50,000 *
Rita S. Hazell (8)...... 24,000 * 24,000 *
Jon H. Rowberry (9)..... 25,000 * 25,000 *
All executive officers
and directors as a
group (11 persons)
(10)................... 8,773,566 98.9% 7,925,233 75.1%
Other Selling
Stockholders
- -------------
Richard Swanson......... 10,000 * 10,000 0 0
c/o Camerlego & Johnson
500 Airport Blvd.,
Suite 230
Burlingame, CA 94010
Camerlego & 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 7,251,912
shares of Common Stock were outstanding on March 31, 1997. This
percentage also includes Common Stock of which such individual or entity
has the right to acquire beneficial ownership within 60 days of March 31,
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 the Company in this
Offering, and assumes no exercise of the Underwriters' over-allotment
option. See "Underwriting."
45
<PAGE>
(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 March 31, 1997.
(7) Represents shares in the form of stock options exercisable within 60 days
of March 31, 1997.
(8) 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
March 31, 1997.
(9) Represents shares in the form of stock options exercisable within 60 days
of March 31, 1997. Mr. Rowberry's mailing address is c/o Franklin Quest
Company, 2200 West Parkway Boulevard, Salt Lake City, Utah 84119.
(10) Includes warrants to purchase 250,000 shares of Common Stock and
1,368,000 shares in the form of stock options exercisable within 60 days
of March 31, 1997.
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 March 31, 1997, there were 6,385,248 shares of Common Stock
outstanding that were held of record by approximately 18 stockholders, as well
as options and warrants to purchase an aggregate of approximately 2,679,556
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 March 31, 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 5,697,686 shares of Common Stock
(5,320,436 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 8,933,579 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 6,418,578 shares of Common
Stock are deemed "restricted securities" under 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 lock-up
agreements with the representatives of the underwriters, approximately
6,372,531 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 March 31, 1997, options to purchase a total of 2,429,556 shares of
Common Stock were outstanding. See "--Lock-up Agreements." In addition,
300,000 shares were available for future grant under the 1997 Plan as of March
31, 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.
50
<PAGE>
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 2,729,556 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. 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. All 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............................................................
===
</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.
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;
reference is made in each instance to the copy of such contract or document
filed as an exhibit to the Registration Statement. Each such statement is
qualified in all respects by such reference to such exhibit. 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 March 31,
1997................................................................... F-3
Consolidated Statements of Income for the Years Ended December 31, 1994,
1995 and 1996 and the Three Months Ended March 31, 1996 and 1997....... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the Years
Ended December 31, 1994, 1995 and 1996 and the Three Months Ended March
31, 1997............................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1994, 1995 and 1996 and the Three Months Ended March 31, 1996 and 1997. 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 STATEMENTS OF INCOME:
Pro Forma Condensed Combining Statement of Income for the Year Ended
December 31, 1995 (Unaudited).......................................... F-27
Pro Forma Condensed Combining Statement of Income for the Year Ended
December 31, 1996 (Unaudited).......................................... F-28
Notes to Unaudited Pro Forma Condensed Combining Statements of Income
for the Years Ended December 31, 1995 and 1996......................... F-29
</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, MARCH 31,
---------------------- MARCH 31, 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 $ 98,000
Accounts receivable, net of
allowance for doubtful
accounts of $296,000 in
1995, and $403,000 in 1996
and $501,000 in 1997...... 4,270,000 7,621,000 9,946,000
Prepaid expenses and other
current assets............ 72,000 490,000 533,000
Prepaid income taxes....... -- 786,000 735,000
Deferred income taxes...... 279,000 340,000 339,000
---------- ----------- -----------
Total current assets..... 4,625,000 9,293,000 11,651,000
Property and equipment, net.. 834,000 4,431,000 4,949,000
Goodwill, net................ -- 9,054,000 8,986,000
Deferred IPO costs........... -- -- 287,000
Other assets................. 221,000 216,000 247,000
---------- ----------- -----------
Total assets............. $5,680,000 $22,994,000 $26,120,000
========== =========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current Liabilities:
Cash overdraft............. $ 338,000 $ 1,229,000 1,136,000
Line of credit............. 1,734,000 418,000 3,833,000
Accounts payable........... 957,000 1,516,000 1,092,000
Accrued salaries,
commissions and related
payroll taxes............. 1,550,000 2,255,000 3,000,000
Accrued liabilities........ 15,000 1,301,000 1,194,000
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 12,640,000
Long-term debt............... -- 6,738,000 6,368,000
---------- ----------- -----------
Total liabilities........ 4,739,000 15,842,000 19,008,000
---------- ----------- -----------
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--6,385,000
(8,052,000 pro forma)..... 81,000 357,000 371,000 10,271,000
Stockholder notes
receivable................ -- (5,323,000) (5,409,000) (5,409,000)
Accumulated translation
adjustment................ -- (3,000) 9,000 9,000
Retained earnings.......... 860,000 2,221,000 2,241,000 2,241,000
---------- ----------- ----------- -----------
Total stockholders'
equity (deficit)........ 941,000 (2,748,000) (2,788,000) 7,112,000
---------- ----------- ----------- -----------
Total liabilities and
stockholders' equity
(deficit)................... $5,680,000 $22,994,000 $26,120,000 $26,120,000
========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------- ------------------------
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 $ 8,628,000 $17,037,000
Permanent placement... 1,746,000 3,725,000 8,317,000 1,668,000 2,156,000
----------- ----------- ----------- ----------- -----------
Net revenues........ 15,968,000 29,385,000 50,571,000 10,296,000 19,193,000
Cost of contract
services............... 10,728,000 19,209,000 30,342,000 6,213,000 12,020,000
----------- ----------- ----------- ----------- -----------
Gross profit............ 5,240,000 10,176,000 20,229,000 4,083,000 7,173,000
Selling, general and
administrative
expenses............... 4,978,000 8,869,000 17,412,000 3,450,000 7,064,000
Other operating
expenses............... -- -- 821,000 -- --
----------- ----------- ----------- ----------- -----------
Total operating
expenses........... 4,978,000 8,869,000 18,233,000 3,450,000 7,064,000
----------- ----------- ----------- ----------- -----------
Income from operations.. 262,000 1,307,000 1,996,000 633,000 109,000
----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest income....... -- -- 434,000 85,000 86,000
Interest expense...... (122,000) (122,000) (65,000) (29,000) (135,000)
Other expenses, net... (81,000) (34,000) -- 5,000 13,000
----------- ----------- ----------- ----------- -----------
Total other income
(expenses), net.... (203,000) (156,000) 369,000 61,000 (36,000)
----------- ----------- ----------- ----------- -----------
Income before income
taxes.................. 59,000 1,151,000 2,365,000 694,000 73,000
Income taxes............ 26,000 469,000 1,004,000 278,000 53,000
----------- ----------- ----------- ----------- -----------
Net income.............. $ 33,000 $ 682,000 $ 1,361,000 $ 416,000 $ 20,000
=========== =========== =========== =========== ===========
Net income per share.... $ -- $ 0.09 $ 0.15 $ 0.05 $ --
=========== =========== =========== =========== ===========
Shares used in per share
computation............ 7,227,000 7,326,000 9,371,000 8,796,000 9,510,000
=========== =========== =========== =========== ===========
</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).... 46,000 14,000 -- -- -- 14,000
Interest on stockholder
notes receivable
(Unaudited)............ -- -- (86,000) -- -- (86,000)
Accumulated translation
adjustment (Unaudited). -- -- -- 12,000 -- 12,000
Net income (Unaudited).. -- -- -- -- 20,000 20,000
--------- -------- ----------- ------- ---------- -----------
BALANCES, March 31, 1997
(Unaudited)............ 6,385,000 $371,000 $(5,409,000) $ 9,000 $2,241,000 $(2,788,000)
========= ======== =========== ======= ========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, MARCH 31
----------------------------------- ----------------------
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 $ 416,000 $ 20,000
Adjustments to
reconcile net income
to net cash provided
by (used for)
operating activities:
Depreciation and
amortization......... 86,000 208,000 448,000 80,000 276,000
Deferred income taxes. (103,000) (173,000) (61,000) 29,000 25,000
Compensation expense
on stock options..... -- -- 10,000 -- --
Interest on
stockholder notes
receivable........... -- -- (317,000) (58,000) (86,000)
Changes in assets and
liabilities:
Accounts receivable.. (639,000) (2,410,000) (3,352,000) (210,000) (2,324,000)
Prepaid expenses and
other assets........ 114,000 25,000 (482,000) (42,000) (74,000)
Prepaid income taxes. -- -- (786,000) -- 27,000
Accounts payable and
accrued expenses.... 265,000 1,411,000 1,754,000 (122,000) 225,000
Income taxes payable. 64,000 64,000 (145,000) (52,000) --
--------- ----------- ----------- ---------- ----------
Net cash provided by
(used for)
operating
activities......... (180,000) (193,000) (1,570,000) 41,000 (1,911,000)
--------- ----------- ----------- ---------- ----------
Cash flows from
investing activities:
Purchase of property
and equipment......... (332,000) (634,000) (2,581,000) (337,000) (726,000)
Deposits for property
and equipment......... -- (192,000) (122,000) -- --
Cash paid for business
acquisition........... -- -- (4,323,000) -- --
--------- ----------- ----------- ---------- ----------
Net cash used for
investing
activities......... (332,000) (826,000) (6,782,000) (337,000) (726,000)
--------- ----------- ----------- ---------- ----------
Cash flows from
financing activities:
Cash overdraft, net.... (155,000) 272,000 891,000 456,000 (93,000)
Line of credit, net.... 768,000 801,000 (1,316,000) (1,735,000) 3,415,000
Note payable
repayments............ (122,000) (122,000) -- -- --
Borrowings on debt..... -- -- 4,000,000 -- --
Repayments of debt..... -- -- (71,000) -- (370,000)
Proceeds from sale of
common stock.......... -- -- -- -- 14,000
Proceeds from sale of
preferred stock, net
of issuance costs..... -- -- 9,900,000 9,949,000 --
Stockholder notes
receivable............ -- -- (5,000,000) (5,000,000) --
Deferred IPO Costs..... -- -- -- -- (287,000)
--------- ----------- ----------- ---------- ----------
Net cash provided by
financing
activities......... 491,000 951,000 8,404,000 3,670,000 2,679,000
--------- ----------- ----------- ---------- ----------
Net increase (decrease)
in cash and
equivalents............ (21,000) (68,000) 52,000 3,374,000 42,000
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 $3,378,000 $ 98,000
========= =========== =========== ========== ==========
</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 THREE MONTHS ENDED MARCH 31,
1996 AND 1997
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED MARCH 31,
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 THREE MONTHS ENDED MARCH 31,
1996 AND 1997
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED MARCH 31,
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 March 31, 1997 and for the three months ended March 31, 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 three
months ended March 31, 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 THREE MONTHS ENDED MARCH 31,
1996 AND 1997
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED MARCH 31,
1996 AND 1997 IS UNAUDITED)
Pro forma amounts for basic and diluted EPS assuming SFAS 128 had been
effect for the periods presented are as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DEC. 31, ENDED MARCH 31,
-------------------- ---------------
1994 1995 1996 1996 1997
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Basic................................... $0.00 $0.09 $0.15 $0.05 $0.00
Diluted................................. $0.00 $0.09 $0.15 $0.05 $0.00
</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 common and
equivalent 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 common and
equivalent 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, MARCH 31,
---------------------- ----------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Property and equipment.................. $1,206,000 $3,071,000 $3,777,000
Land and building....................... -- 2,047,000 2,047,000
Leasehold improvements.................. 38,000 99,000 118,000
---------- ---------- ----------
1,244,000 5,217,000 5,942,000
Accumulated depreciation and
amortization........................... (410,000) (786,000) (993,000)
---------- ---------- ----------
$ 834,000 $4,431,000 $4,949,000
========== ========== ==========
</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 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.
F-9
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1994, 1995 AND 1996 AND THREE MONTHS ENDED MARCH 31,
1996 AND 1997
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED MARCH 31,
1996 AND 1997 IS UNAUDITED)
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 March
31, 1997, the Company had $3,833,000 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.
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,
F-10
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1994, 1995 AND 1996 AND THREE MONTHS ENDED MARCH 31,
1996 AND 1997
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED MARCH 31,
1996 AND 1997 IS UNAUDITED)
$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.
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.
F-11
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1994, 1995 AND 1996 AND THREE MONTHS ENDED MARCH 31,
1996 AND 1997
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED MARCH 31,
1996 AND 1997 IS UNAUDITED)
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 with acceleration clauses commencing January 1998. 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........................................... 289,000 $10.00
Canceled.......................................... (14,000) $ 4.67
Exercised......................................... (46,000) $ 0.30
---------
Balance, March 31, 1997........................... 2,430,000 $ 4.19
=========
</TABLE>
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>
F-12
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1994, 1995 AND 1996 AND THREE MONTHS ENDED MARCH 31,
1996 AND 1997
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED MARCH 31,
1996 AND 1997 IS UNAUDITED)
At December 31, 1996 and March 31, 1997, 1,068,000 and 793,000 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.
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>
F-13
<PAGE>
HALL, KINION & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1994, 1995 AND 1996 AND THREE MONTHS ENDED MARCH 31,
1996 AND 1997
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED MARCH 31,
1996 AND 1997 IS UNAUDITED)
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 THREE MONTHS ENDED MARCH 31,
1996 AND 1997
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED MARCH 31, 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>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------- -----------------
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 $300,000 $ --
Interest ............... 115,000 117,000 46,000 29,000 135,000
Noncash investing and
financing activities:
Purchase of land,
building and furniture
for note payable....... -- -- 1,147,000 -- --
Exercise of stock
options................ -- -- 6,000 -- --
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
amortization of $1,110 and $12,120 and
$103,938, respectively...................... 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
investing
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 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.
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)
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.
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 statements of income combine the
Company's results of operations for the years ended December 31, 1995 and 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, 1995, the beginning
of the earliest period presented. 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 periods 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, 1995
-----------------------------------------
PRO FORMA PRO FORMA
HK TA ADJUSTMENTS COMBINED
------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenues......................... $29,385 $14,191 $(4,002)(c) $39,574
Cost of revenues..................... 19,209 9,090 (2,134)(d) 26,165
------- ------- ------- -------
Gross profit......................... 10,176 5,101 (1,868) 13,409
Operating expenses................... 8,869 3,427 110 (e) 12,406
------- ------- ------- -------
Income from operations............... 1,307 1,674 (1,978) 1,003
Other income (expense):
Interest expense................... (122) (312) (627)(f) (1,061)
Other expenses, net................ (34) (55) 3 (g) (86)
------- ------- ------- -------
Total other income (expense),
net............................. (156) (367) (624) (1,147)
------- ------- ------- -------
Income (loss) before income taxes.... 1,151 1,307 (2,602) (144)
Income taxes......................... 469 27 (545)(h) (49)
------- ------- ------- -------
Net income (loss).................... $ 682 $ 1,280 $(2,057) $ (95)
======= ======= ======= =======
Net income (loss) per share.......... $ .09 $ (.01)
======= =======
Shares used in per share computation. 7,326 7,326
======= =======
</TABLE>
See notes to unaudited pro forma condensed combining statements of income.
F-27
<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 4,519 (192)(e) 22,540
------- ------- ------- -------
Income from operations............... 1,996 905 (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........... 2,365 307 (1,773) 919
Income taxes......................... 1,004 23 (583)(h) 444
------- ------- ------- -------
Net income........................... $ 1,361 $ 284 $(1,190) $ 475
======= ======= ======= =======
Net income per share................. $ .15 $ .05
======= =======
Shares used in per share computation. 9,371 9,371
======= =======
</TABLE>
See notes to unaudited pro forma condensed combining statements of income.
F-28
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 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,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Expenses associated with regional LLC's not
acquired........................................... $(598,000) $(721,000)
Compensation and bonuses of former TA General
Partners in lieu of distributions.................. 428,000 424,000
Amortization of acquired goodwill, over 30 years.... 280,000 256,000
Legal fees associated with purchase of TA........... -- (151,000)
--------- ---------
$ 110,000 $(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, 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-29
<PAGE>
HALL KINION:
PROVIDING PROFESSIONALS FOR THE
NEXT GENERATION OF TECHNOLOGY
[LOGO OF HALL KINION]
The Staffing Solutions People
[COLLAGE OF FOUR DIFFERENT ABSTRACT IMAGES]
<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 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 , 19 (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........................................................... 4,260
Nasdaq National Market listing fee................................. 1,000
Printing and engraving expenses.................................... 150,000
Legal fees and expenses............................................ 350,000
Accounting fees and expenses....................................... 240,000
Blue sky fees and expenses......................................... 15,000
Transfer agent fees................................................ 10,000
Miscellaneous fees and expenses.................................... 18,346
--------
Total............................................................ $800,000
========
</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 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. The Registrant has issued and sold 51,048 shares (assuming no exercise
of stock options after March 31, 1997) of its Common Stock to employees
pursuant to exercises of options under its 1995 Stock Option Plan.
6. The Registrant has granted options to purchase an aggregate of
1,455,556 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 its 1995 Stock Option Plan and 1996
Stock Option Plan.
The issuances described in Items 15(1)-(4) 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(5)-(6) 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 , 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 Form of Restated Certificate of Incorporation to be filed upon the
closing of the Offering made pursuant to this Registration Statement.
3.3 Bylaws of the Registrant.
*3.4 Amended and Restated Bylaws of the Registrant to be effective after
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 1997 Stock Option Plan and forms of agreements thereunder.
*10.3 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, between the Registrant
and Paul Bartlett.
*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 Office Lease Agreement, dated April 17, 1992, between 5300 Stevens
Creek Boulevard Joint Venture and the Registrant, as amended.
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.
11.1 Computation of Earnings Per Share.
21.1 Subsidiary of the Registrant.
23.1 Consent of Independent Auditors (see page II-6).
23.2 Consent of Independent Public Accountants (see page II-7).
*23.3 Consent of Counsel. Reference is made to Exhibit 5.1.
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
II-3
<PAGE>
(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.
(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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Jose,
State of California, on this 3rd day of June, 1997.
HALL, KINION & ASSOCIATES, INC.
By /s/ Brenda C. Hall
___________________________________
Brenda C. Hall
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Paul H. Bartlett and Martin A.
Kropelnicki, and each of them, his true and lawful attorneys-in-fact and
agents with full power of substitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to sign any
registration statement for the same offering covered by this Registration
Statement that is to be effective upon filing pursuant to Rule 462(b)
promulgated under the Securities Act of 1933, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or his
or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<S> <C> <C>
/s/ Brenda C. Hall Chief Executive Officer, June 3, 1997
____________________________________ Chairman of the Board
Brenda C. Hall (Principal Executive
Officer) and Director
/s/ Martin A. Kropelnicki Chief Financial Officer and June 3, 1997
____________________________________ Vice President (Principal
Martin A. Kropelnicki Financial and Accounting
Officer)
/s/ Paul H. Bartlett President and Director June 3, 1997
____________________________________
Paul H. Bartlett
/s/ Todd J. Kinion Director June 3, 1997
____________________________________
Todd J. Kinion
/s/ Kathleen D. LaPorte Director June 3, 1997
____________________________________
Kathleen D. LaPorte
/s/ Jon H. Rowberry Director June 3, 1997
____________________________________
Jon H. Rowberry
</TABLE>
II-5
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement 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 Registration Statement of our report on
TeamAlliance Technology Partners, Ltd. 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
June 3, 1997
II-6
<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.
ARTHUR ANDERSEN LLP
New York, New York
June 2, 1997
II-7
<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-8
<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 , 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 Form of Restated Certificate of Incorporation to be
filed upon the closing of the Offering made pursuant to
this Registration Statement.
3.3 Bylaws of the Registrant.
*3.4 Amended and Restated Bylaws of the Registrant to be
effective after 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 1997 Stock Option Plan and forms of agreements
thereunder.
*10.3 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 Employment Agreement, dated October 18, 1996, between
the Registrant and Paul Bartlett.
*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 Office Lease Agreement, dated April 17, 1992, between
5300 Stevens Creek Boulevard Joint Venture and the
Registrant, as amended.
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.
11.1 Computation of Earnings Per Share.
21.1 Subsidiary of the Registrant.
23.1 Consent of Independent Auditors (see page II-6).
23.2 Consent of Independent Public Accountants (see page II-
7).
*23.3 Consent of Counsel. Reference is made to Exhibit 5.1.
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
EXHIBIT 2.2
ASSET PURCHASE AGREEMENT
by and among
Hall, Kinion & Associates, Inc., a California corporation,
TA Acquisition Corporation, a Delaware corporation, and
TeamAlliance Technology Partners, L.P., a New York limited partnership,
TeamAlliance Technology Partners, Inc., a Delaware corporation,
TeamVisions, Inc., a Delaware corporation,
Certain Designated Limited Liability Companies
Richard Harmon,
Mordecai Levine, and
Frederick Lenz
Dated as of November 26, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I BASIC TRANSACTION....................................................... 2
1.1 Purchase and Sale of Assets; Description of Assets to be Acquired........ 2
1.2 Excluded Assets.......................................................... 4
1.3 Assumed Liabilities...................................................... 4
1.4 Unassumed Liabilities.................................................... 4
1.5 Consideration............................................................ 6
1.6 Subsequent Payments...................................................... 6
1.7 The Closing.............................................................. 7
1.8 Arbitration.............................................................. 7
1.9 Allocation of Purchase Price............................................. 7
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF SELLERS............................. 8
2.1 Organization; Capital Structure.......................................... 8
2.2 Authority................................................................ 8
2.3 Financial Information.................................................... 9
2.4 Liabilities.............................................................. 9
2.5 Absence of Certain Changes and Events.................................... 9
2.6 Conduct of Business...................................................... 11
2.7 Taxes.................................................................... 11
2.8 Compliance With Law...................................................... 13
2.9 Proprietary Rights....................................................... 13
2.10 Restrictive Documents or Orders.......................................... 14
2.11 Contracts and Commitments................................................ 14
2.12 Operating Condition...................................................... 15
2.13 Assets................................................................... 15
2.14 Title to the Property.................................................... 15
2.15 Litigation............................................................... 15
2.16 No Conflict or Default................................................... 15
2.17 Third Party Consents..................................................... 15
2.18 Labor Relations.......................................................... 16
2.19 Brokers' and Finders' Fees/Contractual................................... 16
2.20 Interested Party Relationships........................................... 16
2.21 Environmental and Safety Matters......................................... 16
2.22 Customers................................................................ 18
2.23 Employee Benefit Plans................................................... 18
2.24 Insurance................................................................ 20
2.25 Accounts Receivable...................................................... 20
2.26 Books and Records........................................................ 20
2.27 Complete Disclosure...................................................... 20
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS....................... 20
3.1 Authority................................................................ 20
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
3.2 Assets.................................................................21
3.3 Litigation.............................................................21
3.4 Brokers' and Finders' Fees/Contractual.................................21
3.5 Interested Party Relationships.........................................21
3.6 Complete Disclosure....................................................21
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF TV STOCKHOLDER....................22
4.1 Authority..............................................................22
4.2 Assets.................................................................22
4.3 Litigation.............................................................22
4.4 Brokers' and Finders' Fees/Contractual.................................23
4.5 Interested Party Relationships.........................................23
4.6 Complete Disclosure....................................................23
4.7 Knowledge Qualification................................................23
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER AND HK....................23
5.1 Organization, Standing and Capital Structure...........................23
5.2 Authorization..........................................................23
5.3 Financial Information..................................................24
5.4 Absence of Certain Changes and Events..................................24
5.5 Compliance with Other Instruments......................................24
5.6 Compliance With Law....................................................24
5.7 Consents...............................................................25
5.8 Litigation.............................................................25
5.9 Labor Relations........................................................25
5.10 Books and Records.....................................................25
5.11 Employee Benefit Plans................................................26
5.12 Complete Disclosure...................................................26
5.13 Taxes.................................................................26
5.14 Environmental Matters.................................................26
ARTICLE VI - COVENANTS...........................................................27
6.1 Best Efforts...........................................................27
6.2 Notices and Consents...................................................27
6.3 Operation of Business..................................................27
6.4 Full Access............................................................29
6.5 Covenants Against Disclosure...........................................29
6.6 Non-Competition........................................................29
6.7 Further Assurances.....................................................31
6.8 Advice of Changes......................................................32
6.9 Employees, Bonuses and Termination Payments...........................32
6.10 Cooperation by Sellers................................................32
6.11 Negotiation with Others...............................................33
6.12 Termination of Continuing LLCs........................................33
6.13 Payment of Taxes......................................................33
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
6.14 Guaranty by HK........................................................33
6.15 Facilities Agreement and Non-Exclusive Trademark License..............33
ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATIONS..................................34
7.1 Conditions to Obligations of Purchaser and HK..........................34
7.2 Conditions to Obligations of Sellers...................................36
ARTICLE VIII - INDEMNIFICATION...................................................37
8.1 Survival of Representations and Warranties.............................37
8.2 Indemnification of Purchaser...........................................37
8.3 Indemnification of Sellers, Stockholders and TV Stockholders...........38
8.4 Procedure for Indemnification with Respect to Third-Party Claims.......39
8.5 Procedure for Indemnification with Respect to Non-Third-Party Claiss...40
8.6 Threshold Determination of and Limitations on Indemnification..........41
ARTICLE IX - TERMINATION.........................................................41
9.1 Termination by Mutual Consent..........................................41
9.2 Effect of Termination..................................................42
ARTICLE X - MISCELLANEOUS PROVISIONS.............................................42
10.1 Notice................................................................42
10.2 Entire Agreement......................................................42
10.3 Binding Effect; Assignment............................................43
10.4 Captions..............................................................43
10.5 Expenses of Transactions; Taxes.......................................43
10.6 Waiver; Consent.......................................................43
10.7 Third-Party Beneficiaries.............................................43
10.8 Counterparts and Facsimiles...........................................43
10.9 Severability..........................................................44
10.10 Incorporation of Exhibits and Schedules..............................44
10.11 Governing Law........................................................44
</TABLE>
iii
<PAGE>
LIST OF SCHEDULES
1.1(b) Report of Active Contracts
1.1(c) Contracts
1.1(e) Intellectual Property
1.1(l) Other Properties
1.2 Excluded Assets
1.3 Assumed Liabilities
2.1 Organization; Capital Structure
2.4 Liabilities
2.5(j) Key Employee Notices
2.5(k) Vendor/Contractor/Customer Changes
2.5(m) Disposition of Marks
2.10 Restrictive Documents or Orders
2.11(a) and (b) Contracts and Commitments
2.13 Disclosure Regarding Assets
2.14 Permitted Liens
2.15 Litigation
2.16 Conflicts or Defaults
2.17 Third Party Consents
2.18 Labor Relations
2.21 Environmental and Safety Matters
2.22 Customers
2.23 Employee Benefit Plans
2.24 Insurance Policies
2.25 Accounts Receivable
2.27 Complete Disclosure
5.1 Organization of Purchaser and HK
5.11 Purchaser or HK Employee Benefit Plans
6.3(f) Amendments to Charter Documents
6.6 List of Protected Persons
LIST OF EXHIBITS
A HK Amended and Restated Articles of Incorporation
AP Allocation of Purchase Price
E Employment Agreements
EA Escrow Agreement
L Contract and Sublease Agreements
T Technology License Agreement
LIST OF ATTACHMENTS
A List of Operating LLCs, Operating Services Companies and Operating Managers
B List of Purchased LLCs
C Contract and Lease Assignments
iv
<PAGE>
ASSET PURCHASE AGREEMENT
THIS AGREEMENT dated as of November 26, 1996, is by and among Hall,
Kinion & Associates, Inc. (a California corporation), TA Acquisition Corp. (a
Delaware corporation), TeamAlliance Technology Partners, L.P. (a New York
limited partnership), TeamAlliance Technology Partners, Inc. (a Delaware
corporation), Team Visions, Inc. (a Delaware corporation), each of the Purchased
LLCs the names of which are set forth on Attachment B hereto (the "Purchased
------------
LLCs"), and Richard Harmon, Mordecai Levine and Frederick Lenz.
WHEREAS, Hall, Kinion & Associates, Inc. ("HK") is currently engaged
in, among other things, the business of providing contract and temporary
personnel services to clients needing supplemental employees in technical
occupations;
WHEREAS, TeamAlliance Technology Partners, L.P. (the "Operating
Partnership") by itself and through the Purchased LLCs is also engaged in, among
other things, the business of providing contract and temporary personnel
services to clients needing supplemental employees in technical occupations
(such business of the Operating Partnership and the Purchased LLCs shall be
referred to as the "Business");
WHEREAS, the Operating Partnership owns a ninety-nine percent (99%)
limited liability company interest in each of the Operating LLCs the names of
which are set forth on Attachment A hereto (the "Operating LLCs"), and the
------------
remaining one percent (1%) limited liability company interest of each such
Operating LLC not owned by the Operating Partnership is owned by TeamAlliance
Technology Partners, Inc., the general partner of the Operating Partnership;
WHEREAS, the day-to-day administration and management of the business
of each Operating LLC is performed by an Operating Services Company the name of
which is set forth opposite the name of each such Operating LLC on Attachment A
------------
hereto (the "Operating Services Companies"), and such Operating Services
Companies are owned and managed by the Operating Managers whose names are set
forth opposite the respective Operating Services Companies on Attachment A
------------
(each, an "Operating Manager" and collectively, the "Operating Managers")
hereto;
WHEREAS, TA Acquisition Corporation, a Delaware corporation and newly
created wholly-owned subsidiary of HK ("Purchaser") proposes to acquire
designated assets and assume designated liabilities (the "Acquisition") of the
Business from the Operating Partnership and the Purchased LLCs (collectively,
the Operating Partnership and the Purchased LLCs shall be referred to as the
"Sellers");
WHEREAS, TeamAlliance Technology Partners, Inc., the general partner,
and Team Visions, Inc., the limited partner, are all of the partners (the
"Partners") of the Operating Partnership, and Richard Harmon and Mordy Levine
are all of the stockholders of TeamAlliance
<PAGE>
Technology Partners, Inc. (collectively, the "Stockholders") and Frederick Lenz
is the sole stockholder of TeamVisions, Inc. (collectively, the "TV
Stockholder") (collectively, the Partners, the Stockholders and the TV
Stockholder shall be referred to as the "Owners"); and
WHEREAS, following the Acquisition, the Business related to the Assets
(as hereafter defined) shall be conducted through Purchaser;
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties hereby agree as follows:
ARTICLE I
BASIC TRANSACTION
1.1 Purchase and Sale of Assets; Description of Assets to be
--------------------------------------------------------
Acquired. At the Closing (as hereafter defined), subject to the terms and
- --------
conditions of this Agreement and for the consideration set forth in Section 1.5
hereof, Sellers agree to convey, sell, transfer, assign, and deliver to
Purchaser, and Purchaser shall purchase from Sellers, all right, title, and
interest throughout the world of Sellers at the Closing in and to the assets,
properties, and rights (contractual or otherwise) of the Business (except as
limited in Section 1.2) of every kind, nature, and description, personal,
tangible and intangible, known or unknown, wherever located, including, without
limitation, the following:
(a) Personal Property. All interests in machinery, equipment,
-----------------
leasehold improvements, furniture, computer hardware, office supplies,
automobiles and other vehicles and other tangible personal property (the
"Personal Property");
(b) Relationships. All assignable rights to, or relating to,
-------------
(i) relationships with clients or customers, whether under the TeamAlliance
Master Consulting Agreement or otherwise including, without limitation, clients
and customers listed on Schedule 1.1(b) hereto and (ii) relationships with
contractors, consultants, employees or temporary employees or other individuals
or entities contracted or engaged or otherwise employed to provide permanent or
temporary employment services to clients or customers, whether under the
TeamAlliance Services Agreement or TeamAlliance Temporary Employment Agreement
or otherwise, including, without limitation, such service providers listed on
Schedule 1.1(b) hereto;
- ---------------
(c) Contracts. All claims and rights under all agreements,
---------
contracts, contract rights, licenses, purchase and sale orders, quotations, and
other executory commitments (collectively, the "Contracts"), including, without
limitation, those listed on Schedule 1.1(c) hereto to the extent the rights and
---------------
claims thereunder arise after the Closing and relate to goods delivered or to be
delivered or to services performed or to be performed after the Closing,
including, but not limited to, accounts receivable;
(d) Permits. All transferable franchises, licenses, permits,
-------
consents, authorizations, and approvals of any federal, state, or local
regulatory, administrative, or other
2
<PAGE>
governmental agency or body (those franchises, licenses, permits, consents,
authorizations, approvals and permits are hereinafter referred to as the
"Governmental Permits");
(e) Intellectual Property. All trade secrets, financial
---------------------
information, product plans, client and customer lists, client and customer
account information (including customer payment histories), contractor and
consultant and employee lists, contractor and consultant and employee work
histories and account information, marketing plans and strategies, forecasts and
other business information, improvements, inventions, formulas, ideas, research
and development information, circuits, mask works, works of authorship,
processes, computer programs, applications, algorithms, techniques, schematics,
designs, plans, proposals, know-how, data, patents, patent applications,
trademarks and their associate goodwill, trademark applications, copyrights and
their respective moral rights, copyright applications, design rights, trade
secret rights, rights with respect to mask works and other rights (including,
without limitation, all rights to the names listed on Schedule 1.1(e) hereto)
---------------
owned, used, licensed or held for use by Sellers (including, without limitation,
any applications for or extensions, renewals, continuations or divisions of any
of the foregoing (the "Intellectual Property")).
(f) Documents. Copies of all books of account, records,
---------
general ledgers, documents, sales invoices, correspondence, lists, plats,
architectural plans, accounts payable and payroll records, federal and state tax
returns (including schedules thereto), drawings, files, papers, studies, reports
and all other papers and records (the "Records");
(g) Warranty Rights. All rights, if any, under express or
---------------
implied warranties from suppliers of Sellers;
(h) Causes of Action. All of Seller's causes of action,
----------------
judgments, and claims or demands of whatever kind or description;
(i) Goodwill. All goodwill;
--------
(j) Claims. All claims, deposits, prepayments, refunds,
------
causes of action, choses in action, rights of recovery, rights of set off, and
rights of recoupment;
(k) Real Property. All real property interests, including
-------------
without limitation, leaseholds and subleaseholds therein, improvements,
fixtures, and fittings thereon, and easements, rights-of-way, and other
appurtenances thereto; and
(l) Other Properties. Such other properties or assets as are
----------------
listed on Schedule 1.1(l) hereto.
---------------
The assets, properties and rights to be conveyed, sold, transferred,
assigned, and delivered to Purchaser pursuant to this Section 1.1 are sometimes
hereinafter collectively referred to as the "Assets."
Notwithstanding anything to the contrary in this Agreement, to the
extent that the assignment hereunder of any of the Assets shall require the
consent of any other party (or in the
3
<PAGE>
event that any of the same shall be nonassignable), neither this Agreement nor
any action taken pursuant to its provisions shall constitute an assignment or an
agreement to assign if such assignment or attempted assignment would constitute
a breach of any such Assets or result in the loss or diminution thereof.
1.2 Excluded Assets. Notwithstanding the provisions of Section 1.1
---------------
hereof, the Assets to be transferred to Purchaser pursuant to this Agreement
shall not include the assets listed on Schedule 1.2 hereto (which shall include
------------
all of the assets of those certain Operating LLCs that are not among the
Purchased LLCs) (the "Excluded Assets").
1.3 Assumed Liabilities. Purchaser shall neither assume nor be
-------------------
liable for any liabilities, claims or obligations of Sellers, whether primary or
secondary, direct or indirect, absolute or contingent, other than the
performance obligations of Sellers arising out of or related to the following:
(a) those contracts, commitments, arrangements or understandings with its
clients or customers assumed by the Purchaser (for which any required consents
to such assignments have been obtained) and set forth in Schedule 1.3 hereto
------------
(the "Listed Contracts") to the extent that the performance obligations of
Seller thereunder are required to be performed after the Closing and relate to
goods delivered or to be delivered or services performed to be performed after
the Closing, (b) those leases set forth in Schedule 1.3 hereto to the extent
------------
that the performance obligations (for which any required consents to such
assignments have been obtained) of Seller thereunder are required to be
performed after the Closing and relate to the period after the Closing, and (c)
the liabilities and obligations of Sellers listed on Schedule 1.3 hereto
------------
(collectively, the "Assumed Liabilities").
1.4 Unassumed Liabilities. Except for the Assumed Liabilities,
---------------------
Purchaser shall neither assume nor be liable for any liabilities, claims or
obligations of Sellers, related to the Business or Assets or otherwise, whether
primary or secondary, direct or indirect or absolute or contingent
(collectively, the "Unassumed Liabilities"). Such Unassumed Liabilities shall
include, without limitation, the foregoing:
(a) Service Provider Claims. Any claims by employees,
-----------------------
Operating Managers or former Operating Managers, contractors, consultants,
temporary employees or former employees, former contractors, former consultants
or former temporary employees (or any other service provider or former service
provider) (any of the foregoing, a "Service Provider") arising out of such
Service Provider's provision of services on or before the Closing (including,
without limitation, claims arising out of termination of such services or
termination of any agreement, written or oral, by, between or among, or for the
benefit of, such Service Provider or the Operating Partnership, the Partners,
the Stockholders, the TV Stockholder, the Operating LLCs, the Operating Services
Companies, or the Operating Managers prior to, or following, the Closing);
(b) Balance Sheet Liabilities. Any liabilities and
-------------------------
obligations reflected on the September 30, 1996, combined balance sheet of the
Operating Partnership and Operating LLCs, together with those not so reflected
if in accordance with generally accepted accounting principles ("GAAP") they
need not be so reflected, and any liabilities and obligations reflected
4
<PAGE>
on any financial statements of the Operating Services Companies and any
liabilities and obligations of the Business incurred in the ordinary course of
business between September 30, 1996, and the Closing;
(c) Warranty Liabilities. Any liabilities and obligations,
--------------------
whether or not reserved for on the September 30, 1996, combined balance sheet of
the Operating Partnership and Operating LLCs, or whether or not reserved for on
any financial statements of the Operating Services Companies, with respect to
any return, warranty, claim or refund or similar liabilities relating to
products or services developed, licensed or sold in connection with the Business
on or prior to the Closing;
(d) Product or Services Liabilities. Any liabilities and
-------------------------------
obligations, whether or not reserved for on the September 30, 1996, combined
balance sheet of the Operating Partnership and Operating LLCs, or whether or nor
reserved for on any financial statements of the Operating Services Companies,
for death, personal injury, other injury to persons or property damage resulting
from, caused by or arising out of, directly or indirectly, the use or
performance or non-performance of any of the products or services sold in
connection with the Business (or any executory contract or commitment or part or
component thereof), including without limitation any liabilities or obligations
or failure to warn, breach of express or implied warranties or merchantability
or fitness for any purpose or use, developed, licensed, sold or in connection
with the Business at any time, or resulting from, caused by or arising out of,
directly or indirectly, the conduct of the Business at any time prior to the
Closing;
(e) Liabilities for Tort, Crime or Breach of Contract. Any
-------------------------------------------------
liabilities and obligations, whether or not reserved for on the September 30,
1996, combined balance sheet of the Operating Partnership and Operating LLCs, or
whether or nor reserved for on the financial statements of the Operating
Services Companies, resulting from, caused by or arising out of, directly or
indirectly, the conduct of the Business or ownership or lease of any of the
Assets at any time prior to the Closing that constitutes, may constitute or is
alleged to constitute a tort, breach of contract or violation of any domestic or
foreign statute, law, ordinance, rule or regulation of any court or domestic or
foreign statute, law, ordinance, rule or regulation of any court or domestic or
foreign governmental agency, authority or instrumentality, including, without
limitation, such of the foregoing as relate to employment, environmental and
occupational safety and health matters;
(f) Liabilities Related to Business and Assets. Any
------------------------------------------
liabilities and obligations, whether or not reserved for on the September 30,
1996, combined balance sheet of the Operating Partnership and Operating LLCs, or
on any financial statements of the Operating Services Companies, in respect of
liabilities, claims, actions, suits, proceedings and investigations relating to
or arising out of, directly or indirectly, the conduct of the Business or
ownership, license or lease of any of the Assets of Sellers on or prior to the
Closing, including, without limitation, such of the foregoing as are listed or
described on any schedule hereto;
(g) Tax Liabilities. Any liability for any foreign or federal
---------------
income taxes, payroll taxes, state or local income taxes and excise and
franchise taxes, or any other taxes
5
<PAGE>
or penalties associated with taxes, incurred or accrued in connection with the
operation of the Business or the Assets on or before the Closing, together with
all interests and penalties imposed with respect to such amounts and any
liabilities or obligations of the Business or Sellers, whether primary or
secondary, direct or indirect, absolute or contingent, that do not arise
primarily out of or relate primarily to the Business or the Assets;
(h) Contract Liabilities. Any performance obligation of the
--------------------
Business or Sellers under any contract, commitment, arrangement or understanding
of any kind, oral or written, except as provided in Section 1.3 hereof with
respect to the Listed Contracts; and
(i) Seller Employee Plans. Any obligations arising out of or
---------------------
associated with any Seller Employee Plans (as hereafter defined) relating to any
Service Provider prior to and including the Closing.
1.5 Consideration. In consideration for the Assets and the other
-------------
forms of consideration to be given by Sellers, and in full payment therefor,
Purchaser will deliver to the Operating Partnership, or require HK to deliver,
the following: (a) upon the Closing, four million one hundred and sixty-eight
thousand dollars ($4,168,000) in cash payable by bank cashier's check or wire
transfer, (b) upon the Closing, 52,000 shares of Common Stock of HK (the
"Stock"), having the rights, preferences and privileges set forth in the
Purchaser's Amended and Restated Articles of Incorporation in substantially the
form attached hereto as Exhibit A (the "Restated Articles"), and (c) the
---------
Subsequent Payments set forth in Section 1.6 below.
1.6 Subsequent Payments.
-------------------
(a) Subject to offset by amounts due pursuant to the
indemnification provisions of this Agreement as set forth in Section 8.5 hereof,
Purchaser or HK shall deliver by bank cashier's check or by wire transfer to the
Operating Partnership, or its assigns as provided below in the sentence
following, an additional one million two hundred and fifty thousand dollars
($1,250,000) on October 31, 1997 (the "First Payment Date"). The Operating
Partnership irrevocably instructs Purchaser and HK, and Purchaser and HK agree,
to deliver such payments to each of TeamAlliance Technology Partners, Inc. and
Team Visions, Inc. in the amount of $625,000 each.
(b) Subject to offset by amounts due pursuant to the
indemnification provisions of this Agreement as set forth in Section 8.5 hereof,
Purchaser shall deliver by cashier's check or by wire transfer to the Operating
Partnership, or its assigns as provided below in the sentencing following, an
additional one million two hundred and fifty thousand dollars ($1,250,000) on
October 31, 1998 (the "Second Payment Date"). The Operating Partnership
irrevocably instructs Purchaser and HK, and Purchaser and HK agree, to deliver
such payments to each of TeamAlliance Technology Partners, Inc. and Team
Visions, Inc. in the amount of $625,000 each.
(c) Subject to offset by amounts due pursuant to the
indemnification provisions of this Agreement as set forth in Section 8.5 hereof,
Purchaser shall deliver by bank cashier's check or by wire transfer to the
Operating Partnership, or its assigns as provided below
6
<PAGE>
in the sentence following, an additional one million seven hundred thousand
dollars ($1,700,000) on October 31, 1999 (the "Third Payment Date"). The
aggregate amount payable pursuant to this Section 1.6(a), (b) and (c) shall be
referred to herein as the "Aggregate Subsequent Payments." The Operating
Partnership irrevocably instructs Purchaser and HK, and Purchaser and HK agree,
to deliver such payments to each of TeamAlliance Technology Partners, Inc. and
Team Visions, Inc. in the amount of $850,000 each.
(d) In the event that either Richard Harmon or Mordecai Levine
or both, as the case may be, voluntarily terminates his or their employment with
the Purchaser, other than for Good Reason as such term is defined in the
Employment Agreement attached as Exhibit E, Purchaser shall not be required to
deliver fifty percent (50%) of the balance of the Aggregate Subsequent Payments
payable to TeamAlliance Technology Partners, Inc. after such termination for
each departed employee. Any right to receive such payment shall be forfeited and
not otherwise due to TeamAlliance Technology Partners, Inc.
(e) In the event of a dispute as to whether any post-Closing
cash payments should be made pursuant to this Section 1.6, the dispute shall be
submitted for binding arbitration in accordance with Section 1.8 below.
1.7 The Closing. Subject to termination of this Agreement as
-----------
provided in Article IX below, the closing of the Acquisition contemplated by
this Agreement shall take place at the offices of Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP, Palo Alto, California, on such date that
the conditions of closing set forth in Article V hereof have been satisfied or
waived, or such other place as the parties hereto may mutually select (the
"Closing").
1.8 Arbitration. Any controversy pursuant to this Agreement, shall
-----------
be finally determined by arbitration in San Francisco, California, in accordance
with the then-current Commercial Arbitration Rules of the American Arbitration
Association then in effect (the "Rules"), and judgment upon the award rendered
by the arbitrators may be entered in any court of competent jurisdiction. For
purposes of such arbitration, three arbitrators shall be chosen in accordance
with the Rules. There shall be limited discovery prior to the arbitration
hearing (the "Hearing") as follows: (a) exchange of witness lists and copies of
documentary evidence and documents related to or arising out of the issues to be
arbitrated, (b) depositions of all party witnesses, and (c) such other
depositions as may be allowed by the arbitrators upon a showing of good cause.
Depositions shall be conducted in accordance with the California Code of Civil
Procedure. The arbitrators shall award to the prevailing party its costs and
expenses (including counsel fees) of any such arbitration. Notwithstanding the
amount in controversy, the Expedited Procedures as set forth in the Rules shall
apply. The parties hereby agree that to the extent practicable, the Hearing
shall take place within one hundred twenty (120) days of the selection of the
arbitrators. The arbitration proceeding shall be conducted in confidence and no
party thereto shall disclose to any other person any matters disclosed at or in
connection with the hearing unless required to do so by law or pursuant to a
court order.
1.9 Allocation of Purchase Price. The consideration given for the
----------------------------
Assets shall be allocated among the Assets and the noncompetition covenants
herein in the manner provided
7
<PAGE>
for in Exhibit AP ("Allocation of Purchase Price"), which the parties
----------
acknowledge will be prepared by mutual agreement of the parties within sixty
(60) days of the Closing, using the allocation methods and principles required
by Section 1060 of the Internal Revenue Code of 1986, as amended, (the "Code")
and the Treasury Regulations promulgated thereunder; provided however, that the
parties hereto shall agree prior to closing on an allocation of the purchase
price to be made to the covenants not to compete and provided further, that the
amount allocated to fixed assets currently described on the Operating
Partnership's balance sheet as "computer equipment and furnishings" shall be no
more than the amount reflected as the book value of such fixed assets on the
balance sheet of the Operating Partnership at the time of closing (it being
understood that the book value for such fixed assets on September 30, 1996 was
$227,521). Neither Purchaser nor Sellers shall take any position inconsistent
with such allocation, and any and all filings with and reports made to any
Taxing authority will be consistent with that allocation.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLERS
The Sellers hereby jointly and severally represent and warrant to
Purchaser and HK that, except as set forth in a Schedule hereto, specifically
referring to the applicable section of this Article II, delivered by the Sellers
to Purchaser and Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
counsel to Purchaser and HK:
2.1 Organization; Capital Structure. In the amounts set forth
-------------------------------
opposite their names on Schedule 2.1 hereto, Stockholders and TV Stockholder own
all outstanding limited partnership interests and rights to acquire limited
partnership interests of the Operating Partnership. The membership interests in
the Purchased LLCs and the rights to acquire membership interests in the
Purchased LLCs are owned by the persons and in the amounts set forth on Schedule
--------
2.1 hereto. Each of the Sellers is duly organized, validly existing and in good
- ---
standing under the laws under which it was organized, and has all requisite
power and authority to carry on its business as now conducted. Each of the
Sellers is qualified to transact business and is in good standing in each
jurisdiction where its failure to qualify would have a material adverse effect
on the Business or Assets. Except as set forth on Schedule 2.1 hereto, neither
------------
the Operating Partnership nor the Purchased LLCs have granted or issued any
interest or right to any profits or revenues or other economic interest with
respect to such entities or the Business or Assets.
2.2 Authority.
---------
(a) Sellers have full power and authority to enter into this
Agreement and the Contract and Lease Assignments set forth on Attachment C
------------
hereto (collectively, the "Related Agreements"), to execute, deliver and perform
their obligations hereunder and thereunder, and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the Related Agreements, the performance by Sellers of their obligations
hereunder and thereunder, and the consummation of the transactions contemplated
8
<PAGE>
hereby and thereby, have been duly and validly authorized by all necessary
partnership action or limited liability company action on the part of Sellers,
including approval by a requisite percentage in interest of each of their
general partners and limited partners or members. Each of this Agreement and the
Related Agreements is a legal, valid and binding obligation of Sellers,
enforceable against Sellers and their general and limited partners and members
in accordance with their respective terms, subject to (i) any applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws relating to
or affecting the enforcement of creditors' rights generally, (ii) the discretion
of a court ordering specific performance and other equitable remedies, and (iii)
general principles of equity regardless of whether raised in a proceeding at law
or in equity.
(b) No consent, approval, order or authorization of, or
registration, declaration of, or qualification or filing with, any court,
administrative agency, commission, regulatory authority or other governmental or
administrative body or instrumentality, whether domestic or foreign (a
"Governmental Entity"), is required by or with respect to Sellers in connection
with the execution and delivery of this Agreement and the Related Agreements by
Sellers or the consummation by Sellers of the transactions contemplated hereby
or thereby.
2.3 Financial Information. Sellers have delivered to Purchaser the
---------------------
unaudited and reviewed balance sheets and related statements of combined
operations and cash flows prepared in connection with the operation of the
Business for (i) the fiscal years ended December 31, 1993, 1994 and 1995 and
(ii) for the nine month period ended September 30, 1996 (the "Financial
Statements"). The Financial Statements are complete and correct in all material
respects, have been prepared on a consistent basis throughout the periods
indicated and with each other and present fairly and accurately the financial
condition of the Business as of the respective dates thereof and the results of
operations for the periods then ended have been prepared in accordance with
GAAP. All of Sellers' general ledgers, books and records are located at
Sellers' principal place of business in New York.
2.4 Liabilities. Except as set forth on Schedule 2.4, Sellers have
----------- ------------
no liabilities arising in connection with or affecting the Business or the
Assets (contingent, absolute, accrued or unaccrued, liquidated or unliquidated,
or otherwise) other than those reflected in the Financial Statements, or those
as to which an adequate reserve therefor has been established and is adequately
reflected in the Financial Statements. Except as set forth on Schedule 2.4,
------------
there are no debts, liabilities or obligations with respect to Sellers or to
which the Assets are subject, liquidated, unliquidated, accrued absolute,
contingent or otherwise, in excess of $5,000 individually or in excess of
$10,000 in the aggregate.
2.5 Absence of Certain Changes and Events. Since September 30,
-------------------------------------
1996, there has not been in connection with or affecting the Business or the
Assets:
(a) Any material adverse change in the financial condition,
results of operation, assets, liabilities or prospects of Sellers or the
Business, or any occurrence, circumstance, or in the aggregate that would result
in any such material adverse change;
9
<PAGE>
(b) Any event, including, without limitation, shortage of
materials or supplies, fire, explosion, accident, requisition or taking of
property by any governmental agency, flood, drought, earthquake, or other
natural event, riot, act of God or a public enemy, or damage, destruction, or
other casualty, whether covered by insurance or not, that has had a material
adverse effect on Sellers, the Business or the Assets or any such event that
would have a material adverse effect on Sellers, the Business or the Assets;
(c) Any material transaction relating to or involving Sellers,
the Business, or the Assets taken as a whole which was entered into or carried
out by any of Sellers other than in the ordinary course of business or in
connection with this Agreement;
(d) Any material change made by Sellers in the method of
operating the Business, including, but not limited to, changes in collection
practices or changes in the granting of discounts;
(e) Any material change by Sellers in accounting or tax
practices or procedure;
(f) Any sale, lease or disposition of, or any agreement to
sell, lease, or dispose of the Assets other than in the ordinary course of
business and consistent with prior practice, other than in connection with this
Agreement;
(g) Any material modification, waiver, change, amendment,
release, rescission, accord and satisfaction, or termination of, or with respect
to, any material term, condition, or provision of any material contract,
agreement, proprietary right, license, permit or other instrument to which any
of Sellers, Stockholders or TV Stockholder is a party and relating to or
affecting the Business or the Assets other than any satisfaction by performance
in accordance with the terms thereof in the ordinary course of business and
consistent with prior practice;
(h) Any event permitting any of the Assets to be subjected to
any pledge, encumbrance, security interest, lien, charge, or claim of any kind
whatsoever (direct or indirect) (collectively, "Liens"), other than (a)
mechanic's, materialmen's, landlord's, lessor's, carrier's, warehousemen's or
similar liens incurred in the ordinary course of business or (b) liens for
taxes, assessments or other governmental charges not yet due (collectively,
"Permitted Liens");
(i) Any increase in compensation or any adoption of, or
increase in, any bonus, incentive compensation, pension, profit sharing,
retirement, insurance, medical reimbursement or other employee benefit plan,
payment or arrangement to, for, or with any of Sellers, Stockholders, or TV
Stockholder, other than in the ordinary course of business;
(j) Except as set forth on Schedule 2.5(j), any notice
---------------
(written or unwritten) from any Service Provider earning more than $40,000 per
year in base pay and commissions (a "Key Employee") of Sellers that such Key
Employee has terminated, or intends to terminate, such Key Employee's service
with Sellers;
10
<PAGE>
(k) Except as set forth on Schedule 2.5(k), any material
---------------
adverse change in the Business' relationship with any vendor or contractor, or
the occurrence of any condition or event with respect to any vendor, contractor
or customer, that is reasonably likely to have material adverse effect on
Sellers, the Business or the Assets taken as a whole;
(l) Any waiver of any rights of material value relating to the
Business or the Assets by Sellers without corresponding benefit;
(m) Except as set forth on Schedule 2.5(m), any disposition
---------------
or abandonment of any of Sellers' trademarks, trade names, patents, copyrights
or other intellectual property rights or proprietary trade secrets or processes,
necessary or incidental to the conduct of the Business; or
(n) Any other event or condition of any character that
materially adversely affects the Business or the Assets.
2.6 Conduct of Business. Since September 30, 1996, Sellers have
-------------------
conducted the Business in the ordinary course thereof, consistent with past
practices.
2.7 Taxes.
-----
(a) Sellers have completed and duly and timely filed in correct
form with the appropriate United States, state and local governmental agencies
and with the appropriate foreign countries and political subdivisions thereof,
all Returns (as hereinafter defined) required to be filed on or prior to the
date hereof and will complete and duly and timely file in correct form with the
appropriate United States, state and local governmental agencies and with the
appropriate foreign countries and political subdivisions thereof, all Returns
required to be filed after the date hereof. All of such Returns that have been
filed were accurate and complete as filed and all of such Returns that will be
filed will be accurate and complete when filed. Sellers have paid in full all
Taxes (as hereinafter defined), assessments or deficiencies (A) shown to be due
on those Returns that have been filed or (B) claimed to be due by any Taxing
authority or otherwise due or owing, except as to such Taxes as disputed in good
faith by Sellers. Sellers have made all withholdings of Tax required to be made
under all applicable United States, foreign, state and local tax laws and
regulations; and such withholdings have been or will be paid to the respective
governmental agencies when due and to the extent not yet due have been set aside
in accounts for purposes of such payment.
(b) The Assets are not subject to any liens for Taxes, except
liens for current ad valorem Taxes not yet due, and neither Purchaser nor any
affiliate thereof will become directly or indirectly liable for, an no lien,
claim or encumbrance will be placed upon the Assets with respect to, (A) any
Taxes attributable to the ownership or use of the Assets with respect to periods
prior to and including the date of Closing (other than ad valorem Taxes not yet
due and payable as of the Closing) or (B) any other Taxes (regardless of whether
attributable to periods prior to and including the Closing) imposed upon Sellers
or attributable to the actions or activities of Sellers. There is no contract,
agreement, plan or arrangement, including but not limited to the provisions of
this Agreement or any exhibit or annex hereto, covering any Service
11
<PAGE>
Provider that, individually or collectively, could give rise to the payment of
any amount by Purchaser or its affiliates that would not be deductible pursuant
to Section 280G or Section 162 of the Internal Revenue Code of 1986, as amended
(the "Code"). None of the Assets consist of stock of another corporation or
entity treated as such for tax purposes.
(c) No issues have been raised (nor are any currently pending)
by any Taxing authority in connection with any of the Returns. No extensions or
waivers of statutes of limitations with respect to the Returns have been given
by or requested from Sellers. No Returns are presently under examination and no
assessments or deficiencies with respect to the Returns are presently being
contested by Sellers. Sellers are not a party to or bound by (and, except for
this Agreement, prior to the Closing will not become a party to or bound by) any
Tax indemnity, Tax sharing or Tax allocation agreement. None of Sellers has ever
been a member of an affiliated group of corporations, within the meaning of
Section 1504 of the Code, other than as a common parent corporation, and each of
the subsidiaries of Sellers has never been a member of an affiliated group of
corporations, within the meaning of Section 1504 of the Code. None of the assets
of Sellers, directly or indirectly, secures any debt the interest on which is
tax exempt under Section 103(a) of the Code. None of the assets of Sellers is
"tax-exempt use property" within the meaning of Section 168(h) of the Code. None
of Sellers nor any shareholder or partner or member of any of Sellers is other
than a United States person within the meaning of the Code.
(d) For federal income tax purposes and for purposes of all
states in which Sellers conduct business, each of Sellers that shall be
designated in this Agreement as a partnership or limited liability company has
been at all times from and after formation, taxable as a partnership and not as
a corporation. None of Sellers that shall be designated in this Agreement as a
corporation has filed an election to be an S corporation within the meaning of
the Code.
(e) For purposes of this Agreement:
(i) "Tax" (and, with correlative meaning, "Taxes,"
"Taxable" and "Taxing") means (A) any net income, alternative or add-on minimum
tax, gross income, gross receipts, sales , use, ad valorem, transfer, franchise,
profits, license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, environmental or windfall profit tax, custom,
duty or other tax, governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest or any penalty, addition to tax or
additional amount imposed by any governmental, regulatory or administrative
entity or agency responsible for the imposition of any such tax (domestic or
foreign), (B) any liability for the payment of any amounts of the type described
in (A) as a result of being a member of an affiliated, consolidated, combined,
unitary or other group for any Taxable period and (C) any liability for the
payment of any amounts of the type described in (A) or (B) as a result of any
express or implied obligation to indemnify any other person.
(ii) The term "Returns" means all returns,
declarations, reports, statements and other documents required to be filed in
respect of Taxes, and the term "Return" means any one of the foregoing Returns.
12
<PAGE>
2.8 Compliance With Law. Sellers have complied and are in
-------------------
compliance with all applicable federal, state and local laws, statutes,
licensing requirements, rules, and regulations and judicial or administrative or
zoning decisions. Sellers have been granted all licenses, permits (temporary and
otherwise), authorizations, and approvals from federal, state, and local
government regulatory or zoning agencies or bodies necessary to carry on the
Business and maintain the Assets, all of which are currently valid and in full
force and effect, other than where the failure to be valid or in full force and
effect would not have material adverse effect on the Business. All transferable
Governmental Permits shall be (i) transferred to Purchaser as of the Closing and
(ii) valid and in full force and effect upon the consummation of the
transactions contemplated by this Agreement to the same extent as applicable to
Sellers prior to the Acquisition. There is no order issued, investigation, or
proceeding pending or threatened, or notice served with respect to any material
violation of any law, ordinance, order, writ, decree, rule, or regulation issued
by any federal, state, local, or foreign court or governmental agency or
instrumentality applicable to Sellers. Sellers have valid use permits for the
Business and its operations, other than those the failure of which to obtain
will not have a material adverse effect on the Business.
2.9 Proprietary Rights.
------------------
(a) All Intellectual Property requiring the execution and
filing with an appropriate governmental agency, including without limitation,
the Patent and Trademark Office, has been so indicated in Schedule 1.1(e)
---------------
hereto. The Intellectual Property includes all patents, patent applications,
trademarks, trademark applications, trade names, copyrights and associated moral
rights, copyright applications, trade secrets, information, proprietary rights
and processes necessary for the Business as now conducted without any conflict
with or infringement upon the rights of others. The Operating Partnership is the
sole owner of all right, title and interest in and to all Intellectual Property
free and clear of all liens, encumbrances, claims, rights of use and
restrictions whatsoever. Except for the management agreements and service
agreements between the Operating Services Companies and the Operating LLCs and
the service agreements between the Operating LLCs and the consultants (copies of
each of which have been delivered to counsel for the Purchaser), there are no
outstanding options, licenses or agreements of any kind relating to the
Intellectual Property nor are Sellers a party to any options, licenses or
agreements of any kind with respect to the logo, trademark and trade name
rights, software, databases, source code patents, patent rights, copyrights,
trade secrets, processes and proprietary licenses, information, proprietary
rights and processes of any other person or entity which relates to the Business
or Assets.
(b) Neither the Intellectual Property nor any other processes,
methods, or operations employed by Sellers, now or in the past, infringes upon
any proprietary rights, or intellectual property of any other person, firm,
corporation, or other entity. There is not pending or, to the knowledge of
Sellers, threatened any claim or litigation contesting the right of Sellers to
engage in or employ any such processes, methods, operations, or the Proprietary
Rights. To the knowledge of Sellers, no Service Provider at the date hereof or
as of the Closing is in violation of any material term of any employment
contract, proprietary information or inventions agreement, or any other contract
or agreement relating to the relationship of any such Service
13
<PAGE>
Provider with Sellers or, to the knowledge of Sellers, any previous employer. To
Sellers' knowledge, no Service Provider as of the date hereof or as of the
Closing is obligated under any contract (including licenses, covenants, or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency that would conflict with
their obligation to use their best efforts to promote the interests of the
Business or which would conflict with the Business as conducted or as proposed
to be conducted.
2.10 Restrictive Documents or Orders. Except as set forth in
-------------------------------
Schedule 2.10, Sellers are not party to or bound under any agreement, contract,
- -------------
order, judgment, or decree, or any similar restriction that adversely affects
(i) the continued operation by Purchaser of the Business after the Closing on
substantially the same basis as said Business was theretofore operated or (ii)
the consummation of the transactions contemplated by this Agreement. Sellers are
not party to or bound under, and at no time have been a party to or bound under,
any franchise agreement(s).
2.11 Contracts and Commitments.
-------------------------
(a) Except as set forth in Schedule 2.11(a) hereto and except
----------------
for this Agreement, there are no agreements or contracts, whether or not in
writing, to which Sellers are a party that may: (i) involve obligations
(contingent or otherwise) of Sellers in excess of $10,000; (ii) involve the
license of any Intellectual Property to or from Sellers; (iii) contain
provisions restricting and/or affecting the development, distribution or sales
of Sellers or the Business' products or services; (iv) relate to any aspect of
the Business and in which any person who was or is a manager, officer or
director of Sellers (or any person, firm partnership, trust or corporation
affiliated with any such persons) has a material interest; (v) involve any joint
venture or partnership contract or arrangement or any other agreement which has
involved or is expected to involve a sharing of profits with other persons; (vi)
involve any agreement containing covenants purporting to limit the freedom of
Sellers to compete in any line of business or geographic area or involve the
distribution of Sellers' or the Business' products or services; (vii) involve
any agreement of indemnification regarding Sellers and/or the Business; (viii)
establish any powers of attorney regarding Sellers and/or the Business, (ix)
obligate Sellers for the repayment of borrowed money; or (x) involve any other
agreement, contract or commitment which is material to Sellers as a whole (such
listed contracts being referred to collectively as the "Material Contracts").
(b) Except as set forth on Schedule 2.11(b), Sellers have
----------------
performed all obligations to be performed by them under the terms of each
Material Contract, and are not in default thereunder. No event or omission has
occurred that but for the giving of notice or lapse of time or both would
constitute a default by Sellers under any such Material Contract. Each such
Material Contract is valid and binding on all parties thereto and in full force
and effect, and to Sellers' knowledge, no other party to any of the Material
Contracts is in default thereunder. Except as set forth on Schedule 2.11(b),
----------------
Sellers have received no written or unwritten notice of any default,
cancellation, or termination in connection with any such Material Contract.
Except as set forth on Schedule 2.11(b), each Listed Contract, and all rights
----------------
and interests of Sellers
14
<PAGE>
thereunder, shall have been assigned to Purchaser at the Closing, and no
consents or approvals of any third parties are required in connection with such
assignments.
2.12 Operating Condition. To Sellers' knowledge, the Assets that
-------------------
are necessary to operate the Business as the Business was operated by Sellers
immediately prior to the Closing are, taken as a whole, in adequate and suitable
condition for the purposes for which they are presently being used.
2.13 Assets. Except as set forth on Schedule 2.13, the Assets
------ -------------
include all Intellectual Property and all of the property in which Sellers have
any right, title and interest. Such Assets include all the assets necessary to
operate the Business in the same manner as the Business was operated by Sellers
immediately prior to the Closing. No entity affiliated with any of Sellers owns,
or has any interest in, any Asset used in the operation of the Business.
2.14 Title to the Property. Sellers have good and marketable title
---------------------
to the Assets, free and clear of any Liens other than those Permitted Liens
specifically identified on Schedule 2.14 hereto. By virtue of the deliveries
-------------
made at the Closing, Purchaser will obtain good and marketable title to the
Assets, free and clear of any Liens other than the Permitted Liens specifically
identified on Schedule 2.14 hereto.
-------------
2.15 Litigation. Except as set forth on Schedule 2.15, Sellers
---------- -------------
have not engaged in nor are they planning to engage in, nor have they received
any threat of, any litigation, arbitration, investigation, or other proceeding
relating to Sellers or Sellers' Service Providers, benefit plans, properties,
Intellectual Property, the Business, or the Assets, licenses, permits, or
goodwill of Sellers, or affecting this Agreement, the Related Agreements or the
actions taken or contemplated in connection herewith and therewith, nor, to
Sellers' knowledge, is there any reasonable basis therefor. Sellers represent
that they are not bound by any judgment, decree, injunction, ruling or order of
any court, governmental, regulatory or administrative department, commission,
agency or instrumentality, arbitrator or any other person that has or could have
a material adverse effect on the Business, Assets or the results of operations,
prospects or financial condition of the Business or Sellers.
2.16 No Conflict or Default. Except as set forth on Schedule 2.16,
---------------------- -------------
neither the execution and delivery of this Agreement and the Related Agreements,
nor compliance with the terms and provisions hereof and thereof, including
without limitation, the consummation of the transactions contemplated hereby and
thereby, will violate any statute, regulation, or ordinance of any governmental
or administrative authority or conflict with or result in the breach of any
term, condition, or provision of the partnership agreement or limited liability
company agreements under which Sellers are organized or of any agreement, deed,
contract, mortgage, indenture, writ, order, decree, legal obligation, or
instrument to which any of Sellers is a party or by which they or any of the
Assets of Sellers are or may be bound (including, without limitation, the
Material Contracts), or constitute a default (or an event which, with the lapse
of time or the giving of notice, or both, would constitute a default)
thereunder.
2.17 Third Party Consents. Except as set forth on Schedule 2.17, no
-------------------- -------------
consent, approval, or authorization of any person, agency or third party or on
the part of Sellers is required
15
<PAGE>
in connection with the consummation of the transactions contemplated hereunder,
including without limitation the assignment to Purchaser of the Listed
Contracts.
2.18 Labor Relations.
---------------
(a) Except as set forth on Schedule 2.18, Sellers have not
-------------
failed to comply in any material respect with Title VII of the Civil Rights Act
of 1964, as amended, the Occupational Safety and Health Act of 1970, as amended,
all applicable federal, state, and local laws, rules, and regulations relating
to employment, and all applicable laws, rules and regulations governing payment
of minimum wages and overtime rates, and the withholding and payment of taxes
from compensation of employees.
(b) There are no labor disputes pending or, to the knowledge of
any of Sellers, threatened between Sellers and any Service Providers or any
labor union or other collective bargaining unit representing any of the Service
Providers.
(c) Sellers have never entered into a collective bargaining
agreement or other labor union contract relating to the Business or applicable
to the Service Providers.
(d) Except as set forth on Schedule 2.18, there are no oral
-------------
or written employment or separation or severance agreements or benefits
continuation obligations on the part of Sellers.
2.19 Brokers' and Finders' Fees/Contractual. Sellers represent
--------------------------------------
that they have not taken any action that obligates Sellers to pay any fees or
expenses of any broker or finder in connection with the origin, negotiation, or
execution of this Agreement, the Related Agreements, or in connection with any
transactions contemplated hereby or thereby. Sellers represent that they are
not, nor is any agent or representative of Sellers, subject to any agreement,
letter of intent, or understanding of any kind which prohibits, limits, or
restricts Sellers from negotiating, entering into, and consummating this
Agreement, the Related Agreements, and the transactions contemplated hereby and
thereby.
2.20 Interested Party Relationships. Neither Sellers nor any
------------------------------
corporation, partnership, or other entity that, directly or indirectly, alone or
together with others, controls, is controlled by, or is in common control with
Sellers nor, to the Sellers' knowledge, any Service Provider, agent, or
representative of Sellers who is a Service Provider at the date hereof or at the
date of the Closing, has any financial interest (other than the ownership of
accounts receivable or accounts payable in the ordinary course of business),
direct or indirect, in any vendor, contractor or customer, or any party to any
Material Contract.
2.21 Environmental and Safety Matters.
--------------------------------
(a) To the knowledge of Sellers, Sellers have all material
permits, licenses, approvals and registrations required to be issued under
applicable federal, state and local laws, statutes and regulations relating to
the protection of human health, safety, the environment and natural resources
("Environmental Laws") and, to the knowledge of Sellers, are
16
<PAGE>
in compliance with the material terms and conditions thereunder. To the
knowledge of Sellers, Sellers are in compliance with, and to the knowledge of
Sellers, there are no past or present material conditions, activities, actions
or plans which may prevent compliance with, any current or past law related to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling, or the release, emission or discharge of any hazardous
substance or hazardous waste ("Hazardous Substance Issues") or any material
regulations, plans, judgments, injunctions or notices promulgated or approved
thereunder.
