<PAGE>
As filed with the Securities and Exchange Commission on March 21, 2000
Registration No. 333-94755
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment
No. 5 to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ETINUUM, INC.
(Exact name of registrant as specified in its charter)
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Delaware 7389 84-1334615
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
5619 DTC Parkway, 12th Floor
Englewood, Colorado 80111-3017
(303) 357-3000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Timothy C. O'Crowley
Chief Executive Officer
5619 DTC Parkway, 12th Floor
Englewood, Colorado 80111-3017
(303) 357-3000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
Laurie P. Glasscock, Esq. Francis S. Currie, Esq.
G. James Williams, Jr., Esq. Davis Polk & Wardwell
Carin M. Kutcipal, Esq. 1600 El Camino Real
Chrisman, Bynum & Johnson, P.C. Menlo Park, California 94025
1900 Fifteenth Street (650) 752-2000
Boulder, Colorado 80302
(303) 546-1300
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.
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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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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. [_]
<TABLE>
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<CAPTION>
Proposed Maximum Amount of
Aggregate Offering Price(1) Registration Fee
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<S> <C> <C>
Common Stock...................... $62,100,000 $16,395(2)
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</TABLE>
(1) Estimated pursuant to Rule 457(o) solely for the purpose of calculating the
amount of the registration fee.
(2) Previously paid.
This 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 Section 8(a), may
determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+Information contained in this prospectus is not complete and may be changed. +
+We may not sell these securities until the registration statement filed with +
+the Securities and Exchange Commission is effective. This prospectus is not +
+an offer to sell securities, and we are not soliciting an offer to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, Dated March 21, 2000
PROSPECTUS
4,500,000 Shares
[LOGO OF ETINUUM]
Common Stock
This is the initial public offering of common stock by Etinuum, Inc. We are
selling 4,500,000 shares of our common stock at an estimated initial public
offering price between $10.00 and $12.00 per share.
--------
There is currently no public market for the common stock. We have applied to
list our common stock on the Nasdaq National Market under the symbol "ETIN."
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<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public offering price........................................... $ $
Underwriting discounts and commissions.......................... $ $
Proceeds, before offering expenses, to Etinuum.................. $ $
</TABLE>
The underwriters may also purchase up to 675,000 additional shares of common
stock from us at the public offering price, less the underwriting discount,
within 30 days from the date of this prospectus to cover over-allotments.
Delivery of the shares of common stock will be made on or about , 2000.
--------
Investing in the common stock involves risks.
See "Risk Factors" beginning on page 6.
--------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Chase H&Q
Robertson Stephens
U.S. Bancorp Piper Jaffray
Wit SoundView
, 2000
<PAGE>
[Cover 1 is the portion of the cover visible when opening the front cover of
the prospectus. Reversed-out (white) copy over "Etinuum logo."
"Etinuum provides an integrated set of services that takes our clients from
concept to launch and operation of their e-commerce and other direct-to-
customer initiatives."]
<PAGE>
[The prospectus front cover is a gatefold; Cover 2 is the inside front cover
spread visible upon opening the gatefold cover. Four 4-color photographs, with
copy pertaining to each photo, laid out in the circle, to describe our service
offering. Beginning at the top of the page and moving clockwise, the
photographs and text are as follows:
PHOTO #1: This photo is of several people in a conference situation
demonstrating our strategic consulting services. PHOTO #1 COPY: Headline:
"Design"; Subhead: "Strategic Consulting"; "We help clients plan their e-
commerce and other direct-to-customer initiatives from concept to launch and
operation."
PHOTO #2: This photo is of two employees in a computer room. PHOTO #2 COPY:
Headline: "Build"; Subhead: "Technology Solutions"; "We customize and operate
Web-based software that we integrate with our clients' and their vendors'
existing systems.
PHOTO #3: This photo depicts an employee in a Communications Center on the
telephone with a client's customer. PHOTO #3 COPY: Headline: "Operate";
Subhead: "e-Operations"; "We provide communications services that manage our
clients' customer transactions and relationships via voice, e-mail, fax and
real-time online communications."
PHOTO #4: This photo shows several employees in a working conference session.
PHOTO #4 COPY: Headline: "Analyze"; Subhead: "Customer Knowledge"; "We offer
database marketing and analysis services to help our clients improve their
marketing efforts and customer relationships."]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Prospectus Summary.................................................. 1
Risk Factors........................................................ 6
Forward-Looking Statements.......................................... 13
Use of Proceeds..................................................... 13
Dividend Policy..................................................... 13
Capitalization...................................................... 14
Dilution............................................................ 15
Selected Historical and Pro Forma Financial Data.................... 17
Management's Discussion and Analysis of Financial Condition and
Results of Operations ............................................. 19
Business............................................................ 28
Management.......................................................... 40
Employee Benefit Plans.............................................. 49
Related Party Transactions.......................................... 51
Principal Stockholders.............................................. 59
Description of Capital Stock........................................ 61
Transfer Agent and Registrar........................................ 64
Shares Eligible for Future Sale..................................... 64
Plan of Distribution................................................ 65
Legal Matters....................................................... 68
Experts............................................................. 68
Where You Can Find More Information................................. 68
Index to Consolidated Financial Statements of Etinuum, Inc.......... F-1
Index to Unaudited Pro Forma Condensed Financial Information........ P-1
Index to Financial Statements of Acorn Information Services, Inc. .. A-1
</TABLE>
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Unless otherwise indicated, all references to "Etinuum," "we," "us" and
"our" refer to Etinuum, Inc., a Delaware corporation, and our predecessor
Colorado corporation.
All brand names and trademarks appearing in this prospectus are the
property of their holders.
i
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary does not contain all of the information that you
should consider before investing in our common stock. You should read the
entire prospectus carefully, including the information under "Risk Factors"
beginning on page 6 and the financial statements beginning on page F-1, before
making an investment decision.
Our Company
Etinuum provides an integrated set of strategic, technological,
operational and analytical solutions that takes our clients from concept to
launch and operation of their e-commerce and other direct-to-customer sales and
marketing initiatives. Our clients are typically Fortune 1000 and emerging Web-
based companies that sell complex products or employ complicated sales
processes. Our ability to design, build, and operate e-commerce and other
associated direct-to-customer initiatives enables our clients to more
effectively market and sell to their customers. We provide clients access to
our strategic consultants, developers, Web-based processing technology, high-
level customer support personnel, communications services, and database
marketing and analysis services. Our major clients in 1999 included American
Express, Safeway, Sega and Sony. In addition, we have recently established
relationships with emerging Web-based companies.
Our Market Opportunity
Our market is driven by the continued acceptance and rapid growth of the
Internet, which has dramatically changed the way businesses and consumers
communicate and conduct business. International Data Corporation, or IDC,
estimates that the actual number of Web buyers worldwide will increase from
nearly 31 million in 1998 to more than 182 million in 2003, and that the amount
of worldwide commerce conducted over the Internet will increase from
approximately $50 billion in 1998 to about $1.3 trillion in 2003. This dramatic
increase in the use of the Internet for commerce is creating significant new
opportunities and challenges for a broad spectrum of businesses.
In response to growing competitive pressures and the escalating rate of
technological innovation, many companies are outsourcing business functions to
access expertise, resources and technology. As a growing number of companies
offer more complex products and services online, demand has increased for
sophisticated outsourced service providers that use an integrated approach in
delivering technology solutions and specialized services. Additionally, the
delivery of these multiple services must be flexible and easy for the customer
to use and must enable the client to maintain brand recognition and customer
loyalty.
Our Services
Etinuum offers a comprehensive range of solutions for designing, building
and operating our clients' e-commerce and other direct-to-customer initiatives.
Our clients' direct-to-customer initiatives use a combination of Web sites, e-
mail and other Internet-based communications, telephone communications, fax and
mail. Our four service offerings are:
Strategic Consulting. We help our clients plan their e-commerce and other
direct-to-customer initiatives by determining their needs and objectives,
working with them to establish an overall program structure. We design an
integrated solution consisting of the required technology, customer
communications processes, data requirements and personnel skills.
Technology Solutions. We develop, customize and operate Web-based
technology platforms, composed of Web-based software and hardware systems, that
enable us to rapidly deploy our clients' e-commerce and other direct-to-
customer initiatives. Our primary technology platform, the
1
<PAGE>
EtinuumWebDirect System, incorporates the Web site interface for customers and
our customer representatives, the product specifications and other reference
materials, the software applications to electronically process transactions,
and the customer and client information databases and hardware systems, all of
which can be tailored to meet a client's specific needs. We integrate this
technology platform with our clients' and their vendors' existing systems to
provide the sharing of information.
e-Operations. We provide communications services that handle our clients'
transactions with their customers via voice, e-mail, fax and real-time online
communications, as well as database management and hosting. These transactions
include the sale of complex products such as financial instruments for direct
brokerage and online trading firms and computer and electronic equipment for
technology manufacturers. Our infrastructure, including our computer systems,
networking equipment and communications centers, permits efficient and reliable
operations of our clients' complex direct-to-customer-initiatives.
Customer Knowledge. We offer sophisticated database marketing and analysis
services to help our clients improve their marketing efforts and customer
relationships through a better understanding of their customers' buying
processes and behaviors.
Our Strategy
Etinuum's strategy is to be a leading provider of integrated solutions to
companies developing e-commerce and other direct-to-customer initiatives that
involve the sale of complex products or the use of complicated sales processes.
We support our clients in both business-to-consumer and business-to-business
transactions. Key elements of our strategy are to:
. target clients that provide substantial growth opportunities;
. pursue clients in specialized markets that require sophisticated
services;
. promote our brand through expanded sales and marketing efforts;
. broaden and continue to strengthen our service offerings; and
. continue to hire, train and retain talented people.
In order to execute our strategy, we must, among other things, continue to
incur significant expenses to increase our marketing efforts, expand our
service offerings, and hire and train new employees. If we are not successful
in these efforts, we may be unable to attract new clients or provide the level
of services required to meet clients' needs. See "Risk Factors" for a more
complete discussion of these and other risks.
Our History
We incorporated in Colorado in March 1996 under the name Intek
Information, Inc. and reincorporated in Delaware in August 1996. In February
2000, we changed our name from Intek Information, Inc. to Etinuum, Inc.
Effective October 1, 1999, we acquired all of the outstanding capital stock of
Acorn Information Services, Inc., a Delaware corporation based in Connecticut
that provides database marketing and analysis services. Also effective October
1, 1999, we transferred software that we had developed to Spider Technologies,
Inc., a newly-formed wholly-owned subsidiary, and we then distributed all of
the stock of Spider to our stockholders. We have three wholly-owned
subsidiaries that are used to hold licenses to conduct operations in various
regulated industries. See "Business-Regulatory Matters."
Our principal executive offices are located at 5619 DTC Parkway, 12th
Floor, Englewood, CO 80111, and our telephone number is (303) 357-3000.
We maintain a Web site at www.etinuum.com and our subsidiary, Acorn,
maintains a Web site at www.acornis.com. Information contained on these Web
sites does not constitute part of this prospectus and is not incorporated by
reference in this prospectus.
2
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered by Etinuum............... 4,500,000 shares
Common stock to be outstanding after this 18,136,384 shares
offering.....................................
Use of proceeds............................... For general corporate purposes.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol........ "ETIN"
</TABLE>
Unless otherwise noted, the information in this prospectus assumes that
all outstanding shares of preferred stock are converted into common stock upon
the closing of this offering and that the underwriters do not exercise their
option to purchase an additional 675,000 shares of common stock from us to
cover over-allotments, if any.
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of December 31, 1999, plus
1,473,628 shares issuable to holders of our preferred stock as payment-in-kind
dividends through February 29, 2000, and 721,124 shares issuable to holders of
our Series F preferred stock assuming the sale of shares in this offering at an
initial offering price of $11.00 per share. See "Related Party Transactions -
Securities Issuances and Loans." It does not include the following:
. options to purchase 2,330,563 shares of common stock granted under our
1997 and 1998 Stock Option Plans at a weighted average exercise price
of $6.28 per share;
. 6,437,611 shares of common stock available for future issuance under
our 1997 and 1998 Stock Option Plans, 2000 Stock Incentive Plan and
2000 Employee Stock Purchase Plan; and
. a warrant to purchase 181,250 shares of common stock issued to Sony
Electronics Inc. at an exercise price of $8.52 per share.
During the first quarter of 2000 through March 20, we have granted options
to purchase 1,730,970 shares of common stock at a weighted average exercise
price of $9.66 per share. These option grants will result in compensation
expense of approximately $125,000 in the first quarter of 2000 assuming a fair
market value of our common stock of $10.00 per share on the date of grant.
These options were granted to new and existing officers and other employees and
in the restructuring of our acquisition of Acorn. See Note 14 of Notes to
Consolidated Financial Statements for information about this restructuring.
Please see "Capitalization" for a more complete discussion regarding the
outstanding shares of our common stock, the options and warrant to purchase our
common stock and related matters.
3
<PAGE>
Summary Financial Information
The following table presents summary financial data. You should read this
information together with the financial statements and the notes to those
statements appearing elsewhere in this prospectus and the information under
"Selected Historical and Pro Forma Financial Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Unaudited
Pro Forma Condensed Financial Infomation."
The unaudited pro forma condensed statements of operations information for
the year ended December 31, 1999, gives effect to our acquisition of Acorn and
the spin-off of Spider as if those transactions had occurred on January 1,
1999. The following transactions are assumed to have occurred on January 1,
1999, in the pro forma as adjusted per share data in the pro forma as adjusted
statements of operations data, and on December 31, 1999, in the pro forma as
adjusted balance sheet data:
. the issuance of 4,500,000 shares in this offering and receipt by us of
net proceeds of approximately $44.5 million assuming an initial public
offering price of $11.00 per share and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses;
. the automatic conversion of all shares of preferred stock outstanding
as of December 31, 1999, into 9,560,188 shares of common stock;
. the issuance of 1,333,433 shares of common stock to the holders of our
preferred stock as payment-in-kind dividends accrued through December
31, 1999; and
. the issuance of 721,124 additional shares of common stock to the
holders of our Series F preferred stock assuming the sale of shares in
this offering at an initial offering price of $11.00 per share. See
"Related Party Transactions - Securities Issuances and Loans."
An additional 140,195 shares of common stock will be issued to the holders
of our preferred stock as payment-in-kind dividends subsequent to December 31,
1999.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
Period from
March 6, 1996
(inception) to
December 31, 1996 1997 1998 1999
----------------- --------- --------- ----------------------
Pro forma
Actual as adjusted
--------- -----------
(unaudited)
(in thousands, except share data)
<S> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Revenue............... $ 480 $ 9,546 $ 17,664 $ 24,699 $ 26,707
Gross profit.......... 269 1,779 4,455 7,713 8,743
Loss from operations.. (1,802) (12,084) (9,509) (11,919) (10,597)
Net loss applicable to
common stockholders.. $ (1,809) $ (13,226) $ (11,464) $ (25,235) $ (13,997)
Per share data:
Basic and diluted net
loss per share....... $ (1.07) $ (7.09) $ (6.14) $ (13.50) $ (0.90)
Weighted average
common shares
outstanding.......... 1,697,417 1,866,585 1,867,941 1,869,803 15,596,317
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
December 31, 1999
---------------------
Pro forma
Actual as adjusted
-------- -----------
(unaudited)
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............................... $ 6,204 $52,239
Working capital......................................... 7,533 52,719
Total assets............................................ 26,378 71,762
Long-term borrowings, net of current portion............ 1,722 1,722
Total stockholders' equity (deficit).................... (41,997) 61,946
</TABLE>
5
<PAGE>
RISK FACTORS
You should carefully consider the risks and uncertainties described below
before making an investment decision. Our business, financial condition and
operating results could be adversely affected by any of the following factors,
in which event the trading price of our common stock could decline, and you
could lose part or all of your investment.
Risks Related to Our Business
The loss of any of our current major clients could cause our revenue to
decline.
A substantial majority of our revenue during the past two years has been
derived from on-going business with a few significant clients. If our
relationships with any of our major clients were to end, we would lose a
significant portion of our revenue. In 1999, Sony accounted for 27% of our
revenue and American Express, Safeway and Sega accounted for a total of 29% of
our revenue. We anticipate that our revenue will continue to be concentrated
with a limited number of clients and that the amount of revenue from any
particular client will vary from period to period.
Our arrangements with our clients may be cancelled with little or no penalty
and may not be indicative of our future business.
Our agreements with our clients generally provide for services and payment
on a month-to-month basis. Under most of our existing contracts, our clients
may reduce or cancel their agreements with us with little or no penalty. In
addition, we sometimes perform work for a client without a written agreement.
Consequently, you should not anticipate our future revenue based on the number
or identity of the clients we have, the level of services we have performed for
those clients in the past or the scope of our existing agreements with those
clients. See "Business-Our Clients" for further information regarding our
arrangements with our clients.
Our quarterly operating results may fluctuate, which could cause our stock
price to decline.
Our revenue and operating results may vary significantly from quarter-to-
quarter due to a number of factors. If our operating results are below market
expectations, the price of our common stock may decline. For factors that have
affected our operations in the past and that may affect our operations in the
future, and that could cause quarterly fluctuations, see the discussions in
this section and in "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Overview" and "-Selected Unaudited
Historical Quarterly Financial Data".
We are devoting significant time and money to expand our Strategic Consulting,
Technology Solutions and Customer Knowledge services, and if we are unable to
generate sufficient additional revenue from these efforts, our operating
results will be harmed.
We are expanding our Strategic Consulting, Technology Solutions and
Customer Knowledge professional services as part of our plan to increase our
revenue and operating margins in the future. For example, we recently acquired
Acorn to significantly enhance our database marketing and analysis
capabilities. If we are unable to generate enough additional revenue to cover
our increased costs associated with these activities, our margins and financial
results may be impaired.
6
<PAGE>
Our e-Operations generate a substantial majority of our revenue and therefore a
decrease in its gross margins could have a significant negative effect on our
overall gross margins.
Our e-Operations have and are expected for the foreseeable future to be
our major source of revenue and therefore the gross margins for these services
have a substantial effect on our overall gross margins. We must continue to
rely on providing high-end, value-added services to maintain or improve gross
margins in this area of our business. There are relatively few competitive
barriers to providing communications center operations, as they do not
generally require a specialized labor force or facilities. For these reasons,
we may be vulnerable to competitive pressures in this area of our operations,
which could negatively affect our gross margins.
The IRS may challenge the valuation of Spider that we used in accounting for
the spin-off and, if we were required to recognize a significant taxable
dividend, our operating results and financial condition could be harmed.
The value of Spider in the spin-off was based on an independent third
party appraisal. As in any similar transaction, particularly one involving
software assets that may change value quickly and be more difficult to value
than other types of assets, the IRS could challenge our valuation method. If it
were to require us to recognize a signifcantly greater taxable dividend, we
could lose some or all of the future tax benefits of our net operating loss
carryforward or recognize taxable income if the tax resulting from the Spider
spin-off exceeded our net operating loss carryforward. The amount of any
additional tax would depend upon a final judicial or administrative
determination of the value of Spider. We cannot assure you that Spider will be
able to meet its obligation to indemnify us for any additional taxes we may
incur. Any of these events would negatively affect our financial results and
condition.
Several of our executive officers recently joined Etinuum and may take time to
become fully integrated into our business.
Twelve of our seventeen executive officers joined us in 1999 or 2000, some
from other industries. In addition, seven of our new officers are located in
California, Connecticut, Massachusetts or New York and do not have frequent
face-to-face contact with the other members of our management team. The
combination of the need for a number of our officers to continue developing
expertise in our operations and for our management team to become integrated
may place a strain on our ability to implement our strategies as rapidly and
effectively as we would desire.
If we do not successfully build a sales and marketing organization, we will
continue to strain our senior management personnel and may miss business
opportunities.
Most of our revenue to date has been generated by the sales efforts of our
senior management and key technical personnel. In the past, we have not been
able to pursue some new business opportunities because of our limited personnel
resources. We have only recently hired a director of marketing as well as two
dedicated sales personnel. Because of the intensely competitive employment
environment, we may not be successful in attracting and retaining the
additional personnel we need to build our sales and marketing organization.
If we do not successfully hire, train and retain sufficient personnel, we may
be unable to meet our obligations to existing clients or take on work for new
clients and we may incur unnecessary costs.
Some client initiatives have required that we hire a substantial number of
new employees for our e-Operations services in a relatively short period of
time. During 1999, we added approximately 300 employees in e-Operations. In
some cases, it may be difficult to hire and train sufficient personnel as
quickly as might be required to meet a client's needs. In addition, we have
experienced, and may in the future experience, difficulty getting personnel
licensed by governmental or other regulatory agencies as quickly as
7
<PAGE>
necessary to meet existing and new clients' programs. This may harm our
relationships with our current clients and may limit our ability to take on new
clients. Additionally, if we have higher than anticipated turnover, we may have
to absorb costs of training new personnel in excess of the costs to be paid by
our clients.
Our operations also require the services of highly-skilled employees, such
as database programmers, Web developers and personnel with advanced analytic
capabilities, for which competition is particularly intense, especially in
Internet-related fields. In addition, because our EtinuumWebDirect System is
unique, some new employees will require substantial training. We also face the
issues of escalating recruitment and labor costs and expectations of
significant benefits.
If we do not successfully put in place the procedures, systems and personnel
necessary to manage and support our expansion, we could have difficulty
coordinating our business and financial operations.
Since the beginning of 1999, we have expanded our operations substantially
in several ways, including increasing our services offerings, opening a new
communications center in Kansas, acquiring Acorn and adding over 350 new
personnel. If we fail to put in place processes to manage the expansion of our
business, our operations and financial results could be harmed because of the
inability of our infrastructure to support our levels of business activity. To
avoid these problems, we must:
. improve existing and implement new managerial, operational and
financial controls, reporting and information systems, and procedures;
. hire additional personnel who are trained in managing these types of
systems; and
. improve communications among our management and operations personnel.
We plan to incur substantial expenses to build our brand awareness, and if we
are not successful our operating results and competitive position could be
harmed.
We plan to significantly increase our marketing expenses to promote our
brand. If we are not successful in building brand awareness, we may be unable
to attract new clients and increase our revenue sufficiently to cover our
additional expenses. We believe that establishing our brand and reputation is
critical for attracting and retaining clients, particularly large established
companies such as American Express and Sony. In addition, we believe building
brand awareness is especially important for us because a number of our
competitors have established brand names and reputations. See "Business-
Competition" for information regarding our competitors.
Our recent transfer to Spider of software assets upon which we rely will lessen
our control over our primary technology platform and could cause us to incur
significant costs and experience delays with respect to the software, and face
increased competition.
To date, we have used our EtinuumWebDirect System as the technology
platform in the vast majority of solutions we have developed for our clients.
Spider now controls the development of the proprietary software that is used in
the EtinuumWebDirect System and has the right to license it to third parties.
Although we have a 20-year non-exclusive license from Spider to use this
software, as well as other protections, if Spider were to cease operations, or
otherwise cause us to have to take over development of its software, or if the
Spider software does not meet our requirements in the future so that we would
need to develop new software, we would incur significant costs and could
experience substantial delays in implementing solutions for our clients, which
would harm our business. In addition, to the extent that our clients or
competitors license the software directly from Spider, we would lose our
competitive advantage of being the sole provider of this technology to the
marketplace.
8
<PAGE>
Some members of our management will continue to spend time on Spider matters,
which will divert their attention from our business.
Under various agreements with Spider, Paul Tartre, president of our
Technology Solutions group, will spend 40% of his time on Spider matters, and
Timothy O'Crowley, our president and chief executive officer, will be chairman
of the board of directors of and a consultant to Spider. These roles will
divert time that these individuals would otherwise spend on our matters.
Spider has financial obligations to us in connection with the spin-off, which
it may be unable to repay unless it is able to generate revenues or obtain
financing.
In connection with the spin-off and in order to maintain Spider as a
viable entity in the near term, we distributed $1 million to Spider in November
1999, which is to be repaid out of Spider's minimum royalty obligation to us of
$1.45 million. We also expensed approximately $1 million in the fourth quarter
of 1999 for salaries and other costs incurred by Spider. We anticipate that
Spider will incur costs of approximately $1 million a quarter to continue its
current level of operations. We may elect to continue funding these costs for
the next one or two quarters if we believe there is a reasonable likelihood
that Spider will generate sufficient revenue or obtain third-party financing to
pay its obligations to us. If Spider were not able to pay its obligations to
us, it would have a negative effect on our results of operations in the period
in which the losses are recognized. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Overview" for further
information regarding our financial transactions with Spider.
Federal, state and other agencies may require us to have licenses for some of
the activities we conduct on behalf of our clients. We have not always had all
the licenses we needed, which exposes us to possible actions for damages or
other penalties.
Some of our activities for financial services, mortgage broker and
insurance clients and relating to telephone contacts with customers are
regulated by federal, state and other regulatory agencies. Their regulations
may require that we and, in some cases, our employees who are involved in those
activities be licensed. We have not always had all the licenses we needed. This
could expose us to regulatory or private actions for damages or penalties. We
cannot assure you that we will be in compliance with all applicable regulations
in the future. See "Business - Regulatory Matters" for further information
about regulations that apply to our operations.
We may selectively acquire complementary businesses to broaden our services
offerings, but if we are not successful in integrating acquired companies or
identifying attractive acquisition candidates, our operations and financial
results could be harmed.
We recently acquired Acorn in Shelton, Connecticut to significantly
enhance our database marketing and analysis capabilities. The integration of
Acorn into our operations will require, among other things, educating our
personnel about Acorn's capabilities and establishing good communications
channels to overcome the challenges arising from its geographic separation from
our other facilities. If we are not successful in these efforts, we will not be
able to effectively market Acorn's capabilities to existing and potential
clients or realize the full economic benefits of the acquisition. In addition,
in connection with our expansion strategy, management has spent time in the
past evaluating potential acquisitions that have not been consummated. Similar
occurrences in the future could result in diverting our personnel and financial
resources from other activities.
9
<PAGE>
A contract with a major client prohibits us from providing some services to
other clients, which may limit our potential client base and our ability to
take advantage of skills our personnel have developed through working on
particular initiatives.
We have a contract with a major client that currently prohibits us from
working on competing initiatives for other clients or allowing our employees
who have worked on the client's initiative to work on a competitor's
initiative. We may enter into contracts with similar provisions in the future.
Our limited operating history makes it difficult for you to evaluate our
business, prospects and an investment in our common stock.
Although we were incorporated in March 1996, we did not begin providing a
number of our current services to clients until mid-1997. Our experience with
some services we offer, such as the database marketing and analysis
capabilities we significantly enhanced in October 1999, are more limited.
Because of our limited operating history, we may encounter unexpected problems
and expenses. These uncertainties make it difficult for you to evaluate our
business, prospects and an investment in our common stock.
We have incurred losses since inception and expect to incur losses for the
foreseeable future.
We have incurred net losses of approximately $36.2 million for the period
from inception (March 6, 1996) through December 31, 1999. Our stockholders'
deficit was approximately $42.0 million at December 31, 1999. We expect to
incur losses for the foreseeable future. In particular, we anticipate that our
sales and marketing expenses will increase substantially in the near future as
we add personnel and expand our brand awareness and other marketing efforts. We
do not anticipate that revenue will grow sufficiently in the near term to
offset these and other costs.
Because our sales and implementation cycles vary significantly, it is difficult
to predict when and if we will receive revenue from any particular client.
The sales cycle for our services is variable, typically ranging between a
few weeks to several months and, occasionally, much longer. In addition, the
time required to structure and implement a program for a client may vary
depending upon the complexity of the client's needs. This variability makes it
difficult for us to forecast future revenue amounts and timing. For example, in
the past we have hired and trained personnel in anticipation of a new client
program that was subsequently deferred. These types of events can negatively
impact our operating results.
10
<PAGE>
Risks Related to Our Industry
We anticipate that the market for our types of services will become
increasingly competitive, which could impair our market position and our
financial results.
We expect that a number of existing and new competitors will enter our
market to take advantage of the trends toward direct-to-customer marketing and
outsourcing. Many of these companies, such as the consulting arms of the Big
Five accounting firms, have greater name recognition, marketing, technical and
financial resources than we have. We believe that competition for Strategic
Consulting and Technology Solutions services will be particularly intense as
companies that had been concentrating on providing Year 2000 related assistance
to their clients refocus their efforts. We believe the greatest competitive
threat to us would occur if a company were to offer the full range of services
we do on a more cost-effective or timely basis. While we are not aware of any
such competitors, our industry is experiencing rapid consolidation, which
increases the possibility that such competition could occur. See "Business -
Competition" for additional information regarding our competition.
The proportion of our activities for our clients involving the Internet is
increasing, and therefore our business is becoming more dependent on continued
growth in the use and improvement of the Internet.
An increasing percentage of our clients' customers are using Web sites, e-
mail and other Internet-based channels of communication. In addition, we are
offering more Internet-related services, such as Web site user interface
implementation, to our clients. As a result, our future success is becoming
increasingly dependent on the continued expansion of, and reliance of consumers
and businesses on, the Internet. There can be no assurance that the
infrastructure, products or services necessary to maintain and expand the
Internet will be developed, or that the Internet will remain a successful
commercial medium. If consumers have difficulties when buying products on the
Internet, as happened with a number of Web sites last holiday season, they may
be reluctant to use the Internet in the future. The Internet has already
experienced outages and delays as a result of damage to portions of its
infrastructure, and recently the operations of several Web sites have been
deliberately disrupted by unknown third parties.
Consumers' concerns and possible regulations about privacy of consumer
information on the Internet may adversely affect our Customer Knowledge
business.
An important feature of our Customer Knowledge services is the ability to
collect and analyze personal customer data to refine and measure the
effectiveness of marketing programs. Privacy concerns may cause consumers to
stop visiting Web sites that collect personal data or to resist providing
personal data. Privacy concerns and regulations, as well as risks of breaches
of security, may also inhibit market acceptance of the Internet as a means of
commerce, particularly where the personal data may be highly sensitive to the
consumer, such as brokerage account activity and credit card data. A decrease
in the availability of personal data about Internet customers could hurt our
Customer Knowledge business. See "Business - Regulatory Matters" for further
information regarding the possible negative effects of regulation of the
Internet.
Risks Related to the Offering
After the offering, four existing stockholders will own approximately 69% of
the outstanding common stock and could control or strongly influence actions
requiring the approval of stockholders, which could be detrimental to your
voting and economic interests as a stockholder.
After the offering, our chief executive officer, two major stockholders
who are represented on our board of directors and another major stockholder
will own approximately 69% of the common stock. If these stockholders were to
act together, they could substantially influence our business and control some
stockholder votes. In addition, this concentration of stock ownership may
discourage someone from making a tender offer or bid to acquire us at a price
per share higher than the then current market price. See "Principal
Stockholders" for additional information about our stockholders.
11
<PAGE>
Our stock price, like that of many other Internet-related and technology
companies, may be extremely volatile after the offering, which could negatively
affect your investment.
The market prices of securities of many companies, particularly those in
businesses related to the Internet, have been experiencing extreme fluctuations
in recent times. These fluctuations are often unrelated to the companies'
operating performance, but instead are influenced by changes in securities
analysts estimates or recommendations or factors relating to the companies'
competitors or industry in general. The market price for our common stock
following this offering may be similarly volatile and could decline or
fluctuate in response to a variety of factors, including:
. changes in our relationships with our major customers, such as
American Express, Safeway, Sega and Sony;
. announcements of technological innovations that render our
EtinuumWebDirect System or other capabilities outdated;
. our announcement of new services or pricing policies, such as our new
policy of charging for Strategic Consulting services; and
. acquisitions, such as of Acorn, or strategic alliances.
We may issue equity securities or seek debt funding in connection with
acquisitions, hiring of new employees, or strategic relationships which may be
dilutive to stockholders or impose operational restrictions.
We may raise additional funds, make acquisitions or seek to strengthen
strategic relationships, as we have done with Sony, through the issuance of
equity securities, and we intend to continue to grant options or stock to
employees and consultants, which will reduce the percentage ownership of
existing stockholders. These stockholders may experience additional dilution in
net book value per share, and any additional equity securities may have rights,
preferences and privileges senior to those of the holders of common stock. In
addition, debt financing, if available, may involve restrictive covenants that
limit our operating flexibility with respect to some business matters.
The substantial number of shares that will be eligible for sale in the near
future may cause the market price of our common stock to decline.
A substantial number of shares of common stock will be available for sale
in the public market following this offering, which could adversely affect the
market price of our common stock. This includes up to 9,241,392 shares of
common stock held by our current stockholders that may be sold in compliance
with Rule 144 under the Securities Act 180 days after the date of this
prospectus. See "Description of Capital Stock-Registration Rights" and "Shares
Eligible for Future Sale" for a more detailed description of the eligibility of
shares of our common stock for future sale.
Some provisions of our charter documents may have anti-takeover effects that
could discourage a change in control, even if an acquisition would be
beneficial to our stockholders.
Our certificate of incorporation, our bylaws and Delaware law contain
provisions that could make it more difficult for a third party to acquire us,
even if doing so would be beneficial to our stockholders. See "Description of
Capital Stock - Preferred Stock" and "- Delaware Anti-Takeover Law and Charter
and By-law Provisions" for further information relating to these provisions.
As a new investor, you will incur substantial dilution as a result of future
equity issuances.
We have issued options to acquire common stock at prices significantly
below the initial public offering price. To the extent outstanding options are
ultimately exercised, there will be further dilution to investors in this
offering.
12
<PAGE>
FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this prospectus. There are
risks and uncertainties relating to these statements, and there can be no
guarantee that these statements will prove to be correct. Forward-looking
statements include assumptions as to how we may perform in the future. When we
use words like "believe," "could," "may," "will," "estimate," "continue,"
"seek," "anticipate," "intend," "expect," "predict," "potential," and "plan" or
similar expressions, we are making forward-looking statements.
We have based these statements on our current expectations about future
events. Although we believe that the expectations reflected in our forward-
looking statements are reasonable, we cannot guarantee that these expectations
actually will be achieved. In evaluating these statements, you should consider
various factors, including the risks set forth in the section entitled "Risk
Factors" beginning on page 6. These risk factors may cause actual results to
differ materially from any forward-looking statements.
USE OF PROCEEDS
Assuming an initial public offering price of $11.00 per share, we will
receive net proceeds of approximately $44.5 million from the sale of 4,500,000
shares of common stock in this offering, or approximately $51.4 million if the
underwriters exercise their over-allotment of 675,000 shares in full, after
deducting the estimated underwriting discounts and commissions and estimated
offering expenses payable by us.
The principal purposes of this offering are to increase our working
capital, create a public market for our common stock, facilitate our future
access to the public capital markets and increase our visibility in our
marketplace. We intend to use the net proceeds of this offering for general
corporate purposes, including capital expenditures for new equipment and
facilities and operational expenses, such as personnel and sales and marketing.
We do not at this time have a plan for allocating the proceeds to specific
uses. The amounts and timing of our actual expenditures will depend on numerous
factors, including the status of our marketing and branding activities, the
need to hire new employees and the amount of cash generated or used by our
operations. We may use some of the proceeds in connection with relocating our
northern California and Denver communications center operations to new
facilities in mid-2000 and opening a new communications center in late 2000 or
early 2001. We do not currently have any commitments for capital equipment or
other costs related to these new facilities. In addition, we may, if
appropriate opportunities arise, use an undetermined portion of the net
proceeds to acquire or invest in companies offering services or products
complementary to ours. However, we currently have no commitments or agreements
with any third party regarding any such potential acquisition or investment.
Pending such uses, we will invest the net proceeds in investment grade,
interest-bearing securities.
DIVIDEND POLICY
We have never paid or declared cash dividends on our common stock. We
currently intend to retain any future earnings to fund the development and
growth of our business. We do not currently anticipate paying any cash
dividends in the foreseeable future.
13
<PAGE>
CAPITALIZATION
The following table shows our capitalization at December 31, 1999:
. on an actual basis;
. on an unaudited pro forma basis giving effect to the automatic
conversion upon the closing of this offering of all outstanding shares
of preferred stock into 9,560,188 shares of common stock and the
issuance of 1,333,433 shares of common stock to holders of our
preferred stock as payment-in-kind dividends accrued through December
31, 1999; and
. on an unaudited pro forma basis as adjusted to reflect the issuance of
4,500,000 shares of common stock in this offering and the receipt by
us of net proceeds of approximately $44.5 million assuming an initial
public offering price of $11.00 per share, after deducting the
estimated underwriting discounts and commissions and estimated
offering expense, and the issuance of 721,124 additional shares of
common stock to holders of our Series F preferred stock assuming the
sale of shares in this offering at an initial offering price of $11.00
per share. See "Related Party Transactions-Securities Issuances and
Loans."
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------------
Pro forma
as
Actual Pro forma adjusted
----------- ------------ ------------
(unaudited)
(in thousands, except share data)
<S> <C> <C> <C>
Long-term borrowings, net of current
portion.............................. $ 1,722 $ 1,722 $ 1,722
----------- ----------- -----------
Convertible Preferred Stock, subject
to mandatory redemption; 79,000,000
shares authorized, 35,255,741 shares
issued and outstanding actual;
convertible into 10,893,621 common
shares; no shares issued and
outstanding pro forma and pro forma
as adjusted.......................... 59,408 -- --
----------- ----------- -----------
Stockholders' equity (deficit):
Common stock, 170,000,000 shares
authorized, 1,881,444 shares issued
and outstanding, actual; 100,000,000
shares authorized, pro forma and pro
forma as adjusted; 12,775,065 shares
issued and outstanding, pro forma;
17,996,189 shares issued and
outstanding, pro forma as adjusted
.................................... 1 2 2
Additional paid-in capital........... -- 59,407 103,942
Unearned compensation................ (1,266) (1,266) (1,266)
Accumulated deficit.................. (40,732) (40,732) (40,732)
----------- ----------- -----------
Total stockholders' equity
(deficit)........................ (41,997) 17,411 61,946
----------- ----------- -----------
Total capitalization.............. $ 19,133 $ 19,133 $ 63,668
=========== =========== ===========
</TABLE>
The outstanding share information shown in the table above excludes:
. options to purchase 2,330,563 shares of common stock granted under our
1997 and 1998 Stock Option Plans at a weighted average exercise price
of $6.28 per share;
. 6,437,611 shares of common stock available for future issuance under
our 1997 and 1998 Stock Option Plans, 2000 Stock Incentive Plan and
2000 Employee Stock Purchase Plan; and
. a warrant to purchase 181,250 shares of common stock issued to Sony
Electronics Inc. at an exercise price of $8.52 per share.
An additional 140,195 shares of common stock will be issued to the holders
of preferred stock as payment-in-kind dividends subsequent to December 31, 1999
through February 29, 2000.
For additional information about our stock plans, see "Employee Benefit
Plans," and for information about the warrant issued to Sony Electronics, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Overview ."
14
<PAGE>
DILUTION
The unaudited pro forma net tangible book value of our common stock at
December 31, 1999 was approximately $14.6 million, or $1.08 per share of common
stock. The unaudited pro forma net tangible book value per share represents the
amount of our total tangible assets less total liabilities, divided by
13,496,189 shares of common stock outstanding after giving effect to:
. the conversion of all outstanding shares of preferred stock into
9,560,188 shares of common stock upon the closing of this offering;
. the issuance of 1,333,433 shares of common stock to holders of our
preferred stock as payment-in-kind dividends accrued through December 31,
1999; and
. the issuance of 721,124 additional shares of common stock to holders of
our Series F preferred stock assuming the sale of shares in this offering
at an initial offering price of $11.00 per share.
See "Related Party Transactions - Securities Issuances and Loans" for
additional information about our preferred stock issuances.
After giving effect to the issuance of 4,500,000 shares in this offering
and the receipt of approximately $44.5 million of net proceeds from this
offering, based on an assumed initial public offering price of $11.00 per share
and after deducting the estimated underwriting discounts and commissions and
estimated offering expenses, our unaudited pro forma as adjusted net tangible
book value at December 31, 1999 would have been approximately $59.1 million, or
$3.29 per share. This amount represents an immediate increase in pro forma net
tangible book value of $2.21 per share to existing stockholders and an
immediate dilution of $7.71 per share to purchasers of common stock in this
offering. Dilution is determined by subtracting unaudited pro forma as adjusted
net tangible book value per share after this offering from the amount of cash
paid by a new investor for a share of common stock. The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $11.00
Unaudited pro forma net tangible book value per share at
December 31, 1999.......................................... $1.08
Increase in unaudited pro forma net tangible book value per
share attributable to new investors........................ 2.21
-----
Unaudited pro forma as adjusted net tangible book value per
share after this offering.................................. 3.29
------
Dilution per share to new investors........................... $ 7.71
======
</TABLE>
15
<PAGE>
The following table summarizes as of December 31, 1999, on the unaudited
pro forma as adjusted basis described above, the number of shares of common
stock purchased from us, the total consideration paid to us, and the average
price per share paid by existing stockholders and by new investors who purchase
shares of common stock in this offering, before deducting the estimated
underwriting discounts and commissions and estimated offering expenses:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ -------------------- Price Per
Number Percent Amount Percent Share
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)..... 13,496,189 75% $55,819,000 53% $4.14
New investors(1)............. 4,500,000 25% 49,500,000 47% 11.00
---------- --- ------------ ---
Total...................... 17,996,189 100% $105,319,000 100%
========== === ============ ===
</TABLE>
- ------------------
(1) If the underwriters' over-allotment option is exercised in full, sales in
this offering will reduce the number of shares of common stock held by the
existing stockholders to approximately 72% of the total shares of common
stock outstanding after the offering and will increase the number of shares
held by new investors to 5,175,000, or approximately 28% of the total
shares of common stock outstanding after the offering. See "Plan of
Distribution."
The above table assumes no exercise of any outstanding stock options or
warrants. As of December 31, 1999, there were options outstanding to purchase a
total of 2,330,563 shares of common stock with a weighted average exercise
price of $6.28 per share. In January 2000, we issued a warrant to Sony
Electronics to purchase 181,250 shares at $8.52 per share. In the first quarter
of 2000 through March 20, we granted options to purchase an additional
1,730,970 shares of common stock at a weighted average exercise price of $9.66
per share. If any of these options or the warrant are exercised, there will be
further dilution to new public investors. Please see "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Employee Benefit Plans," and Notes 10 and 13 of Notes to
Consolidated Financial Statements for additional information about the
outstanding options and warrant.
16
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
You should read the following selected financial data in conjunction with
our financial statements and related notes, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Unaudited Pro
Forma Condensed Financial Information," included elsewhere in this prospectus.
In particular, please see the information under the subheading "Overview" and
the subheading "Pro Forma Results of Operations" for a discussion of the
effects of our acquisitions of Protocall New Business Specialists Inc. and
Acorn and our spin-off of Spider.
Historical Presentation
The historical statements of operations data set forth below are derived
from and qualified by reference to our financial statements included elsewhere
in this prospectus. The historical periods are not necessarily indicative of
results to be expected in any future period.
Pro Forma Presentation
The pro forma financial data have been derived from our unaudited pro
forma condensed financial information which was prepared to illustrate the
effects of certain transactions and events and the receipt of the net proceeds
from this offering. The unaudited pro forma consolidated statements of
operations data for the year ended December 31, 1999 give effect to our
acquisition of Acorn and the spin-off of Spider as if those transactions had
occurred on January 1, 1999. The unaudited pro forma consolidated balance sheet
data give effect to the sale of 4,500,000 shares in this offering at an assumed
initial public offering price of $11.00 per share, after deducting the
estimated underwriting discounts and commissions and estimated offering
expenses, as if this offering had occurred on December 31, 1999. The following
transactions are assumed to have occurred on January 1, 1999 in the pro forma
as adjusted per share data in the consolidated statements of operations data
and on December 31, 1999 in the unaudited pro forma as adjusted consolidated
balance sheet data:
. the issuance of 4,500,000 shares in this offering at an assumed
initial public offering price of $11.00 per share, after deducting the
estimated underwriting discounts and commissions and estimated
offering expenses;
. the automatic conversion of all shares of preferred stock outstanding
as of December 31, 1999 into 9,560,188 shares of common stock;
. the issuance of 1,333,433 shares of common stock to the holders of our
preferred stock as payment-in-kind dividends accrued through December
31, 1999; and
. the issuance of 721,124 additional shares of common stock to the
holders of our Series F preferred stock assuming the sale of shares in
this offering at an initial offering price of $11.00 per share. See
"Related Party Transactions - Securities Issuances and Loans."
An additional 140,195 shares of common stock will be issued to the holders
of preferred stock as payment-in-kind dividends subsequent to December 31, 1999
through February 29, 2000.
17
<PAGE>
<TABLE>
<CAPTION>
Period from
March 6, 1996
(inception) Years Ended December 31,
to December 31, ------------------------------------------------
1996 1997 1998 1999
--------------- ---------- ---------- ------------------------
Pro forma
Actual as adjusted
----------- -----------
(unaudited)
(in thousands, except share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statements
of Operations Data:
Revenue................. $ 480 $ 9,546 $ 17,664 $ 24,699 $ 26,707
Direct cost of servic-
es..................... (211) (7,767) (13,209) (16,986) (17,964)
---------- ---------- ---------- ----------- -----------
Gross profit............ 269 1,779 4,455 7,713 8,743
Operating expenses:
Selling, general and
administrative........ 2,046 10,464 9,312 15,020 15,129
Depreciation and amor-
tization.............. 25 2,941 3,755 3,533 3,933
Research and develop-
ment.................. -- 458 897 1,079 278
---------- ---------- ---------- ----------- -----------
Total operating ex-
penses................ 2,071 13,863 13,964 19,632 19,340
---------- ---------- ---------- ----------- -----------
Loss from operations.... (1,802) (12,084) (9,509) (11,919) (10,597)
---------- ---------- ---------- ----------- -----------
Other (expenses) income:
Loss from Spider....... -- -- -- (1,055) (3,320)
Interest income........ 11 245 266 134 134
Interest expense....... (16) (30) (17) (150) (194)
Loss on disposal of
equipment and other... (2) (26) (270) (20) (20)
---------- ---------- ---------- ----------- -----------
(7) 189 (21) (1,091) (3,400)
---------- ---------- ---------- ----------- -----------
Net loss................ $ (1,809) $ (11,895) $ (9,530) $ (13,010) $ (13,997)
========== ========== ========== =========== ===========
Net loss applicable to
common stockholders:
Net loss............... $ (1,809) $ (11,895) $ (9,530) $ (13,010) $ (13,997)
Accretion of
mandatorily redeemable
convertible preferred
stock................. (90) (469) (864) --
Cummulative dividends
to preferred stock-
holders............... -- -- -- (11,361) --
Loss on repurchase of
Series A preferred
stock................. -- (1,241) -- -- --
Loss on Series C pre-
ferred stock Exchange
Agreement............. -- -- (1,465) -- --
---------- ---------- ---------- ----------- -----------
Net loss applicable to
common stockholders.... $ (1,809) $ (13,226) $ (11,464) $ (25,235) $ (13,997)
========== ========== ========== =========== ===========
Basic and diluted net
loss per share......... $ (1.07) $ (7.09) $ (6.14) $ (13.50) $ (0.90)
---------- ---------- ---------- ----------- -----------
Weighted average common
shares outstanding--ba-
sic and diluted........ 1,697,417 1,866,585 1,867,941 1,869,803 15,596,317
========== ========== ========== =========== ===========
Pro forma net loss per
share, assuming conver-
sion of preferred stock
and accrued dividends:
Basic and diluted net
loss per share........ $ (1.26)
===========
Weighted average common
shares outstanding--
basic and diluted..... 10,364,936
===========
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------
1996 1997 1998 1999
------- -------- -------- ---------------------
Pro forma
Actual as adjusted
-------- -----------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet
Data:
Cash and cash equivalents.. $ 441 $ 2,235 $ 3,752 $ 6,204 $52,239
Working capital............ 268 1,897 7,082 7,533 52,719
Total assets............... 1,296 17,086 18,644 26,378 71,762
Long-term borrowings, net
of current portion........ 47 20 7 1,722 1,722
Total stockholders' equity
(deficit)................. (1,219) (12,920) (22,990) (41,997) 61,946
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with Selected Historical
and Pro Forma Financial Data and the financial statements and notes appearing
elsewhere in this prospectus. This discussion and analysis contains forward-
looking statements that involve risks, uncertainties and assumptions. Our
actual results may differ materially from those anticipated in these forward-
looking statements as a result of several factors, including, but not limited
to, those stated in the Risk Factors section and elsewhere in this prospectus.
Overview
We provide an integrated set of strategic, technological, operational and
analytical solutions that takes our clients from concept to launch and
operation of their e-commerce and other direct-to-customer sales and marketing
initiatives. Our clients are typically Fortune 1000 and emerging Web-based
companies that sell complex products or employ complicated sales processes, and
require sophisticated outsourced service providers to help them conduct their
direct-to-customer initiatives. Our services enable our clients to rapidly
capitalize on market opportunities, access sophisticated technology, use the
services of highly-trained personnel and improve operating efficiencies.
We incorporated in Colorado in March 1996 and reincorporated in Delaware
in August 1996. Through February 1997, our operating activities consisted
primarily of hiring personnel, setting up our Denver headquarters and San Diego
facilities, developing our Web-based software and establishing client
relationships. Our revenue during this period was derived primarily from
technology development services.
In February 1997, we acquired Protocall, a customer support company that
had a communications center in Livermore, California. The net purchase price of
Protocall after assumption of liabilities was approximately $6.7 million. We
recorded an intangible asset of $3.0 million for acquired customer
relationships and $3.6 million as goodwill. We are amortizing the customer
relationship intangible amount over three years and the goodwill amount over
five years. Following the Protocall acquisition, we expanded our communications
center services. We opened our Denver communications center in April 1997 and
our Hayward, California communications center in May 1997.
We grew our business significantly in 1998. This growth came primarily
from expanding our communications center and technology development services to
existing clients and adding new clients. During 1999, we continued to expand
our e-Operations services, which include our communications center operations,
and our Technology Solutions services, as we increased services to our major
clients and, to a lesser extent, added new clients. We opened a large
communications center in Fort Scott, Kansas in June 1999 to support this growth
and planned future growth.
In October 1999, we acquired Acorn, which provides strategic consulting
and data analytic services to its clients. The initial purchase price for Acorn
after assumption of outstanding borrowings was approximately $2.0 million.
Approximately $493,000 of the purchase price was allocated to acquired goodwill
and $950,000 to acquired intangibles. Goodwill will be amortized on a straight-
line basis over five years and intangibles will be amortized on a straight-line
basis over three years. We have also agreed to make future cash payments over
the next three years to the four former stockholders of Acorn who became our
employees if continued employment conditions are met and have granted to these
persons options to purchase a total of 400,000 shares of our common stock at
$10.00 per share exercisable over three years.
Effective October 1, 1999, we transferred the rights to the proprietary
software that we had developed and that is used in our EtinuumWebDirect System
to a newly-formed subsidiary, Spider. We then distributed the stock of Spider
to our stockholders. Fifteen of our technical personnel and four sales
personnel became employees of Spider. Spider is now primarily responsible for
research and development
19
<PAGE>
efforts with respect to the transferred software. As a result, our research and
development expenses for the fourth quarter of 1999 and on a pro forma basis
for 1999 were, and are expected to be for the foreseeable future, lower than
historical levels.
For federal income tax purposes, the distribution of the Spider shares to
our stockholders was a taxable event to us. The taxable gain was determined
based upon an independent valuation of Spider after applying minority and
liquidity discounts. This value and our capital gain for federal income tax
purposes was $4.5 million, which was offset by 1999 tax losses which exceeded
that amount. To the extent the IRS requires the valuation of Spider to be
increased and the taxable gain exceeds the tax operating loss for 1999, we
would owe alternative minimum taxes, the payment of which would adversely
affect our cash flow. Any increase in the valuation would also decrease our net
operating loss carryforward.
In connection with the spin-off, we distributed $1 million to Spider. We
also agreed to share some facilities, supplies and personnel with Spider, for
which it agreed to pay us specified fees. During the fourth quarter of 1999,
Spider's share of these expenses was approximately $525,000, which we paid. In
addition, we paid salaries for Spider's employees of approximately $530,000
during that quarter. We are continuing to pay all of these expenses on behalf
of Spider. We have accounted for the $1 million distribution as a long-term
receivable, which is to be repaid out of Spider's minimum royalty obligation of
$1.45 million. We are accounting for the other amounts due us as current
receivables. A valuation allowance has been recognized by a charge to
operations reducing these current receivables to zero. If Spider is unable to
generate sufficient revenue to pay its obligations, we may not be able to
recover the $1 million long-term receivable or the costs incurred or to be
incurred on its behalf pursuant to agreements entered into in connection with
the spin-off and otherwise. This would have a negative effect on our results of
operations in the period in which the losses are recognized.
To date, a substantial majority of our revenue has come from our e-
Operations services and nearly all of the remainder has been from Technology
Solutions services. In the fourth quarter of 1999, we began billing for our
Strategic Consulting services, which we had previously provided primarily as a
way to attract new clients for Technology Solutions and e-Operations services.
We also significantly enhanced our database marketing and analysis services in
the fourth quarter through our acquisition of Acorn. These types of
professional services traditionally have higher gross margins than our e-
Operations services.
Substantially all of our revenue to date has been based on time and
expenses as incurred. Recently we entered into a long-term contract with a
major client under which our revenues will be based primarily upon a percentage
of the client's revenues generated from our operation of its direct-to-customer
initiative. We may enter into additional contracts with similar terms in the
future. In addition, we have recently entered into fixed-price agreements for
Strategic Consulting services. To date, revenue under these fixed-price
agreements has been immaterial.
Direct cost of services consists primarily of compensation and benefits to
our employees engaged in the direct delivery of professional services related
to the development, implementation and support of programs for our clients.
Direct cost of services also includes materials, training, telecommunications
expenses and equipment necessary for execution of our clients' programs. Under
our agreements with Spider, we are not required to pay license fees for
transferred software until November 2002, which will have a positive effect on
our direct cost of services until that time.
Selling, general and administrative expenses consist primarily of
salaries, commissions, benefits, and related expenses for personnel engaged in
sales and client support; salaries and related expenses of executive
management, human resources, finance and administrative personnel; expenses
related to our facilities; marketing and branding expenses, including trade
shows and promotional events; and other general corporate expenses.
20
<PAGE>
In January 2000, we issued a warrant to purchase 181,250 shares of common
stock to Sony Electronics, following discussions with Sony that had begun in
early 1999 to further strengthen our strategic relationship with Sony. The
value of this warrant is approximately $1.1 million which will be charged to
operations in the first quarter of 2000. Sony has been an important client
since late 1997 and our development of the EtinuumWebDirect system was funded
in part by revenue from our work for Sony.
Depreciation and amortization expenses consist of the depreciation of
equipment used in our operations, including phone switches and computer
equipment at our facilities.
Research and development expenses consist of charges, including labor and
materials, related to the development and enhancement of software and
technology platforms used in providing services to our clients.
Interest income is earned on cash balances in our bank accounts and short-
term investments. Interest expense is incurred on our debt and capital lease
obligations.
The terms of the Series F preferred stock financing provide that the price
per share paid for the Series F preferred will not be more than one-half the
initial price per share in this offering. If it is, we must issue additional
shares of common stock to the Series F preferred holders so that the price of
the Series F preferred when converted to common stock effectively equals one-
half of the price paid by the public in this offering. In addition, a charge
will be recorded of $13.9 million to net loss applicable to common stockholders
in the quarter in which the closing of this offering occurs due to this
beneficial conversion feature.
Pro Forma Results of Operations
The pro forma information takes into account the acquistion of Acorn and
the spin-off of Spider as if those transactions had occurred on January 1,
1999. On a pro forma basis, Acorn contributed $2.9 million in revenue during
1999. In addition, on a pro forma basis, Acorn contributed $1.5 million in
gross profit, while incurring $2.1 million in operating expenses, resulting in
a loss for the year of $0.7 million.
During the first nine months of 1999, on a pro forma basis, Spider
incurred $1.2 million in expenses related to support services such as
accounting, payroll, human resources and insurance. Spider also incurred $1.1
million in research and development expenses related to the continued
development of the EtinuumWebDirect System. On a going-forward basis, research
and development expenses will not include the effect of Spider. For the full
year 1999, Spider's operating expenses on a pro forma basis were $3.3 million.
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<PAGE>
Historical Results of Operations
The following table sets forth for the periods presented data from our
consolidated statements of operations as a percentage of revenues. This data,
other than the pro forma financial information, has been derived from our
audited financial statements and should be read in conjunction with the
financial statements and notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Period from
March 6, 1996
(inception) Years Ended December 31,
to December 31, ---------------------------------
1996 1997 1998 1999
--------------- ---- ---- -------------------
Pro forma
Actual as adjusted
------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue....................... 100% 100% 100% 100% 100%
Direct cost of services....... (44) (81) (75) (69) (67)
---- ---- --- ---- ----
Gross profit.................. 56 19 25 31 33
Operating expenses:
Selling, general and
administrative............. 426 110 53 61 57
Depreciation and
amortization............... 5 31 21 14 13
Research and development.... -- 5 5 4 1
---- ---- --- ---- ----
Total operating expenses.. 431 146 79 79 72
---- ---- --- ---- ----
Loss from operations.......... (375) (127) (54) (48) (40)
---- ---- --- ---- ----
Other (expense) income:
Loss from Spider............ -- -- -- (4) (12)
Interest income............. 2 3 2 1 1
Interest expense............ (3) -- -- (1) (1)
Loss on disposal of
equipment and other........ -- -- (2) -- --
---- ---- --- ---- ----
Net loss...................... (376)% (124)% (54)% (53)% (52)%
==== ==== === ==== ====
</TABLE>
Comparison of Years Ended December 31, 1997, 1998 and 1999
Revenue. Revenue increased 39.5% to $24.7 million in 1999, from $17.7
million in 1998. Over half of the increase was due to growth in initiatives for
major existing clients. We also increased revenue by adding new clients and, to
a lesser extent, through a change in the mix of our clients, which resulted in
higher average billing rates. Furthermore, our acquisition of Acorn contributed
an additional $0.9 million during the fourth quarter of 1999. In 1999, we
discontinued working with some clients whose initiatives did not require the
types of services on which we are focusing. Revenue increased 86.3% to $17.7
million in 1998 from $9.5 million in 1997. Slightly more than half of this
increase was due to a full year of revenue from our three largest clients,
which we had added in late 1997. The balance came from the addition of new
clients and the expansion of our Technology Solutions services.
Direct cost of services. Direct cost of services in 1999 was $17.0
million, or 68.8% of revenue, as compared to $13.2 million, or 74.8% of
revenue, in 1998. On a dollar basis, the increase in direct cost of services
was due to the increase in activities related to providing our services. Direct
cost of services in 1998 was $13.2 million, or 74.8% of revenue, compared to
$7.8 million, or 81.4% of revenue, in 1997. This dollar increase resulted from
costs related to increased services to new and existing clients. The
improvements as a percentage of revenue in 1999 and 1998 over the respective
prior years were related primarily to allocating fixed direct costs against
increased revenue.
Selling, general and administrative expenses. Selling, general and
administrative expenses were $15.0 million, or 60.8% of revenue, in 1999
compared to $9.3 million, or 52.7% of revenue, in 1998. A
22
<PAGE>
substantial majority of this growth in selling, general and administrative
expenses resulted from hiring additional management and support personnel. We
also incurred expenses in connection with opening a new communications center
in Fort Scott, Kansas and moving our headquarters facility in June 1999. Our
acquisition of Acorn in October 1999 resulted in additional selling, general
and administrative expenses of $0.3 million. In addition, we incurred $0.4
million in compensation expense related to incentive stock options. Selling,
general and administrative expenses in 1998 were $9.3 million, or 52.7% of
revenue, compared to $10.5 million, or 109.6% of revenue, in 1997. This
decrease was primarily a result of the termination of several management
personnel acquired in the Protocall acquisition.
Depreciation and amortization expenses. Depreciation and amortization
expenses in 1999 were $3.5 million compared to $3.8 million in 1998. The
decrease in depreciation and amortization expenses was a result of the disposal
or full depreciation of most equipment from the acquisition of Protocall.
Depreciation and amortization expenses in 1998 were $3.8 million compared to
$2.9 million in 1997. The increase of $0.8 million in 1998 compared to 1997
resulted from the depreciation of equipment in our Hayward facility for a full
year and new equipment added during the year.
Research and development expenses. Research and development expenses in
1999 were $1.1 million compared to $0.9 million in 1998. The increase in
research and development expenses was a result of continued development and
support of the EtinuumWebDirect System. In October 1999, we transferred the
rights to the proprietary software used in the EtinuumWebDirect System to
Spider and we then distributed all of the stock of Spider to our stockholders.
Consequently, research and development expenses in the fourth quarter of 1999
were negligible. Research and development expenses increased in 1998 to $0.9
million from $0.5 million in 1997 due to the continued development and support
of the EtinuumWebDirect System.
Interest income. Interest income in 1999 was $0.1 million compared to $0.3
million in 1998 and $0.2 million in 1997. Fluctuations from year to year were
due to preferred stock financings and the investment of the proceeds in short-
term financial instruments.
Interest expense. Interest expense in 1999 was $0.2 million. Interest
expense in 1998 and 1997 was negligible. Interest expense in 1999 resulted from
our borrowings against our lines of credit and leases for office equipment and
furniture.
Loss on disposal of equipment and other expense. In early 1998, we
disposed of telecommunications equipment we considered no longer useful in our
operations. The result was a $0.3 million loss.
23
<PAGE>
Selected Unaudited Historical Quarterly Financial Data
The following table sets forth certain unaudited consolidated statements
of operations data for the eight quarters ended December 31, 1999. In our
opinion, the quarterly data include all adjustments, consisting only of normal
recurring adjustments, considered necessary for a fair presentation of such
information.
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $ 3,402 $ 3,646 $ 4,989 $ 5,627 $ 5,432 $ 4,879 $ 5,567 $ 8,821
Direct cost of
services............... (3,086) (2,688) (3,404) (4,031) (3,638) (3,420) (4,296) (5,632)
------- ------- ------- ------- ------- ------- ------- -------
Gross profit............ 316 958 1,585 1,596 1,794 1,459 1,271 3,189
Operating expenses:
Selling, general and
administrative........ 2,213 2,143 2,445 2,511 2,911 3,182 3,864 5,063
Depreciation and
amortization.......... 1,070 1,056 770 859 765 775 875 1,118
Research and
development........... 154 189 224 330 328 344 389 18
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses.............. 3,437 3,388 3,439 3,700 4,004 4,301 5,128 6,199
------- ------- ------- ------- ------- ------- ------- -------
Loss from operations.... (3,121) (2,430) (1,854) (2,104) (2,210) (2,842) (3,857) (3,010)
------- ------- ------- ------- ------- ------- ------- -------
Other (expense) income:
Loss from Spider....... -- -- -- -- -- -- -- (1,055)
Interest (income)...... (26) (87) (108) (45) (14) (45) (23) (52)
Interest expense....... 1 13 1 1 5 6 8 131
Loss on disposal of
equipment and other... 269 1 -- 1 -- 1 11 8
------- ------- ------- ------- ------- ------- ------- -------
Net loss................ $(3,365) $(2,357) $(1,747) $(2,061) $(2,201) $(2,804) $(3,853) $(4,152)
======= ======= ======= ======= ======= ======= ======= =======
Basic and diluted net
loss per common share.. $ (1.86) $ (2.11) $ (1.00) $ (1.17) $ (1.25) $ (1.57) $ (2.13) $(8.55)(1)
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
(1) Of this loss per share, $6.06 is attributable to the charge for cumulative
payment-in-kind dividends accrued to the preferred stockholders.
Operating results for any quarter are not necessarily indicative of
results for any future period. Factors that have affected our operations in the
past and that may affect our operations in the future, and that could cause
quarterly fluctuations, include:
. the beginning, ending or deferral of significant services for clients
during a quarter, particularly when we must add personnel and other
resources in advance of new client initiatives;
. variations in the number, size and scope of our clients' direct-to-
customer initiatives, which in the past have ranged from small pilot
programs involving only a few of our employees to nationwide programs
using over fifty new employees;
. the utilization of our employees and communications center facilities,
which can be affected significantly, for example, by reassigning or
terminating personnel following the completion of a client's
initiative or by opening a new facility in anticipation of future
business;
. fluctuations in demand for our clients' products, which are beyond our
control but which directly affect our revenue as a substantial portion
of our client billings depends upon the time our personnel devote to a
client's customers or, under a new contract with a major client, are
based on the client's sales generated from our operation of its
direct-to-customer initiative;
. expenses incurred in connection with acquisitions, such as our recent
acquisition of Acorn, which are part of our strategy to broaden and
expand our service offerings; and
. expenses related to our sales and marketing efforts, which are
expected to increase in 2000.
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<PAGE>
Liquidity and Capital Resources
We have raised $51.0 million of equity capital to date from the sale of
common and preferred stock, net of offering expenses.
Cash and cash equivalents at the end of 1997, 1998 and 1999 were $2.2
million, $3.8 million, and $6.2 million, respectively. The increases in cash
were primarily from the net proceeds from the issuance of convertible
preferred stock of $22.8 million in 1997, $11.8 million in 1998 and $14.5
million in 1999. The proceeds were used primarily to fund operating
activities, capital expenditures and acquisitions.
Cash used in operations for 1997, 1998 and 1999 was $9.5 million, $9.0
million and $6.6 million, respectively. Our negative operating cash flow
resulted primarily from our net losses experienced over these periods. During
these periods we continued to develop our communications centers, hire key
management and other personnel and expand our technology infrastructure to
support our growth.
Cash used in investing activities was $9.0 million, $1.2 million and $7.4
million for 1997, 1998 and 1999, respectively. We have invested in
communications centers, expanded our technology resources and enhanced our
support infrastructure. In 1997, we acquired Protocall for $6.7 million, of
which $3.3 million was in cash. We also spent $5.6 million for computer and
communications equipment and facilities expansion, including the opening of
communications centers in Denver and Hayward, California. During 1999, we
opened a communications center in Fort Scott, Kansas and moved our
headquarters operations, which resulted in capital investments in computer
systems, facility expansion, furniture and fixtures. Effective October 1,
1999, we purchased Acorn for initial consideration of $ 2.0 million, of which
$0.6 million was in cash.
Our financing activities have generated cash of $20.3 million, $11.7
million and $16.5 million for 1997, 1998 and 1999, respectively. Net proceeds
from the sale of preferred equity have generated cash of $22.8 million, $11.8
million and $14.5 million for 1997, 1998 and 1999, respectively. In June 1999,
we obtained a two-year revolving line of credit from Silicon Valley Bank.
Borrowings under this secured line of credit bear interest at the bank's prime
rate plus 1.5%. The credit limit is based on 80% of the eligible accounts
receivable balance up to a maximum credit limit of $5.0 million. In September
1999, we obtained a 30-month, $2.5 million credit facility secured by the
capital assets at the Fort Scott communications center and a junior lien on
most of our other assets. In the fourth quarter of 1999, we drew $2.5 million
against this line to purchase equipment for use in the Fort Scott facility.
In March 1999, we received an $800,000 grant from the Kansas Department
of Commerce and Housing to offset costs for instruction, curriculum
development, training equipment, facilities and other expenses associated with
our Fort Scott facility. Under the terms of the grant, we are required to
maintain specified employee and wage levels in our Fort Scott facility until
the third quarter of 2001. We have earned $336,000 from this grant, of which
the State of Kansas has paid us $151,000. If there are insufficient funds
available to fund this grant in the future, we may not be reimbursed for
expenses covered by the grant until funds become available, if at all.
In addition, in April 1999, we received a $400,000 loan from the Kansas
Department of Commerce and Housing under the Kansas Economic Opportunity
Initiatives Fund. The loan is interest free and will be forgiven in equal
amounts over a five-year period provided that we meet and maintain specified
employee and wage levels and do not vacate our Fort Scott facility during this
period. If we fail to meet these requirements, or otherwise breach the
agreement, we must repay all or part of the amount of the loan plus 12%
interest.
We believe that the proceeds from this offering together with our cash
and borrowing capacity will be sufficient to fund our activities for at least
the next 12 months.
If the offering is not completed in a timely manner, we will need to
decrease our planned business expansion efforts or raise additional capital
through debt or private equity placements to fund our expansion
25
<PAGE>
efforts over this period. There is no assurance that such alternative financing
will be available on terms acceptable to us, if at all. In addition, although
there are no commitments or agreements with any third party with respect to any
acquisition of other businesses, products or technologies, we may, from time to
time, evaluate potential acquisitions of other businesses, products or
technologies. In order to consummate potential acquisitions, we may need to
issue equity or debt securities and these issuances may be dilutive to existing
investors.
Without the proceeds from this offering, management believes that current
cash on hand, funds available under a current bank line of credit and other
sources of liquidity are sufficient to fund our operations through December 31,
2000. To fund our operations beyond December 31, 2000 without this offering, we
would be required to raise additional capital through debt or private equity
financings, consistent with our prior practices.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No.133,
"Accounting for Derivative Instruments and Hedging Activities". The Company is
required to adopt SFAS No. 133, as amended by SFAS No. 137, in 2001. SFAS No.
133 establishes methods of accounting for derivative financial instruments and
hedging activities related to those instruments, as well as other hedging
activities. Etinuum has not entered into any derivative financial instruments
or hedging activities. As a result, management believes adoption of SFAS No.
133 will not have a material impact on the financial statements.
In December 1999, the staff of the Securities and Exchange Commission
issued its Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition."
SAB No. 101 provides guidance on the measurement and timing of revenue
recognition in financial statements of public companies. Changes in accounting
policies to apply the guidance of SAB No. 101 must be adopted by recording the
cumulative effect of the change in the fiscal quarter ending March 31, 2000.
Management has not yet determined the effect SAB No. 101 will have, if any, on
its accounting policies or the amount of the cumulative effect to be recorded
from adopting SAB No. 101.
Quantitative and Qualitative Disclosures about Market Risks
Market risks represent the risk of loss that may impact our financial
position, operating results or cash flows due to adverse changes in financial
market prices and rates. We are exposed to market risks from changes in United
States interest rates. Historically, and as of December 31, 1999, we have not
used derivative instruments or engaged in hedging activities.
We had long-term borrowings, including current maturities, of $3.2 million
as of December 31, 1999. Of this amount, $2.3 million bears interest at a fixed
rate of 13.9%. The fair value of the fixed-rate debt would change approximately
$10,000 for a 0.50% change in the level of interest rates.
We temporarily invest our excess cash in money market funds. Changes in
interest rates would not significantly affect the fair value of these temporary
cash investments because they are repriced on a daily basis.
