<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 24, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
CLAREMONT TECHNOLOGY GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
OREGON 7373 93-1004490
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
Incorporation or Organization) Number)
</TABLE>
1600 N.W. Compton Drive, Suite 210
Beaverton, Oregon 97006
(503) 690-4000
(Address, including zip code and telephone number, including
area code, of registrant's principal executive offices)
Paul J. Cosgrave, President
Claremont Technology Group, Inc.
1600 N.W. Compton Drive, Suite 210
Beaverton, Oregon 97006
(503) 690-4000
(Name, address, including zip code and telephone number,
including area code, of agent for service)
------------------
<TABLE>
<CAPTION>
COPIES TO:
<S> <C>
WILLIAM C. CAMPBELL, ESQ. THOMAS A. BEVILACQUA, ESQ.
Ater Wynne Hewitt Dodson & Skerritt, Brobeck, Phleger & Harrison LLP
LLP One Market, Spear Street Tower
222 S.W. Columbia, Suite 1800 San Francisco, California 94105
Portland, Oregon 97201 (415) 442-0900
(503) 226-1191
</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, 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>
<S> <C> <C> <C> <C>
PROPOSED
PROPOSED MAXIMUM
AMOUNT TO MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(1)(2) FEE
Common Stock, no par value.... 3,105,000 $19.00 $58,995,000 $20,343.10
</TABLE>
(1) Includes 405,000 shares subject to the Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933.
------------------
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 WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
CROSS-REFERENCE SHEET
PURSUANT TO REGULATION S-K, ITEM 501(B),
SHOWING LOCATION OF INFORMATION REQUIRED BY FORM S-1
<TABLE>
<CAPTION>
FORM S-1 ITEM NUMBER AND CAPTION LOCATION OR CAPTION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus...................... Forepart of the Registration Statement; Outside Front
Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................... Summary; Risk Factors
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Outside Front Cover Page of Prospectus; Underwriting
6. Dilution............................................. Risk Factors; Dilution
7. Selling Security Holders............................. Principal and Selling Shareholders
8. Plan of Distribution................................. Outside Front Cover Page of Prospectus; Underwriting
9. Description of Securities to Be Registered........... Outside Front Cover Page of Prospectus; Dividend
Policy; Description of Capital Stock
10. Interests of Named Experts and Counsel............... Not Applicable
11. Information with Respect to the Registrant........... Outside Front Cover Page of Prospectus; Summary; Risk
Factors; Dividend Policy; Selected Consolidated
Financial Data; Management's Discussion and Analysis
of Financial Condition and Results of Operations;
Business; Management; Certain Transactions;
Principal and Selling Shareholders; Description of
Capital Stock; Shares Eligible for Future Sale;
Consolidated Financial Statements
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Not Applicable
</TABLE>
<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.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 24, 1996
[CLAREMONT LOGO]
2,700,000 SHARES
COMMON STOCK
Of the 2,700,000 shares of Common Stock offered hereby, 1,750,000 shares are
being sold by Claremont Technology Group, Inc. ("Claremont" or the "Company")
and 950,000 shares are being sold by the Selling Shareholders. See "Principal
and Selling Shareholders." The Company will not receive any of the proceeds from
the sale of the shares by the Selling Shareholders. Prior to this 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
$17.00 and $19.00 per share. See "Underwriting" for information relating to the
method of determining the initial public offering price.
------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE 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>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS COMPANY (1) SHAREHOLDERS
<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
Total (2)............... $ $ $ $
</TABLE>
(1) Before deducting expenses payable by the Company estimated at $800,000.
(2) The Company and the Selling Shareholders have granted to the Underwriters a
30-day option to purchase up to an additional 405,000 shares of Common Stock
solely to cover over-allotments, if any. See "Underwriting." If such option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company and Proceeds to Selling Shareholders will
be $ , $ , $ and $ , respectively.
------------------
The Common Stock is offered by the Underwriters as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order in
whole or in part. It is expected that delivery of such shares will be made
through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens &
Company"), San Francisco, California, on or about , 1996.
ROBERTSON, STEPHENS & COMPANY
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
J.P. MORGAN & CO.
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE>
[INSIDE COVER GRAPHICS--Graphical Depiction of the three phases of the Company's
TISE methodology]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS 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, BY ANY SELLING
SHAREHOLDERS OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE
REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION OF,
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
UNTIL , 1996 (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.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Summary.................................................................................................... 4
Risk Factors............................................................................................... 6
Use of Proceeds............................................................................................ 12
Dividend Policy............................................................................................ 12
Capitalization............................................................................................. 13
Dilution................................................................................................... 14
Selected Consolidated Financial Data....................................................................... 15
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 16
Business................................................................................................... 23
Management................................................................................................. 31
Certain Transactions....................................................................................... 38
Principal and Selling Shareholders......................................................................... 40
Description of Capital Stock............................................................................... 42
Shares Eligible for Future Sale............................................................................ 44
Underwriting............................................................................................... 45
Legal Matters.............................................................................................. 46
Experts.................................................................................................... 46
Additional Information..................................................................................... 46
Index to Consolidated Financial Statements................................................................. F-1
</TABLE>
------------------
The Company intends to furnish to its shareholders annual reports containing
audited consolidated financial statements and an opinion thereon expressed by
its independent public accountants, and quarterly reports containing unaudited
financial information for the first three quarters of each fiscal year.
The Company was incorporated in Oregon in 1989 under the name Claremont
Consulting Group, Inc. The Company's name was changed to Claremont Technology
Group, Inc. in 1993. The Company's executive offices are located at 1600 N.W.
Compton Drive, Suite 210, Beaverton, Oregon 97006, and its telephone number is
503-690-4000.
Clarety-TM-, HWIMSy-TM-, The Node Connection-TM-, Northern Diamond-TM-,
Premost-TM-, Spibox-TM-, TISE-TM-, Value Server-TM-, and Value Software-TM- are
United States trademarks of the Company. Tradenames and trademarks of other
companies appearing in this Prospectus are the property of their respective
holders.
3
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING "RISK FACTORS," AND THE CONSOLIDATED FINANCIAL STATEMENTS
AND NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS.
Claremont Technology Group, Inc. ("Claremont" or the "Company"), provides
enterprise-wide information technology ("IT") solutions that re-engineer
mission-critical business processes such as customer service, order processing,
billing and logistics. Claremont delivers its services, including IT planning,
systems integration and development and outsourcing, through a project
management methodology that can employ reusable object oriented software modules
and transferable design frameworks on a fixed-price, fixed-delivery-schedule
basis or a time and materials basis. Claremont provides solutions to large
organizations in select high demand, vertical markets including communications,
financial services and pension/retirement services. Claremont's clients consist
of large corporations and government organizations in the United States and
foreign markets including Canada, the United Kingdom, Saudi Arabia, New Zealand
and Australia.
Claremont provides its services to organizations within industries where
technology-enabled change and re-engineering of business processes can have a
significant competitive impact. The Company's focus on select vertical markets
is complemented by its expertise with the particular customer interface within
these markets and its dedication to partner with clients to co-develop large
scale business solutions. Claremont's industry specific expertise and its
partnership approach to client relationships gives Claremont a competitive
advantage in marketing additional services to its clients and results in high
customer retention levels. Clients representing 94% of Claremont's fiscal 1995
revenue continue as clients today. The Company's clients include: AT&T and its
subsidiaries, Fred Meyer, Inc., Lucent Technologies, Ohio State Teachers
Retirement System and PacificCorp.
Claremont's Total Information Systems Engagement ("TISE") three-phase
methodology provides a structure through which the Company's skills and
knowledge can be effectively deployed. TISE begins with an intensive design
phase in which Claremont works with its clients to define their business problem
and to develop a high level system design. In the systems development and
integration phase, Claremont's consultants can draw from its previously
developed reusable object oriented software modules and transferable design
frameworks to cost-effectively co-develop and quickly deploy applications
solutions. Claremont's approach emphasizes the replacement of outdated and
inflexible legacy code as part of the re-engineering process rather than the
mere addition of new interfaces. In the final phase of TISE, the Company can
provide outsourcing services for ongoing system maintenance and enhancement.
To achieve its objective of becoming a leading provider of enterprise-wide
solutions, the Company intends to expand its client base by leveraging its
vertical market expertise, increasing penetration of its existing clients,
capitalizing on the benefits of its TISE methodology and providing expertise in
high demand, leading edge technologies. Further, Claremont's strategy is to
attract and retain superior, highly innovative IT professionals. The Company
also plans to expand its geographic presence, industry expertise and technical
scope through strategic acquisitions. To facilitate its delivery of high demand
technological expertise, Claremont has developed working relationships with
companies such as Arbor Software Corporation, Forte Software, Inc., Hewlett
Packard Company, International Business Machines Corp. ("IBM"), Microsoft
Corporation, Netscape Communications Corporation, Oracle Technology, Inc.,
Silicon Graphics, Inc. and Sybase, Inc.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company.................. 1,750,000 shares
Common Stock Offered by the Selling Shareholders..... 950,000 shares
Common Stock Outstanding after the Offering.......... 6,755,611 shares (1)
Use of Proceeds...................................... For repayment of principal and
interest on revolving line of
credit; working capital and general
corporate purposes.
Proposed Nasdaq National Market Symbol............... CLMT
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue.............................. $ 4,057 $ 9,368 $ 15,667 $ 15,713 $ 27,292 $ 18,988 $ 33,675
Income (loss) from operations.............. (185) 125 2,774 2,393 3,432 2,790 3,879
Net income (loss).......................... (135) 102 1,591 1,452 2,147 1,743 2,205
Net income (loss) per common share (2)..... $ (0.03) $ 0.02 $ 0.28 $ 0.24 $ 0.31 $ 0.25 $ 0.29
Weighted average number of common and
common equivalent shares outstanding (2).. 4,532 4,544 5,796 6,269 7,319 7,215 7,662
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------
ACTUAL AS ADJUSTED(3)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................................................. $ 80 $ 28,575
Working capital........................................................................ 3,066 31,561
Total assets........................................................................... 18,278 46,773
Long-term debt, excluding current installments......................................... 1,756 1,756
Shareholders' equity................................................................... 8,129 36,624
</TABLE>
- ------------
(1) Excludes 2,953,397 shares of Common Stock reserved for issuance upon
exercise of currently outstanding options at a weighted average exercise
price of $1.81 per share, of which 1,224,830 are currently
exercisable and 400,000 shares of Common Stock issuable upon exercise of an
outstanding warrant. See "Management -- Stock Option Plans" and "Certain
Transactions."
(2) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of shares used in computing net income (loss) per
common share.
(3) Adjusted to give effect to the sale by the Company of 1,750,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$18.00 per share and the application of the estimated net proceeds therefrom
as set forth in "Use of Proceeds."
------------------
UNLESS OTHERWISE INDICATED, THE INFORMATION CONTAINED IN THIS PROSPECTUS
ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. SEE
"UNDERWRITING." AS USED IN THIS PROSPECTUS, THE TERM FISCAL YEAR SHALL REFER TO
THE TWELVE-MONTH PERIOD ENDED OR ENDING JUNE 30 OF THE YEAR GIVEN.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE
SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK
FACTORS."
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of the Common Stock offered hereby. This
Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
CLIENT AND INDUSTRY CONCENTRATION; DEPENDENCE ON LARGE PROJECTS
The Company has derived, and believes that it will continue to derive, a
significant portion of its revenue from a limited number of large client
projects and in a limited number of industries. The Company's five largest
clients accounted for approximately 76% and 63% of its revenue in fiscal 1995
and the first nine months of fiscal 1996, respectively. The Ohio State Teachers'
Retirement System and AT&T Network Systems (now Lucent Technologies) accounted
for 38% and 19%, respectively, of the Company's revenue in fiscal 1995. Lucent
Technologies, Ohio State Teachers' Retirement System, Mississippi Public
Employees Retirement System, Fred Meyer, Inc. and PacifiCorp accounted for 24%,
14%, 12%, 8% and 5%, respectively, of the Company's revenue in the nine months
ended March 31, 1996. The volume of work performed for specific clients is
likely to vary from year to year, and a major client in one year may not use the
Company's services in a subsequent year. The loss of any large client could have
a material adverse effect on the Company's business, financial condition and
results of operations. Most of the Company's contracts are terminable by the
client following limited notice and without significant penalty to the client.
The cancellation of a large project or a significant reduction in the scope of
such a project could have a material adverse effect on the Company's business,
financial condition and results of operations, and in the past the cancellation
of a large project has had such an effect. Furthermore, a decision by any large
client not to proceed with a project to the stage anticipated by the Company
could have a material adverse effect on the Company's business, financial
condition and results of operations. As a result of the Company's focus in
specific industries the Company's business, financial condition and results of
operations are influenced by economic and other conditions affecting these
industries, such as economic downturns in the communications or financial
services industries, which could lead to a reduction in capital spending on IT
projects, or changes in government regulations, which could obsolete or require
substantial changes to Claremont's existing pre-developed proprietary software
products. Any such change could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business --
Strategy," and "Business -- Markets and Clients."
NEED TO ATTRACT AND RETAIN PROFESSIONAL STAFF
The Company's business is labor intensive and depends upon the delivery of
professional services. Professional fees represented 100%, 100% and 94% of the
Company's revenue in fiscal 1994, fiscal 1995 and the nine months ended March
31, 1996, respectively. The Company's success will depend in large part upon its
ability to attract, train, retain and motivate highly-skilled employees,
particularly project managers and other senior technical personnel. There is
significant competition for employees with the skills required to perform the
services offered by the Company. Qualified project managers and senior technical
and professional staff are in great demand and are likely to remain a limited
resource for the foreseeable future. There can be no assurance that the Company
will be successful in attracting a sufficient number of highly-skilled employees
in the future, or that it will be successful in training, retaining and
motivating employees. The Company's inability to attract, train and retain
skilled employees or the Company's employees' inability to achieve expected
levels of performance could impair the Company's ability to adequately manage
and complete its existing projects and to bid for or obtain new projects. This
in turn could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Claremont
Personnel."
VARIABILITY OF QUARTERLY OPERATING RESULTS; SEASONALITY
The Company's revenue and operating results may fluctuate from quarter to
quarter based on a number of factors including the number, size and scope of
projects in which the Company is engaged, the contractual terms and degree of
completion of such projects, any delays incurred in connection with a project,
employee hiring and utilization rates, the adequacy of provisions for losses,
the accuracy of estimates of resources required to complete ongoing projects and
general economic conditions. In addition, the timing of revenue is difficult to
6
<PAGE>
forecast because the Company's sales cycle is relatively long. A high percentage
of the Company's operating expenses, particularly personnel and rent, are
relatively fixed in advance of any particular quarter. For example, while the
number of professional staff the Company employs may be adjusted to reflect
active projects, such adjustments take time and the Company must maintain a
sufficient number of senior professionals to oversee existing clients and to
focus on securing new client engagements. As a result, unanticipated variations
in the number or progress toward completion of the Company's projects or in
employee utilization rates may cause significant variations in operating results
in any particular quarter and could result in adverse changes to the Company's
business, financial condition and results of operation. Seasonal factors such as
weather related shut-downs in major markets, vacation days, total business days
in a quarter, or the business practices of clients such as deferring commitments
on new projects until after the end of the calendar or the client's fiscal year
could require the Company to maintain under-utilized employees and could
therefore have a material adverse effect on the Company's business, financial
condition and results of operations. Any shortfall in revenue or earnings from
expected levels or other failure to meet expectations of securities analysts or
the market in general regarding results of operations could have an immediate
and significant adverse effect on the market price of the Company's Common
Stock. Given the possibility of such fluctuations, the Company believes that
comparisons of its results of operations for preceding quarters are not
necessarily meaningful and that such results for one quarter should not be
relied upon as an indication of future performance. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Selected
Quarterly Results of Operations."
MANAGEMENT OF GROWTH
The Company's growth has placed significant demands on its management and
other resources. The Company's professional fees increased 67% to $31.7 million
for the nine months ended March 31, 1996, from $19.0 million in the comparable
period of fiscal 1995. During the same period, the Company's staff increased
from 267 to 480 full-time employees and further significant increases are
expected. The Company has also expanded geographically by opening new offices
and may open additional offices in the future. The Company's ability to manage
its growth effectively will require it to continue to develop and improve its
operational, financial and other internal systems, as well as its business
development capabilities and to train, motivate and manage its employees. In
addition, the Company's success will depend in large part on its ability to
continue to maintain high rates of employee utilization, set fixed-price fees
accurately, maintain project quality and meet delivery dates particularly if the
average size of the Company's projects increases. If the Company is unable to
manage its growth and projects effectively, such inability would have a material
adverse effect on the quality of the Company's services and products, its
ability to retain key personnel and its business, financial condition and
results of operations. No assurance can be given that the Company's growth rate
will continue to be achieved, or if achieved, be maintained or that the Company
will be successful in managing its growth. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
FIXED-PRICE CONTRACTS AND OTHER PROJECT RISKS.
Through the ten-month period ended April 30, 1996, approximately 37% of the
Company's revenue was generated on a fixed-price, fixed-delivery-schedule
("fixed-price") basis, rather than on a time and materials basis. The Company's
failure to accurately estimate the resources required for a fixed-price project
or its failure to complete its contractual obligations in a manner consistent
with the project plan upon which its fixed-price, contract was based could
adversely affect the Company's results of operations and could have a material
adverse effect on the Company's business and financial condition. In the past,
the Company has been required to commit unanticipated additional resources to
complete certain projects, which negatively affected the profitability generated
on such projects and has found it necessary to revise project plans during the
project, and to change project managers to insure projects are completed on
schedule. The Company may experience similar situations in the future. Failure
to anticipate such needs could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
Company may establish a price before the design specifications are finalized,
which could result in a fixed price that turns out to be too low and therefore
adversely affects the Company's business, financial condition and results of
operations. Furthermore, many of the Company's engagements involve projects
which are critical to the operations of its clients' businesses and which
provide benefits that may be difficult to quantify. The Company's failure to
meet a client's expectations in the performance of its services could damage the
Company's reputation and adversely affect its ability to attract
7
<PAGE>
new business, and may have a material adverse effect upon its business,
financial condition and results of operations. The Company has undertaken and
may in the future undertake projects in which the Company guarantees performance
based upon defined operating specifications or guaranteed delivery dates.
Unsatisfactory performance or unanticipated difficulties in completing such
projects may result in client dissatisfaction and a reduction in payment to, or
payment of damages by, Claremont, any of which could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
EMERGING MARKET; TECHNOLOGICAL ADVANCES
The Company has derived and will continue to derive a substantial portion of
its revenue from projects based on open computing systems. The open computing
systems market is continuing to develop and is subject to rapid change. The
Company's success will also depend in part on its ability to develop IT
solutions which keep pace with continuing changes in information processing
technology, evolving industry standards and changing client preferences. There
can be no assurance that the Company will be successful in addressing these
developments in a timely manner or that if addressed the Company will be
successful in the marketplace. The Company's delay or failure to address these
developments could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, there can be no
assurance that products or technologies developed by third parties will not
render the Company's services noncompetitive or obsolete. See "Business --
Industry Background."
COMPETITION
The markets for the Company's services are highly competitive. The Company
believes that it currently competes principally with the internal information
systems groups of its prospective clients, as well as consulting and software
integration firms including Andersen Consulting, the "Big Six" accounting firms,
ISSC (an affiliate of IBM), Computer Sciences Corporation, and with other
hardware and application software vendors. In addition there are a number of
systems integrators who serve similar markets or provide similar services, such
as Cambridge Technology Partners, Renaissance Solutions, Inc., SHL Systemhouse
(a subsidiary of MCI), Sapient Corporation and Technology Solutions Company,
with whom the Company may compete in the future. Many of these companies have
significantly greater financial, technical and marketing resources than the
Company, generate greater revenues and have greater name recognition than the
Company. In addition, there are relatively low barriers to entry into the
Company's markets and the Company has faced and expects to continue to face
additional competition from new entrants into its markets.
The Company believes that the principle competitive factors in its markets
include reputation, project management expertise, industry expertise, speed of
development and implementation, technical expertise and ability to deliver on a
fixed-price as well as a time and materials basis. The Company believes that its
ability to compete also depends in part on a number of competitive factors
outside its control, including the ability of its competitors to hire, retain
and motivate project managers and other senior technical staff; the ownership by
competitors of software used by potential clients; the development by others of
products and services that are competitive with the Company's products and
services; the price at which others offer comparable services and the extent of
its competitors' responsiveness to client needs. There can be no assurance that
the Company will be able to compete effectively on pricing or other requirements
with current and future competitors or that competitive pressures faced by the
Company will not cause the Company's gross margins to decline or otherwise
materially adversely affect its business, financial condition and results of
operations. See "Business -- Competition."
GROWTH THROUGH BUSINESS COMBINATIONS AND INTERNAL EXPANSION
The Company intends to continue to seek opportunities to expand by acquiring
systems integration and professional consulting businesses in attractive markets
or with desirable client relationships, as well as by acquiring businesses with
complementary software. The Company continuously evaluates potential business
combinations in the ordinary course of business and aggressively pursues
attractive transactions. From January 1995 through January 1996, the Company
completed the acquisition of Tony Martins & Associes, Inc. and The Node
Connection. The success of this strategy depends not only upon the Company's
ability to identify and acquire businesses on a cost-effective basis, but also
upon its ability to integrate acquired operations into its
8
<PAGE>
organization effectively, to retain and motivate key personnel and to retain
clients of acquired firms. Additionally, the Company experiences competition for
such acquisitions. The Company may start new branch offices or new industry
practice areas with its own personnel. Many of the Company's branch offices were
originally start-up operations, and not all branch offices and practice areas,
whether start-up or acquired, have been successful. There can be no assurance
that the Company will be able to identify, acquire or integrate other
businesses, or that it will be able successfully to start-up branch operations
or industry practice areas. Such efforts, if unsuccessful, could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Strategy."
DEPENDENCE ON KEY PERSONNEL
The Company's success will depend in part upon the continued services of a
number of key employees. The loss of the services of the Company's key personnel
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, if one or more of the
Company's key employees resigns from the Company to join a competitor or to form
a competing company, the loss of such personnel and any resulting loss of
existing or potential clients to any such competitor could have a material
adverse effect on the Company's business, financial condition and results of
operations. In the event of the loss of any such personnel, there can be no
assurance that the Company would be able to prevent the unauthorized disclosure
or use of its technical knowledge, practices or procedures by such personnel.
See "Management -- Employment Agreements."
CONCENTRATION OF CONTROL
Upon completion of this offering, the officers, directors and 5%
shareholders of the Company will beneficially own approximately 54.4% of the
Company's outstanding Common Stock (approximately 52.4% if the Underwriters'
over-allotment option is exercised in full). As a result, these shareholders, if
acting together, will have the ability to influence the election of the
Company's directors and the outcome of other corporate actions requiring
shareholder approval. This concentration of ownership may have the effect of
delaying or preventing a change in control of the Company. Inasmuch as the
Company does not have cumulative voting in the election of directors,
shareholders with a minority interest are not assured of the ability to elect a
representative to the Board of Directors. See "Management" and "Principal and
Selling Shareholders."
INTELLECTUAL PROPERTY RIGHTS
The Company's success is dependent upon maintenance and protection of its
intellectual property rights. The Company relies on a combination of copyrights,
trade secrets and trademarks to protect its technology. The Company has
applications pending at the United States Patent and Trademark Office with
respect to the Company's CLARETY, NORTHERN DIAMOND, PREMOST and TISE trademarks.
The Company's practice has been to enter into confidentiality agreements with
its employees and signed agreements that include nondisclosure provisions with
clients. Despite these activities, no assurance can be given that the steps
taken by the Company will provide adequate protection of its intellectual
property rights or that competitors will not be able to develop similar or
functionally equivalent methodologies or products. Additionally, no assurance
can be given that foreign copyright and trade secret laws will protect the
Company's intellectual property rights. Furthermore, effective copyright and
trade secret protection may be unavailable or limited in certain foreign
countries. In addition, litigation may be necessary to enforce the Company's
intellectual property rights, to protect the Company's trade secrets, to
determine the validity and scope of the intellectual property rights of others
or to defend against claims of infringement. Such litigation could result in
substantial costs and diversion of resources and could have a material adverse
effect on the Company's business, financial condition and results of operations.
No assurance can be given that infringement or invalidity claims (or claims for
indemnification resulting from infringement claims against third parties, such
as clients) will not be asserted against the Company or that any such assertions
would not have a material adverse effect on the Company's business, financial
condition or results of operations. If infringement or invalidity claims are
asserted against the Company, litigation may be necessary to defend the Company
against such claims, and in certain circumstances the Company may choose to seek
to obtain a license under the third-party's intellectual property rights. There
can be no assurance that such licenses will be available on terms acceptable to
the Company, if at all. See "Business -- Intellectual Property Rights."
9
<PAGE>
FOREIGN OPERATIONS
The Company derived approximately 2% and 5% of its total revenue from
clients outside of the United States in fiscal 1995 and in the first nine months
of fiscal 1996, respectively. The Company's international business operations
are subject to a number of risks, including difficulties in building and
managing foreign operation, in translating its methodologies into foreign
language, in enforcing agreements and collecting receivables through foreign
legal systems; longer payment cycles; fluctuations in the value of foreign
currencies and unexpected regulatory, economic or political changes in foreign
markets. There can be no assurance that these factors will not have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
DISCRETION AS TO USE OF PROCEEDS
The Company has not yet identified specific uses of a significant portion of
the net proceeds from this offering. The Company's management will retain broad
discretion to allocate the net proceeds from this offering to uses that the
shareholders may not deem desirable, and there can be no assurance that the
proceeds can or will yield a significant return. It is currently anticipated
that net proceeds will be used for repayment of indebtedness, general corporate
purposes and expansion of the Company's business, including acquisitions, as
opportunities arise. See "Use of Proceeds."
NO PRIOR PUBLIC MARKET; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to this offering there has been no public market for the Company's
Common Stock. No assurance can be given that an active public market for the
Common Stock will develop or be sustained after the offering or that the market
price of the Common Stock will not decline below the initial public offering
price. The initial public offering price will be determined by negotiation among
the Company and the representatives of the Underwriters. See "Underwriting" for
a discussion of the factors considered in determining the initial public
offering price.
The market for securities of early stage, small market capitalization
companies has been highly volatile in recent years as a result of factors often
unrelated to a company's operations. In addition, the Company believes factors
such as quarterly variations in operating results, announcements of
technological innovations or new products or services by the Company or its
competitors, general conditions in the IT industry or the industries in which
Claremont's clients compete and changes in earnings estimates by securities
analysts, could contribute to the volatility of the price of the Company's
Common Stock and could cause significant fluctuations. These factors, as well as
general economic conditions such as recessions or high interest rates, could
adversely affect the market price of the Common Stock. Further, in the past,
following periods of volatility in the market price of a company's securities,
securities class action litigation has occurred against the issuing company.
There can be no assurance that such litigation will not occur in the future with
respect to the Company. Such litigation could result in substantial costs and a
diversion of management's attention and resources, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. Any adverse determination in such litigation could also subject the
Company to significant liabilities.
POTENTIAL ISSUANCE OF PREFERRED STOCK
The Board of Directors has the authority to issue up to 10,000,000 shares of
undesignated Preferred Stock and to determine the preferences, limitations and
relative rights of shares of Preferred Stock and to fix the number of shares
constituting any series and the designation of such series, without any further
vote or action by the Company's shareholders. The Preferred Stock could be
issued with voting, liquidation, dividend and other rights superior to the
rights of the Common Stock. The potential issuance of Preferred Stock may delay
or prevent a change in control of the Company, discourage bids for the Common
Stock at a premium over the market price, and adversely affect the market price
and the voting and other rights of the holders of the Common Stock. See
"Principal and Selling Shareholders" and "Description of Capital Stock --
Preferred Stock."
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Second Restated Articles of
Incorporation ("Restated Articles"), Second Amended and Restated Bylaws
("Restated Bylaws") and the Oregon Business Corporation Act will effectively
make it more difficult for a party to acquire control of the Company through
either a tender offer or a
10
<PAGE>
proxy contest for the election of directors. The Oregon Control Share Act and
the Oregon Business Combination Act limit the ability of parties who acquire a
significant amount of voting stock to exercise control of the Company. In
addition, the Company's Restated Articles contain provisions which (i) when the
Company has six or more directors, classify the Board of Directors into three
classes, with one class being elected each year, (ii) provide that directors may
be removed by shareholders only for cause and only upon the vote of 75% of the
votes then entitled to be cast for the election of directors and (iii) require
the approval of holders of 67% of the outstanding shares of the Company entitled
to vote to effect a merger or consolidation of the Company, the sale, lease or
exchange of all or substantially all of the Company's assets or the dissolution
or liquidation of the Company. These provisions may have the effect of
lengthening the time required for a person to acquire control of the Company
through a proxy contest for the election of a majority of the Board of
Directors, may discourage bids for the Common Stock at a premium over the market
price and may deter efforts to obtain control of the Company. See "Description
of Capital Stock -- Oregon Control Share and Business Combination Statutes;
Certain Provisions of Restated Articles."
DILUTION; NO DIVIDENDS
The initial public offering price is substantially higher than the net
tangible book value per share of Common Stock. Investors participating in this
offering will therefore incur immediate, substantial dilution of $13.86 per
share. To the extent outstanding options or warrants to purchase the Company's
Common Stock are exercised, there will be further dilution. The Company has
never declared or paid cash dividends on its capital stock and does not
anticipate paying any cash dividends in the foreseeable future. See "Dilution"
and "Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of the Company's Common Stock in the public market following this
offering could adversely affect the market price of the Company's Common Stock.
Of the 6,755,611 shares of Common Stock to be outstanding after the offering
(7,044,198 shares if the Underwriters' over-allotment option is exercised in
full), the 2,700,000 shares sold in this offering (3,105,000 if the
Underwriters' over-allotment option is exercised in full) will be available for
resale without restriction under the Securities Act of 1933, as amended (the
"Securities Act"), unless such shares are held by "affiliates" of the Company,
as that term is defined in Rule 144 under the Securities Act. In addition,
approximately 556,500 shares will be eligible for immediate sale in the public
market without restriction pursuant to Rule 144(k) under the Securities Act.
Approximately 1,851,227 additional shares outstanding upon completion of this
offering will be eligible for sale pursuant to Rule 144 and approximately
130,217 shares will be eligible for sale under Rule 701, in each case after the
expiration of the 90-day period after the date of this Prospectus. The holders
of 2,359,227 shares of Common Stock and the holders of a warrant and options to
purchase 1,471,972 shares of Common Stock, have agreed, subject to certain
exceptions, not to sell or otherwise dispose of any of their shares for a period
of 180 days after the effective date of the Registration Statement. Robertson,
Stephens & Company LLC may, in its sole discretion, at any time without notice,
release all or any portion of the shares subject to lock-up agreements. Sales of
Common Stock in the public market, or the availability of such shares for sale,
could adversely affect the market price of the Common Stock. As soon as
practicable following 180 days after the effective date of the Registration
Statement, the Company intends to file a registration statement under the
Securities Act to register approximately 5,200,000 shares of Common Stock
reserved for issuance under the Company's stock option plans. Following the
closing of the offering, the holders of 2,191,328 shares of Common Stock
(including shares issuable upon exercise of warrants) will be entitled to
certain demand and piggyback registration rights with respect to such shares.
See "Description of Capital Stock," "Shares Eligible for Future Sale,"
"Underwriting" and "Certain Transactions."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,750,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$28.5 million, assuming an initial public offering price of $18.00 per share and
after deducting estimated underwriting commissions and offering expenses ($32.9
million if the Underwriters' over-allotment option is exercised in full). The
Company intends to use a portion of the net proceeds of this offering to repay
all indebtedness owed under its $4.0 million revolving line of credit with Bank
of America Oregon, a subsidiary of BankAmerica Corporation, outstanding
borrowings under which bear interest at Bank of America's NT&SA Reference Rate,
plus one quarter of one percent (a rate of 8.5% on May 20, 1996.) As of May 20,
1996 the Company had borrowed approximately $3.0 million under that line of
credit. The balance of the net proceeds will be used for working capital and
other general corporate purposes. In the normal course of business, the Company
evaluates potential acquisitions of businesses, products and technologies that
would complement or expand the Company's business. A portion of the net proceeds
may be used for one or more such transactions, although the Company has no
present commitments or agreements with respect to any such transactions. The
Company will not receive any of the proceeds from the sale of Common Stock by
Selling Shareholders. See "Principal and Selling Shareholders."
Pending application of the proceeds as described above, the Company intends
to invest the net proceeds of this offering in investment-grade obligations,
including short-term, interest-bearing money market funds. Returns on such
investments may be less than those that might otherwise result if the Company
were able to use such funds immediately in its operations.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock.
The Company currently intends to retain future earnings, if any, to finance
operations and expansion of its business and does not expect to pay any
dividends on its Common Stock in the foreseeable future. Future cash dividends,
if any, will be determined by the Board of Directors and will be based upon the
Company's earnings, capital, financial condition and other factors deemed
relevant by the Board of Directors.
12
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1996 (i) the actual
capitalization of the Company; and (ii) the as adjusted capitalization of the
Company after giving effect to certain amendments to the Company's Articles of
Incorporation increasing the number of shares of authorized Common Stock to
25,000,000 and Preferred Stock to 10,000,000 and the sale of the 1,750,000
shares of Common Stock offered by the Company hereby at an assumed initial
public offering price of $18.00 per share. See "Use of Proceeds." The
information set forth below should be read in conjunction with the Consolidated
Financial Statements and related Notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Long-term debt, excluding current installments (1)......................................... $ 1,756 $ 1,756
Shareholders' equity:
Preferred stock, no par value per share, 2,000,000 shares authorized, actual; 10,000,000
shares authorized, as adjusted; none outstanding, actual; none outstanding, as
adjusted................................................................................ -- --
Common stock, no par value per share, 10,000,000 shares authorized, actual 25,000,000
shares authorized, as adjusted; 4,767,182 shares issued and outstanding, actual;
6,517,182 shares issued and outstanding, as adjusted (2)................................ 1,303 29,798
Retained earnings........................................................................ 6,831 6,831
Cumulative translation adjustment........................................................ (5) (5)
--------- -----------
Total shareholders' equity............................................................. 8,129 36,624
--------- -----------
Total capitalization................................................................. $ 9,885 $ 38,380
--------- -----------
--------- -----------
</TABLE>
- ------------
(1) See Notes 5 and 6 of Notes to Consolidated Financial Statements for
description of the Company's long-term debt, excluding current installments.
(2) Excludes 3,189,096 shares of Common Stock issuable upon exercise of options
outstanding on March 31, 1996 at a weighted average exercise price of $1.68
per share, of which 1,419,080 were then exercisable. Also excludes 400,000
shares of Common Stock issuable upon exercise of an outstanding warrant
issued May 20, 1996 at an exercise price of $10.33 per share. See
"Management -- Stock Option Plans," and "Certain Transactions."
13
<PAGE>
DILUTION
The net tangible book value of the Company as of March 31, 1996 was $5.4
million, or $1.14 per share. Net tangible book value per share is determined by
dividing the Company's tangible net worth (tangible assets less total
liabilities) by the number of shares of Common Stock outstanding. Assuming that
the 1,750,000 shares of Common Stock offered by the Company hereby had been sold
as of March 31, 1996 at an assumed initial public offering price of $18.00 per
share, the Company's pro forma net tangible book value at that date (after
deducting estimated underwriting discounts and commissions and estimated
offering expenses) would have been $27.1 million, or $4.16 per share as of March
31, 1996. This represents an immediate increase in net tangible book value of
$3.02 per share to existing shareholders and an immediate dilution of $13.84 per
share to purchasers of Common Stock in this offering. Dilution to new investors
is determined by subtracting the pro forma net tangible book value per share
after this offering from the initial public offering price per share. The
following table illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $ 18.00
Pro forma net tangible book value per share as of March 31,
1996............................................................. $ 1.14
Increase per share attributable to new investors.................. 3.02
---------
Pro forma net tangible book value per share after this offering..... 4.16
---------
Dilution per share to new investors................................. $ 13.84
---------
---------
</TABLE>
The following table summarizes on a pro forma basis, as of March 31, 1996,
the difference between existing shareholders and the purchasers of Common Stock
in this offering with respect to the number of shares of Common Stock purchased
from the Company, the approximate total consideration paid and the average price
per share based on an assumed initial public offering price of $18.00 per share
and before deducting estimated underwriting discounts and commissions and
estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED (1) TOTAL CONSIDERATION
------------------------ ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------------ --------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders................................... 4,767,182 73% $ 1,303 4% $ .27
New investors........................................... 1,750,000 27 31,500 96 18.00
-- --
---------- ---------
Total............................................... 6,517,182 100% $ 32,803 100%
-- --
-- --
---------- ---------
---------- ---------
</TABLE>
- ------------
(1) Does not reflect the sale of Common Stock by the Selling Shareholders. The
sale of Common Stock by the Selling Shareholders in this offering will
reduce the pro forma number of shares held by existing shareholders as of
March 31, 1996 to 3,817,182, or approximately 59% of the total number of
shares of Common Stock outstanding and will increase the number of shares to
be purchased by new investors to 2,700,000, or approximately 41% of the
total number of shares of Common Stock outstanding after this offering. See
"Principal and Selling Shareholders."
The foregoing calculations assume no exercise of outstanding stock options.
The Company has reserved 5,200,000 shares of Common Stock for issuance pursuant
to the Company's stock option plans. Options to purchase 3,189,096 shares of
Common Stock were outstanding at March 31, 1996 at a weighted average exercise
price of $1.68 per share, of which options to purchase 1,419,080 shares were
then exercisable. The foregoing calculations also assume no exercise of the
warrant issued May 20, 1996, for 400,000 shares of Common Stock at $10.33 per
share. To the extent any of these options or the warrant are exercised, there
will be further dilution to new investors. See "Management -- Stock Option
Plans," "Certain Transactions," "Description of Capital Stock" and Note 8 of
Notes to Consolidated Financial Statements.
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for each of the
years in the three-year period ended June 30, 1995 and for the nine-month period
ended March 31, 1996 and the balance sheet data as of June 30, 1994 and 1995 and
March 31, 1996 are derived from the Consolidated Financial Statements of the
Company, which are included elsewhere in this Prospectus and have been audited
by KPMG Peat Marwick LLP, independent certified public accountants, whose report
thereon also is included herein. The selected financial data as of June 30, 1992
and 1993, and for the year ended June 30, 1992 has been derived from the
consolidated financial statements audited by KPMG Peat Marwick LLP, and not
included herein. The statement of operations data for the year ended June 30,
1991 and the nine months ended March 31, 1995 and the balance sheet data as of
June 30, 1991 have been derived from the Company's unaudited consolidated
financial statements. Such unaudited financial data has been prepared on the
same basis as the audited financial data and reflects all normally recurring
adjustments which are, in the opinion of management of the Company, necessary
for a fair presentation in accordance with generally accepted accounting
principles. The selected consolidated financial data should be read in
conjunction with, and are qualified by reference to "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the Consolidated
Financial Statements and Notes thereto and other financial information appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Professional fees..................... $ 4,057 $ 9,368 $ 15,667 $ 15,713 $ 27,292 $ 18,988 $ 31,711
Resold products and services.......... -- -- -- -- -- -- 1,964
--------- --------- --------- --------- --------- --------- ---------
Total revenue....................... $ 4,057 $ 9,368 $ 15,667 $ 15,713 $ 27,292 $ 18,988 $ 33,675
Costs and expenses:
Project costs and expenses............ 2,836 6,275 9,112 9,106 13,704 9,267 16,791
Resold products and services.......... -- -- -- -- -- -- 1,874
Selling, general and administrative... 1,406 2,968 3,781 4,214 10,156 6,931 11,131
--------- --------- --------- --------- --------- --------- ---------
Total costs and expenses............ 4,242 9,243 12,893 13,320 23,860 16,198 29,796
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations....... (185) 125 2,774 2,393 3,432 2,790 3,879
Other income (expense), net............. (55) 45 21 12 67 50 (58)
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes.......... (240) 170 2,795 2,405 3,499 2,840 3,821
Income tax expense...................... (105) 68 1,204 953 1,352 1,097 1,616
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)................... $ (135) $ 102 $ 1,591 $ 1,452 $ 2,147 $ 1,743 $ 2,205
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) per common share
(1)................................ $ (.03) $ .02 $ .28 $ .24 $ .31 $ .25 $ .29
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted average number of common and
common equivalent shares outstanding
(1).................................... 4,532 4,544 5,796 6,269 7,319 7,215 7,662
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
-----------------------------------------------------
1991 1992 1993 1994 1995 MARCH 31, 1996
--------- --------- --------- --------- --------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 364 $ 513 1,818 1,870 $ 340 $ 80
Working capital (deficit)........................ (349) (434) 1,014 2,045 2,453 3,066
Total assets..................................... 1,074 2,798 4,620 5,492 9,578 18,278
Long-term debt, excluding current installments... -- 178 120 8 334 1,756
Total shareholders' equity (deficit)............. (88) 7 1,583 2,883 5,101 8,129
</TABLE>
- ------------
(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of shares used in computing net income (loss) per
common share.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
OVERVIEW
Claremont was organized in June 1989 and secured its first systems
consulting and implementation project in July 1989. The Company provides
enterprise-wide IT solutions that re-engineer core business processes such as
customer service, order processing, billing, ordering and logistics. In order to
provide mission-critical business solutions, Claremont has developed vertical
industry expertise and an object oriented project management methodology that
focuses on the client's fundamental business processes and that takes advantage
of the benefits available from reusable software modules and transferable design
frameworks. Claremont's services include IT planning, systems integration and
development and outsourcing of enhancement/maintenance services for large
corporations and government organizations in 12 locations worldwide including
the United States, Canada, the United Kingdom, Saudi Arabia, New Zealand and
Australia.
Claremont's revenue is derived primarily from professional fees billed to
clients on either a time and materials or a fixed-price basis. Time and
materials revenue is recognized as services are performed. Fixed-price revenue
is recognized using the percentage-of-completion method, based on the ratio of
costs incurred to total estimated project costs. Where these revenue recognition
policies result in recognition of revenue before invoices are sent, the revenue
in excess of billings is recorded as a current asset on the Company's balance
sheet. The cumulative impact of any revisions to the estimate of the
percentage-of-completion of any fixed-price contract is reflected in the quarter
in which such impact becomes known. Substantially all of Claremont's contracts
are terminable by the client following limited notice and without significant
penalty to the client. See "Risk Factors -- Fixed-Price Contracts and Other
Project Risks." To date, the Company generally has been able to obtain an
adjustment in its fees in the event of any significant change in the assumptions
upon which the original estimate was made, but no assurances can be given that
Claremont will be successful in obtaining such adjustments in the future.
Project costs consist primarily of salaries paid to Claremont's consultants.
Client project margins and personnel utilization percentages are important
components in determining Claremont's income from operations. Claremont manages
its personnel utilization rates by carefully monitoring its personnel needs and
basing most personnel increases on specific project requirements. Utilization
reports are produced and reviewed weekly by operating management and monthly by
senior management. The number of staff assigned to Claremont's projects may vary
widely depending on the size, duration, degree of completion and complexity of
each engagement. In addition, project completions and implementation delays may
result in periods when personnel are not assigned to active systems projects.
The Company must maintain appropriate numbers of senior professionals to both
oversee all aspects of existing engagements and participate in business
development activities.
16
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain financial
data as a percentage of total revenue:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED JUNE 30, MARCH 31,
---------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Professional fees.......................................... 100% 100% 100% 100% 94%
Resold products and services............................... -- -- -- -- 6
-- -- -- -- --
Total revenue............................................ 100 100 100 100 100
Costs and expenses:
Project costs and expenses................................. 58 58 50 49 50
Resold products and services............................... -- -- -- -- 5
Selling, general and administrative........................ 24 27 37 36 33
-- -- -- -- --
Total costs and expenses................................. 82 85 87 85 88
-- -- -- -- --
Income from operations................................... 18 15 13 15 12
Other income (expense), net.................................. -- -- -- -- --
Income before income taxes............................... 18 15 13 15 12
Income tax expense........................................... 8 6 5 6 5
-- -- -- -- --
Net income............................................... 10% 9% 8% 9% 7%
-- -- -- -- --
-- -- -- -- --
</TABLE>
NINE MONTHS ENDED MARCH 31, 1996 AND 1995
REVENUE. The Company's revenue consists primarily of professional fees
(including license fees for Claremont's reusable software modules), and to a
lesser extent resold hardware and software products and resold contract
services. The Company's professional fees increased 67% from $19.0 million in
the nine months ended March 31, 1995 to $31.7 million in the nine months ended
March 31, 1996. Professional fees increased primarily due to an increase in the
number of projects performed, both for new and existing clients. In the nine
months ended March 31, 1996, $2.0 million, or 6% of revenue, resulted from
resold products and services; there was no similar revenue of a material nature
in the nine months ended March 31, 1995. Resold products and services are
offered to clients on an as needed project basis and are resold with little or
no mark-up. The Company does not expect resold products and services to
contribute materially to its income from operations, and generally expects to
make little or no profit on such products and services. The Company expects to
provide such products and services only as an accommodation to the Company's
clients as requested for particular projects. Revenue from foreign operations
increased from $197,000 in the nine months ended March 31, 1995 to $1.7 million
in the nine months ended March 31, 1996. The increase resulted primarily from
operations at the Company's Montreal, Canada software factory, largely in
support of U.S. domestic clients.
Claremont's revenue has become decreasingly dependent upon its largest
clients, though such concentration remains a characteristic of Claremont's
business. The top five clients accounted for 63% of revenue for the nine months
ended March 31, 1996, down from 82% of revenue for the nine months ended March
31, 1995. In the nine months ended March 31, 1996 and March 31, 1995 the largest
client accounted for 24% and 46% of revenue, respectively. During the nine
months ended March 31, 1996, eight clients generated revenue in excess of $1.0
million, compared to six clients during the nine months ended March 31, 1995. No
assurance can be given that such a reduction in concentration will continue or
that client concentration will not leave the Company vulnerable to loss of
projects or clients, or that such a loss would not have a material adverse
impact upon the Company's business, financial condition and results of
operations. See "Risk Factors -- Client and Industry Concentration; Dependence
on Large Projects."
17
<PAGE>
PROJECT COSTS AND EXPENSES. Project costs and expenses consist primarily of
salaries and employee benefits for personnel dedicated to client projects and
associated overhead costs including equipment depreciation and amortization.
Project costs and expenses increased 81% from $9.3 million in the nine months
ended March 31, 1995 to $16.8 million in the nine months ended March 31, 1996,
representing 49% of professional fees in the nine months ended March 31, 1995,
and 53% of professional fees in the nine months ended March 31, 1996. Project
personnel increased 85% from 245 at the end of the nine months ended March 31,
1995 to 453 at the end of the nine months ended March 31, 1996 and further
increases are expected.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
costs and expenses consist of costs associated with the Company's executive
staff, finance, facilities and human resources departments (collectively,
"Administrative Personnel") and travel and business development costs. Selling,
general and administrative costs and expenses increased 61% from $6.9 million in
the nine months ended March 31, 1995 to $11.1 million in the nine months ended
March 31, 1996. The increase is primarily due to a $1.5 million increase in
professional development and recruiting expenses associated with the increased
professional personnel and $1.6 million in increased facility expenses
associated with the software factories and development labs. In addition, the
Company incurred approximately $300,000 in non-recurring charges attributable to
separation agreements with two terminated executives and expansion into
international markets during the quarter ended March 31, 1996. See "Certain
Transactions." Selling, general and administrative costs and expenses declined
from 36% of professional fees in the nine months ended March 31, 1995, to 35% of
professional fees in the nine months ended March 31, 1996, due to revenue growth
outpacing selling, general and administrative costs and expenses increases on a
percentage basis in the period. Administrative Personnel increased 23% from 22
at the end of the nine months ended March 31, 1995 to 27 at the end of the nine
months ended March 31, 1996.
OTHER INCOME (EXPENSE), NET. Other income (expense), net consists primarily
of interest expense associated with short term borrowings and interest income on
cash and cash equivalents. Other income (expense), net changed from a net income
of $50,000 for the nine months ended March 31, 1995 to a net expense of $58,000
for the nine months ended March 31, 1996. The change is primarily attributable
to interest expense associated with the Company's acquisition of computer
equipment through bank financing.
INCOME TAX EXPENSE. Income tax expense represents combined federal, state
and foreign taxes at an effective rate of 42% for the nine months ended March
31, 1996 and 39% for the nine months ended March 31, 1995. The increase in the
effective tax rate is due to a change in the mix of jurisdictions in which the
Company does business, as well as changes in certain federal tax laws.
FISCAL 1995 COMPARED TO FISCAL 1994
REVENUE. The Company's revenue, substantially all of which is attributable
to professional fees, increased 74% from $15.7 million in fiscal 1994 to $27.3
million in fiscal 1995. Revenue increased primarily due to an increase in the
number of major projects performed, both for new clients in new markets and
industries and for existing clients. In addition, in fiscal 1995 the Company
received performance bonuses of approximately $1.0 million. In fiscal 1995 the
top five clients accounted for 76% of revenue; in fiscal 1994 the top five
clients accounted for 92% of revenue. In fiscal 1995 the largest client
accounted for 38% of revenue, compared to 72% of revenue in fiscal 1994. In
fiscal 1995 seven clients generated revenue of $1.0 million or more; in fiscal
1994 two clients generated revenue of $1.0 million or more.
PROJECT COSTS AND EXPENSES. Project costs and expenses increased 51% from
$9.1 million in fiscal 1994 to $13.7 million in fiscal 1995, but decreased as a
percentage of revenue, representing 58% of revenue in fiscal 1994 and declining
to 50% of revenue in fiscal 1995. Project personnel increased 62% from 175 at
the end of fiscal 1994 to 283 at the end of fiscal 1995. The decrease as a
percentage of revenue was due to increased revenue and stronger utilization
levels for project personnel.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
costs and expenses increased substantially from $4.2 million in fiscal 1994 to
$10.2 million in fiscal 1995, and increased from 27% of revenue in fiscal 1994
to 37% of revenue in fiscal 1995. In 1995 the Company invested in its global
infrastructure to sell and service new clients, to enter new industries and
markets and to invest in the continued development of its professional staff. In
fiscal 1994 the Company had active practices in two domestic locations:
Portland, Oregon
18
<PAGE>
and Columbus, Ohio; in fiscal 1995 the Company developed active practices in
four additional domestic locations -- Basking Ridge, New Jersey; Cleveland,
Ohio; Sacramento, California; Seattle, Washington; and two international sites
- -- Montreal, Canada and London, United Kingdom. Additionally, the Company
developed and implemented career path programs for its consulting staff and
initiated associated training programs. Administrative Personnel increased 127%
from 11 at the end of fiscal 1994 to 25 at the end of fiscal 1995.
OTHER INCOME (EXPENSE), NET. Other income (expense), net increased
primarily due to increased interest income associated with higher cash balances.
INCOME TAX EXPENSE. Income tax expense increased from $1.0 million in
fiscal 1994 to $1.4 million in fiscal 1995 representing an approximate effective
tax rate of 40% in both years. The Company changed its method of recognizing
income and expenses for income tax purposes from a cash basis to an accrual
basis effective July 1, 1994.
FISCAL 1994 COMPARED TO FISCAL 1993
REVENUE. The Company's revenue, substantially all of which is attributable
to professional fees, was unchanged at $15.7 million for both fiscal 1993 and
fiscal 1994, as the Company began development of its vertical market focus and
expansion of business developments efforts which encompass a long sales cycle.
In fiscal 1994 the largest client accounted for 72% of revenue, compared to 78%
in fiscal 1993. In fiscal 1994 two clients generated revenues of $1.0 million or
more; in fiscal 1993 three clients generated revenues of $1.0 million or more.
PROJECT COSTS AND EXPENSES. Project costs and expenses remained unchanged
from fiscal 1993 to fiscal 1994 at $9.1 million, representing 58% of revenue in
fiscal 1993 and fiscal 1994. Project personnel increased 51% from 116 at the end
of fiscal 1993 to 175 at the end of fiscal 1994, as the Company positioned
itself near the end of fiscal 1994 for anticipated growth.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
costs and expenses increased 12% from $3.8 million in fiscal 1993 to $4.2
million in fiscal 1994, representing 24% and 27% of revenue, respectively.
Administrative Personnel decreased 39% from 18 at the end of fiscal 1993 to 11
at the end of fiscal 1994.
OTHER INCOME (EXPENSE), NET. Other income (expense), net decreased
primarily due to a decline in interest income associated with lower cash
balances.
INCOME TAX EXPENSE. The Company's effective tax rate declined from 43% in
fiscal 1993 to 40% in fiscal 1994 due to a change in accounting for incomes
taxes as described in Note 7 of Notes to the Consolidated Financial Statements.
19
<PAGE>
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly consolidated
statement of operations data for each of the seven quarters in the period ended
March 31, 1996 and the percentage of the Company's total revenue represented by
each item in the respective quarter. In the opinion of management, this
information has been presented on the same basis as the 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 Consolidated Financial Statements of the
Company and related Notes thereto. The operating results for any quarter are not
necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------
FISCAL YEAR 1995 FISCAL YEAR 1996
---------------------------------------------- ----------------------------------
SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Professional fees..................... $ 6,044 $ 6,431 $ 6,513 $ 8,304 $ 8,874 $ 10,813 $ 12,024
Resold products and services.......... -- -- -- -- 9 1,094 861
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenue....................... 6,044 6,431 6,513 8,304 8,883 11,907 12,885
Costs and expenses:
Project costs and expenses............ 2,803 3,069 3,395 4,437 4,709 5,463 6,619
Resold products and services.......... -- -- -- -- 8 1,049 817
Selling, general and administrative... 1,953 2,004 2,974 3,225 3,230 3,328 4,573
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total costs and expenses............ 4,756 5,073 6,369 7,662 7,947 9,840 12,009
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income from operations.............. 1,288 1,358 144 642 936 2,067 876
Other income (expense), net............. 8 10 32 17 (5) (36) (17)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes.......... 1,296 1,368 176 659 931 2,031 859
Income tax expense...................... 501 529 68 254 393 859 364
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income.......................... $ 795 $ 839 $ 108 $ 405 $ 538 $ 1,172 $ 495
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
AS A PERCENTAGE OF REVENUE
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Professional fees..................... 100% 100% 100% 100% 100% 91% 93%
Resold products and services.......... -- -- -- -- -- 9 7
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenue....................... 100 100 100 100 100 100 100
Costs and expenses:
Project costs and expenses............ 47 48 52 53 53 46 51
Resold products and services.......... -- -- -- -- -- 9 6
Selling, general and administrative... 32 31 46 39 37 28 36
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total costs and expenses............ 79 79 98 92 90 83 93
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income from operations.............. 21 21 2 8 10 17 7
Other income (expense), net............. -- -- 1 -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes.......... 21 21 3 8 10 17 7
Income tax expense...................... 8 8 1 3 4 7 3
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income.......................... 13% 13% 2% 5% 6% 10% 4%
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
The Company's quarterly revenue and results of operations have fluctuated
significantly in the past and will likely fluctuate in the future. Factors
causing such fluctuations have included and may include, among other factors,
the number, size and scope of projects in which the Company is engaged, the
contractual terms and degree of completion of such projects, any delays incurred
in connection with a project, employee hiring and
20
<PAGE>
utilization rates, the adequacy of provisions for losses, the accuracy of
estimates of resources required to complete ongoing projects, general economic
conditions, weather-related shut-downs in major markets, vacation days, total
business days in a quarter and the business practices of clients such as
deferring commitments on new projects until after the end of the calendar or
fiscal year.
The Company's revenue has increased in each of the quarters presented above.
These increases have resulted primarily from an increase in professional fees
generated from an increase in the number of projects performed, both for new and
existing clients.
Project costs and expenses have increased in each quarter due to an
increased number of project personnel employed to support an increased number of
projects. Variability in utilization rates for project personnel has resulted in
some quarterly fluctuations in project costs and expenses as a percentage of
revenue. Utilization rates may vary based on training schedules, vacation and
holiday schedules, severe weather conditions, recruiting requirements, client
start-up of new projects and other administrative requirements of project
personnel. In the last two quarters presented, resold products and services
passed through to clients with less than 5% margin caused a fluctuation in the
quarterly results. Without the revenue from resold products and services,
project costs and expenses as a percentage of professional fees was 51% and 55%,
respectively, in the quarters ended December 31, 1995 and March 31, 1996.
Selling, general and administrative expenses have increased in each quarter
presented as these activities have grown in support of increased revenue. In the
quarter ended March 31, 1995 these expenses increased substantially as selling
efforts expanded and internal infrastructure investments were made in training,
career development and recruiting. In the subsequent quarters these expenses
declined as a percentage of sales with the exception of the last quarter
presented. Without the revenue from resold products and services, selling,
general and administrative expenses as a percentage of professional fees only
was 31% and 38% in the quarters ended December 31, 1995 and March 31, 1996. In
the last quarter presented, non-recurring charges associated with changes of
personnel and expansion into international markets amounted to 3% of
professional fees.
Due to the foregoing factors, among others, it is possible that in some
future quarter the Company's results of operations will be below the
expectations of the public market analysts and investors. In such event, the
price of the Company's Common Stock would likely be materially adversely
affected. See "Risk Factors -- Variability of Quarterly Operating Results;
Seasonality."
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations and investments in
property and equipment primarily through cash generated from operations, bank
borrowings and capital lease financing.
Net cash provided from operations was $1.2 million for the nine months ended
March 31, 1996, $231,000 for fiscal 1995, $730,000 for fiscal 1994 and $1.6
million for fiscal 1993. The increase in cash from operations in the most recent
nine-month period reported was due primarily to an increase in deferred revenue.
The decline in cash provided from operations in earlier periods reflects the
Company's investment in growth and fluctuations in deferred revenue.
The Company has a revolving line of credit with Bank of America Oregon, a
subsidiary of BankAmerica Corporation, providing for borrowings of up to $4.0
million. As of March 31, 1996 there were no borrowings against this line, though
$125,000 has been used for purposes of a standby letter of credit. As of May 20,
1996, there were $3.0 million in borrowings against this line, all of which the
Company expects to repay with a portion of the net proceeds of this offering.
Advances under the line of credit bear interest at Bank of America's NT&SA
Reference Rate, plus one quarter of a percentage point; the effective rate at
March 31, 1996 was 8.50%. This revolving line of credit expires on August 1,
1997.
The Company has certain non-revolving lines of credit with Bank of America
Oregon providing for borrowings of up to $3.0 million, primarily to finance
equipment purchases. As of March 31, 1996 there was $2.8 million of related debt
outstanding against these lines. Debt service under these lines is payable over
36 months, including principal and interest. There are three separate borrowings
under this facility at interest rates ranging from 7.59% and 8.05%.
21
<PAGE>
The Company is a guarantor on a non-revolving line of credit with Bank of
America Oregon which provided for borrowings of up to $2.0 million, for purposes
of facilitating the purchase of Claremont Common Stock by Company executives in
July 1995. As of March 31, 1996 there was $1.7 million of related debt
outstanding against the line. Advances under the line of credit were made
directly to the Company executive with full recourse and bear interest at Bank
of America's NT&SA Reference Rate, plus one percentage point. Claremont's
guaranty is secured by a pledge of each borrower's shares of the Company's
Common Stock. Advances under the line of credit are for 36 months and include
monthly interest payments, made by each Company executive, with principal
repayment by each Company executive due on or before July 31, 1998. See "Certain
Transactions."
The various lines of credit with Bank of America Oregon are contained in a
master Business Loan Agreement which includes covenants relating to the
maintenance of certain financial ratios and minimum net worth.
For fiscal 1995, 1994 and 1993 the Company had capital expenditures of $1.5
million, $247,000 and $207,000, respectively. These expenditures were primarily
for workstations, personal computers and furniture. For the nine month period
ended on March 31, 1996 the Company had $3.0 million in capital expenditures
primarily related to furniture and personal computers, and $1.2 million
associated with the capitalization of software development costs.
At March 31, 1996 the Company had working capital of approximately $3.0
million. The Company believes that the cash provided from operations, borrowings
available under its revolving line of credit and expected net proceeds of this
offering will be sufficient to meet the Company's working capital and capital
expenditure requirements for at least the next 24 months.
NEW ACCOUNTING PRONOUNCEMENTS
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123 ("SFAS 123"), which establishes a fair value based method of
accounting for stock-based compensation plans. While the Company is studying the
impact of the pronouncement, it continues to account for employee stock options
under APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. SFAS 123
will be effective for fiscal years beginning after December 15, 1995.
22
<PAGE>
BUSINESS
Claremont Technology Group, Inc. ("Claremont" or the "Company"), provides
enterprise-wide informa-
tion technology ("IT") solutions that re-engineer mission-critical business
processes such as customer service, order processing, billing and logistics.
Claremont delivers its services, including IT planning, systems integration and
development and outsourcing, through a project management methodology that can
employ reusable object oriented software modules and transferable design
frameworks on a fixed-price basis or a time and materials basis. Claremont
provides solutions to large organizations in select high demand, vertical
markets, including communications, financial services and pension/retirement
services. Claremont's clients consist of large corporations and government
organizations in the United States and foreign markets including Canada, the
United Kingdom, Saudi Arabia, New Zealand and Australia.
Claremont provides its services to organizations within industries where
technology-enabled change and re-engineering of business processes can have a
significant competitive impact. The Company's focus on opportunities within
select vertical markets is facilitated by its expertise with the particular
customer interface within these markets and its dedication to partner with
clients to co-develop large scale business solutions. Claremont's industry
specific expertise and its partnership approach to its client relationships
gives Claremont a competitive advantage in marketing additional services to its
clients and results in high customer retention levels. Clients representing 94%
of Claremont's fiscal 1995 revenue continue as clients today. The Company's
clients include: AT&T and its subsidiaries, Fred Meyer, Inc., Lucent
Technologies, Ohio State Teachers Retirement System and PacificCorp.
INDUSTRY BACKGROUND
Organizations today face constant pressure to improve the quality of
products and services, reduce cost and time to market and improve operating
efficiency while strengthening customer relationships. To compete effectively,
organizations must improve business processes to empower the end user and must
develop internal decision-making processes and methods of exchanging information
that are more efficient and effective. Such broad ranging changes mean that IT
deployment decisions are increasingly made at the senior executive level rather
than at the departmental level and are implemented across the entire
organization. Information systems and their rapid development and deployment
have become a source of strategic advantage and are increasingly
mission-critical.
As IT systems have evolved to a value-added component of an organization's
strategy, the need has grown to design, develop and deploy business applications
solutions rapidly, flexibly and in a technological framework that supports
today's geographically distributed business environment. Consequently, there has
been a shift in the past few years in the computing platforms favored by large
organizations, from single-vendor legacy mainframe-based systems to open,
multi-vendor client/server computing systems, and most recently to corporate
intranets. However, the benefits of client/server and other advanced
technologies can be difficult to obtain, because designing, developing,
deploying and managing client/server systems is complex, time consuming and
costly. In addition, organizations often lack the range and depth of skills
necessary to develop these systems internally and often cannot effectively
attract personnel with the required technological expertise.
Organizations increasingly wish to use their information systems to address
these mission-critical business processes faster and more effectively at a lower
cost. Computer information systems now often serve as the primary information
resource through which organizations serve their customers, and increasingly
serve as the organization's primary interface to its customers. Many
organizations have found that among the most compelling applications that employ
client/server technology are solutions that effectively distribute information
directly to the business end user who services customers, or directly to the
customers themselves. Applications such as customer service, order processing,
billing, distribution and logistics directly influence an organization's ability
to generate customer satisfaction and revenue, and therefore tend to be
priorities for allocation of any organization's capital budgets in both strong
and slow economic climates.
The complexity of current technologies, the lack of sufficient in-house
resources, and the competitive pressures requiring rapid implementation of new
mission-critical systems in client/server and distributed technologies, have led
to increasing demand for third-party solution providers. To meet that demand
effectively,
23
<PAGE>
providers of applications and systems solutions require global reach, a full
range of technical skill, ability to provide the best available technologies,
in-depth knowledge of the customer interface in particular industries and the
ability to manage complex technological projects to completion on time and
within budget.