(b) To the knowledge of Sellers, Sellers have not disposed,
released or threatened release of any hazardous substance or hazardous waste on,
from or under the property owned or leased currently by Sellers or in the past
by Sellers or any predecessor, other than those authorized by permit under
federal, state and local laws. To the knowledge of Sellers, Sellers are not in
violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety. For purposes of this Agreement,
the terms "disposal," "release," "hazardous substance" and "hazardous waste"
shall have the definitions assigned thereto under federal, state and local laws
applicable to Sellers, the Business, the assets of Sellers and the property
owned or leased by Sellers, including without limitation the Federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. (S)9601 et seq., as amended, and any regulations promulgated thereto,
------
except that "hazardous substance" and "hazardous waste" shall include all
varieties of petroleum hydrocarbons, refined or unrefined.
(c) To the knowledge of Sellers, no disposal or release of a
hazardous substance has come to be located on or beneath and remain located on
or beneath any of the real property owned or leased currently or in the past by
Sellers or any predecessor which relates to the Business or operations of
Sellers or upon which any of the property owned or leased currently by in the
past by Sellers or any predecessors which relates to the Business or operations
of Sellers are, or have been, held or maintained.
(d) Except as set forth in Schedule 2.21, to the knowledge of
-------------
Sellers, Sellers currently and in the past have had in effect no arrangements
for the removal, disposal, release and/or processing of waste and by-products,
including any hazardous substances or hazardous waste, and there are no reports,
studies and evaluations conducted by Sellers, or received by Sellers, with
respect to such matters.
(e) To the knowledge of Sellers, there is no presence,
disposal, release or threatened release of any hazardous substance or hazardous
waste on or under any properties adjacent to properties currently leased by
Sellers.
(f) To the knowledge of Sellers, there has been no violation
of, or any administrative, judicial or regulatory proceeding pursuant to, any
applicable Environmental Laws. To the knowledge of Sellers, no Claims (as
hereinafter defined) have been or are currently asserted against Sellers based
on any acts or failures to act prior to the Closing with respect to hazardous
substances or hazardous wastes. As used herein, "Claim" shall mean any and all
claims, demands, orders, causes of action, suits, proceedings, administrative
proceedings, losses,
17
<PAGE>
judgments, decrees, debts, damages, liabilities, court costs, attorneys' fees
and any other expenses incurred, assessed or sustained by or against any of
Sellers in connection therewith.
2.22 Customers. Except as set forth on Schedule 2.22, no single
--------- -------------
client or customer of Sellers has accounted for more than five percent (5%) of
the total sales of the Business during the three fiscal years ended December 31,
1995, and the nine months ended September 30, 1996. No Customer has terminated
its relationship with Sellers during the one (1) year period preceding the
Closing, and none of such Customers has notified Sellers of an intention to
terminate, or alter in any material adverse way, its relationship with Sellers.
Sellers are not aware of any events or facts that would lead it to believe that
any such Customer will not continue to purchase Seller's services at
substantially the same level as currently purchased by such Customer.
2.23 Employee Benefit Plans.
----------------------
(a) Schedule 2.23 lists, with respect to Sellers, any
-------------
subsidiary of Sellers and any trade or business (whether or not incorporated)
which is treated as a single employer with any Seller (an "ERISA Affiliate")
within the meaning of Section 414(b), (c), (m) or (o) of the Code, (i) all
employee benefit plans (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), (ii) each loan to a non-
officer employee in excess of $10,000, loans to officers and directors and any
stock option, stock purchase, phantom stock, stock appreciation right,
supplemental retirement, severance, sabbatical, medical, dental, vision care,
disability, employee relocation, cafeteria benefit (Code Section 125) or
dependent care (Code Section 129), life insurance or accident insurance plans,
programs or arrangements, (iii) all bonus, pension, profit sharing, savings,
deferred compensation or incentive plans, programs or arrangements, (iv) other
fringe or employee benefit plans, programs or arrangements that apply to senior
management of Sellers and that do not generally apply to all employees, and (v)
any current or former employment or executive compensation or severance
agreements, written or otherwise (together, the "Seller Employee Plans").
(b) Sellers have furnished to the Purchaser a copy of each of
the Seller Employee Plans and related plan documents (including trust documents,
insurance policies or contracts) and have, with respect to each Seller Employee
Plan which is subject to ERISA reporting requirements, provided copies of the
Form 5500 reports filed for the last plan year. Any Seller Employee Plan
intended to be qualified under Section 401(a) of the Code has either obtained
from the Internal Revenue Service a favorable determination letter as to its
qualified status under the Code, including all amendments to the Code effected
by the Tax Reform Act of 1986 and subsequent legislation, or has applied to the
Internal Revenue Service for such a determination letter prior to the expiration
of the requisite period under applicable Treasury Regulations or Internal
Revenue Service pronouncements in which to apply for such determination letter
and to make any amendments necessary to obtain a favorable determination, or has
been established under a standardized prototype plan for which an Internal
Revenue Service opinion letter has been obtained by the plan sponsor and is
valid as to the adopting employer. Seller has also furnished the Purchaser with
the most recent Internal Revenue Service determination or opinion letter issued
with respect to each such Seller Employee Plan.
18
<PAGE>
(c) (i) None of the Seller Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person; (ii) there has
been no "prohibited transaction," as such term is defined in Section 406 of
ERISA and Section 4975 of the Code, with respect to any Seller Employee Plan,
(iii) each Seller Employee Plan has been administered in accordance with its
terms and in compliance with the requirements prescribed by any and all
statutes, rules and regulations (including ERISA and the Code), and Seller and
each subsidiary or ERISA Affiliate have performed all material obligations
required to be performed by them under, are not in any material respect in
default under or violation of, and have no knowledge of any material default or
violation by any other party to, any of the Seller Employee Plans; (iv) neither
Seller nor any subsidiary or ERISA Affiliate is subject to any liability or
penalty under Sections 4976 through 4980 of the Code or Title I of ERISA with
respect to any of the Seller Employee Plans; (v) all material contributions
required to be made by Seller or ERISA Affiliate to any Seller Employee Plan
have been made on or before their due dates and a reasonable amount has been
accrued for contributions to each Seller Employee Plan for the current plan
years; and (vi) no Seller Employee Plan is covered by, and neither Seller nor
any subsidiary or ERISA Affiliate has incurred or expects to incur any liability
under Title IV of ERISA or Section 412 of the Code. With respect to each Seller
Employee Plan subject to ERISA as either an employee pension plan within the
meaning of Section 3(2) of ERISA or an employee welfare benefit plan within the
meaning of Section 3(1) of ERISA, Sellers have prepared in good faith and timely
filed all requisite governmental reports (which were true and correct as of the
date filed) and have properly and timely filed and distributed or posted all
notices and reports to employees required to be filed, distributed or posted
with respect to each such Seller Employee Plan. No suit, administrative
proceeding, action or other litigation has been brought, or to the knowledge of
Sellers, is threatened, against or with respect to any such Seller Employee
Plan, including any audit or inquiry by the IRS or United States Department of
Labor. Neither Sellers nor other ERISA Affiliate is a party to, or has made any
contribution to or otherwise incurred any obligation under, any "multiemployer
plan" as defined in Section 3(37) of ERISA.
(d) With respect to each Seller Employee Plan, Sellers have
complied with (i) the applicable health care continuation and notice provisions
of the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and the
proposed regulations thereunder and (ii) the applicable requirements of the
Family Leave Act of 1993 and the regulations thereunder.
(e) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or other service
provider of Sellers or any other ERISA Affiliate to severance benefits or any
other payment (including, without limitation, unemployment compensation, golden
parachute or bonus), except as expressly provided in this Agreement, or (ii)
accelerate the time of payment or vesting of any benefits, or increase the
amount of compensation due any such employee or service provider.
(f) There has been no amendment to, written interpretation or
announcement (whether or not written) by Sellers or, to Sellers' knowledge, any
other ERISA Affiliate, or change in participation or coverage under, any Seller
Employee Plan which would
19
<PAGE>
materially increase the expense of maintaining such Plan above the level of
expense incurred with respect to that Plan in the Financial Statements.
2.24 Insurance. Sellers maintain policies of insurance covering
---------
the Assets in types and amounts customary for similarly-sized companies engaged
in similar businesses. To Sellers' knowledge, Sellers are in compliance with
each of such policies such that none of the coverage provided under such
policies has been invalidated, and Sellers have not received any written notice
of cancellation of any such policies. Schedule 2.24 lists and describes all of
-------------
Sellers' insurance policies covering the Assets in effect immediately prior to
the Closing.
2.25 Accounts Receivable. Schedule 2.25 sets forth an aging of
-------------------
accounts receivable of Sellers as of September 30, 1996 in the aggregate and by
customer (0-30 days, 30-90 days and greater than 90 days) that corresponds to
accounts receivable on the balance sheet in the Financial Statements.
2.26 Books and Records. The books and records of Sellers to which
-----------------
Purchaser and its accountants and attorneys have been given access are the true
books and records of Sellers and fairly reflect the underlying facts and
transactions consistent with normal bookkeeping practices so as to permit the
financial statements derived therefrom to be prepared in accordance with past
practices.
2.27 Complete Disclosure. Except as set forth on Schedule 2.27, no
------------------- -------------
representation or warranty by Sellers and no exhibit, schedule, statement,
certificate, or other writing furnished to Purchaser pursuant to this Agreement
or the Related Agreements or in connection with the transactions contemplated
thereby, contains any untrue statement of a material fact or omits to state any
fact necessary to make the statements contained herein and therein not
materially misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
The Stockholders hereby jointly and severally represent and warrant to
Purchaser and HK that, except as set forth in a Schedule hereto, specifically
referring to the applicable section of this Article III, delivered by the
Sellers to Purchaser and Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP, counsel to Purchaser and HK:
3.1 Authority.
---------
(a) Stockholders have, full power and authority to enter into
this Agreement and the Employment Agreements (as herein defined) (collectively,
the "Related Agreements"), to execute, deliver and perform their obligations
hereunder and thereunder, and to consummate the transactions contemplated hereby
and thereby. Each of this Agreement and the Related Agreements is a legal, valid
and binding obligation of Stockholders enforceable against Stockholders in
accordance with their respective terms, subject to (i) any applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws relating to
or affecting the enforcement
20
<PAGE>
of creditors' rights generally, (ii) the discretion of a court ordering specific
performance and other equitable remedies, and (iii) general principles of equity
regardless of whether raised in a proceeding at law or in equity.
(b) No consent, approval, order or authorization of, or
registration, declaration of, or qualification or filing with, any court,
administrative agency, commission, regulatory authority or other governmental or
administrative body or instrumentality, whether domestic or foreign (a
"Governmental Entity"), is required by or with respect to Stockholders in
connection with the execution and delivery of this Agreement and the Related
Agreements by Stockholders or the consummation by Stockholders of the
transactions contemplated hereby or thereby.
3.2 Assets. No family member or entity affiliated with any of
------
Stockholders owns, or has any interest in, any Asset used in the operation of
the Business.
3.3 Litigation. Stockholders are not engaged in nor are they
----------
planning to engage in, nor have they received any threat of, any litigation,
arbitration, investigation, or other proceeding relating to Sellers or Sellers'
Service Providers, benefit plans, properties, Intellectual Property, the
Business, or the Assets, licenses, permits, or goodwill of Sellers, or affecting
this Agreement, the Related Agreements or the actions taken or contemplated in
connection herewith and therewith, nor, to Stockholders' knowledge, is there any
reasonable basis therefor. Stockholders are not bound by any judgment, decree,
injunction, ruling or order of any court, governmental, regulatory or
administrative department, commission, agency or instrumentality, arbitrator or
any other person that has or could have a material adverse effect on the
Business, Assets or the results of operations, prospects or financial condition
of the Business or Sellers.
3.4 Brokers' and Finders' Fees/Contractual. Stockholders have not
--------------------------------------
taken any action that obligates Stockholders to pay any fees or expenses of any
broker or finder in connection with the origin, negotiation, or execution of
this Agreement, the Related Agreements, or in connection with any transactions
contemplated hereby or thereby. Stockholders represent that neither they, nor
any agent or representative of Stockholders is subject to any agreement, letter
of intent, or understanding of any kind which prohibits, limits, or restricts
Stockholders from negotiating, entering into, and consummating this Agreement,
the Related Agreements, and the transactions contemplated hereby and thereby.
3.5 Interested Party Relationships. No Stockholder (nor any family
------------------------------
member of a Stockholder, or any corporation, partnership, or other entity that,
directly or indirectly, alone or together with others, controls, is controlled
by, or is in common control with Stockholder or any such family member), nor to
Stockholders' knowledge, any Service Provider who is a Service Provider at the
date hereof or at the date of the Closing, agent, or representative of
Stockholders, has any financial interest (other than the ownership of accounts
receivable or accounts payable in the ordinary course of business), direct or
indirect, in any vendor, contractor or customer of the Operating Partnership, or
any party to any Material Contract.
3.6 Complete Disclosure. No representation or warranty by
-------------------
Stockholders, or to their knowledge, the Sellers in this Agreement, and, to
their knowledge, no exhibit, schedule,
21
<PAGE>
statement, certificate, or other writing furnished to Purchaser pursuant to this
Agreement or the Related Agreements or in connection with the transactions
contemplated thereby, contains any untrue statement of a material fact or omits
to state any fact necessary to make the statements contained herein and therein
not materially misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF TV STOCKHOLDER
The TV Stockholder hereby jointly and severally represent and warrant
to Purchaser and HK that, except as set forth in a Schedule hereto, specifically
referring to the applicable section of this Article IV, delivered by the Sellers
to Purchaser and Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
counsel to Purchaser and HK:
4.1 Authority.
---------
(a) TV Stockholder have full power and authority to enter into
this Agreement, to execute, deliver and perform its obligations hereunder and to
consummate the transactions contemplated hereby. This Agreement is a legal,
valid and binding obligation of TV Stockholder enforceable against TV
Stockholder in accordance with its terms, subject to (i) any applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws relating to
or affecting the enforcement of creditors' rights generally, (ii) the discretion
of a court ordering specific performance and other equitable remedies, and (iii)
general principles of equity regardless of whether raised in a proceeding at law
or in equity.
(b) No consent, approval, order or authorization of, or
registration, declaration of, or qualification or filing with, any court,
administrative agency, commission, regulatory authority or other governmental or
administrative body or instrumentality, whether domestic or foreign (a
"Governmental Entity"), is required by or with respect TV Stockholder in
connection with the execution and delivery of this Agreement by TV Stockholder
or the consummation by TV Stockholder of the transactions contemplated hereby or
thereby.
4.2 Assets. No family member or entity affiliated with TV
------
Stockholder owns, or has any interest in, any Asset used in the operation of the
Business.
4.3 Litigation. TV Stockholder are not engaged in nor are they
----------
planning to engage in, nor have they received any threat of, any litigation,
arbitration, investigation, or other proceeding relating to Sellers or any
person who is a Service Provider on the date hereof, benefit plans, properties,
Intellectual Property, the Business, or the Assets, licenses, permits, or
goodwill of Sellers, or affecting this Agreement, or the actions taken or
contemplated in connection herewith, nor, to TV Stockholder's knowledge, is
there any reasonable basis therefor. TV Stockholder are not bound by any
judgment, decree, injunction, ruling or order of any court, governmental,
regulatory or administrative department, commission, agency or instrumentality,
arbitrator or any other person that has or could have a material adverse effect
on the Business, Assets or the results of operations, prospects or financial
condition of the Business or Sellers.
22
<PAGE>
4.4 Brokers' and Finders' Fees/Contractual. TV Stockholder have
--------------------------------------
not taken any action that obligates TV Stockholder to pay any fees or expenses
of any broker or finder in connection with the origin, negotiation, or execution
of this Agreement or in connection with any transactions contemplated hereby.
Neither TV Stockholder, nor any agent or representative of TV Stockholder, is
subject to any agreement, letter of intent, or understanding of any kind which
prohibits, limits, or restricts TV Stockholder from negotiating, entering into,
and consummating this Agreement and the transactions contemplated hereby and
thereby.
4.5 Interested Party Relationships. Except as disclosed in Schedule
------------------------------ --------
2.11(a), neither TV Stockholder (nor any family member of TV Stockholder, or any
- -------
corporation, partnership, or other entity that, directly or indirectly, alone or
together with others, controls, is controlled by, or is in common control with
TV Stockholder or any such family member), nor to TV Stockholder's knowledge,
any agent or representative of TV Stockholder has any material financial
interest (other than ownership of accounts receivable or accounts payable in the
ordinary course of business), direct or indirect, in any vendor, contractor or
customer of the Operating Partnership, or any party to any Material Contract.
4.6 Complete Disclosure. No representation or warranty by TV
-------------------
Stockholder, and no exhibit, schedule, statement, certificate, or other writing
furnished to Purchaser by TV Stockholder pursuant to this Agreement or in
connection with the transactions contemplated hereby, contains any untrue
statement of a material fact or omits to state any fact necessary to make the
statements contained herein and therein not materially misleading.
4.7 Knowledge Qualification. The representations and warranties
-----------------------
in this Article IV which are made by TV Stockholder to their knowledge shall not
be deemed to imply that TV Stockholder have made any investigation to determine
the accuracy thereof and Purchaser and HK acknowledge that TV Stockholder have
not made any such investigation.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND HK
Purchaser and HK hereby jointly and severally represent and warrant to
Sellers that, except as set forth in a Schedule hereto specifically referring to
the application section of this Article V delivered by Purchaser and HK to
counsel for Sellers:
5.1 Organization, Standing and Capital Structure. Purchaser and HK
--------------------------------------------
are corporations duly organized, validly existing, and in good standing under
the laws of their respective state of incorporation. The capital stock of
Purchaser and HK and rights to acquire such stock are held in the amounts set
forth on Schedule 5.1.
------------
5.2 Authorization. Each of HK and Purchaser has full corporate
-------------
power and authority to enter into this Agreement and the Related Agreements, to
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby, including, without limitation, the
execution and delivery of this Agreement and the Related
23
<PAGE>
Agreements. Each of HK and Purchaser has taken all necessary and appropriate
corporate action with respect to the execution and delivery of this Agreement
and the Related Agreements. This Agreement and the Related Agreements constitute
valid and binding obligations of HK and Purchaser, enforceable in accordance
with their respective terms; subject to (i) any applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws relating to or affecting
the enforcement of creditors' rights generally, (ii) the discretion of a court
ordering specific performance and other equitable remedies, and (iii) general
principles of equity regardless of whether raised in a proceeding at law or in
equity.
5.3 Financial Information. HK has delivered to Sellers its audited
---------------------
financial statements for the fiscal years ended December 31, 1994 and December
31, 1995, and unaudited balance sheets and related statements of combined
operations and cash flows prepared in connection with its operations for the
nine month period ended September 30, 1996 (the "HK Financial Statements"). The
HK Financial Statements are complete and correct in all material respects, have
been prepared on a consistent basis throughout the periods indicated and with
each other and present fairly and accurately the financial condition of the
Business as of the respective dates thereof and the results of operations for
the periods then ended have been prepared in accordance with GAAP.
5.4 Absence of Certain Changes and Events. Since September 30,
-------------------------------------
1996, there has not been in connection with or affecting either Purchaser or HK:
(a) Any material adverse change in its financial condition,
results of operation, assets, liabilities or prospects, or any occurrence,
circumstance, or in the aggregate that would result in any such adverse change;
or
(b) Any other event or condition of any character that
materially adversely affects its business or its assets.
5.5 Compliance with Other Instruments. The execution and delivery
---------------------------------
of this Agreement and the Related Agreements by Purchaser and HK, the
consummation of the transactions contemplated hereby and thereby, and the
compliance with the terms hereof and thereof by Purchaser and HK do not conflict
with or result in a breach of any terms of, or constitute a default under their
respective charter documents or any agreement with any third party.
5.6 Compliance With Law. Purchaser and HK have materially complied
-------------------
and are in material compliance with all applicable federal, state and local
laws, statutes, licensing requirements, rules, and regulations and judicial or
administrative or zoning decisions. Purchaser and HK have been granted all
material licenses, permits (temporary and otherwise), authorizations, and
approvals from federal, state, and local government regulatory or zoning
agencies or bodies necessary to carry on its business, all of which are
currently valid and in full force and effect, other than where the failure to be
valid or in full force and effect would not have material adverse effect. There
is no order issued, investigation, or proceeding pending or threatened, or
notice served with respect to any material violation of any law, ordinance,
order, writ, decree, rule, or regulation issued by any federal, state, local, or
foreign court or
24
<PAGE>
governmental agency or instrumentality applicable to HK or Purchaser. Purchaser
and HK have valid use permits for their respective businesses and operations,
other than those the failure of which to obtain will not have a material adverse
effect.
5.7 Consents. No consent, approval, order, or authorization or
--------
registration, qualification, designation, declaration, or filing with any
federal, state, local, or provincial governmental authority, is required in
connection with the consummation of the transactions contemplated hereunder
other than as contemplated herein.
5.8 Litigation. Neither Purchaser nor HK is engaged in or is
----------
planning to engage in, or has received any threat of, any material litigation,
arbitration, investigation, or other proceeding relating to Purchaser's or HK's
employees or consultants or former employees or consultants, benefit plans,
properties, intellectual property, licenses, permits, or goodwill, or affecting
this Agreement, the Related Agreements or the actions taken or contemplated in
connection herewith and therewith, nor, to each of their knowledge, is there any
reasonable basis therefor. Neither Purchaser nor HK is bound by any material
judgment, decree, injunction, ruling or order of any court, governmental,
regulatory or administrative department, commission, agency or instrumentality,
arbitrator or any other person that has or could have a material adverse effect
on its business, results of operations, prospects or financial condition.
5.9 Labor Relations.
---------------
(a) Neither HK nor Purchaser has failed to comply in any
material respect with Title VII of the Civil Rights Act of 1964, as amended, the
Occupational Safety and Health Act of 1970, as amended, all applicable federal,
state, and local laws, rules, and regulations relating to employment, and all
applicable laws, rules and regulations governing payment of minimum wages and
overtime rates, and the withholding and payment of taxes from compensation of
employees.
(b) There are no labor disputes pending or, to the knowledge of
Purchaser, threatened, between HK or Purchaser and any of their respective
employees or consultants, or any labor union or other collective bargaining unit
representing any of their employees or consultants.
(c) Neither HK nor Purchaser has entered into a collective
bargaining agreement or other labor union contract relating to its employees or
consultants.
5.10 Books and Records. The books and records of Purchaser and HK
-----------------
to which Sellers and its accountants and attorneys have been given access are
the true books and records of Purchaser and HK and fairly reflect the underlying
facts and transactions consistent with normal bookkeeping practices so as to
permit the financial statements derived therefrom to be prepared in accordance
with past practices.
25
<PAGE>
5.11 Employee Benefit Plans.
----------------------
(a) Schedule 5.11 lists, with respect to Purchaser or HK (an
-------------
"ERISA Affiliate") within the meaning of Section 414(b), (c), (m) or (o) of the
Code, (i) all employee benefit plans (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), (ii) each stock
option, stock purchase, phantom stock, supplemental retirement, severance,
sabbatical, medical, dental, vision care, disability, employee relocation,
cafeteria benefit (Code Section 125) or dependent care (Code Section 129), life
insurance or accident insurance plans, (iii) all bonus, pension, profit sharing,
savings, deferred compensation or incentive plans, programs, arrangements and
other fringe or employee benefit plans, programs or arrangements that apply
generally with respect to the plans identified in clauses (i), (ii) or (iii) to
all employees (together, the "Purchaser Employee Plans").
(b) Each of HK's and Purchaser's Employee Plans has been
administered in accordance with its terms and in compliance with the
requirements prescribed by any and all statutes, rules and regulations
(including ERISA and the Code). With respect to each Purchaser or HK Employee
Plan subject to ERISA as either an employee pension plan within the meaning of
Section 3(2) of ERISA or an employee welfare benefit plan within the meaning of
Section 3(1) of ERISA, Purchaser or HK has prepared in good faith and timely
filed all requisite governmental reports (which were true and correct as of the
date filed) and has properly and timely filed and distributed or posted all
notices and reports to employees required to be filed, distributed or posted
with respect to each such Purchaser or HK Employee Plan.
5.12 Complete Disclosure. No representation or warranty by
-------------------
Purchaser or HK in this Agreement, and no exhibit, schedule, statement,
certificate, or other writing furnished to Sellers pursuant to this Agreement or
the Related Agreements or in connection with the transactions contemplated
thereby, contains any untrue statement of a material fact or omits to state any
fact necessary to make the statements contained herein and therein not
materially misleading.
5.13 Taxes. To the knowledge of HK and Purchaser, HK and Purchaser
-----
have completed and duly filed with the appropriate United States, state and
local governmental agencies and with the appropriate foreign countries and
political subdivisions thereof, all tax returns and reports required to be
filed; and HK and Purchaser have paid in full or adequate provision has been
made on the HK Financial Statements for all taxes, interest, penalties,
assessments or deficiencies shown to be due on such tax returns and reports or
claimed to be due by any taxing authority, which are the obligations of HK or
Purchaser, including, without limitation, those due in respect of properties,
income, franchises, licenses, sales and payrolls. To the knowledge of HK and
Purchaser, HK and Purchaser have made all withholdings of tax required to be
made under all applicable tax regulations, and such withholdings have either
been paid to the respective governmental agencies or set aside in accounts for
such purpose or accrued, reserved against and entered upon the books of HK or
Purchaser.
5.14 Environmental Matters. To the knowledge of HK and Purchaser,
---------------------
HK and Purchaser have obtained all federal, state and local permits,
authorizations, certificates and
26
<PAGE>
licenses required by the Environmental Laws for the conduct of their business
and the use of their properties. To HK and Purchaser's knowledge, HK and
Purchaser have not breached any provision of, and are not in default in any
material respect under the terms of, and have not engaged in any activity that
would cause revocation or suspension of any such permits, authorizations,
certificates or licenses. To the knowledge of HK and Purchaser, HK and Purchaser
have not disposed, released or threatened release of any hazardous substance or
hazardous waste on, from or under the property owned or leased currently by HK
or Purchaser, or in the past by HK or Purchaser, other than those authorized by
permit under federal, state and local laws. To the knowledge of HK and
Purchaser, HK and Purchaser are not in material violation of any applicable
statute, law or regulation relating to the environment or occupational health
and safety.
ARTICLE VI
COVENANTS
6.1 Best Efforts. Each party hereto shall use its best efforts
------------
consistent with reasonable business practice to take all actions and to do all
things necessary, proper and advisable to consummate the transactions
contemplated by this Agreement.
6.2 Notices and Consents. Sellers shall use their reasonable best
--------------------
efforts to obtain, at their expense, all such waivers, permits, consents,
approvals or other authorizations from third parties and Governmental Entities,
and to effect all such registrations, filings and notices with or to third
parties and Governmental Entities, as may be required by or with respect to
Sellers in connection with the transactions contemplated by this Agreement
6.3 Operation of Business. Except as contemplated by this
---------------------
Agreement, during the period from the date of this Agreement to the Closing,
Sellers shall conduct their Business and operations only in the ordinary course
of business in compliance with all applicable laws and regulations, and to the
extent consistent therewith use all reasonable efforts to preserve intact their
current business organization, keep their physical assets in good working
condition, keep available the services of their current officers, employees,
consultants and contractors, and preserve their relationships with clients,
customers, suppliers and others having business dealings with them to the end
that their goodwill and ongoing business dealings shall not be impaired in any
material respect. Without limiting the generality of the foregoing, prior to the
Closing, Sellers shall not, without the written consent of Purchaser:
(a) issue, sell, deliver or agree to commit to issue, sell or
deliver (whether through the issuance or granting of options, warrants,
commitments, subscriptions, interests, rights to purchase or otherwise) or
authorize the issuance, sale or delivery of, or redeem or repurchase, any stock
of any class or any other securities or interests or any rights, warrants or
options to acquire any such stock or other securities or interests (except
pursuant to the conversion or exercise of convertible securities, interests,
options or warrants outstanding on the date hereof), or amend any of the terms
of any such convertible securities, interests, options or warrants;
27
<PAGE>
(b) split, combine or reclassify any shares of its capital
stock or interests; declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
its capital stock or interests;
(c) create, incur or assume any debt or liability not currently
outstanding (including obligations in respect of capital leases), except in the
ordinary course of business, assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other person or entity, or make any loans, advances or
capital contributions to, or investments in, any other person or entity;
(d) enter into, adopt or amend any Seller Employee Plan or any
employment or severance agreement or arrangement of the type described in
Section 2.23 or increase in any manner the compensation or fringe benefits of,
or materially modify the employment terms of, its directors, officers or
employees, generally or individually, or adopt or modify any other compensation
plan, or pay any benefit not required by the terms in effect on the date hereof
of any existing Seller Employee Plan or accelerate, or agree to accelerate the
vesting of any outstanding options, warrants or benefits, except in the ordinary
course of business;
(e) acquire, sell, lease, encumber or dispose of any assets or
property (including without limitation any shares or other equity interests in
or securities of any subsidiary or any corporation, partnership, limited
liability company, association or other business organization or division
thereof), other than purchases and sales of assets in the ordinary course of
business, or sales or disposition of the non-purchased limited liability
companies;
(f) amend its charter or Bylaws or limited partnership
agreement or limited liability company operating agreement or any agreement by
and between or among the Operating Partnership and the Purchased LLCs other than
the agreement set forth in Schedule 6.3(f);
---------------
(g) change in any material respect its accounting methods,
principles or practices, except insofar as may be required by a generally
applicable change in GAAP;
(h) discharge or satisfy any security interest or pay any
obligation or liability other than in the ordinary course of business;
(i) mortgage or pledge any of the Assets or subject any such
Assets to any security interest;
(j) sell, assign, transfer or license any Intellectual
Property;
(k) enter into, amend, terminate, take or omit to take any
action that would constitute a violation of or default under, or waive any
rights under, any Material Contract or agreement;
(l) make or commit to make any capital expenditure in excess of
$25,000 per item;
28
<PAGE>
(m) hire any employee earning more than $40,000 per annum;
(n) make any cash disbursement in excess of $25,000, other than
partnership distributions and other than cash disbursements that do not result
in a breach of a representation or warranty made by Sellers, Stockholders or TV
Stockholder herein);
(o) initiate any litigation;
(p) take any action or fail to take any action permitted by
this Agreement with the knowledge that such action or failure to take action
would result in (i) any of the representations and warranties of Sellers,
Stockholders or TV Stockholder set forth in this Agreement becoming untrue or
(ii) any of the conditions hereunder not being satisfied;
(q) agree in writing or otherwise to take any of the foregoing
actions.
6.4 Full Access. Sellers shall permit HK or Purchaser, after
-----------
reasonable notice, to have full access (at all reasonable times, and in a manner
so as not to interfere with normal business operations of Sellers) to all
premises, properties, financial and accounting records, contracts, other records
and documents, and personnel, of or pertaining to Sellers.
6.5 Covenants Against Disclosure. The parties agree to maintain the
----------------------------
confidentiality of the terms and conditions of this Agreement, except to the
extent required by law or pursuant to the public reporting obligations of HK or
Purchaser or as necessary to consummate the transactions contemplated herein.
No party shall disseminate (except to the parties to this Agreement) any press
release or announcement concerning the transactions contemplated by this
Agreement or the Related Agreements or the parties hereto or thereto without the
prior written consent of Stockholders, TV Stockholder, Sellers, Purchaser and
HK, except as required under the public reporting obligations of HK or Purchaser
or as required by law.
6.6 Non-Competition.
---------------
(a) Commencing as of the Closing and continuing for three (3)
years thereafter, Sellers and Stockholders agree that they shall not engage,
directly or indirectly, whether on their own account or as a shareholder (other
than as a less than 1% shareholder of a publicly-held company), partner, member,
joint venturer, employee, consultant, advisor, and/or agent, of any person,
firm, corporation, or other entity, in any or all of the following activities in
the United States or throughout the remainder of the world:
(i) Enter into or engage in the business of providing
contract and temporary personnel or other employment or employee services (such
business referred to herein as the "Protected Business").
(ii) Solicit clients, customers, suppliers, or business
patronage which results in competition with the Business, or Purchaser, or any
of
29
<PAGE>
Purchaser's affiliates (as the term "Affiliates" is defined in Section 144(a)(1)
of the Securities Act of 1933, as amended, "Affiliates") in the Protected
Business;
(iii) Encourage or solicit any Service Provider of
Purchaser, or any of Purchaser's Affiliates, employees, consultants or temporary
employees or other service providers to leave the employment of, or terminate
their service relationship with, Purchaser, or any of Purchaser's Affiliates for
any reason;
(iv) Promote or assist or encourage or facilitate in any
manner, financially or otherwise, any of the persons listed on Schedule 6.6
hereof to engage in any aspect of the Protected Business; or
(v) Promote or assist or encourage or facilitate,
financially or otherwise, any person, firm, association, corporation or other
entity engaged in any aspect of the Protected Business;
provided however, that until April 30, 1997, Sellers and Stockholders shall be
permitted under this Agreement to continue certain minimal business activities
associated with the phasing out or liquidation or disposition of the non-
purchased LLCs not transferred pursuant to this Agreement (the "Continuing
LLCs"), which activities shall not exceed or involve more than two to three
hours per week spent by each of the Stockholders at any time following the
Closing. In addition, such activities may include those provided for in Section
6.15 hereof.
(b) Commencing as of the Closing and continuing for three (3)
years thereafter, TV Stockholder agrees that he will not engage, directly or
indirectly, whether on his own account or as a shareholder (other than as a less
than 1% shareholder of a publicly-held company), partner, member, joint
venturer, employee, consultant, advisor, and/or agent ("Directly or
Indirectly"), of any person, firm, corporation, or other entity ("Person"), in
any or all of the following activities in the United States or throughout the
remainder of the world:
(i) Enter into or engage in the business of providing
contract and temporary personnel or other employment or employee services (such
business referred to herein as the "Protected Business"); provided that nothing
herein shall be deemed to prohibit TV Stockholder from Directly or Indirectly
entering into or engaging in the business of (aa) providing software or software
consulting services, or (bb) as ancillary to the activities described in the
preceding clause (aa), Directly or Indirectly providing contract and temporary
personnel to any Person to whom TV Stockholder has Directly or Indirectly, sold,
licensed, leased or otherwise provided any software or software consulting
services or to any Person to whom TV Stockholder is Directly or Indirectly
attempting to do so;
(ii) Solicit clients, customers, suppliers, or business
patronage which results in competition with the Protected Business; provided
that nothing herein shall be deemed to prohibit TV Stockholder from Directly or
Indirectly engaging in the activities permissible under the preceding clause
(i), including the
30
<PAGE>
provision of services permissible under such clause to current or future clients
or customers of Sellers, Purchaser or Purchaser's Affiliates;
(iii) Solicit any person who at the time is a Service
Provider of Purchaser or of any of Purchaser's Affiliates to leave the
employment of Purchaser or of any of Purchaser's Affiliates for any reason;
provided that nothing herein shall be deemed to prohibit TV Stockholder from
Directly or Indirectly soliciting any such person to leave such employment if at
the time TV Stockholder has no knowledge that such person is such a Service
Provider; and provided further that nothing herein shall be deemed to prohibit
TV Stockholder from Directly or Indirectly, advertising, publicizing, announcing
or otherwise generally disclosing a desire to hire additional personnel in the
ordinary course of business, so long as there is no (aa) solicitation of any
specific manager, director or officer of Purchaser or any of Purchaser's
Affiliates or (bb) solicitation directed only to employees of Purchaser or
Purchaser's Affiliates; or
(iv) Hire, promote or assist or encourage or facilitate in
any manner, financially or otherwise, any of the persons listed on Schedule 6.6
hereof to engage in any aspect of the Protected Business on behalf of any Person
other than Purchaser or any of Purchaser's Affiliates, except as otherwise
permitted above.
(c) Without limitation, the parties agree and intend that the
covenants contained in this Section 6.6 shall be deemed to be a series of
separate covenants and agreements, one for each and every county of each state
and political subdivision where this agreement is applicable. If, in any
judicial proceeding, a court shall refuse to enforce in such action any of the
separate covenants deemed included herein, then at the option of Purchaser, or
its affiliates, wholly-unenforceable covenants shall be deemed eliminated from
the provisions hereof for the purpose of such proceeding to the extent necessary
to permit the remaining separate covenants to be enforced in such a proceeding.
The parties intend to have covenants enforceable to the fullest extent of the
law as to scope, time and geography.
(d) The parties agree that due to the unique nature of the
services and capabilities of Sellers, Stockholders and TV Stockholder, there can
be no adequate remedy at law for any breach of their respective obligations
hereunder, that any such breach may allow Sellers, Stockholders and TV
Stockholder and/or third parties to unfairly compete with Purchaser or its
affiliates resulting in irreparable harm to Purchaser or its affiliates, and
therefore, that upon any such breach or any threat thereof, Purchaser or its
affiliates shall be entitled to appropriate equitable relief in addition to
whatever remedies it might have at law.
(e) Sellers, Stockholders and TV Stockholder acknowledge,
represent and warrant to Purchaser that the covenants in this Section 6.6 are
reasonably necessary for the protection of Purchaser's interests under this
Agreement and are not unduly restrictive upon it, her or him, and that
notwithstanding any other provision of this Agreement, this Section 6.6 shall
survive the Closing and shall terminate as of the third anniversary of Closing
and not sooner.
6.7 Further Assurances. Following the Closing, Sellers,
------------------
Stockholders and TV Stockholder shall use their commercially reasonable efforts
to obtain any consents and approvals
31
<PAGE>
of, or effect the notification of or filing with, each person or authority,
whether private or governmental, whose consent or approval is required in order
to permit the consummation of the Acquisition and the transactions contemplated
hereby and to enable Purchaser to conduct and operate the Business substantially
as presently conducted. Following the Closing, each party shall prepare,
execute, and deliver such further instruments, and shall take or cause to be
taken such other or further action, as any party shall reasonably request of any
other party at any time or from time to time in order to consummate the terms
and provisions of this Agreement, provided that in any such case the requesting
party shall pay the reasonable out-of-pocket costs incurred by the party
complying with such request. Sellers, Stockholders and TV Stockholder shall also
reasonably cooperate with any audits of the Financial Statements and shall
execute any such representation letters satisfactory to their respective
certified public accountants with respect thereto that are reasonably requested
by Purchaser or its certified public accountants.
6.8 Advice of Changes. For a period of one year, each of the
-----------------
Sellers and Stockholders and TV Stockholder will promptly advise Purchaser in
writing of any event occurring subsequent to the date of this Agreement that
would demonstrate that their respective representations or warranties herein
were untrue or inaccurate in any material respect as of the date of the Closing,
provided, however, no disclosure made by Sellers or Stockholders or TV
Stockholder to Purchaser pursuant to this Section 6.8 shall give rise to any
liability of Sellers or Stockholders or TV Stockholder to Purchaser if made
prior to the Closing. If appropriate, Sellers or Stockholders or TV Stockholder
may fulfill their obligations under this Section 6.8 prior to the Closing by
updating the applicable disclosure schedules attached to this Agreement and
notifying Purchaser of such changes in writing.
6.9 Employees, Bonuses and Termination Payments.
-------------------------------------------
(a) At or before the Closing or within fifteen days thereafter,
Sellers shall pay all amounts due as of the date of the Closing to all Service
Providers by way of salaries, bonuses, vacation, incentive, commission,
severance or termination payments and shall pay or cause to be paid over to the
appropriate Governmental Entities or other appropriate persons or entities all
withheld taxes, social security and other payments accrued and payable with
respect to such Service Providers through the Closing.
(b) Sellers shall promptly provide, or use their best efforts
to cause any administrator of any Seller Employee Plan to provide, to Purchaser
or their designee at any time before or after the Closing, all information in
the custody or control of Sellers requested by Purchaser or their designee to
(i) determine whether there have been any failures to comply with the
continuation health care requirements of COBRA on or prior to the Closing, and
(ii) correct any such failures.
6.10 Cooperation by Sellers. Sellers shall provide HK or Purchaser
----------------------
with (i) such assistance as may reasonably be requested by HK or Purchaser in
connection with the preparation of any Return or in connection with any audit or
other examination by any taxing authority or any judicial or administrative
proceedings relating to liability for Taxes, (ii) any records or other
information which may be relevant to any such Return, audit or examination,
32
<PAGE>
proceeding or determination, and (iii) any final determination of any such audit
or examination, proceeding or determination that affects any amount required to
be shown on any Return of the other for any period. Without limiting the
generality of the foregoing, Sellers shall retain, until the applicable statute
of limitations (including any extensions) have expired, copies of all Returns,
supporting work schedules and other records or information which may be relevant
to such Returns for all tax periods or portions thereof ending before or
including the Closing and shall not destroy or otherwise dispose of any such
records without first providing the Purchaser with a reasonable opportunity to
review and copy the same.
6.11 Negotiation with Others. Until November 30, 1996, Sellers shall
-----------------------
not (nor will they permit any of their general partners, limited partners,
members, agents, representatives or affiliates to), directly or indirectly, take
any of the following actions with any party other than Purchaser and its
designees: (i) solicit, encourage, initiate or participate in any negotiations
or discussions with respect to the admission of any additional general or
limited partners or any offer or proposal to acquire all or substantially all of
Sellers' business and properties whether by merger, purchase of assets or equity
interest, tender offer or otherwise, or the sale, transfer or issuance of any
equity interests of Sellers, (ii) disclose any information not customarily
disclosed to any person concerning Sellers' business and properties or afford to
any person or entity access to its properties, books or records in connection
with a transaction of the type referred to in clause (i), or (iii) assist or
cooperate with any person to make any proposal to consummate a transaction of
the type referred to in clause (i). In the event Sellers shall receive any offer
or proposal, directly or indirectly, of the type referred to in clause (i) or
(iii) above, or any request for disclosure or access pursuant to clause (ii)
above, it shall immediately inform Purchaser as to any such offer or proposal
and will cooperate with Purchaser by furnishing any information with respect to
such offer or proposal it may reasonably request.
6.12 Termination of the Continuing LLCs. Sellers shall use their
----------------------------------
best efforts to terminate existing contracts and relationships with the non-
purchased LLCs by no later than April 30, 1997. Sellers further covenant to
terminate prior to Closing any agreements of the Operating Services Companies
and Purchased LLCs.
6.13 Payment of Taxes. Except as to such Taxes as may be disputed
----------------
in good faith, Sellers will pay in full when due all Taxes imposed upon Sellers
or with respect to its assets arising from any periods prior to and including
the Closing, whether due before or after the date hereof. For federal and state
income tax purposes, each of Sellers that shall be designated in this Agreement
as a partnership or limited liability company will continue to be at all times
through the day of the Closing, taxable as a partnership and not as a
corporation.
6.14 Guaranty by HK. HK hereby guarantees the complete and timely
--------------
performance by Purchaser of Purchaser's obligations hereunder and guarantees the
accuracy of the representations and warranties made by Purchaser herein.
6.15 Facilities Agreement and Non-Exclusive Trademark License. From
--------------------------------------------------------
the Closing until April 30, 1997, Purchaser and HK shall (i) allow, on an as-
needed basis, the assignment of up to two employees and the use of Purchaser's
equipment, including the use of
33
<PAGE>
certain back office software related to invoicing and purchasing and the resume
management program and the data contained therein only as it relates to
TeamAlliance Connecticut, LLC, in the New York office to be used for the phasing
out, liquidation or other disposition (i.e. winding down) of the Continuing LLCs
by the Operating Partnership and (ii) grant the Operating Partnership a limited,
non-exclusive, non-transferable technology license in the form attached hereto
as Exhibit T (the "Technology License"); provided, however, that Sellers agree
that they shall reimburse Purchaser or HK for any monies paid to the employees
referred to in clause (i) above for services rendered to the Operating
Partnership pursuant to the foregoing clause (i).
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS
7.1 Conditions to Obligations of Purchaser and HK. Each and every
---------------------------------------------
obligation of Purchaser and HK to be performed at the Closing shall be subject
to the satisfaction as of on or before the Closing of the following conditions
(unless waived in writing by Purchaser and HK):
(a) The representations and warranties of Sellers, Stockholders
and TV Stockholder are true on the date of the Closing, and Sellers,
Stockholders and TV Stockholder shall be in compliance with all covenants
required to be complied with as of the Closing.
(b) The approval of the Acquisition and all transactions
contemplated by this Agreement by the general and limited partners and members
and stockholders of Sellers, in accordance with applicable laws and regulatory
requirements.
(c) The Closing shall have occurred on or before November 30,
1996.
(d) An opinion of counsel for Sellers, satisfactory to
Purchaser, as to matters usual in an acquisition transaction of this type.
(e) Completion of a "due diligence" investigation by Purchaser
and representatives of Purchaser, the results of which are satisfactory to
Purchaser in Purchaser's sole discretion and which, inter alia, revealed no
----------
material adverse conditions or material adverse changes in Sellers or the Assets
prior to the Acquisition.
(f) The obtaining of all material consents and approvals
required under Sellers' limited partnership agreements, limited liability
company operating agreements, charter documents or any other outstanding
contracts of Sellers, under applicable law, or otherwise, and the making of all
material or significant filings which are necessary or which Purchaser or HK
deems appropriate in connection with the Acquisition.
(g) Sellers shall have obtained all consents and approvals
required to consummate the transactions contemplated by this Agreement and the
Related Agreements, unless otherwise waived by mutual agreement.
34
<PAGE>
(h) There shall be no pending or threatened lawsuit challenging
the Acquisition, the Agreement, the Related Agreements or the transactions
contemplated hereby and thereby, by any body or agency of the federal, state, or
local government or by any third party, and the consummation of the Acquisition
shall not have been enjoined by a court of competent jurisdiction as of the
Closing.
(i) Purchaser shall have received evidence (in the form of UCC-
3 termination statements and a recent UCC-1 financing statement search), at or
prior to the Closing, satisfactory to it of Sellers' title to all of the Assets
and Sellers' right to fully convey all such Assets described herein free and
clear of all Liens, other than the Permitted Liens specifically identified on
Schedule 2.14.
(j) Sellers, Stockholders and TV Stockholders shall have
delivered to Purchaser a certificate executed by each of them, dated the date of
the Closing, to the effect that the conditions set forth in subsections (a) and
(b) of this Section 7.1 have been satisfied.
(k) The form and substance of all certificates, instruments,
opinions, and other documents delivered or to be delivered to Purchaser under
this Agreement shall be satisfactory to Purchaser and its counsel in all
reasonable respects.
(l) Purchaser shall have received fully executed copies of the
Related Agreements.
(m) Purchaser and each of Richard Harmon and Mordecai Levine
shall have entered into an Employment Agreement, dated as of the date hereof, in
the forms attached hereto as Exhibit E.
---------
(n) Purchaser and Sellers shall have entered into the Contract
and Sublease Agreements dated as of the Closing in the form attached hereto as
Exhibit L or such form as may be reasonably satisfactory to HK and the Sellers'
- ---------
landlord.
(o) There shall have occurred no material adverse change in the
financial condition, the Business or the Assets or properties of Sellers which
materially and adversely affects the conduct of the Business as presently being
conducted, or the financial condition of Sellers since the date of the Financial
Statements.
(p) Sellers shall have provided Purchaser with all clearance
certificates or similar documents which may be required by any state taxing
authority in order to relieve Purchaser of any obligation to withhold any
consideration hereunder to satisfy or be applied to any Tax obligation. Sellers
shall furnish Purchaser an affidavit stating, under penalties of perjury, each
of Sellers' United States taxpayer identification number and that none of the
Sellers is a foreign person pursuant to Section 1445(b)(2) of the Code.
(q) Sellers, Stockholders, TV Stockholder, HK, Purchaser and an
escrow agent ("Escrow Agent") reasonably acceptable to Sellers, Stockholders, TV
Stockholder,
35
<PAGE>
HK and Purchaser shall have entered into an escrow agreement ("Escrow
Agreement") in the form attached hereto as Exhibit EA.
----------
7.2 Conditions to Obligations of Sellers. Each and every obligation
------------------------------------
of Sellers, Stockholders and TV Stockholder to be performed at the Closing shall
be subject to the satisfaction as of or before such time of the following
conditions (unless waived in writing by Sellers, Stockholders and TV
Stockholder):
(a) The representations and warranties of Purchaser and HK are
true on the date of the Closing, and Purchaser and HK shall be in compliance
with all covenants required to be complied with as of the Closing.
(b) Purchaser shall have obtained all consents and approvals
(including consents from governmental authorities) required to consummate the
transactions contemplated by this Agreement and the Related Agreements.
(c) Purchaser and HK shall have delivered to Sellers a
certificate executed by each of them, dated the date of the Closing, to the
effect that the conditions set forth in subsections (a) and (b) of this Section
7.2 have been satisfied.
(d) There shall be no pending or threatened lawsuit challenging
the Acquisition, the Agreement, the Related Agreements or the transactions
contemplated hereby and thereby, by any body or agency of the federal, state, or
local government or by any third party, and the consummation of the transaction
shall not have been enjoined by a court of competent jurisdiction as of the
Closing.
(e) The form and substance of all certificates, instruments,
assumptions, opinions, and other documents delivered or to be delivered to
Sellers under this Agreement shall be satisfactory to Sellers and its counsel in
all reasonable respects.
(f) Sellers shall have received fully executed copies of each
of the Related Agreements to which he, she or it is a party.
(g) An opinion of counsel for Purchaser and HK, satisfactory to
Sellers, as to matters usual in an acquisition transaction of this type.
(h) Purchaser and each of Richard Harmon and Mordecai Levine
shall have entered into an Employment Agreement, dated as of the date hereof, in
the forms attached hereto as Exhibit E.
---------
(i) There shall have occurred no material adverse change in the
financial condition, the business of Purchaser or HK which adversely affects the
conduct of the its business as presently being conducted, or the financial
condition of Purchaser or HK since September 30, 1996.
36
<PAGE>
(j) Completion of "due diligence" investigation by Sellers,
Stockholders and their representatives, the results of which are satisfactory to
Sellers in their sole discretion and which, inter alia, reveal no material
adverse conditions or material adverse changes in HK or Purchaser prior to the
Closing.
(k) Purchaser shall have delivered to Sellers an agreement
assuming the Assumed Liabilities in form and substance reasonably satisfactory
to Sellers.
(l) Purchaser shall have executed the Technology License.
ARTICLE VIII
INDEMNIFICATION
8.1 Survival of Representations and Warranties.
------------------------------------------
(a) Notwithstanding any investigation conducted at any time
with regard thereto by or on behalf of any party, all representations and
warranties of Sellers, Stockholders, TV Stockholder and Purchaser and HK shall
survive the Closing hereunder for a period of three years following the Closing,
except for the representations set forth in Section 2.7 hereof which shall
survive until the applicable respective statute of limitations for such claims
by the respective taxing authorities shall have expired.
(b) As used in this Article VIII, except as otherwise indicated
in this Article VIII, any reference to a representation or warranty in any
section of this Agreement shall include the schedule relating to such section.
8.2 Indemnification of Purchaser.
----------------------------
(a) Sellers, Stockholders and TV Stockholder hereby agree,
severally, to indemnify and hold harmless Purchaser and its affiliates against
any and all losses, liabilities, damages, demands, claims, suits, actions,
judgments, causes of action, assessments, costs, and expenses, including,
without limitation, interest, penalties, reasonable attorneys' fees, any and all
expenses incurred in investigating, preparing, and defending against any
litigation, commenced or threatened, and any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation (collectively, "Purchaser
Damages"), asserted against, resulting from, imposed upon, or incurred by
Purchaser or its affiliates directly or indirectly, as a result of or arising
from any inaccuracy in or breach or nonfulfillment of any of the
representations, warranties, covenants, or agreements made by Sellers in this
Agreement or any facts or circumstances constituting such an inaccuracy, breach,
or nonfulfillment (all of which shall also be referred to as "Identifiable
Claims"), including, without limitation, the following:
(i) Any liabilities, indebtedness or obligations of
Sellers, Stockholders or TV Stockholder sought to be imposed on Purchaser,
whether such liabilities or obligations are contingent or otherwise or direct or
indirect, in existence on or prior to the
37
<PAGE>
Closing or otherwise or based on any events, facts, or circumstances in
existence prior to or in connection with the Acquisition or in connection with
or arising from any activities or the operations of Sellers (collectively, the
"Liabilities"), which Liabilities relate to any services rendered or products or
goods sold or transferred, or to any omission with respect thereto, by Sellers
prior to the Closing;
(ii) Liabilities imposed on Purchaser or any of its
affiliates as a result of, arising from or related to, directly or indirectly,
any handling, discharge, disposal, release, or storage of any hazardous or toxic
substances, wastes or materials by any of Sellers or any predecessor of Sellers
or any other third party with respect to any of the properties owned, occupied
or leased by Sellers occurring prior to the Closing; and
(iii) Any Liabilities of Sellers imposed upon HK or
Purchaser as transferee of the Assets other than those expressly assumed in
Section 1.3 hereof or Schedule 1.3 hereto, including, without limitation, any
Liability arising out of obligations to the Operating LLCs, Sellers' Service
Providers (including, without limitation, any obligations under any employee
benefit, profit sharing, or pension or welfare plan) or out of Sellers' status
as employer or otherwise relative to such Service Providers.
(b) Stockholders hereby agree, severally, to indemnify and hold
harmless HK and Purchaser and its Affiliates against any and all Purchaser
Damages, asserted against, resulting from, imposed upon, or incurred by
Purchaser or its Affiliates directly or indirectly, as a result of or arising
from any inaccuracy in or breach or nonfulfillment of any of the
representations, warranties, covenants, or agreements made by Stockholders in
this Agreement or any facts or circumstances constituting such an inaccuracy,
breach, or nonfulfillment (all of which shall also be referred to as
"Identifiable Claims").
(c) TV Stockholder hereby agree, severally, to indemnify and
hold harmless HK and Purchaser and its Affiliates against any and all Purchaser
Damages, asserted against, resulting from, imposed upon, or incurred by HK and
Purchaser or its Affiliates directly or indirectly, as a result of or arising
from any inaccuracy in or breach or nonfulfillment of any of the
representations, warranties, covenants, or agreements made by TV Stockholder in
this Agreement or any facts or circumstances constituting such an inaccuracy,
breach, or nonfulfillment (all of which shall also be referred to as
"Identifiable Claims").
8.3 Indemnification of Sellers, Stockholders and TV Stockholder.
-----------------------------------------------------------
Purchaser and HK hereby agree, severally, to indemnify and hold harmless the
Sellers, Stockholders and TV Stockholder against any and all losses,
liabilities, damages, demands, claims, suits, actions, judgments, causes of
action, assessments, costs, and expenses, including, without limitation,
interest, penalties, reasonable attorneys' fees, any and all expenses incurred
in investigating, preparing, and defending against any litigation, commenced or
threatened, and any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation (collectively, "Sellers Damages"), asserted against,
resulting from, imposed upon, or incurred or suffered by Sellers, Stockholders
or TV Stockholder directly or indirectly, as a result of or arising from (i) any
inaccuracy in or breach or nonfulfillment of any of the representations,
warranties,
38
<PAGE>
covenants, or agreements made by Purchaser or HK in this Agreement or any facts
or circumstances constituting such an inaccuracy, breach, or nonfulfillment,
(ii) the operation of the Business by Purchaser or HK after the Closing or (iii)
any liabilities, indebtedness or obligations of HK or Purchaser sought to be
imposed on Sellers, whether such liabilities or obligations are contingent or
otherwise or direct or indirect, based on any events, facts, or circumstances in
existence following the Acquisition or in connection with or arising from any
activities or the operations of HK or Purchaser (collectively, the
"Liabilities"), which Liabilities relate to any services rendered or products or
goods sold or transferred, or to any omission with respect thereto, by HK or
Purchaser after the Closing (all of which shall be referred to as "Identifiable
Claims").
8.4 Procedure for Indemnification with Respect to Third-Party
---------------------------------------------------------
Claims.
------
(a) If Purchaser or its Affiliates or Sellers or Stockholders
or TV Stockholder (the party seeking such indemnification hereinafter referred
to as the "Indemnified Party" and the party against whom such indemnification is
sought is hereinafter referred to as the "Indemnifying Party") determines to
seek indemnification under this Article VIII with respect to Identifiable Claims
resulting from the assertion of liability by third parties, the Indemnified
Party shall give notice to the Indemnifying Parties within 30 days of the
Indemnified Party becoming aware of any such Identifiable Claim or of facts upon
which any such Identifiable Claim will be based; the notice shall set forth such
material information with respect thereto as is then reasonably available to the
Indemnified Party. In case any such liability is asserted against the
Indemnified Party or its affiliates, and the Indemnified Party notifies the
Indemnifying Parties thereof, the Indemnifying Parties will be entitled, if such
Indemnifying Parties so elect by written notice delivered to the Indemnified
Party within 30 days after receiving the Indemnified Party's notice, to assume
the defense thereof with counsel reasonably satisfactory to the Indemnified
Party (and if such Indemnifying Parties so assume such defense, such Indemnified
Parties or affiliates thereof shall not compromise or settle such Identifiable
Claim without the prior consent of the Indemnifying Party). Notwithstanding the
foregoing, (i) the Indemnified Party or its affiliates shall also have the right
to employ its own counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of the Indemnified Party, and (ii) the rights of
the Indemnified Party or its affiliates to be indemnified hereunder in respect
of Identifiable Claims resulting from the assertion of liability by third
parties shall not be adversely affected by their failure to give notice pursuant
to the foregoing unless, and, if so, only to the extent that, such Indemnifying
Parties are materially prejudiced thereby; provided, however, the Indemnifying
Party shall not be liable for attorneys fees and expenses incurred by the
Indemnified Party prior to the Indemnified Party's giving notice to the
Indemnifying Party of an Identifiable Claim. With respect to any assertion of
liability by a third party that results in an Identifiable Claim, the parties
hereto shall make available to each other all relevant information in their
possession material to any such assertion.
(b) The Indemnified Party will cooperate in the defense of any
Identifiable Claim and will provide full access to documents, assets,
properties, books and records and will make available all officers, directors
and employees for investigation, depositions and trial.
39
<PAGE>
(c) In the event that such Indemnifying Parties, within 60 days
after receipt of the aforesaid notice of an Identifiable Claim, fail to assume
the defense of the Indemnified Party or its affiliates against such Identifiable
Claim, the Indemnified Party or its affiliates shall have the right to undertake
the defense, compromise, or settlement of such action on behalf of and for the
account, expense, and risk of such Indemnifying Parties.
(d) Notwithstanding anything in this Article VIII to the
contrary, if there is a reasonable probability that an Identifiable Claim may
materially adversely affect the Indemnified Party or its affiliates, the
Indemnified Party or its affiliates shall have the right to participate in such
defense, compromise, or settlement and such Indemnifying Parties shall not,
without the Indemnified Party's written consent (which consent shall not be
unreasonably withheld), settle or compromise any Identifiable Claim or consent
to entry of any judgment in respect thereof unless such settlement, compromise,
or consent includes as an unconditional term thereof the giving by the claimant
or the plaintiff to the Indemnified Party of a release from all liability in
respect of such Identifiable Claim.
8.5 Procedure For Indemnification with Respect to Non-Third Party
-------------------------------------------------------------
Claims. In the event that the Indemnified Party asserts the existence of an
- ------
Identifiable Claim giving rise to Purchaser Damages or Sellers Damages, as
applicable (but excluding claims resulting from the assertion of liability by
third parties), it shall give written notice to the Indemnifying Parties. Such
written notice shall state that it is being given pursuant to this Section 8.5,
specify the nature and amount of the Identifiable Claim asserted and indicate
the date on which such assertion shall be deemed accepted and the amount of
Identifiable Claim deemed a valid Identifiable Claim (such date to be
established in accordance with the next sentence). If such Indemnifying Parties,
within 60 days after the mailing of notice by the Indemnified Party, shall not
give written notice to the Indemnified Party announcing its intent to contest
such assertion of the Indemnified Party, such assertion shall be deemed accepted
and the amount of claim shall be deemed a valid Identifiable Claim. In the
event, however, that such Indemnifying Parties contest the assertion of an
Identifiable Claim by giving such written notice to the Indemnified Party within
said period, then the parties shall act in good faith to reach agreement
regarding such claim. If the parties hereto, acting in good faith, cannot reach
agreement with respect to such claim within ten (10) days after notice thereof,
such Identifiable Claim will be settled or resolved pursuant to Section 1.8
hereof. To the extent that there are any Identifiable Claims outstanding on any
Payment Date under Section 1.6, Purchaser shall deposit that portion of the
Aggregate Subsequent Payments equal to the amount of the Identifiable Claim by
the Indemnified Party into an escrow account pursuant to the terms of the Escrow
Agreement to the extent not previously deposited; provided, however, that as to
(i) an Identifiable Claim described in Section 8.2(b), Purchaser may make such
deposit only from that portion of the Aggregate Subsequent Payments payable to
TeamAlliance Technology Partners, Inc., (ii) an Identifiable Claim described in
Section 8.2(c), Purchaser may make such deposit only from that portion of the
Aggregate Subsequent Payments payable to Team Visions, Inc., and (iii) an
Identifiable Claim described in Section 8.2(a), Purchaser may first make such
deposit only from that portion of the Aggregate Subsequent Payments payable to
TeamAlliance Technology Partners, Inc. and if such Identifiable Claim exceeds
the Aggregate Subsequent Payments payable to TeamAlliance Technology Partners,
Inc., Purchaser may then make an additional deposit to the extent of such
40
<PAGE>
excess from that portion of the Aggregate Subsequent Payments payable to Team
Visions, Inc.; provided further, however, that in no event shall deposits under
this Section 8.5 from that portion of the Aggregate Subsequent Payments payable
to (i) Team Visions, Inc. exceed the lesser of $1,000,000 in the aggregate or
20% of Purchaser Damages (to the extent not previously deposited) and (ii)
TeamAlliance Technology Partners, Inc. exceed 80% of Purchaser Damages (to the
extent not previously deposited).
8.6 Threshold Determination of and Limitations on Indemnification.
-------------------------------------------------------------
Notwithstanding anything in this Article VIII to the contrary, (a) Sellers,
Stockholders and TV Stockholder shall not be under any obligations of indemnity
with respect to HK or Purchaser, and Purchaser or HK shall not be under any
obligations to Sellers, Stockholders or TV Stockholder until such time as HK and
Purchaser, or Sellers or Stockholders or TV Stockholder, respectively, have
incurred Damages in the aggregate in excess of $25,000, for which HK and
Purchaser, or Sellers or Stockholders or TV Stockholder, respectively, would
have been entitled to be indemnified against but for the provisions of this
Section 8.6, (b) in no event shall the aggregate liability of Sellers and
Stockholders for Purchaser Damages exceed the lesser of $4,000,000 or 80% of
Purchaser Damages, (c) in no event shall the aggregate liability of TV
Stockholder for Purchaser Damages exceed the lesser of $1,000,000 or 20% of
Purchaser Damages, and (d) in no event shall the aggregate liability of HK and
Purchaser for Sellers, Stockholders' and TV Stockholder's Damages (other than
damages as a result of or arising from a breach of Sections 1.5 or 1.6) exceed
$5,000,000.
ARTICLE IX
TERMINATION
9.1 Termination by Mutual Consent. At any time prior to the
-----------------------------
Closing, this Agreement may be terminated as provided below:
(a) HK, Purchaser, Sellers, the Stockholders and TV Stockholder
may terminate this Agreement by mutual written consent;
(b) Purchaser may terminate this Agreement if (i) there has
been a material breach of any representation, warranty or covenant of Sellers,
Stockholders or TV Stockholder set forth herein, which breach is not curable or,
if curable, is not cured within 10 days after written notice of such breach is
given by Purchaser to Sellers or Stockholders or TV Stockholder, as applicable;
(c) Sellers, Stockholders and TV Stockholder may terminate this
Agreement if (i) there has been a material breach of any representation,
warranty or covenant of Purchaser set forth herein, which breach is not curable
or, if curable, is not cured within 10 days after written notice of such breach
is given by Sellers, Stockholders or TV Stockholder to Purchaser;
(d) Purchaser may terminate this Agreement by giving written
notice to Sellers if the Closing shall not have occurred on or before November
30, 1996 by reason of the
41
<PAGE>
failure of any condition precedent under Section 7.1 or 7.2 hereof (unless the
failure results primarily from a breach by Purchaser of any representation,
warranty or covenant contained in this Agreement); or
(e) Sellers, Stockholders or TV Stockholder may terminate this
Agreement by giving written notice to Purchaser if the Closing shall not have
occurred on or before November 30, 1996 by reason of the failure of any
condition precedent under Section 7.1 or 7.2 hereof (unless the failure results
primarily from a breach by Sellers, Stockholders or TV Stockholder of any
representation, warranty or covenant contained in this Agreement).
9.2 Effect of Termination. If any party terminates this Agreement
---------------------
pursuant to Section 9.1, all obligations of the parties hereunder shall
terminate without any liability of any party to any other party (except for any
liability of any party for breaches of this Agreement).
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Notice. All notices and other communications required or
------
permitted under this Agreement shall be delivered to the parties at the address
set forth below, or at such other address that they designate by notice to all
other parties in accordance with this Section 10.1. Any party delivering notice
to HK or Purchaser shall deliver a copy to: Hall Kinion & Associates, Inc.,
Attn: Brenda Hall, 5300 Stevens Creek Blvd., Suite 320, San Jose, California
95129 and to Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, 600
Hansen Way, Second Floor, Palo Alto, California 94304, Attn: Scott C. Dettmer,
Esq. Any party delivering notice to Sellers, TV Stockholder and/or Frederick
Lenz shall deliver a copy to: Seyfarth, Shaw, Fairwearther & Geraldson, 900
Third Avenue, New York, New York 10022, Attn: Abraham M. Stanger, Esq. and to
Oberstein, Kibre & Horwitz, 1999 Avenue of the Stars, Los Angeles CA 90067,
Attn: Norman Oberstein. All notices and communications shall be deemed to have
been received unless otherwise set forth herein: (i) in the case of personal
delivery, on the date of such delivery; (ii) in the case of telex or facsimile
transmission, on the date on which the sender receives confirmation by telex or
facsimile transmission that such notice was received by the addressee, provided
that a copy of such transmission is additionally sent by mail as set forth in
(iv) below; (iii) in the case of overnight air courier, on the second business
day following the day sent, with receipt confirmed by the courier; and (iv) in
the case of mailing by first class certified or registered mail, postage
prepaid, return receipt requested, on the fifth business day following such
mailing.
10.2 Entire Agreement. This Agreement, the exhibits and schedules
----------------
hereto, and the documents referred to herein embody the entire agreement and
understanding of the parties hereto with respect to the subject matter hereof,
and supersede all prior and contemporaneous agreements and understandings, oral
or written, relative to said subject matter. The parties acknowledge and agree
that each is relying solely on the representations and warranties contained
herein and therein and the schedules, exhibits, and other materials specifically
referred
42
<PAGE>
to herein, in determining whether to enter into this Agreement and the Related
Agreements to which each is a party.
10.3 Binding Effect; Assignment. This Agreement and the various
--------------------------
rights and obligations arising hereunder shall inure to the benefit of and be
binding upon Sellers, Stockholders, TV Stockholder their respective successors
and permitted assigns, and HK and Purchaser and their respective successors and
permitted assigns. Neither this Agreement nor any of the rights, interests, or
obligations hereunder shall be transferred or assigned (by operation of law or
otherwise) by any of the parties hereto without the prior written consent of the
other parties, except for transfers and assignments with respect to applicable
laws of descent and distribution and except that HK's and Purchaser's rights
hereunder may be assigned in connection with a merger of HK or Purchaser with or
into each other or into a third party or a sale of all or substantially all of
HK's or Purchaser's assets.
10.4 Captions. The article and section headings of this Agreement
--------
are inserted for convenience only and shall not constitute a part of this
Agreement in construing or interpreting any provision hereof.
10.5 Expenses of Transaction; Taxes. Sellers shall pay in full all
------------------------------
professional fees and expenses incurred by Sellers and the Business in
connection with this Agreement and the Related Agreements, and the transactions
contemplated hereby and thereby. HK and Purchaser shall pay in full all
professional fees and expenses incurred by HK and Purchaser in connection with
this Agreement and the Related Agreements, and the transactions contemplated
hereby and thereby. Sellers shall pay all applicable sales, use, excise,
transfer, documentary and any other similar taxes or arising out of the purchase
and sale of the Assets.
10.6 Waiver; Consent. This Agreement may not be changed, amended,
---------------
augmented, or discharged (other than by performance), in whole or in part,
except by a writing executed by the parties hereto, and no waiver of any of the
provisions or conditions of this Agreement or any of the rights of a party
hereto shall be effective or binding unless such waiver shall be in writing and
signed by the party claimed to have given or consented thereto. Except to the
extent that a party hereto may have otherwise agreed in writing, no waiver by
that party of any condition of this Agreement or breach by the other party of
any of its obligations or representations hereunder or thereunder shall be
deemed to be a waiver of any other condition or subsequent or prior breach of
the same or any other obligation or representation by the other party, nor shall
any forbearance by the first party to seek a remedy for any noncompliance or
breach by the other party be deemed to be a waiver by the first party of its
rights and remedies with respect to such noncompliance or breach.
10.7 Third-Party Beneficiaries. Except as otherwise expressly
-------------------------
provided for in this Agreement, nothing herein, expressed or implied, is
intended or shall be construed to confer upon or give to any person, firm,
corporation, or legal entity, other than the parties hereto, any rights,
remedies, or other benefits under or by reason of this Agreement.
10.8 Counterparts and Facsimiles. This Agreement may be executed
---------------------------
simultaneously in multiple counterparts, each of which shall be deemed an
original, but all of
43
<PAGE>
which taken together shall constitute one and the same instrument. All
signatures may be delivered by facsimile which shall be as binding as if an
original. All facsimile signatures shall be followed by an exchange of original
signatures as soon as possible thereafter.
10.9 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
10.10 Incorporation of Exhibits and Schedules. The exhibits and
---------------------------------------
schedules and recitals identified in this Agreement are incorporated herein by
reference and made a part hereof.
10.11 Governing Law. This Agreement shall in all respects be
-------------
construed in accordance with and governed by the laws of the State of New York
as applied to agreements among New York residents entered into and to be
performed entirely within New York.
44
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Asset Purchase
Agreement to be executed as of the day and year first above written.
HALL, KINION &
ASSOCIATES, INC.
By: /s/ Brenda C. Hall/Paul H. Bartlett
------------------------------------
Its: CEO / PRES.
TEAMALLIANCE TECHNOLOGY PARTNERS, L.P.
/s/ Teamalliance Technology Partners, Inc.