Inflation
As a result of the relatively low levels of inflation during the last
three years, inflation did not have a significant impact on our results of
operations for those periods.
Income Taxes
We have historically concluded that there exists substantial doubt as to
the recoverability of our deferred tax assets. As a result, we have recorded a
valuation allowance of $9.5 million against those deferred tax assets. Our view
as to the ultimate recoverability of our deferred tax assets may change in the
near term based principally upon the successful execution of our business plan.
26
<PAGE>
Year 2000 Issue
The "Year 2000" issue has been a general term used to describe the various
problems that may result from the improper processing of dates and date-
sensitive calculations by computers and other machinery after December 31,
1999. These problems arise from the inability of hardware and software to
distinguish dates in the "2000s" from dates in the "1900s" and from other
sources such as the use of special codes and conventions in software that make
use of a date field. We have not experienced any significant disruptions from
the Year 2000 rollover; however, we recognize the need to continue to ensure
that our operations will not be adversely affected by still undiscovered Year
2000 software failures.
To date, we have not incurred any material costs directly associated with
Year 2000 compliance efforts. We do not expect the total cost of Year 2000
problems to be material to our business, financial condition or operating
results. We will continue to evaluate any new software and hardware systems
that we may acquire to determine whether they are Year 2000 compliant. Despite
our current assessment, we may not identify and correct all significant Year
2000 problems on a timely basis. If the representations made by our various
vendors regarding Year 2000 compliance are inaccurate, additional Year 2000
compliance efforts may involve significant time and expense, and unremedied
problems could harm our business.
In addition, the software and hardware systems of our clients, third-party
service companies and others outside of our control may not be Year 2000
compliant. If these systems are not Year 2000 compliant, a systemic failure
beyond our control could result, including Internet, telecommunications or
general electrical failure. These type of failures would significantly
interfere with our ability to provide our services to our clients. If these
failures were prolonged, our business would be harmed.
27
<PAGE>
BUSINESS
Overview
Etinuum provides an integrated set of solutions that takes our clients
from concept to launch and operation of their e-commerce and other direct-to-
customer initiatives. Our services allow both traditional and Web-based
companies to more effectively market and sell to their customers and to support
new and existing customers while reducing the investments they may otherwise
have to make in technology, facilities and personnel infrastructure. Our
comprehensive range of services includes:
. Strategic Consulting. We provide strategic program design, specifying
the necessary technology platforms, customer communications processes,
data requirements and personnel skills necessary for the client's
initiative;
. Technology Solutions. We design and implement the software and
hardware components needed to rapidly deploy our clients' initiatives
and to link our customized technology platforms with the clients' and
their vendors' systems;
. e-Operations. We operate technology systems and provide high-level
customer support personnel and communications services on behalf of
our clients, conducting sophisticated transactions with their
customers via voice, e-mail, fax and real-time online communications;
and
. Customer Knowledge. We collect and analyze data to help our clients
improve their marketing efforts and customer relationships through a
better understanding of their customers' buying processes and
behaviors.
We enable our clients to implement their e-commerce strategies and
introduce new products and services by providing comprehensive direct-to-
customer services that are integrated with our clients' systems and transparent
to their customers.
Industry Background
The acceptance and rapid growth of the Internet has dramatically changed
the way businesses and consumers communicate, obtain information, purchase
goods and services, and conduct business. International Data Corporation, or
IDC, estimates that the number of users who make purchases over the Web will
increase from nearly 31 million in 1998 to more than 182 million in 2003, and
that the amount of worldwide e-commerce conducted over the Web will increase
from $50 billion in 1998 to about $1.3 trillion in 2003. Both new Web-based
companies and traditional providers of goods and services are transforming
their business processes into e-commerce processes in an effort to lower costs,
improve customer service and increase productivity.
Increasing use of e-commerce and associated direct-to-customer
initiatives. Emerging Web-based companies established to take advantage of
Internet sales opportunities are proliferating. To meet competitive pressures
from these companies, traditional businesses are reevaluating their sales and
marketing methods and increasingly seeking to sell directly to customers
through e-commerce and associated direct-to-customer initiatives rather than
relying solely on intermediaries, such as wholesalers and retailers. Direct-to-
customer initiatives use a combination of Web sites, e-mail and other Internet-
based communications, telephone communications, fax and mail. Clients and
customers may transition among communications methods over time, or even during
a single purchase. A customer may, for example, receive a product offer through
direct mail, access the company Web site for product information, call a toll-
free number to order products and receive an e-mail confirming shipment.
Direct-to-customer initiatives generally result in lower distribution
costs and better control over the customer experience than does selling through
intermediaries, and also provide the basis for future targeted marketing
efforts. Direct sales can also provide companies with valuable end-user
customer information,
28
<PAGE>
including buying patterns, feature and function preferences and customer
support requirements. This information can be used to design better products,
enhance marketing programs and improve overall customer satisfaction.
Increasing complexity of direct-to-customer initiatives. The process of
establishing e-commerce and other direct-to-customer initiatives is becoming
more complex as a result of the increasing sophistication of the products and
services being offered and, in many cases, the need to integrate the
initiatives into the existing business models of large traditional companies.
Comprehensive Internet strategies must include strategic and technological
solutions that combine e-commerce and other direct-to-customer support
initiatives. Additionally, most direct-to-customer initiatives require several
alternative points of contact between a company and its customers, including
voice, e-mail, fax, real-time online communications and mail. Companies are
recognizing that the task of quickly and effectively designing, building and
operating these initiatives requires a specialized range and level of skills,
technology and infrastructure.
Growing trend to outsource. Many companies, whether implementing new or
expanding existing e-commerce and other associated direct-to-customer programs,
often lack sufficient expertise, resources or the technical infrastructure to
move rapidly from concept to launch and operation. The skills and
infrastructure required to create and implement these initiatives are in short
supply, and the complexity of these efforts is increasing. This complexity, the
rapid pace of technological change and the difficulty of building in-house
resources are driving companies to outsource the development of their e-
commerce programs. IDC forecasts that the worldwide Internet services market
will grow from $7.8 billion in 1998 to $78.5 billion in 2003, representing a
five year compounded annual growth rate of 59%.
Typically, outsourcing service providers focus on only a subset of the
complete range of services required to take an e-commerce or other direct-to-
customer initiative from concept to launch and operation. As a growing number
of companies offer more complex products and services online, we believe that
demand has increased for more sophisticated outsourced service providers. These
companies are seeking service providers that can offer an integrated approach
to the technological and personnel services required to rapidly capitalize on
market opportunities.
The Etinuum Solution
We design, build and operate direct-to-customer solutions that integrate
and coordinate sophisticated e-commerce initiatives encompassing online and
offline components. Our services consist of Strategic Consulting, Technology
Solutions, e-Operations and Customer Knowledge. We typically initiate our
services with a strategic consulting engagement involving a team of our
management and technical personnel working with the client to plan its e-
commerce and other direct-to-customer initiatives. Based upon the specific
client's strategy, internal capabilities and existing systems and
infrastructure, we will define a program to use all or some of our services to
meet their specific needs. We believe our comprehensive integrated services
approach allows our clients to:
Quickly capitalize on direct-to-customer market opportunities. Our
approach and services enable our clients to rapidly implement their e-commerce
and other direct-to-customer initiatives and take advantage of market
opportunities without lengthy start-up and in-house integration efforts. We
believe the expertise and infrastructure we have developed allow us to rapidly
and cost-effectively integrate new e-commerce initiatives and traditional
direct-to-customer programs. This integration creates an initiative that is
consistent across the various customer contact points and that is linked across
our, our client's and its vendors' systems. We also believe our experience
working with companies offering sophisticated products, such as financial
instruments and computer and electronic equipment, and using complicated sales
processes, such as those found in regulated industries and business-to-business
transactions, provides our clients with a competitive advantage as they
implement direct-to-customer initiatives. We believe that our ability to
improve time-to-market is particularly important for our target market of large
traditional and new Web-based companies that face urgent competitive needs to
establish direct-to-customer initiatives.
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Access sophisticated technology. We use advanced software technology and
an infrastructure developed specifically for e-commerce and other direct-to-
customer initiatives to provide our integrated services to clients. Our
EtinuumWebDirect System enables effective transaction processing and customer
support across multiple communications channels, and provides personalization,
routing and management of customer interactions. It allows us and our clients
to rapidly deploy and maintain the technology across multiple geographic
locations, company divisions and hardware platforms. Our infrastructure
includes advanced networking technology that provides intra- and inter-company
communications, distribution of the EtinuumWebDirect System, and hosting and
data warehousing capabilities. The systems and infrastructure have been
developed to be scalable to meet our existing and potential clients' growth
needs.
Improve the customer experience. We enable our clients to provide their
customers with a positive consumer experience, thereby maintaining and
promoting brand loyalty. Through our use of advanced technology, we can
communicate directly with our clients' customers by voice, fax, e-mail, and
real-time online communications. Our personnel educate customers about, and
assist them in obtaining, our clients' products and services. We believe we
offer our clients a superior level of service, including availability of 24
hour, seven day a week communications center services.
Access the services of highly-trained personnel. We train our personnel to
deal with our clients' complex products and complicated sales processes, which
we believe creates the basis for long-term client relationships. Some of our
clients work in regulated industries and therefore our personnel often must be
licensed by federal, state or other regulatory agencies in order to serve those
clients' customers. For example, our employees who work with some financial
services products must be licensed by federal and state authorities to act as
securities broker/dealers and must have Series 6, 7 and 63 licenses from the
NASD. We believe that providing these high-level services allows us to capture
sensitive aspects of business that have not traditionally been outsourced.
Reduce investment and improve operating efficiencies. We have made
significant investments in operations infrastructure, including technology
platforms, systems hardware, communications systems and highly-trained
personnel. This infrastructure provides clients with access to our economies of
scale and expertise to rapidly grow their direct-to-customer business while
limiting their additional fixed costs that may otherwise be necessary to create
and maintain their own infrastructure. Our clients have the flexibility to
scale their growth and to evolve the range of their direct-to-customer
initiatives, on a variable cost basis, preserving scarce capital resources for
other business-critical purposes.
The Etinuum Strategy
Our goal is to be a leading integrated services provider to companies
developing e-commerce and other direct-to-customer initiatives involving
complex products or sales techniques. Our strategies to achieve that goal are:
Target clients that provide substantial growth opportunities. We target
clients that we believe provide significant opportunities for growth. We direct
our marketing efforts toward Fortune 1000 and new Web-based companies with
which we can develop long-term relationships. We believe that our current
clients generally are, or are positioned to be, among the leaders in their
industries. We look to grow our business with our clients by offering them
additional services as their direct-to-customer initiatives grow and by
offering them new services as our capabilities expand.
Pursue clients in specialized markets that require sophisticated
services. We intend to focus our sales efforts on businesses in markets that
require complex solutions and skilled personnel. We believe our expertise with
sophisticated products, such as financial instruments, and with complicated
sales programs, such as those found in regulated industries, gives us a
competitive advantage in marketing to clients with similar products and
programs. In addition, we intend to use our expertise to target clients in
specific industries, such as financial services.
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Promote our brand through expanded marketing efforts. We believe that
building brand awareness and our reputation as a leading e-commerce solutions
provider is critical for attracting and retaining clients. We believe that no
existing company has established a prominent brand presence as a provider of
integrated services to companies developing e-commerce and other direct-to-
customer initiatives and that there exists a market opportunity to establish
our brand as a leading provider in that market. We intend to build our brand
awareness through targeted branding efforts that are focused on decision makers
in various vertical markets. We also plan to develop additional relationships
with management consulting, accounting, marketing and other professional firms
that work with potential clients.
Broaden and continue to strengthen our service offerings. We plan to meet
the evolving needs of businesses using e-commerce and other direct-to-customer
initiatives by adding to and improving our services through internal
development and strategic acquisitions. We believe we currently offer a range
of services, from planning through operating direct-to-customer initiatives,
and a level of expertise in complex products and sales processes that
differentiates us from our competitors. Our focus will continue to be on
providing high value-added services. For example, we acquired the database
marketing and analysis firm Acorn in October 1999 to complement our existing
service offerings. We will continue to evaluate selected acquisitions to
complement our service offerings and seek the personnel required to develop and
implement comprehensive e-commerce direct-to-customer initiatives.
Continue to hire, train and retain talented people. Our business involves
the delivery of sophisticated services that require consultants, technical
personnel and other highly-trained people. We believe that attracting and
retaining outstanding personnel is essential to our growth. We seek management,
marketing and technical personnel with expertise that will enhance our
operations and growth opportunities. In addition, we provide significant
training for our new and existing employees to allow them to increase their
skills and responsibilities.
Etinuum's Services
We provide an integrated service offering to companies that have or wish
to implement e-commerce and other direct-to-customer initiatives. We offer our
services on an outsourced basis using our technical and personnel resources to
deliver added value to our clients. Our services consist of Strategic
Consulting, Technology Solutions, e-Operations and Customer Knowledge. In each
of these areas, we provide a combination of Internet-related services and
traditional services for direct-to-customer initiatives. For example, in
providing Strategic Consulting and Technology Solutions services, we work with
our clients to plan and implement their Web sites as well as the telephone, fax
and mail aspects of their sales and marketing initiatives. We consult with our
clients to select appropriate third-party vendors for other services, such as
handling product distribution and some creative aspects of direct-to-customer
initiatives. At our clients' request, we will coordinate the activities of the
third-party vendors to enhance the smooth operation of our clients'
initiatives. We continually evaluate which services we wish to offer on an
outsourced basis to most effectively serve our clients. Our current range of
integrated services consists of:
Strategic Consulting. Our Strategic Consulting services are focused on
helping our clients increase sales and reduce costs, maintain customer loyalty
and develop better business processes. Strategic consulting during the initial
phase of a client engagement gives us the opportunity to develop a close, long-
term relationship with the client and provides the opportunity to work with the
client from inception to launch and operation of its initiative. Through our
strategic consulting, we determine the clients' needs and objectives, then work
with the clients to establish an overall program structure and to determine how
the technology platforms, customer communications, data requirements and
necessary personnel will work together. Steps in this process include:
. generating strategic options that address the complete range of issues
involved in establishing direct-to-customer initiatives, including
channels, branding, partnerships, pricing, technology deployment and
customer strategies;
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. assessing the strategic options against the market opportunities, the
competitive environment, the client's overall business strategy, its
existing business processes and systems, available resources and
technologies, and timing requirements;
. determining the optimal client-specific strategic solution, including
the scope of the initiative and related initiatives, broad technical
requirements, timing and the parties responsible for each segment of
the initiative; and
. designing the overall initiative, including all deployment plans for
technology solutions, communications center operations and customer
data analysis. The planning includes implementation schedules, revenue
and cost structures, personnel requirements, technical partnerships
and operations management.
Our personnel also work with clients and third-party marketing experts to
design the clients' product launches and marketing campaigns. For some clients,
we may provide specialized consulting services regarding regulatory issues that
are applicable to the client's direct-to-customer initiative. For example, we
consult with clients in the financial services business regarding compliance
with federal and state regulations.
Technology Solutions. We provide comprehensive technology design and
implementation services to facilitate e-commerce and other direct-to-customer
initiatives. Our solutions enable our clients to do business directly with
their customers via voice, e-mail, fax and real-time online communications.
Most of our technology solutions include implementation of our EtinuumWebDirect
System, which incorporates a Web-based software solution that we initially
developed and now license from Spider on a long-term basis. See "Related Party
Transactions - Spin-Off of Spider Technologies" for additional information
about our license arrangement. Our EtinuumWebDirect System is specifically
designed to facilitate direct-to-customer initiatives using a modular design
approach that permits flexible and rapid implementation to meet a client's
specific needs. Our Technology Solutions services include:
. evaluating technology platforms to meet the clients' specific
requirements;
. installing, customizing and integrating the EtinuumWebDirect System or
other technology platforms;
. designing the creative aspects of our EtinuumWebDirect System user
interfaces;
. customizing and configuring applications, such as customer interfaces,
order entry systems and customer information systems;
. integrating the direct-to-customer technology platform with the
clients' existing systems and, in most cases, to the clients' vendors'
systems;
. testing and documenting the systems; and
. providing on-going enhancements and optimization of the comprehensive
technical solution.
e-Operations. We use our customer representatives and communications
services to operate our clients' e-commerce and other direct-to-customer
initiatives. We have made significant investments in our infrastructure, such
as technology platforms, systems hardware, communications systems and highly-
trained personnel. We have designed our infrastructure specifically for
efficient and reliable operations with complex products and sales processes.
Our e-Operations services include:
. managing the operations of our clients' direct-to-customer systems and
customer databases from our communications centers;
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. communicating with our clients' customers through voice, e-mail, fax
and real-time online communications;
. providing hosting and data warehousing for our clients;
. coordinating the activities of third-party vendors; and
. conducting one-to-one marketing programs that we design as part of our
Customer Knowledge services, including the upfront customer data
acquisition and subsequent program execution.
Our communications centers provide a full range of interaction between our
clients and their customers with a focus on services that require high levels
of skills, expertise and technology. Our customer representatives are assigned
to specific clients' initiatives and are given extensive training in the
client's products and services in order to provide sales assistance and
technical support to our clients' customers. By using highly-trained personnel,
we are able to provide added value to our clients, and we become an integral
part of their businesses.
For our largest clients, we have customer representatives at two or more
communications centers to assure coverage, redundancy and reliability. In
addition, some clients have their own personnel at our communications centers
to provide assistance for complex programs and to increase client coordination.
We operate computer servers in our Colorado, California and Kansas facilities.
The availability of multiple servers provides data redundancy and back-up to
our clients.
Customer Knowledge. We offer sophisticated database marketing and analysis
services that are focused on understanding customers' buying processes and
behaviors to help our clients improve their marketing efforts and customer
relationships. Our Customer Knowledge services include:
. using analytical methods to define and identify the target population
for clients, and to advise clients about capturing key customer
information and using external data sources to support detailed
profiles of their customers;
. analyzing the clients' customer and prospective customer information
to find patterns of purchasing behavior and tying them into the
clients' marketing objectives of improving sales effectiveness,
building customer loyalty or acquiring new customers;
. implementing a relationship marketing system for clients, using a
combination of a proprietary technology platform and off-the-shelf
tools. This system accepts customer contact marketing from all
channels, including Internet, e-mail, Web forms, business reply cards
and calls to communications centers, and integrates this data into a
single view of the customer;
. analyzing the effectiveness of the marketing channels and the
conversion rates so that adjustments can be made to improve sales and
marketing programs; and
. building meaningful and actionable reports that are accessible over
the Internet through secured interfaces to enable clients to have
real-time access to the entire marketing campaign lifecycle and make
the appropriate marketing decisions.
Our Clients
We have provided Strategic Consulting, Technology Solutions, e-Operations
and Customer Knowledge services to clients in various industries. These clients
are generally either large established companies or emerging Web-based
companies. Set forth below is a representative list of our clients and the
types of services we have performed or are contracted to perform for them.
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<TABLE>
<CAPTION>
Types Of Services
--------------------------------------------
Strategic Technology Customer
Client Name Consulting Solutions e-Operations Knowledge
- ----------- ---------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
American Classic Voyages* X X
American Express X X X
Autoweb.com X X X
Pitney-Bowes* X X
Rx Remedy* X
Safeway X X X
Sega X X X
Sony X X X
</TABLE>
- ------------------
* These companies were initially Acorn clients.
Described below are examples of work we have performed for clients in each
of our service offerings areas.
Strategic Consulting. We assisted a client in establishing a Web-based
direct-to-customer marketing and sales program by:
. working with the client and a third-party vendor to expand and improve
the client's Web site for the new initiative;
. advising the client on the appropriate communications channels to
provide to potential customers for obtaining additional information;
and
. helping the client select suppliers in various geographic areas to
participate in the initiative.
Technology Solutions. We designed and implemented a transaction processing
system for a consumer products company that:
. provides online reference materials, product specifications and
specific customer histories for our customer representatives; and
. integrates software applications to handle various functions,
including credit card verification and fraud prevention, and to
provide customer and product information to the client's fulfillment
operations.
e-Operations. We manage a major direct-to-customer initiative for an
electronic products manufacturer, including:
. hosting the transaction processing software applications on our
servers; and
. handling their customer's purchases, including helping to configure
the product, cross-selling other products or accessories, and
processing credit card payments or establishing leases.
Customer Knowledge. We have provided a range of database management and
analytic services to a client in the pharmaceutical industry, including:
. designing, building and maintaining a large database of detailed
customer-submitted information; and
. using advanced analytical techniques to effectively segment the
customer base for targeted marketing campaigns.
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During the past two years, we have derived a substantial majority of our
revenue from ongoing business with a few significant clients. For 1999, Sony
accounted for approximately 27% of our revenue, Sega accounted for 12% and our
next two largest clients, American Express and Safeway, accounted for an
aggregate of approximately 18%. The same four clients accounted for
approximately 54% of our revenue in 1998. We anticipate that a significant
portion of our revenue will remain concentrated with a few clients, but will
vary among clients from period to period.
Generally our work is performed and clients are charged based on time and
expenses according to the terms of written agreements. Recently we entered into
a contract with a major client under which our revenue will be based primarily
upon a percentage of the client's revenues generated by our operation of their
direct-to-customer initiatives. In addition, we have recently entered into
fixed-price agreements for some strategic consulting services. In some
instances, we will perform work for a client following expiration of a contract
or while the terms of a letter of intent, new contract or contract extension
are being negotiated. In those cases, we would not have a binding agreement to
rely on should a dispute arise with a client regarding delivery of or payment
for our services. Our contracts are generally terminable by the client on 30-
days' written notice with little or no penalty.
Sales and Marketing
We market our brand and integrated service offering to large companies
that are establishing or expanding their direct-to-customer initiatives and to
new companies formed to take advantage of commerce opportunities on the
Internet. Our marketing efforts will be focused on two primary objectives:
. educating potential clients and third-party influencers on e-commerce
and other direct-to-customer strategies, the effective application of
technology to direct-to-customer initiatives and the role of
electronic services and operations in meeting direct-to-customer
business objectives; and
. positioning our company and brand as an acknowledged leader in
designing, building and operating e-commerce initiatives for complex
products and sales processes.
We believe the importance of our brand and reputation will increase as new
competitors enter our market. We also believe that no existing company has
established a prominent brand presence as a provider of our range of integrated
services to companies developing sophisticated e-commerce and other direct-to-
customer initiatives and that there exists a market opportunity to establish
our brand as a leader in that market. We intend to build our brand awareness
through marketing that is focused on decision makers in various vertical
markets, with an emphasis on specific vertical markets where our experience and
services provide special value-added benefits to our clients. We have recently
established a core group of sales and marketing personnel to concentrate on the
financial services industry, in which we have substantial expertise.
Our efforts will include vertically-targeted direct campaigns utilizing
database marketing, advertisements in selected publications, an interactive and
educational Web site, information pieces published for industry forums and
educational seminars for high-level decision makers. We will promote our
expertise in trade forums and publications, and directly to prospective
clients.
We also plan to develop additional relationships with management
consulting, accounting, marketing and other professional firms that work with
potential clients. We have existing relationships with many of these firms
through our management team, board of directors and investors. We intend to
bring greater focus to accessing these contacts and exploring a range of
partnerships, alliances and other formal relationships.
To expand our efforts in both sales and marketing, we have recently put in
place dedicated resources consisting of a head of sales and a head of
marketing, as well as two sales professionals. We intend to hire
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several additional sales professionals over the next few months and to
strengthen the sales process. Prior to establishing this organization, our
sales efforts had been made primarily by senior management and key technical
personnel. These people will continue to be an important part of our sales and
marketing efforts.
We anticipate incurring significant additional sales and marketing
expenses in the foreseeable future. These increased expenses may not be offset
by increased revenues, causing an adverse affect on our financial results.
Competition
We compete in the growing market of companies that support businesses
involved in e-commerce and other direct-to-customer initiatives. Many companies
offer, on an individual basis, one or more of the same services we do. Our
primary potential competitors in the areas in which we provide services include
the following:
. Strategic Consulting: consulting firms such as AnswerThink, Diamond
Technology Partners, Luminant, Mitchell Madison and the consulting
arms of the Big Five accounting firms;
. Technology Solutions: technology integrators, such as Andersen
Consulting, Cambridge Technology, iXL, Octane, Razorfish, Sapient,
Scient, Seibel, SilkNet, USWeb/CKS and Viant;
. e-Operations: customer support service companies, such as EDS, Perot
Systems, PFSWeb, Stream and Teletech; and
. Customer Knowledge: data mining and analytics firms, such as Axciom,
Centrobe, Experian and Harte Hanks.
We believe that the principal competitive factor in our market is the
ability to provide a comprehensive range of high-end services to clients
quickly and cost effectively. We believe that the other competitive factors in
our market are operating performance and reliability, ease of implementation
and integration, and price. We believe that we compete favorably with respect
to these factors.
We anticipate that competition in our market will increase substantially.
There are relatively few barriers preventing competition from entering our
market. We have no patents that preclude or inhibit others from offering the
same services that we do. Many of the companies with which we compete today in
limited areas, and other companies that may enter our market, have
significantly greater name recognition and marketing, technical and financial
resources than we have. If they or any other company were to offer comparable
services on a more cost-effective or timely basis than we do, our business and
financial results could suffer. We also face competition from the in-house
capabilities of existing or potential clients, which could increase if economic
conditions decline and companies take or keep programs in-house to avoid
layoffs.
Technology
We provide our integrated services using Web-based software technology and
an infrastructure developed specifically for e-commerce and other direct-to-
customer initiatives. Our infrastructure incorporates advanced networking
technology that provides intra- and inter-company communications, including
hosting and distribution of our software technologies. We assure a high degree
of reliability through multiple Internet services and telecommunications
providers, redundant Web servers, back-up power supplies, multiple
communications centers and other measures.
Our technology solutions include our sophisticated EtinuumWebDirect System
that provides personalization, routing and management of customer interactions
across multiple channels including voice, e-mail, fax and real-time online
communications. The EtinuumWebDirect System supports most
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standardized services, protocols and interfaces for integration into our
clients' and their vendors' existing systems. Our Web-based platform includes
three primary components:
. a Web site interface for customers and our customer representatives
that provides product, company and customer information as well as
other data sources available through the Web to dynamically build
context-relevant information screens;
. software applications to electronically process transactions with
custom links to our clients' and their vendors' existing systems in
order to handle order entry, inventory control, payment management,
product configuration, fulfillment and shipping, and similar
functions; and
. a customer database segment that maintains client and customer
information for transaction requirements and is structured to support
personalized marketing initiatives.
The EtinuumWebDirect System incorporates software code that was
transferred to Spider. We have a 20-year non-exclusive license to use the
software and, in general, to sublicense it to our clients. Spider now controls
the development of this software and has the right to license it to third
parties, which could expand its market acceptance but eliminates our advantage
of being the sole provider of this technology to the marketplace. See "Related
Party Transactions-Spin-off of Spider Technologies" for more information about
the spin-off of Spider.
Our Customer Knowledge group uses sophisticated technologies and
analytical methods to enable our clients to maximize their marketing and
customer retention programs. The group has designed and developed database
marketing software in Java on an Oracle platform. In addition, the group
employs various analytical techniques that have been shown to be more effective
than standard methods.
Personnel and Training
At December 31, 1999, we had 704 full-time employees. Of these, 35 were in
executive, finance, sales and marketing, human resources and other
administrative positions in the Denver headquarters office; 62 were in the
technology, communications and consulting facility in San Diego; and 580 were
in communications center operations in Northern California, Denver and Fort
Scott, Kansas. Approximately 20% of the employees in our communications centers
are management and technical personnel. We also now have 27 employees in our
Shelton, Connecticut office, principally engaged in delivering our Customer
Knowledge and Strategic Consulting services. In addition, at any given time we
may have at our communications centers a substantial number of people from
temporary agencies. These people generally become our full-time employees
following a period of training and temporary employment with us.
Many of our employees are highly trained, not only in various
technologies, but in important aspects of our clients' businesses. For example,
some of our senior personnel who consult with financial services institutions
have previously worked in that industry. In addition, we provide training to
our communications center personnel specifically related to a client's product
or services. This training is generally covered by our agreements with the
client and usually takes two to five weeks to complete. Using the same
financial services institutions example, the training may entail obtaining a
Series 6, 7 or 63 license from the NASD. In some cases, we may cross-train
personnel to cover different clients' programs to provide back-up. Because our
communications center personnel are highly trained, we generally pay them more
and bill their services at higher rates than do traditional call center
employers.
Our success depends on our ability to continue to attract, retain and
motivate intelligent, skilled employees. Competition for these people,
especially those with technical and management capabilities, is particularly
intense now because of the strong economy and resulting growth of business
opportunities. We are adopting a stock purchase plan and will be expanding our
stock option program to provide additional
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incentives to our employees. None of our employees is represented by any
collective bargaining unit, and we have never had a work stoppage. We believe
our relations with our employees are good.
Facilities
Our headquarters are located in approximately 15,700 square feet of leased
office space in Englewood, Colorado. This space is used by our executive,
financial, marketing and human resources personnel. The lease extends through
June 2005. Our San Diego personnel are located in a leased facility comprising
12,600 square feet, approximately 40% of which we are sub-leasing to Spider.
The lease for this facility expires in August 2003 and may be renewed for five
years. Our Shelton, Connecticut personnel are located in a 7,200 square foot
office under a lease that expires in April 2003.
We operate communications centers in Hayward and Livermore, California,
Denver and Fort Scott, Kansas. The lease for our 7,565 square foot Hayward
facility expires in May 2000 and the lease for our 12,424 square foot Livermore
facility expires in April 2000. We plan to consolidate our Northern California
operations in another facility in the near future. We have signed a new lease,
with an eight-year term commencing on completion of the building, for a 21,254
square foot building in Livermore but intend to sublease it and lease another
facility. Until that facility is available, we are extending our existing
Livermore lease on a month-to-month basis. Our Denver communications center is
in a 21,600 square foot leased facility. The lease on this facility expires in
January 2001. We intend to relocate and expand our Denver communications center
in the next six months. In June 1999, we opened our new 35,000 square foot
communications center in Fort Scott, Kansas. The construction was financed by
the City of Fort Scott and leased to us through June 2005. Based upon our
experience in Fort Scott, we believe that we can furnish and staff a new
communications center in approximately 120 days.
Regulatory Matters
We provide services to companies in the financial services, insurance and
mortgage lending industries. These industries are extensively regulated by
federal, state and other agencies. Although compliance with many of these
regulations is generally the responsibility of our clients, we and our
employees must also meet some registration and licensing requirements.
Our customer communications for these clients include responding to
inquiries from our clients' existing or potential customers about the clients'
products or services, developing leads for product sales based on criteria
established by our clients and collecting data from our clients' customers.
Regulations that may affect these activities for our clients may be adopted or
changed at any time. In addition, as the content and geographical scope of our
clients' initiatives change from time to time, regulations that previously did
not apply may become applicable. We attempt to monitor these changes and to
obtain licenses or make filings as necessary. In many cases, however, it is
unclear whether a regulation or license requirement applies to a client's
programs. In those instances, we seek clarification from the regulating agency.
We have not always had all of the licenses we needed. We cannot assure you that
we will be in compliance with all applicable regulations at all times in the
future. Enforcement or private actions could be brought against us for failure
to obtain necessary licenses.
Financial services. We provide assistance in marketing various mutual
funds and other financial products through a wholly-owned subsidiary. For
example, one of our clients has a direct-to-customer program for investment
funds that it markets through its Web site, direct mail and traditional
advertising. Our representatives work with our client's customers to help them
select appropriate funds based upon the customers' specific criteria. We also
coordinate with the client to assure that the appropriate prospectuses are
forwarded to the customers. This subsidiary and some of its employees must be
registered with the SEC and licensed by the NASD and state securities
commissions. Some of our employees who assist in the sales of financial
products must pass a series of exams and meet continuing education requirements
in order to maintain their licenses. We believe that we and our employees
engaged in these activities are currently registered and licensed as required.
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Insurance services. We provide assistance in the marketing of insurance
products through a wholly-owned subsidiary. For example, we have worked with
customers responding to a client's direct mail program for medical insurance to
provide information on our client's various policies, help the customers assess
their insurance needs and set appointments for our client to meet with its
potential insureds. We currently have a client that is marketing medical
supplement insurance products in one state. In the past, we have assisted in
marketing annuity products in a number of states. We and our employees who
assist in the sales of insurance products are required to be licensed by
various state insurance commissions for the particular type of insurance
product to be sold and to participate in regular continuing education programs
which are currently paid for by us. Our subsidiary and its employees are
currently licensed in the states in which we are marketing insurance products.
We may not have held all necessary licenses at all times in the past.
Mortgage broker services. We provide assistance in the marketing of
mortgage lenders' products through a wholly-owned subsidiary. For example, we
have worked with a client's potential customers to screen for qualified
candidates for refinancing and debt consolidation products. We then referred
qualified candidates to our client for loan approval and completing needed
documentation. Although we are not currently providing mortgage broker
services, in the past, we have provided assistance to clients that marketed
their mortgage lender products in a number of states. Most states have laws and
regulations governing the registration or licensing and conduct of persons who,
among other things, directly or indirectly solicit, accept or offer to accept
an application for a mortgage loan. Some states may require that we have a
local office or an employee who has experience in mortgage brokerage activities
or has completed the state's exam or both. We are currently licensed or exempt
from license requirements in a number of states, and are in the process of
renewing or applying for licenses in other states. We have not held all
necessary licenses at all times in the past.
Business qualification laws. Because it is often a condition to obtaining
various licenses and because we often provide services for our clients to
customers located throughout the United States, we and our subsidiaries have
registered to do business as a foreign corporation in each state in which the
conduct of our or their business requires registration. Failure to maintain
registration in a jurisdiction in which it is required could expose us or our
subsidiaries to taxes and penalties and limit our or their ability to conduct
litigation in those states.
Telephone contacts. Some of our communications center activities relating
to telephone calls to residential telephone subscribers and telemarketing
practices are regulated by the FCC, FTC and state agencies. Some states require
us to register under their telemarketing statutes. We believe we are currently
licensed, exempt from license requirements or in the process of obtaining a
license in those states that regulate our telemarketing activities.
Internet use. There is an increasing number of laws and regulations
pertaining to the Internet. In addition, a number of legislative and regulatory
proposals are under consideration by federal, state and foreign governments and
agencies. The requirement that we or our clients comply with any new
legislation or regulation, such as those requiring notice to Internet users
that personal data is being captured, or any unanticipated application or
interpretation of existing laws, may decrease the growth in the use of the
Internet, which could in turn decrease the demand for our or our clients'
products and services, increase our cost of doing business or otherwise have a
negative effect on our business, results of operations and financial condition.
In addition, applicability to the Internet of existing laws governing issues
such as property ownership, copyrights and other intellectual property issues,
taxation, libel, obscenity and personal privacy is uncertain.
Legal Proceedings
From time to time, we may be involved in litigation incidental to the
conduct of our business. We are not currently party to any material legal
proceedings.
39
<PAGE>
MANAGEMENT
Executive Officers and Directors
Our executive officers and our board of directors, as the board will be
comprised upon the closing of this offering, are as follows:
<TABLE>
<CAPTION>
Name Age(1) Position(s)
- ---- ------ -----------
<S> <C> <C>
Timothy C. O'Crowley(2)...... 44 Chairman of the Board, Chief Executive
Officer and President
G. Daniel Adams, Jr. ........ 41 Executive Vice President - Corporate
Operations
Sunil Gupta, Ph.D............ 45 Managing Director - Strategic Consulting
Steven Q. Hansen............. 35 Chief Financial Officer and Senior Vice
President
Timothy S. Hardin............ 47 President - e-Operations
Donald P. Hearn.............. 54 President - Financial Services Division
Jay D. Kirksey............... 43 Senior Vice President - Human Resources
Peter H. Kowalchuk........... 50 Senior Vice President - Marketing and
Communications
Douglass L. Lockyer.......... 35 Vice President - Strategic/Creative
Services of our subsidiary, Etinuum
Creative Services, Inc.
Shoba Murali................. 43 President - Customer Knowledge
James F. "Pat" O'Crowley..... 46 Executive Vice President - Corporate
Development
Patrick F. O'Neal............ 53 Managing Director - Sales
Jerry L. Parker.............. 56 Chief Operations Officer - Technology
Solutions
Raja Ramnarayan, Ph.D........ 44 Vice President - Customer Knowledge
Venkat V. Sharma............. 45 Chief Executive Officer - Customer
Knowledge
Paul A. Tartre............... 40 President - Technology Solutions and Chief
Information Officer
Jonathan H. Yellen........... 32 Executive Vice President - Corporate
Strategy and General Counsel
Stephen S. Hyde(3)........... 52 Director
Steven F. Piaker(3).......... 37 Director
Harold W. Pote(2)............ 53 Director
Rick L. Weller(2)............ 42 Director
Eric R. Wilkinson(3)......... 43 Director
</TABLE>
- ------------------
(1) As of December 31, 1999
(2) Member of Compensation Committee
(3) Member of Audit Committee
Timothy C. O'Crowley founded Etinuum in 1996 and has been our chairman,
chief executive officer and president since that date. From 1994 to 1996, Mr.
O'Crowley was chief executive officer and a director of FundMark Investment
Company Services, Inc., a consulting firm to the institutional asset management
industry, and managing director of Eden Financial Group, a consulting firm to
the financial products distribution industry. Before joining these firms, Mr.
O'Crowley was employed by E. F. Hutton and Company in numerous senior
management positions. He serves as a director of our subsidiary Acorn, chairman
of the board of directors of and a consultant to Spider, and a director of
Northern Trust Bank of Colorado. See "Related Party Transactions - Spin-off of
Spider Technologies" for a description of Mr. O'Crowley's consulting agreement
with Spider.
G. Daniel Adams, Jr. joined Etinuum in November 1999 as executive vice
president - corporate operations . Mr. Adams was chief operations officer from
1997 to 1999 and chief financial officer from 1996 to 1997 for Switch
Manufacturing, a consumer recreational products manufacturer and marketer where
he
40
<PAGE>
managed all aspects of the company's operations and strategic alliances with
partners. From 1994 to 1996, Mr. Adams was senior director - operations with
Kenetech Corp., a publicly-traded energy provider and capital equipment
manufacturer. Prior to 1994, Mr. Adams was an executive with Black & Decker, a
management consultant with McKinsey & Company and an engineer at Schlumberger.
Sunil Gupta, Ph.D., joined Etinuum in October 1999 as vice president -
Customer Knowledge in conjunction with our acquisition of Acorn and became
managing director - Strategic Consulting in January 2000. Dr. Gupta was vice
president - interactive and analytical services for Acorn from July 1998 to
October 1999. He was a professor of marketing at the University of Michigan
Business School from 1990 to 1998 and at Columbia University's Graduate School
of Business from 1983 to 1990. Dr. Gupta has also consulted with several
companies, most recently in the area of Internet marketing.
Steven Q. Hansen joined Etinuum in November 1999 as senior vice president
and chief financial officer. Mr. Hansen was vice president and acting chief
financial officer from August to October 1999, vice president - finance from
November 1998 to October 1999, and senior director - financial planning and
analysis from March 1997 to November 1998 for Convergent Communications, Inc.,
a publicly-traded integrated communications provider. From 1996 to 1997, he was
a director of finance for ICG Communications, Inc., a public competitive local
exchange carrier. From 1994 to 1996, Mr. Hansen was manager of financial
operations - Rocky Mountain division, for Pepsi Cola Company.
Timothy S. Hardin joined Etinuum in June 1997 as senior vice president -
client services and became president - e-Operations in October 1999. From 1989
to 1997, Mr. Hardin was a co-founder and president of Telelink Systems, a
teleservices company. From 1993 to 1995, he was a co-founder and director of
marketing for Market Reach Ltd. in London, England, a sister teleservices
company to Telelink.
Donald P. Hearn joined Etinuum in April 1999 as president - financial
services division. From 1995 to January 1999, Mr. Hearn was chairman and chief
executive officer of Chase Global Funds Services Company, a subsidiary of Chase
Manhattan Bank. From 1990 to 1995, he was an executive vice president with U.S.
Trust of New York in their mutual funds division. Prior to 1994, Mr. Hearn held
senior positions with First Data Investor Services, the Boston Company and
Dalbar.
Jay D. Kirksey joined Etinuum in November 1997 as senior vice president -
human resources. From 1994 to 1997, Mr. Kirksey was vice president of human
resources for ADT Security Services, Inc., a residential and commercial
security company. From 1993 to 1994, he was director of human resources for
Alert Centre, Inc., and from 1989 to 1993, he was director of human resources
for United Technologies Corporation.
Peter H. Kowalchuk joined Etinuum in July 1999 as senior vice president -
marketing and communications. From 1993 to July 1999, Mr. Kowalchuk was
director of international communications for Otis Elevator Company, a
subsidiary of United Technologies Corporation.
Douglass L. Lockyer joined Etinuum in March 2000 as vice president -
strategic/creative services of our newly-formed subsidiary, Etinuum Creative
Services, Inc. Prior to joining Etinuum, Mr. Lockyer was the chief executive
officer and creative director from 1996 to March 2000 of Riptide
Communications, LLC, a firm he founded that provides strategic and creative e-
commerce services. From 1987 to 1996, Mr. Lockyer was the founder of Studio
Gecko, an Australian/Asian visual communications firm that provided brand
building, product launch, identity program and computer aided design services
to its clients.
Shoba Murali joined Etinuum in October 1999 as president - Customer
Knowledge in conjunction with our acquisition of Acorn. Ms. Murali was
president of Acorn from September 1996 to October 1999. From January 1994 to
August 1996, she was co-founder, managing partner and a director of Equinox
Solutions Inc., a systems integration company. Prior to 1994, Ms. Shoba served
as artificial intelligence senior product manager for Digital Equipment and was
corporate accounts system integrations manager for financial services clients.
41
<PAGE>
James F. "Pat" O'Crowley III joined Etinuum in May 1999 as executive vice
president - corporate development. From 1996 to May 1999, Mr. O'Crowley was a
founder and managing director of Coalter Group International, a business
consulting firm focused on improving clients' sales and profitability. From
January 1998 through May 1999, Mr. O'Crowley consulted with Etinuum on
strategic and operational matters. From 1993 to 1996, he served as vice
president international of HON Industries, a publicly-traded manufacturer of
office furniture and pre-fabricated fireplaces, and general manager of HON
Export Limited. Prior to 1993, he served as director of operations and finance
and as general manager for Latin American and Asian Operations for Tenneco's J.
I. Case. Prior to 1989, Mr. O'Crowley held a variety of senior finance,
operations, marketing and business development positions at International
Harvester and its successor company, Navistar.
Patrick F. O'Neal joined Etinuum as a managing director in September 1996
and was named managing director - sales in July 1999. He served as a member of
our board of directors from March 1996 to January 2000. Mr. O'Neal is also a
director of Spider and president of our subsidiaries, Intek Teleservices, Inc.,
Intek Insurance Agency, Inc. and Brokerage Administrators Corp. He has been an
officer and managing director for Eden Financial Group and FundMark Investment
Company Services, Inc. from 1982 to the present. Eden and Fundmark
substantially ceased operations in early 1996. Mr. O'Neal was a national
product manager at E. F. Hutton and Company from 1981 to 1982.
Jerry L. Parker joined Etinuum in May 1999 as chief operating officer -
Technology Solutions. From December 1998 to May 1999, Mr. Parker consulted
with us regarding computer systems and integration. From 1996 to December 1998,
Mr. Parker was chief executive officer of SSDS, Inc., a computer systems and
networking integration company. From 1993 to 1996, Mr. Parker was senior vice
president of the commercial division of BDM Technologies, now a part of TRW,
Inc., where he was responsible for a division that provided system integration,
networking and technology consulting to Fortune 1000 companies.
Raja Ramnarayan, Ph.D, joined Etinuum in November 1999 as vice president -
Customer Knowledge in conjunction with our acquisition of Acorn. Dr.
Ramnarayan has been chief technology officer for Acorn since January 1997. He
was a principal consultant for Microsoft Corporation from 1996 to 1997 and an
engineering fellow for Honeywell from 1983 to 1996.
Venkat V. Sharma joined Etinuum in October 1999 as chief executive
officer - Customer Knowledge in conjunction with our acquisition of Acorn. Mr.
Sharma founded and became chief executive officer of Acorn in 1994. Prior to
1994, he held positions at 3M and J. Walter Thompson. Additionally, he founded
and was president of C4 Information Services, a private market research company
for the cable television and communications industries, in 1994, and founded
and was president of VSA Technologies, a mainframe computer outsourcing
company, from 1990 to 1994.
Paul A. Tartre joined Etinuum in 1996 as a managing director and chief
information officer. Mr. Tartre was named president - Technology Solutions in
August 1999. From 1987 to 1996, Mr. Tartre was senior vice president and chief
information officer for Eden Financial Services and FundMark Investment Company
Services. From 1983 to 1986, he was a software developer at NCR, and from 1986
to 1987 he was director of software development at Apricorn, Inc. Effective
November 1999, Mr. Tartre began to devote 40% of his time to Spider. See
"Related Party Transactions - Spin-Off of Spider Technologies" for more
detailed information about Mr. Tartre's continuing role with Spider.
Jonathan H. Yellen joined Etinuum in March 2000 as executive vice
president-corporate strategy and general counsel. From 1998 to 2000, Mr. Yellen
was vice president, associate general counsel and assistant secretary for
Starwood Hotels & Resorts Worldwide, Inc., an international hotel chain. Prior
to joining Starwood, Mr. Yellen practiced law with Fried, Frank, Harris,
Shriver & Jacobson from 1996 to 1998 and with Latham & Watkins from 1994 to
1996.
Stephen S. Hyde has been a director since January 2000. Since September
1999, Mr. Hyde has been chairman of the board of DiabetesManager.Com, a
provider of diabetes management over the Internet.
42
<PAGE>
Since December 1986, he has been chairman and president of IG Ventures, Ltd.
From September 1978 to December 1986, he was chairman of the board and chief
executive officer of Peak Health Care, Inc., a public HMO company that he
founded. Prior to September 1978, Mr. Hyde was a financial advisor to the U.S.
Department of Health and Human Services, a consultant with the Health
Management Group and a consultant with Arthur Young & Company. He is a chairman
of the board of Les Vergers du Roi Corp., a privately-held argricultural
production and sales business.
Steven F. Piaker has been a director since May 1998. In 1994, Mr. Piaker
joined Conning & Company, an investment management and research firm focusing
on insurance and financial services industries, as vice president and became a
senior vice president in 1997, where he is responsible for helping to manage
all aspects of Conning's private equity business. Conning & Company is the
managing member of Conning Investment Partners V, LLC, which serves as the
general partner of Conning Capital Partners V, L.P. one of our major
stockholders. Since November 1999, Mr. Piaker has served as a director of
Spider.
Mr. Piaker is a director of Answer Financial, Inc., Clark Bardes Holdings,
Inc., Health Right Inc., Intersections, Inc., MedSpan, Inc. and Sterling
Autobody, Inc.
Harold W. Pote has been a director since February 1999. Since 1993, Mr.
Pote has been a general partner of The Beacon Group, a private investment,
strategic advisory and wealth management firm, which is affiliated with one of
our major stockholders, The Beacon Group III-Focus Value Fund, LP. From 1984 to
1988, he was Chief Executive Officer of First Fidelity Bancorporation and
Fidelcor, Inc., a predecessor company. Since November 1999, Mr. Pote has served
as a director of Spider. Mr. Pote is also a director of the American Craft
Museum, Drexel University, MCP Hahnemann School of Medicine, Norfolk Southern
Corp. and the President's Foreign Intelligence Advisory Board.
Rick L. Weller has been a director since May 1998. From October 1997 to
January 1999, Mr. Weller was our chief financial officer. Since November 1999,
he has been chief operating officer for Ionex Telecommunications, Inc., a
competitive local exchange carrier. Since November 1999, Mr. Weller has served
as a director of Spider. In April 1999, Mr. Weller formed Compass Partners to
develop a telecommunications company. Compass Partners was instrumental in the
formation of Ionex Telecommunications, Inc. From January 1999 to March 1999,
Mr. Weller was chief financial officer for USA Global Link, Inc., an
international telecom entity. From January 1990 to September 1997, Mr. Weller
was vice president of Sprint Communications Corporation, where he was
responsible for financial management.
Eric R. Wilkinson has been a director since February 1997. Since 1994, Mr.
Wilkinson has been employed by The Beacon Group, where he is responsible for
the management of The Beacon Group III - Focus Value Fund, LP. From 1989 to
1994, he was a partner of Apax Partners & Cie Ventures S.A., a European private
equity firm, where Mr. Wilkinson shared responsibility for the firm's principal
investments. Prior to 1989, he was a partner of Bain & Company, the strategic
consulting firm. Since November 1999, Mr. Wilkinson has served as a director of
Spider. He is also a director of Doctors Health, Inc., Eyeweb Inc.,
International Components Corporation, National Century Financial Enterprises,
Inc., OnCare, Inc., The Identity Group, Inc. and director and president of
Generac Portable Products, Inc.
Officers serve at the discretion of the board of directors. Timothy
O'Crowley and James F. O'Crowley III are brothers.
Board Composition
Upon the closing of this offering, our board of directors will consist of
three classes that serve staggered three-year terms as follows:
<TABLE>
<CAPTION>
Class Expiration Members
----- ---------- -------
<S> <C> <C>
Class I...................... 2001 Stephen Hyde and Eric Wilkinson
Class II..................... 2002 Rick Weller and Steven Piaker
Class III.................... 2003 Timothy O'Crowley and Harold Pote
</TABLE>
43
<PAGE>
Board Committees
Following the offering, our audit committee will consist of Stephen Hyde,
Steven Piaker and Eric Wilkinson and our compensation committee will consist of
Timothy O'Crowley, Harold Pote and Rick Weller.
The audit committee will select the independent public accountants to
audit our annual financial statements and will establish the scope of and
oversee the annual audit. It will review our internal accounting procedures and
review other services provided by our independent accountants. The compensation
committee will establish and review general policies relating to compensation
and determine the compensation for all officers of Etinuum, except for Mr.
O'Crowley's compensation which will be determined by the board of directors,
and any other employee that the compensation committee may designate from time
to time. It will approve and administer our stock option plans, except with
respect to persons covered by Section 16 under the Securities Exchange Act of
1934, and our employee stock purchase plan. Our board may establish other
committees from time to time to facilitate the management of the business and
affairs of our company.
Director Compensation
Our directors have not received cash or stock compensation for their
services as directors in the past. Our directors have been and will be
reimbursed for all reasonable expenses incurred in connection with their
attendance at meetings of our board and committee meetings of the board. After
this offering, directors who are not officers or employees of Etinuum or any of
our subsidiaries will receive options for board service under our 2000 Stock
Incentive Plan. Upon the effectiveness of the registration statement of which
this prospectus is a part, each eligible director will receive an option to
purchase 10,000 shares of common stock at the initial offering price. In the
future, each eligible director will receive an option to purchase 10,000 shares
immediately upon his or her initial election as a director. We will also grant
to each eligible director, immediately following each annual meeting of
stockholders, an additional option to purchase 5,000 shares of common stock if
that director has served continuously as a member of our board since the prior
annual meeting. The options have ten year terms. They will terminate one year
after the director ceases to provide services to us either as a director or
consultant. The initial 10,000 share options will vest immediately and the
annual 5,000 share options will vest one year after the date of grant. Options
will stop vesting if a director ceases to provide services to us either as a
director or a consultant. These option grants to directors are automatic and
nondiscretionary, and the exercise price of the options must equal the fair
market value of our common stock on the date of grant.
Compensation Committee Interlocks and Insider Participation
Before this offering, our board of directors did not have a compensation
committee and all compensation decisions were made by the full board. Timothy
O'Crowley and Harold Pote served as a committee authorized to make limited
grants of stock options. Timothy O'Crowley participated in deliberations of the
board of directors concerning executive compensation during 1999. After this
offering, our compensation committee will make all compensation decisions,
except that our board of directors will make compensation decisions with
respect to Timothy O'Crowley. Mr. O'Crowley is chairman of the board of, and a
consultant to, Spider and was its chief executive officer from October 1999 to
January 2000. Mr. Pote is a member of Spider's board. Spider does not have a
compensation committee. In addition, Steven Piaker and Eric Wilkinson are
members of both our and Spider's boards of directors. No other interlocking
relationship exists between our board of directors or compensation committee
and the board of directors or compensation committee of any other company.
44
<PAGE>
Executive Compensation
Summary Compensation Table
The following table shows all compensation for services rendered to us in
all capacities that was awarded to, earned by, or paid to, our chief executive
officer and our four next most highly compensated executive officers whose
total annual salary and bonus exceeded $100,000 during 1999, whom we refer to
in this prospectus collectively as the "Named Executive Officers." We have
entered into agreements relating to the employment of the Named Executive
Officers that provide in some circumstances for severance payments upon
termination, other than for cause, of their employment and for the acceleration
of the vesting of their stock options upon a change in control.
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
-------------------- -------------
Number of
Securities
Underlying
Name and Principal Options
Positions Salary Bonus Granted All Other Compensation
- ------------------ ---------- --------- ------------- ----------------------
<S> <C> <C> <C> <C>
Timothy O'Crowley ...... $ 216,000 $ 35,000 137,500 $50,560(1)
Chairman of the Board,
Chief Executive Officer
and President
Paul Tartre ............ $ 190,000 $ 45,000 0 $ 4,967(2)
Chief Information Offi-
cer
and President - Tech-
nology Solutions
Frank Richards(3)....... $ 165,000 $ 58,875 75,000(4) $ 3,224(5)
Chief Operating Officer
Timothy Hardin ......... $ 156,875 $ 20,000 42,500 $ 2,266(2)
President - e-Opera-
tions
Patrick O'Neal ......... $ 160,000 $ 15,000 75,000 $ 4,540(2)
Managing Director -
Sales
</TABLE>
- ------------------
(1) Includes life insurance premiums of $1,730 paid for the benefit of Mr.
O'Crowley and $3,830 in matching 401(k) contributions made by us. In
addition, during 1999, Mr. O'Crowley received $45,000 as chief executive
officer of Spider. Mr. O'Crowley resigned as chief executive officer of
Spider in January 2000.
(2) Represents matching 401(k) contributions made by us.
(3) On January 13, 2000, Mr. Richards' responsibilities with us changed and he
resigned as an officer and director.
(4) These options were canceled in January 2000 as part of an amendment to Mr.
Richards' employment agreement.
(5) Represents life insurance premiums of $1,064 paid for the benefit of Mr.
Richards and $2,160 in matching 401(k) contributions made by us.
45
<PAGE>
Option Grants in 1999
The following tables set forth information regarding stock options granted
to the Named Executive Officers during 1999. All of these stock options were
granted under our 1998 option plan.
<TABLE>
<CAPTION>
Percent of
Total Potential Realizable Value
Number of Options Fair at Assumed Annual Rates
Securities Granted to Exercise Market of Stock Appreciation for
Underlying Employees Price Value on Option Term
Options During Per Grant Expiration --------------------------
Name Granted Period Share Date Date 0% (1) 5%(2) 10%(2)
---- ---------- ---------- -------- -------- ---------- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Timothy O'Crowley....... 93,750(3) 8.44% $6.44 $8.52 07/27/02 $195,000 $320,903 $450,386
43,750(3) 3.94% $6.44 $8.52 10/27/04 $ 91,000 $193,984 $318,568
Frank Richards.......... 75,000(4) 6.75% $6.44 $8.52 01/01/00 -- -- --
Paul Tartre............. -- -- -- -- -- -- -- --
Timothy Hardin.......... 42,500 3.83% $5.44 $7.68 10/27/00 $ 95,200 $111,520 $127,840
Patrick O'Neal.......... 75,000(3) 6.75% $6.44 $8.52 10/27/00 $156,000 $187,950 $219,900
</TABLE>
- ------------------
(1) The 0% assumed annual rate of stock appreciation reflects the difference
between the exercise price per share and the fair market value of our
common stock on the date of grant.
(2) These are hypothetical values using assumed annual rates of stock price
appreciation prescribed by the rules of the SEC.
(3) Vested on date of grant.
(4) These options were canceled in January 2000 as part of an amendment to Mr.
Richards' employment agreement.
If the fair market value of the options described above were assumed to be
$11.00 per share, which is the midpoint of the offering price range, then the
assumed annual rates of stock appreciation would be as follows:
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Appreciation for
Option Term
--------------------------
Name 0%(1) 5% 10%
---- ----- -- ---
<S> <C> <C> <C>
Timothy O'Crowley.................................... $427,500 $590,051 $768,844
$199,500 $332,461 $493,308
Frank Richards....................................... -- -- --
Paul Tartre.......................................... -- -- --
Timothy Hardin....................................... $236,300 $259,675 $283,050
Patrick O'Neal....................................... $342,000 $383,250 $424,500
</TABLE>
- ------------------
(1) The 0% assumed annual rate of stock appreciation reflects the difference
between the exercise price per share and the $11.00 per share midpoint of
the offering price range.
46
<PAGE>
Aggregate Option Exercises and Option Values
The following table sets forth information with respect to the Named
Executive Officers concerning option exercises for 1999, and exercisable and
unexercisable options held at December 31, 1999:
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
December 31, 1999 December 31, 1999(1)
-------------------------- -------------------------
Shares
Acquired on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Timothy O'Crowley....... -- -- 438,192(2) 36,809 $1,820,141 $148,559
Frank Richards.......... -- -- 109,263 34,487 891,654 607,121
Paul Tartre............. -- -- 229,508(3) 32,992 1,101,605 182,495
Timothy Hardin.......... -- -- 22,594 44,906 9,846 226,454
Patrick O'Neal.......... -- -- 152,649 122,351 771,146 602,454
</TABLE>
- ------------------
(1) The value of in-the-money options is based on an assumed initial public
offering price of $11.00 per share, which is the midpoint of the offering
price range, less the per share exercise price, multiplied by the number of
shares underlying the option.
(2) Excludes 62,500 shares underlying options granted by Mr. O'Crowley to Mr.
Tartre on January 12, 1998.
(3) Includes 62,500 shares underlying options granted by Mr. O'Crowley to Mr.
Tartre on January 12, 1998.
Employment Agreements
We entered into an employment agreement with Timothy O'Crowley dated
August 2, 1996, which was amended as of October 1, 1999, that provides for an
annual salary of $240,000 until August 1, 2002. After that date, the agreement
continues on a month-to-month basis. The base salary may be increased by the
board of directors. Mr. O'Crowley may terminate his employment voluntarily upon
100 days' notice to us or immediately for cause if we violate a material term
of the agreement or move our headquarters from the Denver metropolitan area. We
may terminate his employment at any time without cause upon 20 days' notice or
immediately for cause. If Mr. O'Crowley is terminated without cause or if he
terminates the agreement for cause, he is entitled to receive monthly payments
equal to his last base salary for a period of 18 months. The payments are not
reduced by compensation Mr. O'Crowley may receive from other sources. In
addition, some unexercised options vest and become exercisable by Mr. O'Crowley
on the date of termination by us without cause. The options remain exercisable
for the lesser of the maximum length of time the option is exercisable and one
year after the date of termination. We also pay for life insurance on Mr.
O'Crowley's life in the amount of $20 million, of which up to $10 million is to
be used to repurchase Etinuum stock from Mr. O'Crowley's estate and the
balance, if any, will be payable to his beneficiaries and $10 million will be
payable to us, and an automobile allowance of $6,000 per year. Pursuant to the
agreement, the options to purchase 400,000 shares of common stock granted on
February 14, 1997, will vest six months and one day after the effective date of
this offering. Mr. O'Crowley has a non-compete agreement covering a period of
18 months following termination of his employment unless he is terminated
without cause.
We entered into an employment agreement with Frank Richards dated February
14, 1997, which was amended as of October 1, 1999. On January 13, 2000, we
entered into a new amendment that supersedes the prior agreements. Under this
amendment, we agree to pay Mr. Richards a salary of $13,750 per month from
January 1, 2000 through September 30, 2000. In the event we have not completed
our public offering by September 30, 2000, Mr. Richards shall remain our
employee for three additional months and receive a salary of $13,750 per month
until December 31, 2000. If Mr. Richards is terminated without cause, or if Mr.
Richards terminates the agreement due to our actions, he is entitled to receive
his full salary for the
47
<PAGE>
remainder of the term of the agreement. The payments are not reduced by
compensation Mr. Richards may receive from other sources. Mr. Richards has
relinquished his options to purchase 75,000 shares of our common stock that
were granted on October 1, 1999 but retains his options to purchase 143,750
shares of our common stock.
We entered into a letter agreement with Timothy Hardin dated April 18,
1997, governing his employment with us. Under the agreement, we agreed to pay
Mr. Hardin an initial annual salary of $125,000 and to grant him stock options
to purchase 25,000 shares of our common stock at an exercise price of $13.92
per share. The options vest over a three-year period beginning April 1998. If
Mr. Hardin is terminated without cause, he is entitled to receive salary and
full benefits for six months from the date of termination.
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<PAGE>
EMPLOYEE BENEFIT PLANS
1997 Stock Option Plan. In February 1997, our board of directors adopted
and our stockholders approved our 1997 Stock Option Plan. We reserved a total
of 1,243,052 shares for issuance under the 1997 plan. We increased this number
to 1,368,052 in August 1997, to 1,505,552 in May 1998, to 1,755,552 in October
1999 and to 2,455,552 in February 2000. As of December 31, 1999, options to
purchase 1,795 shares of our common stock had been exercised, options to
purchase 1,283,625 shares were outstanding with a weighted average exercise
price of $5.94, and 1,170,132 shares were available for future option grants.
Following the closing of this offering, no additional options will be granted
under the 1997 plan.
1998 Stock Option Plan. In May 1998, our board of directors adopted and
our stockholders approved our 1998 Stock Option Plan. We reserved a total of
864,417 shares for issuance under the 1998 plan. We increased this number to
1,564,417 in October 1999. As of December 31, 1999, no options to purchase
shares of our common stock had been exercised, options to purchase 1,046,938
shares were outstanding with a weighted average exercise price of $6.66, and
517,479 shares were available for future option grants. Following the closing
of this offering, no additional options will be granted under the 1998 plan.
2000 Stock Incentive Plan. In January 2000, our board of directors adopted
and our stockholders approved our 2000 Stock Incentive Plan. We have reserved a
total of 2,750,000 shares for issuance under the 2000 Stock Incentive Plan. No
options have been granted under the 2000 plan as of March 20, 2000.
Our 1997, 1998 and 2000 option plans provide for the grant of both
incentive stock options that qualify under Section 422 of the Internal Revenue
Code and nonqualified stock options. We can grant incentive stock options only
to our employees. We can grant nonqualified stock options to employees,
directors and consultants. The exercise price of incentive stock options must
be at least equal to the fair market value of our common stock on the date of
grant or, in the case of incentive stock options granted to holders of more
than 10% of our voting stock, not less than 110% of the fair market value. The
exercise price of nonqualified stock options must be equal to 85% of the fair
market value of our common stock on the date of grant under the 1997 plan, 50%
of the fair market value under the 1998 plan and 85% of the fair market value
under the 2000 plan. Options generally have a term of ten years from date of
grant, but incentive stock options granted to stockholders holding 10% or more
of our stock have a term of five years. The maximum term of options granted
under our option plans is ten years. Options granted under our option plans
generally expire three months after the termination of the optionee's
employment or service. However, in the case of death or disability, the options
generally may be exercised up to 12 months following the date of death or
disability. Options will generally terminate immediately upon termination of
employment or service for cause.
Under our 1997 and 1998 plans, in the event of a major corporate
transaction such as a merger, share exchange or sale, or disposition of all or
substantially all of our assets, the vesting schedules of all options that
would have vested within 12 months after the major corporate transaction will
be accelerated and immediately exercisable. Our board has the option to
accelerate the vesting of all other options prior to a major corporate
transaction. Instead of allowing an optionee to exercise his or her options,
the board may, in its discretion, require some or all of the plan participants
to accept a cash payment in consideration for the termination of the person's
option. All stock options will be automatically accelerated if a person's
employment is terminated without cause within one year following a change of
control transaction. This offering does not constitute a change of control as
defined in our option plans.
Under the 2000 plan, in the event of a change in control, including a
merger, sale of all or substantially all of our assets, share exchange, or a
change in the majority of the incumbent board, the vesting schedules of options
that would have vested within 12 months after the change in control will be
accelerated and immediately exercisable. Our board has discretion to accelerate
all other options prior to the change in control. In addition, the board may
cancel outstanding options and require participants to accept cash payment for
their canceled options at the price per share to be received in the change in
control event.
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<PAGE>
The 2000 Stock Incentive Plan for some matters will be administered by the
Compensation Committee of the board of directors consisting of two or more
"outside directors" as defined under section 162(m) of the Internal Revenue
Code. The 2000 plan also provides for the automatic grant of options to non-
employee directors as discussed under "Management - Director Compensation."
2000 Employee Stock Purchase Plan. Our 2000 Employee Stock Purchase Plan
was adopted in January 2000 and will be effective upon the closing of this
offering. The 2000 Employee Stock Purchase Plan provides our employees with an
opportunity to purchase our common stock through accumulated payroll
deductions. A total of 2,000,000 shares of common stock have been reserved for
issuance under the purchase plan, none of which have been issued to date.
Our board of directors or a committee appointed by our board will
administer the purchase plan. The purchase plan will permit eligible employees
to purchase common stock through payroll deductions of up to 10% of an
employee's base compensation on each pay day during the offering period,
provided that no employee may purchase more than 1,500 shares or $25,000 worth
of stock in one calendar year. Any employee employed by us on a given
enrollment date is eligible to participate during that offering period,
provided that they remain employed by us for the duration of that offering
period, and if immediately after the grant, the employee will not own 5% or
more of our stock. Unless the board of directors or its committee determines
otherwise, the purchase plan will be implemented in a series of offering
periods, each approximately six months in duration. Offering periods will begin
on the first trading day on or after January 1 and June 1 of each year and
terminate on the last trading day in the period six months later. The first
offering period shall commence on June 1, 2000 and terminate on the last
trading day of December 2000. The price at which common stock will be purchased
under the purchase plan is equal to 85% of the fair market value of the common
stock on the first or last day of the applicable offering period, whichever is
lower. Employees may end their participation in the offering period at any
time, and participation automatically ends on termination of employment. The
board of directors may amend, modify or terminate the purchase plan at any time
as long as the amendment, modification or termination does not impair vesting
rights of plan participants. The purchase plan will terminate on December 31,
2003, unless terminated earlier in accordance with its provisions.
401(k) Plan. We sponsor a plan intended to qualify under Section 401 of
the Internal Revenue Code. All employees who are at least 21 years old are
eligible to make contributions to the 401(k) plan beginning the first day of
the month after the month they are hired. Participants may make pre-tax
contributions of up to 15% of their eligible earnings, not to exceed a
statutorily prescribed annual limit. After an employee has been with us for one
year, we may make matching contributions on the basis of $.50 for every $1
contributed by the employee, up to 6% of the employee's annual salary. Each
participant is fully vested in his or her contributions, any of our matching
contributions and the investment earnings on either. Contributions by the
participants or us to the 401(k) plan, and the income earned on these
contributions, are generally not taxable to the participants until withdrawn.
Contributions by us, if any, will generally be deductible by us when made.
Contributions by us and the participants are held in trust, as required by law.
Individual participants may direct the 401(k) plan's trustee to invest their
accounts in authorized investment alternatives.
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RELATED PARTY TRANSACTIONS
Since our inception in February 1996, there has not been, nor is there
currently proposed, any transaction or series of similar transactions to which
we were or are to be party in which the amount involved exceeds $60,000, and in
which any director, executive officer, holder of more than 5% of our common
stock, or any member of the immediate family of any of the foregoing persons
had or will have a direct or indirect material interest other than compensation
agreements and other arrangements which are described in "Management" and the
transactions described below. We believe the terms of the agreements and loans
discussed in this section are as fair to us as we could have obtained from
unrelated third parties in arms-length negotiations.
Securities Issuances and Loans
In March 1996, we sold 1,582,143 shares of our common stock to Timothy
O'Crowley for $40,000 at $.025 per share. In August 1996, we sold 50,000 shares
of common stock to Patrick F. O'Neal, a Named Executive Officer, for $100,000
at $2.00 per share.
In August 1996, we sold 20,000 shares of Series A preferred stock for
$2,000,000 at $100 per share to Resource Bancshares Corporation. Resource
Bancshares sold 5,000 of these shares back to us for $1,741,000 at $348.20 per
share as part of the Series B preferred financing in February 1997 and
distributed 250 shares to affiliated persons. We issued warrants in connection
with this offering to Timothy O'Crowley and Resource Bancshares that were
cancelled as part of the Series B financing described below. As part of the
Series A transaction, Resource Bancshares was given the right to appoint two
directors, which was subsequently reduced to the right to appoint one director.
This right will terminate upon the closing of this offering. The 15,000
outstanding shares of Series A preferred stock will be converted into 750,000
shares of common stock on the closing of this offering.
Between February and April 1997, we sold 10,475,898 shares of Series B
preferred stock for $18.2 million at $1.741 per share, of which Beacon
purchased 9,615,738 shares and Stephen Hyde, a director, purchased 86,157
shares. Part of the consideration for Beacon's purchase was the retirement of a
$800,000 promissory note evidencing its loan to us in February 1997. A portion
of the proceeds were used to repurchase the shares of Series A preferred stock
from Resource Bancshares. As part of the Series B transaction, Beacon was given
the right to appoint two directors. This right will terminate upon the closing
of this offering. Beacon will be a holder of more than 5% of our common stock
upon the closing of this offering. In February 1997, we also issued 1,863,270
shares of Series B preferred stock having a fair value of $3.2 million to the
shareholders of Protocall as part of the Protocall acquisition. Frank Richards,
a Named Executive Officer, acquired 748,168 of these shares and an incentive
stock option to purchase 143,750 shares of our common stock at $2.72 per share.
During 1998 and 1999, 21,539 and 11,488 shares of Series B preferred stock were
returned to us by the former shareholders of Protocall as adjustments for the
price paid for Protocall in 1997. The 12,306,141 outstanding shares of Series B
preferred stock will be converted into 3,076,535 shares of common stock upon
the closing of this offering.
In November 1997, Beacon loaned us $1 million for an unsecured note
payable on demand and bearing interest at 15% per year. In December 1997,
Beacon loaned us $2 million for an unsecured note payable on demand and bearing
interest at 15% per year.