THE CLAREMONT SOLUTION
Claremont combines its expertise in IT consulting and large scale systems
integration to provide its clients business solutions that allow them to better
serve their customers. The following are key attributes of the Claremont
solution:
MISSION-CRITICAL BUSINESS SOLUTIONS. The Company focuses on providing
enterprise-wide IT solutions that re-engineer core business processes such as
customer service, order processing, billing and logistics. Claremont's approach
minimizes project risk through use of a methodology that emphasizes problem
definition and solution design and can employ proven software modules and design
frameworks, and through use of experienced personnel with applicable project
management and industry expertise.
VERTICAL MARKET EXPERTISE AND CLIENT PARTNERSHIP. Claremont's vertical
market orientation offers application solutions that are based on in-depth
knowledge of particular industries and a detailed understanding of the client's
business. By targeting specific industries and developing long-term client
relationships, the Company is able to provide enterprise-wide business solutions
based on a detailed and thorough understanding of the industry in which the
client operates as well as the client's own business processes.
TISE DEVELOPMENT METHODOLOGY -- REUSABLE SOFTWARE MODULES AND TRANSFERABLE
DESIGN FRAMEWORKS. Claremont's Total Information Systems Engagement (TISE-TM-)
development methodology provides a structure through which the Company's skills
and knowledge can be effectively deployed. Claremont's approach emphasizes the
replacement of outdated and inflexible legacy code as part of the re-engineering
processs rather than the mere addition of new interfaces. The ability to employ
previously constructed software modules and design frameworks provides Claremont
leverage during the design and integration phases, minimizes business risk,
reduces time to solution and project costs.
STRATEGY
Claremont's objective is to be a leader in providing enterprise-wide
business solutions using the best available technologies that deliver
significant performance improvements in a focused group of industries. The
Company's strategy to achieve this objective includes the following critical
elements:
EXPAND CLIENT BASE BY LEVERAGING VERTICAL MARKET EXPERTISE. The Company
seeks to increase its domestic and international client base by further
penetrating the markets it currently serves. The Company believes that its
vertical industry organization results in a more thorough understanding of each
of its clients' businesses. In addition, the ability to employ reusable software
modules and transferable design frameworks reduces the time and cost required to
implement solutions. Proven software solutions and industry expertise give the
Company a competitive advantage as it pursues larger and more complex projects
with new clients.
INCREASE PENETRATION AND RETENTION OF EXISTING CLIENTS. Claremont seeks to
expand the nature and scope of existing relationships by strengthening its
partnerships with those clients. Combining the Company's industry expertise with
an in-depth knowledge of the client's systems and business processes provides
the Company with a competitive advantage when marketing additional services and
solutions to existing clients. The effectiveness of this strategy is evidenced
by the fact that clients representing 94% of Claremont's fiscal 1995 revenue
continue as clients today.
CAPITALIZE ON BENEFITS FROM TISE METHODOLOGY. Claremont's TISE methodology
is designed to allow the Company's consultants to efficiently develop custom
applications solutions. The Company plans to continue to apply and refine the
TISE methodology in order to provide margin enhancement through the application
of previously developed, reusable software modules and transferable design
frameworks, VALUE SERVERS, that are transferable within and across Claremont's
target industries. The Company can often leverage the existence of tested and
proven VALUE SERVER solutions when pursuing new business opportunities.
PROVIDE EXPERTISE IN HIGH DEMAND LEADING EDGE TECHNOLOGIES. Claremont
maintains and continues to build expertise in high demand advanced technologies
expected to be the most useful and well-supported in the
24
<PAGE>
future, such as internet/intranet applications, open computing systems, object
oriented solutions, and relational database management systems. In support of
this strategy, Claremont works with companies such as Arbor Software
Corporation, Forte Software, Inc., Hewlett Packard Company, Microsoft
Corporation, Netscape Communications Corporation, Oracle Technology, Inc.,
Silicon Graphics, Inc. and Sybase, Inc. These relationships enable the Company
to stay on the leading edge of technological development and also help to
attract business opportunities, while still allowing Claremont the freedom to
provide technologies to its clients that best suit the client's business needs
without bias towards any single vendor.
ATTRACT AND RETAIN HIGHLY QUALIFIED EMPLOYEES. Attracting and retaining
superior, highly innovative IT professionals is a critical element in
Claremont's ability to deliver high quality services to its clients. Claremont
seeks to achieve this goal by providing a motivational and interactive work
environment that features continuous and extensive professional development
opportunities, balanced perspective and employee ownership incentives, as well
as frequent and open communication at all levels of the organization.
PURSUE STRATEGIC ACQUISITIONS. The Company expects to expand its geographic
presence, industry expertise and technical scope through strategic acquisitions
that provide complementary software services or skills, have strategic client
relationships or bring specific expertise in target industries.
CLAREMONT SERVICES
Claremont provides IT applications solutions encompassing IT planning, IT
systems integration and development, and IT outsourcing of IT
maintenance/enhancement services for large corporations and government
organizations in the United States and foreign markets including Canada, the
United Kingdom, Saudi Arabia, New Zealand and Australia. Through its TISE
methodology, the Company seeks to deliver, in a timely fashion, cost effective
systems that meet the clients' needs and provide the flexiblity to meet future
application processing requirements. The Company's TISE methodology for
delivering its services is typically divided into the three phases illustrated
below:
[THE CHART WILL GRAPHICALLY DEPICT THE THREE PHASES
OF THE TISE METHODOLOGY DESCRIBED BELOW.]
25
<PAGE>
The following is a brief description of each phase and task of the TISE
methodology:
PHASE I: IT CONSULTING. Generally, IT Consulting precedes the actual
systems integration project and is completed in a timeframe of one to two
months. IT Consulting typically concludes with a return-on-investment analysis
and a proposal including budgets and anticipated timeframe for implementation of
the proposed solution. The purpose of this phase is to allow executives,
managers and end users from the client work in partnership with Claremont
consultants to develop recommendations for strategic business process changes.
Claremont's preference is to also develop a high-level architectural
infrastructure design in this phase which provides Claremont and the client with
a structural roadmap for approaching Phase II, the Systems
Development/Integration phase.
PHASE II: SYSTEMS DEVELOPMENT/INTEGRATION. Systems Development/Integration
generally results in delivery of a fully implemented solution in three to 12
months. Appropriate application of the TISE methodology during this phase
results in the development of the IT solution, as well as the effective
implementation of that solution and meaningful change in the client's business
processes. Systems Development/Integration involves these stages:
PROCESS DESIGN. A key to Phase II of the TISE methodology is an
assessment of the operational impact of a new system, and designing
re-engineered business processes for the client to insure that the solution
developed will provide the desired results. This process begins at the
earliest stages of the design of the application itself, and continues
throughout the Systems Development/Integration process. These processes lead
to the client's acceptance of the high-level object oriented business model
and the development of an architected system infrastructure, and can often
draw on VALUE SERVER design frameworks already developed by Claremont as
central design elements.
SYSTEM DEVELOPMENT. Once the high-level system infrastructure is in
place, the TISE methodology places an emphasis on solving detail-level
system logic and design problems before coding begins, and results in
sufficiently detailed specifications that enable Claremont to complete the
actual coding and testing of the application's software objects in a highly
controlled, factory-like manufacturing process. In this process, where
appropriate, Claremont can incorporate previously developed and reusable
software modules. Because Claremont's solutions replace, rather than simply
surround, the client's old and inflexible legacy code, system development
also includes the development of a significant number of interfaces to other
client systems. Claremont assembles all the code from the previously
completed tasks and conducts a functional test of the new system.
SYSTEM DEPLOYMENT. Complete implementation of the solution requires two
final steps. The first is developing the new job descriptions and
operational procedures and training people in how to take maximum advantage
of the new system. The second step is to put the entire system through a
complete test from the user's perspective, including testing the software,
as well as the new procedures and the interfaces with existing systems.
PHASE III: OUTSOURCING. Outsourcing of the ongoing support and enhancement
for the client's new system and/or total system environment is an area of
services that has been growing for Claremont over the past few years. The
outsourcing phase of the TISE methodology provides opportunities for the Company
to enhance client partnerships and broaden the scope of its engagements.
While individual Phase I projects are small -- typically $25,000 to $100,000
- -- total client engagements regularly involve multiple projects over several
years and can generate revenue in excess of $20 million. Claremont has been
successful in negotiating resale rights for several of its software solutions.
Claremont provides its services on both a time and materials and fixed-price
basis. Invoices for time and materials work are presented on a bi-weekly or
monthly basis. Invoices for fixed-price engagements are presented in accordance
with achievement of negotiated milestones or dates during the development
process.
TECHNOLOGICAL EXPERTISE
Claremont's Advanced Technology/Internet Practice provides technological
resources across all of Claremont's industry practice areas and seeks to build
and maintain the Company's expertise in leading edge
26
<PAGE>
technologies. Advanced Technology/Internet Practice personnel are located in
Montreal, Canada; Basking Ridge, New Jersey; Columbus and Cleveland, Ohio;
Beaverton, Oregon; Sacramento, California; Seattle, Washington and North Sydney,
Australia. The Advanced Technology/Internet Practice is managed on a world-wide
basis ensuring that every client, regardless of location, has access to
Claremont's technical expertise.
At present, Claremont focuses its advanced technology skills in four main
areas: object oriented systems development; electronic commerce
(internet/intranet and groupware solutions); client/server enterprise
architectures (complex network management); and on-line analytical processing
(executive support systems/data warehousing). Claremont uses its relationships
with hardware and software providers such as Arbor Software Corporation, Forte
Software, Inc., Hewlett Packard Company, IBM, Netscape Communications
Corporation, Oracle Technology, Inc., Silicon Graphics, Inc., and SyBase, Inc.
to help ensure that it remains current with the latest technology and to serve
as a source of new business opportunities for the Company's industry practice
areas.
MARKETS AND CLIENTS
Claremont focuses its marketing efforts on clients in information-intensive
businesses, including communications, financial services, government services
and retail/commercial services. Within these vertical markets, the Company
targets clients for whom enterprise-wide IT solutions can provide a competitive
advantage. The Company intends to continue to pursue opportunities to provide
its services in other industry sectors with similar needs.
Claremont's most significant clients, in terms of revenue earned in the nine
months ended March 31, 1996, within its industry practice areas are listed
below:
<TABLE>
<CAPTION>
COMMUNICATIONS FINANCIAL SERVICES
- ------------------------------------ ------------------------------------
<S> <C>
AT&T Bank One
Lucent Technologies Colonial Pacific Leasing
Sprint Lloyds Bank
<CAPTION>
PENSION/RETIREMENT AND
OTHER GOVERNMENT SERVICE RETAIL/COMMERCIAL SERVICES
- ------------------------------------ ------------------------------------
<S> <C>
California Public Employees Blue Cross/Blue Shield Oregon
Retirement Fred Meyer, Inc.
System ("CalPERS") Netscape Communications Corporation
Mississippi Public Employee PacifiCorp
Retirement Wacker Siltronic Corporation
System ("Mississippi PERS")
Ohio Public Employee Retirement
System ("Ohio STRs")
State of Oregon, Department of
Environmental Quality
</TABLE>
The Company has in the past derived, and may in the future derive, a
significant portion of its revenue from a relatively small number of clients.
During the fiscal year ended June 30, 1995, the Company had two clients which
each represented in excess of 10% of the Company's revenues: Ohio STRS, 38%, and
AT&T Network Systems Group (now Lucent Technologies), 19%. In the nine months
ended March 31, 1996, the Company had three clients each of whom represented at
least 10% of the Company's revenue: Lucent Technologies, 24%; STRS, 14%; and
Mississippi PERS, 12%. See "Risk Factors -- Client and Industry Concentration;
Dependence on Large Projects."
27
<PAGE>
The Company's IT consulting services focus on four key industry sectors:
communications, financial services, pension/retirement and other government
services and retail/commercial services which represented approximately 30%, 4%,
34% and 32%, respectively, of the Company's revenue for the nine months ended
March 31, 1996.
COMMUNICATIONS. The Company has rapidly expanded its presence in a variety
of communications clients. During fiscal 1995, the Company performed a number of
engagements, including assisting in developing the billing system architecture
for the new Saudi Arabian telephone network. The Company counts AT&T and Lucent
Technology among its clients and has recently added Sprint and the New Zealand
Telephone Company to its client list. The communications practice area has
developed a VALUE SERVER consisting of a reusable set of object oriented
software modules constructed to support communications clients in their billing
and customer care functions. Collectively, these modules represent a highly
flexible VALUE SERVER to support these critical billing and customer care
business functions. The Company believes that in suitable applications the
reusable software modules will enable Claremont to offer its clients reduced
development time and cost.
FINANCIAL SERVICES. As with the communications practice, the Company has
committed substantial resources to growing its financial services practice on a
global scale. Lloyd's Bank is the anchor account for the practice area, and is
served out of Claremont's London and Montreal offices. Substantial efforts in
this practice area are also underway in Ohio, where BancOne, Limited Credit
Services and Fifth Third Bank are clients of the Company, and in the Pacific
Northwest where Frank Russell and Colonial Pacific Leasing are clients of the
Company.
PENSION/RETIREMENT AND OTHER GOVERNMENT SERVICES. Claremont began its
pension/retirement systems practice as a result of a strategic partnership with
the Ohio STRS. The relationship has produced a VALUE SERVER consisting of
reusable software modules for the pension/retirement systems industry, which is
being marketed under the name CLARETY. The CLARETY product was created using the
Forte software development client/server tool set. Claremont is currently
implementing CLARETY software for Mississippi PERS, and CLARETY has just been
selected for implementation by the State of New Hampshire. To the Company's
knowledge, CLARETY software is the only object oriented client/server product of
its kind being marketed to the pension/retirement systems market.
Claremont has become the leading provider of IT consulting and custom
software development services to the State of Oregon -- Department of
Environmental Quality and the State of Washington -- Department of Ecology. For
the Oregon Department of Environmental Quality, Claremont developed a software
product called HWIMSY for tracking hazardous waste. Claremont now has marketing
rights for this software. Claremont established the health and human services
practice area in fiscal 1995 after the recruitment of a team of individuals with
in-depth knowledge of the business processes associated with administering the
enforcement of child support judgments. Claremont has begun work in the health
and human services area for the state governments of Missouri, Oregon and Ohio.
RETAIL/COMMERCIAL SERVICES. The retail/commercial services practice area
consists of services to the manufacturing, retail, public utility and health
insurance industries. Claremont provides IT consulting, custom software
development and application maintenance/enhancement services to clients in all
four industries. Projects in these industries include such applications as
systems support for new food distribution systems; an inventory management
system for a retail chain; an order processing system for a national wood
products company and a customer service system encompassing such functions as
meter management, work tracking and accounts receivable for a major utility.
INTELLECTUAL PROPERTY RIGHTS
The Company's success is dependent upon maintenance and protection of its
intellectual property rights. The Company relies on a combination of copyrights,
trade secrets and trademarks to protect its technology. The Company has
applications pending at the United States Patent and Trademark Office with
respect to the Company's CLARETY, NORTHERN DIAMOND, PREMOST and TISE trademarks.
The Company's practice has been to enter into confidentiality agreements with
its employees and signed agreements that include nondisclosure provisions with
clients. See "Risk Factors -- Intellectual Property Rights."
28
<PAGE>
BUSINESS DEVELOPMENT
Claremont's business development efforts are based primarily upon personal
contacts, the reputations of its senior personnel, industry marketing programs
and attendance at appropriate industry forums. Claremont believes that business
development is an integral part of the responsibility of practice area leaders
and other senior project managers. Claremont also follows a practice of
marketing its services through strategic alliances with a select list of
hardware and software providers.
The Company employs an established selling methodology, the Miller-Heiman
process. The Miller-Heiman process is focused on sales that involve multiple
decisionmakers at different levels in large organizations. The process provides
an analytical approach to identifying the key decisionmakers, determining with
the client the value to be provided to the client and managing the sales process
through completion. Claremont maintains a corporate information database
referred to as the Opportunity Center to manage the selling process. The sale of
a new project generally involves a three to six month effort. At any given time
numerous Claremont professionals are active in the development of new business.
The coordination of their efforts and the tracking of their results is critical
to Claremont's ability to forecast and adequately staff future work. Claremont's
Opportunity Center is a critical management tool to assist the Company's senior
executives in managing this process.
COMPETITION
The markets for the Company's services are highly competitive. The Company
believes that it currently competes principally with the internal information
systems groups of its prospective clients, as well as consulting and software
integration firms including Andersen Consulting, the "Big Six" accounting firms,
ISSC (an affiliate of IBM), Computer Sciences Corporation and with other
hardware and applications software vendors. In addition there are a number of
systems integrators who serve similar markets or provide similar services, such
as Cambridge Technology Partners, Renaissance Solutions, Inc., SHL Systemhouse
(a subsidiary of MCI), Sapient Corporation and Technology Solutions Company,
with whom the Company may compete in the future. Many of these companies have
significantly greater financial, technical and marketing resources than the
Company, generate greater revenue and have greater name recognition than the
Company. In addition, there are relatively low barriers to entry into the
Company's markets and the Company has faced and expects to continue to face
additional competition from new entrants into its markets.
The Company believes that the principle competitive factors in its markets
include reputation, project management expertise, industry expertise, speed of
development and implementation, technical expertise and ability to deliver on a
fixed-price as well as a time and materials basis. The Company believes it
competes favorably with respect to these factors and that the depth of
experience with its clients, their industries, and the technologies they
implement. The Company's TISE development methodology incorporating object
oriented techniques, its focus on the client's core business processes, and its
ability to offer fixed-price contracting practices distinguish it from its
competitors. See "Risk Factors -- Competition."
CLAREMONT PERSONNEL
The success of the Company is based on attracting and retaining talented,
creative and experienced people at all levels. The Company dedicates significant
senior resources to its recruiting effort, primarily recruiting professionals
with both IT consulting and industry experience. All of Claremont's managers and
senior managers have substantial expertise in designing and implementing
large-scale applications solutions, and many of them have relevant industry
experience. As a result, the Company's consultants provide industry knowledge
and line management expertise, in addition to technical expertise, to the
Company's clients.
29
<PAGE>
As of May 1, 1996, the Company had a total of 495 employees of whom there
were 467 individuals in the professional staff and 28 in administrative roles.
The following table summarizes the experience, as of May 1, 1996, of the
Company's professional staff.
<TABLE>
<CAPTION>
AVERAGE RELEVANT YEARS OF
EXPERIENCE
--------------------------------
TITLE NUMBER AVERAGE AGE CONSULTING INDUSTRY
- ----------------------------------------------------------------- ----------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Officers and Practice Directors.................................. 40 40 11 6
Managers and Senior Managers..................................... 112 38 6 6
Senior Consultants............................................... 161 34 3 5
Consultants...................................................... 154 29 1 2
<CAPTION>
TITLE TOTAL
- ----------------------------------------------------------------- -----
<S> <C>
Officers and Practice Directors.................................. 17
Managers and Senior Managers..................................... 12
Senior Consultants............................................... 8
Consultants...................................................... 3
</TABLE>
The Company believes that its success in attracting and retaining
experienced, highly-qualified personnel is in part attributable to the Company's
stock incentive and employee stock ownership plans. These plans are designed to
motivate and encourage the loyalty and dedication of the Company's employees,
and include vesting provisions designed to encourage long-term employee
perspectives and retention of employees.
In order to accommodate typical project development lead time, the Company
has found that it must recruit and hire additional personnel on the basis of
anticipated demand for their services. Although this practice has contributed to
the Company's growth to date, there can be no assurance that demand for the
Company's services will materialize as anticipated, and this practice could
result in under-utilized employees and consequently have a material adverse
effect upon the Company's business, financial condition and results of
operations.
The Company's employees maintain and continue to build expertise in
high-demand, advanced technologies by regular in-house training programs, which
may include vendor demonstrations. Claremont also keeps abreast of such advances
and developments by hiring professionals with expertise in technologies that are
needed or can be used by the Company and its clients.
FACILITIES
The Company's headquarters and principle administrative offices are located
in approximately 11,011 square feet of leased space located in Beaverton,
Oregon. In addition, Claremont has invested in three software development
centers, which Claremont refers to as "software factories." These centers are
located in Beaverton, Oregon; Montreal, Canada; and Columbus, Ohio.
The Company's west coast business development and technical development
personnel operate from the Beaverton, Oregon location. The Company occupies
these premises under a lease expiring in April 1999. In addition, the Company
leases 14,517 square feet in Columbus, Ohio for its retirement system national
practice, central region business development and technical lab. The lease
relating to these premises expires in November 2000. The Company also leases
office space in 11 other locations, including Basking Ridge, New Jersey;
Bellevue, Washington; Cleveland, Ohio; Jackson, Mississippi; Morristown, New
Jersey; Sacramento, California; New York, New York; White Plains, New York;
Montreal, Canada; London, United Kingdom; and North Sydney, Australia, from
which regional project management and business development is conducted. Leases
for these premises range from 2,050 to 4,395 square feet. The Company
anticipates that additional space may be required as the Company's business
operations expand and believes it will be able to obtain suitable space as
needed.
30
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of May
20, 1996, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Paul J. Cosgrave..................................... 45 President and Chief Executive Officer, Director
Dennis M. Goett...................................... 47 Chief Financial Officer, Director
Stephen D. Hawley.................................... 47 Senior Vice President, Pension and Retirement
Edward A. Fullman.................................... 34 Senior Vice President, Communications
Karen Fast........................................... 45 Senior Vice President, Market Development
Ross C. Kayuha....................................... 38 Senior Vice President, Advanced Technology
Jerry L. Stone (1)................................... 53 Director
Neil E. Goldschmidt (2).............................. 55 Director
Phillip W. Seeley (1)(2)............................. 49 Director
</TABLE>
- ------------
(1) Member, Compensation Committee of the Board of Directors.
(2) Member, Audit Committee of the Board of Directors.
PAUL J. COSGRAVE has served as Chairman of the Board of Directors of the
Company since January 1996, and as President, Chief Executive Officer and a
member of the Board of Directors of the Company since July 1994. From January
1993 through June 1994, he served as Executive Vice President of Technology
Solutions Company. From February 1992 to December 1992, Mr. Cosgrave served as
President and Chief Executive Officer of AGS Computers, a subsidiary of NYNEX
Corporation. Prior to January 1992, he served as a Partner with Andersen
Consulting, in the Management Information Systems Consulting Practice.
DENNIS M. GOETT has served as Chief Financial Officer and Senior Vice
President, Finance of the Company since February 1996 and as a member of the
Board of Directors of the Company since April 1996. Since January 1988 he has
served as President of Gabriel Partners, Inc., a financial consulting firm.
STEPHEN D. HAWLEY has served as Senior Vice President, Pension and
Retirement of the Company since February 1993. From September 1988 through
February 1993 he served as a Partner in Andersen Consulting, the Management
Information Systems Consulting Practice of Arthur Andersen LLP.
EDWARD A. FULLMAN has served as Senior Vice President, Communications of the
Company since July 1994. From April 1992 through July 1994, he served as a Vice
President of NYNEX/DPI Company, a division of NYNEX Corporation. From June 1989,
through April 1992, he served as Vice President of AGS Information Services, a
division of NYNEX Corporation.
KAREN FAST has served as Senior Vice President, Market Development of the
Company since April 1994. From April 1993 through April 1994, she served as Vice
President, Portland Practice of the Company. From January 1991 through April
1993, she served as the Manager of the Open Systems Consulting Group, the
Systems Integration Practice of IBM.
ROSS C. KAYUHA has served as Senior Vice President, Advanced Technology of
the Company since January 1996. From January 1994 through January 1996, he
served as Senior Vice President, Central Region of the Company. From January
1993 through January 1994, he served as Vice President, Central Region of the
Company and from April 1992 through January 1993, he served as a Director of
Project Management of the Company. From September 1985 through April 1992, he
served as a Senior Manager in Andersen Consulting, the Management Information
Systems Consulting Practice of Arthur Andersen LLP.
JERRY L. STONE has served as a member of the Board of Directors of the
Company since November 1989. Mr. Stone has been active as a private investor
since 1989. From 1986 through January 1989, he served as Chairman and Chief
Executive Officer of Marketing One, Inc.
NEIL E. GOLDSCHMIDT has served as a member of the Board of Directors of the
Company since November 1993. Since January 1991, Mr. Goldschmidt has conducted a
private law practice focused primarily on
31
<PAGE>
strategic planning for national and international business clients. From January
1987 to January 1991, Mr. Goldschmidt served as Governor of the State of Oregon.
Prior to his 1986 gubernatorial campaign, Mr. Goldschmidt was an executive of
Nike, Inc., serving as International Vice President from 1981 to 1985 and as
President of Nike Canada from 1986 to 1987. Furthermore, Mr. Goldschmidt served
as Secretary of Transportation in the Carter Administration from 1979 to 1981.
PHILLIP W. SEELEY has served as a member of the Board of Directors of the
Company since April 1994. Mr. Seeley has served as Executive Vice President of
Sales and Marketing of CF Motor Freight Trucking, Inc. since July 1994. From
January 1990 through July 1994, he served as Vice President of Administration
and Technology of Consolidated Freightways, Inc.
Executive officers of the Company are appointed by the Board of Directors
and serve at the discretion of the Board. All directors hold office until the
next annual meeting of the Company, or until their successors have been duly
elected and qualified. There are no family relationships between any of the
executive officers or directors of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors maintains an Audit Committee and a Compensation
Committee. The Audit Committee, consisting of Messrs. Goldschmidt and Seeley,
oversees actions taken by the Company's independent auditors and reviews the
Company's internal audit controls. The Compensation Committee, consisting of
Messrs. Stone and Seeley, reviews the compensation levels of the Company's
employees and makes recommendations to the Board regarding changes in
compensation.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors consists of Messrs.
Stone and Seeley, none of whom has been or is an officer or an employee of the
Company.
DIRECTOR COMPENSATION
The members of the Company's Board of Directors are reimbursed for
out-of-pocket and travel expenses incurred in attending Board meetings. In
addition, non-employee members of the Board of Directors receive stock options
under the Company's 1996 Stock Option Plan for Nonemployee Directors. See "Stock
Option Plans."
EMPLOYMENT AGREEMENTS
On July 1, 1994, the Company entered into a three-year employment agreement
with Paul J. Cosgrave, its President, which provides for a minimum salary of
$400,000 per year and includes among other things provisions for a $150,000
loan, for which Mr. Cosgrave has signed a promissory note due July 1, 1997, or
if bonuses are earned earlier, $60,000 out of fiscal year 1995 bonus and $90,000
out of fiscal year 1996 bonus, and if Mr. Cosgrave leaves the Company, out of
termination pay due. The fiscal year 1995 bonus was earned and the $60,000
payment made. On February 1, 1996, the Company entered into an employment
agreement with Dennis M. Goett, its Chief Financial Officer, which provides for
a minimum salary of $295,000 per year. Each agreement provides that the
executive is entitled to a car allowance of $650 per month and certain medical
benefits. Each agreement further provides that if the executive's employment is
terminated at Claremont's election for reasons other than cause, the executive's
base salary will continue for the longer of three years from the start date or
six months from the termination date; provided, however, that Mr. Goett's salary
continuation shall cease if he competes with Claremont or solicits Claremont
customers. If termination is for cause or at the executive's choice, each
agreement also contains covenants of noncompetition and nonsolicitation of
clients. Regardless of the reason for termination, each agreement contains
commitments of nonsolicitation of Claremont personnel. In each agreement, the
noncompetition and nonsolicitation of clients and employees covenants continue
until the later of 18 months after termination of employment, or termination of
base salary payments. All other Named Executive Officers and all other Company
personnel have executed at-will employment agreements providing for protection
of proprietary information and assignment of intellectual property. In addition,
these agreements prohibit competition with the Company with respect to its
clients or active prospects for varying periods following termination.
32
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION. The following table sets forth certain information
concerning compensation earned by the Company's President and Chief Executive
Officer and each of the four other most highly compensated executive officers
for the year ended June 30, 1995 (collectively, the "Named Executive Officers")
(**):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL -------------
COMPENSATION SECURITIES
------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION ($)
- -------------------------------------------------------- ------------- ----------- ------------- ------------------
<S> <C> <C> <C> <C>
Paul J. Cosgrave ....................................... 415,000 100,000 650,000 8,724(1)
President and Chief Executive Officer
Steven L. Darrow(2) .................................... 300,000 -- -- 9,791(3)
Former Chairman of the Board
Stephen D. Hawley ...................................... 270,000 -- -- 2,145(4)
Senior Vice President,
Pension and Retirement
Edward A. Fullman ...................................... 207,500 -- 30,000 1,030(5)
Senior Vice President,
Communications
Ross C. Kayuha ......................................... 187,500 250,000 -- 1,374(6)
Senior Vice President,
Advanced Technology
</TABLE>
- ------------
(1) Includes $7,800 attributable to automobile allowance paid to Named Executive
Officer and 401(k) matching payments of $924.
(2) Mr. Darrow resigned from the Company effective March 15, 1996, and resigned
from the Board of Directors effective April 29, 1996. See "Certain
Transactions" for a description of Mr. Darrow's severance agreement.
(3) Includes $5,652 attributable to use by Named Executive Officer of automobile
leased by the Company, $3,215 attributable to golf club membership dues paid
by the Company on behalf of the Named Executive Officer and 401(k) matching
payments of $924.
(4) Includes $1,586 attributable to golf club membership dues paid by the
Company on behalf of the Named Executive Officer and 401(k) matching
payments of $559.
(5) Represents 401(k) matching payments of $1,030.
(6) Includes $450 attributable to golf club membership dues paid by the Company
on behalf of the Named Executive Officer and 401(k) matching payments of
$924.
** Mr. Dennis Goett, the Company's Chief Financial Officer and a member of its
Board of Directors, joined the Company during fiscal 1996. During February
1996, the Company granted Mr. Goett options to purchase 100,000 shares of
the Company's Common Stock. See "Business -- Employment Agreements" for a
description of Mr. Goett's employment agreement.
33
<PAGE>
OPTION GRANTS
The following table sets forth information concerning options granted to the
Named Executive Officers during the fiscal year ended June 30, 1995 under the
Company's 1992 Stock Incentive Plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM($)(2)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ---------------------
NAME GRANTED (1) FISCAL YEAR SHARE ($) DATE 5% 10%
- ----------------------------------------- ----------- ------------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Paul J. Cosgrave......................... 650,000 49.4% $ 1.73 (3) 707,192 1,792,163
Steven L. Darrow......................... -- -- -- -- -- --
Stephen D. Hawley........................ -- -- -- -- -- --
Edward A. Fullman........................ 30,000 2.3 2.21 1/27/05 41,696 105,665
Ross C. Kayuha........................... -- -- -- -- -- --
</TABLE>
- ------------
(1) Options granted in the fiscal year ended June 30, 1995 become exercisable
commencing at the end of the 11th month after the grant date, with two
percent of the options becoming exercisable at that time and with an
additional two percent of the options vesting at the end of each month
thereafter for 49 additional months.
(2) The amounts shown are hypothetical gains based on the indicated assumed
rates of appreciation of the Common Stock compounded annually for a ten-year
period. Actual gains, if any, on stock option exercises are dependent on the
future performance of the Common Stock and overall stock market conditions.
There can be no assurance that the Common Stock will appreciate at any
particular rate or at all in future years.
(3) Options representing 346,818 shares will expire on June 30, 2004, and
options representing 303,182 shares will expire on July 2, 2004.
The following table sets forth certain information regarding option
exercises during the fiscal year ended June 30, 1995 and the value of
unexercised options held as of June 30, 1995 by the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR-END FISCAL YEAR END ($)(2)
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE REALIZED ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- ----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Paul J. Cosgrave............... -- $ -- 217,792 432,208 396,381 786,619
Steven L. Darrow............... -- -- 46,300 63,700 116,676 160,524
Stephen D. Hawley.............. -- -- 139,708 121,766 341,508 348,875
Edward A. Fullman.............. -- -- 4,200 95,800 7,644 159,956
Ross C. Kayuha................. 46,609 58,329 81,702 106,689 263,021 324,724
</TABLE>
- ------------
(1) The value realized is based on the difference between the market price at
the time of exercise of the options and the applicable exercise price.
(2) The value of unexercised in-the-money options is calculated based on an
estimated fair market value at June 30, 1995 of $3.55 per share. Amounts
reflected are based on such estimated fair market value minus the aggregate
exercise price and do not necessarily reflect that the optionee sold such
stock.
34
<PAGE>
STOCK OPTION PLANS
1992 STOCK INCENTIVE PLAN. The Company's 1992 Stock Incentive Plan (the
"1992 Plan") provides for grants of both "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") and "non-qualified stock options" which are not qualified for treatment
under Section 422 of the Code, and for direct stock grants and sales to
employees or consultants of the Company. The purposes of the 1992 Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentives to the employees and
consultants of the Company and to promote business. The 1992 Plan is
administered by the Compensation Committee of the Board of Directors.
The term of each option granted under the 1992 Plan will be ten years from
the date of grant, or such shorter period as may be established at the time of
the grant. An option granted under the 1992 Plan may be exercised at such times
and under such conditions as determined by the Compensation Committee. If a
person who has been granted an option ceases to be an employee or consultant of
the Company, such person may exercise that option only during the three month
period after the date of termination, and only to the extent that the option was
exercisable on the date of termination. If a person who has been granted an
option ceases to be an employee or consultant as a result of such person's total
and permanent disability, such person may exercise that option at any time
within twelve months after the date of termination, but only to the extent that
the option was exercisable on the date of termination. No option granted under
the 1992 Plan is transferable other than at death, and each option is
exercisable during the life of the optionee only by the optionee. In the event
of the death of a person who has received an option, the option generally may be
exercised by a person who acquired the option by bequest or inheritance during
the twelve month period after the date of death to the extent that such option
was exercisable at the date of death.
The exercise price of incentive stock options granted under the 1992 Plan
may not be less than the fair market value of a share of Common Stock on the
date of grant of the option. The exercise price of non-qualified stock options
may not be less than 85% of the fair market value of a share of Common Stock on
the date of grant. The consideration to be paid upon exercise of an option,
including the method of payment, will be determined by the Compensation
Committee and may consist entirely of cash, check, shares of Common Stock or any
combination of such methods of payment as permitted by the Compensation
Committee.
The 1992 Plan will continue in effect until April 27, 2002, unless earlier
terminated by the Board of Directors, but such termination will not affect the
terms of any options outstanding at that time. The Board of Directors may amend,
terminate or suspend the 1992 Plan at any time, provided that no amendment
regarding amount, price or timing of the grants may be made more than once every
six months other than to conform with changes in certain Securities Exchange Act
and Internal Revenue Code requirements. Amendments that would materially
increase the number of shares that may be issued, materially modify the
requirements as to eligibility for Plan participation, or materially increase
the benefits to Plan participants must be approved by shareholders.
At May 1, 1996, options to purchase 924,904 shares of the Company's Common
Stock were available for future grants under the 1992 Plan. During the first
nine months of fiscal 1996, the number of options granted under the 1992 Plan to
the Named Executive Officers, and all officers and directors as a group, was as
follows: Paul J. Cosgrave -- 0; Steven L. Darrow -- 0; Stephen D. Hawley -- 0;
Edward A. Fullman -- 0; Ross C. Kayuha -- 0; and all officers and directors as a
group -- 100,000 (all of which were granted in February 1996 to Dennis M.
Goett).
1996 STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS. Nonemployee members of
the Board of Directors participate in the Company's 1996 Stock Option Plan for
Nonemployee Directors (the "1996 Nonemployee Director Plan"), which was adopted
to promote the interests of the Company and its shareholders by strengthening
the Company's ability to attract and retain experienced and knowledgeable
nonemployee directors and to encourage them to acquire an increased proprietary
interest in the Company. All options granted under the Plan are non-qualified --
not intended to qualify as incentive stock options under Section 422 of the
Code. Set forth below is a summary of the material terms of the 1996 Nonemployee
Director Plan.
Each option expires ten years from the date of its grant. Outstanding
options will expire earlier if an optionee terminates service as a director
before the end of the ten year term. If an optionee terminates service as
35
<PAGE>
a director for any reason other than retirement, total disability or death, the
option will automatically expire 90 days after the date of termination. If an
optionee dies or terminates service due to retirement or disability, the options
then outstanding will expire one year after the date of death or termination or
on the stated expiration date, whichever is earlier. Options are not assignable
during the lifetime of the optionee except by a qualified domestic relations
order.
The exercise price of options granted under the 1996 Nonemployee Director
Plan may not be less than the fair market value of a share of Common Stock on
the date of grant of the option. Payment of the option exercise price may be in
cash or promissory note or, to the extent permitted by the Compensation
Committee, by delivery of previously owned Company stock having a fair market
value equal to the option exercise or a combination of cash and stock. The
Compensation Committee may also permit "cashless" option exercises by allowing
optionees to surrender portions of their options in payment for the stock to be
received.
The Plan continues in effect until terminated by the Board of Directors or
by shareholders but such termination will not affect the terms of any options
outstanding at that time. The Board of Directors may amend, terminate or suspend
the 1996 Nonemployee Director Plan at any time, provided that no amendment
regarding
amount, price or timing of the grants may be made more than once every six
months other than to comport with changes in certain Securities Exchange Act and
Internal Revenue Code requirements. Amendments that would materially increase
the number of shares that may be issued, materially modify the requirements as
to eligibility of Plan participation, or materially increase the benefits to
Plan participants must be approved by shareholders.
A total of 200,000 shares of Common Stock have been reserved for issuance
upon exercise of stock options granted under the 1996 Nonemployee Director Plan.
Upon election to the board of directors, each director is granted an option to
purchase 20,000 shares, which option will vest over a three-year period (each a
"Recruitment Grant"). Following the first annual meeting of shareholders after a
Recruitment Grant is fully-vested, the nonemployee director holding such
fully-vested Recruitment Grant will receive an option to purchase an additional
15,000 shares of Common Stock, which option will vest over a three-year period
(a "First Renewal Grant"). Furthermore, following the first annual meeting of
shareholders after a nonemployee director's First Renewal Grant is fully-vested,
and following every third annual meeting of shareholders thereafter, such
nonemployee director will be granted an option to purchase an additional 15,000
shares of Common Stock, which option will vest over a three-year period.
EMPLOYEE STOCK OWNERSHIP PLAN
The Company's Employee Stock Ownership Plan (the "ESOP") is an employee
stock ownership plan qualified under Section 401(a) of the Code and defined
under Section 4975(e)(7) of the Code. The ESOP is designed to invest primarily
in Common Stock of the Company. Each nonunion employee of the Company or any
affiliated company automatically participates in the ESOP on the January 1 or
July 1 following such employee's date of hire. As of May 20, 1996, the ESOP had
382 participants and 25 former participants whose benefits have not been
distributed to them. All eligible employees participate in the ESOP and no
employee contributions are permitted to be made to the ESOP.
The general assets of the ESOP are held in trust under a Trust Agreement.
The Company has appointed the Hawaiian Trust Company, Ltd. as trustee of the
trust (the "Trustee"). The Trustee holds legal title to all assets of the ESOP
and, subject to applicable law and the terms of the ESOP, has the discretionary
power to buy Common Stock and to sell Common Stock held by the ESOP.
The ESOP is administered by a committee (the "ESOP Committee") appointed by
the Board of Directors. Currently the members of the ESOP Committee are Paul J.
Cosgrave, President and Chief Executive Officer of the Company and a member of
the Board of Directors and Terry D. Murphy, Vice President, Finance and
Secretary of the Company.
The voting rights with respect to Common Stock held by the ESOP are
exercised by the Trustee, as directed by the ESOP Committee. In the case of a
transaction such as a reorganization, recapitalization, merger, sale of
substantially all assets, liquidation, dissolution or similar transaction which
must be approved by the shareholders, the participants may direct the Trustee
how to vote the Common Stock allocated to their Company Stock Accounts.
36
<PAGE>
Two separate accounts are maintained for each participant: (i) a "Company
Stock Account" kept in number of shares of Common Stock, and (ii) an "Other
Investments Account" kept in dollars. Allocations to such accounts are made once
each year on June 30. Each participant's Company Stock Account is credited with
shares of the Common Stock purchased by or contributed to the ESOP during the
year and allocated to such participant, as well as with any stock dividends on
the Common Stock declared during the year. Each participant's Other Investments
Account is credited with the ESOP's net income (or loss) for the year, as well
as with any cash dividends on the Common Stock declared during the year and with
contributions and forfeitures in cash, all as allocated to such participant.
Each allocation of the Company's contribution for a plan year is determined by
multiplying the total amount contributed by a fraction the numerator of which is
such participant's Covered Compensation (the aggregate cash compensation
received from the Company during the plan year up to a maximum of $150,000, as
adjusted for cost of living increases), and the denominator of which is the
aggregate Covered Compensation of all participants. A participant's account
becomes fully-vested and nonforfeitable after seven years of service with the
Company, or earlier if the participant attains age 65, becomes totally disabled
or dies. The participant's account vests at the rate of 10% per year for the
first four years of employment, and at the rate of 20% per year for each year
thereafter, until fully vested. The Company pays all administrative costs of the
ESOP.
When a participant's employment with the Company is terminated, the ESOP
Committee determines such participant's plan benefit as soon as possible after
participation in the ESOP terminates. At the discretion of the ESOP Committee, a
plan benefit may be distributed in cash, shares of Common Stock or a combination
of cash and shares of Common Stock. Distribution of a plan benefit will commence
not later than the sixth year after the plan year in which employment
terminates, and will be made, in the discretion of the ESOP Committee in a lump
sum or in substantially equal installments over a period not to exceed five
years. The participant's consent is generally required for any distribution if
such participant's aggregate plan benefit exceeds $3,500. In all events,
distribution of a terminated participant's plan benefit must begin no later than
April 1 of the calendar year immediately following the calendar year in which
such terminated participant attains age 70 1/2. Any nonvested amounts in a
terminated participant's accounts are forfeited and reallocated to the remaining
participants in the same manner as the Company's contributions to the ESOP.
Each participant who attains age 55 and who has completed ten years of
participation in the ESOP has the right to elect to diversify a portion of the
shares in his Company Stock Account. Upon receipt of a participant's election to
diversify, the ESOP Committee must either (i) offer such participant three
alternative investment options in accordance with regulations issued pursuant to
Section 401(a)(28)(B) of the Code, (ii) distribute to such participant that
portion of his Common Stock Account that he elected to diversify, or (iii)
transfer that portion of such participant's Common Stock Account that he elected
to diversify to another qualified employee benefit plan of the Company or an
affiliated company. Such election to diversify may be made over a six year
period, with diversification of up to 25% of the shares in the Company Stock
Account for the first five years of such election, and up to 50% of the shares
in the Company Stock Account during the sixth year.
The Company makes all contributions to the ESOP, which may be made in either
cash or shares of Common Stock. All contributions are made at the sole
discretion of the Board of Directors. Cash contributions to the ESOP expensed by
the Company during fiscal 1995 totalled $300,000. Future contributions to the
ESOP will be made in the Company's discretion in light of a number of factors,
including return on equity. Future Common Stock contributions to the ESOP will
dilute the investment interests and voting rights of existing shareholders and
purchasers of Common Stock in this offering.
37
<PAGE>
CERTAIN TRANSACTIONS
The Company retained board member Jerry L. Stone as a consultant through his
consulting firm, Marketing Exchange Corporation, and also directly as a
part-time employee, for payments aggregating $113,000 in fiscal 1993, $113,000
in fiscal 1994, $113,000 in fiscal 1995, and $39,114 in the nine months ended
March 31, 1996. The consulting and employment arrangement with Mr. Stone
terminated effective April 26, 1996.
In July 1993, the Company entered into a severance agreement with Pamela
Jones, then an officer of the Company. Ms. Jones was paid a total of $101,250,
consisting of three months salary ($26,250), a bonus of $15,000, and a six month
consulting agreement totalling $60,000, for which she subsequently performed all
contracted-for work.
In January 1994, the Company entered into a separation agreement with Martin
Wright, then a Senior Vice President, under which the vesting of remaining
unvested options held by Mr. Wright were accelerated, Mr. Wright received a loan
for $85,000 at 4% per year, due originally in June 1994, and Mr. Wright entered
into a two year noncompetition agreement with the Company. The loan was
subsequently extended to July 1995, and repaid in that month. Mr. Wright
subsequently exercised all of his options.
In April 1994, the Company loaned Stephen Hawley $35,000 at 4% per year,
interest only is payable quarterly and the principal balance is due on or before
April 15, 1997. In March 1995, the Company loaned Mr. Hawley an additional
$40,000 at 7.01% interest per year. The principal balance is due on or before
April 15, 1997, and interest is payable quarterly. Both loans are secured by a
pledge of Mr. Hawley's rights to exercise certain of his options. Interest
payments on both loans are current.
In July 1994, the Company loaned then board member Brian Caldwell $75,000 at
5% interest. This loan was repaid on July 11, 1995, in full, and while
outstanding was secured by Mr. Caldwell's shares of the Company's Common Stock.
In July 1995, in pursuit of its policy of encouraging employee stock
ownership, the Company guaranteed to arrange loans from the Bank of America to
34 of its management employees to assist them with the purchase of shares of the
Company's Common Stock from Martin Wright, a former officer and employee of the
Company, Brian Caldwell, a director and 10% shareholder of the Company, and
Steven Darrow, an officer, director and 10% shareholder of the Company, at a
purchase price of $3.55 per share, and to exercise stock options that had become
vested. Claremont's guarantee of these loans can not be called before August
1998. Claremont's guarantee is secured by a pledge of the purchased stock to
Claremont. The employees participating in this program include Joel D. Bucklen,
17,373 shares and a $61,674 loan guaranteed; Paul J. Cosgrave, 49,804 shares and
a $176,804 loan guaranteed; Karen Fast, 23,164 shares and a $82,232 loan
guaranteed; Edward A. Fullman, 24,901 shares and a $88,399 loan guaranteed;
Stephen D. Hawley, 34,781 shares (including 10,000 options) and a $93,073 loan
guaranteed; Ross C. Kayuha, 23,164 shares and an $82,232 loan guaranteed; Colin
B. McKiernan, 24,001 shares and an $85,204 loan guaranteed; and Peter Moe,
28,955 shares and a $102,790 loan guaranteed. In February 1996, Mr. Moe repaid
all outstanding indebtedness under his loan from Bank of America.
In January 1996, the Company entered into a severance agreement with Peter
Moe, then an officer of the Company. Mr. Moe was paid six months salary plus
medical benefits totalling $141,865.
In March 1996, the Company entered into a Retirement and Severance Agreement
with its founder and largest shareholder, Steven L. Darrow. Under that
agreement, in exchange for his commitment not to compete with the Company for
five years, the Company agreed to pay an amount equal to one year's salary
($325,000), provide a continuation of medical benefits during his lifetime,
forgive certain loans by the Company to Mr. Darrow in the aggregate amount of
$410,000 and pay resulting withholding taxes in the amount of $159,444,
accelerate the vesting of stock options for 35,800 shares of the Company's
Common Stock with an exercise price of $1.03 per share, and grant him and
certain trusts and individuals to whom he had transferred stock certain
"piggyback" registration rights. The Company also agreed to guarantee a loan to
Mr. Darrow if the guarantee was required by the lender, provided that the
Company's guarantee was secured by a pledge of Company's Common Stock belonging
to Mr. Darrow, and to provide good faith cooperation if he wished to sell shares
of the Company's Common Stock in a transaction prior to the date of the
Company's initial public offering. In addition, in June 1994 the Company loaned
Mr. Darrow $250,000 at 5% interest, and in February 1995, another $160,000
38
<PAGE>
at 6.5% interest, both in exchange for his promissory notes. Mr. Darrow paid
interest on these notes through October 1995. The principal balance of these
notes was cancelled under the terms of the Retirement and Severance Agreement.
In March 1996, Paul J. Cosgrave exercised certain options with an aggregate
exercise price of $337,350 (options for 190,000 shares at $1.73 per share) In
connection with such exercise, Mr. Cosgrave paid the Company an aggregate of
$502,230, including amounts for tax withholding payments the Company was
required to make on nonqualified options, by delivery of a promissory note. The
note bears interest at 5% per year, and is payable on demand and in any event on
or before June 30, 1996.
In May 1996, Paul Mardesich, then a Senior Vice President, entered into a
separation agreement with the Company to be effective mid-June, 1996, which
includes a three-year covenant not to compete in consideration of payment of
$85,000, and a twenty-seven month consulting agreement providing payment in the
aggregate amount of $13,500. Mr. Mardesich also intends to exercise options to
purchase up to 200,000 shares of the Company's Common Stock and to sell those
shares in this offering. See "Principal and Selling Shareholders."
On May 20, 1996, the Company issued to DLJ Capital Corporation five-year
warrants to purchase 400,000 shares of the Company's Common Stock at an exercise
price of $10.33 per share, to settle a dispute between the Company and the
Sprout Group regarding a "Summary Term Sheet" executed by the Company and the
Sprout Group on December 5, 1995. The Summary Term Sheet contemplated the
issuance and sale of 812,500 shares of a newly created series of preferred stock
and other securities. The warrants provide for certain demand and piggyback
registration rights.
On May 17, 1996, the Company entered into a Stock Purchase Agreement with
certain holders of the Company's Common Stock (including Steven L. Darrow, the
Company's largest shareholder) and certain investors (the "Investors"), pursuant
to which the Investors purchased an aggregate of 910,000 shares of the Company's
Common Stock at an average purchase price of $10.33. Under the terms of the
Stock Purchase Agreement, the Company granted the Investors "piggyback" and
demand registration rights.
The Company has entered into employment agreements with Paul J. Cosgrave,
its President and Chief Executive Officer, Dennis M. Goett, its Chief Financial
Officer, and Stephen D. Hawley, its Senior Vice President, Pension and
Retirement. See "Management -- Employment Agreements."
39
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth as of May 15, 1996, and as adjusted to
reflect the sale of Common Stock offered hereby, certain information with
respect to the beneficial ownership of the Company's Common Stock by (i) each
person known by the Company to own beneficially more than five percent of the
outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each of the Named Executive Officers, (iv) all officers and directors of the
Company as a group and (v) each of the Selling Shareholders. 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,
except to the extent authority is shared by spouses under applicable law.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING (1) NUMBER OF OFFERING (1)
----------------------- SHARES BEING -----------------------
NAME AND ADDRESS NUMBER PERCENT OFFERED (2) NUMBER PERCENT
- ------------------------------------------------------ ---------- ----------- --------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Steven L. Darrow (3) ................................. 1,020,084 20.9% 434,783 585,301 8.6%
20514 127th Avenue, S.E.
Snohomish, WA 98290
Jerry L. and Nancy Stone ............................. 845,000 17.5 108,696 736,304 10.9
3024 Key Stone Dr
Cape Girardeau, MO 63701
Paul J. Cosgrave (4) ................................. 489,918 9.8 -- 489,918 7.1
3 Cole Drive
Armonk, NY 10504
Paul Mardesich ....................................... 401,485 7.7 173,913 227,572 3.3
15993 N.W. Ridgetop Lane
Beaverton, OR 97006
DLJ Capital Corporation (5) .......................... 400,000 7.6 -- 400,000 5.6
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, California 94025
Brian C. Caldwell .................................... 321,800 6.7 130,435 191,365 2.8
11018 N.E. Davis Street
Portland, OR 97220
S.A.S. Investment Trust .............................. 300,000 6.2 34,782 265,218 3.9
Technology Crossover Management, LLC (6) ............. 286,223 5.9 -- 286,223 4.2
101 Eisenhower Parkway
Roseland, NJ 07068
Terry D. Murphy (7) .................................. 248,078 5.1 -- 248,078 3.7
3447 S.W. Brentwood Dr.
Portland, OR 97201
Accel Partners (8) ................................... 243,934 5.0 -- 243,934 3.6
One Embarcadero Ctr., Ste. 3820
San Francisco, CA 94111
Hillman Entities (9) ................................. 243,663 5.0 -- 243,663 3.6
2000 Grant Building
Pittsburge, PA 15219
Stephen D. Hawley .................................... 204,425 4.1 -- 204,425 3.0
Ross C. Kayuha ....................................... 202,783 4.1 -- 202,783 2.9
Carol Anne Bennett ................................... 139,900 2.9 32,609 107,291 1.6
Judy L. Smith ........................................ 60,994 1.3 34,782 26,212 *
Edward A. Fullman .................................... 57,901 1.2 -- 57,901 *
Neil E. Goldschmidt .................................. 16,670 * -- 16,670 *
Phillip W. Seeley .................................... 15,005 * -- 15,005 *
All officers and directors as a group
(10 persons)......................................... 2,205,635 40.6 108,696 2,096,939 28.5
</TABLE>
40
<PAGE>
- ------------
* Less than one percent of the outstanding Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes voting power and investment
power with respect to shares. Shares issuable upon the exercise of
outstanding stock options that are currently exercisable or become
exercisable within 60 days from May 20, 1996 are considered outstanding for
the purpose of calculating the percentage of Common Stock owned by such
person but not for the purpose of calculating the percentage of Common Stock
owned by any other person. The number of shares subject to stock options
that are exercisable within 60 days of May 20, 1996 is as follows: Mr.
Caldwell -- 2,800; Mr. Cosgrave -- 158,409; Mr. Darrow -- 58,900; Mr.
Fullman -- 33,000; Mr. Goldschmidt -- 16,670; Mr. Kayuha -- 126,793; Mr.
Mardesich -- 389,567; Mr. Seeley -- 15,005; and all officers and directors
as a group -- 602,212.
(2) If the Underwriters' over-allotment option is exercised in full, the number
of shares being offered, the number of shares owned after the offering and
the percentage of shares owned after the offering for the following Selling
Shareholders would be: Steven L. Darrow -- 65,217; 520,084; 7.6%; Jerry L.
and Nancy Stone -- 16,304; 720,000; 10.7%; Paul Mardesich -- 26,087;
201,485; 2.8%; Brian C. Caldwell -- 19,565; 171,800; 2.5%; S.A.S. Investment
Trust -- 5,218; 260,000; 3.8%; Carol Anne Bennett -- 4,891; 102,400; 1.5%;
Judy L. Smith -- 5,218; 20,994; less than 1%.
(3) Includes 150,000 shares held in the Dorinda Darrow Children's Trust for the
benefit of the children of Dorinda Darrow. Mr. Darrow disclaims any
beneficial ownership interest in these shares.
(4) Includes 15,000 shares held by Theresa Cosgrave as custodian for Mr.
Cosgrave's three children under the Uniform Gift to Minors Act. Also
includes 150,000 shares held in trusts for Mr. Cosgrave's three children.
Mr. Cosgrave disclaims any beneficial ownership interest in the shares held
in these trusts.
(5) Includes a warrant to purchase 400,000 shares of Common Stock that is
immediately exercisable.
(6) Includes 265,219 shares held directly by Technology Crossover Ventures, L.P.
and 21,004 shares held directly by Technology Crossover Ventures, C.V.
(7) Includes 90,000 shares held by Lois N. Murphy as custodian for Mr. Murphy's
children under the Uniform Gifts Minors Act.
(8) Includes 26,316 shares held directly by Accel Internet/Strategic Technology
Fund L.P.; 11,696 shares held directly by Accel Investors '96 L.P.; 196,392
shares held directly by Accel Keiretsa V L.P.; and 5,361 shares held
directly by Accel V L.P. and Ellmore C. Patterson Partners.
(9) Includes 97,464 shares held by C.G. Grefenstrette & Thomas G. Bigley as
trustees for the Children of Andrey Hilman Fisher, Henry Lea Hillman, Jr.,
William Talbot Hillman and Juliet Lea Hillman Simonds. Also includes 73,099
shares held by Henry Hillman, C.G. Grefenstrette & Elsie Hilliard Hillman,
as trustees of the Henry L. Hillman Trust. In addition, includes 73,100
shares held by Howard B. Hillman, Tatnall L. Hillman and Joseph J. Hill
trustees V/A/T Dora B. Hillman F/B/S Howard B. Hillman and F/B/O Tatnall L.
Hillman.
41
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, the authorized capital stock of the
Company will consist of 25,000,000 shares of Common Stock, no par value per
share, and 10,000,000 shares of Preferred Stock, no par value per share. The
following summary description of the Company's capital stock does not purport to
be complete and is qualified in its entirety by the provisions of the Company's
Restated Articles and Restated Bylaws, which have been filed as exhibits to the
Registration Statement of which this Prospectus is a part.
COMMON STOCK
The Company is authorized to issue up to 25,000,000 shares of Common Stock.
Holders of Common Stock are entitled to receive such dividends as may from time
to time be declared by the Board of Directors of the Company out of funds
legally available therefor. Holders of Common Stock are entitled to one vote per
share on all matters on which the holders of Common Stock are entitled to vote
and do not have any cumulative voting rights. Holders of Common Stock have no
preemptive, conversion, redemption or sinking fund rights. In the event of a
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share equally and ratably in the assets of the Company, if any,
remaining after the payment of all debts and liabilities of the Company and the
liquidation preference of any outstanding class or series of Preferred Stock.
The outstanding shares of Common Stock are, and the shares of Common Stock
offered by the Company hereby when issued will be, fully paid and nonassessable.
The rights, preferences and privileges of holders of Common Stock are subject to
any series of Preferred Stock which the Company may issue in the future as
described below.
PREFERRED STOCK
The Company is authorized to issue up to 10,000,000 shares of Preferred
Stock. The Board of Directors has the authority to issue Preferred Stock in one
or more series and to fix the number of shares constituting any such series, the
voting powers, designations, preferences and relative, participating, optional
or other special rights and qualifications, limitations or restrictions thereof,
including the dividend rights, dividend rate, terms of redemption, redemption
price or prices, conversion and voting rights and liquidation preferences of the
shares constituting any series, without any further vote or action by the
shareholders of the Company. The issuance of Preferred Stock by the Board of
Directors could adversely effect the rights of holders of Common Stock. For
example, the issuance of shares of Preferred Stock could result in securities
outstanding that would have preference over the Common Stock with respect to
dividends and in liquidation and that could (upon conversion or otherwise) enjoy
all of the rights of the Common Stock.
The authority possessed by the Board of Directors to issue Preferred Stock
could potentially be used to discourage attempts by others to obtain control of
the Company through merger, tender offer, proxy or consent solicitation or
otherwise by making such attempts more difficult to achieve or more costly. The
Board of Directors may issue Preferred Stock without shareholder approval and
with voting rights that could adversely affect the voting power of holders of
Common Stock. There are no agreements or understandings for the issuance of
Preferred Stock, and the Company has no plans to issue any shares of Preferred
Stock. See "Risk Factors -- Potential Issuance of Preferred Stock."
OREGON CONTROL SHARE AND BUSINESS COMBINATION STATUTES; CERTAIN PROVISIONS OF
RESTATED ARTICLES
Upon completion of this offering, the Company will become subject to the
Oregon Control Share Act (OBCA Sections 60.801-60.816) (the "Control Share
Act"). The Control Share Act generally provides that a person (the "Acquiring
Person") who acquires voting stock of an Oregon corporation in a transaction
which results in such Acquiring Person holding more than 20%, 33 1/3% or 50% of
the total voting power of such corporation (a "Control Share Acquisition")
cannot vote the shares it acquires in the Control Share Acquisition ("control
shares") unless voting rights are accorded to such control shares by the holders
of a majority of the outstanding voting shares, excluding the control shares
held by the Acquiring Person and shares held by the Company's officers and
inside directors ("interested shares"), and by the holders of a majority of the
outstanding voting shares, including interested shares. The foregoing vote would
be required at the time an Acquiring Person's holdings exceed 20% of the total
voting power of a company, and again at the time the Acquiring Person's holdings
exceed 33 1/3% and 50%. The term "Acquiring Person" is broadly defined to
include persons acting as a group. A transaction in which voting power is
acquired solely by receipt of an immediately revocable proxy does not constitute
a "Control Share Acquisition."
The Acquiring Person may, but is not required to, submit to the Company an
"Acquiring Person Statement" setting forth certain information about the
Acquiring Person and its plans for acquiring the Company's stock. The Acquiring
Person Statement may also request that the Company call a special meeting of
shareholders to determine whether the control shares will be allowed to retain
voting rights. If the Acquiring Person does not
42
<PAGE>
request a special meeting of shareholders, the issue of voting rights of control
shares will be considered at the next annual meeting or special meeting of
shareholders that is held more than 60 days after the date of the Control Share
Acquisition. If the Acquiring Person's control shares are accorded voting rights
and represent a majority or more of all voting power, shareholders who do not
vote in favor of the restoration of such voting rights will have the right to
receive the appraised "fair value" of their shares, which may not be less than
the highest price paid per share by the Acquiring Person for the control shares.
See "Risk Factors -- Effect of Certain Anti-Takeover Provisions."
Upon completion of this offering, the Company also will become subject to
the Oregon Business Combination Act (OBCA Sections 60.825-60.845) (the "Business
Combination Act"). The Business Combination Act generally provides that in the
event a person or entity acquires 15% or more of the voting stock of an Oregon
corporation (an "Interested Shareholder"), the corporation and the Interested
Shareholder, or any affiliated entity, may not engage in certain business
combination transactions for a period of three years following the date the
person became an Interested Shareholder. Business combination transactions for
this purpose include (a) a merger or plan of share exchange, (b) any sale,
lease, mortgage or other disposition of the assets of the corporation where the
assets have an aggregate market value equal to 10% or more of the aggregate
market value of the corporation's assets or outstanding capital stock and (c)
certain transactions that result in the issuance of capital stock of the
corporation to the Interested Shareholder. These restrictions do not apply if
(i) the Interested Shareholder, as a result of the transaction in which such
person became an Interested Shareholder, owns at least 85% of the outstanding
voting stock of the corporation (disregarding shares owned by directors who are
also officers, and certain employee benefit plans), (ii) the Board of Directors
approves the share acquisition or business combination before the Interested
Shareholder acquired 15% or more of the corporation's voting stock, or (iii) the
Board of Directors and the holders of at least two-thirds of the outstanding
voting stock of the corporation (disregarding shares owned by the Interested
Shareholder) approve the transaction after the Interested Shareholder acquires
15% or more of the corporation's voting stock. The Control Share Act and the
Business Combination Act will have the effect of encouraging any potential
acquiror to negotiate with the Company's Board of Directors and will also
discourage certain potential acquirors unwilling to comply with its provisions.
See "Risk Factors -- Effect of Certain Anti-Takeover Provisions."
The Company's Restated Articles contain provisions which (i) when the
Company has six or more directors, classify the Board of Directors into three
classes as nearly equal in number as possible, each of which, after an interim
arrangement, will serve for three years with one class being elected each year
(the "Classified Board Provisions"), (ii) provide that directors may be removed
by shareholders only for cause and only upon the vote of 75% of the votes then
entitled to be cast for the election of directors and (iii) require the approval
of holders of 67% of the outstanding shares of the Company entitled to vote to
effect a merger or consolidation of the Company, the sale, lease or exchange of
all or substantially all of the Company's assets or the dissolution or
liquidation of the Company. The Classified Board Provisions, the availability of
Preferred Stock for issuance without shareholder approval and the supermajority
voting requirements with respect to significant corporate transactions may have
the effect of lengthening the time required for a person to acquire control of
the Company through a proxy contest or the election of a majority of the Board
of Directors and may deter any potential unfriendly offers or other efforts to
obtain control of the Company. This could deprive the Company's shareholders of
opportunities to realize a premium for their Common Stock and could make removal
of incumbent directors more difficult. At the same time, these provisions may
have the effect of inducing any persons seeking control of the Company to
negotiate terms acceptable to the Board of Directors. In addition, the
provisions of the Restated Articles regarding removal of directors will make the
removal of any director more difficult even if such removal is believed by the
shareholders to be in their best interests. Since these provisions make the
removal of directors more difficult, they increase the likelihood that incumbent
directors will retain their positions and, since the Board has the power to
retain and discharge management, could perpetuate incumbent management. See
"Risk Factors -- Effect of Certain Anti-Takeover Provisions."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is First Interstate
Bank of Oregon, N.A. ("First Interstate"). First Interstate's address is 999
Third Avenue, Seattle, Washington 98104, and its telephone number is (206)
292-3795.