By:__________________________________________
General Partner, By Richard Harmon
Its:_________________________________________
President
Its:_________________________________________
TEAMALLIANCE TECHNOLOGY PARTNERS, INC.
/s/ Richard Harmon
By:_________________________
President
Its:________________________
TEAM VISIONS, INC.
/s/ Dr. Frederick Lenz
By:_________________________
President
Its:________________________
/s/ Richard Harmon
____________________________
Richard Harmon
/s/ Mordecai Levine
____________________________
Mordy Levine
/s/ Frederick Lenz
____________________________
Frederick Lenz
<PAGE>
TEAMALLIANCE CHICAGO, L.L.C.
By: /s/ Richard Harmon
---------------------------
Its: President
--------------------------
TEAMALLIANCE COLORADO, L.L.C.
By: /s/ Richard Harmon
---------------------------
Its: President
--------------------------
TEAMALLIANCE HOUSTON, L.L.C.
By: /s/ Richard Harmon
--------------------------
Its: President
--------------------------
TEAMALLIANCE ORLANDO-JACKSONVILLE, L.L.C.
By: /s/ Richard Harmon
--------------------------
Its: President
-------------------------
TEAMALLIANCE TAMPA BAY, L.L.C.
By: /s/ Richard Harmon
--------------------------
Its: President
-------------------------
<PAGE>
TEAMALLIANCE UTAH/NEVADA, L.L.C.
By: /s/ Richard Harmon
-------------------------
Its: President
------------------------
TA ACQUISITION CORPORATION
By: /s/ Brenda C. Hall/Paul H. Bartlett
------------------------------------
Its: CEO/President
------------------------
<PAGE>
Pursuant to Item 601(b)(2) of Regulation S-K, the attachments, exhibits and
schedules to this Asset Purchase Agreement have been omitted. Such attachments,
exhibits and schedules will be submitted to the Securities and Exchange
Commission upon request.
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
HALL, KINION & ASSOCIATES, INC.
ARTICLE ONE
The name of this Corporation is Hall, Kinion & Associates, Inc.
ARTICLE TWO
A. The address of the registered office 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 at such address is
Incorporating Services, Ltd.
B. The name and mailing address of the incorporator of the Corporation
is:
Christine M. Nakata
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP
155 Constitution Drive
Menlo Park, California 94025
ARTICLE THREE
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 FOUR
This Corporation is authorized to issue one class of stock to be designated
"Common Stock". The total number of shares which the Corporation is authorized
to issue is One Thousand (1,000) shares of the Common Stock, $0.001 par value.
ARTICLE FIVE
Except as otherwise provided in this 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 SIX
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.
<PAGE>
ARTICLE SEVEN
Elections of directors need not be by written ballot unless the Bylaws of
the Corporation shall so provide.
ARTICLE EIGHT
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 NINE
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 Article to authorize
corporation action further eliminating or limiting the personal liability of
directors then the 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
Nine 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 TEN
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.
<PAGE>
Any repeal or modification of any of the foregoing provisions of this
Article Ten 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 ELEVEN
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this 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.
THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation to do business both within and without the
State of Delaware and in pursuance of the General Corporation Law of Delaware,
does make and file this Certificate, hereby declaring and certifying that the
facts herein stated are true, and accordingly has hereunto set her hand this
27th day of January, 1997.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Incorporation on this 27th day of January, 1997.
/s/ Christine M. Nakata
__________________________________________
Christine M. Nakata
Incorporator
<PAGE>
EXHIBIT 3.3
BYLAWS
OF
HALL, KINION & ASSOCIATES, INC.
A Delaware Corporation
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Dover,
---------
County of Kent, State of Delaware.
Section 2. The corporation may also have offices at such other places
---------
both within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
---------
directors shall be held at such time and place, within or without the State of
Delaware, as may be fixed from time to time by the Board of Directors, and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2. Annual meetings of stockholders, commencing with the year
---------
1997, shall be held at such date and time as shall be designated from time to
time by the Board of Directors and stated in the notice of the meeting, at which
they shall elect by a plurality vote a board of directors, and transact such
other business as may properly be brought before the meeting.
Section 3. Written notice of the annual meeting stating the place,
---------
date and hour of the meeting shall be given to each stockholder entitled to vote
at such meeting not fewer than ten (10) nor more than sixty (60) days before the
date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
---------
corporation shall prepare and make, at least ten (10) days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
1
<PAGE>
Section 5. Special meetings of the stockholders, for any purpose or
---------
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called only by the Board of Directors.
Section 6. Written notice of a special meeting stating the place,
---------
date and hour of the meeting and the purpose or purposes for which the meeting
is called, shall be given not fewer than ten (10) nor more than sixty (60) days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
Section 7. Business transacted at any special meeting of
---------
stockholders shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and
---------
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted that might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the
---------
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the certificate of
----------
incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three (3) years from its date, unless the proxy provides for a longer
period.
Section 11. Unless otherwise provided in the certificate of
----------
incorporation, any action required to be taken at any annual or special meeting
of the stockholders of the corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. Any written consent may be
revoked by a writing received by the Secretary of the Corporation prior to the
time that written consents of the number of shares required to authorize the
proposed action have been filed with the Secretary.
Notwithstanding the above provisions of this Section 11, effective
upon a closing of an initial public offering of the corporation's securities
pursuant to a registration statement filed under the Securities Act of 1933, as
amended, the stockholders of the corporation may not
2
<PAGE>
take action by written consent without a meeting but must take any such actions
at a duly called annual or special meeting.
ARTICLE III
DIRECTORS
Section 1. The number of directors that shall constitute the whole
---------
board shall be determined by resolution of the Board of Directors or by the
stockholders at the annual meeting of the stockholders, except as provided in
Section 2 of this Article, and each director elected shall hold office until his
successor is elected and qualified. Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting from
---------
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, though less than a quorum, or by a sole
remaining director, and the directors so chosen shall hold office until the next
annual election and until their successors are duly elected and shall qualify,
unless sooner displaced. If there are no directors in office, then an election
of directors may be held in the manner provided by statute.
Section 3. The business of the corporation shall be managed by or
---------
under the direction of its board of directors, which may exercise all such
powers of the corporation and do all such lawful acts and things as are not by
statute or by the certificate of incorporation or by these bylaws directed or
required to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may hold
---------
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. The first meeting of each newly elected Board of Directors
---------
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular meetings of the Board of Directors may be held
---------
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the Board of Directors may be called
---------
by the president on ten (10) days' notice to each director by mail or forty-
eight (48) hours notice to each director either personally or by telephone,
telegram or facsimile; special meetings shall be called by the president or
secretary in like manner and on like notice on the written request of two (2)
directors unless the board consists of only one director, in which case special
meetings shall be called by the president or secretary in like manner and on
like notice on the written request of the sole director.
3
<PAGE>
Section 8. At all meetings of the board a majority of the directors
---------
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of
---------
incorporation or these bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 10. Unless otherwise restricted by the certificate of
----------
incorporation or these bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The Board of Directors may, by resolution passed by a
----------
majority of the whole board, designate one (1) or more committees, each
committee to consist of one (1) or more of the directors of the corporation. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee.
In the absence of disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers that may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors.
Section 12. Each committee shall keep regular minutes of its meetings
----------
and report the same to the Board of Directors when required.
4
<PAGE>
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
----------
incorporation or these bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
REMOVAL OF DIRECTORS
Section 14. Unless otherwise restricted by the certificate of
----------
incorporation or bylaw, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
---------
certificate of incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram, telephone or facsimile.
Section 2. Whenever any notice is required to be given under the
---------
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the
---------
Board of Directors and shall be a president, treasurer and a secretary. The
Board of Directors may elect from among its members a Chairman of the Board and
a Vice Chairman of the Board. The Board of Directors may also choose one or more
vice-presidents, assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, unless the certificate of incorporation
or these bylaws otherwise provide.
Section 2. The Board of Directors at its first meeting after each
---------
annual meeting of stockholders shall choose a president, a treasurer, and a
secretary, and may choose vice presidents, assistant secretaries and assistant
treasurers.
Section 3. The Board of Directors may appoint such other officers and
---------
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
5
<PAGE>
Section 4. The salaries of all officers and agents of the corporation
---------
shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office until
---------
their successors are chosen and qualify. Any officer elected or appointed by the
Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board, if any, shall preside at all
---------
meetings of the Board of Directors and of the stockholders at which he shall be
present. He shall have and may exercise such powers as are, from time to time,
assigned to him by the Board and as may be provided by law.
Section 7. In the absence of the Chairman of the Board, the Vice
---------
Chairman of the Board, if any, shall preside at all meetings of the Board of
Directors and of the stockholders at which he shall be present. He shall have
and may exercise such powers as are, from time to time, assigned to him by the
Board and as may be provided by law.
THE PRESIDENT AND VICE-PRESIDENTS
Section 8. The president shall be the chief operating officer of the
---------
corporation; and in the absence of the Chairman and Vice Chairman of the Board
he shall preside at all meetings of the stockholders and the Board of Directors;
he shall have general and active management of the business of the corporation
and shall see that all orders and resolutions of the Board of Directors are
carried into effect.
Section 9. The president shall execute bonds, mortgages and other
---------
contracts requiring a seal, under the seal of the corporation, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the
Board of Directors to some other officer or agent of the corporation.
Section 10. In the absence of the president or in the event of his
----------
inability or refusal to act, the vice-president, if any, (or in the event there
be more than one vice-president, the vice-presidents in the order designated by
the directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. The vice-presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 11. The secretary shall attend all meetings of the Board of
----------
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The Board of Directors may give general authority to any other
officer to affix the seal
6
<PAGE>
of the corporation and to attest the affixing by his signature.
Section 12. The assistant secretary, or if there be more than one, the
----------
assistant secretaries in the order determined by the Board of Directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the board of directors may from
time to time prescribe.
TREASURER AND ASSISTANT TREASURERS
Section 13. The treasurer shall have the custody of the corporate
----------
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors. Unless
otherwise appointed, the chief financial officer shall be the treasurer.
Section 14. The treasurer shall disburse the funds of the corporation
----------
as may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 15. If required by the Board of Directors, the treasurer shall
----------
give the corporation a bond (which shall be renewed every six years) in such sum
and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his office and for the
restoration to the corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
corporation.
Section 16. The assistant treasurer, or if there shall be more than
----------
one, the assistant treasurers in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the treasurer and
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled
---------
to have a certificate, signed by, or in the name of the corporation by, the
chairman or vice-chairman of the Board of Directors, or the president or a vice-
president and the treasurer or an assistant treasurer, or the secretary or an
assistant secretary of the corporation, certifying the number of shares owned by
him in the corporation.
Certificates may be issued for partly paid shares and in such case
upon the face or back of the certificates issued to represent any such partly
paid shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative,
7
<PAGE>
participating, optional or other special rights of each class of stock or series
thereof and the qualification, limitations or restrictions of such preferences
and/or rights shall be set forth in full or summarized on the face or back of
the certificate that the corporation shall issue to represent such class or
series of stock, provided that, except as otherwise provided in section 202 of
the General Corporation Law of Delaware, in lieu of the foregoing requirements,
there may be set forth on the face or back of the certificate that the
corporation shall issue to represent such class or series of stock, a statement
that the corporation will furnish without charge to each stockholder who so
requests 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.
Section 2. Any of or all the signatures on the certificate may be
---------
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate or
---------
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of
---------
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the
---------
stockholders entitled to notice of or to vote at any meeting of stockholder or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting, nor more than sixty (60) days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
8
<PAGE>
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the
---------
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation,
---------
subject to the provisions of the certificate of incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out
---------
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
CHECKS
Section 3. All checks or demands for money and notes of the
---------
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by
---------
resolution of the Board of Directors.
SEAL
Section 5. The Board of Directors may adopt a corporate seal having
---------
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 6. The corporation shall, to the fullest extent authorized
---------
under the laws of the State of Delaware, as those laws may be amended and
supplemented from time to time, indemnify any director made, or threatened to be
made, a party to an action or proceeding, whether criminal, civil,
administrative or investigative, by reason of being a director of the
corporation or a predecessor corporation or, at the corporation's request, a
director or officer of
9
<PAGE>
another corporation, provided, however, that the corporation shall indemnify any
such agent in connection with a proceeding initiated by such agent only if such
proceeding was authorized by the Board of Directors of the corporation. The
indemnification provided for in this Section 6 shall: (i) not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any bylaw, agreement or vote of stockholders or disinterested directors or
otherwise, both as to action in their official capacities and as to action in
another capacity while holding such office, (ii) continue as to a person who has
ceased to be a director, and (iii) inure to the benefit of the heirs, executors
and administrators of such a person. The corporation's obligation to provide
indemnification under this Section 6 shall be offset to the extent of any other
source of indemnification or any otherwise applicable insurance coverage under a
policy maintained by the corporation or any other person.
Expenses incurred by a director of the corporation in defending a
civil or criminal action, suit or proceeding by reason of the fact that he is or
was a director of the corporation (or was serving at the corporation's request
as a director or officer of another corporation) shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation as authorized by relevant sections of the
General Corporation Law of Delaware. Notwithstanding the foregoing, the
corporation shall not be required to advance such expenses to an agent who is a
party to an action, suit or proceeding brought by the corporation and approved
by a majority of the Board of Directors of the corporation that alleges willful
misappropriation of corporate assets by such agent, disclosure of confidential
information in violation of such agent's fiduciary or contractual obligations to
the corporation or any other willful and deliberate breach in bad faith of such
agent's duty to the corporation or its stockholders.
The foregoing provisions of this Section 6 shall be deemed to be a
contract between the corporation and each director who serves in such capacity
at any time while this bylaw is in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
The Board of Directors in its discretion shall have power on behalf of
the corporation to indemnify any person, other than a director, made a party to
any action, suit or proceeding by reason of the fact that he, his testator or
intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Section 6 of all directors,
officers and employees who are determined by the corporation or otherwise to be
or to have been "fiduciaries" of any employee benefit plan of the corporation
that may exist from time to time, Section 145 of the General Corporation Law of
Delaware shall, for the purposes of this Section 6, be interpreted as follows:
an "other enterprise" shall be deemed to include such an employee benefit plan,
including without limitation, any plan of the corporation that is governed by
the Act of Congress entitled "Employee Retirement Income Security Act of 1974,"
as amended from time to time; the corporation shall be deemed to have requested
a person to serve an employee benefit plan where the performance by such person
of his duties to the corporation also imposes duties on, or otherwise involves
services by, such person to the plan or participants or beneficiaries of the
plan; excise taxes assessed on a person with respect to an employee benefit plan
pursuant to such Act of Congress shall be deemed "fines."
10
<PAGE>
ARTICLE VIII
AMENDMENTS
Section 1. These bylaws may be altered, amended or repealed or new
---------
bylaws may be adopted by the stockholders or by the Board of Directors, when
such power is conferred upon the Board of Directors by the certificate of
incorporation at any regular meeting of the stockholders or of the Board of
Directors or at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
bylaws be contained in the notice of such special meeting. If the power to
adopt, amend or repeal bylaws is conferred upon the Board of Directors by the
certificate or incorporation it shall not divest or limit the power of the
stockholders to adopt, amend or repeal bylaws.
11
<PAGE>
EXHIBIT 4.2
_______________________________
INVESTORS' RIGHTS AGREEMENT
_______________________________
January 26, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Registration Rights............................................. 1
-------------------
1.1 Definitions............................................... 1
-----------
1.2 Request for Registration.................................. 2
------------------------
1.3 Company Registration...................................... 3
--------------------
1.4 Obligations of the Company................................ 4
--------------------------
1.5 Furnish Information....................................... 5
-------------------
1.6 Expenses of Demand Registration........................... 5
-------------------------------
1.7 Expenses of Company Registration.......................... 6
--------------------------------
1.8 Underwriting Requirements................................. 6
-------------------------
1.9 Delay of Registration..................................... 6
---------------------
1.10 Indemnification.......................................... 7
---------------
1.11 Reports Under Securities Exchange Act of 1934............ 8
---------------------------------------------
1.12 Form S-3 Registration.................................... 9
---------------------
1.13 Assignment of Registration Rights........................ 10
---------------------------------
1.14 Limitations on Subsequent Registration Rights............ 10
---------------------------------------------
1.15 Market Stand-Off Agreement............................... 10
--------------------------
1.16 Termination of Registration Rights....................... 11
----------------------------------
2. Covenants of the Company........................................ 11
------------------------
2.1 Delivery of Financial Statements.......................... 11
--------------------------------
2.2 Inspection................................................ 12
----------
2.3 Termination of Information and Inspection Covenants....... 12
---------------------------------------------------
2.4 Right of First Offer...................................... 12
--------------------
2.5 Key-Man Insurance......................................... 13
-----------------
2.6 Board Representation...................................... 14
--------------------
2.7 Positive Covenants........................................ 14
------------------
2.8 Negative Covenants........................................ 14
------------------
2.9 Termination of Certain Covenants.......................... 15
--------------------------------
3. Miscellaneous................................................... 15
-------------
3.1 Successors and Assigns.................................... 15
----------------------
3.2 Governing Law............................................. 15
-------------
3.3 Counterparts.............................................. 15
------------
3.4 Titles and Subtitles...................................... 15
--------------------
3.5 Notices................................................... 16
-------
3.6 Expenses.................................................. 16
--------
3.7 Amendments and Waivers.................................... 16
----------------------
3.8 Severability.............................................. 16
------------
3.9 Aggregation of Stock...................................... 16
--------------------
3.10 Entire Agreement; Amendment; Waiver...................... 16
-----------------------------------
</TABLE>
Schedule A Schedule of Investors
i
<PAGE>
EXHIBIT B
---------
INVESTORS' RIGHTS AGREEMENT
---------------------------
THIS INVESTORS' RIGHTS AGREEMENT is made as of the 26th day of
January, 1996, by and between Hall, Kinion & Associates, Inc., a California
corporation (the "Company"), Brenda C. Hall and Todd J. Kinion (the "Principal
Shareholders") and the investors listed on Schedule A hereto, each of which is
herein referred to as an "Investor."
RECITALS
--------
WHEREAS, the Company and the Investors are parties to the Series A
Preferred Stock Purchase Agreement of even date herewith (the "Series A
Agreement");
WHEREAS, in order to induce the Company to enter into the Series A
Agreement and to induce the Investors to invest funds in the Company pursuant to
the Series A Agreement, the Investors and the Company hereby agree that this
Agreement shall govern the rights of the Investor to cause the Company to
register shares of Common Stock issuable to the Investors and certain other
matters as set forth herein;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as
-------------------
follows:
1.1 Definitions. For purposes of this Section 1:
-----------
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "Form S-3" means such form under the Act as in effect on
the date hereof or any registration form under the Act subsequently adopted by
the SEC which permits inclusion or incorporation of substantial information by
reference to other documents filed by the Company with the SEC.
(c) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance with
Section 1.13 hereof.
(d) The term "1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
(e) The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(f) The term "Registrable Securities" means (i) the Common Stock
issuable or issued upon conversion of the Series A Preferred Stock, (ii) the
shares of Common Stock issuable on exercise of the Warrants to Purchase Common
Stock dated January 30, 1996, (iii) with respect to Section 1.3, 1.4, 1.6, 1.7,
1.8, 1.10 and 1.11 only, the Common Stock of the Company held by the Principal
Shareholders and (iv) any Common Stock of the Company issued
1
<PAGE>
as (or issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with respect to,
or in exchange for or in replacement of the securities referenced in (i) and
(ii) above, excluding in all cases, however, any Registrable Securities sold by
a person in a transaction in which his rights under this Section 1 are not
assigned.
(g) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock outstanding which
are, and the number of shares of Common Stock issuable pursuant to then
exercisable or convertible securities which are, Registrable Securities.
(h) The term "SEC" shall mean the Securities and Exchange Commission.
1.2 Request for Registration.
------------------------
(a) If the Company shall receive at any time after the earlier of (i)
January 30, 2000, or (ii) six (6) months after the effective date of the first
registration statement for a public offering of securities of the Company (other
than a registration statement relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar
plan or a SEC Rule 145 transaction), a written request from the Holders of a
majority of the Registrable Securities then outstanding that the Company file a
registration statement under the Act covering the registration of the
Registrable Securities then outstanding if the anticipated aggregate offering
price, net of underwriting discounts and commissions, would exceed $10,000,000,
then the Company shall:
(i) within ten (10) days of the receipt thereof, give written
notice of such request to all Holders; and
(ii) file as soon as practicable, and in any event within 120
days of the receipt of such request, a registration statement under the Act
relating to the sale of all Registrable Securities which the Holders request to
be registered, subject to the limitations of subsection 1.2(b).
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to subsection 1.2(a) and the Company
shall include such information in the written notice referred to in subsection
1.2(a). The underwriter will be selected by the Company and shall be reasonably
acceptable to a majority in interest of the Initiating Holders. In such event,
the right of any Holder to include his Registrable Securities in such
registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 1.4(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of this
Section 1.2, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
2
<PAGE>
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
(c) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration statement pursuant to this Section 1.2, a
certificate signed by the Chief Executive Officer of the Company stating that in
the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such registration
statement to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer taking action
with respect to such filing for a period of not more than 180 days after receipt
of the request of the Initiating Holders; provided, however, that the Company
may not utilize this right more than once in any twelve-month period.
(d) In addition, the Company shall not be obligated to effect, or to
take any action to effect, any registration pursuant to this Section 1.2:
(i) After the Company has effected one registration pursuant to
this Section 1.2 and such registration has been declared or ordered effective;
(ii) During the period starting with the date thirty (30) days
prior to the Company's good faith estimate of the date of filing of, and ending
on a date one hundred eighty (180) days after the effective date of, a
registration subject to Section 1.3 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
(iii) If the Initiating Holders propose to dispose of shares of
Registrable Securities that may be immediately registered on Form S-3 pursuant
to a request made pursuant to Section 1.12 below.
1.3 Company Registration. If (but without any obligation to do so)
--------------------
the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock or other securities under the Act in connection with the public offering
of such securities solely for cash (other than a registration relating solely to
the sale of securities to participants in a Company stock plan, a registration
on any form which does not include substantially the same information as would
be required to be included in a registration statement covering the sale of the
Registrable Securities or a registration in which the only Common Stock being
registered is Common Stock issuable upon conversion of debt securities which are
also being registered), the Company shall, at such time, promptly give each
Holder and each of the Principal Shareholders written notice of such
registration. Upon the written request of each Holder and each of the Principal
Shareholders given within twenty (20) days after mailing of such notice by the
Company in accordance with Section 3.5, the Company shall, subject to the
provisions of Section 1.8, cause to be registered under the Act first, all of
the Registrable Securities that each such Holder has requested to be registered
then, to the extent the manager's underwriter so allows, all of the Registrable
Securities that each such Principal Shareholder has requested to be registered.
3
<PAGE>
1.4 Obligations of the Company. Whenever required under this
--------------------------
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for a period of up to one hundred twenty (120)
days or until the distribution contemplated in the Registration Statement has
been completed; provided, however, that (i) such 120-day period shall be
extended for a period of time equal to the period the Holder refrains from
selling any securities included in such registration at the request of an
underwriter of Common Stock (or other securities) of the Company; and (ii) in
the case of any registration of Registrable Securities on Form S-3 which are
intended to be offered on a continuous or delayed basis, such 120-day period
shall be extended, if necessary, to keep the registration statement effective
until all such Registrable Securities are sold, provided that Rule 415, or any
successor rule under the Act, permits an offering on a continuous or delayed
basis, and provided further that applicable rules under the Act governing the
obligation to file a post-effective amendment permit, in lieu of filing a post-
effective amendment which (I) includes any prospectus required by Section
10(a)(3) of the Act or (II) reflects facts or events representing a material or
fundamental change in the information set forth in the registration statement,
the incorporation by reference of information required to be included in (I) and
(II) above to be contained in periodic reports filed pursuant to Section 13 or
15(d) of the 1934 Act in the registration statement.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders;
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Act.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
4
<PAGE>
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(i) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Section 1, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Section 1, if such securities are being
sold through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering (and given to the underwriters in such offering), addressed to the
underwriters, if any, and to the Holders requesting registration of Registrable
Securities and (ii) a letter dated such date, from the independent certified
public accountants of the Company, in form and substance as is customarily given
by independent certified public accountants to underwriters in an underwritten
public offering (and given to the underwriters in such offering), addressed to
the underwriters, if any, and to the Holders requesting registration of
Registrable Securities.
1.5 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Section 1
with respect to the Registrable Securities of any selling Holder that such
Holder shall furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
such securities as shall be required to effect the registration of such Holder's
Registrable Securities.
1.6 Expenses of Demand Registration. All expenses other than
-------------------------------
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company
(including fees and disbursements of counsel for the Company in its capacity as
counsel to the selling Holders hereunder; if Company counsel does not make
itself available for this purpose, the Company will pay the reasonable fees and
disbursements of one counsel for the selling Holders) shall be borne by the
Company; provided, however, that the Company shall not be required to pay for
any expenses of any registration proceeding begun pursuant to Section 1.2 if the
registration request is subsequently withdrawn at the request of the Holders of
a majority of the Registrable Securities to be registered (in which case all
Participating Holders shall bear such expenses), unless the Holders of a
majority of the Registrable Securities agree to forfeit their right to one
demand registration pursuant to Section 1.2; provided further, however, that if
at the time of such withdrawal, the Holders have learned of a material adverse
change in the condition, business, or prospects of the Company from that known
to the Holders at the time of their request and have withdrawn the request with
reasonable promptness following disclosure by the
5
<PAGE>
Company of such material adverse change, then the Holders shall not be required
to pay any of such expenses and shall retain their rights pursuant to Section
1.2.
1.7 Expenses of Company Registration. The Company shall bear and
--------------------------------
pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder (which right may be assigned as provided
in Section 1.13), including (without limitation) all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto and the fees and disbursements of counsel for the Company in its
capacity as counsel to the selling Holders hereunder; if Company counsel does
not make itself available for this purpose, the Company will pay the reasonable
fees and disbursements (which shall not exceed $30,000) of one counsel for the
selling Holders selected by them, but excluding underwriting discounts and
commissions relating to Registrable Securities.
1.8 Underwriting Requirements. In connection with any offering
-------------------------
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders' (or the
Principal Shareholders') securities in such underwriting unless they accept the
terms of the underwriting as agreed upon between the Company and the
underwriters selected by it (or by other persons entitled to select the
underwriters), and then only in such quantity as the underwriters determine in
their sole discretion will not jeopardize the success of the offering by the
Company. If the total amount of securities, including Registrable Securities,
requested by shareholders to be included in such offering exceeds the amount of
securities sold other than by the Company that the underwriters determine in
their sole discretion is compatible with the success of the offering, then only
that number of such securities, including Registrable Securities, which the
underwriters determine in their sole discretion will not jeopardize the success
of the offering (the securities so included to be apportioned pro rata among the
selling shareholders according to the total amount of securities entitled to be
included therein owned by each selling Shareholder or in such other proportions
as shall mutually be agreed to by such selling shareholders, provided that
shares held by Principal Shareholders shall be the first to be excluded from
such offering) but in no event shall (i) the amount of securities of the selling
Holders included in the offering be reduced below twenty percent (20%) of the
total amount of securities included in such offering, unless such offering is
the initial public offering of the Company's securities in which case the
selling shareholders may be excluded if the underwriters make the determination
described above and no other shareholder's securities are included, (ii)
notwithstanding (i) above, any shares being sold by a shareholder exercising a
demand registration right similar to that granted in Section 1.2 be excluded
from such offering. For purposes of the preceding parenthetical concerning
apportionment, for any selling shareholder which is a holder of Registrable
Securities and which is a partnership or corporation, the partners, retired
partners and shareholders of such holder, or the estates and family members of
any such partners and retired partners and any trusts for the benefit of any of
the foregoing persons shall be deemed to be a single "selling shareholder", and
any pro-rata reduction with respect to such "selling shareholder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling shareholder", as defined in
this sentence.
1.9 Delay of Registration. No Holder shall have any right to
---------------------
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
6
<PAGE>
1.10 Indemnification. In the event any Registrable Securities
---------------
are included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the 1934 Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the Act,
the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Act, the 1934 Act, any state securities law or
any rule or regulation promulgated under the Act, the 1934 Act or any state
securities law; and the Company will pay to each such Holder, underwriter or
controlling person, as incurred, any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this subsection 1.10(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder, against any losses, claims,
damages, or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by such Holder expressly for
use in connection with such registration; and each such Holder will pay, as
incurred, any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this subsection 1.10(b), in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection
1.10(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; provided, that,
in no event shall any indemnity under this subsection 1.10(b) exceed the gross
proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
1.10 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 1.10, deliver to the
indemnifying party a written notice of the commencement
7
<PAGE>
thereof and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an indemnified
party (together with all other indemnified parties which may be represented
without conflict by one counsel) shall have the right to retain one separate
counsel, with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential conflict of
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.10, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.10.
(d) If the indemnification provided for in this Section 1.10 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
(f) The obligations of the Company and Holders under this Section
1.10 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.11 Reports Under Securities Exchange Act of 1934. With a view
---------------------------------------------
to making available to the Holders the benefits of Rule 144 promulgated under
the Act and any other rule or regulation of the SEC that may at any time permit
a Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end
8
<PAGE>
of the fiscal year in which the first registration statement filed by the
Company for the offering of its securities to the general public is declared
effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of SEC Rule 144 (at any time
after ninety (90) days after the effective date of the first registration
statement filed by the Company), the Act and the 1934 Act (at any time after it
has become subject to such reporting requirements), or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
1.12 Form S-3 Registration. In case the Company shall receive from
---------------------
any Holder or Holders a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder or
Holders, the Company will:
(a) promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within 15
days after receipt of such written notice from the Company; provided, however,
that the Company shall not be obligated to effect any such registration,
qualification or compliance, pursuant to this section 1.12: (1) if Form S-3 is
not available for such offering by the Holders; (2) if the Holders, together
with the holders of any other securities of the Company entitled to inclusion in
such registration, propose to sell Registrable Securities and such other
securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $2,500,000; (3) if the
Company shall furnish to the Holders a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than 90 days after receipt of
the request of the Holder or Holders under this Section 1.12; provided, however,
that the Company shall not utilize this right more than once in any twelve month
period; (4) if the Company has, within the twelve (12) month period preceding
the date of such request, already effected a registration on Form S-3 for the
Holders pursuant to this Section 1.12; or (5) in any particular jurisdiction in
which the Company would be required to qualify to do business or to execute a
general consent to service of process in effecting such registration,
qualification or compliance.
9
<PAGE>
(c) Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Holders. All expenses incurred in connection with a registration
requested pursuant to Section 1.12, including (without limitation) all
registration, filing, qualification, printer's and accounting fees and the
reasonable fees and disbursements of counsel for the selling Holder or Holders
and counsel for the Company, but excluding any underwriters' discounts or
commissions associated with Registrable Securities, shall be by the Company.
Registrations effected pursuant to this Section 1.12 shall not be counted as
demands for registration or registrations effected pursuant to Sections 1.2 or
1.3, respectively.
1.13 Assignment of Registration Rights. The rights to cause the
---------------------------------
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities which holds all of transferors Registrable
Securities or, after such transfer holds more than 100,000 shares of Registrable
Securities, provided: (a) the Company is, within a reasonable time after such
transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; (b) such transferee or assignee agrees
in writing to be bound by and subject to the terms and conditions of this
Agreement, including without limitation the provisions of Section 1.15 below;
and (c) such assignment shall be effective only if immediately following such
transfer the further disposition of such securities by the transferee or
assignee is restricted under the Act. For the purposes of determining the
number of shares of Registrable Securities held by a transferee or assignee, the
holdings of transferees and assignees of a partnership who are partners or
retired partners of such partnership (including spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession) shall be aggregated together
and with the partnership; provided that all assignees and transferees who would
not qualify individually for assignment of registration rights shall have a
single attorney-in-fact for the purpose of exercising any rights, receiving
notices or taking any action under this Section 1.13.
1.14 Limitations on Subsequent Registration Rights. From and after
---------------------------------------------
the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of a majority of the outstanding Registrable Securities,
enter into any agreement with any holder or prospective holder of any securities
of the Company which would allow such holder or prospective holder (a) to
include such securities in any registration filed under Section 1.2 hereof,
unless under the terms of such agreement, such holder or prospective holder may
include such securities in any such registration only to the extent that the
inclusion of his securities will not reduce the amount of the Registrable
Securities of the Holders which is included or (b) to make a demand registration
which could result in such registration statement being declared effective prior
to the earlier of either of the dates set forth in subsection 1.2(a) or within
one hundred twenty (120) days of the effective date of any registration effected
pursuant to Section 1.2.
1.15 "Market Stand-Off" Agreement. Each Investor and Principal
----------------------------
Shareholder hereby agrees that, during the period of duration specified by the
Company and an underwriter of common stock or other securities of the Company,
following the effective date of a registration statement of the Company filed
under the Act, it shall not, to the extent requested by the Company and such
underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any securities of the Company held by
10
<PAGE>
it at any time during such period except common stock included in such
registration; provided, however, that:
(a) such agreement shall be applicable only to the first such
registration statement of the Company which covers common stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
(b) all officers, directors and shareholders holding one percent (1%)
of the Company's outstanding Common Stock as determined on an as-converted basis
of the Company and all other persons with registration rights (whether or not
pursuant to this Agreement) enter into similar agreements; and
(c) such market stand-off time period shall not exceed 180 days.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
Notwithstanding the foregoing, the obligations described in this
Section 1.15 shall not apply to a registration relating solely to employee
benefit plans on Form S-l or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to a Commission Rule 145
transaction on Form S-4 or similar forms which may be promulgated in the future.
1.16 Termination of Registration Rights. No Holder shall be
----------------------------------
entitled to exercise any right provided for in this Section 1 after five (5)
years following the consummation of the sale of securities pursuant to a
registration statement filed by the Company under the Act in connection with the
initial firm commitment underwritten offering of its securities to the general
public.
2. Covenants of the Company.
------------------------
2.1 Delivery of Financial Statements. The Company shall deliver to
--------------------------------
each Investor:
(a) as soon as practicable, but in any event within ninety (90) days
after the end of each fiscal year of the Company, an income statement for such
fiscal year, a balance sheet of the Company and statement of shareholder's
equity as of the end of such year, and a schedule as to the sources and
applications of funds for such year, such year-end financial reports to be in
reasonable detail, prepared in accordance with generally accepted accounting
principles ("gaap"), and audited and certified by independent public accountants
of nationally recognized standing selected by the Company;
(b) as soon as practicable, but in any event within forty-five (45)
days after the end of each of the first three (3) quarters of each fiscal year
of the Company, an unaudited profit or loss statement, schedule as to the
sources and application of funds for such fiscal quarter, an unaudited balance
sheet and a statement of shareholder's equity as of the end of such fiscal
quarter and a statement showing the number of shares of each class and series of
capital stock and securities convertible into or exercisable for shares of
capital stock outstanding at the end of
11
<PAGE>
the period, the number of common shares issuable upon conversion or exercise of
any outstanding securities convertible or exercisable for common shares and the
exchange ratio or exercise price applicable thereto, all in sufficient detail as
to permit the Investor to calculate its percentage equity ownership in the
Company;
(c) within thirty (30) days of the end of each month, an unaudited
income statement and schedule as to the sources and application of funds and
balance sheet for and as of the end of such month, in reasonable detail;
(d) as soon as practicable, but in any event thirty (30) days prior
to the end of each fiscal year, a budget and business plan for the next fiscal
year, prepared on a monthly basis, including balance sheets and sources and
applications of funds statements for such months and, as soon as prepared, any
other budgets or revised budgets prepared by the Company;
(e) with respect to the financial statements called for in
subsections (b) and (c) of this Section 2.1, an instrument executed by the Chief
Financial Officer or President of the Company and certifying that such
financials were prepared in accordance with gaap consistently applied with prior
practice for earlier periods (with the exception of footnotes that may be
required by gaap) and fairly present the financial condition of the Company and
its results of operation for the period specified, subject to year-end audit
adjustment;
(f) such other reasonably available information relating to the
financial condition, business, prospects or corporate affairs of the Company as
the Investor or any assignee of the Investor may from time to time request,
provided, however, that the Company shall not be obligated under this subsection
(f) or any other subsection of Section 2.1 to provide information which it deems
in good faith to be a trade secret or similar confidential information.
2.2 Inspection. The Company shall permit each Investor which holds
----------
at least 100,000 shares of Series A Preferred Stock, at such Investor's expense,
to visit and inspect the Company's properties, to examine its books of account
and records and to discuss the Company's affairs, finances and accounts with its
officers, all at such reasonable times as may be requested by the Investor;
provided, however, that the Company shall not be obligated pursuant to this
Section 2.2 to provide access to any information which it reasonably considers
to be a trade secret or similar confidential information.
2.3 Termination of Information and Inspection Covenants. The
---------------------------------------------------
covenants set forth in subsections 2.1(c), (d) and (f) and Section 2.2 shall
terminate as to Investors and be of no further force or effect when the sale of
securities pursuant to a registration statement filed by the Company under the
Act in connection with the firm commitment underwritten offering of its
securities to the general public is consummated or when the Company first
becomes subject to the periodic reporting requirements of Sections 12(g) or
15(d) of the 1934 Act, whichever event shall first occur.
2.4 Right of First Offer. Subject to the terms and conditions
--------------------
specified in this paragraph 2.4, the Company hereby grants to each Investor a
right of first offer with respect to future sales by the Company of its Shares
(as hereinafter defined). For purposes of this Section 2.4, Investor includes
any general partners and affiliates of an Investor. An Investor shall be
entitled to apportion the right of first offer hereby granted it among itself
and its partners and affiliates in such proportions as it deems appropriate.
12
<PAGE>
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock ("Shares"), the Company shall first make an offering of such Shares to
each Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail ("Notice")
to the Investors stating (i) its bona fide intention to offer such Shares, (ii)
the number of such Shares to be offered, and (iii) the price and terms, if any,
upon which it proposes to offer such Shares.
(b) Within 15 calendar days after receipt of the Notice, the Investor
may elect to purchase or obtain, at the price and on the terms specified in the
Notice, up to that portion of such Shares that equals the proportion that the
number of shares of common stock issued and held, or issuable upon conversion of
the Series A Preferred Stock then held, by such Investor bears to the total
number of shares of Common Stock of the Company then outstanding (less 800,000
shares of Common Stock subject to the Pledge Agreement dated January 30, 1996 by
and between the Company, the Investors, Brenda Hall and Todd Kinion).
(c) If all Shares which Investors are entitled to obtain pursuant to
subsection 2.4(b) are not elected to be obtained as provided in subsection
2.4(b) hereof, the Company may, during the 60-day period following the
expiration of the period provided in subsection 2.4(b) hereof, offer the
remaining unsubscribed portion of such Shares to any person or persons at a
price not less than, and upon terms no more favorable to the offeree than those
specified in the Notice. If the Company does not enter into an agreement for
the sale of the Shares within such period, or if such agreement is not
consummated within 30 days of the execution thereof, the right provided
hereunder shall be deemed to be revived and such Shares shall not be offered
unless first reoffered to the Investors in accordance herewith.
(d) The right of first offer in this paragraph 2.4 shall not be
applicable (i) to the issuance or sale of up to an aggregate of 825,000 shares
of Common Stock (or options therefor) to the Company's employees, directors,
officers or consultants for the primary purpose of soliciting or retaining their
employment, (ii) to or after consummation of a bona fide, firmly underwritten
public offering of shares of common stock, registered under the Act pursuant to
a registration statement on Form S-1, at an offering price of at least $12.50
per share (appropriately adjusted for any stock split, dividend, combination or
other recapitalization) and $20,000,000 in the aggregate, or (iii) the issuance
of securities in connection with a bona fide business acquisition of or by the
Company, whether by merger, consolidation, sale of assets, sale ore exchange of
stock or otherwise.
(e) The right of first refusal set forth in this Section 2.4 may not
be assigned or transferred, except that (i) such right is assignable by each
Holder to any wholly owned subsidiary or parent of, or to any corporation or
entity that is, within the meaning of the Act, controlling, controlled by or
under common control with, any such Holder or any such partner, and (ii) such
right is assignable between and among any of the Holders.
2.5 Key-Man Insurance. The Company has as of the date hereof or
-----------------
shall within ninety (90) days of the date hereof use its reasonable commercial
efforts to obtain from financially sound and reputable insurers term life
insurance on the life of Brenda Hall and Todd Kinion in the amount of $2,000,000
and $2,000,000 , except as otherwise decided in accordance with policies adopted
by the Company's Board of Directors. The Company will cause to be maintained the
term life insurance required by this Section 2.5 hereof, except as otherwise
13
<PAGE>
decided in accordance with policies adopted by the Company's Board of Directors.
Such policies shall name the Company as loss payee and shall not be cancelable
by the Company without prior approval of the holders of a majority of the Series
A Preferred Stock.
2.6 Board Representation. If Paul Bartlett shall cease to be the
--------------------
Board representative for the holders of Series A Preferred Stock, the holders of
a majority of the Series A Preferred Stock shall nominate three potential Board
candidates (who may also be representatives of the Sprout Group) and the Chief
Executive Officer of the Company shall select one of the three candidates to
serve on the Board as the representative of the Series A Preferred Stock.
2.7 Positive Covenants. So long as not less than thirty percent (30%)
------------------
of the Series A Preferred Stock is still outstanding, the Company covenants and
agrees to:
(a) furnish to the Investors prompt written notice of all actions,
suits and proceedings before any governmental authority or arbitrator pending
(of which the Company has notice), or to the best of the Company's knowledge,
threatened in writing against the Company or any of its subsidiaries which (i)
if adversely determined would involve an aggregate liability of $500,000 or
more, or (ii) otherwise may materially adversely affect the operations,
properties, business or condition (financial or otherwise) of the Company or
purport to affect the legality, validity or enforceability of this Agreement or
any of the Notes; and
(b) furnish to the Investors prompt written notice of any event (of
which the Company has notice) which in the opinion of Company management has
resulted in a material adverse change in the business, results of operations or
condition (financial or otherwise) of the Company;
(c) within one month of Closing, file a permit for and therafter
diligently act to effect a rescission offer under California or any other state
law, as necessary, for any options granted prior to the Closing;
(d) adopt and obtain a permit for a stock option plan for future
grants in substantially the form provided to counsel for the Investors.
(e) solicit the agreement of all employees and consultants to the
terms Proprietary Information and Inventions Agreement in the forms provided to
counsel for the Investors.
2.8 Negative Covenants. So long as not less than thirty percent (30%)
------------------
of the Series A Preferred Stock is still outstanding, the Company covenants and
agrees that, unless otherwise agreed in writing by the holders of a majority of
the outstanding Series A Preferred Stock (the "Major Investors"):
(a) The Company shall not liquidate, wind-up or dissolve itself (or
suffer any liquidation or dissolution).
(b) The Company shall not purchase or redeem any shares of Common
Stock, Preferred Stock, or shares of any other class of stock of the Company,
other than pursuant to Section 7.13 of the Series A Preferred Stock Agreement of
even date herewith, the Right of First Refusal and Co-Sale Agreement of even
date herewith, agreements with employees, consultants
14
<PAGE>
or existing shareholders of the Company other than Brenda Hall or Todd Kinion
entered into pursuant to employee benefit plans approved by the Board of
Directors, or declare or pay any dividends on Common Stock and Preferred Stock
or shares of any other class of stock of the Company (other than dividends
payable solely in Common Stock).
(c) The Company shall not grant options or warrants to purchase any
securities of the Company, provided however, that this prohibition shall not be
applicable to (i) to the issuance or sale of up to an aggregate of 825,000
shares of Common Stock (or options therefor) to the Company's employees,
directors, officers or consultants for the primary purpose of soliciting or
retaining their employment, (ii) to or after consummation of a bona fide, firmly
underwritten public offering of shares of common stock, registered under the Act
pursuant to a registration statement on Form S-1, at an offering price of at
least $12.50 per share (appropriately adjusted for any stock split, dividend,
combination or other recapitalization) and $20,000,000 in the aggregate, or
(iii) the issuance of securities in connection with a bona fide business
acquisition of or by the Company, whether by merger, consolidation, sale of
assets, sale ore exchange of stock or otherwise..
(d) The Company shall not enter into any transaction or agreement
with any shareholder, employee, officer or directors of the Company or member of
his or her immediate family.
2.9 Termination of Certain Covenants. The covenants set forth
--------------------------------
in Sections 2.4, 2.5, 2.6, 2.7 and 2.8 shall terminate and be of no further
force or effect upon the consummation of the sale of securities pursuant to a
registration statement filed by the Company under the Act in connection with the
firm commitment underwritten offering of its securities to the general public.
3. Miscellaneous.
-------------
3.1 Successors and Assigns. Except as otherwise provided herein,
----------------------
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
3.2 Governing Law. This Agreement shall be governed by and
-------------
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
3.3 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.
3.4 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
15
<PAGE>
3.5 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties.
3.6 Expenses. If any action at law or in equity is necessary
--------
to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
3.7 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Registrable Securities then outstanding. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any Registrable Securities then outstanding, each future holder of all
such Registrable Securities, and the Company.
3.8 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
3.9 Aggregation of Stock. All shares of Registrable Securities
--------------------
held or acquired by affiliated entities or persons shall be aggregated together
for the purpose of determining the availability of any rights under this
Agreement.
3.10 Entire Agreement; Amendment; Waiver. This Agreement (including
-----------------------------------
the Exhibits hereto, if any) constitutes the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
16
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Investors' Rights
Agreement as of the date first above written.
HALL, KINION & ASSOCIATES, INC.
By: /s/ Brenda C. Hall
-------------------------------------
Brenda C. Hall, President
Address: 5300 Stevens Creek Boulevard, Suite 320
San Jose, CA 95129
/s/ Brenda C. Hall
-------------------------------------
Brenda C. Hall
/s/ Todd J. Kinion
-------------------------------------
Todd J. Kinion
DLJ CAPITAL CORPORATION
By: /s/ Paul H. Bartlett
-------------------------------------
Paul H. Bartlett
Attorney in Fact
SPROUT GROWTH II, L.P.
By: /s/ Paul H. Bartlett
-------------------------------------
Paul H. Bartlett
Attorney in Fact
19
<PAGE>
SPROUT CEO FUND, L.P.
By: DLJ Capital Corporation,
General Partner
By /s/ Paul H. Bartlett
-------------------------------------
Paul H. Bartlett
Attorney in Fact
20
<PAGE>
SCHEDULE A
----------
<TABLE>
<CAPTION>
Investor Series A Preferred Stock Purchase Price
- -------- ------------------------ --------------
<S> <C> <C>
SPROUT GROWTH II, L.P. 1,433,628 $8,960,175.00
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, California 94025
DLJ CAPITAL CORPORATION 145,998 912,487.50
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, California 94025
SPROUT CEO FUND, L.P. 20,374 127,337.50
3000 Sand Hill Road ------ ----------
Building 4, Suite 270
Menlo Park, California 94025
1,600,000 $10,000,000.00
</TABLE>
21
<PAGE>
EXHIBIT 4.3
RIGHT OF FIRST REFUSAL
AND
CO-SALE AGREEMENT
This Right of First Refusal and Co-Sale Agreement ("Agreement") dated
January 30, 1996 is by and among Brenda Hall and Todd Kinion (including any
permitted transferee of Brenda Hall or Todd Kinion, the "Founders"), Hall,
Kinion & Associates, Inc., a California corporation (the "Company"), and the
undersigned holders of Series A Preferred Stock and Common Stock Warrants (the
"Investors").
WHEREAS, the Company and the Investors are parties to that certain
Series A Preferred Stock and Warrant Purchase Agreement of even date herewith
("Series A Agreement") pursuant to which the Investors are purchasing shares of
the Company's Series A Preferred Stock and Warrants exercisable for shares of
the Company's Common Stock. Capitalized terms not defined herein have the
meaning set forth in the Series A Agreement.
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, the parties agree as follows:
1. Definitions.
-----------
(a) "Stock" shall mean shares of the Company's capital stock now
owned or subsequently acquired by the Founders or Investors.
(b) "Preferred Stock" shall mean the Company's outstanding Series A
Preferred Stock.
(c) "Common Stock" shall mean (i) the Company's Common Stock, (ii)
shares of Common Stock issued or issuable upon conversion of the Company's
outstanding Series A Preferred Stock, (iii) shares of Common Stock issuable upon
exercise of outstanding options to the extent such options are then exercisable
and/or the stock issuable thereupon that would not be subject to repurchase by
the Company, and (iv) shares of Common Stock issuable upon conversion or
exercise of any outstanding convertible or exercisable securities, including,
but not limited to, the Series A Preferred Stock and Warrants.
(d) "Permitted Transfers" shall have the meaning provided in Section
5 hereof.
(e) "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 by the Company's Board of Directors (the "Board") after taking into
account such factors as it shall deem appropriate.
<PAGE>
2. Right of First Refusal
-----------------------
(a) Grant. The Company, Founders and Investors are each hereby
-----
granted a right of first refusal (the "First Refusal Right") exercisable in
connection with any proposed transfer of Stock by the Founders or Investors.
(b) Definition. For purposes of this Section 2 only, a "transfer"
----------
shall be deemed to occur upon any sale, assignment, pledge, encumbrance or other
disposition of Stock; provided, however, that such term transfer shall not
-----------------
include (i) any transfer to Founder's spouse made pursuant to Founder's will or
the laws of intestate succession following Founder's death, (ii) any transfer to
Founder's spouse upon the occurrence of the dissolution of Founder's marriage or
legal separation of Founder and Founder's spouse or (iii) any Permitted
Transfer.
(c) Notice of Intended Disposition. In the event any Founder or
------------------------------
Investor desires to accept a bona fide third-party offer for the transfer of any
or all of his or her shares of Stock (the Stock subject to such offer to be
hereinafter referred to as the "Target Shares"), the transferring Founder or
Investor shall promptly (i) deliver to the Company, non-transferring Founder(s)
and Investor(s) (collectively, the "Rights Holders") 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 applicable federal and state securities laws or the lock-
up agreement (the "Lock-Up Agreement") between the Company, Founders and
Investors set forth in the Investors' Rights Agreement entered into by the
parties.
(d) Company's Exercise of the First Refusal Right. Prior to the
---------------------------------------------
exercise of any rights under this Section 2 by the other Rights Holders, the
Company 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
Disposition Notice) to which the transferring Founder or Investor consents.
Such right shall be exercisable by delivery of written notice (the "First
Exercise Notice") to the transferring Founder or Investor 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 Company shall effect
the repurchase of such shares, including payment of the purchase price, not more
than five (5) business days after delivery of the First Exercise Notice, and at
such time the certificates representing the Target Shares shall be delivered to
the Company.
(e) Founders' and Investors' Exercise of the First Refusal Right. If
------------------------------------------------------------
the transferring Founder or Investor shall have not received a First Exercise
Notice for all of the Target Shares from the Company within twenty-five (25)
days of the Disposition Notice, then the transferring Founder or Investor shall
provide notice thereof to the other Rights Holders (the "Second Rights Notice")
specifying the number of shares not purchased pursuant to the First Exercise
Notice. The other Rights Holders shall, for a period of twenty-five (25) days
following receipt of the Second Rights Notice, have the right to repurchase any
or all of the Target Shares subject to the Second Rights Notice, in proportion
to their respective percentage ownership of
2
<PAGE>
Common Stock (excluding for the purposes of such calculation 800,000 shares of
Common Stock subject to pledge to the Company pursuant to the Pledge Agreements
entered into by the Company, the Founders and the Investors to the extent
800,000 shares continue to be subject to said Pledge Agreement), upon the same
terms as those specified in the Disposition Notice or upon such other terms (not
materially different from those specified in the Disposition Notice) to which
the transferring Founder or Investor consents. Such right shall be exercisable
by delivery of written notice (the "Second Exercise Notice") to the transferring
Founder or Investor prior to the expiration of the twenty-five (25)-day exercise
period. If, in the aggregate, First Refusal Rights are thereby exercised with
respect to all the Target Shares (including Target Shares, if any, subject to
the First Exercise Notice), then the Rights Holders shall effect the repurchase
of such shares, including payment of the purchase price, not more than five (5)
business days after delivery of the Second Exercise Notice, and at such time the
certificates representing the Target Shares shall be delivered to the Rights
Holders.
(f) Purchase of Remaining Portion. If any non-transferring Founder or
-----------------------------
Investor fails to elect to fully exercise his/her/its First Refusal Right set
forth in subsection 2(e), then such non-exercising Rights Holder shall promptly
give notice ("Notice of Non-Participation") of such failure to the other Rights
Holders (such other Rights Holders who delivered a Second Exercise Notice, the
"Participants"). Such Notice of Non-Participation may be made by telephone if
confirmed in writing within two (2) days and shall specify the number of Target
Shares with respect to which such Rights Holder did not deliver a Second
Exercise Notice. Each Participant shall, for a period of ten (10) days
following receipt of such Notice of Non-Participation, have the right to
repurchase any or all of the Target Shares subject to the Notice of Non-
Participation, in proportion to their respective percentage ownership of Common
Stock (excluding for the purposes of such calculation 800,000 shares of Common
Stock subject to pledge to the Company to the extent 800,000 shares continue to
be subject to said Pledge Agreement), upon the same terms as those specified in
the Disposition Notice or upon such other terms (not materially different from
those specified in the Disposition Notice) to which the transferring Founder or
Investor consents. Such right shall be exercisable by delivery of written
notice (the "Third Exercise Notice") to the transferring Founder or Investor
prior to the expiration of the ten (10)-day exercise period. If, in the
aggregate, First Refusal Rights are thereby exercised with respect to all the
Target Shares (including Target Shares subject to the First Exercise Notice, if
any, and the Second Exercise Notice), then the Rights Holders shall effect the
repurchase of such shares, including payment of the purchase price, not more
than five (5) business days after delivery of the Third Exercise Notice, and at
such time the certificates representing the Target Shares shall be delivered to
the Rights Holders.
(g) Non-Exercise of the First Refusal Right. In the event any First
---------------------------------------
Exercise Notice, Second Exercise Notice or Third Exercise Notice is not timely
given to the transferring Founder or Investor, the transferring Founder or
Investor shall have a period of thirty (30) days thereafter in which to sell or
otherwise dispose of the Target Shares subject to compliance with the Co-Sale
Rights granted in Section 4 below 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 applicable federal and state securities laws or the Lock-Up
3
<PAGE>
Agreement. The third-party offeror shall acquire the Target Shares free and
clear of the First Refusal Right, but the acquired shares shall remain subject
to the provisions of the Lock-Up Agreement. In the event Founder or Investor
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 Founder or
Investor until such right lapses.
(h) Partial Exercise of the First Refusal Right. If the Rights
-------------------------------------------
Holders, in the aggregate, timely exercise their First Refusal Rights with
respect to a portion, but not all, of the Target Shares specified in the
Disposition Notice, the transferring Founder or Investor shall have the option,
exercisable by written notice to the Rights Holders (within five (5) days of the
earlier of (i) the expiration of the applicable period for delivery of the
Second Exercise Notice if no Second Exercise Notice is delivered within such
period or (ii) receipt of the Third 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 subsection 2(g), as if the Rights Holders
did not exercise the First Refusal Right; or
(ii) sale to the Rights Holders of the portion of the Target
Shares which the Rights Holders have elected to purchase, such sale to be
effected in substantial conformity with the provisions of subsections 2(d),
2(e) and 2(f). The First Refusal Right shall continue to be applicable to any
subsequent disposition of the remaining Target Shares until such right lapses.
Failure of Founder or Investor to deliver timely notification to the
Rights Holders shall be deemed to be an election by Founder or Investor to sell
the Target Shares pursuant to alternative (i) above.
(i) Non-Cash Payment. Should the purchase price specified in the
----------------
Disposition Notice be payable in property other than cash or evidences of
indebtedness, the Rights Holders shall have the right to pay the purchase price
in the form of cash equal in amount to the Fair Market Value of such property.
If the transferring Founder or Investor on the one hand, and the Rights Holders
on the other hand cannot agree on such Fair Market Value within ten (10) days
after the Rights Holders' receipt of the Disposition Notice, the valuation shall
be made by an appraiser of recognized standing selected by the transferring
Founder or Investor on the one hand, and by the Rights Holders on the other
hand, or, if they cannot agree on an appraiser within twenty (20) days after the
Rights Holders' receipt of the Disposition Notice, the transferring Founder or
Investor on the one hand, and the Rights Holders on the other hand, shall each
select an appraiser of recognized standing and the two (2) appraisers shall
designate a third (3rd) appraiser of recognized standing, whose appraisal shall
be determinative of such value. The cost of such appraisal shall be shared
equally by the transferring Founder or Investor on the one hand, and the Rights
Holders on the other hand.
4
<PAGE>
(j) Recapitalization/Reorganization. Any new, substituted or
-------------------------------
additional securities or other property which is by reason of any
Recapitalization distributed with respect to the Stock shall be immediately
subject to the First Refusal Right, but only to the extent the Stock is at the
time covered by such right. 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 Stock in consummation of
the Reorganization, but only to the extent the Stock is at the time covered by
such right.
"Recapitalization" shall mean any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the Company's outstanding Stock without the Company's receipt of
consideration. "Reorganization" shall mean any merger or consolidation other
than one described in Section 8(d).
3. Purchase Right of Spouse's Interest on Death or Divorce of
----------------------------------------------------------
Founder.
- -------
(a) Transfer to Voting Trust. Immediately following the Closing,
------------------------
and, in the case of Stock hereafter acquired upon acquisition, each Founder will
transfer all shares of his or her Stock (whether now owned or hereafter
acquired) to the Voting Trust and such Stock will remain subject to the
obligations set forth in this Agreement.
(b) Notice of Divorce or Death. Founder, Founder's spouse or the
--------------------------
executor of Founder's estate, as applicable, shall promptly provide the Rights
Holders with written notice (the "Dissolution Notice") of (i) the entry of any
judicial decree or order resolving the property rights of Founder and Founder's
spouse in connection with their marital dissolution or legal separation, (ii)
the execution of any contract or agreement relating to the distribution or
division of such property rights, or (iii) the determination of any transfer,
conveyance or other distribution of Founder's property upon Founder's death.
The Dissolution Notice shall be accompanied, as applicable, by (A) a copy of the
actual decree or order of dissolution or contract or agreement between Founder
and Founder's spouse that provides for the award to the spouse of one or more
shares of Stock in settlement of any community property or other marital
property rights such spouse may have in such shares, or (B) the operative
document(s) providing for a determination of Founder's property upon Founder's
death.
(c) Spouse's Election upon Death or Divorce. At the time the
---------------------------------------
Dissolution Notice is delivered in accordance with Section 3(b), Founder's
spouse may elect to subject to the Voting Trust the Stock that would otherwise
be transferred or conveyed to Founder's spouse or other beneficiary by will, the
laws of intestate succession, settlement, operation of any community property or
marital property rights, or otherwise. In addition, and to the extent that, at
any time the Stock subject to the Dissolution Notice ("Option Stock") is
transferred out of the Voting Trust, or if such Voting Trust is terminated at
any time, then such event shall be deemed to be a "transfer" under Section 2 and
the Option Stock shall be subject to the First Refusal Right set forth in
Section 2 hereof; provided, however, that for purposes of the application of
such Section 2 the following shall apply: (i) with respect to the Option Stock
only, the purchase price under the First Refusal Right shall be the Fair Market
Value of the Option Stock, (ii) Founder's spouse, other beneficiary or the
executor of Founder's estate, as the case may be, shall be deemed to be the
transferring
5
<PAGE>
Founder thereunder, (iii) the Dissolution Notice under this Section 3 shall be
treated as the Disposition Notice under Section 2, (iv) the term "Rights
Holders" shall exclude the Founder who has died or who has divorced or legally
separated from his spouse. With respect to any exercise of the First Refusal
Right for Option Stock, if Founder's spouse, other beneficiary or the executor
of Founder's estate, as the case may be, does not agree with the Fair Market
Value specified for the shares of Option Stock, then the spouse shall promptly
notify the Rights Holders in writing of such disagreement and the fair market
value of such shares of Option Stock shall thereupon be determined by an
appraiser of recognized standing selected by the Rights Holders on the one hand,
and by the spouse, other beneficiary or the executor of Founder's estate, as the
case may be, on the other hand. If they cannot agree on an appraiser within
twenty (20) days after the date of the Dissolution Notice, the Rights Holders on
the one hand, and the spouse on the other hand, shall each select an appraiser
of recognized standing, and the two (2) appraisers shall designate a third
(3rd) appraiser of recognized standing and the average of the three appraisals
shall be determinative of such value. The cost of the appraisal shall be shared
equally by the Rights Holders on the one hand, and the spouse on the other hand.
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 of Option Stock in the Dissolution Agreement, the Rights Holders
shall have the right, exercisable prior to the expiration of such five (5)
business-day period, to rescind the exercise of the First Refusal Right and
thereby revoke their election to purchase the shares of Option Stock. In the
event the Rights Holders so revoke their election, the Rights Holders shall bear
the entire cost of the appraisal. If the appraisal value is more than twenty-
five percent (25%) less than the appraisal of the appraiser selected by the
spouse, the spouse shall have the right, exercisable prior to the expiration of
such five (5) business-day period, in which case the Option Stock shall remain
in the Voting Trust Agreement and will be subject to the First Refusal Rights if
it is thereafter removed from such Voting Trust Agreement.
4. Co-Sale Rights.
--------------
(a) Following compliance with or waiver of right under the First
Refusal Right granted in Section 2 below, if either Founder, or any Investor,
proposes to sell or transfer any shares of Stock in one or more related
transactions that will result in the transfer of Stock by such Founder or
Investor, then such Founder or Investor shall promptly give written notice (the
"Notice") to the Company and Founders and Investors at least twenty (20) days
prior to the closing of such sale or transfer. The Notice shall describe in
reasonable detail the proposed sale or transfer including, without limitation,
the number of shares of Stock to be sold or transferred, the nature of such sale
or transfer, the consideration to be paid and other material terms, and the name
and address of each prospective purchaser or transferee.
(b) Each Founder and each Investor shall have the right (the "Co-Sale
Right"), exercisable upon written notice to such Founder or Investor within
thirty (30) days after receipt of the Notice, to participate to the extent
provided below in such sale of Stock on the same terms and conditions. To the
extent one or more of the Founders or Investors exercises such right of
participation in accordance with the terms and conditions set forth below, the
6
<PAGE>
number of shares of Stock that the initiating Founder or Investor may sell in
the transaction shall be correspondingly reduced.
(c) In connection with any such proposed sale of Stock (i) each
Investor may sell all or any part of that number of shares of Stock equal to the
product obtained by multiplying (x) one-half of the aggregate number of shares
of Stock covered by the Notice by (y) a fraction the numerator of which is the
number of shares of Common Stock owned by the Investor at the time of the sale
or transfer and the denominator of which is the total number of shares of Common
Stock owned by the Investors at the time of the sale or transfer and (ii) each
Founder may sell all or any part of that number of shares of Stock equal to the
product obtained by multiplying (x) one-half of the aggregate number of shares
of Stock covered by the Notice by (y) a fraction the numerator of which is the
number of shares of Common Stock owned by the Founder at the time of the sale or
transfer and the denominator of which is the total number of shares of Common
Stock owned by the Founders at the time of the sale or transfer.
(d) If any Investor or Founder fails to elect to fully participate in
such sale pursuant to this Section 4, then such Founder or Investor shall
promptly give notice of such failure to the other Investors and Founders (those
who did so elect the "Participants"). Such notice may be made by telephone if
confirmed in writing within two (2) days. The Participants shall have five (5)
days from the date such notice was given to agree to sell their pro rata share
of the unsold portion. For purposes of this paragraph, pro rata share shall mean
(i) each Investor Participant may sell all or any part of that number of shares
of such portion equal to the product obtained by multiplying (x) one-half of the
aggregate number of shares of such portion by (y) a fraction the numerator of
which is the number of shares of Common Stock owned by the Investor Participant
at the time of the sale or transfer and the denominator of which is the total
number of shares of Common Stock owned by the Investor Participants at the time
of the sale or transfer and (ii) each Founder Participant may sell all or any
part of that number of shares of such portion equal to the product obtained by
multiplying (x) one-half of the aggregate number of shares of such portion by
(y) a fraction the numerator of which is the number of shares of Common Stock
owned by the Founder Participant at the time of the sale or transfer and the
denominator of which is the total number of shares of Common Stock owned by the
Founder Participants at the time of the sale or transfer.
(e) Each Participant shall effect its participation in the sale by
promptly delivering to the initiating Founder or Investor for transfer to the
prospective purchaser one or more certificates, properly endorsed for transfer,
which represent:
(i) the type and number of shares of Common Stock which such
Participant elects to sell; or
(ii) that number of shares of Series A Preferred Stock or Warrants
to purchase Common Stock which is at such time convertible into or exercisable
for, into the number of shares of Common Stock which such Participant elects to
sell; provided, however, that if the prospective purchaser objects to the
delivery of Series A Preferred Stock or Warrants to purchase Common Stock, in
lieu of Common Stock, such Participant shall convert such
7
<PAGE>
Preferred Stock or Warrants into Common Stock and deliver Common Stock as
provided in subsection 4(e)(i) above. The Company agrees to make any such
conversion or exercise concurrent with the actual transfer of such shares to the
purchaser.
(f) The stock certificate or certificates that the Participant
delivers to the initiating Founder or Investor pursuant to subsection 4(e) shall
be transferred to the prospective purchaser in consummation of the sale of the
Stock pursuant to the terms and conditions specified in the Notice, and the
initiating Founder or Investor shall concurrently therewith remit to such
Participant that portion of the sale proceeds to which such Participant is
entitled by reason of its participation in such sale. To the extent that any
prospective purchaser or purchasers prohibit such assignment or otherwise
refuses to purchase shares or other securities from a Participant exercising its
Co-Sale Right hereunder, the initiating Founder or Investor shall not sell to
such prospective purchaser or purchasers any Stock unless and until,
simultaneously with such sale, the initiating Founder or Investor shall purchase
such shares or other securities from such Participant for the same consideration
and on the same terms and conditions as the proposed transfer described in the
Notice.
(g) The exercise or non-exercise of the rights of the Participants
hereunder to participate in one or more sales of Stock made by the Founders or
Investors shall not adversely affect their rights to participate in subsequent
sales of Stock subject to this Section 4.
(h) If none of the Founders or Investors elect to participate in the
sale of the Stock subject to the Notice, the initiating Founder or Investor may,
not later than sixty (60) days following delivery to the Company and each of the
Founders and Investors of the Notice, conclude a transfer of not less than all
of the Stock covered by the Notice on terms and conditions not more favorable to
the transferor than those described in the Notice. Any proposed transfer on
terms and conditions more favorable than those described in the Notice, as well
as any subsequent proposed transfer of any of the Stock by the initiating
Founder or Investor, shall again be subject to the Co-Sale Right of the Founders
and Investors and shall require compliance by the initiating Founder and
Investor with the procedures described in this Section 4.
5. Permitted Transfers.
-------------------
(a) Notwithstanding the foregoing provisions, the Right of First
Refusal and the Co-Sale Right of the Investors or the Founders shall not apply
to (i) any pledge of up to 2,000,000 shares of Stock to the Company under the
terms of the Pledge Agreement, or any subsequent transfer of shares of such
Stock to the Company or the Founders made pursuant to the terms of the Pledge
Agreement (provided, however, that any such Stock subsequently transferred to
the Founders shall thereafter be subject to the terms of this Agreement), (ii)
any gratuitous transfer of up to 50,000 shares of Stock by each Founder to the
ancestors, descendants or spouse or to trusts for the benefit of such persons or
Founder (either of the foregoing, a "Permitted Transfer"), or (iii) any
distribution by a partnership to its partners or by and between the partnerships
that compose the Sprout Group; provided that with respect to transfers pursuant
-------------
to subsection 5(a)(ii), the transferring Founder shall inform the Investors of
such pledge, transfer or gift prior to effecting it and the pledgee, transferee
or donee shall furnish the Investors with a
8
<PAGE>
written agreement to be bound by and comply with all provisions of this
Agreement. Such transferred Stock shall remain "Stock" hereunder, and such
pledgee, transferee or donee shall be treated as a "Founder" for purposes of
this Agreement.
(b) Notwithstanding the foregoing, the provisions of Section 2 shall
not apply to the sale of any Stock (i) pursuant to an IPO as defined in Section
8(d) hereof, or (ii) to the Company.
6. Prohibited Transfers.
--------------------
(a) In the event a Founder should sell any Stock in contravention of
the Co-Sale Right under this Agreement (a "Prohibited Transfer"), the Founders
and Investors, in addition to such other remedies as may be available at law, in
equity or hereunder, shall have the put option provided below, and the
transferring Founder or Investor shall be bound by the applicable provisions of
such option.
(b) In the event of a Prohibited Transfer, each non-transferring
Founder or Investor shall have the right to sell to the transferring Founder or
Investor the type and number of shares of Stock equal to the number of shares
each Founder or Investor would have been entitled to transfer to the purchaser
under subsection 4(c) hereof had the Prohibited Transfer been effected pursuant
to and in compliance with the terms hereof. Such sale shall be made on the
following terms and conditions:
(i) The price per share at which the shares are to be sold to the
transferring Founder or Investor shall be equal to the price per share paid by
the purchaser to the transferring Founder or Investor in the Prohibited
Transfer. The transferring Founder or Investor shall also reimburse each non-
transferring Founder or Investor for any and all fees and expense, including
legal fees and expenses, incurred pursuant to the exercise or the attempted
exercise of the Co-Sale Right under Section 4.
(ii) Within ninety (90) days after the later of the dates on which
the non-transferring Founder or Investor (A) received notice of the Prohibited
Transfer or (B) otherwise become aware of the Prohibited Transfer, each non-
transferring Founder or Investor shall, if exercising the option created hereby,
deliver to the transferring Founder or Investor the certificate or certificates
representing shares to be sold, each certificate to be properly endorsed for
transfer.
(iii) The transferring Founder or Investor shall, upon receipt of
the certificate or certificates for the shares to be sold by a non-transferring
Founder or Investor, pursuant to this subsection 6(b), pay the aggregate
purchase price therefor and the amount of reimbursable fees and expenses, as
specified in subsection 6(b)(i), in cash or by other means acceptable to the
Investor.
9
<PAGE>
(iv) Notwithstanding the foregoing, any attempt by a transferring
Founder or Investor to transfer Stock in violation of Section 2 and Section 4
hereof shall be void and the Company agrees it will not effect such a transfer.