In December 1997, we sold 2,871,913 shares of Series C preferred stock to
Beacon for $5 million at $1.741 per share. A part of the proceeds were used to
repay the $3.0 million in loans made to us by Beacon plus accrued interest of
$16,000. Beacon also received a warrant to purchase up to 875,000 shares of our
common stock at $6.96 per share and a Series B anti-dilution warrant for the
purchase of an indeterminable number of Series B preferred shares. In May 1998,
as part of the Series D preferred stock financing, Beacon exchanged these
warrants for 3,500,000 shares of Series C preferred stock and a new anti-
dilution warrant, which will terminate upon the closing of this offering. The
6,371,913 outstanding shares of Series C preferred stock will be converted into
1,592,978 shares of common stock upon the closing of the offering.
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<PAGE>
In December 1997, Timothy O'Crowley agreed to place into escrow 50,000
shares of his common stock. The shares were contingently transferable to
Resource Bancshares. The shares were to be returned to Mr. O'Crowley if, prior
to September 18, 1998, we received at least $15 million in net proceeds from
the sale of common stock at a price per share of at least $8.80. Since this
event did not occur, the shares were transferred to Resources Bancshares in
1998.
In January 1998, Timothy O'Crowley granted an option to purchase 62,500
shares of his common stock to Paul Tartre at an exercise price of $6.96 per
share for a term of 10 years.
In April 1998, Beacon loaned us $1.4 million and Timothy O'Crowley,
Patrick O'Neal and Rick Weller each loaned us $100,000 for unsecured notes
payable on demand and bearing interest at 15% per year.
In May 1998, we sold 8,841,911 shares of Series D preferred stock for $12
million at $1.36 per share, of which Conning Capital Partners V purchased
8,823,529 shares. As part of this transaction, Conning was given the right to
appoint two directors. This right will terminate upon the closing of this
offering. Conning will be a holder of more than 5% of our common stock upon the
closing of this offering. A part of the proceeds were used to repay the loans
aggregating $1.7 million made to us by Beacon and Messrs. O'Crowley, O'Neal and
Weller plus accrued interest of $12,082. In addition, Conning and Beacon were
each granted a right to purchase up to $3 million of additional Series D
preferred stock at $1.36 per share through April 1999, which were not
exercised. The 8,841,911 outstanding shares of Series D preferred stock will be
converted into 2,210,478 shares of common stock upon the closing of this
offering.
Between April and September 1999, we sold 2,510,691 shares of Series E
preferred stock to unaffiliated investors for $4.04 million at $1.61 per share.
The 2,510,691 outstanding shares of Series E preferred stock will be converted
into 627,671 shares of common stock upon the closing of this offering.
In November and December 1999, we sold 5,210,093 shares of Series F
preferred stock for $11,097,501 at $2.13 per share, of which Brinson Partners
purchased 3,755,869 shares. Brinson will hold more than 5% of our common stock
after the closing of this offering. The 5,210,093 outstanding shares of Series
F preferred stock will be converted into 1,302,523 shares of common stock upon
the closing of this offering, assuming no adjustment of the Series F preferred
stock conversion price. The conversion price, however, may be adjusted
depending on the public offering price per share of our common stock. The
following table sets forth the effect of the adjustment to the conversion price
on the number of additional shares of common stock to be issued based upon the
high, mid and low prices within the estimated public offering price range set
forth on the cover of this prospectus:
<TABLE>
<CAPTION>
Public
Offering Number of Additional Shares of Common Stock
Price to be Issued Upon Conversion
-------- -------------------------------------------
<S> <C>
$10.00 924,567
$11.00 721,124
$12.00 551,588
</TABLE>
Each series of preferred stock provides for the accrual of payment-in-kind
dividends from the date of issuance through February 29, 2000, assuming that
this offering closes by April 15, 2000. The following numbers of shares of
common stock will be issued as payment-in-kind dividends on the various series
of preferred stock:
<TABLE>
<CAPTION>
Name of Series Number of Shares
-------------- ----------------
<S> <C>
Series A................................................... 128,072
Series B................................................... 551,777
Series C................................................... 285,701
Series D................................................... 396,449
Series E................................................... 83,480
Series F................................................... 28,149
---------
Total.................................................... 1,473,628
=========
</TABLE>
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On December 31, 1996, Venkat Sharma loaned Acorn $92,000 for a promissory
note payable on demand and bearing interest at an annual rate of 10%. Mr.
Sharma made an additional loan of $28,000 on December 31, 1997 on the same
terms as the prior note. Acorn has made no payments on these notes as of
December 31, 1999.
In November 1998, we loaned Frank Richards $29,028 bearing interest at 8%
per year. The note is unsecured and is due and payable on the earlier of
November 20, 2003 or whenever he may sell his stock under Rule 144 in an amount
equal to or greater than the principal balance. Mr. Richards may pay the note
with shares of our stock valued at the fair market value at the date of
payment.
In October 1999, we loaned $28,700 to Timothy O'Crowley and $33,000 to
Frank Richards to assist them in paying personal taxes incurred by each of them
as a result of their receipt of Spider stock in the spin-off. Each loan bears
interest at 7.75%. Mr. O'Crowley's loan is due in full on September 1, 2001 and
provides that one half of the loan is forgiven on each of September 1, 2000 and
2001 if he is still employed at those times. Mr. Richard's loan is due on the
earlier of November 30, 2003 or whenever he may sell his stock under Rule 144
in an amount equal to or greater than the principal balance.
On November 23, 1999, we loaned $600,000 to Timothy O'Crowley, our CEO.
The loan is a full recourse note secured by 150,000 shares of Mr. O'Crowley's
common stock. The loan bears fixed interest at 10.5%. The loan was made to Mr.
O'Crowley for his personal business and family expenditures and was approved by
the Board as being more beneficial to Etinuum than having Mr. O'Crowley reduce
his equity interest in Etinuum by selling stock. The loan is due and payable in
full on November 23, 2000.
On March 20, 2000, we loaned $500,000 to Douglass Lockyer and his wife to
induce Mr. Lockyer to join Etinuum. The loan bears interest at 6.8% per year.
The principal amount is due in full on March 20, 2004, unless Mr. Lockyer is
still employed by Etinuum or its subsidiary on that date, in which case the
entire principal amount will be forgiven. If Mr. Lockyer's employment is
terminated by us without cause or by him for specified reasons at any time
after September 20, 2001 and before December 20, 2002, one-third of the
principal amount will be forgiven, and if terminated after December 20, 2002,
two-thirds of the principal amount will be forgiven. If Mr. Lockyer's
employment is terminated for other reasons before March 20, 2004, the principal
amount will be accelerated and due either 30 or 90 days following the
termination depending upon the reason for the termination.
Spin-Off of Spider Technologies
In October 1999, we transferred the proprietary software that is used in
our EtinuumWebDirect System to a newly-formed subsidiary named Spider
Technologies, Inc. We contributed $1 million in cash and some other assets,
primarily consisting of equipment recorded at less than $10,000, to Spider and
distributed 45,183,371 shares of Spider common and preferred stock pro-ratably,
on an as-converted to common basis, to our stockholders. We also exercised a
warrant for 1,000,000 shares of common stock of Spider that we paid to the
former Acorn stockholders. See "Acquisition of Acorn Information Services". The
spin-off was taxable to us, and the spin-off and its tax effects are shown in
our 1999 financial statements.
We had begun discussions regarding a possible spin-off in late 1998 and we
and counsel to Spider commenced serious negotiations in early 1999. An
independent valuation of Spider was completed in May 1999 and again as of
November 1999 at the time the spin-off was completed. The valuation was
performed to determine a "fair market value" of the capital stock of Spider. It
was not an asset-based valuation and, therefore, we did not receive an
individual valuation for the proprietary software. We believe that the
proprietary software is the core asset and value of Spider. The valuation
process resulted in a "fair market value" of the capital stock of Spider on a
non-marketable minority interest basis of $4.5 million. The term "fair market
value" was defined as the amount at which the capital stock would change hands
between a willing buyer and a willing seller, each having reasonable knowledge
of all relevant facts, neither being under
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<PAGE>
any compulsion to act, with equity to both. The value was based on an analysis
of a number of factors including:
. interviews with some senior management members of Etinuum and Spider;
. site visits of facilities and business offices of Spider;
. reviews of forecasts and projections prepared by our management with
respect to Spider for the years ended March 31, 2000 through March 31,
2004;
. reviews of other publicly available financial data for some companies
comparable to Spider; and
. performance of other studies, analyses and inquiries.
The general purpose of the spin-off was to allow Spider to be an
independent software development and licensing business. We retained the
professional services business that integrates the software with our clients'
and their vendors' systems for their direct-to-customer initiatives. We
incurred out-of-pocket costs of approximately $380,000 in the spin-off of
Spider. We believed we and Etinuum's stockholders at that time would benefit
from the spin-off by creating a separate company that would focus solely on
software development, allowing us to focus on our own core competencies. In
addition, we believed Spider would be in a better position to license to third
parties than we would be since we are an end user of the software and might be
perceived as a competitor by third parties, thus leading to higher quality
software because of possible increased revenue and user input to Spider. We
further believed the continuing development of the software would involve
significant expenses and negatively affect our financial results.
We entered into several agreements with Spider as a part of the spin-off,
which are described below. In general, each agreement provides that each party
will indemnify the other party if it violates the agreement. All of our
agreements with Spider were made in the context of a parent-subsidiary
relationship and were negotiated in the overall context of the spin-off. Spider
was represented by its own counsel in connection with these negotiations.
Although we generally believe that the terms of these agreements are arms-
length and consistent with fair market values, we cannot assure you that the
prices charged to or by us under these agreements are not higher or lower than
the prices that may be charged to or by unaffiliated third parties for similar
services or goods or that the other terms are the same as those that would be
agreed upon by unaffiliated parties.
We have set forth below a summary description of the material terms of the
agreements involved in the spin-off. You should read the full text of these
agreements, which have been filed with the SEC as exhibits to the registration
statement of which this prospectus is a part.
Software Ownership. We transferred to Spider ownership of the
EtinuumWebDirect software code and related documentation, copyrights and
intellectual property rights. The source code and related documentation is from
time to time to be delivered to an independent escrow agent for delivery to us
if Spider breaches the agreement, goes out of business or abandons the
software. Abandonment exists if Spider:
. significantly fails to fulfill its maintenance and support obligations,
as explained below, for a period of 30 sequential days;
. is notified by us of a major error in the software that substantially
impairs the operation of the software, the problem continues for more
than one hour after we notify Spider, this occurs 25 days in a calendar
year, and it adversely affects us;
. substantially reduces the level of support for the software it develops
by not providing necessary error corrections so as to adversely affect
us; or
. announces it is going to discontinue developing, supporting or
maintaining the software.
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If there is an abandonment, we can use the source code to provide direct-
to-customer outsourced services and, if the abandonment is of the third or
fourth type described above or Spider goes out of business, we can use the
source code for any purpose. In addition, we have the right to retain a copy of
the source code and documentation until May 2001 to allow us to make
corrections to the software. We lose this right if a competitor of Spider or
other entity that would jeopardize the confidentiality of the software acquires
control of us. We also have a security interest in current and future versions
of the software and related rights on which we can foreclose if Spider breaches
its agreements with us or fails to pay us royalties for 20 days.
If Spider wishes to sell the software or related rights prior to November
4, 2002, it must first offer them to us. It also cannot, prior to that date,
assign title or grant an exclusive license to the software to a competitor of
ours or voluntarily allow a competitor of ours to control it.
It is also a breach if a competitor involuntarily controls Spider. Spider
has further recently agreed for two years not to significantly engage in the
business of providing live human interaction, via e-mail, fax or telephone, on
behalf of a client and its customers who purchase goods or services of the
client. We will pay Spider $75,000 for this further agreement.
Control for these purposes means the direct or indirect ownership of 45%
or more of the party's outstanding stock or, in our case only, the power to
appoint a majority of our board.
License Arrangements. We have a 20-year worldwide, non-exclusive license
to use and integrate the object and source code of current and future versions
of the software. During that time, we can use the source code to develop
interfaces with hardware or other software and integrate the object code with
our and our clients' systems. Until November 4, 2000, we can generally
sublicense the software to our clients unless Spider wishes to directly license
to them, or those clients previously breached a license with Spider for the
software, or the country where the client is located or will use the software
is not a member of the Berne Convention.
We do not pay Spider a license fee to use either the version of the
software we transferred to it or, until November 4, 2002, any new versions.
After that time, we will pay a "most favored nations" license fee for new
versions.
In general, Spider owns all modifications to the software made by us or
our sublicensees.
Maintenance and Support Services. Spider will provide us with maintenance
and support, technical support, installation and training services until
November 5, 2002. For maintenance and support services, we pay Spider an amount
to compensate Spider for services it provides to us or to our clients that
exceed those the Spider group provided to us prior to the spin-off. For
technical support services, we pay Spider its full employee costs plus 20%.
After November 5, 2002, Spider will provide maintenance and support on its
usual customer terms and may elect, at our request, to provide technical
support services.
In addition, at our request, Spider will host on its servers until
November 5, 2001, current and future versions of the software for operation by
us and our clients. For that service, we pay Spider what our clients existing
on November 5, 1999, pay us for the service, and for new customers after that
date we pay Spider its out-of-pocket costs for operating the server. After
November 5, 2001, Spider may continue to provide us and our clients with
hosting services at Spider's then current rates.
Spider may provide other maintenance and support services to our clients.
Royalty. Spider agreed to pay us royalties totaling $1.45 million plus
interest of 8% per year on the unpaid amount. The royalty rate equals 4% of
Spider's net revenues from the distribution and licensing of current and future
versions of the software. Spider does not have to pay us a royalty until it has
total net revenues of $5.5 million or receives $7.5 million from the sale of
equity or convertible debt securities, whichever occurs first. In any event,
the $1.45 million plus interest is due on the earlier of November 4, 2004, or
the sale of all or substantially all Spider's assets.
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<PAGE>
Shared Personnel and Resources. Under various agreements, we have
committed to share some of our personnel and resources with Spider for limited
periods of time. Paul Tartre, our President - Technology Solutions, and his
administrative assistant will spend 40% of their time on Spider matters, for
which we will be paid $124,080 a year. Our officers Timothy Hardin and Patrick
O'Neal will spend 5% and 20%, respectively, of their time on Spider business,
and Spider will reimburse us monthly for those percentages of our costs of
their employment. In addition, we expect that Timothy O'Crowley will remain
chairman of the board of Spider, and he will be a consultant to Spider for
strategic planning and financing advice for which he will be paid $90,000 per
year for two years. In general, other than Paul Tartre, neither we nor Spider
may solicit each others' employees for approximately one year.
We have also agreed to provide administrative services to Spider for
$10,417 a month, as well as to sublease 40% of our office space in San Diego
for 40% of our rent and other occupancy costs. Spider also pays us for
equipment and supplies it uses in that office. These agreements generally
terminate between October 2000 and August 2003.
Referrals. We have agreed to refer to Spider those of our clients that
wish to license current or future versions of the software, and Spider will
refer to us companies that might wish to use our outsourced communications
center services. These arrangements are for three years and are non-exclusive.
We will pay each other industry-standard commissions on the revenues generated
by any referrals, and Spider will charge our clients standard license fees.
Infringement. In general, we are liable to Spider if we know the software
and documentation we delivered to Spider, or if a modification we made to the
software, infringes the rights of others or is not owned by us. In general,
Spider is liable to us if the software and documentation it develops infringes
the rights of others or is not owned by Spider, or if at any time a client of
ours makes a claim against us involving work done by Spider. The claims of each
party against the other are generally limited to a maximum of $5 million, and
no claim can be made for the first $500,000 of claims. However, this limitation
does not apply to claims for indemnification regarding infringement or
misappropriation or, in Spider's case, claims our clients make against us based
on Spider's work.
Taxes. If in the future our or Spider's tax liability increases pursuant
to Section 482 of the Internal Revenue Code of 1986, the other party will pay
to the party whose liability was increased an amount equal to the reduction in
tax liability payable by the other party. No payment needs to be made until the
tax benefit actually results in a recognized tax savings to the other party on
a specific amount of tax then currently due and payable. In March 2000, we and
Spider entered into an amendment to our agreement regarding tax liabilities.
The amendment states that if the fair market value of the capital stock of
Spider on the spin-off date is found by a tax authority to exceed $8.1 million,
Spider will indemnify us for any taxes on that excess amount.
Termination. Spider can terminate the agreements, including the licenses,
and seek damages from us upon notice to us if we breach our obligations and
fail to materially cure such breach within specified time periods. We have the
right to foreclose on our security interest in the software and related rights,
terminate the agreement and seek recovery of damages from Spider upon notice to
Spider if:
. Spider willfully, recklessly or negligently, with the approval or
prior actual knowledge of senior management of Spider, breaches its
confidentiality obligations; or
. materially breaches any other provision of the agreement with the
exception of maintenance, support and hosting services, and fails to
cure a breach within specified time periods. If Spider materially
breaches its obligations regarding maintenance, support and hosting
services and does not cure the breach after notice, we have the right
to contract with a third party to obtain those services, seek recovery
of damages from Spider and terminate the agreement.
56
<PAGE>
Stock Ownership and Board Representation. In connection with the spin-off
of Spider, the following executive officers, directors and principal
stockholders received shares of common stock or preferred stock of Spider:
<TABLE>
<CAPTION>
Number of Number of
Shares of Shares of
Common Preferred Percentage
Name Stock Stock Owned(1)
---- ---------- ---------- ----------
<S> <C> <C> <C>
Timothy O'Crowley.......................... 7,715,328 -- 15.2%
Paul Tartre................................ 3,000,000 -- 5.9
Frank Richards............................. 500,000 841,467 2.6
Patrick O'Neal............................. 700,000 -- 1.4
Venkat Sharma.............................. 388,155 -- *
Shoba Murali............................... 304,095 -- *
Raja Ramnarayan............................ 185,250 -- *
Sunil Gupta................................ 100,000 -- *
Stephen Hyde............................... -- 98,650 *
The Beacon Group III -
Focus Value Fund, L.P. ................... -- 18,305,860 36.0
Conning Capital Partners V, L.P. .......... -- 10,102,941 19.9
---------- ---------- ----
Total.................................... 12,892,828 29,348,918 81.0%
========== ========== ====
</TABLE>
- ------------------
* Less than one percent
(1) The total shares of common stock and preferred stock outstanding at
November 6, 1999, the date of distribution, was 50,783,371 shares.
In addition, Timothy O'Crowley, Steven Piaker, Harold Pote, Rick Weller
and Eric Wilkinson, who are members of our board, and Patrick O'Neal and Paul
Tartre, two of our executive officers, are members of the board of Spider and
represent seven of the ten members of Spider's board.
Acquisition of Acorn Information Services
Effective October 1, 1999, we acquired all of the capital stock of Acorn
Information Services, Inc., a Delaware corporation based in Connecticut that
provides strategic consulting and data analytic services to help their clients
enhance their marketing efforts. Four of the five former Acorn stockholders
became executives of Acorn and us following the acquisition. Timothy O'Crowley
is currently the sole director of Acorn. In connection with the Acorn
transaction, we paid $100,000 of the fee incurred by the Acorn stockholders for
services provided by their investment banker Prospero LLC by issuing 11,737
shares of our common stock to Prospero. A summary of the acquisition and the
agreements executed in connection with the acquisition, as modified by amended
agreements entered into on March 20, 2000, is provided below. We strongly urge
you to read the entire agreements, which have been filed with the SEC as
exhibits to the registration statement of which this prospectus is a part.
Stock Purchase and Stock Option Provisions. The purchase price for all of
the outstanding Acorn capital stock was $950,000 at closing, including
acquisition costs of $100,000. Under the amended agreements, we will make cash
payments totaling $200,000 on October 30, 2000, $200,000 on October 30, 2001
and $400,000 on October 30, 2002 to the four former Acorn stockholders who
joined us. To receive the payments in 2000 and 2001, these persons must still
be our employees. In 2002, two employees may leave Etinuum with the consent of
our chief executive officer and, if the other two persons are still employed,
the payments will be made to all four persons. If these conditions are not met
in any year, all the payments are forfeited for that and any subsequent years.
In addition, in March 2000 we granted options to purchase a total of
400,000 shares of our common stock at $10.00 per share to the four former Acorn
stockholders who joined us. Approximately one-third of these options vest
immediately and the remaining options vest over the next 30 months. The options
have a ten-year term.
57
<PAGE>
In connection with the Acorn transaction, we exercised our warrant to
purchase 1,000,000 shares of Spider common stock and delivered these shares to
the former Acorn stockholders. The shares held by the former Acorn stockholders
who joined us vest on the same schedule as the options granted to them. If the
employment of any of these persons terminates before all of his or her Spider
shares have vested, we will repurchase any unvested shares for $.013 per share.
The former Acorn stockholder who did not join us received 10,000 shares of
our common stock and is fully vested in the Spider shares.
If we sell substantially all of Acorn's assets or stock to a third party,
or if we become insolvent, the former Acorn stockholders have a right of first
refusal to purchase the stock or assets of Acorn.
Employment Agreements. Each of the former Acorn stockholders who prior to
the transaction were Acorn employees entered into an employment agreement with
us and Acorn to provide services to us and Acorn. The employment agreements are
for an initial term of three years and provide for the assignment to Acorn of
all works and inventions developed on behalf of Acorn. With limited exceptions,
for not less than one year after a former Acorn stockholder's employment is
terminated, he or she cannot work for or provide services to a company that
competes with us or solicit other Acorn employees to leave Acorn's employ. The
employee stockholders, other than Mr. Sharma, will not be entitled to more than
12 months of severance pay upon termination of employment by the employee for
cause or by us without cause. Mr. Sharma will be entitled to 12 months of
severance pay plus, under some circumstances, up to an additional 12 months of
severance pay upon termination by him for cause or by us without cause.
Commercial Agreements
During 1996, we entered into transactions with Eden Financial Group, Inc.
or its subsidiaries. Timothy O'Crowley, Patrick O'Neal and Paul Tartre,
executive officers of Etinuum, are stockholders of Eden Financial Group, Inc.
We paid a total of $115,000 for software applications developed by Eden
Financial Group, Inc. in the form of a note payable. The note was paid on
December 15, 1997. We received $80,000 from Eden Financial Group, Inc. in
return for assuming various lease obligations of Eden Financial Group, Inc.
During 1997, we leased an aircraft from Mt. Evans Consulting, LLC, a
company partially-owned by Timothy O'Crowley. Rental payments were based upon
our usage of the aircraft. Amounts paid or accrued by us under the lease during
the year ended December 31, 1997, were $165,000. During 1998, the lease was
terminated.
From January 1998 through May 1999, Mr. Pat O'Crowley, our executive vice
president - corporate development and the brother of Timothy O'Crowley,
consulted with us on strategic planning and operational matters, through his
firm, Coalter Group International. In 1999, Coalter Group International was
paid $80,000 for these services.
58
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table shows specified information with respect to beneficial
ownership of our common stock as of December 31, 1999, by each stockholder
known to us to be the beneficial owner of more than 5% of our common stock,
each of our directors, each of our Named Executive Officers and all executive
officers and directors as a group. The number of shares and percentages in the
table includes the shares issuable as payment-in-kind (PIK) dividends through
February 29, 2000.
Beneficial ownership is determined in accordance with the rules of the SEC
and represents sole or shared voting or sole or shared investment power with
respect to securities. Unless otherwise indicated below, the person and
entities named in the following table have sole voting and sole investment
power with respect to all shares beneficially owned, except for applicable
community property laws. Shares of common stock underlying options that are
currently exercisable or exercisable within 60 days of December 31, 1999, are
deemed to be outstanding and to be beneficially owned by the person holding the
options for the purpose of computing the percentage ownership of that person,
but are not treated as outstanding for the purpose of computing the percentage
ownership of any other person.
The following table assumes that the underwriters do not exercise their
over-allotment option to purchase up to 675,000 shares from us.
<TABLE>
<CAPTION>
Percent Owned
-----------------
Number Before After
Name and Address of Beneficial Owners of Shares Offering Offering
- ------------------------------------- --------- -------- --------
<S> <C> <C> <C>
The Beacon Group III - Focus Value Fund,
L.P. ....................................... 4,713,759(1) 34.6% 26.0%
399 Park Avenue
New York, NY 10022
Conning Capital Partners V, L.P. ............ 2,601,507(2) 19.1% 14.3%
CityPlace II, 9th Floor
185 Asylum Street
Hartford, CT 06103
Timothy O'Crowley............................ 2,003,833(3) 14.2% 10.7%
Etinuum, Inc.
5619 DTC Parkway, 12th Floor
Englewood, CO 80111-3017
Brinson Partners, Inc. ...................... 1,479,402(4) 10.8% 8.2%
209 South LaSalle Street
Chicago, IL 60604-1295
Frank Richards............................... 360,428(5) 2.6% 2.0%
Paul Tartre.................................. 241,388(6) 1.7% 1.3%
Patrick O'Neal............................... 222,016(7) 1.6% 1.2%
Timothy Hardin............................... 25,753(8) * *
Stephen Hyde................................. 25,402 * *
Steven Piaker................................ -- (9)
Harold Pote.................................. -- (10)
Rick Weller.................................. --
Eric Wilkinson............................... -- (11)
All officers and directors as a group, 22
persons..................................... 2,647,782(12) 17.9% 13.7%
</TABLE>
59
<PAGE>
- ------------------
* Less than 1%.
(1) Includes 716,847 shares issuable as a PIK dividend.
(2) Includes 395,625 shares issuable as a PIK dividend.
(3) Includes 475,000 shares underlying options that are exercisable within 60
days from December 31, 1999 and excludes 62,500 shares underlying options
Mr. O'Crowley granted to Mr. Tartre on January 12, 1998. Mr. O'Crowley is
our Chief Executive Officer.
(4) Includes 20,589 shares issuable as a PIK dividend and 519,846 shares
issuable with respect to our Series F preferred stock assuming an initial
offering price of $11.00 per share. Brinson Partners, Inc. is the managing
member of Brinson Venture Management LLC, the investment advisor to BVCF
III, L.P., which has sole voting and investment power over BVCF III,
L.P.'s shares. The address of BVCF III L.P. is c/o Brinson Partners, Inc.
(5) Includes 34,487 shares underlying options that are exercisable within 60
days from December 31, 1999 and 32,951 shares issuable as a PIK dividend.
(6) Represents 176,388 shares underlying options that are exercisable within
60 days from December 31, 1999 and 62,500 shares underlying options Mr.
O'Crowley granted to Mr. Tartre on January 12, 1998.
(7) Includes 172,016 shares underlying options that are exercisable within 60
days from December 31, 1999.
(8) Represents shares underlying options that are exercisable within 60 days
from December 31, 1999.
(9) Does not include 2,601,507 shares held of record by Conning Capital
Partners V, L.P. Mr. Piaker is senior vice president of Conning & Conning.
Conning & Conning is the managing member of Conning Investment Partners V,
LLC, which serves as the general partner of Conning Capital Partners V,
L.P. Mr. Piaker disclaims beneficial ownership of the shares owned by
Conning Capital Partners V, L.P.
(10) Does not include 4,713,759 shares held of record by The Beacon Group III -
Focus Value Fund, L.P. The Beacon Group has voting and investment power
over shares owned of record by The Beacon Group III - Focus Value Fund,
L.P. Mr. Pote is a general partner of The Beacon Group and as such may be
deemed to be a beneficial owner of the shares shown as beneficially owned
by The Beacon Group III - Focus Value Fund, L.P. Mr. Pote disclaims
beneficial ownership of the shares owned by The Beacon Group III - Focus
Value Fund, L.P., and, accordingly, such shares are excluded from the
information in the table with respect to Mr. Pote.
(11) Does not include 4,713,759 shares held of record by The Beacon Group III -
Focus Value Fund, L.P. Mr. Wilkinson is employed by The Beacon Group. Mr.
Wilkinson disclaims beneficial ownership of the shares owned by The Beacon
Group III - Focus Value Fund, L.P.
(12) Includes 1,144,600 shares underlying options held by executive officers
and directors that are exercisable within 60 days from December 31, 1999.
60
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
We are authorized to issue 170,000,000 shares of common stock and
79,000,000 shares of undesignated preferred stock. Upon the closing of this
offering, we will be authorized to issue 100,000,000 shares of common stock and
10,000,000 shares of undesignated preferred stock. The following description of
our capital stock is qualified in its entirety by our certificate of
incorporation and bylaws, which are included as exhibits to the registration
statement of which this prospectus is a part, and by the provisions of
applicable Delaware law.
Common Stock
As of December 31, 1999, there were 13,496,189 shares of common stock
outstanding, as adjusted to reflect
. the automatic conversion of all outstanding shares of preferred stock
into 9,560,188 shares of common stock;
. the issuance of 1,333,433 shares of common stock to the holders of our
preferred stock as payment-in-kind dividends; and
. the issuance of an additional 721,124 shares of common stock to the
holders of our Series F preferred stock assuming the sale of shares in
this offering at an initial offering price of $11.00 per share.
As of December 31, 1999, we had approximately 32 stockholders of record.
Holders of our common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. The holders of common stock are
entitled to receive ratably any dividends our board of directors may declare
from time to time out of funds legally available for that purpose after payment
of preferential dividends to the holders of preferred stock, if any. See
"Dividend Policy." If we liquidate, dissolve or wind up our business, the
holders of common stock are entitled to share ratably in all assets remaining
after payment of liabilities and the distribution rights of the preferred
stock, if any. The common stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock.
Preferred Stock
The board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series, and
to designate the rights, preferences and privileges of each series, any or all
of which may be greater than the rights of the common stock. We cannot state
the actual effect of the issuance of any shares of preferred stock upon the
rights of holders of the common stock until the board of directors determines
the specific rights of the holders of the preferred stock. However, the effects
might include, among other things, restricting dividends on the common stock,
diluting the voting power of the common stock, reducing the market price of the
common stock, or impairing the liquidation rights of the common stock, without
further action by the stockholders. We could issue preferred stock quickly with
terms calculated to delay or prevent a change in control or make removal of
management more difficult. We have no present plans to issue any shares of
preferred stock.
Delaware Anti-Takeover Law and Charter and Bylaw Provisions
Specific provisions of Delaware law and our certificate of incorporation
and bylaws could make it more difficult or prevent a change in control that a
stockholder might consider favorable by a tender offer, a proxy contest or
otherwise, and to remove incumbent officers and directors. These provisions are
intended to discourage coercive takeover practices and inadequate takeover bids
and to encourage persons seeking to acquire control of us to first negotiate
with us. We believe that the benefits of increased protection of our potential
ability to negotiate with the proponent of an unfriendly or unsolicited
proposal to acquire or restructure us outweigh the disadvantages of
discouraging takeover or acquisition proposals because, among other things,
negotiation of these proposals could result in an improvement of their terms.
61
<PAGE>
Section 203 of the Delaware General Corporation Law prohibits us from
engaging in a "business combination" with an "interested stockholder" for a
period of three years following the date the person became an interested
stockholder, unless, with some exceptions, the "business combination" or the
transaction in which the person became an interested stockholder is approved in
a prescribed manner. A "business combination" includes a merger, a sale of 10%
or more of our assets or stock, or other transactions resulting in a financial
benefit to the interested stockholder. Generally, an "interested stockholder"
is a person who, together with affiliates and associates, owns, or within three
years prior to the determination of interested stockholder status, did own, 15%
or more of a corporation's voting stock. Section 203 does not restrict a
transaction by us with a person who owned stock before this public offering.
Section 203 permits companies to opt out of this provision, but we have elected
not to opt out. The applicability of this provision could prevent or delay a
takeover that you might consider favorable by an interested stockholder in a
transaction that the board of directors has not approved in advance, including
takeovers that might result in a premium over the market price for the shares
of common stock held by stockholders.
Our certificate of incorporation and bylaws, effective upon the closing
date of this offering, contain provisions that are intended to deter hostile
takeover attempts. Our certificate of incorporation and bylaws require that any
action to be taken by our stockholders must be taken at a duly called annual or
special meeting of the stockholders and may not be taken by a consent in
writing. In addition, special meetings of our stockholders may be called only
by the board of directors. Our certificate of incorporation and bylaws also
provide that, beginning upon the closing of this offering, our board of
directors will be divided into three classes, with each class serving staggered
three-year terms so that approximately one-third of the directors are elected
each year. Staggering the terms of our directors delays the time it would take
stockholders to replace a majority of the incumbent directors. Some amendments
of the certificate of incorporation and of the bylaws require the approval of
holders of at least 66 2/3% or 80% of the voting power of all outstanding
stock. In addition, our directors may only be removed with or without cause by
a vote of 80% of the stockholders. Our stockholders must give notice of
nominations or other business to be conducted at a stockholders meeting at
least 120 days before the date of our proxy statement sent to stockholders for
the prior year's annual meeting. These provisions may have the effect of
discouraging takeovers and tactics used in proxy fights or delaying changes in
control or our management.
Limitations on Directors' Liability and Indemnification
Our certificate of incorporation limits the personal liability of our
directors to us and our stockholders to the maximum extent permitted by
Delaware law. Delaware law provides that directors of a corporation will not be
personally liable for monetary damages for breach of their fiduciary duties as
directors, except liability for:
. any breach of their duty of loyalty to the corporation or its
stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
. any transaction from which the director derived an improper personal
benefit.
The limitation of liability does not apply to liabilities of our directors
arising under the federal securities laws and does not affect the availability
of equitable remedies such as injunctive relief or rescission.
Our certificate of incorporation and bylaws also provide that we will
indemnify our directors and officers and may indemnify our employees and other
agents to the fullest extent permitted by law. We believe that indemnification
under our bylaws applies to negligent and grossly negligent acts of indemnified
parties. Our bylaws also permit us to secure insurance on behalf of any
officer, director, employee or other
62
<PAGE>
agent for any liability arising out of his or her actions in their capacity as
an officer, director, employee or other agent, regardless of whether the
certificate of incorporation or bylaws would permit indemnification. The
indemnification provisions in our bylaws and certificate of incorporation are
not exclusive of other rights of indemnification that may be available to our
directors or officers under any agreement or vote of stockholders or
disinterested directors.
In addition to the provisions in our bylaws, we have entered into
agreements to indemnify our directors, executive officers and some employees.
These agreements, among other things, indemnify our directors, executive
officers and these employees for judgments, fines, settlement amounts and
specified expenses, including attorneys' fees, incurred by them in any action
or proceeding, including any action by or on behalf of the company, arising
out of the person's services as a director, executive officer or controller of
us, any of our subsidiaries or any other company or enterprise to which the
person provides services at our request. We believe that these provisions and
agreements are necessary to attract and retain qualified persons as directors
and executive officers.
The limited liability and indemnification provisions in our certificate
of incorporation and bylaws may discourage stockholders from bringing a
derivative claim or other lawsuit against our directors or officers for breach
of their fiduciary duty, even though a derivative action, if successful, might
otherwise benefit us and our stockholders. In addition, the value of your
investment in our stock may decline to the extent we pay the costs of
settlement or damage awards against our directors and officers under these
indemnification provisions.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees in which indemnification is sought, nor
are we aware of any threatened litigation that may result in claims for
indemnification.
Registration Rights
After this offering, the holders of approximately 11,738,549 shares of
outstanding common stock, or their permitted transferees, are entitled to
rights to register those shares under the Securities Act of 1933 at any time
after 12 months following the closing of this offering.
We have entered into an agreement that will be effective upon the closing
of this offering with Beacon, Conning, Brinson, Frank Richards, Timothy
O'Crowley and some other holders of our preferred stock. Under the agreement,
these stockholders, or their permitted transferees, may require, on three
occasions, and Brinson on one additional occasion, at any time one year after
this offering, that we file a registration statement at our expense under the
Securities Act with respect to the shares of common stock they acquire upon
conversion of their preferred stock, provided that the anticipated amount
offered would be at least $5 million. In addition, these stockholders and
their permitted transferees may, at any time one year after this offering,
require that we register their shares for public resale on Form S-3 or similar
short-form registration, provided that the value of the securities to be
registered is at least $2.5 million.
In addition, the stockholders whose shares are covered by this agreement
have piggyback registration rights. If we propose to register any of our
common stock under the Securities Act, other than under employee benefit plans
or for acquisitions, these stockholders may require us to include all or a
portion of their stock in the registration. However, the managing underwriter,
if any, of the offering has rights to limit the amount of stock to be sold by
those stockholders.
All registration expenses incurred in connection with the above
registrations will be borne by us.
63
<PAGE>
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American
Securities Transfer & Trust Company, Denver, Colorado.
SHARES ELIGIBLE FOR FUTURE SALE
General
The 4,500,000 shares of our common stock sold in this offering, or
5,175,000 shares if the underwriters exercise their over-allotment option in
full, will be freely tradable without restriction under the Securities Act,
except for any shares that may be acquired by an "affiliate" of ours as that
term is defined in Rule 144 under the Securities Act. Shares owned by our
affiliates will remain covered by the resale limitations of Rule 144.
The 13,496,189 shares of our common stock that will continue to be held by
existing stockholders after this offering constitute "restricted securities"
within the meaning of Rule 144 and will be eligible for sale in the open market
after this offering, to the extent permitted by contractual lockup provisions
and the applicable requirements of Rule 144, both of which are described below.
We have granted registration rights to some of our stockholders. See
"Description of Capital Stock-Registration Rights."
Generally, Rule 144 provides that a person who has beneficially owned
"restricted" shares for at least one year will be entitled to sell on the open
market in brokers' transactions within any three-month period a number of
shares that does not exceed the greater of:
. 1% of the then outstanding shares of common stock; and
. the average weekly trading volume in the common stock on the open
market during the four calendar weeks preceding such sale.
Sales under Rule 144 must also comply with post-sale notice requirements
and, in some cases, requirements regarding the availability of current public
information about us.
In the event that any person who is deemed to be an affiliate purchases
shares of our common stock pursuant to this offering or acquires shares of our
common stock pursuant to one of our employee benefit plans, the shares held by
such person are required to be sold under Rule 144 in brokers' transactions in
compliance with the volume limitations described above or to be registered for
resale under the Securities Act. Shares properly sold in reliance upon Rule 144
to persons who are not affiliates are thereafter freely tradable without
restriction.
Sales of substantial amounts of our common stock in the open market, or
the availability of such shares for sale, could adversely affect the price of
our common stock.
Our directors, executive officers and almost all of our stockholders have
agreed that, without the prior written consent of Chase Securities Inc. on
behalf of the underwriters, they will not, with some exceptions, during the
period ending 180 days after the date of this prospectus, sell or otherwise
dispose of any shares of common stock. See "Plan of Distribution."
An aggregate of 8,768,174 shares of our common stock are reserved for
issuance under our stock option and employee stock purchase plans and options
to purchase 1,795 shares have been exercised. We intend to file a registration
statement on Form S-8 covering the issuance of shares of our common stock
pursuant to these plans. Accordingly, the shares issued pursuant to these plans
will be freely tradable, except for the restrictions on resale by affiliates
under Rule 144.
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<PAGE>
PLAN OF DISTRIBUTION
We have entered into an underwriting agreement with the underwriters named
below. Chase Securities Inc., Robertson Stephens, Inc., U.S. Bancorp Piper
Jaffray Inc. and SoundView Technology Group, Inc. are acting as representatives
of the underwriters.
The underwriting agreement provides for the purchase of a specific number
of shares of common stock by each of the underwriters. The underwriters'
obligations are several, which means that each underwriter is required to
purchase a specified number of shares but is not responsible for the commitment
of any other underwriter to purchase shares. Under the terms and conditions of
the underwriting agreement, each underwriter has severally agreed to purchase
the number of shares of common stock set forth opposite its name below.
<TABLE>
<CAPTION>
Number
Underwriters of Shares
------------ ---------
<S> <C>
Chase Securities Inc..............................................
Robertson Stephens, Inc. .........................................
U.S. Bancorp Piper Jaffray Inc. ..................................
SoundView Technology Group, Inc...................................
---------
Total............................................................. 4,500,000
=========
</TABLE>
This is a firm commitment underwriting. This means that the underwriters
have agreed to purchase all of the shares offered by this prospectus, other
than those covered by the over-allotment option described below, if any are
purchased. Under the underwriting agreement, if an underwriter defaults in its
commitment to purchase shares, the commitments of non-defaulting underwriters
may be increased or the underwriting agreement may be terminated, depending on
the circumstances. We have agreed to indemnify the underwriters against
specified civil liabilities under the Securities Act, or to contribute to
payments the underwriters may be required to make in respect of such
liabilities.
The representatives have advised us that the underwriters propose to offer
the shares directly to the public at the public offering price that appears on
the cover page of this prospectus. In addition, the representatives may offer
some of the shares to securities dealers at such price less a concession of
$ per share. The underwriters may also allow to dealers, and such dealers
may reallow, a concession not in excess of $ per share to other dealers.
After the shares are released for sale to the public, the representatives may
change the offering price and other selling terms at various times.
The underwriters have informed us that the underwriters will not allow
discretionary account sales of the shares of common stock offered by this
prospectus.
We have granted the underwriters an over-allotment option. This option,
which is exercisable for up to 30 days after the date of this prospectus,
permits the underwriters to purchase a maximum of 675,000
65
<PAGE>
additional shares from us to cover over-allotments. If the underwriters
exercise all or part of this option, they will purchase shares covered by the
option at the public offering price that appears on the cover page of this
prospectus, less the underwriting discount. If this option is exercised in
full, the total price to the public will be $56.9 million and the net proceeds
to us will be approximately $51.4 million assuming an offering price of $11.00
per share. The underwriters have severally agreed that, to the extent the over-
allotment option is exercised, they will each purchase a number of additional
shares proportionate to the underwriter's initial amount reflected in the above
table.
The following table provides information regarding the amount of the
discount to be paid to the underwriters by us. Such amount is shown assuming
both no exercise and full exercise of the underwriters' option to purchase
additional shares and assuming an offering price of $11.00.
<TABLE>
<CAPTION>
Paid by Us
-------------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per share......................................... $ 0.77 $ 0.77
Total............................................. $3,465,000 $3,984,750
</TABLE>
We estimate that the total expenses of the offering, excluding the
underwriting discount, will be approximately $1.5 million.
We have agreed to indemnify each underwriter against all liabilities to
which they may become subject under the federal securities laws or other law,
including reimbursement of expenses, arising out of:
. any untrue statement or alleged untrue statement of a material fact
contained in the registration statement, including the prospectus, or
the omission or alleged omission to state a material fact required to
be stated therein or necessary to make the statements not misleading,
except that there is no indemnification for specific information
furnished by the underwriters; and
. the directed share program under which the underwriters have reserved
for sale up to 225,000 shares for our officers, directors, employees
and associates.
This includes contribution to any payments that may be made by the underwriters
in the event that indemnification is not available.
Our executive officers and directors, and almost all of our stockholders
have agreed to a 180-day lock up with respect to 9,241,392 shares of common
stock that they beneficially own, including securities that are convertible
into shares of common stock and securities that are exchangeable or exercisable
for shares of common stock. This means that, with some exceptions, for a period
of 180 days following the date of this prospectus, such persons may not offer,
sell, pledge or otherwise dispose of these securities without the prior written
consent of Chase Securities Inc.
The underwriters have reserved for sale up to 225,000 shares for
employees, directors and some other persons associated with us. These reserved
shares will be sold at the public offering price that appears on the cover of
this prospectus. The number of shares available for sale to the general public
in the offering will be reduced to the extent reserved shares are purchased by
these persons. The underwriters will offer to the general public, on the same
terms as other shares offered by this prospectus, any reserved shares that are
not purchased by these persons.
Wit Capital Corporation, an affiliate of SoundView Technology Group, Inc.,
is administering the directed share program as it relates to our employees and
directors, and Chase Securities Inc. is administering the program as it relates
to other persons associated with us. We provided to Wit Capital Corporation and
Chase Securities Inc. a list of persons we would like to participate in the
directed share program. After reviewing the prospective list of participants,
Wit Capital Corporation and Chase Securities Inc. will distribute letters to
their prospective participants asking if those persons would like to submit
indications of interest to participate in the program. These communications
will be accompanied or proceeded by a prospectus that meets the requirements of
Section 10 of the Securities Act. If there are indications of interest by
prospective participants to purchase, in aggregate, more than the number of
shares allocated to the program, then we will determine who can participate and
to what extent.
66
<PAGE>
Prior to this offering, there has been no public market for the common
stock. Consequently the offering price for the common stock will be determined
by negotiations between us and the underwriters and will not necessarily be
related to our asset value, net worth or other established criteria of value.
The factors to be considered in such negotiations, in addition to prevailing
market conditions, will include the history of and prospects for the industry
in which we compete, an assessment of our management, our prospects, our
capital structure, prevailing market conditions, our results of operations in
recent periods and several other factors as may be deemed relevant.
Rules of the SEC may limit the ability of the underwriters to bid for or
purchase shares before the distribution the shares is completed. However, the
underwriters may engage in the following activities in accordance with the
rules:
. Stabilizing transactions. The representatives may make bids or
purchases for the purpose of pegging, fixing or maintaining the
price of the shares, so long as stabilizing bids do not exceed a
specified maximum.
. Over-allotments and syndicate covering transactions. The
underwriters may create a short position in the shares by selling
more shares than are set forth on the cover page of this
prospectus. If a short position is created in connection with the
offering, the representatives may engage in syndicate covering
transactions by purchasing shares in the open market. The
representatives may also elect to reduce any short position by
exercising all or part of the over-allotment option.
. Penalty bids. If the representatives purchase shares in the open
market in a stabilizing transaction or syndicate covering
transaction, they may reclaim a selling concession from the
underwriters and selling group members who sold those shares as
part of this offering.
Stabilization and syndicate covering transactions may cause the price of
the shares to be higher than it would be in the absence of such transactions.
The imposition of a penalty bid might also have an effect on the price of the
shares if it discourages resales of the shares.
Neither we nor the underwriters make any representation or prediction as
to the effect that the transactions described above may have on the price of
the shares. These transactions may occur on the Nasdaq National Market or
otherwise. If such transactions are commenced, they may be discontinued without
notice at any time.
One or more members of the underwriting selling group may make copies of
the preliminary prospectus available over the Internet to customers through its
or their Web sites. The representatives expect to allocate a limited number of
shares to such member or members of the selling group for sale to brokerage
account holders.
The Wallach Company, a member of the NASD, has advised us in connection
with this offering, for which we paid it $150,000. The Wallach Company also
acted as placement agent in connection with our Series F preferred stock
financing in November and December 1999, for which we paid it $537,375 in cash.
Market Street Partners, an investment partnership owned by the partners of The
Wallach Company, purchased 164,319 shares of our Series F preferred stock for
$349,999 at $2.13 per share.
A prospectus in electronic format is being made available on an Internet
Web site maintained by Wit Capital Corporation. In addition, other dealers
purchasing shares from SoundView Technology, Inc. in this offering have agreed
to make a prospectus in electronic format available on Web sites maintained by
each of these dealers. Other than the prospectus in electronic format, the
information on Wit Capital Corporation's Web site and any information contained
on any other Web site maintained by Wit Capital Corporation is not part of this
prospectus or the registration statement of which this prospectus forms a part,
has not been approved or endorsed by us or any underwriter in its capacity as
underwriter and should not be relied upon by investors.
67
<PAGE>
LEGAL MATTERS
Chrisman, Bynum & Johnson, P.C. of Boulder, Colorado, will pass upon the
validity of the shares of common stock offered by us. Davis Polk & Wardwell of
Menlo Park, California, will pass upon legal matters in connection with this
offering for the underwriters. A limited liability company composed of partners
of Chrisman, Bynum & Johnson, P.C. will own 18,011 shares of our common stock
upon conversion of the shares of Series F preferred stock purchased by it
assuming an offering price of $11.00 per share and the issuance of the payment-
in-kind dividend through February 29, 2000.
EXPERTS
The financial statements and schedules of Etinuum, Inc. included in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
The financial statements of Acorn Information Services, Inc. as of and for
the year ended December 31, 1998 included in this prospectus have been so
included in reliance on the report (which contains an explanatory paragraph
relating to Acorn's ability to continue as a going concern as described in Note
2 to the financial statements) of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, Washington,
D.C. 20549, a registration statement on Form S-1 under the Securities Act of
1933, with respect to the common stock offered hereby. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits and schedules. Items are omitted in accordance with the rules and
regulations of the SEC. For further information with respect to us and our
common stock offered hereby, reference is made to the registration statement
and the exhibits and schedules filed as a part thereof. Statements contained in
this prospectus as to the contents of any contract or any other document
referred to are not necessarily complete, and, in each instance, if such
contract or document is filed as an exhibit, reference is made to the copy of
such contract or document filed as an exhibit to the registration statement,
each such statement being qualified in all respects by such reference to such
exhibit. The registration statement, including exhibits and schedules, may be
inspected without charge at the public reference facilities maintained by the
SEC in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
SEC's regional offices located at the North Western Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, NY 10048. You may obtain information about the
SEC's public reference facilities by calling the SEC at 1-800-SEC-0330. Copies
of all or any part of the registration statement may be obtained from such
office after payment of fees prescribed by the SEC. The SEC maintains a Web
site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC.
As a result of this offering, we will have to comply with the full
informational requirements of the Securities Exchange Act of 1934. We will
fulfill our obligations with respect to such requirements by filing periodic
reports and other information with the SEC. We intend to furnish our
stockholders with annual reports containing consolidated financial statements
certified by an independent public accounting firm. We also maintain a Web site
at http://www.etinuum.com. Our Web site and the information contained on it or
connected to it shall not be deemed to be incorporated into this prospectus or
the registration statement of which it forms a part.
68
<PAGE>
ETINUUM, INC. AND SUBSIDIARIES
(f.k.a. Intek Information, Inc.)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................................... F-2
Consolidated Financial Statements:
Audited Consolidated Balance Sheets at December 31, 1998 and 1999......... F-3
Audited Consolidated Statements of Operations for Each of the Three Years
in the Period Ended December 31, 1999.................................... F-4
Audited Consolidated Statements of Stockholders' Equity (Deficit) for Each
of the Three Years in the Period Ended December 31, 1999................. F-5
Audited Consolidated Statements of Cash Flows for Each of the Three Years
in the Period Ended December 31, 1999.................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Etinuum, Inc.:
We have audited the accompanying consolidated balance sheets of ETINUUM,
INC., formerly known as Intek Information, Inc., (a Delaware corporation) and
subsidiaries at December 31, 1998 and 1999, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Etinuum,
Inc. and subsidiaries at December 31, 1998 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Denver, Colorado,
January 13, 2000.
(except with respect to the
matters discussed in Note
14, as to which the date is
March 20, 2000.)
F-2
<PAGE>
ETINUUM, INC. AND SUBSIDIARIES
(f.k.a. Intek Information, Inc.)
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31,
----------------
1998 1999
------- -------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................... $ 3,752 $ 6,204
Restricted certificates of deposit............ 135 407
Receivables, net of allowances of $411 and
$464, respectively--
Trade......................................... 4,375 5,218
Unbilled...................................... 1,689 1,108
Related party notes receivable................ -- 690
Prepaid expenses and other.................... 229 906
------- -------
Total current assets......................... 10,180 14,533
PROPERTY AND EQUIPMENT, net.................... 5,052 7,982
GOODWILL AND OTHER INTANGIBLES, net............ 3,314 2,808
OTHER ASSETS................................... 98 1,055
------- -------
Total assets................................. $18,644 $26,378
======= =======
<CAPTION>
Pro Forma
Stockholders'
December 31, Equity at
---------------- December 31,
1998 1999 1999
------- ------- -------------
(Unaudited)
(Note 2)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable.............................. $ 1,410 $ 1,668
Accrued expenses.............................. 1,109 3,381
Customer deposits............................. 230 237
Deferred revenue.............................. 336 --
Current borrowings............................ 13 1,316
Due to former Acorn stockholders.............. -- 200
Related party notes payable................... -- 198
------- -------
Total current liabilities.................... 3,098 7,000
DEFERRED RENT.................................. 89 245
LONG-TERM BORROWINGS, net of current portion... 7 1,722
------- -------
Total liabilities............................ 3,194 8,967
------- -------
COMMITMENTS AND CONTINGENCIES
CONVERTIBLE PREFERRED STOCK SUBJECT TO
MANDATORY REDEMPTION, $.001 par value,
79,000,000 shares authorized (Note 9)......... 38,440 59,408 $ --
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.0001 par value, 170,000,000
shares authorized, 1,868,087, 1,881,444 and
12,775,065 (unaudited pro forma) shares
issued and outstanding....................... 1 1 1
Additional paid-in capital.................... 243 -- 59,408
Unearned compensation......................... -- (1,266) (1,266)
Accumulated deficit........................... (23,234) (40,732) (40,732)
------- ------- -------
Total stockholders' equity (deficit)......... (22,990) (41,997) $17,411
------- ------- =======
Total liabilities and stockholders' equity
(deficit)................................... $18,644 $26,378
======= =======
</TABLE>
The accompanying notes to financial statements
are an integral part of these consolidated balance sheets.
F-3
<PAGE>
ETINUUM, INC. AND SUBSIDIARIES
(f.k.a. Intek Information, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1997 1998 1999
--------- --------- ----------
<S> <C> <C> <C>
REVENUE..................................... $ 9,546 $ 17,664 $ 24,699
DIRECT COST OF SERVICES..................... (7,767) (13,209) (16,986)
--------- --------- ----------
GROSS PROFIT................................ 1,779 4,455 7,713
--------- --------- ----------
OPERATING EXPENSES:
Selling, general and administrative....... 10,464 9,312 15,020
Depreciation and amortization............. 2,941 3,755 3,533
Research and development.................. 458 897 1,079
--------- --------- ----------
Total operating expenses................ 13,863 13,964 19,632
--------- --------- ----------
LOSS FROM OPERATIONS........................ (12,084) (9,509) (11,919)
--------- --------- ----------
OTHER (EXPENSES) INCOME:
Loss from Spider.......................... -- -- (1,055)
Interest income........................... 245 266 134
Interest expense.......................... (30) (17) (150)
Loss on disposal of equipment and other... (26) (270) (20)
--------- --------- ----------
189 (21) (1,091)
--------- --------- ----------
NET LOSS.................................... $ (11,895) $ (9,530) $ (13,010)
========= ========= ==========
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS:
Net loss.................................. $ (11,895) $ (9,530) $ (13,010)
Accretion of mandatorily redeemable
convertible preferred stock.............. (90) (469) (864)
Cumulative dividends to preferred
stockholders............................. -- -- (11,361)
Loss on repurchase of Series A preferred
stock.................................... (1,241) -- --
Loss on Series C preferred stock Exchange
Agreement................................ -- (1,465) --
--------- --------- ----------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS.. $ (13,226) $ (11,464) $ (25,235)
========= ========= ==========
BASIC AND DILUTED NET LOSS PER SHARE........ $ (7.09) $ (6.14) $ (13.50)
========= ========= ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING--
BASIC AND DILUTED......................... 1,866,585 1,867,941 1,869,803
========= ========= ==========
UNAUDITED PRO FORMA NET LOSS PER SHARE,
assuming conversion of preferred stock and
accrued dividends:
Basic and diluted net loss per share...... $ (1.26)
==========
Weighted average common shares
outstanding--basic and diluted........... 10,364,936
==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these consolidated statements.
F-4
<PAGE>
ETINUUM, INC. AND SUBSIDIARIES
(f.k.a. Intek Information, Inc.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Stock Additional
---------------- Paid-In Unearned Accumulated
Shares Amount Capital Compensation Deficit Total
--------- ------ ---------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, December 31,
1996................... 1,857,142 $ 1 $ 589 $ -- $ (1,809) $ (1,219)
Accretion of preferred
stock to liquidation
and redemption value.. -- -- (90) -- -- (90)
Loss on repurchase of
Series A preferred
stock................. -- -- (1,241) -- -- (1,241)
Issuance of common
stock as consulting
fee for Series B
preferred stock
offering.............. 10,770 -- 29 -- -- 29
Warrant for common
stock granted in
connection with the
Series C preferred
stock offering........ -- -- 1,496 -- -- 1,496
Net loss............... -- -- -- -- (11,895) (11,895)
--------- --- ------- ------- -------- --------
BALANCES, December 31,
1997................... 1,867,912 1 783 -- (13,704) (12,920)
Accretion of preferred
stock to liquidation
and redemption value.. -- -- (469) -- -- (469)
Loss on Series C
preferred stock
Exchange Agreement.... -- -- (1,465) -- -- (1,465)
Warrant granted in
connection with Series
C preferred stock
Exchange Agreement.... -- -- 1,235 -- -- 1,235
Deemed contribution
from majority common
stockholder........... -- -- 157 -- -- 157
Exercise of stock
options for cash...... 175 -- 2 -- -- 2
Net loss............... -- -- -- -- (9,530) (9,530)
--------- --- ------- ------- -------- --------
BALANCES, December 31,
1998................... 1,868,087 1 243 -- (23,234) (22,990)
Accretion of preferred
stock to liquidation
and redemption value.. -- -- (864) -- -- (864)
Exercise of stock
options for cash...... 1,620 -- 8 -- -- 8
Reduction of redemption
and liquidation
value ................ -- -- 3,098 -- -- 3,098
Beneficial conversion
feature............... -- -- 2,624 -- -- 2,624
Issuance of common
stock in connection
with Acorn
acquisition........... 11,737 -- 100 -- -- 100
Cumulative dividends to
preferred
stockholders.......... -- -- (6,873) -- (4,488) (11,361)
Unearned compensation.. -- -- 1,664 (1,664) -- --
Amortization of
unearned
compensation.......... -- -- -- 398 -- 398
Net loss............... -- -- -- -- (13,010) (13,010)
--------- --- ------- ------- -------- --------
BALANCES, December 31,
1999................... 1,881,444 $ 1 $ -- $(1,266) $(40,732) $(41,997)
========= === ======= ======= ======== ========
</TABLE>
The accompanying notes to financial statements
are an integral part of these consolidated statements.
F-5
<PAGE>
ETINUUM, INC. AND SUBSIDIARIES
(f.k.a. Intek Information, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1997 1998 1999
-------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................... $(11,895) $(9,530) $(13,010)
Adjustments to reconcile net loss to net cash
used in operating activities--
Depreciation and amortization.................. 2,941 3,755 3,533
Provision for bad debts........................ 88 323 269
Loss from Spider............................... -- -- 1,055
Amortization of discount....................... -- -- 20
Loss on disposal of equipment.................. -- 269 --
Stock compensation expense..................... -- -- 398
Changes in assets and liabilities--
Receivables.................................. (1,442) (3,191) 127
Prepaids and other assets.................... (144) (67) (954)
Accounts payable............................. 130 (246) 19
Accrued expenses............................. 865 (654) 2,160
Other........................................ (48) 299 (228)
-------- ------- --------
Net cash used in operating activities............ (9,505) (9,042) (6,611)
-------- ------- --------
Cash flows from investing activities:
Purchase of property and equipment............... (5,550) (1,195) (4,352)
Payments made on behalf of Spider................ -- -- (1,055)
Restricted cash.................................. (125) (10) (272)
Cash paid in purchase of Protocall, net of cash
acquired and refunded........................... (3,315) 37 101
Cash paid in purchase of Acorn, net of cash
acquired........................................ -- -- (637)
Cash advanced to Acorn prior to acquisition...... -- -- (450)
Related party loans.............................. -- -- (690)
Software development costs....................... -- -- (66)
-------- ------- --------
Net cash used in investing activities............ (8,990) (1,168) (7,421)
-------- ------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock........... -- 2 8
Proceeds from issuance of preferred stock, net of
offering costs.................................. 22,839 11,837 14,485
Repurchase of Series A preferred stock........... (1,741) -- --
Net borrowings on revolving line of credit....... 100 (100) --
Borrowings....................................... -- -- 2,513
Repayment of borrowings.......................... (769) (12) (271)
Proceeds from related party borrowings........... 3,000 1,700 --
Repayment of related party borrowings............ (3,140) (1,700) --
Proceeds from contingent grant................... -- -- 400
Deferred offering costs.......................... -- -- (651)
-------- ------- --------
Net cash provided by financing activities........ 20,289 11,727 16,484
-------- ------- --------
Net increase in cash and cash equivalents........ 1,794 1,517 2,452
Cash and cash equivalents, beginning of year..... 441 2,235 3,752
-------- ------- --------
Cash and cash equivalents, end of year........... $ 2,235 $ 3,752 $ 6,204
======== ======= ========
Supplemental disclosures of cash flow
information:
Cash paid for interest........................... $ 29 $ 17 $ 125
======== ======= ========
Property and equipment acquired through
incurrence of capital lease obligations......... $ 32 $ -- $ --
======== ======= ========
</TABLE>
The accompanying notes to financial statements
are an integral part of these consolidated statements.
F-6
<PAGE>
ETINUUM, INC. AND SUBSIDIARIES
(f.k.a. Intek Information, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(1) Organization and Nature of Business
Etinuum, Inc. ("Etinuum" or the "Company"), formerly known as Intek
Information, Inc., is a provider of Strategic Consulting, Technology Solutions,
e-Operations and Customer Knowledge services in connection with e-commerce and
other direct-to-customer initiatives of business enterprises. The Company
operates communications centers in California, Colorado and Kansas, with
additional operations in Connecticut and headquarters in Englewood, Colorado.
Etinuum incorporated as a Colorado corporation on March 6, 1996 and
reincorporated as a Delaware corporation on August 2, 1996.
In February 1997, Etinuum acquired 100% of the common stock of Protocall
New Business Specialists, Inc. ("Protocall"). Protocall, a communications
center service operation, was located in Northern California. Following the
Protocall acquisition, the Company expanded its e-Operations, Technology
Solutions and Strategic Consulting services.
In March 1999, Etinuum formed a wholly-owned subsidiary, Spider
Technologies, Inc. ("Spider"). Spider was formed to pursue the development and
sales of a Web-based technology originally developed by Etinuum. Effective
October 1, 1999, Etinuum distributed all of the stock of Spider to Etinuum's
stockholders.
In October 1999, Etinuum acquired 100% of the common stock of Acorn
Information Services, Inc. ("Acorn"). Acorn is a data analytics company based
in Connecticut. As a result of the acquisition of Acorn, the Company's database
marketing and analysis services were enhanced.
Etinuum's business is subject to significant risks. Etinuum incurred net
losses of $36,244 for the period from inception, March 6, 1996, through
December 31, 1999, and projects that net losses will continue to be incurred
through 2000 or longer, while management pursues its plan to grow the business
and add clients and contracts with the goal of achieving profitability.
Etinuum's ability to achieve profitable operations is subject to significant
risks and uncertainties including, but not limited to, Etinuum's success in
marketing its services and managing its operations and competitive factors.
Etinuum's plans also include growth through acquisitions of complementary
companies. There is no guarantee that Etinuum will ever achieve profitable
operations, that it will be successful in identifying and consummating the
acquisition of desirable companies or that if acquired, Etinuum will
successfully assimilate those businesses into its operations. Etinuum's
operations are also subject to various forms of regulation.
(2) Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Etinuum and
its subsidiaries, all of which are wholly-owned. All material intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported
F-7
<PAGE>
ETINUUM, INC. AND SUBSIDIARIES
(f.k.a. Intek Information, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
amounts of assets and 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.
Cash and Cash Equivalents
For the purposes of the statements of cash flows, Etinuum considers all
cash and investments with an original maturity of 90 days or less to be cash
equivalents.
Concentration of Credit Risk
Financial instruments that potentially subject Etinuum to significant
concentrations of credit risk consist primarily of cash and cash equivalents,
accounts and notes receivable. Etinuum has no off-balance sheet concentrations
of credit risk. Etinuum maintains its cash balances in the form of bank demand
deposits and money market accounts with financial institutions that management
believes are creditworthy. Accounts receivable are typically unsecured and are
derived from transactions with and from customers located within the United
States. Etinuum performs ongoing credit evaluations of its customers and
maintains reserves for potential credit losses.
As discussed in Note 11, a significant portion of Etinuum's revenue is
derived from a limited number of customers. Additionally, those customers
account for a significant portion of billed and unbilled accounts receivable.
Intangible Assets
<TABLE>
<CAPTION>
December 31,
Estimated ---------------
Life 1998 1999
--------- ------- ------
<S> <C> <C> <C>
Customer relationships and intellectual property.... 3 years $ 3,000 $3,950
Goodwill............................................ 5 years 3,548 3,920
------- ------
6,548 7,870
Accumulated amortization............................ (3,234) (5,062)
------- ------
$ 3,314 $2,808
======= ======
</TABLE>
Amortization of goodwill and other intangibles was $1,509, $1,725 and
$1,828 for the years ended December 31, 1997, 1998 and 1999, respectively.
Property and Equipment
All additions, including betterments to existing facilities, are recorded
at cost. Maintenance and repairs are charged to expense as incurred. When
assets are retired or otherwise disposed of, the cost of the assets and the
related accumulated depreciation are removed from the accounts. Any gain or
loss is reflected in other income (expense) in the year of disposition.
Depreciation is computed on the straight-line method based on the
estimated useful lives of the assets, as follows:
<TABLE>
<S> <C>
Computer equipment and software................................ 1.5--5 years
Furniture and fixtures......................................... 1.5--7 years
</TABLE>
Leasehold improvements are amortized over the shorter of their economic
life or the remaining term of the related lease.
F-8
<PAGE>
ETINUUM, INC. AND SUBSIDIARIES
(f.k.a. Intek Information, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
Deferred Rent
Etinuum recognizes rent expense ratably over the life of the lease
regardless of the timing or amount of periodic payments.
Reverse Stock Split
Effective January 14, 2000, Etinuum declared a 4 for 1 reverse stock split
on Etinuum's common stock. Common stock amounts and per share amounts have been
adjusted retroactively to give effect to the stock split. The conversion price
for the preferred stock has been adjusted to reflect the 4 for 1 reverse stock
split.
Stock-Based Compensation
The Company accounts for its stock-based employee compensation agreements
using the intrinsic value method under which no compensation is generally
recognized for equity instruments granted to employees with an exercise price
equal to or greater than the fair market value of the underlying stock. Equity
instruments granted to non-employees are recorded at fair value on the date
they become non-forfeitable.
Comprehensive Income
Comprehensive income includes all changes in equity (net assets) during a
period from non-owner sources. Since inception, comprehensive loss has been the
same as net loss.
Revenue Recognition
Etinuum's revenues are derived principally from contracts for direct-to-
customer services and technology design and implementation projects billed at
negotiated rates. Etinuum recognizes revenue as services are performed for its
clients based on contractual arrangements for hours incurred and transactions
processed. Unbilled accounts receivable represents revenues earned for services
rendered that are typically billed to the customer in the following month.
Etinuum periodically enters into fixed fee contracts for Strategic
Consulting services that are accounted for under the percentage of completion
method. At December 31, 1998 and 1999, no such contracts were in-progress.
Direct Cost of Services
Direct cost of services includes payroll and benefits of employees for
time incurred for providing services for customers, telephone costs and other
variable costs associated with generating revenue. All other fixed expenses
incurred, including rent expense for communications centers, are included in
selling, general and administrative expenses in the accompanying consolidated
statements of operations. Depreciation of property and equipment used to
provide services to customers and amortization of goodwill and other
intangibles are shown as a separate line item within the accompanying
consolidated statements of operations.
Advertising Cost
Etinuum expenses advertising costs as incurred. For the years ended
December 31, 1997, 1998 and 1999, Etinuum had advertising expenses of $196,
$132 and $456, respectively.
F-9
<PAGE>
ETINUUM, INC. AND SUBSIDIARIES
(f.k.a. Intek Information, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
Advances to Spider
The Company records a valuation allowance and a corresponding charge to
income against the net assets distributed to Spider and receivables from Spider
for shared costs because realization of the advances are principally dependent
on the operating results of Spider. The amount of the charge is equal to the
net loss incurred by Spider subsequent to the spin-off. The Company will
continue to recognize a valuation allowance until the advances are written down
to zero. Net advances to Spider were zero at December 31, 1999. It is
reasonably possible that additional losses related to Spider will be incurred
in an amount equal to shared support costs to be incurred on Spider's behalf.
Asset Impairment
Etinuum reviews its long-lived assets held and used in operations for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review
for recoverability, management estimates the future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of
the expected future cash flows (undiscounted and without interest charges) is
less than the carrying amount of the asset, the asset is reduced to its
estimated fair value by recognizing an impairment loss.
Capitalized Software Costs
Software development costs for new software products are expensed as
incurred until technological feasibility is established. Software development
costs incurred subsequent to the establishment of technological feasibility and
prior to general release are capitalized. During 1999, Etinuum capitalized $66
of software development costs. These costs will be amortized over a three-year
period. Amortization commences when the product is available for general
release to customers. Capitalized software costs are stated at the lower of
cost or net realizable value. There was no amortization expense incurred during
1999 as none of the products which had established technological feasibility
were available for general release to customers.
Income Taxes
The current provision for income taxes represents actual or estimated
amounts payable or refundable on tax returns filed or to be filed for each
year. Deferred tax assets and liabilities are recorded for the estimated future
tax effects of temporary differences between the tax basis of assets and
liabilities and amounts reported in the consolidated balance sheets. Deferred
tax assets are also recognized for net operating loss and tax credit
carryovers. The overall change in deferred tax assets and liabilities for the
period measures the deferred tax expense or benefit for the period. Effects of
changes in enacted tax laws on deferred tax assets and liabilities are
reflected as adjustments to tax expense in the period of enactment. The
measurement of deferred tax assets may be reduced by a valuation allowance
based on judgmental assessment of available evidence if deemed more likely than
not that some or all of the deferred tax assets will not be realized.
Net Loss Per Share
Basic net loss per share is computed by dividing net loss available to
common stockholders for the period by the weighted average number of common
shares outstanding for the period. Diluted net loss per share is computed by
dividing the net loss for the period by the weighted average number of common
and potential common shares outstanding during the period if the effect of the
potential common shares is dilutive. Etinuum has excluded the weighted average
effect (using the treasury stock method) of common
F-10
<PAGE>
ETINUUM, INC. AND SUBSIDIARIES
(f.k.a. Intek Information, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
stock issuable upon conversion of all convertible preferred stock and stock
options from the computation of diluted earnings per share as the effect of all
such securities is anti-dilutive for all periods presented. The shares excluded
are as follows:
<TABLE>
<CAPTION>
Convertible
Preferred Stock
Stock Options
----------- -------
<S> <C> <C>
December 31,
1997.................................................. 13,288,043 --
1998.................................................. 26,202,683 95,840
1999.................................................. 33,962,909 355,755
</TABLE>
Pro Forma Stockholders' Equity (Unaudited)
Effective upon the closing of Etinuum's planned initial public offering,
the outstanding shares of all Etinuum's preferred stock will automatically
convert into 10,893,621 shares of common stock as of December 31, 1999,
including 1,333,433 shares for the preferred stock dividends accrued (Note 9).