43
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
6,755,611 shares of Common Stock (7,044,198 shares if the Underwriters'
over-allotment option is exercised in full). Of these shares, the 2,700,000
shares sold in this offering (or 3,105,000 shares if the over-allotment option
is exercised in full) will be available for resale in the public market by
persons other than "affiliates" of the Company without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"). In addition, approximately 556,500 shares will be eligible for immediate
sale in the public market without restriction pursuant to Rule 144(k) under the
Securities Act. Approximately 1,851,227 additional shares outstanding upon
completion of this offering will be "restricted securities" ("Restricted
Shares") within the meaning of Rule 144 and will be eligible for sale pursuant
to Rule 144 and approximately 130,217 shares will be eligible for sale under
Rule 701, in each case after the expiration of a 90-day period after the date of
this Prospectus. The holders of 2,359,227 shares of Common Stock and the holders
of a warrant and options to purchase 1,471,972 shares of Common Stock have
agreed not to sell or dispose of such shares for a period of 180 days after the
effective date of the Registration Statement. Sales of shares in the public
market, or the availability of such shares for sale, could adversely affect the
market price of the Common Stock.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least two years, including
persons who may be deemed "affiliates" of the Company, would be entitled to sell
within any three month period a number of shares that does not exceed the
greater of 1% of the number of shares of Common Stock then outstanding (which
will equal approximately 67,556 shares immediately after the offering) or the
average weekly trading volume of the Common Stock on all exchanges and/or
reported through the automated quotation system of a registered securities
association during the four calendar weeks preceding the date on which notice of
the sale is filed with the Securities and Exchange Commission. Such sales are
also subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. In addition, a
person (or persons whose shares are aggregated) who is not and is not deemed to
have been an affiliate of the Company at any time during the 90 calendar days
preceding a sale, and who has beneficially owned for at least three years the
shares proposed to be sold, would be entitled to sell such shares under Rule 144
without regard to the volume limitations or other restrictions described above.
Any employee, director or officer of or consultant to the Company who
purchased shares pursuant to a written compensatory plan or contract is entitled
to rely on the resale provisions of Rule 701, which permit nonaffiliates to sell
Rule 701 shares without compliance with the public information, holding period,
volume limitation or notice provisions of Rule 144 and permit affiliates to sell
Rule 701 shares without compliance with the holding period restrictions of Rule
144, in each case commencing 90 days after the date of this Prospectus, but
subject to the lock-up agreements described below.
As soon as practicable following 180 days after the date of the Registration
Statement, the Company intends to file a registration statement under the
Securities Act to register approximately 5,200,000 shares of Common Stock
reserved for issuance under the Company's stock option plans. Such registration
statement is expected to be filed approximately 180 days after the date of this
Prospectus. Shares of Common Stock issuable after the effective date of such
registration statement upon exercise of stock options granted under the stock
option plans will generally be eligible for resale on the open market. See
"Management -- Stock Option Plans."
The number of Shares that will be sold under the foregoing rules will depend
in part on the market price for the Common Stock, the circumstances of the
sellers and other factors. In addition, following the closing of the offering,
the holders of 2,191,328 shares of Common Stock (including for this purpose
shares issued upon exercise of warrants) will be entitled to certain demand and
piggyback registration rights with respect to such shares.
The Company and the directors, executive officers, the Selling Shareholders
and certain other security holders of the Company have agreed that for a period
of 180 days after the effective date of the Registration Statement, without the
prior written consent of Robertson, Stephens & Company LLC, they will not sell,
dispose of any shares of Common Stock or any options to purchase Common Stock.
Prior to this offering, there has been no market for the Common Stock. See
"Risk Factors -- No Prior Public Market" and "Potential Volatility of Stock
Price." Sales of substantial amounts of Common Stock in the public market
(including shares issued upon the exercise of options that may be granted
pursuant to any employee stock option or other equity plan of the Company), or
the perception that such sales may occur, could adversely affect prevailing
market prices for the Common Stock.
44
<PAGE>
UNDERWRITING
The Underwriters named below, acting through their representatives,
Robertson, Stephens & Company LLC, Donaldson, Lufkin & Jenrette Securities
Corporation and J.P. Morgan Securities, Inc (the "Representatives"), have
severally agreed, subject to the terms and conditions of the Underwriting
Agreement, to purchase from the Company and the Selling Shareholders the number
of shares of Common Stock set forth opposite their respective names below. The
Underwriters are committed to purchase and pay for all such shares if any are
purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------
<S> <C>
Robertson, Stephens & Company LLC.....................................................................
Donaldson, Lufkin, Jenrette Securities Corporation....................................................
J.P. Morgan Securities, Inc...........................................................................
----------
Total............................................................................................. 2,700,000
----------
----------
</TABLE>
The Company and the Selling Shareholders have been advised by the
Representatives that the Underwriters propose to offer the shares of Common
Stock to the public at the initial public offering price set forth on the cover
page of this Prospectus and to certain dealers at such price less a concession
of not more than $ per share, of which $ may be reallowed to other dealers.
After the initial public offering, the public offering price, concession and
reallowance to dealers may be reduced by the Representatives. No such reduction
shall change the amount of proceeds to be received by the Company or the Selling
Shareholders as set forth on the cover page of this Prospectus.
The Company and the Selling Shareholders have granted to the Underwriters an
option, exercisable during the 30-day period after the date of this Prospectus,
to purchase up to 262,500 and 142,500 additional shares of Common Stock,
respectively at the same price per share as the Company and the Selling
Shareholders receive for the 2,700,000 shares that the Underwriters have agreed
to purchase. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage of such additional shares as the number of shares of Common Stock to
be purchased by it shown in the above table represents as a percentage of the
2,700,000 shares offered hereby. If purchased, such additional shares will be
sold by the Underwriters on the same terms as those on which the 2,700,000
shares are being sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Selling Shareholders and the Company against certain civil
liabilities, including liabilities under the Securities Act.
Pursuant to the terms of lock-up agreements, the directors, officers and
certain shareholders of the Company have agreed with the Representatives that,
for a period commencing on the date of the lock-up agreement and ending 180 days
after the date of this Prospectus, subject to certain limited exceptions, they
will not offer to sell, contract to sell or otherwise sell or dispose of any
shares of Common Stock, any options or warrants to purchase shares of Common
Stock, or any securities convertible or exchangeable for shares of Common Stock
owned directly by such holders or with respect to which such holders have the
power of disposition without the prior written consent of Robertson, Stephens &
Company LLC. Following expiration of such 180 day period, such shares will be
eligible for immediate public sale without registration under the Securities
Act, subject to the provisions of Rule 144. In addition, the Company has agreed
that until 180 days after the date of this Prospectus, the Company will not,
without the prior written consent of Robertson, Stephens & Company LLC, subject
to certain limited exceptions, issue, sell, or otherwise dispose of, any shares
45
<PAGE>
of Common Stock, any options or warrants to purchase any shares of Common Stock
or any securities convertible into or exercisable for shares of Common Stock
other than the Company's sale of shares in this Offering. Robertson, Stephens &
Company LLC, may, in its sole discretion, and at any time without notice, in
writing, release all or a portion of the securities subject to the lock-up
agreements from the restrictions contained therein. See "Shares Eligible For
Future Sale.
The Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
Prior to this Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price has been
determined through negotiations among the Company, the Selling Shareholders and
the Representatives. Among the factors considered in such negotiations were
prevailing market conditions, certain financial information of the Company,
market valuations of other publicly-traded 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.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby is being passed
upon for the Company by Ater Wynne Hewitt Dodson & Skerritt, Portland, Oregon.
Certain legal matters with respect to this Offering are being passed upon for
the Underwriters by Brobeck, Phleger & Harrison LLP, San Francisco, California.
EXPERTS
The consolidated financial statements of the Company as of June 30, 1994 and
1995 and March 31, 1996 and for each of the years in the three-year period ended
June 30, 1995 and for the nine-month period ended March 31, 1996 have been
included in this Prospectus and elsewhere in the Registration Statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein and upon the authority of said firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto, relating
to the Common Stock offered hereby has been filed by the Company with the
Securities and Exchange Commission, Washington, D.C. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. Statements contained in this Prospectus as to
the contents of any contract or other document referred to are not necessarily
complete and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference to such exhibit. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to such Registration Statement, exhibits and
schedules. A copy of the Registration Statement may be inspected without charge
at the public reference facilities maintained by the Commission at 450 Fifth
Street, NW, Judiciary Plaza, Washington D.C. 20549 and at the regional offices
of the Commission located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials may be obtained from the
Public Reference Section of the Commission, Room 1024 Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and its public reference facilities in New
York, New York and Chicago, Illinois, and copies of all or any part thereof may
be obtained from the Commission upon the payment of certain fees prescribed by
the Commission.
46
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of KPMG Peat Marwick LLP............................................................................ F-2
Consolidated Balance Sheets................................................................................ F-3
Consolidated Statements of Operations...................................................................... F-4
Consolidated Statements of Shareholders' Equity............................................................ F-5
Consolidated Statements of Cash Flows...................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Claremont Technology Group, Inc.
and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Claremont
Technology Group, Inc. and subsidiaries as of June 30, 1994 and 1995 and March
31, 1996, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the years in the three-year period ended June
30, 1995 and for the nine-month period ended March 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Claremont
Technology Group, Inc. and subsidiaries as of June 30, 1994 and 1995 and March
31, 1996, and the results of their operations and their cash flows for each of
the years in the three-year period ended June 30, 1995 and for the nine-month
period ended March 31, 1996 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Portland, OR
May 20, 1996
F-2
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
-------------------- MARCH 31,
1994 1995 1996
--------- --------- -----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents........................................................ $ 1,870 $ 340 $ 80
Receivables:
Accounts receivable, net....................................................... 2,119 5,546 7,120
Revenue earned in excess of billing............................................ -- 265 3,086
Other.......................................................................... 5 40 60
Prepaid expenses and other current assets........................................ 78 73 251
Deferred income taxes............................................................ 484 219 258
Notes receivable................................................................. 85 85 604
--------- --------- -----------
Total current assets......................................................... 4,641 6,568 11,459
Property and equipment, net........................................................ 485 1,522 3,743
Long-term notes receivable......................................................... 135 710 75
Other noncurrent assets, net....................................................... 231 778 3,001
--------- --------- -----------
Total assets................................................................. $ 5,492 $ 9,578 $ 18,278
--------- --------- -----------
--------- --------- -----------
</TABLE>
<TABLE>
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................. $ 187 $ 882 $ 2,104
Line of credit................................................... -- 200 --
Current installments of long-term debt........................... 27 290 1,063
Current installments of obligations under capital leases......... 83 3 --
Accrued expenses................................................. 1,230 2,068 3,372
Income taxes payable............................................. 102 419 375
Deferred revenue................................................. 256 253 956
Deferred income taxes............................................ 711 -- 523
--------- --------- -----------
Total current liabilities.................................... 2,596 4,115 8,393
Long-term debt, excluding current installments..................... 5 334 1,756
Obligations under capital leases, excluding current installments... 3 -- --
Deferred income taxes.............................................. 5 28 --
--------- --------- -----------
Total liabilities............................................ 2,609 4,477 10,149
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value. Authorized 2,000 shares; no shares
issued or outstanding........................................... -- -- --
Common stock, no par value. Authorized 10,000 shares; issued
5,000 shares; 3,949, 4,233 and 4,767 shares outstanding at June
30, 1994 and 1995 and March 31, 1996, respectively.............. 47 202 1,303
Retained earnings................................................ 2,836 4,898 6,831
Cumulative translation adjustment................................ -- 1 (5)
--------- --------- -----------
Total shareholders' equity................................... 2,883 5,101 8,129
--------- --------- -----------
Total liabilities and shareholders' equity................... $ 5,492 $ 9,578 $ 18,278
--------- --------- -----------
--------- --------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenue:
Professional fees................................................. $ 15,667 $ 15,713 $ 27,292 $ 18,988 $ 31,711
Resold products and services...................................... -- -- -- -- 1,964
--------- --------- --------- --------- ---------
Total revenue................................................... 15,667 15,713 27,292 18,988 33,675
--------- --------- --------- --------- ---------
Costs and expenses:
Project costs and expenses........................................ 9,112 9,106 13,704 9,267 16,791
Resold products and services...................................... -- -- -- -- 1,874
Selling, general and administrative............................... 3,781 4,214 10,156 6,931 11,131
--------- --------- --------- --------- ---------
Total costs and expenses........................................ 12,893 13,320 23,860 16,198 29,796
--------- --------- --------- --------- ---------
Income from operations.......................................... 2,774 2,393 3,432 2,790 3,879
--------- --------- --------- --------- ---------
Other income (expense):
Interest income................................................... 53 44 83 67 38
Interest expense.................................................. (36) (30) (31) (17) (77)
Other............................................................. 4 (2) 15 -- (19)
--------- --------- --------- --------- ---------
Total other income (expense).................................... 21 12 67 50 (58)
--------- --------- --------- --------- ---------
Income before income taxes...................................... 2,795 2,405 3,499 2,840 3,821
Income tax expense.................................................. 1,204 953 1,352 1,097 1,616
--------- --------- --------- --------- ---------
Net income...................................................... $ 1,591 $ 1,452 $ 2,147 $ 1,743 $ 2,205
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income per common share..................................... $ .28 $ .24 $ .31 $ .25 $ .29
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average number of common and common equivalent shares
outstanding........................................................ 5,796 6,269 7,319 7,215 7,662
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK RETAINED CUMULATIVE TOTAL
---------------------- EARNINGS TRANSLATION SHAREHOLDERS'
SHARES AMOUNT (DEFICIT) ADJUSTMENT EQUITY
----------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1992.................................. 3,900 $ 33 $ (26) $ -- $ 7
Net income................................................ -- -- 1,591 -- 1,591
Stock options exercised................................... 66 11 -- -- 11
Purchase of common stock.................................. (25) (4) (22) -- (26)
----- --------- ----------- ----------- ------------
Balance at June 30, 1993.................................. 3,941 40 1,543 -- 1,583
Net income................................................ -- -- 1,452 -- 1,452
Stock options exercised................................... 142 33 -- -- 33
Purchase of common stock.................................. (134) (26) (159) -- (185)
----- --------- ----------- ----------- ------------
Balance at June 30, 1994.................................. 3,949 47 2,836 -- 2,883
Net income................................................ -- -- 2,147 -- 2,147
Tax benefit of stock options exercised.................... -- 83 -- -- 83
Stock options exercised................................... 339 102 -- -- 102
Purchase of common stock.................................. (55) (30) (85) -- (115)
Foreign currency translation adjustment................... -- -- -- 1 1
----- --------- ----------- ----------- ------------
Balance at June 30, 1995.................................. 4,233 202 4,898 1 5,101
Net income................................................ -- -- 2,205 -- 2,205
Tax benefit of stock options exercised.................... -- 525 -- -- 525
Stock options exercised................................... 603 472 -- -- 472
Stock compensation recognized............................. -- 107 -- -- 107
Purchase of common stock.................................. (69) (3) (272) -- (275)
Foreign currency translation adjustment................... -- -- -- (6) (6)
----- --------- ----------- ----------- ------------
Balance at March 31, 1996................................. 4,767 $ 1,303 $ 6,831 $ (5) $ 8,129
----- --------- ----------- ----------- ------------
----- --------- ----------- ----------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................................. $ 1,591 $ 1,452 $ 2,147 $ 1,743 $ 2,205
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................ 176 227 467 284 966
Loss from sale of fixed assets........................... -- 2 -- -- --
Deferred income taxes.................................... 562 321 (423) -- 456
Non-cash stock compensation recognized................... -- -- -- -- 107
Changes in assets and liabilities:
Receivables............................................ (1,406) 137 (3,565) (2,166) (4,419)
Prepaid expenses and other current assets.............. 377 4 5 32 (178)
Other non-current assets............................... 12 (49) (90) (91) (1,058)
Accounts payable and accrued expenses.................. 575 (196) 1,451 666 2,516
Deferred revenue....................................... (551) (777) (3) (190) 661
Income taxes payable................................... 256 (391) 242 343 (42)
--------- --------- --------- --------- ---------
Net cash provided by operating activities............ 1,592 730 231 621 1,214
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Acquisition, net of cash acquired.......................... -- -- (204) (204) (130)
Proceeds from sale of long-term certificate of deposit..... -- 32 -- -- --
Purchase of property and equipment......................... (207) (247) (1,498) (1,077) (2,936)
Proceeds from sale of property and equipment............... -- 8 -- -- --
Capitalized software costs................................. -- -- (122) (42) (1,236)
--------- --------- --------- --------- ---------
Net cash used by investing activities................ (207) (207) (1,824) (1,323) (4,302)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Payments on line of credit................................. -- -- 4,400 -- 9,325
Proceeds from line of credit............................... -- -- (4,200) -- (9,525)
Payments of long-term debt................................. (24) (29) (39) (22) (375)
Proceeds from issuance of long-term debt................... 19 -- 500 -- 2,570
Payments of obligations under capital leases............... (60) (70) (83) (61) (3)
Purchase of common stock................................... (26) (185) (115) (76) (275)
Proceeds from exercise of stock options.................... 11 33 185 71 997
Payments (issuance) of notes receivable, net............... -- (220) (575) (535) 116
--------- --------- --------- --------- ---------
Net cash provided (used) by financing activities..... (80) (471) 73 (623) 2,830
--------- --------- --------- --------- ---------
Effect of exchange rate changes on cash...................... -- -- (10) -- (2)
Net (decrease) increase in cash and cash equivalents....... 1,305 52 (1,530) (1,325) (260)
Cash and cash equivalents at beginning of year............... 513 1,818 1,870 1,870 340
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of year..................... $ 1,818 $ 1,870 $ 340 $ 545 $ 80
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental disclosure of cash flow information:
Cash paid for interest..................................... $ 36 $ 30 $ 31 $ 17 $ 78
Cash paid for taxes........................................ 198 1,034 1,319 1,120 673
Supplemental disclosure of non-cash investing and financing
activities:
Net liabilities assumed in merger.......................... $ -- $ -- $ 151 $ 151 $ 57
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994 AND 1995 AND MARCH 31, 1996
(IN THOUSANDS)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Claremont Technology Group, Inc. (the Company) provides enterprise-wide
information technology ("IT") solutions that re-engineer mission-critical
business processes such as customer service, order processing, billing and
logistics. Claremont services include IT planning, systems integration and
development and outsourcing, through a project management methodology that
employs reusable object oriented software modules and transferable design frame
works.
Claremont provides solutions to large organizations in select high demand,
vertical markets including communications, financial services and
pension/retirement services. Claremont's clients consist of large corporations
and government organizations in the United States and foreign markets.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
Claremont Technology Group, Inc. and its wholly owned subsidiaries, Claremont
Retirement Technologies, Inc. (CRTI), Claremont Technology Group Ireland Ltd.
and Claremont Technology Group Canada, Inc. (CTGCI). All significant
intercompany balances and transactions have been eliminated in consolidation.
CASH EQUIVALENTS
Cash equivalents consist of investments in highly liquid investment
instruments with original maturities of three months or less.
INVESTMENT IN PARTNERSHIP
Claremont Retirement Solutions, Ltd. is a limited partnership for which CRTI
is the general partner. The investment in the partnership is accounted for by
the cost method.
FINANCIAL INSTRUMENTS
The carrying amount of cash equivalents, trade receivables, trade payables
and short term borrowings approximate fair value because of the short term
nature of these instruments. The fair value of long-term debt was estimated by
discounting the future cash flows using market interest rates and does not
differ significantly from that reflected in the financial statements.
Fair value estimates are made at a specific point in time, based on relevant
market information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
REVENUE AND COST RECOGNITION
Revenue from fixed-price contracts are recognized on the
percentage-of-completion method, measured by the percentage of cost incurred to
date to the estimated total cost at completion. This method is used because
management considers accumulated costs to be the best available measure of
progress on these contracts. The cumulative impact of any revision in estimates
of the percent complete is reflected in the year in which the changes become
known. Losses on projects in progress are recognized when known. Revenue earned
in excess of billings is comprised of earnings on certain contracts in excess of
contractual billings on such contracts. Billings in excess of earnings are
classified as deferred revenues.
Revenue from time and materials contracts are recognized during the period
in which the services are provided.
F-7
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
ACCOUNTS RECEIVABLE
Accounts receivable are shown net of allowance for doubtful accounts of
$-0-, $98 and $98 at June 30, 1994 and 1995 and March 31, 1996, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Equipment under capital leases is
stated at the present value of future minimum lease payments at the inception of
the lease.
Depreciation of property and equipment is calculated on the straight-line
method over the estimated useful lives of the assets ranging from three to five
years. Equipment held under capital leases and leasehold improvements are
amortized straight-line over the shorter of the lease term or estimated useful
lives of the assets.
INCOME TAXES
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". Statement 109
requires a change from the deferred method of accounting for income taxes of APB
Opinion 11 to the asset and liability method of accounting for income taxes.
Under the asset and liability method of Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
There was no material cumulative effect of this change in the method of
accounting for income taxes.
FOREIGN CURRENCY TRANSLATION
The local currency is the functional currency in the Company's foreign
subsidiaries. Assets and liabilities of the foreign subsidiaries are translated
to U.S. dollars at current rates of exchange, and revenues and expenses are
translated using weighted average rates, in accordance with Statement of
Financial Accounting Standards No. 52, "Foreign Currency Translation." Gains and
losses from foreign currency translation are included as a separate component of
shareholders' equity. Foreign currency transaction gains and losses are included
as a component of other income and expense.
INTANGIBLE ASSETS
Software development costs incurred subsequent to establishing a product's
technological feasibility are capitalized until such product is available for
general release to customers in accordance with Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed". Capitalized software costs are amortized
on a product-by-product basis. Amortization will be recorded based on the
greater of (a) the estimated economic life of the software (generally three
years or less) or (b) the ratio of current gross revenues for each product to
the total of current and anticipated gross revenues for each product, commencing
when such product is available for general release.
Other intangibles include purchased technology and a covenant not to
compete, which are amortized over periods ranging from two to five years using
the straight-line method.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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
F-8
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
COMPUTATION OF NET INCOME PER SHARE
Net income per share is computed using the weighted average number of shares
of common and common equivalent shares outstanding. Common equivalent shares
from stock options and warrants are excluded from the computation if their
effect is antidilutive, except that pursuant to the Securities and Exchange
Staff Accounting Bulletins common and common equivalent shares issued at prices
below the public offering price during the twelve months immediately preceding
the initial filing date have been included in the calculation as if they were
outstanding for all periods presented using the treasury stock method and the
initial public offering price.
(2) ACQUISITIONS
In January 1995 the Company formed CTGCI by paying $5 in consideration for
4,999 shares of CTGCI common stock. Subsequently, under the terms of a Letter of
Agreement which was effective in January 1995, CTGCI purchased 100 percent of
the outstanding stock of Tony Martins & Associes, Inc. (TMAI) for $421. The
agreement provided for $290 to be delivered upon closing and a loan payable in
the amount of $131 due on January 31, 1996. The acquisition was accounted for
under the purchase method of accounting with CTGCI acquiring the net assets of
TMAI. Financial results subsequent to the acquisition date have been included in
the consolidated statements of operations and cash flows.
The fair value of assets and liabilities acquired at the date of acquisition
are presented below:
<TABLE>
<S> <C>
Cash......................................................................... $ 86
Accounts receivable.......................................................... 156
Furniture and computer equipment............................................. 4
Purchased technology......................................................... 326
Accounts payable and accrued expenses........................................ (151)
---------
Net assets acquired...................................................... $ 421
---------
---------
</TABLE>
In January 1996, the Company purchased certain assets of The Node Connection
(TNC) for $130. The acquisition has been accounted for as a purchase, and the
financial results of TNC have been included in the accompanying consolidated
financial statements since the date of acquisition. The cost of the acquisition
has been allocated on the basis of the estimated fair value of the assets
acquired and the liabilities assumed.
The fair value of assets and liabilities acquired at the date of acquisition
are presented below:
<TABLE>
<S> <C>
Accounts receivable.......................................................... $ 3
Fixed assets................................................................. 65
Identifiable intangible assets............................................... 119
Accounts payable............................................................. (15)
Deferred revenue............................................................. (42)
---
Net assets acquired........................................................ $ 130
---
---
</TABLE>
The separate operational results of these acquisitions were not material and
accordingly pro-forma financial results have been omitted.
F-9
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(3) BALANCE SHEET COMPONENTS
PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------- MARCH 31,
1994 1995 1996
--------- --------- -----------
<S> <C> <C> <C>
Furniture and equipment.................................................. $ 171 $ 452 $ 985
Computer equipment and software.......................................... 563 1,788 4,195
Leased equipment......................................................... 216 216 216
Leasehold improvements................................................... 49 49 108
--------- --------- -----------
999 2,505 5,504
Less accumulated depreciation and amortization........................... (514) (983) (1,761)
--------- --------- -----------
Property and equipment, net............................................ $ 485 $ 1,522 $ 3,743
--------- --------- -----------
--------- --------- -----------
</TABLE>
Depreciation expense for the years ended June 30, 1993, 1994, and 1995 and
for the nine month period ending March 31, 1996 was $176, $227, $469 and $778,
respectively.
ACCRUED EXPENSES
The Company's accrued expenses consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------- MARCH 31,
1994 1995 1996
--------- --------- -----------
<S> <C> <C> <C>
Accrued payroll.......................................................... $ 521 $ 805 $ 1,238
Accrued vacation......................................................... 439 828 1,075
Accrued payroll taxes.................................................... 4 18 619
Accrued profit sharing................................................... 52 392 419
Accrued other............................................................ 214 25 21
--------- --------- -----------
$ 1,230 $ 2,068 $ 3,372
--------- --------- -----------
--------- --------- -----------
</TABLE>
OTHER NONCURRENT ASSETS
Other noncurrent assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------- MARCH 31,
1994 1995 1996
--------- --------- -----------
<S> <C> <C> <C>
Software development costs............................................... $ -- $ 122 $ 1,384
Purchased technology..................................................... -- 334 249
Covenant not to compete.................................................. -- -- 958
Other.................................................................... 231 322 410
--------- --------- -----------
$ 231 $ 778 $ 3,001
--------- --------- -----------
--------- --------- -----------
</TABLE>
(4) INVESTMENT IN PARTNERSHIP
Claremont Retirement Solutions, Ltd. (the Partnership) was formed with one
of the Company's major customers to receive royalties from CRTI for future sales
of a pension/retirement system template to other public and private pension
funds. CRTI has obtained licensing rights from the Partnership to remarket the
template. CRTI's initial equity contribution to the Partnership represents
approximately 1% of the Partnership's total capital.
F-10
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(5) LEASES
The Company was obligated under various capital leasing arrangements for
certain of its computer equipment and office furniture. The leases had expired
by March 31, 1996.
The Company also leases certain of its office space through noncancelable
operating lease arrangements. The leases expire April 30, 1996 through September
30, 2000, and are net leases with the Company paying all executory costs,
including insurance, utilities, and maintenance. Rental expense for operating
leases during the years ended June 30, 1993, 1994 and 1995 and for the
nine-month period ending March 31, 1996 was $93, $102, $404 and $532,
respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
-----------
<S> <C>
Year ending June 30:
1996 (for the three months ended June 30)........................................ $ 157
1997............................................................................. 617
1998............................................................................. 515
1999............................................................................. 435
2000............................................................................. 228
-----------
Total minimum lease payments................................................... $ 1,952
-----------
-----------
</TABLE>
(6) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------- MARCH 31,
1994 1995 1996
--------- --------- -----------
<S> <C> <C> <C>
7.6% installment loan payable in monthly installments of $61, including interest,
with final payment due April 1999, secured by certain furniture and equipment.... $ -- $ -- $ 1,944
7.59% installment loan payable in monthly installments of $14 with final payment
due November 1998, secured by certain furniture and equipment.................... -- -- 431
8.05% installment loan payable in monthly installments of $16, including interest,
with final payment due May 1998, secured by certain furniture and equipment...... -- 488 374
Non-interest bearing loans payable to former shareholders of acquired companies,
due in 1996...................................................................... -- 131 70
Installment loans payable in monthly installments................................. 32 5 --
--- --------- -----------
32 624 2,819
Less current installments of long-term debt....................................... (27) (290) (1,063)
--- --------- -----------
Long-term debt, excluding current installments.................................. $ 5 $ 334 $ 1,756
--- --------- -----------
--- --------- -----------
</TABLE>
F-11
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(6) LONG-TERM DEBT (CONTINUED)
The aggregate maturities of long-term debt for years subsequent to March 31,
1996 are as follows:
<TABLE>
<S> <C>
Year ending June 30:
1996 (for the three months ended June 30)................................. $ 283
1997...................................................................... 944
1998...................................................................... 993
1999...................................................................... 599
---------
$ 2,819
---------
---------
</TABLE>
During 1995, the Company entered into a $2 million line of credit with a
bank which was subsequently increased to $4 million in March of 1996, with an
interest rate of .25 percentage points above the bank's reference rate (8.5% at
March 31, 1996), available through August 1, 1997. This line of credit is
secured by furniture, equipment, and accounts receivable. At March 31, 1996,
$-0- was outstanding on this line of credit.
The Company is a guarantor on a nonrevolving line of credit with a bank
which provided for borrowings of up to $2.0 million for purposes of facilitating
the purchase of Company common stock by Company executives. As of March 31,
1996, there was $1.7 million of related debt outstanding against the line.
Advances under the line of credit were made directly to the Company executive
with full recourse and bear interest. Advances under the line of credit were for
thirty-six months and include monthly interest payments, made by each Company
executive, with principal repayment by each Company executive on or before July
31, 1998.
The Company has available a standby letter of credit for up to $125. As of
March 31, 1996 there were no amounts outstanding under the line of credit.
F-12
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(7) INCOME TAXES
As discussed in note 1, the Company adopted Statement 109, effective July 1,
1993. Prior year financial statements have not been restated to apply the
provision of Statement 109. There was no cumulative effect with the adoption of
Statement 109.
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED JUNE 30, ENDED
------------------------------- MARCH 31,
1993 1994 1995 1996
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
Current:
Federal.................................................... $ 490 $ 468 $ 1,351 $ 831
State and local............................................ 152 164 398 217
Foreign.................................................... -- -- 26 112
--------- --------- --------- ------
642 632 1,775 1,160
--------- --------- --------- ------
Deferred:
Federal.................................................... 429 253 (314) 359
State and local............................................ 133 68 (109) 97
--------- --------- --------- ------
562 321 (423) 456
--------- --------- --------- ------
Total.................................................... $ 1,204 $ 953 $ 1,352 $ 1,616
--------- --------- --------- ------
--------- --------- --------- ------
</TABLE>
The actual income tax expense differs from the expected tax expense
(computed by applying the U.S. federal and corporate income tax rate of 34% to
net income before income taxes) as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED JUNE 30, ENDED
------------------------------- MARCH 31,
1993 1994 1995 1996
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
Computed expected income tax expense......................... $ 950 $ 818 $ 1,190 $ 1,299
Increase (reduction) in income tax expense resulting from:
State income tax expense................................... 189 147 214 210
Foreign taxes.............................................. -- -- -- (10)
Other...................................................... 65 (12) (52) 117
--------- --------- --------- ------
Income tax expense....................................... $ 1,204 $ 953 $ 1,352 $ 1,616
--------- --------- --------- ------
--------- --------- --------- ------
</TABLE>
F-13
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(7) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
JUNE 30,
-------------------- MARCH 31,
1994 1995 1996
--------- --------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Accrued expenses......................................................... $ -- $ 176 $ 219
Expenses deductible in future periods.................................... 484 -- --
Other.................................................................... -- 43 39
--------- --------- -----
Total gross deferred tax assets........................................ 484 219 258
--------- --------- -----
Deferred tax liabilities:
Capitalized cost......................................................... -- (27) (513)
Income taxable in future periods......................................... (711) -- --
Property and equipment, due to differences in depreciation............... (5) (1) (10)
--------- --------- -----
Total gross deferred tax liabilities................................... (716) (28) (523)
--------- --------- -----
Net deferred tax assets (liabilities).................................. $ (232) $ 191 $ (265)
--------- --------- -----
--------- --------- -----
</TABLE>
The Company reported income and expense items on the cash basis for income
tax purposes and the accrual method for financial reporting purposes during the
years ended June 30, 1993 and 1994.
(8) STOCK INCENTIVE PLANS
During fiscal 1992, the Company adopted, and the Board of Directors
approved, a stock incentive plan for eligible employees, directors and outside
consultants of the Company (the 1992 Plan). Either non-qualified or incentive
stock options may be issued under this plan and are exercisable for a period of
up to ten years from the date of grant. Certain of these options are subject to
acceleration clauses. The Company has authorized issuance of such options to
purchase up to an aggregate of 4,100,000 shares of its common stock. The options
vest and are exercisable over various periods from the initial grant date.
During 1996, the Company also adopted and the Board of Directors approved
the 1996 Nonemployee Director Stock Option Plan (the 1996 Nonemployee Director
Plan). Under the terms of the 1996 Nonemployee Director Plan, directors of the
Company who are not employees of the Company or any subsidiary of the Company
are eligible to receive non-qualified options to purchase shares of common
stock. A total of 200,000 shares of common stock have been reserved for issuance
upon exercise of stock options granted under the 1996 Nonemployee Director Plan.
Upon election to the board of directors, each director is granted an option to
purchase 20,000 shares, which option will vest over a three-year period (each a
"Recruitment Grant"). Following the first annual meeting of shareholders after a
Recruitment Grant is fully-vested, the nonemployee director holding such
fully-vested Recruitment Grant will receive an option to purchase an additional
15,000 shares of Common Stock, which option will vest over a three-year period
(a "First Renewal Grant"). Furthermore, following the first annual meeting of
shareholders after a nonemployee director's First Renewal Grant is fully-vested,
and following every third annual meeting of shareholders thereafter, such
nonemployee director will be granted an option to purchase an additional 15,000
shares of Common Stock, which option will vest over a three-year period. The
exercise price of options granted under the 1996 Nonemployee Director Plan may
not be less than fair market of a share of common stock on the date of the grant
of the option.
F-14
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(8) STOCK INCENTIVE PLANS (CONTINUED)
The following table summarizes stock option activity through March 31, 1996:
<TABLE>
<CAPTION>
PRICE
SHARES SHARES
---------- --------------
<S> <C> <C>
Outstanding options at June 30, 1992....................................... 1,423,334 $ .136 - 0.16
Granted.................................................................... 1,254,425 .160 - 1.03
Exercised.................................................................. (66,250) 0.16
Canceled................................................................... (381,250) .160 - 0.51
---------- --------------
Outstanding options at June 30, 1993....................................... 2,230,259 .136 - 1.03
Granted.................................................................... 1,333,724 .030 - 1.73
Exercised.................................................................. (141,758) .160 - 1.43
Canceled................................................................... (269,808) .160 - 1.73
---------- --------------
Outstanding options at June 30, 1994....................................... 3,152,417 .136 - 1.73
Granted.................................................................... 664,635 1.730 - 3.55
Exercised.................................................................. (338,546) .136 - 2.21
Canceled................................................................... (107,351) .160 - 3.55
---------- --------------
Outstanding options at June 30, 1995....................................... 3,371,155 .136 - 3.55
Granted.................................................................... 546,000 3.550 - 4.02
Exercised.................................................................. (603,652) .136 - 4.02
Canceled................................................................... (124,407) .160 - 4.02
---------- --------------
Outstanding options at March 31, 1996...................................... 3,189,096 $ .136 - 4.02
---------- --------------
---------- --------------
</TABLE>
At March 31, 1996, 1,419,080 of the outstanding options were exercisable.
(9) PROFIT SHARING PLAN
In January 1990, the Company adopted a qualified profit sharing plan
pursuant to Section 401(k) of the Internal Revenue Code. The plan requires
participants to be at least 21 years of age and have completed at least one hour
of service. Employees can make voluntary contributions up to limitations
prescribed by the Internal Revenue Code. Company matching contributions are
discretionary. For the years ended June 30, 1993, 1994 and 1995 and the
nine-month period ending March 31, 1996, the Company recognized discretionary
matching contributions of $82, $45, $75 and $101, respectively.
(10) EMPLOYEE STOCK OWNERSHIP PLAN
In June 1995, the Company established an Employee Stock Ownership Plan
(ESOP) for eligible U.S. employees. The ESOP is designed to invest primarily in
common stock of the Company. Each nonunion employee of the Company or any
affiliated company automatically participates in the ESOP on the January 1 or
July 1 following such employee's date of hire.
The general assets of the ESOP are held in trust under a Trust Agreement.
The Company has appointed the Hawaiian Trust Company, Ltd. as the trustee
("Trustee"). The Trustee holds legal title to all assets of the ESOP and subject
to applicable laws and the terms of the ESOP has the discretionary power to buy
common stock and to sell common stock held by the ESOP.
F-15
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(10) EMPLOYEE STOCK OWNERSHIP PLAN (CONTINUED)
The voting rights with respect to common stock held by the ESOP are
exercised by the Trustee, as directed by the ESOP committee. In the case of a
transaction such as a reorganization, recapitalization, merger, sale of
substantially all assets, liquidation, dissolution or similar transaction which
must be approved by the shareholders, the participants may direct the Trustee
how to vote the common stock allocated to their Company stock accounts.
A participant's account becomes fully vested and nonforfeitable after seven
years of service with the Company, or earlier if the participant attains age 65,
becomes totally disabled or dies. The participant's account vests at the rate of
10% per year for the first four years of employment, and at the rate of 20% per
year for each year thereafter, until fully vested. The Company pays all
administrative costs of the ESOP.
The Company makes all contributions to the ESOP, which may be made in either
cash or shares of common stock. The contributions to the ESOP for the year
ending June 30, 1995 and the nine-month period ended March 31, 1996 consisted of
cash of $300 and $318, respectively. Future contributions to the ESOP will be
made at the Company's discretion.
(11) BUSINESS AND CREDIT CONCENTRATION
Revenues from certain of the Company's largest customers individually
exceeded 10% of revenues in the years ended June 30, 1993, 1994 and 1995 and for
the nine month period ending March 31, 1996 as follows:
<TABLE>
<CAPTION>
1993 1994 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Ohio State Teachers Retirement System....................... 78% 72% 38% 14%
AT&T Network Systems........................................ --% --% 19% 2%
Lucent Technologies......................................... --% --% --% 24%
Mississippi Public Employee Retirement System............... --% --% --% 12%
</TABLE>
At June 30, 1994 and 1995 and March 31, 1996, the trade accounts receivable
balances from these customers were $964, $2,014 and $1,956, respectively.
(12) RELATED PARTY TRANSACTIONS
The Company issued notes receivable to its majority shareholder during
fiscal years ended June 30, 1994 and 1995. The notes were forgiven during 1996.
The amount of the notes and interest receivable at June 30, 1994 and 1995 and
the nine-months ending March 31, 1996 were $100 and $-0-, $410 and $13 and $-0-
and $10, respectively.
The Company also issued notes receivable totaling $120, $385 and $514 to
certain employees during the fiscal years ended June 30, 1994 and 1995, and the
nine-month period ending March 31, 1996, respectively. The notes are due at
varying dates through July 31, 1997 and bear interest at rates ranging from 4%
to 7.1%. Interest receivable on these notes was $2, $6 and $2 at June 30, 1994
and 1995, and March 31, 1996, respectively. During fiscal 1995, a note
receivable totaling $85 was extended to July 1995 and paid in full at that time.
The Company has entered into a retirement and severance agreement with its
founder and (as of the date of the agreement, March 15, 1996) largest
shareholder. Under that agreement, in exchange for his commitment not to compete
with the Company for five years, the Company agreed to pay an amount equal to
one year's salary, provide a continuation of medical benefits during his
lifetime, forgive certain loans from the Company and pay resulting withholding
taxes, accelerate the exercisability of otherwise not yet exercisable stock
options for 35,800 shares of Claremont stock with an exercise price of $1.03
each, and grant him and certain trusts and individuals to whom he had
transferred stock certain "piggyback" registration rights. The Company also
agreed to guarantee a loan for him if the guarantee was required by the lender,
provided that the Company's guarantee was
F-16
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(12) RELATED PARTY TRANSACTIONS (CONTINUED)
secured by a pledge of Company stock belonging to the founder, and to provide
good faith cooperation if he wished to sell some of his stock in a transaction
before any public offering in which the Company might wish to participate.
The Company retained a board member as a consultant through his consulting
firm, and also directly as a part-time employee, for payments aggregating
$113,000 in fiscal year 1993, $113,000 in fiscal year 1994, $113,000 in fiscal
year 1995, and $39,114 in the nine months ended March 31, 1996. The consulting
and employment arrangement with the board member ended effective April 26, 1996.
(13) COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
The Company has approximately $500 of performance bonds outstanding as of
March 31, 1996.
The Company has entered into three year employment agreements with its
president and chief financial officer. These agreements became effective upon
retaining these individuals and provide for an initial base salary of $400 and
$295, respectively. Each agreement states that if the executive's employment is
terminated by the Company for reasons other than cause, the executive's base
salary will continue for the longer of three years from the start date or six
months from the termination date. Regardless of the reason for termination, each
agreement contains commitments of noncompetition and nonsolicitation of the
companies personnel. These commitments last the longer of 18 months after
departure from the Company, or for as long as base salary continues to be paid.
(14) BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates primarily in one business segment, providing systems
integration services. The Company's subsidiary in Canada accounted for $1,703 of
total revenue and $179 of net income for the nine months ended March 31, 1996.
Identifiable assets of this subsidiary were $1,623 at March 31, 1996.
Revenue by geographical area is provided below:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
United States.................................... $ 15,667 $ 15,713 $ 26,730 $ 18,791 $ 31,972
Canada........................................... -- -- 562 197 1,703
--------- --------- --------- --------- ---------
Total........................................ $ 15,667 $ 15,713 $ 27,292 $ 18,988 $ 33,675
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
(15) SUBSEQUENT EVENTS
On April 29, 1996, the Company's Board of Directors approved an increase in
the authorized number of common and preferred stock to 25,000,000 and 10,000,000
shares, respectively. In addition, the Company's Board of Directors approved an
increase of Common Stock reserved for issuance under the 1992 Plan to 5,000,000,
subject to shareholder approval.
On May 20, 1996, the Company issued a five year warrant to purchase 400,000
shares of Common Stock at an exercise price of $10.33 per share. The warrant is
subject to certain antidilution rights.
F-17
<PAGE>
[INSIDE BACK COVER GRAPHICS--Icon representations of the Company's industry
sector focus]
Captions: Financial Services
Communications
Retirement/Pension Services
Retail/Commercial Services
<PAGE>
[CLAREMONT LOGO]
<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, expected to be incurred by the
Registrant in connection with the offering described in this Registration
Statement. All amounts, except the SEC registration fee, the NASD filing fee and
the Nasdaq listing fee are estimates. [Add description re Selling Shareholders'
fees]
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 20,343
NASD Filing Fee................................................... 6,400
Nasdaq Listing Fee................................................ 35,110
Printing and Engraving Expenses................................... 130,000
Accounting Fees and Expenses...................................... 125,000
Legal Fees and Expenses........................................... 300,000
Blue Sky Fees and Expenses (including fees of counsel)............ 15,000
Transfer Agent and Registrar Fees................................. 7,000
Director and Officer Insurance.................................... 50,000
Miscellaneous Expenses............................................ 111,147
---------
Total......................................................... $ 800,000
---------
---------
</TABLE>
- ------------
* Estimate.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As an Oregon corporation the Company is subject to the Oregon Business
Corporation Act ("OBCA") and the exculpation from liability and indemnification
provisions contained therein. Pursuant to Section 60.047(2)(d) of the OBCA,
Article IV of the Company's Second Restated Articles of Incorporation (the
"Restated Articles") eliminates the liability of the Company's directors to the
Company or its shareholders, except for any liability related to breach of the
duty of loyalty, actions not in good faith and certain other liabilities.
Article IV of the Restated Articles requires the Company to indemnify its
directors and officers to the fullest extent not prohibited by law.
Section 60.387 et seq. of the OBCA allows corporations to indemnify their
directors and officers against liability where the director or officer has acted
in good faith and with a reasonable belief that actions taken were in the best
interests of the corporation or at least not adverse to the corporation's best
interests and, if in a criminal proceeding, the individual had no reasonable
cause to believe the conduct in question was unlawful. Under the OBCA,
corporations may not indemnify against liability in connection with a claim by
or in the right of the corporation but may indemnify against the reasonable
expenses associated with such claims. Corporations may not indemnify against
breaches of the duty of loyalty. The OBCA provides for mandatory indemnification
of directors against all reasonable expenses incurred in the successful defense
of any claim made or threatened whether or not such claim was by or in the right
of the corporation. Finally, a court may order indemnification if it determines
that the director or officer is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances whether or not the
director or officer met the good faith and reasonable belief standards of
conduct set out in the statute.
The OBCA also provides that the statutory indemnification provisions are not
deemed exclusive of any other rights to which directors or officers may be
entitled under a corporation's articles of incorporation or bylaws, any
agreement, general or specific action of the board of directors, vote of
shareholders or otherwise.
Effective upon consummation of the offering, the Company will have entered
into indemnity agreements with each executive officer of the Company and each
member of the Company's Board of Directors. These indemnity agreements provide
for indemnification of the indemnitee to the fullest extent allowed by law.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since May 1, 1993, the Company has sold securities without registration
under the Securities Act of 1933, as amended (the "Act") in the transactions and
in reliance on the exemptions from registration described below.
During the period from May 1, 1993 through May 15, 1996, the Company sold an
aggregate of 1,112,472 shares of Common Stock for an aggregate purchase price of
$626,633.39 to various employees pursuant to exercise of options granted under
the 1992 Stock Incentive Plan in reliance on Rule 701 promulgated under the Act.
During the period from May 1, 1993 through May 15, 1996, the Company issued
options to purchase an aggregate of 2,993,959 shares of Common Stock pursuant to
the 1992 Stock Incentive Plan in reliance on Rule 701 promulgated under the Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------
<C> <S>
1.0 Form of Underwriting Agreement
3.1 Second Restated Articles of Incorporation of Claremont Technology Group, Inc.
3.2 Second Amended and Restated Bylaws of Claremont Technology Group, Inc.
4.1 Retirement and Severance Agreement by and between Claremont Technology Group, Inc. and Steven
L. Darrow dated March 15, 1996
4.2 Form of Shareholder Agreement under 1992 Stock Incentive Plan
4.3 Specimen Stock Certificate*
5.0 Opinion of Ater Wynne Hewitt Dodson & Skerritt as to the legality of the securities being
registered
10.1 Form of Indemnity Agreement between Claremont Technology Group, Inc. and each of its executive
officers and directors
10.2 1992 Stock Incentive Plan
10.3 Form of Stock Option Agreement Under 1992 Stock Incentive Plan
10.4 1996 Stock Option Plan for Nonemployee Directors
10.5 Letter of Agreement by and among Mr. Tony Martins, Ms. Anna Mara, Ms. Claude Gareau, Mr.
Ronald Bastien, Tony Martins & Associs, Inc. and Claremont Technology Group, Inc. dated as of
January 23, 1995
10.6 Employment Agreement by and between Claremont Technology Group, Inc. and Paul J. Cosgrave
dated July 1, 1994
10.7 Employment Agreement by and between Claremont Consulting Group, Inc. (k/n/a Claremont
Technology Group, Inc.) and Dennis M. Goett dated February 1, 1996*
10.8 Employment Agreement by and between Claremont Technology Group, Inc. and Stephen Hawley dated
February 5, 1993*
10.9 Lease by and between Amberjack, Ltd. and Claremont Technology Group, Inc. dated January 13,
1995, as amended*
10.10 Lease by and between Birtcher Properties, Inc., Manager for Amberjack, Ltd., and Claremont
Technology Group, Inc. dated November 27, 1991, as amended*
10.11 Lease Agreement by and between TOW Ltd. and Claremont Technology Group, Inc. dated October
1995*
10.12 Claremont Technology Group, Inc. 401(k) Plan and Trust*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------
10.13 Claremont Technology Group, Inc. Executive Bonus Participation Agreement
<C> <S>
10.14 Claremont Technology Group, Inc. Employee Stock Ownership Plan*
10.15 Business Loan Agreement between Bank of America Oregon and Claremont Technology Group, Inc.
dated April 24, 1995, as amended*
10.16 Common Stock Purchase Warrant issued by Claremont Technology Group, Inc. to DLJ Capital
Corporation dated May 20, 1996*
10.17 Settlement Agreement and Release dated May 20, 1996 by and between Claremont Technology Group,
Inc. and DLJ Capital Corporation and associated funds*
11.0 Computation of Earnings Per Share
21.0 Subsidiaries of the Registrant
23.1 Consent of Ater Wynne Hewitt Dodson & Skerritt (included in legal opinion filed as Exhibit
5.0)
23.2 Consent of KPMG Peat Marwick LLP
24.0 Powers of Attorney (included in signature page in Part II of the Registration Statement)
27.0 Financial Data Schedule
</TABLE>
- ------------
* To be filed by amendment.
(b) Financial Statement Schedules
None.
ITEM 17. UNDERTAKINGS.
(a) The undersigned 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.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, 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 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.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, 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 of 1933, 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-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Beaverton,
State of Oregon, on May 24, 1996.
CLAREMONT TECHNOLOGY GROUP, INC.
By /s/ PAUL J. COSGRAVE
------------------------------------
Paul J. Cosgrave
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Paul J. Cosgrave and Dennis M. Goett and each of
them singly, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign the Registration Statement filed herewith and any
or all further amendments to said Registration Statement (including
post-effective amendments and new registration statements pursuant to Rule 462
or otherwise), and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the foregoing, as full 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 substitute, may lawfully do
or cause to be done by virtue hereof.
Witness our hands on the date set forth below.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been duly signed by the following persons in the
capacities indicated on May 24, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ------------------------------------------------------------------
<C> <S>
/s/ PAUL J. COSGRAVE
------------------------------------ President, Chief Executive Officer and Director (Principal
Paul J. Cosgrave Executive Officer)
/s/ DENNIS M. GOETT
------------------------------------ Chief Financial Officer and Director (Principal Financial and
Dennis M. Goett Accounting Officer)
/s/ NEIL E. GOLDSCHMIDT
------------------------------------ Director
Neil E. Goldschmidt
/s/ PHILLIP W. SEELEY
------------------------------------ Director
Phillip W. Seeley
/s/ JERRY L. STONE
------------------------------------ Director
Jerry L. Stone
</TABLE>
II-4
<PAGE>
Exhibit 1.0
2,700,000 SHARES
CLAREMONT TECHNOLOGY GROUP, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
July __, 1996
ROBERTSON, STEPHENS & COMPANY, LLC
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
J.P. MORGAN SECURITIES, INC.
As Representatives of the several Underwriters
c/o Robertson, Stephens & Company, LLC
555 California Street
Suite 2600
San Francisco, California 94104
Ladies/Gentlemen:
Claremont Technology Group, Inc., an Oregon corporation (the "Company"),
and certain shareholders of the Company named in SCHEDULE B hereto (hereafter
called the "Selling Shareholders") address you as the Representatives of each of
the persons, firms and corporations listed in SCHEDULE A hereto (herein
collectively called the "Underwriters") and hereby confirm their respective
agreements with the several Underwriters as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and sell
1,750,000 shares of its authorized and unissued no par value Common Stock to
the several Underwriters. The Selling Shareholders, acting severally and not
jointly, propose to sell an aggregate of 950,000 shares of the Company's
authorized and outstanding no par value Common Stock to the several
Underwriters. The 1,750,000 shares of no par value Common Stock of the
Company to be sold by the Company are hereinafter called the "Company Shares"
and the 950,000 shares of no par value Common Stock to be sold by the Selling
Shareholders are hereinafter called the "Selling Shareholder Shares." The
Company Shares and the Selling Shareholder Shares are hereinafter
collectively referred to as the "Firm Shares." The Company and the Selling
Stockholders also propose to grant to the Underwriters an option to purchase
up to 405,000 additional shares of the Company's no par value Common Stock
(the "Option Shares"), as provided in Section 7 hereof. As used in this
Agreement, the term "Shares" shall include the Firm Shares and the Option
Shares. All shares of no par value Common Stock of the Company to be
outstanding after giving effect to the sales contemplated hereby, including
the Shares, are hereinafter referred to as "Common Stock."
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY.
I. The Company represents and warrants to and agrees with each
Underwriter and each Selling Shareholder that:
- -----------------------
1 Plus an option to purchase up to 405,000 additional shares from the
Company and certain shareholders of the Company to cover over-allotments,
if any.
<PAGE>
(a) A registration statement on Form S-1 (File No. 333-_____)
with respect to the Shares, including a prospectus subject to completion, has
been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the applicable rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Act and has been filed with the
Commission; such amendments to such registration statement, such amended
prospectuses subject to completion and such abbreviated registration statements
pursuant to Rule 462(b) of the Rules and Regulations as may have been required
prior to the date hereof have been similarly prepared and filed with the
Commission; and the Company will file such additional amendments to such
registration statement, such amended prospectuses subject to completion and such
abbreviated registration statements as may hereafter be required. Copies of
such registration statement and amendments, of each related prospectus subject
to completion (the "Preliminary Prospectuses") and of any abbreviated
registration statement pursuant to Rule 462(b) of the Rules and Regulations have
been delivered to you.
If the registration statement relating to the Shares has been
declared effective under the Act by the Commission, the Company will prepare and
promptly file with the Commission the information omitted from the registration
statement pursuant to Rule 430A(a) or, if Robertson, Stephens & Company, LLC, on
behalf of the several Underwriters, shall agree to the utilization of Rule 434
of the Rules and Regulations, the information required to be included in any
term sheet filed pursuant to Rule 434(b) or (c), as applicable, of the Rules and
Regulations pursuant to subparagraph (1), (4) or (7) of Rule 424(b) of the Rules
and Regulations or as part of a post-effective amendment to the registration
statement (including a final form of prospectus) shall be prepared and promptly
filed by the Company with the Commission. If the registration statement
relating to the Shares has not been declared effective under the Act by the
Commission, the Company will prepare and promptly file an amendment to the
registration statement, including a final form of prospectus, or, if Robertson,
Stephens & Company, LLC, on behalf of the several Underwriters, shall agree to
the utilization of Rule 434 of the Rules and Regulations, the information
required to be included in any term sheet filed pursuant to Rule 434(b) or (c),
as applicable, of the Rules and Regulations. The term "Registration Statement"
as used in this Agreement shall mean such registration statement, including
financial statements, schedules and exhibits, in the form in which it became or
becomes, as the case may be, effective (including, if the Company omitted
information from the registration statement pursuant to Rule 430A(a) or files a
term sheet pursuant to Rule 434 of the Rules and Regulations, the information
deemed to be a part of the registration statement at the time it became
effective pursuant to Rule 430A(b) or Rule 434(d) of the Rules and Regulations)
and, in the event of any amendment thereto or the filing of any abbreviated
registration statement pursuant to Rule 462(b) of the Rules and Regulations
relating thereto after the effective date of such registration statement, shall
also mean (from and after the effectiveness of such amendment or the filing of
such abbreviated registration statement) such registration statement as so
amended, together with any such abbreviated registration statement. The term
"Prospectus" as used in this Agreement shall mean the prospectus relating to the
Shares as included in such Registration Statement at the time it becomes
effective (including, if the Company omitted information from the Registration
Statement pursuant to Rule 430A(a) of the Rules and Regulations, the information
deemed to be a part of the Registration Statement at the time it became
effective pursuant to Rule 430A(b) of the Rules and Regulations); PROVIDED,
HOWEVER, that if in reliance on Rule 434 of the Rules and Regulations and with
the consent of Robertson, Stephens & Company, LLC, on behalf of the several
Underwriters, the Company shall have provided to the Underwriters a term sheet
pursuant to Rule 434(b) or (c), as applicable, prior to the time that a
confirmation is sent or given for purposes of Section 2(10)(a) of the Act, the
term "Prospectus" shall mean the "prospectus subject to completion" (as defined
in Rule 434(g) of the Rules and Regulations) last provided to the Underwriters
by the Company and circulated by the Underwriters to all prospective purchasers
of the Shares (including the information deemed to be a part of the Registration
Statement at the time it became effective pursuant to Rule 434(d) of the Rules
and Regulations). Notwithstanding the foregoing, if any revised prospectus
shall be provided to the Underwriters by the Company for use in connection with
the offering of the Shares that differs from the prospectus referred to in the
immediately preceding sentence (whether or not such revised prospectus is
required to be filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations),
-2-
<PAGE>
the term "Prospectus" shall refer to such revised prospectus from and after the
time it is first provided to the Underwriters for such use. If in reliance on
Rule 434 of the Rules and Regulations and with the consent of Robertson,
Stephens & Company, LLC, on behalf of the several Underwriters, the Company
shall have provided to the Underwriters a term sheet pursuant to Rule 434(b) or
(c), as applicable, prior to the time that a confirmation is sent or given for
purposes of Section 2(10)(a) of the Act, the Prospectus and the term sheet,
together, will not be materially different from the prospectus in the
Registration Statement.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or instituted proceedings for
that purpose, and each such Preliminary Prospectus has conformed in all material
respects to the requirements of the Act and the Rules and Regulations and, as of
its date, has not included any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and at the time
the Registration Statement became or becomes, as the case may be, effective and
at all times subsequent thereto up to and on the Closing Date (hereinafter
defined) and on any later date on which Option Shares are to be purchased,
(i) the Registration Statement and the Prospectus, and any amendments or
supplements thereto, contained and will contain all material information
required to be included therein by the Act and the Rules and Regulations and
will in all material respects conform to the requirements of the Act and the
Rules and Regulations, (ii) the Registration Statement, and any amendments or
supplements thereto, did not and will not include any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (iii) the
Prospectus, and any amendments or supplements thereto, did not and will not
include any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; PROVIDED, HOWEVER, that none of the
representations and warranties contained in this subparagraph (b) shall apply to
information contained in or omitted from the Registration Statement or
Prospectus, or any amendment or supplement thereto, in reliance upon, and in
conformity with, written information relating to any Underwriter furnished to
the Company by such Underwriter specifically for use in the preparation thereof.
(c) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation with full power and authority
(corporate and other) to own, lease and operate its properties and conduct its
business as described in the Prospectus; the Company owns all of the outstanding
capital stock of its subsidiaries free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest; each of the Company and its
subsidiaries is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which the ownership or leasing of its
properties or the conduct of its business requires such qualification, except
where the failure to be so qualified or be in good standing would not have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise; no proceeding has been instituted in any such
jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification; each of the Company and its
subsidiaries is in possession of and operating in compliance with all
authorizations, licenses, certificates, consents, orders and permits from state,
federal and other regulatory authorities which are material to the conduct of
its business, all of which are valid and in full force and effect; neither the
Company nor any of its subsidiaries is in violation of its respective charter or
bylaws or in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any material bond,
debenture, note or other evidence of indebtedness, or in any material lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument to which the Company or any of its subsidiaries is
a party or by which it or any of its subsidiaries or their respective properties
may be bound; and neither the Company nor any of its subsidiaries is in material
violation of any law, order, rule, regulation, writ, injunction, judgment or
decree of any court, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or any of its subsidiaries or over
their respective properties of which it has knowledge. The Company does not
-3-
<PAGE>
own or control, directly or indirectly, any corporation, association or other
entity other than _____________ (LIST SUBSIDIARIES).
(d) The Company has full legal right, power and authority to
enter into this Agreement and perform the transactions contemplated hereby.
This Agreement has been duly authorized, executed and delivered by the Company
and is a valid and binding agreement on the part of the Company, enforceable in
accordance with its terms, except as rights to indemnification hereunder may be
limited by applicable law and except as the enforcement hereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles; the performance of this Agreement and the consummation of
the transactions herein contemplated will not result in a material breach or
violation of any of the terms and provisions of, or constitute a default under,
(i) any bond, debenture, note or other evidence of indebtedness, or under any
lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which it or any of its subsidiaries or their
respective properties may be bound, (ii) the charter or bylaws of the Company or
any of its subsidiaries, or (iii) any law, order, rule, regulation, writ,
injunction, judgment or decree of any court, government or governmental agency
or body, domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or over their respective properties. No consent, approval,
authorization or order of or qualification with any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or over their respective properties is
required for the execution and delivery of this Agreement and the consummation
by the Company or any of its subsidiaries of the transactions herein
contemplated, except such as may be required under the Act or under state or
other securities or Blue Sky laws, all of which requirements have been satisfied
in all material respects.
(e) There is not any pending or, to the best of the Company's
knowledge, threatened action, suit, claim or proceeding against the Company, any
of its subsidiaries or any of their respective officers or any of their
respective properties, assets or rights before any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or over their respective officers or
properties or otherwise which (i) might result in any material adverse change in
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise or might materially and adversely affect their properties, assets or
rights, (ii) might prevent consummation of the transactions contemplated hereby
or (iii) is required to be disclosed in the Registration Statement or Prospectus
and is not so disclosed; and there are no agreements, contracts, leases or
documents of the Company or any of its subsidiaries of a character required to
be described or referred to in the Registration Statement or Prospectus or to be
filed as an exhibit to the Registration Statement by the Act or the Rules and
Regulations which have not been accurately described in all material respects in
the Registration Statement or Prospectus or filed as exhibits to the
Registration Statement.
(f) All outstanding shares of capital stock of the Company
(including the Selling Shareholder Shares) have been duly authorized and validly
issued and are fully paid and nonassessable, have been issued in compliance with
all federal and state securities laws, were not issued in violation of or
subject to any preemptive rights or other rights to subscribe for or purchase
securities, and the authorized and outstanding capital stock of the Company is
as set forth in the Prospectus under the caption "Capitalization" and conforms
in all material respects to the statements relating thereto contained in the
Registration Statement and the Prospectus (and such statements correctly state
the substance of the instruments defining the capitalization of the Company);
the Firm Company Shares and the Option Shares have been duly authorized for
issuance and sale to the Underwriters pursuant to this Agreement and, when
issued and delivered by the Company against payment therefor in accordance with
the terms of this Agreement, will be duly and validly issued and fully paid and
nonassessable, and will be sold free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest; and no preemptive right,
co-sale right, registration right, right of
-4-
<PAGE>
first refusal or other similar right of shareholders exists with respect to any
of the Firm Company Shares or Option Shares or the issuance and sale thereof
other than those that have been expressly waived prior to the date hereof and
those that will automatically expire upon the consummation of the transactions
contemplated on the Closing Date. No further approval or authorization of any
shareholder, the Board of Directors of the Company or others is required for the
issuance and sale or transfer of the Shares except as may be required under the
Act or under state or other securities or Blue Sky laws. All issued and
outstanding shares of capital stock of each subsidiary of the Company have been
duly authorized and validly issued and are fully paid and nonassessable, and
were not issued in violation of or subject to any preemptive right, or other
rights to subscribe for or purchase shares and are owned by the Company free and
clear of any pledge, lien, security interest, encumbrance, claim or equitable
interest. Except as disclosed in or contemplated by the Prospectus and the
financial statements of the Company, and the related notes thereto, included in
the Prospectus, neither the Company nor any subsidiary has outstanding any
options to purchase, or any preemptive rights or other rights to subscribe for
or to purchase, any securities or obligations convertible into, or any contracts
or commitments to issue or sell, shares of its capital stock or any such
options, rights, convertible securities or obligations. The description of the
Company's stock option, stock bonus and other stock plans or arrangements, and
the options or other rights granted and exercised thereunder, set forth in the
Prospectus accurately and fairly presents the information required to be shown
with respect to such plans, arrangements, options and rights.