7. Legend.
------
(a) Each certificate representing shares of Stock now or hereafter
owned by the Investors or the Founders shall be endorsed with the following
legend:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE
TERMS AND CONDITIONS OF A CERTAIN RIGHT OF FIRST REFUSAL AND
CO-SALE AGREEMENT BY AND BETWEEN THE SHAREHOLDER, THE COMPANY
AND CERTAIN HOLDERS OF STOCK OF THE COMPANY. COPIES OF SUCH
AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY
OF THE COMPANY."
(b) Each Founder and Investor agrees that the Company may instruct its
transfer agent to impose transfer restrictions on the shares represented by
certificates bearing the legend referred to in subsection 7(a) above to enforce
the provisions of this Agreement and the Company agrees to promptly do so. The
legend shall be removed upon termination of this Agreement.
8. Miscellaneous.
-------------
(a) Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of California as applied to agreements among
California residents, made and to be performed entirely within the State of
California.
(b) Amendment. Any provision may be amended and the observance thereof
---------
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only by the written consent of (i) as to the
Company, only by the Company, (ii) as to the Investors, by persons holding more
than fifty percent (50%) in interest of the Common Stock held by the Investors
and their assignees, and (iii) as to each Founder, such Founder. Any amendment
or waiver effected in accordance with clauses (i), (ii) and (iii) of this
paragraph shall be binding upon each Investor, its successors and assigns, the
Company and the Founder in question.
(c) Assignment of Rights. This Agreement and the rights and
--------------------
obligations of the parties hereunder shall inure to the benefit of, and be
binding upon, their respective successors, assigns and legal representatives.
The rights of the Investors hereunder are only assignable (i) by each of such
Investors to any other Investor or (ii) to an assignee or transferee
10
<PAGE>
who acquires all of the Series A Preferred Stock purchased by a Investor or at
least 700,000 shares of Series A Preferred Stock.
(d) Term. This Agreement shall terminate upon the earlier of (i) the
----
closing of a firm commitment underwritten public offering ("IPO") pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering the offer and sale of the Company's Common Stock at a price per share
of not less than $12.50 (as adjusted for stock splits, reverse stock splits and
the like effected after the date of this Agreement) and an aggregate offering
price of not less than $10,000,000, and (ii) the closing of the Company's sale
of all or substantially all of its assets or the acquisition of the Company by
another entity by means of merger or consolidation resulting in the exchange of
the outstanding shares of the Company's capital stock for securities or
consideration issued, or caused to be issued, by the acquiring entity or its
subsidiary (other than any transaction effected primarily to change the state in
which the Company is incorporated or to create a holding company structure).
(e) Ownership. Each Founder represents and warrants that he or she is
---------
the sole legal and beneficial Founder of the shares of stock subject to this
Agreement and that no other person has any interest (other than a community
property interest) in such shares.
(f) Notices. Except as otherwise expressly provided, all notices
-------
required or permitted hereunder shall be in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or five (5)
days after deposit in the United States mail, by registered or certified mail,
postage prepaid and properly addressed to the party to be notified as set forth
on the signature page hereof or at such other address as such party may
designate by ten (10) days' advance written notice to the other parties hereto.
(g) Severability. In the event one or more of the provisions of this
------------
Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
(h) Attorney Fees. In the event that any dispute among the parties to
-------------
this Agreement should result in litigation, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
(i) 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.
11
<PAGE>
(ii) Stock Split. All references to numbers of shares in this
-----------
Agreement shall be appropriately adjusted to reflect any stock dividend, split,
combination or other recapitalization of shares by the Company occurring after
the date of this Agreement.
(i) Aggregation of Stock. All shares of Common Stock held or acquired
--------------------
by affiliated entities or persons shall be aggregated together for the purpose
of determining the availability of any rights under this Agreement.
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Right of First Refusal
and Co-Sale Agreement as of the date first above written.
HALL, KINION & ASSOCIATES, INC.
By: /s/ Brenda C. Hall
------------------------------------
Brenda C. Hall, President
Address: 5300 Stevens Creek Boulevard, Suite 320
San Jose, CA 95129
/s/ Brenda C. Hall
------------------------------------
Brenda C. Hall
/s/ Todd J. Kinion
------------------------------------
Todd J. Kinion
DLJ CAPITAL CORPORATION
By /s/ Paul H. Bartlett
---------------------------------------
Paul H. Bartlett
Attorney in Fact
SPROUT GROWTH II, L.P.
By /s/ Paul H. Bartlett
---------------------------------------
Paul H. Bartlett
Attorney in Fact
13
<PAGE>
SPROUT CEO FUND, L.P.
By: DLJ Capital Corporation,
General Partner
By /s/ Paul A. Bartlett
--------------------------------------
Paul H. Bartlett
Attorney in Fact
14
<PAGE>
CONSENT OF SPOUSE
I acknowledge that I have read the foregoing Agreement and that I know its
contents. I am aware that by its provisions if I and/or my spouse agree to sell
all or part of the shares of the Company held of record by either or both of us,
including my community interest in such shares, if any, a First Refusal Right
and Co-Sale Right (as described in the Agreement) must be granted to the
Investors by the transfer. I hereby agree that those shares and my interest in
them, if any, are subject to the provisions of the Agreement and that I will
take no action at any time to hinder operation of, or violate, the Agreement.
/s/ Patricia Kinion
-----------------------------------------
(Signature)
15
<PAGE>
CONSENT OF SPOUSE
I acknowledge that I have read the foregoing Agreement and that I know its
contents. I am aware that by its provisions if I and/or my spouse agree to sell
all or part of the shares of the Company held of record by either or both of us,
including my community interest in such shares, if any, a First Refusal Right
and Co-Sale Right (as described in the Agreement) must be granted to the
Investors by the transfer. I hereby agree that those shares and my interest in
them, if any, are subject to the provisions of the Agreement and that I will
take no action at any time to hinder operation of, or violate, the Agreement.
/s/ Virgil Hall
-----------------------------------------
(Signature)
16
<PAGE>
EXHIBIT 9.1
DEAN CALL
VOTING TRUST AGREEMENT
(RE: HALL, KINION & ASSOCIATES, INC.)
THIS AGREEMENT is entered into and effective this 15th day of January,
1996, between and among the following persons all of whom are shareholders of
HALL, KINION & ASSOCIATES, INC., a California corporation (hereinafter referred
to as the "Corporation"): VEDA SHIPPEN CALL; VEDA SHIPPEN CALL as custodian for
JORDANA HALL under the California Uniform Transfers to Minors Act; VEDA SHIPPEN
CALL as custodian for TEGAN HALL under the California Uniform Transfers to
Minors Act; SHARIANNE HALL; AMANDA MARIE HALL BRUTON; DAVID DEAN CALL; MARNEE
CALL SEAMONS; JOHN DURAND CALL; MARYANNE CALL GAINES; JAMES ELLIS CALL; DEANNA
CALL STEWART; and PORTIA CALL BARNEY (hereinafter referred to as "Shareholders"
and sometimes as "Certificate Holders"); and BRENDA HALL and VIRGIL HALL
(hereinafter referred to as "Trustees").
1. EXCHANGE OF SHARES FOR VOTING TRUST CERTIFICATES.
------------------------------------------------
a. Simultaneously with execution of this Agreement, the
Shareholders shall deliver to the Trustees properly endorsed certificates for
the number of common shares of the Corporation shown opposite their respective
names below (hereinafter referred to as the "Shares"). The Trustees shall hold
the Shares transferred to them in trust, subject to the terms of this Agreement.
The Shareholders shall have no right to withdraw their Shares prior to
termination of this Agreement as hereinafter provided.
b. The Trustees shall cause the Shares to be transferred to
them on the Corporation's books and records and shall issue and deliver to each
of the Shareholders a voting trust certificate, in the form shown in Exhibit A
to this Agreement, for the number of shares transferred to the Trustees.
2. TRUSTEES' POWERS ANAL DUTIES.
----------------------------
a. VOTING OF SHARES. During the existence of this trust, the
----------------
Trustees shall have the exclusive right to vote all Shares transferred to them
in person or by proxy at all shareholder meetings and in all proceedings in
which the vote or consent of shareholders may be required or authorized, and
shall have all the rights, privileges, and powers of shareholders except as
otherwise provided in this Agreement. With respect to the election of the
Corporation's directors, and as to all other matters of any character whatsoever
on which a shareholder vote or approval is required by the articles or bylaws of
the Corporation or as a matter of law, or which is submitted to the shareholders
for approval, the Trustees shall exercise such voting rights as they determine
in the sound exercise of their discretion.
1
<PAGE>
b. NUMBER AND PERCENTAGE VOTE. The number of Trustees under
--------------------------
this Agreement shall be two. The Trustees shall act by unanimous vote in
exercising any powers or taking any action under this Agreement.
c. OTHER TRUSTEE ACTIVITIES. The Trustees may also be parties
------------------------
to this Agreement as share owners holding voting trust certificates.
Additionally, they may serve the Corporation as officers or directors or in any
other capacity, and may receive compensation from the Corporation for such
services.
d. SALE OF SHARES. The Trustees shall have no authority to
--------------
sell or otherwise dispose of any shares transferred to them under this
Agreement; provided, however, Certificate Holder may require that all or a
portion of his or her Shares be sold by the Trustees (i) only in accordance with
prior written instructions from the Certificate Holder and (ii) only after or in
conjunction with an initial public offering of the Corporation's shares or in
the event of a sale of all or substantially all of the business of the
Corporation. In the event of a sale of Shares in accordance herewith, and in
exchange for the net sales proceeds from the sale of said Shares, the
Certificate Holder shall surrender to the Trustees his or her voting trust
certificate properly endorsed.
e. COMPENSATION. The Trustees shall receive no compensation
------------
for their services except for reimbursement, by the Certificate Holders, of
expenses incurred in the administration of their duties. However, this
paragraph shall not affect the right of any Trustee to compensation from the
corporation for services performed on its behalf in some other capacity (as
officer, director, employee or otherwise).
f. TRUSTEES' LIABILITY. The Trustees, and each of them, shall
-------------------
not be liable for any error of judgment or mistake of fact or law, or for any
act or omission made in good faith in connection with their powers and duties
under this Agreement, except for each Trustee's own willful misconduct or gross
negligence. No Trustee shall be liable for the acts or omissions of any other
Trustee or Trustees or for the acts or omissions of any employee or agent of any
other Trustee or Trustees. The Trustees, and each of them, shall not be liable
in acting on any notice, consent, certificate, instruction, or other paper or
document or signature believed by them to be genuine and to have been signed by
the proper party or parties. The Trustees may consult with legal counsel, and
any of their acts or omissions made in good faith in accordance with the opinion
of legal counsel shall be binding and conclusive on the parties to this
Agreement.
g. REPLACEMENT OF TRUSTEES. Any Trustee may be removed from
-----------------------
office by the vote of holders of voting trust certificates representing at least
two-thirds (2/3rds) of the beneficial interests. In case of a Trustee's death,
resignation, or inability to act, the remaining Trustee shall act as the sole
Trustee. If there are no incumbent Trustees, the holders of voting trust
certificates representing at least two-thirds (2/3rds) of the beneficial
interests shall elect two Successor Trustees.
2
<PAGE>
3. TERMINATION.
------------
a. This Agreement shall terminate five (5) years after the
effective date of this Agreement or on any later date to which the term is
extended, as provided below, without notice by or to, or action on the part of,
the Trustees or the Certificate Holders.
b. This Agreement may be terminated at an earlier date by the
vote or written consent of Certificate Holders representing one hundred percent
(100%) of the shares subject to this Agreement, upon ten days' written notice to
the Trustees.
c. As soon as practicable after termination of this Agreement,
the Trustees shall redeliver share certificates representing the appropriate
number of shares, properly endorsed for transfer, to the respective Certificate
Holders of record, and the Certificate Holders shall surrender to the Trustees
their voting trust certificates properly endorsed, together with payment of sums
sufficient to cover any taxes and other expenses relating to the transfer or
delivery of the share certificates.
d. If any Certificate Holder refuses to surrender voting trust
certificates in exchange for shares, or cannot be located, the Trustees may
deliver the share certificates due that Certificate Holder to any bank or trust
company in California, or to the Secretary of the Corporation, for the benefit
of the person or persons entitled thereto, and thereupon shall be fully
discharged with respect to those share certificates.
4. EXTENSION OF AGREEMENT.
----------------------
a. The term of this Agreement, as prescribed in Paragraph 3,
may be extended from the original termination date of this Agreement or from the
termination date as last extended in accordance with this paragraph, provided
that within two years before the date as originally fixed or as last extended,
one or more Certificate Holders, by written agreement, and with the Trustees'
written consent, extend the term of this Agreement with respect to their shares
for an additional term not to exceed ten years from the expiration date then in
effect.
b. In the event of extension, duplicate copies of this
Agreement and of the extension agreement shall be filed with the secretary of
the Corporation and shall be open for inspection on the same conditions as the
Corporation's record of shareholders.
5. WITHDRAWAL OF SHARES.
--------------------
No Certificate Holder may withdraw his or her shares from this
Agreement until termination of this Agreement or unanimous consent of the
Certificate Holders. Upon withdrawal of shares, the Certificate Holder shall
surrender his or her voting trust certificates to the Trustees. The Trustees
shall deliver the withdrawn shares properly endorsed for transfer as in the case
of termination under Paragraph 3 above.
3
<PAGE>
6. NOTICES. DIVIDENDS, AND DISTRIBUTIONS.
-------------------------------------
a. The Trustees shall promptly forward copies of all notices,
reports, statements, and other communications received from the Corporation to
the Certificate Holders, indicating the date of receipt.
b. The Trustees shall promptly distribute all dividends and
other distributions received from the Corporation to the Certificate Holders in
proportion to their respective interests.
c. If any dividend or stock split consists of additional shares
having voting rights, the Trustees shall hold these shares in trust subject to
the terms of this Agreement, and shall issue new voting trust certificates,
representing the additional shares, to the Certificate Holders in proportion to
their respective interests.
7. VENTURE CAPITAL FINANCING.
-------------------------
The Shares subject to this Agreement shall be subject to all the
terms, conditions, and covenants required by any venture capital, bank, or other
financing which the Corporation may obtain.
8. NAME OF TRUST.
-------------
The trust created by this instrument shall be referred to as the
DEAN CALL VOTING TRUST.
9. GOVERNING LAW.
-------------
It is the parties' intention that this Agreement meet the
statutory requirements of California Corporations Code (S)706(b) and that this
Agreement be construed in accordance therewith and under the laws of the State
of California. If any action or proceeding is brought arising out of, in
connection with, or by reason of this Agreement, the laws of the State of
California shall apply and shall govern to the exclusion of the law of any other
forum, without regard to the jurisdiction in which any action or proceeding may
be initiated.
Dated: January 15, 1996
TRUSTEES
/s/ Brenda Hall /s/ Virgil Hall
___________________________________ __________________________
BRENDA HALL VIRGIL HALL
SHAREHOLDERS & NUMBER OF SHARES DEPOSITED:
4
<PAGE>
CERTIFICATE HOLDERS:
/s/ Veda Shippen Call 33,333
___________________________________
VEDA SHIPPEN CALL
/s/ Veda Shippen Call 33,333
___________________________________
VEDA SHIPPEN CALL as Custodian for
JORDANA HALL under the California
Uniform Transfers to Minors Act
/s/ Veda Shippen Call 33,333
___________________________________
VEDA SHIPPEN CALL as Custodian for
TEGAN HALL under the California
Uniform Transfers to Minors Act
/s/ Sharianne Hall 33,333
___________________________________
SHARIANNE HALL
33,333
/s/ Amanda Marie Hall Bruton
___________________________________
AMANDA MARIE HALL BRUTON
33,333
/s/ David Dean Call
___________________________________
DAVID DEAN CALL
/s/ Marnee Call Seamons 33,333
___________________________________
MARNEE CALL SEAMONS
/s/ John Durand Call 33,333
___________________________________
JOHN DURAND CALL
/s/ Maryanne Call Gaines 33,333
___________________________________
MARYANNE CALL GAINES
/s/ James Ellis Call 33,333
___________________________________
JAMES ELLIS CALL
/s/ Deanna Call Stewart 33,333
___________________________________
DEANNA CALL STEWART
/s/ Portia Call Barnet 33,333
___________________________________ ------
PORTIA CALL BARNET
TOTAL 399,996
=======
DEAN CALL
VOTING TRUST AGREEMENT
(RE: HALL, KINION & ASSOCIATES, INC.)
5
<PAGE>
Certificate No. ___________
___________ Shares
This certifies that the undersigned Trustees have received
certificates for shares of common stock of HALL, KINION & ASSOCIATES, INC.
(Corporation) from ________________ (Shareholder), and that the Trustees hold
these shares subject to the terms and conditions of the Dean Call Voting Trust
Agreement (the Agreement) entered into as of January 15, 1996 between and among
VEDA SHIPPEN CALL; VEDA SHIPPEN CALL as custodian for JORDANA HALL under the
California Uniform Transfers to Minors Act; VEDA SHIPPEN CALL as custodian for
TEGAN HALL under the California Uniform Transfers to Minors Act; SHARIANNE HALL;
AMANDA MARIE HALL BRUTON; DAVID DEAN CALL; MARNEE CALL SEAMONS; JOHN DURAND
CALL; MARYANNE CALL GAINES; JAMES ELLIS CALL; DEANNA CALL STEWART; and PORTIA
CALL BARNEY (Shareholders; Certificate Holders); and BRENDA HALL and VIRGIL HALL
(Trustees). This certificate is Exhibit A to the Agreement. A copy of the
Agreement is on file with the secretary of the Corporation.
1. During the term of the Agreement, the Trustees shall be entitled
to vote the shares covered by this certificate and to exercise only those
rights, privileges, and powers of shareholders as provided in the Agreement.
2. During the term of the Agreement, the Shareholders shall be
entitled to all the benefits of the Agreement, and shall be subject to the terms
and conditions arising from the deposit of their shares with the Trustees in
accordance with the Agreement.
3. This certificate is assignable, and a new certificate shall be
issued only upon surrender to the Trustees of this certificate properly
endorsed.
4. Upon termination of the Agreement, and subject to the terms and
conditions of the Agreement, the Trustees shall deliver to the Certificate
Holders properly endorsed share certificates representing the number of shares
owned by each Certificate Holder, and the Certificate Holders shall surrender
their voting trust certificates to the Trustees, properly endorsed, together
with payment of a sum sufficient to cover any taxes and other expenses relating
to the transfer or delivery of the share certificates.
Dated: _________________________
____________________________________ _____________________________
BRENDA HALL, Trustee VIRGIL HALL, Trustee
6
<PAGE>
EXHIBIT 9.2
KINION
VOTING TRUST AGREEMENT
(RE: HALL, KINION & ASSOCIATES, INC.)
THIS AGREEMENT is entered into and effective this 17th day of January,
1996, between and among the following persons all of whom are shareholders of
HALL, KINION & ASSOCIATES, INC., a California corporation (hereinafter referred
to as the "Corporation"): AMBROSE JOSEPH KINION as custodian for DYLAN THOMAS
KINION under the California Uniform Transfers to Minors Act; AMBROSE JOSEPH
KINION as custodian for NICHOLAS XAVIER KINION under the California Uniform
Transfers to Minors Act; AMBROSE JOSEPH KINION as custodian for TIMOTHY JOSEPH
KINION under the California Uniform Transfers to Minors Act; AMBROSE JOSEPH
KINION and ELEANOR THEOPHANE KINION; TERRENCE JOSEPH KINION; JANICE BARLOW; JUDY
NAIL; JERI MEISENHIEMER; and DOUG MAHONEY (hereinafter referred to as
"Shareholders" and sometimes as "Certificate Holders"); and TODD KINION
(hereinafter referred to as "Trustee").
1. EXCHANGE OF SHARES FOR VOTING TRUST CERTIFICATES.
------------------------------------------------
a. Simultaneously with execution of this Agreement, the
Shareholders shall deliver to the Trustee properly endorsed certificates for the
number of common shares of the Corporation shown opposite their respective names
below (hereinafter referred to as the "Shares"). The Trustee shall hold the
Shares transferred to him in trust, subject to the terms of this Agreement. The
Shareholders shall have no right to withdraw their Shares prior to termination
of this Agreement as hereinafter provided.
b. The Trustee shall cause the Shares to be transferred to him
on the Corporation's books and records and shall issue and deliver to each of
the Shareholders a voting trust certificate, in the form shown in Exhibit A to
this Agreement, for the number of shares transferred to the Trustee.
2. TRUSTEE'S POWERS AND DUTIES.
---------------------------
a. VOTING OF SHARES. During the existence of this trust, the
----------------
Trustee shall have the exclusive right to vote all Shares transferred to him in
person or by proxy at all shareholder meetings and in all proceedings in which
the vote or consent of shareholders may be required or authorized, and shall
have all the rights, privileges, and powers of a shareholder except as otherwise
provided in this Agreement. With respect to the election of the Corporation's
directors, and as to all other matters of any character whatsoever on which a
shareholder vote or approval is required by the articles or bylaws of the
Corporation or as a matter of law, or which is submitted to the shareholders for
approval, the Trustee shall exercise such voting rights as he determines in the
sound exercise of his discretion.
<PAGE>
b. NUMBER AND PERCENTAGE VOTE. The number of Trustees under
--------------------------
this Agreement shall be one.
c. OTHER TRUSTEE ACTIVITIES. The Trustee may also be a party to
------------------------
this Agreement as share owner holding voting trust certificates. Additionally,
he may serve the Corporation as officer or director or in any other capacity,
and may receive compensation from the Corporation for such services.
d. SALE OF SHARES. The Trustee shall have no authority to sell
--------------
or otherwise dispose of any shares transferred to him under this Agreement;
provided, however, Certificate Holder may require that all or a portion of his
or her Shares be sold by the Trustee (i) only in accordance with prior written
instructions from the Certificate Holder and (ii) only after or in conjunction
with an initial public offering of the Corporation's shares or in the event of a
sale of all or substantially all of the business of the Corporation. In the
event of a sale of Shares in accordance herewith, and in exchange for the net
sales proceeds from the sale of said Shares, the Certificate Holder shall
surrender to the Trustee his or her voting trust certificate properly endorsed.
e. COMPENSATION. The Trustee shall receive no compensation for
------------
his services except for reimbursement, by the Certificate Holders, of expenses
incurred in the administration of his duties. However, this paragraph shall not
affect the right of the Trustee to compensation from the corporation for
services performed on its behalf in some other capacity (as officer, director,
employee or otherwise).
f. TRUSTEE'S LIABILITY. The Trustee shall not be liable for any
-------------------
error of judgment or mistake of fact or law, or for any act or omission made in
good faith in connection with his powers and duties under this Agreement, except
for the Trustee's own willful misconduct or gross negligence. No Trustee shall
be liable for the acts or omissions of any other Trustee or Trustee or for the
acts or omissions of any employee or agent of any other Trustee or Trustee. The
Trustee shall not be liable in acting on any notice, consent, certificate,
instruction, or other paper or document or signature believed by him to be
genuine and to have been signed by the proper party or parties. The Trustee may
consult with legal counsel, and any of his acts or omissions made in good faith
in accordance with the opinion of legal counsel shall be binding and conclusive
on the parties to this Agreement.
g. REPLACEMENT OF TRUSTEE. The Trustee may be removed from
----------------------
office by the vote of holders of voting trust certificates representing at least
two-thirds (2/3rds) of the beneficial interests. In case of the Trustee's death,
resignation, or inability to act, the holders of voting trust certificates
representing at least two-thirds (2/3rds) of the beneficial interests shall
elect a Successor Trustee.
3. TERMINATION.
-----------
a. This Agreement shall terminate five (5) years after the
effective date of this Agreement or on any later date to which the term is
extended, as provided below, without notice by or to, or action on the part of,
the Trustee or the Certificate Holders.
<PAGE>
b. This Agreement may be terminated at an earlier date by the
vote or written consent of Certificate Holders representing one hundred percent
(100%) of the shares subject to this Agreement, upon ten days' written notice to
the Trustee.
c. As soon as practicable after termination of this Agreement,
the Trustee shall redeliver share certificates representing the appropriate
number of shares, properly endorsed for transfer, to the respective Certificate
Holders of record, and the Certificate Holders shall surrender to the Trustee
their voting trust certificates properly endorsed, together with payment of sums
sufficient to cover any taxes and other expenses relating to the transfer or
delivery of the share certificates.
d. If any Certificate Holder refuses to surrender voting trust
certificates in exchange for shares, or cannot be located, the Trustee may
deliver the share certificates due that Certificate Holder to any bank or trust
company in California, or to the Secretary of the Corporation, for the benefit
of the person or persons entitled thereto, and thereupon shall be fully
discharged with respect to those share certificates.
4. EXTENSION OF AGREEMENT.
----------------------
a. The term of this Agreement, as prescribed in Paragraph 3,
may be extended from the original termination date of this Agreement or from the
termination date as last extended in accordance with this paragraph, provided
that within two years before the date as originally fixed or as last extended,
one or more Certificate Holders, by written agreement, and with the Trustee's
written consent, extend the term of this Agreement with respect to their shares
for an additional term not to exceed ten years from the expiration date then in
effect.
b. In the event of extension, duplicate copies of this
Agreement and of the extension agreement shall be filed with the secretary of
the Corporation and shall be open for inspection on the same conditions as the
Corporation's record of shareholders.
5. WITHDRAWAL OF SHARES.
--------------------
No Certificate Holder may withdraw his or her shares from this
Agreement until termination of this Agreement or unanimous consent of the
Certificate Holders. Upon withdrawal of shares, the Certificate Holder shall
surrender his or her voting trust certificates to the Trustee. The Trustee shall
deliver the withdrawn shares properly endorsed for transfer as in the case of
termination under Paragraph 3 above.
6. NOTICES, DIVIDENDS, AND DISTRIBUTIONS.
-------------------------------------
a. The Trustee shall promptly forward copies of all notices,
reports, statements, and other communications received from the Corporation to
the Certificate Holders, indicating the date of receipt.
<PAGE>
b. The Trustee shall promptly distribute all dividends and
other distributions received from the Corporation to the Certificate Holders in
proportion to their respective interests.
c. If any dividend or stock split consists of additional shares
having voting rights, the Trustee shall hold these shares in trust subject to
the terms of this Agreement, and shall issue new voting trust certificates,
representing the additional shares, to the Certificate Holders in proportion to
their respective interests .
7. VENTURE CAPITAL FINANCING
-------------------------
The Shares subject to this Agreement shall be subject to all the
terms, conditions, and covenants required by any venture capital, bank, or other
financing which the Corporation may obtain.
8. NAME OF TRUST
-------------
The trust created by this instrument shall be referred to as the
KINION VOTING TRUST.
9. GOVERNING LAW
-------------
It is the parties' intention that this Agreement meet the
statutory requirements of California Corporations Code (S)706(b) and that this
Agreement be construed in accordance therewith and under the laws of the State
of California. If any action or proceeding is brought arising out of, in
connection with, or by reason of this Agreement, the laws of the State of
California shall apply and shall govern to the exclusion of the law of any other
forum, without regard to the jurisdiction in which any action or proceeding may
be initiated.
Dated: January 17,1996
TRUSTEE
/s/ Todd Kinion
_________________________
TODD KINION
SHAREHOLDERS & CERTIFICATE HOLDERS: NUMBER OF SHARES DEPOSITED: 33,000
/s/ Ambrose Joseph Kinion
_________________________________________
AMBROSE JOSEPH KINION as Custodian for
DYLAN THOMAS KINION under the California
Uniform Transfers to Minors Act 33,000
/s/ Ambrose Joseph Kinion
_________________________________________
AMBROSE JOSEPH KINION as Custodian for
NICHOLAS XAVIER KINION under the California
Uniform Transfers to Minors Act 33,000
<PAGE>
/s/ Ambrose Joseph Kinion
__________________________________________
AMBROSE JOSEPH KINION as Custodian for
TIMOTHY JOSEPH KINION under the California
Uniform Transfers to Minors Act 20,000
/s/ Ambrose Joseph Kinion and
Eleanor Theophane Kinion
__________________________________________
AMBROSE JOSEPH KINION and
ELEANOR THEOPHANE KINION 30,000
/s/ Terrence Joseph Kinion
__________________________________________
TERRENCE JOSEPH KINION 20,000
/s/ Janice Barlow
__________________________________________
JANICE BARLOW 10,000
/s/ Judy Nail
__________________________________________
JUDY NAIL 10,000
/s/ Jeri Meisenhiemer
__________________________________________
JERI MEISENHIEMER 10,000
/s/ Doug Mahoney
__________________________________________ -------
DOUG MAHONEY TOTAL 199,000
=======
<PAGE>
EXHIBIT 9.3
AMENDED AND RESTATED VOTING TRUST AGREEMENT
-------------------------------------------
THIS AMENDED AND RESTATED VOTING TRUST AGREEMENT (this "Agreement") is
made on this 29th day of October, 1996, by and among Hall, Kinion & Associates,
Inc., a California corporation (the "Company"), Brenda C. Hall ("Hall") and Todd
J. Kinion ("Kinion"). Hall is referred to herein as the "Voting Trustee."
WHEREAS, Hall currently owns 3,484,254 shares of common stock of the
Company (of which 960,000 shares are subject to and held in escrow as of the
date hereof pursuant to that certain Pledge Agreement dated January 30, 1996
among Hall, the Company and the parties named therein) ("Hall Shares") and
Kinion currently owns 2,115,100 shares of common stock of the Company (of which
640,000 shares are subject to and held in escrow as of the date hereof pursuant
to that certain Pledge Agreement dated January 30, 1996 among Kinion, the
Company and the parties named therein) ("Kinion Shares"). Such pledge
agreements are collectively referred to herein as the "Pledge Agreements."
WHEREAS, in connection with the sale of the Company's Series A
Preferred Stock, the parties hereto entered into that certain Voting Trust
Agreement dated January 30, 1996 (the "Prior Voting Trust Agreement") whereby
Hall and Kinion each agreed, among other things, to place the Hall Shares and
Kinion Shares, as well as all voting shares of the Company's capital stock that
Hall and Kinion subsequently acquire (whether by stock dividend, stock split,
recapitalization, merger, exercise of stock option or warrant, purchase or
otherwise) (all such current shares and subsequently acquired shares being
collectively referred to herein as the "Shares"), into the voting trust created
by the Prior Voting Trust Agreement for the purpose of granting the voting
trustees thereunder full power and authority to vote the Shares as specifically
set forth therein.
WHEREAS, the Company and Kinion entered into that certain Settlement
Agreement and General Release dated October 29, 1996 (the "Settlement
Agreement"), whereby Kinion agreed to amend the Prior Voting Agreement in order
to grant Hall as Voting Trustee full power and authority to vote the Kinion
Shares as specifically set forth herein.
WHEREAS, the parties hereto now desire to terminate the Prior Voting
Agreement and the voting trust established thereby, and amend and restate the
Prior Voting Agreement as set forth below.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as follows:
1. VOTING TRUST
------------
1.1 Creation of Trust and Transfer of Shares.
----------------------------------------
<PAGE>
(a) There is hereby established a voting trust with respect
to all of the Shares, pursuant to which the Voting Trustee shall have full power
and authority to vote the Shares in accordance with the specific terms and
provisions of this Agreement. The Voting Trustee shall have full power and
authority to vote the Shares, pursuant to the terms of Section 2.2 hereof;
provided, however, that the Voting Trustee shall not have the right to vote the
Kinion Shares (and all voting shares of the Company's capital stock Kinion
subsequently acquires, whether by stock dividend, stock split, recapitalization,
merger, exercise of stock option or warrant, purchase or otherwise) in
connection with any approval that treats Kinion in a manner adversely and
differently than Hall in her position as a holder of Common Stock of the
Company, and provided further that, notwithstanding the terms of Section 3
hereof, Kinion's obligation to retain the Kinion Shares pursuant to this
Agreement shall terminate in the event (i) Kinion owns less than 500,000 shares
of the Common Stock of the Company or (ii) Hall is not an executive officer of
the Company. Hall and Kinion and each subsequent holder or transferee of the
Shares shall own and hold such Shares subject to the voting trust established
hereby.
(b) Hall and Kinion shall promptly following the execution
hereof redeliver to the Company the stock certificates representing the Shares
each currently holds as voting trustee under the Prior Voting Trust Agreement
and hereby authorizes the Company to issue, in the name of Hall as Voting
Trustee pursuant to this Agreement, new stock certificates for the same number
of Hall Shares and Kinion Shares. The Voting Trustee shall hold such stock
certificate for the uses and purposes specified herein and subject to the terms
and conditions hereof. To the extent any additional certificates for voting
securities of the Company are to be subsequently issued to Hall or Kinion with
respect to the Shares, including any Shares subject to or released from the
Pledge Agreements, such certificates shall be issued and delivered directly to
Hall as Voting Trustee to be held for the uses and purposes hereunder.
(c) Should either of Hall's or Kinion's interest in this
voting trust be transferred to one or more transferees, then the right, title
and interest of each such transferee in and to this voting trust shall be
subject to the terms and conditions of this Agreement; provided, however, that
if such transfer is to a third party and is in accordance with Sections 2, 3 or
4 of the Right of Refusal and Co-Sale Agreement and Investors' Rights Agreement
each dated as of on or about January 30, 1996 by and among the Company, Hall,
Kinion and the Investors (as defined therein) such third party transferee shall
obtain ownership of such Shares free and clear of the obligations of this
Agreement. Other than as provided in this Agreement, each such transferee shall,
in connection with the transfer of such interest, automatically become a party
to this Agreement and be bound by all the terms and conditions of this
Agreement, without any requirement that such transferee execute or deliver a
duplicate of this Agreement. The stock certificate for all the Shares shall
continue to be held in the name of the Voting Trustee on the books and records
of the Company, and the Voting Trustee shall continue to have full power and
authority to vote such Shares during the remaining term of this Agreement
pursuant to the terms and conditions set forth herein.
1.2 Trust Certificates.
------------------
2
<PAGE>
(a) Hall and Kinion shall promptly following the execution
hereof deliver to the Voting Trustee the trust certificates evidencing the
ownership interest of each of Hall and Kinion in the applicable Shares held in
the voting trust established by the Prior Voting Trust Agreement and issued
pursuant thereto.
(b) The Voting Trustee shall, concurrently with the receipt
of the stock certificates for the Shares issued in her name as Voting Trustee in
accordance with the provisions of Section 1.1(b), issue and deliver a trust
certificate evidencing the ownership interest of each of Hall and Kinion in the
applicable Shares held in the voting trust established by this Agreement. Upon
the transfer of either Hall's or Kinion's interest in this voting trust to one
or more transferees, the trust certificate evidencing such interest in the
voting trust shall automatically become null and void and shall be immediately
cancelled, and Hall or Kinion shall promptly surrender the cancelled trust
certificate to the Voting Trustee. Upon receipt of such trust certificate, the
Voting Trustee shall issue a new and separate trust certificate to each
transferee to whom an interest in the voting trust is transferred which will
evidence the ownership interest of such transferee in the voting trust. The
issuance of a new trust certificate to a transferee shall be effected by the
Voting Trustee in compliance with an exemption from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act").
(c) Each such trust certificate shall be executed by the
Voting Trustee and shall be substantially in the form of the certificate
attached hereto as Exhibit A (the "Trust Certificate").
(d) The Voting Trustee shall issue and deliver a new Trust
Certificate in replacement of any lost, stolen or destroyed Trust Certificate,
or in exchange for a mutilated Trust Certificate, upon receipt of (i)
satisfactory evidence of the loss, theft, destruction or mutilation of the Trust
Certificate and, (ii) in the case of loss, theft or destruction, an indemnity
agreement or security bond in form and substance satisfactory to the Voting
Trustee.
1.3 Dividends.
---------
(a) In the event that any dividend or distribution on the
Shares is paid in the form of voting securities of the Company, the stock
certificates for such voting securities shall be issued directly to the Voting
Trustee, and the Voting Trustee shall, immediately upon receipt of such stock
certificates, issue an additional Trust Certificate to each holder of an
outstanding Trust Certificate hereunder. The additional Trust Certificate shall
evidence the incremental increase in each holder's ownership interest in the
voting trust as augmented by the voting securities issued with respect to the
Shares.
(b) In the event that any dividend or distribution on the
Shares is paid in cash, such payment shall be made directly to the Voting
Trustee, and the Voting Trustee shall, immediately upon receipt of such cash
payment, deposit the funds in an interest bearing account maintained for the
benefit of the Trust Certificate holders. The interest of each Trust Certificate
holder in each cash dividend or distribution deposited into such account,
together with the investment return on such deposit, shall be in the same
proportion as the holder's pro rata ownership interest in this voting trust at
the time of the deposit. Upon the
3
<PAGE>
termination of this voting trust, the account will be distributed by the Voting
Trustee to the respective Trust Certificate holders who have an interest
therein. Moreover, in the event the Voting Trustee determines, upon advice of
counsel, that one or more cash dividends or distributions on the Shares may be
distributed currently to the holders of the Trust Certificates without violation
of applicable federal and state securities laws, the Voting Trustee shall effect
each current distribution in lieu of deposit in the interest bearing account.
2. TRUSTEE POWERS AND AUTHORITY
----------------------------
2.1 Administration.
--------------
(a) The Voting Trustee may adopt her own rules of procedure
for the administration of the voting trust created hereby. The Voting Trustee
may, at any time or from time to time, delegate the performance of any
administrative duty required of the Voting Trustee hereunder to one or more
appointed agents; provided, however, that in no event shall any responsibility
for voting the Shares or other substantive decisions be delegated.
(b) All reasonable expenses paid or incurred by the Voting
Trustee in the administration of the voting trust created hereby (including,
without limitation, all attorney, advisor and agent fees, all taxes or other
governmental charges incurred in connection with the issuance or transfer of any
Trust Certificates or the issuance of any stock certificates for one or more
Shares in exchange for such Trust Certificates, and the expenses of preparing
and issuing the Trust Certificates) shall be borne by the Company.
2.2 Voting of Shares. Except as otherwise specifically provided
----------------
herein, the Voting Trustee shall, throughout the term of this Agreement, possess
and be entitled in its absolute discretion (without being subject to any review)
to exercise, whether in person or by proxy, all rights and powers to vote the
Shares for which the Voting Trustee acts as voting trustee and to consent to and
approve as a shareholder each and every act of the Company in the same manner
and to the same extent as if it were the absolute owner of such Shares in its
own right.
2.3 Liabilities and Expenses.
------------------------
(a) The Voting Trustee shall, with respect to the Shares,
assume no liability hereunder as shareholder of the Company, and her respective
interests in the Shares hereunder shall be solely that of a voting trustee under
the laws of the State of California. In voting the Shares subject to the voting
trust created hereby (whether in person or by proxy), the Voting Trustee shall
vote and act on all matters in the exercise of her sole discretion and shall
assume no responsibility or liability with respect to any action taken by her in
accordance herewith or taken in pursuance of her vote so cast. In addition, the
Voting Trustee shall not incur any responsibility, whether in her capacity as
Voting Trustee or otherwise, by reason of any error of fact or law, mistake in
judgment, or any other matter or thing done or suffered or omitted to be done in
accordance with this Agreement, except for the Voting Trustee's own gross
negligence or willful misconduct.
4
<PAGE>
(b) The duties and responsibilities of the Voting Trustee
shall be limited to those expressly set forth in this Agreement and any
amendment hereto executed by the Voting Trustee, and the Voting Trustee shall
not be obligated to recognize any other agreement whether or not she has
knowledge thereof.
(c) The Voting Trustee shall not be responsible for the
sufficiency or accuracy of the form, execution, validity or genuineness of the
stock certificates representing the Shares or any endorsement or lack of
endorsement thereon or for any description therein, nor shall the Voting Trustee
be responsible or liable in any manner for the identity, authority or capacity
of any person executing or delivering or purporting to execute or deliver any
such certificates or endorsements (the responsibility for all of which shall be
that of the Company).
2.4 Indemnification.
---------------
(a) The Company shall indemnify and hold harmless the
Voting Trustee from any and all loss, cost or expense of any kind or character
whatsoever incurred in connection with this Agreement, except to the extent
attributable to the gross negligence or willful misconduct of the Voting
Trustee.
(b) The Company shall undertake, assume full responsibility
for, and pay all costs and expenses of any suit, action, litigation or
proceeding of any character, including any proceeding before any governmental
agency, with respect to the Shares or this Agreement. Should the Voting Trustee
be made a party thereto, the Company shall pay all costs and expenses
(including, without limitation, attorney fees) to which the Voting Trustee may
be subject by reason thereof, unless the Voting Trustee is held liable
thereunder for acts of gross negligence or willful misconduct. The Voting
Trustee may, at her own expense, consult with counsel of their choice in
connection with any such suit, action, litigation or proceeding, and the opinion
of such counsel shall provide full and complete authorization and protection to
the Voting Trustee with respect to any action taken or omitted or suffered by
the Voting Trustee hereunder in good faith reliance upon such opinion.
2.5 Resignation or Removal. Upon the death or incapacity of the
----------------------
Voting Trustee, this Voting Trust shall terminate, pursuant to the terms of
Section 3 hereof and the Shares shall be distributed to the owners thereof
pursuant to the terms hereof.
3. TERMINATION OF VOTING TRUST
---------------------------
(a) Unless otherwise extended by written agreement of the
parties hereto, this Agreement and the voting trust established hereby shall
terminate, without any action or notice by the Voting Trustee, upon the earlier
to occur of (i) January 29, 2006, (ii) the consummation of the sale of
securities pursuant to a registration statement filed by the Company under the
Securities Act of 1933, as amended, in connection with a firm commitment
underwritten offering of its securities to the general public, (iii) the closing
of the Company's sale of all or substantially all of its assets or the
acquisition of the Company by another entity by means of merger or consolidation
resulting in the exchange of the outstanding shares of the
5
<PAGE>
Company's capital stock for securities or consideration issued, or caused to be
issued, by the acquiring entity or its subsidiary (other than any transaction
effected primarily to change the state in which the Company is incorporated or
to create a holding company structure).
(b) Upon termination of this Agreement, the Voting Trustee
shall, in exchange for and upon surrender for cancellation of each Trust
Certificate evidencing an ownership interest in this voting trust, deliver to
the holder a stock certificate for that percentage of Shares at the time held in
this voting trust which is the same as the percentage of this voting trust owned
at such time by such holder, as evidenced by the Trust Certificate surrendered
by such holder. Such exchange of Shares for Trust Certificates shall be effected
by the Voting Trustee in compliance with an exemption from the registration
requirements of the Securities Act. The Trust Certificate shall either be duly
endorsed in blank by the record holder or accompanied by proper instrument of
assignment and transfer duly executed in blank by such record holder. The Voting
Trustee may require the record holder of such Trust Certificate to surrender the
same (or may cancel such certificate) in connection with such exchange.
(c) In the event one or more Trust Certificates held by a
transferee are to be cancelled pursuant to this Agreement, the Voting Trustee
shall promptly inform the record holders of such cancellation and shall direct
such holders to tender their Trust Certificates to the Voting Trustee in
exchange for a stock certificate for the number of Shares to which each such
holder is entitled in accordance with paragraph (b) above, but in no event shall
such tender be necessary for the cancellation of such Trust Certificates to be
effective.
(d) Upon termination of this Agreement as herein provided
and delivery by the Voting Trustee of any Shares then held hereunder in exchange
for or upon cancellation of all outstanding Trust Certificates as provided
herein, all further obligation duties of the Voting Trustee under this Agreement
shall terminate and cease to be in effect.
4. TRANSFER RESTRICTIONS
---------------------
4.1 Limited Transferability. Each Trust Certificate issued
-----------------------
pursuant to this Agreement shall be subject to the following restriction on
transferability:
NEITHER THE HOLDERS HEREOF NOR ANY TRANSFEREES SHALL SELL, ASSIGN OR
TRANSFER ANY TRUST CERTIFICATE, UNLESS THE SALE, ASSIGNMENT OR
TRANSFER OF THE UNDERLYING SHARES IS PERMITTED UNDER APPLICABLE
FEDERAL AND STATE SECURITIES LAWS, INCLUDING WITHOUT LIMITATION ALL
EXEMPTIONS FROM REGISTRATION PROVIDED UNDER THE SECURITIES ACT. THE
TRANSFEREE SHALL AUTOMATICALLY BECOME SUBJECT TO THE VOTING TRUST
CREATED HEREBY AND SHALL, IMMEDIATELY UPON THE TRANSFER OF THE TRUST
CERTIFICATE, EXECUTE A COPY OF THIS AGREEMENT AS A TRANSFEREE. IN
ADDITION, EACH TRUST CERTIFICATE IS SUBJECT TO ALL OF THE TRANSFER
RESTRICTIONS SET FORTH
6
<PAGE>
IN THAT CERTAIN RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT OF EVEN
DATE HEREWITH AMONG THE COMPANY, HALL, KINION AND CERTAIN OTHER
PARTIES.
4.2 Legend. Each Trust Certificate issued pursuant to this
------
Agreement and each stock certificate representing the Shares held in this voting
trust shall have printed thereon such legends as may be required by federal or
California Securities laws.
5. MISCELLANEOUS
-------------
5.1 Modifications and Amendments. This Agreement and the Right
----------------------------
of First Refusal and Co-Sale Agreement and Investors' Rights Agreement,
constitute the entire agreement of the parties with respect to the subject
matter hereof and this Agreement may not be modified, amended or terminated
(other than in accordance with its terms) except by a written agreement
specifically referring to this Agreement signed by the parties hereto.
5.2 Waivers. No waiver of any breach or default hereunder shall
-------
be considered valid unless in writing and signed by the party giving such
waiver, and no such waiver shall be deemed a waiver of any subsequent breach or
default of the same or similar nature.
5.3 Successors and Assigns. This Agreement shall be binding
----------------------
upon and inure to the benefit of each party hereto and its permitted successors
and assigns, whether or not such successors and assigns shall formally become a
party to this Agreement and agree in writing to join herein and be bound by the
terms and provisions hereof. Otherwise, this agreement shall not create any
rights for the benefit of any third party.
5.4 Titles and Subtitles. The paragraph headings contained
--------------------
herein are for the purposes of convenience only and are not intended to define
or limit the contents of said paragraphs.
5.5 Cooperation. Each party hereto shall cooperate, shall take
-----------
such further action and shall execute and deliver such further documents as may
be reasonably requested by any other party in order to carry out the provisions
and purposes of this Agreement.
5.6 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which taken together shall be deemed one original.
5.7 Governing Law. The Agreement and all amendments thereof
-------------
shall be governed by and construed in accordance with the law of the State of
California applicable to contracts made and to be performed therein.
5.8 Specific Performance. Without limiting the rights of each
--------------------
party hereto to pursue all other legal and equitable rights available to such
party for any other party's failure to perform its obligations under this
Agreement, each such party acknowledges and agrees that the remedy at law for
any failure to perform obligations hereunder would be inadequate and
7
<PAGE>
all such parties shall be entitled to specific performance, injunctive relief or
other equitable remedies in the event of any such failure.
5.9 Notices. Any notices to be given pursuant to this Agreement
-------
shall be in writing. Notices shall be deemed given upon personal delivery or
upon deposit with the U.S. Post Office, by registered or certified mail, postage
prepaid, and addressed to each party at the address set forth below its
signature line on this Agreement (or on any counterpart hereof executed by such
party) or to such changed address as any party may notify the others pursuant
hereto, except that a notice of change of address shall not be deemed given
until received.
5.10 California Qualification Provisions. THE ISSUANCE OF THE
-----------------------------------
SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE ISSUANCE OF SUCH
SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF
THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT
ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE
ISSUANCE IS SO EXEMPT.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
HALL, KINION & ASSOCIATES, INC.
By: /s/ Paul H. Bartlett
----------------------------------------
Name: /s/ Paul H. Bartlett
--------------------------------------
Title: President
-------------------------------------
Address: 5300 Stevens Creek Blvd.
Suite 320
San Jose, CA 95129
/s/ Brenda C. Hall
--------------------------------------------
Brenda C. Hall
Address: 19050 Camino Barco
Saratoga, CA 95070
/s/ Todd J. Kinion
--------------------------------------------
Todd J. Kinion
Address: 36 Playa Blvd.
La Selva Beach, CA 95076
<PAGE>
CONSENT OF SPOUSE
I acknowledge that I have read the foregoing Amended and Restated
Voting Trust Agreement and that I know its contents. I am aware that by its
provisions my spouse agrees to grant a security interest in shares of the
Company held of record by my spouse, including my community interest in such
shares. I hereby agree that those shares and my interest in them, if any, are
subject to the provisions of the Amended and Restated Voting Trust Agreement and
that I will take no action at any time to hinder operation of, or violate, the
Amended and Restated Voting Trust Agreement.
/s/ Virgil Hall
--------------------------------------------
(Signature)
<PAGE>
CONSENT OF SPOUSE
I acknowledge that I have read the foregoing Amended and Restated
Voting Trust Agreement and that I know its contents. I am aware that by its
provisions my spouse agrees to grant a security interest in shares of the
Company held of record by my spouse, including my community interest in such
shares. I hereby agree that those shares and my interest in them, if any, are
subject to the provisions of the Amended and Restated Voting Trust Agreement and
that I will take no action at any time to hinder operation of, or violate, the
Amended and Restated Voting Trust Agreement.
/s/ Patricia Kinion
--------------------------------------------
(Signature)
<PAGE>
EXHIBIT A
TRUST CERTIFICATE
SPECIMEN
No. _____________________
______________________, as the voting trustee (the "Voting Trustee")
of ________ shares of the common stock (the "Shares") of Hall, Kinion &
Associates, Inc. a California corporation (the "Company"), pursuant to the
Amended and Restated Voting Trust Agreement dated as of October 29, 1996 (the
"Agreement"), hereby acknowledges the undersigned's ownership interest in
____________ (___%) of the voting trust created by such Agreement. The Voting
Trustee shall hold the stock certificate(s) for the Shares as record owner for
the uses and purposes specified in the Agreement and subject to the terms and
conditions thereof. The stock certificate representing _________ of the Shares
are being held in escrow pursuant to that certain Pledge Agreement dated January
30, 1996 among _______, the Company and the other parties named therein (the
"Pledge Agreement").
The Voting Trustee hereby acknowledges that the undersigned shall be
entitled upon the expiration of the Agreement to receive, in accordance with the
terms of the Agreement, a stock certificate for that percentage of the shares of
common stock at the time held in the voting trust which is the same as the
percentage of this voting trust owned at such time by the undersigned, as
evidenced by this certificate, subject to the terms and conditions of the Pledge
Agreement. While such Agreement remains in effect, any dividends or
distributions payable in cash, property or voting securities of the Company as
may be collected by the Voting Trustee upon the Shares shall be held by the
Voting Trustee for the benefit of the undersigned in accordance with the terms
of the Agreement.
This Trust Certificate is transferable only on the books of such
Voting Trustee or its successor, and only in accordance with the terms of the
Agreement, by the registered holder either in person or by its duly authorized
agent, and the undersigned, by accepting this Trust Certificate, manifests its
consent that such Voting Trustee or its successor may treat the undersigned as
the true owner of this Trust Certificate for all purposes, except the delivery
of one or more stock certificates for the Shares, which delivery shall only be
made upon surrender of this Trust Certificate.
THE SECURITIES REPRESENTED BY THIS TRUST CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT").
THE SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF (A) A REGISTRATION STATEMENT IN EFFECT
UNDER THE ACT WITH RESPECT TO THE SECURITIES, (B) COMPLIANCE WITH RULE
144 UNDER THE ACT OR (C) AN
A-1
<PAGE>
OPINION OF COUNSEL SATISFACTORY TO THE VOTING TRUSTEE AND THE COMPANY
THAT SUCH REGISTRATION UNDER THE ACT IS NOT REQUIRED.
THE SECURITIES REPRESENTED BY THIS TRUST CERTIFICATE ARE SUBJECT TO
THE TERMS AND CONDITIONS OF A CERTAIN INVESTORS' RIGHTS AGREEMENT,
PLEDGE AGREEMENT, ESCROW AGREEMENT, RIGHT OF FIRST REFUSAL AND CO-SALE
AGREEMENT DATED AS OF JANUARY 30, 1996 AMONG HALL, KINION &
ASSOCIATES, INC. AND CERTAIN OF ITS SECURITYHOLDERS. SUCH AGREEMENTS
PROVIDE, AMONG OTHER MATTERS, FOR CERTAIN RESTRICTIONS ON OR AFFECTING
THE SALE, PLEDGE OR OTHER TRANSFER OF SUCH TRUST CERTIFICATE. A COPY
OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE
SECRETARY OF THE COMPANY.
IN WITNESS WHEREOF, _____________, as Voting Trustee, has executed
this Trust Certificate this ____ day of ____________, 19__.
--------------------------------------------
TRUST CERTIFICATE HOLDER ACCEPTANCE
The undersigned does hereby, by accepting this Trust Certificate
evidencing its ownership interest in _________ (___%) of the voting trust
created pursuant to the Agreement covering ________ shares of common stock of
Hall, Kinion & Associates, Inc., of which _______ shares are being held in
escrow pursuant to the Pledge Agreement, ratify and approve the terms and
provisions of such Agreement as if an original party thereto and is hereby
bound, with respect to the undersigned's interest in such voting trust, by all
the terms and provisions thereof.
By:
--------------------------------------------
A-2
<PAGE>
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into this ______
day of ____________, 199__ between Hall, Kinion & Associates, Inc., a Delaware
corporation ("the Company") and Name ("Indemnitee").
WITNESSETH THAT:
WHEREAS, Indemnitee performs a valuable service for the Company; and
WHEREAS, the Board of Directors of the Company have adopted Bylaws
(the "Bylaws") providing for the indemnification of the officers and directors
of the Company to the maximum extent authorized by Section 145 of the Delaware
General Corporation Law, as amended ("Law"); and
WHEREAS, the Bylaws and the Law, by their nonexclusive nature, permit
contracts between the Company and the officers or directors of the Company with
respect to indemnification of such officers or directors; and
WHEREAS, in accordance with the authorization as provided by the Law,
the Company may purchase and maintain a policy or policies of director's and
officer's liability insurance ("D & O Insurance"), covering certain liabilities
which may be incurred by its officers or directors in the performance of their
obligations to the Company; and
WHEREAS, as a result of recent developments affecting the terms, scope
and availability of D & O Insurance there exists general uncertainty as to the
extent of protection afforded Company officers and directors by such D & O
Insurance and said uncertainty also exists under statutory and bylaw
indemnification provisions; and
WHEREAS, in recognition of past services and in order to induce
Indemnitee to continue to serve as an officer or director of the Company, the
Company has determined and agreed to enter into this contract with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's continued service as
an officer or director after the date hereof, the parties hereto agree as
follows:
1. INDEMNITY OF INDEMNITEE. The Company hereby agrees to hold
-----------------------
harmless and indemnify Indemnitee to the full extent authorized or permitted by
the provisions of the Law, as such may be amended from time to time, and Article
VII, Section 6 of the Bylaws, as such may be amended. In furtherance of the
foregoing indemnification, and without limiting the generality thereof:
(a) Proceedings Other Than Proceedings by or in the Right of the
------------------------------------------------------------
Company. Indemnitee shall be entitled to the rights of indemnification provided
in this Section l(a) if, by reason of his Corporate Status (as hereinafter
defined), he is, or is threatened to be
<PAGE>
made, a party to or participant in any Proceeding (as hereinafter defined) other
than a Proceeding by or in the right of the Company. Pursuant to this Section
1(a), Indemnitee shall be indemnified against all Expenses (as hereinafter
defined), judgments, penalties, fines and amounts paid in settlement actually
and reasonably incurred by him or on his behalf in connection with such
Proceeding or any claim, issue or matter therein, if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Company and, with respect to any criminal Proceeding, had no reasonable
cause to believe his conduct was unlawful.
(b) Proceedings by or in the Right of the Company. Indemnitee
---------------------------------------------
shall be entitled to the rights of indemnification provided in this Section 1(b)
if, by reason of his Corporate Status, he is, or is threatened to be made, a
party to or participant in any Proceeding brought by or in the right of the
Company to procure a judgment in its favor. Pursuant to this Section 1(b),
Indemnitee shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection with such Proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company; provided, however, that, if applicable law so
provides, no indemnification against such Expenses shall be made in respect of
any claim, issue or matter in such Proceeding as to which Indemnitee shall have
been adjudged to be liable to the Company unless and to the extent that the
Court of Chancery of the State of Delaware shall determine that such
indemnification may be made.
(c) Indemnification for Expenses of a Party Who is Wholly or
--------------------------------------------------------
Partly Successful. Notwithstanding any other provision of this Agreement, to the
- -----------------
extent that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified to the maximum extent permitted by law against all Expenses actually
and reasonably incurred by him or on his behalf in connection therewith. If
Indemnitee is not wholly successful in such Proceeding but is successful, on the
merits or otherwise, as to one or more but less than all claims, issues or
matters in such Proceeding, the Company shall indemnify Indemnitee against all
Expenses actually and reasonably incurred by him or on his behalf in connection
with each successfully resolved claim, issue or matter. For purposes of this
Section and without limitation, the termination of any claim, issue or matter in
such a Proceeding by dismissal, with or without prejudice, shall be deemed to be
a successful result as to such claim, issue or matter.
2. ADDITIONAL INDEMNITY. In addition to, and without regard to any
--------------------
limitations on, the indemnification provided for in Section 1, the Company shall
and hereby does indemnify and hold harmless Indemnitee against all Expenses,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf if, by reason of his Corporate
Status he is, or is threatened to be made, a party to or participant in any
Proceeding (including a Proceeding by or in the right of the Company),
including, without limitation, all liability arising out of the negligence or
active or passive wrongdoing of Indemnitee. The only limitation that shall
exist upon the Company's obligations pursuant to this Agreement shall be that
the Company shall not be obligated to make any payment to Indemnitee that is
finally determined (under the procedures, and subject to the presumptions, set
forth in Sections 6 and 7 hereof) to be unlawful under Delaware law.
2
<PAGE>
3. CONTRIBUTION IN THE EVENT OF JOINT LIABILITY.
--------------------------------------------
(a) Whether or not the indemnification provided in Sections 1 and
2 hereof is available, in respect of any threatened, pending or completed
action, suit or proceeding in which Company is jointly liable with Indemnitee
(or would be if joined in such action, suit or proceeding), Company shall pay,
in the first instance, the entire amount of any judgment or settlement of such
action, suit or proceeding without requiring Indemnitee to contribute to such
payment and Company hereby waives and relinquishes any right of contribution it
may have against Indemnitee. Company shall not enter into any settlement of any
action, suit or proceeding in which Company is jointly liable with Indemnitee
(or would be if joined in such action, suit or proceeding) unless such
settlement provides for a full and final release of all claims asserted against
Indemnitee.
(b) Without diminishing or impairing the obligations of the
Company set forth in the preceding subparagraph, if, for any reason, Indemnitee
shall elect or be required to pay all or any portion of any judgment or
settlement in any threatened, pending or completed action, suit or proceeding in
which Company is jointly liable with Indemnitee (or would be if joined in such
action, suit or proceeding), Company shall contribute to the amount of expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred and paid or payable by Indemnitee in proportion
to the relative benefits received by the Company and all officers, directors or
employees of the Company other than Indemnitee who are jointly liable with
Indemnitee (or would be if joined in such action, suit or proceeding), on the
one hand, and Indemnitee, on the other hand, from the transaction from which
such action, suit or proceeding arose; provided, however, that the proportion
determined on the basis of relative benefit may, to the extent necessary to
conform to law, be further adjusted by reference to the relative fault of
Company and all officers, directors or employees of the Company other than
Indemnitee who are jointly liable with Indemnitee (or would be if joined in such
action, suit or proceeding), on the one hand, and Indemnitee, on the other hand,
in connection with the events that resulted in such expenses, judgments, fines
or settlement amounts, as well as any other equitable considerations which the
law may require to be considered. The relative fault of Company and all
officers, directors or employees of the Company other than Indemnitee who are
jointly liable with Indemnitee (or would be if joined in such action, suit or
proceeding), on the one hand, and Indemnitee, on the other hand, shall be
determined by reference to, among other things, the degree to which their
actions were motivated by intent to gain personal profit or advantage, the
degree to which their liability is primary or secondary, and the degree to which
their conduct is active or passive.
(c) Company hereby agrees to fully indemnify and hold Indemnitee
harmless from any claims of contribution which may be brought by officers,
directors or employees of the Company other than Indemnitee who may be jointly
liable with Indemnitee.
4. INDEMNIFICATION FOR EXPENSES OF A WITNESS. Notwithstanding any
-----------------------------------------
other provision of this Agreement, to the extent that Indemnitee is, by reason
of his Corporate Status, a
3
<PAGE>
witness in any Proceeding to which Indemnitee is not a party, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith.
5. ADVANCEMENT OF EXPENSES. Notwithstanding any other provision of
-----------------------
this Agreement, the Company shall advance all reasonable Expenses incurred by or
on behalf of Indemnitee in connection with any Proceeding by reason of
Indemnitee's Corporate Status within ten days after the receipt by the Company
of a statement or statements from Indemnitee requesting such advance or advances
from time to time, whether prior to or after final disposition of such
Proceeding. Such statement or statements shall reasonably evidence the Expenses
incurred by Indemnitee and shall include or be preceded or accompanied by an
undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it
shall ultimately be determined that Indemnitee is not entitled to be indemnified
against such Expenses. Any advances and undertakings to repay pursuant to this
Section 5 shall be unsecured and interest free. Notwithstanding the foregoing,
the obligation of the Company to advance Expenses pursuant to this Section 5
shall be subject to the condition that, if, when and to the extent that the
Company determines that Indemnitee would not be permitted to be indemnified
under applicable law, the Company shall be entitled to be reimbursed, within
thirty (30) days of such determination, by Indemnitee (who hereby agrees to
reimburse the Company) for all such amounts theretofore paid; provided, however,
that if Indemnitee has commenced or thereafter commences legal proceedings in a
court of competent jurisdiction to secure a determination that Indemnitee should
be indemnified under applicable law, any determination made by the Company that
Indemnitee would not be permitted to be indemnified under applicable law shall
not be binding and Indemnitee shall not be required to reimburse the Company for
any advance of Expenses until a final judicial determination is made with
respect thereto (as to which all rights of appeal therefrom have been exhausted
or lapsed).
6. PROCEDURES AND PRESUMPTIONS FOR DETERMINATION OF ENTITLEMENT TO
---------------------------------------------------------------
INDEMNIFICATION. It is the intent of this Agreement to secure for Indemnitee
- ---------------
rights of indemnity that are as favorable as may be permitted under the law and
public policy of the State of Delaware. Accordingly, the parties agree that the
following procedures and presumptions shall apply in the event of any question
as to whether Indemnitee is entitled to indemnification under this Agreement:
(a) To obtain indemnification (including, but not limited to, the
advancement of Expenses and contribution by the Company) under this Agreement,
Indemnitee shall submit to the Company a written request, including therein or
therewith such documentation and information as is reasonably available to
Indemnitee and is reasonably necessary to determine whether and to what extent
Indemnitee is entitled to indemnification. The Secretary of the Company shall,
promptly upon receipt of such a request for indemnification, advise the Board of
Directors in writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification
pursuant to the first sentence of Section 6(a) hereof, a determination, if
required by applicable law, with respect to Indemnitee's entitlement thereto
shall be made in the specific case by one of the
4
<PAGE>
following three methods, which shall be at the election of Indemnitee: (1) by a
majority vote of the disinterested directors, even though less than a quorum, or
(2) by independent legal counsel in a written opinion, or (3) by the
stockholders.
(c) If the determination of entitlement to indemnification is to
be made by Independent Counsel pursuant to Section 6(b) hereof, the Independent
Counsel shall be selected as provided in this Section 6(c). The Independent
Counsel shall be selected by Indemnitee (unless Indemnitee shall request that
such selection be made by the Board of Directors). Indemnitee or the Company, as
the case may be, may, within 10 days after such written notice of selection
shall have been given, deliver to the Company or to Indemnitee, as the case may
be, a written objection to such selection; provided, however, that such
objection may be asserted only on the ground that the Independent Counsel so
selected does not meet the requirements of "Independent Counsel" as defined in
Section 14 of this Agreement, and the objection shall set forth with
particularity the factual basis of such assertion. Absent a proper and timely
objection, the person so selected shall act as Independent Counsel. If a written
objection is made and substantiated, the Independent Counsel selected may not
serve as Independent Counsel unless and until such objection is withdrawn or a
court has determined that such objection is without merit. If, within 20 days
after submission by Indemnitee of a written request for indemnification pursuant
to Section 6(a) hereof, no Independent Counsel shall have been selected and not
objected to, either the Company or Indemnitee may petition the Court of Chancery
of the State of Delaware or other court of competent jurisdiction for resolution
of any objection which shall have been made by the Company or Indemnitee to the
other's selection of Independent Counsel and/or for the appointment as
Independent Counsel of a person selected by the court or by such other person as
the court shall designate, and the person with respect to whom all objections
are so resolved or the person so appointed shall act as Independent Counsel
under Section 6(b) hereof. The Company shall pay any and all reasonable fees and
expenses of Independent Counsel incurred by such Independent Counsel in
connection with acting pursuant to Section 6(b) hereof, and the Company shall
pay all reasonable fees and expenses incident to the procedures of this Section
6(c), regardless of the manner in which such Independent Counsel was selected or
appointed.
(d) In making a determination with respect to entitlement to
indemnification hereunder, the person or persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification under
this Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 6(a) of this Agreement. Anyone seeking to overcome this
presumption shall have the burden of proof and the burden of persuasion, by
clear and convincing evidence.
(e) Indemnitee shall be deemed to have acted in good faith if
Indemnitee's action is based on the records or books of account of the
Enterprise, including financial statements, or on information supplied to
Indemnitee by the officers of the Enterprise in the course of their duties, or
on the advice of legal counsel for the Enterprise or on information or records
given or reports made to the Enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care by
the Enterprise. In addition, the
5
<PAGE>
knowledge and/or actions, or failure to act, of any director, officer, agent or
employee of the Enterprise shall not be imputed to Indemnitee for purposes of
determining the right to indemnification under this Agreement. Whether or not
the foregoing provisions of this Section 6(e) are satisfied, it shall in any
event be presumed that Indemnitee has at all times acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company. Anyone seeking to overcome this presumption shall have the burden
of proof and the burden of persuasion, by clear and convincing evidence.
(f) The Company acknowledges that a settlement or other
disposition short of final judgment may be successful if it permits a party to
avoid expense, delay, distraction, disruption and uncertainty. In the event that
any action, claim or proceeding to which Indemnitee is a party is resolved in
any manner other than by adverse judgment against Indemnitee (including, without
limitation, settlement of such action, claim or proceeding with or without
payment of money or other consideration) it shall be presumed that Indemnitee
has been successful on the merits or otherwise in such action, suit or
proceeding. Anyone seeking to overcome this presumption shall have the burden of
proof and the burden of persuasion, by clear and convincing evidence.
(g) If the person, persons or entity empowered or selected under
Section 6 to determine whether Indemnitee is entitled to indemnification shall
not have made a determination within thirty (30) days after receipt by the
Company of the request therefor, the requisite determination of entitlement to
indemnification shall be deemed to have been made and Indemnitee shall be
entitled to such indemnification, absent (i) a misstatement by Indemnitee of a
material fact, or an omission of a material fact necessary to make Indemnitee's
statement not materially misleading, in connection with the request for
indemnification, or (ii) a prohibition of such indemnification under applicable
law; provided, however, that such 30 day period may be extended for a reasonable
time, not to exceed an additional fifteen (15) days, if the person, persons or
entity making the determination with respect to entitlement to indemnification
in good faith requires such additional time for the obtaining or evaluating
documentation and/or information relating thereto; and provided, further, that
the foregoing provisions of this Section 6(g) shall not apply if the
determination of entitlement to indemnification is to be made by the
stockholders pursuant to Section 6(b) of this Agreement and if (A) within
fifteen (15) days after receipt by the Company of the request for such
determination the Board of Directors or the Disinterested Directors, if
appropriate, resolve to submit such determination to the stockholders for their
consideration at an annual meeting thereof to be held within seventy five (75)
days after such receipt and such determination is made thereat, or (B) a special
meeting of stockholders is called within fifteen (15) days after such receipt
for the purpose of making such determination, such meeting is held for such
purpose within sixty (60) days after having been so called and such
determination is made threat.
(h) Indemnitee shall cooperate with the person, persons or entity
making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity upon
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and
6
<PAGE>
which is reasonably available to Indemnitee and reasonably necessary to such
determination. Any Independent Counsel, member of the Board of Directors, or
stockholder of the Company shall act reasonably and in good faith in making a
determination under the Agreement of the Indemnitee's entitlement to
indemnification. Any costs or expenses (including attorneys' fees and
disbursements) incurred by Indemnitee in so cooperating with the person, persons
or entity making such determination shall be borne by the Company (irrespective
of the determination as to Indemnitee's entitlement to indemnification) and the
Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
7. REMEDIES OF INDEMNITEE.
----------------------
(a) In the event that (i) a determination is made pursuant to
Section 6 of this Agreement that Indemnitee is not entitled to indemnification
under this Agreement, (ii) advancement of Expenses is not timely made pursuant
to Section 5 of this Agreement, (iii) no determination of entitlement to
indemnification shall have been made pursuant to Section 6(b) of this Agreement
within 90 days after receipt by the Company of the request for indemnification,
(iv) payment of indemnification is not made pursuant to this Agreement within
ten (10) days after receipt by the Company of a written request therefor, or (v)
payment of indemnification is not made within ten (10) days after a
determination has been made that Indemnitee is entitled to indemnification or
such determination is deemed to have been made pursuant to Section 6 of this
Agreement, Indemnitee shall be entitled to an adjudication in an appropriate
court of the State of Delaware, or in any other court of competent jurisdiction,
of his entitlement to such indemnification. Indemnitee shall commence such
proceeding seeking an adjudication within 180 days following the date on which
Indemnitee first has the right to commence such proceeding pursuant to this
Section 7(a). The Company shall not oppose Indemnitee's right to seek any such
adjudication.
(b) In the event that a determination shall have been made
pursuant to Section 6(b) of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding commenced pursuant to this Section 7
shall be conducted in all respects as a de novo trial, on the merits and
Indemnitee shall not be prejudiced by reason of that adverse determination.
(c) If a determination shall have been made pursuant to Section
6(b) of this Agreement that Indemnitee is entitled to indemnification, the
Company shall be bound by such determination in any judicial proceeding
commenced pursuant to this Section 7, absent a prohibition of such
indemnification under applicable law.