The effects of these transactions have been reflected in unaudited pro forma
stockholders' equity on the balance sheet at December 31, 1999.
Pro Forma Net Loss Per Share (Unaudited)
Pro forma net loss per share for the year ended December 31, 1999 is
computed using the weighted average number of common shares outstanding, and
the pro forma effects of the assumed conversion of all Etinuum's convertible
preferred stock, including preferred stock dividends accrued, into shares of
Etinuum's common stock as if such conversion occurred on January 1, 1999, or at
the date of original issuance or declaration if later. The resulting pro forma
adjustments include an increase in the weighted average shares used to compute
basic and diluted net loss per share of 8,495,133 shares for the year ended
December 31, 1999, and the elimination of all charges to adjust net loss to net
loss applicable to common stockholders. The pro forma effects of these
transactions are unaudited.
Segment Information
Etinuum operates in one business segment and does not internally report
the results of operations of the different services it provides to its
customers. Additionally, the different services provided are typically under
one agreement and are not differentiated to the client.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts and notes
receivable, accounts payable and accrued liabilities approximate fair value due
to the short-term nature of these assets and liabilities. The interest rates on
Etinuum's variable rate borrowings are adjusted regularly to reflect current
market rates. The majority of the Company's fixed rate borrowings have been
funded within the last fiscal quarter of 1999 or recorded at fair value in
connection with the acquistion of Acorn. Accordingly, the carrying amounts of
Etinuum's borrowings approximate fair value. Financial instruments also consist
of convertible preferred stock subject to mandatory redemptions, whose fair
value at December 31, 1998 and 1999 approximated their redemption and
liquidation value, except for the Series F preferred stock issued in 1999. The
fair value of the Series F preferred stock is approximately $22 million because
of its beneficial conversion feature.
F-11
<PAGE>
ETINUUM, INC. AND SUBSIDIARIES
(f.k.a. Intek Information, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Etinuum is required to adopt SFAS No. 133,
as amended by SFAS No. 137, in fiscal 2001. SFAS No. 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities. Etinuum has not
entered into any derivative financial instruments or hedging activities. As a
result, management believes adoption of SFAS No. 133 will not have a material
impact on the financial statements.
In December 1999, the staff of the Securities and Exchange Commission
issued its Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition."
SAB No. 101 provides guidance on the measurement and timing of revenue
recognition in financial statements of public companies. Changes in accounting
policies to apply the guidance of SAB No. 101 must be adopted by recording the
cumulative effect of the change in the fiscal quarter ending March 31, 2000.
Mangagement has not yet determined the effect SAB No. 101 will have on its
accounting policies or the amount of the cumulative effect to be recorded from
adopting SAB No. 101, if any.
(3) Property and Equipment
Property and equipment consisted of the following at December 31, 1998 and
1999:
<TABLE>
<CAPTION>
December 31,
----------------
1998 1999
------- -------
<S> <C> <C>
Computer equipment and software........................... $ 3,463 $ 4,672
Furniture and fixtures.................................... 1,352 2,300
Leasehold improvements.................................... 506 1,230
Telephone equipment....................................... 3,016 5,003
------- -------
8,337 13,205
Less-accumulated depreciation............................. (3,285) (5,223)
------- -------
$ 5,052 $ 7,982
======= =======
</TABLE>
Depreciation expense for the years ended December 31, 1997, 1998 and 1999,
was $1,432, $2,030 and $1,705, respectively.
(4) Acquisitions
Protocall
On February 14, 1997, Etinuum purchased all of the common stock of
Protocall for 1,863,270 shares of Series B preferred stock valued at $3,244,
cash of $3,239 and acquisition costs of $180. The acquisition was accounted for
under the purchase method of accounting.
The purchase price was allocated to the acquired assets and liabilities as
follows:
<TABLE>
<S> <C>
Current assets...................................................... $1,684
Property and equipment.............................................. 1,604
Goodwill and other intangibles...................................... 6,623
------
Total assets........................................................ 9,911
Current liabilities assumed......................................... (3,248)
------
$6,663
======
</TABLE>
F-12
<PAGE>
ETINUUM, INC. AND SUBSIDIARIES
(f.k.a. Intek Information, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
Subsequent to closing, Etinuum received a total of $196 in cash and stock
held in escrow from the former Protocall stockholders as a purchase price
adjustment which has been recorded as a reduction to goodwill and other
intangibles in the accompanying consolidated balance sheets.
The following unaudited pro forma information details the estimated
effect of the Protocall acquisition assuming it had occurred on January 1,
1997:
<TABLE>
<CAPTION>
Etinuum
Year Ended 1997
December 31, 1997 Pro Forma
----------------- -----------
(Unaudited)
<S> <C> <C>
Revenue...................................... $ 9,546 $ 11,009
Net loss applicable to common stockholders... $(13,226) $(13,520)
Basic and diluted net loss per share......... $ (7.09) $ (7.24)
</TABLE>
The pro forma financial data presented above does not purport to
represent what Etinuum's results of operations would actually have been if the
transaction in fact had occurred on January 1, 1997, and is not necessarily
representative of Etinuum's results of operations for any future period.
Acorn
Effective October 1, 1999, Etinuum purchased all of the common stock of
Acorn. The purchase was accounted for under the purchase method of accounting.
The initial consideration consisted of cash of $550, $200 in short-term
payables, $100 from the issuance of 11,737 shares of Etinuum's common stock,
and acquisition costs of $100. The purchase agreement also included a three-
year contingent earn-out of up to $1,900 in cash and up to 527,778 shares of
Etinuum common stock. However, on March 20, 2000, Etinuum and the former Acorn
stockholders amended the purchase agreement and the contingent earn-out
provision was removed (see Note 14).
The purchase price allocation is subject to adjustment based upon the
final determination of the fair value of the assets acquired and liabilities
assumed. Etinuum does not believe any such adjustment will materially change
the initial purchase price allocation.
The initial purchase price of Acorn was allocated to the acquired assets
and liabilities as follows:
<TABLE>
<S> <C>
Cash................................................................. $ 13
Other assets......................................................... 687
Property and equipment............................................... 312
Goodwill and other intangibles....................................... 1,443
-----
Total assets....................................................... 2,455
Current liabilities.................................................. (429)
Amounts advanced by Etinuum to Acorn................................. (450)
Borrowings assumed................................................... (626)
-----
$ 950
=====
</TABLE>
F-13
<PAGE>
ETINUUM, INC. AND SUBSIDIARIES
(f.k.a. Intek Information, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
The following unaudited pro forma information details the estimated effect
of the Acorn acquisition assuming it had occurred on January 1, 1998:
<TABLE>
<CAPTION>
Etinuum
Year Ended 1998
December 31, 1998 Pro Forma
----------------- -----------
(Unaudited)
<S> <C> <C>
Revenue...................................... $ 17,664 $ 20,476
Net loss applicable to common stockholders... $(11,464) $(11,636)
Basic and diluted net loss per share......... $ (6.14) $ (6.19)
<CAPTION>
Etinuum
Year Ended 1999
December 31, 1999 Pro Forma
----------------- -----------
(Unaudited)
<S> <C> <C>
Revenue...................................... $ 24,699 $ 26,707
Net loss applicable to common stockholders... $(25,235) $(26,222)
Basic and diluted net loss per share......... $ (13.50) $ (13.95)
</TABLE>
The pro forma financial data presented above does not purport to represent
what Etinuum's results of operations would actually have been if the
transaction in fact had occurred on January 1, 1998, and are not necessarily
representative of Etinuum's results of operations for any future period.
(5) Spider Spin-off
Effective October 1, 1999, Etinuum distributed 100% of the shares of
Spider to its stockholders on a pro-rata basis. In connection with the
transaction, Etinuum distributed $1,000 in cash and technology that is
currently under development. Etinuum has the right to receive $1,450 in royalty
payments plus accrued interest at 8% over the next five years resulting from
the spin-off. The royalty payments are due by Spider regardless of its future
operations. Additionally, Etinuum has received a five-year warrant to purchase
1,000,000 shares of Spider's common stock at an exercise price of $0.013 per
share. Etinuum exercised this warrant during the fourth quarter of 1999 for $13
and the shares were transferred to the former Acorn stockholders. As a
condition of the spin-off, Etinuum will be allowed to utilize the Spider
technology for three years without any fee or royalty due to Spider.
Thereafter, Etinuum will pay for the use of the technology at its most favored
nations pricing if Etinuum chooses to continue to utilize the Spider software.
The realization of the advances to Spider is principally dependent upon
Spider's operating results and its ability to raise additional capital
subsequent to its spin-off. Etinuum will continue to recognize Spider's net
losses until all advances are reduced to zero.
During 1999, a valuation allowance of $1,055 was recognized by a charge to
operations reducing the advances to zero. Etinuum has no funding commitments or
guarantees in favor of Spider beyond the recorded receivable; however, it is
reasonably possible that Etinuum will recognize additional losses on Spider for
future shared costs.
In connection with the spin-off of Spider, Etinuum has reduced the
mandatory redemption value of their preferred shares by $0.13 per share. The
excess of the carrying value of the preferred shares over the revised
redemption value of $3,098 has been credited to additional paid-in capital.
F-14
<PAGE>
ETINUUM, INC. AND SUBSIDIARIES
(f.k.a. Intek Information, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
(6) Borrowings
Notes payable and capital lease obligations consisted of the following at
December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
---- -------
<S> <C> <C>
Equipment loan............................................... $ -- $ 2,297
Revolving credit facilities.................................. -- 225
Related party notes.......................................... -- 198
Contingent grant............................................. -- 400
Capital lease obligations.................................... 20 191
---- -------
Total notes payable and capital lease obligations............ 20 3,311
Less--Unamortized discount on contingent grant............... -- (75)
Less--Current portion........................................ (13) (1,514)
---- -------
$ 7 $ 1,722
==== =======
</TABLE>
Lines-of-Credit
In 1997, Etinuum had a line-of-credit facility with a bank that provided
for maximum borrowings of $100. The line-of-credit expired in 1998.
During 1999, Etinuum entered into a revolving credit facility agreement
that provides for maximum borrowings of $5,000 or 80% of eligible receivables,
as defined by the agreement ($3,079 at December 31, 1999). This facility
matures on May 31, 2001 and bears interest at prime plus 1.5% (10.0% at
December 31, 1999). Principal and interest are payable monthly.
The borrowings under the line-of-credit are collateralized by receivables
and other assets of Etinuum. This facility requires Etinuum to maintain, among
other restrictions, a tangible net worth of $8,000 as defined in the agreement.
As of December 31, 1999, Acorn had an agreement with a bank for a $50
line-of-credit facility. At December 31, 1999, $50 was outstanding under this
line-of-credit. Interest accrues on outstanding borrowings at 12.5% per annum.
Interest is payable monthly and principal is payable upon demand.
As of December 31, 1999, Acorn had an agreement with a bank to provide a
$175 line of credit facility. At December 31, 1999, Acorn had outstanding
borrowings of $175 under this line. This obligation is collateralized by
certain assets of Acorn. Interest accrues at a per annum rate of 1% over the
bank's prime rate (9.5% at December 31, 1999). Principal and interest are
payable monthly.
Related Party Notes Payable
As of December 31, 1999, Acorn had notes totaling $198 to certain former
stockholders and officers of Acorn. The notes bear interest at a rate of 10%
per annum and are payable on demand.
Equipment Facility
In September 1999, Etinuum entered into an equipment facility, which
provides for maximum borrowings of approximately $2,500 to allow for the
purchase of equipment to be used at Etinuum's communications center in Kansas.
This facility matures on March 5, 2002 and bears interest at 13.9%. Etinuum
paid $99 upon entering into the agreement as its first principal payment.
During 1999, Etinuum borrowed $2,513 to purchase equipment. The borrowings
under the equipment facility are collateralized by the related equipment
acquired.
F-15
<PAGE>
ETINUUM, INC. AND SUBSIDIARIES
(f.k.a. Intek Information, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
Contingent Grant
In April of 1999, the Kansas Department of Commerce and Housing provided
Etinuum $400 as an incentive to open a communications center in Kansas. The
grant was received in the form of a non-interest-bearing note, which will be
forgiven over five years if certain prescribed employment and average salary
levels are maintained. Etinuum has discounted the note by $95 to reflect its
effective borrowing rate of 9.75%. The loan was used to purchase equipment to
be used at the Kansas location. As this loan is forgiven, Etinuum will adjust
the basis of the equipment purchased. If the levels of employment and average
salaries prescribed in the agreement are not maintained, the outstanding
portion of the loan, as defined in the agreement, plus penalties are due
within thirty days.
The future minimum principal payments on long-term borrowings are as
follows:
<TABLE>
<CAPTION>
Capital
Equipment Lease Contingent
Loan Obligations Grant Other Total
--------- ----------- ---------- ----- ------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
2000..................... $ 940 $109 $ 80 $423 $1,552
2001..................... 1,068 84 80 -- 1,232
2002..................... 289 7 80 -- 376
2003..................... -- 3 80 -- 83
2004..................... -- -- 80 -- 80
------ ---- ---- ---- ------
2,297 203 400 423 3,323
Less-payments representing
interest.................. -- (12) (75) -- (87)
------ ---- ---- ---- ------
$2,297 $191 $325 $423 $3,236
====== ==== ==== ==== ======
</TABLE>
(7) Income Taxes
Components of the income tax provision applicable to federal and state
income taxes are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Current benefit:
Federal........................................ $ -- $ -- $ --
State.......................................... -- -- --
------- ------- -------
Total........................................ -- -- --
------- ------- -------
Deferred benefit
Federal........................................ (3,728) (2,888) (1,778)
State.......................................... (601) (457) (455)
------- ------- -------
Total........................................ (4,329) (3,345) (2,233)
------- ------- -------
Total tax benefit............................ (4,329) (3,345) (2,233)
------- ------- -------
Valuation allowance.............................. 4,329 3,345 2,233
------- ------- -------
Net tax benefit.............................. $ -- $ -- $ --
======= ======= =======
</TABLE>
F-16
<PAGE>
ETINUUM, INC. AND SUBSIDIARIES
(f.k.a. Intek Information, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
The reconciliation of income tax computed at the U.S. federal statutory
tax rate (35%) to Etinuum's effective income tax rates are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Expected tax benefit........................... $(4,163) $(3,336) $(4,554)
State tax benefit.............................. (421) (320) (455)
Disallowance of meals and entertainment ex-
penses........................................ 30 10 23
Amortization of goodwill....................... 225 276 463
Taxable gain on Spider spin-off................ -- -- 1,710
Losses on Spider............................... -- -- 406
Other.......................................... -- 25 174
Change in valuation allowance.................. 4,329 3,345 2,233
------- ------- -------
Provision for income taxes..................... $ -- $ -- $ --
======= ======= =======
</TABLE>
At December 31, 1999, Etinuum had approximately $23,000 of net operating
loss carryforwards that begin to expire in 2012.
Etinuum recognized a taxable gain of $4,500 upon its spin-off of Spider.
The amount of the gain was determined by an independent valuation of Spider. It
is reasonably possible that the amount of the gain could change in the
foreseeable future. Furthermore, the Tax Reform Act of 1986 contains provisions
that may limit the net operating loss carry forwards available for use in any
given year if certain events occur, including significant changes in ownership
interests.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1998 and
1999 were as follows:
<TABLE>
<CAPTION>
December 31,
----------------
1998 1999
------- -------
<S> <C> <C>
Current deferred tax assets:
Bad debt allowance........................................ $ 156 $ 179
Vacation accrual.......................................... 53 103
Accrued bonus............................................. 79 308
Accrued severance and wages............................... 113 --
Customer deposits, deferred revenue and other............. 215 293
------- -------
616 883
------- -------
Non-current deferred tax assets:
Deferred rent............................................. 34 93
Net operating loss carryforward........................... 7,248 9,313
------- -------
7,282 9,406
------- -------
Total deferred tax assets................................. 7,898 10,289
------- -------
Non-current deferred tax liability:
Depreciation.............................................. (224) (431)
Acquired intangibles...................................... (412) (363)
------- -------
Total deferred tax liabilities............................ (636) (794)
------- -------
Net deferred tax asset.................................... 7,262 9,495
Valuation allowance....................................... (7,262) (9,495)
------- -------
$ -- $ --
======= =======
</TABLE>
F-17
<PAGE>
ETINUUM, INC. AND SUBSIDIARIES
(f.k.a. Intek Information, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
Because Etinuum has incurred losses since its inception, management
determined a valuation allowance was necessary for the entire deferred tax
asset balance. It is reasonably possible that Etinuum's view of the
realizability of its deferred tax assets could change in the near future based
upon the successful execution of its business plan.
(8) Commitments and Contingencies
Leases
Etinuum leases office facilities and various equipment under operating
leases that expire through fiscal 2009. The total rental expense for office
facilities and equipment for the years ended December 31, 1997, 1998 and 1999
was $463, $888 and $1,294, respectively.
Minimum future cash flow commitments under the above leases are as
follows:
<TABLE>
<S> <C>
Year ended December 31-
2000............................................................... $1,792
2001............................................................... 1,448
2002............................................................... 1,378
2003............................................................... 1,180
2004............................................................... 1,060
Thereafter........................................................... 2,640
------
$9,498
======
</TABLE>
Grant
Etinuum received a grant from the Kansas Department of Commerce and
Housing in connection with opening a communications center in Fort Scott,
Kansas. The grant was to reimburse Etinuum for certain costs incurred relating
to the opening of the customer care center, including training and project
administration. The grant is for up to $800, through November 2008. The grant
requires Etinuum to maintain certain minimum employment and average salary
levels as prescribed in the agreement. The reimbursements have been applied
against the eligible costs incurred in the accompanying statement of
operations. Through December 31, 1999, Etinuum has earned $336 from this grant
which has reduced selling, general and administrative expense. At December 31,
1999, Etinuum recorded a receivable for $185 for reimbursements of costs
incurred.
Etinuum has also received a $400 contingent grant from the Kansas
Department of Commerce and Housing in the form of a non-interest bearing loan
(Note 6).
Litigation
Etinuum is periodically involved in litigation arising in the ordinary
course of business. Management is of the opinion that the ultimate resolution
of any such matters will not have a material adverse effect on Etinuum's
financial position or results of operations.
(9) Convertible Preferred Stock Subject to Mandatory Redemption
In November 1999, Etinuum amended its Certificate of Incorporation to
increase the number of authorized shares of common and preferred stock to
170,000,000 and 79,000,000, respectively, and to accrue
F-18
<PAGE>
ETINUUM, INC. AND SUBSIDIARIES
(f.k.a. Intek Information, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
cumulative preferred stock dividends of .145 preferred share for each share of
the Series A, B, C and D Stock and 0.1 preferred share for each share of the
Series E Stock owned on October 15, 1999. The declaration resulted in 4,676,464
shares (as converted for Series A Stock) of preferred stock accrued on October
15, 1999. After October 15, 1999, the cumulative dividend became 6% per annum
on the stated value of the Series A Stock and 8% per annum on the stated value
of the Series B, C, D, E and F Stock through July 31, 2001. This resulted in an
additional 657,269 shares (as converted for Series A Stock) of preferred stock
accrued through December 31, 1999.
Preferred stock may be issued in series with such designations,
preferences, rights and limitations as the Board of Directors may deem
appropriate. The Series A, B, C, D, E and F Stock rank on a parity basis with
respect to dividends and rights upon liquidation. Each series of preferred
stock votes together with the common stock on all matters as if converted into
common shares. Other terms of each series of preferred stock, as amended on
November 19, 1999, are described below.
Reverse Stock Split
Subsequent to year-end, Etinuum declared a 4 for 1 reverse stock split on
Etinuum's common stock. Common stock amounts and per share amounts have been
adjusted retroactively to give effect to the stock split. The conversion price
for the preferred stock has been adjusted to reflect the 4 to 1 reverse spilt
stock.
Conversion of Preferred Stock into Common Stock
Each share of Series A Stock is convertible at the option of the holders
into 50 shares of common stock. Accrued but unpaid dividends on the Series A
Stock may also be converted into common stock at the same effective conversion
ratio. All outstanding Series A Stock, including unpaid dividends,
automatically converts into common stock upon completion of an initial public
offering of common stock for aggregate proceeds of at least $20,000 and a per
share price of $4.44 (three times the conversion price per share).
Each share of Series B, C, D, E and F Stock is initially convertible at
the option of the holders into 0.25 shares of common stock (subject to
adjustment for certain events). The Series C, D, E and F conversion ratio and
the conversion ratio for certain Series B stockholders will be adjusted if
Etinuum issues or sells common stock or equivalents at a price less than their
stated conversion prices then in effect. Accrued but unpaid dividends on Series
B, C, D, E and F Stock may also be converted into common stock at the same
effective conversion ratio. All outstanding Series B, C, D, E and F Stock,
including unpaid dividends, automatically converts into common stock (4 for 1)
upon completion of an initial public offering of common stock for aggregate
proceeds of at least $25,000 and a per share price of at least $12.00, or, if
following any public offering, the aggregate market capitalization of shares
not held by officers, directors, employees and affiliates exceeds $25,000 and a
per share market price of at least $12.00 is maintained for 20 consecutive
trading days.
Mandatory Redemption and Accretion to Liquidation Values
The holders of at least two-thirds of each series of preferred stock,
voting as a separate series, may require Etinuum to redeem their shares at any
time on or after February 20, 2003, for the redemption values described in each
separate series. Offering costs for each series of preferred stock were
initially offset against the proceeds from each offering.
Periodic charges to net loss applicable to common stockholders are being
recognized to accrete the value of each series of preferred stock to its
liquidation and redemption value as of February 20, 2003.
F-19
<PAGE>
ETINUUM, INC. AND SUBSIDIARIES
(f.k.a. Intek Information, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
A summary of Etinuum's mandatorily redeemable, convertible preferred stock
is presented in the table below:
<TABLE>
<CAPTION>
Series A Series B Series C Series D Series E
-------------- ------------------- ------------------ ----------------- ----------------
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ---------- ------- ---------- ------ --------- ------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances,
December 31,
1996........... 20,000 $1,951 -- $ -- -- $ -- -- $ -- -- $ --
Repurchase of
Series A
preferred
stock.......... (5,000) (500) -- -- -- -- -- -- -- --
Issuance of
Series B
mandatorily
redeemable,
convertible
preferred stock
for cash, net
of issuance
costs of $319.. -- -- 10,475,898 17,920 -- -- -- -- -- --
Issuance of
Series B
mandatorily
redeemable,
convertible
preferred
stock, as
consideration
for purchase of
Protocall...... -- -- 1,863,270 3,244 -- -- -- -- -- --
Issuance of
Series C
mandatorily
redeemable,
convertible
preferred stock
for cash, net
of issuance
costs of
$1,606......... -- -- -- -- 2,871,913 3,394 -- -- -- --
Accretion to
liquidation and
redemption
value.......... -- 12 -- 66 -- 12 -- -- -- --
------ ------ ---------- ------- ---------- ------ --------- ------- --------- ------
Balances,
December 31,
1997........... 15,000 1,463 12,339,168 21,230 2,871,913 3,406 -- -- -- --
Modification of
terms on the
existing Series
C preferred
stock in
connection with
the Exchange
Agreement...... -- -- -- -- (2,871,913) (3,535) -- -- -- --
Issuance of new
Series C
mandatorily
redeemable,
convertible
preferred stock
in Exchange
Agreement...... -- -- -- -- 6,371,913 5,000 -- -- -- --
Issuance of
Series D
mandatorily
redeemable,
convertible
preferred stock
for cash, net
of issuance
costs of
$1,423......... -- -- -- -- -- -- 8,841,911 10,602 -- --
Adjustment to
Series B
preferred stock
as
consideration
for purchase of
Protocall...... -- -- (21,539) (38) -- -- -- -- -- --
Deemed
contribution
from majority
common
stockholder.... -- -- -- -- -- (157) -- -- -- --
Accretion to
liquidation and
redemption
value.......... -- 9 -- 72 -- 140 -- 248 -- --
------ ------ ---------- ------- ---------- ------ --------- ------- --------- ------
Balances,
December 31,
1998........... 15,000 1,472 12,317,629 21,264 6,371,913 4,854 8,841,911 10,850 -- --
Issuance of
Series E
mandatorily
redeemable
convertible
preferred stock
for cash, net
of issuance
costs of $52... -- -- -- -- -- -- -- -- 2,510,683 3,990
Issuance of
Series F
mandatorily
redeemable
convertible
preferred stock
for cash, net
of issuance
costs of $603.. -- -- -- -- -- -- -- -- -- --
Reduction of
redemption and
liquidation
value -- (368) -- (1,472) -- (717) -- (253) -- (288)
Beneficial
conversion
feature -- -- -- -- -- -- -- -- -- --
Adjustment to
Series B
preferred stock
as
consideration
for purchase of
Protocall...... -- -- (11,488) (20) -- -- -- -- -- --
Accrued
dividends...... -- 1,018 -- 4,301 -- 2,227 -- 3,090 -- 633
Accretion to
liquidation and
redemption
value.......... -- 6 -- 53 -- 35 -- 279 -- 13
------ ------ ---------- ------- ---------- ------ --------- ------- --------- ------
Balances,
December 31,
1999........... 15,000 $2,128 12,306,141 $24,126 6,371,913 $6,399 8,841,911 $13,966 2,510,683 $4,348
====== ====== ========== ======= ========== ====== ========= ======= ========= ======
<CAPTION>
Series F
-----------------
Shares Amount
--------- -------
<S> <C> <C>
Balances,
December 31,
1996........... -- $ --
Repurchase of
Series A
preferred
stock.......... -- --
Issuance of
Series B
mandatorily
redeemable,
convertible
preferred stock
for cash, net
of issuance
costs of $319.. -- --
Issuance of
Series B
mandatorily
redeemable,
convertible
preferred
stock, as
consideration
for purchase of
Protocall...... -- --
Issuance of
Series C
mandatorily
redeemable,
convertible
preferred stock
for cash, net
of issuance
costs of
$1,606......... -- --
Accretion to
liquidation and
redemption
value.......... -- --
--------- -------
Balances,
December 31,
1997........... -- --
Modification of
terms on the
existing Series
C preferred
stock in
connection with
the Exchange
Agreement...... -- --
Issuance of new
Series C
mandatorily
redeemable,
convertible
preferred stock
in Exchange
Agreement...... -- --
Issuance of
Series D
mandatorily
redeemable,
convertible
preferred stock
for cash, net
of issuance
costs of
$1,423......... -- --
Adjustment to
Series B
preferred stock
as
consideration
for purchase of
Protocall...... -- --
Deemed
contribution
from majority
common
stockholder.... -- --
Accretion to
liquidation and
redemption
value.......... -- --
--------- -------
Balances,
December 31,
1998........... -- --
Issuance of
Series E
mandatorily
redeemable
convertible
preferred stock
for cash, net
of issuance
costs of $52... -- --
Issuance of
Series F
mandatorily
redeemable
convertible
preferred stock
for cash, net
of issuance
costs of $603.. 5,210,093 10,495
Reduction of
redemption and
liquidation
value -- --
Beneficial
conversion
feature -- (2,624)
Adjustment to
Series B
preferred stock
as
consideration
for purchase of
Protocall...... -- --
Accrued
dividends...... -- 92
Accretion to
liquidation and
redemption
value.......... -- 478
--------- -------
Balances,
December 31,
1999........... 5,210,093 $8,441
========= =======
</TABLE>
F-20
<PAGE>
ETINUUM, INC. AND SUBSIDIARIES
(f.k.a. Intek Information, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
Series A Stock
In August and November of 1996, Etinuum issued a total of 20,000 shares of
Series A Convertible Preferred Stock, $.001 par value, and received net
proceeds of $1,951.
The Series A Stock is entitled to a preference in liquidation. The
liquidation or redemption price is $74 per share plus the amount of any
cumulative unpaid dividends (as amended). Effective November 19, 1999, Etinuum
amended its Certificate of Incorporation to provide for cumulative stock
dividends equal to .145 shares for each share of Series A Stock outstanding on
October 15, 1999. Subsequent to October 15, 1999, the cumulative dividend rate
becomes 6% per annum on the stated value through July 31, 2001. The dividends
resulted in 2,390 shares of preferred stock accrued on December 31, 1999.
Series B Stock
During 1997, Etinuum issued 12,339,168 shares of Series B Convertible
Preferred Stock, $.001 par value. Series B Stock issued for cash between
February and August of 1997 (10,475,898 shares at $1.741 per share) provided
net proceeds to Etinuum of $17,920. The offering costs included 10,770 shares
of common stock issued as a consulting fee that was valued at $29. A portion of
those proceeds was used to repurchase and retire 5,000 shares of Series A Stock
for $1,741, which resulted in a loss to the common stockholders of $1,241. The
consideration for the February 1997 acquisition of Protocall described in Note
4 included 1,863,270 shares of Series B Stock. During 1998 and 1999, Etinuum
received 21,539 and 11,488 shares of Series B Stock from escrow, as adjustments
to the Protocall acquisition, respectively.
The Series B Stock has a stated value per share of $1.611 (as amended).
The Series B Stock is generally entitled to a preference in liquidation at a
liquidation or redemption price of the greater of (i) $1.611 for each share of
common stock into which the Series B Stock could be converted, plus all accrued
and unpaid dividends, or (ii) the per share amount the holders would have
received if all shares of Series B Stock had been converted into common stock
immediately prior to such liquidation or redemption, plus all accrued and
unpaid dividends. Effective November 19, 1999, Etinuum amended its Certificate
of Incorporation to provide for cumulative stock dividends equal to .145 shares
for each share of Series B Stock outstanding on October 15, 1999. Subsequent to
October 15, 1999, the cumulative dividend rate becomes 8% per annum on the
stated value through July 31, 2001. The dividends resulted in 2,019,233 shares
of preferred stock accrued on December 31, 1999.
Series C Stock and Exchange Agreement
In December 1997, Etinuum issued 2,871,913 shares of Series C Convertible
Preferred Stock, $.001 par value to The Beacon Group III--Focus Value Fund,
L.P. for net proceeds of $4,890, or $1.741 per share. Proceeds were used in
part to repay loans advanced to Etinuum by Beacon during November and December
1997 in the aggregate amount of $3,000, plus accrued interest of $16. At the
date of the Series C Stock closing, Beacon received a five-year warrant to
purchase up to 875,000 shares of common stock at $6.96 per share. This warrant
was not assigned any value as the exercise price of the warrant was
significantly higher than the fair market value of the common stock on the
grant date. The warrant was subsequently cancelled in connection with the
Exchange Agreement discussed below. Beacon also received a warrant which
adjusts its Series B conversion ratio if Etinuum issues or sells common stock
or equivalents at a price less than the Series B Stock conversion price
(initially, $1.741 per share). This warrant was valued at $1,496 and has been
included in the offering costs of the Series C Stock. Additional offering costs
of $110 in cash was incurred in connection with this offering.
An Exchange Agreement was executed on May 7, 1998, simultaneous with the
Series D Stock closing (see Series D Stock below). Beacon surrendered both
warrants obtained at the time of the Series C Stock
F-21
<PAGE>
ETINUUM, INC. AND SUBSIDIARIES
(f.k.a. Intek Information, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
closing and was issued 3,500,000 shares of additional Series C Stock and a new
warrant. The Exchange Agreement was accounted for at estimated fair value and
resulted in a charge to the common stockholders of $1,465. The exchange lowered
Beacon's effective per share cost of its Series C Stock to $.7847 and reduced
the average cost to Beacon of all shares of Series B and Series C Stock held by
Beacon to $1.36 per share, the same per share price paid by Conning for the
Series D Stock. The new warrant adjusts Beacon's conversion ratio in the Series
B Stock if Etinuum issues or sells common stock or equivalents at a price less
than the Series D Stock conversion price (initially, $1.36 per share).
The Series C Stock has a stated value per share of $.6547 (as amended).
The Series C Stock is entitled to a preference in liquidation at a liquidation
or redemption price of the greater of (i) $.6547 for each share of common stock
into which the Series C Stock could be converted, plus all accrued and unpaid
dividends, or (ii) the per share amount the holders would have received if all
shares of Series C Stock had been converted into common stock immediately prior
to such liquidation or redemption, plus all accrued and unpaid dividends.
Effective November 19, 1999, Etinuum amended its Certificate of Incorporation
to provide for cumulative stock dividends equal to .145 shares for each share
of Series C Stock outstanding on October 15, 1999. Subsequent to October 15,
1999, the cumulative dividend rate becomes 8% per annum on the stated value
through July 31, 2001. The dividends resulted in 1,045,525 shares of preferred
stock accrued on December 31, 1999.
In December 1997, in connection with the Series C Stock offering,
Etinuum's Chief Executive Officer agreed to place into escrow 50,000 shares of
his Etinuum common stock. The shares were contingently transferable to the
holder of Etinuum's Series A Stock as consideration for consenting to certain
corporate transactions related to the Series C Stock financing. The shares were
to be returned to the Chief Executive Officer if, prior to September 18, 1998,
Etinuum received at least $15,000 in net proceeds from issuance of its common
stock or equivalents at a price per share of at least $8.80. As this event did
not occur, the shares were transferred in September 1998 to the Series A Stock
holder, and Etinuum reflected the value of the escrowed shares as a
contribution to capital and a cost of the Series C Stock financing of $157.
Series D Stock
On May 7, 1998, Etinuum issued 8,823,529 shares of Series D Convertible
Preferred Stock to Conning Insurance Capital Limited Partnership for net
proceeds $11,812, or $1.36 per share. In connection therewith, Etinuum amended
and restated its Certificate of Incorporation and executed an Exchange
Agreement with Beacon. An additional 18,382 Series D shares were issued in
November 1998 for $25, resulting in total shares issued of 8,841,911. Proceeds
were used in part to repay loans advanced to Etinuum during April 1998 by
Beacon ($1,400) and certain officers of Etinuum (in the aggregate, $300), plus
accrued interest. In addition, Conning and Beacon were each granted warrants to
purchase up to $3,000 of additional Series D Stock (in the aggregate, 4,411,764
shares) at $1.36 per share through April 1999. The value of these warrants at
the date of grant was $1,235 using the Black-Scholes pricing model, assuming
volatility of 65%, risk-free interest rate of 5.4%, no expected dividends and a
life of one year. The value of the warrants has been included in the offering
costs of the Series D Stock. None of the warrants were exercised in 1998 or
1999.
The Series D Stock has a stated value per share of $1.23 (as amended). The
Series D Stock is generally entitled to a preference in liquidation at a
liquidation or redemption price of the greater of (i) $1.23 for each share of
common stock into which the Series D Stock could be converted, plus all accrued
and unpaid dividends, or (ii) the per share amount the holders would have
received if all shares of Series D Stock had been converted to common stock
immediately prior to such liquidation or redemption, plus all accrued and
unpaid dividends. Effective November 19, 1999, Etinuum amended its Certificate
of
F-22
<PAGE>
ETINUUM, INC. AND SUBSIDIARIES
(f.k.a. Intek Information, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
Incorporation to provide for cumulative stock dividends equal to .145 shares
for each share of Series D Stock outstanding on October 15, 1999. Subsequent to
October 15, 1999, the cumulative dividend rate becomes 8% per annum on the
stated value through July 31, 2001. The dividend resulted in 1,450,810 shares
of preferred stock accrued on December 31, 1999.
Series E Stock
On April 16, 1999, Etinuum issued 2,484,472 shares of Series E Convertible
Preferred Stock, $.001 par value for net proceeds of $3,948, or $1.61 per
share. An additional 26,211 shares of Series E Stock were issued within 180
days of initial closing for $42, resulting in total shares issued of 2,510,683.
The Series E Stock has a stated value per share of $1.48 (as amended). The
Series E Stock is generally entitled to a preference in liquidation at a
liquidation or redemption price of the greater of (i) $1.48 for each share of
common stock into which the Series E Stock could be converted, plus all accrued
and unpaid dividends, or (ii) the per share amount the holders would have
received if all shares of Series E Stock had been converted to common stock
immediately prior to such liquidation or redemption, plus all accrued and
unpaid dividends. Effective November 19, 1999, Etinuum amended its Certificate
of Incorporation to provide for cumulative stock dividends equal to .1 share
for each share of Series E Stock outstanding on October 15, 1999. Subsequent to
October 15, 1999, the cumulative dividend rate becomes 8% per annum on the
stated value through July 31, 2001. The dividends resulted in 297,098 shares of
preferred stock accrued on December 31, 1999.
Series F Stock
In November and December of 1999, Etinuum issued 5,210,093 shares of
Series F Convertible Preferred Stock, $.001 par value for net proceeds of
$10,495, or $2.13 per share. The net proceeds are to be used for working
capital purposes, a related party loan and to fund acquisitions.
The Series F Stock has an initial stated value per share of $2.13.
Cumulative dividends will accrue at 8% of the stated value per annum. The
dividends resulted in 43,129 shares of preferred stock accrued on December 31,
1999. The Series F Stock is generally entitled to a preference in liquidation
at a liquidation or redemption price of the greater of (i) $2.13 for each share
of common stock into which the Series F Stock could be converted, plus all
accrued and unpaid dividends, or (ii) the per share amount the holders would
have received if all shares of Series F Stock had been converted to common
stock immediately prior to such liquidation or redemption, plus all accrued and
unpaid dividends.
The Series F conversion ratio will be adjusted if Etinuum issues or sells
common stock or equivalents at a price less than its stated conversion price
then in effect. If the public offering price of common stock issued in
Etinuum's initial public offering is less than two times the conversion price,
the conversion price is adjusted to 50% of the public offering price. Further,
if an initial public offering is not consummated before July 31, 2000, then the
Series F conversion ratio will be reduced to 75% of the otherwise applicable
conversion price. The minimum 25% beneficial conversion feature of $2,624 has
reduced the Series F preferred stock carrying value and will be accreted
through July 31, 2000. If an initial public offering were to occur prior to
July 31, 2000, an additional charge of approximately $14,000 would be
recognized by Etinuum. Accrued but unpaid dividends on Series F Stock may also
be converted into common stock at the same effective conversion ratio.
F-23
<PAGE>
ETINUUM, INC. AND SUBSIDIARIES
(f.k.a. Intek Information, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
(10) Stock Option Plans
Etinuum's 1997 Stock Option Plan was approved by the stockholders on
February 3, 1997, as amended subsequent to year end, to increase the reserve by
700,000 to a total of 2,455,552 shares of common stock for issuance upon
exercise of options granted under this plan.
Etinuum also adopted the 1998 Stock Option Plan effective May 7, 1998 as
amended, to reserve 1,564,417 common shares for issuance upon exercise of
options granted under this plan.
Generally options have been granted at an exercise price deemed at least
equal to or greater than the fair market value of Etinuum's common stock at the
date of grant and vest over periods ranging from 36 to 48 months as determined
by the Board of Directors. Options generally have a term of ten years from date
of grant, except for incentive stock options granted to stockholders holding
10% or more of Etinuum's stock outstanding, in which case the term is five
years. Under the Stock Plans, the Board of Directors has the discretion to set
the exercise price and to accelerate the vesting periods of options.
During 1999, options for 811,000 shares of common stock were granted with
exercise prices below fair market value. Etinuum will recognize $1,664 as
compensation expense over the vesting period of the options, ranging from three
to four years from the grant date. In 1999, $398 of compensation was
recognized.
The following table summarizes the activity relating to options:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1997 1998 1999
------------------- ------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Stock Options:
Options outstanding, at
beginning of period... -- -- 1,312,394 $6.44 1,710,544 $6.07
Granted................ 1,321,887 $ 6.44 483,375 5.56 1,111,000 6.64
Exercised.............. -- -- (175) 8.00 (1,620) 5.05
Terminated............. (9,493) 7.04 (85,050) 9.20 (489,361) 6.44
--------- ------ --------- ----- --------- -----
Options outstanding, at
end of period......... 1,312,394 $ 6.44 1,710,544 $6.07 2,330,563 6.28
--------- ------ --------- ----- --------- -----
Options exercisable, at
end of period......... -- $ -- 670,883 $5.61 1,214,480 $5.96
========= ====== ========= ===== ========= =====
Weighted average fair
value of options
granted during the
period................ $ 0.96 $1.68 $2.72
====== ===== =====
</TABLE>
The total fair value of options granted was computed to be approximately
$1,283, $813 and $3,022 for the years ended December 31, 1997, 1998 and 1999,
respectively. For purposes of the fair value pro forma disclosures, these
amounts will be amortized ratably over the vesting period of the options.
Cumulative compensation cost recognized in pro forma net income or loss with
respect to options that are forfeited prior to vesting is adjusted as a
reduction of pro forma compensation expense in the period of forfeiture. Pro
forma stock-based compensation, net of the effect of forfeitures and tax, was
approximately $357, $503 and $1,156 for the years ended December 31, 1997, 1998
and 1999, respectively.
If the fair value method were used to account for employee stock option
grants, Etinuum's net loss applicable to common stockholders and loss per share
would have been increased to the following pro forma amounts:
F-24
<PAGE>
ETINUUM, INC. AND SUBSIDIARIES
(f.k.a. Intek Information, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net loss applicable to common stockholders:
As reported............................... $(13,226) $(11,464) $(25,235)
======== ======== ========
Pro forma................................. $(13,583) $(11,967) $(26,391)
======== ======== ========
Net loss per share:
As reported............................... $ (7.09) $ (6.14) $ (13.50)
======== ======== ========
Pro forma................................. $ (7.28) $ (6.41) $ (14.11)
======== ======== ========
</TABLE>
The fair value of each option grant was determined using the minimum value
method, under which no volatility was assumed. The assumptions used to
determine the fair value of each option grant are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rates......................... 6.17% 5.52% 5.91%
Expected dividend yield rates.................... 0.00% 0.00% 0.00%
Expected lives................................... 4 years 4 years 4 years
Expected volatility.............................. 0.001% 0.001% 0.001%
</TABLE>
The following table summarizes information about the stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------- --------------------
Weighted
Average Weighted- Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
--------------- ----------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
$2.71 to $4.08...... 479,702 7.37 years $ 2.72 436,515 $ 2.72
$5.45 to $6.44...... 911,003 9.50 years $ 3.84 172,135 $ 6.25
$6.97 to $9.00...... 822,101 8.26 years $ 4.93 514,639 $ 7.02
$13.92 to $15.60.... 117,757 7.89 years $13.52 91,191 $15.14
</TABLE>
(11) Major Customers
A significant portion of Etinuum's revenue is derived from a limited
number of customers. To the extent that any significant customer uses less of
Etinuum's services or terminates its relationship with Etinuum, Etinuum's
revenues could decline substantially and seriously harm Etinuum's business and
results of operations. Additionally, certain of Etinuum's contracts with its
customers, including its largest customer, are on a month-to-month basis.
Etinuum's sales to customers in excess of 10% of revenues for the years ended
December 31, 1997, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Customer A................................. -- -- $3,486 20% $6,788 27%
Customer B................................. $3,304 35% -- -- $2,930 12%
Customer C................................. -- -- $2,021 12% -- --
Customer D................................. -- -- $1,919 11% -- --
</TABLE>
F-25
<PAGE>
ETINUUM, INC. AND SUBSIDIARIES
(f.k.a. Intek Information, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
Etinuum's accounts receivable balances, billed and unbilled, from
customers in excess of 10% of the accounts receivable balance at December 31,
1997, 1998 and 1999, are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Customer A................................. $ 895 27% $1,253 19% $1,867 27%
Customer B................................. $1,409 43% -- -- $ 733 11%
Customer E................................. -- -- $ 653 10% -- --
</TABLE>
(12) Related Party Transactions
Lease
During 1997, Etinuum leased an aircraft from Mt. Evans Consulting, LLC, a
company partially owned by Etinuum's Chief Executive Officer. Etinuum had no
minimum commitments under this lease. Rental payments were based on Etinuum's
usage of the aircraft. Amounts paid or accrued by Etinuum under this lease
agreement during the year ended December 31, 1997 were $165. During 1998, the
lease was terminated.
Employment Agreements
In conjunction with the purchase of Protocall, Etinuum entered into
employment agreements with several employees of Protocall. The agreements
provide that one year of salary be paid in the event of involuntary
termination. In December 1997, Etinuum elected to terminate certain employees
that were employed under the agreements. In accordance with the agreements,
Etinuum accrued approximately $407 at December 31, 1997 that was charged to
selling, general and administrative expense in the accompanying consolidated
statements of operations.
Related Party Loans
On November 23, 1999, in connection with the Series F Stock issuance,
Etinuum loaned its Chief Executive Officer $600. The note is full recourse to
the personal assets of the Chief Executive Officer, including his stock in
Etinuum. The note bears interest at prime plus 1.5% (10.0% at December 31,
1999) and matures one year from issuance or earlier depending on the successful
registration of Etinuum's stock with the Securities and Exchange Commission.
In 1999, Etinuum executed a note with a key employee for $28 bearing
interest at 8% per year. The note is unsecured and matures in November 2003.
Etinuum has loaned certain key management a total of $62 in 1999 to allow
for a partial payment of taxes and to be used for various other purposes.
Principal and accrued interest are due in full on September 1, 2001. One half
of the loan can be forgiven each year if they are still employed at that time.
The loans bear interest at 7.75%.
Other Transactions
Etinuum maintains life insurance on the Chief Executive Officer in the
amount of $20,000. In the event of the Chief Executive Officer's death, the
first $10,000 of insurance proceeds are to be applied to repurchase shares from
the Chief Executive Officer's estate with the remaining proceeds benefiting his
estate, and the second $10,000 of insurance proceeds is payable to Etinuum.
F-26
<PAGE>
ETINUUM, INC. AND SUBSIDIARIES
(f.k.a. Intek Information, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
In January 1998, Etinuum's Chief Executive Officer granted an option to a
key employee to purchase 62,500 shares of Etinuum common stock owned by the
Chief Executive Officer for $6.96 per share. The option has a stated life of
ten years and is fully exercisable. No compensation expense has been recognized
for this transaction as the exercise price was greater than the fair market
value on the date of grant.
(13) Subsequent Events
Employee Stock Purchase Plan
Etinuum has adopted the 2000 Employee Stock Purchase Plan on January 13,
1999. The plan will be implemented in eight semiannual offerings of 250,000
shares of stock for an aggregate of 2,000,000 available shares to be sold under
the plan. Eligible employees can withhold up to 10% of their base salary to be
used to purchase shares under the plan. Employees can purchase shares for the
lesser of 85% of the closing price at the beginning or ending of the purchase
period or a price set by the Board of Directors if the stock is not publicly
traded.
2000 Stock Incentive Plan
Etinuum has adopted the 2000 Stock Incentive Plan on January 13, 1999 to
reserve 2,750,000 shares of common shares for issuance upon stock grants or
exercise of options granted under this plan.
Warrant
In January 2000, Etinuum granted a warrant to a major customer to purchase
181,250 shares of common stock at an exercise price of $8.52 per share. The
value of the warrant at the date of grant was approximately $1.1 million. The
value was determined using the Black-Scholes pricing model, assuming volatility
of 65%, a risk free interest rate of 6.3%, no expected dividends and a
contractual life of three years. The warrant vested immediately upon issuance.
(14) Events Occurring Subsequent to Opinion Date (unaudited)
Effective March 2, 2000 Etinuum amended its Certificate of Incorporation
to change the automatic conversion of its Series B, C, D, E and F Stock to
provide that all outstanding Series B, C, D, E and F Stock, including unpaid
dividends, automatically converts into common stock (4 to 1) upon completion of
an initial public offering of common stock for aggregate proceeds of at least
$25,000 and a per share price of at least $10.00, or, if following any public
offering, the aggregate market capitalization of shares not held by officers,
directors, employees and affiliates exceeds $25,000 and a per share market
price of at least $10.00 is maintained for 20 consecutive trading days.
On March 20, 2000 Etinuum and the former Acorn stockholders amended and
replaced the contingent earn-out provision relating to the Acorn acquisition.
Under the new agreement, the four former stockholders of Acorn who are
employees of Etinuum will receive a total of $200, $200 and $400 on the first,
second and third anniversary dates of the acquisition closing assuming all four
employees remain employeed in years one and two. However, in year three up to
two employees may terminate employment with consent of the Etinuum Chief
Executive Officer. These four employees were also granted a total of 400,000
stock options at an exercise price of $10 per share with vesting of one-third
immediately and the remaining options vesting over the next thirty months. The
one non-employee former stockholder of Acorn will receive 10,000 shares of
Etinuum common stock. Additionally, Etinuum transferred 1,000,000 shares of
Spider common stock to the former Acorn stockholders. These Spider shares will
vest at the same rate as the stock options for the four employee former
stockholders. The one non-employee former stockholder is entitled to keep all
his Spider shares.
F-27
<PAGE>
INDEX TO UNAUDITED PRO FORMA
CONDENSED FINANCIAL INFORMATION
<TABLE>
<S> <C>
Unaudited Pro Forma Condensed Financial Information Basis of
Presentation............................................................. P-2
Pro Forma Condensed Balance Sheet Information (unaudited) at December 31,
1999..................................................................... P-3
Pro Forma Condensed Statement of Operations Information (unaudited) for
the year ended December 31, 1999......................................... P-4
Notes to Unaudited Pro Forma Condensed Financial Information.............. P-5
</TABLE>
P-1
<PAGE>
ETINUUM, INC. AND SUBSIDIARIES
(f.k.a. Intek Information, Inc.)
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
BASIS OF PRESENTATION
The following unaudited pro forma condensed financial information gives
effect to (a) the spin-off by Etinuum of Spider, (b) the acquisition of all the
outstanding common stock of Acorn, and (c) the closing of Etinuum's initial
public offering. The acquisition of Acorn was accounted for using the purchase
method of accounting. The unaudited pro forma condensed financial information
is derived from the historical financial statements of Etinuum, Spider and
Acorn.
The unaudited pro forma condensed balance sheet information reflects the
automatic conversion of all shares of our preferred stock into common stock
upon completion of this offering. The unaudited pro forma condensed balance
sheet information also reflects our receipt of the estimated net proceeds of
$44.5 million from 4,500,000 shares of common stock included in this offering
at an assumed initial public offering price of $11.00 per share, after
deducting estimated underwriting discounts and expenses of $5 million.
The unaudited pro forma condensed statement of operations information
gives effect to the Spider spin-off and the Acorn acquisition as if they had
occurred on January 1, 1999. The purchase accounting adjustments made in
connection with the development of the pro forma financial information are
preliminary and have been made solely for purposes of developing such pro forma
financial information and may not be representative of actual future results.
In connection with the spin-off of Spider, Etinuum has advanced $1 million
to Spider. The $1 million will be repaid in the form of an unconditional
royalty payment due from Spider to Etinuum. Further, Spider has agreed to share
certain selling, general and administrative costs with Etinuum. The ability of
Spider to repay the $1 million advance and the shared costs is principally
dependent upon Spider's future operations. Etinuum will therefore recognize a
valuation allowance against the amounts due from Spider in an amount equal to
Spider's net loss subsequent to the spin-off. As a result, the reductions in
Etinuum's selling, general and administrative costs reflected in the unaudited
pro forma condensed statement of operations may not materialize if Spider is
unable to fund its share of the costs.
The unaudited pro forma condensed financial information should be read in
conjunction with the separate historical financial statements of Etinuum and
Acorn included in this registration statement. You should not rely upon the
unaudited pro forma condensed financial information as an indication of the
results of future operations or financial position that would have been
achieved if the transactions described above had taken place on the dates
indicated.
P-2
<PAGE>
ETINUUM, INC. AND SUBSIDIARIES
(f.k.a. Intek Information, Inc.)
PRO FORMA CONDENSED BALANCE SHEET
(UNAUDITED)
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
Pro Forma
Etinuum (1) Adjustments Pro Forma
----------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current assets........................... $ 14,533 $ 46,035 (6) $ 60,568
Property and equipment, net.............. 7,982 -- 7,982
Goodwill and other intangibles, net...... 2,808 -- 2,808
Other assets............................. 1,055 (651)(7) 404
-------- -------- --------
Total assets......................... $ 26,378 $ 45,384 $ 71,762
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities...................... $ 7,000 $ 849 (7) $ 7,849
Deferred rent............................ 245 -- 245
Long-term borrowings..................... 1,722 -- 1,722
-------- -------- --------
Total liabilities.................... 8,967 849 9,816
-------- -------- --------
Convertible preferred stock subject to
mandatory redemption.................... 59,408 13,938 (4) --
(73,346)(5) --
Stockholders' Equity (Deficit):
Common stock........................... 1 1 (5) 2
Additional paid-in capital............. -- 46,035 (6) 103,942
(13,938)(4)
73,345 (5)
(1,500)(7)
Unearned compensation.................. (1,266) -- (1,266)
Retained earnings (deficit)............ (40,732) -- (40,732)
-------- -------- --------
Total stockholders' equity
(deficit)........................... (41,997) 103,943 61,946
-------- -------- --------
Total liabilities and stockholders'
equity (deficit).................... $ 26,378 $ 45,384 $ 71,762
======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed financial information.
P-3
<PAGE>
ETINUUM, INC. AND SUBSIDIARIES
(f.k.a. Intek Information, Inc.)
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Pro Forma Offering Pro Forma
Etinuum(1) Acorn(2) Adjustments Combined Adjustments Adjusted
---------- -------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUE................. $ 24,699 $ 2,008 $ -- $ 26,707 $ -- $ 26,707
DIRECT COST OF
SERVICES............... (16,986) (978) -- (17,964) -- (17,964)
---------- ------- ------- ---------- ----------- -----------
GROSS PROFIT............ 7,713 1,030 -- 8,743 -- 8,743
---------- ------- ------- ---------- ----------- -----------
OPERATING EXPENSES:
Selling, general and
administrative........ 15,020 1,313 (1,204) (3) 15,129 -- 15,129
Depreciation and
amortization.......... 3,533 88 312 (2) 3,933 -- 3,933
Research and
development........... 1,079 260 (1,061) (3) 278 -- 278
---------- ------- ------- ---------- ----------- -----------
Total operating
expenses.............. 19,632 1,661 (1,953) 19,340 19,340
---------- ------- ------- ---------- ----------- -----------
LOSS FROM OPERATIONS.... (11,919) (631) 1,953 (10,597) -- (10,597)
LOSS FROM SPIDER........ (1,055) -- (2,265) (3) (3,320) -- (3,320)
OTHER (EXPENSES)
INCOME................. (36) (44) -- (80) -- (80)
---------- ------- ------- ---------- ----------- -----------
NET LOSS................ (13,010) (675) (312) (13,997) -- (13,997)
Accretion of mandatorily
redeemable convertible
preferred stock........ (864) -- -- (864) 864 (8) --
Cummulative dividends to
preferred
stockholders........... (11,361) -- -- (11,361) 11,361 (8) --
Series F Beneficial
Conversion Charge...... -- -- -- -- 13,938 (4) --
-- -- -- -- (13,938)(8) --
---------- ------- ------- ---------- ----------- -----------
NET LOSS APPLICABLE TO
COMMON STOCKHOLDERS.... $ (25,235) $ (675) $ (312) $(26,222) $ 12,225 $ (13,997)
========== ======= ======= ========== =========== ===========
BASIC AND DILUTED:
Net loss per share..... $ (13.50) $ (13.95) $ (0.90)
========== ========== ===========
Weighted average
shares................ 1,869,803 10,257 1,880,060 13,716,257 (8) 15,596,317
========== ======= ========== =========== ===========
</TABLE>
See accompanying notes to unaudited pro forma financial information.
P-4
<PAGE>
ETINUUM, INC. AND SUBSIDIARIES
(f.k.a. Intek Information, Inc.)
NOTES TO UNAUDITED PRO FORMA CONDENSED
FINANCIAL INFORMATION
(1) Historical Financial Statements
Amounts represent the historical consolidated balance sheet of Etinuum as
of December 31, 1999 and the historical statement of operations of Etinuum for
the year ended December 31, 1999.
(2) Acquisition of Acorn
Effective October 1, 1999, Etinuum purchased all of the common stock of
Acorn. The operations of Acorn have been included in Etinuum's historical
statement of operations from that date. The unaudited results of operations
for Acorn for the nine months ended September 30, 1999, have been included in
the Acorn column.
The purchase was accounted for under the purchase method of accounting
for initial consideration of cash of $550, $200 payable to the former Acorn
stockholders, $100 from the issuance of 11,737 shares of Etinuum's common
stock, and acquisition costs of $100. On March 20, 2000 Etinuum and the former
Acorn stockholders amended and replaced the contingent earn-out provision
relating to the Acorn acquisition. Under the new agreement, the four former
stockholders of Acorn who are now employees of Etinuum will receive a total of
$200, $200 and $400 on the first, second and third anniversary dates of the
acquisition closing assuming all four employees remain employed in years one
and two. However, in year three up to two employees may terminate employment
with consent of the Etinuum Chief Executive Officer. These four employees were
also granted a total of 400,000 stock options at an exercise price of $10 per
share with vesting of one-third immediately and the remaining options vesting
over the next thirty months. The one non-employee former stockholder of Acorn
will receive 10,000 shares of Etinuum common stock. Additionally, Etinuum
transferred 1,000,000 shares of Spider common stock to the former Acorn
stockholders. These Spider shares will vest at the same rate as the stock
options for the four employee former stockholders. The one non-employee former
stockholder is entitled to keep all his Spider shares.
The initial purchase price of Acorn was allocated to the acquired assets
and liabilities as follows:
<TABLE>
<S> <C>
Initial consideration:
Cash.............................................................. $ 550
Stock............................................................. 100
Advances to Acorn prior to acquisition.............................. 450
Transaction costs................................................... 100
Due to Acorn stockholders........................................... 200
------
Total initial consideration..................................... 1,400
Allocated to:
Property and equipment............................................ (312)
Identifiable intangibles.......................................... (950)
Current working capital deficit................................... 355
------
Goodwill............................................................ $ 493
======
</TABLE>
Goodwill will be amortized on a straight-line basis over five years. The
customer list and intellectual property acquired, will be amortized on a
straight-line basis over three years. Annual amortization included in the
unaudited pro forma statement of operations information is $415; an increase
of $312 over the amounts included in the historical financial information.
P-5
<PAGE>
ETINUUM, INC. AND SUBSIDIARIES
(f.k.a. Intek Information, Inc.)
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS--
(Continued)
(3) Spin-off of Spider
Effective October 1, 1999, Etinuum distributed 100% of the shares of
Spider to its stockholders on a pro rata basis. In connection with the
transaction, Etinuum agreed to distribute $1,000 in cash and research and
development relating to the technology that is currently under development to
Spider. Etinuum has the right to receive an unconditional royalty of $1,450
from Spider plus accrued interest at 8% over the next five years resulting from
the spin-off. The royalty payments are due by Spider regardless of its future
operations.
The costs directly attributable to the operations of Spider prior to the
spin-off, including payroll and payroll benefits for employees that became
Spider employees as a result of the spin-off, are shown as a reduction of
Etinuum's historical research and development costs. These costs were $1,061
for the nine-month period ended September 30, 1999. Spider is also charged for
certain shared support services for payroll, financial reporting, accounting
and tax, human resources, treasury and insurance and risk management services
under a transition support agreement. These costs would have been $1,204 for
the nine-month period ended September 30, 1999, and are shown as a reduction of
Etinuum's historical selling, general and administrative costs.
The repayment of the unconditional royalty obligation and Spider's ability
to fund its shared support costs are principally dependent upon the future
success of Spider's operations or its ability to raise capital. Etinuum will
provide a valuation allowance against any amounts due from Spider because of
this uncertainty. The amount of the valuation allowance to be charged against
income in any period will be equal to the lesser of (1) Spider's loss for the
period or (2) the amount due from Spider. As a result, the reduction in
research and development costs and the shared support costs discussed above
have been shown as a loss of $2,265 from Spider in the unaudited pro forma
statement of operations information.
As a condition of the spin-off, Etinuum will be allowed to utilize the
Spider technology for three years without any fee or royalty due to Spider.
Thereafter, Etinuum will pay for the use of the technology at its most favored
nations pricing if Etinuum chooses to continue to utilize the Spider software.
No amount has been reflected in the unaudited pro forma statement of operations
information for this future royalty because the amount is not reasonably
determinable at this time and it is uncertain whether Etinuum will continue to
use the Spider technology beyond the three year period.
(4) Guaranteed Return to Series F Stockholders
The holders of the Series F stock have been guaranteed a minimum return of
100%, upon successful completion of the offering. This guaranteed return has
been reflected as a $13,938 charge to net loss applicable to common
stockholders and an increase in the Series F preferred stock. Based upon the
assumed initial offering price of $11.00 per share, approximately 721,124
additional shares of common stock will need to be issued to the Series F
preferred stockholders to achieve this return.
(5) Conversion of Preferred Stock to Common upon the Completion of the Offering
Etinuum's preferred stock will automatically convert to common stock upon
the successful completion of the offering.
(6) Initial Public Offering
Etinuum plans to issue 4,500,000 common shares in its initial public
offering. The estimated offering price is $11.00 per share. This will result in
proceeds of $46,035, net of the 7% underwriters discount.
P-6
<PAGE>
ETINUUM, INC. AND SUBSIDIARIES
(f.k.a. Intek Information, Inc.)
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS--
(Continued)
(7) Offering Costs
Total offering costs, other than the underwriters discount, have been
estimated at $1,500. Etinuum has $651 in deferred offering costs included in
its December 31, 1999, historical balance sheet. The remaining $849 has been
reflected as a current liability in the accompanying unaudited pro forma
condensed balance sheet information.
(8) Net Loss Per Share
Pro forma net loss per share for the year ended December 31, 1999 assumes
the offering occured on January 1, 1999. Pro forma net loss per share is
computed using the pro forma net loss divided by the weighted average number of
common shares outstanding, including the pro forma effects of the following:
<TABLE>
<S> <C> <C>
.Shares issued in the initial public offering........... 4,500,000 shares
.Conversion of all Etinuum's convertible preferred
stock.................................................. 8,207,418 shares
.Dividends paid in kind on preferred stock.............. 287,715 shares
.Additional shares issued to Series F stockholders...... 721,124 shares
----------
Total additional shares............................... 13,716,257 shares
==========
</TABLE>
The charges to adjust net loss to net loss applicable to common
stockholders have been eliminated given the assumption that the closing of the
initial public offering occurred on January 1, 1999.
P-7
<PAGE>
ACORN INFORMATION SERVICES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants.................................... A-2
Financial Statements:
Balance Sheet as of December 31, 1998.............................. A-3
Statement of Income for the Year Ended December 31, 1998........... A-4
Statement of Changes in Stockholders' Equity for the Year Ended
December 31, 1998................................................. A-5
Statement of Cash Flows for the Year Ended December 31, 1998....... A-6
Notes to Financial Statements........................................ A-7--A-11
</TABLE>
A-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Acorn Information Services, Inc.
In our opinion, the accompanying balance sheet and the related statements of
income, changes in stockholders' equity and of cash flows present fairly, in
all material respects, the financial position of Acorn Information Services,
Inc. at December 31, 1998, and the results of its operations and its cash flows
for the year, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company's working capital deficiency and limited
availability to capital financing raises substantial doubt about its ability to
continue as a going concern. Management's plan in regard to these matters are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
PricewaterhouseCoopers LLP
Stamford, Connecticut
June 28, 1999, except for
the second and third paragraphs
of Note 10 referencing the
proposed acquisition by
Etinuum, Inc.,
which is as of July 16, 1999
A-2
<PAGE>
ACORN INFORMATION SERVICES, INC.
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash............................................................... $ 10,111
Accounts receivable................................................ 681,175
Loan receivable from employees .................................... 5,820
Other assets....................................................... 6,556
----------
Total current assets............................................. 703,662
Capitalized software................................................. 172,000
Fixed assets, net (Note 4)........................................... 244,533
Other assets......................................................... 17,877
----------
$1,138,072
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 107,519
Accrued sales tax.................................................. 43,969
Other accrued expenses............................................. 51,497
Deferred revenue................................................... 150,000
Current portion of capital lease obligations....................... 54,883
Line of credit facility............................................ 119,065
Deferred tax liability............................................. 100,677
Notes payable--related party (Notes 5 & 6)......................... 197,800
----------
Total current liabilities........................................ 825,410
Capital lease obligations.......................................... 59,648
----------
Total liabilities................................................ 885,058
----------
Commitments (Note 9)
Stockholders' equity:
Class A common stock, no par value, 10,000 shares authorized;
1,800 shares issued and outstanding............................... 151,000
Class B common stock, no par value, 10,000 shares authorized;
no shares issued and outstanding.................................. --
Retained earnings.................................................. 102,014
----------
Total stockholders' equity....................................... 253,014
----------
Total liabilities and stockholders' equity......................... $1,138,072
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-3
<PAGE>
ACORN INFORMATION SERVICES, INC.
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
Revenues:
Consulting........................................................ $2,812,226
----------
Costs and expenses:
Cost of revenues.................................................. 876,082
Sales and marketing............................................... 348,765
General and administrative........................................ 955,482
Research and development.......................................... 242,707
----------
2,423,036
----------
Income from operations........................................... 389,190
Interest expense.................................................... 53,051
----------
Income before income taxes....................................... 336,139
Provision for income taxes (Note 8)................................. 91,871
----------
Net income....................................................... $ 244,268
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-4
<PAGE>
ACORN INFORMATION SERVICES, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Common stock Treasury stock Retained Total
----------------- ---------------- earnings stockholders'
Shares Amount Shares Amount (deficit) equity (deficit)
------ --------- ------ --------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1998................... 1,800 $ 51,000 -- $ -- $(142,254) $(91,254)
Transfer of stock....... (45) -- 45 -- -- --
Issuance of stock....... 45 100,000 (45) -- -- 100,000
Repurchase of stock..... (45) (100,000) 45 100,000 -- --
Issuance of stock....... 45 100,000 (45) (100,000) -- --
Net income.............. -- -- -- -- 244,268 244,268
----- --------- --- --------- --------- --------
Balance at December 31,
1998................... 1,800 $ 151,000 -- -- $ 102,014 $253,014
===== ========= === ========= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-5
<PAGE>
ACORN INFORMATION SERVICES, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
INCREASE (DECREASE) IN CASH
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income........................................................ $ 244,268
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation.................................................... 89,218
Changes in operating assets and liabilities:
Accounts receivable............................................. (489,659)
Loan receivable from employees.................................. (3,575)
Other assets.................................................... (4,579)
Accounts payable................................................ 18,100
Accrued sales tax............................................... 36,556
Other accrued expenses.......................................... 36,358
Deferred revenue................................................ 150,000
Deferred tax liability.......................................... 91,871
---------
Net cash provided by operating activities........................... 168,558
---------
Cash flows from investing activities:
Purchase of property and equipment................................ (87,719)
Capitalized software.............................................. (172,000)
---------
Net cash used in investing activities............................... (259,719)
---------
Cash flows from financing activities:
Principal payments on capital lease obligations................... (48,145)
Proceeds from line of credit...................................... 320,000
Principal payments on line of credit.............................. (271,435)
Proceeds from notes payable....................................... 276,634
Principal payments of notes payable............................... (276,634)
Issuance of common stock.......................................... 200,000
Repurchase of common stock........................................ (100,000)
---------
Net cash provided by financing activities........................... 100,420
---------
Net increase in cash................................................ 9,259
Cash--beginning of year............................................. 852
---------
Cash--end of year................................................... $ 10,111
=========
Supplemental disclosure of cash flow information:
Income taxes paid................................................. $ 5,720
=========
Interest paid..................................................... $ 31,438
=========
Supplemental disclosure of noncash financing activity:
During 1998, the Company entered into capital lease obligations to
purchase $106,675 of furniture and fixtures and computer
equipment.
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-6
<PAGE>
ACORN INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
1. Nature of the Business
Acorn Information Services, Inc. (formerly Acorn Information Systems,
Inc.) ("Acorn" or the "Company") was incorporated in Conneticut in 1994. Acorn
develops and manages database marketing programs and interactive marketing
solutions for Fortune 1000 companies throughout the United States. Acorn has
developed expertise in the following areas: program management; marketing
database design; database operations; and analytical services.
2. Basis of Preparation
For the year ended 1998, the Company had a working capital deficiency and
had net cash outflows for operating and investing activites. The Company has
limited availability to capital financing. The Company has funded its
operations through shareholder loans and available lines of credit. It is
management's intention to continue to fund the Company's operating loss through
additional shareholder loans in order to meet its strategic objectives. The
Company believes that sufficient funding will be available to meet its planned
business objectives, including anticipated cash needs for working capital for a
reasonable period of time. However, there can be no assurance the Company will
be able to obtain sufficient funds to continue operations. As a result of the
foregoing, there exists substantial doubt about the Company's ability to
continue as a going concern. These financial statements do not include any
adjustments relating to the recoverability of carrying amount of recorded
assets or the amounts of liabilities that might result from the outcome of this
uncertainty.
3. Summary of Significant Accounting Policies
Revenue Recognition and Deferred Revenue
Revenue is derived from consulting services performed relating to software
development and consulting for customers. Revenue from consulting services is
recognized when the services are provided. Revenue generated from fixed fee
custom development contracts is primarily recognized using the percentage of
completion method. Due to the inherent uncertainties in the estimation process,
it is at least reasonably possible that estimates for cost to complete projects
in progress may be revised. Such revisions are recognized in the period in
which the revisions are determined. Revenue is deferred to the extent that cash
is received or fees are billed prior to satisfying obligations to customers.
Losses on contracts are recognized when determinable.
Fixed Assets
Fixed assets are stated at cost and depreciated using the straight-line
method over the estimated useful lives of the assets. Assets held under capital
leases are amortized over the shorter of the lease life or the estimated useful
life of the assets. Maintenance and repair costs are expensed as incurred.
Capitalized Software Costs
In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed," software development costs for new software products are expensed as
incurred until technological feasibility is established. Software development
costs incurred subsequent to the establishment of technological feasibility and
prior to general release are capitalized. During 1998, the Company capitalized
$172,000 of software development costs. These costs will be amortized over a
three-year period. Amortization commences when the product is available for
general release to customers. Capitalized software costs are stated at the
lower of cost or net realizable value. There was no amortization expense
incurred during 1998 as none of the products which had established
technological feasibility were available for general release to customers.
A-7
<PAGE>
ACORN INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Concentration of Credit Risk and Significant Customers
Financial instruments which potentially expose the Company to
concentration of credit risk consist primarily of trade accounts receivable.
The Company sells its services to various companies in the United States across
several industries. The Company performs ongoing credit evaluations of its
customers to ensure reserves for potential credit losses are not warranted.
At December 31, 1998, two of the Company's customers accounted for
approximately 45% and 32% of the Company's accounts receivable and two
customers accounted for approximately 37% and 25% of the Company's revenues for
the year then ended, respectively. No other customer exceeded 10% of revenues.