(g) KPMG Peat Marwick LLP, which has examined the consolidated
financial statements of the Company, together with the related schedules and
notes, as of June 30, 1994 and 1995 and March 31, 1996 and for each of the years
in the three (3) year period ended June 30, 1995 and for the nine (9) month
period ended March 31, 1996, filed with the Commission as a part of the
Registration Statement, which are included in the Prospectus, are independent
accountants within the meaning of the Act and the Rules and Regulations; the
audited consolidated financial statements of the Company, together with the
related schedules and notes, forming part of the Registration Statement and
Prospectus, fairly present the financial position and the results of operations
of the Company and its subsidiaries at the respective dates and for the
respective periods to which they apply; and all audited consolidated financial
statements of the Company, together with the related schedules and notes, filed
with the Commission as part of the Registration Statement, have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved except as may be otherwise stated therein. The
selected and summary financial and statistical data included in the Registration
Statement present fairly the information shown therein and have been compiled on
a basis consistent with the audited financial statements presented therein. No
other financial statements or schedules are required to be included in the
Registration Statement.
(h) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, there has not been
(i) any material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise, (ii) any transaction that is material
to the Company and its subsidiaries considered as one enterprise, except
transactions entered into in the ordinary course of business, (iii) any
obligation, direct or contingent, that is material to the Company and its
subsidiaries considered as one enterprise, incurred by the Company or its
subsidiaries, except obligations incurred in the ordinary course of business,
(iv) any change in the capital stock or outstanding indebtedness of the Company
or any of its subsidiaries that is material to the Company and its subsidiaries
considered as one enterprise, (v) any dividend or distribution of any kind
declared, paid or made on the capital stock of the Company or any of its
subsidiaries, or (vi) any loss or damage (whether or not insured) to the
property of the Company or any of its subsidiaries which has been sustained or
will have been sustained which has a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise.
-5-
<PAGE>
(i) Except as set forth in the Registration Statement and
Prospectus, (i) each of the Company and its subsidiaries has good and marketable
title to all properties and assets described in the Registration Statement and
Prospectus as owned by it, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest, other than such as would not
have a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise, (ii) the agreements to which the
Company or any of its subsidiaries is a party described in the Registration
Statement and Prospectus are valid agreements, enforceable by the Company and
its subsidiaries (as applicable), except as the enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles and, to the best of the Company's knowledge, the
other contracting party or parties thereto are not in material breach or
material default under any of such agreements, and (iii) each of the Company and
its subsidiaries has valid and enforceable leases for all properties described
in the Registration Statement and Prospectus as leased by it, except as the
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles. Except as set
forth in the Registration Statement and Prospectus, the Company owns or leases
all such properties as are necessary to its operations as now conducted or as
proposed to be conducted.
(j) The Company and its subsidiaries have timely filed all
necessary federal, state and foreign income and franchise tax returns and have
paid all taxes shown thereon as due, and there is no tax deficiency that has
been or, to the best of the Company's knowledge, might be asserted against the
Company or any of its subsidiaries that might have a material adverse effect on
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise; and all tax liabilities are adequately provided for on the books of
the Company and its subsidiaries.
(k) The Company and its subsidiaries maintain insurance with
insurers of recognized financial responsibility of the types and in the amounts
generally deemed adequate for their respective businesses and consistent with
insurance coverage maintained by similar companies in similar businesses,
including, but not limited to, insurance covering real and personal property
owned or leased by the Company or its subsidiaries against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against,
all of which insurance is in full force and effect; neither the Company nor any
such subsidiary has been refused any insurance coverage sought or applied for;
and neither the Company nor any such subsidiary has any reason to believe that
it will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially and
adversely affect the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered as
one enterprise.
(l) To the best of Company's knowledge, no labor disturbance by
the employees of the Company or any of its subsidiaries exists or is imminent;
and the Company is not aware of any existing or imminent labor disturbance by
the employees of any of its principal suppliers, subassemblers, value added
resellers, subcontractors, original equipment manufacturers, authorized dealers
or international distributors that might be expected to result in a material
adverse change in the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered as
one enterprise. No collective bargaining agreement exists with any of the
Company's employees and, to the best of the Company's knowledge, no such
agreement is imminent.
(m) Each of the Company and its subsidiaries owns or possesses
adequate rights to use all patents, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, trade names and copyrights which are
necessary to conduct its businesses as described in the Registration Statement
and Prospectus; the expiration of any patents, patent rights, trade secrets,
trademarks, service marks, trade names
-6-
<PAGE>
or copyrights would not have a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise; the Company
has not received any notice of, and has no knowledge of, any infringement of or
conflict with asserted rights of the Company by others with respect to any
patent, patent rights, inventions, trade secrets, know-how, trademarks, service
marks, trade names or copyrights; and the Company has not received any notice
of, and has no knowledge of, any infringement of or conflict with asserted
rights of others with respect to any patent, patent rights, inventions, trade
secrets, know-how, trademarks, service marks, trade names or copyrights which,
singly or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiaries considered as one enterprise.
(n) The Common Stock has been approved for quotation on the
Nasdaq National Market, subject to official notice of issuance.
(o) The Company has been advised concerning the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to conduct,
its affairs in such a manner as to ensure that it will not become an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the 1940 Act and such rules and regulations.
(p) The Company has not distributed and will not distribute
prior to the later of (i) the Closing Date, or any date on which Option Shares
are to be purchased, as the case may be, and (ii) completion of the distribution
of the Shares, any offering material in connection with the offering and sale of
the Shares other than any Preliminary Prospectuses, the Prospectus, the
Registration Statement and other materials, if any, permitted by the Act.
(q) Neither the Company nor any of its subsidiaries has at any
time during the last five (5) years (i) made any unlawful contribution to any
candidate for foreign office or failed to disclose fully any contribution in
violation of law, or (ii) made any payment to any federal or state governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the United
States or any jurisdiction thereof.
(r) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
(s) All of the officers, directors and greater than one
percent (1%) securityholders of the Company have agreed in writing that such
person will not, from the date such agreement is entered into through the
period of 180 days from the date that the Registration Statement is declared
effective by the Commission (the "Lock-up Period"), offer to sell, contract
to sell, or otherwise sell, dispose of, loan, pledge or grant any rights with
respect to (collectively, a "Disposition") any shares of Common Stock, any
options or warrants to purchase any shares of Common Stock or any securities
convertible into or exchangeable for shares of Common Stock (collectively,
"Securities") now owned or hereafter acquired directly by such person or with
respect to which such person has or hereafter acquires the power of
disposition, otherwise than (i) as a bona fide gift or gifts, provided the
donee or donees thereof agree in writing to be bound by this restriction,
(ii) as a distribution to limited partners or securityholders of such person,
provided that the distributees thereof agree in writing to be bound by the
terms of this restriction, or (iii) with the prior written consent of
Robertson, Stephens & Company, LLC. The foregoing restriction is expressly
agreed to preclude the holder of the Securities from engaging in any hedging
or other transaction which is designed to or reasonably expected to lead to
or result in a Disposition of Securities during the Lock-up Period, even if
such Securities would be disposed of by someone other than such holder. Such
prohibited hedging or other transactions would include, without
-7-
<PAGE>
limitation, any short sale (whether or not against the box) or any purchase,
sale or grant of any right (including, without limitation, any put or call
option) with respect to any Securities or with respect to any security (other
than a broad-based market basket or index) that includes, relates to or
derives any significant part of its value from Securities. Furthermore, such
person will also agree and consent to the entry of stop transfer instructions
with the Company's transfer agent against the transfer of the Securities held
by such person except in compliance with this restriction. The Company has
provided to counsel for the Underwriters a complete and accurate list of all
securityholders of the Company and the number and type of securities held by
each securityholder. The Company has provided to counsel for the
Underwriters true, accurate and complete copies of all of the agreements
pursuant to which its officers, directors and securityholders have agreed to
such or similar restrictions (the "Lock-up Agreements") presently in effect
or effected hereby. The Company hereby represents and warrants that it will
not release any of its officers, directors or securityholders from any
Lock-up Agreements currently existing or hereafter effected without the prior
written consent of Robertson, Stephens & Company, LLC.
(t) Except as set forth in the Registration Statement and
Prospectus, (i) the Company is in compliance with all rules, laws and
regulations relating to the use, treatment, storage and disposal of toxic
substances and protection of health or the environment ("Environmental Laws")
which are applicable to its business, (ii) the Company has received no notice
from any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the Registration
Statement and the Prospectus, (iii) the Company will not be required to make
future material capital expenditures to comply with Environmental Laws and
(iv) no property which is owned, leased or occupied by the Company has been
designated as a Superfund site pursuant to the Comprehensive Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601,
ET SEQ.), or otherwise designated as a contaminated site under applicable state
or local law.
(u) The Company and each of its subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(v) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or guarantees
of indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them,
except as disclosed in the Registration Statement and the Prospectus.
(w) The Company has complied with all provisions of
Section 517.075, Florida Statutes relating to doing business with the Government
of Cuba or with any person or affiliate located in Cuba.
II. Each Selling Shareholder, severally and not jointly, represents
and warrants to and agrees with each Underwriter and the Company that:
(a) Such Selling Shareholder now has and on the Closing Date
will have valid marketable title to the Shares to be sold by such Selling
Shareholder, free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest other than pursuant to this Agreement; and upon
delivery of such Shares hereunder and payment of the purchase price as herein
contemplated, each of the Underwriters will obtain valid marketable title to the
Shares purchased by it from such Selling Shareholder, free and clear of any
pledge, lien, security interest pertaining to such Selling
-8-
<PAGE>
Shareholder or such Selling Shareholder's property, encumbrance, claim or
equitable interest, including any liability for estate or inheritance taxes, or
any liability to or claims of any creditor, devisee, legatee or beneficiary of
such Selling Shareholder.
(b) Such Selling Shareholder has duly authorized (if
applicable), executed and delivered, in the form heretofore furnished to the
Representatives, an irrevocable Power of Attorney (the "Power of Attorney")
appointing ___________ and ___________ as attorneys-in-fact (collectively, the
"Attorneys" and individually, an "Attorney") and a Letter of Transmittal and
Custody Agreement (the "Custody Agreement") with ______________________________,
as custodian (the "Custodian"); each of the Power of Attorney and the Custody
Agreement constitutes a valid and binding agreement on the part of such Selling
Shareholder, enforceable in accordance with its terms, except as the enforcement
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles; and each of such Selling
Shareholder's Attorneys, acting alone, is authorized to execute and deliver this
Agreement and the certificate referred to in Section 6(g) hereof on behalf of
such Selling Shareholder, to determine the purchase price to be paid by the
several Underwriters to such Selling Shareholder as provided in Section 3
hereof, to authorize the delivery of the Selling Shareholder Shares under this
Agreement and to duly endorse (in blank or otherwise) the certificate or
certificates representing such Shares or a stock power or powers with respect
thereto, to accept payment therefor, and otherwise to act on behalf of such
Selling Shareholder in connection with this Agreement.
(c) All consents, approvals, authorizations and orders required
for the execution and delivery by such Selling Shareholder of the Power of
Attorney and the Custody Agreement, the execution and delivery by or on behalf
of such Selling Shareholder of this Agreement and the sale and delivery of the
Selling Shareholder Shares under this Agreement (other than, at the time of the
execution hereof (if the Registration Statement has not yet been declared
effective by the Commission), the issuance of the order of the Commission
declaring the Registration Statement effective and such consents, approvals,
authorizations or orders as may be necessary under state or other securities or
Blue Sky laws) have been obtained and are in full force and effect; such Selling
Shareholder, if other than a natural person, has been duly organized and is
validly existing in good standing under the laws of the jurisdiction of its
organization as the type of entity that it purports to be; and such Selling
Shareholder has full legal right, power and authority to enter into and perform
its obligations under this Agreement and such Power of Attorney and Custody
Agreement, and to sell, assign, transfer and deliver the Shares to be sold by
such Selling Shareholder under this Agreement.
(d) Such Selling Shareholder will not, during the Lock-up
Period, effect the Disposition of any Securities now owned or hereafter acquired
directly by such Selling Shareholder or with respect to which such Selling
Shareholder has or hereafter acquires the power of disposition, otherwise than
(i) as a bona fide gift or gifts, provided the donee or donees thereof agree in
writing to be bound by this restriction, (ii) as a distribution to limited
partners or shareholders of such Selling Shareholder, provided that the
distributees thereof agree in writing to be bound by the terms of this
restriction, or (iii) with the prior written consent of Robertson, Stephens &
Company, LLC. The foregoing restriction is expressly agreed to preclude the
holder of the Securities from engaging in any hedging or other transaction which
is designed to or reasonably expected to lead to or result in a Disposition of
Securities during the Lock-up Period, even if such Securities would be disposed
of by someone other than the Selling Shareholder. Such prohibited hedging or
other transactions would including, without limitation, any short sale (whether
or not against the box) or any purchase, sale or grant of any right (including,
without limitation, any put or call option) with respect to any Securities or
with respect to any security (other than a broad-based market basket or index)
that includes, relates to or derives any significant part of its value from
Securities. Such Selling Shareholder also agrees and consents to the entry of
stop transfer instructions with the Company's transfer agent against the
transfer of the securities held by such Selling Shareholder except in compliance
with this restriction.
-9-
<PAGE>
(e) Certificates in negotiable form for all Shares to be sold by
such Selling Shareholder under this Agreement, together with a stock power or
powers duly endorsed in blank by such Selling Shareholder, have been placed in
custody with the Custodian for the purpose of effecting delivery hereunder.
(f) This Agreement has been duly authorized by each Selling
Shareholder that is not a natural person and has been duly executed and
delivered by or on behalf of such Selling Shareholder and is a valid and binding
agreement of such Selling Shareholder, enforceable in accordance with its terms,
except as rights to indemnification hereunder may be limited by applicable law
and except as the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles; and the
performance of this Agreement and the consummation of the transactions herein
contemplated will not result in a breach or violation of any of the terms and
provisions of or constitute a default under any bond, debenture, note or other
evidence of indebtedness, or under any lease, contract, indenture, mortgage,
deed of trust, loan agreement, joint venture or other agreement or instrument to
which such Selling Shareholder is a party or by which such Selling Shareholder,
or any Selling Shareholder Shares hereunder, may be bound or, to the best of
such Selling Shareholders' knowledge, result in any violation of any law, order,
rule, regulation, writ, injunction, judgment or decree of any court, government
or governmental agency or body, domestic or foreign, having jurisdiction over
such Selling Shareholder or over the properties of such Selling Shareholder, or,
if such Selling Shareholder is other than a natural person, result in any
violation of any provisions of the charter, bylaws or other organizational
documents of such Selling Shareholder.
(g) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Shares.
(h) Such Selling Shareholder has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Shares.
(i) All information furnished by or on behalf of such Selling
Shareholder relating to such Selling Shareholder and the Selling Shareholder
Shares that is contained in the representations and warranties of such Selling
Shareholder in such Selling Shareholder's Power of Attorney or set forth in the
Registration Statement and the Prospectus is, and at the time the Registration
Statement became or becomes, as the case may be, effective and at all times
subsequent thereto up to and on the Closing Date, and on any later date on which
Option Shares are to be purchased, was or will be, true, correct and complete,
and does not, and at the time the Registration Statement became or becomes, as
the case may be, effective and at all times subsequent thereto up to and on the
Closing Date (hereinafter defined) will not, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make such information not misleading.
(j) Such Selling Shareholder will review the Prospectus and will
comply with all agreements and satisfy all conditions on its part to be complied
with or satisfied pursuant to this Agreement on or prior to the Closing Date, or
any later date on which Option Shares are to be purchased, as the case may be,
and will advise one of its Attorneys and Robertson, Stephens & Company, LLC
prior to the Closing Date or such later date on which Option Shares are to be
purchased, as the case may be, if any statement to be made on behalf of such
Selling Shareholder in the certificate contemplated by Section 6(g) would be
inaccurate if made as of the Closing Date or such later date on which Option
Shares are to be purchased, as the case may be.
(k) Such Selling Shareholder does not have, or has waived prior
to the date hereof, any preemptive right, co-sale right or right of first
refusal or other similar right to purchase any of the Shares
-10-
<PAGE>
that are to be sold by the Company or any of the other Selling Shareholders to
the Underwriters pursuant to this Agreement; such Selling Shareholder does not
have, or has waived prior to the date hereof, any registration right or other
similar right to participate in the offering made by the Prospectus, other than
such rights of participation as have been satisfied by the participation of such
Selling Shareholder in the transactions to which this Agreement relates in
accordance with the terms of this Agreement; and such Selling Shareholder does
not own any warrants, options or similar rights to acquire, and does not have
any right or arrangement to acquire, any capital stock, rights, warrants,
options or other securities from the Company, other than those described in the
Registration Statement and the Prospectus.
(l) Such Selling Shareholder is not aware (without having
conducted any investigation or inquiry) that any of the representations and
warranties of the Company set forth in Section 2.I. above is untrue or
inaccurate in any material respect.
3. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company and the Selling Shareholders
agree, severally and not jointly, to sell to the Underwriters, and each
Underwriter agrees, severally and not jointly, to purchase from the Company and
the Selling Shareholders, respectively, at a purchase price of $_____ per share,
the respective number of Firm Shares as hereinafter set forth and Selling
Shareholder Shares set forth opposite the names of the Company and the Selling
Shareholders in SCHEDULE B hereto. The obligation of each Underwriter to the
Company and to each Selling Shareholder shall be to purchase from the Company or
such Selling Shareholder that number of Firm Company Shares or Selling
Shareholder Shares, as the case may be, which (as nearly as practicable, as
determined by you) is in the same proportion to the number of Company Shares or
Selling Shareholder Shares, as the case may be, set forth opposite the name of
the Company or such Selling Shareholder in SCHEDULE B hereto as the number of
Firm Shares which is set forth opposite the name of such Underwriter in
SCHEDULE A hereto (subject to adjustment as provided in Section 10) is to the
total number of Firm Shares to be purchased by all the Underwriters under this
Agreement.
The certificates in negotiable form for the Selling Shareholder Shares
have been placed in custody (for delivery under this Agreement) under the
Custody Agreement. Each Selling Shareholder agrees that the certificates for
the Selling Shareholder Shares of such Selling Shareholder so held in custody
are subject to the interests of the Underwriters hereunder, that the
arrangements made by such Selling Shareholder for such custody, including the
Power of Attorney is to that extent irrevocable and that the obligations of such
Selling Shareholder hereunder shall not be terminated by the act of such Selling
Shareholder or by operation of law, whether by the death or incapacity of such
Selling Shareholder or the occurrence of any other event, except as specifically
provided herein or in the Custody Agreement. If any Selling Shareholder should
die or be incapacitated, or if any other such event should occur, before the
delivery of the certificates for the Selling Shareholder Shares hereunder, the
Selling Shareholder Shares to be sold by such Selling Shareholder shall, except
as specifically provided herein or in the Custody Agreement, be delivered by the
Custodian in accordance with the terms and conditions of this Agreement as if
such death, incapacity or other event had not occurred, regardless of whether
the Custodian shall have received notice of such death or other event.
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 shall be made against
payment of the purchase price therefor by the several Underwriters by certified
or official bank check or checks drawn in next-day funds, payable to the order
of the Company with regard to the Shares being purchased from the Company, and
to the order of the Custodian for the respective accounts of the Selling
Shareholders with regard to the Shares being purchased from such Selling
Shareholders (and the Company and such Selling Shareholders agree not to deposit
and to cause the Custodian not to deposit any such check in the bank on which it
is drawn, and not to take any other action with the purpose or effect of
receiving immediately available funds, until the business day following the date
-11-
<PAGE>
of its delivery to the Company or the Custodian, as the case may be, and, in the
event of any breach of the foregoing, the Company or the Selling Shareholders,
as the case may be, shall reimburse the Underwriters for the interest lost and
any other expenses borne by them by reason of such breach), at the offices of
Ater Wynne Hewitt Dodson & Skerrit, 222 S.W. Columbia, Portland, OR 97201-6618
(or at such other place as may be agreed upon among the Representatives and the
Company and the Selling Shareholders), at 7:00 A.M., San Francisco time (a) on
the third (3rd) full business day following the first (1st) day that Shares are
traded, (b) if this Agreement is executed and delivered after 1:30 P.M., San
Francisco time, the fourth (4th) full business day following the day that this
Agreement is executed and delivered or (c) at such other time and date not later
than seven (7) full business days following the first day that Shares are traded
as the Representatives and the Company and the Selling Shareholders may
determine (or at such time and date to which payment and delivery shall have
been postponed pursuant to Section 10 hereof), such time and date of payment and
delivery being herein called the "Closing Date;" PROVIDED, HOWEVER, that if the
Company has not made available to the Representatives copies of the Prospectus
within the time provided in Section 4(d) hereof, the Representatives may, in
their sole discretion, postpone the Closing Date until no later than two (2)
full business days following delivery of copies of the Prospectus to the
Representatives. The certificates for the Firm Shares to be so delivered will
be made available to you at such office or such other location including,
without limitation, in New York City, as you may reasonably request for checking
at least one (1) full business day prior to the Closing Date and will be in such
names and denominations as you may request, such request to be made at least two
(2) full business days prior to the Closing Date. If the Representatives so
elect, delivery of the Firm Shares may be made by credit through full fast
transfer to the accounts at The Depository Trust Company designated by the
Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the Closing
Date for the Firm Shares to be purchased by such Underwriter or Underwriters.
Any such payment by you shall not relieve any such Underwriter or Underwriters
of any of its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make an initial public offering (as such term is
described in Section 11 hereof) of the Firm Shares at an initial public offering
price of $_____ per share. After the initial public offering, the several
Underwriters may, in their discretion, vary the public offering price.
The information set forth in the last paragraph on the front cover
page (insofar as such information relates to the Underwriters), the language
concerning stabilization and over-allotment by the Underwriters, and under the
caption "Underwriting" in any Preliminary Prospectus and in the final form of
Prospectus filed pursuant to Rule 424(b) constitutes the only information
furnished by the Underwriters to the Company for inclusion in any Preliminary
Prospectus, the Prospectus or the Registration Statement, and you, on behalf of
the respective Underwriters, represent and warrant to the Company and the
Selling Shareholders that the statements made therein do not include any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
4. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees with the
several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; the Company will use its best efforts
to cause any abbreviated registration statement pursuant to Rule 462(b) of the
Rules and Regulations as may be required subsequent to the date the Registration
Statement is declared effective to become effective as promptly as possible; the
Company will notify you, promptly after it shall receive notice thereof, of the
time when the
-12-
<PAGE>
Registration Statement, any subsequent amendment to the Registration Statement
or any abbreviated registration statement has become effective or any supplement
to the Prospectus has been filed; if the Company omitted information from the
Registration Statement at the time it was originally declared effective in
reliance upon Rule 430A(a) of the Rules and Regulations, the Company will
provide evidence satisfactory to you that the Prospectus contains such
information and has been filed, within the time period prescribed, with the
Commission pursuant to subparagraph (1) or (4) of Rule 424(b) of the Rules and
Regulations or as part of a post-effective amendment to such Registration
Statement as originally declared effective which is declared effective by the
Commission; if the Company files a term sheet pursuant to Rule 434 of the Rules
and Regulations, the Company will provide evidence satisfactory to you that the
Prospectus and term sheet meeting the requirements of Rule 434(b) or (c), as
applicable, of the Rules and Regulations, have been filed, within the time
period prescribed, with the Commission pursuant to subparagraph (7) of Rule
424(b) of the Rules and Regulations; if for any reason the filing of the final
form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed with the Commission within the time
period prescribed; it will notify you promptly of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; promptly upon your request, it will
prepare and file with the Commission any amendments or supplements to the
Registration Statement or Prospectus which, in the opinion of counsel for the
several Underwriters ("Underwriters' Counsel"), may be necessary or advisable in
connection with the distribution of the Shares by the Underwriters; it will
promptly prepare and file with the Commission, and promptly notify you of the
filing of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or omissions, if, at
any time when a prospectus relating to the Shares is required to be delivered
under the Act, any event shall have occurred as a result of which the Prospectus
or any other prospectus relating to the Shares as then in effect would include
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; in case any Underwriter is required
to deliver a prospectus nine (9) months or more after the effective date of the
Registration Statement in connection with the sale of the Shares, it will
prepare promptly upon request, but at the expense of such Underwriter, such
amendment or amendments to the Registration Statement and such prospectus or
prospectuses as may be necessary to permit compliance with the requirements of
Section 10(a)(3) of the Act; and it will file no amendment or supplement to the
Registration Statement or Prospectus which shall not previously have been
submitted to you a reasonable time prior to the proposed filing thereof or to
which you shall reasonably object in writing, subject, however, to compliance
with the Act and the Rules and Regulations and the provisions of this Agreement.
(b) The Company will advise you, promptly after it shall receive
notice or obtain knowledge, of the issuance of any stop order by the Commission
suspending the effectiveness of the Registration Statement or of the initiation
or threat of any proceeding for that purpose; and it will promptly use its best
efforts to prevent the issuance of any stop order or to obtain its withdrawal at
the earliest possible moment if such stop order should be issued.
(c) The Company will use its best efforts to qualify the Shares
for offering and sale under the securities laws of such jurisdictions as you may
designate and to continue such qualifications in effect for so long as may be
required for purposes of the distribution of the Shares, except that the Company
shall not be required in connection therewith or as a condition thereof to
qualify as a foreign corporation or to execute a general consent to service of
process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be reasonably required by the laws of such jurisdiction.
(d) The Company will furnish to you, as soon as available, and,
in the case of the Prospectus and any term sheet or abbreviated term sheet under
Rule 434, in no event later than the first (1st)
-13-
<PAGE>
full business day following the first day that Shares are traded, copies of the
Registration Statement (three of which will be signed and which will include all
exhibits), each Preliminary Prospectus, the Prospectus and any amendments or
supplements to such documents, including any prospectus prepared to permit
compliance with Section 10(a)(3) of the Act, all in such quantities as you may
from time to time reasonably request. Notwithstanding the foregoing, if
Robertson, Stephens & Company, LLC, on behalf of the several Underwriters, shall
agree to the utilization of Rule 434 of the Rules and Regulations, the Company
shall provide to you copies of a Preliminary Prospectus updated in all respects
through the date specified by you in such quantities as you may from time to
time reasonably request.
(e) The Company will make generally available to its
securityholders as soon as practicable, but in any event not later than the
forty-fifth (45th) day following the end of the fiscal quarter first occurring
after the first anniversary of the effective date of the Registration Statement,
an earnings statement (which will be in reasonable detail but need not be
audited) complying with the provisions of Section 11(a) of the Act and covering
a twelve (12) month period beginning after the effective date of the
Registration Statement.
(f) During a period of five (5) years after the date hereof, the
Company will furnish to its shareholders as soon as practicable after the end of
each respective period, annual reports (including financial statements audited
by independent certified public accountants) and unaudited quarterly reports of
operations for each of the first three quarters of the fiscal year, and will
furnish to you and the other several Underwriters hereunder, upon request
(i) concurrently with furnishing such reports to its shareholders, statements of
operations of the Company for each of the first three (3) quarters in the form
furnished to the Company's shareholders, (ii) concurrently with furnishing to
its shareholders, a balance sheet of the Company as of the end of such fiscal
year, together with statements of operations, of shareholders' equity, and of
cash flows of the Company for such fiscal year, accompanied by a copy of the
certificate or report thereon of independent certified public accountants,
(iii) as soon as they are available, copies of all reports (financial or other)
mailed to shareholders, (iv) as soon as they are available, copies of all
reports and financial statements furnished to or filed with the Commission, any
securities exchange or the National Association of Securities Dealers, Inc. (the
"NASD"), (v) every material press release and every material news item or
article in respect of the Company or its affairs which was generally released to
shareholders or prepared by the Company or any of its subsidiaries, and (vi) any
additional information of a public nature concerning the Company or its
subsidiaries, or its business which you may reasonably request. During such
five (5) year period, if the Company shall have active subsidiaries, the
foregoing financial statements shall be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and
shall be accompanied by similar financial statements for any significant
subsidiary which is not so consolidated.
(g) The Company will apply the net proceeds from the sale of the
Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar (which may
be the same entity as the transfer agent) for its Common Stock.
(i) The Company will file Form SR in conformity with the
requirements of the Act and the Rules and Regulations.
(j) If the transactions contemplated hereby are not consummated
by reason of any failure, refusal or inability on the part of the Company or any
Selling Shareholder to perform any agreement on their respective parts to be
performed hereunder or to fulfill any condition of the Underwriters' obligations
hereunder, or if the Company shall terminate this Agreement pursuant to
Section 11(a) hereof, or if the
-14-
<PAGE>
Underwriters shall terminate this Agreement pursuant to Section 11(b)(i), the
Company will reimburse the several Underwriters for all out-of-pocket expenses
(including fees and disbursements of Underwriters' Counsel) incurred by the
Underwriters in investigating or preparing to market or marketing the Shares.
(k) If at any time during the ninety (90) day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the substance of and
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event.
(l) During the Lock-up Period, the Company will not, without the
prior written consent of Robertson Stephens & Company, LLC, effect the
Disposition of, directly or indirectly, any Securities other than the sale of
the Firm Shares and the Option Shares hereunder and the Company's issuance of
options or Common Stock under the Company's presently authorized 1992 Stock
Incentive Plan or the 1996 Stock Option Plan for Non Employee Directors as
described in the Prospectus (the "Option Plans").
(m) During a period of ninety (90) days from the effective date
of the Registration Statement, the Company will not file a registration
statement registering shares under the Option Plans or other employee benefit
plan.
5. EXPENSES.
(a) The Company [and the Selling Shareholders] agree with each
Underwriter that:
(i) The Company [and the Selling Shareholders] will
pay and bear all costs and expenses in connection with the preparation, printing
and filing of the Registration Statement (including financial statements,
schedules and exhibits), Preliminary Prospectuses and the Prospectus and any
amendments or supplements thereto; the printing of this Agreement, the Agreement
Among Underwriters, the Selected Dealer Agreement, the Preliminary Blue Sky
Survey and any Supplemental Blue Sky Survey, the Underwriters' Questionnaire and
Power of Attorney, and any instruments related to any of the foregoing; the
issuance and delivery of the Shares hereunder to the several Underwriters,
including transfer taxes, if any, the cost of all certificates representing the
Shares and transfer agents' and registrars' fees; the fees and disbursements of
counsel for the Company; all fees and other charges of the Company's independent
certified public accountants; the cost of furnishing to the several Underwriters
copies of the Registration Statement (including appropriate exhibits),
Preliminary Prospectus and the Prospectus, and any amendments or supplements to
any of the foregoing; NASD filing fees and the cost of qualifying the Shares
under the laws of such jurisdictions as you may designate (including filing fees
and fees and disbursements of Underwriters' Counsel in connection with such NASD
filings and Blue Sky qualifications); and all other expenses directly incurred
by the Company and the Selling Shareholders in connection with the performance
of their obligations hereunder. [Any additional expenses incurred as a result
of the sale of the Shares by the Selling Shareholders will be borne collectively
by the Company and the Selling Shareholders. The provisions of this
Section 5(a)(i) are intended to relieve the Underwriters from the payment of the
expenses and costs which the Selling Shareholders and the Company hereby agree
to pay, but shall not affect any agreement which the Selling Shareholders and
the Company may make, or may have made, for the sharing of any of such expenses
and costs. Such agreements shall not impair the obligations of the Company and
the Selling Shareholders hereunder to the several Underwriters.]
-15-
<PAGE>
(ii) In addition to its other obligations under
Section 8(a) hereof, the Company agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
described in Section 8(a) hereof, it will reimburse the Underwriters on a
monthly basis for all reasonable legal or other expenses incurred in connection
with investigating or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial determination as
to the propriety and enforceability of the Company's obligation to reimburse the
Underwriters for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To
the extent that any such interim reimbursement payment is so held to have been
improper, the Underwriters shall promptly return such payment to the Company
together with interest, compounded daily, determined on the basis of the prime
rate (or other commercial lending rate for borrowers of the highest credit
standing) listed from time to time in The Wall Street Journal which represents
the base rate on corporate loans posted by a substantial majority of the
nation's thirty (30) largest banks (the "Prime Rate"). Any such interim
reimbursement payments which are not made to the Underwriters within thirty (30)
days of a request for reimbursement shall bear interest at the Prime Rate from
the date of such request.
(iii) In addition to their other obligations under
Section 8(b) hereof, each Selling Shareholder agrees that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or other
proceeding described in Section 8(b) hereof relating to such Selling
Shareholder, it will reimburse the Underwriters on a monthly basis for all
reasonable legal or other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of such Selling Shareholder's obligation to reimburse the
Underwriters for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To
the extent that any such interim reimbursement payment is so held to have been
improper, the Underwriters shall promptly return such payment to the Selling
Shareholders, together with interest, compounded daily, determined on the basis
of the Prime Rate. Any such interim reimbursement payments which are not made
to the Underwriters within thirty (30) days of a request for reimbursement shall
bear interest at the Prime Rate from the date of such request.
(b) In addition to their other obligations under Section 8(c)
hereof, the Underwriters severally and not jointly agree that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Section 8(c) hereof, they will reimburse the
Company and each Selling Shareholder on a monthly basis for all reasonable legal
or other expenses incurred in connection with investigating or defending any
such claim, action, investigation, inquiry or other proceeding, notwithstanding
the absence of a judicial determination as to the propriety and enforceability
of the Underwriters' obligation to reimburse the Company and each such Selling
Shareholder for such expenses and the possibility that such payments might later
be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Company and each such Selling Shareholder shall promptly return
such payment to the Underwriters together with interest, compounded daily,
determined on the basis of the Prime Rate. Any such interim reimbursement
payments which are not made to the Company [and each such Selling Shareholder]
within thirty (30) days of a request for reimbursement shall bear interest at
the Prime Rate from the date of such request.
(c) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in
Sections 5(a)(ii), 5(a)(iii) and 5(b) hereof, including the amounts of any
requested reimbursement payments, the method of determining such amounts and the
basis on which such amounts shall be apportioned among the reimbursing parties,
shall be settled by arbitration conducted under the provisions of the
Constitution and Rules of the Board of Governors of the New York Stock Exchange,
Inc. or pursuant to the Code of Arbitration Procedure of the NASD. Any such
arbitration must be commenced by service of a written demand for arbitration or
a written notice of intention to arbitrate, therein
-16-
<PAGE>
electing the arbitration tribunal. In the event the party demanding arbitration
does not make such designation of an arbitration tribunal in such demand or
notice, then the party responding to said demand or notice is authorized to do
so. Any such arbitration will be limited to the operation of the interim
reimbursement provisions contained in Sections 5(a)(ii), 5(a)(iii) and 5(b)
hereof and will not resolve the ultimate propriety or enforceability of the
obligation to indemnify for expenses which is created by the provisions of
Sections 8(a), 8(b) and 8(c) hereof or the obligation to contribute to expenses
which is created by the provisions of Section 8(e) hereof.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein shall
be subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company and the Selling Shareholders
herein, to the performance by the Company and the Selling Shareholders of their
respective obligations hereunder and to the following additional conditions:
(a) The Registration Statement shall have become effective not
later than 2:00 P.M., San Francisco time, on the date following the date of this
Agreement, or such later date as shall be consented to in writing by you; and no
stop order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge of
the Company, any Selling Shareholder or any Underwriter, threatened by the
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement and the
Prospectus, and the registration, authorization, issue, sale and delivery of the
Shares, shall have been reasonably satisfactory to Underwriters' Counsel, and
such counsel shall have been furnished with such papers and information as they
may reasonably have requested to enable them to pass upon the matters referred
to in this Section.
(c) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date there shall not have been any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise from
that set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus.
(d) You shall have received on the Closing Date and on any later
date on which Option Shares are purchased, as the case may be, the following
opinion of counsel for the Company and the Selling Shareholders, dated the
Closing Date or such later date on which Option Shares are purchased addressed
to the Underwriters and with reproduced copies or signed counterparts thereof
for each of the Underwriters, to the effect that:
(i) The Company and each subsidiary has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation;
(ii) The Company and each subsidiary has the corporate
power and authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus;
(iii) The Company and each subsidiary is duly
qualified to do business as a foreign corporation and is in good
standing in each jurisdiction, if any, in which the ownership or
leasing of its properties or the conduct of its business requires such
qualification, except
-17-
<PAGE>
where the failure to be so qualified or be in good standing would not
have a material adverse effect on the condition (financial or
otherwise), earnings, operations or business of the Company and its
subsidiaries considered as one enterprise. To such counsel's
knowledge, the Company does not own or control, directly or
indirectly, any corporation, association or other entity other than
_____________ (LIST SUBSIDIARIES);
(iv) The authorized, issued and outstanding capital
stock of the Company is as set forth in the Prospectus under the
caption "Capitalization" as of the dates stated therein, the issued
and outstanding shares of capital stock of the Company (including the
Selling Shareholder Shares) have been duly and validly issued and are
fully paid and nonassessable, and, to such counsel's knowledge, will
not have been issued in violation of or subject to any preemptive
right, co-sale right, registration right, right of first refusal or
other similar right;
(v) All issued and outstanding shares of capital stock
of each subsidiary of the Company have been duly authorized and
validly issued and are fully paid and nonassessable, and, to such
counsel's knowledge, have not been issued in violation of or subject
to any preemptive right, co-sale right, registration right, right of
first refusal or other similar right and are owned by the Company free
and clear of any pledge, lien, security interest, encumbrance, claim
or equitable interest;
(vi) The Firm Shares or the Option Shares, as the case
may be, to be issued by the Company pursuant to the terms of this
Agreement have been duly authorized and, upon issuance and delivery
against payment therefor in accordance with the terms hereof, will be
duly and validly issued and fully paid and nonassessable, and will not
have been issued in violation of or subject to any preemptive right,
co-sale right, registration right, right of first refusal or other
similar right of shareholders;
(vii) The Company has the corporate power and
authority to enter into this Agreement and to issue, sell and deliver
to the Underwriters the Shares to be issued and sold by it hereunder;
(viii) This Agreement has been duly authorized by
all necessary corporate action on the part of the Company and has been
duly executed and delivered by the Company and, assuming due
authorization, execution and delivery by you, is a valid and binding
agreement of the Company, enforceable in accordance with its terms,
except insofar as indemnification provisions may be limited by
applicable law and except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally or by general
equitable principles;
(ix) The Registration Statement has become effective
under the Act and, to such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been instituted or are
pending or threatened under the Act;
(x) The Registration Statement and the Prospectus, and
each amendment or supplement thereto (other than the financial
statements (including supporting schedules) and financial data derived
therefrom as to which such counsel need express no opinion), as of the
effective date of the Registration Statement, complied as to form in
all material respects with the requirements of the Act and the
applicable Rules and Regulations;
-18-
<PAGE>
(xi) The information in the Prospectus under the
caption "Risk Factors--Shares Eligible for Future Sale," "Certain
Transactions," "Description of Capital Stock," and "Shares Eligible
for Future Sale," to the extent that it constitutes matters of law or
legal conclusions, has been reviewed by such counsel and is a fair
summary of such matters and conclusions; and the forms of certificates
evidencing the Common Stock and filed as exhibits to the Registration
Statement comply with Oregon law;
(xii) The description in the Registration Statement
and the Prospectus of the charter and bylaws of the Company and of
statutes are accurate and fairly present the information required to
be presented by the Act and the applicable Rules and Regulations;
(xiii) To such counsel's knowledge, there are no
agreements, contracts, leases or documents to which the Company is a
party of a character required to be described or referred to in the
Registration Statement or Prospectus or to be filed as an exhibit to
the Registration Statement which are not described or referred to
therein or filed as required;
(xiv) The performance of this Agreement and the
consummation of the transactions herein contemplated (other than
performance of the Company's indemnification obligations hereunder,
concerning which no opinion need be expressed) will not (a) result in
any violation of the Company's charter or bylaws or (b) to such
counsel's knowledge, result in a material breach or violation of any
of the terms and provisions of, or constitute a default under, any
bond, debenture, note or other evidence of indebtedness, or under any
lease, contract, indenture, mortgage, deed of trust, loan agreement,
joint venture or other agreement or instrument known to such counsel
to which the Company is a party or by which its properties are bound,
or any applicable statute, rule or regulation known to such counsel
or, to such counsel's knowledge, any order, writ or decree of any
court, government or governmental agency or body having jurisdiction
over the Company or any of its subsidiaries, or over any of their
properties or operations;
(xv) No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or
body having jurisdiction over the Company or any of its subsidiaries,
or over any of their properties or operations is necessary in
connection with the consummation by the Company of the transactions
herein contemplated, except such as have been obtained under the Act
or such as may be required under state or other securities or Blue Sky
laws in connection with the purchase and the distribution of the
Shares by the Underwriters;
(xvi) To such counsel's knowledge, there are no
legal or governmental proceedings pending or threatened against the
Company or any of its subsidiaries of a character required to be
disclosed in the Registration Statement or the Prospectus by the Act
or the Rules and Regulations, other than those described therein;
(xvii) To such counsel's knowledge, neither the
Company nor any of its subsidiaries is presently (a) in material
violation of its respective charter or bylaws, or (b) in material
breach of any applicable statute, rule or regulation known to such
counsel or, to such counsel's knowledge, any order, writ or decree of
any court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries, or over any of their properties or
operations; and
(xviii) To such counsel's knowledge, except as set
forth in the Registration Statement and Prospectus, no holders of
Common Stock or other securities of the Company
-19-
<PAGE>
have registration rights with respect to securities of the Company
and, except as set forth in the Registration Statement and Prospectus,
all holders of securities of the Company having rights known to such
counsel to registration of such shares of Common Stock or other
securities, because of the filing of the Registration Statement by the
Company have, with respect to the offering contemplated thereby,
waived such rights or such rights have expired by reason of lapse of
time following notification of the Company's intent to file the
Registration Statement or have included securities in the Registration
Statement pursuant to the exercise of and in full satisfaction of such
rights;
(xix) Each Selling Shareholder which is not a
natural person has full right, power and authority to enter into and
to perform its obligations under the Power of Attorney and Custody
Agreement to be executed and delivered by it in connection with the
transactions contemplated herein; the Power of Attorney and Custody
Agreement of each Selling Shareholder that is not a natural person has
been duly authorized by such Selling Shareholder; the Power of
Attorney and Custody Agreement of each Selling Shareholder has been
duly executed and delivered by or on behalf of such Selling
Shareholder; and the Power of Attorney and Custody Agreement of each
Selling Shareholder constitutes the valid and binding agreement of
such Selling Shareholder, enforceable in accordance with its terms,
except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating
to or affecting creditors' rights generally or by general equitable
principles;
(xx) Each of the Selling Shareholders has full right,
power and authority to enter into and to perform its obligations under
this Agreement and to sell, transfer, assign and deliver the Shares to
be sold by such Selling Shareholder hereunder;
(xxi) This Agreement has been duly authorized by
each Selling Shareholder that is not a natural person and has been
duly executed and delivered by or on behalf of each Selling
Shareholder; and
(xxii) Upon the delivery of and payment for the
Shares as contemplated in this Agreement, each of the Underwriters
will receive valid marketable title to the Shares purchased by it from
such Selling Shareholder, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest. In rendering such
opinion, such counsel may assume that the Underwriters are without
notice of any defect in the title of the Shares being purchased from
the Selling Shareholders;
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads them to believe
that, at the time the Registration Statement became effective and at all times
subsequent thereto up to and on the Closing Date and on any later date on which
Option Shares are to be purchased, the Registration Statement and any amendment
or supplement thereto (other than the financial statements including supporting
schedules and other financial and statistical information derived therefrom, as
to which such counsel need express no comment) contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or at the
Closing Date or any later date on which the Option Shares are to be purchased,
as the case may be, the Registration Statement, the Prospectus and any amendment
or supplement thereto (except as aforesaid) contained any untrue statement of a
material fact or
-20-
<PAGE>
omitted to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
Counsel rendering the foregoing opinion may rely as to questions
of law not involving the laws of the United States or the State of Oregon upon
opinions of local counsel, and as to questions of fact upon representations or
certificates of officers of the Company, the Selling Shareholders or officers of
the Selling Shareholders (when the Selling Shareholder is not a natural person),
and of government officials, in which case their opinion is to state that they
are so relying and that they have no knowledge of any material misstatement or
inaccuracy in any such opinion, representation or certificate. Copies of any
opinion, representation or certificate so relied upon shall be delivered to you,
as Representatives of the Underwriters, and to Underwriters' Counsel.
(e) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, an opinion
of Brobeck, Phleger & Harrison LLP, in form and substance satisfactory to you,
with respect to the sufficiency of all such corporate proceedings and other
legal matters relating to this Agreement and the transactions contemplated
hereby as you may reasonably require, and the Company shall have furnished to
such counsel such documents as they may have requested for the purpose of
enabling them to pass upon such matters.
(f) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, a letter
from KPMG Peat Marwick LLP addressed to the Company and the Underwriters, dated
the Closing Date or such later date on which Option Shares are to be purchased,
as the case may be, confirming that they are independent certified public
accountants with respect to the Company within the meaning of the Act and the
applicable published Rules and Regulations and based upon the procedures
described in such letter delivered to you concurrently with the execution of
this Agreement (herein called the "Original Letter"), but carried out to a date
not more than five (5) business days prior to the Closing Date or such later
date on which Option Shares are to be purchased, as the case may be,
(i) confirming, to the extent true, that the statements and conclusions set
forth in the Original Letter are accurate as of the Closing Date or such later
date on which Option Shares are to be purchased, as the case may be, and
(ii) setting forth any revisions and additions to the statements and conclusions
set forth in the Original Letter which are necessary to reflect any changes in
the facts described in the Original Letter since the date of such letter, or to
reflect the availability of more recent financial statements, data or
information. The letter shall not disclose any change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise from that set
forth in the Registration Statement or Prospectus, which, in your sole judgment,
is material and adverse and that makes it, in your sole judgment, impracticable
or inadvisable to proceed with the public offering of the Shares as contemplated
by the Prospectus. The Original Letter from KPMG Peat Marwick LLP shall be
addressed to or for the use of the Underwriters in form and substance
satisfactory to the Underwriters and shall (i) represent, to the extent true,
that they are independent certified public accountants with respect to the
Company within the meaning of the Act and the applicable published Rules and
Regulations, (ii) set forth their opinion with respect to their examination of
the consolidated balance sheet of the Company as of June 30, 1994 and 1995 and
March 31, 1996 and related consolidated statements of operations, shareholders'
equity, and cash flows for the twelve (12) months ended June 30, 1994 and 1995
and March 31, 1996, (iii) state that KPMG Peat Marwick LLP has performed the
procedure set out in Statement on Auditing Standards No. 71 ("SAS 71") for a
review of interim financial information and providing the report of KPMG Peat
Marwick LLP as described in SAS 71 on the financial statements for the nine
month period ended March 31, 1996 and (iv) address other matters agreed upon by
KPMG Peat Marwick LLP and you. In addition, you shall have received from KPMG
Peat Marwick LLP a letter addressed to the Company and made available to you for
the use of the Underwriters stating that their review of the Company's system of
internal accounting controls, to the extent they deemed necessary in
establishing the scope of their examination of the Company's
-21-
<PAGE>
consolidated financial statements as of June 30, 1995 did not disclose any
weaknesses in internal controls that they considered to be material weaknesses.
(g) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, a
certificate of the Company, dated the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, signed by the President
and Chief Executive Officer and the Chief Financial Officer of the Company, to
the effect that, and you shall be satisfied that:
(i) The representations and warranties of the Company
in this Agreement are true and correct, as if made on and as of the
Closing Date or any later date on which Option Shares are to be
purchased, as the case may be, and the Company has complied with all
the agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to the Closing Date or any later
date on which Option Shares are to be purchased, as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or threatened under the
Act;
(iii) When the Registration Statement became
effective and at all times subsequent thereto up to the delivery of
such certificate, the Registration Statement and the Prospectus, and
any amendments or supplements thereto, contained all material
information required to be included therein by the Act and the Rules
and Regulations and in all material respects conformed to the
requirements of the Act and the Rules and Regulations, the
Registration Statement, and any amendment or supplement thereto, did
not and does not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, the
Prospectus, and any amendment or supplement thereto, did not and does
not include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, and,
since the effective date of the Registration Statement, there has
occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been so set forth; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus,
there has not been (a) any material adverse change in the condition
(financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one
enterprise, (b) any transaction that is material to the Company and
its subsidiaries considered as one enterprise, except transactions
entered into in the ordinary course of business, (c) any obligation,
direct or contingent, that is material to the Company and its
subsidiaries considered as one enterprise, incurred by the Company or
its subsidiaries, except obligations incurred in the ordinary course
of business, (d) any change in the capital stock or outstanding
indebtedness of the Company or any of its subsidiaries that is
material to the Company and its subsidiaries considered as one
enterprise, (e) any dividend or distribution of any kind declared,
paid or made on the capital stock of the Company or any of its
subsidiaries, or (f) any loss or damage (whether or not insured) to
the property of the Company or any of its subsidiaries which has been
sustained or will have been sustained which has a material adverse
effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise.
-22-
<PAGE>
(h) You shall be satisfied that, and you shall have received a
certificate, dated the Closing Date, or any later date on which Option Shares
are to be purchased, as the case may be, from the Attorneys for each Selling
Shareholder to the effect that, as of the Closing Date, or any later date on
which Option Shares are to be purchased, as the case may be, they have not been
informed that:
(i) The representations and warranties made by such
Selling Shareholder herein are not true or correct in any material
respect on the Closing Date or on any later date on which Option
Shares are to be purchased, as the case may be; or
(ii) Such Selling Shareholder has not complied with any
obligation or satisfied any condition which is required to be
performed or satisfied on the part of such Selling Shareholder at or
prior to the Closing Date or any later date on which Option Shares are
to be purchased, as the case may be.
(i) The Company shall have obtained and delivered to you an
agreement in writing from each officer, director and each shareholder of the
Company prior to the date hereof that such person will not, during the Lock-up
Period, effect the Disposition of any Securities now owned or hereafter acquired
directly by such person or with respect to which such person has or hereafter
acquires the power of disposition, otherwise than (i) as a bona fide gift or
gifts, provided the donee or donees thereof agree in writing to be bound by this
restriction, (ii) as a distribution to limited partners or shareholders of such
person, provided that the distributees thereof agree in writing to be bound by
the terms of this restriction, or (iii) with the prior written consent of
Robertson, Stephens & Company, LLC. The foregoing restriction is expressly
agreed to preclude the holder of the Securities from engaging in any hedging or
other transaction which is designed to or reasonably expected to lead to or
result in a Disposition of Securities during the Lock-up Period, even if such
Securities would be disposed of by someone other than the such holder. Such
prohibited hedging or other transactions would including, without limitation,
any short sale (whether or not against the box) or any purchase, sale or grant
of any right (including, without limitation, any put or call option) with
respect to any Securities or with respect to any security (other than a broad-
based market basket or index) that includes, relates to or derives any
significant part of its value from Securities. Furthermore, such person will
have also agreed and consented to the entry of stop transfer instructions with
the Company's transfer agent against the transfer of the Securities held by such
person except in compliance with this restriction.
(j) The Company and the Selling Shareholders shall have
furnished to you such further certificates and documents as you shall reasonably
request (including certificates of officers of the Company, the Selling
Shareholders or officers of the Selling Shareholders (when the Selling
Shareholder is not a natural person) as to the accuracy of the representations
and warranties of the Company and the Selling Shareholders herein, as to the
performance by the Company and the Selling Shareholders of their respective
obligations hereunder and as to the other conditions concurrent and precedent to
the obligations of the Underwriters hereunder.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company and the Selling Shareholders will furnish
you with such number of conformed copies of such opinions, certificates, letters
and documents as you shall reasonably request.
7. OPTION SHARES.
(a) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company hereby grants to the several Underwriters, for the purpose of
covering over-allotments in connection with the distribution and sale of the
Firm Shares only, a nontransferable option to purchase up to an aggregate of
________ Option Shares at the
-23-
<PAGE>
purchase price per share for the Firm Shares set forth in Section 3 hereof.
Such option may be exercised by the Representatives on behalf of the several
Underwriters on one (1) or more occasions in whole or in part during the period
of thirty (30) days after the date on which the Firm Shares are initially
offered to the public, by giving written notice to the Company. The number of
Option Shares to be purchased by each Underwriter upon the exercise of such
option shall be the same proportion of the total number of Option Shares to be
purchased by the several Underwriters pursuant to the exercise of such option as
the number of Firm Shares purchased by such Underwriter (set forth in SCHEDULE A
hereto) bears to the total number of Firm Shares purchased by the several
Underwriters (set forth in SCHEDULE A hereto), adjusted by the Representatives
in such manner as to avoid fractional shares. [Revise if Option Shares will be
sold by any of the Selling Shareholders.]
Delivery of definitive certificates for the Option Shares to be
purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 7 shall be made against payment of the purchase price
therefor by the several Underwriters by certified or official bank check or
checks drawn in next-day funds, payable to the order of the Company (and the
Company agrees not to deposit any such check in the bank on which it is drawn,
and not to take any other action with the purpose or effect of receiving
immediately available funds, until the business day following the date of its
delivery to the Company). In the event of any breach of the foregoing, the
Company shall reimburse the Underwriters for the interest lost and any other
expenses borne by them by reason of such breach. Such delivery and payment
shall take place at the offices of Ater Wynne Dodson & Skerrit, 222 S.W.
Columbia, 18th Floor, Portland, OR 97201-6618 or at such other place as may be
agreed upon among the Representatives and the Company (i) on the Closing Date,
if written notice of the exercise of such option is received by the Company at
least two (2) full business days prior to the Closing Date, or (ii) on a date
which shall not be later than the third (3rd) full business day following the
date the Company receives written notice of the exercise of such option, if such
notice is received by the Company less than two (2) full business days prior to
the Closing Date. [Revise if Option Shares will be sold by any of the Selling
Shareholders.]
The certificates for the Option Shares to be so delivered will be
made available to you at such office or such other location including, without
limitation, in New York City, as you may reasonably request for checking at
least one (1) full business day prior to the date of payment and delivery and
will be in such names and denominations as you may request, such request to be
made at least two (2) full business days prior to such date of payment and
delivery. If the Representatives so elect, delivery of the Option Shares may be
made by credit through full fast transfer to the accounts at The Depository
Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the date of
payment and delivery for the Option Shares to be purchased by such Underwriter
or Underwriters. Any such payment by you shall not relieve any such Underwriter
or Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section 7(a)
hereof, the obligations of the several Underwriters to purchase such Option
Shares will be subject (as of the date hereof and as of the date of payment and
delivery for such Option Shares) to the accuracy of and compliance with the
representations, warranties and agreements of the Company [and the Selling
Shareholders] herein, to the accuracy of the statements of the Company[, the
Selling Shareholders] and officers of the Company made pursuant to the
provisions hereof, to the performance by the Company [and the Selling
Shareholders] of its [their respective] obligations hereunder, and to the
condition that all proceedings taken at or prior to the payment date in
connection with the sale and transfer of such Option Shares shall be
satisfactory in form and substance to you and to Underwriters' Counsel, and you
shall have been furnished with all such documents,
-24-
<PAGE>
certificates and opinions as you may request in order to evidence the accuracy
and completeness of any of the representations, warranties or statements, the
performance of any of the covenants or agreements of the Company [and the
Selling Shareholders] or the compliance with any of the conditions herein
contained.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject (including, without
limitation, in its capacity as an Underwriter or as a "qualified independent
underwriter" within the meaning of Schedule E of the Bylaws of the NASD), under
the Act, the Exchange Act or otherwise, specifically including, but not limited
to, losses, claims, damages or liabilities, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon (i) any breach of any representation, warranty, agreement or covenant of
the Company herein contained, (ii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendment or supplement thereto, or 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 untrue statement or alleged
untrue statement of any material fact contained in any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and agrees to reimburse each
Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability or action; PROVIDED, HOWEVER, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage, liability or
action arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
such Preliminary Prospectus or the Prospectus, or any such amendment or
supplement thereto, in reliance upon, and in conformity with, written
information relating to any Underwriter furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof and, PROVIDED FURTHER, that the indemnity agreement provided in this
Section 8(a) with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any losses, claims,
damages, liabilities or actions based upon any untrue statement or alleged
untrue statement of material fact or omission or alleged omission to state
therein a material fact purchased Shares, if a copy of the Prospectus in which
such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the time
required by the Act and the Rules and Regulations, unless such failure is the
result of noncompliance by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter within the meaning of the Act or
the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which the Company may otherwise have.
(b) Each Selling Shareholder, severally and not jointly, agrees
to indemnify and hold harmless each Underwriter against any losses, claims,
damages or liabilities, joint or several, to which such Underwriter may become
subject (including, without limitation, in its capacity as an Underwriter or as
a "qualified independent underwriter" within the meaning of Schedule E or the
Bylaws of the NASD) under the Act, the Exchange Act or otherwise, specifically
including, but not limited to, losses, claims, damages or liabilities, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (i) any breach of any representation, warranty,
agreement or covenant of such Selling Shareholder herein contained, (ii) any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement or any amendment or supplement thereto, or 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 untrue statement or alleged untrue statement of any material fact
contained
-25-
<PAGE>
in any Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, in the case of subparagraphs (ii)
and (iii) of this Section 8(b) to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished to
the Company or such Underwriter by such Selling Shareholder, directly or through
such Selling Shareholder's representatives, specifically for use in the
preparation thereof, and agrees to reimburse each Underwriter for any legal or
other expenses reasonably incurred by it in connection with investigating or
defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER,
that the indemnity agreement provided in this Section 8(b) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any losses, claims, damages, liabilities or actions
based upon any untrue statement or alleged untrue statement of a material fact
or omission or alleged omission to state therein a material fact purchased
Shares, if a copy of the Prospectus in which such untrue statement or alleged
untrue statement or omission or alleged omission was corrected had not been sent
or given to such person within the time required by the Act and the Rules and
Regulations, unless such failure is the result of noncompliance by the Company
with Section 4(d) hereof.
The indemnity agreement in this Section 8(b) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter within the meaning of the Act or
the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which such Selling Shareholder may otherwise have.
(c) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company and each Selling Shareholder against any
losses, claims, damages or liabilities, joint or several, to which the Company
or such Selling Shareholder may become subject under the Act or otherwise,
specifically including, but not limited to, losses, claims, damages or
liabilities, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon (i) any breach of any
representation, warranty, agreement or covenant of such Underwriter herein
contained, (ii) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or any amendment or supplement
thereto, or 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 untrue statement or alleged untrue statement of any
material fact contained in any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, in the case of
subparagraphs (ii) and (iii) of this Section 8(c) to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by such Underwriter, directly or through
you, specifically for use in the preparation thereof, and agrees to reimburse
the Company and each such Selling Shareholder for any legal or other expenses
reasonably incurred by the Company and each such Selling Shareholder in
connection with investigating or defending any such loss, claim, damage,
liability or action.
The indemnity agreement in this Section 8(c) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each officer of
the Company who signed the Registration Statement and each director of the
Company, each Selling Shareholder and each person, if any, who controls the
Company or any Selling Shareholder within the meaning of the Act or the Exchange
Act. This indemnity agreement shall be in addition to any liabilities which
each Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against any indemnifying
party under this Section 8, notify the indemnifying party in writing of the
commencement
-26-
<PAGE>
thereof but the omission so to notify the indemnifying party will not relieve it
from any liability which it may have to any indemnified party otherwise than
under this Section 8. In case any such action is brought against any
indemnified party, and it notified the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it shall elect by written notice delivered to the indemnified
party promptly after receiving the aforesaid notice from such indemnified party,
to assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party; PROVIDED, HOWEVER, that if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to assume such
legal defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice from the
indemnifying party to such indemnified party of the indemnifying party's
election so to assume the defense of such action and approval by the indemnified
party of counsel, the indemnifying party will not be liable to such indemnified
party under this Section 8 for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section 8(a),
8(b) or 8(c) hereof who are parties to such action), (ii) the indemnifying party
shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement of any action unless the indemnifying
party shall have approved the terms of such settlement; PROVIDED that such
consent shall not be unreasonably withheld. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnification could have
been sought hereunder by such indemnified party, unless such settlement includes
an unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
(e) In order to provide for just and equitable contribution in
any action in which a claim for indemnification is made pursuant to this
Section 8 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 8 provides for
indemnification in such case, all the parties hereto shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that, except as set forth
in Section 8(f) hereof, the Underwriters severally and not jointly are
responsible pro rata for the portion represented by the percentage that the
underwriting discount bears to the initial public offering price, and the
Company and the Selling Shareholders are responsible for the remaining portion,
PROVIDED, HOWEVER, that (i) no Underwriter shall be required to contribute any
amount in excess of the underwriting discount applicable to the Shares purchased
by such Underwriter in excess of the amount of damages which such Underwriter
has otherwise required to pay and (ii) no person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. The contribution agreement in this Section 8(e) shall extend
upon the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls the Underwriters or the Company or any Selling
Shareholder within the meaning of the Act or the Exchange Act and each officer
of the Company who signed the Registration Statement and each director of the
Company and each officer of the Selling Shareholders who signed the Registration
Statement, if any.
-27-
<PAGE>
(f) The liability of each Selling Shareholder under the
representations, warranties and agreements contained herein and under the
indemnity agreements contained in the provisions of this Section 8 shall be
limited to an amount equal to the initial public offering price of the Selling
Shareholder Shares sold by such Selling Shareholder to the Underwriters minus
the amount of the underwriting discount paid thereon to the Underwriters by such
Selling Shareholder. The Company and such Selling Shareholders may agree, as
among themselves and without limiting the rights of the Underwriters under this
Agreement, as to the respective amounts of such liability for which they each
shall be responsible.
(g) The parties to this Agreement hereby acknowledge that they
are sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 8, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 8 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act.
9. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties, covenants and agreements of the
Company, the Selling Shareholders and the Underwriters herein or in certificates
delivered pursuant hereto, and the indemnity and contribution agreements
contained in Section 8 hereof shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Underwriter
or any controlling person within the meaning of the Act or the Exchange Act, or
by or on behalf of the Company or any Selling Shareholder, or any of their
officers, directors or controlling persons within the meaning of the Act or the
Exchange Act, and shall survive the delivery of the Shares to the several
Underwriters hereunder or termination of this Agreement.
10. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for twenty-
four (24) hours to allow the several Underwriters the privilege of substituting
within twenty-four (24) hours (including non-business hours) another underwriter
or underwriters (which may include any nondefaulting Underwriter) satisfactory
to the Company. If no such underwriter or underwriters shall have been
substituted as aforesaid by such postponed Closing Date, the Closing Date may,
at the option of the Company, be postponed for a further twenty-four (24) hours,
if necessary, to allow the Company the privilege of finding another underwriter
or underwriters, satisfactory to you, to purchase the Firm Shares which the
defaulting Underwriter or Underwriters so agreed but failed to purchase. If it
shall be arranged for the remaining Underwriters or substituted underwriter or
underwriters to take up the Firm Shares of the defaulting Underwriter or
Underwriters as provided in this Section 10, (i) the Company shall have the
right to postpone the time of delivery for a period of not more than seven (7)
full business days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus which
-28-
<PAGE>
may thereby be made necessary, and (ii) the respective number of Firm Shares to
be purchased by the remaining Underwriters and substituted underwriter or
underwriters shall be taken as the basis of their underwriting obligation. If
the remaining Underwriters shall not take up and pay for all such Firm Shares so
agreed to be purchased by the defaulting Underwriter or Underwriters or
substitute another underwriter or underwriters as aforesaid and the Company
shall not find or shall not elect to seek another underwriter or underwriters
for such Firm Shares as aforesaid, then this Agreement shall terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, neither the Company nor any Selling
Shareholder shall be liable to any Underwriter (except as provided in Sections 5
and 8 hereof) nor shall any Underwriter (other than an Underwriter who shall
have failed, otherwise than for some reason permitted under this Agreement, to
purchase the number of Firm Shares agreed by such Underwriter to be purchased
hereunder, which Underwriter shall remain liable to the Company, the Selling
Shareholders and the other Underwriters for damages, if any, resulting from such
default) be liable to the Company or any Selling Shareholder (except to the
extent provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at the earlier of
(i) 6:30 A.M., San Francisco time, on the first full business day following the
effective date of the Registration Statement, or (ii) the time of the initial
public offering of any of the Shares by the Underwriters after the Registration
Statement becomes effective. The time of the initial public offering shall mean
the time of the release by you, for publication, of the first newspaper
advertisement relating to the Shares, or the time at which the Shares are first
generally offered by the Underwriters to the public by letter, telephone,
telegram or telecopy, whichever shall first occur. By giving notice as set
forth in Section 12 before the time this Agreement becomes effective, you, as
Representatives of the several Underwriters, or the Company, may prevent this
Agreement from becoming effective without liability of any party to any other
party, except as provided in Sections 4(j), 5 and 8 hereof.