(d) In the event that Indemnitee, pursuant to this Section 7,
seeks a judicial adjudication of his rights under, or to recover damages for
breach of, this Agreement, or to recover under any directors' and officers'
liability insurance policies maintained by the Company the Company shall pay on
his behalf, in advance, any and all expenses (of the types described in the
definition of Expenses in Section 16 of this Agreement) actually and reasonably
incurred by him in such judicial adjudication, regardless of whether Indemnitee
ultimately is
7
<PAGE>
determined to be entitled to such indemnification, advancement of expenses or
insurance recovery.
(e) The Company shall be precluded from asserting in any judicial
proceeding commenced pursuant to this Section 7 that the procedures and
presumptions of this Agreement are not valid, binding and enforceable and shall
stipulate in any such court that the Company is bound by all the provisions of
this Agreement.
8. NON-EXCLUSIVITY; SURVIVAL OF RIGHTS; INSURANCE; SUBROGATION.
-----------------------------------------------------------
(a) The rights of indemnification as provided by this Agreement
shall not be deemed exclusive of any other rights to which Indemnitee may at any
time be entitled under applicable law, the certificate of incorporation of the
Company, the Bylaws, any agreement, a vote of stockholders or a resolution of
directors, or otherwise. No amendment, alteration or repeal of this Agreement or
of any provision hereof shall limit or restrict any right of Indemnitee under
this Agreement in respect of any action taken or omitted by such Indemnitee in
his Corporate Status prior to such amendment, alteration or repeal. To the
extent that a change in the Law, whether by statute or judicial decision,
permits greater indemnification than would be afforded currently under the
Bylaws and this Agreement, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits so afforded by
such change. No right or remedy herein conferred is intended to be exclusive of
any other right or remedy, and every other right and remedy shall be cumulative
and in addition to every other right and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise. The assertion or employment
of any right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other right or remedy.
(b) To the extent that the Company maintains an insurance policy
or policies providing liability insurance for directors, officers, employees, or
agents or fiduciaries of the Company or of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise which such
person serves at the request of the Company, Indemnitee shall be covered by such
policy or policies in accordance with its or their terms to the maximum extent
of the coverage available for any such director, officer, employee or agent
under such policy or policies.
(c) In the event of any payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make
any payment of amounts otherwise indemnifiable hereunder if and to the extent
that Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
8
<PAGE>
9. EXCEPTION TO RIGHT OF INDEMNIFICATION. Notwithstanding any other
-------------------------------------
provision of this Agreement, Indemnitee shall not be entitled to indemnification
under this Agreement with respect to any Proceeding brought by Indemnitee, or
any claim therein, unless (a) the bringing of such Proceeding or making of such
claim shall have been approved by the Board of Directors or (b) such Proceeding
is being brought by the Indemnitee to assert his rights under this Agreement.
10. DURATION OF AGREEMENT. All agreements and obligations of the
---------------------
Company contained herein shall continue during the period Indemnitee is an
officer or director of the Company (or is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise) and shall continue
thereafter so long as Indemnitee shall be subject to any Proceeding (or any
proceeding commenced under Section 7 hereof) by reason of his Corporate Status,
whether or not he is acting or serving in any such capacity at the time any
liability or expense is incurred for which indemnification can be provided under
this Agreement. This Agreement shall be binding upon and inure to the benefit
of and be enforceable by the parties hereto and their respective successors
(including any direct or indirect successor by purchase, merger, consolidation
or otherwise to all or substantially all of the business or assets of the
Company), assigns, spouses, heirs, executors and personal and legal
representatives. This Agreement shall continue in effect regardless of whether
Indemnitee continues to serve as an officer or director of the Company or any
other enterprise at the Company's request.
11. SECURITY. To the extent requested by the Indemnitee and approved
--------
by the Board of Directors, the Company may at any time and from time to time
provide security to the Indemnitee for the Company's obligations hereunder
through an irrevocable bank line of credit, funded trust or other collateral.
Any such security, once provided to the Indemnitee, may not be revoked or
released without the prior written consent of the Indemnitee.
12. ENFORCEMENT.
-----------
(a) The Company expressly confirms and agrees that it has entered
into this Agreement and assumed the obligations imposed on it hereby in order to
induce Indemnitee to serve as an officer or director of the Company, and the
Company acknowledges that Indemnitee is relying upon this Agreement in serving
as an officer or director of the Company.
(b) This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral, written and implied, between the
parties hereto with respect to the subject matter hereof.
9
<PAGE>
13. DEFINITIONS. For purposes of this Agreement:
-----------
(a) "Corporate Status" describes the status of a person who is or
was a director, officer, employee or agent or fiduciary of the Company or of any
other corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise which such person is or was serving at the express written
request of the Company.
(b) "Disinterested Director" means a director of the Company who
is not and was not a party to the Proceeding in respect of which indemnification
is sought by Indemnitee.
(c) "Enterprise" shall mean the Company and any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise of which Indemnitee is or was serving at the express written request
of the Company as a director, officer, employee, agent or fiduciary.
(d) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, participating, or being or preparing to
be a witness in a Proceeding.
(e) "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither presently
is, nor in the past five years has been, retained to represent: (i) the Company
or Indemnitee in any matter material to either such party (other than with
respect to matters concerning the Indemnitee under this Agreement, or of other
indemnitees under similar indemnification agreements), or (ii) any other party
to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the Company
or Indemnitee in an action to determine Indemnitee's rights under this
Agreement. The Company agrees to pay the reasonable fees of the Independent
Counsel referred to above and to fully indemnify such counsel against any and
all Expenses, claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto.
(f) "Proceeding" includes any threatened, pending or completed
action, suit, arbitration, alternate dispute resolution mechanism,
investigation, inquiry, administrative hearing or any other actual, threatened
or completed proceeding, whether brought by or in the right of the Company or
otherwise and whether civil, criminal, administrative or investigative, in which
Indemnitee was, is or will be involved as a party or otherwise, by reason of the
fact that Indemnitee is or was a director of the Company, by reason of any
action taken by him or of any inaction on his part while acting as an officer or
director of the Company, or by
10
<PAGE>
reason of the fact that he is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise; in each case whether or not he is acting or
serving in any such capacity at the time any liability or expense is incurred
for which indemnification can be provided under this Agreement; including one
pending on or before the date of this Agreement; and excluding one initiated by
an Indemnitee pursuant to Section 7 of this Agreement to enforce his rights
under this Agreement.
14. SEVERABILITY. If any provision or provisions of this Agreement
------------
shall be held by a court of competent jurisdiction to be invalid, void, illegal
or otherwise unenforceable for any reason whatsoever: (a) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including without limitation, each portion of any section of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
is not itself invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby and shall remain enforceable to the fullest extent
permitted by law; and (b) to the fullest extent possible, the provisions of this
Agreement (including, without limitation, each portion of any section of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall be
construed so as to give effect to the intent manifested thereby.
15. MODIFICATION AND WAIVER. No supplement, modification,
-----------------------
termination or amendment of this Agreement shall be binding unless executed in
writing by both of the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
16. NOTICE BY INDEMNITEE. Indemnitee agrees promptly to notify the
--------------------
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification covered hereunder. The failure
to so notify the Company shall not relieve the Company of any obligation which
it may have to the Indemnitee under this Agreement or otherwise.
17. NOTICES. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
(a) If to Indemnitee, to the address set forth below Indemnitee
signature hereto.
11
<PAGE>
(b) If to the Company, to:
Hall, Kinion & Associates, Inc.
5300 Stevens Creek Boulevard, Suite 320
San Jose, California 95219
Attention: Chief Executive Officer
or to such other address as may have been furnished to Indemnitee by
the Company or to the Company by Indemnitee, as the case may be.
18. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or
----------------------
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute one and the same Agreement.
Only one such counterpart signed by the party against whom enforceability is
sought needs to be produced to evidence the existence of this Agreement.
19. HEADINGS. The headings of the paragraphs of this Agreement are
--------
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
20. GOVERNING LAW. The parties agree that this Agreement shall be
-------------
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware without application of the conflict of laws principles
thereof.
21. GENDER. Use of the masculine pronoun shall be deemed to include
------
usage of the feminine pronoun where appropriate.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
HALL, KINION & ASSOCIATES, INC.
By:__________________________________________
_____________________________________________
((Name)), Indemnitee
Address: ((Address))
<PAGE>
EXHIBIT 10.4
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT ("Agreement") is made and entered into this 30th
day of January, 1996, by and between Brenda Hall, of 19050 Camino Barco,
Saratoga, California 95070 ("Pledgor"), DLJ Capital Corporation, Sprout II,
L.P., Sprout CEO Fund, L.P. (collectively, the "Investors") and Hall, Kinion &
Associates, Inc. having a principal place of business of 5300 Stevens Creek
Boulevard, San Jose, California 95129 ("Pledgee"). Pledgor and Pledgee recite
and agree as follows:
RECITALS
WHEREAS, Pledgor has delivered to the Pledgee a Secured Promissory
Note dated January 30, 1996, in the principal amount of $3,000,000.00 (the
"Secured Promissory Note"); and
WHEREAS, the parties hereto desire to cause all of Pledgor's
obligations under the Secured Promissory Note to be secured by 1,200,000 shares
of the Common Stock of Pledgee owned by Pledgor (the "Shares").
NOW, THEREFOR, for good and valuable consideration, Pledgor and
Pledgee agree as follows:
1. Delivery. Pledgor hereby delivers to the Secretary of Hall,
--------
Kinion & Associates, Inc. ("Escrow Agent"), Certificate No. 45, representing all
of the Shares, and accompanied by a stock power endorsed in blank. The said
Shares shall be referred to herein as the "Security." Pledgor hereby pledges the
Security to secure all of Pledgor's obligations under the Secured Promissory
Note; provided, however, in any event (i) on July 30, 1996, 240,000 Shares shall
be released from the pledge created by this Pledge Agreement and the escrow, and
(ii) on January 30, 1997, an additional 240,000 Shares shall be released from
the pledge created by this Pledge Agreement and the escrow.
2. Terms and Conditions. Escrow Agent shall hold the Security on
--------------------
the following terms and conditions:
(a) During the term of the pledge, all cash dividends paid in
respect of the Security shall be delivered to Pledgee; any remaining cash
dividends shall be delivered to Pledgor. In the event of a default under the
Secured Promissory Note by Pledgor that is not timely cured by Pledgor, then all
rights and title pertaining to the Security shall immediately inure to and
transfer to Pledgee on a signed declaration under penalty of perjury delivered
to the Escrow Agent that there has been a default and that said default has not
been timely cured.
(b) Pledgor agrees to pay prior to delinquency, all taxes,
charges, liens and assessments, if any, against the Security, and upon the
failure of Pledgor to do so, Pledgee at its option may pay any of them;
provided, however, that Pledgee shall not have any right to make
- -------- -------
<PAGE>
any such payment if Pledgor shall, in good faith and in accordance with
prescribed statutory or other procedures, contest the validity or legality of
any such tax, charge, lien or assessment.
3. Event of Default. The occurrence of any one or more of the
----------------
following shall constitute an "event of default" hereunder:
(a) the non-payment of any installment of principal or interest
under the Secured Promissory Note;
(b) the levy of any attachment, execution or other process
against any of the Security, which is not vacated within thirty (30) days; or
(c) any breach of or default under the terms of this Agreement
or the Secured Promissory Note by Pledgor.
4. Remedies. Upon the occurrence of any event of default, after
--------
providing Pledgor with sixty (60) days' written notice of time to cure such
defaults under 3(b) or 3(c) (ten (10) days in the case of a breach for non-
payment), Pledgee or Escrow Agent may take in payment therefor that number of
shares (not to exceed the number of Shares then subject to this Pledge and held
under this Pledge Agreement, and not to be less than 480,000 shares) equal in
fair market value (as defined below) to the aggregate principal amount and
interest then due under the Secured Promissory Note;
For purposes of this Pledge Agreement, fair market value shall be
equal to (i) at the time of a Qualified Public Offering, the price per share
that represents the price of the Pledgee's Common Stock on the effective date
and time of such offering, (ii) at the time of a Merger (as defined in
subsection 2(c)(i) of the Pledgee's Amended and Restated Articles of
Incorporation), the fair market value of the Common Stock will be determined in
that subsection, (iii) at any other time, the fair market value will be
determined by a financial appraiser that shall be mutually acceptable to the
Board of Directors of the Pledgee and Pledgor, the expenses of such appraisal to
be borne equally by the Pledgee and Pledgor. If the Pledgee and Pledgor cannot
agree upon a single appraiser, the Pledgee shall choose an appraiser, Pledgor
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 Shares and fair market value shall be equal to the average of these three
appraisals, the expenses of such appraisal to be borne equally by the Pledgee
and Pledgor;
As set forth above, Pledgee, by written notice to Pledgor, may propose
to retain the Security (equal in fair market value to the aggregate principal
amount and interest then due under the secured Promissory Note, but in no event
less than 480,000 shares) in satisfaction of Pledgor's obligations under this
Agreement. Pledgor waives all of Pledgor's rights under the California
Commercial Code with respect to causing a sale of such Security. Pledgor shall
not be liable for any deficiency if the value of the Security is less than the
amount of aggregate principal and interest due under the Secured Promissory
Note.
2
<PAGE>
5. Redemption. At any time before Pledgee has sold or otherwise
----------
disposed of the Security in accordance with paragraph (a) of Section 4 of this
Agreement, Pledgor may, unless otherwise agreed in writing after the occurrence
of any event of default, redeem the Security by tendering to Pledgee:
(a) the total amount of Pledgor's payment obligations under the
Secured Promissory Note then outstanding;
(b) all amounts, if any, due to Pledgee under this Agreement;
and
(c) the reasonable expenses of holding, preparing for sale,
selling and the like, and to the extent not prohibited by law, the reasonable
attorneys' fees and legal expense incurred by Pledgee. Upon such redemption, the
Security shall be released to Pledgor.
6. Miscellaneous.
-------------
(a) Any forbearance or failure or delay by Pledgee in exercising
any right, power or remedy hereunder shall not be deemed to be a waiver of such
right, power or remedy, and any single or partial exercise of any right, power
or remedy hereunder shall not preclude the further exercise thereof.
(b) Any notice or other communication required or which may be
given hereunder shall be in writing and shall be delivered personally or sent by
courier or sent by certified or registered mail, postage prepaid, and shall be
deemed given when so delivered personally or sent by courier or, if mailed, upon
receipt thereof, at the addresses as indicated in the first paragraph of this
Agreement, or at such other address as may be designated by notice given to the
other parties hereto in the foregoing manner.
(c) This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors, assigns and
personal representatives. This Agreement shall be governed by California law
excluding that body of law pertaining to conflicts of law.
(d) If either the Pledgor or Pledgee institutes an action or
other legal proceeding against the other based upon a cause of action arising
out of this Pledge Agreement, the prevailing party in such action or proceeding
shall recover from the other party the reasonable fees and expenses of such
prevailing party's attorneys incurred in connection therewith.
(e) This Pledge Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts together
shall constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
3
<PAGE>
(f) Pledgor understands and agrees that the Pledgee shall cause
the legend set forth below, or a legend substantially equivalent thereto, to be
placed upon any certificate(s) evidencing ownership of the Shares:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS SET FORTH IN THE PLEDGE AGREEMENT DATED JANUARY ____,
1996 (THE "PLEDGE AGREEMENT") BETWEEN THE COMPANY AND THE REGISTERED HOLDER
OF THESE SHARES (THE "HOLDER") TO SECURE THE PAYMENT OBLIGATIONS OF THE
HOLDER UNDER A SECURED PROMISSORY NOTE DATED JANUARY ___, 1996 (THE "NOTE").
THESE SHARES MAY NOT BE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNTIL
ALL OF THE HOLDER'S OBLIGATIONS UNDER THE PLEDGE AGREEMENT AND THE NOTE HAVE
BEEN DISCHARGED IN FULL.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
"PLEDGOR"
By: /s/ Brenda Hall
-------------------------------
(Signature)
BRENDA HALL
"PLEDGEE"
HALL, KINION & ASSOCIATES, INC.
By: /s/Keith Corbin
-------------------------------
Name: Keith Corbin
Its: CFO
The undersigned Escrow Agent agrees to serve as escrow agent
hereunder subject to the terms and conditions set forth in the Escrow Agreement
attached hereto as Exhibit A. To the extent any of the terms of this Pledge
Agreement conflict with any of the terms of the Escrow Agreement with respect to
the rights and obligations of the Escrow Agent, the terms of the Escrow
Agreement shall prevail; otherwise the terms of this Agreement will prevail in
the case of a conflict.
<PAGE>
"ESCROW AGENT"
SECRETARY OF HALL, KINION &
ASSOCIATES, INC.
By: /s/Todd Kinion
-------------------------------
Name:
<PAGE>
DLJ CAPITAL CORPORATION
By: /s/Paul H. Bartlett
-------------------------------
Paul H. Barlett
Attorney in Fact
SPROUT GROWTH II, L.P.
By: /s/Paul H. Barlett
-------------------------------
Paul H. Barlett
Attorney in Fact
SPROUT CEO FUND, L.P.
By DLJ Capital Corporation,
General Partner
By: /s/ Paul H. Barlett
-------------------------------
Paul H. Barlett
Attorney in Fact
<PAGE>
CONSENT OF SPOUSE
I acknowledge that I have read the foregoing Pledge Agreement and that
I know its contents (and the contents of the related Secured Promissory Note and
Escrow Agreement). I am aware that by its provisions my spouse agrees to grant a
security interest in shares of the Company held of record by my spouse,
including my community interest in such shares. I hereby agree that those
shares and my interest in them, if any, are subject to the provisions of the
Pledge Agreement and that I will take no action at any time to hinder operation
of, or violate, the Pledge Agreement.
/s/ Virgil L. Hall
--------------------------------
(Signature)
<PAGE>
EXHIBIT 10.5
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT ("Agreement") is made and entered into this 30th day
of January, 1996, by and between Todd Kinion, of 36 Playa Boulevard, La Selva
Beach, California 95076 ("Pledgor"), DLJ Capital Corporation, Sprout II, L.P.,
Sprout CEO Fund, L.P. (collectively, the "Investors") and Hall, Kinion &
Associates, Inc. having a principal place of business of 5300 Stevens Creek
Boulevard, San Jose, California 95129 ("Pledgee"). Pledgor and Pledgee recite
and agree as follows:
RECITALS
WHEREAS, Pledgor has delivered to the Pledgee a Secured Promissory Note
dated January 30, 1996, in the principal amount of $2,000,000.00 (the "Secured
Promissory Note"); and
WHEREAS, the parties hereto desire to cause all of Pledgor's obligations
under the Secured Promissory Note to be secured by 800,000 shares of the Common
Stock of Pledgee owned by Pledgor (the "Shares").
NOW, THEREFOR, for good and valuable consideration, Pledgor and Pledgee
agree as follows:
1. Delivery. Pledgor hereby delivers to the Secretary of Hall, Kinion &
--------
Associates, Inc. ("Escrow Agent"), Certificate No. 47, representing all of the
Shares, and accompanied by a stock power endorsed in blank. The said Shares
shall be referred to herein as the "Security." Pledgor hereby pledges the
Security to secure all of Pledgor's obligations under the Secured Promissory
Note; provided, however, in any event (i) on July 30, 1996, 160,000 Shares shall
be released from the pledge created by this Pledge Agreement and the escrow, and
(ii) on January 30, 1997, an additional 160,000 Shares shall be released from
the pledge created by this Pledge Agreement and the escrow.
2. Terms and Conditions. Escrow Agent shall hold the Security on the
--------------------
following terms and conditions:
(a) During the term of the pledge, all cash dividends paid in respect
of the Security shall be delivered to Pledgee; any remaining cash dividends
shall be delivered to Pledgor. In the event of a default under the Secured
Promissory Note by Pledgor that is not timely cured by Pledgor, then all rights
and title pertaining to the Security shall immediately inure to and transfer to
Pledgee on a signed declaration under penalty of perjury delivered to the Escrow
Agent that there has been a default and that said default has not been timely
cured.
(b) Pledgor agrees to pay prior to delinquency, all taxes, charges,
liens and assessments, if any, against the Security, and upon the failure of
Pledgor to do so, Pledgee at its option may pay any of them; provided, however,
-------- -------
that Pledgee shall not have any right to make
<PAGE>
any such payment if Pledgor shall, in good faith and in accordance with
prescribed statutory or other procedures, contest the validity or legality of
any such tax, charge, lien or assessment.
3. Event of Default. The occurrence of any one or more of the following
----------------
shall constitute an "event of default" hereunder:
(a) the non-payment of any installment of principal or interest under
the Secured Promissory Note;
(b) the levy of any attachment, execution or other process against any
of the Security, which is not vacated within thirty (30) days; or
(c) any breach of or default under the terms of this Agreement or the
Secured Promissory Note by Pledgor.
4. Remedies. Upon the occurrence of any event of default, after providing
--------
Pledgor with sixty (60) days' written notice of time to cure such defaults under
3(b) or 3(c) (ten (10) days in the case of a breach for non-payment), Pledgee or
Escrow Agent may take in payment therefor that number of shares (not to exceed
the number of Shares then subject to this Pledge and held under this Pledge
Agreement, and not to be less than 320,000 shares) equal in fair market value
(as defined below) to the aggregate principal amount and interest then due under
the Secured Promissory Note;
For purposes of this Pledge Agreement, fair market value shall be equal to
(i) at the time of a Qualified Public Offering, the price per share that
represents the price of the Pledgee's Common Stock on the effective date and
time of such offering, (ii) at the time of a Merger (as defined in subsection
2(c)(i) of the Pledgee's Amended and Restated Articles of Incorporation), the
fair market value of the Common Stock will be determined in that subsection,
(iii) at any other time, the fair market value will be determined by a financial
appraiser that shall be mutually acceptable to the Board of Directors of the
Pledgee and Pledgor, the expenses of such appraisal to be borne equally by the
Pledgee and Pledgor. If the Pledgee and Pledgor cannot agree upon a single
appraiser, the Pledgee shall choose an appraiser, Pledgor 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 Shares and fair
market value shall be equal to the average of these three appraisals, the
expenses of such appraisal to be borne equally by the Pledgee and Pledgor;
As set forth above, Pledgee, by written notice to Pledgor, may propose to
retain the Security (equal in fair market value to the aggregate principal
amount and interest then due under the Secured Promissory Note, but in no event
less than 320,000 shares) in satisfaction of Pledgor's obligations under this
Agreement. Pledgor waives all of Pledgor's rights under the California
Commercial Code with respect to causing a sale of such Security. Pledgor shall
not be liable for any deficiency if the value of the Security is less than the
amount of aggregate principal and interest due under the Secured Promissory
Note.
2
<PAGE>
5. Redemption. At any time before Pledgee has sold or otherwise
----------
disposed of the Security in accordance with paragraph (a) of Section 4 of this
Agreement, Pledgor may, unless otherwise agreed in writing after the occurrence
of any event of default, redeem the Security by tendering to Pledgee:
(a) the total amount of Pledgor's payment obligations under the
Secured Promissory Note then outstanding;
(b) all amounts, if any, due to Pledgee under this Agreement; and
(c) the reasonable expenses of holding, preparing for sale, selling
and the like, and to the extent not prohibited by law, the reasonable attorneys'
fees and legal expense incurred by Pledgee. Upon such redemption, the Security
shall be released to Pledgor.
6. Miscellaneous.
-------------
(a) Any forbearance or failure or delay by Pledgee in exercising any
right, power or remedy hereunder shall not be deemed to be a waiver of such
right, power or remedy, and any single or partial exercise of any right, power
or remedy hereunder shall not preclude the further exercise thereof
(b) Any notice or other communication required or which may be given
hereunder shall be in writing and shall be delivered personally or sent by
courier or sent by certified or registered mail, postage prepaid, and shall be
deemed given when so delivered personally or sent by courier or, if mailed, upon
receipt thereof, at the addresses as indicated in the first paragraph of this
Agreement, or at such other address as may be designated by notice given to the
other parties hereto in the foregoing manner.
(c) This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors, assigns and
personal representatives. This Agreement shall be governed by California law
excluding that body of law pertaining to conflicts of law.
(d) If either the Pledgor or Pledgee institutes an action or other
legal proceeding against the other based upon a cause of action arising out of
this Pledge Agreement, the prevailing party in such action or proceeding shall
recover from the other party the reasonable fees and expenses of such prevailing
party's attorneys incurred in connection therewith.
(e) This Pledge Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts together
shall constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
3
<PAGE>
(f) Pledgor understands and agrees that the Pledgee shall cause the
legend set forth below, or a legend substantially equivalent thereto, to be
placed upon any certificate(s) evidencing ownership of the Shares:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS
AND CONDITIONS SET FORTH IN THE PLEDGE AGREEMENT DATED JANUARY ___, 1996
(THE "PLEDGE AGREEMENT") BETWEEN THE COMPANY AND THE REGISTERED HOLDER OF
THESE SHARES (THE "HOLDER") TO SECURE THE PAYMENT OBLIGATIONS OF THE HOLDER
UNDER A SECURED PROMISSORY NOTE DATED JANUARY ___, 1996 (THE "NOTE"). THESE
SHARES MAY NOT BE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNTIL ALL
OF THE HOLDER'S OBLIGATIONS UNDER THE PLEDGE AGREEMENT AND THE NOTE HAVE
BEEN DISCHARGED IN FULL.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
"PLEDGOR"
/s/Todd Kinion
------------------------------------
(Signature)
TODD KINION
"PLEDGEE"
HALL, KINION & ASSOCIATES, INC.
By: /s/ Keith Corbin
---------------------------------
Name: Keith Corbin
Its: CFO
4
<PAGE>
The undersigned Escrow Agent agrees to serve as escrow agent hereunder
subject to the terms and conditions set forth in the Escrow Agreement attached
hereto as Exhibit A. To the extent any of the terms of this Pledge Agreement
conflict with any of the terms of the Escrow Agreement with respect to the
rights and obligations of the Escrow Agent, the terms of the Escrow Agreement
shall prevail; otherwise the terms of this Agreement will prevail in the case of
a conflict.
"ESCROW AGENT"
SECRETARY OF HALL, KINION &
ASSOCIATES, INC.
/s/Todd Kinion
------------------------------------
Name:
5
<PAGE>
DLJ CAPITAL CORPORATION
By: /s/Paul H.Bartlett
----------------------------------
Paul H. Bartlett
Attorney in Fact
SPROUT GROWTH II, L.P.
By: /s/Paul H. Bartlett
----------------------------------
Paul H. Bartlett
Attorney in Fact
SPROUT CEO FUND, L.P.
By: DLJ Capital Corporation,
General Partner
By: /s/Paul H. Bartlett
----------------------------------
Paul H. Bartlett
Attorney in Fact
<PAGE>
CONSENT OF SPOUSE
I acknowledge that I have read the foregoing Pledge Agreement and that I
know its contents (and the contents of the related Secured Promissory Note and
Escrow Agreement). I am aware that by its provisions my spouse agrees to grant a
security interest in shares of the Company held of record by my spouse,
including my community interest in such shares. I hereby agree that those shares
and my interest in them, if any, are subject to the provisions of the Pledge
Agreement and that I will take no action at any time to hinder operation of, or
violate, the Pledge Agreement.
/s/Patricia Kinion
-----------------------------------
(Signature)
<PAGE>
EXHIBIT 10.6
SECURED PROMISSORY NOTE
$3,000,000.00 San Jose, California
January 30, 1996
FOR VALUE RECEIVED, the undersigned, BRENDA HALL, an individual residing in
California ("Maker"), hereby promises to pay to the order of HALL, KINION &
ASSOCIATES, INC., a California corporation (the "Company"), at 5300 Stevens
Creek Boulevard, San Jose, California 95129, or at such other place as the
Company shall specify in writing, the principal sum of THREE MILLION AND
NO/100THS DOLLARS ($3,000,000.00) with interest payable thereon. Interest on the
outstanding principal under this Secured Promissory Note shall accrue at the
rate of the lesser of 6.91% per annum or the maximum amount permitted under law.
The entire principal and all accrued interest outstanding under this Secured
Promissory Note shall be fully due and payable upon the earliest to occur of (i)
January 30, 2001; (ii) the sale of any of the Shares (as defined below); (iii)
Maker voluntarily terminating her employment with the Company; (iv) the Company
terminating Maker's employment with the Company For Cause; (v) a material breach
by the Maker of any agreement between Maker and the Company which is not cured
within sixty (60) days (ten (10) days in the case of breach for non-payments)
following notice to Maker of such material breach; (vi) a Merger (as defined
below); (vii) a Qualified Public Offering (as defined below); (viii) Maker's
Personal Bankruptcy (as defined below); (ix) the sale, disposition or other
transfer of any of the Shares in violation of the Right of First Refusal and Co-
Sale Agreement dated the date hereof entered into by Maker, Company and other
parties; or (x) any material misrepresentation or breach of any material
warranty made by Maker in the Series A Preferred Stock and Warrant Purchase
Agreement of even date herewith and not cured within sixty (60) days following
notice to Maker. All sums owing hereunder are payable in lawful money of the
United States of America, in immediately available funds. At the end of the term
of this Secured Promissory Note or upon acceleration, to the extent permitted by
law the Maker shall be entitled to tender in full payment therefor either (i)
the aggregate principal amount and interest due under this Secured Promissory
Note in cash or (ii) that number of Shares equal in fair market value to the
aggregate principal amount and interest due; provided, however, in no event
shall Maker tender less than 480,000 Shares, if Shares are tendered to pay off
this Note.
As used in this Secured Promissory Note, the following terms have the
following meanings:
"Fair Market Value" shall be equal to (a) at the time of a Qualified Public
Offering, the price per share that represents the price of the Company's Common
Stock on the effective date and time of such offering, and any time thereafter,
the closing sale price of the Company's Common Stock three (3) trading days
immediately prior to the date on which such Fair Market Value is being
determined, (b) at the time of a Merger (as defined below), the Fair Market
Value of the Common Stock will be determined as provided in Article II(2)(c)(i),
of the Company's Amended and Restated Articles of Incorporation and (c) at any
other time, the Fair Market Value
<PAGE>
will be as determined by a financial appraiser that shall be mutually acceptable
to the Maker and the holders of a majority of the Company's Series A Preferred
Stock, the expenses of such appraisal to be borne by the Maker. If the Maker and
the holders of a majority of the Series A Preferred Stock cannot agree upon a
single appraiser, the Maker shall choose an appraiser, the holders of a majority
of the Series A Preferred Stock shall choose an appraiser shall and these two
appraisers select a third appraiser. Those three appraisers shall each determine
a fair market value for the Common Stock and Fair Market Value shall be equal to
the average of these three appraisals, the expenses of such appraisal to be
borne by the Maker.
"For Cause" shall mean: (A) Maker's failure to substantially perform her
duties and responsibilities in good faith, after sixty (60) days following the
delivery of notice to Maker stating with particularity how Maker is failing to
so perform; (B) Maker being convicted of a felony or committing an act of
intentional and willful fraud against the Company; or (C) Maker's commencement
of employment (as an employee) with another employer while she is an employee of
Company.
"Merger" shall mean: (Y) The acquisition of the Company 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
Company); or (Z) a sale of all or substantially all of the assets of the
Company; unless the Company'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 Company's
acquisition or sale or otherwise) hold at least 50% of the voting power of the
surviving or acquiring entity.
"Personal Bankruptcy" shall mean a case or other proceeding commenced
against the Maker in any court of competent jurisdiction seeking relief under
the federal bankruptcy laws (as now or hereafter in effect) or under any other
laws, domestic or foreign, relating to bankruptcy, insolvency or adjustment of
debts and such case or proceeding shall continue undismissed or unstayed for a
period of sixty (60) consecutive days.
"Shares" shall mean the shares of Company Common Stock owned by Maker
securing the obligations hereunder being pledged pursuant to that certain Pledge
Agreement entered into by and between Maker and Company dated the date hereof.
"Qualified Public Offering" shall mean the Company's sale of its Common
Stock in a firm commitment underwritten public offering pursuant to a
registration statement on Form S-1 under the Securities Act of 1933, as amended.
This Secured Promissory Note is secured by a Pledge Agreement ("Pledge
Agreement") of even date herewith executed by Maker in favor of the Company. To
the extent there is an event of default as defined in the Pledge Agreement, the
Company may seek to satisfy all principal, interest and other amounts owed
pursuant to this Secured Promissory Note and the Pledge Agreement only through
the disposition or retention of, and based on, the Shares' then Fair Market
Value. In the event of default and foreclosure, as provided in the Pledge
Agreement,
2
<PAGE>
if the Fair Market Value of the Shares is less than the total obligations owed
hereunder, including accumulated interest, Maker shall not be personally liable
for any deficiency.
Any communications or notices must be in writing and delivered or mailed to
(i) Maker, at 19050 Camino Barco, Saratoga, California, 95070, or at such other
address as Maker may designate in writing from time to time and (ii) to the
Company at 5300 Stevens Creek Boulevard, San Jose, California, 95129, or at such
other address as Maker may designate in writing from time to time.
Maker hereby waives demand, presentment, protest, notice of nonpayment,
notice of protest, and any and all lack of diligence or delays which may occur
in the collection of this Secured Promissory Note. In the event of any action to
enforce payment of this Note, in addition to all other relief, the prevailing
party in such action shall be entitled to reasonable attorneys fees and
expenses.
This Secured Promissory Note shall be governed by and construed in
accordance with the laws of the State of California excluding that body of law
pertaining to conflicts of law.
[REMAINDER OF THIS PAGE INTENTIONAL BLANK]
3
<PAGE>
IN WITNESS WHEREOF, Maker has executed this Secured Promissory Note as of
the date first written above.
"MAKER"
/s/ Brenda Hall
------------------------------------
BRENDA HALL
HALL KINION & ASSOCIATES, INC.
/s/ Keith Corbin
------------------------------------
<PAGE>
EXHIBIT 10.7
SECURED PROMISSORY NOTE
$2,000,000.00 San Jose, California
January 30, 1996
FOR VALUE RECEIVED, the undersigned, TODD KINION, an individual residing in
California ("Maker"), hereby promises to pay to the order of HALL, KINION &
ASSOCIATES, INC., a California corporation (the "Company"), at 5300 Stevens
Creek Boulevard, San Jose, California 95129, or at such other place as the
Company shall specify in writing, the principal sum of TWO MILLION AND NO/100THS
DOLLARS ($2,000,000.00) with interest payable thereon. Interest on the
outstanding principal under this Secured Promissory Note shall accrue at the
rate of the lesser of 6.91% per annum or the maximum amount permitted under law.
The entire principal and all accrued interest outstanding under this Secured
Promissory Note shall be fully due and payable upon the earliest to occur of (i)
January 30, 2001; (ii) the sale of any of the Shares (as defined below); (iii)
Maker voluntarily terminating his employment with the Company; (iv) the Company
terminating Maker's employment with the Company For Cause; (v) a material breach
by the Maker of any agreement between Maker and the Company which is not cured
within sixty (60) days (ten (10) days in the case of breach for non-payments)
following notice to Maker of such material breach; (vi) a Merger (as defined
below); (vii) a Qualified Public Offering (as defined below); (viii) Maker's
Personal Bankruptcy (as defined below); (ix) the sale, disposition or other
transfer of any of the Shares in violation of the Right of First Refusal and Co-
Sale Agreement dated the date hereof entered into by Maker, Company and other
parties; or (x) any material misrepresentation or breach of any material
warranty made by Maker in the Series A Preferred Stock and Warrant Purchase
Agreement of even date herewith and not cured within sixty (60) days following
notice to Maker. All sums owing hereunder are payable in lawful money of the
United States of America, in immediately available funds. At the end of the term
of this Secured Promissory Note or upon acceleration, to the extent permitted by
law the Maker shall be entitled to tender in full payment therefor either (i)
the aggregate principal amount and interest due under this Secured Promissory
Note in cash or (ii) that number of Shares equal in fair market value to the
aggregate principal amount and interest due; provided, however, in no event
shall Maker tender less than 320,000 Shares, if Shares are tendered to pay off
this Note.
As used in this Secured Promissory Note, the following terms have the
following meanings:
"Fair-Market Value" shall be equal to (a) at the time of a Qualified Public
Offering, the price per share that represents the price of the Company's Common
Stock on the effective date and time of such offering, and any time thereafter,
the closing sale price of the Company's Common Stock three (3) trading days
immediately prior to the date on which such Fair Market Value is being
determined, (b) at the time of a Merger (as defined below), the Fair Market
Value of the Common Stock will be determined as provided in Article II(2)(c)(i),
of the Company's
<PAGE>
Amended and Restated Articles of Incorporation and (c) at any other time, the
Fair Market Value will be as determined by a financial appraiser that shall be
mutually acceptable to the Maker and the holders of a majority of the Company's
Series A Preferred Stock, the expenses of such appraisal to be borne by the
Maker. If the Maker and the holders of a majority of the Series A Preferred
Stock cannot agree upon a single appraiser, the Maker shall choose an appraiser,
the holders of a majority of the Series A 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
Fair Market Value shall be equal to the average of these three appraisals, the
expenses of such appraisal to be borne by the Maker.
"For Cause" shall mean: (A) Maker's failure to substantially perform his
duties and responsibilities in good faith, after sixty (60) days following the
delivery of notice to Maker stating with particularity how Maker is failing to
so perform; (B) Maker being convicted of a felony or committing an act of
intentional and willful fraud against the Company; or (C) Maker's commencement
of employment (as an employee) with another employer while he is an employee of
Company.
"Merger" shall mean: (Y) The acquisition of the Company 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
Company); or (Z) a sale of all or substantially all of the assets of the
Company; unless the Company'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 Company's
acquisition or sale or otherwise) hold at least 50% of the voting power of the
surviving or acquiring entity.
"Personal Bankruptcy" shall mean a case or other proceeding commenced
against the Maker in any court of competent jurisdiction seeking relief under
the federal bankruptcy laws (as now or hereafter in effect) or under any other
laws, domestic or foreign, relating to bankruptcy, insolvency or adjustment of
debts and such case or proceeding shall continue undismissed or unstayed for a
period of sixty (60) consecutive days.
"Shares" shall mean the shares of Company Common Stock owned by Maker
securing the obligations hereunder being pledged pursuant to that certain Pledge
Agreement entered into by and between Maker and Company dated the date hereof.
"Qualified Public Offering" shall mean the Company's sale of its Common
Stock in a firm commitment underwritten public offering pursuant to a
registration statement on Form S-1 under the Securities Act of 1933, as amended.
This Secured Promissory Note is secured by a Pledge Agreement ("Pledge
Agreement") of even date herewith executed by Maker in favor of the Company. To
the extent there is an event of default as defined in the Pledge Agreement, the
Company may seek to satisfy all principal, interest and other amounts owed
pursuant to this Secured Promissory Note and the Pledge Agreement only through
the disposition or retention of, and based on, the Shares' then Fair Market
Value. In the event of default and foreclosure, as provided in the Pledge
Agreement,
2
<PAGE>
if the Fair Market Value of the Shares is less than the total obligations owed
hereunder, including accumulated interest, Maker shall not be personally liable
for any deficiency.
Any communications or notices must be in writing and delivered or mailed to
(i) Maker, at 36 Playa Boulevard, La Selva Beach, California 95076, or at such
other address as Maker may designate in writing from time to time and (ii) to
the Company at 5300 Stevens Creek Boulevard, San Jose, California, 95129, or at
such other address as Maker may designate in writing from time to time.
Maker hereby waives demand, presentment, protest, notice of nonpayment,
notice of protest, and any and all lack of diligence or delays which may occur
in the collection of this Secured Promissory Note. In the event of any action to
enforce payment of this Note, in addition to all other relief, the prevailing
party in such action shall be entitled to reasonable attorneys fees and
expenses.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
3
<PAGE>
This Secured Promissory Note shall be governed by and construed in
accordance with the laws of the State of California excluding that body of law
pertaining to conflicts of law.
IN WITNESS WHEREOF, Maker has executed this Secured Promissory Note as of
the date first written above.
"MAKER"
/s/ Todd Kinion
-----------------------------------
TODD KINION
HALL, KINION & ASSOCIATES, INC.
/s/ Keith Corbin
-----------------------------------
KEITH CORBIN
<PAGE>
EXHIBIT 10.8
EXHIBIT A
ESCROW AGREEMENT
THIS ESCROW AGREEMENT ("Escrow Agreement") is made and entered into
this 30th day of January, 1996, by and between Hall, Kinion & Associates, Inc.
having a principal place of business of 5300 Stevens Creek Boulevard, San
Jose, California 95129 ("Pledgee") and DLJ Capital Corporation, Sprout Growth
II, L.P., and Sprout CEO Fund, L.P. ("Sprout") and Brenda Hall of 19050 Camino
Barco, Saratoga, California 95070 ("Pledgor"; collectively with Sprout and
Pledgee, the "Interested Parties"), and the Secretary of Hall, Kinion &
Associates, Inc. of 5300 Stevens Creek Boulevard, San Jose, California 95129
("Escrow Agent"). Interested Parties and Escrow Agent recite and agree as
follows:
RECITALS:
WHEREAS, Pledgor has issued and delivered a secured promissory note in
the principal amount of $3,000,000 dated January 30, 1996 ("Secured Promissory
Note") to Pledgee;
WHEREAS, under the Secured Promissory Note, all payments to be made by
Pledgor are to be secured by up to 1,200,000 shares of Common Stock of Pledgee
("Stock"), currently registered in Pledgor's name, pursuant to a Pledge
Agreement ("Pledge Agreement") dated January 30, 1996 between the Interested
Parties; and
WHEREAS, Interested Parties desire to establish an escrow account with
an escrow agent in which the Stock will be held in escrow under the terms and
conditions contained herein.
NOW THEREFOR, for good and valuable consideration, the Interested
Parties and the Escrow Agent agree as follows:
1. Delivery. Pursuant to the terms of the Pledge Agreement, Pledgor
--------
has delivered to the Escrow Agent Certificate No. 45 representing the Stock
and accompanied by stock powers endorsed in blank. The Stock shall be held and
disposed of by Escrow Agent only in accordance with the terms of this Escrow
Agreement and the Pledge Agreement. To the extent any of the terms of the
Pledge Agreement are inconsistent with the terms of this Escrow Agreement with
respect to the rights and obligations of the Escrow Agent, the terms of this
Escrow Agreement shall prevail; otherwise the terms of the Pledge Agreement
shall prevail.
<PAGE>
2. Release of Stock. Upon Escrow Agent's receipt from Interested
----------------
Parties of joint written notice that all of the payments under the Secured
Promissory Note have been made (or that otherwise the Stock shall be
released), Escrow Agent shall surrender to Pledgor the Stock evidenced by
Certificate No. 45, together with stock powers endorsed on blank. In addition,
in any event (i) on July 30, 1996 240,000 Shares shall be released to Pledgor
and (ii) on January 30, 1997 an additional 240,000 Shares shall be released to
the Pledgor.
3. Escrow Agent's Terms and Conditions. The acceptance by Escrow
-----------------------------------
Agent of its duties as escrow holder under this Escrow Agreement is subject
to the following terms and conditions, which all parties to this Agreement
hereby agree shall govern any control with respect to the rights, duties,
liabilities and immunities of the Escrow Agent.
The Escrow Agent is not a party to, and is not bound by, any agreement
which may be evidenced by, or arise out of, any of the instructions
hereinbefore mentioned, other than as expressly therein set forth.
The Escrow Agent shall be entitled to rely upon, and shall be
protected in acting upon, any written notice, request, waiver, consent, receipt
or other paper or document which the Escrow Agent in good faith believes to
be genuine and to be signed by the proper person.
The Escrow Agent shall not be liable for any error of judgment, or for
any act done or step taken or admitted by him in good faith, or for any
mistake of fact or law, or for anything which he may do or refrain from doing
in connection herewith, except for his own willful default or gross negligence,
and the Escrow Agent shall have no duties hereunder to anyone except the
Interested Parties.
The Escrow Agent may at any time resign hereunder by giving notice of
his resignation to the Interested Parties at least thirty (30) days prior to
the day such resignation is to take effect as specified in such notice. Upon
the date so specified, all obligations of the Escrow Agent hereunder shall
cease, and the Escrow Agent shall deliver the Stock and the stock powers then
held by him hereunder to such bank, trust company or other person, having a
principal office in San Francisco, California, as Interested Parties shall
have designated a successor escrow agent in a notice given to such escrow
agent and to the Interested Parties at least five (5) days prior to the
effective date of such resignation.
4. Disposition of Stock. Upon the occurrence of an event of
--------------------
default specified under Section 3 of the Pledge Agreement which continues
unremedied for the period set forth in Section 4 of the Pledge Agreement,
Pledgee shall provide the Escrow Agent with written notice (with a copy to
Pledgor) that an event of default has occurred that has not been timely
remedied, and that such notice is true and correct of Pledgee's own knowledge,
and that the Escrow Agent should deliver the Stock to Pledgee for its exercise
of its rights under the terms of the Pledge
-2-
<PAGE>
Agreement with respect to the Stock. If, within thirty (30) calendar days
after the Escrow Agent's receipt of the foregoing notice, the Escrow Agent has
received written notice and supporting evidence in the form of canceled
checks, or a sworn declaration from a bank officer that the bank records
dispute the alleged default set forth in Pledgee's written notice to the
Escrow Agent, or similar evidence, then the Escrow Agent shall comply with
Section 6 hereunder with respect to the conflicting demands. However, it shall
be the duty of the Escrow Agent to conduct a reasonable inquiry into whether
or not a payment was made to Pledgee. If the Escrow Agent is unable to
determine that a payment was timely tendered to Pledgee, then the Escrow Agent
shall deliver the Stock to Pledgee forthwith, irrespective of any claim or
contention by Pledgor to the contrary. If the Escrow Agent determines that
there is a bona fide dispute between the parties, then the Escrow Agent shall
comply with Section 6 hereunder with respect to such conflicting demands. If
the Escrow Agent has not received such conflicting notice and supporting
evidence from Pledgor within the foregoing thirty (30) calendar days, the
Escrow Agent shall immediately deliver the Stock to Pledgee and Pledgee shall
be entitled to exercise his rights under the Pledge Agreement with respect to
the Stock.
5. Limitation of Liability. The parties hereto expressly recognize
-----------------------
that the Escrow Agent shall not be liable for the legality or validity of the
Stock. Interested Parties hereby agree to hold harmless and to indemnify the
Escrow Agent against all costs, damages, judgments, attorneys' fees,
obligations and liabilities of every kind or nature, which, in good faith, the
Escrow Agent may incur or sustain in connection with or arising out of this
Escrow Agreement. The Interested Parties' obligations with respect to each
other in connection with the foregoing indemnification provision shall be as
set forth in Section 7 hereunder.
6. Conflicting Demands. In the event conflicting demands are made upon
-------------------
the Escrow Agent in respect to this Escrow Agreement, the Interested Parties
acknowledge and agree that the Escrow Agent shall have the absolute right to
elect to do either or both of the following: (1) withhold and stop all further
proceedings and performances of this Escrow Agreement; or (2) file a suit in
interpleader and obtain an order from a court with jurisdiction over such
matter which requires the parties to interplead and litigate in such court
their several claims and rights against each other. In the event an
interpleader suit is brought, the Escrow Agent, at its election, shall be
fully released and discharged from all obligations to further perform any and
all duties or obligations imposed under this Escrow Agreement, and the
Interested Parties agree to pay and reimburse the Escrow Agent for all costs,
expenses and attorneys' fees expended or incurred by it in the defense or
prosecution of such interpleader suit as such amounts shall be fixed and
deemed reasonable by the court.
7. Responsibilities Between Interested Parties for Fees and Expenses.
-----------------------------------------------------------------
Pledgee shall bear all of the charges of the Escrow Agent or any successor
escrow holder for the services contemplated by this Escrow Agreement and the
Pledge Agreement prior to default.
<PAGE>
8. Relationship Between Interested Parties and Escrow Agent. The
--------------------------------------------------------
parties hereto expressly recognize that this Escrow Agreement only creates an
escrow account between the Interested Parties and Escrow Agent and that
otherwise this Agreement does not create any legal relationship implied or
actual whatsoever between the Interested Parties and Escrow Agent.
9. Termination. This Escrow Agreement shall terminate effective
-----------
upon the release of all of the Stock as set forth in Section 2 hereof, unless
earlier terminated pursuant to the terms hereof.
10. Miscellaneous.
-------------
(a) Any notice or other communication required or which may be
given hereunder shall be in writing and shall be delivered personally or sent
by courier or sent by certified or registered mail, postage prepaid, and shall
be deemed given when so delivered personally or sent by courier or, if mailed,
upon receipt thereof, at the addresses as indicated in the first paragraph of
this Agreement, or at such other address as may be designated by notice given
to the other parties hereto in the foregoing manner.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-4-
<PAGE>
(b) This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors, assigns and
personal representatives. Upon the death or incapacity of Pledgor or
dissolution or liquidation of Pledgee, the successor, assign, personal
representative, executor or conservator of such party, as appropriate, shall
notify the Escrow Agent of such occurrence. The Escrow Agent shall accept or
be entitled to rely on any instructions from such successor, assign, personal
representative, executor or conservator as if it were instructions from
Pledgor or Pledgee, as the case may be. This Agreement shall be governed by and
construed in accordance with the laws of the State of California excluding
that body of law pertaining to conflicts of law.
(c) This Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Escrow
Agreement as of the date first written above.
"PLEDGEE"
HALL, KINION & ASSOCIATES, INC.
By: /s/ Keith Corbin
---------------------------------
Name: Keith Corbin
-------------------------------
Its: CFO
--------------------------------
"PLEDGOR"
/s/ Brenda Hall
------------------------------------
(Signature)
BRENDA HALL
"ESCROW AGENT"
SECRETARY OF HALL, KINION &
ASSOCIATES, INC.
/s/ Todd Kinion
------------------------------------
Name:
<PAGE>
DLJ CAPITAL CORPORATION
/s/ Paul H. Bartlett
By_________________________________
Paul H. Bartlett
Attorney in Fact
SPROUT GROWTH II, L.P.
/s/ Paul H. Bartlett
By_________________________________
Paul H. Bartlett
Attorney in Fact
SPROUT CEO FUND, L.P.
By: DLJ Capital Corporation,
General Partner
/s/ Paul H. Bartlett
By_________________________________
Paul H. Bartlett
Attorney in Fact
<PAGE>
EXHIBIT 10.9
EXHIBIT A
ESCROW AGREEMENT
THIS ESCROW AGREEMENT ("Escrow Agreement") is made and entered into
this 30th day of January, 1996, by and between Hall, Kinion & Associates, Inc.
having a principal place of business of 5300 Stevens Creek Boulevard, San Jose,
California 95129 ("Pledgee") and DLJ Capital Corporation, Sprout Growth II,
L.P., and Sprout CEO Fund, L.P. ("Sprout") and Todd Kinion of 36 Playa
Boulevard, La Selva Beach, California 95076 ("Pledgor"; collectively with Sprout
and Pledgee, the "Interested Parties"), and the Secretary of Hall, Kinion &
Associates, Inc. of 5300 Stevens Creek Boulevard, San Jose, California 95129
("Escrow Agent"). Interested Parties and Escrow Agent recite and agree as
follows:
RECITALS:
WHEREAS, Pledgor has issued and delivered a secured promissory note in
the principal amount of $2,000,000 dated January 30, 1996 ("Secured Promissory
Note") to Pledgee;
WHEREAS, under the Secured Promissory Note, all payments to be made by
Pledgor are to be secured by up to 800,000 shares of Common Stock of Pledgee
("Stock"), currently registered in Pledgor's name, pursuant to a Pledge
Agreement ("Pledge Agreement") dated January 30, 1996 between the Interested
Parties; and
WHEREAS, Interested Parties desire to establish an escrow account with
an escrow agent in which the Stock will be held in escrow under the terms and
conditions contained herein.
NOW THEREFOR, for good and valuable consideration, the Interested
Parties and the Escrow Agent agree as follows:
1. Delivery. Pursuant to the terms of the Pledge Agreement, Pledgor
--------
has delivered to the Escrow Agent Certificate No. 47 representing the Stock
and accompanied by stock powers endorsed in blank. The Stock shall be held and
disposed of by Escrow Agent only in accordance with the terms of this Escrow
Agreement and the Pledge Agreement. To the extent any of the terms of the
Pledge Agreement are inconsistent with the terms of this Escrow Agreement with
respect to the rights and obligations of the Escrow Agent, the terms of this
Escrow Agreement shall prevail; otherwise the terms of the Pledge Agreement
shall prevail.
<PAGE>
2. Release of Stock. Upon Escrow Agent's receipt from Interested
----------------
Parties of joint written notice that all of the payments under the Secured
Promissory Note have been made (or that otherwise the Stock shall be
released), Escrow Agent shall surrender to Pledgor the Stock evidenced by
Certificate No. 47, together with stock powers endorsed on blank. In addition,
in any event (i) on July 30, 1996 160,000 Shares shall be released to Pledgor
and (ii) on January 30, 1997 an additional 160,000 Shares shall be released to
the Pledgor.
3. Escrow Agent's Terms and Conditions. The acceptance by Escrow
-----------------------------------
Agent of its duties as escrow holder under this Escrow Agreement is subject
to the following terms and conditions, which all parties to this Agreement
hereby agree shall govern any control with respect to the rights, duties,
liabilities and immunities of the Escrow Agent.
The Escrow Agent is not a party to, and is not bound by, any agreement
which may be evidenced by, or arise out of, any of the instructions
hereinbefore mentioned, other than as expressly therein set forth.
The Escrow Agent shall be entitled to rely upon, and shall be
protected in acting upon, any written notice, request, waiver, consent, receipt
or other paper or document which the Escrow Agent in good faith believes to
be genuine and to be signed by the proper person.
The Escrow Agent shall not be liable for any error of judgment, or for
any act done or step taken or admitted by him in good faith, or for any
mistake of fact or law, or for anything which he may do or refrain from doing
in connection herewith, except for his own willful default or gross negligence,
and the Escrow Agent shall have no duties hereunder to anyone except the
Interested Parties.
The Escrow Agent may at any time resign hereunder by giving notice of
his resignation to the Interested Parties at least thirty (30) days prior to
the day such resignation is to take effect as specified in such notice. Upon
the date so specified, all obligations of the Escrow Agent hereunder shall
cease, and the Escrow Agent shall deliver the Stock and the stock powers then
held by him hereunder to such bank, trust company or other person, having a
principal office in San Francisco, California, as Interested Parties shall
have designated a successor escrow agent in a notice given to such escrow
agent and to the Interested Parties at least five (5) days prior to the
effective date of such resignation.
4. Disposition of Stock. Upon the occurrence of an event of
--------------------
default specified under Section 3 of the Pledge Agreement which continues
unremedied for the period set forth in Section 4 of the Pledge Agreement,
Pledgee shall provide the Escrow Agent with written notice (with a copy to
Pledgor) that an event of default has occurred that has not been timely
remedied, and that such notice is true and correct of Pledgee's own knowledge,
and that the Escrow Agent should deliver the Stock to Pledgee for its exercise
of its rights under the terms of the Pledge
-2-
<PAGE>
Agreement with respect to the Stock. If, within thirty (30) calendar days
after the Escrow Agent's receipt of the foregoing notice, the Escrow Agent has
received written notice and supporting evidence in the form of canceled
checks, or a sworn declaration from a bank officer that the bank records
dispute the alleged default set forth in Pledgee's written notice to the
Escrow Agent, or similar evidence, then the Escrow Agent shall comply with
Section 6 hereunder with respect to the conflicting demands. However, it shall
be the duty of the Escrow Agent to conduct a reasonable inquiry into whether
or not a payment was made to Pledgee. If the Escrow Agent is unable to
determine that a payment was timely tendered to Pledgee, then the Escrow Agent
shall deliver the Stock to Pledgee forthwith, irrespective of any claim or
contention by Pledgor to the contrary. If the Escrow Agent determines that
there is a bona fide dispute between the parties, then the Escrow Agent shall
comply with Section 6 hereunder with respect to such conflicting demands. If
the Escrow Agent has not received such conflicting notice and supporting
evidence from Pledgor within the foregoing thirty (30) calendar days, the
Escrow Agent shall immediately deliver the Stock to Pledgee and Pledgee shall
be entitled to exercise his rights under the Pledge Agreement with respect to
the Stock.
5. Limitation of Liability. The parties hereto expressly recognize
-----------------------
that the Escrow Agent shall not be liable for the legality or validity of the
Stock. Interested Parties hereby agree to hold harmless and to indemnify the
Escrow Agent against all costs, damages, judgments, attorneys' fees,
obligations and liabilities of every kind or nature, which, in good faith, the
Escrow Agent may incur or sustain in connection with or arising out of this
Escrow Agreement. The Interested Parties' obligations with respect to each
other in connection with the foregoing indemnification provision shall be as
set forth in Section 7 hereunder.
6. Conflicting Demands. In the event conflicting demands are made upon
-------------------
the Escrow Agent in respect to this Escrow Agreement, the Interested Parties
acknowledge and agree that the Escrow Agent shall have the absolute right to
elect to do either or both of the following: (1) withhold and stop all further
proceedings and performances of this Escrow Agreement; or (2) file a suit in
interpleader and obtain an order from a court with jurisdiction over such
matter which requires the parties to interplead and litigate in such court
their several claims and rights against each other. In the event an
interpleader suit is brought, the Escrow Agent, at its election, shall be
fully released and discharged from all obligations to further perform any and
all duties or obligations imposed under this Escrow Agreement, and the
Interested Parties agree to pay and reimburse the Escrow Agent for all costs,
expenses and attorneys' fees expended or incurred by it in the defense or
prosecution of such interpleader suit as such amounts shall be fixed and
deemed reasonable by the court.
7. Responsibilities Between Interested Parties for Fees and Expenses.
-----------------------------------------------------------------
Pledgee shall bear all of the charges of the Escrow Agent or any successor
escrow holder for the services contemplated by this Escrow Agreement and the
Pledge Agreement prior to default.
-3-
<PAGE>
8. Relationship Between Interested Parties and Escrow Agent. The
--------------------------------------------------------
parties hereto expressly recognize that this Escrow Agreement only creates an
escrow account between the Interested Parties and Escrow Agent and that
otherwise this Agreement does not create any legal relationship implied or
actual whatsoever between the Interested Parties and Escrow Agent.
9. Termination. This Escrow Agreement shall terminate effective
-----------
upon the release of all of the Stock as set forth in Section 2 hereof, unless
earlier terminated pursuant to the terms hereof.
10. Miscellaneous.
-------------
(a) Any notice or other communication required or which may be
given hereunder shall be in writing and shall be delivered personally or sent
by courier or sent by certified or registered mail, postage prepaid, and shall
be deemed given when so delivered personally or sent by courier or, if mailed,
upon receipt thereof, at the addresses as indicated in the first paragraph of
this Agreement, or at such other address as may be designated by notice given
to the other parties hereto in the foregoing manner.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-4-
<PAGE>
(b) This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors, assigns and
personal representatives. Upon the death or incapacity of Pledgor or
dissolution or liquidation of Pledgee, the successor, assign, personal
representative, executor or conservator of such party, as appropriate, shall
notify the Escrow Agent of such occurrence. The Escrow Agent shall accept or
be entitled to rely on any instructions from such successor, assign, personal
representative, executor or conservator as if it were instructions from
Pledgor or Pledgee, as the case may be. This Agreement shall be governed by and
construed in accordance with the laws of the State of California excluding
that body of law pertaining to conflicts of law.
(c) This Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Escrow
Agreement as of the date first written above.
"PLEDGEE"
HALL, KINION & ASSOCIATES, INC.
By: /s/ Keith Corbin
---------------------------------
Name: Keith Corbin
-------------------------------
Its: CFO
--------------------------------
"PLEDGOR"
/s/ Todd Kinion
------------------------------------
(Signature)
TODD KINION
"ESCROW AGENT"
SECRETARY OF HALL, KINION &
ASSOCIATES, INC.
/s/ Todd Kinion
------------------------------------
Name:
<PAGE>
DLJ CAPITAL CORPORATION
By /s/ Paul H. Bartlett
----------------------------
Paul H. Bartlett
Attorney in Fact
SPROUT GROWTH II, L.P.
By /s/ Paul H. Bartlett
----------------------------
Paul H. Bartlett
Attorney in Fact
SPROUT CEO FUND, L.P.
By: DLJ Capital Corporation,
General Partner
By /s/ Paul H. Bartlett
----------------------------
Paul H. Bartlett
Attorney in Fact
<PAGE>
EXHIBIT 10.10
HALL, KINION & ASSOCIATES, INC.
SERIES A PREFERRED
STOCK AND WARRANT PURCHASE AGREEMENT
January 30, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Purchase and Sale or Stock............................................. 1
1.1 Sale and Issuance of Series A Preferred Stock..................... 1
1.2 Closing........................................................... 1
2. Representations and Warranties of the Company.......................... 1
2.1 Organization, Good Standing and Qualification..................... 2
2.2 Capitalization and Voting Rights.................................. 2
2.3 Subsidiaries...................................................... 2
2.4 Authorization..................................................... 2
2.5 Valid issuance of Preferred and Common Stock...................... 3
2.6 Governmental Consents............................................. 3
2.7 Offering.......................................................... 3
2.8 Complaints........................................................ 4
2.9 Litigation........................................................ 4
2.10 Proprietary Information and Employee Stock Purchase Agreements... 4
2.11 Patents and Trademarks........................................... 4
2.12 Compliance with Other Instruments................................ 5
2.13 Agreements; Action............................................... 5
2.14 Related Party Transactions....................................... 6
2.15 Permits.......................................................... 6
2.16 Environmental and Safety Laws.................................... 6
2.17 Marketing Rights................................................. 6
2.18 Disclosure....................................................... 6
2.19 Registration Rights.............................................. 7
2.20 Corporate Documents.............................................. 7
2.21 Title to Property and Assets..................................... 7
2.22 Financial Statements............................................. 7
2.23 Changes.......................................................... 7
2.24 Employee Benefit Plans........................................... 8
2.25 Tax Returns, Payments and Elections.............................. 8
2.26 Insurance........................................................ 9
2.27 Minute Books..................................................... 9
2.28 Labor Agreements and Actions..................................... 9
2.30 Real Property Holding Company.................................... 10
3. Representations and Warranties of the Investors........................ 10
3.1 Authorization..................................................... 10
3.2 Purchase Entirely for Own Account................................. 10
3.3 Disclosure of Information......................................... 10
3.4 Investment Experience............................................. 10
3.5 Accredited Investor............................................... 10
3.6 Restricted Securities............................................. 11
3.7 Further Limitations on Disposition................................ 11
3.8 Legends........................................................... 11
4. California Commissioner of Corporations................................ 12
4.1 Corporate Securities Law.......................................... 12
5. Conditions of Investor's Obligations at Closing........................ 12
5.1 Representations and Warranties.................................... 12
i
<PAGE>
5.2 Performance....................................................... 12
5.3 Compliance Certificate............................................ 12
5.4 Qualifications.................................................... 12
5.5 Proceedings and Documents......................................... 12
5.6 Bylaws............................................................ 12
5.7 Board of Directors................................................ 12
5.8 Opinion of Company Counsel........................................ 13
5.9 Investors' Rights Agreement....................................... 13
5.10 Right of First Refusal and Co-Sale Agreements.................... 13
5.11 Voting Trust Agreement........................................... 13
6. Conditions of the Company's Obligations at Closing..................... 13
6.1 Representations and Warranties.................................... 13
6.2 Payment of Purchase Price......................................... 13
6.3 Qualifications.................................................... 13
7. Miscellaneous.......................................................... 13
7.1 Survival of Warranties............................................ 13
7.2 Successors and Assigns............................................ 13
7.3 Governing Law..................................................... 13
7.4 Counterparts...................................................... 14
7.5 Titles and Subtitles.............................................. 14
7.6 Notices........................................................... 14
7.7 Finder's Fee...................................................... 14
7.8 Expenses.......................................................... 14
7.9 Amendments and Waivers............................................ 14
7.10 Severability..................................................... 15
7.11 Aggregation of Stock............................................. 15
7.12 Entire Agreement................................................. 15
7.13 Indemnification.................................................. 15
SCHEDULE A Schedule of Investors
EXHIBIT A Restated Articles of Incorporation
EXHIBIT B Investors' Rights Agreement
EXHIBIT C List of Stockholders and Optionholders
EXHIBIT D Opinion of Counsel for the Company
EXHIBIT E Right of First Refusal and Co-Sale Agreement
EXHIBIT F Form of Warrants
EXHIBIT G Voting Trust Agreement
ii
<PAGE>
SERIES A PREFERRED STOCK AND
-----------------------------
WARRANT PURCHASE AGREEMENT
--------------------------
THIS SERIES A PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT is made
as of the 30th day of January, 1996, by and among Hall, Kinion & Associates,
Inc., a California corporation (the "Company"), Brenda Hall and Todd Kinion (the
"Principal Shareholders") and the investors listed on Schedule A hereto, each of
which is herein referred to as an "Investor."
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock and Warrants.
---------------------------------------
1.1 Sale and Issuance of Series A Preferred Stock and Warrants to
-------------------------------------------------------------
Purchase Common Stock.
- ---------------------
(a) The Company shall adopt and file with the Secretary of State of
California on or before the Closing (as defined below) the Restated Articles of
Incorporation in the form attached hereto as Exhibit A (the "Restated
---------
Articles").
(b) Subject to the terms and conditions of this Agreement, each
Investor agrees, severally and not jointly, to purchase at the Closing and the
Company agrees to sell and issue to each Investor at the Closing, that number of
shares of the Company's Series A Preferred Stock set forth opposite each
Investor's name on Schedule A hereto for the purchase price set forth thereon,
----------
and warrants to purchase shares of the Company's Common Stock in the forms
attached hereto as Exhibit F (individually a "Warrant" and collectively the
---------
"Warrants"). Each such Warrant shall be exercisable for that number of shares
of the Company's Common Stock set forth opposite each Investor's name on
Schedule A hereto.
- ----------
1.2 Closing. The purchase and sale of the Series A Preferred Stock
-------
and Warrants shall take place at the offices of Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP, 600 Hansen Way, Second Floor, Palo Alto,
California, at 10:00 A.M., on January 30, 1996, or at such other time and place
as the Company and Investors acquiring in the aggregate more than half the
shares of Series A Preferred Stock sold pursuant hereto mutually agree upon
orally or in writing (which time and place are designated as the "Closing"). At
the Closing, the Company shall deliver to each Investor a certificate
representing the Series A Preferred Stock that such Investor is purchasing and
Warrants to purchase the appropriate number of shares of Common Stock, against
payment of the purchase price therefor by check, wire transfer, cancellation of
indebtedness or any combination thereof. In the event that payment by an
Investor is made, in whole or in part, by cancellation of indebtedness, then
such Investor shall surrender to the Company for cancellation at the Closing any
evidence of such indebtedness or shall execute an instrument of cancellation in
form and substance acceptable to the Company.
2. Representations and Warranties of the Company. The Company and
---------------------------------------------
the Principal Shareholders hereby represent and warrant to each Investor that,
except as set forth on a Schedule of Exceptions (the "Schedule of Exceptions")
furnished to each Investor and special counsel for the Investors, specifically
identifying the relevant subparagraph hereof, which exceptions shall be deemed
to be representations and warranties as if made hereunder:
2.1 Organization, Good Standing and Qualification. The Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of
<PAGE>
California and has all requisite corporate power and authority to carry on its
business as now conducted and as proposed to be conducted. The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure to so qualify would have a material adverse effect on its
business or properties.
2.2 Capitalization and Voting Rights. The authorized capital of the
--------------------------------
Company consists of:
(i) Preferred Stock. One million six hundred thousand
---------------
(1,600,000) shares of Preferred Stock (the "Preferred Stock"), all of which
have been designated Series A Preferred Stock (the "Series A Preferred Stock")
and up to all of which will be sold pursuant to this Agreement. The rights,
privileges and preferences of the Series A Preferred Stock are as stated in
the Company's Restated Articles.
(ii) Common Stock. Ten million (10,000,000) shares of common
------------
stock ("Common Stock"), of which 6,282,200 shares are issued and outstanding.
(iii) The outstanding shares of Common Stock are owned by the
shareholders and in the numbers specified in Exhibit C hereto.
---------
(iv) The outstanding shares of Common Stock are all duly and
validly authorized and issued, fully paid and nonassessable, and were issued
in accordance with the registration or qualification provisions of the
Securities Act of 1933, as amended (the "Act") and any relevant state
securities laws or pursuant to valid exemptions therefrom.
(v) Except for (A) the conversion privileges of the Series A
Preferred Stock to be issued under this Agreement, (B) the rights provided in
Section 2.4 of the Investors' Rights Agreement dated January 30, 1996,
attached hereto as Exhibit B, (C) Warrants to purchase up to an aggregate of
---------
492,215 shares of Common Stock sold pursuant to this Agreement, and (D)
currently outstanding options to purchase 436,744 shares of Common Stock
granted to employees pursuant to the Company's 1995 Stock Option Plan (the
"Option Plan"), there are not outstanding any options, warrants, rights
(including conversion or preemptive rights) or agreements for the purchase or
acquisition from the Company of any shares of its capital stock. In addition
to the aforementioned options, the Company has reserved an additional 188,256
shares of its Common Stock for purchase upon exercise of options to be granted
in the future under the Option Plan. The Company is not a party or subject to
any agreement or understanding, and, to the best knowledge of the Company and
the Principal Shareholders, there is no agreement or understanding between any
persons and/or entities, which affects or relates to the voting or giving of
written consents with respect to any security or by a director of the Company.
2.3 Subsidiaries. The Company does not presently own or control,
------------
directly or indirectly, any interest in any other corporation, association, or
other business entity. The Company is not a participant in any joint venture,
partnership, or similar arrangement.
2.4 Authorization. All corporate action on the part of the Company,
-------------
its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, the Investors' Rights Agreement, the
Right of First Refusal and Co-Sale Agreement ( as defined in Section 5.10) and
the Voting Trust Agreement (as defined in Section 5.11), the performance of all
obligations of the Company hereunder and thereunder, and the authorization,
issuance (or reservation for issuance), sale and delivery of the Series A
Preferred Stock and the Warrants being sold hereunder and the Common Stock
issuable upon conversion of the Series A
2
<PAGE>
Preferred Stock and upon exercise of the Warrants has been taken or will be
taken prior to the Closing, and this Agreement, the Investors' Rights Agreement,
the Right of First Refusal and Co-Sale Agreement and the Voting Trust Agreement,
constitute valid and legally binding obligations of the Company, enforceable in
accordance with their respective terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies, and (iii) to the extent the indemnification
provisions contained in the Investors' Rights Agreement may be limited by
applicable federal or state securities laws.