Financial Instruments
The carrying amounts of the Company's financial instruments, which include
cash, accounts receivable, accounts payable and accrued expenses, capital lease
obligations and line of credit, approximate their fair market values at
December 31, 1998.
Use of Estimates
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses at and during the reporting periods of the
financial statements. Actual results could differ from these estimates.l
4. Fixed Assets
Fixed assets consist of the following at December 31, 1998:
<TABLE>
<CAPTION>
Estimated
useful
life
(years)
----------
<S> <C> <C>
Furniture and fixtures................................. $ 45,882 5
Computer equipment..................................... 263,763 3
Leasehold improvements................................. 79,537 Lease life
---------
389,182
Accumulated depreciation............................... (144,649)
---------
$ 244,533
=========
</TABLE>
Depreciation expense for the year ended December 31, 1998 was $89,218.
The balances presented above for furniture and fixtures, computer
equipment and leasehold improvements include assets acquired under capital
leases of $30,206, $138,204 and $35,940, respectively. Accumulated amortization
on assets under capital leases totaled $56,481 as of December 31, 1998.
5. Related Party Transactions
During 1996, the Company issued promissory notes to certain officers and
shareholders of the Company totaling $113,800 (Note 6).
During 1997, the Company issued $84,000 of notes to certain officers and
shareholders of the Company for services rendered.
During 1998, the Company was advanced $276,634 by officers and
shareholders of the Company. Such advances were repaid by the Company during
1998. Interest expense related to these advances totaled $3,375 during 1998.
A-8
<PAGE>
ACORN INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. Debt
Line of Credit Facilities
On March 26, 1996, the Company entered into an agreement with a bank for a
$50,000 line of credit facility (the "Agreement"). At December 31, 1998, the
Company had no outstanding borrowings under the Agreement. This obligation was
guaranteed by certain shareholders of the Company. Under the terms of the
agreements, interest accrues on outstanding borrowings at 12.5% per annum,
interest is payable monthly and principal is payable upon demand. Interest
expense under this credit note totaled $5,174 during 1998.
On November 8, 1997, the Company entered into an agreement with a bank to
provide a $175,000 line of credit facility (the "Agreement"). At December 31,
1998, the Company had outstanding borrowings of $119,065 under the Agreement.
This obligation is guaranteed by certain shareholders of the Company and is
collateralized by all assets of the Company and expires in November 1999.
Interest accrues at a per annum rate of 1% over the bank's prime rate.
Principal and interest are payable monthly. Interest expense under this credit
note totaled $10,579 during 1998.
Notes Payable
During 1997, the Company issued notes totaling $84,000 to certain
shareholders of the Company for services rendered by the shareholders. The
notes bear interest at a rate of 10% per annum and is payable on demand.
Interest expense relating to these notes totaled $8,400 during 1998.
On December 31, 1996, the Company issued $113,800 of promissory notes to
certain officers and shareholders of the Company. The notes are payable on
demand and bear interest at 10% per annum. Interest expense relating to the
notes totaled $11,380 during 1998.
7. Common Stock
Each share of Class A common stock entitles the holder to one vote on all
matters submitted to a vote of the Company's stockholders. The Class B common
stock is non-voting, except as otherwise provided for in the Company's articles
of incorporation. Common stockholders are entitled to receive dividends, if
any, as may be declared by the board of directors on a share-for-share basis,
regardless of the class of common stock held.
During 1998, certain shareholders of the Company entered into treasury
stock sales and repurchase transactions. These transactions were recorded as
treasury stock and were accounted for under the cost method. There were no
outstanding treasury shares at December 31, 1998.
8. Income Taxes
The provision for income taxes for the year ended December 31, 1998 is as
follows:
<TABLE>
<S> <C>
Current tax expense:
U.S. federal....................................................... $ --
State and local.................................................... 816
-------
Total current........................................................ 816
-------
Deferred tax expense:
U.S. federal....................................................... 74,385
State and local.................................................... 16,670
-------
Total deferred....................................................... 91,055
-------
Total provision...................................................... $91,871
=======
</TABLE>
A-9
<PAGE>
ACORN INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company's net deferred tax assets (liabilities) are comprised of the
following at December 31, 1998:
<TABLE>
<S> <C>
Deferred tax assets:
Accounts payable............................................... $ 61,769
Net operating loss............................................. 45,441
Deferred revenue............................................... 43,492
Research and development credits............................... 16,831
Fixed assets................................................... 6,099
---------
173,632
Deferred tax liability:
Accounts receivables........................................... (274,309)
---------
Net deferred tax liability....................................... $(100,677)
=========
</TABLE>
At December 31, 1998, the Company has federal net operating loss
carryforwards of $112,724 and state net operating loss carryforwards of
$113,474. The federal losses will expire in 2012 through 2018 and the state
losses will expire in 2002 and 2003. Additionally, at December 31, 1998, the
Company has federal research and development credits of $16,831 available to
offset future tax liability. These credits will expire in 2018. If certain
substantial changes in the Company's ownership should occur, there would be an
annual limitation on the amount of the net operating loss and research and
development credit carryforwards which can be utilized.
9. Commitments
The Company has entered into noncancelable operating leases for office
space, automobiles and computer equipment and capital leases for furniture and
fixtures, computer equipment and leasehold improvements. The Company's future
minimum lease commitments under these leases are as follows:
<TABLE>
<CAPTION>
Operating Capital
leases leases
--------- --------
<S> <C> <C>
1999..................................................... $182,948 $ 64,457
2000..................................................... 155,457 35,567
2001..................................................... 140,241 18,670
2002..................................................... 134,506 6,598
2003..................................................... 11,209 2,647
-------- --------
Total.................................................... $624,361 127,939
========
Less--Amount representing interest....................... 13,408
--------
Present value of future minimum lease payments........... $114,531
========
</TABLE>
Rent expense under the noncancelable operating leases was approximately
$135,430 for the year ended December 31, 1998.
10. Subsequent Event
During the first quarter of 1999, the Company created a newly formed
Delaware corporation (Acorn Information Services, Inc.) which merged with the
existing Connecticut corporation (Acorn Information Systems, Inc.). In
connection with the merger, the number of authorized shares was reduced from
20,000
A-10
<PAGE>
ACORN INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(10,000 Class A and 10,000 Class B) to 10,000 (5,000 Class A and 5,000 Class B)
and the per share par value was increased from none to $0.01. All outstanding
shares of Acorn Information Systems, Inc. were converted into Acorn Information
Services, Inc. shares at a ratio of one-to-one.
In July 1999, the Company signed a letter of intent to enter into a
proposed acquisition by Etinuum, Inc. ("Etinuum"). In connection with the
proposed acquisition, the Company received a bridge loan in the amount of
$200,000 from Etinuum. The bridge loan bears interest at a rate of 12% per
annum and will be payable on demand if the acquisition is not successfully
completed or on December 4, 1999. If the acquisition is successfully completed,
the proceeds received by the Company will be reduced by the amount of the
bridge loan.
Also in connection with the proposed acquisition, the Company received
$225,000 from Etinuum for working capital purposes. If the proposed acquisition
is successfully completed the amount will be forgiven. If the proposed
acquisition is not consummated, the amount will be payable on October 3, 1999.
The loan bears no interest.
A-11
<PAGE>
ACORN INFORMATION SERVICES, INC.
BALANCE SHEETS
(Dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
September 30,
-------------
1998 1999
-------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................... $ 126 $ 13
Trade receivables, net......................................... 287 658
Prepaid expenses and other..................................... 9 8
----- -------
Total current assets........................................... 422 679
----- -------
PROPERTY AND EQUIPMENT, net..................................... 212 312
OTHER ASSETS.................................................... 18 21
----- -------
Total assets................................................... $ 652 $ 1,012
===== =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses.......................... $ 174 $ 351
Deferred revenue............................................... -- 55
Current borrowings............................................. 87 759
----- -------
Total current liabilities...................................... 261 1,165
LONG-TERM BORROWINGS, net of current portion.................... -- 340
----- -------
Total liabilities.............................................. 261 1,505
----- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Class A common stock, no par value, 10,000 shares authorized,
1,800 shares issued and outstanding............................ 51 151
Class B common stock, no par value, 10,000 shares authorized, no
shares issued and outstanding.................................. -- --
Retained earnings (deficit)..................................... 340 (644)
----- -------
Total stockholders' equity (deficit)........................... 391 (493)
----- -------
Total liabilities and stockholders' equity (deficit)........... $ 652 $ 1,012
===== =======
</TABLE>
The accompanying notes to financial statements
are an integral part of these unaudited balance sheets.
A-12
<PAGE>
ACORN INFORMATION SERVICES, INC.
STATEMENTS OF OPERATIONS
(Dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine-Month
Period Ended
September 30,
--------------
1998 1999
------ ------
<S> <C> <C>
REVENUE........................................................ $2,144 $2,008
DIRECT COST OF SERVICES........................................ (606) (978)
------ ------
GROSS PROFIT................................................... 1,538 1,030
------ ------
OPERATING EXPENSES:
Selling, general and administrative.......................... 889 1,313
Depreciation and amortization................................ 115 88
Research and development..................................... 243 260
------ ------
Total operating expenses................................... 1,247 1,661
------ ------
INCOME (LOSS) FROM OPERATIONS.................................. 291 (631)
OTHER EXPENSES................................................. (29) (44)
------ ------
262 (675)
PROVISION FOR TAXES............................................ 92 --
------ ------
NET INCOME (LOSS).............................................. $ 170 $ (675)
====== ======
</TABLE>
The accompanying notes to financial
statements are an integral part of these unaudited statements.
A-13
<PAGE>
ACORN INFORMATION SERVICES, INC.
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine-Month
Period Ended
September 30,
--------------
1998 1999
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net cash provided by (used in) operating activities............ $ 253 $ (164)
------ ------
Cash flows from investing activities:
Purchase of property and equipment............................. (202) (50)
------ ------
Net cash used in investing activities.......................... (202) (50)
------ ------
Cash flows from financing activities:
Proceeds from debt............................................. 90 284
Repayments of debt and capital leases.......................... (16) (67)
------ ------
Net cash provided by financing activities...................... 74 217
------ ------
Net increase in cash and cash equivalents...................... 125 3
Cash and cash equivalents, beginning of period................. 1 10
------ ------
Cash and cash equivalents, end of period....................... $ 126 $ 13
====== ======
</TABLE>
The accompanying notes to financial statements
are an integral part of these unaudited statements.
A-14
<PAGE>
ACORN INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
(1) Organization and Nature of Business
Acorn Information Services, Inc. was incorporated in Connecticut in 1994.
Acorn develops and manages database marketing programs and interactive
marketing solutions for Fortune 1000 companies throughout the United States.
Acorn has developed expertise in the following areas: program management,
marketing database design, database operations and analytical services.
(2) Unaudited Interim Financial Statements
The interim financial statements have been prepared by Acorn pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures relating to the interim periods normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the accompanying unaudited condensed
financial statements of the interim periods contain all adjustments necessary
to present fairly the financial position of Acorn as of September 30, 1999 and
1998 and the results of operations and cash flows for the periods presented.
All such adjustments are of a normal recurring nature. The results of
operations for the nine-month period ended September 30, 1999 and 1998 are not
necessarily indicative of the results that may be achieved for a full fiscal
year and cannot be used to indicate financial performance for the entire year.
(3) Summary of Significant Accounting Policies
Revenue Recognition
Revenue is derived from consulting services performed relating to software
development and consulting for customers. Revenue from consulting services is
recognized when the services are provided. Revenue generated from fixed fee
custom development contracts is primarily recognized using the percentage of
completion method. Due to the inherent uncertainties in the estimation process,
it is at least reasonably possible that estimates for cost to complete projects
in progress may be revised. Such revisions are recognized in the period in
which the revisions are determined. Revenue is deferred to the extent that cash
is received or fees are billed prior to satisfying obligations to customers.
Losses on contracts are recognized when determinable.
Fixed Assets
Fixed assets are stated at cost and depreciated using the straight-line
method over the estimated useful lives of the assets. Assets held under capital
lease are amortized over the shorter of the lease life or the estimated useful
life of the assets. Maintenance and repair costs are expensed as incurred.
Use of Estimates
The preparation of Acorn's financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses at and during the reporting periods of the
financial statements. Actual results could differ from these estimates.
A-15
<PAGE>
[The inside back cover shows a list of representative Etinuum clients. At the
top of the page is the wording "Etinuum Clients." The "Etinuum logo" is in the
center of the page with the clients' names displayed around the logo.]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,500,000 Shares
[LOGO OF ETINUUM]
Common Stock
------------
PROSPECTUS
------------
Chase H&Q
Robertson Stephens
U.S. Bancorp Piper Jaffray
Wit SoundView
------------
, 2000
------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
which is contained in this prospectus. We are offering to sell, and seeking
offers to buy, shares of common stock only in jurisdictions where offers and
sales are permitted. The information contained in this prospectus is accurate
only as of the date of this prospectus, regardless of the time of delivery of
this prospectus or of any sale of our common stock.
No action is being taken in any jurisdiction outside the United States to
permit a public offering of the common stock or possession or distribution of
this prospectus in any such jurisdiction. Persons who come into possession of
this prospectus in jurisdictions outside the United States are required to
inform themselves about and to observe any restrictions as to this offering and
the distribution of this prospectus applicable to that jurisdiction.
Through and including , 2000, the 25th day after commencement of the
offering, all dealers effecting transactions in the common stock, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the obligations of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The expenses to be paid by the registrant in connection with this offering
are as follows. All amounts other than the Securities and Exchange Commission
registration fee, the NASD filing fee and the Nasdaq National Market
application fee are estimates.
<TABLE>
<S> <C>
Registration fee............................................. $ 16,395
National Association of Securities Dealers, Inc. fee......... 5,755
NASDAQ National Market listing fee........................... 5,000
Legal fees and expenses...................................... 500,000
Accounting fees and expenses................................. 400,000
Printing and engraving expenses.............................. 350,000
Blue Sky fees and expenses................................... 25,000
Miscellaneous fees and expenses.............................. 197,850
----------
Total...................................................... $1,500,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law authorizes a court to
award, and permits a corporation to grant indemnity to current or former
directors and executive officers, and others acting in similar capacities at
the request of the company. This permitted indemnification may extend beyond
the scope of that provided under Delaware law, including under certain
circumstances for liabilities (including reimbursement for expenses incurred)
arising under the Securities Act of 1933, as amended (the "Securities Act").
As permitted by the Delaware General Corporation Law, our Amended and
Restated Certificate of Incorporation, which will become effective upon the
closing of this offering, includes a provision that eliminates the personal
liability of our directors for monetary damages for breach of fiduciary duty as
a director, except for liability (i) for any breach of the director's duty of
loyalty to us or our stockholders, (ii) for acts or omissions not in good faith
or that involve intentional misconduct or a knowing violation of law, (iii)
under section 174 of the Delaware General Corporation Law regarding unlawful
dividends and stock purchases, or (iv) for any transaction from which the
director derived an improper personal benefit. Our Amended and Restated
Certificate of Incorporation permits indemnification of current and former
directors and executive officers to the maximum extent allowed by applicable
law.
Our Bylaws provide that, to the full extent allowed by Delaware General
Corporation Law, (i) we will indemnify our directors and officers, provided
that any indemnified officer and director acted in good faith and in a manner
which such officer and director reasonably believed to be in or not opposed to
our best interests, (ii) we may indemnify our other employees and agents, (iii)
we will advance expenses, as incurred, to our directors and officers in
connection with a legal proceeding, subject to certain very limited exceptions;
and (iv) we may purchase and maintain insurance on behalf of any director or
officer against any liability asserted against them in such capacity. The
rights conferred in the Bylaws are not exclusive of indemnification provided by
law, agreement or otherwise.
As permitted by Delaware General Corporation Law, we intend to enter into
indemnification agreements with each of our current directors and officers to
give such directors and officers additional contractual assurances regarding
the scope of the indemnification set forth in our Amended and Restated
Certificate of Incorporation and to provide additional procedural protections.
These agreements provide for
II-1
<PAGE>
indemnification against claims and liabilities arising as a result of their
service as directors or officers of Etinuum and the advancement of expenses
incurred by them in defending or litigating such claims. We believe that these
agreements, and the indemnification provisions in our Amended and Restated
Certificate of Incorporation and Bylaws, are sufficiently broad to permit
indemnification against claims involving the negligence or gross negligence of,
and violations of the Securities Act by, the covered directors and officers.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees regarding which indemnification is sought,
nor are we aware of any threatened litigation that may result in claims for
indemnification.
We have also, with approval by our Board of Directors, obtained directors'
and officers' liability insurance for our current officers and directors.
Please refer to Section 7 of the Underwriting Agreement, Exhibit 1.1
hereto, which provides for the indemnification of officers, directors and
controlling persons of Etinuum against certain liabilities. See also the
undertakings set out in response to Item 17 below.
Please refer to the following documents filed as exhibits to this
registration statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement
3.2.1 Revised Form of Amended and Restated Certificate of Incorporation
of the Registrant to be effective upon the closing of the offering
made pursuant to this Registration Statement
3.4 Form of Amended and Restated Bylaws of the Registrant to be
effective upon the closing of the offering made pursuant to this
Registration Statement
10.29 Form of Indemnification Agreement
</TABLE>
Item 15. Recent Sales of Unregistered Securities.
All sales of common stock made pursuant to the exercise of stock options
were made in reliance on Rule 701 under the Securities Act or on Section 4(2)
of the Securities Act.
All other sales of our securities were made in reliance on Section 4(2) of
the Securities Act and/or Regulation D promulgated under the Securities Act.
These sales were made without general solicitation or advertising. Each
purchaser was an accredited investor as defined in Rule 501(a) of the
Securities Act with access to all relevant information necessary to evaluate
the investment and represented to us that the shares were being acquired for
investment and not for resale.
Since December 1, 1996, we have issued unregistered securities as
described below:
<TABLE>
<C> <S>
February 1997: 10,190,120 shares of Series B preferred stock sold to
three accredited investors for $1.741 per share in
reliance on Section 4(2) of the Securities Act as a
private offering to a limited number of purchasers.
1,863,270 shares of Series B preferred stock issued to
eight shareholders of Protocall as part of the Protocall
acquisition.1
April-May, 1997: 285,778 shares of Series B preferred stock to nine
accredited investors at an average price of $1.74 per
share in reliance on Section 4(2) of the Securities Act
as a private offering to a limited number of purchasers.
December 1997: 2,871,913 shares of Series C preferred stock to Beacon
Group III-Focus Value Fund, L.P. at $1.741 per share in
reliance on Section 4(2) of the Securities Act as a
private offering to a limited number of purchasers.
Series No. 1 warrant issued to Beacon under Section 4(2)
to purchase up to 3,500,000 shares of Series C preferred
stock at $1.741 per share for five years./2/
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
Series B anti-dilution warrant issued to Beacon under
Section 4(2) for the purchase of an indeterminable number
of Series B preferred shares./2/
May 1998: 8,823,529 shares of Series D preferred stock issued to
Conning Capital Limited Partnership V and 18,382 shares
issued to another accredited investor for $1.36 per share
under Regulation D.
Conning and Beacon were each granted a right to purchase up
to $3,000,000 of additional Series D preferred stock at
$1.36 per share under Section 4(2) through April 1999,
which was not exercised.
Issued to Beacon 3,500,000 shares of Series C preferred
stock and a Series NB-1 warrant to acquire additional
shares of common stock under Section 4(2) in exchange for
the Series No. 1 and B warrants issued to it in December,
1997.
April 1999: 2,510,691 shares of Series E preferred stock to five
accredited investors for $1.61 per share under Regulation
D.
November 1999: 11,737 shares of common stock issued to Prospero Holdings
LLC in connection with the Acorn acquisition under
Regulation D.
5,210,093 shares of Series F preferred stock to 7
accredited investors at $2.13 per share under Regulation D.
January 2000: Issued a warrant to purchase 181,250 shares of our common
stock at $8.52 per share to Sony Electronics, Inc under
Section 4(2).
March 2000: 10,000 shares of common stock were issued to a former
shareholder of Acorn under Section 4(2).
</TABLE>
- ------------------
/1/During 1999 and 1998, 11,488 and 21,539 shares of Series B preferred stock
were returned to us as adjustments for the price paid for Protocall in 1997.
/2/Beacon surrendered both warrants at the time of the Series D preferred
stock closing.
Item 16. Exhibits and Financial Statement Schedules.
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
1.1+ Form of Underwriting Agreement
2.1 Amended And Restated Share Purchase Agreement between Registrant,
Acorn Information Services, Inc. and the shareholders of Acorn
Information Services, Inc. dated March 20, 2000
2.1.1 Exhibits to Share Purchase Agreement between Registrant, Acorn
Information Services, Inc. and the shareholders of Acorn Information
Services, Inc. dated October 30, 1999
3.1+ Amended and Restated Certificate of Incorporation dated November 22,
1999
3.1.1+ Amended and Restated Certificate of Incorporation of Etinuum, Inc.
dated March 2, 2000
3.2+ Form of Amended and Restated Certificate of Incorporation of the
Registrant to be effective upon the closing of the offering made
pursuant to this Registration Statement
3.2.1+ Revised Form of Amended and Restated Certificate of Incorporation to
be effective upon the closing of the offering made pursuant to this
Registration Statement
3.3+ Restated Bylaws of the Registrant
3.4+ Form of Amended and Restated Bylaws of the Registrant to be effective
upon the closing of the offering made pursuant to this Registration
Statement
4.1+ Form of the Registrant's Common Stock Certificate
4.2+ Amended and Restated Shareholders' and Voting Agreement dated as of
January 14, 2000
4.3+ Registration Rights Agreement between the Registrant, the former Acorn
shareholders and Prospero L.L.C. dated October 30, 1999
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
4.3.1+ Amendment No. 2 Registration Rights Agreement between the
Registrant, the former Acorn shareholders and Prospero L.L.C.
4.3.2 Amended and Restated Registration Rights Agreement dated March 20,
2000 between the Registrant, the former Acorn shareholders and
Prospero L.L.C.
4.4+ Series A Purchase Agreement between the Registrant and Resource
Bancshares Corporation dated August 2, 1996
4.5+ Series B Purchase Agreement between the Registrant and The Beacon
Group III-Focus Value Fund, L.P., Squam Lake Investors II, L.P. and
Bain & Company dated as of February 3, 1997
4.5.1+ Amendment to Series B Purchase Agreement between the Registrant and
The Beacon Group III-Focus Value Fund, L.P., Squam Lake Investors
II, L.P. and Bain & Company
4.6+ Series C Purchase Agreement between the Registrant and The Beacon
Group III-Focus Value Fund, L.P. dated December 22, 1997
4.6.1+ Amendment to Series C Purchase Agreement between the Registrant and
The Beacon Group III-Focus Value Fund, L.P.
4.7+ Series D Purchase Agreement by and among the Registrant, Conning
Capital Limited Partnership V, The Beacon Group III-Focus Value
Fund, L.P. and Certain Other Investors dated as of May 7, 1998
4.7.1+ Amendment to Series D Purchase Agreement between the Registrant,
Conning Capital Limited Partnership V, The Beacon Group III-Focus
Value Fund, L.P. and Certain Other Investors
4.8+ Series E Preferred Stock Purchase Agreement by and among the
Registrant and U.S. Information Technology Financing, L.P.,
Encompass Group, Inc., Trans Cosmos USA, Inc. and Certain Other
Parties dated as of April 16, 1999
4.8.1+ Amendment to Series E Preferred Stock Purchase Agreement by and
among the Registrant and U.S. Information Technology Financing,
L.P., Encompass Group, Inc., Trans Cosmos USA, Inc. and Certain
Other Parties
4.9+ Series F Preferred Stock Purchase Agreement by and among the
Registrant and BVCF IV, L.P. and Certain Other Parties dated as of
November 19, 1999
4.9.1+ Amendment to Series F Preferred Stock Purchase Agreement by and
among the Registrant and BVCF IV, L.P. and Certain Other Parties
4.10+ Amended and Restated Registration Rights Agreement dated January 14,
2000
4.11+ Letter Agreement by certain stockholders of the Registrant dated
January 14, 2000
5.1+ Opinion of Chrisman, Bynum & Johnson, P.C.
5.1.1+ Revised Opinion of Chrisman, Bynum & Johnson, P.C.
10.1+ 1997 Restated Stock Option Plan
10.1.1+ Amendment to 1997 Restated Stock Option Plan
10.2+ 1998 Restated Stock Option Plan
10.3 2000 Stock Incentive Plan
10.4+ 2000 Employee Stock Purchase Plan
10.5+ Contribution Agreement dated October 27, 1999, between the
Registrant and Spider Technologies, Inc.
10.6+ Distribution Plan between the Registrant and Spider Technologies,
Inc. dated November 5, 1999
10.7.1+ Promissory Note dated October 1, 1999, by Timothy C. O'Crowley
10.7.2+ Promissory Note Dated October 1, 1999, by Franklin D. Richards
10.7.3+ Promissory note and pledge agreement of Timothy C. O'Crowley dated
November 23, 1999
10.7.4+ Promissory Note dated November 20, 1998 by Franklin D. Richards
10.8+ Sublease and Resource Sharing Agreement between the Registrant and
Spider Technologies, Inc. effective October 1, 1999
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
10.9+ Amended and Restated Software Assignment and Grant-Back License,
Maintenance and Support Agreement between the Registrant and Spider
Technologies, Inc. effective November 4, 1999
10.9.1+ Intellectual Property Security Agreement between the Registrant and
Spider Technologies, Inc. dated November 5, 1999
10.9.2+ Agreement Regarding Matters between the Registrant and Spider
Technologies, Inc.
10.10+ Transition Support Agreement between the Registrant and Spider
Technologies, Inc. dated November 4, 1999
10.11+ Separation Agreement between the Registrant and Spider Technologies,
Inc. effective October 1, 1999
10.12+ Tax Separation Agreement between the Registrant and Spider
Technologies, Inc. effective
October 1, 1999
10.12.1 Amendment No. 1 to Tax Separation Agreement between the Registrant
and Spider Technologies, Inc.
10.13 Form of Consulting Agreement between Spider Technologies, Inc. and
Timothy O'Crowley
10.14+ Second Restated and Amended Management Employment Agreement of
Timothy O'Crowley
10.15+ Second Amended and Restated Employment Agreement of Franklin D.
Richards
10.16+ Building Lease between the Registrant and the City of Fort Scott,
Kansas dated March 8, 1999 (Fort Scott)
10.16.1+ Addendum No. 1 to Building Lease between Registrant and the City of
Fort Scott, Kansas dated March 8, 1999 (Fort Scott)
10.17+ Lease between the Registrant and M&S California Fund, L.P. dated
June 17, 1997 (San Diego)
10.17.1+ First Amendment to Office Building Lease between the Registrant and
M&S California Fund, L.P. dated 10.17.2
10.18+ Office Lease between the Registrant and Westmark Terrace Tower II,
Inc. dated June 9, 1999 (DTC)
10.18.1+ First Amendment to Lease between the Registrant and Westmark Terrace
Tower II dated June 1, 1999 (DTC)
10.19+ Lease of Office Space between the Registrant and Brookfield Republic
Inc. dated November 15, 1996 (Republic Plaza)
10.19.1+ First Amendment and Lease of Additional Office Space between the
Registrant and Brookfield Republic Inc. dated October 17, 1997
(Republic Plaza)
10.20+ Office Lease between the Registrant and The Equitable Life Assurance
Society dated March 5, 1997 (Hayward)
10.20.1+ Commencement of Term Agreement between the Registrant and The
Equitable Life Assurance Society dated May 2, 1997 (Hayward)
10.20.2+ Estoppel Certificate of the Registrant to ATC Partners LLC dated
September 24, 1998 regarding Office Lease with The Equitable Life
Assurance Society (Hayward)
10.21+ Industrial/ Commercial Multi-Tenant Lease between the Registrant and
Livermore Airway Business Park dated January 14, 1999 (Livermore)
10.22+ Industrial/ Commercial Multi-Tenant Lease between the Registrant and
Livermore Airway Business Park dated January 30, 1999 (Livermore)
10.23+ Commercial Lease between Acorn Information Services, Inc. and Lot 4
LLC dated January 5, 1998 (Shelton)
10.23.1+ First Amendment of Lease between Acorn Information Services, Inc.
and Lot 4 LLC dated April 20, 1998 (Shelton)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
10.24+ Loan and Security Agreement between the Registrant and Silicon
Valley Bank dated June 10, 1999
10.24.1+ Exhibits to Loan and Security Agreement between the Registrant and
Silicon Valley Bank dated June 10, 1999
10.25+ Master Loan and Security Agreement between the Registrant and
Charter Financial, Inc. dated August 26, 1999
10.25.1+ Exhibits to Master Loan and Security Agreement between the
Registrant and Charter Financial, Inc. dated August 26, 1999
10.26+ Agreement and Plan of Reorganization between the Registrant and
Protocall New Business Specialists, Inc. dated February 3, 1997
10.27+X Share Purchase Agreement between Registrant, Acorn Information
Services, Inc. and the Shareholders of Acorn Information Services,
Inc. dated October 30, 1999
10.27.1X Exhibits to Share Purchase Agreement between Registrant, Acorn
Information Services, Inc. and the Shareholders of Acorn Information
Services, Inc. dated October 30, 1999
10.28+ Master Service Agreement between the Registrant and Sony
Electronics, Inc. dated May 1, 1997
10.28.1+ Addendum A to Master Service Agreement between the Registrant and
Sony Electronics, Inc. dated April 1, 1999
10.28.2+ Warrant issued to Sony Electronics, Inc. dated January 14, 2000
10.29+ Form of Indemnification Agreement
10.30+ Kansas Economic Opportunity Initiatives Fund Loan Agreement and
Promissory Note
10.31+ Agreement Among the Registrant, Fort Scott Community College and the
Kansas
Department of Commerce and Housing dated March 15, 1999
21.1 Subsidiaries of the Registrant
23.1+ Consent of Chrisman, Bynum & Johnson (included in Exhibit 5.1.1)
23.2 Consent of Arthur Andersen LLP
23.3 Consent of PricewaterhouseCoopers LLP
24.1+ Power of Attorney (see Page II-5 of this Registration
Statement)
27.1+ Financial Data Schedule
</TABLE>
- ------------------
+Confidential treatment requested as to certain portions of this exhibit.
* To be supplied by amendment.
+ Previously filed.
X These exhibits have been refiled as exhibits 2.1 and 2.1.1.
Item 17. Undertakings.
We hereby undertake to provide to the underwriters at the closing
specified in the underwriting Agreement certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons
pursuant to the provisions described under Item 14 above, or otherwise, we have
been advised that in the opinion of the Securities and Exchange Commission such
II-6
<PAGE>
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 us 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, we will, unless in the opinion of our 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.
We hereby undertake that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Amendment to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Englewood, State
of Colorado, on the 19th day of March 2000.
ETINUUM, INC.
By: /s/ TIMOTHY C. O'CROWLEY
Timothy C. O'Crowley
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
Name Title Date
/s/ TIMOTHY C. O'CROWLEY Chairman of the
- ------------------------------------- Board, President, March 19, 2000
Timothy C. O'Crowley Chief Executive
Officer and
Director (Principal
Executive Officer)
/s/ STEVEN Q. HANSEN Chief Financial
- ------------------------------------- Officer (Principal March 19, 2000
Steven Q. Hansen Financial and
Accounting Officer)
/s/ STEVEN Q. HANSEN, POA Director
- ------------------------------------- March 19, 2000
Stephen S. Hyde
/s/ STEVEN Q. HANSEN, POA Director
- ------------------------------------- March 19, 2000
Steven F. Piaker
/s/ STEVEN Q. HANSEN, POA Director
- ------------------------------------- March 19, 2000
Harold W. Pote
/s/ STEVEN Q. HANSEN, POA Director
- ------------------------------------- March 19, 2000
Rick L. Weller
/s/ STEVEN Q. HANSEN, POA Director
- ------------------------------------- March 19, 2000
Eric R. Wilkinson
II-8
<PAGE>
EXHIBIT 2.1
AMENDED AND RESTATED
SHARE PURCHASE AGREEMENT
AMONG
ETINUUM, INC.
(FORMERLY INTEK INFORMATION, INC.),
ACORN INFORMATION SERVICES, INC.,
AND
THE SHAREHOLDERS NAMED HEREIN
DATED AS OF MARCH 20, 2000
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<C> <S> <C>
ARTICLE 1 DEFINITIONS................................................................ 1
ARTICLE 2 PURCHASE AND SALE OF ACORN STOCK........................................... 5
2.1 Purchase Price............................................................... 5
2.2 Contingent Consideration..................................................... 6
2.3 Etinuum Stock Options........................................................ 7
2.4. Non-Employee Shareholder..................................................... 8
2.5 Closing...................................................................... 8
2.6 Transaction Costs............................................................ 10
2.7 Transaction Advisor Fees..................................................... 10
ARTICLE 3............................................................................ 11
3.1 Authorization Capitalization; Outstanding Shares............................. 11
3.2. Organization; Good Standing; Power; Etc...................................... 11
3.3 Agreements Relating to Stock; Options; Warrants; Restrictions on Shares; Etc. 12
3.4 Charter and Bylaws; Officers and Directors................................... 12
3.5 No Subsidiaries.............................................................. 12
3.6 Authorizations and Enforceability............................................ 12
3.7 Effect of Agreement, Etc..................................................... 12
3.8 Restrictions; Burdensome Agreements.......................................... 13
3.9 Government Consents.......................................................... 13
3.10 Compliance; Licenses and Permits............................................. 13
3.11 Financial Statements; Absence of Undisclosed Liabilities..................... 14
3.12 Tax Matters.................................................................. 15
3.13 Title to Properties; Absence of Liens and Encumbrances; Etc.................. 15
3.14 Facilities; Equipment and Condition.......................................... 16
3.15 Insurance.................................................................... 16
3.16 Contracts.................................................................... 16
3.17 Litigation................................................................... 17
3.18 Intellectual Property and Other Intangible Assets............................ 18
3.19 No Interest in Competitors; Etc.............................................. 18
3.20 Books and Records............................................................ 19
3.21 Insider Transactions......................................................... 19
3.22 Employees.................................................................... 19
3.23 Union Contracts; Labor Relations; Etc........................................ 19
3.24 Employee Benefit Plans....................................................... 20
3.25 Bank Accounts and Safe Deposit Arrangements.................................. 20
3.26 Powers of Attorney........................................................... 20
3.27 No Finder.................................................................... 20
3.28 No Material Adverse Change................................................... 20
3.29 Investment Representations................................................... 21
3.30 Suppliers and Customers...................................................... 23
3.31 Securities Act, Etc.......................................................... 23
3.32 Lawyers and Accountants...................................................... 23
3.33 Accounting Controls.......................................................... 23
3.34 Names........................................................................ 23
3.35 Material Misstatements or Omissions.......................................... 24
</TABLE>
- i -
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
3.36 Not A United States Real Property Interest................................... 24
3.37 Other........................................................................ 24
3.38 Year 2000 Compliance......................................................... 24
3.39 Due Diligence................................................................ 25
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF INTEK.................................... 25
4.1 Organization; Good Standing; Power; Etc...................................... 25
4.2 Restrictions; Burdensome Agreements.......................................... 26
4.3 Subsidiaries................................................................. 26
4.4 Capitalization; Outstanding Shares........................................... 26
4.5 Charter and Bylaws; Officers and Directors................................... 27
4.6 Authorization................................................................ 27
4.7 Financial Statements......................................................... 27
4.8 No Material Adverse Change................................................... 27
4.9 Material Liabilities......................................................... 27
4.10 Material Contracts........................................................... 28
4.11 Compliance with Other Instruments, None Burdensome, Etc...................... 28
4.12 Litigation, Etc.............................................................. 28
4.13 Governmental Consents........................................................ 28
4.14 Intek Tax Matters............................................................ 29
4.15 Offering..................................................................... 29
4.16 Brokers or Finders........................................................... 30
4.17 Compliance; Licenses and Permits............................................. 30
4.18 Material Misstatements or Omissions.......................................... 30
4.19 Lawyers and Accountants...................................................... 31
4.20 Effect of Agreement, Etc..................................................... 31
4.21 Other........................................................................ 31
ARTICLE 5 OTHER COVENANTS AND AGREEMENTS............................................. 31
5.1 Access to Information........................................................ 32
5.2 Business Relationships....................................................... 32
5.3 No Shop...................................................................... 32
5.4 Amendments................................................................... 33
5.5 Resignations and Closing Date Board.......................................... 33
5.6 Signature Cards.............................................................. 33
5.7 Additional Financial Statements.............................................. 33
5.8 Satisfaction of Conditions................................................... 33
5.9 Tax Elections - Post Closing Change.......................................... 33
5.10 This Section intentionally left blank........................................ 33
5.11 Confidentiality.............................................................. 33
5.12 Covenant Not to Compete...................................................... 34
5.13 Governmental Filings......................................................... 36
5.14 Good Faith................................................................... 36
5.15 Existing Acorn Loans; Bridge Loan............................................ 36
5.16 Unwind Provision; Changes in Control; Intek IPO.............................. 36
5.17 Board Observer; Executive Management Committee............................... 36
ARTICLE 6 CONDITIONS OF CLOSING..................................................... 37
6.1 Intek's Conditions of Closing................................................ 37
</TABLE>
- ii -
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
6.2 Acorn's Conditions of Closing................................................ 38
ARTICLE 7 AMENDMENT.................................................................. 40
ARTICLE 8 INDEMNIFICATION........................................................... 40
8.1 Shareholders' General Indemnification Covenants.............................. 40
8.2 Procedures for Indemnification Pursuant to Section 8.1....................... 41
8.3 Certain Information.......................................................... 42
8.4 Release by Shareholders...................................................... 42
8.5 Indemnification by Intek..................................................... 43
8.6 Exclusive Remedy............................................................. 43
8.7 No Rights of Shareholders Against Acorn...................................... 43
8.8 Limits on Indemnification; Escrow............................................ 43
ARTICLE 9 MISCELLANEOUS............................................................. 45
9.1 Notice....................................................................... 45
9.2 Execution of Additional Documents............................................ 46
9.3 Binding Effect; Benefits..................................................... 46
9.4 Entire Agreement............................................................. 46
9.5 Governing Law................................................................ 47
9.6 Arbitration; Consent to Jurisdiction......................................... 47
9.7 Attorneys' Fees and Costs.................................................... 47
9.8 Survival..................................................................... 48
9.9 Counterparts................................................................. 48
9.10 Headings..................................................................... 48
9.11 Waivers...................................................................... 48
9.12 Merger of Documents.......................................................... 48
9.13 Incorporation of Exhibits and Schedules...................................... 49
9.14 Severability................................................................. 49
9.15 Assignability................................................................ 49
9.16 No Action for Failure to Deliver Opinions, Etc............................... 49
9.17 Effectiveness of Agreement................................................... 49
9.18 Reference to Shareholders Agreement.......................................... 49
9.19 Action by Shareholders....................................................... 49
9.20 Shareholder Family LLC's..................................................... 49
</TABLE>
- iii -
<PAGE>
SCHEDULES TO
AMENDED AND RESTATED
SHARE PURCHASE AGREEMENT
AMONG
ETINUUM, INC., ACORN INFORMATION SERVICES, INC. and
THE SHAREHOLDERS NAMED HEREIN
Acorn; Key Shareholders
Schedule Number & Description
2.2.2 Shareholder Percentage Purchase Price
3.1 Capitalization
3.2 Good Standing States
3.3 Agreements Relating to Stock
3.4.A Articles and Bylaws
3.4.B Officers and Directors
3.5 Subsidiaries
3.7. Effects of Agreement
3.8 Restrictions; Burdensome Agreements
3.10 Permits, Licenses
3.11.1 Financial Statements
3.11.2 Exceptions to Financial Statements
3.12 Estimate of Accrued Taxes
3.13 Title to Properties and Assets; Liens and Encumbrances
3.14 Furniture, Fixtures and Equipment
3.15 Insurance
3.16 Leases and Other Material Contracts
3.17 Litigation
3.18.1 Trademarks, Tradenames, Patents, Copyrights; Exceptions to Right
to Use
3.18.2 Exceptions to Unrestricted Rights to Use Trade Secrets, Know-How,
Inventions, Designs, Etc.
3.18.3 Third Party Infringement of Intellectual Property
3.18.4 Conveyances of Intellectual Property
3.19 Interests in Competitors
3.21 Insider Transactions
3.23 Labor and Employment Disputes
3.24 Employee Benefit Plans
3.25 Banking and Investment Information
3.28 Certain Changes in Business or Operations
- iv -
<PAGE>
3.29.7 Shareholder Mailing Addresses and States of Residence
3.30 Material Agreements with Customers or Suppliers
5.5 Resignations and Closing Date Board
- v -
<PAGE>
Etinuum
Schedule Number & Description
4.1 Good Standing States
4.4 Capitalization
4.5.A Charter and Bylaws
4.5.B Officers and Directors
4.7 Financial Statements
4.9 Material Undisclosed Liabilities
4.10 Material Contracts and Commitments
4.12 Litigation
4.14 Tax Exceptions
4.20 Effect of Agreement
5.5 Resignations and Closing Date Board
- vi -
<PAGE>
EXHIBITS TO
AMENDED AND RESTATED
SHARE PURCHASE AGREEMENT
AMONG
ETINUUM, INC. (FORMERLY INTEK INFORMATION, INC.),
ACORN INFORMATION SERVICES, INC.
and THE SHAREHOLDERS NAMED HEREIN
Exhibit Number & Description
2.2.4 Form of Amended and Restated Registration Rights Agreement
2.2.5 Etinuum Shareholders Agreement
2.7 Transaction Advisor Fee Payment Agreement
3.36 FIRPTA Affidavit
5.3 Standstill Agreement dated June 4, 1999
6.1.1 Form of Acorn Employment Agreements and Amended and Restated
Employee Stock Restriction Agreement
6.1.2 Form of Acorn Officer's Certificate
6.1.6 Form of Acorn Secretary's Certificate
6.1.7 Form of Opinion of Counsel for Acorn and Key Shareholders
6.2.2 Form of Etinuum Officer's Certificate
6.2.5 Form of Etinuum Secretary's Certificate
6.2.6 Form of Opinion of Counsel for Etinuum
8.8.3 Form of Escrow Agreement
- vii -
<PAGE>
AMENDED AND RESTATED
SHARE PURCHASE AGREEMENT
AMONG
ETINUUM, INC.
(FORMERLY INTEK INFORMATION, INC.),
ACORN INFORMATION SERVICES, INC.
AND THE SHAREHOLDERS NAMED HEREIN
This Amended and Restated Share Purchase Agreement is dated as of March 20,
2000, and is entered into by and among Etinuum, Inc., formerly Intek
Information, Inc., a Delaware corporation ("Etinuum"), Acorn Information
Services, Inc., a Delaware corporation ("Acorn"), and Venkat Sharma, Shoba
Murali, Raja Ramnarayan and Sunil Gupta (referred to herein individually by name
and collectively as the "Key Shareholders") and all other former shareholders of
Acorn common stock listed on the signature page hereof (referred to collectively
as the "Non Employee Shareholders" and together with the Key Shareholders as the
"Shareholders").
RECITALS
A. Acorn and Etinuum entered into a Share Purchase Agreement dated as of
October 30, 1999 (the "Agreement"), pursuant to which Etinuum acquired all of
the outstanding shares of capital stock of Acorn from the Shareholders under the
terms and conditions provided therein.
B. Etinuum and the Shareholders and Acorn desire to amend and restate the
Share Purchase Agreement and to replace it in its entirety with this Amended and
Restated Share Purchase Agreement (the "Amended and Restated Agreement").
C. The parties hereto desire the agreements entered into concurrently with
the Closing to remain in full force and effect, including: (i) the employment
agreements (which shall include non-compete covenants), among each of the Key
Shareholders, Etinuum and Acorn; and (ii) the escrow agreement among Etinuum,
the Shareholders and a mutually agreed upon escrow agent for the escrow of the
Escrow Consideration (as hereinafter defined). Each of those documents and the
other operative documents and certificates executed and delivered in connection
with the Agreement is sometimes referred to individually as a "Document" or
collectively as the "Documents." The Registration Rights Agreement and Employee
Stock Restriction Agreement are amended and restated concurrently herewith.
ARTICLE 1
DEFINITIONS
-----------
The following terms have the meanings set forth below:
"Acorn" means Acorn Information Services, Inc., a Delaware corporation.
-----
<PAGE>
"Acorn Shares" means all of the issued and outstanding shares of capital
------------
stock of Acorn.
"Acorn Officers Loans" means those certain loans from various officers of
--------------------
Acorn to Acorn as described on Schedule 3.21.
"Annual Period" has the definition set forth in Section 2.2.
-------------
"Base Consideration" means the amount payable to the Shareholders by
------------------
Etinuum at Closing in consideration for the Acorn Shares and as provided in
Section 2.1 herein.
"Bridge Loan" means the loan to Acorn by Etinuum in the principal amount of
-----------
$200,000 pursuant to a Promissory Note executed by Acorn on June 4, 1999 for
regular payroll and priority accounts payable disbursements and secured by
certain collateral pursuant to a security agreement and by the personal
guarantees of the Key Shareholders.
"Change in Control" means (i) a sale, transfer or disposition of all or
-----------------
substantially all of the assets of Etinuum; (ii) a merger or consolidation in
which Etinuum is not the surviving corporation, other than a reincorporation
merger; or (iii) a transaction in which a person and his or her affiliates, who
prior to the transaction are the beneficial owners of less than fifty percent
(50%) of the outstanding common stock of Etinuum, hold, as a result of the
transaction, two-thirds or more of Etinuum's outstanding common stock on an as-
converted to common basis.
"Closing" means the closing of the transactions contemplated by the
-------
Agreement held on October 30, 1999.
"Closing Date" means October 30, 1999.
------------
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Common Stock" means shares of Etinuum common stock, $0.0001 par value per
------------
share.
"Confidential Information" has the meaning set forth in Section 5.11
------------------------
herein.
"Contingent Consideration" means the amount payable to the Key Shareholders
------------------------
by Etinuum in consideration for the Acorn Shares that is contingent upon the Key
Shareholders satisfying certain conditions as provided in Section 2.2 herein.
"Date of Termination" has the meaning given to it in the Employment
-------------------
Agreement.
2
<PAGE>
"Employment Agreement" means the employment agreement between Etinuum and
--------------------
each of the Key Shareholders in substantially the form attached hereto as
Exhibit 6.1.1, executed concurrently with the Agreement.
"Escrow Consideration" means the consideration defined in Section 8.8.3
--------------------
herein.
"Escrow Agreement" means the escrow agreement described in Section 8.8.3
----------------
herein and attached as Exhibit 8.8.3 hereto.
"Etinuum" means Etinuum, Inc., a Delaware corporation, formerly Intek
-------
Information, Inc.
"GAAP" means United States generally accepted accounting principles applied
----
in accordance with Etinuum's then current accounting policies.
"IPO" means an initial public offering of the capital stock of Etinuum
---
under the Securities Act of 1933, as amended.
"Key Shareholders" means Venkat Sharma, Shoba Murali, Raja Ramnarayan and
----------------
Sunil Gupta.
"Material" means a material effect on (i) the business operations,
--------
condition (financial or otherwise), prospects, assets, liabilities or results of
operations of either Acorn or Etinuum, taken as a whole, (ii) the value,
condition or marketability of any material assets of either Acorn or Etinuum,
taken as a whole or (iii) the ability of either Acorn or Etinuum to perform on a
timely basis its obligations under any material contract or to exercise or
enforce any of its material rights, powers or remedies under any material
contract; provided, that no prospective change in the business, operations,
--------
condition (financial or otherwise) or results of operations of Acorn or Etinuum,
on account of general economic conditions or local, regional, national or
international industry conditions shall be deemed to constitute a material
effect.
"Net Operating Income" means revenues from continuing operations less
--------------------
operating expenses reported in accordance with GAAP.
3
<PAGE>
"Non-Employee Shareholders" means the holders of Acorn common stock who are
-------------------------
not Key Shareholders.
"Person" is to be broadly construed and includes, without limitation, any
------
entity, body, association, governmental body or agency, natural person or trust.
"Return" means any report, return, statement, estimate, declaration,
------
notice, form or other information required to be supplied to a taxing authority
in connection with Taxes (as hereafter defined).
"Shareholders" means the Non-Employee Shareholders and the Key
------------
Shareholders.
"Spider" means Spider Technologies, Inc., a Delaware corporation and a
------
previously wholly owned subsidiary of Etinuum.
"Spider Shares" means the common stock of Spider, par value $0.0001 per
-------------
share.
"Sustained Profitability" means (a) positive Net Operating Income for any
-----------------------
consecutive 30 day period after June 1, 1999 and (b) bona fide and well founded
projections of positive Net Operating Income for the four (4) months following
such period of positive Net Operating Income.
"Sustained Profitability Consideration" means $650,000 in cash or
-------------------------------------
immediately available funds less the outstanding principal amount and accrued
interest on the Bridge Loan as of the date of achievement of Sustained
Profitability (which amount shall be used to pay off the Bridge Loan in full),
and less Acorn's cumulative negative Net Operating Income for the period between
September 1, 1999 and the date Acorn achieves Sustained Profitability.
"Taxes" means, any taxes, assessments, duties, fees, levies, imposts,
-----
deductions, withholdings, including, without limitation, income, gross receipts,
ad valorem, value added, excise, real or personal property, asset, sales, use,
license, payroll, transaction, capital, net worth and franchise taxes, estimated
taxes, withholding, employment, social security, workers compensation, utility,
severance, production, unemployment compensation, occupation, premium, windfall
profits, transfer and gains taxes, or other governmental charges of any nature
whatsoever imposed by any government or taxing authority of any country or
political subdivision of any country and any liabilities with respect thereto,
including any penalties, additions to tax, fines or interest thereon, and
includes any liability of the company arising under any tax sharing agreement to
which the company is or has been a party.
4
<PAGE>
ARTICLE 2
PURCHASE AND SALE OF ACORN STOCK
--------------------------------
2.1 Purchase Price.
--------------
Subject to the terms and conditions set forth in this Amended and
Restated Agreement, on the date of the Closing, the Shareholders transferred and
conveyed all of the Acorn Shares free and clear of any liens, claims, security
interests or encumbrances of any kind to Etinuum, and Etinuum acquired the Acorn
Shares from the Shareholders for a purchase price (the "Purchase Price")
comprised of:
2.1.1. a non-contingent cash payment in the aggregate amount of
$100,000 (the "Base Consideration") payable in cash or immediately available
funds to the Shareholders at the Closing;
2.1.2. an obligation to pay certain contingent cash payments (the
"Contingent Consideration"), determined and paid in the amounts and subject to
the terms and conditions as set forth in Section 2.2 below;
2.1.3. options to purchase up to a total of four hundred thousand
(400,000) shares of Common Stock issued to the Key Shareholders as set forth in
Section 2.3 below;
2.1.4. the issuance of ten thousand (10,000) shares of Common Stock
to the Non-Employee Shareholder as set forth in Section 2.4 below;
2.1.5. the issuance of the Spider Shares to the Key Shareholders as
provided in the Employment Agreements and Amended and Restated Stock Restriction
Agreements to which they are a party and to the Non-Employee Shareholder as
provided in Section 2.4 herein; and
2.1.6. If Acorn achieves Sustained Profitability on or before
November 30, 1999, the Sustained Profitability Consideration payable within
thirty (30) days after Etinuum's determination that Acorn has achieved Sustained
Profitability and Etinuum shall make such payment to the Shareholders
Representative (as defined in Section 2.2.2), less any amounts to be paid into
escrow pursuant to Section 8.8 herein. If Acorn does not achieve Sustained
Profitability by November 30, 1999, Etinuum shall have no obligation to pay the
Shareholders the Sustained Profitability Consideration and Acorn's and the Key
Shareholders' obligations under the Bridge Loan will remain in effect and
interest on such loan will continue to accrue in accordance with the terms of
the Bridge Loan and the Letter of Intent. Etinuum has paid the Sustained
Profitability Consideration and the Bridge Loan has been paid in full.
5
<PAGE>
The portion of the Purchase Price for the Acorn Shares payable at the
Closing was paid to each Shareholder based upon the percentages listed on
Schedule 2.2.2 hereto. All subsequent payments of the Purchase Price payable
hereunder shall be made based on the percentages listed in Schedule 2.2.2
pursuant to Section 2.2 below.
2.2 Contingent Consideration.
------------------------
2.2.1 Etinuum will pay to the Key Shareholders the Contingent
Consideration, if the Key Shareholders meet certain conditions as set forth in
this Section 2.2 as of October 30 of each of the years 2000, 2001 and 2002
("Year 1," "Year 2" and "Year 3," respectively, and each may be referred to as
an "Annual Period"). Etinuum will pay to the Key Shareholders an aggregate
amount of two hundred thousand dollars ($200,000) following Year 1 and two
hundred thousand dollars ($200,000) following Year 2, provided that all Key
Shareholders are employees of Etinuum throughout and as of the last day of Year
1 and of Year 2, respectively; except that, notwithstanding the foregoing, up to
one Key Shareholder may terminate his or her employment with Etinuum in Year 1
and in Year 2 for Hardship, death or Disability, and any Key Shareholders may be
terminated by Etinuum without Cause or upon a material breach of the Employment
Agreement by Etinuum. Following Year 3, Etinuum will pay to the Key
Shareholders an aggregate amount of four hundred thousand dollars ($400,000)
provided that both (i) no fewer than two Key Shareholders are employees of
Etinuum throughout and as of the last day of Year 3, and (ii) the employment of
any Key Shareholder that was terminated in Year 3 was done with the concurrence
of the Etinuum Chief Executive Officer.
Etinuum's obligation to pay the Contingent Consideration in the
amounts and at the times provided herein is expressly conditioned upon the
satisfaction of the conditions in this Section 2.2.1 by the Key Shareholders.
If any Key Shareholder's employment is terminated except as expressly provided
in this Section 2.2.1, no Key Shareholder shall be entitled to receive any
Contingent Consideration payable in that or in any subsequent Annual Period. If
a Key Shareholder's employment is terminated as permitted by this Section 2.2.1,
such Key Shareholder shall be entitled to receive the Contingent Consideration
he or she would have received in the Annual Period in which the Termination Date
occurs. No Key Shareholder shall be entitled to receive any Contingent
Consideration such terminated Key Shareholder would have been entitled to
receive in any subsequent Annual Periods had he or she continued to be employed
by Etinuum.
As used in this Section 2.2, the terms "Hardship", "Disability" and
"Cause" have the same meaning as in the Employment Agreements. Upon the
termination of a Key Shareholder's employment at any time due to Hardship, death
or Disability, such Key Shareholder shall be counted toward the two Key
Shareholders who may leave in Year 3 under this Section 2.2.1. Upon termination
by a Key Shareholder due to a material breach of the Employment Agreement by
Etinuum or termination by Etinuum without Cause, such Key Shareholder shall not
be counted toward the two Key Shareholders who may leave in Year 3.
6
<PAGE>
2.2.2. The Contingent Consideration, if any, will be paid within
thirty (30) days after the closing of Etinuum's books of account for each Annual
Period and will be paid to each of the Key Shareholders entitled to receive
payment thereunder based on the percentages designated in Schedule 2.2.2.
2.2.3. Each Shareholder will consult with his or her own tax advisor
to determine the tax effect of each provision of this Amended and Restated
Agreement on the Shareholder, including the possible application of Section 83
of the Code.
2.3 Etinuum Stock Options and Spider Shares .
--- ---------------------------------------
2.3.1 On the effective date of this Amended and Restated Agreement,
Etinuum shall issue to the Key Shareholders non-qualified stock options
(the "Options") to purchase a total of four hundred thousand (400,000)
shares of Common Stock (the "Option Shares") pursuant to the provisions of
the Etinuum 1997 or 1998 Stock Option Plan and the Stock Option Agreements
entered into between Etinuum and each of the Key Shareholders. Each Key
Shareholder shall receive options to purchase such number of the Option
Shares based on the percentages designated in Schedule 2.2.2 attached
hereto. One hundred forty-one thousand six hundred sixty seven (141,667)
of the aggregate Option Shares shall vest immediately upon the date of
grant and the remaining Option Shares shall vest in equal monthly amounts
of 8,333 shares beginning on April 1, 2000 and ending on October 1, 2002.
Subject to the provisions of the 1997 or 1998 Stock Option Plan, the
Options shall have a term of ten years from the date of grant and have an
exercise price of $10.00 per share.
2.3.2 Each of the Key Shareholders agree that they will not sell,
transfer, gift, assign, pledge, encumber or otherwise dispose of
("Transfer") any shares of Common Stock acquired upon exercise of the
Option Shares prior to April 30, 2001, except in connection with any
cashless exercise of the Options as permitted by the 1997 or 1998 Stock
Option Plan, or if to another Key Shareholder or to a partnership, trust or
other entity formed for estate planning purposes, or if in connection with
any Change in Control of Etinuum. Any Transfer, whether voluntary or
involuntary or by operation of law, which is made in violation of this
Section 2.3 shall be null and void and have no effect, and Etinuum shall
not recognize any such Transfer or recognize the transferee as the holder
of such Common Stock for any purpose.
2.3.3 In addition to the Options issuable pursuant to this Section
2.3, the Key Shareholders shall receive Spider Shares in the amounts and on
the terms and conditions provided in the Amended and Restated Employee
Stock Restriction Agreement executed concurrently with this Amended and
Restated Agreement.
7
<PAGE>
2.4. Non-Employee Shareholder.
------------------------
On the effective date of this Amended and Restated Agreement, Etinuum
shall issue to the Non-Employee Shareholder 10,000 shares of Common Stock (the
"Non-Employee Shares") and shall release from escrow the Spider Shares issued to
the Non-Employee Shareholder at the Closing (the "Non-Employee Spider Shares").
The Non-Employee Shareholder will not Transfer any Non-Employee Shares prior to
April 30, 2001, except if to another Shareholder or to a partnership, trust or
other entity formed for estate planning purposes, or in connection with any
Change in Control of Etinuum. Any Transfer, whether voluntary or involuntary or
by operation of law, which is made in violation of this Section 2.4 shall be
null and void and have no effect, and Etinuum shall not recognize any such
Transfer or recognize the transferee as the holder of such Non-Employee Shares
for any purpose.
As a condition to the receipt of the Non-Employee Spider Shares
hereunder, the Non-Employee Shareholder agrees to execute and deliver a copy of
the Spider Shareholders Agreement that is executed by the holders of seventy
percent (70%) or more of the outstanding common stock of Spider (the "Spider
Shareholders Agreement").
The Non-Employee Shareholder may not Transfer any of his Non-Employee
Spider Shares except in accordance with the Spider Shareholders Agreement;
provided, however, that any transferee thereof shall execute and deliver a
- -------- -------
counterpart of the Spider Shareholders Agreement and shall agree to be subject
to the restrictions and obligations thereunder. The Non-Employee Shareholder
agrees and acknowledges that any transfer of his Non-Employee Spider Shares
shall be subject to and made in accordance with the terms of the Spider
Shareholders Agreement.
2.5 Closing.
-------
The Closing of the transactions contemplated in this Agreement was
effective as of October 30, 1999 (the "Closing Date").
2.5.1. Subject to the terms and conditions set forth in the
Agreement, at the Closing, the Shareholders delivered to Etinuum:
2.5.1.1. the certificates representing the Acorn Shares
held by each Shareholder, duly endorsed, or along with duly executed
stock powers;
2.5.1.2. Employment Agreements, together with all
exhibits thereto, in the form of Exhibit 6.1.1 executed by each of
the Key Shareholders and Acorn;
8
<PAGE>
2.5.1.3. a certificate in the form attached hereto as
Exhibit 6.1.2 executed by the Shareholders and an officer of Acorn
certifying that each of the representations and warranties made in
ARTICLE 3 is accurate in all Material respects as of the Closing
Date and that each of the covenants, terms and conditions of this
Agreement have been complied with and performed in all Material
respects as of the Closing Date;
2.5.1.4. a certificate executed by the Secretary of Acorn
in the form attached hereto as Exhibit 6.1.6;
2.5.1.5. an Escrow Agreement in the form attached hereto
as Exhibit 8.8.3 executed by each of the Shareholders;
2.5.1.6. an Opinion executed by counsel to Acorn and the
Shareholders in the form attached hereto as Exhibit 6.1.7;
2.5.1.7. resignations of all officers and directors of
Acorn, from such positions (but not as employees) except those
persons continuing as directors or officers under Section 5.5
hereof;
2.5.1.8. a letter from Prospero LLC. ("Prospero") in the
form attached hereto as Exhibit 2.5.1.8 agreed and acknowledged by
Acorn, and the Transaction Advisor Fee Payment Agreement in the form
attached hereto as Exhibit 2.7 executed by Prospero and acknowledged
by Acorn and the Shareholders; and
2.5.1.9. an affidavit in the form attached hereto as
Exhibit 3.36 executed by Acorn and each of the Shareholders.
2.5.2. Subject to the terms and conditions set forth in the
Agreement, at the Closing, Etinuum delivered to the Shareholders:
2.5.2.1. each such Shareholder's portion of that amount
of the Purchase Price which is, as of the date of the Closing,
payable to the Shareholders pursuant to Schedule 2.2.2 herein in
cash or immediately available funds;
2.5.2.2. Employment Agreements, together with all
exhibits thereto, in the form of Exhibit 6.1.1. executed by Etinuum;
2.5.2.3. a certificate in the form attached hereto as
Exhibit 6.2.2. executed by an officer of Etinuum certifying that
each of the representations and warranties made in ARTICLE 3 is
accurate in all Material
9
<PAGE>
respects as of the Closing Date and that each of the covenants,
terms and conditions of this Agreement have been complied with and
performed in all Material respects as of the Closing Date;
2.5.2.4. an Escrow Agreement in the form attached hereto
as Exhibit 8.8.3 executed by Etinuum;
2.5.2.5. an Opinion executed by counsel of Etinuum in the
form attached hereto as Exhibit 6.2.6;
2.5.2.6. the Transaction Advisor Fee Payment Agreement in
the form attached hereto as Exhibit 2.7 executed by Etinuum; and
2.5.2.7. a certificate executed by the Secretary of
Etinuum in the form attached hereto as Exhibit 6.2.5.
2.6 Transaction Costs. Except as set forth in Section 2.7 below, the
-----------------
parties will each be solely responsible for and bear all of their respective
expenses in connection with the negotiation, documentation or consummation of
the transactions contemplated in this Amended and Restated Agreement including,
without limitation, expenses of legal counsel, accountants and other advisors,
and any fees of any finder or broker, whether or not such transactions are
consummated. Without limitation, this shall include the obligation of the
parties to pay the legal fees of their respective counsel.
2.7 Transaction Advisor Fees. In consideration for services rendered by
------------------------
Prospero in connection with the transactions contemplated by the Agreement,
Etinuum issued to Prospero on behalf of Acorn the number of shares of Etinuum
common stock ("Transaction Advisor Shares") as set forth in the Transaction
Advisor Fee Payment Agreement attached hereto as Exhibit 2.7 and subject to the
terms and conditions of such Agreement. Except as set forth in this Amended and
Restated Agreement, Etinuum shall assume no liability for any taxes or other
payments of Prospero, Acorn or the Shareholders. Acorn and the Acorn
Shareholders acknowledge the acceptance by Prospero of the Transaction Advisor
Shares in partial consideration for services rendered by Prospero to Acorn. The
Shareholders agree to hold Etinuum harmless and to pay all costs associated with
any Etinuum or Acorn defense that may arise from any claim asserted by Prospero,
or an intermediary on its behalf, in connection with the payments to be made by
the Shareholders under the Engagement Letter with Prospero dated August 3, 1998
(as amended). Etinuum agrees to hold the Shareholders harmless and to pay all
costs associated with any Shareholder defense that may arise from any claim
asserted by Prospero, or an intermediary on its behalf, in connection with the
consideration to be paid by Etinuum under the Transaction Advisor Fee Payment
Agreement.
2.8 Documents. Concurrently with the execution of this Amended and
---------
Restated
10
<PAGE>
Agreement, each of the Key Shareholders and Etinuum shall execute and
deliver an Amended and Restated Employee Stock Purchase Agreement, and each of
the Key Shareholders, Etinuum and Prospero shall execute and deliver an Amended
and Restated Registration Rights Agreement. The parties hereto agree and
acknowledge that the Employment Agreements among Etinuum, Acorn and each of the
Key Shareholders, the Escrow Agreement among Etinuum, the Escrow Agent and each
of the Key Shareholders, and the Transaction Fee Payment Agreement between
Prospero and Etinuum, shall each remain in full force and effect and shall not
be amended.
2.9 No Waiver. The entering into of this Amended and Restated
---------
Agreement is not a waiver of any claim by any Person except in respect of the
specific amendments made herein or in other Documents in connection herewith.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF ACORN
----------------------------------------
AND THE SHAREHOLDERS
--------------------
Acorn and the Shareholders (as limited by ARTICLE 8) represent and
warrant to Etinuum as of the Closing:
3.1 Authorization Capitalization; Outstanding Shares. The authorized
------------------------------------------------
capital stock of Acorn on the Closing Date consists of 5,000 shares of Class A
common stock, with a stated par value of $0.01 per share, of which 1,840 shares
are issued and outstanding and 5,000 shares of Class B (non-voting) common
stock, with a stated par value of $0.01 per share, of which no shares are issued
and outstanding. All of the issued and outstanding Shares of Acorn stock are
duly authorized, fully paid, validly issued and non-assessable, with no personal
liability attaching to the ownership hereof. Each Shareholder is the record and
beneficial owner of, and has marketable, legal and valid title to, the shares of
Acorn common stock as set forth on Schedule 3.1 free and clear of any liens,
charges, claims, security interests or encumbrances of any kind.
3.2. Organization; Good Standing; Power; Etc. Acorn: (i) is a
----------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware; (ii) is authorized or licensed to do business as a
foreign corporation and is in good standing in the jurisdictions listed in
Schedule 3.2; (iii) is not required to be authorized or licensed to do business
as a foreign corporation in any other jurisdiction (within or without the United
States) except jurisdictions in which Acorn's failure to qualify to do business
will have no Material adverse effect on the business, prospects, operations,
properties, assets or condition (financial or otherwise) of Acorn or, if Acorn
is not so qualified in any such jurisdiction, it can become so qualified in such
jurisdiction without any Material adverse effect; and (iv) has the requisite
11
<PAGE>
power and authority to own, lease and operate its properties and to carry on its
business as currently conducted.
3.3 Agreements Relating to Stock; Options; Warrants; Restrictions on
----------------------------------------------------------------
Shares; Etc. Except as set forth on Schedule 3.3, neither Acorn nor any
- ------------
Shareholder, is a party to any written or oral agreement, understanding,
arrangement or commitment or bound by any certificate of incorporation, bylaw or
instrument (including options, warrants or convertible securities) which creates
any rights in any person with respect to shares of the capital stock or any
other securities of Acorn including any which relates to the voting of,
restricts the transfer of, requires Acorn or the Shareholder to issue or sell,
or creates rights in any person with respect to the capital stock or other
securities of Acorn (or warrants or rights with respect thereto). There exist
no options or other rights to purchase, or rights to convert any securities or
obligations into, any shares of the capital stock or other securities of Acorn.
3.4 Charter and Bylaws; Officers and Directors. Complete and correct
------------------------------------------
copies of: (i) Acorn's corporate charter or articles of incorporation, as
amended to date ("Charter"), certified by the appropriate officials of the
jurisdiction of incorporation; and (ii) Acorn's Bylaws, as amended to date
("Bylaws"), are attached as Schedule 3.4.A. Such Charter and Bylaws are fully
in force and effect, and Acorn is not in violation of any of the provisions
thereof. A complete and correct list of all officers and directors of Acorn is
set forth in Schedule 3.4.B.
3.5 No Subsidiaries. Acorn does not own and Acorn has never owned, any
---------------
interest, directly or indirectly, in any other corporation, person, company,
limited liability company, business, trust, partnership, limited partnership,
joint venture, or other entity or association, except as listed on Schedule 3.5.
3.6 Authorizations and Enforceability. Each Shareholder and Acorn has
---------------------------------
all requisite power and authority to execute, deliver and perform this
Agreement, and any ancillary agreements hereto, and to consummate the
transactions contemplated hereby. This Agreement and the Documents have been
duly and validly authorized by Acorn, and have been duly and validly executed
and delivered by each Shareholder and by Acorn and constitute the valid and
binding obligation of each Shareholder and Acorn fully enforceable in accordance
with their respective terms, except as may be limited by principles of public
policy and except as indemnification provisions may be limited by securities
laws, and subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules of law governing specific
performance, injunctive relief or other equitable remedies.
3.7 Effect of Agreement, Etc. The execution, delivery and performance of
-------------------------
this Agreement and the Documents by each Shareholder and by Acorn and the
consummation of the transactions contemplated hereby will not, with or without
the giving of notice of the lapse of time, or both: (i) violate any provision of
law, statute, rule or regulation to which Acorn or any Shareholder is subject;
(ii) violate any judgment, order, writ or decree of any court, arbitrator or
governmental agency applicable to Acorn or any Shareholder; (iii) have any
effect on any of
12
<PAGE>
Acorn's permits, licenses, tariffs, orders or approvals or the ability of Acorn
to make use of such permits, licenses, tariffs, orders or approvals or (iv)
result in the breach of or conflict with any term, covenant, condition or
provision of, result in the modification or termination of, constitute a default
under, or result in the creation or imposition of, any lien, security interest,
charge or encumbrance upon any of the properties or assets of Acorn or any
Shareholder pursuant to any charter, bylaw, commitment, contract or other
agreement or instrument, including any of the Commitments (as defined in Section
3.16) to which Acorn or any Shareholder is a party or by which any of its assets
or properties are or may be bound or affected or from which Acorn or any
Shareholder derives benefit, except as set forth in Schedule 3.7.
3.8 Restrictions; Burdensome Agreements. Except as set forth in Schedule
-----------------------------------
3.8, neither Acorn nor any Shareholder is a party to any contract, commitment or
agreement, and neither Acorn nor any of the Shareholders or any of their
respective properties and assets are subject to or bound or affected, by any
charter, bylaw or other corporate restriction, or any order, judgment, decree,
law, statute, ordinance, rule, regulation or other restriction of any kind or
character, which would: (i) prevent any Shareholder or Acorn from entering into
this Agreement or the Documents or from consummating the transactions
contemplated hereby; or (ii) have a Material adverse effect on the business,
properties, prospects or the condition, financial or otherwise, of Acorn. None
of Acorn's contracts or agreements are on terms more burdensome to Acorn than
typical contracts and agreements in its industry for companies the size and
scope of Acorn.