(b) You, as Representatives of the several Underwriters, shall
have the right to terminate this Agreement by giving notice as hereinafter
specified at any time at or prior to the Closing Date or on or prior to any
later date on which Option Shares are to be purchased, as the case may be,
(i) if the Company or any Selling Shareholder shall have failed, refused or been
unable to perform any agreement on its part to be performed, or because any
other condition of the Underwriters' obligations hereunder required to be
fulfilled is not fulfilled, including, without limitation, any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise from
that set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse, or (ii) if additional material governmental
restrictions, not in force and effect on the date hereof, shall have been
imposed upon trading in securities generally or minimum or maximum prices shall
have been generally established on the New York Stock Exchange or on the
American Stock Exchange or in the over the counter market by the NASD, or
trading in securities generally shall have been suspended on either such
exchange or in the over the counter market by the NASD, or if a banking
moratorium shall have been declared by federal, New York or California
authorities, or (iii) if the Company shall have sustained a loss by strike,
fire, flood, earthquake, accident or other calamity of such character as to
interfere materially with the conduct of the business and operations of the
Company regardless of whether or not such loss shall have been insured, or
(iv) if there shall have been a material adverse change in the general political
or economic conditions or financial markets as in your reasonable judgment makes
it inadvisable or impracticable to proceed with the offering, sale and delivery
of the Shares, or (v) if there shall have been an
-29-
<PAGE>
outbreak or escalation of hostilities or of any other insurrection or armed
conflict or the declaration by the United States of a national emergency which,
in the reasonable opinion of the Representatives, makes it impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated by
the Prospectus. In the event of termination pursuant to subparagraph (i) above,
the Company shall remain obligated to pay costs and expenses pursuant to
Sections 4(j), 5 and 8 hereof. Any termination pursuant to any of subparagraphs
(ii) through (v) above shall be without liability of any party to any other
party except as provided in Sections 5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed by
letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.
12. NOTICES. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to you c/o Robertson, Stephens & Company, LLC, 555
California Street, Suite 2600, San Francisco, California 94104, telecopier
number (415) 781-0278, Attention: General Counsel; if sent to the Company, such
notice shall be mailed, delivered, telegraphed (and confirmed by letter) or
telecopied (and confirmed by letter) to Claremont Technologies, Inc., 1600 N.W.
Compton Drive, Suite 210, Beaverton, OR 97006, telecopier number (503) 690-4005,
Attention: Paul J. Cosgrave, President and Chief Executive Officer[; if sent to
one or more of the Selling Shareholders, such notice shall be sent mailed,
delivered, telegraphed (and confirmed by letter) or telecopied (and confirmed by
letter) to [NAME OF ATTORNEY-IN-FACT FOR SELLING SHAREHOLDERS], as Attorney-in-
Fact for the Selling Shareholders, at [ADDRESS OF COMPANY], telecopier number
(___) ________].
13. PARTIES. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters and the Company and the Selling Shareholders and
their respective executors, administrators, successors and assigns. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person or corporation, other than the parties hereto and their
respective executors, administrators, successors and assigns, and the
controlling persons within the meaning of the Act or the Exchange Act, officers
and directors referred to in Section 8 hereof, any legal or equitable right,
remedy or claim in respect of this Agreement or any provisions herein contained,
this Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of the parties hereto and their
respective executors, administrators, successors and assigns and said
controlling persons and said officers and directors, and for the benefit of no
other person or corporation. No purchaser of any of the Shares from any
Underwriter shall be construed a successor or assign by reason merely of such
purchase.
In all dealings with the Company and the Selling Shareholders under
this Agreement, you shall act on behalf of each of the several Underwriters, and
the Company and the Selling Shareholders shall be entitled to act and rely upon
any statement, request, notice or agreement made or given by you jointly or by
Robertson, Stephens & Company, LLC on behalf of you.
14. APPLICABLE LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California.
15. COUNTERPARTS. This Agreement may be signed in several counterparts,
each of which will constitute an original.
-30-
<PAGE>
If the foregoing correctly sets forth the understanding among the
Company, the Selling Shareholders and the several Underwriters, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among the Company, the Selling Shareholders
and the several Underwriters.
Very truly yours,
CLAREMONT TECHNOLOGIES, INC.
By
---------------------------------------------
SELLING SHAREHOLDERS
By
---------------------------------------------
Attorney-in-Fact for the Selling Shareholders
named in SCHEDULE B hereto
Accepted as of the date first above written:
ROBERTSON, STEPHENS & COMPANY, LLC
On their behalf and on behalf of each of the
several Underwriters named in SCHEDULE A hereto.
ROBERTSON, STEPHENS & COMPANY, LLC
By ROBERTSON, STEPHENS & COMPANY, INC.
By
----------------------------------------------
Authorized Signatory
-31-
<PAGE>
SCHEDULE A
Number of
Firm Shares
To Be
Underwriters Purchased
-------------------------- ------------------
Robertson, Stephens & Company, LLC . . . . . . . .
Donaldson Lufkin & Jenrette Securities Corporation
J.P. Morgan Securities, Inc.
-----------
Total . . . . . . . . . . . . . . . . . . . . . 2,700,000
===========
<PAGE>
SCHEDULE B
Number of
Firm
Shares To
Seller Be Sold
- ------------------------------ --------------
Company . . . . . . . . . . . . . . . . . . . . . . 1,750,000
Selling Shareholders . . . . . . . . . . . . . . . 950,000
[Names]
---------
Total . . . . . . . . . . . . . . . . . . . . . . 2,700,000
=========
Number of
Option
Shares
Name of Selling Shareholder To Be Sold
- ------------------------------------ -------------
Company . . . . . . . . . . . . . . . . . . . . . 262,500
Selling Shareholders . . . . . . . . . . . . . . . 142,500
---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . 405,000
=========
<PAGE>
Exhibit 3.1
SECOND RESTATED ARTICLES OF INCORPORATION
OF
CLAREMONT TECHNOLOGY GROUP, INC.
Pursuant to ORS 60.451, these Restated Articles of Incorporation supersede
the existing articles and all previous amendments (these "Articles").
ARTICLE I
The name of this Corporation shall be Claremont Technology Group, Inc., and
its duration shall be perpetual.
ARTICLE II
A. The authorized capital stock of the Corporation consists of 25,000,000
shares of common stock, no par value per share ("Common Stock") and 10,000,000
shares of preferred stock, no par value per share ("Preferred Stock").
B. The Board of Directors shall have the power to issue, from time to
time, one or more series of Preferred Stock or special stock in any manner
permitted by law and not inconsistent with these Articles or the Bylaws of the
Corporation. The Board of Directors shall have the authority to fix and
determine, subject to the provisions of these Articles, the rights and
preferences of the shares of such additional series, which shall be established
by a resolution or resolutions of the Board of Directors providing for the
issuance of such series.
ARTICLE III
No shareholder of the Corporation shall have any preemptive or other first
right to acquire any treasury shares or any additional issue of shares of stock
or other securities of the Corporation, either presently authorized or to be
authorized. This Article III shall not prohibit the granting of any such right
to any shareholder pursuant to any contract or other agreement.
ARTICLE IV
A. The Corporation shall indemnify to the fullest extent not prohibited
by law any person who was or is a party or is threatened to be made a party to
any Proceeding against all expenses (including attorney fees), judgments, fines,
and amounts paid in settlement actually or reasonably incurred by the person in
connection with such Proceeding.
1 - SECOND RESTATED ARTICLES OF INCORPORATION
<PAGE>
B. Expenses incurred by a director or officer of the Corporation in
defending a Proceeding shall in all cases be paid by the Corporation in advance
of the final disposition of such Proceeding at the written request of such
person, if the person:
1. Furnishes the Corporation a written affirmation of the person's
good faith belief that such person has met the standard of conduct described in
the Oregon Business Corporation Act or is entitled to be indemnified by the
Corporation under any other indemnification rights granted by the Corporation to
such person; and
2. Furnishes the Corporation a written undertaking to repay such
advance to the extent it is ultimately determined by a court that such person is
not entitled to be indemnified by the Corporation under this Article IV or under
any other indemnification rights granted by the Corporation to such person.
Such advances shall be made without regard to the person's ability to
repay such advances and without regard to the person's ultimate entitlement to
indemnification under this Article IV or otherwise.
C. The term "Proceeding" shall include any threatened, pending, or
completed action, suit, or proceeding, whether brought in the right of the
Corporation or otherwise and whether of a civil, criminal, administrative, or
investigative nature, in which a person may be or may have been involved as a
party or otherwise by reason of the fact that the person is or was a director or
officer of the Corporation or a fiduciary within the meaning of the Employee
Retirement Income Security Act of 1974 with respect to any employee benefit plan
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer, or fiduciary of an employee benefit plan of another
corporation, partnership, joint venture, trust, or other enterprise, whether or
not serving in such capacity at the time any liability or expense is incurred
for which indemnification or advancement of expenses can be provided under this
Article IV.
D. The indemnification and entitlement to advancement of expenses
provided by this Article IV shall not be deemed exclusive of any other rights to
which those indemnified may be entitled under the Corporation's articles of
incorporation or any statute, agreement, general or specific action of the board
of directors, vote of stockholders, or otherwise, shall continue as to a person
who has ceased to be a director or officer, shall inure to the benefit of the
heirs, executors and administrators of such person, and shall extend to all
claims for indemnification or advancement of expenses made after the adoption of
this Article IV.
E. Any repeal of this Article IV shall only be prospective and no repeal
or modification hereof shall adversely affect the rights under this Article IV
in effect at the time of the alleged occurrence of any action or omission to act
that is the cause of any Proceeding.
F. To the fullest extent permitted by law, no director of this
Corporation shall be personally liable to the Corporation or its shareholders
for monetary damages for conduct as a director. No amendment or repeal of this
Article IV, nor the adoption of any provision of these Articles inconsistent
with this Article IV, nor a change in the law, shall adversely affect any right
or protection of a director, which right or protection is based upon this
Article IV and arises from
2 - SECOND RESTATED ARTICLES OF INCORPORATION
<PAGE>
conduct that occurred prior to the time of such amendment, repeal, adoption or
change. No change in the law shall reduce or eliminate the rights and
protections applicable immediately after this provision becomes effective unless
the change in the law shall specifically require such reduction or elimination.
If the Oregon Business Corporation Act or its successor is amended, after this
Article IV becomes effective, to authorize corporate action further eliminating
or limiting the personal liability of directors of the Corporation, then the
liability of directors of this Corporation shall be eliminated or limited to the
fullest extent permitted by the Oregon Business Corporation Act, as so amended.
ARTICLE V
A. The number of directors of the Corporation shall be not less than
three nor more than twelve, and within such limits, the exact number shall be
fixed and increased or decreased from time to time by resolution of the Board of
Directors.
B. If the number of directors is fixed by the Board of Directors at six
or more, the directors shall be divided into three classes designated Class I,
Class II and Class III, each class to be as nearly equal in number as possible.
At the next annual meeting of shareholders following that designation ("First
Meeting"), directors of all three classes shall be elected. The term of office
of Class I directors shall expire at the first annual meeting of shareholders
following their election. The terms of Class II directors shall expire at the
second annual meeting of shareholders following their election. The terms of
the Class III directors shall expire at the third annual meeting of shareholders
following their election. At each annual meeting of shareholders after the
First Meeting, each class of directors elected to succeed those directors whose
terms expire shall be elected to serve for three-year terms and until their
successors are elected and qualified, so that the term of one class of directors
will expire each year. When the number of directors is changed within the
limits provided herein, any newly created directorships, or any decrease in
directorships, shall be so apportioned among the classes as to make all classes
as nearly equal as possible, provided that no decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent directors.
C. All or any number of the directors of the Corporation may be removed
only for cause and at a meeting of shareholders called expressly for that
purpose, by the vote of seventy-five percent (75%) of the votes then entitled to
be cast for the election of directors. At any meeting of shareholders at which
one or more directors are removed, a majority of votes then entitled to be cast
for the election of directors may fill any vacancy created by such removal. If
any vacancy created by removal of a director is not filled by the shareholders
at the meeting at which the removal is effected, such vacancy may be filled by a
majority vote of the remaining directors.
D. The provisions of this Article V may not be amended, altered, changed
or repealed in any respect unless such action is approved by the affirmative
vote of not less than seventy-five (75%) percent of the votes then entitled to
be cast for election of directors.
3 - SECOND RESTATED ARTICLES OF INCORPORATION
<PAGE>
ARTICLE VI
No agreement of merger or consolidation of this corporation which requires
shareholder approval under the Oregon Business Corporation Act shall be approved
or become effective unless the holders of sixty-seven percent (67%) of the
outstanding shares of the corporation entitled to vote thereon shall vote for
the adoption of the agreement. This corporation shall not sell, lease or
exchange all or substantially all of its property and assets unless the holders
of sixty-seven percent (67%) of the outstanding shares of the corporation
entitled to vote thereon shall vote for such sale, lease or exchange.
Dissolution or liquidation of the corporation shall require the prior approval
of holders of not less than sixty-seven percent (67%) of the outstanding shares
of the corporation entitled to vote thereon.
4 - SECOND RESTATED ARTICLES OF INCORPORATION
<PAGE>
Exhibit 3.2
SECOND AMENDED AND RESTATED BYLAWS
OF
CLAREMONT TECHNOLOGY GROUP, INC.
ARTICLE I
OFFICES
1.1 PRINCIPAL OFFICE. The principal office of the corporation
shall be located at 1600 N.W. Compton Drive, Suite 210, Beaverton, Oregon 97008.
The corporation may have such other offices as the Board of Directors may
designate or as the business of the corporation may from time to time require.
1.2 REGISTERED OFFICE. The registered office of the corporation
required by the Oregon Business Corporation Act to be maintained in the State of
Oregon may be, but need not be, identical with the principal office in the State
of Oregon, and the address of the registered office may be changed from time to
time by the Board of Directors.
ARTICLE II
SHAREHOLDERS
2.1 ANNUAL MEETING. The annual meeting of the shareholders shall
be held during the month of October each year, unless a different date and time
are fixed by the Board of Directors and stated in the notice of the meeting.
The failure to hold an annual meeting at the time stated herein shall not affect
the validity of any corporate action.
2.2 SPECIAL MEETINGS. Special meetings of the shareholders may be
called by the President or by the Board of Directors and shall be called by the
President (or in the event of absence, incapacity, or refusal of the President,
by the Secretary or any other officer) at the request of the holders of not less
than one-tenth of all the outstanding shares of the corporation entitled to vote
at the meeting. The requesting shareholders shall sign, date, and deliver to
the Secretary a written demand describing the purpose or purposes for holding
the special meeting.
2.3 PLACE OF MEETINGS. Meetings of the shareholders shall be held
at the principal business office of the corporation or at such other place,
within or without the State of Oregon, as may be determined by the Board of
Directors.
2.4 NOTICE OF MEETINGS. Written notice stating the date, time,
and place of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is
1 - SECOND AMENDED AND RESTATED BYLAWS
<PAGE>
called shall be mailed to each shareholder entitled to vote at the meeting at
the shareholder's address shown in the corporation's current record of
shareholders, with postage thereon prepaid, not less than 10 nor more than 60
days before the date of the meeting.
2.5 WAIVER OF NOTICE. A shareholder may at any time waive any
notice required by law, the Articles of Incorporation, or these Second Amended
and Restated Bylaws. The waiver must be in writing, be signed by the
shareholder entitled to the notice, and be delivered to the corporation for
inclusion in the minutes for filing with the corporate records. A shareholder's
attendance at a meeting waives objection to lack of notice or defective notice
of the meeting, unless the shareholder at the beginning of the meeting objects
to holding the meeting or transacting business at the meeting. The
shareholder's attendance also waives objection to consideration of a particular
matter at the meeting that is not within the purpose or purposes described in
the meeting notice, unless the shareholder objects to considering the matter
when it is presented.
2.6 RECORD DATE
(a) For the purpose of determining shareholders entitled to
notice of a shareholders' meeting, to demand a special meeting, or to vote or to
take any other action, the Board of Directors may fix a future date as the
record date for any such determination of shareholders, such date in any case to
be not more than 70 days before the meeting or action requiring a determination
of shareholders. The record date shall be the same for all voting groups.
(b) A determination of shareholders entitled to notice of or
to vote at a shareholders' meeting is effective for any adjournment of the
meeting unless the Board of Directors fixes a new record date, which it must do
if the meeting is adjourned to a date more than 120 days after the date fixed
for the original meeting.
(c) If a court orders a meeting adjourned to a date more
than 120 days after the date fixed for the original meeting, it may provide that
the original record date continue in effect or it may fix a new record date.
2.7 SHAREHOLDERS' LIST FOR MEETING. After the record date for a
shareholders' meeting is fixed by the Board of Directors, the Secretary of the
corporation shall prepare an alphabetical list of the names of all its
shareholders entitled to notice of the shareholders' meeting. The list must be
arranged by voting group and within each voting group by class or series of
shares and show the address of and number of shares held by each shareholder.
The shareholders' list must be available for inspection by any shareholder,
beginning two business days after notice of the meeting is given for which the
list was prepared and continuing through the meeting, at the corporation's
principal office or at a place identified in the meeting notice in the city
where the meeting will be held. The corporation shall make the shareholders'
list available at the meeting, and any shareholder or the shareholder's agent or
attorney is entitled to inspect the list at any time during the meeting or any
adjournment. Refusal or failure to prepare or make available the shareholders'
list does not affect the validity of action taken at the meeting.
2.8 QUORUM; ADJOURNMENT. Shares entitled to vote as a separate
voting group may take action on a matter at a meeting only if a quorum of those
shares exists with respect to that
2 - SECOND AMENDED AND RESTATED BYLAWS
<PAGE>
matter. A majority of the votes entitled to be cast on the matter by the voting
group constitutes a quorum of that voting group for action in that matter. A
majority of shares represented at the meeting, although less than a quorum, may
adjourn the meeting from time to time to a different time and place without
further notice to any shareholder of any adjournment. At such adjourned meeting
at which a quorum is present, any business may be transacted that might have
been transacted at the meeting originally held. Once a share is represented for
any purpose at a meeting, it shall be deemed present for quorum purposes for the
remainder of the meeting and for any adjournment of that meeting, unless a new
record date is set for the adjourned meeting.
2.9 VOTING REQUIREMENTS; ACTION WITHOUT MEETING. Unless otherwise
provided in the Articles of Incorporation, each outstanding share entitled to
vote shall be entitled to one vote upon each matter submitted to a vote at a
meeting of shareholders. If a quorum exists, action on a matter, other than the
election of directors, is approved if the votes cast by the shares entitled to
vote favoring the action exceed the votes cast opposing the action, unless a
greater number of affirmative votes is required by law or the Articles of
Incorporation. If a quorum exists, directors are elected by a plurality of the
votes cast by the shares entitled to vote unless otherwise provided in the
Articles of Incorporation. No cumulative voting for directors shall be
permitted unless the Articles of Incorporation so provide. Action required or
permitted by law to be taken at a shareholders' meeting may be taken without a
meeting if the action is taken by all the shareholders entitled to vote on the
action. The action must be evidenced by one or more written consents describing
the action taken, signed by all the shareholders entitled to vote on the action
and delivered to the corporation for inclusion in the minutes for filing with
the corporate records. Action taken under this section is effective when the
last shareholder signs the consent, unless the consent specifies an earlier or
later effective date. If the law requires that notice of proposed action be
given to nonvoting shareholders and the action is to be taken by unanimous
consent of the voting shareholders, the corporation must give its nonvoting
shareholders written notice of the proposed action at least 10 days before the
action is taken. The notice must contain or be accompanied by the same material
that, under the Oregon Business Corporation Act, would have been required to be
sent to nonvoting shareholders in a notice of meeting at which the proposed
action would have been submitted to the shareholders for action.
2.10 PROXIES.
(a) A shareholder may vote shares in person or by proxy by
signing an appointment, either personally or by the shareholder's attorney-in-
fact. An appointment of a proxy shall be effective when received by the
Secretary or other officer of the corporation authorized to tabulate votes. An
appointment is valid for 11 months unless a longer period is provided in the
appointment form. An appointment is revocable by the shareholder unless the
appointment form conspicuously states that it is irrevocable and the appointment
is coupled with an interest that has not been extinguished.
(b) The death or incapacity of a shareholder appointing a
proxy shall not affect the right of the corporation to accept the proxy's
authority unless notice of the death or incapacity is received by the Secretary
or other officer authorized to tabulate votes before the proxy exercises the
proxy's authority under the appointment.
3 - SECOND AMENDED AND RESTATED BYLAWS
<PAGE>
2.11 CORPORATION'S ACCEPTANCE OF VOTES.
(a) If the name signed on a vote, consent, waiver, or proxy
appointment corresponds to the name of a shareholder, the corporation, if acting
in good faith, is entitled to accept the vote, consent, waiver, or proxy
appointment and give it effect as the act of the shareholder.
(b) If the name signed on a vote, consent, waiver, or proxy
appointment does not correspond to the name of a shareholder, the corporation,
if acting in good faith, is nevertheless entitled to accept the vote, consent,
waiver, or proxy appointment and give it effect as the act of the shareholder
if:
(i) The shareholder is an entity and the name signed
purports to be that of an officer or agent of the entity;
(ii) The name signed purports to be that of an
administrator, executor, guardian, or conservator representing the shareholder
and, if the corporation requests, evidence of fiduciary status acceptable to the
corporation has been presented with respect to the vote, consent, waiver, or
proxy appointment;
(iii) The name signed purports to be that of a receiver
or trustee in bankruptcy of the shareholder and, if the corporation requests,
evidence of this status acceptable to the corporation has been presented with
respect to the vote, consent, waiver, or proxy appointment;
(iv) The name signed purports to be that of a pledgee,
beneficial owner, or attorney-in-fact of the shareholder and, if the corporation
requests, evidence acceptable to the corporation of the signatory's authority to
sign for the shareholder has been presented with respect to the vote, consent,
waiver, or proxy appointment; or
(v) Two or more persons are the shareholder as
co-tenants or fiduciaries and the name signed purports to be the name of at
least one of the co-owners and the person signing appears to be acting on behalf
of all co-owners.
(c) The corporation is entitled to reject a vote, consent,
waiver, or proxy appointment if the Secretary or other officer or agent
authorized to tabulate votes, acting in good faith, has reasonable basis for
doubt about the validity of the signature on it or about the signatory's
authority to sign for the shareholder.
(d) The shares of a corporation are not entitled to vote if
they are owned, directly or indirectly, by a second corporation, and the first
corporation owns, directly or indirectly, a majority of the shares entitled to
vote for directors of the second corporation; provided, however, a corporation
may vote any shares, including its own shares, held by it in a fiduciary
capacity.
(e) The corporation and its officer or agent who accepts or
rejects a vote, consent, waiver, or proxy appointment in good faith and in
accordance with the standards of this
4 - SECOND AMENDED AND RESTATED BYLAWS
<PAGE>
provision shall not be liable in damages to the shareholder for the consequences
of the acceptance or rejection. Corporate action based on the acceptance or
rejection of a vote, consent, waiver, or proxy appointment under this provision
is valid unless a court of competent jurisdiction determines otherwise.
2.12 NOTICE OF BUSINESS TO BE CONDUCTED AT MEETING. At an annual meeting
of the shareholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (c) otherwise properly brought before an annual meeting
by a shareholder.
For business to be properly brought before an annual meeting by a
shareholder, the shareholder must have given timely notice thereof in writing to
the Secretary of the corporation. To be timely, a shareholder's notice must be
delivered to or mailed and received at the principal executive offices of the
corporation not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 60 days' notice or prior
public disclosure of the date of the meeting is given or made to shareholders,
notice by the shareholder to be timely must be so received not later than the
close of business on the 10th day following the day on which such notice of the
date of the annual meeting was mailed or such public disclosure was made.
A shareholder's notice to the Secretary shall set forth as to each matter
the shareholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name and
address, as they appear on the corporation's books, of the shareholder proposing
such business, (c) the class and number of shares of stock of the corporation
which are beneficially owned by the shareholder, and (d) any material interest
of the shareholder in such business. Notwithstanding anything in the Bylaws to
the contrary, no business shall be conducted at any annual meeting except in
accordance with the procedures set forth in this Section 2.12.
The Chairman of the annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting and in accordance with the provisions of this Section 2.12 and if the
Chairman should so determine, the Chairman shall so declare to the meeting and
any such business not properly brought before the meeting shall not be
transacted.
ARTICLE III
BOARD OF DIRECTORS
3.1 DUTIES. All corporate powers shall be exercised by or under
the authority of the Board of Directors and the business and affairs of the
corporation shall be managed by or under the direction of the Board of
Directors.
5 - SECOND AMENDED AND RESTATED BYLAWS
<PAGE>
3.2 NUMBER AND QUALIFICATION. As set forth in the Second Amended
Restated Articles of Incorporation, the number of directors of the corporation
shall be not less than three nor more than twelve, and within such limits, the
exact number shall be fixed and increased or decreased from time to time by
resolution of the Board of Directors. If the number of directors is fixed by
the Board of Directors at six or more, the directors shall be divided into three
classes designated Class I, Class II and Class III, each class to be as nearly
equal in number as possible. At the next annual meeting of shareholders
following that designation ("First Meeting"), directors of all three classes
shall be elected. The term of office of Class I directors shall expire at the
first annual meeting of shareholders following their election. The terms of
Class II directors shall expire at the second annual meeting of shareholders
following their election. The terms of the Class III directors shall expire at
the third annual meeting of shareholders following their election. At each
annual meeting of shareholders after the First Meeting, each class of directors
elected to succeed those directors whose terms expire shall be elected to serve
for three-year terms and until their successors are elected and qualified, so
that the term of one class of directors will expire each year. When the number
of directors is changed within the limits provided herein, any newly created
directorships, or any decrease in directorships, shall be so apportioned among
the classes as to make all classes as nearly equal as possible, provided that no
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent directors. Directors need not be residents of
the State of Oregon or shareholders of the corporation.
3.3 CHAIRMAN OF THE BOARD OF DIRECTORS. The directors may elect a
director to serve as Chairman of the Board of Directors to preside at all
meetings of the Board of Directors and to fulfill any other responsibilities
delegated by the Board of Directors.
3.4 REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held without other notice than this Section 3.4 immediately after, and
at the same place as, the annual meeting of shareholders. The Board of
Directors may provide, by resolution, the time and place, either within or
without the State of Oregon, for the holding of additional regular meetings
without other notice than the resolution.
3.5 SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the President or any director. The person
or persons authorized to call special meetings of the Board of Directors may fix
any place, either within or without the State of Oregon, as the place for
holding any special meeting of the Board of Directors called by them.
3.6 NOTICE. Notice of the date, time, and place of any special
meeting of the Board of Directors shall be given at least three days prior to
the meeting by any means provided by law. If mailed, notice shall be deemed to
be given upon deposit in the United States mail addressed to the director at the
director's business address, with postage thereon prepaid. If by telegram,
notice shall be deemed to be given when the telegram is delivered to the
telegraph company. Notice by all other means shall be deemed to be given when
received by the director or a person at the director's business or residential
address whom the person giving notice reasonably believes will deliver or report
the notice to the director within 24 hours. The attendance of a director at a
meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or
6 - SECOND AMENDED AND RESTATED BYLAWS
<PAGE>
special meeting of the Board of Directors need be specified in the notice or
waiver of notice of such meeting.
3.7 WAIVER OF NOTICE. A director may at any time waive any notice
required by law, the Articles of Incorporation, or these Second Amended and
Restated Bylaws. Unless a director attends or participates in a meeting, a
waiver must be in writing, must be signed by the director entitled to notice,
must specify the meeting for which notice is waived, and must be filed with the
minutes or corporate records.
3.8 QUORUM. A majority of the number of directors fixed by
Section 3.2 shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors.
3.9 MANNER OF ACTING.
(a) The act of the majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board of Directors,
unless a different number is provided by law, the Articles of Incorporation, or
these Second Amended and Restated Bylaws.
(b) Members of the Board of Directors may hold a board
meeting by conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other.
Participation in such a meeting shall constitute presence in person at the
meeting.
(c) Any action that is required or permitted to be taken by
the directors at a meeting may be taken without a meeting if a consent in
writing setting forth the action so taken shall be signed by all of the
directors entitled to vote on the matter. The action shall be effective on the
date when the last signature is placed on the consent or at such earlier or
later time as is set forth therein. Such consent, which shall have the same
effect as a unanimous vote of the directors, shall be filed with the minutes of
the corporation.
3.10 VACANCIES. Any vacancy, including a vacancy resulting from an
increase in the number of directors, occurring on the Board of Directors may be
filled by the shareholders, the Board of Directors, or the affirmative vote of a
majority of the remaining directors if less than a quorum of the Board of
Directors, or by a sole remaining director. If the vacant office is filled by
the shareholders and was held by a director elected by a voting group of
shareholders, then only the holders of shares of that voting group are entitled
to vote to fill the vacancy. Any directorship not so filled by the directors
shall be filled by election at an annual meeting or at a special meeting of
shareholders called for that purpose. A director elected to fill a vacancy
shall be elected to serve until the next annual meeting of shareholders and
until a successor shall be duly elected and qualified. A vacancy that will
occur at a specific later date, by reason of a resignation or otherwise, may be
filled before the vacancy occurs, and the new director shall take office when
the vacancy occurs.
3.11 COMPENSATION. By resolution of the Board 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
7 - SECOND AMENDED AND RESTATED BYLAWS
<PAGE>
director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
3.12 PRESUMPTION OF ASSENT. A director of the corporation who is
present at a meeting of the Board of Directors or a committee of the Board of
Directors shall be presumed to have assented to the action taken (a) unless the
director's dissent to the action is entered in the minutes of the meeting,
(b) unless a written dissent to the action is filed with the person acting as
the secretary of the meeting before the adjournment thereof or forwarded by
certified or registered mail to the Secretary of the corporation immediately
after the adjournment of the meeting or (c) unless the director objects at the
meeting to the holding of the meeting or transacting business at the meeting.
The right to dissent shall not apply to a director who voted in favor of the
action.
3.13 DIRECTOR CONFLICT OF INTEREST.
(a) A transaction in which a director of the corporation has
a direct or indirect interest shall be valid notwithstanding the director's
interest in the transaction if the material facts of the transaction and the
director's interest are disclosed or known to the Board of Directors or a
committee thereof and it authorizes, approves, or ratifies the transaction by a
vote or consent sufficient for the purpose without counting the votes or
consents of directors with a direct or indirect interest in the transaction; or
the material facts of the transaction and the director's interest are disclosed
or known to shareholders entitled to vote and they, voting as a single group,
authorize, approve, or ratify the transaction by a majority vote; or the
transaction is fair to the corporation.
(b) A conflict of interest transaction may be authorized,
approved, or ratified if it receives the affirmative vote of a majority of
directors on the Board of Directors or a committee thereof who have no direct or
indirect interest in the transaction. If a majority of such directors vote to
authorize, approve, or ratify the transaction, a quorum is present for the
purpose of taking action.
(c) A conflict of interest transaction may be authorized,
approved, or ratified by a majority vote of shareholders entitled to vote
thereon. Shares owned by or voted under the control of a director or an entity
controlled by a director who has a direct or indirect interest in the
transaction are entitled to vote with respect to a conflict of interest
transaction. A majority of the shares, whether or not present, that are
entitled to be counted in a vote on the transaction constitutes a quorum for the
purpose of authorizing, approving, or ratifying the transactions.
(d) A director has an indirect interest in a transaction if
(i) another entity in which the director has a material financial interest or in
which the director is a general partner is a party to the transaction or
(ii) another entity of which the director is a director, officer, or trustee is
a party to the transaction and the transaction is or should be considered by the
Board of Directors.
3.14 REMOVAL. All or any number of the directors of the
corporation may be removed only for cause and at a meeting of shareholders
called expressly for that purpose, by the vote of 75 percent of the votes then
entitled to be cast for the election of directors. At any meeting of
shareholders at which one or more directors are removed, a majority of votes
then entitled to be cast for the election of directors may fill any vacancy
created by such removal. If any vacancy
8 - SECOND AMENDED AND RESTATED BYLAWS
<PAGE>
created by removal of a director is not filled by the shareholders at the
meeting at which the removal is effected, such vacancy may be filled by a
majority vote of the remaining directors.
3.15 RESIGNATION. Any director may resign by delivering written
notice to the Board of Directors, its chairperson, or the corporation. Such
resignation shall be effective at the earliest of the following, unless the
notice specifies a later effective date, (a) on receipt, (b) five days after its
deposit in the United States mails, if mailed postpaid and correctly addressed,
or (c) on the date shown on the return receipt, if sent by registered or
certified mail, return receipt requested, and the receipt is signed by
addressee. Once delivered, a notice of resignation is irrevocable unless
revocation is permitted by the Board of Directors.
3.16 NOMINATIONS FOR ELECTION TO BOARD OF DIRECTORS. Only persons
who are nominated in accordance with the procedures set forth in this Section
3.16 shall be eligible for election as directors. Nominations of persons for
election to the Board of Directors may be made at a meeting of shareholders by
or at the direction of the Board of Directors or by any shareholder of the
corporation entitled to vote for the election of directors at the meeting who
complies with the notice procedures set forth in this Section 3.16.
Such nominations, other than those made by or at the direction of the
Board of Directors shall be made pursuant to timely notice in writing to the
Secretary of the corporation. To be timely, a shareholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
corporation not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 60 days' notice or prior
public disclosure of the date of the meeting is given or made to shareholders,
notice by the shareholder to be timely must be so received not later than the
close of business on the 10th day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made.
Such shareholder's notice shall set forth (a) as to each person whom the
shareholder proposes to nominate for election or re-election as a director, (i)
the name, age, business address and residence address of such person, (ii) the
principal occupation or employment of such person, (iii) the class and number of
shares of stock of the corporation which are beneficially owned by such person,
and (iv) any other information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (including, without limitation, such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); and (b) as to the shareholder giving the notice, (i) the
name and address, as they appear on the corporation's books, of such
shareholder, and (ii) the class and number of shares of stock of the corporation
which are beneficially owned by such shareholder.
At the request of the Board of Directors, any person nominated by the
Board of Directors for election as a director shall furnish to the Secretary of
the corporation that information required to be set forth in a shareholder's
notice of nomination which pertains to the nominee.
No person shall be eligible for election as a director of the corporation
unless nominated in accordance with the procedures set forth in this Section
3.16. The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in
9 - SECOND AMENDED AND RESTATED BYLAWS
<PAGE>
accordance with the procedures prescribed by these Second Amended and Restated
Bylaws, and if the Chairman should so determine, the Chairman shall so declare
to the meeting and the defective nomination shall be disregarded.
ARTICLE IV
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
4.1 DESIGNATION OF EXECUTIVE COMMITTEE. The Board of Directors
may designate two or more directors to constitute an executive committee. The
designation of an executive committee, and the delegation of authority to it,
shall not operate to relieve the Board of Directors, or any member thereof, of
any responsibility imposed by law. No member of the executive committee shall
continue to be a member thereof after ceasing to be a director of the
corporation. The Board of Directors shall have the power at any time to
increase or decrease the number of members of the executive committee, to fill
vacancies thereon, to change any member thereof, and to change the functions or
terminate the existence thereof. The creation of the executive committee and
the appointment of members to it shall be approved by a majority of the
directors in office when the action is taken, unless a greater number is
required by the Articles of Incorporation or these Second Amended and Restated
Bylaws.
4.2 POWERS OF EXECUTIVE COMMITTEE. During the interval between
meetings of the Board of Directors, and subject to such limitations as may be
imposed by resolution of the Board of Directors, the executive committee may
have and may exercise all the authority of the Board of Directors in the
management of the corporation, provided that the committee shall not have the
authority of the Board of Directors with respect to the following matters:
authorizing distributions; approving or proposing to the shareholders actions
that are required to be approved by the shareholders under the Articles of
Incorporation or these Second Amended and Restated Bylaws or by law; filling
vacancies on the Board of Directors or any committee thereof; amending the
Articles of Incorporation; adopting, amending, or repealing bylaws; approving a
plan of merger not requiring shareholder approval; authorizing or approving a
reacquisition of shares, except according to a formula or method prescribed by
the Board of Directors; authorizing or approving the issuance or sale or
contract for sale of shares or determining the designation and relative rights,
preferences, and limitations of a class or series of shares except within limits
specifically prescribed by the Board of Directors.
4.3 PROCEDURES; MEETINGS; QUORUM.
(a) The Board of Directors shall appoint a chairperson from
among the members of the executive committee and shall appoint a secretary who
may, but need not, be a member of the executive committee. The chairperson
shall preside at all meetings of the executive committee and the secretary of
the executive committee shall keep a record of its acts and proceedings, which
shall be filed with the minutes of the corporation.
(b) Regular meetings of the executive committee, of which no
notice shall be necessary, shall be held on such days and at such places as
shall be fixed by resolution adopted
10 - SECOND AMENDED AND RESTATED BYLAWS
<PAGE>
by the executive committee. Special meetings of the executive committee shall
be called at the request of the President or of any member of the executive
committee, and shall be held upon such notice as is required by these Second
Amended and Restated Bylaws for special meetings of the Board of Directors.
(c) Attendance of any member of the executive committee at a
meeting shall constitute a waiver of notice of the meeting. A majority of the
executive committee, from time to time, shall be necessary to constitute a
quorum for the transaction of any business, and the act of a majority of the
members present at a meeting at which a quorum is present shall be the act of
the executive committee. Members of the executive committee may hold a meeting
of such committee by conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other, and
participation in such meeting shall constitute presence in person at the
meeting.
(d) Any action that is required or permitted to be taken at
a meeting of the executive committee may be taken without a meeting if a consent
in writing setting forth the action so taken shall be signed by all members of
the executive committee entitled to vote on the matter. The action shall be
effective on the date when the last signature is placed on the consent or at
such earlier or later time as is set forth therein. Such consent, which shall
have the same effect as a unanimous vote of the members of the executive
committee, shall be filed with the minutes of the corporation.
(e) The Board of Directors may approve a reasonable fee for
the members of the executive committee as compensation for attendance at
meetings of the executive committee.
4.4 OTHER COMMITTEES. By the approval of a majority of the
directors when the action is taken (unless a greater number is required by the
Articles of Incorporation), the Board of Directors, by resolution, may create
one or more additional committees, appoint directors to serve on them, and
define the duties of such committee or committees. Each such committee shall
have two or more members, who shall serve at the pleasure of the Board of
Directors. Such additional committee or committees shall not have the powers
proscribed in Section 4.2.
ARTICLE V
OFFICERS
5.1 NUMBER. The officers of the corporation shall be a President
and a Secretary. Such other officers and assistant officers as are deemed
necessary or desirable may be appointed by the Board of Directors and shall have
such powers and duties prescribed by the Board of Directors or the officer
authorized by the Board of Directors to prescribe the duties of other officers.
A duly appointed officer may appoint one or more officers or assistant officers
if such appointment is authorized by the Board of Directors. Any two or more
offices may be held by the same person.
5.2 APPOINTMENT AND TERM OF OFFICE. The officers of the
corporation shall be appointed annually by the Board of Directors at the first
meeting of the Board of Directors held after
11 - SECOND AMENDED AND RESTATED BYLAWS
<PAGE>
the annual meeting of the shareholders. If the officers shall not be appointed
at the meeting, a meeting shall be held as soon thereafter as is convenient for
such appointment of officers. Each officer shall hold office until a successor
shall have been duly appointed and qualified or until the officer's death,
resignation, or removal.
5.3 QUALIFICATION. An officer need not be a director,
shareholder, or a resident of the State of Oregon.
5.4 RESIGNATION AND REMOVAL. An officer may resign at any time by
delivering notice of such resignation to the corporation. A resignation is
effective on receipt unless the notice specifies a later effective date. If the
corporation accepts a specified later effective date, the Board of Directors may
fill the pending vacancy before the effective date, but the successor may not
take office until the effective date. Once delivered, a notice of resignation
is irrevocable unless revocation is permitted by the Board of Directors. Any
officer appointed by the Board of Directors may be removed at any time with or
without cause. Appointment of an officer shall not of itself create contract
rights. Removal or resignation of an officer shall not affect the contract
rights, if any, of the corporation or the officer.
5.5 VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the Board
of Directors for the unexpired portion of the term.
5.6 PRESIDENT. The President shall be the chief executive officer
of the corporation and shall be in general charge of its business and affairs,
subject to the control of the Board of Directors. The President shall preside
at all meetings of shareholders and at all meetings of directors (unless there
is an acting Chairman of the Board presiding at the meeting). The President may
execute on behalf of the corporation all contracts, agreements, stock
certificates, and other instruments. The President shall from time to time
report to the Board of Directors all matters within the President's knowledge
affecting the corporation that should be brought to the attention of the Board
of Directors. The President shall vote all shares of stock in other
corporations owned by the corporation and is empowered to execute proxies,
waivers of notice, consents, and other instruments in the name of the
corporation with respect to such stock. The President shall perform other
duties assigned by the Board of Directors.
5.7 VICE PRESIDENTS. In the absence of the President or in the
event of the President's death or inability or refusal to act, the Vice
President (or, in the event there be more than one Vice President, the Vice
Presidents in the order designated at the time of their election, or in the
absence of any designation, then in the order of their election), if any, 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. Any Vice
President shall perform other duties assigned by the President or by the Board
of Directors.
5.8 SECRETARY. The Secretary shall prepare the minutes of all
meetings of the directors and shareholders, shall have custody of the minute
books and other records pertaining to the corporate business, and shall be
responsible for authenticating the records of the corporation. The Secretary
shall countersign all instruments requiring the seal of the corporation and
shall perform
12 - SECOND AMENDED AND RESTATED BYLAWS
<PAGE>
other duties assigned by the Board of Directors. In the event no Vice President
exists to succeed to the President under the circumstances set forth in Section
5.7 above, the Secretary shall make such succession.
5.9 ASSISTANT SECRETARIES. The Assistant Secretaries, when
authorized by the Board of Directors or these Second Amended and Restated
Bylaws, may sign, with the President or Vice President, certificates for shares
of the corporation the issuance of which shall have been authorized by
resolution of the Board of Directors. The Assistant Secretaries shall, if
required by the Board of Directors, give bonds for the faithful discharge of
their duties in such sums and with such sureties as the Board of Directors shall
determine. The Assistant Secretaries shall, in general, perform such duties as
shall be specifically assigned to them in writing by the President or the Board
of Directors.
5.10 SALARIES. The salaries of the officers shall be fixed from
time to time by the Board of Directors, and no officer shall be prevented from
receiving such salary because the officer is also a director of the corporation.
ARTICLE VI
ISSUANCE OF SHARES
6.1 CERTIFICATES FOR SHARES.
(a) Certificates representing shares of the corporation
shall be in a form determined by the Board of Directors. Such certificates
shall be signed, either manually or in facsimile, by two officers of the
corporation, at least one of whom shall be the President or a Vice President,
and may be sealed with the seal of the corporation or a facsimile thereof. All
certificates for shares shall be consecutively numbered or otherwise identified.
(b) Every certificate for shares of stock that are subject
to any restriction on transfer pursuant to the Articles of Incorporation, these
Second Amended and Restated Bylaws, applicable securities laws, agreements among
or between shareholders, or any agreement to which the corporation is a party
shall have conspicuously noted on the face or back of the certificate either
(i) the full text of the restriction or (ii) a statement of the existence of
such restriction and that the corporation retains a copy of the restriction.
Every certificate issued when the corporation is authorized to issue more than
one class or series of stock shall set forth on its face or back either (i) the
full text of the designations, relative rights, preferences, and limitations of
the shares of each class and series authorized to be issued and the authority of
the Board of Directors to determine variations for future series or (ii) a
statement of the existence of such designations, relative rights, preferences,
and limitations and a statement that the corporation will furnish a copy thereof
to the holder of such certificate upon written request and without charge.
(c) The name and mailing address of the person to whom the
shares represented thereby are issued, with the number of shares and date of
issue, shall be entered on the stock transfer books of the corporation. Each
shareholder shall have the duty to notify the corporation of his or her mailing
address. All certificates surrendered to the corporation for transfer
13 - SECOND AMENDED AND RESTATED BYLAWS
<PAGE>
shall be canceled, and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered and
canceled, except that in case of a lost, destroyed, or mutilated certificate a
new one may be issued therefor upon such terms and indemnity to the corporation
as the Board of Directors prescribes.
6.2 TRANSFER OF SHARES. A transfer of shares of the corporation
shall be made only on the stock transfer books of the corporation by the holder
of record thereof or by the holder's legal representative, who shall furnish
proper evidence of authority to transfer, or by the holder's attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the corporation. The person in whose name shares stand on the books of the
corporation shall be deemed by the corporation to be the owner thereof for all
purposes.
6.3 TRANSFER AGENT AND REGISTRAR. The Board of Directors may from
time to time appoint one or more transfer agents and one or more registrars for
the shares of the corporation, with such powers and duties as the Board of
Directors determines by resolution. The signatures of officers upon a
certificate may be facsimiles if the certificate is manually signed on behalf of
a transfer agent or by a registrar other than the corporation itself or an
employee of the corporation.
6.4 OFFICER CEASING TO ACT. If the person who signed a share
certificate, either manually or in facsimile, no longer holds office when the
certificate is issued, the certificate is nevertheless valid.
ARTICLE VII
CONTRACTS, LOANS, CHECKS, AND OTHER INSTRUMENTS
7.1 CONTRACTS. The Board of Directors may authorize any officer
or officers and agent or agents to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.
7.2 LOANS. No loans shall be contracted on behalf of the
corporation and no evidence of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may be
general or confined to specific instances.
7.3 CHECKS; DRAFTS. All checks, drafts, or other orders for the
payment of money and notes or other evidences of indebtedness issued in the name
of the corporation shall be signed by such officer or officers and agent or
agents of the corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
7.4 DEPOSITS. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies, or other depositories as the Board of Directors may
select.
14 - SECOND AMENDED AND RESTATED BYLAWS
<PAGE>
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.1 SEAL. The Board of Directors from time to time may provide
for a seal of the corporation, which shall be circular in form and shall have
inscribed thereon the name of the corporation, the state of incorporation and
the words "Corporate Seal."
8.2 SEVERABILITY. Any determination that any provision of these
Second Amended and Restated Bylaws is for any reason inapplicable, invalid,
illegal, or otherwise ineffective shall not affect or invalidate any other
provision of these Second Amended and Restated Bylaws.
ARTICLE IX
AMENDMENTS
These Second Amended and Restated Bylaws may be altered, amended, or
repealed and new bylaws may be adopted by the Board of Directors at any regular
or special meeting, subject to repeal or change by action of the shareholders of
the corporation.
---------------------------------------
Terry D. Murphy, Secretary
ADOPTED: April 29, 1996
15 - SECOND AMENDED AND RESTATED BYLAWS
<PAGE>
EXHIBIT 4.1
RETIREMENT AND SEVERANCE AGREEMENT
Agreement Date: March 15, 1996
Claremont Technology Group, Inc. (Claremont), whose address is 1600 NW
Compton Drive, Suite 305, Beaverton, Oregon 97006 and Steven L. Darrow (Darrow),
whose address is 20514 127th Avenue SE, Snohomish, Washington 98290, enter this
agreement as of the agreement date.
Darrow has effective as of the date of this Agreement resigned from his
employment with the Company, and from his office as Chairman of the Board of
Directors. The parties understand that Darrow's net worth is substantially tied
up in the Company's stock, and wish to make certain provisions related to
assuring him reasonable access to liquidity.
Since the Company's founding, he has provided the Company with long and
valuable service, as its founder, President, and as Chairman of its Board of
Directors. In addition, he has amassed considerable knowledge and expertise in
the field of large-scale systems integration. In recognition of his service,
and in exchange for his agreement to refrain from competing with the Company,
the Company enters into this Agreement.
1. NON-COMPETITION; NON-SOLICITATION.
1.1 COMMITMENT. While Darrow remains a director of the Company, and if
longer thereafter until March 15, 2001, unless Claremont consents in writing,
Darrow will not compete with Claremont, or solicit business from Claremont's
customers.
1.2 COMPETING DEFINED. "Competing" means to provide any services or
knowledge in the area of building custom systems integration solutions to a
Claremont customer, through or on behalf of a third party. Darrow's individual
employment by, or service as an officer or director of or consultant to a
Claremont customer does not constitute "competition."
1.3 SOLICITING BUSINESS DEFINED. Soliciting business means contacting or
dealing with a Claremont customer for purposes of seeking service or consulting
contracts, or sales, related to building custom systems integration solutions,
on behalf of a third party.
1.4 CLAREMONT CUSTOMERS DEFINED. Claremont's customers are:
1.4.1 EXISTING. Entities or individuals who have purchased
consulting or programming services, software, or goods from Claremont at
any time within three (3) years before March 15, 1996, or who do so during
the period within which Darrow remains a director of the Company.
1.4.2 ACTIVE PROSPECTS. Entities or individuals who are active
prospects of Claremont. An active prospect is one upon whom more than
three calls have been made in any one-month period, or to whom a proposal
has been submitted or by whom a
Page 1 - Retirement and Severance Agreement
<PAGE>
proposal has been requested, within the twelve months immediately preceding
the date in question.
1.4.3 NOTICE ON REQUEST. On request given by Notice, Claremont
will confirm whether or not any given entity is or is not a Claremont
customer.
1.4.4 EXCLUSION. Darrow shall be entitled to continue service
already contracted for or commenced to a Darrow customer or employer, if
that customer or employer subsequently becomes a Claremont Customer as
defined in this Section 1.4.
1.5 NON-HIRING. Before Darrow steps down from Claremont's Board of
Directors, or before March 15, 1997 if later, unless Claremont consents in
writing (such consent not to be unreasonably withheld), Darrow will not recruit
or hire Claremont employees, whether on Darrow's own behalf or for another.
2. CONSIDERATION.
2.1 FOR NONCOMPETE. In consideration of the non-competition agreements
provided for in Section 1, Claremont agrees to provide Darrow with these
benefits:
2.1.1 PAYMENT EQUIVALENT TO ONE YEAR'S PAY. On March 15, 1996, or
as soon thereafter as the Company can do so without an imprudent reduction
in its available cash (taking into account available sources of credit),
the Company shall pay Darrow $325,000, from which the Company may withhold
before payment any deductions and taxes required by law to be paid thereon.
2.1.2 LOAN FORGIVENESS AND GROSS-UP. On March 15, 1996, the
Company shall cancel all outstanding indebtedness of Darrow to the Company.
If any deductions are deemed required as a result of this payment, Company
shall pay them (including such obligations as are incurred as a result of
the additional payments required by this sentence) over and above the
cancellation amount. The Company shall return Darrow's promissory note for
all existing indebtedness, marked "Cancelled."
2.1.3 ARRANGEMENT OF NEW LOAN. The Company shall assist Darrow to
obtain a new loan from the Bank of America to Darrow, in the face amount of
$410,000. If required by the Bank of America as a condition of extending
the credit to Darrow, the Company shall guarantee this loan, subject to
reasonable satisfaction with the terms of the guarantee and the terms of
the obligation. Claremont's obligations under this paragraph shall cease
if Darrow has not initiated the process of applying for that loan by June
1, 1996, or has not completed that application process (including supplying
all necessary information requested by the bank) by June 30, 1996.
(a) REPAYMENT. Darrow shall meet all obligations of this loan,
and shall be obligated either to secure the release of Claremont's
guarantee at the time of, or to repay this loan from the proceeds
from, any sale of Claremont stock by Darrow in which Darrow receives
at least $5,000,000 in proceeds. The loan shall
Page 2 - Retirement and Severance Agreement
<PAGE>
be repaid, or Claremont's guarantee released, within sixty days from
the date of the sale. If the Company registers its stock in an
underwritten public offering under the Securities Act of 1933, the
registration will count as a completed sale hereunder, and Darrow will
be required to clear Claremont's guarantee.
(b) PLEDGE OF SHARES. If Claremont is required to guarantee the
loan, Darrow shall deposit share certificates for 68,333 shares of
Claremont stock with the Secretary of the Company, endorsed to the
Company as pledge and security for his obligations under Section
2.1.3(a), which shares shall be returned to him free of pledge upon
the earlier of the payment of the loan or the release of Claremont's
guarantee.
2.1.4 HEALTH CARE. The Company will continue health care coverage
for Darrow for his lifetime under the Company's standard health care plan
as then in effect for senior executives of the company, or if forbidden to
do so by applicable health care insurance plans in place, shall pay toward
the health care plan of Darrow's choosing an amount equal to the premiums
Company would pay for Darrow's coverage if Darrow remained an employee.
Company shall also extend the same family health benefits to Darrow's
spouse as would be available to the spouse of any employee, on the same
terms. Company may reduce such coverage to the extent it is duplicated by
Medicare or other similar programs.
2.1.5 DARROW'S LEGAL FEES. Company will pay Darrow's actual and
itemized legal fees for preparation of this Agreement, in an amount not to
exceed $5,000.
2.2 VESTING OF STOCK. Claremont confirms that all stock options held by
Darrow are fully vested, so that all are immediately exercisable as of March 15,
1996. Claremont will take such steps as may be necessary to extend the exercise
period of those options through March 15, 1997 at the earliest. Further if the
law permits, Claremont will cause all employer's matching funds held in Darrow's
name under the Company's 401(k) plan likewise to be fully vested, as of the date
of his resignation from employment with the Company.
2.3 ACCRUED SALARY AND PTO. Claremont confirms that it will pay all
salary accrued through March 15, and pay for accrued Personal Time Off according
to Claremont's usual policies.
3. PLACEMENT ASSISTANCE. Claremont shall provide Darrow with good faith
assistance in facilitating a private sale of so much of Darrow's unregistered
stock as Darrow may wish to sell before the date of a registered offering,
subject to the company's overriding obligation of compliance with all applicable
securities laws.
4. REGISTRATION RIGHTS.
4.1 "REGISTER," "REGISTERED," AND "REGISTRATION" means a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act and the declaration or ordering of effectiveness of such
registration statement.
Page 3 - Retirement and Severance Agreement
<PAGE>
4.2 "REGISTRATION EXPENSES" means all expenses incurred by the Company in
complying with Section 4 of this Agreement, including without limitation all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, and blue sky fees and expenses.
4.3 "SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time, and all rules and regulations promulgated thereunder, or any act,
rules or regulations which replace the Securities Act or any such rules and
regulations.
4.4 "SELLING EXPENSES" means all underwriting discounts and selling
commissions applicable to the sale of securities of a holder and all fees and
disbursements of counsel for such holder.
4.5 "DARROW SHARES" means any common stock in Claremont owned by Steven L.
Darrow, together with those shares of common stock in Claremont which were
originally owned by Darrow and which were transferred by him to Brett H. Darrow,
Dawn C. Darrow (also known as Dawn Combs) and Judy Smith, and have not yet been
transferred by Darrow's transferee to any other party. A holder of Darrow
Shares is an "INVESTOR" with respect to those shares, for purposes of this
Agreement, and each Investor other than Darrow is an intended third party
beneficiary of this section of this Agreement.
4.6 COMPANY REGISTRATIONS.
4.6.1 BEST EFFORTS CO-REGISTRATION RIGHTS. If at any time the
Company determines to register any of its common stock for sale to the
general public solely for cash on a form that would also permit sale of
some or all of the Darrow Shares, the Company will (i) promptly give each
holder of Darrow Shares written notice thereof and (ii) use its best
efforts to include in such registrations and in any related underwriting
all Darrow Shares specified in a written request by any Investor (which
request shall state the intended method of distribution of the securities),
received by the Company within 15 business days after receipt of such
written notice from the Company by any Investor, except as set forth in
subsection 4.6.2 below.
4.6.2 UNDERWRITTEN OFFERINGS. If the registration of which the
Company gives notice under this Section 4.6 is for a registered public
offering involving an underwriting, the Company will so advise the Investor
as a part of the written notice given to such Investor pursuant to
subsection 4.6.1 above. In such event the right of any Investor to
registration pursuant to this Section 4 will be conditioned on such
Investor's participation in such underwriting and the inclusion of such
Investor's Darrow Shares in the underwriting to the extent provided herein.
All Investors proposing to distribute Darrow Shares through such
underwriting will (together with the Company and the other holders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Company.
Notwithstanding any other provision of this Section 4, if the underwriter
of the offering determines that marketing factors require a limitation on
the number of Darrow Shares to be sold for the account of Investors, the
Company will
Page 4 - Retirement and Severance Agreement
<PAGE>
be required to include in the relevant offering and registration under this
Section 4 only so many of such shares in addition to any shares of common
stock to be offered by the Company as the underwriter believes in good
faith would not adversely affect the distribution of the securities to be
offered and registered (the shares so included to be apportioned pro rata
among all participating security holders, including participating
Investors, according to their respective holdings of shares).
4.7 EXPENSES.
4.7.1 INCREMENTAL EXPENSES. All incremental Registration Expenses
incurred as a result of any Darrow Shares being included in a registration
pursuant to Section 4.6 shall be borne by the Investors on a pro rata basis
according to the number of Darrow Shares included in such registration.
4.7.2 SELLING EXPENSES. All Selling Expenses shall be borne by
the holder of the securities so registered.
4.7.3 COMPLIANCE WITH LAW. Notwithstanding any other provision of
this Section 4.7, the provisions of this Section 4.7 shall be deemed
amended to incorporate and comply with the provisions of any applicable
state securities laws, regulations, and administrative policies.
4.8 PROCEDURES. Whenever required under Section 4.6 of this Agreement to
use its best efforts to effect the registration of any of the Company's
securities, the Company will, as expeditiously as reasonably possible:
4.8.1 REGISTRATION STATEMENT. Prepare and file with the
Securities and Exchange Commission (the Commission) a registration
statement with respect to such securities and use its earnest and diligent
efforts to cause such registration statement to become and remain
effective;
4.8.2 AMENDMENTS AND SUPPLEMENTS. Prepare and file with the
Commission such amendments and supplements to such registration statement
and the prospectus used in connection therewith as may be necessary to
comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement;
4.8.3 FURNISH PROSPECTUS. Furnish to each Investor with respect
to whom securities are included in such registration statement a prospectus
and such other documents as the Investor reasonably may require to
facilitate the disposition of such securities;
4.8.4 LOCAL JURISDICTIONS COMPLIANCE. Use its earnest and
diligent efforts to register and qualify the securities covered by such
registration statement under such other securities or blue sky laws of such
jurisdictions as reasonably are appropriate for the distribution of the
securities covered by such registration statement; provided, however,
Page 5 - Retirement and Severance Agreement
<PAGE>
that the Company will 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 state or jurisdiction unless the Company is
already subject to service in such jurisdiction and provided further that
in connection with any proposed registration, the Company will in no event
be obligated to cause any such registration to remain effective for more
than 180 days.
4.8.5 NOTICE OF EFFECTIVENESS. Notify each Investor with respect
to whom securities are included in such registration statement, promptly
after it shall receive notice thereof, of the time when such registration
statement has become effective or a supplement to any prospectus forming a
part of such registratrion statement has been filed;
4.8.6 NOTICE OF COMMISSION REQUEST. Notify each Investor with
respect to whom securities are icnluded in such registration statement of
any request by the Securities and Exchange Commission for the amending or
supplementing of such registration statement or prospoectus or for
additional information; and
4.8.7 ADVICE OF STOP ORDERS. Advise each Investor with respect to
whom securities are included in such registration statement, promptly after
it shall receive notice or obtain knowledge thereof, of the issuance of any
stop order by the Commission suspending the effectiveness of such
registration statement, or the initition or threatening of any proceeding
for such purpose and promptly use its earnest and diligent efforts to
prevent the issuance of any stop order or to obtain its withdrawal if such
stop order should be issued.
4.9 INFORMATION FROM INVESTOR. Each Investor whose Darrow Shares are
included in any registration under Section 4.6 of this Agreement will promptly
furnish in writing to the Company such information regarding such Investor and
the distribution proposed by such Investor as the Company may request in writing
and as may be required in connection with any registration, qualification, or
compliance referred to in Section 4.6 and to execute such documents in
connection with such registration as the Company may reasonably request. Each
Investor shall furnish any information required by this section 4.9 within 15
business days of the Company's written request therefor.
4.10 STAND-OFF AGREEMENT. No Investor who participates in the registration,
if so requested by the Company and an underwriter of securities of the Company,
will sell or otherwise transfer or dispose of any other securities of the
Company held by such Investor other than pursuant to the registration statement
during the period required by the Underwriters following and including the
effective date of a registration statement, which period shall not, absent the
subsequent approval of the Investor concerned, exceed 180 days, provided,
however, that such Investor's agreement in this Section 4.10 will only apply (a)
to the first two such registration statements of the Company including shares or
securities to be sold on the Company's behalf to the general public in an
underwritten offering and (b) if all officers and directors of the Company enter
into similar agreements in writing in a form satisfactory to the Company and
such underwriter covering shares of the common stock (or other securities) owned
Page 6 - Retirement and Severance Agreement
<PAGE>
by them, and for the same post-effective period. The Company may impose stop
transfer instructions with respect to the securities subject to the restriction
in this Section 4.10 until the end of the stand-off period.
4.11 INDEMNIFICATION IN CONNECTION WITH REGISTRATION.
4.11.1 COMPANY'S INDEMNIFICATION OBLIGATION. If any of the Darrow
Shares are registered, to the extent permitted by law, the Company will
indemnify and hold harmless each selling Investor, any person who controls
any selling Investor within the meaning of the Securities Act, any
underwriter for a selling Investor and any person who controls such
underwriter within the meaning of the Securities Act (collectively with the
underwriter, a "Participating Underwriter") against any losses, claims,
damages, or liabilities, joint or several, to which any Investor,
controlling person, or Participating Underwriter may be subject under the
Securities Act or otherwise; and it will reimburse each Investor, each
controlling person, and each Participating Underwriter for any legal or
other expenses reasonably incurred by the Investor, controlling person, or
Participating Underwriter in connection with investigating or defending any
such loss, claim, damage, liability, or action, insofar as such losses,
claims, damages, or liabilities, joint or several (or actions in respect
thereof), arise out of or are based upon any of the following statements
omissions or violations (collectively or separately, a "Violation"): (i)
any untrue statement or alleged untrue statement of any material fact
contained, on the effective date thereof, in any such registration
statement or any preliminary prospectus or final prospectus, or any
amendment or supplement thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading or (iii) any violation or
alleged violation by the Company of the Securities Act, the Securities
Exchange Act of 1934 (the "1934 Act"), any state securities law, or any
rule or regulation promulgated under the Securities Act, the 1934 Act or
any state securities law; provided, however, that the Company will not be
liable in any case to the extent that any loss, claim, damage, or liability
arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in any registration
statement, preliminary prospectus, final prospectus, or any amendment or
supplement thereto, in reliance upon and in conformity with written
information furnished by a Investor for use in the preparation thereof and
provided further, that if any losses, claims, damages or liabilities arise
out of or are based upon an untrue statement, alleged untrue statement,
omission or alleged omission contained in any preliminary prospectus which
did not appear in the final prospectus, the Company shall not have any
liability with respect thereto to (i) the selling Investor or any person
who controls such selling Investor within the meaning of the Act, if the
selling Investor delivered a copy of the preliminary prospectus to the
person alleging such losses, claims, damages or liabilities and failed to
deliver a copy of the final prospectus, as amended or supplemented if it
has been amended or supplemented, to such person at or prior to the written
confirmation of the sale to such person or (ii) any Participating
Underwriter, if such Participating Underwriter delivered a copy of the
preliminary prospectus to the person alleging such losses, claims, damages
or liabilities and failed to deliver a copy of the final prospectus, as
amended or supplemented if it has been amended or supplemented to such
person at or prior to the written confirmation of the sale to such person.