2.5 Valid Issuance of Preferred and Common Stock.
--------------------------------------------
The Series A Preferred Stock that is being purchased by the Investors
hereunder, when issued, sold and delivered in accordance with the terms of this
Agreement for the consideration expressed herein, will be duly and validly
issued, fully paid, and nonassessable, and will be free of restrictions on
transfer other than restrictions on transfer under this Agreement, the
Investors' Rights Agreement, the Right of First Refusal and Co-Sale-Agreement,
the Voting Trust Agreement and under applicable state and federal securities
laws. The Common Stock issuable upon conversion of the Series A Preferred Stock
and upon the exercise of the Warrants purchased under this Agreement has been
duly and validly reserved for issuance and, upon issuance in accordance with the
terms of the Restated Articles, will be duly and validly issued, fully paid, and
nonassessable and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement, Investors' Rights Agreement, the
Right of First Refusal and Co-Sale Agreement, the Voting Trust Agreement and
under applicable state and federal securities laws.
The Warrants that are being purchased hereunder, when issued, sold and
delivered in accordance with the terms of this Agreement for the consideration
expressed herein, will be duly and validly issued, fully paid, and
nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement, the Investors' Rights Agreement,
the Right of First Refusal and Co-Sale-Agreement, the Voting Trust Agreement and
under applicable state and federal securities laws.
2.6 Governmental Consents. To the best knowledge of the Principal
---------------------
Shareholders, no consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any federal, state or
local governmental authority on the part of the Company is required in
connection with the consummation of the transactions contemplated by this
Agreement, except for the filing pursuant to Section 25102(f) of the California
Corporate Securities Law of 1968, as amended, and the rules thereunder, which
filing will be effected within 15 days of the sale of the Series A Preferred
Stock and the Warrants hereunder.
2.7 Offering. Subject in part to the truth and accuracy of each
--------
Investor's representations set forth in Section 3 of this Agreement, the offer,
sale and issuance of the Series A Preferred Stock and the Warrants as
contemplated by this Agreement are exempt from the registration requirements of
the Act, and neither the Company nor any authorized agent acting on its behalf
will take any action hereafter that would cause the loss of such exemption.
2.8 Complaints. The Company has received no customer complaints
----------
concerning its services that taken together, in the reasonable opinion of the
Principal Shareholders, would constitute a material adverse effect on the
Company's business or prospects.
3
<PAGE>
2.9 Litigation. There is no action, suit, proceeding or
----------
investigation pending or, to the best knowledge of the Company and the Principal
Shareholders, currently threatened against the Company that questions the
validity of this Agreement, the Investors' Rights Agreement, the Right of First
Refusal and Co-Sale Agreement or the Voting Trust Agreement, or the right of the
Company to enter into such agreements, or to consummate the transactions
contemplated hereby or thereby, or that might result, either individually or in
the aggregate, in any material adverse changes in the assets, condition, affairs
or prospects of the Company, financially or otherwise, or any change in the
current equity ownership of the Company, nor is the Company or the Principal
Shareholders aware that there is any basis for the foregoing. The foregoing
includes, without limitation, actions, suits, proceedings or investigations
pending or threatened (or any basis therefor known to the Company or the
Principal Shareholders) involving the prior employment of any of the Company's
employees, their use in connection with the Company's business of any
information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers. The
Company is not a party or, to the best knowledge of the Principal Shareholders,
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company currently pending or that the Company
intends to initiate.
2.10 Proprietary Information and Inventions Agreements. Each
-------------------------------------------------
employee, officer and consultant of the Company has executed a Proprietary
Information and Inventions Agreement in the form provided to special counsel to
the Investors.
2.11 Patents and Trademarks. To the best knowledge of the Principal
----------------------
Shareholders, the Company has sufficient title and ownership of all patents,
trademarks, service marks, trade names, copyrights, trade secrets, information,
proprietary rights and processes necessary for its business as now conducted and
as proposed to be conducted without any conflict with or infringement of the
rights of others. There are no outstanding options, licenses, or agreements of
any kind relating to the foregoing, nor is the Company bound by or a party to
any options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity.
Neither the Company nor the Principal Shareholders has received any
communications alleging that the Company has violated or, by conducting its
business as proposed, would violate any of the patents, trademarks, service
marks, trade names, copyrights or trade secrets or other proprietary rights of
any other person or entity. Neither the Company nor the Principal Shareholders
is aware that any of the Company's employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would materially interfere with the use of his or her best efforts
to promote the interests of the Company or that would conflict with the
Company's business as proposed to be conducted. Neither the execution nor
delivery of this Agreement, the Investors' Rights Agreement, the Right of First
Refusal and Co-Sale Agreement or the Voting Trust Agreement, nor the carrying on
of the Company's business by the employees of the Company, nor the conduct of
the Company's business as proposed, will, to the best of the Company's or the
Principal Shareholders' knowledge, conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated.
2.12 Compliance with Other Instruments.
---------------------------------
(a) The Company is not in violation or default of any provision
of its Restated Articles or Bylaws, or of any material instrument, judgment,
order, writ, decree or contract to
4
<PAGE>
which it is a party or by which it is bound, or, to the best of its knowledge,
of any provision of any material federal or state statute, rule or regulation
applicable to the Company. The execution, delivery and performance of this
Agreement, the Investors' Rights Agreement, the Right of First Refusal and Co-
Sale Agreement and the Voting Trust Agreement, and the consummation of the
transactions contemplated hereby and thereby will not result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event that results
in the creation of any lien, charge or encumbrance upon any assets of the
Company or the suspension, revocation, impairment, forfeiture, or non-renewal of
any material permit, license, authorization, or approval applicable to the
Company, its business or operations or any of its assets or properties.
(b) To the best knowledge of the Principal Shareholders, the
Company has avoided every condition, and has not performed any act, the
occurrence of which would result in the Company's loss of any material right
granted under any material license, distribution or other agreement.
2.13 Agreements; Action.
------------------
(a) Except for agreements to be entered into by the parties
contemplated hereby, the Investors' Rights Agreement, the Right of First Refusal
and Co-Sale Agreement and the Voting Trust Agreement, there are no agreements or
proposed transactions between the Company and any of its officers, directors,
affiliates, or any affiliate thereof.
(b) There are no agreements, instruments, contracts, proposed
transactions, judgments, orders, writs or decrees to which the Company is a
party or by which it is bound that may involve (i) obligations (contingent or
otherwise) of, or payments to the Company in excess of $50,000, or (ii) the
license of any patent, copyright, trade secret or other proprietary right to or
from the Company, or (iii) provisions restricting or affecting the development
or performance of the Company's services, or (iv) indemnification by the Company
with respect to infringements of proprietary rights.
(c) The Company has not, since December 31, 1995, (i) declared or paid
any dividends or authorized or made any distribution upon or with respect to any
class or series of its capital stock, (ii) other than in the ordinary course of
business incurred any indebtedness for money borrowed or any other liabilities,
individually in excess of $50,000 or, in the case of indebtedness and/or
liabilities individually less than $50,000, in excess of $75,000 in the
aggregate, (iii) made any loans or advances to any person, other than ordinary
advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of
any of its assets or rights, other than the sale of its inventory in the
ordinary course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
2.14 Related-Party Transactions. No shareholder, employee, officer,
--------------------------
or director of the Company or member of his or her immediate family is indebted
to the Company, nor is the Company indebted (or committed to make loans or
extend or guarantee credit) to any of them. To the best of the Company's and
the Principal Shareholders' knowledge, none of such persons has any direct or
indirect ownership interest in any firm or corporation with which the Company
5
<PAGE>
is affiliated or with which the Company has a business relationship, or any firm
or corporation that competes with the Company, except that employees, officers,
or directors of the Company and members of their immediate families may own
stock in publicly traded companies that may compete with the Company. No member
of the immediate family of any officer or director of the Company is directly or
indirectly interested in any material contract with the Company.
2.15 Permits. To the best knowledge of the Principal Shareholders,
-------
the Company has all franchises, permits, licenses, and any similar authority
necessary for the conduct of its business as now being conducted by it, the lack
of which could materially and adversely affect the business, properties,
prospects, or financial condition of the Company, and the Company and the
Principal Shareholders believe the Company can obtain, without undue burden or
expense, any similar authority for the conduct of its business as planned to be
conducted. To the best knowledge of the Principal Shareholders, the Company is
not in default in any material respect under any of such franchises, permits,
licenses, or other similar authority.
2.16 Environmental and Safety Laws. To the best knowledge of the
-----------------------------
Company and the Principal Shareholders, the Company is not in violation of any
applicable statute, law or regulation relating to the environment or
occupational health and safety, and to the best knowledge of the Company and the
Principal Shareholders, no material expenditures are or will be required in
order to comply with any such existing statute, law or regulation.
2.17 Marketing Rights. The Company has not granted rights to license,
----------------
market, sell or perform its services to any other person and is not bound by any
agreement that affects the Company's right to license, market, sell and perform
its services.
2.18 Disclosure. The Company has fully provided each Investor with
----------
all the information that such Investor has requested for deciding whether to
purchase the Series A Preferred Stock and the Warrants and all information that
the Company believes is reasonably necessary to enable such Investor to make
such decision. Neither this Agreement, the Investors' Rights Agreement, the
Right of First Refusal and Co-Sale Agreement or the Voting Trust Agreement, nor
any other statements or certificates made or delivered in connection herewith or
therewith contains any untrue statement of a material fact or, to the best
knowledge of the Principal Shareholders and the Company, omits to state a
material fact necessary to make the statements herein or therein not misleading
taking all such information as a whole.
2.19 Registration Rights. Except as provided in the Investors' Rights
-------------------
Agreement, the Company has not granted or agreed to grant any registration
rights, including piggyback rights, to any person or entity.
2.20 Corporate Documents. Except for amendments necessary to satisfy
-------------------
representations and warranties or conditions contained herein (the form of which
amendments has been approved by the Investors), the Restated Articles and Bylaws
of the Company are in the form previously provided to special counsel for the
Investors.
2.21 Title to Property and Assets. The Company owns its property and
----------------------------
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens that arise in the ordinary course of business and do
not materially impair the Company's ownership or use of such property or assets.
With respect to the property and assets it leases, the Company is in compliance
with such leases and, to the best of its knowledge, holds a valid leasehold
interest free of any liens, claims or encumbrances.
6
<PAGE>
2.22 Financial Statements. The Company has delivered to each Investor
--------------------
its reviewed financial statements (balance sheet and profit and loss statement)
as at and for the twelve-month period ended June 30, 1995 and unaudited
financial statements (balance sheet and profit and loss statement) as at and for
the six-month period ended December 31, 1995 (the "Financial Statements"). The
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated and with each other, except that unaudited Financial Statements may
not contain all footnotes required by generally accepted accounting principles.
The Financial Statements fairly present the financial condition and operating
results of the Company as of the dates, and for the periods, indicated therein,
subject to normal year-end adjustments. Except as set forth in the Financial
Statements, to the best knowledge of the Principal Shareholders, the Company has
no material liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to December 31, 1995 and
(ii) obligations not required under generally accepted accounting principles to
be reflected in the Financial Statements, which, in both cases, individually or
in the aggregate, are not material to the financial condition or operating
results of the Company. Except as disclosed in the Financial Statements, the
Company is not a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation. The Company maintains and will continue to maintain
a standard system of accounting established and administered in accordance with
generally accepted accounting principles. The financial statements as of
December 31, 1995, although not audited to date, are auditable by a major
accounting firm at reasonable expense.
2.23 Changes. Since December 31, 1995, there has not been:
-------
(a) any change in the assets, liabilities, financial condition or
operating results of the Company from that reflected in the Financial
Statements, except changes in the ordinary course of business that have not
been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties, financial
condition, operating results, prospects or business of the Company (as such
business is presently conducted and as it is proposed to be conducted);
(c) any waiver by the Company of a valuable right or of a material
debt owed to it;
(d) any satisfaction or discharge of any lien, claim or encumbrance or
payment of any obligation by the Company, except in the ordinary course of
business and that is not material to the assets, properties, financial
condition, operating results or business of the Company (as such business is
presently conducted and as it is proposed to be conducted);
(e) any material change or amendment to a material contract or
arrangement by which the Company or any of its assets or properties is bound or
subject;
(f) any material change in any compensation arrangement or agreement
with any employee;
(g) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any key officer of
the Company; and the Company, to the best of the Company's and the Principal
Shareholders'
7
<PAGE>
knowledge, does not know of the impending resignation or termination of
employment of any such offer;
(i) receipt of notice that there has been a loss of, or material
order cancellation by, any major customer of the Company;
(j) any mortgage, pledge, transfer of a security interest in, or lien,
created by the Company, with respect to any of its material properties or
assets, except liens for taxes not yet due or payable;
(k) any loans or guarantees made by the Company to or for the benefit
of its employees, officers or directors, or any members of their immediate
families, other than travel advances and other advances made in the ordinary
course of its business;
(l) any declaration, setting aside or payment or other distribution in
respect of any of the Company's capital stock, or any direct or indirect
redemption, purchase or other acquisition of any of such stock by the Company;
(m) to the best of the Company's and the Principal Shareholders'
knowledge, any other event of any character that reasonably might materially and
adversely affect the assets, properties, financial condition, operating results
or business of the Company (as such business is presently conducted and as it is
proposed to be conducted); or
(n) any agreement or commitment by the Company to do any of the things
described in this Section 2.24.
2.24 Employee Benefit Plans. The Company does not have any Employee
----------------------
Benefit Plan as defined in the Employee Retirement Income Security Act of 1974.
2.25 Tax Returns, Payments and Elections. The Company has filed all
-----------------------------------
tax returns and reports as required by law. These returns and reports are true
and correct in all material respects. The Company has paid all taxes and other
assessments due, except those contested by it in good faith that are listed in
the Schedule of Exceptions. The provision for taxes of the Company as shown in
the Financial Statements is adequate for taxes due or accrued as of the date
thereof. The Company has not elected pursuant to the Internal Revenue Code of
1986, as amended (the "Code"), to be treated as a Subchapter S corporation. The
Company has not elected pursuant to the Code to be treated as a collapsible
corporation pursuant to Section 1362(a) or Section 341(f) of the Code, nor has
it made any other elections pursuant to the Code (other than elections that
relate solely to methods of accounting, depreciation or amortization) that would
have a material adverse effect on the Company, its financial condition, its
business as presently conducted or proposed to be conducted or any of its
properties or material assets. The Company has never had any material tax
deficiency proposed or assessed against it and has not executed any waiver of
any statute of limitations on the assessment or collection of any tax or
governmental charge. None of the Company's federal income tax returns and none
of its state income or franchise tax or sales or use tax returns has ever been
audited by governmental authorities. Since the date of the Financial
Statements, the Company has made adequate provisions on its books of account for
all taxes, assessments and governmental charges with respect to its business,
properties and operations for such period. The Company has withheld or
collected from each payment made to each of its employees, the amount of all
taxes (including, but not limited to, federal income taxes, Federal Insurance
Contribution Act taxes and Federal Unemployment Tax Act taxes) required to be
withheld or collected therefrom, and has paid the same to the proper tax
receiving officers or authorized depositories.
8
<PAGE>
2.26 Insurance. The Company has in full force and effect fire and
---------
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed. The Company has in full force and effect
term life insurance, payable to the Company, on the lives of Brenda Hall, and
Todd Kinion in the amount of $2,000,000 each. The Company has in full force and
effect products liability and errors and omissions insurance in amounts
customary for companies similarly situated.
2.27 Minute Books. The minute books of the Company provided to the
------------
Investors contain a complete summary of all meetings of directors and
shareholders since the time of incorporation and reflect all transactions
referred to in such minutes accurately in all material respects.
2.28 Labor Agreements and Actions. The Company is not bound by or
----------------------------
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the best of the
Company's knowledge, has sought to represent any of the employees,
representatives or agents of the Company. There is no strike or other labor
dispute involving the Company pending, or to the best of the Company's
knowledge, threatened, that could have a material adverse effect on the assets,
properties, financial condition, operating results, or business of the Company
(as such business is presently conducted and as it is proposed to be conducted),
nor is the Company aware of any labor organization activity involving its
employees. The Company is not aware that any officer or key employee, or that
any group of key employees, intends to terminate their employment with the
Company, nor does the Company have a present intention to terminate the
employment of any of the foregoing. The employment of each officer and employee
of the Company is terminable at the will of the Company. To the best of its
knowledge, the Company has complied in all material respects with all applicable
state and federal equal employment opportunity and other laws related to
employment.
2.29 Real Property Holding Company. The Company is not a real
-----------------------------
property holding company within the meaning of Section 897 of the Code.
3. Representations and Warranties of the Investors. Each Investor
-----------------------------------------------
hereby represents and warrants that:
3.1 Authorization. Such Investor has full power and authority to
-------------
enter into this Agreement, the Investors' Rights Agreement and the Right of
First Refusal and Co-Sale Agreement, and each such Agreement constitutes its
valid and legally binding obligation, enforceable in accordance with its terms,
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, and other laws of general application affecting enforcement of
creditors' rights generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief, or other equitable
remedies, and (iii) to the extent the indemnification provisions contained in
the Investors' Rights Agreement may be limited by applicable federal or state
securities laws.
3.2 Purchase Entirely for Own Account. This Agreement is made with
---------------------------------
such Investor in reliance upon such Investor's representation to the Company,
which by such Investor's execution of this Agreement such Investor hereby
confirms, that the Series A Preferred Stock and the Warrants to be received by
such Investor and the Common Stock issuable upon conversion or exercise thereof
(collectively, the "Securities") will be acquired for investment for such
Investor's own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and that such Investor has no
present intention of
9
<PAGE>
selling, granting any participation in, or otherwise distributing the same. By
executing this Agreement, such Investor further represents that such Investor
does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participations to such person or to any third
person, with respect to any of the Securities.
3.3 Disclosure of Information. Such Investor believes it has
-------------------------
received all the information it considers necessary or appropriate for deciding
whether to purchase the Series A Preferred Stock and the Warrants. Such
Investor further represents that it has had an opportunity to ask questions and
receive answers from the Company regarding the terms and conditions of the
offering of the Series A Preferred Stock and the Warrants and the business,
properties, prospects and financial condition of the Company. The foregoing,
however, does not limit or modify the representations and warranties of the
Company in Section 2 of this Agreement or the right of the Investors to rely
thereon.
3.4 Investment Experience. Such Investor is an investor in
---------------------
securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment, and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Series A
Preferred Stock and the Warrants. If other than an individual, Investor also
represents it has not been organized for the purpose of acquiring the Series A
Preferred Stock and the Warrants.
3.5 Accredited Investor. Such Investor is an "accredited investor"
-------------------
within the meaning of Securities and Exchange Commission ("SEC") Rule 501 of
Regulation D, as presently in effect.
3.6 Restricted Securities. Such Investor understands that the
---------------------
Securities it is purchasing are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the Company
in a transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act, only in certain limited circumstances. In this connection, such
Investor represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the Act.
3.7 Further Limitations on Disposition. Without in any way limiting
----------------------------------
the representations set forth above, such Investor further agrees not to make
any disposition of all or any portion of the Securities unless and until the
transferee has agreed in writing for the benefit of the Company to be bound by
this Section 3, the Investors' Rights Agreement and the Right of First Refusal
and Co-Sale Agreement, provided and to the extent this Section and such
agreements are then applicable, and:
(a) There is then in effect a Registration Statement under the Act
covering such proposed disposition and such disposition is made in accordance
with such Registration Statement; or
(b) (i) Such Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Company, such Investor shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company that such disposition
will not require registration of such shares under the Act. After the Company
has filed a registration statement under the Act, it is agreed that the Company
10
<PAGE>
will not require opinions of counsel for transactions made pursuant to Rule 144
except in unusual circumstances and except as required by the Company's transfer
agent.
(c) Notwithstanding the provisions of paragraphs (a) and (b) above, no
such registration statement or opinion of counsel shall be necessary for a
transfer by an Investor that is a partnership to a partner of such partnership
or a retired partner of such partnership who retires after the date hereof, or
to the estate of any such partner or retired partner or the transfer by gift,
will or intestate succession of any partner to his or her spouse or to the
siblings, lineal descendants or ancestors of such partner or his or her spouse,
if the transferee agrees in writing to be subject to the terms hereof to the
same extent as if he or she were an original Investor hereunder.
3.8 Legends. It is understood that the certificates evidencing the
-------
Securities may bear one or all of the following legends:
(a) "These securities have not been registered under the Securities
Act of 1933, as amended. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with respect
to the securities under such Act or an opinion of counsel satisfactory to the
Company that such registration is not required or unless sold pursuant to Rule
144 of such Act."
(b) Any legend required by the laws of the State of California,
including any legend required by the California Department of Corporations and
Sections 417 and 418 of the California Corporations Code.
4. California Commissioner of Corporations.
---------------------------------------
4.1 Corporate Securities Law. THE SALE OF THE SECURITIES THAT ARE
------------------------
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE.
THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON
SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
5. Conditions of Investor's Obligations at Closing. The obligations
-----------------------------------------------
of each Investor under subsection 1.1(b) of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions, the
waiver of which shall not be effective against any Investor who does not consent
thereto:
5.1 Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
5.2 Performance. The Company shall have performed and complied with
-----------
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
11
<PAGE>
5.3 Compliance Certificate. The President of the Company shall
----------------------
deliver to each Investor at the Closing a certificate stating that the
conditions specified in Sections 5.1 and 5.2 have been fulfilled and stating
that, to her knowledge, there shall have been no material adverse change in the
business, affairs, prospects, operations, properties, assets or condition of the
Company since the date of the Financial Statements.
5.4 Qualifications. All authorizations, approvals, or permits, if
--------------
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Securities pursuant to this Agreement shall be duly obtained and effective
as of the Closing.
5.5 Proceedings and Documents. All corporate and other proceedings
-------------------------
in connection with the transactions contemplated at the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Investors' special counsel, and they shall have received all such
counterpart original and certified or other copies of such documents as they may
reasonably request.
5.6 Bylaws. The Bylaws of the Company shall provide that the Board
------
of Directors of the Company shall consist of three (3) persons.
5.7 Board of Directors. The initial Board composition at the Closing
------------------
shall be Brenda Hall, Todd Kinion and Paul Bartlett.
5.8 Opinion of Company Counsel. Each Investor shall have received
--------------------------
from Jackson Tufts Cole & Black, LLP, counsel for the Company, an opinion, dated
as of the Closing, in the form attached hereto as Exhibit D.
---------
5.9 Investors' Rights Agreement. The Company, the Principal
---------------------------
Shareholders and each Investor shall have entered into the Investors' Rights
Agreement in the form attached as Exhibit B.
---------
5.10 Right of First Refusal and Co-Sale Agreements. The Company,
---------------------------------------------
Brenda Hall, Todd Kinion and each of the Investors shall have entered into the
Right of First Refusal and Co-Sale Agreement in the form attached as Exhibit E.
---------
5.11 Voting Trust Agreement. The Company, Brenda Hall and Todd
----------------------
Kinion shall have entered into the Voting Trust Agreement in the form attached
as Exhibit G.
---------
6. Conditions of the Company's Obligations at Closing. The
--------------------------------------------------
obligations of the Company to each Investor under this Agreement are subject to
the fulfillment on or before the Closing of each of the following conditions by
that Investor:
6.1 Representations and Warranties. The representations and
------------------------------
warranties of the Investor contained in Section 3 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the Closing.
6.2 Payment of Purchase Price. The Investor shall have delivered the
-------------------------
purchase price specified in Section 1.2.
6.3 Qualifications. All authorizations, approvals, or permits, if
--------------
any, of any governmental authority or regulatory body of the United States or of
any state that are required in
12
<PAGE>
connection with the lawful issuance and sale of the Securities pursuant to this
Agreement shall be duly obtained and effective as of the Closing.
7. Miscellaneous.
-------------
7.1 Survival of Warranties. The warranties, representations and
----------------------
covenants of the Company and Investors contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Investors or the Company.
7.2 Successors and Assigns. Except as otherwise provided herein, the
----------------------
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any Securities). Nothing in this Agreement, express or implied,
is intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
7.3 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
7.4 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.
7.5 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
7.6 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties.
7.7 Finder's Fee. Each party represents that it neither is nor will
------------
be obligated for any finders' fee or commission in connection with this
transaction. Each Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which such Investor or any of its officers, partners,
employees, or representatives is responsible.
The Company agrees to indemnify and hold harmless each Investor from
any liability for any commission or compensation in the nature of a finders' fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
7.8 Expenses. Irrespective of whether the Closing is effected, the
--------
Company shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of this Agreement. Irrespective
of whether the Closing is effected, the Company shall reimburse the reasonable
fees of special counsel for the Investors, not to exceed
13
<PAGE>
$25,000, and shall, upon receipt of a bill therefor, reimburse the reasonable
out of pocket expenses of such counsel. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the Investors'
Rights Agreement, the Right of First Refusal and Co-Sale Agreement, the Voting
Trust Agreement or the Restated Articles, the prevailing party shall be entitled
to reasonable attorney's fees, costs and necessary disbursements in addition to
any other relief to which such party may be entitled.
7.9 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Common Stock issued or issuable upon conversion of the Series
A Preferred Stock and the exercise of the Warrants. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each holder of
any securities purchased under this Agreement at the time outstanding (including
securities into which such securities are convertible), each future holder of
all such securities, and the Company.
7.10 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and
the balance of the Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
7.11 Aggregation of Stock. All shares of the Preferred Stock held or
--------------------
acquired by affiliated entities or persons shall be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
7.12 Entire Agreement. This Agreement and the documents referred to
----------------
herein constitute the entire agreement among the parties and no party shall be
liable or bound to any other party in any manner by any warranties,
representations, or covenants except as specifically set forth herein or
therein.
7.13 Indemnification. The Principal Shareholders agree to indemnify
---------------
the Investors and hold them harmless from, against and in respect of any and all
claims, demands, losses, costs, expenses of any nature (including attorney's
fees), damages, remedies or penalties ("Damages") suffered or incurred by the
Company and the Investors, which arise out of or result from oral or written
agreements made prior to the Closing to compensate or employ or compensate by
any form of consideration (other than salaries, bonuses, stock options granted
or paid in the ordinary course of business and other than the bonus payable to
Keith Corbin as further described in the Schedule of Exceptions hereto) during
the course of employment any individual, partnership, franchise or corporation
other than payments to employees working on a temporary basis with the Company
or contractors performing services for the Company on an out-placement basis;
provided however that the Principal Shareholders shall have no obligations under
this Section 7.13 unless and until the aggregate amounts of liability for
Damages exceed three hundred thousand ($300,000) dollars and then only in the
amount by which $300,000 exceeded those items covered by insurance. These
indemnification obligations shall be satisfied in their entirety (both to the
Company and the Investors) by delivering to the Investors ratably in proportion
to the number of shares of Series A Preferred Stock currently held shares of
Common Stock held by the Principal Shareholders. For purposes of the
indemnification set forth in this Section 7.13, the formulated value of one
share of Common Stock shall be $6.25 (subject to adjustments in the event of a
stock split, consummation, recapitalization, reorganization or similar event).
The Principal Shareholders' liability under this Section 7.13 shall be several
and not joint with Brenda Hall being liable for 60% hereunder and Todd Kinion
being liable for 40%
14
<PAGE>
hereunder. If no claims for indemnification for damages under this Section 7.13
are brought by January 26, 2000, this Section 7.13 shall terminate and be of no
further force and effect.
15
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Series A Preferred
Stock And Warrant Purchase Agreement as of the date first above written.
HALL, KINION & ASSOCIATES, INC.
By: /s/ BRENDA C. HALL
------------------------------------
Brenda C. Hall, President
Address: 5300 Stevens Creek Boulevard, Suite 320
San Jose, CA 95129
/s/ BRENDA C. HALL
---------------------------------------
Brenda C. Hall
/s/ TODD J. KINION
---------------------------------------
Todd J. Kinion
DLJ CAPITAL CORPORATION
By /s/ PAUL H. BARTLETT
-------------------------------------
Paul H. Bartlett
Attorney in Fact
SPROUT GROWTH II, L.P.
By /s/ PAUL H. BARTLETT
-------------------------------------
Paul H. Bartlett
Attorney in Fact
<PAGE>
SPROUT CEO FUND, L.P.
By: DLJ Capital Corporation,
General Partner
By /s/ PAUL H. BARTLETT
-----------------------------
Paul H. Bartlett
Attorney in Fact
<PAGE>
SCHEDULE A
----------
<TABLE>
<CAPTION>
Investor Series A Preferred Stock Purchase Price
- -------- ------------------------ --------------
<S> <C> <C>
SPROUT GROWTH II, L.P. 1,433,628 $ 8,960,175.00
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, California 94025
DLJ CAPITAL CORPORATION 145,998 912,487.50
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, California 94025
SPROUT CEO FUND, L.P. 20,374 127,337.50
3000 Sand Hill Road ----------- -------------
Building 4, Suite 270
Menlo Park, California 94025
1,600,000 $10,000,000.00
</TABLE>
<PAGE>
SCHEDULE A
----------
<TABLE>
<CAPTION>
First Purchase Anti-Dilution Purchase
Investor Warrant Price Warrant Price
- -------- ------- -------- ------------- --------
<S> <C> <C> <C> <C>
SPROUT GROWTH II, L.P. 244,000 $0 217,025 $10
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, California 94025
DLJ CAPITAL CORPORATION 22,750 $0 22,041 $10
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, California 94025
SPROUT CEO FUND, L.P. 3,250 $0 3,149 $10
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, California 94025
</TABLE>
<PAGE>
EXHIBIT 10.13
SETTLEMENT AGREEMENT AND GENERAL RELEASE
This SETTLEMENT AGREEMENT AND GENERAL RELEASE of claims ("Agreement")
is entered into by and between Hall, Kinion & Associates, Inc. (the "Company" or
"Hall, Kinion & Associates"), on the one hand, and Todd Kinion ("Kinion"), on
the other.
W I T N E S S E T H:
WHEREAS, Kinion's employment with the Company terminated on August 30,
1996;
WHEREAS, the parties wish to preserve the goodwill which exists
between them and resolve all disputes between them.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, and for other good and sufficient consideration, receipt of which is
hereby acknowledged, the parties agree as follows:
A. Hall, Kinion & Associates agrees as follows:
1. That it fully and forever releases and discharges Kinion
from any and all claims and causes of action that the Company may have against
him and covenants not to sue or otherwise institute or cause to be instituted or
in any way participate in, except as may be mandated by legal process, legal or
administrative proceedings against Kinion with respect to any matter arising out
of or connected with Kinion's employment with the Company or the termination of
that employment, including any and all liabilities, claims, demands, contracts,
debts, obligations and causes of action of every nature, kind and description,
in law, equity, or otherwise, whether or not now known or ascertained, which
heretofore do or may exist.
2. That the Company agrees to pay Kinion beginning on September
1, 1996 and ending on the earlier of (i) February 29, 1998, (ii) the date of
Kinion's death or permanent disability, (iii) the date that Kinion first engages
in Competitive Activities (as defined below), or (iv) the date Kinion breaches
any of his obligations set forth in this Agreement (the "Continuation Period")
the sum of $9,033 per month, a sum to which Kinion is not otherwise entitled.
In addition, upon execution of this Agreement, Kinion shall be paid a lump sum
of $11,239 in full payment of all unpaid bonus obligations due and owing to him
by the Company including without limitation bonuses due for the period ending
June 30, 1995, as well as all business expense reimbursements owed to him by the
Company. Kinion will be deemed to be engaged in Competitive Activities if he
has any Relationship (as defined below) with any entity, including but not
limited to any corporation, partnership, limited liability company, sole
proprietorship or unincorporated business (whether or not for profit) (such
entity, a "Business") in the course of which Relationship Kinion engages in or
assists such Business with respect to permanent or temporary high technology
staffing services, which services are competitive with the services then being
offered by the Company. Kinion will be deemed to have a relationship (a
<PAGE>
"Relationship") with a Business if Kinion (i) owns, manages, operates, joins or
is employed by such Business, (ii) is a director, member, agent, shareholder,
owner or general partner of such Business, (iii) acts as a consultant or advisor
to such Business, or (iv) controls or participates in the ownership or operation
of such Business; provided, however, that nothing herein shall prevent the
purchase or ownership by Kinion of an interest in a Business that constitutes
less than 1% of the outstanding equity securities of such Business.
3. If Kinion elects to continue his medical, dental or vision
coverage pursuant to COBRA, then the Company will reimburse Kinion for such
coverage through the earlier of (i) the end of the Continuation Period or (ii)
the date he is eligible for health insurance coverage by another party.
B. Kinion for himself, his heirs, executors, administrators, and
successors agrees as follows:
1. That he fully and forever releases and discharges the
Company, its successors, predecessors, subsidiaries, officers, directors,
agents, attorneys, employees, and assigns (hereinafter collectively referred to
as "Releases"), from any claims and damages and causes of action that Kinion may
have against Releasees and covenants not to sue or otherwise institute or cause
to be instituted or in any way participate in, except at the request of the
Company, legal or administrative proceedings against Releasees with respect to
any matter arising between the parties from the beginning of time until the date
of execution of this Agreement, including but not limited to all matters arising
out of or connected with Kinion's employment with the Company or the termination
of that employment, including any and all liabilities, claims, demands,
contracts, debts, obligations and causes of action of every nature, kind and
description, in law, equity, or otherwise, whether or not now known or
ascertained, which heretofore do or may exist. Nothing herein will affect
Kinion's right to continue his medical coverage under COBRA, or any rights
arising out of this Agreement, or that Series A Preferred Stock and Warrant
Purchase Agreement, Investors' Rights Agreement, Right of First Refusal and Co-
Sale Agreement, Voting Trust Agreement, Secured Promissory Note and Pledge
Agreement all dated as of January 30, 1996.
2. That he is waiving any rights he may have had or now has to
pursue any and all remedies available to him under any employment-related cause
of action against Releasees, including without limitation, claims of wrongful
discharge, emotional distress, defamation, harassment, breach of the covenant of
good faith and fair dealing, violation of the provisions of the California Labor
Code, the Employee Retirement Income Security Act, and all other laws and
regulations relating to employment. Kinion further acknowledges and expressly
agrees that he is waiving any and all rights he may have had or now has to
pursue any claim of harassment or discrimination based on sex, age, race,
national origin, or on any other basis, under Title VII of the Civil Rights Act
of 1964, as amended, the California Fair Employment and Housing Act, the
California Constitution, the Age Discrimination in Employment Act of 1967, any
comparable laws of other states and all other laws and regulations relating to
employment; provided that nothing herein shall be deemed as a waiver of assets
set aside for Kinion pursuant to the Company's 401(k) plan.
2
<PAGE>
3. That his employment with the Company ceased on August 30,
1996 (hereinafter "Termination Date"), Kinion hereby resigns as of the
Termination Date all positions as an officer of the Company. Kinion agrees that
he has no right to employment with the Company after the Termination Date; that
he shall not apply for reemployment with the Company after that date; and that
the Company shall have no obligation to employ him after that date.
4. That prior to the execution of this Agreement, he has been
paid all salary, bonus, and other compensation and benefits that he earned or
was entitled to while employed by the Company and that the only amounts that he
will receive in the future are those expressly set forth herein.
5. That he will execute and remain bound by the Company's
Proprietary Information Agreement attached hereto as Exhibit A pursuant to the
terms thereof and for the period of time set forth therein. During the
Continuation Period, Kinion agrees that (i) he will not disrupt, damage, impair
or interfere with the business of the Company, whether by way of interfering
with or soliciting its employees, disrupting its relationships with customers,
agents, vendors, or representatives or otherwise, (ii) he will not solicit or
encourage any employee to leave the Company's employ for any reason, encourage
any employee to devote less than all of any such employee's efforts to the
affairs of the Company, or interfere in any other manner with employment
relationships existing between the Company and its current or future employees
or (iii) reveal the terms of this agreement to anyone without the Company's
prior written consent except as necessary for the purpose of preparing Kinion's
income tax returns or in connection with any legal actions brought by Kinion to
enforce the terms hereof.
6. That Kinion holds 2,115,100 shares of Common Stock of the
Company (the "Kinion Stock"). Kinion agrees to deposit all of the Kinion Stock
with the trustee of the Kinion Voting Trust Agreement ("Voting Trust") and
agrees to take all action reasonably requested by the Company to amend the
Voting Trust to grant to Brenda Hall as Voting Trustee, the right to vote all of
the shares of Kinion Stock in all matters (including without limitation)
acquisitions and financings by and of the Company, election of directors,
amendments to the Company's articles of incorporation and/or bylaws, and other
significant transactions involving the Company; provided however, that Brenda
Hall shall not have the right to vote the Kinion stock in connection with any
approval that treats Kinion in a manner adversely and differently than Brenda
Hall in her position as a common stockholder of the Company, and provided
further that Kinion's obligation to retain such shares in the Voting Trust shall
terminate in the event (a) Kinion owns less than 500,000 shares of Common Stock
of the Company or (b) Brenda Hall is not an executive officer of the Company.
C. Hall, Kinion & Associates and Kinion jointly agree as follows:
1. That nothing contained in this Agreement shall constitute or
be treated as an admission by the Company or any party to this Agreement of
liability, of any wrongdoing, or of any violation of the law.
3
<PAGE>
2. That if any provision of this Agreement is found to be
unenforceable, it shall not affect the enforceability of the remaining
provisions and the court shall enforce all remaining provisions to the extent
permitted by law, but such remaining provisions shall be construed in a manner
so as to effectuate the intent of this Agreement as a whole, notwithstanding
such stricken provision or provisions.
3. That Kinion has an outstanding loan from the Company in the
principal amount of Two Million Dollars ($2,000,000.00) pursuant to a promissory
note dated January 30, 1996 which is secured by the Kinion Stock (the "Note").
In consideration of the promises contained herein, the Company agrees that it
will not enforce its rights (if any) under the Note to demand payment of the
balance of the Note in connection with Kinion's termination of employment,
provided that the Note shall become due on the earlier of (i) any breach of the
terms of this Agreement (provided however, that Kinion has been given written
notice of such default and thirty days from the date of receipt of such notice
in which to cure such default (if the default is one for which cure is
possible)) or (ii) any other date provided for under the terms of the Note, as
modified by this paragraph C.3.
4. That the Voting Trustee shall vote all of the shares of
Kinion Stock for the election of a director designated by Kinion.
5. That this Agreement and all Exhibits attached hereto contain
the entire agreement between the parties and, except as expressly provided
herein, this Agreement and its Exhibits shall supersede and render null and void
any and all prior agreements between the parties. Hall, Kinion & Associates
represents and warrants that the entering into and performance of this Agreement
has been approved by its Board of Directors. In addition, Hall, Kinion &
Associates represents and warrants that it has received confirmation from the
Investors (as defined in that certain Series A Preferred Stock and Warrant
Purchase Agreement dated January 30, 1996, the "Purchase Agreement"), that
amounts paid to Kinion hereunder will not be deemed "Damages" under Section 7.13
of the Purchase Agreement, and that this Agreement has been agreed to by a
majority of the outstanding Series A Preferred Stock as required by that certain
Investors' Rights Agreement dated as of January 26, 1996.
6. Although the parties may hereafter discover facts different
from or in addition to those which the parties now know or believe to be true,
that this Agreement shall be and remain effective in all respects
notwithstanding such different or additional facts or the discovery thereof.
7. That in consideration of the foregoing the Company and
Kinion (except as otherwise set forth herein) expressly waive any all rights and
benefits conferred upon them by the provisions of Section 1542 of the Civil Code
of the State of California, and under any comparable provision of the laws of
any other jurisdiction, which states as follows:
A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him
must have materially affected his settlement with debtor.
4
<PAGE>
8. This Agreement and its Exhibits may be amended only by
written instrument designated as an amendment to this Agreement and executed by
the President of the Company and Kinion.
9. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
10. That all parties have read and understand this Agreement,
and that they affix their signatures hereto voluntarily and without coercion.
Kinion further acknowledges that he has been advised by the Company to consult
with an attorney of his own choosing concerning the waivers he has made; and the
terms he has agreed to herein are knowing, conscious and with full appreciation
that he is forever foreclosed from pursuing any of the rights so waived.
11. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees, costs and necessary disbursements in addition to any
other relief to which such party may be entitled.
Dated: October 29, 1996 /s/ Todd Kinion
________________________________________
TODD KINION
HALL, KINION & ASSOCIATES, INC.
/s/ Brenda Hall
By:_____________________________________
CEO
Dated: October 29, 1996 Title:__________________________________
Dated: October 29, 1996 BRENDA HALL, AS VOTING TRUSTEE
OF THE VOTING TRUST
/s/ Brenda Hall
By:_____________________________________
Brenda Hall
5
<PAGE>
EXHIBIT 10.14
HALL, KINION & ASSOCIATES, INC.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into as of December 2, 1996, by
and between Mordecai Levine ("Employee") and Hall, Kinion & Associates, Inc., a
California corporation ("Company").
1. Employment; Termination.
-----------------------
(a) Agreement of Employment. Company agrees to continue
-----------------------
Employee's Employment (as hereinafter defined) and Employee agrees to remain in
Employment with Company, from the date of this Agreement until the date
Employee's Employment terminates pursuant to this Agreement. Prior to
commencement of Employee's Employment, Employee shall enter into Company's
standard Proprietary Information and Inventions Agreement. This Agreement is
made of even date with and as a condition to that certain Asset Purchase
Agreement ("Asset Purchase Agreement") by and between Company, TA Acquisition
Corporation, TeamAlliance Technology Partners, L.P., Team Alliance Technology
Partners, Inc., Team Visions, Inc., certain limited liability companies,
Mordecai Levine, Frederick Lenz and Employee. This Agreement shall terminate
upon the earlier of (i) the satisfaction of all of the obligations hereunder or
(ii) December 2, 2000.
(b) Termination. Employee's Employment shall terminate
-----------
automatically in the event of his death. In addition, Company may terminate
Employee's Employment and Employee may terminate his Employment, in either case
at any time and for any reason, by giving Employee or Company, as the case may
be, notice thereof in writing. Upon termination of Employment, Employee shall
only be entitled to compensation, benefits and reimbursements described herein
for the period preceding the effective date of the termination; provided,
--------
however, that if Employee's Employment is terminated without his consent for any
- -------
reason other than Cause, including but not limited to by reason of death or
disability or if Employee voluntarily terminates his Employment for Good Reason
(as defined below), then Company shall pay Employee all accrued but unpaid
salary and bonus and other accrued benefits through the date of termination and
shall continue to pay Employee's Base Compensation (at the annual rate then in
effect) and bonus (at the monthly rate then in effect) for one hundred eighty
(180) days following such termination. "Cause" shall mean (i) any failure of
Employee to perform or observe any of the material terms or provisions of this
Agreement and the continued failure of Employee to cure such default within
thirty (30) days after written notice of such default and demand for performance
has been given to Employee by Company which notice and demand shall describe
specifically the nature of such alleged failure to perform or observe such
material terms or provisions; provided, however, that if cure is impossible
-----------------
within said thirty (30) day period, it shall be sufficient for Employee to
commence such cure within said period and pursue such cure diligently to
completion within the shortest possible time (but in no event for an aggregate
period longer than thirty (30) additional days); (ii) breach by Employee of
Section 6.6(a) of the Asset Purchase Agreement; or (iii) conviction of, or a
plea of "guilty" or "no contest" to, a crime involving a felony, fraud,
embezzlement or the like. "Good Reason" shall mean the (i) failure of Company to
perform or observe any of the material terms or provisions of
<PAGE>
this Agreement, and the continued failure of Company to cure such default within
30 days after written notice of such default and demand for performance has been
given to Company by Employee, which notice and demand shall describe
specifically the nature of such alleged failure to perform or observe such
material terms or provisions; provided, however, that if cure is impossible
-----------------
within said thirty (30) day period, it shall be sufficient for Company to
commence such cure within said period and pursue such cure diligently to
completion within the shortest possible reasonable time (but in no event for an
aggregate period longer than thirty (30) additional days); (ii) assignment of
duties materially and adversely inconsistent with Employee's position, duties,
title and status as set forth on Schedule A, without Employee's consent; (iii)
failure by any successor of the Company to expressly assume Company's
obligations to perform this Agreement; (iv) failure by any successor of Company
to expressly assume or replace any stock options granted pursuant to this
Agreement; (v) as provided in paragraph 2(a) below, or (vi) relocation of
Employee outside of Manhattan, New York City without his consent;
provided that, Employee shall not be deemed to have been relocated without his
- -------------
consent because of required travel on Company's business, including, without
limitation, travel to the Company's offices in California and the Purchased LLC
offices (as defined in the Asset Purchase Agreement) and travel to such other
regional offices now existing, or as may be established from time to time.
2. Duties and Scope of Employment.
-------------------------------
(a) Position. Company agrees to employ Employee, and Employee
--------
agrees to serve as Company's Vice President, Information Services Division, for
the term of his employment under this Agreement, with the duties,
responsibilities and capabilities generally set forth on Schedule A hereto and
such other duties customarily associated and consistent with such office and
duties as determined by Company and its Board of Directors ("Board") from time
to time ("Employment"). Employee shall report directly to either Brenda Hall or
Paul Bartlett. If Employee shall be involuntarily required to report directly to
an officer of Company other than Brenda Hall or Paul Bartlett in their then
respective capacities as executive officers of the Company, then Employee shall
be entitled for a period of one (1) year thereafter to terminate Employee's
Employment for Good Reason as set forth in Section 1(b) hereof.
(b) Obligations. During the term of his Employment, Employee
-----------
shall devote his full business efforts and time to Company and/or its
subsidiaries performing the duties as generally described in Schedule A. He
shall not render services to any other person or entity without the express
prior approval of Company's Chief Executive Officer.
(c) Place of Employment. Employee shall be based in Manhattan,
-------------------
New York City except for required travel on Company's business, including
without limitation, travel to the Company's offices in California and the
Purchased LLC offices (as defined in the Asset Purchase Agreement) and travel to
such other regional offices of Company as are now existing or as may be
established from time to time.
2
<PAGE>
3. Cash Compensation.
------------------
(a) Salary. During the term of his Employment, Company agrees to pay
------
Employee as compensation for his services a base salary at the annual rate of
$125,000 or at such higher rate as Company may determine from time to time.
Such salary shall be payable in accordance with Company's standard payroll
procedures. (The annual compensation specified in this subsection (a), together
with any increases in such compensation that Company may grant from time to
time, is referred to in this Agreement as "Base Compensation.")
(b) Bonus. For the period ending on the first, second and third
-----
anniversary of his Employment, Employee shall be paid a monthly bonus of two
percent (2%) of all gross margin dollars generated by the Information Services
Division ("Division Revenue"). For purposes of calculating such bonus, "gross
margin" shall mean (x) Company's bill rate minus (y) an amount equal to (A) the
Company's aggregate pay rate times (B) 1.15. "Division Revenue" shall mean
revenue of the Information Services Division, including revenue of all profit
centers reporting directly to such Information Services Division.
EXAMPLE:
Month 1 Division Revenue $1,500,000
Gross Margin (Bill Rate 53.75; Pay Rate 25) 25%
Gross Margin $ (.25 times 1,500,000) $ 375,000
Monthly Bonus @2% $ 7,500
Total Monthly Comp. $ 17,916
(salary +bonus)
Subject to the foregoing, any increase in the amount of such annual
bonus using the formula provided above shall be determined and reviewed annually
by the Board of Directors in its sole discretion; provided, however, that unless
-----------------
otherwise agreed by Employee and the Company the Board of Directors shall not
apply a different formula than the formula provided above for determining
Employee's annual bonus for the periods ending on the first, second and third
anniversary of his Employment if such different formula would result in a
smaller annual bonus to Employee than is determined by the formula provided
above.
4. Employee Benefits; Employee Incentives. During the term of his
--------------------------------------
Employment, Employee shall be eligible to participate in employee benefit plans
maintained by 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. During the term of his Employment,
Employee shall be eligible to participate in employee fringe benefit incentives
and the like as may be established by the Board of Directors from time to time
and made available to the Company's Vice Presidents generally.
5. Business Operating Expenses. During the term of his Employment,
---------------------------
Employee shall be authorized to incur necessary and reasonable travel,
entertainment and other
3
<PAGE>
business expenses in connection with his duties and responsibilities hereunder
in an amount not to exceed $5000 per month without the prior approval of the
President or the Chief Executive Officer of the Company. Company shall reimburse
Employee for such expenses upon presentation of an itemized account and
appropriate supporting documentation, all in accordance with Company's generally
applicable policies.
6. Option Grant. In addition to cash compensation, as of the date
------------
when Employee's Employment commences, Company shall grant him a stock option
covering 52,000 shares of Company's Common Stock. The exercise price of such
option shall be equal to the fair market value of such stock on the date of
grant. Company shall use its best efforts to provide that the annual maximum
number of such shares shall become exercisable in each year until all such
shares are exercisable as is permitted under applicable provisions of the
Internal Revenue Code of 1986, as amended, for such option to be treated as an
incentive stock option. Subject to the foregoing, it is intended that the term
of such option shall be 10 years and shall vest in two equal installments on
December 1, 1996 and January 1, 1997 if Employee shall remain in Employment on
such dates. Upon the exercise of each option, the Company agrees to pay to
Employee an amount equal to the aggregate exercise price of such option. In
addition, as of the date when Employee's Employment commences, Company shall
grant him an incentive stock option covering 40,000 shares of Company's Common
Stock. The exercise price of such option shall be equal to the fair market
value of such stock on the date of grant. The term of such option shall be 10
years and shall vest 20% on the first anniversary of the date of grant and the
balance shall vest in equal monthly installments over the succeeding 48 months
of service. The foregoing options shall be subject to the terms and conditions
set forth in the Hall, Kinion & Associates, Inc. 1996 Stock Option Plan and in
Company's standard form of incentive stock option agreements; provided however,
that if Employee terminates his employment for Good Reason or is terminated by
Company without Cause, Employee shall have ninety (90) days within which to
exercise such options.
7. Successors. This Agreement shall be binding upon any successor
----------
to all or substantially all of Company's business and/or assets. For all
purposes under this Agreement, the term "Company" shall include any successor to
Company's business and/or assets. Employee's rights hereunder shall inure to
his personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees.
4
<PAGE>
8. 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 (including facsimile) or when mailed by U.S.
registered mail, return receipt requested and postage prepaid. In the case of
Employee, mailed notices shall be addressed to him at the home address which he
most recently communicated to Company in writing. In the case of 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 Employee and by an authorized officer of Company (other
than 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, the Asset Purchase Agreement and the 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.
(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) 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
5
<PAGE>
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 sentence shall be void.
(i) 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.
IN WITNESS WHEREOF, each of the parties has executed this Agreement,
in the case of Company by its duly authorized officer, as of the day and year
first above written.
EMPLOYEE
/s/ Mordecai Levine
By ______________________________
Vice President
Title ___________________________
Hall, Kinion & Associates, Inc.
/s/ Brenda Hall
By ______________________________
CEO
Title ___________________________
6
<PAGE>
SCHEDULE A--DUTIES
Under the direction of the Chief Executive Officer of Hall, Kinion and
Associates, Inc. (the "Company"), Employee shall operate and manage the
Information Services Division in accordance with an annual plan developed and
approved by the Chief Executive Officer of the Company. In addition, Employee
shall devote no more that 10% of his time to the supervision of the winding-up
of the operations of TeamAlliance Technology Partners, L.P., TeamAlliance
Technology Partners, Inc. and the non-Purchased LLCs (as described in the Asset
Purchase Agreement), which winding-up shall be completed as expeditiously as
possible but in no event later than April 30, 1997.
Employee accepts and agrees that nothing in this Schedule A, or the
Agreement of which it is a part, or the Asset Purchase Agreement and its related
agreements, or the Proprietary Information and Inventions Agreement, precludes
Company from engaging other employees or service providers, or making
acquisitions, that are overlapping or competitive with the duties assigned
herein to Employee.
7
<PAGE>
EXHIBIT 10.15
HALL, KINION & ASSOCIATES, INC.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into as of December 2, 1996, by
and between Richard Harmon ("Employee") and Hall, Kinion & Associates, Inc., a
California corporation ("Company").
1. Employment; Termination.
-----------------------
(a) Agreement of Employment. Company agrees to continue
-----------------------
Employee's Employment (as hereinafter defined) and Employee agrees to remain in
Employment with Company, from the date of this Agreement until the date
Employee's Employment terminates pursuant to this Agreement. Prior to
commencement of Employee's Employment, Employee shall enter into Company's
standard Proprietary Information and Inventions Agreement. This Agreement is
made of even date with and as a condition to that certain Asset Purchase
Agreement ("Asset Purchase Agreement") by and between Company, TA Acquisition
Corporation, TeamAlliance Technology Partners, L.P., Team Alliance Technology
Partners, Inc., Team Visions, Inc., certain limited liability companies,
Mordecai Levine, Frederick Lenz and Employee. This Agreement shall terminate
upon the earlier of (i) the satisfaction of all of the obligations hereunder or
(ii) December 2, 2000.
(b) Termination. Employee's Employment shall terminate
-----------
automatically in the event of his death. In addition, Company may terminate
Employee's Employment and Employee may terminate his Employment, in either case
at any time and for any reason, by giving Employee or Company, as the case may
be, notice thereof in writing. Upon termination of Employment, Employee shall
only be entitled to compensation, benefits and reimbursements described herein
for the period preceding the effective date of the termination; provided,
--------
however, that if Employee's Employment is terminated without his consent for any
- -------
reason other than Cause, including but not limited to by reason of death or
disability or if Employee voluntarily terminates his Employment for Good Reason
(as defined below), then Company shall pay Employee all accrued but unpaid
salary and bonus and other accrued benefits through the date of termination and
shall continue to pay Employee's Base Compensation (at the annual rate then in
effect) and bonus (at the monthly rate then in effect) for one hundred eighty
(180) days following such termination. "Cause" shall mean (i) any failure of
Employee to perform or observe any of the material terms or provisions of this
Agreement and the continued failure of Employee to cure such default within
thirty (30) days after written notice of such default and demand for performance
has been given to Employee by Company which notice and demand shall describe
specifically the nature of such alleged failure to perform or observe such
material terms or provisions; provided, however, that if cure is impossible
-----------------
within said thirty (30) day period, it shall be sufficient for Employee to
commence such cure within said period and pursue such cure diligently to
completion within the shortest possible time (but in no event for an aggregate
period longer than thirty (30) additional days); (ii) breach by Employee of
Section 6.6(a) of the Asset Purchase Agreement; or (iii) conviction of, or a
plea of "guilty" or "no contest" to, a crime involving a felony, fraud,
embezzlement or the like. "Good Reason" shall mean the (i) failure of Company to
perform or observe any of the material terms or provisions of
<PAGE>
this Agreement, and the continued failure of Company to cure such default within
30 days after written notice of such default and demand for performance has been
given to Company by Employee, which notice and demand shall describe
specifically the nature of such alleged failure to perform or observe such
material terms or provisions; provided, however, that if cure is impossible
-----------------
within said thirty (30) day period, it shall be sufficient for Company to
commence such cure within said period and pursue such cure diligently to
completion within the shortest possible reasonable time (but in no event for an
aggregate period longer than thirty (30) additional days); (ii) assignment of
duties materially and adversely inconsistent with Employee's position, duties,
title and status as set forth on Schedule A, without Employee's consent; (iii)
failure by any successor of the Company to expressly assume Company's
obligations to perform this Agreement; (iv) failure by any successor of Company
to expressly assume or replace any stock options granted pursuant to this
Agreement; (v) as provided in paragraph 2(a) below, or (vi) relocation of
Employee outside of Manhattan, New York City without his consent;
provided that, Employee shall not be deemed to have been relocated without his
- -------------
consent because of required travel on Company's business, including, without
limitation, travel to the Company's offices in California and the Purchased LLC
offices (as defined in the Asset Purchase Agreement) and travel to such other
regional offices now existing, or as may be established from time to time.
2. Duties and Scope of Employment.
------------------------------
(a) Position. Company agrees to employ Employee, and Employee
--------
agrees to serve as Company's Vice President, Internet Services Division, for the
term of his employment under this Agreement, with the duties, responsibilities
and capabilities generally set forth on Schedule A hereto and such other duties
customarily associated and consistent with such office and duties as determined
by Company and its Board of Directors ("Board") from time to time
("Employment"). Employee shall report directly to either Brenda Hall or Paul
Bartlett. If Employee shall be involuntarily required to report directly to an
officer of Company other than Brenda Hall or Paul Bartlett in their then
respective capacities as executive officers of the Company, then Employee shall
be entitled for a period of one (1) year thereafter to terminate Employee's
Employment for Good Reason as set forth in Section 1(b) hereof.
(b) Obligations. During the term of his Employment, Employee
-----------
shall devote his full business efforts and time to Company and/or its
subsidiaries performing the duties as generally described in Schedule A. He
shall not render services to any other person or entity without the express
prior approval of Company's Chief Executive Officer.
(c) Place of Employment. Employee shall be based in Manhattan,
-------------------
New York City except for required travel on Company's business, including
without limitation, travel to the Company's offices in California and the
Purchased LLC offices (as defined in the Asset Purchase Agreement) and travel to
such other regional offices of Company as are now existing or as may be
established from time to time.
2
<PAGE>
3. Cash Compensation.
-----------------
(a) Salary. During the term of his Employment, Company agrees
------
to pay Employee as compensation for his services a base salary at the annual
rate of $125,000 or at such higher rate as Company may determine from time to
time. Such salary shall be payable in accordance with Company's standard payroll
procedures. (The annual compensation specified in this subsection (a), together
with any increases in such compensation that Company may grant from time to
time, is referred to in this Agreement as "Base Compensation.")
(b) Bonus. For the period ending on the first, second and third
-----
anniversary of his employment, Employee shall be paid an annual bonus of not
less than $75,000, paid monthly in equal installments. Subject to the
foregoing, the amount of any increase in such annual bonus shall be determined
by the Board of Directors in its sole discretion. In addition to the foregoing,
if Employee shall remain in Employment from the date hereof until December 31,
1996, then Employee shall be paid a cash bonus in the amount of $26,100.
4. Employee Benefits; Employee Incentives. During the term of his
--------------------------------------
Employment, Employee shall be eligible to participate in employee benefit plans
maintained by 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. During the term of his Employment,
Employee shall be eligible to participate in employee fringe benefit incentives
and the like as may be established by the Board of Directors from time to time
and made available to the Company's Vice Presidents generally.
5. Business Operating Expenses. During the term of his Employment,
---------------------------
Employee shall be authorized to incur necessary and reasonable travel,
entertainment and other business expenses in connection with his duties and
responsibilities hereunder in an amount not to exceed $5000 per month without
the prior approval of the President or the Chief Executive Officer of the
Company. Company shall reimburse Employee for such expenses upon presentation
of an itemized account and appropriate supporting documentation, all in
accordance with Company's generally applicable policies.
6. Option Grant. In addition to cash compensation, as of the date
------------
when Employee's Employment commences, Company shall grant him a stock option
covering 52,000 shares of Company's Common Stock. The exercise price of such
option shall be equal to the fair market value of such stock on the date of
grant. Company shall use its best efforts to provide that the annual maximum
number of such shares shall become exercisable in each year until all such
shares are exercisable as is permitted under applicable provisions of the
Internal Revenue Code of 1986, as amended, for such option to be treated as an
incentive stock option. Subject to the foregoing sentence, the term of such
option shall be 10 years and shall vest in two equal installments on December 1,
1996 and January 1, 1997 if Employee shall remain in Employment on such dates.
Upon the exercise of each option, the Company agrees to pay to Employee an
amount equal to the aggregate exercise price of such option. In addition, as of
the date when Employee's Employment commences, Company shall grant him an
incentive stock option
3
<PAGE>
covering 40,000 shares of Company's Common Stock. The exercise price of such
option shall be equal to the fair market value of such stock on the date of
grant. The term of such option shall be 10 years and shall vest 20% on the first
anniversary of the date of grant and the balance shall vest in equal monthly
installments over the succeeding 48 months of service. The foregoing options
shall be subject to the terms and conditions set forth in the Hall, Kinion &
Associates, Inc. 1996 Stock Option Plan and in Company's standard form of
incentive stock option agreements; provided however, that if Employee terminates
his employment for Good Reason or is terminated by Company without Cause,
Employee shall have ninety (90) days within which to exercise such options.
7. Successors. This Agreement shall be binding upon any successor
----------
to all or substantially all of Company's business and/or assets. For all
purposes under this Agreement, the term "Company" shall include any successor to
Company's business and/or assets. Employee's rights hereunder shall inure to
his personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees.
8. 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 (including facsimile) or when mailed by U.S.
registered mail, return receipt requested and postage prepaid. In the case of
Employee, mailed notices shall be addressed to him at the home address which he
most recently communicated to Company in writing. In the case of 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 Employee and by an authorized officer of Company (other
than 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, the Asset Purchase Agreement and the 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.
4
<PAGE>
(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.
(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) 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 sentence shall be void.
(i) 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.
IN WITNESS WHEREOF, each of the parties has executed this Agreement,
in the case of Company by its duly authorized officer, as of the day and year
first above written.
EMPLOYEE
/s/ Richard Harmon
By ____________________________
Vice President
Title _________________________
Hall, Kinion & Associates, Inc.
/s/ Brenda Hall
By ____________________________
CEO
Title _________________________
5
<PAGE>
SCHEDULE A--DUTIES
Under the direction of the President of Hall, Kinion & Associates,
Inc. ("Company"), Employee shall undertake and perform the following duties:
"Research, originate and implement a business plan described as the
Internet Services Division, characterized as an organization of talented
technology consultants offering project services to the business community,
addressing the opportunities connected with the Internet and Intranets. In
addition, act as a consultant to the President and Chief Executive Officer
and selected managers of Company in regard to strategic operations of the
Information Services Division. In addition, devote no more that 10% of his
time to the supervision of the winding-up of the operations of TeamAlliance
Technology Partners, L.P., TeamAlliance Technology Partners, Inc. and the
non-Purchased LLCs (as described in the Asset Purchase Agreement), which
winding-up shall be completed as expeditiously as possible but in no event
later than April 30, 1997."
Employee accepts and agrees that nothing in this Schedule A, or the
Agreement of which it is a part, or the Asset Purchase Agreement and its related
agreements, or the Proprietary Information and Inventions Agreement, precludes
Company from engaging other employees or service providers, or making
acquisitions, that are overlapping or competitive with the duties assigned
herein to Employee.
6
<PAGE>
EXHIBIT 10.16
CONSULTING AND SETTLEMENT AGREEMENT
THIS CONSULTING AND SETTLEMENT AGREEMENT ("Agreement") is entered into
between Keith Corbin (the "Employee") and HALL, KINION & ASSOCIATES, INC., a
California Corporation (the "Company").
WHEREAS, the Employee has been employed by the Company; and
WHEREAS, the Employee wishes to resign from the Company as its Chief
Financial Officer, effective December 31, 1996 (the "Termination Date"); and
WHEREAS, the Employee and the Company wish to provide for an interim period
in which Employee will continue to provide services to the Company and to enable
Employee to continue to vest in his Incentive Stock Option (granted to him on
August 15, 1995) through August 15, 1997, and to completely and amicably resolve
any actual and potential disputes between them;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the Employee and the Company agree as follows:
1. Consulting Period.
-----------------
(a) Subject to the provisions of this Section 1 and Section 6, from
January 1, 1997 to May 16, 1997, the Employee shall continue to work for at
least 40 hours per week for the Company providing reasonable and customary
whatever services the Company and its management may require, subject to the
review of the Company's Chief Executive Officer and Chief Financial Officer, and
the Company shall pay the Employee $13,333 a month in accordance with its normal
payroll procedures, subject to withholding for applicable payroll taxes.
Effective May 16, 1997, the Employee shall resign from the Company.
(b) Provided that Employee has continuously provided services to the
Company to the sole satisfaction of the Chief Executive Officer through May 15,
1997 pursuant to the provisions of Section 1(a) of this Agreement, the Employee
shall be asked to serve as a part-time consultant to the Company, from May 16,
1997 through August 16, 1997, and shall be available to the Company for a
minimum of 10 hours per week. The Company shall pay the Employee $3,333 a week
for his consulting services, subject to applicable withholding provisions. The
period during which the Employee shall serve the Company pursuant to Section
1(a) and 1(b) of this Agreement shall be known as the Consulting Period.
Employee's employment hereunder during the Consulting Period may be terminated
by Employee at any time, for any reason, with or without cause.
The Company may only terminate the Consulting Period for "cause" as defined
in Section 2. In the event the Company elects to not utilize, or does not
require, the services of the Employee as specified in 1(a) and 1(b) above, for
all or any part of the Consulting Period it will not be considered as "cause"
for purposes of Section 2.
2. Options. Provided that Employee continues to provide services to the
-------
Company pursuant to Section 1(a) and 1(b) above and is not terminated for
"Cause" as defined below, the Employee's incentive stock option which was
granted to the Employee on August 15, 1995, pursuant to the Company's 1995
Incentive Stock Option Plan shall continue to vest during the Employee's
Consulting Period. Cause shall mean a) Employee's failure to perform his duties
during the Consulting Period in a reasonably satisfactory fashion after receipt
of a written warning; b) Employee's engaging in misconduct that is materially
injurious to the Company; c) Employee's being convicted of a felony; d)
Employee's material breach of this Agreement; e)
<PAGE>
Employee's commission of an act of fraud against, or the misappropriation of
property belonging to, the Company; or f) Employee's breach of any
confidentiality or proprietary information agreement between Employee and the
Company. Should the Employee exercise this stock option more than three months
after May 16, 1997, such stock option shall be exercisable as a non-statutory
stock option. This Agreement shall amend any prior provision of the Company's
1995 Incentive Stock Option Plan or option agreement by and between the Company
and the Employee.
3. Release. The Employee hereby releases and forever discharges the
-------
Company and each of its past and present directors, managers, officers,
shareholders, agents, consultants, advisers, employees, attorneys, servants,
parents, subsidiaries, employee benefit plans, predecessors, successors and
assigns (the "Releasees"), and each of them separately and collectively, from
any and all claims, liens, demands, causes of action, obligations, damages and
liabilities of any nature whatsoever, known or unknown, that the Employee ever
had, now has or may hereafter claim to have against the Releasees, with respect
to any matter arising out of or connected with the Employee's employment with
the Company or the termination of that employment, including (but not limited
to) claims of wrongful discharge; intentional or negligent infliction of
emotional distress; mental, physical or emotional injuries sustained from
invasion of privacy; any physical or mental harm or distress from such
employment or from termination of such employment; defamation; breach of
contract; breach of the covenant of good faith and fair dealing; interference
with prospective economic advantage; and any claims of discrimination based on
sex, age, race, national origin, or on any other basis, under all laws and
regulations relating to employment including (without limitation):
(a) Any and all claims under federal or California statutory or
decisional law pertaining to wrongful discharge, discrimination, or breach
of public policy, including Title VII of the Civil Rights Act of 1964, as
amended, and the California Fair Employment and Housing Act;
(b) Any and all claims under the federal Age Discrimination in
Employment Act of 1967;
(c) Any and all claims for employee benefits, compensation, severance
payments, fringe benefits, group insurance, vacation or disability
payments, or stock or stock options; and
(d) Any and all claims relating to the tax obligation for which the
Employee may become liable as a result of this Agreement or the payment of
consideration referred to above.
This Agreement covers only those claims that arose prior to the execution
of this Agreement. Execution of this Agreement does not bar any claim that
arises thereafter, including (but not limited to) claims for breach of this
Agreement.
4. Waiver. The parties expressly waive all rights under Section 1542 of
------
the Civil Code of California, which provides:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR."
2
<PAGE>
The parties agree that the possibility that such unknown claims exist was taken
into account in determining the amount of consideration to be paid for the
giving of this Agreement.
5. Covenant Not To Sue. The parties covenant and agree that they will
-------------------
never, individually or with any person or in any way, commence, aid in any way,
except as required by due legal process, prosecute or cause or permit to be
commenced or prosecuted, any action or other proceeding based upon any claim
which is the subject of this Agreement. This Agreement shall be deemed breached
and a cause of action shall be deemed to have accrued immediately upon the
commencement or prosecution of any action or proceeding contrary to this
Agreement.
In the event of any breach of this Section 5, the aggrieved Releasee shall
be entitled to recover not only the amount of judgment which may be awarded
against such Releasee, but also all such other damages, costs and expenses as
may be incurred by such Releasee, including court costs, attorneys' fees and all
costs and expenses, taxable or otherwise, in preparing the defense of or
defending against, or seeking or obtaining an abatement of or injunction
against, any action or proceeding brought in violation of this Section 5 and in
prosecuting any claim, counterclaim or cross-claim based hereon.
6. Non-Competition. The Employee shall not engage in Competitive
---------------
Activities during the Consulting Period.
(a) Competitive Activities. The Employee will be deemed to be engaged
----------------------
in Competitive Activities if during the Consulting Period the Employee,
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, render services of any kind to, advise or
receive compensation in any form from, or invest or participate 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 by Court. 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 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.
7. No Assignment; Authority. The parties represent and warrant that no
------------------------
other person had or has or claims any interest in the claims referred to in
Section 4 above; that they have the sole right and exclusive authority to
execute this Agreement; that they have the sole right to receive the
consideration paid therefor; and that they have not sold, assigned, transferred,
conveyed or otherwise disposed of any claim or demand relating to any matter
covered by this Agreement.
3
<PAGE>
8. No Admission. The parties acknowledge that the payment of
------------
consideration, referred to herein, is made solely for the purpose of purchasing
peace and eliminating possible involvement in protracted litigation based upon
disputed claims that the other could make and does not constitute an admission
or concession of any liability on account of any of said claims, liability for
which is expressly denied by all Releasees.
9. Confidentiality. The parties covenant and agree to maintain the
---------------
confidentiality of the existence and terms of this Agreement, including (without
limitation) the nature and payment of consideration referred to in this
Agreement and to make no voluntary statement concerning this Agreement, except
as may be necessary for the purposes of audit, tax returns or other disclosures
required by law.
10. Continued Confidentiality. The Employee acknowledges that the
-------------------------
Employee possesses and will continue to possess information that has been
created, discovered, developed or otherwise become known to the Company or in
which property rights have been assigned or otherwise conveyed to the Company,
which information has commercial value in the business in which the Company is
engaged. All such information is hereinafter called "Proprietary Information."
By way of illustration, but not limitation, Proprietary Information includes
processes, formulas, codes, data, programs, know-how, improvements, discoveries,
developments, designs, inventions, techniques, marketing plans, strategies,
forecasts, new products, unpublished financial statements, budgets, projections,
licenses, prices, costs, contracts and customer and supplier lists.