3.9 Government Consents. No consent, authorization or approval of, or
-------------------
exemption by, or filing with, any governmental, public or self-regulating body
or authority (including, but not limited to, any licensing authority with
jurisdiction over the services used or provided by Acorn) is required by any
Shareholder or by Acorn for consummation of this Agreement or any of the
instruments or agreements herein referred to, or the taking of any action herein
contemplated.
3.10 Compliance; Licenses and Permits.
--------------------------------
3.10.1. Acorn has all requisite corporate power and authority, and
all permits, licenses, tariffs, orders and approvals of governmental and
administrative authorities which are Material, to own, lease and operate its
properties and to carry on its business as presently or previously conducted;
all such presently existing permits, licenses, tariffs, orders and approvals
Material to the conduct of the business of Acorn are listed in Schedule 3.10,
are in full force and effect, and no suspension or cancellation of any of them
is pending or threatened.
3.10.2. Acorn has complied in all respects with, and is not in
violation in any respect of, all or any Legal Requirements (as defined below)
applicable to the business of Acorn as presently or previously conducted, or as
currently proposed to be conducted, except where such non-compliance or
violation has not had, and could not reasonably be expected to have, a Material
adverse effect upon Acorn. Acorn has all federal, state, local and
13
<PAGE>
foreign governmental tariffs, orders, licenses and permits (collectively,
"Permits") which are required for the conduct of its business presently or
previously conducted by Acorn, which Permits are in full force and effect, and
no violations are outstanding or uncured with respect to any such Permits and no
proceeding is pending or, to the best of Acorn's knowledge, threatened to revoke
or limit any thereof. Acorn and the Shareholders have no knowledge or reason to
know of any such Permits with respect to any Acorn employees that are not in
full force and effect, or have violations outstanding or uncured with respect
thereto, or any proceedings pending or threatened to revoke or limit any such
Permits. No condition or event has occurred which, with notice or the passage of
time or both, would constitute a violation of a Legal Requirement or Permit
except where such noncompliance or violation has not had, and could not
reasonably be expected to have, a Material adverse effect upon Acorn. "Legal
Requirement" means any applicable law, rule, regulation, order or ordinance.
Acorn's current and currently contemplated activities and services will not
violate any Legal Requirement in such a fashion as to have a Material adverse
effect on Acorn.
3.11 Financial Statements; Absence of Undisclosed Liabilities.
--------------------------------------------------------
3.11.1. Acorn's most recent audited financial statements as of and
for the period ended December 31, 1998, and Acorn's unaudited balance sheets and
income statements dated as of August 31, 1999 (the "Acorn Financial
Statements"), are attached as Schedule 3.11.1 The Acorn Financial Statements
have been prepared in accordance with GAAP (without reference to Etinuum's
application thereof), and fairly present, in all Material respects, the
financial condition and results of operations of Acorn as of the dates
indicated. Without limitation, any reduction in the net book value of Acorn of
more than $50,000 is "Material" for purposes of this Section. The August 31,
1999 balance sheet is referred to as the "Balance Sheet" and August 31, 1999 is
referred to as the "Balance Sheet Date." The historical books and records of
Acorn for the fiscal year period ended December 31, 1998, have been sufficiently
prepared to permit the preparation of audited financial statements by Etinuum
after the Closing in accordance with the financial accounting rules applicable
in connection with any registered public offering of Etinuum securities under
the Securities Act of 1933, as amended. The books and records of Acorn for the
fiscal years ended December 31, 1997 and 1996 have been prepared in all Material
respects consistently with the financial accounting rules applied to the Acorn
books and records for fiscal year 1998, except that the for the fiscal years
1997 and 1996 the cash basis method of accounting was used.
3.11.2. Except to the extent reflected or reserved against or
otherwise disclosed in the Acorn Financial Statements or in Schedule 3.11.2, as
of the Balance Sheet Date, Acorn had no liabilities, debts or other obligations
of any nature, whether absolute, accrued, contingent or otherwise, or whether
due or to become due, including, without limitation, liabilities for Taxes, in
excess of $50,000 in any one case or which in the aggregate exceed $100,000.
Subsequent to the Balance Sheet Date, Acorn has not incurred any liabilities,
debts or obligations other than in the ordinary course of business (and such
ordinary course items do not in the aggregate exceed $50,000), except as listed
in Schedule 3.11.2, or otherwise disclosed
14
<PAGE>
herein including the accounts payable report described below or in the Schedules
hereto, and has endeavored to properly record in its books of account all items
of income and expense and all other proper charges and accruals required to be
made in accordance with GAAP (without reference to Etinuum's application
thereof. Since the Balance Sheet Date, no debts or liabilities of or to Acorn
have been forgiven, settled or compromised, except for full consideration or
except in the ordinary course of business. To assist in disclosing the status of
its debts Acorn has delivered to Etinuum an accounts payable report, as prepared
in the ordinary course of Acorn's business, which report was created not more
than five (5) days before the date of this Agreement. The parties recognize that
in the ordinary course of business invoices arrive at various times.
3.12 Tax Matters.
-----------
3.12.1. Acorn's fiscal year for income tax reporting
purposes ends December 31.
3.12.2. Acorn has timely filed (including extensions) all
Tax Returns that are required to have been filed by it with the appropriate
federal, state, county and local government agencies or instrumentalities, that
would have a Material adverse effect if not filed. Acorn has paid or established
reserves shown on the Balance Sheet (plus not more than $10,000 of additional
reserves subsequent to the Balance Sheet Date) for all income, franchise,
payroll and other Taxes. An estimate of accrued Taxes is set forth in Schedule
3.12. There is no pending dispute with any Taxing authority relating to any of
Acorn's Tax Returns. Acorn is not subject to any proposed Material liability for
any Tax to be imposed upon its properties or assets for which there is not an
adequate reserve reflected in the Acorn Financial Statements or accrued since
the Balance Sheet Date. No federal or state income or sales Tax Returns of Acorn
have been audited. Acorn has not executed or filed with any Taxing authority any
agreement extending the period for assessment or collection of any Taxes.
Complete and correct copies of the income tax returns of Acorn for fiscal years
ending in 1995, 1996, 1997, and 1998 as filed with the Internal Revenue Service
and all state taxing authorities, together with all related correspondence and
notices, have previously been delivered to Etinuum. Acorn has not consented to
having the provisions of Section 341(f) (which relates to collapsible
corporations) of the Code apply to it.
3.12.3. Acorn has never elected to be treated as a
Subchapter S corporation as provided by the Code.
3.13 Title to Properties; Absence of Liens and Encumbrances; Etc. Acorn
-----------------------------------------------------------
does not own any real property. Except as set forth in Schedule 3.13, Acorn
owns good and marketable title to the properties and assets used in its business
(including, without limitation, the assets reflected in the Acorn Financial
Statements, except as since sold or otherwise disposed of in the ordinary course
of business), free and clear of all mortgages, security interests, claims,
liens, charges, encumbrances, restrictions on use or transfer or other defects
in title. The fixed assets of Acorn reflected in the Acorn Financial Statements
are all located on real property owned or
15
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leased by Acorn and all personal property located at or on such real property is
owned or leased (as disclosed in the Schedules) by Acorn. Acorn is not a bailee
for any other entity, except as set forth on Schedule 3.13. The leases and other
agreements under which Acorn holds, leases or is entitled to the use of any real
property or personal property involving lease payments of over $18,000 per year
are set forth in Schedule 3.16 (the "Scheduled Leases") and are in full force
and effect, and all rentals, royalties or other payments payable thereunder
prior to the date hereof have been duly paid. All "buy-out" prices under the
Scheduled Leases are shown on Schedule 3.16, regardless as to whether the lessee
has any obligation to purchase such property.
3.14 Facilities; Equipment and Condition. Schedule 3.14 sets forth a
-----------------------------------
correct and complete list of all of the furniture, fixtures or equipment having
a book value, before accumulated depreciation or amortization, of more than
$50,000 (or, in the case of any such equipment which is leased and does not have
a book value for purposes of Acorn's financial statements, in the opinion of
Acorn management has a fair market value in excess of $50,000), buildings,
plants, warehouses and other real estate owned or used by Acorn in the conduct
of its businesses ("Fixed Assets"), indicating whether such property is owned or
leased, and complete legal descriptions of all real property. The Fixed Assets
owned, operated or leased by Acorn are in good condition and repair (ordinary
wear and tear excepted) and suitable for the uses for which intended. All such
Fixed Assets are operated in conformity with all applicable laws, ordinances,
regulations, orders and other requirements relating thereto currently in effect,
scheduled to come into effect, or proposed.
3.15 Insurance. Schedule 3.15 contains a correct and complete description
---------
(including amounts, scope and coverage) of all of the policies of insurance and
fidelity or surety bonds carried by Acorn. All such policies are in full force
and effect. Acorn has not failed to give any notice or present any claim under
any insurance policy, fidelity bond or surety bond in due and timely fashion.
There are no outstanding requirements or recommendations by any insurance
company that issued a policy with respect to any of the properties and assets
owned or leased by Acorn or by any governmental authority requiring or
recommending any repairs or other work to be done on or with respect to any of
the properties and assets owned or leased by Acorn or requiring or recommending
any equipment or facilities to be installed on or in connection with any of the
properties or assets owned or leased by Acorn. The worker's compensation and
unemployment insurance ratings of Acorn have been made available to Etinuum.
There are no Material proposed premium increases on any of Acorn's insurance
policies and no conditions or circumstances applicable to the business of Acorn
which might result in such increase except as shown on Schedule 3.15.
3.16 Contracts. All contracts, agreements and instruments, to which
---------
Acorn is a party are valid, binding and in full force and effect in all Material
respects, and are valid, binding and enforceable by Acorn in accordance with
their respective terms, subject to the laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies. Acorn has
no knowledge or any reason to know of any default by any other party to such
contracts in any
16
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Material respect under such contracts, agreements or instruments. Each of such
Material contracts, agreements and instruments has been listed on Schedule 3.16
attached hereto.
Except as set forth in Schedule 3.16, or another Schedule hereto, Acorn is
not a party to, nor are its properties and assets bound or affected by, any oral
or written:
3.16.1. contracts, agreements, or instruments providing for
payments by or to Acorn of $50,000 or more per year;
3.16.2. employment or consulting agreements which provide for
compensation at the rate of more than $50,000 per year (including all salary,
bonuses and commissions);
3.16.3. employment or consultant policies or agreements, express or
implied, placing any limits (other than a notice period not exceeding 30 days)
on Acorn's right to terminate at will the employment or retention of any
employee or consultant;
3.16.4. agreement involving more than $50,000 guaranteeing,
indemnifying or otherwise becoming liable for the obligations or liabilities of
another, or involving more than $50,000 of compensating balances, or agreeing to
assure another person meets any financial covenant; or
3.16.5. agreement which restricts the conduct of business
anywhere in the world.
Correct and complete copies of all such agreements, plans, policies,
documents and arrangements (or, where they are oral, true and complete written
summaries thereof) (collectively referred to herein as the "Commitments") have
been delivered to Etinuum prior to the date hereof.
3.17 Litigation. Except as set forth in Schedule 3.17, there is no
----------
pending or, to the best of Acorn's knowledge, threatened claim, action, suit,
proceeding, arbitration, investigation or inquiry pending before any federal,
state, municipal, foreign or other court or any governmental, administrative or
self-regulatory body or agency, or any private arbitration tribunal which may
have any Material adverse effect upon the assets, properties or business of
Acorn or the transactions contemplated by this Agreement. Neither Acorn, nor
any officer, director, partner, agent or employee of Acorn has been permanently
or temporarily enjoined or barred by order, judgment or decree of any court or
other tribunal or any agency or self-regulatory body from engaging in or
continuing any conduct or practice in connection with the business engaged in by
Acorn. Except as set forth in Schedule 3.17, there is not in existence at
present any order, judgment or decree of any court or other tribunal or any
agency or self-regulatory body to which Acorn or the business, properties or
assets of Acorn are subject or by which they are bound. Acorn is not in
Material default under any order, license, tariff, regulation or demand of any
17
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Federal, state, municipal, foreign or other governmental, administrative or
self-regulatory body or with respect to any order, writ, injunction or decree of
any court or arbitration body.
3.18 Intellectual Property and Other Intangible Assets.
-------------------------------------------------
3.18.1. Except as set forth in Schedule 3.18, Acorn (i) owns or has
the right to use, free and clear of all liens, claims and restrictions, all
patents, trademarks, service marks, trade names, copyrights, licenses and
rights, used in the conduct of its business as now conducted or as proposed to
be conducted without infringing upon the right or claimed right of any person
under or with respect to any of the foregoing, and (ii) is not obligated or
under any liability whatsoever to make any payments by way of royalties, fees or
otherwise to any owner of, licensor of, or other claimant to, any patent,
trademark, tradename, copyright or other intangible asset, with respect to the
use thereof or in connection with the conduct of its business or otherwise.
Acorn has not received any written communication alleging that Acorn or any of
its employees has violated or infringed upon, or, by conducting Acorn's business
as proposed, would violate or infringe upon, any patent, trademark, service
mark, trade name, copyright, license, or right of any other person or entity.
All patents, trademarks, service marks, tradenames, copyrights and licenses (and
applications therefor) owned or used by Acorn are listed on Schedule 3.18
hereto, and such schedule indicates which such rights are owned.
3.18.2. Except as set forth on Schedule 3.18.2, Acorn owns or has the
unrestricted right to use all trade secrets, including know-how, inventions,
designs, processes, computer programs and technical data required for or
incident to the development, manufacture, operation, sale and licensing of all
products and services sold or licensed or proposed to be sold or licensed by
Acorn (together with the rights listed in Schedule 3.18, such rights will be
hereinafter referred to collectively as the "Intellectual Property"), free and
clear of any rights, liens or claims of others, including without limitation
former employers of all employees of Acorn. All computer software which is in
any way used or to be used in conducting the business (except "off-the-shelf"
software, such as word processing and spreadsheet packages, to which Acorn has
express, written licenses) was created wholly by employees of Acorn, or was
created by independent contractor programmers who expressly, and in writing,
assigned to Acorn all rights, title and interest in such software, including all
copyright(s) and appurtenant rights.
3.18.3. No third party currently infringes, or has threatened
infringement, of any Intellectual Property owned, licensed or used by Acorn as
set forth in Schedule 3.18.
3.18.4. Except as disclosed in Schedule 3.18.4, Acorn has not ever
conveyed, or is currently under an obligation to convey, any right, title or
interest in or to any of the Intellectual Property to any third party other than
in the ordinary course of its business.
3.19 No Interest in Competitors; Etc . Except as set forth in Schedule
-------------------------------
3.19, none of the Key Shareholders, nor any officer or director of Acorn or any
immediate family member or
18
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spouse of any such person, or trust for their benefit, directly or indirectly,
owns any interest in (excluding the ownership of securities representing less
than 5% of any class of publicly traded securities) or controls or is an
employee, officer, director or partner of, or participant in or consultant to,
any corporation, partnership, limited liability company, limited partnership,
joint venture, association or other entity which is in the same line of business
as Acorn or Etinuum, or a creditor, debtor, supplier, customer, landlord,
tenant, lessor or lessee, of Acorn, or has any type of business, commercial,
consulting or professional relationship with Acorn.
3.20 Books and Records. The books and records of Acorn are located at 4
-----------------
Corporate Drive, Shelton, Connecticut. The books of account and other financial
and corporate records of Acorn are in all Material respects complete and
correct, and are maintained in accordance with good business practices, as could
reasonably be expected for a company the size and scope of Acorn (provided,
however, that this representation does not diminish the representations in
Section 3.11). The minute books of Acorn, as made available to Etinuum and its
counsel, contain complete and accurate records of all meetings and accurately
reflect all other corporate action of the shareholders and directors (and
committees thereof) of Acorn through the date hereof.
3.21 Insider Transactions . Schedule 3.21 (when read with Schedule 3.19)
--------------------
sets forth: (i) the amounts and other essential terms of indebtedness or other
obligations, liabilities or commitments (contingent or otherwise), whether
written or oral, of Acorn to or from any past or present officer, director, or
shareholder or any person related to, controlling, controlled by or under common
control with any of the foregoing (other than for usual services performed in
connection with such person's employment with Acorn, the payment for which is
not yet due and does not constitute a bonus); and (ii) all proposed transactions
with such persons, together with the essential terms thereof.
3.22 Employees . Since August 1, 1999, there has been no resignation or
---------
termination of any officer or key employee of Acorn that has had or is expected
to have a Material adverse effect on Acorn. Acorn has received no
communication that any key employee or key consultant of Acorn is considering:
(i) terminating his or her employment or consultant status; or (ii) seeking a
substantial increase in compensation or benefit.
3.23 Union Contracts; Labor Relations; Etc. Acorn is not presently, and
-------------------------------------
has not been, party to any union or collective bargaining agreement. Acorn is
in compliance in all Material respects with all applicable laws, rules and
regulations respecting employment conditions and practices, has withheld all
amounts required by law or agreement to be withheld from the wages or salaries
of its employees and Acorn is not liable for arrears of wages or any taxes or
penalties for failure to comply with any of the foregoing. Acorn has not
engaged in any unfair labor practice, nor has Acorn discriminated on the basis
of race, religion, age or sex, or other protected category in its employment
conditions or practices, nor has Acorn taken any Material adverse action against
any employee or
19
<PAGE>
consultant in breach of any agreement or policy, express or implied, oral or
written, nor taken any Material adverse action against any employee or
consultant in violation of public policy. Except as set forth in Schedule 3.23
or in another Schedule to this Agreement, there are no: (i) charges or
complaints of unfair labor practices, race, religion, age, sex or other
discrimination, breach of employment or consultant agreement or policy, or
breach of public policy pending or threatened against Acorn before any board,
department, commission, agency or court, nor does any basis therefor exist; (ii)
existing or threatened labor strikes, disputes, grievances, controversies or
other labor troubles affecting Acorn; or (iii) pending or threatened union
representation questions respecting the employees of Acorn.
3.24 Employee Benefit Plans. Except as listed on Schedule 3.24, Acorn
----------------------
does not have any employee benefit plan, stock option plan, stock appreciation
plan, stock purchase plan, profit sharing plan, or retirement or deferred
compensation plan (collectively "Plans"). Acorn has no liability (contingent or
otherwise) to any other person (including a Plan trust or Plan) in respect of
any profit sharing, retirement, deferred compensation or other employee benefit
plan that is maintained, sponsored or contributed to by another person.
3.25 Bank Accounts and Safe Deposit Arrangements. Schedule 3.25 sets
-------------------------------------------
forth a correct and complete list of each bank account, brokerage account,
similar account and safe deposit box maintained by Acorn, and the names of all
authorized signatories on such accounts.
3.26 Powers of Attorney. No person has any power of attorney to act on
------------------
behalf of Acorn in connection with any of the properties or business affairs of
Acorn.
3.27 No Finder. Except as provided for in Section 2.7, neither Acorn nor
---------
the Key Shareholders has taken any action which would give to any person a right
to a consultant's or finder's fee or any type of brokerage commission in
relation to or in connection with the transactions contemplated by this
Agreement.
3.28 No Material Adverse Change. Except as set forth in Schedule 3.28,
--------------------------
since the Acorn Balance Sheet Date:
3.28.1. Acorn has not entered into any Material transaction which was
not in the ordinary course of its business except as contemplated or disclosed
by this Agreement;
3.28.2. There has been no Material adverse change to the business
operations or financial condition of Acorn other than changes in the ordinary
course of its business, none of which, individually or in the aggregate, has a
Material adverse effect;
3.28.3. There has been no damage to, destruction of or loss of
physical property (whether or not covered by insurance) that has had a Material
adverse effect on the business or operations of Acorn;
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<PAGE>
3.28.4. There has been no resignation or termination of employment
of any officer or key employee of Acorn, and Acorn does not have any actual
knowledge or reason to know of the impending resignation or termination of
employment of any officer or key employee of Acorn that would have a Material
adverse effect on the business of Acorn;
3.28.5. All loans or advances made by Acorn to any of its employees,
officers or directors are disclosed on Schedule 3.21, which Schedule sets forth
the name of such employee, officer or director, the loan amount, the date of the
loan, the maturity date and the other terms of each such loan.
3.28.6. Acorn has not made or granted any employee a bonus, or any
general or specific wage or salary increase, outside the ordinary course of
business (and in any event less than 10%), engaged any new officer, or engaged
any new employee outside the ordinary course of business;
3.28.7. Acorn has not made any increase in or commitment to increase
any employee benefits or adopted or made any commitments to adopt any additional
employee benefit plan;
3.28.8. Acorn has not declared or paid any distribution to its Key
Shareholders, whether in the nature of dividends or otherwise, or purchased or
redeemed any of its outstanding shares of capital stock or other securities, or
paid any debt for borrowed money to any Shareholder or any affiliate of a
Shareholder; and
3.28.9. Acorn has not issued or sold any shares of its capital
stock or any other securities, or granted any options or other rights for the
purchase of any shares of its capital stock or other securities.
3.29 Investment Representations .
--------------------------
3.29.1. The Non-Employee Shareholder represents and warrants to
Etinuum that:
3.29.1.1. he is acquiring the Non-Employee Shares for his own account
for investment, not for the interest of any other person, not for resale to any
other person and not with a view to or in connection with a sale or
distribution;
3.29.1.2. he has provided the information requested in written due
diligence requests of Etinuum to the Non-Employee Shareholder related to the
Non-Employee Shareholder, and that such information provided by him is true and
correct in all respects;
3.29.1.3. he has had an opportunity to ask questions of and receive
answers from representatives of Etinuum with respect to the acquisition of the
Non-Employee
21
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Shares. Etinuum has made available to him all documents requested and has
provided answers to all such persons' questions relating to receipt of the Non-
Employee Shares, including the Etinuum Financial Statements (as defined in
Section 4.7);
3.29.1.4. he acknowledges that, because the Non-Employee Shares will
not have been registered under the Securities Act of 1933, as amended (the
"Act"), or applicable state securities laws, any resale inconsistent with the
Act may create liability on his part and/or the part of Etinuum, and agrees not
to assign, sell, pledge, transfer or otherwise dispose of or transfer any of the
Non-Employee Shares unless registered under the Securities Act and applicable
state securities laws or he has delivered an opinion of counsel satisfactory to
Etinuum that such registration is not required;
3.29.1.5. he is able to bear the economic risk of an investment in
the Non-Employee Shares and, by reason of his business or financial experience
or the business or financial experience of his professional advisors who are
unaffiliated with and who are not compensated by Etinuum, directly or
indirectly, has the capacity to protect his own interests in connection with the
transactions contemplated hereby; and
3.29.1.6. he acknowledges that all certificates of the Non-Employee
Shares and the Spider Shares issued pursuant hereto, shall contain substantially
the following legend, and any such additional restrictive legends as Etinuum
deems appropriate or necessary:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THEY
MAY NOT BE OFFERED OR TRANSFERRED BY SALE, ASSIGNMENT, PLEDGE OR OTHERWISE
UNLESS (I) A REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT IS IN EFFECT OR (II) THE CORPORATION HAS RECEIVED AN OPINION OF
COUNSEL, WHICH OPINION IS SATISFACTORY TO THE CORPORATION, TO THE EFFECT
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT."
3.29.1.7. his state of residence and mailing address is as
shown on Schedule 3.29.7.
3.29.2. Each Key Shareholder hereby agrees that, to the extent such
Key Shareholder receives Common Stock which becomes issuable pursuant to the
terms and conditions of this Amended and Restated Agreement at any time
subsequent to the date of the Closing, such Key Shareholder will make such
investment representations, in writing for the benefit of Etinuum, as of the
date of the issuance of the Common Stock as required by Etinuum and as provided
in the 1997 or 1998 Stock Option Plan and Stock Option Agreements to which such
Key Shareholder is a party.
22
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3.29.3. Neither Acorn nor any Shareholder, nor any "associate" of
Acorn or any Shareholder as such term is defined in Rule 12b-2 of the Securities
Exchange Act of 1934, as amended, is, or has a relationship with, a member of
the National Association of Securities Dealers, Inc. ("NASD"), or is an officer,
director, registered representative, lender, employee or beneficial owner of 10%
or more of a NASD member or any corporation or entity which owns a 10% or
greater ownership interest in an NASD member.
3.30 Suppliers and Customers. Except as set forth in Schedule 3.30, there
-----------------------
are no Material agreements of over twelve (12) months in duration which commit
Acorn to carry on business at fixed prices or prices determined by an
established formula. No supplier or customer accounted for more than five
percent (5%) of Acorn's consolidated sales or purchases in either the past
fiscal year or in the interim period ended as of the Balance Sheet Date, and no
supplier or customer Material to Acorn's business has terminated its
relationship with Acorn, or has since the Balance Sheet Date decreased or
delayed Materially, or threatened to decrease or delay Materially, its services
or supplies to Acorn.
3.31 Securities Act, Etc. Neither Acorn, nor its respective officers,
-------------------
directors, or controlling persons (a) have been convicted within the ten years
preceding the date of this Agreement of any felony or misdemeanor of the types
described in Rule 262 (b)(1) under the Securities Act, (b) are subject to an
order, judgment or decree of the types described in Rule 262(b)(2) under the
Securities Act, (c) are subject to an order of the SEC of the types described in
Rule 262(b)(3) under the Securities Act, (d) have been suspended or expelled
from, or suspended or barred from association with a member of, a national
securities exchange or as described in Rule 262(b)(4) under the Securities Act
or (e) are subject to an order or injunction as described in Rule 262(b)(5)
under the Securities Act.
3.32 Lawyers and Accountants. Acorn and the Key Shareholders are not
-----------------------
relying upon any investigation made by Etinuum's counsel or accountants or the
presence of such counsel or accountants as an indication that counsel or the
accountants has reviewed or passed upon the representations, warranties,
projections or business plan of Etinuum or the wisdom of an investment in
Etinuum.
3.33 Accounting Controls. Neither Acorn, nor any director, officer,
-------------------
agent, employee, consultant or other person associated with or acting on behalf
of any Acorn, has (a) used any corporate funds for unlawful contributions,
gifts, entertainment or other unlawful expenses relating to political activity
or (b) made any direct or indirect unlawful payments to government officials or
others from corporate funds or established or maintained any unlawful or
unrecorded funds.
3.34 Names. Since the date of its inception, Acorn has not used any trade
-----
name, d/b/a, or other name to identify itself, except Acorn Information
Services, Inc.
23
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3.35 Material Misstatements or Omissions. No representations or
-----------------------------------
warranties by Acorn or any Key Shareholder in this Agreement, or any document,
exhibit, statement, certificate or schedule furnished to Etinuum by a
representing party pursuant hereto, or in connection with the transactions
contemplated hereby, intentionally contains any untrue statement of a Material
fact, or intentionally omits to state any Material fact necessary to make the
statements or facts contained herein or therein in the context in which they
were made not misleading. Any forecasts or projections, including in the
Business Plan, delivered by or on behalf of Acorn are not guarantees or
representations as to performance and Acorn and the Key Shareholders expressly
disclaim any warranty as to the profitability or future prospects of Acorn.
3.36 Not A United States Real Property Interest. Acorn has delivered to
------------------------------------------
Etinuum an affidavit in the form attached as Exhibit 3.36 hereto certifying that
Acorn is not and has never been a United States Real Property Holding Company as
defined in the Code.
3.37 Other. Acorn has delivered to Etinuum Certificates of the Secretary
-----
of State (or other authorized officer) of the State of Delaware certifying as of
a date within thirty (30) days before the Closing Date that Acorn is, as of such
date, in good standing and authorized to transact business as a domestic
corporation. Acorn has delivered to Etinuum Certificates of the Secretary of
State (or other authorized officer) of each jurisdiction in which Acorn is
qualified to do business as a foreign corporation, certifying as of a date
within thirty (30) days before the Closing Date that Acorn is, as of such date,
in good standing and authorized to transact business as a foreign corporation in
such jurisdiction. Acorn has delivered the written resignations, effective as
of the Closing, of all officers and members of the Board of Directors of Acorn
except those persons to remain as directors or officers, as applicable,
hereunder. The approvals and all consents from third parties and governmental
agencies (including under Blue Sky laws) required by Acorn, or a Shareholder
(other than approvals or consents required by Acorn the absence of which would
not have a Material adverse effect on the ability of Etinuum or Acorn to operate
their respective business after the Closing) required to consummate the
transactions contemplated hereby and any additional regulatory consents have
been obtained.
3.38 Year 2000 Compliance. In all Material respects, products used by
--------------------
Acorn, and products sold and/or licensed by Acorn in the conduct of its business
and all other products used in combination with products sold and/or licensed by
Acorn, are designed to be used prior to, during and after the calendar year
2000 A.D. and will be capable of accurately processing date data, without error,
delay or the need for manual input with respect to date data, specifically
including without limitation date data which represents or references the 20th
and 21st centuries, including the years 1999 and 2000 and February 29, 2000.
Without limiting the generality of the foregoing:
(i) The equipment, hardware, software and intellectual properties included
in the Acorn assets will not abnormally end or provide invalid or incorrect
results as a results of date data, specifically including date data which
represents or references different centuries or more
24
<PAGE>
than one century.
(ii) The equipment, hardware, software and Intellectual Property owned,
licensed, leased or used by Acorn have been designed to ensure year 2000
compatibility, including, but not limited to, date data century recognition,
calculations which accommodate same century and multi-century formulas and date
values, and date data interface values that reflect the century.
(iii) The equipment, hardware, software and Intellectual Property owned,
licensed, leased or used include "Year 2000 capabilities". "Year 2000
capabilities" means the equipment, hardware, software and Intellectual Property:
(a) will manage and manipulate data involving dates, including
single century formulas and multi-century formulas, and will not cause an
abnormally ending scenario within the application or generate incorrect values
or invalid results involving such dates; and
(b) provides that all date-related user interface functionalities
and data fields include the indication of century; and
(c) provides that all date-related data interface functionalities
include the indication of century.
Etinuum expressly acknowledges that Acorn has relied on the representations
and warranties of third party vendors with respect to such vendors' products
used, sold or licensed by Acorn.
3.39 Due Diligence. Acorn has provided to Etinuum the information
-------------
requested in the due diligence request dated August 27, 1999, and the
information so provided was true and correct in all Material respects.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF ETINUUM
-----------------------------------------
Etinuum represents and warrants (as limited by ARTICLE 8) to Acorn and the
Shareholders as follows as of the Closing:
4.1 Organization; Good Standing; Power; Etc. Etinuum (i) is a
----------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware; (ii) is authorized or licensed to do business as a
foreign corporation and is in good standing in the jurisdictions listed in
Schedule 4.1; (iii) is not required to be authorized or licensed to do business
as a foreign corporation in any other jurisdiction (within or without the United
States) except jurisdictions in which Etinuum's failure to qualify to do
business will have no Material adverse effect on the business, prospects,
operations, properties, assets or condition (financial or
25
<PAGE>
otherwise) of Etinuum or, if Etinuum is not so qualified in any such
jurisdiction, it can become so qualified in such jurisdiction without any
Material adverse effect; and (iv) has the requisite power and authority to own,
lease and operate its properties and to carry on its business as currently
conducted.
4.2 Restrictions; Burdensome Agreements. Etinuum is not a party to any
-----------------------------------
contract, commitment or agreement, and its properties and assets are not subject
to or bound or affected, by any charter, bylaw or other corporate restriction,
or any order, judgment, decree, law, statute, ordinance, rule, regulation or
other restriction of any kind or character, which would: (i) prevent Etinuum
from entering into this Agreement or the Documents or from consummating the
transactions contemplated hereby; or (ii) have a Material adverse effect on the
business, properties, prospects or the condition, financial or otherwise, of
Etinuum. To the best of Etinuum's knowledge, none of Etinuum's contracts or
agreements are on terms more burdensome to Etinuum than typical contracts and
agreements in its industry for companies the size and scope of Etinuum.
4.3 Subsidiaries. Etinuum does not own and Etinuum has never owned, any
------------
interest, directly or indirectly, in any other corporation, person, company,
limited liability company, business, trust, partnership, limited partnership,
joint venture, or other entity or association, except Brokerage Administrators
Corporation, Etinuum Insurance, Inc., Etinuum Teleservices, Inc., and Spider.
4.4 Capitalization; Outstanding Shares. As of the Closing, the
----------------------------------
authorized capital stock of Etinuum consists solely of 105,805,860 shares of
Common Stock, with a stated par value of $0.0001 per share, of which 40,506,547
shares are or will be issued and outstanding (on an as converted to common stock
basis) immediately prior to the Closing and 63,321,322 shares of outstanding
Preferred Stock, which have been designated as Series A, Series B, Series C,
Series D and Series E Preferred Stock as set forth in the Capitalization Table
attached hereto as in Schedule 4.4. The outstanding shares of capital stock of
Etinuum have been duly authorized and validly issued, and are fully paid and
non-assessable. A complete and accurate schedule listing all shareholders of
Etinuum and the number of shares held by each such shareholder on an as
converted to common stock basis is set forth in Schedule 4.4 and such Schedule
will be updated as of the Closing by an officer's certificate of Etinuum. Except
as set forth in (i) Schedule 4.4; (ii) the Etinuum Amended and Restated
Certificate of Incorporation, as amended; and (iii) the Amended and Restated
Shareholders Agreement, dated as of October 1, 1999, there are no preemptive
rights or rights of first refusal with respect to Etinuum's capital stock, and
there are no written or oral agreements, understandings, arrangements or
commitments, certificate of incorporation, bylaw or instrument (including
options, warrants or convertible securities) which creates any rights in any
person with respect to shares of the capital stock or any other securities of
Etinuum including any which relates to the voting of, restricts the transfer of,
requires Etinuum to issue or sell, or creates rights in any person with respect
to the capital stock or other securities of Etinuum (or warrants or rights with
respect thereto).
26
<PAGE>
4.5 Charter and Bylaws; Officers and Directors. Complete and correct
------------------------------------------
copies of: (i) Etinuum's corporate charter or articles of incorporation, as
amended to date ("Etinuum Charter"), certified by the Secretary of State of
Delaware; and (ii) Etinuum's Bylaws, as amended to date ("Etinuum Bylaws"), are
attached as Schedule 4.5.A. Such Charter and Bylaws are fully in force and
effect, and Etinuum is not in violation of any of the provisions thereof. A
complete and correct list of all officers and directors of Etinuum is set forth
in Schedule 4.5.B.
4.6 Authorization. Etinuum has all requisite power and authority to
-------------
execute, deliver and perform this Agreement, and any ancillary agreements
hereto, and to consummate the transactions contemplated hereby. All corporate
action on the part of Etinuum, its directors and shareholders necessary for the
authorization, execution, delivery and performance of this Agreement and the
Documents by Etinuum has been taken. This Agreement constitutes, and the
Documents constitute, valid and binding obligations of Etinuum, enforceable in
accordance with their respective terms, except as may be limited by principles
of public policy and except as indemnification provisions may be limited by
securities laws, and subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies. The Non-
Employee Shares, when issued in compliance with the provisions of this Agreement
at their respective times of issuance, (i) will be validly issued, fully paid
and non assessable, will be free of any liens or encumbrances, and will not be
subject to any restrictions on transfer (except for those set forth in the
Shareholders Agreement or herein), provided, however, that such shares may be
--------
subject to restrictions on transfer under the state and/or federal securities
laws as set forth herein, and (ii) are not and will not be subject to any
preemptive rights or rights of first refusal except for those in the
Shareholders Agreement, the Etinuum Charter, as may be amended from time to
time, and herein.
4.7 Financial Statements. Etinuum's audited balance sheets dated as of
--------------------
the fiscal years ended 1997 and 1998 and Etinuum's audited statements of
operations for the fiscal years ended 1997 and 1998, and Etinuum's unaudited
balance sheet and statement of operations for the interim period ended June 30,
1999 (the "Etinuum Financial Statements") are attached as Schedule 4.7. The
Etinuum Financial Statements have been prepared in accordance with GAAP, and
fairly present, in all Material respects, the financial condition and results of
operations of Etinuum as of the dates indicated.
4.8 No Material Adverse Change. Since August 1, 1999 (the "Etinuum
--------------------------
Reference Date"), there has not been any Material adverse change in the
business, financial position or results of operation or prospects of Etinuum.
4.9 Material Liabilities. Except as described in the Etinuum Financial
--------------------
Statements, herein, or Schedule 4.9, Etinuum does not have any obligations or
liabilities (whether accrued, absolute or contingent) other than obligations or
liabilities incurred in the ordinary course of
27
<PAGE>
business since the Etinuum Reference Date, in excess of $500,000 in any one case
or which is Material to Etinuum.
4.10 Material Contracts. All contracts, agreements and instruments to
------------------
which Etinuum is a party are valid, binding and in full force and effect in all
Material respects, and are valid, binding and enforceable by Etinuum in
accordance with their respective terms, subject to the laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies. Neither Etinuum nor, to the best of Etinuum's knowledge,
any other party to such contracts, agreements or instruments is in default in
any Material respect under such contracts, agreements or instruments, except as
listed on Schedule 4.10.
4.11 Compliance with Other Instruments, None Burdensome, Etc. Etinuum is
-------------------------------------------------------
not in violation of any Material term or provision of the Etinuum Charter or
Etinuum Bylaws, or any Material mortgage, indebtedness, indenture, contract,
agreement, instrument, judgment or decree, and to its knowledge is not in
violation of any order, statute, rule or regulation applicable to Etinuum. The
execution, delivery and performance of and compliance with this Agreement, and
the issuance of the Non-Employee Shares, have not resulted and will not result
in any violation of, or conflict with, or constitute a default under, any of the
terms of the Etinuum Charter or Etinuum Bylaws or any corporate restriction or
of any indenture, mortgage, deed of trust, pledge, bank loan or credit
agreement, or any instrument, document or agreement by which Etinuum or its
properties may be bound or affected, or result in the creation of any mortgage,
pledge, lien, encumbrance or charge upon any of the properties or assets of
Etinuum.
4.12 Litigation, Etc. Except as set forth in Schedule 4.12, there is no
---------------
claim, action, suit, proceeding, arbitration, investigation or inquiry pending
before any federal, state, municipal, foreign or other court or any
governmental, administrative or self-regulatory body or agency, or any private
arbitration tribunal, (or to the best of Etinuum's knowledge is there any
threat, or basis for, any such claim, action, suit, proceeding arbitration,
investigation or inquiry), which may have any Material adverse effect upon the
assets, properties or business of Etinuum or the transactions contemplated by
this Agreement. Neither Etinuum nor any officer, director, partner, agent or
employee of Etinuum has been permanently or temporarily enjoined or barred by
order, judgment or decree of any court or other tribunal or any agency or self-
regulatory body from engaging in or continuing any conduct or practice in
connection with the business engaged in by Etinuum. There is not in existence
at present any order, judgment or decree of any court or other tribunal or any
agency or self-regulatory body to which Etinuum or the business, properties or
assets, of Etinuum are subject or by which they are bound. Etinuum is not in
Material default under any order, license, tariff, regulation or demand of any
federal, state, municipal, foreign or other governmental, administrative or
self-regulatory body or with respect to any order, writ, injunction or decree of
any court or arbitration body.
4.13 Governmental Consents. No consent, approval or authorization of, or
---------------------
exemption by, or filing with any governmental, public or self regulatory body or
authority is required by
28
<PAGE>
Etinuum for the consummation of this Agreement or any of the instruments or
agreements referred to, or the taking of any action, herein contemplated, except
for the qualification (or taking such action as may be necessary to secure an
exemption from qualification, if available) of the issuance of the Non-Employee
Shares under applicable Blue Sky laws or SEC rules and regulations, which
filings and qualifications, if required, will be accomplished by Etinuum in a
timely manner prior to or within ten (10) days after the date of issuance of the
Non-Employee Shares).
4.14 Etinuum Tax Matters.
-------------------
4.14.1. Etinuum's fiscal year for income tax reporting
purposes ends December 31.
4.14.2. Etinuum has timely filed (including extensions)
all Tax Returns that are required to have been filed by it with appropriate
federal, state, county and local government agencies or instrumentalities, that
would have a Material adverse effect if not filed, except as provided in
Schedule 4.14. Etinuum has paid or established reserves for all income,
franchise, payroll and other Taxes except as set forth in Schedule 4.14. There
is no pending dispute with any taxing authority relating to any of Etinuum's
Returns. To the best of Etinuum's knowledge, Etinuum is not subject to any
proposed Material liability for any Tax to be imposed upon its properties or
assets for which there is not an adequate reserve reflected in the Etinuum
Financial Statements or accrued since the date of the Etinuum Financial
Statements. No federal or state income or sales Tax Returns of Etinuum have been
audited. An estimate of accrued Taxes is set forth in Schedule 4.14. Etinuum has
not executed or filed with any Taxing authority any agreement extending the
period for assessment or collection of any Taxes. Etinuum has not consented to
having the provisions of Section 341(f) (which relates to collapsible
corporations) of the Code apply to it.
4.14.3. Etinuum has never been taxed pursuant to
Subchapter S of the Code.
4.15 Offering. Subject to the accuracy of Acorn's and the Shareholders'
--------
representations in ARTICLE 3 hereof, which representations shall be reaffirmed
as of the date of any issuances of Non-Employee Shares pursuant hereto or Common
Stock upon exercise of the Options, the offer, sale and issuance of the Non-
Employee Shares and the Options constitute transactions exempt from the
registration requirements of Section 5 of the Securities Act and applicable Blue
Sky laws. Neither Etinuum nor any authorized agent acting on its behalf will
take any action hereafter that would cause the loss of such exemption.
29
<PAGE>
4.16 Brokers or Finders. Except as set forth in Section 2.7 hereof,
------------------
Etinuum has not incurred, and will not incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement. Etinuum will indemnify and hold
Acorn and the Shareholders harmless for any breach of this Section 4.16.
4.17 Compliance; Licenses and Permits.
--------------------------------
4.17.1. Etinuum has all requisite corporate power and
authority, and all permits, licenses, tariffs, orders and approvals of
governmental and administrative authorities which are Material, to own, lease
and operate its properties and to carry on its business as presently or
previously conducted. All such presently existing permits, licenses, tariffs,
orders and approvals Material to the conduct of the business of Etinuum are in
full force and effect, and no suspension or cancellation of any of them is
pending or, to the best of Etinuum's knowledge, threatened.
4.17.2. Etinuum has complied in all respects with, and is
not in violation in any respect of, all or any Legal Requirements applicable to
the business of Etinuum as presently or previously conducted, or as currently
proposed to be conducted except where such non-compliance or violation has not
had, and could not reasonably be expected to have, a Material adverse effect
upon Etinuum. Etinuum (including to the best of Etinuum's knowledge all
applicable employees) has all Permits which are required for the conduct of its
business presently or previously conducted by Etinuum, which Permits are in full
force and effect, and no violations are outstanding or uncured with respect to
any such Permits and no proceeding is pending or, to the best of Etinuum's
knowledge, threatened to revoke or limit any thereof. No condition or event has
occurred which, with notice or the passage of time or both, would constitute a
violation of a Legal Requirement or Permit except where such noncompliance or
violation has not had, and could not reasonably be expected to have, a Material
adverse effect upon Etinuum. To the best of Etinuum's knowledge, its current and
currently contemplated activities will not violate any Legal Requirement in such
a fashion as to have a Material adverse effect on Etinuum.
4.18 Material Misstatements or Omissions. No representations or
-----------------------------------
warranties by Etinuum in this Agreement, or any Document, exhibit, statement,
certificate or schedule furnished by Etinuum to a Key Shareholder or Acorn
pursuant hereto, or in connection with the transactions contemplated hereby, to
the best of Etinuum's knowledge intentionally contain any untrue statement of a
Material fact, or intentionally omit to state any Material fact necessary to
make the statements or facts contained herein or therein in the context in which
they were made not misleading.
30
<PAGE>
4.19 Lawyers and Accountants. Etinuum is not relying upon any
-----------------------
investigation made by Acorn's counsel or accountants or the presence of such
counsel or accountants as an indication counsel or the accountants has reviewed
or passed upon the representations, warranties, projections or business plan of
Acorn or the wisdom of an investment in Acorn.
4.20 Effect of Agreement, Etc. The execution, delivery and performance
-------------------------
of this Agreement by Etinuum and the consummation of the transactions
contemplated hereby will not, with or without the giving of notice of the lapse
of time, or both: (i) violate any provision of law, statute, rule or regulation
to which Etinuum is subject; (ii) violate any judgment, order, writ or decree of
any court, arbitrator or governmental agency applicable to Etinuum; (iii) have
any effect on any of Etinuum's permits, licenses, tariffs, orders or approvals
or the ability of Etinuum to make use of such permits, licenses, tariffs, orders
or approvals, except as set forth in Schedule 4.20; or (iv) result in the breach
of or conflict with any term, covenant, condition or provision of, result in the
modification or termination of, constitute a default under, or result in the
creation or imposition of, any lien, security interest, charge or encumbrance
upon any of the properties or assets of Etinuum pursuant to any charter, bylaw,
commitment, contract or other agreement or instrument to which Etinuum is a
party or by which any of its assets or properties are or may be bound or
affected or from which Etinuum derives benefit.
4.21 Other. Etinuum has delivered to Acorn Certificates of the Secretary
-----
of State (or other authorized officer) of the State of Delaware certifying as of
a date within thirty (30) days before the Closing Date that Etinuum is, as of
such date, in good standing and authorized to transact business as a domestic
corporation. Etinuum has delivered to Acorn Certificates of the Secretary of
State (or other authorized officer) of Delaware, Colorado, California and Kansas
certifying as of a date within thirty (30) days before the Closing that Etinuum
is, as of such date, in good standing and authorized to transact business as a
foreign corporation in such jurisdiction. Etinuum has obtained the approvals
and all consents from third parties and governmental agencies (including under
Blue Sky laws, except to the extent obligations to obtain such approvals and
consents are not yet required) required to consummate the transactions
contemplated hereby and any additional regulatory consents have been obtained
(other than approvals or consents required by Etinuum the absence of which would
not have a Material adverse effect on the ability of Etinuum or Acorn to operate
their respective business after the Closing).
ARTICLE 5
OTHER COVENANTS AND AGREEMENTS
------------------------------
Acorn, the Shareholders and Etinuum covenant that as of the Closing (and
continuing after the Closing as to the parties named in and covenants contained
in Sections 5.1, 5.9, 5.11, 5.12, 5.13, 5.14, 5.15, 5.16 and 5.17):
31
<PAGE>
5.1 Access to Information.
---------------------
5.1.1. Financial Information. Etinuum shall:
---------------------
5.1.1.1. deliver to each of the Shareholders as soon as
practicable, but in any event within forty-five (45) days after available to
Etinuum, an income statement, balance sheet and statement of shareholder's
equity as of the end of such fiscal year, prepared in accordance with GAAP
and audited and certified by independent public accountants of nationally
recognized standing selected by Etinuum.
5.1.1.2. upon request, deliver to each Shareholder such
financial and other business information relating to Etinuum as Etinuum
routinely provides to Etinuum executives of similar responsibility and
compensation levels as the Key Shareholders who are not also members of the
Etinuum Executive Management Committee (as provided in Section 5.17 below);
and
5.1.1.3. make available for inspection at Etinuum's offices
all financial statements and other written materials relating to Etinuum's
financial condition that is distributed to the Etinuum Executive Management
Committee.
5.1.2. Inspection. Etinuum shall permit each Shareholder at such
----------
Shareholder's expense, to visit and inspect Etinuum's properties, to examine its
books of account and records and to discuss Etinuum's finances and accounts with
its officers, all at such reasonable times as may be requested by the
Shareholder and in accordance with applicable law.
5.1.3. Termination of Information and Inspection Covenants. The
---------------------------------------------------
covenants set forth in Section 5.1.1 and 5.1.2 herein shall terminate as to each
Shareholder and be of no further effect upon the effective date of an IPO or
when Etinuum first becomes subject to the periodic reporting requirements of the
Exchange Act (or similar provisions then in effect), or if such Shareholder is
no longer a holder of Common Stock, whichever event shall first occur.
Notwithstanding the foregoing, Etinuum shall not be required to comply with the
requirements in Section 5.1.1.3 upon the termination of employment of any Key
Shareholder with Acorn for any reason.
5.2 Business Relationships. Acorn shall use all reasonable efforts to
----------------------
preserve present relationships with suppliers, customers, employees, vendors,
and others having relationships with the businesses of Acorn. Acorn will
conduct its operations and business only in the normal course of business
consistent with past practices and in compliance with all applicable laws,
statutes, rules, regulations, ordinances and orders.
5.3 No Shop. As an inducement to Etinuum to provide the Bridge Loan,
-------
Acorn executed and delivered to Etinuum a Standstill Agreement, dated June 4,
1999, incorporated herein by reference and attached hereto as Exhibit 5.3, which
governs the rights and obligations
32
<PAGE>
of Acorn and Etinuum with respect to discussions or agreements with other
parties concerning the transactions contemplated by this Agreement. Such
Standstill Agreement remains in effect.
5.4 Amendments. Acorn agrees not to amend, revoke or suspend any
----------
provision in the Acorn Charter or Bylaws except as requested by Etinuum in
connection herewith.
5.5 Resignations and Closing Date Board. The Key Shareholders and Acorn
-----------------------------------
as of the Closing will have caused the resignation of all necessary officers and
directors, and the election of officers and directors, so that immediately after
the Closing the Board of Directors and officers of Acorn may be as contemplated
in Schedule 5.5.
5.6 Signature Cards. Acorn shall prepare new signature cards for each
---------------
bank, depository, savings, brokerage or similar account, of Acorn, effective as
of the Closing.
5.7 Additional Financial Statements. Acorn shall, on a monthly basis,
-------------------------------
deliver to Etinuum the reconciled bank statements, check registers, accounts
receivable aging reports and accounts payable aging reports of Acorn, prepared
in the ordinary course of business, but in no event shall any such monthly
statements be delivered later than thirty (30) days after the end of the
applicable period.
5.8 Satisfaction of Conditions. The parties hereto each shall use their
--------------------------
best efforts to satisfy any Conditions of Closing set forth in ARTICLE 6 herein
or in any other document executed in connection with the Agreement or the
transactions contemplated herein.
5.9 Tax Elections - Post Closing Change. No new elections with respect
-----------------------------------
to taxes or any changes in current elections with respect to taxes affecting
Acorn shall be made after the date of this Agreement without the prior written
consent of Etinuum.
5.10 This Section intentionally left blank.
-------------------------------------
5.11 Confidentiality. Etinuum, Acorn and each Shareholder acknowledge
---------------
and agree that each party will have access to certain "Confidential Information"
(as defined below) of the other parties, and in the future may gain additional
Confidential Information. For the purpose of this Amended and Restated
Agreement, "Confidential Information" shall mean (x) information regarding the
business of Etinuum or of Acorn which is not generally known and which gives
such entity an advantage over competitors who do not know or use it, including
but not limited to Etinuum's or Acorn's plans for future products or
developments and (y) confidential information concerning third persons
(including employees) which is not generally known. Notwithstanding the
foregoing, Confidential Information shall not include: (i) information which is,
or was at the time it was disclosed, generally or readily obtainable by the
public or the trade, (ii) information which is publicly known or becomes known,
through no fault or activity of the party to whom the Confidential Information
was disclosed, (iii) information disclosed pursuant to the requirement of a
court, administrative agency, or other governmental body, or (iv) information
33
<PAGE>
which is disclosed pursuant to applicable law, rule or regulation. Etinuum and
Acorn (on a post-Closing basis as to Confidential Information of the
Shareholders), and each of the Shareholders (as to Confidential Information of
Etinuum and Acorn) agree at all times to regard and preserve as confidential
such Confidential Information, and to refrain from publishing or disclosing any
part of it and from using, copying or duplicating it in any way or by any means
whatsoever. Each of the Shareholders agrees to certify the destruction of or to
return any Confidential Information to the owner of such Confidential
Information upon request.
5.12 Covenant Not to Compete.
-----------------------
5.12.1. Covenant. In exchange for the consideration
--------
provided by Etinuum and the entering into of this Amended and Restated
Agreement, and in order to protect the trade secrets of the Subject Company (as
defined below), each Key Shareholder severally, not jointly, hereby agrees with
Etinuum that such Key Shareholder shall not compete directly or materially with
a Subject Company in the business of (i) inbound or outbound telemarketing or
teleservicing; (ii) outsourced teleservicing; (iii) customer direct e-servicing
business, which includes, without limitation, the design, development, marketing
and sale of business tools (including business rules and processes) and computer
software that assist businesses and other organizations in selling products
directly to consumers on the Internet, or (iv) "data mining" by which
demographic data is either gathered or analyzed in order to direct or improve
marketing or customer service activities (collectively the "Business"), during
the Non-Compete Period (as defined below). The parties agree that they shall not
during such period make public statements in derogation of each other, except as
may be required by law. For the purposes of this Section, the term "Subject
Company" shall mean Etinuum and any direct or indirect subsidiaries, parents and
affiliates of Etinuum including Acorn. Competing directly or materially with the
Subject Company shall mean (a) either (i) engaging or (ii) having a material
interest (any ownership or profit interest over 5% always being material),
directly or indirectly, as owner, employee, officer, director, partner,
venturer, shareholder, capital investor, consultant, agent, principal, advisor
or otherwise, either alone or in association with others, in the operation of
any individual or entity engaged in (b) the Business within Canada or the
continental United States, including the California counties which would appear
here if each county in California was listed here. Competing directly or
materially with the Subject Company, as used in this Amended and Restated
Agreement, shall be deemed not to include an ownership interest as an inactive
investor, which for purposes of this Section shall mean the beneficial ownership
of less than five percent (5%) of the outstanding shares of any series or class
of securities of any competitor of the Subject Company, which shares are
publicly traded in the securities markets. The Key Shareholders agree that the
Business is inherently nationwide in scope.
5.12.2. The Key Shareholders each acknowledge that he or she
has had or will have contacts with employees and/or customers of the Subject
Company. Accordingly, the Key Shareholders each covenant and agree that during
the term of the Non-Compete Period, he or she will not (i) solicit or hire any
of the employees of a Subject Company who were employed by a Subject Company at
or within one month before the Closing or during
34
<PAGE>
the Key Employee's employment by a Subject Company, (ii) interfere with the
relationship of the Subject Company with any such employees, or (iii) personally
target or solicit, or assist another to target or solicit, customers of Acorn
for activities related to the Business, or attempt to influence any of the
customers of the Subject Company not to do business with the Company.
5.12.3. Remedies. Each of the Key Shareholders acknowledges and
--------
agrees that his or her obligations provided herein are necessary and reasonable
in order to protect the Subject Company and its business, and each Key
Shareholder expressly agrees that monetary damages may be inadequate to
compensate the Subject Company for any breach by any Key Shareholder of his or
her covenants and agreements set forth herein. Accordingly, each Key
Shareholder agrees and acknowledges that, in addition to any other remedies that
may be available, in law, in equity or otherwise, the Subject Company, and any
successor or assign thereof, shall be entitled to obtain specific performance of
this Section.
5.12.4. Term. The term of the Covenant Not to Compete set forth
----
herein (the "Non-Compete Period") shall begin on the Closing Date and end the
longer of one (1) year after the Date of Termination or three (3) years after
the Closing Date. Notwithstanding the foregoing provisions of this Section 5.12,
the Covenant Not to Compete may be reduced in scope, geographic area or time as
to a particular Key Shareholder pursuant to the written employment agreements
that have been attached as Exhibit 6.1.1. A Key Shareholder shall have no
obligation under this Section 5.12 if the Etinuum Chief Executive Officer
consents, which consent shall not be unreasonably withheld, to a Key
Shareholder's employment or performance of services for a business that does not
directly compete with the Business. This provision does not prohibit the Subject
Company and any other person from entering into any other covenant not to
compete or other agreement, including the Employment Agreements, with different
provisions and the obligations of the Key Shareholders under this Section 5.12
are independent from any such other covenant not to compete or other agreements.
5.12.5. Severability. Should any one or more of the provisions of
------------
this Section 5.12 be determined to be illegal or unenforceable, then such
illegal or unenforceable provision shall be modified by the proper court or
arbitrator to the extent necessary and possible to make such provision
enforceable, and such modified provision and all other provisions of this
Section and of each other agreement entered into pursuant to this Section shall
be given effect separately from the provision or portion thereof determined to
be illegal or unenforceable and shall not be affected thereby. If any of the
provisions of Section 5.12 relating to the scope, periods or geographic area of
restriction shall be deemed to exceed the maximum scope, periods of time or
geographic area which a court of competent jurisdiction would deem enforceable,
the scope, times and geographic area shall, for the purposes of Section 5.12, be
deemed to be the maximum scope, time periods and geographic area which a court
of competent jurisdiction would deem valid and enforceable in any state in which
such court of competent jurisdiction
35
<PAGE>
shall be convened. The invalidity or unenforceability of any such provision in
one jurisdiction shall not affect its validity or enforceability in another
jurisdiction.
5.13 Governmental Filings. If any filings are required under federal,
--------------------
state or other securities laws for the delivery of the Non-Employee Shares or
for the delivery of the Options or Spider Shares, the parties will cooperate in
such filings.
5.14 Good Faith. The parties will act in good faith in connection with
----------
the matters described herein.
5.15 Existing Acorn Loans; Bridge Loan.
---------------------------------
5.15.1. Chase and Fleet Loans. Upon the earlier of
---------------------
Acorn's achievement of Sustained Profitability or November 30, 1999, Etinuum
will obtain a release of the Key Shareholders from their obligations under their
personal guaranties on loans provided to Acorn by The Chase Manhattan Bank
("Chase") and Fleet Bank ("Fleet"). Acorn will not make any prepayments on the
Chase and Fleet loans without Etinuum's prior written consent; provided,
--------
however, that Etinuum's consent will not be required to make interest payments
on the Chase and Fleet loans and principal payments necessary to maintain the
minimum draw under such loans.
5.15.2. Bridge Loan. Upon the earlier of Acorn's
-----------
achievement of Sustained Profitability or November 30, 1999, Etinuum will (a)
release the Key Shareholders from their obligations under their personal
guaranties of the Bridge Loan and (b) reduce the interest rate on the Bridge
Loan to six percent (6%) per annum effective as of the month following
achievement of Sustained Profitability or November 30, 1999 (whichever is
earlier) and until the Bridge Loan is paid in full.
5.15.3. Acorn Officers Loans. The Acorn Officers Loans
--------------------
will be paid in full by Etinuum or Acorn on January 1, 2001.
5.16 Changes in Control. If, within three (3) years from the Closing,
------------------
Etinuum becomes insolvent or sells all or substantially all of the stock or
assets of Acorn to a third party, the Key Shareholders will have a right of
first refusal to purchase the stock or assets of Acorn as the case may be on the
same price and terms as the proposed sale, or Acorn's appraised value if Etinuum
is insolvent and Acorn is not being sold.
5.17 Board Observer; Executive Management Committee.
----------------------------------------------
5.17.1. Venkat Sharma, as of the Closing, shall be
designated as a nonvoting observer on the Etinuum Board of Directors and will be
entitled to attend Board meetings. Observer status on the Etinuum Board of
Directors will terminate if the Acorn Key Shareholders sell more than fifty
percent (50%) of their Common Stock after exercise of their
36
<PAGE>
Options or upon an IPO of Etinuum's securities, or upon an Etinuum Change in
Control.
5.17.2. Venkat Sharma and Shoba Murali, as of the
closing, shall be designated members of the Etinuum Executive Management
Committee ("EMC") and will be entitled to participate in EMC meetings. Solely at
the discretion of Etinuum's Chief Executive Officer, EMC participation may
terminate if the Acorn Key Shareholders sell more than fifty percent (50%) of
their Common Stock after exercise of their Options, upon Etinuum Change in
Control or if the individual ceases being an Acorn employee.
5.17.3. The above rights shall terminate as to any person
who has been terminated as an Acorn employee for Cause (as defined in the
Employment Agreement), or who has violated the confidentiality, non-compete or
another material term of this Amended and Restated Agreement.
ARTICLE 6
CONDITIONS OF CLOSING
---------------------
6.1 Etinuum's Conditions of Closing. The obligation of Etinuum to
-------------------------------
consummate the Closing was subject to and conditioned upon the satisfaction at
the Closing of each of the following conditions and no other conditions (any of
which maybe waived in writing by Etinuum, in whole or in part):
6.1.1. Employment Agreements. Etinuum shall have
---------------------
received executed Employment Agreements, in substantially the form attached
hereto as Exhibit 6.1.1, signed by Etinuum and each of the Key Shareholders.
6.1.2. Representations and Warranties. All
------------------------------
representations and warranties of Acorn and the Shareholders shall be true and
correct in all Material respects as of the Closing as though such
representations and warranties had been made on and as of that date, and
certificates to the foregoing effect, in substantially the form attached hereto
as Exhibit 6.1.2, dated as of the date of the Closing and signed by the
President or any Vice President of Acorn, on behalf of Acorn, and by each of the
Shareholders, individually, shall have been delivered to Etinuum.
6.1.3. Performance of Obligations. All of the terms,
--------------------------
covenants and conditions of this Agreement to be complied with and performed by
Acorn and the Shareholders on or before the Closing shall have been duly
complied with and performed in all Material respects on or before the date of
the Closing, and certificates to the foregoing effect, substantially in the form
attached hereto as Exhibit 6.1.2, dated as of the date of the Closing and signed
by the President or any Vice President of Acorn, on behalf of Acorn, and by each
of the Shareholders, individually, shall have been delivered to Etinuum.
37
<PAGE>
6.1.4. Consents and Approvals. All necessary consents of and filings
----------------------
required to be obtained or made by Acorn relating to the consummation of the
transactions contemplated herein shall have been obtained and made.
6.1.5. Certified Certificate of Incorporation and Certificate of Good
--------------------------------------------------------------
Standing. Acorn shall have delivered to Etinuum (i) Acorn's Certificate of
- --------
Incorporation, duly certified by the Secretary of State of Delaware no less than
thirty (30) days prior to the date of Closing and (ii) a certificate, dated as
of a date no earlier than thirty (30) days prior to the date of Closing, duly
issued by the Secretary of State of Delaware, certifying that Acorn is in good
standing and authorized to do business.
6.1.6. Secretary's Certificate. Etinuum shall have received a
-----------------------
certificate, substantially in the form attached hereto as Exhibit 6.1.6, dated
as of the Closing Date and signed by the Secretary of Acorn, certifying as to
(i) the authenticity of the signatures of the President or any Vice President of
Acorn who is authorized to act on behalf of Acorn with respect to the
transactions contemplated by this Agreement, and (ii) the truth and correctness
of attached copies of Acorn's Certificate of Incorporation (including amendments
thereto), Bylaws (including amendments thereto), and resolutions of the board of
directors and shareholders of Acorn approving Acorn's execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby.
6.1.7. Opinion of Counsel. Etinuum shall have received an opinion
------------------
from counsel for Acorn and the Shareholders, dated as of the date of Closing, in
substantially the form attached hereto as Exhibit 6.1.7.
6.1.8. Additional Documents. Etinuum shall have received such other
--------------------
documents as Etinuum may reasonably request to evidence the accuracy of any
representation or warranty made by Acorn or the Shareholders, or the performance
of or compliance with any covenants or obligations required by Acorn or the
Shareholders, or to otherwise facilitate the consummation of any of the
transactions contemplated by this Agreement.
6.1.9. Termination of Agreements Pertaining to Acorn Stock. Etinuum
---------------------------------------------------
shall have received evidence of the expiration or termination of any and all
agreements (other than with Etinuum) relating in any way to the Acorn Shares or
ownership thereof.
6.2 Acorn's Conditions of Closing The obligation of Acorn and the
-----------------------------
Shareholders to consummate the Closing was subject to and conditioned upon the
satisfaction at the Closing of each of the following conditions and no other
conditions (any of which may be waived in writing by Acorn and the Shareholders,
in whole or in part):
6.2.1. Employment Agreements. The Key Shareholders shall have
---------------------
received Acorn Employment Agreements, in substantially the form attached hereto
as
38
<PAGE>
Exhibit 6.1.1, signed by Etinuum.
6.2.2. Representations and Warranties. All
------------------------------
representations and warranties of Etinuum shall be true and correct in all
Material respects as of the Closing as though such representations and
warranties had been made on and as of that date, and certificates to the
foregoing effect, substantially in the form attached hereto as Exhibit 6.2.2,
dated as of the date of the Closing and signed by the President or any Vice
President of Etinuum, shall have been delivered to Acorn and the Shareholders.
6.2.3. Performance of Obligations. All of the terms,
--------------------------
covenants and conditions of this Agreement to be complied with and performed by
Etinuum on or before the Closing shall have been duly complied with and
performed in all Material respects on or before the date of the Closing, and
certificates to the foregoing effect, substantially in the form attached hereto
as Exhibit 6.2.2, dated as of the date of the Closing and signed by the
President or any Vice President of Etinuum, shall have been delivered to Acorn
the Shareholders.
6.2.4. Certified Articles of Incorporation and Good
--------------------------------------------
Standing Certificate. Etinuum shall have delivered to Acorn and the Shareholders
- --------------------
(i) Etinuum's Certificate of Incorporation, duly certified by the Secretary of
State of Delaware no less than thirty (30) days prior to the Closing Date and
(ii) a certificate, dated as of a date no earlier than thirty (30) days prior to
the Closing Date, duly issued by the Secretary of State of Delaware, certifying
that Etinuum is in good standing and authorized to do business.
6.2.5. Secretary's Certificate Acorn and the
-----------------------
Shareholders shall have received a certificate, substantially in the form
attached hereto as Exhibit 6.2.5, dated as of the Closing Date and signed by the
Secretary of Etinuum, certifying as to (i) the authenticity of the signatures of
the President or any Vice President of Etinuum who is authorized to act on
behalf of Etinuum with respect to the transactions contemplated by this
Agreement, and (ii) the truth and correctness of attached copies of Etinuum's
Certificate of Incorporation (including amendments thereto), Bylaws (including
amendments thereto), and resolutions of the board of directors of Etinuum
approving Etinuum entering into this Agreement and the consummation of the
transactions contemplated hereby.
6.2.6. Opinion of Counsel. Acorn and the Shareholders
------------------
shall have received an opinion from counsel for Etinuum, dated as of the date of
Closing, in substantially the form attached hereto as Exhibit 6.2.6.
6.2.7. Transaction Fee. Etinuum shall have paid a
---------------
Transaction Fee in accordance with Section 2.7 above.
6.2.8. Additional Documents. Acorn and the
--------------------
Shareholders shall have received such other documents as Acorn and the
Shareholders may reasonably request to evidence the accuracy of any
representation or warranty made by Etinuum, or the performance of
39
<PAGE>
or compliance with any covenants or obligations required by Etinuum, or to
otherwise facilitate the consummation of any of the transactions contemplated by
this Agreement.
6.2.9. Consent to Registration Right. Etinuum shall
-----------------------------
have received the consent of holders of registration rights with respect to the
Transaction Advisor Shares, as required prior to a grant of registration rights,
if any, to Prospero pursuant to Section 2.7 above.
ARTICLE 7
AMENDMENT
---------
This Amended and Restated Agreement may be amended by Etinuum, Acorn and the
Shareholders by action taken by the respective Boards of Directors of Etinuum
and Acorn and by the Shareholders individually at any time before or after
approval hereof by the Shareholders, but no amendment after approval by the
Shareholders of Acorn shall be made which changes any of the principal terms of
this Amended and Restated Agreement. This Amended and Restated Agreement may
not be amended except by an instrument in writing signed on behalf of Etinuum,
Acorn and the Shareholders.
ARTICLE 8
INDEMNIFICATION
---------------
8.1 Shareholders' General Indemnification Covenants'. Subject to the
------------------------------------------------
provisions of this ARTICLE 8, the Shareholders, jointly and severally in
proportion to their respective ownership of the Acorn Shares as of the Closing
Date, shall indemnify, defend, save and keep Etinuum and its affiliates
(including Acorn), and their respective officers, directors, successors and
assigns (collectively, the "Etinuum Indemnitees"), harmless against and from all
liability, demands, claims, actions or causes of action, assessments, losses,
fines, penalties, costs, damages and expenses, including without limitation,
reasonable attorneys' fees, court costs and other fees, disbursements and
expenses, including any diminution in the value of Acorn or the Acorn Shares
held by Etinuum, (collectively "Damages"), sustained or incurred by any of the
Etinuum Indemnitees as a result of, arising out or by virtue of any
misrepresentations, breach of any warranty or representation, or non-fulfillment
of any agreement or covenant on the part of Acorn or the Shareholders, whether
contained in this Amended and Restated Agreement, any Document or any exhibit or
schedule hereto or thereto, or any written statement or certificate furnished or
to be furnished to Etinuum pursuant hereto or in any closing document delivered
by Acorn or the Shareholders to Etinuum in connection herewith. Such
obligations apply regardless of the presence of a Third Party Claim (as defined
below). For purposes of determining the amount of Damages for which
indemnification is provided hereunder (but not for the purpose whether a breach
of a representation, warranty or covenant has occurred), each of the
representations, warranties and covenants made by any party in this Amended and
Restated Agreement or in any
40
<PAGE>
certificate or other instrument delivered pursuant hereto, including, without
limitation, the Documents, shall be deemed to have been made without the
inclusion of limitations or qualifications as to materiality such as the word
"Material," if with the inclusion of such limitation or qualification the
representation, warranty or covenant was breached.
8.2 Procedures for Indemnification Pursuant to Section 8.1.
------------------------------------------------------
8.2.1. Promptly following the receipt by a Etinuum Indemnitee of
notice of a demand, claim, action, assessment or proceeding made or brought by a
third party, including a governmental agency (a "Third Party Claim") or Etinuum
receiving notice of the basis of a claim for Damages, the Etinuum Indemnitee
receiving the notice of the Third Party Claim or knowledge of the basis for a
claim: (i) shall notify the Shareholders of its existence, setting forth the
facts and circumstances of which such Etinuum Indemnitee has received notice or
knowledge; and (ii) if the Etinuum Indemnitee giving such notice is a person
entitled to indemnification under this ARTICLE 8 (an "Indemnified Party"),
specifying the basis hereunder upon which the Indemnified Party's claim for
indemnification is asserted; provided, however, that a failure to provide prompt
-------- -------
notification shall not prevent or prejudice a claim under this ARTICLE 8 except
to the extent such failure has prejudiced the rights or defenses of the
Shareholders.