The
Page 7 - Retirement and Severance Agreement
<PAGE>
indemnity agreement contained in this subparagraph 4.11.1 shall not apply
to amounts paid to any claimant in settlement of any suit or claim unless
such payment is first approved by the Company, such approval not to be
unreasonably withheld.
4.11.2 INVESTOR'S INDEMNIFICATION OBLIGATION. Each selling
Investor, to the extent permitted by law and as a condition of the
Company's registration obligation, will indemnify and hold harmless the
Company, each of the Company's directors, each of the Company's officers
who have signed any registration statement or other filing or any amendment
or supplement thereto, any person who controls the Company within the
meanings of the Securities Act, each other Selling Investor or any other
person participating as a selling shareholder in the registration
(collectively, a "Selling Shareholder"), any person who controls any such
Selling Shareholder within the meaning of the Securities Act, and any
Participating Underwriter against any losses, claims, damages, or
liabilities to which the Company or any such director, officer, Selling
Shareholder, Participating Underwriter or controlling person may become
subject under the Securities Act or otherwise, and will reimburse any legal
or other expenses reasonably incurred by the Company or any such director,
officer, Selling Shareholder, Participating Underwriter, or controlling
person in connection with investigating or defending any such loss, claim,
damage, liability, or action, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon
any Violation but only to the extent that such Violation was made in said
registration statement, preliminary or final prospectus, or other filing,
or amendment or supplement, in reliance upon and in conformity with written
information furnished by such Investor for use in the preparation thereof;
provided, however, that the indemnity agreement contained in this
subparagraph 4.11.2 shall not apply to amounts paid to any claimant in
settlement of any suit or claim unless such payment is first approved by
the Investor, such approval not to be unreasonably withheld.
4.11.3 NOTICE. Promptly after receipt by an indemnified party
under subparagraphs 4.11.1 or 4.11.2 above of written notice of the
commencement of any action, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party, deliver to the
indemnifying party written notice of the commencement thereof. The failure
to notify an indemnifying party promptly of the commencement of any such
action, if prejudicial to the ability of the indemnifying party to defend
the action, shall relieve the indemnifying party of any liability to the
indemnified party pursuant to this Section 4.11 but the omission to notify
the indemnifying party will not relieve it from any liability which it may
have to any indemnified party otherwise than under subparagraphs 4.11.1 or
4.11.2.
4.11.4 PARTICIPATION IN DEFENSE. If any such action is brought
against any indemnified party and it notifies in writing an indemnifying
party of the commencement thereof, the indemnifying party will be entitled
to participate in, and, to the extent that it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party; and after notice from
the indemnifying party to such indemnified party of its election to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party for any legal
Page 8 - Retirement and Severance Agreement
<PAGE>
or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation.
4.12 LIMITS ON REGISTRATIONS. The rights of all Investors to cause the
Company to register their Darrow Shares under this Section 4 shall expire
following the third offering for which the Company has provided the opportunity
as specified in Section 4.6.1.
5. OTHER MATTERS.
5.1 VOTING AND CO-SALE AGREEMENT. Jerry L. Stone, Steven L. Darrow, Paul
J. Cosgrave, and Steven L. Darrow as Trustee of the Claremont Consulting Group,
Inc. Voting Trust hereby agree to waive their rights under Sections 3 and 4 of
that certain Voting and CoSale Agreement entered into among them for purposes of
a placement under Section 3 of this Agreement, and further agree that the Voting
and CoSale Agreement shall terminate in its entirety upon the effective date of
a registration statement filed under the Securities Act of 1933.
5.2 INDEMNIFICATION. The Company shall indemnify and hold harmless Darrow
against all liability, damange, or expense resulting from the fact that he is
and or was a Director and/or Officer of the Company, to the maximum extent and
under all circumstances permitted by law. In addition, the Company shall take
all steps necessary to insure that Darrow is covered for all periods during
which he was or is a director or officer by all policies held by the Company
providing insurance against damages, expenses and liabilities relating to the
acts, errors, and omissions of the Company's Directors and Officers, for periods
during which such claims could be brought under applicable statutes of
limitations.
5.3 VALID EXISTENCE. The Company has the corporate power to enter into
and perform all of its obligatiosn under this Agreement aand all other documents
and instruments contemplated or required hereunder (collectively, the
"Documents"). The execution and delivery of the Documents and the performance
of the other covenants and agreements contemplated hereby have been duly
authorized by the Company's Board of Directors. When executed by an Officer of
the Company, this Agreement and the other Documents shall be valid and binding
obligations of the Company, fully enforceable against the Company in accordance
with their respective terms.
5.4 NOTICE. Notice to Darrow shall be sent to Darrow's address shown
above. Notice to Claremont shall be sent to Claremont's address noted above,
marked attention: CEO. Either party may change its address by Notice. Notice
shall be effective when the person to whom it is sent actually gets it, if sent
by any method that leaves a paper or electronic record in the hands of the
recipient. If sent certified or registered mail, postage prepaid, return
receipt requested, to the proper address this section defines, notice shall be
considered effective whether or not actually received on the date the return
receipt shows the notice was accepted, refused, or returned undeliverable.
5.5 SEVERABILITY. Each clause of this agreement is severable. If any
clause is ruled void or unenforceable, the balance of the agreement shall
nonetheless remain in effect.
Page 9 - Retirement and Severance Agreement
<PAGE>
5.6 NON-WAIVER. A waiver of one or more breaches of any clause of this
agreement shall not act to waive any other breach, whether of the same or
different clauses.
5.7 ASSIGNMENT. This Agreement shall not be assigned by either party
without the consent of the other.
5.8 GOVERNING LAW. This agreement is entered in, and is governed by, the
laws of the state of Oregon.
5.9 SERVICE OF PROCESS AND EQUITABLE RELIEF. Each party consents to
service of process through the method prescribed for Notice. As violation of
the non-competition or non-solicitation obligations of this agreement, or those
related to rights in intellectual property, would result in damage to Claremont
that could not be cured by an award of money alone, Claremont shall be entitled
to injunctive relief in cases where a violation of those obligations is shown.
5.10 ATTORNEYS' FEES. The prevailing party in any suit, action,
arbitration, or appeal filed or held concerning this agreement shall be entitled
to reasonable attorneys' fees and the actual, reasonably necessary costs of the
proceeding.
5.11 INTEGRATION. This agreement is the complete agreement between the
parties as of its date with respect to the subject matter it contains. It
supersedes all prior agreements, written or oral. It may be modified only in
writing signed by the original parties hereto.
CLAREMONT TECHNOLOGY GROUP, INC. STEVEN L. DARROW, FOR HIMSELF AND, FOR
PURPOSES OF SECTION 5.1, AS FINAL
TRUSTEE OF THE CLAREMONT CONSULTING
GROUP, INC. VOTING TRUST
By: By:
-------------------------------- ------------------------------------
Print: Print:
----------------------------- ---------------------------------
Title: Title:
----------------------------- ---------------------------------
Date: Date:
------------------------------ ----------------------------------
JERRY L. STONE, INDIVIDUALLY, FOR PAUL J. COSGRAVE, INDIVIDUALLY,
PURPOSES OF SECTION 5.1 FOR PURPOSES OF SECTION 5.1
- ----------------------------------- ----------------------------------------
Date: Date:
------------------------------ -----------------------------------
Page 10 - Retirement and Severance Agreement
<PAGE>
EXHIBIT 4.2
CLAREMONT TECHNOLOGY GROUP, INC.
SHAREHOLDER AGREEMENT
This Agreement is entered into by and between Claremont Technology Group,
Inc., an Oregon corporation (the "Company"), and the undersigned Shareholder
("Shareholder").
RECITALS
A. The Shareholder owns (or may obtain through exercise of options)
shares (the "Shares") of the Company's Common Stock.
B. The Shareholder and the Company desire to enter into an Agreement
relating to the sale or other disposition of the Shares.
AGREEMENT
The parties agree as follows:
1. RESTRICTIONS ON TRANSFER. The Shareholder shall not sell, assign,
transfer, pledge or in any other manner alienate any of the Shares held by him
or her, or any right or interest therein, whether voluntarily or by operation of
law or otherwise, except to the Company by consent of the Board of Directors,
unless the transfer meets the requirements set forth in this Agreement.
2. FIRST REFUSAL. If the Shareholder desires to sell any Shares (unless the
Shareholder elects to transfer under the terms of Section 3), the Shareholder
shall first be obligated to offer to sell the Shares to the Company or its
designee in accordance with the remaining subsections of this Section.
2.1 NOTICE. The Shareholder shall give written notice to the Company of
the Shareholder's desire to sell the Shares (the "Option Notice"). The Option
Notice shall set forth the name of the proposed purchaser, the number of Shares
proposed to be sold, the purchase price per Share and the terms of payment
proposed by the purchaser (the "Purchase Terms").
2.2 COMPANY'S OPTION. The Company (or its designee whom the Company
identifies by notice to the Shareholder) shall have the option to purchase all,
but not less than all, of the Shares described in the Option Notice in
accordance with the Purchase Terms. The option shall be exercised, if at all,
by notice to the Shareholder within 30 days.
2.3 CLOSING. Closing of the purchase shall take place at the Company's
principal office on the date designated by the Company or its designee, which
date shall be before the later of 30 days following the closing date specified
in the Purchase Terms or 50 days following the effective date of the Option
Notice.
Page 1 -- Shareholder Agreement
<PAGE>
2.4 IF COMPANY DECLINES. If the Company (or its designee) does not elect
to acquire the Shares specified in the Option Notice, the Shareholder may sell
the proposed purchaser the Shares within the 60 day period following the receipt
by the Company of the Option Notice. These conditions will apply:
2.4.1 IDENTICAL TERMS FOR PURCHASE. The purchase terms for the
Shares shall be identical with those described in the Option Notice.
2.4.2 SHAREHOLDER AGREEMENT APPLIES. The purchaser shall be bound
by the terms and conditions of this Agreement, as if an original
Shareholder. The Company may require the purchaser's written Agreement to
be bound, before the Company enters the transfer of the Shares to the
purchaser in the Company's stock records.
3. TRANSFER TO IMMEDIATE FAMILY. Shareholder may transfer any or all of the
Shareholder's Shares to his or her Immediate Family, either during his or her
lifetime or on death by will or intestacy. "Immediate Family" shall mean
spouse, lineal descendant of Shareholder or Shareholder's spouse, father,
mother, brother or sister of Shareholder, or a trust established for which one
or more Immediate Family Members are the sole beneficiaries. These conditions
apply:
3.1 SHAREHOLDER AGREEMENT APPLIES. Upon any transfer described in this
Section, the transferee shall be bound by the terms and conditions of this
Agreement as Shareholder. The Company may require the transferee's written
agreement to be bound to this Agreement before entering the transfer in the
Company's stock records.
3.2 SUBSEQUENT TRANSFERS. For purposes of determining to whom a
transferree under this Section 3 may make further transfers under the same
section, the people who qualify as "Immediate Family" shall be determined by
reference to the identity of the originating Shareholder. Thus under this
section a parent may transfer to a child, who may further transfer to any other
immediate family member of the parent. But the child may not transfer to the
child's spouse without the Company's consent, because the child's spouse is not
a member of the originating Shareholder's "immediate family".
3.3 VOTING RIGHTS. The right to vote the shares that have been
transferred under this Section shall be held by the originating Shareholder or
by a person designated by the Shareholder and approved by the Board of
Directors. On the death or incapacity of the original designee the Company
(acting by and through the Board of Directors), will designate the successor
designee.
3.3.1 STATUTORY VOTING AGREEMENT. This Section 3.3 constitutes a
"Voting Agreement" under ORS Section 60.257.
3.3.2 IRREVOCABLE PROXY, DURATION. This Section 3.3 also
constitutes an irrevocable proxy, that will last for so long as the shares
are held by a person who acquired them in a transaction under this Section
3.
Page 2 -- Shareholder Agreement
<PAGE>
3.3.3 FIRST REFUSAL TRANSACTION RELEASES PROXY. Shares subject to
the Voting Agreement of this Section 3.3 shall be released from it if
transferred in a transaction meeting the conditions of Section 2.
4. PURCHASE UPON TERMINATION OF EMPLOYMENT. Upon termination of the
Shareholder's employment or consulting relationship with the Company for any
reason, including, without limitation, retirement, death or disability (the
"Termination"), the Company or its designee shall have the right for a period of
90 days following such Termination (or purchase of the Shares, if later) to buy
all, but not less than all, of the terminated Shareholder's Shares on the terms
and conditions set forth in subsections 4.1, 4.2, and 4.3. Such right of first
refusal shall be exercised by giving written notice of exercise to the
Shareholder or his estate, as the case may be, as provided herein.
4.1 PURCHASE PRICE. The purchase price for the Shares shall be the
greater of the Shareholder's original purchase price for the Shares or the fair
market value thereof at the time of Termination as determined in good faith by
the Company's Board of Directors; provided, however, if the Shareholder (or, if
applicable, the personal representative of the deceased Shareholder's estate),
or any member of the Shareholder's Immediate Family owning Shares on the date of
Termination disputes such valuation, the fair market value of the Shares shall
be determined by a local, independent investment banking or valuation firm
acceptable to the Company and the Shareholder (or, if applicable, the personal
representative of the deceased Shareholder's estate). All costs of such
independent valuation shall be paid by the Shareholder (or, if applicable, the
personal representative of the deceased Shareholder's estate).
4.2 HOW PAID. The purchase price shall be paid to the Shareholder at
closing (or, if applicable, the personal representative of the deceased
Shareholders's estate) and/or the members of the Shareholder's Immediate Family
owning Shares on the date of Termination, in proportion to their respective
stock interests. Each shall receive, at closing: (i) an initial payment by
Company check of at least one-third of the total purchase price and (ii) a
promissory note for the remaining balance of the purchase price, if any, payable
in two equal annual installments including principal and interest on the first
and second anniversaries of the closing. The promissory note shall bear
interest from the date of closing at a rate equal to the interest rate being
charged to the Company as of the date of closing by its then acting bank and
shall allow prepayment in whole or in part without premium or penalty.
4.3 CLOSING. Closing of the purchase shall take place at the Company's
principal office on the date designated by the Company, which shall be no later
than 30 days following the date of mailing of the written notice of exercise,
or, if later and applicable, 30 days following the appointment of the personal
representative of the deceased Shareholder's estate. At such closing, the
Shareholder's certificate for Shares shall be duly endorsed to the Company or
its designee and surrendered, and the Company or its designee shall deliver to
the Shareholder (or, if applicable, the personal representative of the deceased
Shareholder's estate) the cash payment and promissory note, if any, representing
the purchase price for the Shares, all in accordance with subsections 4.1 and
4.2 above.
Page 3 -- Shareholder Agreement
<PAGE>
5. LEGENDS ON CERTIFICATES. The certificate(s) representing Shares held
by the Shareholder shall bear on its face the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO TERMS AND
CONDITIONS OF A SHAREHOLDER AGREEMENT, A COPY OF WHICH IS ON FILE WITH THE
COMPANY, WHICH AGREEMENT INCLUDES, AMONG OTHER PROVISIONS, RESTRICTIONS ON
THE TRANSFER OF THE SHARES AND UNDER SOME CONDITIONS AN IRREVOCABLE PROXY.
6. APPLICATION OF AGREEMENT TO AFTER-ACQUIRED STOCK. All of the provisions of
this Agreement shall apply to all of the Shares and any other shares of the
Company's capital stock which may be issued or transferred hereafter to the
Shareholder or to transferees of the Shareholder in consequence of any
additional issuance, exchange or reclassification of shares, corporate
reorganization, or any other form of recapitalization, consolidation, merger,
share split or share dividend, or shares which are acquired by the Shareholder
or transferees of the Shareholder in any other manner.
7. TERMINATION OF RESTRICTIONS. The restrictions on transfer set forth in
this Agreement shall terminate upon the first to occur of any of the following
events:
7.1 REGISTRATION. The effectiveness of a registration statement relating
to an offering of shares of Common Stock of the Company registered under the
Securities Act of 1933, as amended, and the consummation of the sale of Common
Stock pursuant thereto.
7.2 SALE OF ALL ASSETS. The sale by the Company of all or substantially
all of its assets.
7.3 MERGER. A merger or consolidation of the Company into or with another
corporation after which the holders of shares of stock of the Company shall own
less than fifty percent of the voting securities necessary to control the
affairs of the surviving corporation.
7.4 SALE OF ALL STOCK. The sale of all of the outstanding Shares of
capital stock of the Company by the holders thereof.
8. BINDING EFFECT ON TRANSFEREES. This Agreement and all of the terms,
covenants, and conditions herein contained, shall be binding upon and inure to
the benefit of all of the parties hereto and their respective transferees,
successors, heirs, executors, administrators and assigns. All transfers must be
made in accordance with this agreement, and upon the transfer of any of the
Shares to any person, the transferee shall become a party to this Agreement and
shall execute any and all instruments and take all other actions necessary to
carry out the purposes of this Agreement.
Page 4 -- Shareholder Agreement
<PAGE>
9. OTHER MATTERS.
9.1 NOTICE. Notice to the Company shall be sent to the Company's
president at the Company's principal place of business. Notice to a Shareholder
shall be sent to the Shareholder's address as it appears on the books and
records of the Company, or to such other address as a Shareholder may from time
to time by notice provide. Notice shall be effective when actually received by
the party this Agreement designates for notice, if sent by any means that leaves
a hard-copy record in the hands of the recipient. If sent certified or
registered mail, postage prepaid, return receipt requested, notice shall be
deemed effective on the date the return receipt shows the notice was accepted,
refused, or returned undeliverable.
9.2 SEVERABILITY. Each clause of this Agreement is severable. If any
clause is ruled void or unenforceable, the balance of the Agreement shall
nonetheless remain in effect. Wherever there is any conflict between any
provision of this Agreement and any statute, law, regulation or judicial
precedent, the latter shall prevail, but in such event the provisions of this
Agreement thus affected shall be curtailed and limited only to the extent
necessary to bring it within the requirement of the law. If any part, section,
paragraph, or clause of this Agreement shall be held by a court of proper
jurisdiction to be indefinite, invalid or otherwise unenforceable, the entire
Agreement shall not fail on account thereof, but the balance of the Agreement
shall continue in full force and effect unless such construction would clearly
be contrary to the intentions of the parties or would result in an
unconscionable injustice.
9.3 NON-WAIVER. A waiver of one or more breaches of any clause of this
Agreement shall not act to waive any other breach, whether of the same or
different clauses.
9.4 ASSIGNMENT. This Agreement may not be assigned without the express
written consent of each party, which consent will not be unreasonably withheld.
9.5 GOVERNING LAW, JURISDICTION. This Agreement is made in and governed
by the laws of the state of Oregon. Any action brought between the parties may
be brought only in the state or federal courts located in Portland, Oregon, and
in no other place unless the parties expressly agree in writing to waive this
requirement. Each party consents to jurisdiction in that location. Each party
consents to service of process through the method prescribed for notice in this
Agreement.
9.6 ATTORNEYS' FEES. The prevailing party in any suit, action, or
arbitration filed or held concerning this Agreement shall be entitled to
reasonable attorneys' fees, both at trial and on any appeal.
Page 5 -- Shareholder Agreement
<PAGE>
9.7 HEADINGS. The section headings herein have been inserted for
convenience only and are not intended to restrict, construe, or modify in any
manner any of the terms and provisions hereof.
9.8 INTEGRATION. This Agreement is the complete Agreement between the
parties dealing with transferability of Shares as of the date hereof, and
supersedes all prior agreements, written or oral. It may be modified only in
writing signed by any affected Shareholder or successor in interest of a
Shareholder.
9.9 EFFECTIVE DATE, COUNTERPARTS. This Agreement is effective as of the
date shares are first issued by the Company, and is binding on each Shareholder
as that Shareholder obtains ownership in Shares. The Agreement may be executed
in counterparts.
CLAREMONT TECHNOLOGY GROUP, INC. SHAREHOLDER
By:
-------------------------------- ---------------------------------------
Print: Print:
----------------------------- ---------------------------------
Title: Date:
----------------------------- ----------------------------------
Date:
------------------------------
Page 6 -- Shareholder Agreement
<PAGE>
ATTACHMENT 1 TO EXHIBIT C
CONSENT OF SPOUSE
I, _______________, spouse of ______________________, acknowledge that
I have read the Shareholder Agreement dated ____________________, 19__, to which
this Consent is attached as Attachment 1 (the "Agreement") and that I know its
contents. I am aware that by its provisions the Company or its designee has the
option to purchase certain shares of Common Stock of the Company which my spouse
is acquiring pursuant to the Agreement ("Shares"), including any interest I
might have therein, in the event my spouse desires to sell the Shares and
certain other restrictions are imposed upon the sale or other disposition of the
Shares during my spouse's lifetime. I am also aware that the Company or its
designee has the right to purchase the Shares upon my spouse's termination of
employment with the Company.
I hereby agree that my interest, if any, in the Shares subject to the
Agreement, whether now owned or hereafter acquired, shall be irrevocably bound
by the Agreement and further understand and agree that any community property
interest I may have in the Shares shall be similarly bound by the Agreement.
I AM AWARE THAT THE LEGAL, FINANCIAL AND RELATED MATTERS CONTAINED IN
THE AGREEMENT ARE COMPLEX AND THAT I AM FREE TO SEEK INDEPENDENT PROFESSIONAL
GUIDANCE OR COUNSEL WITH RESPECT TO THIS CONSENT. I HAVE EITHER SOUGHT SUCH
GUIDANCE OR COUNSEL OR DETERMINED AFTER REVIEWING THE AGREEMENT CAREFULLY THAT I
WILL WAIVE SUCH RIGHT.
DATED the day of , 19 .
---- -------------------- ----
By:
------------------------------------
EXHIBIT A (TO SHAREHOLDER AGREEMENT)
<PAGE>
Exhibit 5.0
ATER WYNNE HEWITT DODSON & SKERRITT, LLP
222 S.W. COLUMBIA STREET
SUITE 1800
PORTLAND, OREGON 97201
May 24, 1996
Board of Directors
Claremont Technology Group, Inc.
1600 N.W. Compton Avenue
Suite 210
Beaverton, OR 97006
Gentlemen:
In connection with the public offering of 2,700,000 shares of common
stock, no par value (the "Common Stock"), of Claremont Technology Group,
Inc., an Oregon corporation (the "Company"), under the Registration Statement
on Form S-1, and the proposed sale of the Common Stock pursuant to the terms
of an underwriting agreement (the "Underwriting Agreement") to be entered
into by the Company, certain selling shareholders, Robertson, Stephens &
Company LLC, Donaldson, Lufkin & Jenrette Securities Corporation and J.P.
Morgan Securities, Inc. as representatives of the several underwriters, we
have examined such corporate records, certificates of public officials and
officers of the Company and other documents as we have considered necessary
or proper for the purpose of this opinion.
Based on the foregoing and having regard to legal issues which we deem
relevant, it is our opinion that the shares of Common Stock to be sold pursuant
to the Underwriting Agreement, when such shares have been delivered against
payment therefor as contemplated by the Underwriting Agreement, will be validly
issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the above-
mentioned Registration Statement and to the reference to this firm under the
caption "Legal Matters"
<PAGE>
Board of Directors
Claremont Technology Group, Inc.
May 22, 1996
Page 2
in the prospectus constituting a part of the Registration Statement. This
consent shall not be construed to cause this firm to be in the category of
persons whose consent is required to be filed pursuant to Section 7 of the
Securities Act of 1933, as amended, or the rules thereunder. This opinion has
been prepared solely for your use in connection with the Registration Statement
for the public offering, and should not be quoted in whole or in part or
otherwise be referred to, nor be relied upon by, nor be filed with or furnished
to any governmental agency or other person or entity, except as otherwise
provided in this paragraph, without the prior written consent of this firm.
Very truly yours,
ATER WYNNE HEWITT DODSON & SKERRITT, LLP
<PAGE>
Exhibit 10.1
INDEMNITY AGREEMENT
This Agreement is made as of May ___, 1996, by and between Claremont
Technology Group, Inc., an Oregon corporation (the "Corporation"), and
________________________ ("Indemnitee").
WHEREAS, it is essential to the Corporation to retain and attract as
directors and officers the most capable persons available; and
WHEREAS, the increase in corporate litigation subjects directors and
officers to expensive litigation risks at the same time that the availability
and coverage of directors' and officers' liability insurance has been reduced;
and
WHEREAS, it is now and has been the express policy of the Corporation
to indemnify its directors and officers so as to provide them with the maximum
possible protection permitted by law; and
WHEREAS, the articles of incorporation or bylaws of the Corporation
require indemnification of the officers and directors of the Corporation to the
fullest extent permitted by the Oregon Business Corporation Act (the "Act"); the
Act contemplates that contracts may be entered into between the Corporation and
members of the Board of Directors and officers with respect to indemnification
of directors and officers; and
WHEREAS, Indemnitee does not regard the protection available under the
Corporation's Second Restated Articles of Incorporation, Second Amended and
Restated Bylaws and insurance adequate in the present circumstances, and may not
be willing to serve as a director or officer without adequate protection, and
the Corporation desires Indemnitee to serve in such capacity.
NOW, THEREFORE, the Corporation and Indemnitee agree as follows:
1. AGREEMENT TO SERVE. Indemnitee agrees to serve or continue to serve
as a director or officer of the Corporation for so long as Indemnitee is duly
elected or appointed or until Indemnitee tenders a resignation in writing.
2. DEFINITIONS. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened, pending or
completed action, suit or proceeding, whether brought by or in the right of the
Corporation or otherwise and whether of a civil, criminal, administrative or
investigative nature, in which Indemnitee may be or may have been involved as a
party or otherwise by reason of the fact that Indemnitee is or was a director or
officer of the Corporation or is or was serving at the request of the
Corporation as
1 - INDEMNITY AGREEMENT
<PAGE>
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, whether or not serving in such
capacity at the time any liability or expense is incurred for which
indemnification or reimbursement can be provided under this Agreement.
(b) The term "Expenses" includes, without limitation, expense of
investigations, judicial or administrative proceedings or appeals, attorneys'
fees and disbursements and any expenses of establishing a right to
indemnification under Section 11 of this Agreement, but shall not include
amounts paid in settlement by Indemnitee or the amount of judgments or fines
against Indemnitee.
(c) References to "other enterprise" shall include employee benefit
plans; references to "fines" shall include any excise tax assessed with respect
to any employee benefit plan; references to "serving at the request of the
Corporation" shall include any service as a director, officer, employee or agent
of the Corporation which imposes duties on, or involves services by, such
director, officer, employee or agent with respect to an employee benefit plan,
its participants or beneficiaries; and a person who acted in good faith and in a
manner reasonably believed to be in the interest of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the Corporation" as referred to in this Agreement.
3. INDEMNITY IN THIRD-PARTY PROCEEDINGS. The Corporation shall indemnify
Indemnitee in accordance with the provisions of this Section 3 if Indemnitee is
a party to or threatened to be made a party to any Proceeding (other than a
Proceeding by or in the right of the Corporation to procure a judgment in its
favor) against all Expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred by Indemnitee in connection with such
Proceeding, but only if Indemnitee acted in good faith and in a manner which
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Corporation and, in the case of a criminal Proceeding, in addition, had no
reasonable cause to believe that Indemnitee's conduct was unlawful.
4. INDEMNITY IN PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify Indemnitee in accordance with the provisions of this
Section 4 if Indemnitee is a party to or threatened to be made a party to any
Proceeding by or in the right of the Corporation to procure a judgment in its
favor against all Expenses actually and reasonably incurred by Indemnitee in
connection with the defense or settlement of such Proceeding, but only if
Indemnitee acted in good faith and in a manner which Indemnitee reasonably
believed to be in or not opposed to the best interests of the Corporation,
except that no indemnification for Expenses shall be made under this Section 4
in respect of any claim, issue or matter as to which such person shall have been
finally adjudged by a court to be liable to the Corporation, unless and only to
the extent that any court in which such Proceeding was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, Indemnitee is fairly and reasonably entitled to
indemnity for such Expenses.
2 - INDEMNITY AGREEMENT
<PAGE>
5. INDEMNIFICATION OF EXPENSES OF SUCCESSFUL PARTY. Notwithstanding any
other provisions of this Agreement, to the extent that Indemnitee has been
successful, on the merits or otherwise, in defense of any Proceeding or in
defense of any claim, issue or matter therein, including the dismissal of an
action without prejudice, Indemnitee shall be indemnified against all Expenses
incurred in connection therewith.
6. ADDITIONAL INDEMNIFICATION.
(a) Notwithstanding any limitation in Sections 3, 4 or 5, the
Corporation shall indemnify Indemnitee to the fullest extent permitted by law if
Indemnitee is a party to or threatened to be made a party to any Proceeding
(including a Proceeding by or in the right of the Corporation to procure a
judgment in its favor) against all Expenses, judgments, fines and amounts paid
in settlement actually and reasonably incurred by Indemnitee in connection with
such Proceeding, provided that no indemnity shall be made under this
Section 6(a) on account of Indemnitee's conduct which constitutes a breach of
Indemnitee's duty of loyalty to the Corporation or its stockholders or is an act
or omission not in good faith or which involves intentional misconduct or a
knowing violation of the law.
(b) Notwithstanding any limitation in Sections 3, 4 or 5, the
Corporation shall indemnify Indemnitee to the fullest extent permitted by law if
Indemnitee is a party to or threatened to be made a party to any Proceeding
(including a Proceeding by or in the right of the Corporation to procure a
judgment in its favor) against all Expenses, judgments, fines and amounts paid
in settlement actually and reasonably incurred by Indemnitee in connection with
such Proceeding.
(c) For purposes of Sections 6(a) and Sections 6(b), the meaning of
the phrase "to the fullest extent permitted by law" shall include, but not be
limited to:
(i) to the fullest extent permitted by the provision of the Act
that authorizes or contemplates additional indemnification by agreement, or the
corresponding provision of any amendment to or replacement of the Act, and
(ii) to the fullest extent authorized or permitted by any
amendments to or replacements of the Act adopted after the date of this
Agreement that increase the extent to which a corporation may indemnify its
officers and directors.
7. EXCLUSIONS. Notwithstanding any provision in this Agreement, the
Corporation shall not be obligated under this Agreement to make any indemnity in
connection with any claim made against Indemnitee:
(a) for which payment has actually been made to or on behalf of
Indemnitee under any insurance policy or other indemnity provision, except with
respect to any excess beyond the amount paid under such insurance or other
indemnity provision;
3 - INDEMNITY AGREEMENT
<PAGE>
(b) for any transaction from which Indemnitee derived an improper
personal benefit;
(c) for an accounting of profits made from the purchase and sale by
Indemnitee of securities of the Corporation within the meaning of Section 16(b)
of the Securities Exchange Law of 1934 and amendments thereto or similar
provisions of any state statutory law or common law;
(d) if a court having jurisdiction in the matter shall finally
determine that such indemnification is not lawful under any applicable statute
or public policy (and, in this respect, both the Corporation and Indemnitee have
been advised that the Securities and Exchange Commission believes that
indemnification for liabilities arising under the federal securities laws is
against public policy and is, therefore, unenforceable and that claims for
indemnification should be submitted to appropriate courts for adjudication); or
(e) in connection with any Proceeding (or part thereof) initiated by
Indemnitee, or any Proceeding by Indemnitee against the Corporation or its
directors, officers, employees or other indemnitees, unless (i) such
indemnification is expressly required to be made by law, (ii) the Proceeding was
authorized by the Board of Directors of the Corporation, (iii) such
indemnification is provided by the Corporation, in its sole discretion, pursuant
to the powers vested in the Corporation under applicable law, or (iv) the
Proceeding is initiated pursuant to Section 11 hereof and Indemnitee is
successful in whole or in part in such Proceeding.
8. ADVANCES OF EXPENSES. The Expenses incurred by Indemnitee in any
Proceeding shall be paid by the Corporation in advance at the written request of
Indemnitee, if Indemnitee furnishes the Corporation a written undertaking to
repay such advance to the extent that it is ultimately determined by a court
that Indemnitee is not entitled to be indemnified by the Corporation. Such
advances shall be made without regard to Indemnitee's ability to repay such
expenses and without regard to Indemnitee's ultimate entitlement to
indemnification under the other provisions of this Agreement.
9. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days
after receipt by Indemnitee of notice of the commencement of any Proceeding,
Indemnitee will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; provided, however, that the omission to notify the Corporation will not
relieve the Corporation from any liability which it may have to Indemnitee
otherwise than under this Agreement. With respect to any such Proceeding as to
which Indemnitee notifies the Corporation of the commencement thereof:
(a) The Corporation will be entitled to participate therein at its
own expense.
(b) Except as otherwise provided below, the Corporation may, at its
option and jointly with any other indemnifying party similarly notified and
electing to assume such defense,
4 - INDEMNITY AGREEMENT
<PAGE>
assume the defense thereof, with legal counsel reasonably satisfactory to
Indemnitee. Indemnitee shall have the right to employ separate counsel in such
Proceeding, but the Corporation shall not be liable to Indemnitee under this
Agreement, including Section 8 hereof, for the fees and expenses of such counsel
incurred after notice from the Corporation of its assumption of the defense,
unless (i) Indemnitee reasonably concludes that there may be a conflict of
interest between the Corporation and Indemnitee in the conduct of the defense of
such Proceeding or (ii) the Corporation does not employ counsel to assume the
defense of such Proceeding. The Corporation shall not be entitled to assume the
defense of any Proceeding brought by or on behalf of the Corporation or as to
which Indemnitee shall have made the conclusion provided for in (i) above.
(c) If two or more persons who may be entitled to indemnification
from the Corporation, including the Indemnitee, are parties to any Proceeding,
the Corporation may require Indemnitee to engage the same legal counsel as the
other parties. Indemnitee shall have the right to employ separate legal counsel
in such Proceeding, but the Corporation shall not be liable to Indemnitee under
this Agreement, including Section 8 hereof, for the fees and expenses of such
counsel incurred after notice from the Corporation of the requirement to engage
the same counsel as other parties, unless the Indemnitee reasonably concludes
that there may be a conflict of interest between Indemnitee and any of the other
parties required by the Corporation to be represented by the same legal counsel.
(d) The Corporation shall not be liable to indemnify Indemnitee under
this Agreement for any amounts paid in settlement of any Proceeding effected
without its written consent, which shall not be unreasonably withheld. The
Corporation shall be permitted to settle any Proceeding the defense of which it
assumes, except the Corporation shall not settle any action or claim in any
manner which would impose any penalty or limitation on Indemnitee without
Indemnitee's written consent, which may be given or withheld in Indemnitee's
sole discretion.
10. PROCEDURE UPON APPLICATION FOR INDEMNIFICATION. Any indemnification
under Sections 3, 4, 5 or 6 of this Agreement shall be made no later than 90
days after receipt of the written request of Indemnitee for such indemnification
and shall not require that a determination be made in accordance with the Act by
the persons specified in the Act that indemnification is required under this
Agreement; provided, however, that, unless it is ordered by a court in an
enforcement action under Section 11 of this Agreement, no such indemnification
shall be made if a determination is made within such 90-day period (a) by a
majority vote of the directors who are not parties to such Proceeding, even
though less than a quorum, or (b) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (c)
by the stockholders, that the Indemnitee is not entitled to indemnification
under this Agreement.
11. ENFORCEMENT. Any right to indemnification or advances granted by this
Agreement to Indemnitee shall be enforceable by or on behalf of Indemnitee in
any court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim is
made within 90 days of a written request therefor. Indemnitee,
5 - INDEMNITY AGREEMENT
<PAGE>
in such enforcement action, if successful in whole or in part, shall be entitled
to be paid also the expense of prosecuting the claim. It shall be a defense to
any such enforcement action (other than an action brought to enforce a claim for
advancement of expenses pursuant to Section 8 hereof if the required affirmation
and undertaking have been tendered to the Corporation) that Indemnitee is not
entitled to indemnification under this Agreement, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors or its stockholders) to make a determination
prior to the commencement of such enforcement action that indemnification of
Indemnitee is proper in the circumstances, nor an actual determination by the
Corporation (including its Board of Directors or its stockholders) that such
indemnification is improper shall be a defense to the action or create a
presumption that Indemnitee is not entitled to indemnification under this
Agreement or otherwise. The termination of any Proceeding by judgment, order of
court, settlement, conviction or upon a plea of nolo contendere, or its
equivalent, shall not, of itself, create a presumption that Indemnitee is not
entitled to indemnification under this Agreement or otherwise.
12. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provisions of this Agreement to indemnification by the Corporation for some or a
portion of the Expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred by Indemnitee in the investigation, defense,
appeal or settlement of any Proceeding but not, however, for the total amount
thereof, the Corporation shall indemnify Indemnitee for the portion of such
Expenses, judgments, fines and amounts paid in settlement to which Indemnitee is
entitled.
13. NON-EXCLUSIVITY AND CONTINUITY OF RIGHTS. The indemnification
provided by this Agreement shall not be deemed exclusive of any other rights to
which Indemnitee may be entitled under the Second Restated Articles of
Incorporation, the Second Amended and Restated Bylaws, any other agreement, any
vote of stockholders or directors, the Act, or otherwise, both as to action in
Indemnitee's official capacity and as to action in another capacity while
holding such office. The indemnification under this Agreement shall continue as
to Indemnitee even though Indemnitee ceases to be a director or officer and
shall inure to the benefit of the heirs and personal representatives of
Indemnitee.
14. SEVERABILITY. If this Agreement or any portion thereof is invalidated
on any ground by any court of competent jurisdiction, the Corporation shall
indemnify Indemnitee as to Expenses, judgments, fines and amounts paid in
settlement with respect to any Proceeding to the full extent permitted by any
applicable portion of this Agreement that is not invalidated or by any other
applicable law.
15. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents required and
shall do all acts necessary to secure such rights and to enable the Corporation
effectively to bring suit to enforce such rights.
6 - INDEMNITY AGREEMENT
<PAGE>
16. MODIFICATION AND WAIVER. No supplement, modification 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
constitute a waiver of any other provisions hereof (whether or not similar) nor
shall such waiver constitute a continuing waiver.
17. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i) if
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, at the time of such delivery, or (ii) if
mailed by certified or registered mail, return receipt requested, with postage
prepaid, upon deposit into the United States mail:
(a) If to Indemnitee, at the address indicated on the signature page
hereof.
(b) If to the Corporation, to: Claremont Technology Group, Inc.
1600 N. W. Compton Drive, Suite 210
Beaverton, OR 97006
Attn: President
or to such other address as may have been furnished to Indemnitee by the
Corporation.
18. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall constitute the original.
19. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the law of the State of Oregon.
20. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Corporation and its successors and assigns.
7 - INDEMNITY AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be
duly executed and signed as of the day and year first above written.
CLAREMONT TECHNOLOGY GROUP, INC.
By:_____________________________
Title:__________________________
INDEMNITEE
________________________________
________________________________
(Print Name)
Address:________________________
________________________________
8 - INDEMNITY AGREEMENT
<PAGE>
Exhibit 10.2
CLAREMONT TECHNOLOGY GROUP, INC.
1992 STOCK INCENTIVE PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Incentive Plan are
to attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees and Consultants
of the Company and to promote the success of the Company's business.
Options granted hereunder may be either "incentive stock options," as
defined in Section 422 of the Internal Revenue Code of 1986, as amended, or
"nonqualified stock options," at the discretion of the Board and as reflected in
the terms of the written option agreement. In addition, shares of the Company's
Common Stock may be Sold hereunder independent of any Option grant.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "BOARD" shall mean the Committee, if one has been appointed, or
the Board of Directors of the Company, if no Committee is appointed.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" shall mean the Common Stock of the Company.
(d) "COMPANY" shall mean Claremont Technology Group, Inc., an Oregon
corporation.
(e) "COMMITTEE" shall mean the Committee appointed by the Board of
Directors in accordance with Section 4.(a) of the Plan, if one is appointed.
(f) "CONSULTANT" shall mean any person (other than an Employee as
defined in Section 2.(h)) who is engaged by the Company or any Subsidiary to
render consulting services and is compensated for such consulting services and
any director of the Company whether compensated for such services or not.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" shall mean the
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of sick leave, military leave, or any other
leave of absence approved by the Board; provided that such leave is for a period
of not more than ninety days or reemployment upon the expiration of such leave
is guaranteed by contract or statute.
(h) "EMPLOYEE" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(i) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
1 - STOCK INCENTIVE PLAN
<PAGE>
(j) "INCENTIVE STOCK OPTION" shall mean an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.
(k) "NONQUALIFIED STOCK OPTION" shall mean an Option not intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(l) "OPTION" shall mean a stock option granted pursuant to the Plan.
(m) "OPTIONED STOCK" shall mean the Common Stock subject to an
Option.
(n) "OPTIONEE" shall mean an Employee or Consultant who receives an
Option.
(o) "PARENT" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424 of the Code.
(p) "PLAN" shall mean this Stock Incentive Plan.
(q) "SALE" or "SOLD" shall include, with respect to the sale of
Shares under the Plan, the sale of Shares for consideration in the form of cash
or notes, as well as a grant of Shares without consideration, except past or
future services.
(r) "SHARE" shall mean a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(s) "SUBSIDIARY" shall mean a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424 of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11 of
the Plan, the maximum aggregate number of Shares which may be optioned and/or
Sold under the Plan is 2,500,000 shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares which were subject thereto
shall, unless the Plan shall have been terminated, become available for future
Option grants and/or Sales under the Plan. If Shares Sold under the Plan or
purchased upon the exercise of an Option are repurchased by the Company pursuant
to restrictions applicable to such Shares, the number of Shares repurchased
shall, unless the Plan shall have been terminated, become available for future
Option grants and/or Sales under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE. The Plan shall be administered by the Board of
Directors of the Company.
(i) Subject to subparagraph 4.(a)(ii), the Board of Directors
may appoint a Committee consisting of not less than two (2) members of the Board
of Directors to administer the Plan on behalf of the Board of Directors, subject
to such terms and conditions as the Board of Directors may prescribe. Once
appointed, the Committee shall continue to serve until otherwise
2 - STOCK INCENTIVE PLAN
<PAGE>
directed by the Board of Directors. From time to time the Board of Directors
may increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies however caused, or remove all members of the Committee
and thereafter directly administer the Plan.
Members of the Board who are either eligible for Options and/or Sales or
have been granted Options or Sold Shares may vote on any matters affecting the
administration of the Plan or the grant of any Options or Sale of any Shares
pursuant to the Plan, except that no such member shall act upon the granting of
an Option or Sale of Shares to himself, but any such member may be counted in
determining the existence of a quorum at any meeting of the Board during which
action is taken with respect to the granting of Options or Sale of Shares to
him.
(ii) Notwithstanding the foregoing subparagraph 4.(a)(i), if
and in any event the Company registers any class of any equity security pursuant
to Section 12 of the Securities Exchange Act of 1934, from the effective date of
such registration until six (6) months after the termination of such
registration, any grants of Options to officers or directors shall only be made
by the Board if each member of the Board is a disinterested person, or if every
member of the Board is not a disinterested person, by a committee of two or more
directors, each of whom is a disinterested person. A "disinterested person" is
a director who has not, during the one year period prior to service as an
administrator of the Plan, or during such service, been granted or awarded
equity securities pursuant to the Plan or any other plan of the Company or any
of its affiliates, with these qualifications:
(A) participation in a formula plan meeting the
conditions in paragraph (c)(2)(ii) of SEC Rule 16b-3 shall not
disqualify a director from being a disinterested person;
(B) participation in an ongoing securities acquisition
plan meeting the conditions in paragraph (d)(2)(i) of SEC Rule 16b-3
shall not disqualify a director from being a disinterested person;
(C) an election to receive an annual retainer fee in either
cash or an equivalent amount of securities, or partly in cash and partly in
securities, shall not disqualify a director from being a disinterested
person; and
(D) participation in a plan shall not disqualify a
director from being a disinterested person for the purpose of
administering another plan that does not permit participation by
directors.
(b) POWERS OF THE BOARD. Subject to the provisions of the Plan, the
Board shall have the authority, in its discretion: (i) to grant Incentive Stock
Options in accordance with Section 422 of the Code, or Nonqualified Stock
Options; (ii) to authorize Sales of Shares of Common Stock hereunder; (iii) to
determine, upon review of relevant information and in accordance with
Section 8.(b) of the Plan, the fair market value of the Common Stock; (iv) to
determine the exercise/purchase price per Share of Options to be granted or
Shares to be Sold, which exercise/purchase price shall be determined in
accordance with Section 8.(a) of the Plan; (v) to determine the Employees or
Consultants to whom, and the time or times at which, Options shall be granted
and the number of Shares to be represented by each Option; (vi) to determine the
Employees or Consultants to whom, and the time or times at which, Shares shall
be Sold and the number of
3 - STOCK INCENTIVE PLAN
<PAGE>
Shares to be Sold; (vii) to interpret the Plan; (viii) to prescribe, amend and
rescind rules and regulations relating to the Plan; (ix) to determine the terms
and provisions of each Option granted (which need not be identical) and, with
the consent of the holder thereof, modify or amend each Option; (x) to determine
the terms and provisions of each Sale of Shares (which need not be identical)
and, with the consent of the purchaser thereof, modify or amend each Sale;
(xi) to accelerate or defer (with the consent of the Optionee) the exercise date
of any Option, consistent with the provisions of Section 9 of the Plan; (xii) to
accelerate or defer (with the consent of the Optionee or purchaser of Shares)
the vesting restrictions applicable to Shares Sold under the Plan or pursuant to
Options granted under the Plan; (xiii) to authorize any person to execute on
behalf of the Company any instrument required to effectuate the grant of an
Option or Sale of Shares previously granted or authorized by the Board; (xiv) to
determine the restrictions on transfer, vesting restrictions, repurchase rights,
or other restrictions applicable to Shares issued under the Plan; (xv) to
effect, at any time and from time to time, with the consent of the affected
Optionees, the cancellation of any or all outstanding Options under the Plan and
to grant in substitution therefor new Options under the Plan covering the same
or different numbers of Shares, but having an Option price per Share consistent
with the provisions of Section 8 of this Plan as of the date of the new Option
grant; and (xvi) to make all other determinations deemed necessary or advisable
for the administration of the Plan.
(c) EFFECT OF BOARD'S DECISION. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan or Shares Sold under the
Plan.
5. ELIGIBILITY.
(a) PERSONS ELIGIBLE. Options may be granted and/or Shares Sold only
to Employees and Consultants. Incentive Stock Options may be granted only to
Employees. An Employee or Consultant who has been granted an Option or Sold
Shares may, if he is otherwise eligible, be granted an additional Option or
Options or Sold additional Shares.
(b) ISO LIMITATION. No Incentive Stock Option may be granted to an
Employee which, when aggregated with all other Incentive Stock Options granted
to such Employee by the Company or any Parent or Subsidiary, would result in
Shares having an aggregate fair market value (determined for each Share as of
the date of grant of the Option covering such Share) in excess of $100,000
becoming first available for purchase upon exercise of one or more Incentive
Stock Options during any calendar year.
(c) SECTION 5.(b) LIMITATIONS. Section 5.(b) of the Plan shall apply
only to an Incentive Stock Option evidenced by an "Incentive Stock Option
Agreement" which sets forth the intention of the Company and the Optionee that
such Option shall qualify as an Incentive Stock Option. Section 5.(b) of the
Plan shall not apply to any Option evidenced by a "Nonqualified Stock Option
Agreement" which sets forth the intention of the Company and the Optionee that
such Option shall be a Nonqualified Stock Option.
(d) NO RIGHT TO CONTINUED EMPLOYMENT. The Plan shall not confer upon
any Optionee any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with his right
or the Company's right to terminate his employment or consulting relationship at
any time.
4 - STOCK INCENTIVE PLAN
<PAGE>
6. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company as described in Section 17 of the Plan. It shall
continue in effect for a term of ten (10) years, unless sooner terminated under
Section 13 of the Plan.
7. TERM OF OPTION. The term of each Incentive Stock Option shall be ten
(10) years from the date of grant thereof or such shorter term as may be
provided in the Stock Option Agreement. The term of each Nonqualified Stock
Option shall be ten (10) years and one (1) day from the date of grant thereof or
such other term as may be provided in the Stock Option Agreement. However, in
the case of an Incentive Stock Option granted to an Optionee who, at the time
the Incentive Stock Option is granted, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5)
years from the date of grant thereof or such shorter time as may be provided in
the Incentive Stock Option Agreement.
8. EXERCISE/PURCHASE PRICE AND CONSIDERATION.
(a) EXERCISE/PURCHASE PRICE. The per-Share exercise/purchase price
for the Shares to be issued pursuant to exercise of an Option or a Sale (other
than a Sale which is a grant for which no purchase price is payable) shall be
such price as is determined by the Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the
grant of such Incentive Stock Option, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than one
hundred ten percent (110%) of the fair market value per Share on the date of the
grant.
(B) granted to any other Employee, the per Share
exercise price shall be no less than one hundred percent (100%) of the fair
market value per Share on the date of grant.
(ii) In the case of a Nonqualified Stock Option or Sale granted
or Sold to any person, the per Share exercise/purchase price shall be no less
than eighty-five percent (85%) of the fair market value per Share on the date of
grant or authorization of Sale, unless otherwise expressly determined by the
Board of Directors. Any determination to sell stock at less than fair market
value on the date of the grant or authorization of Sale shall be accompanied by
an express finding by the Board of Directors specifying that the sale is in the
best interest of the Company, and specifying both the fair market value and the
grant or sale price of the stock.
(iii) In the case of an Option granted or Sale authorized on or
after the effective date of registration of any class of equity security of the
Company pursuant to Section 12 of the Exchange Act and prior to six (6) months
after the termination of such registration, the per Share exercise/purchase
price shall be no less than one hundred percent (100%) of the fair market value
per Share on the date of grant or authorization of Sale.
5 - STOCK INCENTIVE PLAN
<PAGE>
(b) FAIR MARKET VALUE. The fair market value per Share shall be
determined by the Board in its discretion; provided, however, that where there
is a public market for the Common Stock, the fair market value per Share shall
be the closing price of the Common Stock for the date of grant or authorization
of Sale, as reported in THE WALL STREET JOURNAL (or, if not so reported, as
otherwise reported by the National Association of Securities Dealers Automated
Quotation (NASDAQ) System) or, in the event the Common Stock is listed on a
stock exchange the fair market value per Share shall be the closing price on
such exchange on the date of grant of the Option or authorization of Sale, as
reported in THE WALL STREET JOURNAL.
(c) CONSIDERATION. The consideration to be paid for the Shares to be
issued upon exercise of an Option or pursuant to a Sale, including the method of
payment, shall be determined by the Board and may consist entirely of cash,
check, promissory note, other Shares of Common Stock having a fair market value
on the date of surrender equal to the aggregate exercise/purchase price of the
Shares as to which said option shall be exercised or Sale consummated, or any
combination of such methods of payment for the issuance of Shares.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8.(c) of the Plan.
Each Optionee who exercises an Option shall, upon notification of the amount due
(if any) and prior to or concurrent with delivery of the certificate
representing the Shares, pay to the Company amounts necessary to satisfy
applicable federal, state and local tax withholding requirements. An Optionee
must also provide a duly executed copy of any stock transfer agreement then in
effect and determined to be applicable by the Board. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the stock certificate is
issued, except as provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF STATUS AS AN EMPLOYEE OR CONSULTANT. If an
Employee or Consultant ceases to serve as an Employee or Consultant (as the case
may be), he may, but only within three (3) months (or with respect to
Nonqualified Stock Options, such other period of time not exceeding the
limitations of Section 7 above as is determined by the Board at the time of
grant
6 - STOCK INCENTIVE PLAN
<PAGE>
of the Nonqualified Stock Option) after the date he ceases to be an Employee or
Consultant (as the case may be) of the Company, exercise his Option to the
extent that he was entitled to exercise it at the date of such termination. To
the extent that he was not entitled to exercise the Option at the date of such
termination, or if he does not exercise such Option (which he was entitled to
exercise) within the time specified herein, the Option shall terminate.
(c) DISABILITY OF OPTIONEE. Notwithstanding the provisions of
Section 9.(b) above, in the event an Employee or Consultant is unable to
continue his employment or consulting relationship (as the case may be) with the
Company as a result of his total and permanent disability (as defined in
Section 22(e)(3) of the Code), he may, but only within twelve (12) months (or
with respect to Nonqualified Stock Options, such other period of time not
exceeding the limitations of Section 7 above as is determined by the Board at
the time of grant of the Nonqualified Stock Option) from the date of
termination, exercise his Option to the extent he was entitled to exercise it at
the date of such termination. To the extent that he was not entitled to
exercise the Option at the date of termination, or if he does not exercise such
Option (which he was entitled to exercise) within the time specified herein, the
Option shall terminate.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee
during the term of the Option who is at the time of his death an Employee or
Consultant of the Company and who shall have been in Continuous Status as an
Employee or Consultant since the date of grant of the Option, the Option may be
exercised, at any time within twelve (12) months (or such other period of time
not exceeding the limitations of Section 7 above as is determined by the Board
at the time of grant of the Option) following the date of death, by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise as of
the date of death.
10. NONTRANSFERABILITY OF OPTIONS. An Option may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised during the
lifetime of the Optionee only by the Optionee.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to any
required action by the stockholders of the Company, the number of shares of
Common Stock covered by each outstanding Option and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or Sales made or which have been returned
to the Plan upon cancellation or expiration of an Option, as well as the price
per share of Common Stock covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
Option.
In the event of the proposed dissolution or liquidation of the Company, the
Option will terminate immediately prior to the consummation of such proposed
action, unless otherwise provided
7 - STOCK INCENTIVE PLAN
<PAGE>
by the Board. The Board may, in the exercise of its sole discretion in such
instances, declare that any Option shall terminate as of a date fixed by the
Board and give each Optionee the right to exercise his Option as to all or any
part of the Optioned Stock, including Shares as to which the Option would not
otherwise be exercisable. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, the Option shall be assumed or an equivalent
option shall be substituted by such successor corporation or a parent or
subsidiary of such successor corporation, unless the Board determines, in the
exercise of its sole discretion and in lieu of such assumption or substitution,
that the Optionee shall have the right to exercise the Option as to all of the
Optioned Stock, including Shares as to which the Option would not otherwise be
exercisable. If the Board makes an Option fully exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the Board
shall notify the Optionee that the Option shall be fully exercisable for a
period of thirty (30) days from the date of such notice or such shorter period
as the Board may specify in the notice, and the Option will terminate upon the
expiration of such period.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date on which the Board makes the determination granting
such Option. Notice of the determination shall be given to each Employee or
Consultant to whom an Option is so granted within a reasonable time after the
date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may amend or terminate the
Plan from time to time in such respects as the Board may deem advisable;
provided, however, that if required to qualify the Plan under Rule 16b-3
promulgated under Section 16 of the Securities Exchange Act of 1934, as amended,
no amendment shall be made more than once every six months that would change the
amount, price or timing of the option grants, other than to comport with changes
in the Internal Revenue Code of 1986, as amended, or the rules and regulations
promulgated thereunder; and provided, further, that, if required to qualify the
Plan under rule 16b-3, no amendment shall be made without the approval of the
stockholders of the Company in the manner described in Section 17 of the Plan if
the amendment would:
(i) increase the number of Shares subject to the Plan, other
than in connection with an adjustment under Section 11 of the Plan;
(ii) make a change in the designation of the class of Employees
or Consultants eligible to be granted Options; or
(iii) if the Company has a class of equity security registered
under Section 12 of the Exchange Act at the time of such revision or amendment,
cause any material increase in the benefits accruing to participants under the
Plan.
(b) STOCKHOLDER APPROVAL. If any amendment requiring stockholder
approval under Section 13.(a) of the Plan is made subsequent to the first
registration of any class of equity security by the Company under Section 12 of
the Exchange Act, such stockholder approval shall be solicited as described in
Section 17.(a) of the Plan.
(c) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted, and such
Options shall remain in full force and
8 - STOCK INCENTIVE PLAN
<PAGE>
effect as if this Plan had not been amended or terminated, unless mutually
agreed otherwise between the Optionee and the Board, which agreement must be in
writing and signed by the Optionee and the Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option or a Sale unless the exercise of such
Option or consummation of the Sale and the issuance and delivery of such Shares
pursuant thereto shall comply with all relevant provisions of law, including,
without limitation, the Securities Act of 1933, as amended, applicable state
securities laws, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange (including NASDAQ) upon
which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option or a Sale, the Company may
require the person exercising such Option or to whom Shares are being Sold to
represent and warrant at the time of any such exercise or Sale that the Shares
are being purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required by any of the aforementioned relevant
provisions of law.
15. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
16. OPTION AGREEMENT. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
17. STOCKHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the stockholders of the Company within twelve months before or after
the date the Plan is adopted. If such stockholder approval is obtained at a
duly held stockholders' meeting, it may be obtained by the affirmative vote of
the holders of a majority of the outstanding shares of the Company, such holders
being present or represented and entitled to vote thereon. If and in the event
that the Company registers any class of any equity security pursuant to
Section 12 of the Exchange Act, the approval of such stockholders of the Company
shall be:
(a) SOLICITATION.
(i) solicited substantially in accordance with Section 14(a)
of the Exchange Act and the rules and regulations promulgated thereunder, or
(ii) solicited after the Company has furnished in writing to
the holders entitled to vote substantially the same information concerning the
Plan as that which would be required by the rules and regulations in effect
under Section 14(a) of the Exchange Act at the time such information is
furnished; and
9 - STOCK INCENTIVE PLAN
<PAGE>
(b) TIME. Obtained at or prior to the first annual meeting of
stockholders held subsequent to the first registration of any class of equity
securities of the Company under Section 12 of the Exchange Act.
If such stockholder approval is obtained by written consent, it must
be obtained by the written consent of stockholders of the Company in compliance
with the requirements of applicable state law.
18. Six Month Holding Period for Affiliates. If the Company registers any
class of any equity security pursuant to Section 12 of the Exchange Act, then
from the effective date of such registration until six (6) months after the
termination of such registration (the Public Period), these limits will apply to
each officer, director and beneficial owner of ten percent (10%) or more of any
class of equity securities of the Company (Affiliates.) During the Public
Period, any Affiliate shall hold Shares Sold hereunder at least six months from
the date of Sale. During the Public Period, at least six months must elapse
from the date of grant of an Option to an Affiliate to the date the Affiliate
disposes of the Shares acquired upon exercise of the Option, or (if the Option
is disposed of other than by exercise) to the date of disposition of the Option
itself.
10 - STOCK INCENTIVE PLAN
<PAGE>
Exhibit 10.3
CLAREMONT TECHNOLOGY GROUP, INC.
INCENTIVE STOCK OPTION GRANT AGREEMENT
#-----
-----
Given to: ("Optionee") Date given: ("Date of Grant")
Total Shares: ("Shares") Price Per Share: $ ("Price per Share")
Vesting Starts: Options Expire: ("Expiration Date")
EXERCISE SCHEDULE:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Date Options Become Exercisable Number of Shares
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
On the last day of each month thereafter,
for a total of 49 additional months
- --------------------------------------------------------------------------------
TOTAL SHARES:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Claremont Technology Group, Inc., an Oregon corporation (the "Company"),
hereby grants to Optionee an option (the "Option") to purchase the Shares at the
Exercise Price. The Option is exercisable in accord with the Terms and
Conditions of Option Grant attached as Exhibit A, in increments that become
exercisable as shown on the Exercise Table above. The Option is subject to the
terms, definitions and provisions of the Company's 1992 Stock Incentive Plan
(the "Plan"), attached as Exhibit B.
This Option is intended to grant INCENTIVE Stock Options. Exhibit A
describes some possible tax consequences of that status.
Optionee acknowledges receiving and reviewing this document and its
exhibits before signing. Optionee accepts the grant. Optionee accepts the
Terms and Conditions of Option Grant, and the Shareholder Agreement attached as
Exhibit C. Optionee agrees to accept as binding, conclusive and final all
decisions or interpretations of the Board of Directors of the Company upon any
questions arising under the Plan.
CLAREMONT TECHNOLOGY GROUP, INC. OPTIONEE
By: Sign:
-------------------------------- ----------------------------------
Print: Home address:
----------------------------- --------------------------
Title: ---------------------------------------
-----------------------------
Date: Social Security No.:
------------------------------ -------------------
Date:
----------------------------------
EXHIBITS:
A: Terms and Conditions of Grant
B: Claremont Technology Group, Inc. 1992 Stock Incentive Plan
C: Shareholder Agreement
D: Stock Option Exercise Form
Page 1 - INCENTIVE STOCK OPTION GRANT AGREEMENT
<PAGE>
EXHIBIT A
CLAREMONT TECHNOLOGY GROUP, INC.
STOCK OPTION AGREEMENT
TERMS AND CONDITIONS
1. NATURE OF THE OPTION. The Option to which these terms and conditions
are Exhibit A may be either an "INCENTIVE" or a "NONQUALIFIED" option, as the
option agreement itself defines. If it is an "INCENTIVE" stock option, then it
is a intended to qualify as an Incentive Stock Option as defined in Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"). If it is a
"NONQUALIFIED" stock option, then it is NOT intended to qualify as an Incentive
Stock Option as so defined.
2. EXERCISE PRICE. The Exercise Price is not less than the fair market
value per share of Common Stock on the date of grant, as determined by the Board
of Directors of the Company.
3. EXERCISE OF OPTION. This Option shall be exercisable during its term
in accordance with the provisions of Section 9 of the Plan as follows:
3.1 RIGHT TO EXERCISE.
3.1.1 Subject to subsections 3.1.2 and 3.1.3 below, this Option
shall be exercisable in accordance with the exercise schedule in the Grant
Agreement (the "Exercise Schedule"). The Shares issued shall be subject to
the terms of the Shareholder Agreement attached hereto as Exhibit B (the
"Shareholder Agreement"). If asked, the Optionee will execute a copy of
the Shareholder Agreement at the time of exercise. Optionee acknowledges
that the restrictions set forth in the Shareholder Agreement (Exhibit B)
shall be binding upon the Optionee whether or not the Optionee executes a
copy of it.
3.1.2 This Option may not be exercised for a fraction of a Share.
3.1.3 In the event of the Optionee's death, disability or other
termination of employment, the exercisability of this Option is governed by
Sections 6, 7, and 8 below.
3.2 METHOD OF EXERCISE. This Option shall be exercisable by written
notice in the form attached hereto as Exhibit C, as amended from time to time.
Such written notice shall be signed by the Optionee and shall be delivered in
person or by certified mail to the President, Secretary or Chief Financial
Officer of the Company. The written notice shall be accompanied by payment of
the Exercise Price. The Exercise Price must be paid in cash or, with the
consent of the Board, by other methods of payment authorized by Section 8 of the
Plan. The Optionee must also deliver a duly executed copy of the Shareholder
Agreement. This Option shall be deemed to be exercised upon receipt by the
Company of such written notice accompanied by the Exercise Price and an executed
copy of the Shareholder Agreement.
No Shares will be issued pursuant to the exercise of an Option unless such
issuance and such exercise shall comply with all relevant provisions of law and
the requirements of any stock exchange (including NASDAQ) upon which the Shares
may then be listed. Assuming such compliance, the
<PAGE>
Shares shall be considered transferred to the Optionee on the date on which the
Option is exercised with respect to such Shares.