In consideration of the compensation received by the Employee from the
Company and the covenants contained in this Agreement, the Employee agrees as
follows:
(a) All Proprietary Information is and shall continue to be the sole
property of the Company and its assigns, and the Company and its assigns
are and shall continue to be the sole owner of all rights in connection
therewith. The Employee will keep in strictest confidence and trust all
Proprietary Information and will not use or disclose any Proprietary
Information without the written consent of the Company.
(b) All documents, records, equipment and other physical property,
whether or not pertaining to Proprietary Information, furnished to the
Employee by the Company or produced by the Employee or others in connection
with the Employee's employment with the Company shall be and remain the
sole property of the Company. The Employee has returned to the Company all
documents, notes, drawings, specifications, programs, data, customer lists
and other materials of any nature pertaining to the Employee's work with
the Company, including any copies of such materials, and the Employee will
not use any of the foregoing, any reproduction of any of the foregoing, or
any Proprietary Information that is embodied in a tangible medium of
expression.
(c) The Employee agrees that the Company has the right to inform
subsequent employers about the Employee's obligation to maintain the
confidentiality of the Company's Proprietary Information.
(d) The Proprietary Information and Inventions Agreement between the
Employee and the Company shall remain in full force and effect.
11. No Disparagement. The Parties agrees that during the Consulting
----------------
Period, and for one year thereafter, the Parties will not make any disparaging
statements concerning each other including the Employee, the Company or its past
or present directors, managers, officers, shareholders, agents, consultants,
advisers or employees.
The Company agrees to provide prospective future employers of Employee
with a favorable reference as to Employee's performance.
4
<PAGE>
12. Binding Effect. This Agreement shall bind all heirs, executors,
--------------
administrators, successors and assigns of the Employee. It shall inure to the
benefit of each Releasee and, in addition, all heirs, executors, administrators
and assigns of each Releasee who is an individual.
13. Older Workers' Benefit Protection Act. The Employee acknowledges that
-------------------------------------
the Employee is aware that under the Older Workers' Benefit Protection Act the
Employee has twenty-one (21) calendar days to decide whether to enter into this
Agreement. The Employee agrees that the Employee was offered twenty-one (21)
calendar days after receipt of this Agreement to review and consider this
Agreement and to discuss the Agreement with an attorney of the Employee's own
choosing. The Employee further acknowledges that the Employee is aware that
under the Older Workers' Benefit Protection Act the Employee may revoke this
Agreement within seven (7) calendar days after it is signed. The Employee
further agrees that the Employee is aware that in the event the Employee timely
exercises the right of rescission the Employee will have no rights under this
Agreement.
14. Dispute Resolution. The Employee and the Company agree that any
------------------
future disputes between them, including (but not limited to) disputes arising
out of or related to this Agreement, shall be resolved by binding arbitration in
San Francisco, California.
(a) The party claiming to be aggrieved shall furnish to the other
party a written statement of the grievance identifying any witnesses or
documents that support the grievance and the relief requested or proposed.
(b) If the other party does not agree to furnish the relief requested
or proposed, or otherwise does not satisfy the demand of the party claiming
to be aggrieved, the parties shall submit the dispute to binding
arbitration.
(c) The parties shall attempt to agree to the identity of an
arbitrator, and, if they are unable to do so, the Company shall provide the
Employee with a list of no fewer than five names of arbitrators, each of
whom has been appointed in at least 10 cases, excluding cases in which the
Company has been involved, and the Employee shall pick a name from that
list. The arbitrator shall have the authority to determine whether the
conduct complained of under Subsection (a) above violates the rights of the
complaining party and, if so, to grant any relief authorized by law;
provided, however, that nothing herein shall limit the right of the Company
to obtain injunctive relief for violation of the Proprietary Information
and Inventions Agreement or Section 10. The arbitrator shall not have the
authority to modify, change or refuse to enforce the terms of this
Agreement.
(d) The hearing shall be transcribed. The Company shall bear the costs
of the arbitration, if the Employee prevails. If the Company prevails, the
Employee will bear the costs of the arbitration. Each party shall be
responsible for paying its own attorneys' fees.
(e) Except as provided in Subsection (c) above with respect to claimed
violations of the Proprietary Information and Inventions Agreement or
Section 10, arbitration shall be the exclusive and final remedy for any
dispute between the parties, and the parties agree that no dispute shall be
submitted to arbitration where the party claiming to be aggrieved has not
complied with the preliminary steps provided for above.
15. Severability. If any term of this Agreement is held to be invalid,
------------
void or unenforceable, the remainder of this Agreement shall remain in full
force and effect and shall in no way be affected, and the parties shall use
their best efforts to find an alternative way to achieve the same result.
5
<PAGE>
16. Entire Agreement. The Employee warrants that no promise, inducement
----------------
or agreement not expressed herein has been made in connection with this
Agreement; that this Agreement constitutes the entire agreement between the
Employee and the Company; and that this Agreement cancels and supersedes all
prior communications or understandings between the Company and the Employee with
respect to the subject matter of this Agreement. The Employee has entered into
this Agreement freely and voluntarily. All executed copies are duplicate
originals, equally admissible in evidence. This Agreement may only be varied or
modified by a written document executed by the Employee and the Company.
17. Governing Law. This Agreement shall be construed and enforced
-------------
pursuant to the laws of the State of California (other than their choice-of-law
provisions).
The Employee acknowledges that he has read and understand the foregoing
Agreement and that he signs this Agreement voluntarily, with full appreciation
that he is forever foreclosed from pursuing any of the rights he has released
and discharged pursuant to this Agreement.
Dated: February 28, 1997 /s/ Keith Corbin
----------------- -------------------------------
Keith Corbin
HALL, KINION & ASSOCIATES INC.
Dated: February 28, 1997 By: /s/ Brenda Hall
----------------- --------------------------
Its: CEO
--------------------------
6
<PAGE>
EXHIBIT 10.17
OFFICE LEASE
THIS LEASE is made on the 17th day of April, 1992, by and between 5300
Stevens Creek Boulevard Joint Venture, (hereinafter called "Landlord") and
Stellar Corporation, a California corporation, d/b/a Snelling Personnel Services
(hereinafter called "Tenant").
IN CONSIDERATION OF THE MUTUAL PROMISES CONTAINED HEREIN, THE PARTIES
AGREE AS FOLLOWS:
1. Premises. Landlord leases to Tenant and Tenant leases from Landlord, upon
--------
the terms and conditions herein set forth, those certain Premises
("Premises") situated at 5300 Stevens Creek Boulevard, in the City of San
---------------------------- ---
Jose, County of Santa Clara, California (the "Project") as outlined in
---- -----------
Exhibit "A", attached hereto and described as follows: Suite 320 containing
--------------------
approximately 5094 net rentable square feet of office space on the 3rd
----------------------------------------------------------------------
floor (approximately 4,548 usable square feet plus a twelve percent (12%)
-----
load). The Building of which the Premises is a part contains approximately
84,812 net rentable square feet. Landlord shall, within ten (10) days after
full execution of this Lease, deliver to Tenant an architect's certificate
verifying the useable square footage in the Premises. The term Project
shall mean and include the parking lot and all other common areas located
on the Project which Tenant shall have the right to use in common with all
other Tenants of the Project.
2. Term.
----
A. Commencement Date: The term of this Lease shall commence on June 1,
1992 or five (5) days after Landlord notifies Tenant of "substantial
completion" of Tenant's improvements whichever event first occurs. The
term "substantial completion" shall be deemed to have occurred once
(a) the Tenant improvements have been completed, except for minor
punchlist items which, by their omission or installation would not
materially interfere with the conduct of Tenant's business, and (b)
all signoffs in connection with governmental approvals for the Tenant
improvements have been obtained to permit immediate occupancy of the
Premises.
B. Termination Date: The term of the Lease shall end thirty-nine (39)
months from the Commencement Date, unless sooner terminated pursuant
to any provision hereof.
3. Rent.
----
A. Basic Rent. Tenant shall pay to Landlord Basic Rent for the Premises
----------
in the amounts set forth below per month in lawful money of the
United States of America. Rent shall be paid without deduction or
offset, prior notice, abatement,
<PAGE>
or demand, at such place as may be designated from time to time by
Landlord as follows:
Rent Schedule: Months 01-03: No rent - Early Occupancy Period
Months 04-21: $7,895.70 Rent for the fourth month of the Lease Terms
shall be due and payable by Tenant upon execution of this Lease by
Tenant.
Months 22-39: $8,150.40
Total Payments: $288,829.80
Tenant's obligation to pay Rent shall commence on the Commencement
Date of this Lease and Rent shall be paid in advance on the
Commencement Date and on the first (1st) day of each succeeding
calendar month until the end of the term. Rent for any period during
the term hereof which is for less than one (1) full month shall be a
pro-rata portion of the monthly Rent payment. Tenant acknowledges
that late payment by Tenant to Landlord of Rent or any other payment
due Landlord will cause Landlord to incur costs not contemplated by
this Lease, the exact amount of such costs being extremely difficult
and impracticable to fix. Such costs include, without limitation,
processing and accounting charges, and late charges that may be
imposed on Landlord by the terms of any encumbrance and note secured
by any encumbrance covering the Premises. Therefore, if any
installment of Rent or other payment due from Tenant is not received
by Landlord within seven (7) days following written notice that the
rent is due and payable, Tenant shall pay to Landlord, in addition to
the Rent due and in addition to interest thereon as provided in
Paragraph 14, an additional sum of five percent (5%) of the overdue
amount as a late charge. The parties agree that this late charge and
interest represents a fair and reasonable estimate of the costs that
Landlord will incur by reason of late payment by Tenant. Acceptance
of any late charge shall not constitute a waiver of Tenant's default
with respect to the overdue amount, nor prevent Landlord from
exercising any of the other rights and remedies available to
Landlord.
B. Additional Rent; Increases in Operating Expenses and Taxes. For
----------------------------------------------------------
purposes of this Lease, the parties agree to the following:
(a) "Base Operating Expenses and Taxes" shall be the amount of actual
----------------
operating expenses for calendar year 1992, adjusted to reflect
-----------------------------------------
95% of full occupancy for the Building for the full 1992 calendar
year.
(b) Tenant's proportionate share of Operating Expenses and Taxes is
agreed to be 6.0%.
(c) "Operating Expenses shall mean all direct costs of operating,
maintaining and managing the Building and Property (including
parking areas)
2
<PAGE>
including, but not limited to, all charges paid or expenses
incurred by Landlord for repairs, maintenance, utilities, water,
capital improvements required to meet changed government
regulations as a result of Tenant's particular use of the
Premises, cleaning and janitorial services, security services,
modifications or additional capital improvements or replacement
of existing building systems or equipment to reduce the Operating
Expenses which shall be amortized at the prime rate of interest
of Bank of America, N.A. plus two percent (2%) over the useful
life of the improvement or equipment and included in Operating
Expenses (to the extent of the cost savings realized) and
replacement of capital improvements or building sewer equipment
existing as of the Commencement Date when required because of
normal wear and tear, maintenance of landscaping (including
necessary plant replacements), glazing, plumbing systems,
electrical systems, a fitness center, heating and air
conditioning systems, automatic fire extinguishing systems,
conference centers, roofs, down spouts, elevators, common area
interiors, ceilings, Building exterior and common area doors,
rubbish removal, property and liability insurance, licenses,
permits and inspections, reasonable legal expenses (excluding
legal fees associated with collecting past due rent from tenants
in the Building or negotiating leases with tenants in the
Building) and property management fees, costs and expenses
payable to parties not affiliated with Landlord for maintaining
and operating a management or tenant relations office in the
Building not greater than one hundred (100) rentable square feet
in size, and the reasonable cost of contesting the validity or
applicability of any government enactments that may affect
Operating Expenses.
(d) "Taxes" shall mean all Real Property Taxes as hereafter defined
in Paragraph 6 and all other taxes which are paid by Landlord and
reimbursed by Tenant under this Lease.
If the aggregate Operating Expenses and Taxes for the 1993 Calendar
Year adjusted to reflect 95% of full occupancy for the Building and
each calendar year thereafter during the Lease term, exceeds the Base
Operating Expenses and Taxes, Tenant shall pay Landlord, as Additional
Rent, Tenant's proportionate share of this increase ("Increase'). In
no event shall Landlord be liable to Tenant or will Rent be reduced
based on the decreased cost of Operating Expenses and Taxes in
relation to Base Operating Expenses and Taxes.
Tenant's proportionate share of Increases in Operating Expenses and
Taxes shall be Additional Rent and shall be paid to Landlord, except
as otherwise provided in this Lease, as follows: prior to the
commencement of each calendar year or within a reasonable period
thereafter, Landlord shall estimate, in advance, Tenant's
proportionate share of such Increase for the following calendar year
and Landlord shall notify Tenant of such estimate in writing.
Commencing on the first day of
3
<PAGE>
the first month of the calendar year for which Landlord has notified
Tenant of the estimated Increase, and on the first day of every month
thereafter in such year, Tenant shall pay to Landlord, as Additional
Rent, one-twelfth (1/12th) of the Tenant's estimated proportionate
share of the yearly Increase. Within ninety (90) days of the end of
each calendar year for which Tenant has made estimated payments,
Landlord shall furnish Tenant a statement with respect to such year,
showing actual charges for the past calendar year and the total
payments made by Tenant on the basis of Landlord's estimate. Upon
request by Tenant to Landlord, Landlord shall allow Tenant to review
Landlord's records with respect to Operating Expenses at all
reasonable times. If Tenant's actual proportionate share of the
Increase exceeds the payments made by Tenant based on Landlord's
estimate, Tenant shall pay the deficiency to Landlord within ten (10)
days of Tenant's receipt of Landlord's statement. If the total
payments by Tenant based on Landlord's estimate exceeds Tenant's
actual proportionate share of the Increase, Tenant's excess payment
shall be credited toward future payments by Tenant of Basic Rent or
Additional Rent or refunded to Tenant within ten (10) days of
Landlord's statement to Tenant if no future Basic Rent or Additional
Rent is, in Landlord's judgment, to become due. All Lease provisions
with respect to late charges and interest on unpaid Rent shall be
applicable to Additional Rent, as well as to Basic Rent and all other
monetary amounts due from Tenant under this Lease.
C. Monetary Obligations as Rent. All monetary amounts payable by Tenant
----------------------------
to Landlord under this Lease including but not limited to Basic and
Additional Rent, Security Deposit, and amounts paid by Landlord to
cure Tenant's default(s) shall be deemed "Rent" hereunder.
D. Operating Expense Exclusions and Limitations. Notwithstanding anything
--------------------------------------------
to the contrary in this Lease, Operating Expenses shall not include,
and Tenant shall have no liability for, the following expense items:
(a) the construction costs, purchase price or depreciation of the
Property, Building and Premises, and any additions thereto or
expansions thereof, including, without limitation, the cost of
tools, equipment and material purchased in connection therewith,
and the cost to repair defects therein.
(b) costs incurred for the repair, maintenance or replacement of the
structural components of the Property, Building or Premises,
including, without limitation, beams, columns, foundations,
footings, structural slabs and the roof.
(c) coats incurred for the repair, maintenance or replacement of the
Property, Building or Premises, or any portion, to the extent of:
(a) the proceeds of insurance which Landlord is required to
maintain under the Lease or actually maintains (whichever is
greater), including any deductibles which
4
<PAGE>
exceed $25,000 and self-insured amounts, unless such costs are
attributable to Tenant's or Tenant's guests', employees',
agents'), or invitees' negligence or willful misconduct, (b) any
reimbursement which Landlord is entitled to receive therefor
under any warranties or from any third party (other than on
account of a lessee's proportionate share of Operating Expenses),
or (c) the negligence or willful misconduct of Landlord or its
agents, employees, contractors or invitees.
(d) rentals and related expenses incurred in leasing air conditioning
systems, elevators or other equipment that may be classified as
capital expenditures under generally accepted accounting
principles, except for rentals and related expenses incurred in
connection with the rental of such equipment in order to make
repairs or keep permanent systems in operation while repairs are
being made, and except for the rental of equipment that is not
affixed to the Property and which is used in the maintenance or
repair of the Property or Building or the provision of other
services required to be furnished by Landlord under this Lease.
(e) rentals and other payments by Landlord under any ground lease or
other lease underlying this Lease, and interest, principal,
points and fees on debt or amortization of any deed of trust,
mortgage or other debt instrument encumbering all or any portion
of the Property or Building.
(f) expenses and penalties (including, without limitation, attorneys
fees) incurred due to Landlords violation of (a) any lease of
premises, or (b) any deed of trust, mortgage or ground lease, or
(c) any law, rule, regulation, code, permit or private
restriction, in each case, affecting or applicable to the
Property, the Building or any portion thereof.
(g) leasing commissions, attorneys' fees, tenant improvement costs
and other costs and expenses incurred in connection with the
leasing, or the improvement for leasing, of any premises.
(h) any cost incurred in furnishing items or services other than to
all tenants of the Property or Building generally.
(i) advertising, marketing, media and promotional expenditures
regarding the Property or Building, and costs of signs in or on
the Property or Building identifying the owner, lender or any
contractor thereof.
(j) in the event a parking charge is imposed for use of the parking
areas serving the Property or Buildings, costs incurred for the
maintenance, repair and operation of such parking areas.
(k) in no event shall management and administration fees include any
salaries, benefits or other compensation paid to personnel who
are not engaged full
5
<PAGE>
time or part time, as the case may be, in connection with the
maintenance, operation or management of the Property; Landlord's
general and administrative overhead expenses; costs of
automobiles and travel expenses; professional, civic or
recreational memberships; costs of seminars, conventions,
educational programs and the like; or charitable contributions.
Salaries of part-time personnel shall be included in Operating
Expenses only to the extent of, and in proportion to, such
person's engagement in the maintenance, operation or management
of the Property.
All maintenance and other on-going service contracts for the
Property shall be competitively bid; Landlord shall accept the lowest
responsible bidder conforming to Landlord's requirements.
The aggregate sum of all Operating Expenses upon which the
tenants' proportionate share is determined for a particular Lease year
shall not exceed the aggregate sum of such cost items which are
actually incurred by Landlord for the year in question. No cost item
shall be included more than once or allocated under more than one
expense category.
E. Tax Exclusions. Notwithstanding anything to the contrary in the Lease,
--------------
"Taxes" (paragraph 3(B)(d) and "Real Property Taxes" (paragraph 6(B))
shall not include, and Tenant shall have no liability for the
following charges: (1) interest or penalties imposed as a result of
Landlord's failure to pay taxes or assessments when due; (2) any
taxes, fees, assessments, levies or similar impositions that are
charged or assessed other than with respect to the Premises, Building
or Property; (3) increases in real estate taxes resulting from new
construction (other than of the Tenant Improvements) or related to
Tenant's use of the Premises; (4) Landlord's estate, gift, transfer,
franchise or income taxes; or (5) any tax for which Landlord has the
right to reimbursement from any other tenant or occupant of the
Building or Property. All assessments which can be paid by Landlord or
installments shall be included as a reimbursable expense item as if
paid over the maximum number of installments permitted, regardless of
when Landlord actually pays such assessments.
4. Security Deposit. Landlord acknowledges that Tenant has deposited with
----------------
Landlord a Security Deposit in the sum of Seven Thousand, Eight Hundred
Ninety-Five and 70/100 Dollars ($7,895.70) to secure the full and faithful
performance by Tenant of each term, covenant, and condition of this Lease.
If Tenant shall at any time fail to make any payment of Basic Rent or
Additional Rent or any other monetary amount due hereunder, or fail to keep
or perform any term, covenant, or condition on its part to be made or
performed or kept under this Lease, Landlord may, but shall not be
obligated to and without waiving or releasing Tenant from any obligation
under this Lease, use, apply, or retain the whole or any part of said
Security Deposit (a) to the extent of any sum due to Landlord; or (b) to
make any required payment on Tenant's behalf; or (c) to compensate
6
<PAGE>
Landlord for any loss, damage, attorneys' fees or expense sustained by
Landlord due to Tenant's default. In such event, Tenant shall, within ten
(10) days of written demand by Landlord, remit to Landlord sufficient funds
to restore the Security Deposit to its original sum. Tenant's failure to do
so shall be a material breach of this Lease. No interest shall accrue on
the Security Deposit. Should Tenant comply with all the terms, covenants
and conditions of this Lease and at the end of the term of this Lease leave
the Premises in the condition required by this Lease, then said Security
Deposit or any balance thereof, less the sums owing to Landlord, shall be
returned to Tenant (or, at Landlord's option, to the last assignee of
Tenant's interest hereunder) after the termination of this Lease and
vacancy of the Premises by Tenant. Tenant shall not have the right to apply
this Security Deposit or any part thereof toward the payment of any Rent
due hereunder. Landlord can maintain the Security Deposit separate and
apart from Landlord's general funds, or can commingle the Security Deposit
with Landlord's general and other funds.
5. Use of the Premises. The Premises shall be used exclusively for the purpose
-------------------
of general office use for a permanent and temporary employment placement
agency and all other legally related uses associated therewith. Tenant
shall not use, or permit the Premises, or any part thereof, to be used, for
any purpose other than the purpose for which the Premises are hereby
leased; and no use shall be made or permitted to be made of the Premises,
nor acts done, which will increase the existing rate of insurance upon the
Building in which the Premises are located, or cause a cancellation of any
insurance policy covering said Building, or any part thereof, nor shall
Tenant sell or permit to be kept, used or sold, in or about the Premises,
any article which may be prohibited by the standard form of fire insurance
policies. Tenant shall not commit, or suffer to be committed, any waste
upon the Premises, or any public or private nuisance, or other act or thing
which may injure, or disturb the quiet enjoyment of any occupant of
neighboring properties or other tenant in the Building or on the Property
in which the Premises are located; nor, without limiting the generality of
the foregoing, shall Tenant allow the Premises to be used for any unlawful
purpose. Tenant shall not place any harmful liquids in the drainage system
of the Premises or of the Building of which the Premises forms a part.
Tenant shall not place any loads upon the floors, walls, ceilings or roof
which might endanger the structure nor overload any electrical, mechanical,
or other systems. No waste materials or refuse shall be dumped upon or
permitted to remain upon any part of the Premises outside the Building
except in trash containers placed inside exterior enclosures approved for
that purpose by Landlord, or inside the Building proper where designated by
Landlord. No materials or articles of any nature shall be stored upon or
permitted to remain outside of the Building proper. Tenant shall not place
anything or allow anything to be placed near the glass of any window, door,
partition or wall which may appear unsightly from outside the Premises
(including the common areas and hallways of the Building). No loudspeaker
or other device, system, or apparatus which can be heard outside the
Premises shall be used in or at the Premises without the prior written
consent of Landlord. Tenant covenants and agrees that no diminution of
light, air or view by any structure which may be hereafter erected, whether
or not by Landlord, or use of the Building by any other occupants or use of
neighboring buildings or areas by others shall in any way affect this
Lease, entitle Tenant to any reduction of Rent
7
<PAGE>
hereunder, or result in any liability of Landlord to Tenant. Tenant shall
comply with all Rules and Regulations affecting the Premises which are
attached as Exhibit B.
---------
The term "Hazardous Material" means any hazardous or toxic substance,
material or waste, the storage, use, or disposition of which is or becomes
regulated by any local governmental authority, the State of California or
the United States government. The term "Hazardous Material" includes,
without limitation, any material or substance which is (i) defined as a
"hazardous waste," "extremely hazardous waste" or "restricted hazardous
waste" under Section 25115, 25117 or 25122.7, or listed pursuant to Section
25140 of the California Health and Safety Code, Division 20, Chapter 6.5
(Hazardous Waste Control Law), (ii) defined as a "hazardous substance"
under Section 25136 of the California Health and Safety Code, Division 20,
Chapter 6.8 (Carpenter-Presley-Tanner Hazardous Substance Account Act),
(iii) defined as a "hazardous material" "hazardous substance," or
"hazardous waste" under Section 25501 of the California Health and Safety
Code, Division 20, Chapter 6.95 (Hazardous Materials Release Response Plans
and Inventory), (iv) defined as a "hazardous substance" under Section 25281
of the California Health and Safety Code, Division 20, Chapter 6.7
(Underground Storage of Hazardous Substances), (v) petroleum, (vi)
asbestos, (vii) listed under Article 9 or defined as hazardous or extremely
hazardous pursuant to Article 11 of Title 22 of the California
Administrative Code, Division 4, Chapter 20, (viii) designated as a
"hazardous substance" pursuant to Section 311 of the Federal Water
Pollution Control Act (33 U.S.C. Section 1317), (ix) defined as a
"hazardous waste" pursuant to Section 1004 of the Federal Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq. (42 U.S.C.
-- ----
Section 6903), (x) defined as a "hazardous substance" pursuant to Section
101 of the Comprehensive Environmental Response Compensation and Liability
Act, 42 U.S.C. Section 9601 et seq. (42 U.S.C. Section 9601) or (xi) listed
-- ----
or defined as "hazardous waste," "hazardous substance," or other similar
designation by any regulatory scheme of the State of California or the
United States Government. Tenant, at its sole cost shall comply with all
laws and regulations relating to the storage, use and disposal of Hazardous
Materials by the Tenant on the Premises. If Tenant does store, use or
dispose of any Hazardous Materials on the Premises other than customary
office supplies, Tenant shall notify Landlord, in writing, at least five
(5) days prior to their first appearance on the Premises. Tenant shall be
solely responsible for and shall defend, indemnify and hold Landlord, and
Landlord's partners, officers, employees, successors, assigns and agents
harmless from and against all claims, demands, damages, costs and
liabilities, including attorneys' fees and costs, arising out of or in
connection with the storage, use, or disposal of Hazardous Materials by
Tenant, its agents, employees, contractors, or sublessees.
If the presence of Hazardous Materials on the Premises caused or permitted
by Tenant, its agents, employees, contractors, or sublessees results in or
is likely to result in contamination or deterioration of water or soil
resulting in a level of contamination greater than the safe levels
established by any governmental agency having jurisdiction over such
contamination or if any investigation of conditions, or any clean up,
remedial removal or restoration work is required by any federal, state or
local governmental
8
<PAGE>
agency or political subdivision ("Governmental Agency") because of the
level of Hazardous Material in the soil or ground water or on the Premises
caused or permitted by Tenant, its agents, employees, contractors, or
sublessees, Tenant shall promptly, and at its sole cost, take any and all
action necessary to investigate and clean up such contamination. At any
time prior to the expiration of the Lease Term, Tenant shall have the right
to conduct appropriate tests of waste and soil and to deliver to Landlord
the results of such tests to demonstrate that no contamination has occurred
as a result of Tenant's use of the Premises. Tenant shall further be solely
responsible for, and shall defend, indemnify and hold Landlord and
Landlord's partners, officers, employees, successors, assigns and agents
harmless from and against, all claims, demands, damages, costs and
liabilities, including attorneys' fees and costs, arising out of or in
connection with any removal, clean-up and restoration work and materials
required hereunder to return the Premises, the Property of which the
Premises are a part, or the surrounding properties to its condition
existing prior to the appearance of the Hazardous Materials caused or
permitted by Tenant, its agents, employees, contractors, or sublessees.
If Landlord has good cause to believe that the Premises or the Property
which the Premises are a part, have or may become contaminated by Hazardous
Materials, Landlord may cause tests to be performed, including wells to be
installed on the Property, and may cause the soil or ground water to be
tested to detect the presence of Hazardous Materials by the use of such
tests as are then customarily used for such purposes. If Tenant so
requests, Landlord shall supply Tenant with copies of such test results.
The cost of such tests of the installation, maintenance, repair and
replacement of such wells shall be paid by Landlord, unless contamination
is found and it is determined by Landlord's environmental consultant that
Tenant caused such contamination, in which event Tenant shall pay such
costs.
To Landlord's current actual knowledge, without independent investigation,
the Premises, Building and Property are free from Hazardous Materials.
Landlord hereby indemnifies and agrees to hold Tenant harmless from
liability for Hazardous Materials compliance, clean-up or testing to the
extent, and only to the extent, such compliance, clean-up or testing are
not required because of or attributable to the acts of Tenant. Tenant shall
have the right with prior written approval of Landlord at any time during
the Lease term to conduct its own test of the soil and/or ground water
underlying the Property by using such wells so long as each of the
following conditions are satisfied: (i) such tests are conducted by Tenant
at its own expense, (ii) it repairs any damage to such wells caused by such
test; (iii) it holds Landlord, and Landlord's partners, officers,
employees, assigns, successors and agents harmless from any cost, liability
or claims including reasonable attorneys' fees, from its tests including
mechanic's liens, as well as contamination to the Property or surrounding
properties, including the soil and groundwater thereunder, and (iv) it
timely delivers copies of the results of such test to Landlord.
9
<PAGE>
The termination of the Lease shall not terminate the parties' rights and
obligations under this Paragraph and the parties hereto expressly agree
that the provisions contained herein shall survive the termination of
Tenant's leasehold estate.
Tenant shall abide by all laws, ordinances and statutes, as they now exist
or may hereafter be enacted by legislative bodies having jurisdiction
thereof, relating to its particular use and occupancy of the Premises.
The provisions of this Paragraph are for the benefit of the Landlord and
Tenant only and shall not be construed to be for the benefit of any other
person or occupant of the Premises.
6. Taxes and Assessments.
---------------------
A. Tenant shall pay before delinquency any and all taxes, assessments,
license fees and public charges levied, assessed or imposed upon or
against Tenant's fixtures, equipment, furnishings, furniture,
appliances and personal property installed or located on or within the
Premises. Tenant shall cause said fixtures, equipment, furnishings,
furniture, appliances and personal property to be assessed and billed
separately from the real property of Landlord. If any of Tenant's said
personal property shall be assessed with Landlord's real property,
Tenant shall pay to Landlord the taxes attributable to Tenant within
ten (10) days after receipt of a written statement from Landlord
setting forth the taxes applicable to Tenant's property or ten (10)
days prior to delinquency, whichever is later.
B. All Real Property Taxes shall be paid by Landlord and shall be
included in Operating Expenses described in Paragraph 3 above. The
term "Real Property Taxes," as used herein, shall mean and include:
(i) all taxes, assessments, levies and other charges of any kind or
nature whatsoever, general and special, foreseen and unforeseen
(including without limitation, all installments of principal and
interest required to pay any general or special assessments for public
improvements, and any increases resulting from reassessments caused by
any change in ownership of the Premises or otherwise) now or hereafter
imposed by any governmental or quasi-governmental authority or special
district having the direct or indirect power to tax or levy
assessments, which are levied or assessed against, or with respect to
the value, occupancy, or use of all or any portion of the Premises (as
now constructed or as may at any time hereafter be constructed,
altered, or otherwise changed) or Landlord's interest therein; any
improvements located within the Premises (regardless of ownership);
the fixtures, equipment and other property of Landlord, real or
personal, that are an integral part of and located in the Premises;
and landscaping areas, walkways, parking areas, public utilities, or
energy within the Premises; and (ii) all costs and fees (including
reasonable attorneys' fees) incurred by Landlord or Tenant in
reasonably contesting any Real Property Tax and in negotiating with
public authorities as to any Real Property Tax. If at any time during
the term of this Lease the taxation or
10
<PAGE>
assessment of the Premises prevailing as of the Commencement Date of
this Lease shall be altered so that in lieu of or in addition to any
Real Property Tax described above there shall be levied, assessed or
imposed (whether by reason of a change in the method of taxation or
assessment, creation of a new tax or charge, or any other cause) an
alternate or additional tax or charge (i) on the value, use or
occupancy of the Premises or Landlord's interest therein or (ii) on or
measured by the gross receipts, income or Rentals from the Premises,
on Landlord's business of leasing the Premises, or based on parking,
employment, production or the like at the Premises, or computed in
manner with respect to the operation of the Premises, then any such
tax or charge, however designated, shall be included within the
meaning of the term "Real Property Taxes" for purposes of this Lease.
If any Real Property Tax is based in part upon property or rents
unrelated to the Premises, then only that part of such Real Property
Tax that is fairly allocable to the Premises shall be included within
the meaning of the term "Real Property Taxes."
7. Insurance.
---------
A. Indemnity. Tenant agrees to indemnify and defend (with counsel of
---------
Tenant's choosing acceptable to Landlord) Landlord against and hold
Landlord and Landlord's partners, employees, officers, assigns and
successors harmless from any and all demands, claims, causes of
action, judgments, obligations or liabilities, and all reasonable
expenses incurred in investigating or resisting the same (including
reasonable attorneys' fees), on account of, or arising out of Tenant's
use or occupancy of the Premises. This Lease is made on the express
condition that Landlord shall not be liable for, or suffer loss by
reason of, injury to person or property, from whatever cause, in any
way connected with the Tenant's use or occupancy of the Premises
specifically including, without limitation, any liability for injury
to the person or property of Tenant, its agents, officers, employees,
licensees and invitees. Such indemnification shall not apply to
liabilities arising from the negligence or willful misconduct of
Landlord or Landlord's employees, agents, contractors and invitees.
B. Liability and Worker's Compensation Insurance. Tenant shall, at the
---------------------------------------------
Tenant's expense, obtain and keep in force during the term of this
Lease a policy of Worker's Compensation Insurance and a policy of
comprehensive public liability insurance insuring Landlord and Tenant,
with cross-liability endorsements, against any liability arising out
of the condition, use or occupancy of the Premises and all areas
appurtenant thereto, including parking areas. Such insurance shall be
in an amount satisfactory to Landlord of not less than $2,000,000 for
bodily injury or death as a result of any one occurrence, and
$1,000,000 for damage to property as a result of any one occurrence.
The insurance shall be with companies authorized to do business in the
State of California and companies of Best's Rating Guide of A+9 or
better. Tenant shall deliver to Landlord prior to possession, a
certificate of insurance evidencing the existence of the policy
11
<PAGE>
required hereunder, and such certificate shall certify that the policy
(1) names Landlord as an additional insured; (2) shall not be canceled
or coverage reduced without thirty (30) days prior written notice to
Landlord; (3) insures performance of the indemnity set forth in
Subparagraph A. above; and (4) the coverage is primary and any
coverage by Landlord is in excess thereto.
Landlord shall, at all times during the term hereof, maintain in
effect a policy of public liability and property damage insurance
insuring against any liability (including bodily injury or property
damage) arising on or about the Property with policy limits determined
by Landlord in its sole discretion so long as such policy rates do not
exceed commercially reasonable rates paid by Landlords of similar
properties in Santa Clara County, California. Such insurance costs
shall be included in Operating Expenses described in Paragraph 3
above.
C. Insurance of Personal Property, Fixtures and Equipment/Business
---------------------------------------------------------------
Interruption Insurance. Tenant shall at all times during the term
----------------------
hereof, and at its cost and expense, maintain in effect policies of
insurance covering: its personal property, inventory, fixtures and
equipment located on the Premises, in an amount not less than one
hundred percent (100%) of their actual replacement value, providing
protection against any peril included within the classification "Fire
and Extended Coverage," together with insurance against sprinkler
damage, vandalism and malicious mischief. The proceeds of such
insurance, so long as this Lease remains in effect, shall be used to
repair or replace the personal property, inventory, fixtures, and
equipment so insured. In addition, Tenant shall reimburse Landlord, as
a part of Operating Expenses, for the cost of a policy of business
interruption insurance coverage insuring that 100% of the monthly
Basic Rent will be paid to Landlord for a period of not less than one
(1) year if the Premises are destroyed or rendered inaccessible by a
risk insured against by a policy of standard fire and extended
coverage insurance, with vandalism, sprinkler damage, and malicious
mischief endorsements.
D. Property Insurance. Landlord shall obtain and keep in force during the
------------------
term of this Lease a policy or policies of insurance coverage
including fire, extended coverage, earthquake and flood, for loss or
damage to the Premises, in the amount of the full replacement value
thereof. Such insurance costs shall be included in Operating Expenses
described in Paragraph 3 above.
E. Mutual Waiver of Subrogation. The parties hereto release each other
----------------------------
and their respective authorized representatives, partners, officers,
agents, employees and servants, from any and all claims, demands,
loss, expense, or injury to any person or to the Premises or Building
or to the furnishings, fixtures, or equipment, caused by or resulting
from perils, events or happenings which are the subject of insurance
in force at the time of such loss. Each party shall cause each
insurance policy obtained by it to provide that the insurance company
waives all right of recovery by way of subrogation against either
party in connection with any
12
<PAGE>
damage covered by any policy. Neither party shall be liable to the
other for any damage caused by fire or any of the risks insured
against under any insurance policy in effect as required by this
Lease.
8. Operation, Management, Services and Utilities. All expenses of operation
---------------------------------------------
and management of the Premises and the Building or Property of which the
Premises are a part, including, but not limited to, water, gas, light,
heat, power, electricity, telephone, trash pick-up, property management
services, landscaping, janitorial services, sewer charges, pest control,
security charges, and all other services supplied to or consumed on the
Premises or the Building or Property of which the Premises are a part shall
be included in Operating Expenses described in Paragraph 3 above, except to
the extent HVAC charges are directly billed to Tenant for after hours
usage. Landlord shall not be liable for and Tenant shall not be entitled to
any abatement or reduction of Rent by reason of any interruption or failure
of utility or other services to the Premises during the Lease term unless
such interruption or failure continues unabated for seventy-two (72) hours
and is caused by Owner's negligence or willful misconduct. Utilities and
services shall be provided in accordance with the Standards for Utilities
and Services set forth in Exhibit "C" which is attached hereto and
-----------
incorporated herein. The parties agree to the terms and provisions set
forth in the Standards and to any reasonable or necessary modifications or
additions thereto.
9. Repair and Maintenance.
-----------------------
A. Subject to provisions of Paragraph 15, Landlord shall keep and
maintain the roof, paving, structural elements, landscaping,
irrigation, and exterior walls of the Building and Property in good
order and repair. Landlord shall also keep and maintain in good order
and repair the windows, window frames, doors, hardware, and interior
walls and the electrical, plumbing, lighting, heating, and air
conditioning systems, lavatories, elevators, parking lot and all other
common areas. Such expenses shall be included in Operating Expenses
for purposes of Paragraph 3 above. If, however, any repairs or
maintenance are required because of an act or omission of Tenant, or
its agents, employees or invitees which creates an undue burden on
such items or systems listed above, Tenant shall pay to Landlord upon
demand one hundred percent (100%) of the costs of such repair or
maintenance. If such costs are covered by insurance carried by
Landlord, Landlord shall make a claim under the policy of insurance,
Tenant shall pay any deductible (and any portion of such costs not
covered by insurance) and Landlord shall credit Tenant for such costs
to the extent proceeds from such insurance are actually received by
Landlord. In the event such costs are not covered by insurance because
Landlord failed to obtain such insurance as required under this Lease,
Tenant shall be required to pay only that portion of such costs which
would not have been covered by insurance in any event.
13
<PAGE>
B. Except as expressly provided in Subparagraph A above, Tenant shall, at
its sole cost, keep and maintain the interior of the Premises, in good
and sanitary order, condition and repair.
Should Tenant fail to maintain the Premises as required of Tenant
hereunder forthwith upon notice from Landlord, Landlord, in addition
to all other remedies available hereunder or by law, and without
waiving any alternative remedies, may make the same, and in that
event, Tenant shall reimburse Landlord for the cost of such
maintenance or repairs as Additional Rent, at Landlord's election on
demand or on the next date upon which Basic Rent becomes due.
Tenant hereby expressly waives the provisions of Subsection 1 of
Section 1932, and Sections 1941 and 1942 of the Civil Code of
California and all rights to make repairs at the expense of Landlord,
as provided in Section 1942 of said Civil Code.
10. Alterations and Additions. Tenant shall not make, or suffer to be made, any
-------------------------
alterations, improvements or additions in, on, or about, or to the Premises
or any part thereof (except for non-structural alterations costing less
than $10,000 which shall not require Landlord's prior written consent
provided such work does not interfere with the rights of other tenants of
the Building), without the prior written consent of Landlord and without a
valid building permit issued by the appropriate governmental authority. In
any event, Tenant hereby covenants and agrees to deliver written notice to
Landlord at least ten (10) days prior to such commencement of any
construction to allow Landlord to post notices of non-responsibility as
outlined in this Section. Landlord retains, at its sole option, the right
to perform all repairs, alterations, improvements or additions in, on,
about, or to said Premises or any part thereof. As a condition to giving
such consent, Landlord may require that Tenant agree to remove any such
alterations, improvements or additions at the termination of this Lease,
and to restore the Premises to their prior condition. Any alteration,
addition or improvements to the Premises, except movable furniture and
trade fixtures shall become the property of Landlord upon installation
(unless Landlord indicates at the time Landlord grants consent that such
shall be removed before the last day of the term of the Lease, as the same
may be extended), and shall remain upon and be surrendered with the
Premises at the termination of this Lease. If Landlord so elects, Tenant
shall restore the Premises to the condition existing prior to installation
of the alteration, addition or improvement before the last day of the term,
as the same may be extended. Alterations and additions which are deemed as
trade fixtures include computers, Halon fire systems, telephone systems and
furniture. In the event Tenant makes any alterations, improvements, or
additions to the Premises, Landlord shall have the right to enter the
Premises during Tenant's business hours and after reasonable prior notice,
to post such notices of non-responsibility, which shall remain posted until
completion of the alterations, additions or improvements. Tenant's failure
to notify Landlord as set forth herein in order to allow Landlord to post
such notices of non-responsibility shall be a breach of this Lease and
Tenant shall indemnify Landlord from and against all claims, losses,
damages, and/or liability resulting therefrom,
14
<PAGE>
including reasonable attorney's fees. If, during the term hereof, any
alteration, addition or change of any sort through all or any portion of
the Premises is required by law, regulation, ordinance or order of any
public agency as a result of Tenant's particular use, Tenant, at its sole
cost and expense, shall promptly make the same.
11. Acceptance of the Premises and Covenant to Surrender. By entry and taking
----------------------------------------------------
possession of the Premises pursuant to this Lease, Tenant accepts the
Premises as being in good and sanitary order, condition and repair, and
accepts the Building and Improvements included in the Premises in their
condition existing as of the date of such entry subject to Landlord's
punchlist obligation and to latent defects and without representation or
warranty by Landlord as to the use or occupancy which may be made thereof.
Landlord has received no notice that the Premises do not comply with any
applicable law.
Tenant agrees on the last day of the term hereof, or on sooner termination
of this Lease, to surrender the Premises, together with all alterations,
additions and improvements which may have been made in, to, or on the
Premises by Landlord or Tenant (except those which Landlord has agreed may
be removed by Tenant), unto Landlord in good and sanitary order, condition
and repair, excepting for such wear and tear as would be normal for the
period of Tenant's occupancy and damage by casualty events or Landlord's
failure to perform its obligations under the Lease unless such failure was
directly attributable to an act of Tenant or Tenant's employees, agents,
contractors or invitees in which event such act would not excuse Tenant
from delivering the Premises as set forth herein. Tenant, on or before the
end of the term or sooner termination of this Lease, shall remove all its
personal property and trade fixtures from the Premises, and all property
not so removed shall be deemed to be abandoned by Tenant and title to the
same shall thereupon pass to Landlord without compensation to Tenant.
Landlord may, upon termination of this Lease, remove, store and/or sell all
moveable personal property and trade fixtures so abandoned by Tenant, at
Tenant's sole cost, and repair any damage caused by such removal at
Tenant's sole cost. If the Premises be not surrendered at the end of the
term or sooner termination of this Lease, then Tenant shall indemnify
Landlord against loss or liability resulting from the delay by Tenant in so
surrendering the Premises, including, without limitation, any claims made
by any succeeding tenant founded on such delay. No act or conduct of
Landlord, whether consisting of the acceptance of the keys to the demised
Premises, or otherwise, shall be deemed to be or constitute an acceptance
of the surrender of the demised Premises by Tenant prior to the expiration
of the term hereof as provided in this Lease, and such acceptance of the
surrender by Tenant shall only flow from and must be evidenced by a written
acknowledgment of acceptance of surrender signed by Landlord. The voluntary
or other surrender of this Lease of the Premises by Tenant or a mutual
cancellation of this Lease shall not work as a merger and, at the option of
Landlord, shall either terminate all existing subleases or operate as an
assignment to Landlord of all such subleases. After the expiration or
earlier termination of this Lease, Tenant shall execute, acknowledge and
deliver to Landlord, within ten (10) days after written demand from
Landlord to Tenant, any quitclaim deed or other document required by any
reputable title company, licensed to operate in the State of California, to
remove
15
<PAGE>
the cloud or encumbrance created by this Lease from the real property of
which Tenant's Premises are a part.
12. Events of Default. The occurrence of any of one or more of the following
-----------------
events shall constitute a default hereunder by Tenant:
A. The abandonment of the Premises by Tenant. Abandonment is herein
defined to include, but is not limited to, any absence by Tenant from
the Premises for five (5) days or longer while in default of any
provision of this Lease.
B. The failure by Tenant to make any payment of Rent, or other payment
required to be made by Tenant hereunder, within seven (7) days after
written notice that the same is due and unpaid.
C. The failure by Tenant to observe or perform any of the express
covenants or provisions of this Lease to be observed or performed by
Tenant, other than as specified in A. or B. above, where such failure
shall continue for a period of thirty (30) days after written notice
thereof from Landlord to Tenant; provided, however, that any such
notice shall be in lieu of, and not in addition to, any notice
required under California Code of Civil Procedure Section 1161;
provided further, that if the nature of Tenant's default is such that
more than thirty (30) days are reasonably required for its cure, then
Tenant shall not be deemed to be in default if Tenant shall commence
such cure within said thirty (30) day period and thereafter diligently
prosecute such cure to completion.
D. An assignment or subletting of this Lease without the consent of
Landlord, including, without limitation, an involuntary assignment as
defined in Paragraph 21 to the extent Landlord's consent is required
pursuant to Paragraph 21.
E. Chronic delinquency by Tenant in the payment of Rent, or any other
periodic payments required to be paid by Tenant under this Lease.
"Chronic delinquency" shall mean failure by Tenant to pay Rent, or any
other payments required to be paid by Tenant under this Lease within
three (3) days after written notice thereof for any three (3) months
(consecutive or nonconsecutive) during any twelve (12) month period.
In the event of a Chronic delinquency, at Landlord's option, Landlord
shall have the right, in addition to all other remedies under this
Lease and at law, to require that Rent be paid by Tenant quarterly, in
advance. This provision shall not limit in any way nor be construed as
a waiver of the rights and remedies of Landlord provided herein or by
law in the event of even one instance of delinquency.
13. Remedies for Default. In the event of any breach of this Lease by the
--------------------
Tenant, or an abandonment of the Premises by the Tenant, the Landlord has
the option of (1) removing all persons and property from the Premises and
repossessing the Premises in accordance with law, in which case any of the
Tenant's property which the Landlord removes from
16
<PAGE>
the Premises may be stored in a public warehouse or elsewhere at the cost
of, and for the account of Tenant, or (2) keeping the Lease in effect and
allowing the Tenant to remain in full possession and control of the
Premises. If the Landlord chooses to repossess the Premises, the Lease will
automatically terminate in accordance with the provisions of California
Civil Code, Section 1951.2. In the event of such termination of the Lease,
the Landlord may recover from the Tenant: (1) the worth at the time of
award of the unpaid Rent which had been earned at the time of termination;
(2) the worth at the time of award of the amount by which the unpaid Rent
which would have been earned after termination until the time of award
exceeds the amount of such Rental loss that the Tenant proves could have
been reasonably avoided; (3) the worth at the time of award of the amount
by which the unpaid Rent for the balance of the term after the time of
award exceeds the amount of such Rental loss that the Tenant proves could
be reasonably avoided; and (4) any other amount necessary to compensate the
Landlord for all the detriment proximately caused by the Tenant's failure
to perform its obligations under the Lease or which, in the ordinary course
of things, would be likely to result therefrom. "The worth at the time of
the award", as used in (1) and (2) of this paragraph, is to be computed by
allowing interest at the maximum rate an individual is permitted by law to
charge. "The worth at the time of the award," as referred to in (3) of this
paragraph, is to be computed by discounting the amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of the award, plus
one percent (1%).
If Landlord elects to relet the Premises as provided in this Paragraph,
Rent that Landlord receives from reletting shall be applied to the payment
of:
First, any indebtedness from Tenant to Landlord other than Rent due from
Tenant;
Second, all costs, including for maintenance, incurred by Landlord in
reletting;
Third, Rent due and unpaid under this Lease. After deducting the payments
referred to in this Paragraph, any sum remaining from the Rent Landlord
receives from reletting shall be held by Landlord and applied in payment of
future Rent as Rent becomes due under this Lease. In no event shall Tenant
be entitled to any excess Rent received by Landlord. If, on the date Rent
is due under this Lease, the Rent received from reletting is less than Rent
due on that date, Tenant shall pay to Landlord, in addition to the
remaining Rent due, all costs including for maintenance, Landlord incurred
in reletting that remain after applying the Rent received from the
reletting, as provided in this Paragraph.
If the Landlord chooses not to repossess the Premises, but allows the
Tenant to remain in full possession and control of the Premises, in
accordance with provisions of California Civil Code, Section l951.4, the
Landlord may treat the Lease as being in full force and effect, and may
collect from the Tenant all Rents as they become due through the
termination date of the Lease, an specified in the Lease. For the purpose
of this Paragraph, the following do not constitute a termination of
Tenant's right to possession:
A. Acts of maintenance or preservation, or efforts to relet the Premises;
17
<PAGE>
B. The appointment of a receiver on the initiative of the Landlord to
protect its interest under this Lease.
After Tenant's default and for as long as Landlord does not terminate
Tenant's right to possession of the Premises, if Tenant obtains
Landlord's consent, Tenant shall have the right to assign or sublet
its interest in this Lease, but Tenant shall not be released from
liability. Landlord's consent to a proposed assignment or subletting
shall not be unreasonably withheld.
Landlord at any time after Tenant commits a default, can cure the
default at Tenant's cost. If Landlord at any time, by reason of
Tenant's default, pays any sum or does any act that requires the
payment of any sum, the sum paid by Landlord shall be due on demand
from Tenant to Landlord, and if paid at a later date, bear interest at
the maximum rate an individual is permitted by law to charge from the
date the sum is paid by Landlord until Landlord is reimbursed by
Tenant. The sum, together with interest on it, shall be Additional
Rent.
Any Rent not paid when due shall bear interest at the maximum rate an
individual is permitted by law to charge from the tenth day that such
Rent is due and unpaid until paid and shall be subject to the late
charge set forth in Paragraph 3 above.
14. Destruction. In the event the Premises are destroyed in whole or in part
-----------
from any cause, Landlord may, at its option:
A. Rebuild or restore the Premises to their condition prior to the damage
or destruction; or
B. Terminate the Lease if the Premises are substantially damaged.
If Landlord does not give Tenant notice in writing sixty (60) days
from the destruction of the Premises of its election to either rebuild
and restore the Premises, or to terminate this Lease, and provided
that insurance proceeds are sufficient to rebuild or restore the
Premises, Landlord shall be deemed to have elected to rebuild or
restore them, in which event Landlord agrees, at its expense, promptly
to rebuild or restore the Premises to substantially its condition
prior to the damage or destruction. If Landlord does not complete the
rebuilding or restoration within one hundred eighty (180) days
following the date of destruction, (such period of time to be extended
for delays caused by the fault or neglect of Tenant or because of acts
of God, acts of public agencies, labor disputes, strikes, fires,
freight embargoes, rainy or stormy weather, inability to obtain
materials, supplies or fuels, or delay of the contractors or
subcontractors due to such causes or other contingencies beyond the
control of Landlord), then Tenant shall have the right to terminate
this Lease by giving fifteen (15) days prior written notice to
Landlord. Landlord's obligation to rebuild or restore shall not
include restoration of Tenant's trade fixtures, equipment,
merchandise, or any improvements, alterations or additions made by
Tenant to the Premises, but shall
18
<PAGE>
include those improvements and alterations made by Landlord for the
benefit of Tenant.
In the event the Premises are substantially damaged, Tenant shall have
the right to terminate this Lease by providing Landlord with written
notice on or before sixty (60) days from the date of substantial
damage. For purposes of this paragraph, the term "substantially
damaged" shall mean that twenty-five percent (25%) of the net rentable
square footage of the Premises are rendered unusable by Tenant as a
result of damage to the Premises or Building.
Unless this Lease is terminated pursuant to the foregoing provisions,
this Lease shall remain in full force and effect. Tenant hereby
expressly waives the provisions of Section 1932, Subdivision 2, and
Section 1933, Subdivision 4, of the California Civil Code.
In the event the Lease is not terminated, there shall be an abatement
or reduction of Rent between the date of destruction and the date of
substantial completion of restoration, based on the extent to which
the destruction and restoration interferes with Tenant's use of the
Premises.
In the event that the Building in which the Premises are situated is
damaged or destroyed to the extent of not less than fifty percent
(50%) of the replacement cost thereof, Landlord may elect to terminate
this Lease, whether the Premises be injured or not.
15. Condemnation. If any part of the Premises shall be taken for any public or
------------
quasi-public use, under any statute or by right of eminent domain, or
private purchase in lieu thereof, and a part thereof remains, which is
susceptible of occupation hereunder, this Lease shall, as to the part so
taken, terminate as of the date title shall vest in the condemnor or
purchaser, and the Rent payable hereunder shall be adjusted so that the
Tenant shall be required to pay for the remainder of the term only such
portion of such Rent as the value of the part remaining after such taking
bears to the value of the entire Premises prior to such taking. Tenant
shall have the option to terminate this Lease in the event that such taking
causes a reduction in the net rentable square feet of the Premises by
twenty-five percent (25%) or more. If all of the Premises or such part
thereof be taken so that there does not remain a portion susceptible for
occupation hereunder, as reasonably necessary for Tenant's conduct of its
business as contemplated in this Lease, this Lease shall thereupon
terminate. If a part or all of the Premises be taken, all compensation
awarded upon such taking shall go to the Landlord, and the Tenant shall
have no claim thereto, and the Tenant hereby irrevocably assigns and
transfers to the Landlord any right to compensation or damages to which the
Tenant may become entitled during the term hereof by reason of the purchase
or condemnation of all or a part of the Premises. Tenant shall have the
right to separately petition and to claim and recover from the condemning
authority, but not from Landlord, such compensation as may be separately
awarded or recoverable by Tenant in Tenant's own right on account of any
and all damage to
19
<PAGE>
Tenant's business, including without limitation the loss of goodwill by
reason of any appropriation, and for or on account of any cost or loss to
which Tenant might be put in removing and relocating Tenant's merchandise,
furniture, moveable trade fixtures, and equipment. In no event, however,
shall the loss of goodwill include any diminution in the value of the
leasehold or the bonus value of this Lease. Each party waives the
provisions of Code of Civil Procedure, Section 1265.130, allowing either
party to petition the Superior Court to terminate this Lease in the event
of a partial taking of the Premises.
16. Free from Liens. Tenant shall (1) pay for all labor and services performed
---------------
or materials used by or furnished to Tenant, or any contractor employed by
Tenant with respect to the Premises, and (2) indemnify, defend and hold
Landlord and the Premises harmless and free from any liens, claims,
demands, encumbrances, or judgments created or suffered by reason of any
labor or services performed or materials used by or furnished by Tenant or
any contractor employed by Tenant with respect to the Premises, and (3)
give notice to Landlord in writing five (5) days prior to employing any
laborer or contractor to perform services related, or receiving materials
for use upon the Premises, and (4) delivers to Landlord written notice
prior to commencement of construction to allow Landlord to post a notice of
non-responsibility in accordance with the statutory requirements of
California Civil Code, Section 3094, or any amendment thereof. In the
event an improvement bond with a public agency in connection with the above
is required to be posted, Tenant agrees to include Landlord as an
additional obligee.
17. Compliance with Laws. Tenant shall, at its own cost, comply with and
--------------------
observe all requirements of all municipal, county, state and federal
authority now in force, or which may hereafter be in force, pertaining to
Tenant's use and occupancy of the Premises, including, but not limited to
all provisions of the Americans with Disabilities Act of 1990 and all
regulations promulgated thereunder, as the same may be amended; provided,
however, that the foregoing shall not be deemed to obligate Tenant to make
any alterations, improvements or additions to the Building or Property.
18. Subordination. Tenant agrees that this Lease shall, at the option of
-------------
Landlord, be subject and subordinate to any mortgage, deed of trust, or
other instrument of security, which has been or shall be placed on the land
and Building, or land or Building of which the Premises form a part, and
this subordination is hereby made effective without any further act of
Tenant or Landlord provided that this Lease and Tenant's rights hereunder
shall not be limited, altered or terminated so long as Tenant observes and
performs its obligations hereunder. The Tenant shall, at any time
hereinafter, on demand, execute any documents that may be required by a
mortgagee or beneficiary under any deed of trust, solely for the purpose of
subjecting or subordinating this Lease to the lien of any such mortgage,
deed of trust, or other instrument of security. If Tenant fails to execute
and deliver any such documents or instruments, Landlord shall have the
right to execute and deliver any such documents or instruments on behalf of
Tenant.
If this Lease is or becomes subordinate to any encumbrance now of record or
encumbrance recorded after this date affecting the Premises, then Tenant
agrees to attorn
20
<PAGE>
to any purchaser at any foreclosure sale, or to any grantee or transferee
designated in any deed given in lieu of foreclosure and Landlord shall use
its best efforts to obtain a written agreement from such purchaser, grantee
or transferee agreeing to perform Landlord's obligations under this Lease.
However, failure to obtain such written consent shall not constitute a
breach by Landlord under this Lease. In such event, Tenant shall execute,
at Landlord's or lender's request, such recognition and attornment
agreement as lender, at its option, may require solely to confirm such
attornment.
19. Abandonment. Tenant shall not vacate nor abandon the Premises at any time
-----------
during the term; and if Tenant shall abandon, vacate said Premises, or be
dispossessed by process of law, or otherwise, any personal property
belonging to Tenant and left on the Premises shall be deemed to be
abandoned, at the option of Landlord; provided, however, that Tenant shall
not be deemed to have abandoned or vacated the Premises so long as Tenant
continues to pay all Rents and other sums due under this Lease from Tenant
as and when due, and otherwise performs pursuant to the terms and
conditions of this Lease.
20. Assignment and Subletting.
-------------------------
A. Landlord's Consent Required. Tenant shall not, either voluntarily or
---------------------------
by operation of law, sell, encumber, pledge or otherwise transfer all
or any part of Tenant's leasehold estate hereunder or permit the
Premises to be occupied by anyone other than Tenant or Tenant's
employees, or sublet the Premises or any portion thereof, without
Landlord's prior written consent in each instance, which consent may
not unreasonably be withheld by Landlord. In exercising its reasonable
discretion, Landlord may consider all commercially relevant factors
involved in the leasing, subleasing or assignment of the space,
including, but not limited to, the following: (i) the credit
worthiness and financial stability of the prospective assignee or
sublessee; (ii) the compatibility of the prospective assignee or
sublease with Landlord, its property manager, and other tenants in the
Building; (iii) the references from prior landlords of such
prospective sublessee or assignee; (iv) the past history of such
sublessee or assignee with respect to involvement in litigation and
bankruptcy proceedings; (v) whether the proposed use of the Premises
by the prospective sublessee or assignee falls within the use
permitted under Paragraph 5; (vi) whether said sublessee or assignee
and the proposed use of the Premises is likely to have an adverse
impact on pedestrian and vehicular traffic and parking facilities, and
(vii) the anticipated use, storage, generation, treatment and disposal
of Hazardous Materials by such prospective sublessee or assignee. The
presence of one negative factor enumerated above shall be deemed
reasonable justification for Landlord's withholding consent. Tenant
shall provide Landlord with prior notice of any proposed assignment or
sublease as provided in Paragraph 21B. Consent by Landlord to one or
more assignments of this Lease or to one or more subletting of the
Premises shall not operate to exhaust Landlord's rights under this
Paragraph. All Rent received by Tenant from its subtenants in excess
of the Rent payable by Tenant to Landlord under this Lease and after
deducting the reasonable costs and expenses incurred by Tenant in
effecting such sublease or
21
<PAGE>
assignment shall be paid to Landlord. Any sublease or assignment
permitted herein, shall automatically terminate Tenant's option(s), if
any, to extend the term of this Lease and such options shall not be
available to any assignee, sublessee or other transferee. Landlord's
consent and the other restrictions set forth in this subparagraph
shall not apply to an assignment or subletting to any corporation
which results from a merger, consolidation or other reorganization in
which Tenant is not the surviving corporation, so long as the
surviving corporation has a net worth at the time of such assignment
or sublet equal to or greater than the net worth of Tenant at the time
of execution of this Lease and further provided the corporation's use
of the Premises complies with the use provisions of this Lease.
Landlord's consent and the other restrictions of this subparagraph A
also shall not apply to any assignment or subletting to any
corporation which controls, is controlled by or is under common
control with Tenant by means of an ownership interest of more than
fifty percent (50%).
B. Notice to Landlord. If Tenant desires at any time to assign this Lease
------------------
or to sublet the Premises or any portion thereof, it shall first
notify Landlord of its desire to do so and shall submit in writing to
Landlord (i) the name of the proposed sublessee or assignee; (ii) the
nature of the proposed sublessee's or assignee's business to be
carried on in the Premises; (iii) the terms and provisions of the
proposed sublease or assignment; and (iv) such reasonable financial
information concerning the proposed sublessee or assignee as Landlord
may need to make a prudent and considered decision.
C. Tenant Not Released. No subletting or assignment, even with the
-------------------
written consent of Landlord, shall relieve Tenant of its obligation to
pay the Rent and perform all of the other obligations to be performed
by Tenant hereunder. Tenant shall indemnify and hold Landlord harmless
from any and all claims, damages, liability and expenses, including
reasonable attorneys' fees and costs arising out of any claims by
brokers or others for commissions or finder's fees with respect to any
subletting or assignment by Tenant. The acceptance of Rent by Landlord
from any other person shall not be deemed to be a waiver by Landlord
of any provision of this Lease or to be a consent to any assignment or
subletting. Tenant immediately and irrevocably assigns to Landlord, as
security for Tenant's obligations under this Lease, all Rent from any
subletting, and Landlord, as assignee for Tenant or receiver for
Tenant appointed on Landlord's application may collect such Rent and
apply it toward Tenant's obligations under this Lease, except that,
until the occurrence of any act of default by Tenant, Tenant shall
have the right to collect such Rent.
D. Involuntary Assignment. No interest of Tenant in this Lease shall be
----------------------
assignable by operation of law. Without limiting the foregoing, each
of the following acts shall be considered an involuntary assignment:
(a) Transfer of this Lease by testacy or intestacy;
22
<PAGE>
(b) If Tenant is or becomes bankrupt or insolvent, makes an
assignment for the benefit of creditors, or institutes a
proceeding under the Bankruptcy Act in which Tenant is the
bankrupt; or, if Tenant is a partnership or consists of more than
one person or entity, if any general partner of the partnership
or other person or entity is or becomes bankrupt or insolvent, or
makes an assignment for the benefit of creditors;
(c) The appointment of a trustee or receiver to take possession of
substantially all of Tenant's assets located at the Premises or
of Tenant's interests in this Lease, where possession is not
restored to Tenant within sixty (60) days so long as no monetary
default exists under this Lease; or
(d) The attachment, execution or other judicial seizure of
substantially all of Tenant's assets located at the Premises or
of Tenant's interest in this Lease, where seizure is not
discharged within sixty (60) days so long as no monetary default
exists under this Lease.
An involuntary assignment shall constitute a default by Tenant
and Landlord shall have the right to elect to terminate this
Lease, in which case this Lease shall not be treated as an asset
of Tenant.
E. Tenant to Reimburse for Expenses. Tenant agrees to reimburse Landlord
--------------------------------
as Additional Rent upon demand for Landlord's reasonable costs and
attorney's fees not to exceed $1,500 incurred in conjunction with the
processing, investigation and documentation of any requested
assignment, subletting, transfer, involuntary assignment change of
ownership or hypothecation of this Lease or Tenant's interest in and
to the Premises, regardless of whether any request actually results in
a permitted assignment, sublease, or other transfer.
21. Parking. Any parking charges, surcharges, or any other cost hereafter
-------
levied or assessed by local, state or federal governmental agencies in
connection with the use of the parking facilities serving the Premises,
including, without limitation, any parking surcharge imposed by or under
the authority of the Federal Environmental Protection Agency shall be
included in Operating Expenses in Paragraph 3 above. Each tenant, its
agents, officers, employees and invitees, shall have the non-exclusive
right (in conjunction with the use of the part of the Building leased to
such tenant) to make reasonable use of any driveways, sidewalks and parking
area located on the Property on which the Building is situated, except such
parking areas as may from time to time be leased for exclusive use by other
tenant(s). Tenant's such reasonable use of parking area shall not exceed
that percent of the total parking area which is equal to Tenant's
proportionate share of expenses set forth in Paragraph 3, subparagraph C
above. Tenant shall have the right to use, in common with all other tenants
of the Building four (4) parking spaces per every one thousand (1,000)
square feet of net rentable space leased by Tenant. Landlord shall maintain
the parking lot in a good and clean well lighted condition.
23
<PAGE>
22. Insolvency or Bankruptcy. Either (a) the appointment of a receiver to take
------------------------
possession of all or substantially all of the assets of Tenant, which is
not dismissed within sixty (60) days, so long as Tenant is not in monetary
default or (b) a general assignment by Tenant for the benefit of creditors,
or (c) any action taken or suffered by Tenant under any insolvency or
bankruptcy act, which is not dismissed within sixty (60) days so long as
Tenant is not in monetary default shall constitute a breach of this Lease
by Tenant. Upon the happening of any such event, this Lease shall terminate
ten (10) days after written notice of termination from Landlord to Tenant.
This section is to be applied consistent with applicable state and federal
law in effect at the time such event occurs.
23. Landlord Loan or Sale. Tenant agrees, promptly following request by
---------------------
Landlord, to (a) execute and deliver to Landlord any estoppel certificates
presented to Tenant by Landlord, (i) certifying that this Lease is
unmodified and in full force and effect, (or, if modified, stating the
nature of such modification and certifying that this Lease, as so modified,
is in full force and effect) and the date to which the Rent and other
charges are paid in advance, if any, and (ii) acknowledging that there are
not, to Tenant's knowledge, any uncured defaults on the part of Landlord
hereunder or specifying those known to Tenant, and (iii) evidencing the
status of the Lease as may be required either by a lender making a loan to
Landlord, to be secured by deed of trust or mortgage covering the Premises,
or a purchase of the Premises from Landlord, and (b) to deliver to Landlord
the current financial statements of Tenant, including a balance sheet and
profit and loss statement, for the most recent fiscal year completed and
prepared in the ordinary cause of Tenant's business using prudent business
accounting practices consistently applied. Landlord agrees not to disclose
such financial statements except to lenders considering loans utilizing the
Property as collateral or purchasers interested in purchasing the Property
who, in each case have agreed to maintain such financial statements in
confidence. Tenant's failure to deliver an estoppel certificate within ten
(10) days following such request shall constitute a default under this
Lease and shall be conclusive upon Tenant that this Lease is in full force
and effect and has not been modified except as may be represented by
Landlord, and that there are no uncured defaults in Landlord'" performance.
If Tenant fails to deliver the estoppel certificate within the ten (10)
days, Landlord shall have the right to execute and deliver the certificate
to any third party on behalf of Tenant.
24. Surrender of Lease. The voluntary or other surrender of this Lease by
------------------
Tenant, or a mutual cancellation thereof, shall not work a merger nor
relieve Tenant of any of Tenant's obligations under this Lease, and shall,
at the option of Landlord, terminate all or any existing subleases or
subtenancies, or may, at the option of Landlord, operate as an assignment
to Landlord of any or all such subleases or subtenancies.
25. Attorney's Fees. If, for any reason, any suit be initiated to enforce any
---------------
provision of this Lease, the prevailing party shall be entitled to legal
costs, expert witnesses expenses and reasonable attorney's fees as fixed by
the Court.
24
<PAGE>
26. Notices. All notices to be given to Tenant may be given in writing,
-------
personally or by depositing the same in the United States mail, postage
prepaid, and addressed to Tenant at the said Premises, whether or not
Tenant has departed from, abandoned or vacated the Premises. Any notice or
document required or permitted by this Lease to be given Landlord shall be
addressed to Landlord at the address set forth below, or at such other
address as it may have theretofore specified by notice delivered in
accordance herewith:
Landlord: 5300 Stevens Creek Boulevard Joint Venture
c/o Cushman & Wakefield
Bank of America Center
555 California Street
Suite 2700
San Francisco, CA 94104
with copy to: Hutton1GSH Qualified Properties 80
Shearson Lehman Brothers Plaza
388 Greenwich Street
28th Floor
N.Y., N.Y. 10013
Attn: Mr. William Caulfield
Tenant: Stellar Corporation d/b/a
Snelling Personnel Services
5300 Stevens Creek Boulevard
Suite 320
San Jose, CA 95129
A notice shall be deemed to be given (i) on the third day after mailing if
such notice was deposited in the United States mail, certified or
registered, postage prepaid, addressed to the party as indicated herein and
(ii) in all other cases when actually received at the party's address.
either party may change its address by giving notice of the same in
accordance with this paragraph.
27. Waiver. The waiver by Landlord or Tenant of any breach of any term,
------
covenant or condition herein contained shall not be deemed to be a waiver
of any subsequent breach of such term, covenant, or condition herein
contained. The subsequent acceptance of Rent hereunder by Landlord shall
not be deemed to be a waiver of any preceding breach by Tenant of any term,
covenant, or condition of this Lease, other than the failure of Tenant to
pay the particular Rental so accepted, regardless of Landlord's knowledge
of such preceding breach at the time of acceptance of such Rent.
28. Holding Over. Any holding over after the expiration of the term or any
------------
extension thereof, with the consent of Landlord, shall be construed to be a
tenancy from month-to-month, at a Rental of one and one-half times the
monthly Rental due for the last month of the term
25
<PAGE>
of the Lease, and shall otherwise be on the terms and conditions herein
specified so far as applicable.
29. Rules and Regulations. As a condition to this Lease, Tenant agrees to
---------------------
abide by all of the Rules and Regulations for the Building which Rules and
Regulations are attached hereto as Exhibit B. Moreover, Tenant agrees to
---------
abide by any reasonable changes to such Rules and Regulations as may be
adopted by Landlord for the safety, care and cleanliness of the Building
and/or Premises and the preservation of good order thereon, are hereby
expressly made a part hereof, and Tenant agrees to obey all such rules and
regulations.