8.2.2. The Indemnified Party shall, upon reasonable notice by the
Shareholders, tender the defense of a Third Party Claim to the Shareholders. If
the Shareholders accept responsibility for the defense of a Third Party Claim,
then the Shareholders shall have the right to contest, defend and litigate the
Third Party Claim and shall have the exclusive right, in their discretion
exercised in good faith and upon the advice of counsel, and subject to the
consent of the Indemnified Party (which shall not be unreasonably withheld) to
settle any such matter, either before or after the initiation of litigation,
provided that at least ten (10) days prior to any such settlement, they shall
- --------
give written notice of their intention to settle to the Indemnified Party. The
Indemnified Party shall have the right to be represented by counsel at its own
expense in any defense conducted by the Shareholders.
8.2.3. Notwithstanding the foregoing, in connection with any
settlement negotiated by the Shareholders, no Indemnified Party shall be
required to: (i) enter into or be bound by or obligated under any settlement (a)
that does not include the delivery by the claimant or plaintiff to the
Indemnified Party of a release from all liability in respect of such claim or
litigation, (b) if the Indemnified Party shall, in writing to the Shareholders
within the ten (10) day period prior to such proposed settlement, unreasonably
withhold its consent with respect to such settlement proposal as contemplated by
Section 8.2.2, and desire to have the Shareholders tender the defense of such
matter back to the Indemnified Party, or (c) that requires an Indemnified Party
to take any unreasonable affirmative actions as a condition of such settlement;
or (ii) consent to the entry of any judgment that does not include a full
dismissal of the litigation or proceeding against the Indemnified Party with
prejudice; provided, however, that should the Indemnified Party disapprove of a
-------- -------
settlement proposal pursuant to clause (b) above, the
41
<PAGE>
Indemnified Party shall thereafter have all of the responsibility for defending,
contesting and settling such Third Party Claim but shall not be entitled to
indemnification by the Shareholders to the extent that, upon final resolution of
such Third Party Claim, the Shareholders' liability to the Indemnified Party but
for this proviso exceeds what the liability to the Indemnified Party would have
been if the Shareholders were permitted to settle such Third Party Claim in the
absence of the Indemnified Party exercising its right under clause (b) above.
8.2.4. If, in accordance with the foregoing provisions of this
Section 8.2, an Indemnified Party shall be entitled to indemnification against a
Third Party Claim, and if the Shareholders shall fail to accept the defense of a
Third Party Claim which has been tendered in accordance with this Section 8.2,
the Indemnified Party shall have the right, without prejudice to its rights of
indemnification hereunder, in its discretion exercised in good faith and upon
the advice of counsel, to contest, defend and litigate such Third Party Claim,
and may settle such Third Party Claim, either before or after the initiation of
litigation, at such time and upon such terms as the Indemnified Party deems fair
and reasonable, provided at least ten (10) days prior to any such settlement,
written notice of its intention to settle is given to the Shareholders. If,
pursuant to this Section 8.2, the Indemnified Party defends or settles a Third
Party Claim for which it is entitled to indemnification hereunder, as
hereinabove provided, the Indemnified Party shall be reimbursed by the
Shareholders for the reasonable attorneys' fees, expert fees and other expenses
of defending the Third Party Claim which are incurred from time to time,
forthwith following the presentation to Shareholders of itemized bills for said
attorneys' fees, court costs and other expenses. No failure by the Shareholders
to acknowledge in writing their indemnification obligations under this ARTICLE 8
shall relieve them of such obligations to the extent they exist.
8.3 Certain Information. The parties hereto shall furnish or cause to be
-------------------
furnished to each other (at reasonable times and at no charge) upon request as
promptly as practicable such information (including access to books and records)
pertinent to Acorn, the Shareholders, or Etinuum and assistance relating to
Acorn or Etinuum as is reasonably necessary for the preparation, review and
audit of financial statements, the preparation, review, audit and filing of any
Tax Return, the preparation for any audit or the prosecution or defense of any
claim, suit or proceeding relating to any proposed adjustment or which may
result in Shareholders or Etinuum being liable under the indemnification
provisions of this ARTICLE 8.
8.4 Release by Shareholders. Shareholders, as of the Closing Date,
-----------------------
hereby release and discharge Acorn and its officers and directors from, and
agree and covenant that in no event will Shareholders commence any litigation or
other legal or administrative proceeding against, Acorn or any of its officers
or directors, either in law or equity, relating to any and all claims and
demands, known and unknown, suspected and unsuspected, disclosed and
undisclosed, for damages, actual, consequential, or otherwise, past, present and
future, arising out of or in any way connected with their ownership of the
equity securities of Acorn or any employment or consulting relationship (other
than for wages or employee benefits accrued but not yet paid, or under debts for
borrowed money as listed on a Schedule hereto) prior to or at the Closing Date.
42
<PAGE>
Except for this Amended and Restated Agreement and the agreements entered into
hereunder, as of the Closing without further action, all shareholders, voting,
preemptive, buy-sell, first refusal or similar rights, employment or consulting
rights, by agreement or statute, of a Shareholder of Acorn, shall terminate as
to securities of Acorn and as to Acorn. This Section shall in no way release,
waive or extinguish claims that any Shareholder or Acorn has or will have
against Etinuum arising in the past, present or future, including under this
Amended and Restated Agreement and the agreements entered into hereunder.
8.5 Indemnification by Etinuum. Subject to the provisions of this
--------------------------
ARTICLE 8, Etinuum agrees to indemnify, defend and hold each of the Shareholders
harmless against, and will reimburse the Shareholders on demand for, any Damages
(as defined in Section 8.1) sustained or incurred by any of the Shareholders as
a result of, arising out of or by virtue of any misrepresentation, breach of any
warranty or representation, or non-fulfillment of any agreement or covenant on
the part of Etinuum, whether contained in this Amended and Restated Agreement,
any Document or any exhibit or schedule hereto or thereto or any written
statement or certificate furnished or be to furnished to Etinuum pursuant hereto
or in any Document delivered by Etinuum to Acorn or the Shareholders in
connection herewith. The procedures set forth in Sections 8.2 and 8.3 shall be
applied mutatis mutandis to any claim under this Section by a Shareholder, and
----------------
the Shareholders shall be the "Etinuum Indemnitees" and "Indemnified Party" for
such purposes and Etinuum shall be the " Shareholders." Such obligations apply
regardless of the presence of a Third Party Claim.
8.6 Exclusive Remedy. The remedies provided in this ARTICLE 8 are, to
----------------
the extent permitted by law, the sole and exclusive remedies related to
representations, warranties or covenants made or to be performed at or before
the Closing, and there are no other remedies otherwise available to any of the
parties, for any claim by one party against any other party under this Amended
and Restated Agreement or with respect to the transactions contemplated by it
related to representations, warranties or covenants made or to be performed at
or before the Closing, except for equitable injunctive relief. No party shall
make any claim under any theory, in tort, contract, statute or otherwise, which
could not be brought directly hereunder due to the time or dollar limitations
set forth in Section 8.8.
8.7 No Rights of Shareholders Against Acorn. No Shareholder has any
---------------------------------------
claim or cause of action, directly, by contribution, by subrogation or
otherwise, against Acorn for any matter for which a Shareholder must provide
indemnification, defense or hold harmless hereunder or under any other document
or agreement.
8.8 Limits on Indemnification; Escrow.
---------------------------------
8.8.1. Neither Etinuum, Acorn nor the Shareholders shall
assert any claim for indemnification hereunder against the other until such time
as, and solely to the extent that, the aggregate of all claims which such party
may have against the other shall exceed $75,000 (the "Indemnification
Threshold"). For purposes of determining whether a claim is
43
<PAGE>
subject to indemnification under this ARTICLE 8, and counted toward the
Indemnification Threshold, claims which in the aggregate are Material shall be
counted toward the Indemnification Threshold and indemnifiable hereunder even if
any such claims individually are not Material.
8.8.2. No indemnification payment hereunder shall exceed the
aggregate maximum Purchase Price payable hereunder in cash and the value of the
Options, or Option Shares received upon exercise thereof, (adjusted for stock
splits, stock dividends, stock combinations, and recapitalizations, and without
adjustment for the Spider spin off), whether actually paid or exercised or not
as of the date of the claim for indemnification, such amount to be calculated
net of Taxes payable on receipt of such cash and Common Stock less any Tax
benefit as a result of the indemnification payment.
8.8.3. Key Shareholders' Escrow. Etinuum and the Key Shareholders
------------------------
shall enter into an agreement in the form of Exhibit 8.8.3 with a mutually
agreed upon escrow agent for the creation of an interest-bearing escrow account
(the "Escrow") into which an amount equal to ten percent (10%) of the Purchase
Price paid (exclusive of the Base Consideration and the Contingent
Consideration) within the a period expiring fifteen (15) months after the
Closing (the "Escrow Consideration") will be placed. The Escrow Consideration
will be held in the Escrow until the expiration of eighteen (18) months after
the Closing, at which time the portion of the Escrow Consideration which remains
in the Escrow and is not reserved against for the payment of any indemnification
claims made by Etinuum prior to such expiration, along with accrued interest and
less the cost of establishing and maintaining the Escrow, shall be disbursed to
the Key Shareholders according to each Key Shareholder's proportionate ownership
of such Escrow Consideration as of such date of disbursement. Etinuum shall make
claims initially against, and such claims shall be paid by, the Escrow and only
after that Escrow Consideration has been exceeded will a claim be made against
the Key Shareholders.
8.8.4. Indemnity obligations hereunder may be satisfied through the
payment of cash or the delivery of the Options, or Option Shares received upon
exercise thereof, or a combination thereof. Solely for purposes of calculating
the value of the Options received or delivered pursuant hereto for
indemnification purposes (including for purposes of determining the
Indemnification Threshold and the amount of any indemnity paid), the Options
shall be valued at the difference between the $10.00 per share exercise price
(adjusted for stock splits, stock dividends, stock combinations, and
recapitalizations, and without adjustment for the Spider spin off) and the per
share fair market value on the date of such claim, which shall be measured by
the closing price of the Common Stock as quoted on the Nasdaq National Market
System on such date, or the next trading day, if listed on such system. Solely
for purposes of calculating the value of the Non-Employee Shares received or
delivered pursuant hereto for indemnification purposes (including for purposes
of determining the Indemnification Threshold and the amount of any indemnity
paid), the Non-Employee Shares shall be valued at $12.00 per share.
44
<PAGE>
8.8.5. Etinuum shall have the right, upon written
notice, to offset indemnification amounts due to it pursuant to this Amended and
Restated Agreement against payments due to the Shareholders under this Amended
and Restated Agreement or any contract contemplated by, or referred to in, this
Amended and Restated Agreement except for Base Compensation payable under and as
defined in the Employment Agreements.
8.8.6. Notwithstanding any other term of this Amended
and Restated Agreement, no Shareholder shall be liable under this Section 8.8
for an amount which exceeds the amount of proceeds received by such Shareholders
in cash and in the Non-Employee Shares and the Options, or Option Shares
received upon exercise thereof, valued in accordance with Section 8.8.4, in
connection with the sale of the Acorn stock.
8.8.7. The foregoing limitations on damages do not apply
to violations of Sections 5.11 ("Confidentiality") or 5.12 ("Covenant Not to
Compete").
ARTICLE 9
MISCELLANEOUS
-------------
9.1 Notice. Any notice required or permitted hereunder shall be in
------
writing and shall be sufficiently given if (i) personally delivered, (ii) mailed
by certified or registered United States mail, return receipt requested, or
(iii) sent by recognized air express courier for next business day delivery,
addressed as follows:
If to Etinuum: Etinuum Inc.
5619 DTC Parkway, 12th Floor
Englewood, CO 80111
Attn: Timothy C. O'Crowley
Telephone: (303) 357-3000
Facsimile: (303) 323-4213
Copy to: Chrisman, Bynum & Johnson, P.C.
1900 15th Street
Boulder, CO 80302
Attn: G. James Williams, Jr.
Telephone: (303) 546-1300
Facsimile: (303) 449-5426
If to the Key Shareholders: Acorn Information Services, Inc.
4 Corporate Drive
Shelton, CT 06484
Telephone: (800) 279-3889
Facsimile: (203) 225-7610
45
<PAGE>
Copy to: Wiggin & Dana
Three Stamford Plaza
Stamford, CT 06901
Attn: William A. Perrone
Telephone: (203) 363-7604
Facsimile: (203) 363-7676
If to the Richard Wayne: Richard Wayne
55 Valley Road
Easton, CT
Telephone:
Facsimile:
(or to such other address as any party shall specify by written notice so
given), and shall be deemed to have been delivered as of the date so personally
delivered, three business days after so mailed, or one business day after the
date delivered to the air express courier.
9.2 Execution of Additional Documents. The parties hereto will at any
---------------------------------
time, and from time to time after the Closing Date, upon reasonable request of
the other party, execute, acknowledge and deliver all such further acts, deeds,
assignments, transfers, conveyances, powers of attorney and assurances as may be
required to carry out the intent of this Amended and Restated Agreement, and to
transfer and vest title to any securities being transferred hereunder, and to
protect the right, title and interest in and enjoyment of all of the securities
transferred, delivered and conveyed pursuant to this Amended and Restated
Agreement; provided, however, that this Amended and Restated Agreement shall be
--------
effective regardless of whether any such additional documents are executed.
9.3 Binding Effect; Benefits. This Amended and Restated Agreement shall
------------------------
be binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, successors, executors, administrators and assigns.
Notwithstanding anything contained in this Amended and Restated Agreement to the
contrary, nothing in this Amended and Restated Agreement, expressed or implied,
is intended to confer on any person other than the parties hereto or their
respective heirs, successors, executors, administrators and assigns any rights,
remedies, obligations or liabilities under or by reason of this Amended and
Restated Agreement.
9.4 Entire Agreement. This Amended and Restated Agreement, together with
----------------
the exhibits, schedules and other documents contemplated hereby, constitute the
final written expression of all of the agreements between the parties, and is a
complete and exclusive statement of those terms. It supersedes all
understandings and negotiations concerning the matters specified herein. Any
representations, promises, warranties or statements made by either party that
differ in any way from the terms of this Amended and Restated Agreement and the
exhibits, schedules and other documents contemplated hereby, shall be given no
force or effect.
46
<PAGE>
The parties specifically represent, each to the other, that there are no
additional or supplemental agreements between them related in any way to the
matters herein contained unless specifically included or referred to herein. No
addition to or modification of any provision of this Amended and Restated
Agreement shall be binding upon any party unless made in writing. This Amended
and Restated Agreement does not, however, supersede the Bridge Loan, or the
security agreement and personal guarantees execution in connection therewith,
nor does it supersede Standstill Agreement, dated June 4, 1999, between Acorn
and Etinuum, which is incorporated herein by reference.
9.5 Governing Law. This Amended and Restated Agreement shall be governed
-------------
by and construed in accordance with the laws of the State of Colorado exclusive
of the conflict of law provisions thereof.
9.6 Arbitration; Consent to Jurisdiction. Except as provided below in
------------------------------------
this paragraph, any and all disputes arising under or related to this Amended
and Restated Agreement shall be submitted to binding arbitration before the
American Arbitration Association ("AAA") in accordance with its rules of
Commercial Arbitration. The decision of the arbiter shall be final and binding
upon the parties, and it may be entered in any court of competent jurisdiction.
The arbitration shall take place in Chicago, Illinois. The arbiter shall be
bound by the laws of the State of Colorado applicable to all relevant privileges
and the attorney work product doctrine. The arbiter shall have the power to
grant equitable relief where applicable under Colorado law and shall not be
entitled to make an award of punitive damages. The arbiter shall issue a
written opinion setting forth its decision and the reasons therefor within
thirty (30) days after the arbitration proceeding is concluded. The obligation
of the parties to submit any dispute arising under or related to this Amended
and Restated Agreement to arbitration as provided in this Section shall survive
the expiration or earlier termination of this Amended and Restated Agreement.
Notwithstanding the foregoing, any party may seek an injunction or other
appropriate relief from a court of competent jurisdiction to preserve or protect
the status quo with respect to any matter pending conclusion of the arbitration
proceeding, but no such application to a court shall in any way be permitted to
stay or otherwise impede the progress of the arbitration proceeding.
The Shareholders, Etinuum, and Acorn hereby consent to the
jurisdiction of the AAA and the courts of the State of Illinois and the United
States District Courts for the Northern District of Illinois, as well as to the
jurisdiction of all courts from which an appeal may be taken from such courts,
for the purpose of any arbitration, suit, action or other proceeding arising out
of any of their obligations arising hereunder or with respect to the
transactions contemplated hereby and expressly waive any and all objections they
may have as to venue in any of such courts.
9.7 Attorneys' Fees and Costs. In the event of any arbitration or
-------------------------
litigation being filed or instituted between two or more of the parties
concerning this Amended and Restated Agreement, the Prevailing Party will be
entitled to receive from the other party or parties its attorneys' fees,
experts' fees, costs and expenses, whether or not such
47
<PAGE>
controversy, claim or action is prosecuted to judgment or other form of relief.
The "Prevailing Party" is that party which is awarded judgment or other legal or
equitable relief as a result of trial or arbitration, or who receives or is
entitled to receive a payment of money from the other party in settlement of
claims asserted by such party. If both parties receive a judgment or other award
of relief, the court or the arbiter shall determine which party is the
Prevailing Party, taking into consideration the merits of the claims asserted by
each party, the relative values of the judgments or other forms of relief
received by each party, and the relative equities between the parties.
9.8 Survival. All of the terms, covenants, conditions, warranties and
--------
representations contained in this Amended and Restated Agreement and any
Document shall survive the execution hereof and the Closing hereunder in
accordance with their terms and all representations and warranties shall survive
for forty (40) months following the Closing.
9.9 Counterparts. This Amended and Restated Agreement may be executed in
------------
any number of counterparts, each of which shall be deemed an original but all of
which shall constitute one and the same instrument.
9.10 Headings. Headings of the Sections of this Amended and Restated
--------
Agreement are for the convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
9.11 Waivers. Etinuum, the Shareholders, or Acorn may, by written notice
-------
to the other: (i) extend the time for the performance of any of the obligations
or other actions of the other under this Amended and Restated Agreement; (ii)
waive any inaccuracies in the representations or warranties of the other
contained in this Amended and Restated Agreement or in any document delivered
pursuant to this Amended and Restated Agreement; (iii) waive compliance with any
of the conditions or covenants of the other contained in this Amended and
Restated Agreement; or (iv) waive performance of any of the obligations of the
other under this Amended and Restated Agreement. Except as provided in the
preceding sentence, no action taken pursuant to this Amended and Restated
Agreement, including without limitation, any investigation by or on behalf of
any party, shall be deemed to constitute a waiver by the party taking such
action of compliance with any representations, warranties, covenants or
agreements contained in this Amended and Restated Agreement. The waiver by any
party hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any other
provision hereunder nor as a waiver of any claim for breach of representation,
warranty or covenant.
9.12 Merger of Documents. This Amended and Restated Agreement and all
-------------------
agreements and documents contemplated hereby constitute one agreement and are
interdependent upon each other in all respects.
48
<PAGE>
9.13 Incorporation of Exhibits and Schedules. All exhibits and schedules
---------------------------------------
attached hereto are by this reference incorporated herein and made a part hereof
for all purposes as if fully set forth herein.
9.14 Severability. If for any reason whatsoever any one or more of the
------------
provisions of this Amended and Restated Agreement shall be held or deemed to be
inoperative, unenforceable or invalid as applied to any particular case or in
all cases, such circumstances shall not have the effect of rendering such
provision invalid in any other case or of rendering any of the other provisions
of this Amended and Restated Agreement inoperative, unenforceable or invalid.
9.15 Assignability. Neither this Amended and Restated Agreement nor any
-------------
of the parties' rights or obligations hereunder shall be assignable by any party
hereto without the prior written consent of the other parties hereto. No
assignment shall relieve a party of its obligations hereunder.
9.16 No Action for Failure to Deliver Opinions, Etc. No party shall have
----------------------------------------------
any claim or right of action against the legal counsel or accountants of the
other party for the failure or refusal of such counsel or accountants to deliver
any opinion, certification or letter requested hereunder.
9.17 Effectiveness of Agreement. Notwithstanding any other provision
--------------------------
herein, the parties acknowledge and agree that the effective date of this
Amended and Restated Agreement shall be the date when signed and delivered by
each of the parties hereto, provided, however, that the indemnification
obligations and the date as of which representations and warranties are made
hereunder shall be deemed made as of the Closing. There are no third party
beneficiaries of this Amended and Restated Agreement.
9.18 Reference to Shareholders' Agreement. This Amended and Restated
------------------------------------
Agreement refers to the Shareholders Agreement. The parties acknowledge that
they have reviewed and understand the Shareholders Agreement, including, without
limitation, the provisions regarding amendment and termination, and that the
Shareholders Agreement may be amended from time to time or may be terminated in
accordance with the terms of the Shareholders Agreement and Section 2.2 herein,
whether before or after shares of Common Stock are issued hereunder.
9.19 Action by Shareholders. Any consent, approval or similar act which
----------------------
requires the act of the "Shareholders" or the "Key Shareholders" is authorized
if approved by those Shareholders holding 80% or more of the Acorn Shares before
the Closing.
9.20 Shareholder Family LLC's.' Notwithstanding anything to the contrary
-------------------------
herein, certain Shareholders have transferred their Acorn Shares to the limited
liability companies listed on the signature page hereof for estate planning
purposes (the "Shareholder Family LLC's"). All ownership interests of the
Shareholder Family LLC's are held by the respective Shareholder and his or her
spouse, lineal descendents and/or immediate family members, and no transfer,
assignment or disposition of any membership or ownership interest in, or
admission of new
49
<PAGE>
members to, a Shareholder Family LLC, other than to the spouse, line descendent
and/or immediate family members of the respective Shareholder, may be made
without the prior written consent of Etinuum. All of the rights of the
respective Shareholder hereunder shall inure to, and all of the obligations
(including the indemnification obligations under ARTICLE 8) of the respective
Shareholder hereunder shall bind, the Shareholder Family LLC, and any permitted
assignees thereof, to which a Shareholder Transferred his or her Acorn Shares.
The Shareholder Family LLC's shall execute and deliver a copy of the
Shareholders Agreement, if any, upon receipt of any Common Stock hereunder and
shall be bound by the restrictions on Transfer designated in Section 2.3 herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
50
<PAGE>
IN WITNESS WHEREOF, the parties hereby execute this Amended and Restated
Share Purchase Agreement as of the date first written above.
ETINUUM, INC., ACORN INFORMATION SERVICES, INC.,
a Delaware corporation a Delaware corporation
By:/s/ Timothy O'Crowley By:/s/ Venkat Sharma
----------------------------- -----------------------------
Timothy O'Crowley, President Venkat Sharma, President
By: Daniel Adams By:/s/ Sharmla Sharma
----------------------------- -----------------------------
Its: Secretary Its: Assistant Secretary
KEY SHAREHOLDERS:
/s/ Venkat Sharma
---------------------------------
Venkat Sharma
/s/ Shoba Murali
---------------------------------
Shoba Murali
/s/ Raja Ramnarayan
---------------------------------
Raja Ramnarayan
/s/ Sunil Gupta
---------------------------------
Sunil Gupta
SHAREHOLDER
/s/ Richard Wayne
---------------------------------
Richard Wayne
51
<PAGE>
SHAREHOLDER FAMILY LLC'S:
Sharma Family LLC
By: /s/ Venkat Sharma
---------------------------------
Its:
---------------------------------
Murali Family LLC
By: /s/ Shoba Murali
---------------------------------
Its:
---------------------------------
Ramnarayan Family LLC
By: /s/ Raja Ramnarayan
---------------------------------
Its:
---------------------------------
52
<PAGE>
Schedule 2.2.2
Percentage Basis for Contingent Consideration Payment
Venkat Sharma 39.0%
Shoba Murali 31.5%
Raja Ramnarayan 19.5%
Sunil Gupta 10.0%
Percentage Basis for Stock Option Issuance
Venkat Sharma 39.0%
Shoba Murali 31.5%
Raja Ramnarayan 19.5%
Sunil Gupta 10.0%
53
<PAGE>
Exhibit 2.1.1
FORM
EMPLOYMENT AGREEMENT
(_____________________)
Exhibit 6.1.1
This EMPLOYMENT AGREEMENT is made as of October 30, 1999 by and between
Intek Information, Inc., a Delaware corporation (the "Company" or "Intek"),
Acorn Information Services, Inc., a Delaware corporation ("Acorn"), and
_________________, an individual residing in __________, _________ Connecticut
("Employee").
WHEREAS, concurrently herewith, the Company is purchasing all of the
capital stock of Acorn pursuant to that certain Share Purchase Agreement among
the Company, Acorn, the Employee and others of even date herewith (the "Share
Purchase Agreement"); and
WHEREAS, the Company desires to employ the Employee as an employee of the
Company and as ________________ of Acorn, and Employee desires to serve as an
employee of the Company and as ________________ of Acorn upon the following
terms and conditions and effective as of October 1, 1999 (the "Effective Date").
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants herein, the
parties agree as follows:
1. Employment. Upon the terms and subject to the conditions of this Agreement,
----------
the Company hereby employs and Acorn employs, and the Employee hereby
agrees to serve, as an employee of the Company and as ________________ of
Acorn.
2. Term. Subject to Section 5 hereof, the term of Employee's employment under
----
this Agreement shall be for a period of three (3) years commencing on the
Effective Date and terminating on the third anniversary thereof. This
Agreement shall automatically extend for successive one-month periods after
the initial three (3) year term unless terminated as provided herein. The
initial three (3) year period and any extensions are collectively referred
to herein as the "Term".
3. Compensation.
------------
A. Base Salary. The Company shall, commencing on the Effective Date and
-----------
during the Term, pay to the Employee, and the Employee agrees to
accept, a base salary of $________ per year, less applicable
withholding taxes, payable in accordance with the customary practices
of the Company, but not less than monthly, plus such salary increases
as approved by the Board of Directors of the Company. The annual base
salary, excluding all bonus payments, as in effect from time to time,
is referred to herein as the "Base Salary".
<PAGE>
B. Signing Bonus. On the date hereof, the Company shall pay Employee a
-------------
signing bonus (which shall be subject to withholding and other similar
taxes) of $________as described in Exhibit A.
C. Spider Stock. On the date hereof, the Company shall deliver to
------------
Employee three hundred eighty-eight thousand one hundred fifty-five
(388,155) shares of common stock of Spider Technologies, Inc., a
Delaware corporation ("Spider Stock"), which shall be subject to the
Stock Restriction Agreement attached hereto as Exhibit B. Employee
agrees to make a timely Section 83(b) election with the Internal
Revenue Service with respect to the Spider Stock, and a failure to do
so constitutes a material breach of this Agreement permitting the
Company to terminate this Agreement for "Cause".
D. Consideration. Employee agrees to accept the above amounts and the
-------------
benefits described in this Agreement in full payment for the services
to be rendered by him hereunder; provided, however, that the Company's
Board of Directors or its Compensation Committee and Employee will
meet no later than six (6) months after the Effective Date and again
on each anniversary of the Effective Date to discuss an increase in
Base Salary. There is no assurance any increase in Base Salary will
occur. In no event shall Base Salary decrease.
4. Duties.
------
A. Employee has been retained to occupy a position that constitutes part
of the professional, management and executive staff of the Company and
Acorn, whose duties will include the formulation and execution of
management policy.
B. The Employee shall during the Term:
(i) devote his full normal working time, energies and attention to
the duties of his employment as they may be established from time
to time by the Board of Directors of the Company and/or Acorn
consistent with the position and office occupied by Employee,
except that Employee may spend time managing Employee's personal,
financial and legal affairs and, upon the prior written consent
of the ________________ of the Company (which consent shall not
be unreasonably withheld), serving on corporate, civic or
charitable boards and committees, provided that such approval
shall be deemed to have been given if the ________________ of the
Company does not notify Employee that Employee may not so serve
within fifteen (15) business days of receipt of Employee's notice
of Employee's intent to serve on such boards or committees, and
further provided that in any event such time does not
unreasonably interfere with Employee's performance of his duties
hereunder;
(ii) comply with all reasonable rules, regulations and administrative
directions now or hereafter established by the Company;
2
<PAGE>
(iii) not engage in any activity or employment which materially
conflicts with or has a material adverse affect on, the present
or prospective business of the Company (including its
subsidiaries) and Employee's performance of his duties for the
Company or Acorn; and
(iv) notwithstanding the foregoing, if reasonably requested by the
Company, perform services for and/or be an officer of one or
more Intek subsidiaries, to the extent such duties are
consistent with Employee's executive position.
C. It is expressly understood and agreed that the Employee's continuing
with the same level of involvement to serve on any boards and
committees (i) on which he is serving or with which he is otherwise
associated on the Effective Date, and/or (ii) his service on any other
boards and committees of which he notifies the ________________ of the
Company and the Company gives prior written approval (which approval
will not be unreasonably withheld and shall be deemed to have been
given if the ________________ of the Company does not notify Employee
that Employee may not so serve within fifteen (15) business days of
receipt of Employee's notice), shall not be deemed to interfere with
the performance of the Employee's services to the Company.
D. Unless Employee consents otherwise in writing, which consent will not
be unreasonably withheld, the principal location for the performance
of his duties hereunder shall be at Acorn's offices in Shelton,
Connecticut.
5. Termination.
-----------
A. Mutual Agreement. Notwithstanding the provisions of Sections 1 and 2
----------------
hereof, this Agreement may be terminated at any time by the mutual
written agreement of the Company and Employee.
B. Termination of Employment Other Than by Employee. Notwithstanding the
------------------------------------------------
provisions of Sections 1 and 2 hereof, this Agreement may be
terminated prior to the expiration of the Term by the Company only
upon the occurrence of any of the following events:
(i) Death. Upon the death of the Employee.
-----
(ii) Disability. The inability of the Employee to perform his duties
----------
in any material respects on account of injury, illness or other
incapacity for the longest of (i) ninety (90) consecutive days,
or (ii) ninety (90) days in a three hundred sixty-five (365) day
period, or (iii) any longer period prescribed by any applicable
law, and the Board of Directors of the Company reasonably
determines that Employee has been unable to perform his duties
for such period as a result of injury, illness or other
incapacity ("Disability").
(iii) Cause. For "Cause", which shall be limited to:
-----
3
<PAGE>
(1) the Employee is convicted or indicted of a felony, or of a
criminal offense involving any act or acts of moral turpitude or
any crime other than a vehicle offense that materially impairs
the Company's business, goodwill or reputation;
(2) the Employee has committed any material act of dishonesty with
respect to the Company, or any of the Company's subsidiaries or
affiliates, that materially impairs the Company's business,
goodwill or reputation and that is not the result of an
inadvertent or innocent mistake;
(3) willful malfeasance or nonfeasance of duty by the Employee
hereunder that materially injures the reputation, business or
business relationships of the Company or any of its subsidiaries
or any of their respective officers, directors or employees;
(4) the Employee materially breaches any term of this Agreement and
such action or failure to act is not remedied or cured, or
reasonable steps to fully effect such remedy or cure are not
commenced, within twenty (20) days of Employee's receipt of
written notice from the Company of such material breach;
(5) willful or prolonged absence from work by the Employee (other
than by reason of Disability) or material failure, neglect or
refusal by the Employee to perform his duties and
responsibilities without the same being remedied or corrected
upon twenty (20) days prior written notice; or
(6) a failure to properly and timely make the Section 83(b) election
provided for above regarding the Spider Stock.
C. Without Cause. Notwithstanding the provisions of Sections 1 and 2 hereof,
-------------
the Company may terminate this Agreement at any time without Cause upon
thirty (30) days prior written notice to the Employee, in which case the
Company shall pay the Employee the amounts set forth in Section 5G(iv)
below.
D. Termination of Employment by Employee. Notwithstanding the provisions of
-------------------------------------
Sections 1 and 2 hereof, this Agreement may be terminated prior to the
expiration of the Term by the Employee as follows:
(i) General. The Employee may terminate his employment at any time on
-------
ninety (90) days written notice, provided, however, that the Company
-------- -------
may, in its sole discretion, elect to accelerate Employee's
termination under this Subsection by giving the Employee written
notice of its desire for the Employee to terminate his employment at
any time after thirty (30) days after receipt of Employee's notice of
termination hereunder.
4
<PAGE>
(ii) Hardship. The Employee may terminate his employment immediately and
--------
without prior notice due to a significant and long term family
medical emergency or similar hardship ("Hardship").
(iii) Good Reason. The Employee may terminate his employment at any time
-----------
for Good Reason by giving Notice of Termination pursuant to Section
5.D. within sixty (60) days after the Employee has actual notice of
the occurrence of any of the following events (each or collectively,
"Good Reason") (provided the Company and Acorn do not cure such
event, or commence reasonable steps to fully effect such a remedy or
cure, on a retroactive basis to the extent possible within twenty
(20) days following its receipt of the Employee's Notice of
Termination):
(1) The Employee's Base Salary, bonuses and/or other compensation are
reduced or not paid for any reason other than in connection with
the termination of his employment.
(2) The Company otherwise materially breaches, or is unable to
perform its obligations under this Agreement and such breach is
not remedied or cured, or reasonable steps to fully effect a
remedy or cure have not commenced, within twenty (20) days of the
Company's receipt of written notice from Employee of such
material breach.
(3) For any reason, other than in connection with the termination of
Employee's employment for Cause, the Company materially reduces
any benefit provided to the Employee below the level of such
benefit provided generally to other actively employed executives
of the Company of similar compensation and responsibility levels,
unless the Company agrees to fully compensate the Employee for
any such material reduction.
E. Notice of Termination. Any termination of the Employee's employment by the
---------------------
Company hereunder, or by the Employee other than termination upon the
Employee's death, shall be communicated by written Notice of Termination to
the other party. For purposes of this Agreement, a "Notice of Termination"
means a notice that shall indicate the specific termination provision
relied upon in this Agreement, and shall set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the
Employee's employment under the specified provision or provisions.
F. Date of Termination. "Date of Termination" means:
-------------------
(i) If the Employee's employment is terminated by his death, the date of
his death.
(ii) If the Employee's employment is terminated by the Company as a result
of Disability pursuant to Section 5.B.(ii), the date that is thirty
(30) days after Notice of Termination is given.
5
<PAGE>
(iii) If the Employee terminates his employment for Good Reason pursuant to
Section 5.D(iii) the date that is twenty (20) days after Notice of
Termination is given (provided that the Company does not cure such
event during the twenty (20) day period).
(iv) If the parties terminate Employee's employment pursuant to Section
5(A) or if the Company terminates Employee's employment pursuant to
Section 5(C) or if Employee terminates his employment for Hardship
pursuant to Section 5(D)(ii), the date of Employee's last day of
work.
(v) If the Employee terminates his employment pursuant to Section
5(D)(i), the date that is ninety (90) days after Notice of
Termination is given, or such last day of employment as may be
specified by the Company in its notice to the Employee under Section
5(D)(i).
(vi) If the Employee's employment is terminated by the Company either for
Cause pursuant to Section 5(B)(iii), the date on which the Notice of
Termination is given.
G. Amounts Payable Upon Termination of Employment or During Disability.
-------------------------------------------------------------------
(i) Death. If the Employee's employment is terminated by his death, the
-----
Employee's beneficiary, as designated by the Employee in writing with
the Company prior to his death, shall be entitled to the following
payments and benefits (collectively, "Termination Payments"): (i) any
Base Salary that is accrued but unpaid, any bonus that is earned but
unpaid pursuant to the applicable terms and provisions of such bonus
plan, any vacation that is accrued but unused, and any business
expenses that are unreimbursed -- all, as of the Date of Termination;
and (ii) any benefit following the Date of Termination which may be
provided under the benefit plans, policies and programs described in
Section 7 in the amounts and for the time periods set forth in the
applicable terms and provisions of such plans. In the absence of a
beneficiary designation by the Employee, or, if the Employee's
designated beneficiary does not survive the Employee, or if required
by law, the Termination Payments shall be paid to the Employee's
estate.
(ii) Disability.
----------
During any period that the Employee fails to perform his duties
hereunder as a result of a Disability ("Disability Period"), the
Employee shall continue to receive his Base Salary at the rate then
in effect for such period until his employment is terminated pursuant
to Section 5(B)(ii) less any payments received pursuant to disability
policies or benefits (whether of the Company, Acorn or governmental);
and
Upon his termination of employment because of Disability, the
Employee shall be entitled to the Termination Payments as if the
Employee has died on his Date of
6
<PAGE>
Termination. In the event of the Employee's death prior to the time
that all Termination Payments have been paid, such payments and
benefits shall be paid to the Employee's beneficiary as designated
pursuant to Section 5(G)(i), or, in the absence of a beneficiary
designation or the designated beneficiary does not survive the
Employee, to the Employee's estate.
(iii) Hardship or Mutual Agreement. In the event the parties mutually
----------------------------
agree to terminate this Agreement or Employee terminates his
employment due to Hardship before the expiration of the Term,
including any extension thereof, the Employee shall be entitled to
the Termination Payments as if the Employee had died on his Date of
Termination.
(iv) Termination by Company Without Cause or Termination by Employee for
-------------------------------------------------------------------
Good Reason. In the event the Company terminates the Employee's
-----------
employment without Cause pursuant to Section 5(c) or the Employee
terminates his employment for Good Reason before the expiration of
the Term, including any extension thereof, the Employee shall be
entitled to the following payments and benefits:
(1) The Termination Payments as if the Employee had died on his Date
of Termination;
(2) Employee's Base Salary then in effect from and after the Date of
Termination through the earlier of (i) the expiration of the Term
-------
and (ii) the date twelve (12) months after the Date of
Termination (the "Initial Severance Period"), less all applicable
payroll deductions, including deductions for federal, state,
local and Social Security taxes (the "Initial Severance
Payments"). The Initial Severance Payments shall be paid in
accordance with the provisions of Section 3; and
(3) In Intek's sole discretion (based on factors such as, without
limitation, Employee diligently searching for future employment,
his reasonable cooperation with Intek during the Initial
Severance Period relating to activities Employee was actively
engaged in prior to the Date of Termination and Employee
refraining from any act or failure to act intended to materially
injure the reputation, business relationships or operations of
the Company), Employee's Base Salary then in effect from and
after the expiration of the Initial Severance Period through the
earlier of (i) the expiration of the Term, (ii) the date twelve
(12) months after the expiration of the Initial Severance Period,
and (iii) the date Employee commences other employment that, in
Employee's sole discretion, is suitable and comparable to his
employment with the Company (the "Extended Severance Period"),
less all applicable payroll deductions, including deductions for
federal, state, local and Social Security taxes (the "Extended
Severance Payments"). The Severance Payments shall be paid in
accordance with the provisions of Section 3.
7
<PAGE>
During the Initial Severance Period, payment of any life
insurance or other benefit of employment which may be provided
under the benefit plans, policies and programs described in
Section 7 will terminate on the Date of Termination (other than
COBRA at the Employee's expense).
During the Initial Severance Period and the Extended Severance
Period, the Company shall provide the Employee at the Company's
expense customary full executive level outplacement services with
a mutually acceptable outplacement firm for a period of up to
twelve (12) months after the Date of Termination to assist
Employee with his post-termination search for employment,
provided that in no event shall the Company be required to pay an
amount greater than fifteen percent (15%) of Employee's then
current Base Salary. In lieu of such outplacement services,
Employee may request equitable payment in cash or request that
the Company provide at its own expense for a period of up to
twelve (12) months (and in an amount that does not exceed the
amount that would have been payable by the Company under the
immediately preceding sentence) a mutually acceptable office,
together with secretarial assistance and customary office
facilities and services, for the purpose of facilitating
Employee's search for new employment. Employee acknowledges and
agrees that he will be responsible for the payment of all taxes
that are applicable in connection with the payments made by the
Company under this section.
In order to obtain payments pursuant to Subsections G(iv)(2) and
G(iv)(3) above, Employee shall submit a request for Severance Payments
identical to Exhibit C hereof following the last day of his
employment. The Company shall have no obligation to pay any such
payments unless and until the Employee shall have submitted such
request. The payments made hereunder, if any, shall be made on a
monthly basis at the time of the Company's regular payroll and shall
not be reduced by compensation the Employee may receive from other
sources.
(v) Termination by Employee Other Than for Good Reason, Hardship, Mutual
--------------------------------------------------------------------
Agreement or Termination by Company for Cause. In the event that the
---------------------------------------------
Employee voluntarily terminates his employment (other than for Good
Reason, Hardship or Mutual Agreement) or the Company terminates his
employment for Cause, the Employee shall not be entitled to any
compensation except as set forth below:
(1) Any Base Salary that is accrued but unpaid, any vacation that is
accrued but unused, any bonuses that are earned but unpaid
pursuant to the terms and provisions of such bonus plans, and any
business expenses that are unreimbursed -- all, as of the Date of
Termination; and
(2) Any other rights and benefits (if any) provided under plans and
programs of the Company (excluding any bonus program), determined
in accordance with the applicable terms and provisions of such
plans and programs.
8
<PAGE>
6. Expenses. The Company shall reimburse the Employee in accordance with the
--------
Company's regular procedures in effect from time to time (but at least
monthly) for all reasonable and necessary business expenses incurred by him
in the performance of his duties hereunder, provided that Employee shall
render to the Company such accounts and vouchers covering expenditures as
the Company reasonably requires or as are necessary for tax purposes, and
shall follow normal Company policy on expenses.
7. Vacation; Benefits. During the Term:
------------------
A. Employee shall be eligible to participate in the benefit plans made
generally available to employees of the Company having similar
responsibility and compensation levels as Employee to the extent not
duplicative of compensation or benefits provided expressly herein.
Employee expressly acknowledges that the Company may alter, modify,
suspend or terminate any such benefit plans at any time and for any
reason, or no reason.
B. Employee shall be entitled to four (4) weeks vacation time annually
with pay, the time of which shall be determined in Employee's
discretion and shall not unreasonably interfere with Employee's
performance of his duties hereunder; and
C. Employee will receive an automobile allowance of $________ per month
and automobile insurance so long as premium levels are in accordance
with standard rates for safe drivers.
8. Non-Competition.
---------------
A. The Company, Acorn and the Employee recognize that the Employee has
been retained to occupy a position that constitutes part of the
professional, management, and executive staff of the Company and
Acorn, whose duties will include the formulation and execution of
management policy. The Employee, for and in consideration of the
payments, rights and benefits provided herein, agrees that during the
Non-Compete Period (defined below), the Employee shall not compete
directly or materially with a Subject Company in the business of (i)
inbound or outbound telemarketing or teleservicing; (ii) outsourced
teleservicing; (iii) customer direct e-servicing business, which
includes, without limitation, the design, development, marketing and
sale of business tools (including business rules and processes) and
computer software that assists businesses and other organizations in
selling products directly to consumers on the Internet, or (iv) "data
mining" by which demographic data is either gathered or analyzed in
order to direct or improve marketing or customer service activities
(collectively the "Business"), during the Non-Compete Period. For
purposes of this Section, the "Non-Compete Period" shall begin on the
Closing Date (as defined in the Purchase Agreement) and end either:
(i) if the Date of Termination is before the EBITDA Threshold (as
defined in the Purchase Agreement) is achieved, the longer of one (1)
year after the Date of Termination or three (3) years after the
Closing Date; or (ii) if the Date of Termination is after the EBITDA
Threshold is achieved, one (1) year after the Date of Termination. The
parties agree that they shall not during such period make public
statements in derogation of each other,
9
<PAGE>
except as may be required by law. For the purposes of this Section,
the term "Subject Company" shall mean Intek and any direct or indirect
subsidiaries, parents and affiliates of Intek including Acorn.
Competing directly or materially with the Subject Company shall mean
(a) either (i) engaging or (ii) having a material interest (any
ownership or profit interest over 5% always being material), directly
or indirectly, as owner, employee, officer, director, partner,
venturer, shareholder, capital investor, consultant, agent, principal,
advisor or otherwise, either alone or in association with others, in
the operation of any individual or entity engaged in (b) the Business
within Canada or the continental United States, including the
California counties which would appear here if each county in
California was listed here. Competing directly or materially with the
Subject Company, as used in this Agreement, shall be deemed not to
include an ownership interest as an inactive investor, which for
purposes of this Section shall mean the beneficial ownership of less
than five percent (5%) of the outstanding shares of any series or
class of securities of any competitor of the Subject Company, which
shares are publicly traded in the securities markets. The Key
Shareholders agree that the Business is inherently nationwide in
scope.
B. Notwithstanding the foregoing, Employee shall have no obligation under
this Section 8 after termination if (i) both (1) (A) the Employee has
terminated this Agreement for Good Reason or the Company has
terminated this Agreement without Cause, and (B) the Company has
obligations to make post-termination continued Base Salary payments
under this Agreement, and (2) after twenty (20) days notice by the
Employee to the Company that the Company has failed to make such post-
termination payments, the Company has not cured such failure to make
payments; or (ii) if the Intek ________________ consents, which
consent shall not be unreasonably withheld, to Employee's employment
or performance of services for a business that does not directly
compete with Intek.
C. Upon the termination of the Employee's employment with the Company,
and for one year thereafter, upon written request of the Company, the
Employee shall promptly provide the Company a Certificate of
Compliance with this Section 8, which Certificate shall include
information regarding Employee's employment or agency relationships
with third parties engaged in a business which is directly or
materially in competition with the Business to the extent not
prohibited by confidentiality agreements with third parties. The
Company agrees to keep confidential and not to use or disclose any
information that Employee provides regarding Employee's employment or
agency relationships with third parties.
D. The Employee agrees that the restrictions contained in this Section 8
are reasonable as to time and geographic scope because of the nature
of the Business and the Employee agrees, in particular, that the
geographic scope of this restriction is reasonable because companies
engaged in the Business compete on a nationwide basis. The Employee
acknowledges that the Company is in direct competition with all other
companies engaged in the Business throughout the continental United
States, Canada, and other markets in which the Company may be
conducting business at the time the Employee's
10
<PAGE>
employment with the Company is terminated, and because of the nature
of the Business, the Employee agrees that the covenants contained in
this Section 8 cannot reasonably be limited to any smaller geographic
area.
E. The provisions of this Section 8 shall survive termination of this
Agreement for any reason.
9. Non-Raid.
--------
A. The Employee acknowledges that the Company has invested substantial
time and effort in assembling its present staff of personnel.
Accordingly, Employee covenants and agrees that during the term of the
Non-Compete Period, he will not (i) solicit or hire any of the
employees of a Subject Company who were employed by a Subject Company
at or within one month before or during the Employee's employment by a
Subject Company, (ii) interfere with the relationship of the Subject
Company with any such employees, or (iii) personally target or
solicit, or assist another to target or solicit, customers of the
Subject Company for activities related to the Business or influence,
or attempt to influence any of the customers of the Subject Company
not to do business with the Company.
B. Notwithstanding the foregoing, Employee shall have no obligation under
this Section 9 after termination if both (i) (A) the Employee has
terminated this Agreement for Good Reason or the Company has
terminated this Agreement without Cause, and (B) the Company has
obligations to make post-termination continued Base Salary payments
under this Agreement, and (ii) after twenty (20) days notice by the
Employee to the Company that the Company has failed to make such post-
termination payments, the Company has not cured such failure to make
payments.
C. The Employee agrees that the restrictions contained in this Section 9
are reasonable as to time and geographic scope because of the nature
of the Business and the Employee agrees, in particular, that the
geographic scope of this restriction is reasonable because companies
engaged in the Business compete on a nationwide basis. The Employee
acknowledges that the Company is in direct competition with all other
companies engaged in the Business throughout the continental United
States, Canada, and other markets in which the Company may be
conducting business at the time the Employee's employment with the
Company is terminated, and because of the nature of the Business, the
Employee agrees that the covenants contained in this Section 9 cannot
reasonably be limited to any smaller geographic area.
10. Blue Pencil Provision. Employee acknowledges that the scope, periods and
---------------------
geographic area of restriction imposed by Section 8 and Section 9 are fair
and reasonable and are reasonably required for the protection of the
Company. If any part or parts of Section 8 or Section 9 shall be held to be
unenforceable or invalid, the remaining parts thereof shall nevertheless
continue to be valid and enforceable as though the invalid portion or
portions were not a part hereof. If any of the provisions of Section 8 and
Section 9 relating to the scope, periods or
11
<PAGE>
geographic area of restriction shall be deemed to exceed the maximum scope,
periods of time or area which a court of competent jurisdiction would deem
enforceable, the scope, times and area shall, for the purposes of Section 8
and Section 9, be deemed to be the maximum scope, time periods and area
which a court of competent jurisdiction would deem valid and enforceable in
any state in which such court of competent jurisdiction shall be convened.
The invalidity or unenforceability of any provision hereof in one
jurisdiction shall not affect its validity or enforceability in another
jurisdiction.
11. Confidentiality. Employee acknowledges that Employee may have access to
---------------
certain information related to the business, operations, future plans and
customers of the Company, the disclosure or use of which could cause the
Company substantial losses and damages. Accordingly, Employee covenants
that during the term of Employee's employment with the Company and
thereafter Employee will keep confidential all such information and
documents furnished to Employee by or on behalf of the Company and not use
the same to Employee's advantage, except to the extent such information or
documents are lawfully obtained from other sources on a non-confidential
(as to the Company) basis or are in the public domain through no fault on
Employee's part or is consented to in writing by the Company or are
disclosed to the extent required by a court, administrative agency,
government body, or applicable law, rule or regulation. Upon termination of
Employee's employment, Employee shall return to the Company all records,
lists, files, disks, documents, media and other Company property which are
in Employee's possession and which relate to the Company or its business.
12. Right to Injunctive Relief. Employee agrees and acknowledges that a
--------------------------
violation of the covenants contained in Sections 8, 9, or 11 of this
Agreement will cause irreparable damage to the Company, and that it may be
impossible to estimate or determine the damage that will be suffered by the
Company in the event of a breach by Employee of any such covenant.
Therefore, Employee further agrees that in the event of any violation or
immediately threatened violation of such covenants, the Company shall be
entitled as a matter of course to seek an injunction from any court of
competent jurisdiction restraining such violation or threatened violation
by Employee, such right to an injunction to be cumulative and in addition
to whatever other remedies the Company may have.
13. Indemnification; Insurance. The Company shall provide for the coverage of
---------------------------
Employee under the Company's standard directors' and officers' insurance
policy to protect Employee against any expense, liability or loss by reason
of the fact that Employee is or was a director or officer of the Company,
to the fullest extent permitted by applicable law and the terms and
conditions of such policy.
14. Integration; Forum. This Agreement together with the Stock Restriction
------------------
Agreement and the Share Purchase Agreement shall constitute the entire
agreement between the parties. This Agreement shall be governed by the laws
of Colorado, excluding laws on choice of law. This Agreement specifically
supersedes any employment arrangements, or other compensation arrangement
(including bonus, option, appreciation, benefit or commission arrangements)
with Acorn. Any litigation regarding this Agreement shall only be brought
and heard in the
12
<PAGE>
federal or state courts located in Chicago, Illinois, which courts shall
apply the laws of the State of Colorado, excluding laws on choice of law,
and no transfer of venue outside such area shall be permitted. If the
Company is enforcing any provision hereof which is similar to a provision
in the Share Purchase Agreement (including, but not limited to, non-
compete, confidentiality and no-hire provisions) and Employee was a party
to such Share Purchase Agreement, the Company may require the resolution of
such issues to be decided in the arbitration or litigation conducted under
such Share Purchase Agreement. Termination of this Agreement or any
provision hereof, including Sections 8, 9, or 11, shall not affect any
similar provision in the Share Purchase Agreement, including any non-
compete covenant; provided, however, that the provisions of Sections 8 and
-------- -------
9 hereof relating to the time periods for the effectiveness of the
agreements addressed in such sections, shall control over a longer time
period in the corresponding provision of the Share Purchase Agreement. In
all other respects the agreements in the Share Purchase Agreement
(including, but not limited to, non-compete, confidentiality and no-hire
provisions) are separate and independent of this Agreement.
15. Unenforceability. If any paragraph or subparagraph of this Agreement or any
----------------
part thereof shall be unenforceable under any applicable laws,
notwithstanding such unenforceability the remainder of this Agreement shall
remain in full force and effect.
16. Attorneys' Fees; Costs. In the event of any legal or arbitration action or
----------------------
proceeding to enforce or interpret the provisions hereof, the prevailing
party shall be entitled to reasonable attorneys' fees and costs, and other
costs and expenses incurred in the action or proceeding, whether or not the
proceeding results in a final judgment. All costs and expenses, including
without limitation attorneys' fees and costs, incurred in connection with
the negotiation, preparation, execution, delivery and enforcement of this
Agreement and consummation of the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses.
17. Survival. Terms which by their terms or sense are to survive termination
--------
hereof (including Sections 5, 8, 9, 11 and 12) shall so survive.
18. Notice. Any notice, direction or instruction required or permitted to be
------
given hereunder shall be given in writing and may be given by facsimile
transmission or similar method if confirmed by mail as herein provided; by
mail if sent postage prepaid by registered mail, return receipt requested;
or by hand delivery to any party at the address of the party set forth
below. If notice, direction or instruction is given by facsimile
transmission or similar method or by hand delivery, it shall be deemed to
have been given or made on the day on which it was given, and if mailed,
shall be deemed to have been given or made on the third business day
following the day after which it was mailed. Any party may, from time to
time, by like notice give notice of any change of address and in such
event, the address of such party shall be deemed to be changed accordingly.
If to the Company: Intek Information Inc.
5619 DTC Parkway, 12/th/ Floor
13
<PAGE>
Englewood, CO 80111
Attn: Timothy C. O'Crowley
Telephone: (303) 357-3000
Facsimile: (303) 323-4213
Copy to: Chrisman, Bynum & Johnson, P.C.
1900 15th Street
Boulder, CO 80302
Attn: G. James Williams, Jr.
Telephone: (303) 546-1300
Facsimile: (303) 449-5426
If to the Employee: _____________________________
PERSONAL AND CONFIDENTIAL
c/o Acorn Information Services, Inc.
4 Corporate Drive
Shelton, CT 06484
Telephone: (800) 279-3889
Facsimile: (203) 225-7610
Copy to: Wiggin & Dana
Three Stamford Plaza
301 Tresser Blvd.
Attn: William A. Perrone
Telephone: (203) 363-7604
Facsimile: (203) 363-7676
19. Inventions. Employee hereby agrees to assigns, and hereby assigns, to the
----------
Company all of Employee's interest (including copyrights and patent rights)
in any ideas, concepts, know-how, inventions, discoveries, works of
authorship, and the like ("Inventions"), which are conceived or made by
Employee during the term of Employee's employment with the Company or his
previous employment by Acorn, and which are or were developed on Company
time or with Company facilities, whether or not related to the Business.
Further, even if not developed on Company time or with Company facilities,
any Invention (conceived by or made by Employee during the term of
employment with the Company) is hereby assigned if it relates to or is
suggested by the Business. Employee also agrees that, independent of any
assignment, Employee's work is a work for hire and the Company owns all
right, title and interest in all Inventions, and all copyrights, patent
rights, and the like, concerning the Inventions. Employee will, from time
to time, execute such confidentiality and invention assignment agreements
as are generally signed by similarly situated Company employees.
20. Amendments; Waivers. This Agreement cannot be changed, modified or amended,
-------------------
and no provision or requirement hereof may be waived, without consent in
writing of the parties hereto.
14
<PAGE>
21. Counterparts. This Agreement may be executed in two or more counterparts,
------------
each of which shall be deemed to be an original. It shall not be necessary
when making proof of this Agreement to account for more than one
counterpart.
22. Acorn as Substitute for Intek; Joint and Several Liability. Acorn and
----------------------------------------------------------
Intek acknowledge and agree that they are jointly and severally liable for
their duties under this Agreement. Throughout this Agreement references are
made to the Company performing certain acts. The Company may cause Acorn to
perform (in whole or in part) any act to be performed by the Company
hereunder; provided, however, that no such assignment or delegation of
duties shall relieve Acorn or Intek of their joint and several liability
hereunder.
[Signature page follows.]
15
<PAGE>
IN WITNESS WHEREOF, the parties have executed this EMPLOYMENT AGREEMENT as of
the date first above written.
INTEK INFORMATION, INC. ACORN INFORMATION SERVICES, INC.
By: __________________________ By:__________________________________
Timothy O'Crowley Title: ______________________________
___________________
EMPLOYEE
__________________________________
EXHIBIT A
---------
In the event Acorn achieves Sustained Profitability by August 31, 1999, the
Company will pay Employee $________, less applicable taxes and withholding. The
bonus will be paid within thirty (30) days of Closing. "Sustained
Profitability" has the meaning set forth in the Share Purchase Agreement.
The Company's obligation to pay such signing bonus shall immediately expire in
the event Employee's employment is terminated for any reason set forth in the
attached Employment Agreement prior to the date such bonus is payable by
Company.
16
<PAGE>
EXHIBIT B
---------
Stock Restriction Agreement
17
<PAGE>
EXHIBIT C
---------
Request for Post-Employment Allowance
This request for severance allowance is made by _________________ (hereinafter
"the Employee") pursuant to the provisions of the Employment Agreement (the
"Agreement") between the Employee on the one hand, and Intek Information, Inc.
and Acorn Information Services, Inc. on the other (hereinafter collectively "the
Company").
1. In consideration of the execution of this request for post-employment
allowance, the Company agrees to pay me the amounts and provide me with the
benefits as set forth in Subsections G(iv)(2) and (3) of the Agreement.
2. In return for these payments and benefits, I fully and finally release, waive
and discharge all charges, claims and causes of action of any sort known to me
that I may have against any person (including the Company, its directors,
officers, employees, agents and owners), including but not limited to, claims
arising from or related to my employment or termination of my employment, any
age, race, any unlawful employment practices of any kind, or otherwise, whether
such claims arise under federal, state, local, common, contract (including, but
not limited to, the Agreement), tort or other laws or regulations, specifically
including Title VII of the Civil Rights Act of 1964 as amended by the Equal
Employment Opportunity Act of 1972 and the Age Discrimination in Employment Act,
42 U.S.C. Section 1981.
3. I represent and warrant that I have returned all property of the Company in
my possession, including but not limited to, documents, manuals, pertinent
business contacts (names and addresses), shareholder lists, software, computers
and computer disks, notes, keys, cellular phone, and other articles or equipment
I used in the course of my employment that were provided to me by the Company.
4. It is understood that the Company does not admit the existence or validity of
any such claims or any liability of any sort nor has the Company made any
agreement or promise to do or omit to do any act or thing not herein set forth.
5. I agree that I will not disclose this document or its terms or provisions
without first obtaining the written consent of the Company except to the extent
such information is lawfully obtained from other sources on a non-confidential
(as to the Company) basis or are in the public domain through no fault on
Employee's part, and except to my accountants, attorneys and immediate family
members.
6. I understand that this Request shall be governed by Colorado law.
7. I have read and completely understand this request and recognize that it
constitutes a general release and waiver of all claims, and I agree that this is
an acceptable compromise of any such
18
<PAGE>
claims described in this request and knowingly and voluntarily intend to be
bound by these provisions without any further promises or consideration by the
Company.
____________________________________ Date __________________
19
<PAGE>
EXHIBIT TO FORM OF EMPLOYMENT AGREEMENT
AMENDED AND RESTATED
EMPLOYEE STOCK RESTRICTION AGREEMENT
This AMENDED AND RESTATED EMPLOYEE STOCK RESTRICTION AGREEMENT (the
"Agreement") is made as of the 20th day of March, 2000, by and between ETINUUM,
INC., formerly INTEK INFORMATION, INC., a Delaware corporation (the "Company"),
and ________________________ ("Employee").
RECITALS
--------
WHEREAS, the Company, Acorn Information Services, Inc., a Delaware
corporation ("Acorn"), Employee, a former shareholder and an employee of Acorn,
and certain other shareholders of Acorn (the "Acorn Shareholders") have entered
into a Share Purchase Agreement dated as of October 30, 1999 (the "Purchase
Agreement"), and as amended in the Amended and Restated Share Purchase Agreement
dated as of the date hereof (the "Amended Purchase Agreement") for the purchase
by the Company of all of the outstanding capital stock of Acorn from the Acorn
Shareholders. The purchase has occurred. All capitalized terms used, but not
otherwise defined, herein shall have the meaning ascribed to them in the Amended
Purchase Agreement.
WHEREAS, Employee and the Company have entered into an Employment Agreement
contemporaneously with the execution of the Purchase Agreement (the "Employment
Agreement") pursuant to which Employee is entitled to receive [________________]
shares of common stock of Spider Technologies, Inc., a Delaware corporation and
previously wholly owned subsidiary of the Company ("Spider"), subject to the
terms and conditions of this Agreement.
WHEREAS, the [________________] shares of common stock of Spider, par
value $0.0001 per share, Employee is entitled to receive under the Employment
Agreement (the "Employee Shares") are subject to the restrictions contained in
this Agreement.
WHEREAS, Employee and the Company desire to amend and restate the Employee
Stock Restriction Agreement entered into as of November 4, 1999 in this
Agreement, in order to reflect certain amendments contained in the Amended
Purchase Agreement.
WHEREAS, in consideration of the Employment Agreement and the execution by
certain other employees of the Company and Acorn of similar agreements pursuant
to the Amended Purchase Agreement, Employee desires to participate in the stock
restriction plan which this Agreement embodies.
NOW, THEREFORE, the parties agree as follows:
1. Delivery of Spider Common Stock. Employee and the Company agree that
-------------------------------
in consideration for services rendered and to be rendered by Employee to Acorn,
the Company has delivered to Employee [________________] shares of Spider
common stock subject to the terms and conditions of this Agreement
1
<PAGE>
free and clear of any liens, charges, claims or encumbrances of any kind (other
than this Agreement, the Spider Shareholders Agreement and the Amended Purchase
Agreement).
2. Escrow of Employee Shares. Employee shall deposit the
-------------------------
certificate representing the Employee Shares with Chrisman, Byrum & Johnson,
P.C. (the "Escrow Agent") to be held in escrow (the "Escrow") in accordance with
the terms of this Agreement. The certificate will be held in Escrow until the
expiration of the risk of forfeiture to which the Employee Shares are subject as
provided below, which in any event shall be no later than October 1, 2002 (the
"Disbursement Date"). If all or any portion of the Employee Shares is forfeited
(as provided below), the Company will issue on or prior to the Disbursement Date
a new certificate in the name of Employee to the Escrow Agent representing the
number of Vested Employee Shares (defined below) for disbursement to Employee
out of Escrow at the Disbursement Date. Subject to Section 4, the Escrow Agent
shall deliver to Employee the certificate representing the Vested Employee
Shares on the Disbursement Date.
As used herein, "Vested Employee Shares" means 25% of the Employee
Shares plus an additional 1/36th of the 75% balance of the Employee Shares on
the first day of each month beginning on November 1, 1999 and ending on October
1, 2002, as adjusted for all stock splits, stock dividends, stock combinations
and recapitalizations of Spider common stock, (and any securities issued in
respect thereof) (an "Adjusting Event"). "Unvested Employee Shares" means the
Employee Shares that are not Vested Employee Shares.
As used in this Agreement, the Employee Shares includes any and all
proceeds and products of the Employee Shares whether by dividend, distribution,
as consideration for a merger, or otherwise. In the event such proceeds or
products includes cash, any cash shall be placed in a mutually acceptable escrow
account with a financial
2
<PAGE>
institution or similar party pursuant to an escrow agreement containing
substantially the terms as the Escrow Agreement entered into by the Company and
the Acorn Shareholders under the Amended Purchase Agreement (provided that such
escrow shall not be created for indemnification claim purposes). Employee shall
be entitled to receive on the Disbursement Date the amount of such products or
proceeds in proportion to the number of Vested Employee Shares Employee is
entitled to receive on such date.
As a condition to receipt of the Employee Shares hereunder, Employee
executed and delivered to Spider a copy of the shareholders agreement
that is executed by the holders of seventy percent (70%) or more of the
outstanding common stock of Spider (the "Shareholders Agreement").
3. Section 83(b) Election. The Employee Shares received by Employee
----------------------
hereunder are subject to a risk of forfeiture as defined in Section 83(b) of the
Internal Revenue Code of 1986, as amended. Such risk of forfeiture shall
terminate as to particular shares as they are no longer subject to the risk of
forfeiture provided herein. Employee promptly and timely filed with the Internal
----------------------------------------------------
Revenue Service and the Company a Section 83(b) election with respect to the
- --------------------------------------------------------------------------------
Spider shares received by him hereunder and Employee acknowledges that he
- --------------------------------------------------------------------------------
understands the consequences of such filing. Employee agrees that he or she is
- -------------------------------------------
solely responsible for making such election and that he or she shall have no
recourse against the Company or its advisors with respect to such election.
4. Employee Shares Upon Termination of Employment. In the event
----------------------------------------------
that Employee shall cease to be an employee of Acorn at any time prior to
October 1, 2002, Employee shall be entitled to receive the Vested Employee
Shares as of the date of termination on the Disbursement Date. Any Employee
Shares that are not Vested Employee Shares as of the date of termination, shall
be deemed Unvested Employee Shares and subject to the rights of the Company
under Section 5 herein.
5. Unvested Employee Shares. Upon the earlier of the Disbursement
------------------------
Date or the Date of Termination, Employee shall automatically sell and transfer
to the Company at a price of $0.013 per share, as adjusted for any Adjusting
Events (the "Purchase Price"), all of the Unvested Employee Shares as of the
Disbursement Date or the Date of Termination (as applicable), without further
consideration and without written notice to such effect.
Unless the Company affirmatively elects not to purchase the Unvested
Employee Shares within sixty (60) days following the Disbursement Date (or the
Date of
3
<PAGE>
Termination if earlier), the Unvested Employee Shares shall be deemed to have
been purchased by the Company. The Company shall pay the Purchase Price at the
closing of such sale, which closing shall occur within the sixty (60) day period
referenced in the preceding sentence. A failure of the Company to make any
payment under this Section 5 shall not void the transfer of the Spider common
stock to the Company, but will only result in a monetary claim by Employee
against the Company for the amount of such payment. References to Employee
herein shall be deemed to include Employee's legal representative, estate or
beneficiary in the case of Employee's death or Disability (as defined in the
Employment Agreement). If the Company affirmatively elects not to purchase the
Unvested Employee Shares, such Unvested Employee Shares shall be deemed Vested
Shares and Employee shall be entitled to receive such shares on the later of the
Disbursement Date or upon notice from the Company of its election not to
purchase the Unvested Employee Shares.
Upon payment of the Purchase Price (in cash) in accordance with this
Agreement, Employee and the Company shall notify the Escrow Agent of such
payment and Escrow Agent shall deliver the certificate representing the Unvested
Employee Shares to the Company. The escrow agreement with the Escrow Agent
shall terminate as of the Disbursement Date. All transfer taxes and expenses
shall be paid by Employee.
4
<PAGE>
6. Transfer by Employee. Employee may not sell, transfer, gift,
--------------------
assign, pledge, encumber or otherwise dispose ("Transfer") of any of his or her
Employee Shares during his or her lifetime until such shares are Vested Employee
Shares, unless to another Acorn Shareholder, to an immediate family member or
other trust or entity formed for estate planning purposes, or pursuant to
Section 5 or with the prior written consent of the Company, which consent may be
withheld for any reason or for no reason. Any Transfer of Employee Shares until
such shares are Vested Employee Shares, whether voluntary or involuntary or by
operation of law, which is made in violation of this Section 6 (other than a
Transfer resulting from a merger or similar event required by applicable law to
be approved by a vote of the shareholders of Spider) shall be null and void and
have no effect, and the Company shall not recognize any such Transfer or
recognize the transferee as the holder of such Employee Shares for any purpose.
If Employee Transfers his Employee Shares in accordance with this Section 6,
then such Transfer may be consummated subject to the restrictions in the Spider
Shareholders Agreement; provided, however, that any transferee thereof shall
-------- -------
become a party to this Agreement, shall execute and deliver a counterpart of
this Agreement and shall agree to be subject to the restrictions and obligations
hereunder. Employee agrees and acknowledges that any Transfer of his Vested
Employee Shares shall be subject to and made in accordance with the terms of the
Spider Shareholders Agreement.
7. No Other Liability. No party hereto shall have by reason hereof
------------------
any liability to the other on account of a termination of Employee's employment
with the Company for any reason, except for any liability which may (or may not)
be established by a separate written mutual agreement signed by the parties,
including, but not limited to, the Employment Agreement or the Amended Purchase
Agreement.
8. Restrictive Legend. Employee consents to the placement of an
------------------
appropriate restrictive legend on the certificate evidencing the Employee Shares
and any certificates issued in replacement or exchange therefor. In addition to
any restrictive legend required under the Spider Shareholders Agreement,
Employee understands that the restrictive legend shall be substantially in the
following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID
ACT. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
TRANSFERRED EXCEPT IN ACCORDANCE WITH THE RESTRICTIONS CONTAINED
IN AN EMPLOYEE STOCK RESTRICTION AGREEMENT DATED MARCH 20, 2000,
A COPY OF WHICH OBTAINED AT NO COST BY WRITTEN REQUEST TO THE
SECRETARY OF THE CORPORATION AT ITS CORPORATE HEADQUARTERS.
5
<PAGE>
The Company agrees to remove such restrictive legend upon the issuance of
Vested Employee Shares to Employee on the Disbursement Date.
9. Other. The terms of this Agreement shall apply to any additional
-----
shares of Spider common stock issued to or received by Employee in connection
with a stock dividend, stock split, or other distribution of Spider stock. All
certificates representing shares hereinafter issued Employee shall bear the
legend provided in Section 8. If there shall be any change in the capital stock
of Spider through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, or other change in the corporate structure of
Spider, the restrictions contained in this Agreement shall apply with equal
force to the new or additional securities, or both, if any are received by
Employee in exchange for, or by virtue of his ownership of, the Employee Shares.
An appropriate adjustment shall also be made to the Purchase Price set forth in
Section 4 upon the occurrence of any such events.
10. Rights as Shareholder. Subject to the provisions of this Agreement,
---------------------
Employee shall, during the term of this Agreement, be entitled to all rights and
privileges of a shareholder of Spider with respect to the Employee Shares.
11. Notice. Any notice required or permitted under this Agreement shall
------
be given in writing and shall be deemed effectively given upon personal delivery
or three (3) business days after deposit in the United States Post Office, by
registered or certified mail, with postage and fees prepaid, addressed to the
Company at its principal office and to Employee at his address as carried on the
Company's records, or at such other address as such party may designate by ten
(10) days' advance written notice to the other party hereto.
12. Assignment. This Agreement shall inure to the benefit of the
----------
successors and assigns of the Company and, subject to the restrictions on
transfer set forth in this Agreement, be binding upon Employee, his heirs,
administrators, successors and assigns.
13. Survival. The rights and obligations of the Company and of Employee
--------
under this Agreement shall survive any merger or sale of all or substantially
all of the capital stock or assets of Spider, or a public offering of Spider
capital stock.