4. THE OPTIONEE'S REPRESENTATIONS. By receipt of this Option, by its
execution and by its exercise in whole or in part, the Optionee represents to
the Company that the Optionee understands that:
4.1 both this Option and any Shares purchased upon its exercise are
securities, the issuance by the Company of which requires compliance with
federal and state securities laws;
4.2 these securities are made available to the Optionee only on the
condition that the Optionee makes the representations contained in this
Section 4 to the Company;
4.3 the Optionee has made a reasonable investigation of the affairs of the
Company sufficient to be well informed as to the rights and the value of these
securities;
4.4 the Optionee understands that the securities have not been registered
under the Securities Act of 1933 (the "Act") in reliance upon a specific
exemption contained in that Act which depends upon the Optionee's bona fide
investment intention in acquiring these securities; that the Optionee's
intention is to hold these securities for the Optionee's own benefit for an
indefinite period; that the Optionee has no present intention of selling or
transferring any part thereof (recognizing that the Option is not transferable)
and that there may be certain restrictions on transfer of the Shares subject to
the Option;
4.5 the Optionee understands that the Shares subject to the Option, in
addition to other restrictions on transfer, must be held indefinitely unless
subsequently registered under the Act, or unless an exemption from registration
is available; that Rule 144, the usual exemption from registration, is only
available after the satisfaction of certain conditions, including a required
holding period; and that otherwise it will be necessary that the Shares be sold
pursuant to another exemption from registration which may be difficult to
satisfy;
4.6 the Optionee understands that if the Company registers any class of
any equity security pursuant to Section 12 of the Securities Exchange Act of
1934, and if the Optionee is then an officer, director, or beneficial owner of
ten percent (10%) or more of any class of equity securities of the Company, then
from the effective date of such registration until six (6) months after the
termination of such registration, at least six months must elapse from the date
of grant of the Option to the date of disposition of the Shares acquired upon
exercise of the Option, or (if the Option is disposed of other than by exercise)
to the date of disposition of the Option itself; and
4.7 the Optionee understands that the certificate representing the Shares
will bear a legend prohibiting their transfer in the absence of their
registration or an opinion of counsel acceptable to counsel for the Company that
registration is not required.
5. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the issuance
of such Shares upon such exercise or the method of payment of consideration for
such Shares would constitute a violation of any applicable federal or state
securities or other law or regulation. As a condition to the exercise of this
Option, the Company may require the Optionee to make any representation and
warranty to the Company as may be required by any applicable law or regulation.
In particular, and without limitation, this Option may not be exercised unless:
(1)(i) a registration statement under the
2 - TERMS AND CONDITIONS OF STOCK OPTION GRANT
<PAGE>
Act and any applicable state law, shall at the time of exercise of the Option be
in effect with respect to the Shares issuable upon exercise of the Option, or
(ii) in the opinion of legal counsel to the Company, the Shares issuable upon
exercise of the Option may be issued in accordance with the terms of an
applicable exemption from the registration requirements of the Securities Act;
and (2) if the Optionee is a resident of Ohio, then (i) the Common Stock into
which the Option is exercisable is a security exempt from registration under the
Ohio Securities Law, (ii) is the subject matter of a transaction exempt from
registration, (iii) is registered by description, by coordination or by
qualification or (iv) at such time is the subject matter of a transaction which
has been registered by description.
6. TERMINATION OF STATUS AS AN EMPLOYEE. If the Optionee is an Employee and
ceases to serve as an Employee, then the Optionee may, but only within 3 months
after the date the Optionee ceases to be an Employee, exercise this Option to
the extent that the Optionee was entitled to exercise it at the date of such
termination pursuant to the Exercise Schedule. To the extent that the Optionee
was not entitled to exercise this Option at the date of such termination, or if
the Optionee does not exercise this Option within the time specified herein,
this Option shall terminate.
7. DISABILITY OF THE OPTIONEE. Notwithstanding the provisions of Section 6
above, if the Optionee is unable to continue the Optionee's employment with the
Company as a result of the Optionee's permanent and total disability (as defined
in Section 22(e)(3) of the Code), the Optionee may, but only within 12 months
from the date of termination of employment, exercise this Option to the extent
the Optionee was entitled to exercise it at the date of such termination
pursuant to the Exercise Schedule. To the extent that the Optionee was not
entitled to exercise this Option at the date of termination, or if the Optionee
does not exercise such Option (which the Optionee was entitled to exercise)
within the time specified herein, this Option shall terminate.
8. DEATH OF THE OPTIONEE. If the Optionee dies during the term of this Option
and while an Employee of the Company and having been in continuous status as an
Employee since the date of grant of this Option, this Option may be exercised,
at any time within 12 months following the date of death, by the Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent Optionee was entitled to exercise it at
the date of Optionee's death pursuant to the Exercise Schedule.
9. NONTRANSFERABILITY OF OPTION. This Option may not be transferred in any
manner otherwise than by will or by the laws of descent or distribution. This
Option may be exercised only by the Optionee, except as allowed by the Plan or
as elsewhere permitted in this Agreement. The terms of this Option shall be
binding upon the executors, administrators, heirs, successors and assigns of the
Optionee.
10. TERM OF OPTION. This Option may be exercised only before the Expiration
Date, and may be exercised up until that date only in accordance with the Plan
and the terms of this Option.
11. EARLY DISPOSITION OF STOCK. If this is a Qualified Option (see Section 1)
Optionee understands that if the Optionee disposes of any Shares received under
this Option within two years after the date of this Agreement or within one year
after such Shares were transferred to Optionee, the Optionee will be treated for
federal income tax purposes as having received ordinary income at the time of
such disposition in an amount generally measured by the difference between the
exercise price and the lower of the fair market value of the Shares at the date
of the exercise or the fair market value of the Shares at the date of
disposition. Optionee understands that if the Optionee disposes of such
3 - TERMS AND CONDITIONS OF STOCK OPTION GRANT
<PAGE>
Shares at any time after the expiration of such two-year and one-year holding
periods, any gain on such sale will be taxed as long-term capital gain.
12. TAXATION UPON EXERCISE OF OPTION. If this is a Nonqualified Option (see
Section 1), or if it becomes a non-qualified option before exercise, the
Optionee understands that, upon exercise of this Option, Optionee will recognize
income for tax purposes in an amount equal to the excess of the then fair market
value of the Shares over the exercise price. The Company will be required to
withhold tax from the Optionee's current compensation with respect to such
income. To the extent that the Optionee's current compensation is insufficient
to satisfy the withholding tax liability, the Company may require the Optionee
to make a cash payment to cover such liability as a condition of exercise of
this Option. Upon a resale of such shares by the Optionee, any difference
between the sale price and the fair market value of the Shares on the date of
exercise of the Option will be treated as capital gain or loss.
13. ACKNOWLEDGEMENT. The Optionee acknowledges that the Company has no
additional obligation to issue or sell securities to the Optionee.
14. PROPRIETARY INFORMATION. Optionee acknowledges that the Company may provide
Optionee, from time to time, with Proprietary Information (as that term is
defined below). Optionee acknowledges that Proprietary Information is a
special, valuable and unique asset of the Company and, without limiting the
scope of Optionee's rights to review records of the Company pursuant to
shareholders' rights under applicable statutes, Optionee agrees at all times
during the period the Company and Optionee maintain a shareholder relationship
and for three years thereafter, to keep in confidence and trust all Proprietary
Information.
Optionee will not directly or indirectly use Proprietary Information.
Optionee will not directly or indirectly disclose any Proprietary Information or
anything related thereto to any person or entity, including any other
shareholder of the Company, except as may be required by law or as necessary in
order to exercise your rights hereunder or for other proper shareholder
purposes.
Proprietary Information includes, whether marked "confidential" or
otherwise, without limitation, all correspondence by the Company with Optionee,
documents, corporate records (including minutes and stock records), employee
lists, financial statements, trade secrets, processes, data, know-how,
improvements, inventions, techniques, marketing plans and strategies, and
information concerning customers or vendors of the Company.
This Option is considered executed and entered into in the State of Oregon
and is to be governed by and interpreted under the laws of that state. Any
litigation relating to this Option shall be instituted and conducted in the
United States District Court for the District of Oregon, or if federal
jurisdiction is not found, in the Circuit Court of Multnomah County, State of
Oregon. Each party waives whatever rights may exist to a jury trial in any such
litigation, and expressly consents to jurisdiction in Oregon.
4 - TERMS AND CONDITIONS OF STOCK OPTION GRANT
<PAGE>
EXHIBIT B
CLAREMONT TECHNOLOGY GROUP, INC.
1992 STOCK INCENTIVE PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Incentive Plan are
to attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees and Consultants
of the Company and to promote the success of the Company's business.
Options granted hereunder may be either "incentive stock options," as
defined in Section 422 of the Internal Revenue Code of 1986, as amended, or
"nonqualified stock options," at the discretion of the Board and as reflected in
the terms of the written option agreement. In addition, shares of the Company's
Common Stock may be Sold hereunder independent of any Option grant.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "BOARD" shall mean the Committee, if one has been appointed, or
the Board of Directors of the Company, if no Committee is appointed.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" shall mean the Common Stock of the Company.
(d) "COMPANY" shall mean Claremont Technology Group, Inc., an Oregon
corporation.
(e) "COMMITTEE" shall mean the Committee appointed by the Board of
Directors in accordance with Section 4.(a) of the Plan, if one is appointed.
(f) "CONSULTANT" shall mean any person (other than an Employee as
defined in Section 2.(h)) who is engaged by the Company or any Subsidiary to
render consulting services and is compensated for such consulting services and
any director of the Company whether compensated for such services or not.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" shall mean the
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of sick leave, military leave, or any other
leave of absence approved by the Board; provided that such leave is for a period
of not more than ninety days or reemployment upon the expiration of such leave
is guaranteed by contract or statute.
(h) "EMPLOYEE" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(i) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
1 - STOCK INCENTIVE PLAN
<PAGE>
(j) "INCENTIVE STOCK OPTION" shall mean an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.
(k) "NONQUALIFIED STOCK OPTION" shall mean an Option not intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(l) "OPTION" shall mean a stock option granted pursuant to the Plan.
(m) "OPTIONED STOCK" shall mean the Common Stock subject to an
Option.
(n) "OPTIONEE" shall mean an Employee or Consultant who receives an
Option.
(o) "PARENT" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424 of the Code.
(p) "PLAN" shall mean this Stock Incentive Plan.
(q) "SALE" or "SOLD" shall include, with respect to the sale of
Shares under the Plan, the sale of Shares for consideration in the form of cash
or notes, as well as a grant of Shares without consideration, except past or
future services.
(r) "SHARE" shall mean a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(s) "SUBSIDIARY" shall mean a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424 of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11 of
the Plan, the maximum aggregate number of Shares which may be optioned and/or
Sold under the Plan is 2,500,000 shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares which were subject thereto
shall, unless the Plan shall have been terminated, become available for future
Option grants and/or Sales under the Plan. If Shares Sold under the Plan or
purchased upon the exercise of an Option are repurchased by the Company pursuant
to restrictions applicable to such Shares, the number of Shares repurchased
shall, unless the Plan shall have been terminated, become available for future
Option grants and/or Sales under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE. The Plan shall be administered by the Board of
Directors of the Company.
(i) Subject to subparagraph 4.(a)(ii), the Board of Directors
may appoint a Committee consisting of not less than two (2) members of the Board
of Directors to administer the Plan on behalf of the Board of Directors, subject
to such terms and conditions as the Board of Directors may prescribe. Once
appointed, the Committee shall continue to serve until otherwise
2 - STOCK INCENTIVE PLAN
<PAGE>
directed by the Board of Directors. From time to time the Board of Directors
may increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies however caused, or remove all members of the Committee
and thereafter directly administer the Plan.
Members of the Board who are either eligible for Options and/or Sales or
have been granted Options or Sold Shares may vote on any matters affecting the
administration of the Plan or the grant of any Options or Sale of any Shares
pursuant to the Plan, except that no such member shall act upon the granting of
an Option or Sale of Shares to himself, but any such member may be counted in
determining the existence of a quorum at any meeting of the Board during which
action is taken with respect to the granting of Options or Sale of Shares to
him.
(ii) Notwithstanding the foregoing subparagraph 4.(a)(i), if and
in any event the Company registers any class of any equity security pursuant to
Section 12 of the Securities Exchange Act of 1934, from the effective date of
such registration until six (6) months after the termination of such
registration, any grants of Options to officers or directors shall only be made
by the Board if each member of the Board is a disinterested person, or if every
member of the Board is not a disinterested person, by a committee of two or more
directors, each of whom is a disinterested person. A "disinterested person" is
a director who has not, during the one year period prior to service as an
administrator of the Plan, or during such service, been granted or awarded
equity securities pursuant to the Plan or any other plan of the Company or any
of its affiliates, with these qualifications:
(A) participation in a formula plan meeting the conditions
in paragraph (c)(2)(ii) of SEC Rule 16b-3 shall not disqualify a
director from being a disinterested person;
(B) participation in an ongoing securities acquisition plan
meeting the conditions in paragraph (d)(2)(i) of SEC Rule 16b-3 shall
not disqualify a director from being a disinterested person;
(C) an election to receive an annual retainer fee in either
cash or an equivalent amount of securities, or partly in cash and partly in
securities, shall not disqualify a director from being a disinterested
person; and
(D) participation in a plan shall not disqualify a director
from being a disinterested person for the purpose of administering
another plan that does not permit participation by directors.
(b) POWERS OF THE BOARD. Subject to the provisions of the Plan, the
Board shall have the authority, in its discretion: (i) to grant Incentive Stock
Options in accordance with Section 422 of the Code, or Nonqualified Stock
Options; (ii) to authorize Sales of Shares of Common Stock hereunder; (iii) to
determine, upon review of relevant information and in accordance with
Section 8.(b) of the Plan, the fair market value of the Common Stock; (iv) to
determine the exercise/purchase price per Share of Options to be granted or
Shares to be Sold, which exercise/purchase price shall be determined in
accordance with Section 8.(a) of the Plan; (v) to determine the Employees or
Consultants to whom, and the time or times at which, Options shall be granted
and the number of Shares to be represented by each Option; (vi) to determine the
Employees or Consultants to whom, and the time or times at which, Shares shall
be Sold and the number of
3 - STOCK INCENTIVE PLAN
<PAGE>
Shares to be Sold; (vii) to interpret the Plan; (viii) to prescribe, amend and
rescind rules and regulations relating to the Plan; (ix) to determine the terms
and provisions of each Option granted (which need not be identical) and, with
the consent of the holder thereof, modify or amend each Option; (x) to determine
the terms and provisions of each Sale of Shares (which need not be identical)
and, with the consent of the purchaser thereof, modify or amend each Sale;
(xi) to accelerate or defer (with the consent of the Optionee) the exercise date
of any Option, consistent with the provisions of Section 9 of the Plan; (xii) to
accelerate or defer (with the consent of the Optionee or purchaser of Shares)
the vesting restrictions applicable to Shares Sold under the Plan or pursuant to
Options granted under the Plan; (xiii) to authorize any person to execute on
behalf of the Company any instrument required to effectuate the grant of an
Option or Sale of Shares previously granted or authorized by the Board; (xiv) to
determine the restrictions on transfer, vesting restrictions, repurchase rights,
or other restrictions applicable to Shares issued under the Plan; (xv) to
effect, at any time and from time to time, with the consent of the affected
Optionees, the cancellation of any or all outstanding Options under the Plan and
to grant in substitution therefor new Options under the Plan covering the same
or different numbers of Shares, but having an Option price per Share consistent
with the provisions of Section 8 of this Plan as of the date of the new Option
grant; and (xvi) to make all other determinations deemed necessary or advisable
for the administration of the Plan.
(c) EFFECT OF BOARD'S DECISION. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan or Shares Sold under the
Plan.
5. ELIGIBILITY.
(a) PERSONS ELIGIBLE. Options may be granted and/or Shares Sold only
to Employees and Consultants. Incentive Stock Options may be granted only to
Employees. An Employee or Consultant who has been granted an Option or Sold
Shares may, if he is otherwise eligible, be granted an additional Option or
Options or Sold additional Shares.
(b) ISO LIMITATION. No Incentive Stock Option may be granted to an
Employee which, when aggregated with all other Incentive Stock Options granted
to such Employee by the Company or any Parent or Subsidiary, would result in
Shares having an aggregate fair market value (determined for each Share as of
the date of grant of the Option covering such Share) in excess of $100,000
becoming first available for purchase upon exercise of one or more Incentive
Stock Options during any calendar year.
(c) SECTION 5.(B) LIMITATIONS. Section 5.(b) of the Plan shall apply
only to an Incentive Stock Option evidenced by an "Incentive Stock Option
Agreement" which sets forth the intention of the Company and the Optionee that
such Option shall qualify as an Incentive Stock Option. Section 5.(b) of the
Plan shall not apply to any Option evidenced by a "Nonqualified Stock Option
Agreement" which sets forth the intention of the Company and the Optionee that
such Option shall be a Nonqualified Stock Option.
(d) NO RIGHT TO CONTINUED EMPLOYMENT. The Plan shall not confer upon
any Optionee any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with his right
or the Company's right to terminate his employment or consulting relationship at
any time.
4 - STOCK INCENTIVE PLAN
<PAGE>
6. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company as described in Section 17 of the Plan. It shall
continue in effect for a term of ten (10) years, unless sooner terminated under
Section 13 of the Plan.
7. TERM OF OPTION. The term of each Incentive Stock Option shall be ten
(10) years from the date of grant thereof or such shorter term as may be
provided in the Stock Option Agreement. The term of each Nonqualified Stock
Option shall be ten (10) years and one (1) day from the date of grant thereof or
such other term as may be provided in the Stock Option Agreement. However, in
the case of an Incentive Stock Option granted to an Optionee who, at the time
the Incentive Stock Option is granted, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5)
years from the date of grant thereof or such shorter time as may be provided in
the Incentive Stock Option Agreement.
8. EXERCISE/PURCHASE PRICE AND CONSIDERATION.
(a) EXERCISE/PURCHASE PRICE. The per-Share exercise/purchase price
for the Shares to be issued pursuant to exercise of an Option or a Sale (other
than a Sale which is a grant for which no purchase price is payable) shall be
such price as is determined by the Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than one hundred ten
percent (110%) of the fair market value per Share on the date of the grant.
(B) granted to any other Employee, the per Share exercise
price shall be no less than one hundred percent (100%) of the fair market value
per Share on the date of grant.
(ii) In the case of a Nonqualified Stock Option or Sale granted
or Sold to any person, the per Share exercise/purchase price shall be no less
than eighty-five percent (85%) of the fair market value per Share on the date of
grant or authorization of Sale, unless otherwise expressly determined by the
Board of Directors. Any determination to sell stock at less than fair market
value on the date of the grant or authorization of Sale shall be accompanied by
an express finding by the Board of Directors specifying that the sale is in the
best interest of the Company, and specifying both the fair market value and the
grant or sale price of the stock.
(iii) In the case of an Option granted or Sale authorized on
or after the effective date of registration of any class of equity security of
the Company pursuant to Section 12 of the Exchange Act and prior to six (6)
months after the termination of such registration, the per Share
exercise/purchase price shall be no less than one hundred percent (100%) of the
fair market value per Share on the date of grant or authorization of Sale.
5 - STOCK INCENTIVE PLAN
<PAGE>
(b) FAIR MARKET VALUE. The fair market value per Share shall be
determined by the Board in its discretion; provided, however, that where there
is a public market for the Common Stock, the fair market value per Share shall
be the closing price of the Common Stock for the date of grant or authorization
of Sale, as reported in THE WALL STREET JOURNAL (or, if not so reported, as
otherwise reported by the National Association of Securities Dealers Automated
Quotation (NASDAQ) System) or, in the event the Common Stock is listed on a
stock exchange the fair market value per Share shall be the closing price on
such exchange on the date of grant of the Option or authorization of Sale, as
reported in THE WALL STREET JOURNAL.
(c) CONSIDERATION. The consideration to be paid for the Shares to be
issued upon exercise of an Option or pursuant to a Sale, including the method of
payment, shall be determined by the Board and may consist entirely of cash,
check, promissory note, other Shares of Common Stock having a fair market value
on the date of surrender equal to the aggregate exercise/purchase price of the
Shares as to which said option shall be exercised or Sale consummated, or any
combination of such methods of payment for the issuance of Shares.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8.(c) of the Plan.
Each Optionee who exercises an Option shall, upon notification of the amount due
(if any) and prior to or concurrent with delivery of the certificate
representing the Shares, pay to the Company amounts necessary to satisfy
applicable federal, state and local tax withholding requirements. An Optionee
must also provide a duly executed copy of any stock transfer agreement then in
effect and determined to be applicable by the Board. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the stock certificate is
issued, except as provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF STATUS AS AN EMPLOYEE OR CONSULTANT. If an
Employee or Consultant ceases to serve as an Employee or Consultant (as the case
may be), he may, but only within three (3) months (or with respect to
Nonqualified Stock Options, such other period of time not exceeding the
limitations of Section 7 above as is determined by the Board at the time of
grant
6 - STOCK INCENTIVE PLAN
<PAGE>
of the Nonqualified Stock Option) after the date he ceases to be an Employee or
Consultant (as the case may be) of the Company, exercise his Option to the
extent that he was entitled to exercise it at the date of such termination. To
the extent that he was not entitled to exercise the Option at the date of such
termination, or if he does not exercise such Option (which he was entitled to
exercise) within the time specified herein, the Option shall terminate.
(c) DISABILITY OF OPTIONEE. Notwithstanding the provisions of
Section 9.(b) above, in the event an Employee or Consultant is unable to
continue his employment or consulting relationship (as the case may be) with the
Company as a result of his total and permanent disability (as defined in
Section 22(e)(3) of the Code), he may, but only within twelve (12) months (or
with respect to Nonqualified Stock Options, such other period of time not
exceeding the limitations of Section 7 above as is determined by the Board at
the time of grant of the Nonqualified Stock Option) from the date of
termination, exercise his Option to the extent he was entitled to exercise it at
the date of such termination. To the extent that he was not entitled to
exercise the Option at the date of termination, or if he does not exercise such
Option (which he was entitled to exercise) within the time specified herein, the
Option shall terminate.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee
during the term of the Option who is at the time of his death an Employee or
Consultant of the Company and who shall have been in Continuous Status as an
Employee or Consultant since the date of grant of the Option, the Option may be
exercised, at any time within twelve (12) months (or such other period of time
not exceeding the limitations of Section 7 above as is determined by the Board
at the time of grant of the Option) following the date of death, by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise as of
the date of death.
10. NONTRANSFERABILITY OF OPTIONS. An Option may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised during the
lifetime of the Optionee only by the Optionee.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to any
required action by the stockholders of the Company, the number of shares of
Common Stock covered by each outstanding Option and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or Sales made or which have been returned
to the Plan upon cancellation or expiration of an Option, as well as the price
per share of Common Stock covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
Option.
In the event of the proposed dissolution or liquidation of the Company, the
Option will terminate immediately prior to the consummation of such proposed
action, unless otherwise provided
7 - STOCK INCENTIVE PLAN
<PAGE>
by the Board. The Board may, in the exercise of its sole discretion in such
instances, declare that any Option shall terminate as of a date fixed by the
Board and give each Optionee the right to exercise his Option as to all or any
part of the Optioned Stock, including Shares as to which the Option would not
otherwise be exercisable. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, the Option shall be assumed or an equivalent
option shall be substituted by such successor corporation or a parent or
subsidiary of such successor corporation, unless the Board determines, in the
exercise of its sole discretion and in lieu of such assumption or substitution,
that the Optionee shall have the right to exercise the Option as to all of the
Optioned Stock, including Shares as to which the Option would not otherwise be
exercisable. If the Board makes an Option fully exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the Board
shall notify the Optionee that the Option shall be fully exercisable for a
period of thirty (30) days from the date of such notice or such shorter period
as the Board may specify in the notice, and the Option will terminate upon the
expiration of such period.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date on which the Board makes the determination granting
such Option. Notice of the determination shall be given to each Employee or
Consultant to whom an Option is so granted within a reasonable time after the
date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may amend or terminate the
Plan from time to time in such respects as the Board may deem advisable;
provided, however, that if required to qualify the Plan under Rule 16b-3
promulgated under Section 16 of the Securities Exchange Act of 1934, as amended,
no amendment shall be made more than once every six months that would change the
amount, price or timing of the option grants, other than to comport with changes
in the Internal Revenue Code of 1986, as amended, or the rules and regulations
promulgated thereunder; and provided, further, that, if required to qualify the
Plan under rule 16b-3, no amendment shall be made without the approval of the
stockholders of the Company in the manner described in Section 17 of the Plan if
the amendment would:
(i) increase the number of Shares subject to the Plan, other
than in connection with an adjustment under Section 11 of the Plan;
(ii) make a change in the designation of the class of Employees
or Consultants eligible to be granted Options; or
(iii) if the Company has a class of equity security
registered under Section 12 of the Exchange Act at the time of such revision or
amendment, cause any material increase in the benefits accruing to participants
under the Plan.
(b) STOCKHOLDER APPROVAL. If any amendment requiring stockholder
approval under Section 13.(a) of the Plan is made subsequent to the first
registration of any class of equity security by the Company under Section 12 of
the Exchange Act, such stockholder approval shall be solicited as described in
Section 17.(a) of the Plan.
(c) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted, and such
Options shall remain in full force and
8 - STOCK INCENTIVE PLAN
<PAGE>
effect as if this Plan had not been amended or terminated, unless mutually
agreed otherwise between the Optionee and the Board, which agreement must be in
writing and signed by the Optionee and the Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option or a Sale unless the exercise of such
Option or consummation of the Sale and the issuance and delivery of such Shares
pursuant thereto shall comply with all relevant provisions of law, including,
without limitation, the Securities Act of 1933, as amended, applicable state
securities laws, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange (including NASDAQ) upon
which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option or a Sale, the Company may
require the person exercising such Option or to whom Shares are being Sold to
represent and warrant at the time of any such exercise or Sale that the Shares
are being purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required by any of the aforementioned relevant
provisions of law.
15. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
16. OPTION AGREEMENT. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
17. STOCKHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the stockholders of the Company within twelve months before or after
the date the Plan is adopted. If such stockholder approval is obtained at a
duly held stockholders' meeting, it may be obtained by the affirmative vote of
the holders of a majority of the outstanding shares of the Company, such holders
being present or represented and entitled to vote thereon. If and in the event
that the Company registers any class of any equity security pursuant to
Section 12 of the Exchange Act, the approval of such stockholders of the Company
shall be:
(a) SOLICITATION.
(i) solicited substantially in accordance with Section 14(a) of
the Exchange Act and the rules and regulations promulgated thereunder, or
(ii) solicited after the Company has furnished in writing to the
holders entitled to vote substantially the same information concerning the Plan
as that which would be required by the rules and regulations in effect under
Section 14(a) of the Exchange Act at the time such information is furnished; and
9 - STOCK INCENTIVE PLAN
<PAGE>
(b) TIME. Obtained at or prior to the first annual meeting of
stockholders held subsequent to the first registration of any class of equity
securities of the Company under Section 12 of the Exchange Act.
If such stockholder approval is obtained by written consent, it must
be obtained by the written consent of stockholders of the Company in compliance
with the requirements of applicable state law.
18. Six Month Holding Period for Affiliates. If the Company registers any
class of any equity security pursuant to Section 12 of the Exchange Act, then
from the effective date of such registration until six (6) months after the
termination of such registration (the Public Period), these limits will apply to
each officer, director and beneficial owner of ten percent (10%) or more of any
class of equity securities of the Company (Affiliates.) During the Public
Period, any Affiliate shall hold Shares Sold hereunder at least six months from
the date of Sale. During the Public Period, at least six months must elapse
from the date of grant of an Option to an Affiliate to the date the Affiliate
disposes of the Shares acquired upon exercise of the Option, or (if the Option
is disposed of other than by exercise) to the date of disposition of the Option
itself.
10 - STOCK INCENTIVE PLAN
<PAGE>
EXHIBIT C
CLAREMONT TECHNOLOGY GROUP, INC.
SHAREHOLDER AGREEMENT
This Agreement is entered into by and between Claremont Technology Group,
Inc., an Oregon corporation (the "Company"), and the undersigned Shareholder
("Shareholder").
RECITALS
A. The Shareholder owns (or may obtain through exercise of options)
shares (the "Shares") of the Company's Common Stock.
B. The Shareholder and the Company desire to enter into an Agreement
relating to the sale or other disposition of the Shares.
AGREEMENT
The parties agree as follows:
1. RESTRICTIONS ON TRANSFER. The Shareholder shall not sell, assign,
transfer, pledge or in any other manner alienate any of the Shares held by him
or her, or any right or interest therein, whether voluntarily or by operation of
law or otherwise, except to the Company by consent of the Board of Directors,
unless the transfer meets the requirements set forth in this Agreement.
2. FIRST REFUSAL. If the Shareholder desires to sell any Shares (unless the
Shareholder elects to transfer under the terms of Section 3), the Shareholder
shall first be obligated to offer to sell the Shares to the Company or its
designee in accordance with the remaining subsections of this Section.
2.1 NOTICE. The Shareholder shall give written notice to the Company of
the Shareholder's desire to sell the Shares (the "Option Notice"). The Option
Notice shall set forth the name of the proposed purchaser, the number of Shares
proposed to be sold, the purchase price per Share and the terms of payment
proposed by the purchaser (the "Purchase Terms").
2.2 COMPANY'S OPTION. The Company (or its designee whom the Company
identifies by notice to the Shareholder) shall have the option to purchase all,
but not less than all, of the Shares described in the Option Notice in
accordance with the Purchase Terms. The option shall be exercised, if at all,
by notice to the Shareholder within 30 days.
2.3 CLOSING. Closing of the purchase shall take place at the Company's
principal office on the date designated by the Company or its designee, which
date shall be before the later of 30 days following the closing date specified
in the Purchase Terms or 50 days following the effective date of the Option
Notice.
Page 1 -- Shareholder Agreement
<PAGE>
2.4 IF COMPANY DECLINES. If the Company (or its designee) does not elect
to acquire the Shares specified in the Option Notice, the Shareholder may sell
the proposed purchaser the Shares within the 60 day period following the receipt
by the Company of the Option Notice. These conditions will apply:
2.4.1 IDENTICAL TERMS FOR PURCHASE. The purchase terms for the
Shares shall be identical with those described in the Option Notice.
2.4.2 SHAREHOLDER AGREEMENT APPLIES. The purchaser shall be bound
by the terms and conditions of this Agreement, as if an original
Shareholder. The Company may require the purchaser's written Agreement to
be bound, before the Company enters the transfer of the Shares to the
purchaser in the Company's stock records.
3. TRANSFER TO IMMEDIATE FAMILY. Shareholder may transfer any or all of the
Shareholder's Shares to his or her Immediate Family, either during his or her
lifetime or on death by will or intestacy. "Immediate Family" shall mean
spouse, lineal descendant of Shareholder or Shareholder's spouse, father,
mother, brother or sister of Shareholder, or a trust established for which one
or more Immediate Family Members are the sole beneficiaries. These conditions
apply:
3.1 SHAREHOLDER AGREEMENT APPLIES. Upon any transfer described in this
Section, the transferee shall be bound by the terms and conditions of this
Agreement as Shareholder. The Company may require the transferee's written
agreement to be bound to this Agreement before entering the transfer in the
Company's stock records.
3.2 SUBSEQUENT TRANSFERS. For purposes of determining to whom a
transferree under this Section 3 may make further transfers under the same
section, the people who qualify as "Immediate Family" shall be determined by
reference to the identity of the originating Shareholder. Thus under this
section a parent may transfer to a child, who may further transfer to any other
immediate family member of the parent. But the child may not transfer to the
child's spouse without the Company's consent, because the child's spouse is not
a member of the originating Shareholder's "immediate family.
3.3 VOTING RIGHTS. The right to vote the shares that have been
transferred under this Section shall be held by the originating Shareholder or
by a person designated by the Shareholder and approved by the Board of
Directors. On the death or incapacity of the original designee the Company
(acting by and through the Board of Directors), will designate the successor
designee.
3.3.1 STATUTORY VOTING AGREEMENT. This Section 3.3 constitutes a
"Voting Agreement" under ORS Section 60.257.
3.3.2 IRREVOCABLE PROXY, DURATION. This Section 3.3 also
constitutes an irrevocable proxy, that will last for so long as the shares
are held by a person who acquired them in a transaction under this Section
3.
Page 2 -- Shareholder Agreement
<PAGE>
3.3.3 FIRST REFUSAL TRANSACTION RELEASES PROXY. Shares subject to
the Voting Agreement of this Section 3.3 shall be released from it if
transferred in a transaction meeting the conditions of Section 2.
4. PURCHASE UPON TERMINATION OF EMPLOYMENT. Upon termination of the
Shareholder's employment or consulting relationship with the Company for any
reason, including, without limitation, retirement, death or disability (the
"Termination"), the Company or its designee shall have the right for a period of
90 days following such Termination (or purchase of the Shares, if later) to buy
all, but not less than all, of the terminated Shareholder's Shares on the terms
and conditions set forth in subsections 4.1, 4.2, and 4.3. Such right of first
refusal shall be exercised by giving written notice of exercise to the
Shareholder or his estate, as the case may be, as provided herein.
4.1 PURCHASE PRICE. The purchase price for the Shares shall be the
greater of the Shareholder's original purchase price for the Shares or the fair
market value thereof at the time of Termination as determined in good faith by
the Company's Board of Directors; provided, however, if the Shareholder (or, if
applicable, the personal representative of the deceased Shareholder's estate),
or any member of the Shareholder's Immediate Family owning Shares on the date of
Termination disputes such valuation, the fair market value of the Shares shall
be determined by a local, independent investment banking or valuation firm
acceptable to the Company and the Shareholder (or, if applicable, the personal
representative of the deceased Shareholder's estate). All costs of such
independent valuation shall be paid by the Shareholder (or, if applicable, the
personal representative of the deceased Shareholder's estate).
4.2 HOW PAID. The purchase price shall be paid to the Shareholder at
closing (or, if applicable, the personal representative of the deceased
Shareholders's estate) and/or the members of the Shareholder's Immediate Family
owning Shares on the date of Termination, in proportion to their respective
stock interests. Each shall receive, at closing: (i) an initial payment by
Company check of at least one-third of the total purchase price and (ii) a
promissory note for the remaining balance of the purchase price, if any, payable
in two equal annual installments including principal and interest on the first
and second anniversaries of the closing. The promissory note shall bear
interest from the date of closing at a rate equal to the interest rate being
charged to the Company as of the date of closing by its then acting bank and
shall allow prepayment in whole or in part without premium or penalty.
4.3 CLOSING. Closing of the purchase shall take place at the Company's
principal office on the date designated by the Company, which shall be no later
than 30 days following the date of mailing of the written notice of exercise,
or, if later and applicable, 30 days following the appointment of the personal
representative of the deceased Shareholder's estate. At such closing, the
Shareholder's certificate for Shares shall be duly endorsed to the Company or
its designee and surrendered, and the Company or its designee shall deliver to
the Shareholder (or, if applicable, the personal representative of the deceased
Shareholder's estate) the cash payment and promissory note, if any, representing
the purchase price for the Shares, all in accordance with subsections 4.1 and
4.2 above.
Page 3 -- Shareholder Agreement
<PAGE>
5. LEGENDS ON CERTIFICATES. The certificate(s) representing Shares held
by the Shareholder shall bear on its face the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO TERMS
AND CONDITIONS OF A SHAREHOLDER AGREEMENT, A COPY OF WHICH IS ON
FILE WITH THE COMPANY, WHICH AGREEMENT INCLUDES, AMONG OTHER
PROVISIONS, RESTRICTIONS ON THE TRANSFER OF THE SHARES AND UNDER
SOME CONDITIONS AN IRREVOCABLE PROXY.
6. APPLICATION OF AGREEMENT TO AFTER-ACQUIRED STOCK. All of the provisions of
this Agreement shall apply to all of the Shares and any other shares of the
Company's capital stock which may be issued or transferred hereafter to the
Shareholder or to transferees of the Shareholder in consequence of any
additional issuance, exchange or reclassification of shares, corporate
reorganization, or any other form of recapitalization, consolidation, merger,
share split or share dividend, or shares which are acquired by the Shareholder
or transferees of the Shareholder in any other manner.
7. TERMINATION OF RESTRICTIONS. The restrictions on transfer set forth in
this Agreement shall terminate upon the first to occur of any of the following
events:
7.1 REGISTRATION. The effectiveness of a registration statement relating
to an offering of shares of Common Stock of the Company registered under the
Securities Act of 1933, as amended, and the consummation of the sale of Common
Stock pursuant thereto.
7.2 SALE OF ALL ASSETS. The sale by the Company of all or substantially
all of its assets.
7.3 MERGER. A merger or consolidation of the Company into or with another
corporation after which the holders of shares of stock of the Company shall own
less than fifty percent of the voting securities necessary to control the
affairs of the surviving corporation.
7.4 SALE OF ALL STOCK. The sale of all of the outstanding Shares of
capital stock of the Company by the holders thereof.
8. BINDING EFFECT ON TRANSFEREES. This Agreement and all of the terms,
covenants, and conditions herein contained, shall be binding upon and inure to
the benefit of all of the parties hereto and their respective transferees,
successors, heirs, executors, administrators and assigns. All transfers must be
made in accordance with this agreement, and upon the transfer of any of the
Shares to any person, the transferee shall become a party to this Agreement and
shall execute any and all instruments and take all other actions necessary to
carry out the purposes of this Agreement.
Page 4 -- Shareholder Agreement
<PAGE>
9. OTHER MATTERS.
9.1 NOTICE. Notice to the Company shall be sent to the Company's
president at the Company's principal place of business. Notice to a Shareholder
shall be sent to the Shareholder's address as it appears on the books and
records of the Company, or to such other address as a Shareholder may from time
to time by notice provide. Notice shall be effective when actually received by
the party this Agreement designates for notice, if sent by any means that leaves
a hard-copy record in the hands of the recipient. If sent certified or
registered mail, postage prepaid, return receipt requested, notice shall be
deemed effective on the date the return receipt shows the notice was accepted,
refused, or returned undeliverable.
9.2 SEVERABILITY. Each clause of this Agreement is severable. If any
clause is ruled void or unenforceable, the balance of the Agreement shall
nonetheless remain in effect. Wherever there is any conflict between any
provision of this Agreement and any statute, law, regulation or judicial
precedent, the latter shall prevail, but in such event the provisions of this
Agreement thus affected shall be curtailed and limited only to the extent
necessary to bring it within the requirement of the law. If any part, section,
paragraph, or clause of this Agreement shall be held by a court of proper
jurisdiction to be indefinite, invalid or otherwise unenforceable, the entire
Agreement shall not fail on account thereof, but the balance of the Agreement
shall continue in full force and effect unless such construction would clearly
be contrary to the intentions of the parties or would result in an
unconscionable injustice.
9.3 NON-WAIVER. A waiver of one or more breaches of any clause of this
Agreement shall not act to waive any other breach, whether of the same or
different clauses.
9.4 ASSIGNMENT. This Agreement may not be assigned without the express
written consent of each party, which consent will not be unreasonably withheld.
9.5 GOVERNING LAW, JURISDICTION. This Agreement is made in and governed
by the laws of the state of Oregon. Any action brought between the parties may
be brought only in the state or federal courts located in Portland, Oregon, and
in no other place unless the parties expressly agree in writing to waive this
requirement. Each party consents to jurisdiction in that location. Each party
consents to service of process through the method prescribed for notice in this
Agreement.
9.6 ATTORNEYS' FEES. The prevailing party in any suit, action, or
arbitration filed or held concerning this Agreement shall be entitled to
reasonable attorneys' fees, both at trial and on any appeal.
Page 5 -- Shareholder Agreement
<PAGE>
9.7 HEADINGS. The section headings herein have been inserted for
convenience only and are not intended to restrict, construe, or modify in any
manner any of the terms and provisions hereof.
9.8 INTEGRATION. This Agreement is the complete Agreement between the
parties dealing with transferability of Shares as of the date hereof, and
supersedes all prior agreements, written or oral. It may be modified only in
writing signed by any affected Shareholder or successor in interest of a
Shareholder.
9.9 EFFECTIVE DATE, COUNTERPARTS. This Agreement is effective as of the
date shares are first issued by the Company, and is binding on each Shareholder
as that Shareholder obtains ownership in Shares. The Agreement may be executed
in counterparts.
CLAREMONT TECHNOLOGY GROUP, INC. SHAREHOLDER
By:
-------------------------------- ---------------------------------------
Print: Print:
----------------------------- ---------------------------------
Date: Title:
------------------------------ ---------------------------------
Date:
------------------------------
Page 6 -- Shareholder Agreement
<PAGE>
ATTACHMENT 1 TO EXHIBIT C
CONSENT OF SPOUSE
I, _______________, spouse of ______________________, acknowledge that
I have read the Shareholder Agreement dated ____________________, 19__, to which
this Consent is attached as Attachment 1 (the "Agreement") and that I know its
contents. I am aware that by its provisions the Company or its designee has the
option to purchase certain shares of Common Stock of the Company which my spouse
is acquiring pursuant to the Agreement ("Shares"), including any interest I
might have therein, in the event my spouse desires to sell the Shares and
certain other restrictions are imposed upon the sale or other disposition of the
Shares during my spouse's lifetime. I am also aware that the Company or its
designee has the right to purchase the Shares upon my spouse's termination of
employment with the Company.
I hereby agree that my interest, if any, in the Shares subject to the
Agreement, whether now owned or hereafter acquired, shall be irrevocably bound
by the Agreement and further understand and agree that any community property
interest I may have in the Shares shall be similarly bound by the Agreement.
I AM AWARE THAT THE LEGAL, FINANCIAL AND RELATED MATTERS CONTAINED IN
THE AGREEMENT ARE COMPLEX AND THAT I AM FREE TO SEEK INDEPENDENT PROFESSIONAL
GUIDANCE OR COUNSEL WITH RESPECT TO THIS CONSENT. I HAVE EITHER SOUGHT SUCH
GUIDANCE OR COUNSEL OR DETERMINED AFTER REVIEWING THE AGREEMENT CAREFULLY THAT I
WILL WAIVE SUCH RIGHT.
DATED the day of , 19 .
---- -------------------- ----
By:
--------------------------------------
EXHIBIT A (TO SHAREHOLDER AGREEMENT)
<PAGE>
EXHIBIT D
CLAREMONT TECHNOLOGY GROUP, INC.
STOCK OPTION EXERCISE FORM
FOR
1992 STOCK INCENTIVE PLAN
Claremont Technology Group, Inc. Date:
--------------
Attention: President, Secretary, or CFO
Re: Notice of Exercise of Stock Option
Gentlepeople:
I, the undersigned, elect to exercise my option number to
acquire shares of the Common Stock (the "Shares") of Claremont
Technology Group, Inc. (the "Company") pursuant to the Company's 1992 Stock
Incentive Plan (the "Plan").
1. NOTICE OF INTENT TO EXERCISE. This form constitutes the written
notice of intent to exercise my option prescribed by Section 9 of the Plan.
2. PAYMENT METHOD. Delivered herewith is a certified or bank cashier's
check in the amount of $ , representing full payment of the
option exercise price as calculated according to Section 8 of the Plan, and also
including $ representing amounts due for withholding
taxes (if any) as a result of my option exercise. If full payment does not
accompany this Notice, I represent that I am aware that the full purchase price
for the shares together with the full amount of any required withholding taxes
must be paid to the Company prior to the date shown in Section 3 below.
3. DATE OF TRANSACTION COMPLETION. I desire that the purchase of Shares
pursuant to this Notice be completed on or before .
I represent that I am aware that I must execute and deliver to the Company the
Shareholder Agreement in the form prescribed by the Company before I shall be
entitled to receive a certificate for the Shares.
4. REPRESENTATION OF INVESTMENT INTENT. I represent and agree that all
the Shares being purchased pursuant to this Notice are being acquired for
investment and not with a view to the sale or distribution thereof and that I
understand that the Shares have not been registered under the Securities Act of
1933, as amended, or applicable state securities laws and the Shares may not be
sold, transferred, pledged, hypothecated or otherwise assigned or disposed of
without either registration under those laws or an opinion of counsel acceptable
to the counsel for the Company that such registration is not required.
5. NAME OF CERTIFICATE. The name, address and Social Security or
Taxpayer ID number to be placed on the share certificate are as follows:
1 - EXERCISE FORM
<PAGE>
Name:
---------------------------------
Address:
------------------------------
------------------------------
Telephone:
----------------------------
Social Security
or Taxpayer I.D. Number:
--------------
Very truly yours,
Signature:
------------------------------------
Print Name:
-----------------------------------
Address:
--------------------------------------
(if different from above)
----------------------------------------------
Address
NOTE: THIS NOTICE SHOULD BE DELIVERED PERSONALLY OR SENT BY CERTIFIED MAIL,
RETURN RECEIPT REQUESTED.
Checks should be made payable to the Company.
2 - EXERCISE FORM
<PAGE>
Exhibit 10.4
CLAREMONT TECHNOLOGY GROUP, INC.
1996 STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS
1. PURPOSE.
The purpose of the Claremont Technology Group, Inc. 1996 Stock Option Plan
for Nonemployee Directors (the "Plan") is to promote the interests of Claremont
Technology Group, Inc. (the "Company") and its shareholders by strengthening the
Company's ability to attract and retain the services of experienced and
knowledgeable nonemployee directors and by enhancing such directors incentive to
work on behalf of the Company and its shareholders.
2. SHARES SUBJECT TO THE PLAN.
Subject to adjustment as provided in Article 7, the total number of shares
of Common Stock (the "Common Stock") of the Company for which options may be
granted under the Plan in fiscal year 1996 shall be 55,000, and the total number
of shares of Common Stock for which options may be granted under the Plan in
each fiscal year thereafter during any part of which the Plan is effective shall
be 70,000 shares of Common Stock (the "Shares"). The Shares shall be shares
currently authorized but unissued. If any option granted under the Plan expires
or terminates for any reason without having been exercised in full, the Shares
subject to, but not delivered under, such option may become available for the
grant of other options under the Plan. No shares delivered to the Company in
full or partial payment of an option price payable pursuant to Section 6.5 shall
become available for the grant of other options under the Plan.
3. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by the Compensation Committee of the
Company's Board of Directors (the "Committee"). Subject to the terms of the
Plan, the Committee shall have the power to construe the provisions of the Plan,
to determine all questions arising thereunder, and to adopt and amend such rules
and regulations for administering the Plan as the Committee deems desirable.
4. PARTICIPATION IN THE PLAN.
Each member of the Company's Board of Directors (a "Director") who is not
otherwise an employee of: 1) the Company, 2) any shareholder holding more than
50% of the voting stock of the Company (unless such shareholder's internal
policies permit those employees to retain ownership of stock or stock options
issued under this Plan), or 3) any subsidiary of the Company (an "Eligible
Director") shall be eligible to participate in the Plan.
5. NONSTATUTORY STOCK OPTIONS.
All options granted under the Plan shall be nonstatutory options not
intended to qualify under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
- --------------------------------------------------------------------------------
1 - 1996 STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS
<PAGE>
6. OPTION TERMS.
Each option granted to an Eligible Director under the Plan and the issuance
of Shares thereunder shall be subject to the following terms:
6.1 OPTION AGREEMENTS. Each option granted under the Plan shall be
evidenced by an option agreement (an "Agreement") duly executed on behalf of the
Company and by the Eligible Director to whom such option is granted and dated as
of the applicable date of grant. Each Agreement shall be signed on behalf of
the Company by an officer or officers delegated such authority by the Committee
using either manual or facsimile signature. Each Agreement shall comply with
and be subject to the terms and conditions of the Plan. Any Agreement may
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Committee.
6.2 OPTION GRANT SIZE AND GRANT DATES.
6.2.1 RECRUITMENT GRANTS. On the date a person first is elected or
appointed as a member of the Company's Board of Directors, if such person
is an Eligible Director, such person shall automatically be granted an
option to purchase 20,000 Shares, which option shall vest ratably on a
quarterly basis over three years (the "Recruitment Grant Term"). The
option grants made pursuant to the preceding sentence are each referred to
as a "Recruitment Grant." A Recruitment Grant shall not be made to any
person who is an Eligible Director on the date the Plan is approved by the
Board of Directors.
6.2.2 RENEWAL GRANTS. Immediately following the Company's first
Annual Meeting (as described in the Company's Bylaws) after the expiration
of each Eligible Director's Recruitment Grant Term, each such Eligible
Director shall automatically be granted options to purchase Shares as
follows: each Eligible Director shall receive an option to purchase 15,000
Shares, which option shall vest ratably on a quarterly basis over three
years (the "Renewal Grant Term"). The option grants made pursuant to the
preceding sentence are each referred to as a "Renewal Grant." In addition,
immediately following the Company's first Annual Meeting after the
expiration of each Eligible Director's initial or succeeding Renewal Grant
Term, each such Eligible Director shall automatically be granted another
Renewal Grant. The Renewal Grants shall begin with respect to each
Eligible Director with the first Annual Meeting held after the expiration
of such Eligible Director's Recruitment Grant Term.
6.3 OPTION EXERCISE PRICE. The option exercise price per share for each
Recruitment Grant and each Renewal Grant shall be the fair market value of the
Common Stock on the date of grant. The fair market value per Share shall be
determined by the Board in its discretion; provided, however, that where there
is a public market for the Common Stock, the fair market value per Share shall
be the closing price of the Common Stock for the date of grant, as reported in
THE WALL STREET JOURNAL (or, if not so reported, as otherwise reported by the
National Association of Securities Dealers Automated Quotation (NASDAQ) System)
or, in the event the Common Stock is listed on a stock exchange, the fair market
value per Share shall be the closing price on such exchange on the date of grant
of the option, as reported in THE WALL STREET JOURNAL.
- --------------------------------------------------------------------------------
2 - 1996 STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS
<PAGE>
6.4 TIME AND MANNER OF OPTION EXERCISE. Subject to Sections 6.2 and
6.7, any exercisable option is exercisable in whole or in part at any time or
from time to time during the option period by giving written notice, signed by
the person exercising the option, to the Company stating the number of Shares
with respect to which the option is being exercised, accompanied by payment in
full of the option exercise price for the number of Shares to be purchased. The
date both such notice and payment are received by the office of the Secretary of
the Company shall be the date of exercise of the stock option as to such number
of Shares, subject to Section 6.9. No option may at any time be exercised with
respect to a fractional share.
6.5 PAYMENT OF EXERCISE PRICE. The consideration to be paid for the
Shares to be issued upon exercise of an option, including the method of payment,
shall be determined by the Board and may consist in whole or part of:
6.5.1 cash;
6.5.2 check;
6.5.3 promissory note;
6.5.4 transfer to the Company of shares of the Common Stock having
a fair market value at the time of such exercise equal to the option
exercise price; or
6.5.5 delivery of instructions to the Company to withhold from the
option shares that would otherwise be issued on the exercise that number of
option shares having a fair market value at the time of such exercise equal
to the option exercise price.
If the fair market value of the number of whole shares transferred or the
number of whole option shares surrendered is less than the total exercise price
of the option, the shortfall must be made up in cash or by check.
6.6 TERM OF OPTIONS. Each option shall expire ten years from its date
of grant, but shall be subject to earlier termination as follows:
6.6.1 In the event of the termination of an optionee's service as
a Director, other than by reason of retirement, total and permanent
disability, or death, the then-outstanding options of such optionee shall
automatically expire 90 days after the effective date of such termination.
For purposes of the Plan, the term "by reason of retirement" means:
(i) mandatory retirement pursuant to Board policy; or (ii) termination of
service voluntarily at any time after age 65.
6.6.2 In the event of the termination of an optionee's service as
a Director by reason of retirement or total and permanent disability, the
then-outstanding options of such optionee shall expire one year after the
date of such termination or on the stated grant expiration date, whichever
is earlier.
- --------------------------------------------------------------------------------
3 - 1996 STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS
<PAGE>
6.6.3 In the event of the death of an optionee while the optionee
is a Director, the then-outstanding options of such optionee shall expire
one year after the date of death of such optionee or on the stated grant
expiration date, whichever is earlier.
Exercise of a deceased optionee's options that are still exercisable shall
be by the estate of such optionee or by a person or persons whom the optionee
has designated in writing filed with the Company, or, if no such designation has
been made, by the person or persons to whom the optionee's rights have passed by
will or the laws of descent and distribution.
6.7 TRANSFERABILITY. An option may not be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner other than by will or by
the laws of descent and distribution, and may be exercised during the lifetime
of the optionee only by the optionee or, if incapacitated, by his or her legal
guardian or legal representative.
6.8 LIMITATION OF RIGHTS.
6.8.1 LIMITATION AS TO SHARES. Neither the recipient of such option under
the Plan nor an optionee's successor or successors in interest shall have any
rights as a stockholder of the Company with respect to any Shares subject to an
option granted to such person until the date of issuance of a stock certificate
for such Shares.
6.8.2 LIMITATION AS TO DIRECTORSHIP. Neither the Plan, nor the granting
of an option, nor any other action taken pursuant to the Plan shall constitute
or be evidence of any agreement or understanding, express or implied, that an
Eligible Director has a right to continue as a Director for any period of time
or at any particular rate of compensation.
6.9 REGULATORY APPROVAL AND COMPLIANCE. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares shall comply with all relevant provisions of law,
including, without limitation, any applicable state securities laws, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations thereunder and the requirements of any stock
exchange upon which such shares may then be listed, and such issuance shall be
further subject to the approval of counsel for the Company with respect to such
compliance, including the availability of an exemption from registration for the
issuance and sale of such shares. The inability of the Company to obtain from
any regulatory body the authority deemed by the Company to be necessary for the
lawful issuance and sale of any shares under this Plan, or the unavailability of
an exemption from registration for the issuance and sale of any shares under
this Plan, shall relieve the Company of any liability with respect to the non-
issuance or sale of such shares.
As a condition to the exercise of an option, the Company may require the
optionee to represent and warrant in writing at the time of such exercise that
the shares are being purchased only for investment and without any then-present
intention to sell or distribute such shares. At the option of the Company, a
stop-transfer order against such shares may be placed on the stock books and
records of the Company, and a legend indicating that the stock may not be
pledged, sold or otherwise transferred unless an opinion of counsel is provided
stating that such transfer is not in violation of any applicable law or
regulation, may be stamped on the certificates representing such shares in order
to assure an exemption from registration. The Company also may require such
other
- --------------------------------------------------------------------------------
4 - 1996 STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS
<PAGE>
documentation as may from time to time be necessary to comply with federal and
state securities laws. THE COMPANY HAS NO OBLIGATION TO UNDERTAKE REGISTRATION
OF OPTIONS OR THE SHARES OF STOCK ISSUABLE UPON THE EXERCISE OF OPTIONS.
As a condition to the exercise of any option granted under this Plan, the
optionee shall make such arrangements as the Company may require for the
satisfaction of any federal, state or local withholding tax obligations that may
arise in connection with such exercise.
The issuance, transfer or delivery of certificates of Common Stock pursuant
to the exercise of options may be delayed, at the discretion of the Board, until
the Company is satisfied that the applicable requirements of the federal and
state securities laws and the withholding provisions of the Code have been met.
6.10 SIX MONTH HOLDING PERIOD. At least six months must elapse from the
date of an Renewal Grant or a Recruitment Grant to the date the optionee
disposes of the Shares acquired upon exercise of the option, or (if the option
is disposed of other than by exercise) to the date of disposition of the option
itself.
7. CAPITAL ADJUSTMENTS.
The aggregate number and class of Shares subject to and authorized by the
Plan, the number and class of Shares with respect to which an option may be
granted to an Eligible Director under the Plan as provided in Article 6, the
number and class of Shares subject to each outstanding option, and the exercise
price per share specified in each such option shall be proportionately adjusted
for any increase or decrease in the number of issued shares of Common Stock
resulting from a split-up or consolidation of shares or any like capital
adjustment or the payment of any stock dividend, or other increase or decrease
in the number of such shares effected without receipt of consideration by the
Company.
In the event of the proposed dissolution or liquidation of the Company,
each outstanding option will terminate immediately prior to the consummation of
such proposed action, unless otherwise provided by the Board. The Board may, in
the exercise of its sole discretion in such instances, declare that outstanding
options shall terminate as of a date fixed by the Board and give each optionee
the right to exercise his option in whole or in part. In the event of a
proposed sale of all or substantially all of the assets of the Company, or the
merger of the Company with or into another corporation, each outstanding option
shall be assumed or an equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, unless the
Board determines, in the exercise of its sole discretion, not to require such
assumption or substitution.
8. EXPENSES OF THE PLAN.
All costs and expenses of the adoption and administration of the Plan shall
be borne by the Company, and none of such expenses shall be charged to any
optionee.
- --------------------------------------------------------------------------------
5 - 1996 STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS
<PAGE>
9. EFFECTIVE DATE AND DURATION OF THE PLAN.
The Plan shall be effective immediately, subject to approval by the
Company's shareholders, and subject to any conditions imposed in connection with
such approval. The Plan shall continue in effect until it is terminated by
action of the Board or the Company's shareholders, but such termination shall
not affect the terms of any then-outstanding options.
10. TERMINATION AND AMENDMENT OF THE PLAN.
The Board may amend, terminate or suspend the Plan at any time, in its sole
and absolute discretion; provided, however, that if required to qualify the Plan
under Rule 16b-3 promulgated under Section 16 of the Securities Exchange Act of
1934, as amended, no amendment shall be made more than once every six months
that would change the amount, price or timing of Recruitment Grants or Renewal
Grants, other than to comport with changes in the Code, or the rules and
regulations promulgated thereunder; and provided, further, that if required to
qualify the Plan under Rule 16b-3, no amendment shall be made without the
approval of the Company's shareholders that would:
10.1 materially increase the number of Shares that may be issued under
the Plan;
10.2 materially modify the requirements as to eligibility for
participation in the Plan; or
10.3 otherwise materially increase the benefits accruing to participants
under the Plan.
- --------------------------------------------------------------------------------
6 - 1996 STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS
<PAGE>
Exhibit 10.5
LETTER OF AGREEMENT
This Letter of Agreement is entered into as of January 23, 1995 between and
among Mr. Tony Martins, Ms. Anna Marra, Ms. Claude Gareau, Mr. Ronald Bastien
(collectively the TMAI group), Tony Martins & Associes, Inc. ("TMAI"), Claremont
Technology Group, Inc. (Claremont) and 9014-2191 Quebec Inc. (Claremont Canada).
The TMAI Group, TMAI and Claremont wish to join forces, through the
transactions described in this Letter of Agreement.
1. EMPLOYMENT.
1.1 WHEN. The members of the TMAI Group will be employed effective as of
January 23, 1995.
1.2 BY WHOM. The members of the TMAI Group will be employed by Claremont
Canada.
1.3 TERMS. Each member of the TMAI Group will sign employment agreements
with Claremont Canada, in form separately agreed with each.
1.4 COMPENSATION -- TEAM. Each member of the TMAI Group will receive
salaries, and as a condition of their continued employment by and with Claremont
Canada, options to purchase stock in Claremont, on terms to which each has
agreed. Each member of the TMAI group will also receive benefits and paid time
off, as standard for the individual's position (or comparable positions) within
Claremont.
2. TECHNOLOGY.
2.1 TECHNOLOGY AND DELIVERY. Immediately following execution of this
letter, the TMAI Group will deliver, or cause TMAI to deliver, copies of all
intellectual property shown on Exhibit 2.1, in the form in which it exists on
the date of this agreement, to Claremont following execution of this letter.
The material described on Exhibit 2.1 is referred to herein collectively as the
"Technology."
2.2 REPRESENTATION. TMAI and the TMAI Group collectively represent and
warrant that TMAI is the sole and exclusive owner of the Technology, that said
TMAI holds all rights, title and interest in and to the Technology, and that
Claremont's ownership and use of the Technology will not infringe the rights of
any third party. The TMAI Group will defend and indemnify Claremont from all
judgments against Claremont, and all reasonable attorneys' fees incurred by
Claremont in the course of defending against claims that result in judgment
against Claremont, to the extent that the judgment is based on a determination
that the representations of this paragraph are inaccurate, but only as to
judgments based on claims presented in writing within two years of the date of
this agreement. Claremont shall inform the TMAI Group of any such claim
promptly, and the members of the TMAI Group shall be entitled to participate in
the defense of any such claim against Claremont, at their own expense.
(Claremont will pay the expenses associated with any participation requested by
Claremont.)
Page 1 -- Letter of Agreement
<PAGE>
3. PURCHASE OF TONY MARTINS & ASSOCIES, INC.
3.1 AGREEMENT. The TMAI Group agrees to sell, and Claremont Canada agrees
to purchase, all of the capital stock of TMAI for an aggregate purchase price
equal to the total of the amounts set forth in Sections 3.2.1 and 3.2.4, which
purchase price shall be payable at the times set out therein, on the following
terms and conditions.
3.2 CLOSING. Closing will take place on March 3, 1995, with effect as of
January 23, 1995. Closing will take place at the offices of Claremont's
corporate counsel, Ater Wynne Hewitt Dodson & Skerritt, in Portland, Oregon,
provided that individuals may participate in the close through facsimile
documents and conference telephone from wherever they happen to be. All parties
will accept facsimile signatures for purposes of close, and facsimile
transmission of signed copies as proof of delivery at close, with hard copy to
be delivered by courier. For convenience, some deliveries of required closing
materials may be made to Claremont's Montreal counsel, Ogilvy Renault, in
Montreal, as described below.
3.2.1 CLAREMONT'S DELIVERIES AT CLOSE. Claremont will deliver to
closing, made out in the name of each of the four shareholders of TMAI,
checks in the total amounts shown here. Any reduction will be allocated in
proportion to the amounts shown below, among the four people shown below.
Tony Martins US$ 159,298
Anna Marra US$ 43,445
Claude Gareau US$ 43,445
Ronald Bastien US$ 43,445
3.2.2 OPINION OF ATER WYNNE HEWITT DODSON & SKERRITT, AND OLGILVY
RENAULT, COUNSEL TO CLAREMONT AND CLAREMONT CANADA.
3.2.3 TMAI GROUP DELIVERY AT CLOSING: Each of the four
shareholders of TMAI will deliver at close these things.
(a) STOCK. All of his or her shares in TMAI, endorsed over to
Claremont Canada. These shall be delivered to Claremont's Montreal,
Canada law firm, Ogilvy Renault.
(b) REPRESENTATION. A written representation confirming the
effectiveness, as of closing, of all representations and warranties
described in this agreement, and noting with particularity any adverse
change in the net cash balance shown on Exhibit 3.3.1.
(c) CORPORATE OFFICES. A written certification, signed by the
Secretary of TMAI, of the identity of each of the officers and
directors of TMAI holding office on the closing date. The
certification shall also contain and certify as genuine the signature
of each such officer and director.
(d) RESIGNATIONS. The written resignation of each officer and
director of TMAI, effective as of the date of close.
Page 2 -- Letter of Agreement
<PAGE>
(e) MINUTE BOOKS AND CORPORATE RECORDS. The original minute
books and corporate records of TMAI. These shall be delivered to
Claremont's Montreal, Canada law firm, Ogilvy Renault.
(f) OPINION OF MARTINEAU WALKER, COUNSEL TO TMAI AND THE MEMBERS
OF THE TMAI GROUP.
3.2.4 MECHANICS OF CLOSE. Closing shall be deemed completed when
Ater Wynne holds original copies of the share certificates described in
Section 3.2.2(a). The parties will instruct Ater Wynne, as holder of the
closing escrow, that upon its confirmation of the satisfaction of the
closing conditions, it shall release the checks Claremont has delivered to
the TMAI Group members, and the materials the TMAI group has delivered to
Claremont.
3.2.5 POST CLOSING. On January 31, 1996, Claremont will deliver,
made out in the name of each of the four shareholders of TMAI, checks in
the amounts shown here:
Tony Martins US$ 72,023
Anna Marra US$ 19,643
Claude Gareau US$ 19,643
Ronald Bastien US$ 19,643
3.3 REPRESENTATIONS AND WARRANTIES: Each of the four shareholders of TMAI
warrants and represents these things, as of the date of this letter and at close
of the purchase of TMAI stock. Each of these warranties survives the close, for
a period of one year. Any exceptions to these warranties are listed on the
attached Exhibit 3.3.