30. Limitation on Landlord's Liability. If Landlord is in default of this
----------------------------------
Lease, and as a consequence Tenant recovers a money judgment against
Landlord, the judgment shall be satisfied only out of the proceeds of sale
received on execution of the judgment and levy against the right, title,
and interest of Landlord in the Premises, or in the Building, other
improvements, and land of which the Premises are part, and out of Rent or
other income from such real property receivable by Landlord or out of the
consideration received by Landlord from the sale or other disposition of
all or any part of Landlord's right, title, and interest in the Premises or
in the Building, other improvements, and land of which the Premises are
part. The partners comprising the partnership or officers of the
corporation designated as Landlord shall not be personally liable for any
deficiency. The provisions of this paragraph shall not apply to limit the
individual liability of Landlord or its partners, officers, agents or
employees for their willful misconduct.
31. Sale of Transfer of Premises. If Landlord sells or transfers all or any
----------------------------
portion of the Premises, or Building or Property of which the Premises are
a part, Landlord, on consummation of the sale or transfer, shall be
released from any liability thereafter accruing under this Lease. Landlord
shall use its best efforts to obtain from the new transferee an agreement
in writing whereby the transferee agrees to perform all of Landlord's
obligations under the Lease. However, failure to obtain such writing shall
not constitute a breach by Landlord under this Lease. If any security
deposit or prepaid Rent has been paid by Tenant, Landlord agrees to
transfer the security deposit or prepaid Rent to Landlord's successor,
other than any portion of the security deposit applied or retained to
compensate Landlord for any loss or damage which Landlord may have suffered
as a result of Tenant's default, and thereupon, Landlord shall be
discharged from any further liability in reference thereto.
32. Landlord's Right to Perform. All terms, covenants and conditions of this
---------------------------
Lease to be performed or observed by Tenant shall be performed or observed
by Tenant at Tenant's sole cost and expense and without any reduction of
Rent. If Tenant shall fail to pay any sum of money required to be paid by
it hereunder or shall fail to perform or observe any other term hereunder
on its part to be performed or observed, Landlord may, at its option,
without waiving or releasing Tenant from any obligation of Tenant
hereunder, make any such payment or perform or observe any such other term
or act on Tenant's part to be performed or observed. All sums so paid by
Landlord and all reasonably necessary costs of such performance or
observation by Landlord together with interest thereon from the
26
<PAGE>
date incurred at the maximum rate an individual is permitted by law to
charge, shall be paid by Tenant to Landlord as Additional Rent on demand,
in which event and as to the same Landlord shall have the same rights and
remedies against Tenant as in the case of nonpayment of Rent hereunder.
33. Landlord's Right of Entry. Landlord (and/or its representatives) shall
-------------------------
have the right, at all reasonable times during Tenant's business hours and
after not less than 24 hours prior notice (except in the case of an
emergency for which no notice or time restriction applies), to enter the
Premises to place "For Lease" (only during the last 6 months of the Lease
Term) or "For Sale" signs on the Premises to show the Premises to
prospective tenants, purchasers or lenders, to post notices; to inspect, or
perform its maintenance, repair and other obligations under this Lease, and
in connection therewith to erect scaffolding and other necessary structures
in or near the Premises; provided that such entry and all activities of
Landlord in or about the Premises shall be done in a manner so as to cause
the least practicable interference with Tenant's use of the Premises; no
materials, equipment or tools shall be stored in the Premises; all debris
shall be removed daily; and Landlord shall indemnify Tenant against all
damage and injury resulting therefrom (other than the direct interference
with Tenant's operations). Landlord shall also have the right to enter the
Premises in those emergency situations which could involve potential injury
to persons or loss of property. All of the above shall be without abatement
of Rent and any such entry shall not be construed as a forcible or unlawful
entry, or a detainer, or an actual or constructive eviction of Tenant from
the Premises.
34. Signs. No sign, placard, picture, advertisement, name or notice shall be
------
inscribed, displayed, printed or affixed on or to any part of the outside
of the Premises or any exterior windows of the Premises or any interior
windows visible from common areas of the Building without the prior written
consent of Landlord, and Landlord shall have the right to remove the same
without notice to and at the expense of Tenant. If Tenant is allowed to
display a sign on or about the Premises, then at Landlord's option upon
expiration or other sooner termination of this Lease, Tenant shall at
Tenant's sole cost both remove such sign, repair all damage caused thereby
and restore the appearance of the Premises to its condition prior to the
placement of said sign. All approved signs (or lettering on outside doors)
shall be done at the expense of Tenant by a person approved of by Landlord.
35. Force Majeure. Neither Landlord nor Tenant shall be deemed in default of
-------------
the obligations under this Lease if performance is delayed or becomes
impossible because of delays caused by the fault or neglect of the other
party or because of acts of God, war (whether declared or undeclared),
earthquake, fire, labor strike, acts of public agencies, embargoes, stormy
or other adverse weather, riot, civil commotion, insurrection, blockade,
inability to obtain materials, supplies or fuels and such other
contingencies beyond the control of the performing party. Upon such an
event, the time for performance, shall be extended to reasonably allow
prompt performance, but in no event shall such extension be greater than
one hundred twenty (120) days beyond the original date for performance, in
which case, the party to whom the obligation is owed may
27
<PAGE>
terminate this Lease by giving notice to the other party. This Paragraph 35
shall not be applicable to the payment of Rent or other monetary sums under
this Lease.
36. Miscellaneous.
-------------
A. Time is of the essence of this Lease, and each and all of its
provisions.
B. The term "Building" shall mean the building in which the Premises are
situated, and which is located at 5300 Stevens Creek Boulevard, San
Jose, CA.
C. The term "Property" shall mean the real property on which the Premises
are situated and which is described on Exhibit A attached hereto.
D. The term "assign" shall include the term "transfer."
E. The invalidity or unenforceability of any provision of this Lease shall
not affect the validity or enforceability of the remainder of this
Lease.
F. All parties hereto have equally participated in the preparation of the
Lease.
G. The headings and title to the paragraphs of this Lease are not a part
of this Lease and shall have no effect upon the construction or
interpretation of any part thereof.
H. Landlord has made no representation(s) whatsoever to Tenant (express or
implied) except as may be expressly stated in writing in this Lease
instrument.
I. This instrument contains all of the agreement and conditions made
between the parties hereto, and may not be modified orally or in any
other manner than by agreement in writing, signed by all of the parties
hereto or their respective successors in interest.
J. It is understood and agreed that the remedies herein given to Landlord
shall be cumulative, and the exercise of any one remedy by Landlord
shall not be to the exclusion of any other remedy.
K. The covenants and conditions herein contained shall, subject to the
provisions as to assignment, apply to and bind the heirs, successors,
executors, administrators and assigns of all the parties hereto; and
all of the parties hereto shall jointly and severally be liable
hereunder.
L. This Lease has been negotiated by the parties hereto and the language
hereof shall not be construed for or against either party.
M. All exhibits to which reference is made are deemed incorporated into
this Lease, whether or not actually attached.
28
<PAGE>
N. All provisions, whether covenants or conditions, on the part of
Landlord or Tenant shall be deemed to be both covenants and conditions.
O. This Lease shall in all respects be governed by, and construed and
enforced in accordance with the laws of the State of California.
37. Option Period.
-------------
A. So long as Tenant is not in default under this Lease, either at the
time of exercise or at the time the extended term commences, Tenant
shall have the option to extend the initial term of this Lease for one
(1) additional period of 3 years (the "option period") on the same
terms, covenants, and conditions of this lease, except that the
monthly rent during the option period will be determined pursuant to
paragraph 37.(B) and Tenant's proportionate share of Operating
Expenses and Taxes shall be recalculated if Tenant has taken
additional space in the Building. If Tenant elects to extend the Lease
Term, Tenant shall exercise its option by giving Landlord written
notice ("option notice") at least one hundred eighty (180) days prior
to the expiration of the initial term of this Lease. In the event
Tenant elects to extend the term of this Lease, Landlord shall, at its
sole cost and expense repaint the Premises and steam clean all carpets
in the Premises.
During the option period, the base year for purposes of calculating
adjustments to Operating Expenses shall be the actual operating
expenses for calendar year 1995 or calendar year 1992, whichever is
greater.
B. Option Period Basic Rent. The Basic Rent for he option period will be:
------------------------
Years 1-3 Monthly Rent $8,405.10
38. Tenant Right of First Refusal.
-----------------------------
So long as Tenant is not in default under this Lease, Tenant shall have the
right of first refusal and the right to lease Suite 340 of the Building
(approximately 1,000 square feet) as set forth below:
A. Expansion must take into account proper and legal exiting and code
restrictions for the expansion space.
B. The term for the expansion space shall be coterminous with the Term of
the Lease provided there is a minimum of one year remaining on the
Term.
C. Provided there is not less than 12 months remaining on the Lease term,
Landlord shall carpet the expansion suite to match the carpet in the
Premises.
D. In the event of a bonafide offer or letter of intent from a third
party tenant to lease the expansion space, Landlord shall notify
Tenant of such offer and Tenant shall have five (5) business days to
respond. If Tenant elects to exercise its right of first
29
<PAGE>
refusal, Tenant shall agree to the effective rental rate and all
material terms of the third party offer or letter of intent except the
term which shall be as set forth in subparagraph (b) above. Any
increase in the cost of the tenant improvement. presented in the
bonafide offer or letter of intent and the actual cost of such tenant
improvements shall be amortized over the remaining lease term and paid
by Tenant as Additional Rent. Any decrease in the cost of the tenant
improvements presented in the bonafide offer or letter of intent and
the actual cost of such tenant improvements shall be amortized over
the remaining lease term and the Basic Rent shall be reduced over the
term of the Lease by such amortized amount.
If Tenant fails to respond to such third party offer or letter of
intent within five (5) business days, or if Tenant rejects such offer
or letter of intent, Landlord may proceed to lease such space to the
third party for the ensuing ninety (90) day period. If no lease is
signed within such ninety (90) day period or any of the material terms
of the third party offer are changed, Landlord shall present the offer
again to Tenant for Tenant's acceptance or refusal.
In the event Tenant elects to expand, an addendum to Lease will be
prepared stating new rent, improvements, term and security deposit
increase.
39. Tenant Improvements. Landlord shall, at Landlord's sole expense, provide a
-------------------
turn-key buildout of the Premises to accommodate Tenant's desired
configuration subject to acceptance of construction drawings by Landlord
and Tenant and further subject to all existing building codes, ordinances
and regulations currently in effect and obtaining building permits from the
City of San Jose.
When the final floor plan and specification for the Premises have been
agreed upon, they will be attached as Exhibit A-1 to this Lease. Landlord
agrees to improve the subject space in accordance with Exhibit A-1 as so
attached. Landlord represents and warrants that (i) all work to be
performed shall be performed in accordance with applicable laws, (ii) all
work to be performed shall be done in a good and workmanlike manner; (iii)
all materials shall be commercial grade approved by Tenant; (iv) Tenant
shall have the right to approve final drawings, material qualities, finish
schedules, and color boards; (v) Tenant shall have the right to inspect
work in progress (at Tenant's own risk) and to submit change orders. Tenant
shall pay any cost increase due to its requested change orders and shall
assume the responsibility for any delays caused by such change orders; (vi)
Tenant shall have the right to provide Landlord with a punchlist for all
items which remain to be completed after substantial completion and such
items shall be completed within thirty (30) days after Landlord receives
such list.
40. Brokerage Commission. Landlord warrants that it has dealt only with J.R.
--------------------
Parrish - Colliers International and Cushman & Wakefield, Inc.
(collectively "Broker") pursuant to the terms of a separate leasing
commission agreement and shall be solely responsible for the payment of any
commission due thereunder. Each party hereto represents and warrants to the
other that it has not had any dealing with any real estate
30
<PAGE>
brokers, leasing agents or salesmen (other than Broker) or incurred any
obligations for the payment of a real estate brokerage commission or
finder's fee which would be earned or due and payable by reason of the
execution of this Lease and each party agrees to indemnify, defend, and
hold harmless the other party from any claim for any commission or fees
which result from the actions of indemnifying party Tenant agrees and
acknowledges that Landlord shall pay a brokerage commission in connection
with exercising its right of first refusal or option to extend this Lease
only if Tenant acknowledges J.R. Parrish - Colliers International as
----
Tenant's broker of record at the time when the renewal or expansion occurs;
which commission shall be in an amount and on terms which are in accordance
with the Schedule of Commissions set forth in Landlord's listing agreement
with Cushman & Wakefield. In the event Tenant is represented by any other
broker other than J.R. Parrish - Colliers International in connection with
exercising its right of first refusal or option to extend this Lease,
Tenant shall be solely responsible for the payment of any commission due to
such other broker.
41. Lease Guaranty. This obligations of Tenant under this Lease are and shall
--------------
be unconditionally and irrevocably personally guaranteed by Brenda Hall
pursuant to the terms of that certain Guaranty of Lease of even date with
this Lease.
42. No Competitors. Landlord agrees that it will not lease any other space in
--------------
the Building to any permanent or temporary employment agencies. Tenant
acknowledges and agrees that Haldane, a current tenant in the Building is
not considered to be a competitor of Tenant.
31
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the
date first above written.
LANDLORD: TENANT:
5300 STEVENS CREEK BOULEVARD STELLAR CORPORATION., a
JOINT VENTURE, a California California corporation d/b/a
General Partnership SNELLING PERSONNEL SERVICES
By: HUTTON/GSH QUALIFIED By: /s/ Brenda Hall
PROPERTIES 80, a Virginia ------------------------------
Limited Partnership, Its BRENDA HALL, President
Managing General Partner
By: HUTTON REAL ESTATE SERVICES,
INC., a Delaware Corporation,
Its Managing General Partner
By: /s/ William Caulfield
------------------------------
WILLIAM CAULFIELD
Its: Vice President
<PAGE>
The land referred to herein is described as follows:
All that certain real property in the City of San Jose, County of Santa Clara,
State of California, described as follows:
Beginning at the point of intersection of the Westerly line of that certain
1.102 acre tract of land described as Parcel Four in the deed from Stern & Price
Construction Co., A Partnership, et al, to the State of California, dated August
2, 1961, recorded August 24, 1961 in Book 5275 of Official Records, Page 108,
Santa Clara County Records, with a line which is parallel with and distant
Southerly at right angles 15 feet from the Southerly line of Stevens Creek Road;
thence from said point of beginning along the said Westerly line of the 1.102
acre tract for the three following courses and distances: South 08 deg. 46' 27"
East 342.49 feet, South 02 deg. 51' 19" East 100.14 feet and South 0 deg. 07'
40" West 71.22 feet to the Southwesterly corner thereof in the Northeasterly
line of that certain 8.802 acre tract of land described as Parcel Three in the
deed to said State of California above referred to; thence North 55 deg. 58' 41"
West along the said Northeasterly line of said 8.802 acre tract of land
described as Parcel three in the deed to said State of California above referred
to, for a distance of 848.88 feet; thence along an arc of a curve to the right,
tangent to the preceding course, with radius of 20.00 feet, through a central
angle of 146 deg. 35' 44" for an arc distance of 51.17 feet; thence North 0 deg.
37' 03" East 5.00 feet to a point on a line which is parallel with and distant
Southerly at right angles 15 feet from the Southerly line of said Stevens Creek
Road; thence along last said parallel line South 89 deg. 22' 57" East 640 feet,
more or less, to the point of beginning.
EXHIBIT A
<PAGE>
EXHIBIT B
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be installed
or displayed on any part of the outside or inside of the Building outside
of the Premises without the prior written consent of the Landlord. Landlord
shall have the right to remove, at Tenant's expense and without notice, any
sign installed or displayed in violation of this rule. All approved signs
or lettering on doors and walls shall be printed, painted, affixed or
inscribed at the expense of Tenant by a person chosen by Landlord.
2. If Landlord objects in writing to any curtains, blinds, shades, screens or
hanging plants or other similar objects attached to or used in connection
with any window or door of the Premises, Tenant shall immediately
discontinue such use. No awning shall be permitted on any part of the
Premises. Tenant shall not place anything against or near glass partitions
or doors or windows which may appear unsightly from outside the Premises.
3. Tenant shall not obstruct any sidewalks, halls, passages, exits, entrances,
elevators, or stairways of the Building. The halls, passages, exits,
entrances, elevators, and stairways are not open to the general public.
Landlord shall in all cases retain the right to control and prevent access
thereto of all persons whose presence in the judgment of Landlord would be
prejudicial to the safety, character, reputation and interest of the
Building and its tenants; provided that nothing herein contained shall be
construed to prevent such access to persons with whom any tenant normally
deals in the ordinary course of its business, unless such persons are
engaged in illegal activities. No tenant and no employee or invitee of any
tenant shall go upon the roof of the Building.
4. The directory of the Building will be provided exclusively for the display
of the name and location of Tenants only, and Landlord reserves the right
to exclude any other names therefrom.
5. All cleaning and janitorial services for the Building and the Premises
shall be provided exclusively through Landlord, and except with the written
consent of Landlord, no person or persons other than those approved by
Landlord shall be employed by Tenant or permitted to enter the Building for
the purpose of cleaning the same. Tenant shall not cause any unnecessary
labor by carelessness or indifference to the good order and cleanliness of
the Premises.
6. Landlord will furnish Tenant, free of charge, with two keys to each door
lock in the Premises. Landlord may make a reasonable charge for any
additional keys. Tenant shall not make or have made additional keys, and
Tenant shall not alter any lock or install a new additional lock or bolt on
any door of its Premises. Tenant, upon the termination of its tenancy,
shall deliver to Landlord the keys of all doors which have been furnished
to Tenant, and in the event of loss of any keys so furnished, shall pay
Landlord therefor.
1
<PAGE>
7. If Tenant requires telegraphic, telephonic, burglar alarm or similar
services, it shall comply with all applicable building codes in their
installation.
8. Tenant shall not place a load upon any floor of the Premises which exceeds
the load per square foot which such floor was designed to carry and which
is allowed by law. Landlord shall have the right to prescribe the weight,
size and position of all equipment, materials, furniture or other property
brought into the Building. Heavy objects shall, if considered necessary by
Landlord, stand on such platforms as determined by Landlord to be necessary
to properly distribute the weight. Business machines and mechanical
equipment belonging to Tenant, which cause noise or vibration that may be
transmitted to the structure of the Building or to any space therein to
such a degree as to be objectionable to Landlord or to any tenants in the
Building, shall be placed and maintained by Tenant, at Tenant's expense, on
vibration eliminators or other devices sufficient to eliminate noise or
vibration. The persons employed to move such equipment in or out of the
Building must be acceptable to Landlord. All damage done to the Building
by maintaining or moving such equipment or other property shall be repaired
at the expense of Tenant.
9. Tenant shall not use or keep in the Premises any kerosene, gasoline or
inflammable or combustible fluid or material other than those limited
quantities necessary for the operation or maintenance of office equipment.
Tenant shall not use or permit to be used in the Premises any foul or
noxious gas or substance, or permit or allow the Premises to be occupied or
used in a manner offensive or objectionable to Landlord or other occupants
of the Building by reason of noise, odors or vibrations. Tenant shall not
allow or keep any animals or pets of any kind on the Premises, except for
seeing-eye dogs which are for the direct purpose of aiding and assisting
the visually impaired.
10. Tenant shall not use any method of heating other than that supplied by
Landlord.
11. Tenant shall not waste electricity, water or air-conditioning and agrees to
cooperate fully with Landlord's reasonable requests to assure the most
effective operation of the Building's heating and air-conditioning and to
comply with any governmental energy-saving rules, laws or regulations of
which Tenant has actual notice, and shall refrain from attempting to adjust
controls other than room thermostats installed for Tenant's use. Tenant
shall keep doors to exterior corridors closed.
12. Landlord reserves the right to exclude from the Building between the hours
of 6:00 P.M. and 7:30 A.M. and at all hours on Saturdays, Sundays and legal
holidays, any person who, in Landlord's sole opinion, has no legitimate
business in the Building. Landlord shall in no event be liable for any
damages for any error with regard to the admission to, or exclusion from,
the Building of any person. In the event of invasion, mob, riot, public
excitement or other similar circumstances (as determined by Landlord in its
sole opinion) Landlord reserves the right to prevent access to the Building
during the continuance of the same by such action as Landlord may deem
appropriate, including locking doors.
2
<PAGE>
13. Tenant shall see that the doors of the Premises are closed and locked and
that all water faucets and water apparatus are shut off before Tenant or
Tenant's employees leave the Premises, so as to prevent waste or damage. In
the event of any default or carelessness in this regard, Tenant shall be
liable for all injuries sustained by Landlord and other tenants or
occupants of the Building. Tenant shall keep the doors to the Building
corridors closed at all times except for ingress and egress.
14. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall
not be used for any purpose other than that for which they were constructed
and no foreign substance of any kind whatsoever shall be thrown therein.
The expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by the tenant who, or whose employees
or invitees, shall have caused it.
15. Except with the prior written consent of Landlord, Tenant shall neither
sell, nor permit the sale at retail of, newspapers, magazines, periodicals,
theater tickets or any other goods or merchandise to the general public in
or on the Premises, nor shall Tenant carry on, or permit to allow any
employee or other person to carry on, the business of stenography,
typewriting or any similar business in or from the Premises as a service or
accommodation to occupants of any other portion of the Building, nor shall
the Premises be used for any business or activity other than that
specifically provided for in the Lease.
16. Tenant shall not install any radio or television antenna, loudspeaker or
other devices on the roof or exterior walls of the Building without written
approval by Landlord. Tenant shall not interfere with radio or television
broadcasting or reception from or in the Building or elsewhere.
17. Tenant shall not mark, drive nails, screw or drill into the partitions,
woodwork or plaster or in any way deface the Premises or any part thereof
without the consent of Landlord. Tenant shall not affix any floor covering
to the floor of the Premises in any manner except as approved by Landlord.
Tenant shall repair any damage resulting from non-compliance with this
rule.
18. Tenant shall not install, maintain or operate upon the Premises any vending
machine (except for those vending machines indicated on the final approved
plan for the tenant improvements referred in paragraph 41 of the Lease)
without the written consent of Landlord.
19. Canvassing, soliciting and distribution of handbills or any other written
material, and peddling in the Building are prohibited, and each tenant
shall cooperate to prevent same.
20. Landlord reserves the right to exclude or expel from the Building any
person who, in Landlord's judgment, is intoxicated or under the influence
of liquor or drugs.
21. Tenant shall store all its trash and garbage within its Premises. Tenant
shall not place in any trash box or receptacle any material which cannot be
disposed of in the ordinary and
3
<PAGE>
customary manner of trash and garbage disposal. All garbage and refuse
disposal shall be made in accordance with directions issued from time to
time by Landlord.
22. Tenant shall not allow a "fire sale" or bankruptcy sale or any auction to
be held on the Premises or allow the Premises to be used for the storage of
merchandise held for sale to the general public or for manufacturing of any
kind.
23. Tenant shall not use in any space or in the public halls of the Building
any hand truck except those equipped with rubber tires and side guards or
such other material-handling equipment as Landlord may approve. Tenant
shall not bring any other vehicles of any kind, other than bicycles, into
the Building.
24. Without the written consent of Landlord, Tenant shall not use the name of
the Building in connection with or in promoting or advertising the business
of Tenant except as Tenant's address.
25. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental
agency.
26. Tenant assumes any and all responsibility for protecting its Premises from
theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed.
27. The requirements of Tenant will be attended to only upon appropriate
application to the office of the Building by an authorized individual.
Employees of Landlord shall not perform any work or do anything outside of
their regular duties unless under special instructions from Landlord, and
no employee of Landlord will admit any person (Tenant or otherwise) to any
office without specific instructions from Landlord.
28. Tenant shall not park its vehicles in any parking areas designated by
Landlord as areas for parking by visitors to the Building. Tenant shall not
store vehicles in the Building parking areas nor park any vehicles in the
Building parking areas other than automobiles, motorcycles, motor driven or
non-motor driven bicycles or four-wheel trucks.
29. Landlord may waive any one or more of these Rules and Regulations for the
benefit of Tenant or any other tenant, but no such waiver by Landlord shall
be construed as a waiver of such Rules and Regulations in favor of Tenant
or any other tenant, nor prevent Landlord from thereafter enforcing any
such Rules and Regulations against any or all of the tenants of the
Building.
30. These Rules and Regulations are in addition to, and shall not be construed
to in any way modify or amend, in whole or in part, the terms, covenants,
agreements and conditions of any lease of premises in the Building. In the
event of any conflict, between the terms of any lease and these Rules and
Regulations, the terms of the lease shall control.
4
<PAGE>
31. Landlord reserves the right to make such other and reasonable and uniform
Rules and Regulations as, in its judgment, may from time to time be needed
for safety and security, for care and cleanliness of the Building and for
the preservation of good order therein. Tenant agrees to abide by all such
Rules and Regulations hereinabove stated and any such additional rules and
regulations which are adopted.
32. Tenant shall be responsible for the observance of all of the foregoing
rules by Tenant's employees, agents, clients, customers, invitees and
guests.
5
<PAGE>
MEMORANDUM OF COMMENCEMENT DATE
-------------------------------
Landlord: 5300 Stevens Creek Boulevard Joint Venture
Tenant: Stellar Corporation, a California corporation,
d/b/a Snelling Personnel Services
Premises: Approximately 3,094 net rentable square feet of office space on
the 3rd floor of that Building commonly known as 5300 Stevens
Creek Boulevard, San Jose, California.
Addendum Date: April 17, 1992
Pursuant to Article 2 of the above referenced lease, the Commencement Date is
hereby established as June 5, 1992.
------------
Landlord
- --------
5300 STEVENS CREEK BOULEVARD
JOINT VENTURE, a California General Partnership
By: HUTTON/GSH QUALIFIED PROPERTIES 80,
a Virginia Limited Partnership, Its Managing
General Partner
By: HUTTON REAL ESTATE SERVICES, INC.,
a Delaware corporation, Its Managing General
Partner
By: /s/ William Caulfield
------------------------
WILLIAM CAULFIELD
Its: Vice President
Tenant
- ------
STELLAR CORPORATION,
a California corporation d/b/a SNELLING PERSONNEL
SERVICES
By: /s/ Brenda Hall
------------------
BRENDA HALL, President
<PAGE>
MEMORANDUM OF COMMENCEMENT DATE
-------------------------------
Landlord: 5300 Stevens Creek Boulevard Joint Venture
Tenant: Stellar Corporation, a California corporation
Premises: Expansion Area of approximately 1,205 net rentable square feet of
office space on the 3rd floor of that Building commonly known as
5300 Stevens Creek Boulevard, San Jose, California.
Addendum Date: December 22, 1993
Pursuant to Article 2 of the above referenced Addendum., the Commencement Date
is hereby established as January 15, 1994.
----------------
Landlord
- --------
5300 STEVENS CREEK BOULEVARD
JOINT VENTURE, a California General Partnership
By: HUTTON/GSH QUALIFIED PROPERTIES 80, a
Virginia Limited Partnership, Its Managing
General Partner
By: HUTTON REAL ESTATE SERVICES, INC.,
a Delaware Corporation, Its Managing General
Partner
By: /s/ William Caulfield
------------------------
WILLIAM CAULFIELD
Its: Vice President
Tenant
- ------
STELLAR CORPORATION, a California
corporation
By: /s/ Brenda Hall
------------------
BRENDA HALL, President
<PAGE>
FIRST ADDENDUM TO LEASE
-----------------------
This Addendum is hereby made a part of that certain "Office Lease" (the "Lease")
dated April 17, 1992 by and between 5300 Stevens Creek Boulevard Joint Venture,
("Landlord"), and Stellar Corporation, a California corporation, ("Tenant"), for
the premises located at 5300 Stevens Creek Boulevard, San Jose, California,
Suite 320. The First Addendum to Lease is dated this 22nd day of December
1993 solely as hereinafter described.
Tenant has indicated a desire to lease additional space in the building and
Landlord has agreed to lease this additional space to Tenant on the following
terms and conditions:
1. Additional Premises:
-------------------
The additional premises consists of Suite 360 containing approximately 1,205 net
rentable square feet of space on the 3rd floor (approximately 1,076 usable
square feet plus a twelve percent (12%) load factor) (the "Expansion Area").
The Expansion Area is contiguous to Suite 320, which is currently occupied by
Tenant.
Total Premises:
Original Lease 5,094 rentable sq. ft.
Addendum #1 1,205 rentable sq. ft.
Total Rentable Area 6,299 rentable sq. ft.
2. Term:
----
The term of the Lease as it applies to the Expansion Area shall commence upon
the substantial completion of the tenant improvements, now estimated to occur on
January 1, 1994, or on the date Landlord notifies Tenant that the Expansion Area
is ready for occupancy, whichever is later. Provided, however, that if Tenant
makes changes to the Construction Documents prepared by Ambiance Associates
dated November 5, 1993, Job No. 3384 as approved by Tenant which delay the
completion of the improvements, or if the Tenant, its employees, contractors,
agents, or invitees in any way delay Landlord from completing the improvements
as outlined in the Construction Documents, then the Lease term for the Expansion
Area shall commence upon the earlier of substantial completion or the date the
improvements would have been completed but for such changes or delays. The term
of the Lease for the Premises and the Expansion Area shall terminate 36 months
after the commencement of the Lease for the Expansion Space.
3. Basic Rent:
----------
The rental rate for the Original Space and the Expansion Space shall be as
follows:
Original Space: 5,094 rentable square feet
$1.55 per square foot, per month for the
remaining term of the lease
<PAGE>
Stellar Corporation
First Addendum
Page Two
Expansion Space: 1,205 rentable square feet
Months 1-2, Free Rent
Months 3-36, $1.55 per square foot
4. Operating Expenses:
------------------
Tenant's percentage operating expenses and taxes for the Expansion Area, shall
be 1.4%. The Original Space percentage for operating expenses and taxes is
6.0%, and the total is 7.4%.
5. Tenant Improvements:
-------------------
Landlord will provide Tenant with a turnkey buildout based on Ambiance
Associates Construction Documents dated November 5, 1993, Job. No. 3384 as
approved by Tenant.
6. Recarpet and Paint:
------------------
In January 1995, Landlord will provide Tenant with an allowance of $3.51 per
square foot for the entire square footage (6,299) for repainting and recarpeting
portions of Tenant's suite due to wear and tear.
Except as expressly provided hereunder, all other terms and conditions of said
Lease, including Memorandum of Lease and Riders, shall remain in full force and
effect.
10
<PAGE>
Stellar Corporation
First Addendum
Page Three
IN WITNESS WHEREOF, LANDLORD AND TENANT have executed this Addendum as of the
date of the first written above.
LANDLORD: TENANT:
5300 Stevens Creek Boulevard Stella Corporation, a
Joint Venture, a California California corporation
General Partnership
By: Hutton/GSH Qualified Properties 80, By: /s/ Brenda Hall
a Virginia Limited Partnership, Its -------------------------
Managing General Partner Brenda Hall
Its: CEO
By: Hutton Real Estate Services, Inc.,
a Delaware Corporation, Its
Managing General Partner
By: /s/ William Caulfield
-----------------------------------
William Caulfield
Vice President
<PAGE>
MEMORANDUM OF COMMENCEMENT DATE
-------------------------------
Landlord: 5300 Stevens Creek Boulevard Joint Venture
Tenant: Hall-Kinion and Associates, Inc., a California Corporation
Premises: Expansion Area of approximately 3,100 net rentable square feet of
office space on the 4the floor, Suite 450, of that Building
commonly known as 5300 Stevens Creek Boulevard, San Jose,
California.
Addendum Date: May 17, 1995
Pursuant to Article 2 of the above referenced Addendum, the Commencement Date is
hereby established as August 16, 1995.
Landlord
- --------
5300 STEVENS CREEK BOULEVARD
JOINT VENTURE, a California General Partnership
By: QUALIFIED PROPERTIES 80, a
Virginia Limited Partnership, Its Managing
General Partner
By: REAL ESTATE SERVICES, INC.,
a Delaware Corporation, Its Managing General
Partner
By: /s/ William Caulfield
------------------------
WILLIAM CAULFIELD
Its: Vice President
Tenant
- ------
HALL-KINION AND ASSOCIATES, INC.,
a California Corporation
By: /s/ Keith Corbin
-------------------
Keith Corbin
Its: CFO
<PAGE>
SIGNAGE AGREEMENT
Should any tenant who currently has building signage either vacate the building
or relinquish their rights to the signage, Hall-Kinion and Associates, Inc. will
have the first option to install a sign on one side of the building at their
sole cost and expense.
Any signage is subject to Landlord's approval and must comply with any City
requirements and approvals.
Except as expressly provided hereunder, all other terms and conditions of said
Lease, including Amendments to the Lease, Memorandum of Lease and Riders, shall
remain in full force and effect.
LANDLORD: TENANT:
5300 Stevens Creek Boulevard Hall-Kinion and Associates, Inc., a
Joint Venture, a California California corporation
General Partnership
By: Qualified Properties 80, By: /s/ Keith Corbin
a Virginia Limited Partnership, Its ---------------------------------
Managing General Partner Keith Corbin
Its: CFO
By: Real Estate Services, Inc.,
a Delaware Corporation, Its
Managing General Partner
By: /s/ William Caulfield
-------------------------------------
William Caulfield, Vice President
<PAGE>
SECOND ADDENDUM TO LEASE
------------------------
This Addendum is hereby made a part of that certain "Office Lease" (the "Lease")
dated April 17, 1992 by and between 5300 Stevens Creek Boulevard Joint Venture,
("Landlord"), and Hall-Kinion And Associates, Inc., a California corporation,
successor corporation to Stellar Corporation, a California corporation,
("Tenant"), for the premises located at 5300 Stevens Creek Boulevard, San Jose,
California, Suite 320. The Second Addendum to Lease is dated this 17th day of
May 1995 solely as hereinafter described.
Tenant has indicated a desire to lease additional space in the building and
Landlord has agreed to lease this additional space to Tenant on the following
terms and conditions:
1. Additional Premises:
-------------------
The additional premises consists of Suite 450 containing approximately 3,100 net
rentable square feet of space on the 4th floor (approximately 2,686 usable
square feet plus a fifteen percent (15%) load factor) (the "Expansion Area").
Total Premises:
Original Lease 5,094 rentable sq.ft.
Addendum #1 1,205 rentable sq.ft. ("1st Expansion Space")
Addendum #2 3,100 rentable sq.ft. ("2nd Expansion Space")
Total Rentable Area 9,399 rentable sq.ft.
2. Term:
----
The term of the Lease as it applies to the 2nd Expansion Space shall commence
upon the substantial completion of the tenant improvements, now estimated to
occur on July 1, 1995, or on the date of occupancy by the Tenant, whichever is
earlier. However, if Tenant makes changes to the Construction Documents which
delay the completion of the improvements, or if the Tenant, its employees,
contractors, agents, or invitees in any way delay Landlord from completing the
improvements as outlined in the Construction Documents, then the Lease term for
the 2nd Expansion Space shall commence upon the earlier of substantial
completion or the date the improvements would have been completed but for such
changes or delays.
The term of the Lease for the Premises, the 1st Expansion Space and the 2nd
Expansion Space shall terminate 36 months after the commencement of the Lease
for the 2nd Expansion Space, now estimated to occur July 1, 1995. Both parties
will execute a commencement memorandum to memorialize the commencement date of
the 2nd Expansion Space.
<PAGE>
Stellar Corporation
Second Addendum
Page Two
3. Basic Rent:
-----------
The rental rate for the Original Space, 1st Expansion Space and the 2nd
Expansion Space shall be as follows:
Original Space and 1st Expansion Space:
6,299 rentable square feet
$1.55 per square foot, per month until 1/14/97
$1.65 per square foot per month 1/14/97 to end of term
Expansion Area:
3,100 rentable square feet
Months 1-36, $1.65 per square foot per month
4. Operating Expenses:
------------------
Tenant's percentage operating expenses and taxes for the 2nd Expansion Space,
shall be 3.7%. The operating expense base year for the Expansion Area shall be
1995.
The Original Space and 1st Expansion Area operating percentage and base year
shall remain as in the original Lease and First Amendment.
5. Tenant Improvements
-------------------
Landlord will provide Tenant with a tenant improvement allowance of up to $9.68
per square foot on the 2nd Expansion Space ($30,000) to modify the premises in
accordance with the attached floor plan utilizing building standard materials.
This allowance shall include the cost of permit and construction. Should there
be a change of the attached plan which affects the scope of work. Landlord
reserves the right to review and approve any modifications.
Except as expressly provided hereunder, all other terms and conditions of said
Lease, including First Amendment to Lease, Memorandum of Lease and Riders, shall
remain in full force and effect.
<PAGE>
Stellar Corporation
Second Addendum
Page Three
IN WITNESS WHEREOF, LANDLORD AND TENANT have executed this Addendum as of the
date of the first written above.
LANDLORD: TENANT:
5300 Stevens Creek Boulevard Hall-Kinion And Associates, Inc., a
Joint Venture, a California California corporation
General Partnership
By: Qualified Properties 80, By: /s/ Brenda Hall
a Virginia Limited Partnership, Its --------------------------------
Managing General Partner Brenda Hall
Its: CEO
By: Real Estate Services, Inc.
a Delaware Corporation, Its
Managing General Partner
By: /s/ William Caulfield
---------------------------------
William Caulfield
Vice President
<PAGE>
SIGNAGE AGREEMENT
Should any tenant who currently has building signage either vacate the building
or relinquish their rights to the signage, Hall-Kinion and Associates, Inc. will
have the first option to install a sign on one side of the building at their
sole cost and expense.
Any signage is subject to Landlord's approval and must comply with any City
requirements and approvals.
Except as expressly provided hereunder, all other terms and conditions of said
Lease, including Amendments to the Lease, Memorandum of Lease and Riders, shall
remain in full force and effect.
LANDLORD: TENANT:
5300 Stevens Creek Boulevard Hall-Kinion and Associates, Inc., a
Joint Venture, a California California corporation
General Partnership
By: Qualified Properties 80, By: /s/ Keith Corbin
a Virginia Limited Partnership, Its --------------------------------
Managing General Partner Keith Corbin
Its: CFO
By: Real Estate Services, Inc.,
a Delaware Corporation, Its
Managing General Partner
By: /s/ William Caulfield
-------------------------------------
William Caulfield, Vice President
<PAGE>
EXHIBIT 10.18
ASSIGNMENT AND ASSUMPTION OF SUBLEASE
-------------------------------------
THIS ASSIGNMENT AND ASSUMPTION OF SUBLEASE (this "Assignment") is made
and entered into as of the 2nd day of December, 1996 by and between Team
Alliance Technology Partners, L.P., a New York limited partnership, having an
office at 590 Fifth Avenue, New York, New York 10036 ("Assignor") and Hall,
Kinion & Associates, Inc., a California corporation, having an office at 5300
Stevens Creek Blvd., San Jose, California 95129 ("Assignee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Assignor is the subtenant under that certain Sublease
Agreement dated December 28, 1995 (the "Sublease"), between Central Leasing
U.S.A. Inc., a Delaware corporation ("Sublandlord") and Assignor, demising that
certain premises occupying a portion of the building commonly known as 590 Fifth
Avenue, New York, New York (the "Premises"); and
WHEREAS, Sublandlord is the tenant under a written lease dated
November 26, 1990, (the "Master Lease") wherein Saxonia Realty Corp. N.V., a
Netherlands Antilles corporation ("Landlord") leased to Sublandlord the
Premises; and
WHEREAS, Assignor desires to assign, and Assignee desires to assume,
the rights, duties, obligations and liabilities of Assignor, as subtenant under
the Sublease, to the extent provided below; and
WHEREAS, Landlord and Sublandlord have agreed to consent to the
assignment of the Sublease from Assignor to Assignee.
NOW, THEREFORE, in consideration of the recitals set forth above,
which are made a part of this Assignment, the mutual covenants hereinafter
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. Subject to the terms, covenants, conditions and provisions of this
Assignment, Assignor hereby transfers and assigns to Assignee all of its rights,
title, interests and obligations (to the extent accruing from, and after, the
date of this Assignment) as tenant in, to and under the Sublease.
2. Assignee hereby accepts the assignment of the interest of Assignor
as subtenant under the Sublease and assumes all rights, title, interests and
obligations of Assignor under the Sublease (to the extent accruing from, and
after, the date of this Assignment). Assignee shall perform, discharge, fulfill
and observe all terms, obligations, covenants, conditions and provisions of
subtenant under the Sublease, which accrue from and after the date hereof, with
the same force and effect as if Assignee were the original subtenant under the
Sublease.
<PAGE>
3. Assignee covenants and agrees to protect, defend, indemnify, and
hold Assignor harmless from and against any and all liabilities, losses,
expenses (including, without limitation, reasonable attorneys' fees and
expenses), fines, penalties, suits, claims and demands of whatsoever kind or
nature, at law or in equity, which are incurred or suffered by Assignor in
connection with the Sublease and which accrue from, and after, the date hereof.
4. Assignor covenants and agrees to protect, defend, indemnify and
hold Assignee harmless from and against any and all liabilities, losses,
expenses (including, without limitation, reasonable attorneys' fees and
expenses), fines, penalties, suits, claims and demands of whatsoever kind or
nature, at law or in equity, which are incurred or suffered by Assignee in
connection with the Sublease and which accrued prior to the date hereof.
5. Landlord and Sublandlord hereby consent to the assignment of all
of Assignor's right, title and interest in, to and under the Sublease to
Assignee to the extent herein provided. The foregoing shall not constitute
consent to any further assignment. Further, Assignor acknowledges and agrees
that Assignor is not released from its duties and obligations to Sublandlord
pursuant to the Sublease.
6. (a) Assignor warrants and represents that there was no broker or
agent instrumental in consummating this transaction. Assignor hereby agrees to
indemnify, defend and hold harmless Assignee, Landlord and Sublandlord from any
claims (including reasonable attorneys' fees) for brokerage or other commissions
in connection with this transaction.
(b) Assignee warrants and represents that there was no broker or
agent instrumental in consummating this transaction claiming by or through
Assignee. Assignee hereby agrees to indemnify, defend and hold harmless
Assignor, Landlord and Sublandlord from any claims (including reasonable
attorneys' fees) for brokerage or other commissions in connection with this
transaction claiming by or through Assignee.
7. This Assignment shall be binding upon and shall inure to the
benefit of Assignor, Assignee, and their respective legal representatives,
successors and assigns.
8. This Assignment may be executed in any number of counterparts,
each of which shall be deemed to be an original, and all of such counterparts
shall together constitute one Assignment.
9. Assignor agrees to be solely responsible for and hereby
indemnifies, defends and holds harmless Landlord and Sublandlord against any
claims (including reasonable attorneys' fees) for transfer taxes relating to the
transaction contemplated herein.
10. Assignor certifies for the benefit of Assignee and Sublandlord
only that, as of the date hereof, the Sublease is in full force and effect and
neither Assignor nor Sublandlord is in default or breach of any of the
provisions of the Sublease and that no setoffs in favor of Assignor currently
exist.
2
<PAGE>
11. (a) This instrument may be executed in counterparts and it is the
intention of the parties hereto that any executed counterpart shall constitute
the agreement of the parties and that all counterparts shall together constitute
one and the same agreement of the parties.
(b) Any facsimile transmittal of original signature versions of
this Assignment shall be considered to have the same legal effect as execution
and delivery of the original document and shall be treated in all manner and
respects as the original document. The parties also agree to promptly exchange
counterparts with original signatures.
IN WITNESS WHEREOF, the parties hereto have each caused this
Assignment to be duly authorized and executed as of the day and year first above
written.
ASSIGNOR: ASSIGNEE:
TEAM ALLIANCE TECHNOLOGY HALL, KINION & ASSOCIATES, INC.,
PARTNERS, L.P., a New York a California corporation
limited partnership
By: Team Alliance Technology Partners,
Inc., its general partner By: /s/ Paul Bartlett
----------------------------------
Its: President
---------------------------------
By: /s/ Mordecai Levine
-------------------
Its:
----------------
3
<PAGE>
CONSENTS
- --------
LANDLORD:
Landlord hereby consents to the assignment and assumption of the
Sublease pursuant to the terms and provisions of the foregoing Assignment and
Assumption of Sublease as of this 2nd day of December, 1996 and agrees that
Assignee may use the Premises for any use permitted by the Sublease, including
but not limited to use for contract and temporary personnel services. Further,
Landlord hereby represents and warrants to Landlord's knowledge only, that no
default or breach of any of the provisions of the Master Lease currently exists.
DOUGLAS A. KELLNER [RECEIVER]
By: /s/ Douglas A. Kellner
------------------------------
Its: RECEIVER, 590 5th Avenue
SUBLANDLORD:
Sublandlord hereby consents to the assignment and assumption of the
Sublease pursuant to the terms and provisions of the foregoing Assignment and
Assumption of Sublease as of this 2nd day of December, 1996 and agrees that
Assignee may use the Premises for any use permitted by the Sublease, including
but not limited to use for contract and temporary personnel services. Further,
Sublandlord hereby represents and warrants to Sublandlord's knowledge only, that
no default or breach of any of the provisions of the Master Lease or Sublease
currently exists.
Central Leasing U.S.A. Inc.
By: /s/ [illegible]
------------------------------
Its:
--------------------------
<PAGE>
EXHIBIT 10.19
STANDARD SUBLEASE
1. PARTIES. This Sublease, dated, for reference purposes only, March
1st, 1997 is made by and between SEAGATE TECHNOLOGY, INC., A DELAWARE
CORPORATION (herein called "Sublessor") and HALL KINION & ASSOCIATES, INC., a
California Corporation (herein called "Sublessee").
2. PREMISES. Sublessor hereby subleases to Sublessee and Sublessee
hereby subleases from Sublessor for the term, at the rental, and upon all of the
conditions set forth herein, that certain real property situated in the County
of Santa Clara, State of California, commonly known as Suite 150, 19925 Stevens
Creek Boulevard, Cupertino and described as approximately 16,375 square feet of
general office space on the first floor of the two floor building at this
address. Said real property, including the land and all improvements thereon,
is hereinafter called the "Premises."
3. TERM.
3.1 TERM. The term of this Sublease shall be for approximately
thirty-nine (39) months commencing on June 1, 1997 and ending on August 31, 2000
unless sooner terminated pursuant to any provision hereof.
3.2 DELAY IN COMMENCEMENT. Notwithstanding said commencement date,
if for any reason Sublessor cannot deliver possession of the Premises to
Sublessee on said date, Sublessor shall not be subject to any liability
therefore, nor shall such failure affect the validity of this Lease or the
obligations of Sublessee hereunder or extend the term hereof, but in such case
Sublessee shall not be obligated to pay rent until forty-five (45) days after
possession of the Premises is tendered to Sublessee. If Sublessor shall not
have delivered possession of the Premises within sixty (60) days from said
commencement date, Sublessee may, at Sublessee's option, by notice in writing to
Sublessor within ten (10) days thereafter, cancel this Sublease, in which event
the parties shall be subject to all provisions hereof, such occupancy shall not
advance the termination date and Sublessee shall pay rent for such period at the
initial monthly rates set forth below.
4. RENT. Sublessee shall pay to Sublessor as rent for the Premises
monthly payments of Forty-Four Thousand Two Hundred Twelve and 50/100ths Dollars
($44,212.50), in advance, on the first (1st) day of each month of the term
hereof. Sublessee shall pay Sublessor upon the execution hereof Forty-Four
Thousand Two Hundred Twelve and 50/100ths Dollars ($44,212.50) as rent for June
1997. The monthly rent will increase to Forty-Five Thousand Eight Hundred Fifty
and No/100ths Dollars ($45,850.00) on June 1, 1999 and continue at that level
throughout the remaining sublease term. Rent for any period during the term
hereof which is for less than one (1) month shall be a pro-rata portion of the
monthly installment. Rent shall be payable in lawful money of the United States
to Sublessor at the address stated herein or to such other persons or at such
other places as Sublessor may designate in writing.
<PAGE>
5. SECURITY DEPOSIT. Sublessee shall deposit with Sublessor upon
execution hereof Forty-Five Thousand Eight Hundred Fifty and No/100ths Dollars
($45,850.00) as security for Sublessee's faithful performance of Sublessee's
obligations hereunder. If Sublessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this Sublease,
Sublessor may use, apply or retain all or any portion of said deposit for the
payment of any rent or other charge in default or for the payment of any other
sum to which Sublessor may become obligated by reason of Sublessee's default, or
to compensate Sublessor for any loss or damage which Sublessor may suffer
thereby. If Sublessor so uses or applies all or any portion of said deposit,
Sublessee shall within ten (10) days after written demand therefore deposit cash
with Sublessor in an amount sufficient to restore said deposit to the full
amount hereinabove stated and Sublessee's failure to do so shall be a material
breach of this Sublease. Sublessor shall not be required to keep said deposit
separate from its general accounts. If Sublessee performs all of Sublessee's
obligations hereunder, said deposit, or so much thereof as has not therefore
been applied by Sublessor, shall be returned, without payment of interest or
other increment for its use to Sublessee (or at Sublessor's option to the last
assignee, if any, of Sublessee's interest hereunder) at the expiration of the
term hereof, and after Sublessee has vacated the Premises. No trust
relationship is created herein between Sublessor and Sublessee with respect to
said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for general
office use as per the Master Lease dated April 18, 1995.
6.2 COMPLIANCE WITH LAW.
(a) Sublessor warrants to Sublessee that the Premises, in its
existing state, but without regard to the use for which Sublessee will use the
Premises, does not violate any applicable building code regulation or ordinance
at the time that this Sublease is executed. In the event that it is determined
that this warranty has been violated, then it shall be the obligation of the
Sublessor, after written notice from Sublessee, to promptly, at Sublessor's sole
cost and expense, rectify any such violation. In the event that Sublessee does
not give to Sublessor written notice of the violation of this warranty within
one (1) year from the commencement of the term of this Sublease, it shall be
conclusively deemed that such violation did not exist and the correction of the
same shall be the obligation of the Sublessee.
(b) Except as provided in paragraph 6.2(a), Sublessee shall, at
Sublessee's expense, comply promptly with all applicable statutes, ordinances,
rules, regulations, orders, restrictions of record, and requirements in effect
during the term or any part of the term hereof regulating the use by Sublessee
of the Premises. Sublessee shall not use or permit the use of the Premises in
any manner that will tend to create waste or nuisance or, if there shall be more
than one tenant of the building containing the Premises, which shall tend to
disturb such other tenants.
6.3 CONDITION OF PREMISES. Except as provided in paragraph 6.2(a)
Sublessee hereby accepts the Premises in their condition existing as of the date
of the execution hereof,
2
<PAGE>
subject to all applicable zoning, municipal, county and state laws, ordinances,
and regulations governing and regulating the use of the Premises, and accepts
this Sublease subject thereto and to all matters disclosed thereby and by any
exhibits attached hereto. Sublessee acknowledges that neither Sublessor nor
Sublessor's agents have made any representation or warrant as to the suitability
of the Premises for the conduct of Sublessee's business.
7. MASTER LEASE.
7.1 Sublessor is the lessee of the Premises by virtue of a lease and
amendments one and two, hereinafter referred to as the "Master Lease," a copy of
which is attached hereto marked Exhibit 1, dated April 18, 1995 wherein WHC-SIX
REAL ESTATE LIMITED PARTNERSHIP is the lessor, hereinafter referred to as the
"Master Lessor"; WMP II Real Estate Limited Partnership, a Delaware Limited
Partnership, by WMP II GEN-PAR, Inc., a Delaware Corporation, General Partner is
the Successor Master Lessor.
7.2 This Sublease is and shall be at all times subject and
subordinate to the Master Lease.
7.3 The terms, conditions and respective obligations of Sublessor and
Sublessee to each other under this Sublease shall be the terms and conditions of
the Master Lease except for those provisions of the Master Lease which are
directly contraindicated by this Sublease in which event the terms of this
Sublease document shall control over the Master Lease. Therefore, for the
purposes of this Sublease, wherever in the Master Lease the word "Lessor" is
used it shall be deemed to mean the Sublessor herein and wherever in the Master
Lease the word "Lessee" is used it shall be deemed to mean the Sublessee herein.
7.4 During the term of this Sublease and for all periods subsequent
for obligations which have arisen prior to the termination of this Sublease,
Sublessee does hereby expressly assume and agree to perform and comply with, for
the benefit of Sublessor and Master Lessor, each and every obligation of
Sublessor under the Master Lease except by those terms and conditions which are
modified, and specified within this Sublease agreement.
7.5 The obligations that Sublessee has assumed under paragraph 7.4
hereof are hereinafter referred to as the "Sublessee's Assumed Obligations".
The obligations that Sublessee has not assumed under paragraph 7.4 hereof are
hereinafter referred to as the "Sublessor's Remaining Obligations".
7.6 Sublessee shall hold Sublessor free and harmless of and from all
liability, judgments, costs, damages, claims or demands, including reasonable
attorneys fees, arising out of Sublessee's failure to comply with or perform
Sublessee's Assumed Obligations.
7.7 Sublessor agrees to maintain the Master Lease during the entire
term of this Sublease, subject, however, to any earlier termination of the
Master Lease without the fault of the Sublessor, and to comply with or perform
Sublessor's Remaining Obligations and to hold Sublessee free and harmless of and
from all liability, judgments, costs, damages, claims or
3
<PAGE>
demands arising out of Sublessor's failure to comply with or perform Sublessor's
Remaining Obligations.
7.8 Sublessor represents to Sublessee that the Master Lease is in
full force and effect and that no default exists on the part of any party to the
Master Lease.
7.9 No changes or modifications shall be made to this Sublease
without the consent of Master Lessor.
8. CONSENT OF MASTER LESSOR.
8.1 In the event that the Master Lease requires that Sublessor obtain
the consent of Master Lessor to any subletting by Sublessor then, this Sublease
shall not be effective unless, within ten (10) days of the date hereof, Master
Lessor signs this Sublease thereby giving its consent to this Subletting.
8.2 In the event that the obligations of the Sublessor under the
Master Lease have been guaranteed by third parties then this Sublease, nor the
Master Lessor's consent, shall not be effective unless, within twenty (20) days
of the date hereof, said guarantors sign this Sublease thereby giving guarantors
consent to this Sublease and the term thereof.
8.3 In the event that Master Lessor does give such consent then:
(a) Such consent will not release Sublessor or its obligations
or alter the primary liability of Sublessor to pay the rent and perform and
comply with all of the obligations of Sublessor to be performed under the Master
Lease.
(b) The acceptance of rent by Master Lessor from Sublessee or
any one else liable under the Master Lease shall not be deemed a waiver by
Master Lessor of any provisions of the Master Lease.
(c) The consent of this Sublease shall not constitute a consent
to any subsequent subletting or assignment.
(d) In the event of any default of Sublessor under the Master
Lease, Master Lessor may proceed directly against Sublessor, any guarantors or
anyone else liable under the Master Lease or this Sublease without first
exhausting Master Lessor's remedies against any other person or entity liable
thereon to Master Lessor.
(e) Master Lessor may consent to subsequent sublettings and
assignments of the Master Lease or this Sublease or any amendments or
modifications thereto without notifying Sublessor nor any one else liable under
the Master Lease and without obtaining their consent and such action shall not
relieve such persons from liability.
(f) In the event that Sublessor shall default in its obligations
under the Master Lease, then Master Lessor, at its option and without being
obligated to do so, may require Sublessee to attorn to Master Lessor in which
event Master Lessor shall undertake the
4
<PAGE>
obligations of Sublessor under this Sublease from the time of the exercise of
said option to termination of this Sublease but Master Lessor shall not be
liable for any prepaid rents nor any security deposit paid by Sublessee, nor
shall Master Lessor be liable for any other defaults of the Sublessor under the
Sublease.
8.4 The signatures of the Master Lessor and any Guarantors of
Sublessor at the end of this document shall constitute their consent to the
terms of this Sublease.
8.5 Master Lessor acknowledges that, to the best of Master Lessor's
knowledge, no default presently exists under the Master Lease of obligations to
be performed by Sublessor and that the Master Lease is in full force and effect.
8.6 In the event that Sublessor defaults under its obligations to be
performed under the Master Lease by Sublessor, Master Lessor agrees to deliver
to Sublessee a copy of any such notice of default. Sublessee shall have the
right to cure any default of Sublessor described in any notice of default within
ten (10) days after service of such notice of default on Sublessee. If such
default is cured by Sublessee then Sublease shall have the right of
reimbursement and offset from and against Sublessor.
9. BROKERS FEE.
9.1 Upon execution hereof by all parties, Sublessor shall pay to
Colliers Parrish International, Inc., a licensed real estate broker, (herein
called "Broker"), a fee as set forth in a separate agreement between Sublessor
and Broker for brokerage services rendered by Broker to Sublessor in this
transaction.
9.2 Any transferee of Sublessor's interest in this Sublease, or of
Master Lessor's interest in the Master Lease, by accepting an assignment
thereof, shall be deemed to have assumed the respective obligations of Sublessor
or Master Lessor under this Paragraph 10. Broker shall be deemed to be a third-
party beneficiary of this paragraph 10.
10. ATTORNEY'S FEES. If any party or the Broker named herein brings an
action to enforce the terms hereof or to declare rights hereunder, the
prevailing party in any such action, on trial and appeal, shall be entitled to
his reasonable attorney's fees to be paid by the losing party as fixed by the
Court. The provision of this paragraph shall inure to the benefit of the Broker
named herein who seeks to enforce a right hereunder.
11. ADDITIONAL PROVISIONS.
A. OCCUPANCY: Sublessor shall use its best efforts such that
---------
Sublessee shall be permitted full and complete access to the premises effective
April 15, 1997, for the purpose of completing necessary improvements and so that
it may install telecommunications equipment, furniture systems and other
equipment necessary for the conduct of Sublessee's business. The Sublessor
shall use its best effort to vacate the premises on or before April 15, 1997.
There shall be no rental payment required for any occupancy or use of the
premises prior to June 1, 1997.
5
<PAGE>
B. OPERATING EXPENSES & OBLIGATIONS: The sublease shall be on
--------------------------------
a "full services" basis, wherein the Landlord is responsible for payment of all
base year operating expenses. If the master lease calls for operating expense
passthroughs, then 1997 shall be defined as the "base year" for purposes of
determining increases chargeable to the Sublessee. Sublessee's percentage share
for determining operating expense adjustments is 21.05%.
C. TENANT IMPROVEMENTS: Sublessor shall reimburse Sublessee
-------------------
for the cost of legally demising the Premises from the adjacent area to be
retained by Sublessor. In addition, the space shall be delivered with all
furniture and personal property removed by Sublessor on or before April 15,
1997. Sublessor shall have all floor and wall surfaces professionally cleaned
and all mechanical systems shall be in good working order. The parties
acknowledge, and Sublessor hereby grants its approval, (the Sublessee
acknowledges that the approval of the Landlord will also be required) for
Sublessee to construct additional improvements as may be necessary to demise the
premises and create a suitable working environment for Sublessee. In addition,
certain improvements may be required in order to comply with fire and safety
codes. These improvements shall be at Sublessee's sole cost and expense as they
apply to the premises and shall be performed by a licensed contractor, having
first obtained all required building permits and governmental approvals.
D. SIGNAGE: Subject to the approval of the Landlord, Sublessee
-------
shall be provided one-half (1/2) of the street signage area currently utilized
by Sublessor for the purposes of providing signage at Sublessee's expense. In
addition, Sublessee shall have the right, subject to any necessary governmental
approvals, to provide exterior facade or monument signage adjacent to the
entrance to its premises.
E. PARKING: Sublessee shall have the right to use, on a non-
-------
exclusive basis, its proportionate share of parking at 19925 Stevens Creek
Boulevard, Cupertino, California.
6
<PAGE>
If this Sublease has been filled in it has been prepared for submission to
your attorney for his approval. No representation or recommendation is made
by Colliers Parrish International, Inc. or its agents or employees as to
the legal sufficiency, legal effect, or tax consequences of this Sublease
or the transaction relating thereto.
Executed at Scotts Valley, CA SEAGATE TECHNOLOGY, INC.
-------------------------------
on 3/12/97 By /s/ James A. Taylor
----------------------------
address 920 Disc Drive By James A. Taylor
----------------------------
VP, Finance & Treasurer
"TENANT" (CORPORATE SEAL)
Executed at San Jose HALL KINION & ASSOCIATES, INC.
-------------------------------
on 3/4/97 By /s/ Marty Kropelnicki
----------------------------
address______________________ By Marty Kropelnicki
_____________________________ ----------------------------
Vice President and Chief
Financial Officer
"SUBTENANT" (CORPORATE SEAL)
Executed at ________________ /s/ Sharon Sterling
-------------------------------
on___________________________ By Sharon Sterling
____________________________
address______________________ Its Assistant Vice President
------------------------
_____________________________
WMP II REAL ESTATE
-------------------------------
LIMITED PARTNERSHIP
-------------------------------
A DELAWARE LIMITED PARTNERSHIP,
By WMP II GEN-PAR, INC.,
a Delaware Corporation,
General Partner
"LANDLORD" (CORPORATE SEAL)
<PAGE>
EXHIBIT 10.20
EMPLOYMENT AGREEMENT
This Agreement is entered into as of May 23, 1997, by and between
BRENDA C. HALL (the "Employee") and HALL, KINION & ASSOCIATES, INC., a
California corporation (the "Company").
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 6, 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 her employment by giving the
Company 30 days' advance notice in writing. The Employee's employment shall
terminate automatically in the event of her 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 her 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
her duties under this Agreement for a period of not less than three consecutive
months as the result of her incapacity due to physical or mental illness. In
the event that the Employee resumes the performance of substantially all of her
duties hereunder before the termination of her 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 Sections
-----------------------
6 and 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, 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.
<PAGE>
(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 Chief
--------
Executive Officer for the term of her employment under this Agreement
("Employment"). The Employee shall be subject to the supervision of, and shall
have such authority as is delegated to her by the Company's Board of Directors
(the "Board"), and her powers and authority shall be superior to any other
officer or employee of the Company. 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 throughout the term of her Employment.
(b) Obligations. During the term of her Employment, the Employee
-----------
shall devote her full business efforts and time to the Company and its
subsidiaries (if any). She shall not render services to any other person or
entity without the express prior approval of the Board. 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 her Employment, the Company agrees to
------
pay the Employee as compensation for her services a base salary at the annual
rate of $260,000 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 her Base Compensation by participating in a bonus program for
fiscal year 1997 and subsequent years during the term of her 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 her Employment, the Company
-------------
agrees to pay for a car lease on behalf of the Employee.
4. Employee Benefits.
-----------------
(a) Vacation. During the term of her 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 her 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 immediately.
2
<PAGE>
5. Business Expenses.
-----------------
During the term of her Employment, the Employee shall be authorized to
incur necessary and reasonable travel, entertainment and other business
expenses in connection with her 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. Involuntary or Constructive Termination.
---------------------------------------
(a) Salary Continuation. In the event that the Company terminates the
-------------------
Employee's Employment without her consent for any reason other than Cause, or
the Employee is subject to a Constructive Discharge (as defined in Subsection
(b) below), then the Company shall pay to the Employee each of the following,
subject to the terms of Section 7 below:
(i) The Employee's Base Compensation (at the annual rate then
in effect) for 24 months following a termination of the Employee's Employment,
in accordance with the Company's standard payroll procedures; and
(ii) Continued coverage at the Company's expense under all
medical plans in which the Employee and the Employee's dependents have
participated through date of termination, provided the Employee is eligible
for and elects COBRA coverage, for a period extending through the earlier of
12 months after the Employee's termination of employment and the date that the
Employee's (or, with respect to a dependent, such dependent's) COBRA
eligibility ceases.
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:
(c) The Employee's responsibilities are materially diminished, the
Employee is assigned duties that are inconsistent with her position under this
Agreement or the Employee's title is changed without her consent; or
(d) The Employee's Base Compensation is reduced.
7. Non-competition.
---------------
(a) Competitive Activities. The Employee shall not engage in
----------------------
Competitive Activities during the 24-month period in which she receives the
salary continuation set forth in Section 6(a). The Employee will be deemed to
be engaged in Competitive Activities if during the term of this Agreement and
for two years following the termination of the Employee's Employment, the
Employee, directly or indirectly, engages in any business or activity in which
the Company or any subsidiary of the Company is engaged ("Competitive
Businesses") or be employed by, render services of any kind to, advise or
receive compensation in any form from, or invest or participate in any manner or
capacity in, any entity or person which directly or indirectly engages in a
Competitive Business.
3
<PAGE>
(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 by Court. 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 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.
8. 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 she would have been entitled pursuant to Section 6(a), if
the Company involuntarily terminates her 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 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.
9. Nondisclosure.
-------------
Prior to the commencement of Employee's Employment, Employee shall
have entered into an Employee Proprietary Information and Inventions Agreement
with the Company.
10. 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 her at the home address which she 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
4
<PAGE>
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.
(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 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.
5
<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.
/s/ Brenda Hall
______________________________
Brenda Hall
HALL, KINION AND ASSOCIATES, INC.
By /s/ Paul Bartlett
____________________________
Paul Bartlett, President
<PAGE>
EXHIBIT 10.21
BRENDA C. HALL
19050 CAMINO BARCO
SARATOGA, CALIFORNIA 95070
May 23, 1997
Hall, Kinion & Associates, Inc.
5300 Stevens Creek Boulevard
San Jose, California 95129
RE: SECURED PROMISSORY NOTE DATED JANUARY 30, 1996
AGREEMENT TO TENDER SHARES
Ladies and Gentlemen:
In order to facilitate the proposed initial public offering (the
"Offering") of shares of Common Stock of Hall, Kinion & Associates, Inc. (the
"Company"), I hereby agree to tender to the Company, effective upon the
closing of the Offering, at least 480,000 shares of the Company's Common Stock
pledged by me to secure that certain promissory note, dated January 30, 1996,
made by me in favor of the Company in the principal amount of $3,000,000 (the
"Secured Note"). The tender of shares shall be subject to the terms and
conditions of the Secured Note and that certain Pledge Agreement dated January
30, 1996.
This agreement to tender pledged shares shall expire and shall be of
no further force and effect as of December 31, 1997, unless the Offering shall
have earlier closed.
Sincerely,
/s/ Brenda C. Hall
Brenda C. Hall
ACKNOWLEDGED AND AGREED:
Hall, Kinion & Associates, Inc.
By: /s/ Paul H. Bartlett
---------------------------------
Name: Paul H. Bartlett
-------------------------------
Title: President
------------------------------
<PAGE>
EXHIBIT 10.22
TODD J. KINION
36 PLAYA BOULEVARD
LA SELVA BEACH, CALIFORNIA 95076
May 23, 1997
Hall, Kinion & Associates, Inc.
5300 Stevens Creek Boulevard
San Jose, California 95129
RE: SECURED PROMISSORY NOTE DATED JANUARY 30, 1996
AGREEMENT TO TENDER SHARES
Ladies and Gentlemen:
In order to facilitate the proposed initial public offering (the
"Offering") of shares of Common Stock of Hall, Kinion & Associates, Inc. (the
"Company"), I hereby agree to tender to the Company, effective upon the
closing of the Offering, at least 320,000 shares of the Company's Common Stock
pledged by me to secure that certain promissory note, dated January 30, 1996,
made by me in favor of the Company in the principal amount of $2,000,000 (the
"Secured Note"). The tender of shares shall be subject to the terms and
conditions of the Secured Note and that certain Pledge Agreement dated January
30, 1996.
This agreement to tender pledged shares shall expire and shall be of
no further force and effect as of December 31, 1997, unless the Offering shall
have earlier closed.
Sincerely,
/s/ Todd J. Kinion
Todd J. Kinion
ACKNOWLEDGED AND AGREED:
Hall, Kinion & Associates, Inc.
By: /s/ Paul H. Bartlett
---------------------------------
Name: Paul H. Bartlett
-------------------------------
Title: President
------------------------------
<PAGE>
EXHIBIT 11.1
HALL, KINION AND ASSOCIATES, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
PRO FORMA
1994 1995 1996 1996 (1)
----- ----- ------ ---------
<S> <C> <C> <C> <C>
Net income.................................... $ 33 $ 682 $1,361 $ 487
===== ===== ====== =====
Weighted average common shares outstanding(2). 6,282 6,282 7,980 7,980
Weighted average common share equivalents
related to stock options and warrants........ -- 99 446 446
Common shares issued and stock options granted
(using the treasury stock method assuming an
initial public offering price of $12.00)
between March 1996 and the initial public
offering included pursuant to Securities and
Exchange Commission rules.................... 945 945 945 945
----- ----- ------ -----
Shares used in per share computation.......... 7,227 7,326 9,371 9,371
===== ===== ====== =====
Net income per share.......................... $ -- $ .09 $ .15 $ .05
===== ===== ====== =====
</TABLE>
- --------
(1) The pro forma computation reflects the combined results of operations of
Hall, Kinion and Associates, Inc. and Subsidiaries and TeamAlliance
Technology Partners, L.P. and Subsidiaries, as if the acquisition, which
was completed on December 2, 1996, had been completed at the beginning of
1996.
(2) Including the effect of the conversion of mandatorily redeemable preferred
stock to common stock.
<PAGE>
Exhibit 21.1
HALL, KINION & ASSOCIATES, INC.
LIST OF SUBSIDIARIES
HALL KINION AND ASSOCIATES, UK LIMITED, a wholly owned subsidiary of the
Registrant, organized under the laws of the United Kingdom.
TA ACQUISITION CORPORATION, a wholly owned subsidiary of the Registrant,
organized under the laws of the State of Delaware.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 MAR-31-1997
<CASH> 56,000 98,000
<SECURITIES> 0 0
<RECEIVABLES> 8,024,000 10,447,000
<ALLOWANCES> (403,000) (501,000)
<INVENTORY> 0 0
<CURRENT-ASSETS> 9,293,000 11,651,000
<PP&E> 5,217,000 5,942,000
<DEPRECIATION> (786,000) (993,000)
<TOTAL-ASSETS> 22,994,000 26,120,000
<CURRENT-LIABILITIES> 9,104,000 12,640,000
<BONDS> 0 0
0 0
9,900,000 9,900,00
<COMMON> 357,000 371,000
<OTHER-SE> (5,323,000) (5,409,000)
<TOTAL-LIABILITY-AND-EQUITY> 22,994,000 26,120,000
<SALES> 50,571,000 19,193,000
<TOTAL-REVENUES> 50,571,000 19,193,000
<CGS> 30,342,000 12,020,000
<TOTAL-COSTS> 30,342,000 12,020,000
<OTHER-EXPENSES> 18,233,000 7,064,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 65,000 135,000
<INCOME-PRETAX> 2,365,000 73,000
<INCOME-TAX> 1,004,000 53,000
<INCOME-CONTINUING> 1,361,000 20,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,361,000 20,000
<EPS-PRIMARY> .15 0.00
<EPS-DILUTED> .15 0.00
</TABLE>