3.3.1 FINANCIAL STATUS. TMAI's financial status is accurately and
completely represented by the financial statements shown on Exhibit 3.3.1.
TMAI's financial status has undergone no material adverse change from that
shown on Exhibit 3.3.1, and as of closing, will have undergone no adverse
undisclosed change of any kind as to the net cash balance (cash in excess
of liabilities) shown on that Exhibit.
3.3.2 CONTRACTS AND LIABILITIES. TMAI has no contracts or
liabilities of any kind except as reflected on the December 31, 1994
financial sttements. Each material contract by which TMAI is bound (that
is, having a potential financial impact exceeding Can$ 5,000 over the
contract life) is listed on the attached Exhibit 3.3.2, and copies of them
have been or as of closing will have been provided to Claremont or its
counsel. All contracts are in good standing and no reservations have been
expressed by any customer concerning any aspect of past, present, or
anticipated future performance called for under the contracts. Neither
this transaction nor any other contemplated by this letter will cause any
default in or breach of any term of any of TMAI's contracts.
3.3.3 CAPITAL STRUCTURE. The individuals listed below are the
only stockholders in TMAI, and own the percentages of the total issued and
outstanding stock shown by their names, all of which will have been
delivered to Claremont Canada at the close. No person owns any rights to
cause stock to issue from TMAI, such as but not
Page 3 -- Letter of Agreement
<PAGE>
limited to warrants, options, convertible debt or other similar instruments
which could or may be convertible into stock. TMAI has no subsidiaries.
Each of the individuals listed below for himself or herself further
represents that he or she owns the TMAI stock listed free and clear of all
claims by or encumbrances in favor of any third party with full power and
authority to sell, assign and transfer the purchased shares.
Tony Martins 550 Class A shares
Anna Marra 150 Class A shares
Claude Gareau 150 Class A shares
Ronald Bastien 150 Class A shares
3.3.4 FORMALITIES. All corporate formalities have been observed
that are conditions precedent to the sale of all TMAI stock to Claremont
Canada, including without limitation all consents of TMAI's board of
directors or shareholders pursuant to the provisions of TMAI's charter
documents or shareholder agreements, if any. Minutes of all required board
of directors meetings and shareholders meetings have been prepared and
approved, and are included in TMAI's minute books. Except for filings
required as a result of or in connection with the transactions contemplated
herein, all required filings with the agencies of the Province of Quebec or
Canada have been made, or will by the date of closing have been made, and
any necessary government or regulatory approvals have been obtained or will
by the date of closing have been obtained.
3.3.5 EMPLOYEES. TMAI employs, as of the date of close, only
those individuals listed on the attached Exhibit 3.3.5. Any written
employment agreement has been listed on Exhibit 3.3.2.
4. OTHER MATTERS.
4.1 NON-WAIVER. A waiver of one or more breaches of any clause of this
agreement shall not act to waive any other breach, whether of the same or
different clauses.
4.2 ASSIGNMENT. This agreement may not be assigned without the express
written consent of each party, which consent will not be unreasonably withheld.
4.3 GOVERNING LAW, JURISDICTION. This agreement is governed by the laws
of the Province of Quebec. Any action brought between the parties may be
brought only in the provincial or federal courts located in Montreal, Quebec,
and in no other place unless the parties expressly agree in writing to waive
this requirement. Each party consents to jurisdiction in that location. Each
party consents to service of process through the method prescribed for notice in
this agreement.
4.4 ATTORNEYS' FEES. The prevailing party in any suit, action,
arbitration, or appeal filed or held concerning this agreement shall be entitled
to reasonable attorneys' fees.
4.5 LANGUAGE. The parties hereto confirm that it is their wish that this
agreement as well as any other documents relating hereto, including
communications, be drawn up in English. Les parties aux presentes confirment
leur volonte que cette convention de meme que tous les documents, y compris les
avis, s'y rattachant soient rediges en anglais.
Page 4 -- Letter of Agreement
<PAGE>
4.6 NOTICE. Any notice, request, instruction or other document to be
given hereunder by any party hereto shall be in writing and shall be delivered
personally or sent by registered or certified mail, postage prepaid; at the
following addresses:
If to TMAI Group: c/o Antonio Martins
405 Louise Lamy
Dorval, Quebec
Canada H9S 5V7
with a copy to: Claude Desy
Martineau Walker
Stock Exchange Tower
Suite 3400, P.O. Box 242
800 Place-Victoria
Montreal, Quebec
Canada H4Z 1E9
If to Claremont: Paul G. Mardesich
Vice President
Claremont Technology Group, Inc.
1600 N.W. Compton Drive
Beaverton, OR 97006
with copies to: William C. Campbell, Esq.
Ater Wynne Hewitt Dodson & Skerritt
Portland, OR 97201
or such other addresses as either party may designate by written notice to
the other.
4.7 INTEGRATION. This agreement, including the Exhibits attached hereto,
is the complete agreement with respect to the subject matter hereof between the
parties as of its date, and supersedes all prior agreements, written or oral.
It may be modified only in writing signed by the original parties hereto, or by
their successors or assigns.
Claremont Technology Group, Inc. TMAI Group:
By:
-------------------------------- ---------------------------------------
Antonio Martins
Print:
----------------------------- ---------------------------------------
Anna Marra
Title:
----------------------------- ---------------------------------------
Claude Gareau
Date:
----------------------------- ---------------------------------------
Ronald Bastien
Page 5 -- Letter of Agreement
<PAGE>
9014-2191 Quebec Inc. (Claremont Canada) Tony Martins & Associes, Inc.
By: By:
-------------------------------- ------------------------------------
Print: Print:
----------------------------- ---------------------------------
Title: Title:
----------------------------- ---------------------------------
EXHIBIT LIST:
2.1: Definition of Technology
3.3: Disclosure Schedule (Exceptions to Closing Warranties and
Representations.)
3.3.1: 12/31/94 TMAI financials.
3.3.2: Material Contracts.
3.3.5: List of Employees.
Page 6 -- Letter of Agreement
<PAGE>
Exhibit 2.1
TECHNOLOGY
1. Custom enhancements to Sterling Software's "Answer Architect" CASE tool to
support preparation of unique "Value Software" charts and diagrams.
2. "Organizational Impact Assessment" document/template (Microsoft Word).
3. Technical Specifications for the construction of "Standard Parts" (DMOs,
Engines, Presentation Objects, and Interpreters).
4. Training materials for courses in:
- Project Planning
- Project Tracking
- Software Engineering:
- Concepting
- Concepting Workshop
- Software Manufacturing:
- Classes of Objects
- Operational Interface Design
- Physical Object Networks
- Object Coding, Testing and Subassembly
- Final Assembly, Integration Testing, and User Acceptance Testing.
5. Any other knowhow and intellectual property possessed by TMAI, Tony Martins
or any member of the TMAI Group concerning or illustrating the "Value Software"
methodology or its application.
Page 7 -- Letter of Agreement
<PAGE>
Exhibit 3.3
Disclosure Schedule
(Exceptions to Representations and
Warranties Contained in Section 3.3)
None
Page 8 -- Letter of Agreement
<PAGE>
Exhibit 3.3.1
December 31, 1994 Financials
Page 9 -- Letter of Agreement
<PAGE>
Exhibit 3.3.2
Material Contracts
1. Software Development Services Agreement dated July 1, 1994 (the
"Development Services Agreement") between Software Design Associates
Limited and Tony Martins & Assoc., Inc.
2. Schedule 2 to the Development Services Agreement dated December 1, 1994.
3. Commercial Lending Architectural Design Proposal Presented to Bank of
Boston by Tony Martins & Assoc., Inc. dated January 3, 1995. (This
proposal has not been accepted by Bank of Boston.)
4. Letter of Offer of Employment to Cindy Bouchard
5. Letter of Offer of Employment to Andre Champagne
6. Letter of Offer of Employment to Dominic Polletta
7. Letter of Offer of Employment to Ghislain Preseau
Page 10 -- Letter of Agreement
<PAGE>
Exhibit 3.3.5
List of Employees
1. Tony Martins
2. Anna Marra
3. Claude Gareau
4. Ronald Bastien
5. Cindy Bouchard
6. Andre Champagne
7. Dominic Polletta
8. Ghislain Preseau
Page 11 -- Letter of Agreement
<PAGE>
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
Claremont Technology Group, Inc. (Claremont), whose address is 1600 NW
Compton Drive, Suite 210, Beaverton, Oregon 97006 and Paul J. Cosgrave
(Executive or Employee), whose address is 3 Cole Drive, Armonk, New York, 10504,
enter this agreement.
The parties acknowledge that Claremont sells and implements software-based
custom strategic solutions and that the Executive is an experienced and
successful manager and leader of companies offering similar services.
Claremont hires Executive under these terms:
1. EMPLOYMENT.
1.1 LENGTH. Executive's employment with Claremont begins on July 1, 1994
(Effective Date), and continues until ended as this Agreement provides.
1.2 FULL TIME. Executive will work full time. Executive will devote his
good faith efforts in support of Claremont's operations and goals, during the
entire term of this Agreement. While Executive's employment by Claremont under
this Agreement continues, Executive will not engage in any other employment or
consulting without Claremont's advanced written consent.
2. EXECUTIVE'S DUTIES. Executive will serve as Claremont's President and
Chief Executive Officer. If Claremont reassigns Executive without Executive's
consent, the Executive may, at the Executive's option, decline to accept the
change in title or the new assignment and elect instead to treat it as
termination without cause by Claremont.
3. COMPENSATION PLAN.
3.1 PAY. Claremont will pay Executive initially at the rate of $400,000 a
year (Base Salary), payable in equal increments on Claremont's standard payroll
schedules, which are biweekly as of the date of this agreement. Payment will
begin as of the first standard payroll following the Effective Date. Executive's
Base Salary will not be reduced during the first three years of employment.
With that limitation, Executive's compensation will otherwise be reviewed on an
annual basis, as with other executives of the Company.
3.2 STOCK OPTIONS. Executive is granted qualified and nonqualified stock
options contemporaneously herewith, on the exercise and vesting schedules and
terms and conditions there shown. The stock will be held subject to the terms
and conditions of the shareholder agreement there shown. The terms and
conditions there outlined are incorporated into this agreement by reference.
Executive accepts the grant. As described in Section 3.1.4 of the Terms and
Conditions of Grant of the qualified and nonqualified stock options, the
Executive shall be entitled to exercise any or all of his options in advance of
the dates such options become
Page 1 -- Paul J. Cosgrave Employment Agreement
<PAGE>
exercisable per the exercise schedule. Shares exercised in advance of the date
they are exercisable under the exercise schedule shall be deemed "unvested
shares", but only until the date the right to exercise such options per the
exercise schedule has passed, at which time such shares shall be deemed vested.
3.3 BONUS. In recognition of Executive's early start with Claremont, and
of the cost to Executive associated with foregone termination pay from his
current position associated with that early start, Claremont will pay Executive
a bonus, based on Claremont's FY 1995 and FY 1996 performance, as follows:
$100,000 if Claremont's FY 1995 performance meets or exceeds $24.0 million in
revenues and $1.8 million in net income after taxes; and $150,000 if Claremont's
FY 1996 performance meets or exceeds $32 million in revenues and $3.0 million in
net income after taxes. These conditions apply to the bonus, which shall be
paid July 1, 1995 and July 1, 1996 respectively:
3.3.1 GROSS. Bonus dollars are gross pay.
3.3.2 ADVANCE. Claremont will advance Executive $150,000 against
the bonus, on these conditions:
(a) USE OF PROCEEDS. Executive uses the proceeds of the Note
immediately on receipt to exercise some of Executive's nonqualified
stock options.
(b) PROMISSORY NOTE. Executive executes a promissory note, in
form attached, and thereafter pays the interest there required on a
current basis.
3.4 OTHER COMPENSATION. Claremont will also do these things:
3.4.1 HEALTH INSURANCE, BENEFITS. Claremont will pay medical
insurance, life insurance, disability insurance, retirement, and other
fringe benefits in accordance with Claremont's then-existing policies
applicable generally to senior executives. Executive will be given a car
allowance of $650.00 per month.
3.4.2 REIMBURSEMENT. Claremont will reimburse Executive for all
expenses reasonably incurred in discharging duties as an employee of
Claremont, subject to Claremont's standard policies for amounts and
documentation to which all comparable employees may be subject from time to
time.
3.4.3 VACATION/PERSONAL TIME. Executive shall be entitled to 27
"personal days" off during each calendar year, prorated for partial
calendar years, to be taken in Executive's discretion, under Claremont's
PTO (Personal Time Off) program. Rights to PTO will accrue during the year
incrementally on a biweekly basis, and may carry over to future calendar
years or lapse if and as allowed by Claremont standard policies applicable
to all senior executives generally. Against Executives' total number of
PTO days will count normal holidays, if taken (Christmas, Thanksgiving, and
so on), sick days, and vacation.
Page 2 -- Paul J. Cosgrave Employment Agreement
<PAGE>
4. TERMINATION.
4.1 VOLUNTARY BY EXECUTIVE. Executive may resign from Claremont by one
month's Notice.
4.2 VOLUNTARY BY CLAREMONT. Claremont may end Executive's employment,
without cause, by Notice, subject to Claremont's obligation to pay termination
pay noted below.
4.3 WITH CAUSE. For the purposes of this Agreement, to be terminated with
Cause shall only mean termination for an act by Executive which results in
Executive being convicted of a felony; or for the acts of misappropriation of
Claremont monies or assets; fraud; and/or dishonesty or disloyalty to Claremont,
which is intentional, nonincidental, and adversely affects Claremont, such as
but not limited to a violation of Executive's obligations under Section 7 of
this Agreement. Claremont may terminate this Agreement effective as of the date
Notice of termination with Cause is given specifying the cause.
4.4 COMPENSATION ON TERMINATION. Following termination, Claremont will
pay these things.
4.4.1 COMPENSATION AND PTO EARNED THROUGH TERMINATION DATE.
Executive's Base Salary, commission, and bonuses as earned through the
termination date, and a buyout of all accumulated but unused personal time
off days, to be paid within thirty days of termination.
4.4.2 CONTINUATION OF BENEFITS. Claremont will continue health,
life, and disability insurance for ninety days after the termination date.
4.4.3 BASE EXTENSION. Unless Employee is terminated With Cause,
or voluntarily resigns for reasons other than a breach of Claremont's
obligations to the Executive of which the Executive has given Claremont
Notice and at least thirty days opportunity to cure, Claremont will
continue Employee's Base Salary for the longer of six months after the
termination date, or three years after the Effective Date of this
Agreement. Payment of the Executive Base Salary shall be made on
Claremont's standard payroll schedules from the date of termination, as if
the Executive had not been terminated.
4.4.4 LIMIT TO PAY: Claremont shall not pay Executive any
continuation of salary under Section 4.4.3 for any period during which
Executive competes with Claremont, or solicits business for others from
Claremont customers.
4.5 OFFSET. To the extent permissible under applicable law, without
prejudice to other remedies, Claremont may offset any amounts Executive owes
Claremont against any amounts due upon termination or thereafter.
Page 3 -- Paul J. Cosgrave Employment Agreement
<PAGE>
5. CONFIDENTIALITY.
5.1 CONFIDENTIALITY. Executive will keep Claremont's data confidential.
In doing so, Executive will not disclose Claremont's data directly or indirectly
to any person, other than an employee of Claremont or a person to whom
disclosure is reasonably necessary or appropriate to further Claremont's
business.
5.2 CLAREMONT DATA. Claremont's data consists of any trade secret or
proprietary or confidential information of Claremont or of any Claremont
affiliate. Claremont data includes, but is not limited to, records, files,
memoranda, reports, price lists, software, customer lists, drawings, sketches,
documents, equipment, and the like relating to Claremont's business which
Executive uses, prepares, or comes in contact with during the course of his work
for Claremont. Any information known generally to the public or any information
of a type not otherwise generally considered confidential by persons engaged in
the same business will not be treated as confidential.
5.3 THIRD PARTY DATA. Executive will also keep third party data
confidential as required by Claremont obligations to the third party, for at
least as long as is required for Claremont data, but longer if required by any
agreement Claremont enters into with the third party.
5.4 RETURN ON TERMINATION. Executive will return all Claremont data and
third party data, on termination of this Agreement.
5.5 SURVIVAL OF OBLIGATION. The provisions of this Section 5 shall
survive termination of this Agreement.
6. INVENTIONS.
6.1 DEFINITIONS. "Inventions" means new ideas, improvements, or
discoveries, whether or not patentable or copyrightable, as well as other newly
discovered or newly applied information or concepts. An Invention is a "Covered
Invention" if it relates to Claremont's actual or anticipated business; or was
developed in any part using Claremont resources (time, supplies, facilities, or
data); or if it results from or is suggested by a task assigned to, or work
performed for Claremont by, Executive. As used in this Section 6, "Claremont"
includes Claremont's sister corporations or subsidiaries and Claremont's
clients, consultants, and contractors.
6.2 ASSIGNMENT. All Executive's right, title and interest to any Covered
Inventions that Executive makes or conceives while employed by Claremont, belong
to Claremont. This Agreement operates as a prospective assignment of all those
rights to Claremont.
6.3 OBLIGATION SURVIVES. The provisions of this Section 6 shall survive
termination of this Agreement.
Page 4 -- Paul J. Cosgrave Employment Agreement
<PAGE>
7. NON-COMPETITION; NON-SOLICITATION.
7.1 COMMITMENT. During Executive's employment with Claremont, and for
eighteen months afterward, unless Claremont consents in writing, Executive will
not compete with Claremont, or solicit business from Claremont's customers.
This commitment will not survive termination, if Claremont terminates Executive
without cause, or if the Executive voluntarily terminates his employment as a
result of Claremont's breach of its obligations to the Executive under this
Agreement, provided the Executive has first given Claremont Notice of the breach
and at least thirty days' opportunity to cure it.
7.1.1 COMPETING DEFINED. "Competing" means to provide any
services or knowledge in the area of custom solutions based on CASE
technology or templates directly or indirectly to a Claremont customer.
Service is "indirect" if the service is provided to another person or
company who in turn provides it to a Claremont customer. "Service"
includes acting as an employee, independent contractor, consultant,
officer, director, or agent. Being employed by a company that itself
provides service to a Claremont customer is not competition, unless the
Executive himself is providing the service directly, or gives assistance
that is substantively related to a particular Claremont customer to others
to help them perform those services directly.
7.1.2 SOLICITING BUSINESS DEFINED. Soliciting business means with
respect to custom solutions or templates based on CASE technology,
performing work for or soliciting work from anyone who has been a customer
or client of Claremont, or providing knowledge or assistance to another for
any of those purposes, on either a consulting or an employment basis.
7.1.3 CLAREMONT'S CUSTOMERS DEFINED. Claremont's customers are:
(a) EXISTING. Entities or individuals who have purchased
consulting or programming services, software, or goods from Claremont
at any time within three years before the date employment ends.
(b) ACTIVE PROSPECTS. Entities or individuals who are active
prospects of Claremont. An active prospect is one upon whom more than
three calls have been made in any one-month period, or to whom a
proposal has been submitted or by whom a proposal has been requested,
and from whom, on the date employee's employment terminates, Claremont
reasonably believes it may secure work or product or service orders.
(c) DEPARTMENTS OR DIVISIONS OF CUSTOMERS. In the event a
customer has more than one department and/or division, only the
particular department and/or division which would otherwise qualify as
a Claremont Customer if considered independently shall be deemed a
customer of Claremont under this paragraph 7.1.3, and not any other
department or division.
7.2 NON-HIRING. During Executive's employment, and for eighteen months
afterward, unless Claremont consents in writing, Executive will not solicit or
assist in the solicitation of Claremont employees.
Page 5 -- Paul J. Cosgrave Employment Agreement
<PAGE>
7.3 SURVIVAL OF OBLIGATION. The provisions of this Section 7 shall
survive termination of this Agreement.
8. OTHER MATTERS.
8.1 NOTICE. Notice to Executive shall be sent to Executive's most recent
address shown in Claremont's personnel records. Notice to Claremont shall be
sent to Claremont's headquarters address, marked attention: Chairman. Either
party may change its address by Notice. Notice shall be effective when the
person to whom it is sent actually gets it, if sent by any method that leaves a
paper or electronic record in the hands of the recipient. If sent certified or
registered mail, postage prepaid, return receipt requested, to the proper
address this section defines, notice shall be considered effective whether or
not actually received on the date the return receipt shows the notice was
accepted, refused, or returned undeliverable.
8.2 SEVERABILITY. Each clause of this agreement is severable. If any
clause is ruled void or unenforceable, the balance of the agreement shall
nonetheless remain in effect.
8.3 NON-WAIVER. A waiver of one or more breaches of any clause of this
agreement shall not act to waive any other breach, whether of the same or
different clauses.
8.4 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of Claremont, its successors and assigns and shall be binding upon and
inure to the benefit of Executive, and Executive's administrators, executors,
legatees, and heirs. This Agreement shall not be assigned by Executive.
8.5 GOVERNING LAW. This agreement is entered in, and is governed by, the
laws of the state of Oregon.
8.6 JURISDICTION. Each party consents to service of process through the
method prescribed for notice. As violation of the non-competition or non-
solicitation obligations of this agreement, or those related to rights in
intellectual property, would result in damage to Claremont that could not be
cured by an award of money alone, Claremont shall be entitled to injunctive
relief in cases where a violation of those obligations is shown.
8.7 ATTORNEYS' FEES. The prevailing party in any suit, action,
arbitration, or appeal filed or held concerning this agreement shall be entitled
to reasonable attorneys' fees and the actual, reasonably necessary costs of the
proceeding.
8.8 INTEGRATION. This agreement is the complete agreement between the
parties. The parties expressly agree that it constitutes the agreement that was
and is in force between them as of its effective date, and that it is made and
entered into upon its execution by both parties herein. It supersedes all prior
agreements, written or oral. It may be modified only in writing signed by the
original parties hereto, or by their successors or superiors in office.
Page 6 -- Paul J. Cosgrave Employment Agreement
<PAGE>
Notwithstanding the aforesaid, any conflict in the provisions of this Agreement
and its exhibits, shall be resolved in favor of the provisions of this
Employment Agreement.
PAUL J. COSGRAVE CLAREMONT TECHNOLOGY GROUP, INC.
Sign: Sign:
------------------------------ ----------------------------------
Steven L. Darrow, Chairman
Date: Date:
------------------------------ ----------------------------------
Page 7 -- Paul J. Cosgrave Employment Agreement
<PAGE>
Exhibit A to Employment Agreement
Promissory Note
$150,000 Portland, Oregon
FOR VALUE RECEIVED, I, Paul J. Cosgrave, promise to pay Claremont
Technology Group, Inc. (Claremont) $150,000, together with interest thereon at
4% (simple) per year, as follows:
INTEREST to be due and payable quarterly, on the last day of each calendar
quarter, with final interest payment made with final principal payment.
PRINCIPAL to be due and payable as follows: $60,000 on July 1, 1995, if I
earn a 1995 FY Bonus under clause 3.3 of my employment agreement with Claremont,
and $90,000 on July 1, 1996 if I earn a 1996 FY Bonus under clause 3.3 of my
employment agreement with Claremont.
If either bonus is not earned, the increment that would have been due that
year shall be due and payable July 1, 1997.
If I leave Claremont's employ for any reason before the balance due under
this note is paid, whether or not it is then due, Claremont may deduct any
unpaid balance out of any termination pay otherwise due under my employment
agreement, regardless of the reason for my termination.
Action on this note shall be had in the courts of Multnomah County, Oregon.
If a case is filed to collect this note, I will pay, in addition to all amounts
due hereunder, such sums as the court deems reasonable for attorneys' fees and
costs of collection.
MADE Effective July 1, 1994, by:
- -----------------------------------
Paul J. Cosgrave
Page 8 -- Paul J. Cosgrave Employment Agreement
<PAGE>
Exhibit 10.13
CLAREMONT TECHNOLOGY GROUP, INC.
EXECUTIVE STOCK PURCHASE AND
EXECUTIVE BONUS PROGRAM
DEFINITION
The Executive Stock Purchase programs allows a designated executive (Director
level and above) to purchase Claremont stock or exercise stock options
through a personal loan program arranged by the company with it's banking and
lending institution. The Executive Bonus program is designed to reward the
executive management group with cash bonuses based on attainment of financial
objectives used primarily for the purpose of paying down the personal loan
associated with the Executive Stock Purchase program.
PURPOSE
The Executive Stock Purchase and Executive Bonus program is designed to
create a sense of commitment by the executive to the success of the
organization. The process of an individual putting their own personal assets
at risk will increase the level of committment to the overall success of the
company. The Executive Stock Purchase program is designed to compliment the
overall concept of employee ownership within Claremont. Through the
Executive Bonus program, the management team is incented to achieve certain
revenue and profitability targets as determined by the Compensation Committee
of the Board of Directors and apply such bonus to the loans associated with
the Executive Stock Purchase program. Participation in the Executive Bonus
program is limited to those individuals who participate in the Executive
Stock Purchase program. The concept of Employee Ownership is to reward those
who contribute to the success of the organization.
Both the Stock Purchase and Bonus Programs have been implemented with
the philosophy of offering the purchase of additional shares by executives
after the loans associated with this initial transaction are paid off.
<PAGE>
HOW IT WORKS
EXECUTIVE STOCK PURCHASE PROGRAM - The executive borrows from Claremont's
banking and lending institute, (currently Bank of America), 30 to 50% of
their current salary. The loans are for three years at a rate of interest
negotiated with the bank, (currently prime + 1%), with amortization of
principal within three years. The loans are guaranteed by the corporation.
The borrowed funds are used to either purchase Claremont stock at fair market
value at the time as determined by the Board of Directors for the initial
transaction or to exercise Claremont Stock Options. In the future, the fair
market value will be determined by an independent appraiser.
EXECUTIVE BONUS PROGRAM - The Executive Bonus Program formula rewards
profitability and revenue growth above a minimum level as established each
year by the Compensation Committee of the Board of Directors. The bonus pool
amount is 25% of the excess operating earnings, (Operating earnings is
calculated before the expense for the Executive Bonus Program or expense for
the ESOP contribution and before income taxes) above the earnings minimum
multiplied by the revenue growth above the revenue minimum proportionate
with the 100% revenue target as established by the Chief Executive Officer.
The bonus pool size is limited to 40% of the excess earnings above the
minimum.
The formula is as follows:
((A-B)*25%))*1+((C-D)/(E-D))
Where as:
A = Current year operating earnings before income taxes
B = Minimum earnings as established by the Compensation Committee
C = Total current year revenue
D = Minimum revenue as established by Compensation Committee
E = Total revenue target as established by the CEO
Each year the Compensation Committee in working with the CEO will develop a
financial model that illustrates the revenue and operating earnings minimums
and forecasted bonus pool based on assumed levels of revenue and
profitability growth.
As this program is new the Compensation Committee may need to adjust the
formula to adjust for various economic conditions.
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
EXECUTIVE BONUS PLAN PARTICIPATION AGREEMENT
Executive's Name:
-----------------------
Date of Agreement:
----------------------
CLAREMONT TECHNOLOGY GROUP, INC. ("Claremont") grants you the right to
participate in the Executive Bonus Plan. Your execution of this Agreement
constitutes your election to participate under the Terms and Conditions of the
Executive Bonus Plan attached as Exhibit A and incorporated herein, and your
agreement to execute and be bound by the Shareholder Agreement attached as
Exhibit B and incorporated herein.
The specific terms of your participation are as follows:
1. SALARY INCREASE. Your salary will be increased by five percent (5%) of
base salary effective with the pay period beginning July 8, 1995.
2. BONUS. You will be entitled to a bonus to be set by the Compensation
Committee of the Board of Directors.
3. LOAN GUARANTEE. Claremont will guarantee your loan from Bank of America
Oregon in an amount not to exceed $_______________.
4. USE OF LOAN PROCEEDS. You will use the proceeds of your loan to purchase
Claremont shares ("Shares") as follows:
Shares to be Purchased Purchase Price
---------------------- --------------
Purchase ________ shares from $3.55
selling shareholders.
Exercise ________ options under
Option Agreement ______________. $________
5. EXECUTION OF SHAREHOLDER AGREEMENT. You will be required to execute the
Shareholder Agreement (Exhibit B) and your spouse, if any, must execute the
Consent of Spouse (Attachment 1 to Exhibit B).
- --------------------------------------------------------------------------------
1 - EXECUTIVE BONUS PLAN PARTICIPATION AGREEMENT
<PAGE>
6. PLEDGE OF SHARES. You will pledge the Shares to Claremont to secure your
obligation to repay Bank of America Oregon, which will be guaranteed by
Claremont.
7. RELEASE OF PLEDGED SHARES. Pledged Shares will be released from the pledge
and returned to you on your written request based on reductions in the principal
amount of the Bank of America Oregon loan.
8. CLAREMONT'S RIGHT TO REPURCHASE. If your employment by Claremont
terminates, Claremont will have a right to purchase the Shares.
You acknowledge reviewing this document and Exhibits A and B before
signing. You accept the Terms and Conditions of the Executive Bonus Plan
attached as Exhibit A and the Shareholder Agreement attached as Exhibit B. You
also agree to accept as binding and final all decisions or interpretations of
the Compensation Committee of the Board of Directors upon any questions arising
under this Agreement or the Plan.
EXECUTIVE CLAREMONT TECHNOLOGY GROUP, INC.
- ----------------------------------- By:
------------------------------------
Signature of Executive Printed Name:
--------------------------
Printed Name: Title:
---------------------- ---------------------------------
Address:
---------------------------
- -----------------------------------
Social Security Number:
------------
- --------------------------------------------------------------------------------
2 - EXECUTIVE BONUS PLAN PARTICIPATION AGREEMENT
<PAGE>
EXHIBIT A
Terms and Conditions of Executive Bonus Plan
- --------------------------------------------------------------------------------
EXHIBIT A
<PAGE>
EXHIBIT A
CLAREMONT TECHNOLOGY GROUP, INC.
EXECUTIVE BONUS PLAN
The Executive Bonus Plan between certain nominated Executives ("Executive")
and CLAREMONT TECHNOLOGY GROUP, INC. ("Claremont") is governed by the following
terms and conditions. Executive will be nominated by the Compensation Committee
of the Board of Directors of Claremont ("Committee") to participate in
Claremont's Executive Bonus Plan ("Plan"). Under this Plan, the Executive will
be entitled to certain benefits which Claremont hopes will reward the Executive
and encourage continued efforts to increase profitability of Claremont. To
achieve these purposes, Executive and Claremont agree as follows:
1. ELECTION TO PARTICIPATE. By entering into the Executive Bonus Plan
Participation Agreement ("Agreement"), Executive is making a choice to accept
the benefits under the Agreement and the Plan in lieu of any other bonus
programs and raises which Claremont might adopt for its other employees.
2. SALARY INCREASE. Effective with the pay period indicated in the
Agreement, Executive's base salary will be increased by the amount shown on the
Agreement. Executive will be entitled to receive this increased salary until
the earliest of termination of employment, the third anniversary of the
Agreement, or payment in full of the loan to Executive guaranteed by Claremont
(described below), after which Executive's salary (as increased hereby) will be
subject to re-evaluation. It is further understood that during the term of this
Agreement, it is unlikely that there will be any other changes to Executive's
base salary.
3. BONUS. Executive also will be entitled to a bonus to be set by the
Committee in its discretion after consideration of Claremont's profitability.
4. ELIGIBILITY FOR BONUS. Any bonus will be payable only if the
Executive is employed by Claremont on the date of bonus payment.
5. LOAN GUARANTY. Claremont will guaranty Executive's personal loan (the
"Loan") from Bank of America Oregon in an amount not to exceed the amount shown
on the Agreement, the proceeds of which Loan Executive may use to purchase the
Claremont common stock identified in the Agreement.
6. PROMISE TO PAY LOAN AND HOLD CLAREMONT HARMLESS. The Loan and
Claremont's guaranty will directly benefit Executive. Therefore, Executive
agrees he or she will repay the loan in full out of the salary increase and
bonuses provided under the Agreement and the Plan
- --------------------------------------------------------------------------------
1 - Exhibit A - Executive Bonus Plan
<PAGE>
or otherwise. To help ensure that the Loan will be paid and Claremont's
guaranty will not be called upon, Executive authorizes and directs Claremont:
(1) To pay directly to Bank of America Oregon that portion of Executive's
base salary necessary to pay all interest owed on Excutive's Loan;
(2) To pay directly to Bank of America Oregon all bonuses (after reduction
for taxes owed thereon) for application to Executive's Loan.
Executive agrees to hold Claremont harmless from and immediately repay Claremont
for any amounts Claremont may be required to pay under its guaranty of the Loan,
together with interest at the rate of 12% per annum from the date of demand
until these amounts are paid to Claremont in full.
7. SECURITY FOR INDEMNITY; PLEDGE OF SHARES. To secure its obligation to
indemnify and pay Claremont any amounts which Claremont pays on its guaranty,
Executive pledges to Claremont and grants Claremont a security interest in
shares of Claremont common stock and all proceeds thereof described in the
Agreement (the "Shares").
a. DELIVERY OF CERTIFICATE FOR SHARES. Executive will deliver to
Claremont a stock certificate evidencing the Shares purchased with the Loan (the
"Certificate"), together with a stock power endorsed in blank, to hold subject
to the terms of the Agreement and the Plan.
b. CARE OF CERTIFICATE. Claremont will take reasonable care in the
custody and the preservation of the Certificate. On performance in full of all
obligations secured by the Agreement and Plan, Claremont shall deliver the
Certificate to Executive, together with the stock power endorsed by Executive in
blank.
c. REPRESENTATIONS AND WARRANTIES OF EXECUTIVE. Executive
represents and warrants to Claremont that except for any encumbrance created
hereby:
i. Executive is the owner of the Shares, free and clear of
liens, encumbrances, or other matters that might affect title to the Shares; and
ii. Executive has full power to transfer the Shares, and upon
such transfer, the transferee shall take good and marketable title to the Shares
free and clear of any claims, liens, encumbrances, or security interests.
d. COVENANTS OF EXECUTIVE WITH RESPECT TO SHARES. Executive agrees
that:
- --------------------------------------------------------------------------------
2 - Exhibit A - Executive Bonus Plan
<PAGE>
i. Executive shall not allow or grant any other lien or
security interest with respect to the Shares; and
ii. Executive shall procure, execute, and deliver from time to
time any endorsements, assignments, financing statements, and other writings
deemed necessary or appropriate by Claremont to perfect, maintain, and protect
Claremont's security interest in the Shares and its priority.
e. AUTHORIZED ACTION BY CLAREMONT; PROXY. Executive irrevocably
appoints Claremont as attorney-in-fact and grants Claremont a proxy to do (but
Claremont shall not be obligated and shall incur no liability to Executive or
any third party for failure to do so), after and during the continuance of an
Event of Default (as defined in Section 7.g., below), any act that Executive is
obligated by this Agreement to do and to exercise such rights and powers as
Executive might exercise with respect to the Shares. With respect to voting the
Shares, this Section 7.e. constitutes an irrevocable appointment of a proxy,
coupled with an interest, which shall continue until all obligations secured
hereunder are performed in full.
f. VOTING SHARES; CUSTODY OF CERTIFICATES.
i. As long as no Event of Default (as defined in Section 7.g.,
below) shall have occurred, Executive shall be entitled to vote the Shares.
ii. With respect to the Shares, if at any time or from time to
time, Executive shall receive or shall become entitled to receive any dividend,
warrant, option, or any other distribution, whether in securities or other
property, for any reason, including without limitation, liquidation, stock
split, spin-off, split-up or reclassification, combination of Shares, or the
like, or in case of any reorganization, consolidation, or merger, Claremont
shall be entitled to immediate delivery of all such dividends or other
distribution, in pledge, as security for the payment and performance of the
obligations secured by the Agreement and Plan. Executive instructs Claremont to
make all such distributions directly to Claremont. Claremont may endorse, in
its name or in the name of Executive, any and all instruments by which any
payment on the Shares may be made and may take such action as Claremont may deem
appropriate from time to time, in Claremont's name or in the name of Executive,
to enforce collection of the Shares. For such purpose, Executive appoints
Claremont the attorney-in-fact of Executive, under a power coupled with an
interest, with full power of substitution.
g. EVENT OF DEFAULT. Failure to pay the Loan or to pay immediately
on demand any amount of principal or interest paid by Claremont under the
guaranty of the Loan, and breach by Executive of any other provision of the
Agreement and Plan constitutes an Event of Default.
- --------------------------------------------------------------------------------
3 - Exhibit A - Executive Bonus Plan
<PAGE>
h. REMEDIES UPON DEFAULT. Upon the occurrence of any Event of
Default, Claremont may, in Claremont's sole discretion and with or without
further notice to Executive and in addition to all rights and remedies at law or
in equity or otherwise:
i. Pay the entire unpaid balance of the Loan.
ii. Register in Claremont's name any or all of the Shares.
iii. Exercise Claremont's proxy rights with respect to all or a
portion of the Shares. In such event, Executive agrees to deliver promptly to
Claremont further evidence of the grant of such proxy in any form requested by
Claremont.
iv. Sell or otherwise dispose of the Shares in accordance with
Section 7.i., below.
v. Retain all pledged Shares in full or partial satisfaction of
Executive's obligations to repay Claremont amounts paid under its guaranty.
i. SALE UPON DEFAULT. Executive and Claremont acknowledge and agree
that the Shares are restricted stock within the meaning of the rules and
regulations promulgated under the Securities Act of 1933, that is difficult to
value, and for which no public market exists. The parties further agree that
the Shares are not subject to sale in a "recognized market" as that term is
described in ORS 79.5040. Executive and Claremont wish to agree to reasonable
standards for conducting a commercially reasonable sale of the Shares. Without
limiting rights and remedies otherwise available to Claremont, the parties agree
that compliance with the following steps shall satisfy requirements of a
commercially reasonable sale:
i. The sale may be either a public or a private sale, at
Claremont's discretion, and it may be for all or any portion of the Shares.
ii. Claremont shall set a date for public sale of the Shares, or
a date after which a private sale may occur, which date shall be not less than
30 days after the date notice of the sale is given to Executive, and shall send
written notification to Executive in advance regarding the date and the time of
the public sale, or the date after which a private sale may occur.
iii. Any public sale shall take place at a site in Oregon
selected by Claremont.
iv. Immediately upon request, Executive shall provide Claremont
with information requested by Claremont for compliance with state or federal
securities laws.
- --------------------------------------------------------------------------------
4 - Exhibit A - Executive Bonus Plan
<PAGE>
v. At any sale of any of the Shares, Claremont may restrict the
prospective bidders or purchasers to persons or entities who, by certain
representations made by them, would render registration of the sale under state
or federal securities laws unnecessary.
8. RELEASE OF SHARES. Pledged Shares shall be released from the pledge
and returned to Executive on Executive's written request if Claremont is
presented with satisfactory evidence that the Loan has been paid as agreed to
that date. The number of Shares released and for which a new Certificate will
be issued will be based on ratio of the amount of principal repaid on the Loan
to the original principal balance. For example, if one-third of the principal
has been repaid, one-third of the Shares will be released. For calculating the
number of Shares to be released, the Shares will be valued at the purchase price
stated in the Agreement.
9. RESTRICTION ON TRANSFER OF SHARES. Except as provided below,
Executive agrees that the Shares released from the pledge, may not be assigned,
transferred, pledged (other than to Claremont) or otherwise disposed of in any
way except in accordance with the Shareholder Agreement attached to the
Agreement as Exhibit B, and any such attempt shall be without effect.
Notwithstanding the foregoing, Executive's Shares may be transferred to
Claremont in accordance with Section 7.h.ii and 7.h.v. of this Agreement.
10. CLAREMONT'S RIGHT TO PURCHASE. Claremont will have a right, but no
obligation, to purchase the Shares identified above from Executive if
Executive's employment by Claremont is terminated, voluntarily or involuntarily,
with or without cause, on retirement, death or disability, or for any or no
reason. Claremont's option shall be exercised, if at all, in accordance with
the terms of the Shareholder Agreement attached to the Agreement as Exhibit B.
11. NOTICES. Notice to Claremont under the Agreement shall be sent to
Claremont's president at Claremont's principal place of business. Notice to
Executive shall be sent to the Executive's address as it appears on the books
and records of Claremont, or to such other address as Executive may from time to
time by notice provide. Notice shall be effective when actually received by the
party the Agreement or Plan designates for notice, if sent by any means that
leaves a hard-copy record in the hands of the recipient. If sent certified or
registered mail, postage prepaid, return receipt requested, notice shall be
deemed effective on the date the return receipt shows the notice was accepted,
refused, or returned undeliverable.
12. SEVERABILITY. Each clause of the Agreement and Plan is severable. If
any clause is ruled void or unenforceable, the balance of the Agreement and Plan
shall nonetheless remain in effect. Wherever there is any conflict between any
provision of the Agreement and Plan and any statute, law, regulation or judicial
precedent, the latter shall prevail, but in such event the provisions of the
Agreement and Plan thus affected shall be curtailed and limited only to the
extent necessary to bring it within the requirement of the law. If any part,
section, paragraph, or clause of the Agreement or Plan shall be held by a court
of proper jurisdiction to be
- --------------------------------------------------------------------------------
5 - Exhibit A - Executive Bonus Plan
<PAGE>
indefinite, invalid or otherwise unenforceable, the entire Agreement and Plan
shall not fail on account thereof, but the balance of the Agreement and Plan
shall continue in full force and effect unless such construction would clearly
be contrary to the intentions of the parties or would result in an
unconscionable injustice.
13. NON-WAIVER. A waiver of one or more breaches of any clause of the
Agreement or Plan shall not act to waive any other breach, whether of the same
or different clauses.
14. ASSIGNMENT. The Agreement may not be assigned without the express
written consent of each party, which consent may be withheld for any or no
reason.
15. GOVERNING LAW, JURISDICTION. The Agreement and Plan are made in and
governed by the laws of the state of Oregon. Any action brought between the
parties may be brought only in the state or federal courts located in Portland,
Oregon, and in no other place unless the parties expressly agree in writing to
waive this requirement. Each party consents to jurisdiction in that location.
16. ATTORNEYS FEES, COSTS AND EXPENSES. The prevailing party in any suit,
action, arbitration or any other proceeding filed or held concerning the
Agreement or Plan shall be entitled to reasonable attorneys' fees, costs and
expenses incurred in any such proceeding. Claremont shall be entitled to
reasonable attorneys' fees, costs and expenses incurred in any collection or
foreclosure proceedings under the Agreement and Plan.
17. COMPLETE AGREEMENT. The Agreement (including Exhibits A and B
thereto) is the complete agreement between the parties dealing with the subject
matter hereof, and supersedes all prior agreements, written or oral. It may be
modified only in writing signed by the affected party.
18. MISCELLANEOUS. The Agreement is effective as of the date indicated
thereon. The Agreement may be executed in counterparts.
- --------------------------------------------------------------------------------
6 - Exhibit A - Executive Bonus Plan
<PAGE>
EXHIBIT B
CLAREMONT TECHNOLOGY GROUP, INC. SHAREHOLDER AGREEMENT
- --------------------------------------------------------------------------------
EXHIBIT B
<PAGE>
EXHIBIT B
CLAREMONT TECHNOLOGY GROUP, INC.
SHAREHOLDER AGREEMENT
This Agreement is entered into by and between Claremont Technology Group,
Inc., an Oregon corporation (the "Company"), and the undersigned Shareholder
("Shareholder").
RECITALS
A. The Shareholder owns (or may obtain through exercise of options)
shares (the "Shares") of the Company's Common Stock.
B. The Shareholder and the Company desire to enter into an Agreement
relating to the sale or other disposition of the Shares.
AGREEMENT
The parties agree as follows:
1. RESTRICTIONS ON TRANSFER. The Shareholder shall not sell, assign,
transfer, pledge or in any other manner alienate any of the Shares held by him
or her, or any right or interest therein, whether voluntarily or by operation of
law or otherwise, except to the Company by consent of the Board of Directors,
unless the transfer meets the requirements set forth in this Agreement.
2. FIRST REFUSAL. If the Shareholder desires to sell any Shares (unless the
Shareholder elects to transfer under the terms of Section 3), the Shareholder
shall first be obligated to offer to sell the Shares to the Company or its
designee in accordance with the remaining subsections of this Section.
2.1 NOTICE. The Shareholder shall give written notice to the Company of
the Shareholder's desire to sell the Shares (the "Option Notice"). The Option
Notice shall set forth the name of the proposed purchaser, the number of Shares
proposed to be sold, the purchase price per Share and the terms of payment
proposed by the purchaser (the "Purchase Terms").
2.2 COMPANY'S OPTION. The Company (or its designee whom the Company
identifies by notice to the Shareholder) shall have the option to purchase all,
but not less than
- --------------------------------------------------------------------------------
1 - EXHIBIT B - SHAREHOLDER AGREEMENT
<PAGE>
all, of the Shares described in the Option Notice in accordance with the
Purchase Terms. The option shall be exercised, if at all, by notice to the
Shareholder within 30 days.
2.3 CLOSING. Closing of the purchase shall take place at the Company's
principal office on the date designated by the Company or its designee, which
date shall be before the later of 30 days following the closing date specified
in the Purchase Terms or 50 days following the effective date of the Option
Notice.
2.4 IF COMPANY DECLINES. If the Company (or its designee) does not elect
to acquire the Shares specified in the Option Notice, the Shareholder may sell
the proposed purchaser the Shares within the 60 day period following the receipt
by the Company of the Option Notice. These conditions will apply:
2.4.1 IDENTICAL TERMS FOR PURCHASE. The purchase terms for the
Shares shall be identical with those described in the Option Notice.
2.4.2 SHAREHOLDER AGREEMENT APPLIES. The purchaser shall be bound
by the terms and conditions of this Agreement, as if an original
Shareholder. The Company may require the purchaser's written Agreement to
be bound, before the Company enters the transfer of the Shares to the
purchaser in the Company's stock records.
3. TRANSFER TO IMMEDIATE FAMILY. Shareholder may transfer any or all of the
Shareholder's Shares to his or her Immediate Family, either during his or her
lifetime or on death by will or intestacy. "Immediate Family" shall mean
spouse, lineal descendant of Shareholder or Shareholder's spouse, father,
mother, brother or sister of Shareholder, or a trust established for which one
or more Immediate Family Members are the sole beneficiaries. These conditions
apply:
3.1 SHAREHOLDER AGREEMENT APPLIES. Upon any transfer described in this
Section, the transferee shall be bound by the terms and conditions of this
Agreement as Shareholder. The Company may require the transferee's written
agreement to be bound to this Agreement before entering the transfer in the
Company's stock records.
3.2 SUBSEQUENT TRANSFERS. For purposes of determining to whom a
transferree under this Section 3 may make further transfers under the same
section, the people who qualify as "Immediate Family" shall be determined by
reference to the identity of the originating Shareholder. Thus under this
section a parent may transfer to a child, who may further transfer to any other
immediate family member of the parent. But the child may not transfer to the
child's spouse without the Company's consent, because the child's spouse is not
a member of the originating Shareholder's "immediate family.
- --------------------------------------------------------------------------------
2 - EXHIBIT B - SHAREHOLDER AGREEMENT
<PAGE>
3.3 VOTING RIGHTS. The right to vote the shares that have been
transferred under this Section shall be held by the originating Shareholder or
by a person designated by the Shareholder and approved by the Board of
Directors. On the death or incapacity of the original designee the Company
(acting by and through the Board of Directors), will designate the successor
designee.
3.3.1 STATUTORY VOTING AGREEMENT. This Section 3.3 constitutes a
"Voting Agreement" under ORS Section 60.257.
3.3.2 IRREVOCABLE PROXY, DURATION. This Section 3.3 also
constitutes an irrevocable proxy, that will last for so long as the shares
are held by a person who acquired them in a transaction under this Section
3.
3.3.3 FIRST REFUSAL TRANSACTION RELEASES PROXY. Shares subject to
the Voting Agreement of this Section 3.3 shall be released from it if
transferred in a transaction meeting the conditions of Section 2.
4. PURCHASE UPON TERMINATION OF EMPLOYMENT. Upon termination of the
Shareholder's employment or consulting relationship with the Company for any
reason, including, without limitation, retirement, death or disability (the
"Termination"), the Company or its designee shall have the right for a period of
90 days following such Termination (or purchase of the Shares, if later) to buy
all, but not less than all, of the terminated Shareholder's Shares on the terms
and conditions set forth in subsections 4.1, 4.2, and 4.3. Such right of first
refusal shall be exercised by giving written notice of exercise to the
Shareholder or his estate, as the case may be, as provided herein.
4.1 PURCHASE PRICE. The purchase price for the Shares shall be the
greater of the Shareholder's original purchase price for the Shares or the fair
market value thereof at the time of Termination as determined in good faith by
the Company's Board of Directors; provided, however, if the Shareholder (or, if
applicable, the personal representative of the deceased Shareholder's estate),
or any member of the Shareholder's Immediate Family owning Shares on the date of
Termination disputes such valuation, the fair market value of the Shares shall
be determined by a local, independent investment banking or valuation firm
acceptable to the Company and the Shareholder (or, if applicable, the personal
representative of the deceased Shareholder's estate). All costs of such
independent valuation shall be paid by the Shareholder (or, if applicable, the
personal representative of the deceased Shareholder's estate).
4.2 HOW PAID. The purchase price shall be paid to the Shareholder at
closing (or, if applicable, the personal representative of the deceased
Shareholders's estate) and/or the members of the Shareholder's Immediate Family
owning Shares on the date of Termination, in proportion to their respective
stock interests. Each shall receive, at closing: (i) an initial payment by
Company check of at least one-third of the total purchase price and
- --------------------------------------------------------------------------------
3 - EXHIBIT B - SHAREHOLDER AGREEMENT
<PAGE>
(ii) a promissory note for the remaining balance of the purchase price, if any,
payable in two equal annual installments including principal and interest on the
first and second anniversaries of the closing. The promissory note shall bear
interest from the date of closing at a rate equal to the interest rate being
charged to the Company as of the date of closing by its then acting bank and
shall allow prepayment in whole or in part without premium or penalty.
4.3 CLOSING. Closing of the purchase shall take place at the Company's
principal office on the date designated by the Company, which shall be no later
than 30 days following the date of mailing of the written notice of exercise,
or, if later and applicable, 30 days following the appointment of the personal
representative of the deceased Shareholder's estate. At such closing, the
Shareholder's certificate for Shares shall be duly endorsed to the Company or
its designee and surrendered, and the Company or its designee shall deliver to
the Shareholder (or, if applicable, the personal representative of the deceased
Shareholder's estate) the cash payment and promissory note, if any, representing
the purchase price for the Shares, all in accordance with subsections 4.1 and
4.2 above.
5. LEGENDS ON CERTIFICATES. The certificate(s) representing Shares held by
the Shareholder shall bear on its face the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO TERMS AND
CONDITIONS OF A SHAREHOLDER AGREEMENT, A COPY OF WHICH IS ON FILE WITH THE
COMPANY, WHICH AGREEMENT INCLUDES, AMONG OTHER PROVISIONS, RESTRICTIONS ON
THE TRANSFER OF THE SHARES AND UNDER SOME CONDITIONS AN IRREVOCABLE PROXY.
6. APPLICATION OF AGREEMENT TO AFTER-ACQUIRED STOCK. All of the provisions of
this Agreement shall apply to all of the Shares and any other shares of the
Company's capital stock which may be issued or transferred hereafter to the
Shareholder or to transferees of the Shareholder in consequence of any
additional issuance, exchange or reclassification of shares, corporate
reorganization, or any other form of recapitalization, consolidation, merger,
share split or share dividend, or shares which are acquired by the Shareholder
or transferees of the Shareholder in any other manner.
7. TERMINATION OF RESTRICTIONS. The restrictions on transfer set forth in
this Agreement shall terminate upon the first to occur of any of the following
events:
- --------------------------------------------------------------------------------
4 - EXHIBIT B - SHAREHOLDER AGREEMENT
<PAGE>
7.1 REGISTRATION. The effectiveness of a registration statement relating
to an offering of shares of Common Stock of the Company registered under the
Securities Act of 1933, as amended, and the consummation of the sale of Common
Stock pursuant thereto.
7.2 SALE OF ALL ASSETS. The sale by the Company of all or substantially
all of its assets.
7.3 MERGER. A merger or consolidation of the Company into or with another
corporation after which the holders of shares of stock of the Company shall own
less than fifty percent of the voting securities necessary to control the
affairs of the surviving corporation.
7.4 SALE OF ALL STOCK. The sale of all of the outstanding Shares of
capital stock of the Company by the holders thereof.
8. BINDING EFFECT ON TRANSFEREES. This Agreement and all of the terms,
covenants, and conditions herein contained, shall be binding upon and inure to
the benefit of all of the parties hereto and their respective transferees,
successors, heirs, executors, administrators and assigns. All transfers must be
made in accordance with this agreement, and upon the transfer of any of the
Shares to any person, the transferee shall become a party to this Agreement and
shall execute any and all instruments and take all other actions necessary to
carry out the purposes of this Agreement.
9. OTHER MATTERS.
9.1 NOTICE. Notice to the Company shall be sent to the Company's
president at the Company's principal place of business. Notice to a Shareholder
shall be sent to the Shareholder's address as it appears on the books and
records of the Company, or to such other address as a Shareholder may from time
to time by notice provide. Notice shall be effective when actually received by
the party this Agreement designates for notice, if sent by any means that leaves
a hard-copy record in the hands of the recipient. If sent certified or
registered mail, postage prepaid, return receipt requested, notice shall be
deemed effective on the date the return receipt shows the notice was accepted,
refused, or returned undeliverable.
9.2 SEVERABILITY. Each clause of this Agreement is severable. If any
clause is ruled void or unenforceable, the balance of the Agreement shall
nonetheless remain in effect. Wherever there is any conflict between any
provision of this Agreement and any statute, law, regulation or judicial
precedent, the latter shall prevail, but in such event the provisions of this
Agreement thus affected shall be curtailed and limited only to the extent
necessary to bring it within the requirement of the law. If any part, section,
paragraph, or clause of this Agreement shall be held by a court of proper
jurisdiction to be indefinite, invalid or
- --------------------------------------------------------------------------------
5 - EXHIBIT B - SHAREHOLDER AGREEMENT
<PAGE>
otherwise unenforceable, the entire Agreement shall not fail on account thereof,
but the balance of the Agreement shall continue in full force and effect unless
such construction would clearly be contrary to the intentions of the parties or
would result in an unconscionable injustice.
9.3 NON-WAIVER. A waiver of one or more breaches of any clause of this
Agreement shall not act to waive any other breach, whether of the same or
different clauses.
9.4 ASSIGNMENT. This Agreement may not be assigned without the express
written consent of each party, which consent will not be unreasonably withheld.
9.5 GOVERNING LAW, JURISDICTION. This Agreement is made in and governed
by the laws of the state of Oregon. Any action brought between the parties may
be brought only in the state or federal courts located in Portland, Oregon, and
in no other place unless the parties expressly agree in writing to waive this
requirement. Each party consents to jurisdiction in that location. Each party
consents to service of process through the method prescribed for notice in this
Agreement.
9.6 ATTORNEYS' FEES. The prevailing party in any suit, action, or
arbitration filed or held concerning this Agreement shall be entitled to
reasonable attorneys' fees, both at trial and on any appeal.
9.7 HEADINGS. The section headings herein have been inserted for
convenience only and are not intended to restrict, construe, or modify in any
manner any of the terms and provisions hereof.
9.8 INTEGRATION. This Agreement is the complete Agreement between the
parties dealing with transferability of Shares as of the date hereof, and
supersedes all prior agreements, written or oral. It may be modified only in
writing signed by any affected Shareholder or successor in interest of a
Shareholder.
- --------------------------------------------------------------------------------
6 - EXHIBIT B - SHAREHOLDER AGREEMENT
<PAGE>
9.9 EFFECTIVE DATE, COUNTERPARTS. This Agreement is effective as of the
date shares are first issued by the Company, and is binding on each Shareholder
as that Shareholder obtains ownership in Shares. The Agreement may be executed
in counterparts.
CLAREMONT TECHNOLOGY GROUP, INC. SHAREHOLDER
By:
-------------------------------- ---------------------------------------
Printed Name: Printed Name:
---------------------- --------------------------
Title: Date:
----------------------------- ----------------------------------
Date: Address:
------------------------------ -------------------------------
---------------------------------------
- --------------------------------------------------------------------------------
7 - EXHIBIT B - SHAREHOLDER AGREEMENT
<PAGE>
ATTACHMENT 1 TO EXHIBIT B
CONSENT OF SPOUSE
I, _______________, spouse of ______________________, acknowledge that
I have read the Shareholder Agreement dated ____________________, 19__, to which
this Consent is attached as Attachment 1 (the "Agreement") and that I know its
contents. I am aware that by its provisions the Company or its designee has the
option to purchase certain shares of Common Stock of the Company which my spouse
is acquiring pursuant to the Agreement ("Shares"), including any interest I
might have therein, in the event my spouse desires to sell the Shares and
certain other restrictions are imposed upon the sale or other disposition of the
Shares during my spouse's lifetime. I am also aware that the Company or its
designee has the right to purchase the Shares upon my spouse's termination of
employment with the Company.
I hereby agree that my interest, if any, in the Shares subject to the
Agreement, whether now owned or hereafter acquired, shall be irrevocably bound
by the Agreement and further understand and agree that any community property
interest I may have in the Shares shall be similarly bound by the Agreement.
I AM AWARE THAT THE LEGAL, FINANCIAL AND RELATED MATTERS CONTAINED IN
THE AGREEMENT ARE COMPLEX AND THAT I AM FREE TO SEEK INDEPENDENT PROFESSIONAL
GUIDANCE OR COUNSEL WITH RESPECT TO THIS CONSENT. I HAVE EITHER SOUGHT SUCH
GUIDANCE OR COUNSEL OR DETERMINED AFTER REVIEWING THE AGREEMENT CAREFULLY THAT I
WILL WAIVE SUCH RIGHT.
DATED the day of , 19 .
---- -------------------- ----
By:
------------------------------------
- --------------------------------------------------------------------------------
ATTACHMENT 1 TO EXHIBIT B
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
FIRST AMENDMENT TO
EXECUTIVE BONUS PLAN PARTICIPATION AGREEMENT
WHEREAS, CLAREMONT TECHNOLOGY GROUP, INC. ("Claremont") has granted to the
undersigned Executive the right to participate in Claremont's Executive Bonus
Plan and the Executive and Claremont have executed an Executive Bonus Plan
Participation Agreement (the "Agreement") which constituted Executive's election
to participate in the Executive Bonus Plan; and
WHEREAS, the parties hereto desire to amend the terms of the Agreement.
NOW, THEREFORE, in consideration of the premises, mutual covenants and
agreements contained herein and in the Agreement and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
parties hereto agree as follows:
1. Section 1 of the Agreement is hereby amended in its entirety to read as
follows:
"SALARY INCREASE. Your salary will be increased by four percent (4%) of
base salary effective with the pay period beginning July 8, 1995."
IN WITNESS WHEREOF, the parties have duly executed this First Amendment to
Executive Bonus Plan Participation Agreement as of July ___, 1995.
EXECUTIVE CLAREMONT TECHNOLOGY GROUP, INC.
- ----------------------------------- By:
------------------------------------
Signature of Executive Printed Name:
--------------------------
Printed Name: Title:
---------------------- ---------------------------------
Address:
---------------------------
- -----------------------------------
- --------------------------------------------------------------------------------
1 - FIRST AMENDMENT TO EXECUTIVE BONUS PLAN PARTICIPATION AGREEMENT
<PAGE>
EXHIBIT 11.0
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
CLAREMONT TECHNOLOGY GROUP, INC.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------------
1993 1994 1995
---------------------- ---------------------- ----------------------
FULLY FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED PRIMARY DILUTED
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Weighted Average
Shares Outstanding
for the Period..... 3,917,209 3,917,209 3,939,816 3,939,816 4,117,359 4,117,359
Common Stock
Equivalents Using
the Modified
Treasury Stock
Method............. 1,346,906 1,346,905 1,797,639 1,797,639 2,669,309 2,669,309
Common Stock
Equivalents Added
Pursuant to SAB
83................. 531,894 531,894 531,894 531,894 531,894 531,894
---------- ---------- ---------- ---------- ---------- ----------
Total Shares Used
for Per Share
Calculations....... 5,796,009 5,796,008 6,269,349 6,269,349 7,318,562 7,318,562
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Net Income.......... $1,590,956 $1,590,956 $1,452,325 $1,452,325 $2,146,612 $2,146,612
Adjustment to Net
Income Under the
Modified Treasury
Stock Method....... 21,598 15,468 36,053 35,796 97,955 94,669
---------- ---------- ---------- ---------- ---------- ----------
Net Income as
Adjusted........... $1,612,554 $1,606,424 $1,488,378 $1,488,121 $2,244,567 $2,241,281
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Net Income Per
Share.............. $ 0.28 $ 0.28 $ 0.24 $ 0.24 $ 0.31 $ 0.31
<CAPTION>
NINE MONTH PERIOD ENDED MARCH 31,
----------------------------------------------
1995 1996
---------------------- ----------------------
FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted Average
Shares Outstanding
for the Period..... 4,079,054 4,079,054 4,524,574 4,524,574
Common Stock
Equivalents Using
the Modified
Treasury Stock
Method............. 2,604,024 2,604,024 2,605,120 2,491,171
Common Stock
Equivalents Added
Pursuant to SAB
83................. 531,894 531,894 531,894 531,894
---------- ---------- ---------- ----------
Total Shares Used
for Per Share
Calculations....... 7,214,972 7,214,972 7,661,588 7,547,639
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net Income.......... $1,742,542 $1,742,542 $2,205,808 $2,205,808
Adjustment to Net
Income Under the
Modified Treasury
Stock Method....... 65,013 62,958 47,723 41,718
---------- ---------- ---------- ----------
Net Income as
Adjusted........... $1,807,555 $1,805,500 $2,253,531 $2,247,526
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net Income Per
Share.............. $ 0.25 $ 0.25 $ 0.29 $ 0.30
</TABLE>
<PAGE>
Exhibit 21.0
SUBSIDIARIES OF
CLAREMONT TECHNOLOGY GROUP, INC.
CLAREMONT TECHNOLOGY GROUP CANADA, INC.
CLAREMONT TECHNOLOGY GROUP (U.K.) LIMITED
GUNFORD LIMITED
(CLAREMONT TECHNOLOGY (IRELAND) LIMITED)
CLAREMONT RETIREMENT TECHNOLOGIES, INC.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Claremont Technology Group, Inc.:
We consent to the use of our report incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the Prospectus.
KPMG PEAT MARWICK LLP
Portland, Oregon
May 24, 1996
II-5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS INCLUDED
IN THE REGISTRATION STATEMENT, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> JUL-01-1994 JUN-30-1995
<PERIOD-START> JUN-30-1995 MAR-31-1996
<PERIOD-END> JUL-01-1995 MAR-31-1996
<CASH> 340 80
<SECURITIES> 0 0
<RECEIVABLES> 5,546<F1> 7,120<F1>
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 6,568 11,459
<PP&E> 1,522<F2> 3,743<F2>
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 9,578 18,278
<CURRENT-LIABILITIES> 4,115 8,393
<BONDS> 0 0
0 0
0 0
<COMMON> 202 1,303
<OTHER-SE> 4,899 6,826
<TOTAL-LIABILITY-AND-EQUITY> 9,578 18,278
<SALES> 0 1,964<F3>
<TOTAL-REVENUES> 18,988 33,675
<CGS> 0 1,874<F3>
<TOTAL-COSTS> 16,198 29,796
<OTHER-EXPENSES> 0 19
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 17 77
<INCOME-PRETAX> 2,840 3,821
<INCOME-TAX> 1,097 1,616
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,743 2,205
<EPS-PRIMARY> .25 .29
<EPS-DILUTED> .31 .30
<FN>
<F1>ACCOUNTS RECEIVABLE, NET
<F2>PP&E, NET
<F3>RESOLD PRODUCTS AND SERVICES
</FN>
</TABLE>