14. Governing Law. This Agreement shall be governed by and construed
-------------
under the internal laws of the State of Colorado, without regard to the choice
of law rules therein.
6
<PAGE>
15. Arbitration. Except as provided below in this paragraph, any and all
-----------
disputes arising under or related to this Agreement shall be submitted to
binding arbitration before the American Arbitration Association ("AAA") in
accordance with its rules of Commercial Arbitration. The decision of the
arbiter shall be final and binding upon the parties, and it may be entered in
any court of competent jurisdiction. The arbitration shall take place in
Chicago, Illinois. The arbiter shall be bound by the laws of the State of
Colorado applicable to all relevant privileges and the attorney work product
doctrine. The arbiter shall have the power to grant equitable relief where
applicable under Colorado law and shall not be entitled to make an award of
punitive damages. The arbiter shall issue a written opinion setting forth its
decision and the reasons therefor within thirty (30) days after the arbitration
proceeding is concluded. The obligation of the parties to submit any dispute
arising under or related to this Agreement to arbitration as provided in this
Section shall survive the expiration or earlier termination of this Agreement.
Notwithstanding the foregoing, any party may seek an injunction or other
appropriate relief from a court of competent jurisdiction to preserve or protect
the status quo with respect to any matter pending conclusion of the arbitration
proceeding, but no such application to a court shall in any way be permitted to
stay or otherwise impede the progress of the arbitration proceeding.
The Company and Employee hereby consent to the jurisdiction of the AAA
and the courts of the State of Illinois and the United States District Courts
for the Northern District of Illinois, as well as to the jurisdiction of all
courts from which an appeal may be taken from such courts, for the purpose of
any arbitration, suit, action or other proceeding arising out of any of their
obligations arising hereunder or with respect to the transactions contemplated
hereby and expressly waive any and all objections they may have as to venue in
any of such courts.
16. Section Titles. Section titles are for descriptive purposes only and
--------------
shall not control or alter the meaning of this Agreement as set forth in the
text.
17. Further Assurances. The parties shall execute and deliver such
------------------
further instruments and do such further acts and things as may be required to
carry out the intent and purposes of this Agreement.
18. Directly or Indirectly. Where any provision in this Agreement refers
----------------------
to action to be taken by any person, or which such person is prohibited from
taking, such provision shall be applicable whether the action in question is
taken directly or indirectly by such person.
19. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original of this Agreement.
20. Entire Agreement. This Agreement together with the other agreements
----------------
and instruments entered into in connection herewith constitutes the entire
agreement among the parties hereto with respect to the transactions contemplated
herein, and
7
<PAGE>
supersedes all other prior understandings or agreements between
Employee and the Company with respect to such transactions.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Restricted Stock
Agreement as the date first written above.
COMPANY: ETINUUM, INC.
A Delaware corporation
(formerly INTEK INFORMATION, INC.)
By: _______________________
Title: ____________________
EMPLOYEE: ____________________________
Print Name: ________________
9
<PAGE>
EXHIBIT 8.8.3
ESCROW AGREEMENT
----------------
THIS AGREEMENT is made as of the 30th day of October, 1999 by and among
Venkat Sharma, Shoba Murali, Raja Ramnarayan, Sunil Gupta, Richard Wayne, the
Sharma Family LLC, the Murali Family LLC and the Ramnarayan Family LLC
(collectively, the "Shareholders"), Intek Information, Inc., a Delaware
corporation ("Buyer"); and Colorado State Bank and Trust ("Escrow Agent"), a
Colorado Corporation. All capitalized terms used, but not otherwise defined
herein shall have the meanings ascribed to them in the Purchase Agreement.
WHEREAS, contemporaneously with the execution hereof, the Shareholders and
Buyer will enter into that certain Share Purchase Agreement whereby Buyer will
purchase all of the issued and outstanding capital stock of Acorn ("Purchase
Agreement"); and
WHEREAS, pursuant to the Purchase Agreement, the parties have agreed to
place a portion of the purchase price in escrow upon the terms and conditions
herein.
In consideration of the mutual covenants and agreements contained in this
Agreement, the parties hereto agree as follows:
1. Receipt of Escrow Fund for Purchase Price. Upon the payment by
-----------------------------------------
Buyer to the Shareholders of the Sustained Profitability Consideration and the
cash portion of the Contingent Earn-Out Consideration in the amounts and at the
times set forth in the Purchase Agreement, Buyer shall deliver on the date of
such payments for a period expiring fifteen (15) months after the Closing Date a
bank cashier's check, certified check, wire transfer or other immediately
available funds in an amount which shall equal ten percent (10%) of such amounts
paid to the Shareholders on each such date, payable to the order of Escrow Agent
(the "Fund"). The Base Consideration and the stock portion of the Contingent
Earn-Out Consideration payable under the Purchase Agreement shall not be subject
to this Agreement and shall not be delivered to Escrow Agent as part of the
Fund. Escrow Agent agrees to hold the Fund pursuant to the terms and
conditions of this Agreement. Escrow Agent shall invest the Fund in an
interest-bearing account. Interest earned on the Fund shall be paid to, and
reported as interest by, the recipient of the Fund.
2. Release of Escrow for Purchase Price. Escrow Agent shall release
------------------------------------
and deliver the Fund together with accrued interest, to the Shareholders on
October 30, 2001, being the date that is eighteen (18) months after the Closing
Date ("Claim Expiration Date"), unless on or prior to the Claim Expiration Date,
Escrow Agent shall have received a Claim Notice (as defined in and in accordance
with Section 3 below) from Buyer, in which case disbursement will be as provided
herein. Upon release by Escrow Agent of the Fund, as provided for herein, this
Agreement shall terminate and Escrow Agent shall be discharged of any further
duties hereunder.
3. Claim Notice. If Buyer has a Claim for Damages for which Buyer
------------
believes it is entitled to indemnification under Article 8 of the Purchase
Agreement and which Buyer believes should be paid out of the Fund, prior to the
Claim Expiration Date Buyer shall deliver to each of
<PAGE>
the Shareholders and on the Escrow Agent a written request ("Claim Notice")
setting forth the amount of indemnity claimed ("Claim Amount") and in reasonable
detail the basis therefor. If a Claim Notice is timely made, Escrow Agent shall
promptly furnish each of the Shareholders with a copy of such Claim Notice in
accordance with the notice provisions hereof and shall proceed in the following
manner:
(a) If within thirty (30) days of Escrow Agent's
receipt of the Claim Notice, the Buyer shall
deliver to the Escrow Agent joint written
instructions duly executed by Shareholders and
Buyer, the Escrow Agent shall release and deliver
the Funds in accordance with such written notice.
Escrow Agent shall have no obligation to verify
the accuracy or validity of the signatures on such
written instructions.
(b) If within thirty (30) days of Escrow Agent's
receipt of the Claim Notice, the Buyer or any
Shareholder shall deliver to the Escrow Agent and
on each of the Shareholders or Buyer (as
applicable) a written demand for arbitration in
accordance with Section 9 below, the Escrow Agent
shall withhold the Claim Amount until such
arbitration shall have been concluded. Upon
conclusion of such arbitration, Escrow Agent shall
make distribution of the amount awarded to Buyer
in such arbitration, if any, and release and
deliver the balance of the Claim Amount to the
Shareholders if the Claim Expiration Date has
passed (unless the Fund is the subject of another
Claim Notice) or return the balance to the Fund if
the Claim Expiration Date has not passed.
(c) If on the thirtieth (30/th/) day following Escrow
Agent's receipt of the Claim Notice, Escrow Agent
has received neither written instructions nor
demand for arbitration in accordance with Sections
3(a) or 3(b) above, the Escrow Agent shall release
and deliver the amount claimed in the Claim Notice
of the Fund together with accrued interest thereon
to the Buyer and shall continue to hold the
balance of the Fund pursuant to the terms of this
Agreement unless and until Escrow Agent receives
another Claim Notice hereunder, or this Agreement
expires or is terminated by written consent of the
parties hereto.
2
<PAGE>
If Escrow Agent should at any time be confronted with
inconsistent claims or demands by the parties hereto, Escrow
Agent shall have the right to initiate arbitration proceedings
pursuant to Section 9 hereunder.
4. Disbursement at Claim Expiration Date. As to any amount for which a
-------------------------------------
Claim Notice has not been made before the Claim Expiration Date, the Escrow
Agent shall immediately release and deliver the balance of the Fund plus accrued
interest thereon to the Shareholders in accordance with Section 5 herein.
5. Sellers' Disbursements and Action. Escrow Agent shall make
---------------------------------
distributions of the Sustained Profitability Consideration and the cash portion
of the Contingent Earn-Out Consideration to each Shareholder in the percentages
set forth in the attached Exhibits B, which Exhibit shall be amended by the
Shareholders promptly upon any change to such percentages. Any action of the
Shareholders hereunder requires only the approval or consent of persons
representing 80% in interest of the percentages listed in Exhibit B (as the same
may be amended) and the Shareholders' payment and indemnification obligations
(if several and not joint) shall be in the same proportion as such percentages.
6. Notices. All notices and other communications required or permitted
-------
under this Agreement shall be deemed to have been duly given and made if in
writing and if served either by personal delivery to the party for whom intended
or by deposit with Federal Express or other overnight delivery service which
guarantees next day delivery, signature required, bearing the address shown in
this Agreement for, or such other address as may be designated in writing
hereafter by, such party:
If to any Shareholder: the address set forth on Exhibit A hereto
with a copy to Wiggin & Dana
Three Stamford Plaza
Stamford, CT 06901
Attn: William A. Perrone
Telephone: (203) 363-7604
Facsimile: (203) 363-7676
If to Buyer: Intek Information Inc.
5619 DTC Parkway, 12th Floor
Englewood, CO 80111-3017
Attention: Timothy C. O'Crowley
Telephone: (303) 357-3000
Facsimile: (303) 323-4213
3
<PAGE>
with a copy to: Chrisman, Bynum & Johnson
1900 Fifteenth Street
Boulder, CO 80302
Attention: G. James Williams
Telephone: (303) 546-1300
Facsimile: (305) 449-5426
If to Escrow Agent: Colorado State Bank & Trust
1600 Broadway
Denver, CO 80202
Attention: Sara Swain
Telephone: 303-864-7222
Facsimile: 303-864-7300
A notice given in accordance with this Section 6 shall be deemed effective on
the same business day if delivered personally or on the following business day
if sent by Federal Express or other overnight delivery service in accordance
with this Section 6.
7. Performance of Escrow Agent's Duties. Escrow Agent undertakes to
------------------------------------
perform only such duties as are expressly set forth herein (or required by
applicable law), and no additional duties or obligations shall be implied
hereunder. In performing its duties under this Agreement, or upon the claimed
failure to perform any of its duties hereunder, Escrow Agent shall not be liable
to anyone for any damages, losses or expenses which may be incurred as a result
of Escrow Agent so acting or failing to so act; provided, however, that Escrow
-------- -------
Agent shall not be relieved from liability for damages to the extent a court of
competent jurisdiction or arbitrator pursuant to Section 9 herein determines by
final order that such damages arose out of the gross negligence, bad faith or
willful misconduct of Escrow Agent under this Agreement. Escrow Agent shall in
no event incur any liability with respect to (a) any action taken or omitted to
be taken in good faith upon advice of legal counsel, which may be counsel to any
party hereto, given with respect to any question relating to the duties and
responsibilities of Escrow Agent hereunder or (b) any action taken or omitted to
be taken in reliance upon any instrument delivered to Escrow Agent and believed
by it to be genuine and to have been signed or presented by the proper party or
parties. Except as set forth in Section 3(a) above, Escrow Agent shall not be
bound in any way by any agreement or contract between the Shareholders and
Buyer, whether or not Escrow Agent has knowledge of any such agreement or
contract, including, but not limited to the Purchase Agreement.
4
<PAGE>
Escrow Agent may execute any of its powers or responsibilities hereunder
and exercise any rights hereunder either directly or by or through its agents or
attorneys. Escrow Agent shall not be responsible for and shall not be under a
duty to examine or pass upon the validity, binding effect, execution or
sufficiency of this Agreement or of any agreement amending or supplementing this
Agreement.
8. No Security Interests. The Shareholders and Buyer each warrant to and
---------------------
agree with Escrow Agent that, unless otherwise expressly set forth in this
Agreement, there is no security interest in the Fund or any part of the Fund; no
financing statement under the Uniform Commercial Code of any jurisdiction is on
file in any jurisdiction claiming a security interest in or describing, whether
specifically or generally, the Fund or any part of the Fund; and Escrow Agent
shall have no responsibility at any time to ascertain whether or not any
security interest exists in the Fund or any part of the Fund or to file any
financing statement under the Uniform Commercial Code of any jurisdiction with
respect to the Fund or any part thereof.
9. Dispute Resolution. Except as provided below in this paragraph, any
------------------
and all disputes arising under or related to this Agreement shall be submitted
to binding arbitration before the American Arbitration Association ("AAA") in
accordance with its rules of Commercial Arbitration. The decision of the
arbiter shall be final and binding upon the parties, and it may be entered in
any court of competent jurisdiction. If the Escrow Agent is a party to the
arbitration, the arbitration shall take place in Denver, Colorado, the arbiter
shall be bound by the laws of the State of Denver, Colorado applicable to all
relevant privileges and the attorney work product doctrine, and the arbiter
shall have the power to grant equitable relief where applicable under Colorado
law and shall not be entitled to make an award of punitive damages. The arbiter
shall issue a written opinion setting forth its decision and the reasons
therefor within thirty (30) days after the arbitration proceeding is concluded.
The obligation of the parties to submit any dispute arising under or related to
this Agreement to arbitration as provided in this Section shall survive the
expiration or earlier termination of this Agreement. Notwithstanding the
foregoing, any party may seek an injunction or other appropriate relief from a
court of competent jurisdiction to preserve or protect the status quo with
respect to any matter pending conclusion of the arbitration proceeding, but no
such application to a court shall in any way be permitted to stay or otherwise
impede the progress of the arbitration proceeding.
In the event of any arbitration being filed or instituted between the
parties concerning this Agreement, the prevailing party will be entitled to
receive from the other party or parties its attorneys' fees, experts' fees,
witness fees, costs and expenses, court costs and other reasonable expenses,
whether or not such controversy, claim or action is prosecuted to judgment or
other form of relief.
Buyer and the Shareholders specifically agree that arbitration shall
be invoked under this Agreement only if Escrow Agent is a necessary party and
that if the matter to be
5
<PAGE>
decided is the validity of a claim under Article 8 of the Purchase Agreement
that the arbitration provisions of the Purchase Agreement will control and
govern the dispute.
As an additional consideration for and as an inducement for Escrow
Agent to act hereunder, it is understood and agreed that, in the event of any
disagreement between the parties to this Agreement or among them or any other
person(s) resulting in adverse claims and demands being made in connection with
or for any money or other property or rights involved in or affected by this
Agreement, Escrow Agent shall be entitled, at the option of Escrow Agent, to
refuse to comply with the demands of such parties, or any of such parties, so
long as such disagreement shall continue. In such event, Escrow Agent shall
make no delivery or other disposition of the Fund or any parts of such Fund.
Anything herein to the contrary notwithstanding, Escrow Agent shall not be or
become liable to such parties or any of them for the failure of Escrow Agent to
comply with the conflicting or adverse demands of such parties or any of such
parties.
Escrow Agent shall be entitled to continue to refrain and refuse to
deliver or otherwise dispose of the Fund or any part therefore or to otherwise
act hereunder, as stated above, unless and until:
(i) the rights of such parties have been finally settled by binding
arbitration or duly adjudicated in a court having jurisdiction of the
parties and the Fund; or
(ii) the parties have reached an agreement resolving their
differences and have notified Escrow Agent in writing of such agreement and
have provided Escrow Agent with indemnity satisfactory to Escrow Agent
against any liability, claims or damages resulting from compliance by
Escrow Agent with such agreement.
In the event of a disagreement between such parties as described above, Escrow
Agent shall have the right, in addition to the rights described above and at the
option of Escrow Agent, to tender into the registry or custody of any court of
competent jurisdiction, all money and other property or rights comprising the
Fund and may take such other legal action as may be appropriate or necessary, in
the opinion of Escrow Agent. Upon such tender, the parties hereto agree that
Escrow Agent shall be discharged from all further duties under this Agreement;
provided, however, that the filing of any such legal proceedings shall not
deprive Escrow Agent of its compensation earned hereunder prior to such filing
and discharge of Escrow Agent of its duties hereunder.
6
<PAGE>
10. Escrow Agent's Fees.
-------------------
The Shareholders and Buyer shall share equally the fees, costs and
expenses (including reasonable attorneys' fees) of Escrow Agent incurred in
connection with this Agreement. In the event Escrow Agent is required to
perform extraordinary services in connection with the arbitration of any dispute
as set forth in Section 9 above, the non-prevailing party shall pay the
reasonable compensation for Escrow Agent's extraordinary services and reimburse
Escrow Agent for all costs and expenses reasonably incurred in connection with
such arbitration.
11. Resignation of Escrow Agent.
---------------------------
Escrow Agent may resign at any time from its obligations under this
Agreement by providing written notice to the parties hereto. Such resignation
shall be effective on the date set forth in such written notice which shall be
no earlier than thirty (30) days after such written notice has been given. In
the event no successor escrow agent has been appointed on or prior to the date
of such resignation is to become effective, Escrow Agent shall be entitled to
tender into the custody of a court of competent jurisdiction all assets then
held by it hereunder and shall thereupon be relieved of all further duties and
obligations under this Agreement. Escrow Agent shall have no responsibility for
the appointment of a successor escrow agent hereunder. Such resignation shall
not deprive Escrow Agent of its compensation earned prior thereto.
12. Indemnification.
---------------
Escrow Agent shall have no obligation to take any legal action in
connection with this Agreement or towards its enforcement, or to appear in,
prosecute or defend any action or legal proceeding which would or might involve
it in any cost, expense, loss or liability unless security and indemnity, as
provided in this paragraph, shall be furnished.
The Shareholders (as to one half) and Buyer (as to one half) severally
(not jointly) agree to indemnify Escrow Agent and its officers, directors,
employees and agents and save Escrow Agent and its officers, directors employees
and agents harmless from and against any and all Claims (as hereinafter defined)
and Losses (as hereinafter defined) which may be incurred by Escrow Agent or
any of such officers, directors, employees or agents as a result of Claims
asserted against Escrow Agent or any of Escrow Agent's officers, directors,
employees or agents as a result of or in connection with Escrow Agent's capacity
as such under this Agreement by any person or entity. For the purposes hereof,
the term "Claims" shall mean all claims, lawsuits, causes of action or other
legal actions and proceedings of whatever nature brought against (whether by way
of direct action, counterclaim, cross action or impleader) Escrow Agent or any
of Escrow Agent's officers, directors, employees or agents, even if groundless,
false or fraudulent, so long as the claim, lawsuit, cause of action or other
legal action or proceeding is alleged or determined, directly or indirectly, to
arise out of, result from, relate to or be based
7
<PAGE>
upon, in whole or in part: (a) the acts or omissions of the Shareholders or
Buyer, (b) the appointment of Escrow Agent as escrow agent under this Agreement,
or (c) the performance by Escrow Agent of its powers and duties in accordance
with this Agreement; and the term "Losses" shall mean losses, costs, damages,
expenses, judgments and liabilities of whatever nature (including but not
limited to attorneys', accountants' and other professionals' fees, litigation
and court costs and expenses and amounts paid in settlement), directly or
indirectly resulting from, arising out of or relating to one or more Claims.
Upon the written request of Escrow Agent or any such officer, director, employee
or agent (each referred to hereinafter as an "Indemnified Party"). The
Shareholders (as to one-half) and Buyer (as to one-half) severally (not jointly)
agree to assume the investigation and defense of any Claim, including the
employment of counsel acceptable to the applicable Indemnified Party and the
payment of all expenses related thereto. The Shareholders and Buyer hereby agree
that the indemnifications and protections afforded Escrow Agent in this section
shall survive the termination of the Agreement. The Shareholders and Buyer have
no indemnification obligation in respect of Escrow Agent's action, or failure to
take action, in bad faith.
13. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Colorado, without regard to the choice
of law rules therein.
14. Miscellaneous. The headings herein are for convenience only and shall
-------------
not be of substantive effect. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective legal
representatives, heirs, successors and assignees. This Agreement together with
the Purchase Agreement constitutes the entire agreement among the parties with
respect to the subject matter hereof and supersedes all prior negotiations,
understandings and writings (or any part thereof) whether oral or written
between any of the parties relating to the subject matter of this Agreement.
This Agreement may be executed in one ore more counterparts, each of which shall
be deemed an original, and all of which taken together shall constitute one and
the same instrument.
[signature page follows]
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this Escrow Agreement as
of the date first above written.
SHAREHOLDERS: /s/ Venkat Sharma
----------------------------------
Venkat Sharma
----------------------------------
/s/ Shoba Murali
----------------------------------
Shoba Murali
/s/ Raja Ramnarayan
---------------------------------
Raja Ramnarayan
/s/ Sunil Gupta
----------------------------------
Sunil Gupta
/s/ Richard Wayne
---------------------------------
Richard Wayne
THE SHARMA FAMILY LLC
/s/ Venkat Sharma
----------------------------------
Venkat Sharma, Manager
THE MURALI FAMILY LLC
/s/ Shoba Murali
----------------------------------
Shoba Murali, Manager
THE RAMNARAYAN FAMILY LLC
/s/ Ramnarayan
-----------------------------------
Raja Ramnarayan, Manager
9
<PAGE>
BUYER: INTEK INFORMATION, INC.
By: /s/ Timothy O'Crowley
-------------------------------
Its: Chief Executive Officer
-------------------------------
ESCROW AGENT: /s/
---------------------------------------
By: ___________________________________
Its: __________________________________
10
<PAGE>
EXHIBIT A
---------
SHAREHOLDERS
Venkat Sharma
25 Wimbleton Lane
Easton, CT
Ph: (203) 225-7600 (office)
Fax: (203) 459-2896 (home)
SSN: ###-##-####
Shoba Murali
12 River Knoll Road
Westport, CT
SSN: ###-##-####
Raja Ramnarayan
25 Highland Road
Westport, CT 06880
SSN: ###-##-####
Sunil Gupta
305 Judd Road
Easton, CT 06612
SSN: ###-##-####
Richard Wayne
55 Valley Road
Easton, CT 06612
SSN: ###-##-####
The Sharma Family LLC
25 Wimbleton Lane
Easton, CT
EIN#: 06-1552928
The Murali Family LLC
12 River Knoll Road
Westport, CT
EIN#: 06-1552802
11
<PAGE>
The Ramnarayan Family LLC
25 Highland Road
Westport, CT 06880
EIN#: 06-1551577
12
<PAGE>
EXHIBIT B
---------
SHAREHOLDERS' PERCENTAGES FOR
SUSTAINED PROFITABILITY CONSIDERATION
<TABLE>
<S> <C>
Venkat Sharma 31.7935%
Sharma Family LLC 10.5978%
Shoba Murali 20.3261%
Murali Family LLC 13.5870%
Raja Ramnarayan 12.7174%
Ramnarayan Family LLC 6.3587%
Sunil Gupta 2.1739%
Richard Wayne 2.4456%
SHAREHOLDERS' PERCENTAGES
FOR CONTINGENT EARN-OUT CONSIDERATION
<S> <C>
Venkat Sharma 29.1116%
Shoba Murali 18.2262%
Raja Ramnarayan 12.3500%
Sunil Gupta 10.0000%
Richard Wayne 2.2500%
The Sharma Family LLC 9.7039%
The Murali Family LLC 12.1833%
The Ramnarayan Family LLC 6.1750%
</TABLE>
13
<PAGE>
EXHIBIT 2.7
TRANSACTION ADVISOR FEE PAYMENT AGREEMENT
This TRANSACTION ADVISOR FEE PAYMENT AGREEMENT (the "Agreement") effective
October 1, 1999 is made by and among INTEK INFORMATION, INC., a Delaware
corporation (the "Company"), PROSPERO LLC., a Connecticut limited liability
company ("Prospero"), PROSPERO HOLDINGS LLC, a Connecticut limited liability
company ("Prospero Holdings"), Acorn Information Services, Inc. a Delaware
corporation ("Acorn") and certain shareholders of Acorn who are signatories to
this Agreement (collectively the "Acorn Shareholders") in connection with a
Share Purchase Agreement by and among the Company, Acorn and the Acorn
Shareholders of even date herewith (the "Purchase Agreement").
W I T N E S S E T H
-------------------
A. Prospero and Acorn are parties to that certain letter agreement dated
August 3, 1998 as amended December 2, 1998 (together, the "Engagement Letter").
B. Prospero has provided Acorn with certain investment banking services
in connection with the Engagement Letter (the "Prospero Services"), including
without limitation advice regarding the sale of all of the outstanding capital
stock of Acorn to the Company under the terms and conditions of the Purchase
Agreement.
C. Concurrently herewith, Acorn and Prospero are entering into a letter
agreement regarding fee payment (the "Fee Payment Letter Agreement").
D. In connection with the Purchase Agreement and the Fee Payment Letter
Agreement and on the terms and conditions set forth in this Agreement, the
Company and the Acorn Shareholders have each agreed to pay a portion of the
amount payable by Acorn to Prospero in consideration for the Prospero Services.
E. Prospero desires to assign its right to payment for the Prospero
Services to Prospero Holdings.
NOW, THEREFORE, in consideration of the mutual premises and covenants
contained herein, and for other good and valuable consideration, the sufficiency
of which is hereby acknowledged, the parties agree as follows:
1. Transaction Advisor Fees. In consideration for the Prospero Services,
------------------------
Intek will at the closing of the next round of private financing by the Company
(the "Financing"), issue to Prospero Holdings on behalf of Acorn such number of
shares of Intek common stock equal to the quotient obtained by dividing $100,000
by the price per share of Series F Preferred Stock of Intek at the time of the
closing of such Financing ("Transaction Advisor Shares"). If the Financing
does not close by December 31,
<PAGE>
1999, the Company shall issue to Prospero Holdings such number of shares of
Intek common stock equal to $100,000 divided by the per share price of $1.61, as
may be adjusted for any stock splits, stock dividends, stock combinations or
recapitalizations, other than the spin off by the Company of Spider
Technologies, Inc. common stock (the "Spider Shares"). Prospero (including
Prospero Holdings) shall not be entitled to receive any Spider Shares as part of
or upon issuance of the Transaction Advisor Shares hereunder. The Company shall
have no obligation to register the Transaction Advisor Shares except piggyback
registration rights as set forth in the Form of Registration Rights Agreement
attached hereto as Exhibit A (the "Registration Rights Agreement"), and shall
have no obligation to register the Transaction Advisor Shares in violation of
any applicable law or regulation.
Notwithstanding the foregoing, upon the occurrence of a Change in Control (as
defined in the Purchase Agreement) prior to the earlier of the close of the
Financing or December 31, 1999, the Company shall issue to Prospero Holdings
such number of Transaction Advisor Shares obtained by dividing $100,000 by the
per share price of $1.61. The Company shall issue such shares immediately prior
to the closing of a transaction that results in a Change in Control.
Upon issuance of the Transaction Advisor Shares to Prospero Holdings, the
Company and Prospero Holdings shall enter into the Registration Rights
Agreement.
2. No Further Liability. Except for the fees for the Prospero Services,
--------------------
neither Acorn nor the Acorn Shareholders are indebted to Prospero or Prospero
Holdings for any amount. Upon (i) execution of this Agreement and (ii) receipt
of the Fee Balance (as defined in the Fee Payment Letter Agreement), Acorn and
the Acorn Shareholders shall have no further liability to Prospero or Prospero
Holdings. Upon (i) execution of this Agreement and (ii) receipt by Prospero
Holdings of the Transaction Advisor Shares, the Company shall have no further
liability to Prospero or Prospero Holdings. The Company shall assume no
liability for any taxes or other payments of Prospero or Prospero Holdings,
Acorn or the Acorn Shareholders in connection with services rendered by
Prospero. Prospero acknowledges that payment of the Transaction Advisor Shares
is being made on behalf of Acorn (and not on behalf of the Company), which is
Prospero's sole client with respect to the transactions contemplated by the
Purchase Agreement.
3. Shareholders Agreement. As a condition to receipt of the Transaction
----------------------
Advisor Shares, Prospero (and Prospero Holdings as applicable) shall execute and
deliver to the Company, and agree to be bound by the terms and conditions of,
the Shareholders Agreement of the Company then in effect and shall execute and
deliver such Shareholders Agreement and a subscription agreement to the Company
prior to the delivery of Transaction Advisor Shares hereunder. Prospero and
Prospero Holdings each acknowledges that the Shareholders Agreement may be
amended from time to time or may be terminated, whether before or after the time
Transaction Advisor Shares are issued, in accordance with the terms of the
Shareholders Agreement.
2
<PAGE>
4. Investor Representations. Prospero and Prospero Holdings each represents
------------------------
it is currently an "accredited investor" as defined in Regulation D promulgated
by the Securities and Exchange Commission and shall so represent at the time of
receipt of any Transaction Advisor Shares. Prospero and Prospero Holdings each
further represents that it has had an opportunity to ask questions of and
receive answers from representatives of the Company with respect to the
acquisition of the Transaction Advisor Shares and that the Company has made
available to Prospero and Prospero Holdings all documents requested and has
provided answers to all such questions relating to receipt of the Transaction
Advisor Shares. Prospero and Prospero Holdings each acknowledges that, because
the Transaction Advisor Shares will not have been registered under the
Securities Act of 1933, as amended (the "Act"), or applicable state securities
laws, any resale inconsistent with the Act may create liability on its part
and/or the part of Intek, and agrees not to assign, sell, pledge, transfer or
otherwise dispose of or transfer any of the Intek Shares unless registered under
the Securities Act and applicable state securities laws or he has delivered an
opinion of counsel satisfactory to Intek that such registration is not required.
Neither Prospero nor Prospero Holdings nor any "associate" of Prospero or
Prospero Holdings as such term is defined in Rule 12b-2 of the Securities
Exchange Act of 1934, as amended, or has a relationship with, a member of the
National Association of Securities Dealers, Inc. ("NASD"), or is an officer,
director, registered representative, lender, employee or beneficial owner of 10%
or more of a NASD member or any corporation or entity which owns a 10% or
greater ownership interest in an NASD member.
5. Restrictive Legend. Prospero and Prospero Holdings each acknowledges that
------------------
the certificate representing the Transaction Advisor Shares shall bear
substantially the following restrictive legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THEY
MAY NOT BE OFFERED OR TRANSFERRED BY SALE, ASSIGNMENT, PLEDGE OR OTHERWISE
UNLESS (I) A REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT IS IN EFFECT OR (II) THE CORPORATION HAS RECEIVED AN OPINION OF
COUNSEL, WHICH OPINION IS SATISFACTORY TO THE CORPORATION, TO THE EFFECT
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED PURSUANT
TO, AND ARE SUBJECT TO A CERTAIN SHAREHOLDERS AGREEMENT AMONG INTEK
INFORMATION, INC. AND CERTAIN SHAREHOLDERS NAMED THEREIN, DATED OCTOBER 1,
1999 AS AMENDED FROM TIME TO TIME. A COPY OF SUCH
3
<PAGE>
AGREEMENT IS AVAILABLE AT THE OFFICES OF THE CORPORATION."
6. Notice. Any notice required or permitted hereunder shall be in writing and
------
shall be sufficiently given if (i) personally delivered, (ii) mailed by
certified or registered United States mail, return receipt requested, or (iii)
sent by recognized air express courier for next business day delivery, addressed
to the parties at the addresses set forth on the signature page hereof and shall
be deemed to have been delivered as of the date so personally delivered, three
business days after so mailed, or one business day after the date delivered to
the air express courier.
7. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Colorado exclusive of the conflict of
law provisions thereof.
8. Arbitration; Attorneys' Fees.Arbitration; Consent to Jurisdiction. Any and
---------------------------- ------------------------------------
all disputes arising under or related to this Agreement shall be submitted to
binding arbitration in accordance with the Arbitration provision contained in
the Purchase Agreement. In the event of any arbitration or litigation being
filed or instituted between two or more of the parties concerning this
Agreement, the Prevailing Party will be entitled to receive from the other party
or parties its attorneys' fees, experts' fees, costs and expenses, whether or
not such controversy, claim or action is prosecuted to judgment or other form of
relief. The "Prevailing Party" is that party which is awarded judgment or other
legal or equitable relief as a result of trial or arbitration, or who receives
or is entitled to receive a payment of money from the other party in settlement
of claims asserted by such party. If both parties receive a judgment or other
award of relief, the court or the arbiter shall determine which party is the
Prevailing Party, taking into consideration the merits of the claims asserted by
each party, the relative values of the judgments or other forms of relief
received by each party, and the relative equities between the parties.
9. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
10. Entire Agreement. This Agreement and the documents referenced herein
----------------
constitute the entire agreement between the parties regarding the matters
herein.
11. Unenforceability. If any paragraph or subparagraph of this Agreement
----------------
or any part thereof shall be unenforceable under any applicable laws,
notwithstanding such unenforceability the remainder of this Agreement shall
remain in full force and effect.
12. Amendments; Waivers. This Agreement cannot be changed, modified or
-------------------
amended, and no provision or requirement hereof may be waived, without consent
in writing of the parties hereto.
4
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[Signature Page Follows]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereby execute this TRANSACTION ADVISOR FEE
PAYMENT AGREEMENT as of the date first written above.
PROSPERO LLC. INTEK INFORMATION, INC.
By: /s/ Daniel J. Donovan By: /s/ Timothy C. O'Crowley
------------------------------- ----------------------------------
Daniel J. Donovan, Managing Member Timothy C. O'Crowley, President
265 Post Road West 5619 DTC Parkway, 12/th/ Floor
Westport, CT 06880 Englewood, CO 80111
Attn: Daniel J. Donovan Attn: Timothy C. O'Crowley
Telephone: (203) 454-5616 Telephone: (303) 357-3000
Facsimile: (203) 459-8157 Facsimile: (303) 323-4213
PROSPERO HOLDINGS LLC
By: /s/
---------------------------
Its: _________________________
265 Post Road West, Westport, CT 06880
Attn: Daniel J. Donovan
Telephone: (203) 454-5616
Facsimile: (203) 459-8157
AGREED AND ACKNOWLEDGED:
ACORN INFORMATION SERVICES, INC.
/s/ Venkat Sharma
- ------------------------------
Venkat Sharma, Chief Executive Officer
4 Corporate Drive, Shelton, CT 06484
ACORN SHAREHOLDERS:
/s/ Venkat Sharma THE SHARMA FAMILY LLC
- ------------------------------
Venkat Sharma
/s/ Shoba Murali /s/ Venkat Sharma
- ------------------------------- --------------------------------
Shoba Murali Venkat Sharma, Manager
/s/ Raja Ramnarayan THE MURALI FAMILY LLC
- ------------------------------- --------------------------------
Raja Ramnarayan
/s/ Shoba Murali
/s/ Sunil Gupta --------------------------------
- -------------------------------- Shoba Murali, Manager
Sunil Gupta
/s/ Richard Wayne THE RAMNARAYAN FAMILY LLC
- --------------------------------
Richard Wayne
/s/ Raja Ramnarayan
--------------------------------
Raja Ramnarayan, Manager
6
<PAGE>
EXHIBIT A
Form of Registration Rights Agreement
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Exhibit 4.3.2
ETINUUM, INC.
A Delaware Corporation
(formerly Intek Information, Inc.)
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
Dated as of March 20, 2000
Prepared by Chrisman, Bynum & Johnson, P.C., 1900 Fifteenth Street, Boulder,
Colorado, 80302
<PAGE>
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (the "Agreement")
is made as of March 20, 2000, by and between ETINUUM, INC., formerly Intek
Information Inc., a Delaware corporation (the "Company") and the undersigned
owners of certain capital stock of the Company.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company entered into a Stock Purchase Agreement dated October
30, 1999 ("Purchase Agreement") with Acorn Information Services, Inc., a
Delaware corporation ("Acorn"), and the owners of all of the outstanding capital
stock of Acorn (the "Acorn Shareholders") pursuant to which the Company agreed
to issue certain shares of Common Stock to Prospero LLC., a Connecticut limited
liability company, ("Prospero") on behalf of Acorn in consideration for certain
services performed for Acorn in connection with the transactions contemplated by
the Purchase Agreement;
WHEREAS, the Company, Acorn and the Acorn Shareholders amended the Purchase
Agreement in that certain Amended and Restated Share Purchase Agreement entered
into as of the date hereof;
WHEREAS, pursuant to this Amended and Restated Registration Rights
Agreement, the Company, the Acorn Shareholders and Prospero desire to amend the
Registration Rights Agreement entered into by and among them on October 30, 1999
(the "Registration Rights Agreement"), as amended in Amendment No. 2 to
Registration Rights Agreement to be effective upon the closing of the initial
public offering of the Company's common stock, to reflect certain changes made
in the Amended and Restated Share Purchase Agreement; and
WHEREAS, the Company, the Acorn Shareholders and Prospero intend that this
Amended and Restated Registration Rights Agreement supercede and replace in its
entirety the Registration Rights Agreement and all amendments thereto.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and obligations hereinafter set forth, the parties hereto hereby agree
as follows:
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ARTICLE I
DEFINITIONS
1.1 As used in this Agreement, the following terms shall have the
meanings ascribed to them below:
"Affiliate" means (i) with respect to any Person, any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person, (ii) with respect to any natural Person,
shall also mean the spouse, sibling, child, step-child, grandchild, niece,
nephew or parent of such Person, or the spouse thereof, (iii) the estate of a
Shareholder or Affiliate, (iv) any trust created for the benefit of an Acorn
Shareholder or by an Acorn Shareholder for an Affiliate of such Acorn
Shareholder specified in clause (ii), and (v) with respect to any Person, any
general partner or limited partner of such Person.
"Common Stock" means the Common Stock, $.0001 par value per share, of the
Company and any equity securities of the Company issued or issuable with
respect to the Common Stock in connection with a reclassification,
recapitalization, stock combination, stock dividend payable in stock of the
Company, merger, consolidation or other reorganization.
"Holder" or "Holders" means any party who is a signatory to this Agreement
and any party who shall hereafter acquire and hold Registrable Securities.
"IPO" means the initial underwritten offering of the Common Stock pursuant
to an effective registration statement under Section 12 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
"Other Registrable Securities" mean those securities defined in each of the
Other Registration Rights Agreements as "Registrable Securities."
"Other Registration Rights Agreements" means that certain Amended and
Restated Registration Rights Agreement dated as of January 14, 2000 by and
between the Company and The Beacon Group III - Focus Value Fund, L.P., Squam
Lake Investors II, L.P., Bain & Company, Inc., Bain & Company Inc., Conning
Capital Limited Partnership V, U.S. Information Technology Financing, L.P.,
Encompass Group, Inc., Trans Cosmos USA, Inc., BCVF IV, L.P., Timothy O'Crowley,
Tyce Fields, Frank Richards and certain other parties thereto.
"Person" means any individual, corporation, limited liability company,
limited or general partnership, joint venture, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivisions thereof.
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"Registrable Securities" means any (i) Common Stock issued or issuable to
Prospero under the Amended and Restated Share Purchase Agreement, and (ii)
shares of Common Stock issued or issuable, directly or indirectly, with respect
to the Common Stock referenced in clause (i) above by way of any stock split,
stock dividend payable in the capital stock of the Company, recapitalization or
combination of shares. As to any particular Registrable Securities, such
securities shall cease to be Registrable Securities when (i) a registration
statement with respect to the sale of such securities shall have been declared
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, or (ii) such securities shall
have been sold (other than in a privately negotiated sale) pursuant to Rule 144
(or any successor provision) under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
ARTICLE II
REGISTRATION RIGHTS
2.1 Piggyback Registrations.
2.1.1 Piggyback Registrations. If, at any time, the Company proposes or
is required to register any of its equity securities under the Securities Act
(other than pursuant to registrations on such form or similar form(s) solely for
registration of securities in connection with an employee benefit plan or
dividend reinvestment plan or a merger, consolidation or acquisition) on a
registration statement on Form S-1, Form S-2 or Form S-3 (or an equivalent
general registration form then in effect), whether or not for its own account,
the Company shall give prompt written notice of its intention to do so to
Prospero. Upon the written request of Prospero, made within 15 days following
the receipt of any such written notice (which request shall specify the maximum
number of Registrable Securities intended to be disposed of by Prospero and the
intended method of distribution thereof), the Company shall use its best efforts
to cause all such Registrable Securities, of which Prospero has so requested the
registration, to be registered under the Securities Act (with the securities
that the Company at the time it proposes to register) to permit the sale or
other disposition by Prospero (in accordance with the intended method of
distribution thereof) of the Registrable Securities to be so registered. There
is no limitation on the number of such piggyback registrations pursuant to the
preceding sentence that the Company is obligated to effect.
2.1.2 Abandonment or Delay. If, at any time after giving written notice
of its intention to register any equity securities and prior to the effective
date of the registration statement filed in connection with such registration,
the Company shall determine for any reason
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<PAGE>
not to register or to delay registration of such equity securities, the Company
may, at its election, give written notice of such determination to Prospero and
(i) in the case of a determination not to register, shall be relieved of its
obligation to register any Registrable Securities of Prospero in connection with
such abandoned registration, without prejudice, however, to the rights of
Holders under Section 2.1, and (ii) in the case of a determination to delay such
registration of its equity securities, shall be permitted to delay the
registration of such Registrable Securities for the same period as the delay in
registering such other equity securities.
2.1.3 Right to Withdraw. Prospero shall have the right to withdraw its
request for inclusion of its Registrable Securities in any registration
statement pursuant to this Section 2.1 by giving written notice to the Company
of its request to withdraw; provided, however, that (i) such request must be
made in writing prior to the earlier of the execution of the underwriting
agreement or the execution of the custody agreement with respect to such
registration and (ii) such withdrawal shall be irrevocable and, after making
such withdrawal, Prospero shall no longer have any right to include Registrable
Securities in the registration as to which such withdrawal was made.
2.1.4 Cutbacks. If the managing underwriter of any underwritten offering
shall inform the Company by letter of its belief that the number of Registrable
Securities requested to be included in a registration under this Section 2.1
would materially adversely affect such offering, then the Company will include
in such registration, first, the securities proposed by the Company to be sold
for its own account and, second, the Registrable Securities and all other
securities of the Company to be included in such registration to the extent of
the number and type, if any, that the Company is so advised can be sold in (or
during the time of) such offering, first, pro rata among Prospero and the
holders of Other Registrable Securities under any of the Other Registration
Rights Agreements participating in such offering in accordance with (i) with
respect to Prospero, the number of shares of Registrable Securities held by
Prospero, and (ii) with respect to holders of Other Registrable Securities, the
number of Other Registrable Securities held by, and if applicable, issuable upon
conversion of securities convertible into, exchangeable or exercisable for,
shares of Common Stock, to each such holder, and second, pro rata among the
holders of any other securities of the Company with respect to which the holders
thereof are entitled to and desire "piggy-back" or similar registration rights.
2.2 Registration Procedures. If and whenever the Company is required by
the provisions of this Agreement to use its best efforts to effect or cause the
registration of any Registrable Securities under the Securities Act as provided
in this Agreement, the Company shall, as expeditiously as possible:
2.2.1 prepare and file with the SEC a registration statement on an
appropriate registration form of the SEC for the disposition of such Registrable
Securities in accordance with the intended method of disposition thereof, which
form (i) shall be selected by the Company and
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<PAGE>
(ii) shall, in the case of a shelf registration, be available for the sale of
the Registrable Securities by the selling Holders thereof and such registration
statement shall comply as to form in all material respects with the requirements
of the applicable form and include all financial statements required by the SEC
to be filed therewith, and the Company shall use its best efforts to cause such
registration statement to become effective (provided, however, that before
filing a registration statement or prospectus or any amendments or supplements
thereto, or comparable statements under securities or blue sky laws of any
jurisdiction, the Company will furnish to counsel for the underwriters, if any,
copies of all such documents proposed to be filed (including all exhibits
thereto), which documents will be subject to the reasonable review and
reasonable comment of such counsel, and the Company shall not file any
registration statement or amendment thereto or any prospectus or supplement
thereto to which the holders of a majority of the Registrable Securities covered
by such registration statement or the underwriters, if any, shall reasonably
object in writing);
2.2.2 prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for such
period (which shall not be required to exceed 90 days) as any seller of
Registrable Securities pursuant to such registration statement shall request and
to comply with the provisions of the Securities Act with respect to the sale or
other disposition of all Registrable Securities covered by such registration
statement in accordance with the intended methods of disposition by the seller
or sellers thereof set forth in such registration statement;
2.2.3 furnish, without charge, to each seller of such Registrable
Securities and each underwriter, if any, of the securities covered by such
registration statement such number of copies of such registration statement,
each amendment and supplement thereto (in each case including all exhibits), and
the prospectus included in such registration statement (including each
preliminary prospectus) in conformity with the requirements of the Securities
Act, and other documents, as such seller and underwriter may reasonably request
in order to facilitate the public sale or other disposition of the Registrable
Securities owned by such seller (the Company hereby consenting to the use in
accordance with applicable law of each such registration statement (or amendment
or post-effective amendment thereto) and each such prospectus (or preliminary
prospectus or supplement thereto) by each such seller of Registrable Securities
and the underwriters, if any, in connection with the offering and sale of the
Registrable Securities covered by such registration statement or prospectus);
2.2.4 use its best efforts to register and qualify the Registrable
Securities covered by such registration statement under such other securities or
"blue sky" laws of such jurisdictions as any sellers of Registrable Securities
or any managing underwriter, if any, shall reasonably request in writing, and do
any and all other acts and things that may be reasonably necessary or advisable
to enable such sellers or underwriter, if any, to consummate the
5
<PAGE>
disposition of the Registrable Securities in such jurisdictions, except that in
no event shall the Company be required to qualify to do business as a foreign
corporation in any jurisdiction where it would not, but for the requirements of
this Section, be required to be so qualified, to subject itself to taxation in
any such jurisdiction or to consent to general service of process in any such
jurisdiction;
2.2.5 promptly notify each Holder selling Registrable Securities
covered by such registration statement and each managing underwriter, if any:
(i) when the registration statement, any pre-effective amendment, the prospectus
or any prospectus supplement related thereto or post-effective amendment to the
registration statement has been filed and, with respect to the registration
statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the SEC or state securities authority for amendments or
supplements to the registration statement or the prospectus related thereto or
for additional information; (iii) of the issuance by the SEC of any stop order
suspending the effectiveness of the registration statement or the initiation of
any proceedings for that purpose; (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification of any
Registrable Securities for sale under the securities or blue sky laws of any
jurisdiction or the initiation of any proceeding for such purpose; (v) of the
existence of any fact of which the Company becomes aware that results in the
registration statement, the prospectus related thereto or any document
incorporated therein by reference containing an untrue statement of a material
fact or omitting to state a material fact required to be stated therein or
necessary to make any statement therein not misleading; and (vi) if at any time
the representations and warranties contemplated by ARTICLE III below cease to be
true and correct in all material respects; and, if the notification relates to
an event described in clause (v), the Company shall promptly prepare and furnish
to each such seller and each underwriter, if any, a reasonable number of copies
of a prospectus supplemented or amended so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not include an
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;
2.2.6 comply with all applicable rules and regulations of the SEC,
and make generally available to its security holders, as soon as reasonably
practicable after the effective date of the registration statement (and in any
event within 16 months thereafter), an earnings statement (which need not be
audited) covering the period of at least twelve consecutive months beginning
with the first day of the Company's first calendar quarter after the effective
date of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
2.2.7 enter into such customary agreements (including, if applicable,
an underwriting agreement) and take such other actions as the Holders of a
majority of the
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<PAGE>
Registrable Securities participating in such offering shall reasonably request
in order to expedite or facilitate the disposition of such Registrable
Securities;
2.2.8 use its best efforts to promptly obtain the withdrawal of any
order suspending the effectiveness of the registration statement;
2.2.9 furnish to each Holder participating in the offering and the
managing underwriter, without charge, at least one signed copy of the
registration statement and any post-effective amendments thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
2.2.10 cooperate with the selling Holders of Registrable Securities
and the managing underwriter, if any, to facilitate the timely preparation and
delivery of certificates not bearing any restrictive legends representing the
Registrable Securities to be sold, and cause such Registrable Securities to be
issued in such denominations and registered in such names in accordance with the
underwriting agreement prior to any sale of Registrable Securities to the
underwriters or, if not an underwritten offering, in accordance with the
instructions of the selling holders of Registrable Securities at least three
business days prior to any sale of Registrable Securities; and
2.2.11 take all such other commercially reasonable actions as are
necessary or advisable in order to expedite or facilitate the disposition of
such Registrable Securities.
The Company may require as a condition precedent to the Company's
obligations under this Section 2.2 that each seller of Registrable Securities as
to which any registration is being effected furnish the Company such information
regarding such seller and the distribution of such securities as the Company may
from time to time reasonably request provided that such information shall be
used only in connection with such registration.
Each Holder of Registrable Securities agrees that upon receipt of any
notice from the Company of the happening of any event of the kind described in
clauses (iii), (iv) or (v) of Section 2.2.5, such Holder will discontinue such
Holder's disposition of Registrable Securities pursuant to the registration
statement covering such Registrable Securities until such Holder's receipt of
the copies of the supplemented or amended prospectus contemplated by Section
2.2.5 and, if so directed by the Company, will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies, then in such
Holder's possession of the prospectus covering such Registrable Securities that
was in effect at the time of receipt of such notice. In the event the Company
shall give any such notice, the applicable period mentioned in Section 2.2.2
shall be extended by the number of days during such period from and including
the date of the giving of such notice to and including the date when each seller
of any Registrable Securities
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<PAGE>
covered by such registration statement shall have received the copies of the
supplemented or amended prospectus contemplated by Section 2.2.5.
If any such registration statement or comparable statement under "blue
sky" laws refers to any Holder by name or otherwise as the Holder of any
securities of the Company, then such Holder shall have the right to require (i)
the insertion therein of language, in form and substance satisfactory to such
Holder and the Company, to the effect that the holding by such Holder of such
securities is not to be construed as a recommendation by such Holder of the
investment quality of the Company's securities covered thereby and that such
holding does not imply that such Holder will assist in meeting any future
financial requirements of the Company, or (ii) in the event that such reference
to such Holder by name or otherwise is not in the judgment of the Company, as
advised by counsel, required by the Securities Act or any similar federal
statute or any state "blue sky" or securities law then in force, the deletion of
the reference to such Holder.
2.3 Registration Expenses.
---------------------
2.3.1 "Expenses" shall mean any and all fees and expenses incident to
the Company's performance of or compliance with this ARTICLE 2, including,
without limitation: (i) SEC, stock exchange or NASD registration, listing and
filing fees and all listing fees and fees with respect to the inclusion of
securities in NASDAQ, (ii) fees and expenses of compliance with state securities
or "blue sky" laws and in connection with the preparation of a "blue sky"
survey, including without limitation, reasonable fees and expenses of blue sky
counsel, (iii) printing and copying expenses, (iv) messenger and delivery
expenses, (v) expenses incurred in connection with any road show, (vi) fees and
disbursements of counsel for the Company, (vii) fees and disbursements of all
independent public accountants (including the expenses of any audit and/or "cold
comfort" letter) and fees and expenses of other persons, including special
experts, retained by the Company, (viii) fees and expenses payable to a
Qualified Independent Underwriter (as defined in NASD Conduct Rule 2720(b)(15)),
(ix) fees and expenses payable to the underwriters referred to in Section 2.2.6
and (x) any other fees and disbursements of underwriters, if any, customarily
paid by issuers or sellers of securities (collectively, "Expenses").
2.3.2 The Company shall pay all Expenses with respect to up to one
registration made pursuant to the provisions of this ARTICLE 2.
2.3.3 Notwithstanding the foregoing, (i) the provisions of this
Section 2.3 shall be deemed amended to the extent necessary to cause these
expense provisions to comply with "blue sky" laws of each state in which the
offering is made and (ii) in connection with any registration hereunder, each
Holder of Registrable Securities being registered shall pay all underwriting
discounts and commissions and any transfer taxes, if any, attributable to the
sale of such Registrable Securities, pro rata with respect to payments of
discounts and commissions in
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<PAGE>
accordance with the number of shares sold in the offering by such Holder, and
(iii) the Company shall, in the case of all registrations under this ARTICLE 2,
be responsible for all its internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties).
2.4 Certain Limitations on Registration Rights.
------------------------------------------
2.4.1 In the case of any registration under Section 2.1 if the
Company has determined to enter into an underwriting agreement in connection
therewith, all securities to be included in such registration shall be subject
to an underwriting agreement and no Person may participate in such registration
unless such Person agrees to sell such Person's securities on the basis provided
therein and completes and executes all reasonable questionnaires and other
documents (including custody agreements and powers of attorney) that must be
executed in connection therewith, and provides such other information to the
Company or the underwriter as may be necessary to register such Person's
securities.
2.4.2 No Holder shall have any right to participate in a registration
under this ARTICLE 2 if such Holder may sell twenty five percent (25%) or more
its Registrable Securities in a five (5) month period (such period commencing on
the date of the notice under Section 2.1.1) under Rule 144 under the Securities
Act.
2.5 Limitations on Sale or Distribution of Other Securities. To the extent
requested in writing by a managing underwriter, if any, of any registration
effected pursuant to ARTICLE 2, each Holder of Registrable Securities agrees not
to sell, transfer or otherwise dispose of, including any sale pursuant to Rule
144 under the Securities Act, any Registrable Securities (other than as part of
such underwritten public offering) during the time period reasonably requested
by the managing underwriter, not to exceed 180 days (and the Company hereby also
so agrees (except that the Company may effect any sale or distribution of any
such securities pursuant to a registration on Form S-4 (if reasonably acceptable
to such managing underwriter) or Form S-8, or any successor or similar form that
is then in effect) to use its reasonable best efforts to cause each holder of
any equity security or any security convertible into or exchangeable or
exercisable for any equity security of the Company purchased from the Company at
any time other than in a public offering so to agree). Each managing
underwriter shall be entitled to rely on the agreements of each Holder of
Registrable Securities set forth in this Section 2.5.1 and shall be a third
party beneficiary of the provisions of this Section 2.5.1.
2.6 No Required Sale. Nothing in this Agreement shall be deemed to create
an independent obligation on the part of any Holder to sell any Registrable
Securities pursuant to any effective registration statement.
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2.7 Indemnification.
---------------
2.8.1 In the event of any registration of any securities of the
Company under the Securities Act pursuant to this ARTICLE 2, the Company will,
and hereby does, indemnify and hold harmless, to the fullest extent permitted by
law, each Holder of Registrable Securities, its directors, officers, Affiliates,
employees, stockholders, members and partners (and the directors, officers,
Affiliates, employees, stockholders, members and partners thereof), each other
Person who participates as an underwriter or a Qualified Independent
Underwriter, if any, in the offering or sale of such securities, each officer,
director, employee, stockholder, member or partner of such underwriter or
Qualified Independent Underwriter, and each other Person, if any, who controls
such seller or any such underwriter within the meaning of the Securities Act,
against any and all losses, claims, damages or liabilities, joint or several,
actions or proceedings (whether commenced or threatened) in respect thereof
("Claims") and expenses (including reasonable fees of counsel and any amounts
paid in any settlement effected with the Company's consent, which consent shall
not be unreasonably withheld or delayed) to which each such indemnified party
may become subject under the Securities Act or otherwise, insofar as such Claims
or expenses arise out of or are based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in any registration statement
under which such securities were registered under the Securities Act, together
with the documents incorporated by reference therein 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 (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary, final or summary prospectus or any amendment or supplement thereto,
together with the documents incorporated by reference therein, or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading or (iii) any
violation or alleged violation by the Company of any federal, state or common
law, rule or regulation applicable to the Company and relating to action
required of or inaction by the Company in connection with any such registration;
provided, however, that the Company shall not be liable to any such indemnified
party in any such case to the extent such Claim or expense arises out of or is
based upon any untrue statement or alleged untrue statement of a material fact
or omission or alleged omission of a material fact made in such registration
statement or amendment thereof or supplement thereto or in any such prospectus
or any preliminary, final or summary prospectus in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
such indemnified party specifically for use therein. Such indemnity and
reimbursement of expenses shall remain in full force and effect regardless of
any investigation made by or on behalf of such indemnified party and shall
survive the transfer of such securities by such seller.
2.7.2 Each Holder of Registrable Securities that are included in the
securities as to which any registration under Section 2.1 is being effected
(and, if the Company requires as a condition to including any Registrable
Securities in any registration statement filed in accordance
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with Section 2.1, any underwriter and Qualified Independent Underwriter, if any)
shall, severally and not jointly, indemnify and hold harmless (in the same
manner and to the same extent as set forth in Section 2.7.1) to the fullest
extent permitted by law, on an after-tax basis, the Company, its officers,
directors, Affiliates, employees and stockholders, members and partners (and the
directors, officers, Affiliates, employees, stockholders, members and partners
thereof), each Person controlling the Company within the meaning of the
Securities Act and all other prospective sellers and their directors, officers,
general and limited partners and respective controlling Persons with respect to
any untrue statement or alleged untrue statement of any material fact in, or
omission or alleged omission of any material fact from, such registration
statement, any preliminary, final or summary prospectus contained therein, or
any amendment or supplement thereto, in each case, to the extent (and only to
the extent) that such statement or alleged statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company or its representatives by or on behalf of such Holder
(or underwriter or Qualified Independent Underwriter, if any), specifically for
use therein and Holder shall reimburse such indemnified party for any legal or
other expenses reasonably incurred in connection with investigating or defending
any such Claim as such expenses are incurred; provided, however, that the
aggregate amount that any such Holder shall be required to pay pursuant to this
Section 2.7.2 and Sections 2.7.3 and 2.7.5 shall in no case be greater than the
amount of the net proceeds received by such person upon the sale of the
Registrable Securities pursuant to the registration statement giving rise to
such claim. Such indemnity and reimbursement of expenses shall remain in full
force and effect regardless of any investigation made by or on behalf of such
indemnified party and shall survive the transfer of such securities by such
Holder.
2.7.3 Indemnification similar to that specified in Sections 2.7.1 and
2.7.2 (with appropriate modifications) shall be given by the Company and each
seller of Registrable Securities with respect to any required registration or
other qualification of securities under any state securities and "blue sky"
laws.
2.7.4 Any person entitled to indemnification under this Agreement
shall notify promptly the indemnifying party in writing of the commencement of
any action or proceeding with respect to which a claim for indemnification may
be made pursuant to this Section 2.7, but the failure of any indemnified party
to provide such notice shall not relieve the indemnifying party of its
obligations under the preceding paragraphs of this Section 2.7, except to the
extent the indemnifying party is materially prejudiced thereby and shall not
relieve the indemnifying party from any liability which it may have to any
indemnified party otherwise than under this ARTICLE 2. In case any action or
proceeding is brought against an indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, unless in the reasonable opinion of outside
counsel to the indemnified party a conflict of interest between such indemnified
and indemnifying parties may exist in respect of such claim, to assume the
defense thereof jointly with any other indemnifying
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<PAGE>
party similarly notified, to the extent that it chooses, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party that it so chooses, the indemnifying party shall
not be liable to such indemnified party for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
(i) if the indemnifying party fails to take reasonable steps necessary to defend
diligently the action or proceeding within 20 days after receiving notice from
such indemnified party that the indemnified party believes it has failed to do
so; or (ii) if such indemnified party who is a defendant in any action or
proceeding that is also brought against the indemnifying party reasonably shall
have concluded that there may be one or more legal defenses available to such
indemnified party that are not available to the indemnifying party; or (iii) if
representation of both parties by the same counsel is otherwise inappropriate
under applicable standards of professional conduct, then, in any such case, the
indemnified party shall have the right to assume or continue its own defense as
set forth above (but with no more than one firm of counsel for all indemnified
parties in each jurisdiction), and the indemnifying party shall be liable for
any expenses therefor. No indemnifying party shall, without the written consent
of the indemnified party, effect the settlement or compromise of, or consent to
the entry of any judgment with respect to, any pending or threatened action or
claim in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified party is an actual or potential party
to such action or claim) unless such settlement, compromise or judgment (A)
includes an unconditional release of the indemnified party from all liability
arising out of such action or claim and (B) does not include a statement as to
or an admission of fault, culpability or a failure to act, by or on behalf of
any indemnified party.
2.7.5 If for any reason the foregoing indemnity is unavailable or is
insufficient to hold harmless an indemnified party under Sections 2.7.1, 2.7.2
or 2.7.3, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of any Claim in such proportion as
is appropriate to reflect the relative fault of the indemnifying party, on the
one hand, and the indemnified party, on the other hand, with respect to such
offering of securities. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the indemnifying party or the indemnified party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. If, however, the
allocation provided in the second preceding sentence is not permitted by
applicable law, then each indemnifying party shall contribute to the amount paid
or payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative faults but also the relative benefits of the
indemnifying party and the indemnified party as well as any other relevant
equitable considerations. The parties hereto agree that it would not be just
and equitable if contributions pursuant to this Section 2.7.5 were to be
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations
12
<PAGE>
referred to in the preceding sentences of this Section 2.7.5. The amount paid or
payable in respect of any Claim shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such Claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The relative fault of the indemnifying party and
of the indemnified party shall be determined by reference to, among other
things, whether the violation relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission. Notwithstanding anything in this Section 2.7.5 to the
contrary, no indemnifying party (other than the Company) shall be required
pursuant to this Section 2.7.5 to contribute any amount in excess of the net
proceeds received by such indemnifying party from the sale of Registrable
Securities in the offering to which the losses, claims, damages or liabilities
of the indemnified parties relate, less the amount of any indemnification
payment made by such indemnifying party pursuant to Sections 2.7.2 and 2.7.3.
2.7.6 The indemnity agreements contained herein shall be in addition
to any other rights to indemnification or contribution that any indemnified
party may have pursuant to law or contract and shall remain operative and in
full force and effect regardless of any investigation made or omitted by or on
behalf of any indemnified party and shall survive the transfer of the
Registrable Securities by any such party.
2.7.7 The indemnification and contribution required by this Section
2.7 shall be made by periodic payments of the amount thereof during the course
of the investigation or defense, as and when bills are received or expense,
loss, damage or liability is incurred.
ARTICLE III
UNDERWRITTEN OFFERINGS
Piggyback Underwritten Offerings. In the case of a registration in which
the Holders of Registrable Securities participate pursuant to ARTICLE 2, if the
Company shall have determined to enter into an underwriting agreement in
connection therewith, all of the Holders of Registrable Securities to be
included in such registration shall be subject to such underwriting agreement.
Any Holder participating in such registration may, at its option, require that
any or all of the representations and warranties by, and the other agreements on
the part of, the Company to and for the benefit of such underwriters shall also
be made to and for the benefit of such Holder and that any or all of the
conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligations of such
Holder. Such underwriting agreement shall also contain such representations and
warranties by the participating Holders as are customary in agreements of that
type.
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<PAGE>
ARTICLE IV
GENERAL
4.1 Rule 144. If the Company shall have filed a registration statement
pursuant to the requirements of Section 12 of the Exchange Act or a registration
statement pursuant to the requirements of the Securities Act in respect of the
Common Stock or securities of the Company convertible into or exchangeable or
exercisable for Common Stock, the Company covenants that (i) so long as it
remains subject to the reporting provisions of the Exchange Act, it will timely
file the reports required to be filed by it under the Securities Act or the
Exchange Act (including, but not limited to, the reports under Sections 13 and
15(d) of the Exchange Act referred to in subparagraph (c)(1) of Rule 144 under
the Securities Act), and (ii) will take such further action as any Holder of
Registrable Securities may reasonably request, all to the extent required from
time to time to enable such Holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (A) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (B) any similar rule or regulation hereafter adopted by
the Commission. Upon the request of any Holder of Registrable Securities, the
Company will deliver to such Holder a written statement as to whether it has
complied with such requirements.
4.2 Amendments and Waivers. This Agreement may be amended, modified,
supplemented or waived only upon the written agreement of the Company and the
holders of not less than a majority of the shares of Registrable Securities;
provided, however, that the addition of new parties to this Agreement in
accordance with the provisions of the Purchase Agreement shall not be deemed an
amendment hereof and shall not require the consent of any party hereto.
4.3 Notices. Except as otherwise provided in this Agreement, all notices,
requests, consents and other communications hereunder to any party shall be
deemed to be sufficient if contained in a written instrument delivered in person
or by telecopy, nationally recognized overnight courier or first class
registered or certified mail, return receipt requested, postage prepaid,
addressed to such party at the address set forth below or in a counterpart
hereto (as the case may be ) or such other address as may hereafter be
designated in writing by such party to the other parties:
(i) if to the Company, to:
Etinuum, Inc.
5619 DTC Parkway, 12th Floor
Englewood, CO 80111
Telephone: (303) 357-3000
Telecopy: (303) 323-4213
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Attention: Chief Executive Officer
with a copy to:
Chrisman, Bynum & Johnson, P.C.
1900 Fifteenth Street
Boulder, Colorado 80302
Telephone: (303) 546-1300
Telecopy: (303) 449-5426
Attention: G. James Williams, Jr.
(ii) if to an Acorn Shareholder, at the address set forth in the signature
pages hereto:
with a copy to:
Wiggin & Dana
3 Stamford Plaza
P.O. Box 110325
Stamford, CT 06911-0325
Telephone: (203) 363-7600
Telecopy: (203) 363-7676
Attention: William A. Perrone
(iii) if to Prospero:
Prospero LLC
265 Post Road West
Westport, CT 06880
Telephone: (203) 454-5616
Telecopy: (203) 459-8157
Attention: Dan Donovan
All such notices, requests, consents and other communications shall be deemed to
have been given when received.
4.4 No Inconsistent Agreements. Without the prior written consent of
holders of a majority of the Common Stock, the Company will not, on or after the
date of this Agreement,
15
<PAGE>
enter into any agreement with respect to its securities that is inconsistent
with the rights granted in this Agreement or otherwise conflicts with the
provisions hereof, other than any lock-up agreement with the underwriters in
connection with any registered offering effected hereunder, pursuant to which
the Company shall agree not to register for sale, and the Company shall agree
not to sell or otherwise dispose of, Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock, for a specified period
following the registered offering. The Acorn Shareholders will not unreasonably
withhold their consent to any waiver of a term hereof or an amendment hereto. No
consent of the Acorn Shareholders or Prospero LLC to an amendment hereto will be
required if the same amendment is made in respect of securities subject to Other
Registration Rights Agreements.
4.5 Miscellaneous.
-------------
4.5.1 This Agreement shall be binding upon and inure to the benefit
of and be enforceable by the parties hereto and the respective successors,
personal representatives and assigns of the parties hereto, whether so expressed
or not. If any Person shall acquire Registrable Securities from any Holder, in
any manner, whether by operation of law or otherwise, such transferee shall
promptly notify the Company and such Registrable Securities acquired from such
Holder shall be held subject to all of the terms of this Agreement, and by
taking and holding such Registrable Securities such Person shall be entitled to
receive the benefits of and be conclusively deemed to have agreed to be bound by
and to perform all of the terms and provisions of this Agreement. If the
Company shall so request, any such successor or assign shall agree in writing to
acquire and hold the Registrable Securities acquired from such Holder subject to
all of the terms hereof. If any Holder shall acquire additional Registrable
Securities, such Registrable Securities shall be subject to all of the terms,
and entitled to all the benefits, of this Agreement. No Person other than a
Holder shall be entitled to any benefits under this Agreement, except as
otherwise expressly provided herein.
4.5.2 This Agreement (with the documents referred to herein or
delivered pursuant hereto) embodies the entire agreement and understanding
between the parties hereto and supersedes all prior agreements and
understandings relating to the subject matter hereof.
4.5.3 This Agreement shall be construed and enforced in accordance
with and governed by the laws of the State of Colorado without giving effect to
the conflicts of law principles thereof.
4.5.4 The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof. All section
references are to this Agreement unless otherwise expressly provided.
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4.5.5 This Agreement may be executed in any number of counterparts,
each of which shall be an original, but all of which together shall constitute
one instrument.
4.5.6 Any term or provision of this Agreement that is invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction.
4.5.7 The parties hereto acknowledge that there would be no adequate
remedy at law if any party fails to perform any of its obligations hereunder,
and accordingly agree that each party, in addition to any other remedy to which
it may be entitled at law or in equity, shall be entitled to seek injunctive
relief, including specific performance, to enforce such obligations without the
posting of any bond.
4.5.8 Each party hereto shall take all such action necessary to cause
each certificate of the Company's securities to bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, BY AND AMONG
ETINUUM, INC. AND CERTAIN OTHER PARTIES DATED MARCH __, 2000, COPIES
OF WHICH ARE AVAILABLE AT THE OFFICES OF ETINUUM, INC.
4.5.9 Each party hereto shall do and perform or cause to be done and
performed all such further acts and things and shall execute and deliver all
such other agreements, certificates, instruments, and documents as any other
party hereto reasonably may request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
ETINUUM, INC.
By: /s/ Timothy C. O'Crowley
----------------------------
Timothy C. O'Crowley,
Chief Executive Officer and President
THE ACORN SHAREHOLDERS
/s/ Venkat Sharma /s/ Shoba Murali
- ----------------------------- -------------------------------
Venkat Sharma Shoba Murali
Address: Address:
- ----------------------------- -------------------------------
- ----------------------------- -------------------------------
- ----------------------------- -------------------------------
Telephone: __________________ Telephone: ____________________
Facsimile: __________________ Facsimile: ___________________
/s/ Raja Ramnarayan /s/ Sunil Gupta
- ----------------------------- -------------------------------
Raja Ramnarayan Sunil Gupta
Address: Address:
- ----------------------------- -------------------------------
- ----------------------------- -------------------------------
- ----------------------------- -------------------------------
Telephone: __________________ Telephone: ____________________
Facsimile: __________________ Facsimile: ___________________
/s/ Richard Wayne PROSPERO LLC.
- -----------------------------
Richard Wayne By: /s/ Daniel Donovan
-------------------------------
Address: Daniel Donovan, Managing Member
- -----------------------------
- -----------------------------
- -----------------------------
Telephone: __________________
Facsimile: __________________
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Exhibit 10.3
ETINUUM, INC.
2000 AMENDED AND RESTATED STOCK INCENTIVE PLAN
1. Purpose
The purpose of the Plan is to provide a means through which Etinuum ("the
Company") may attract able persons to enter and remain in the employ of the
Company and its Subsidiaries and to provide a means whereby they can acquire and
maintain Common Stock ownership, thereby strengthening their commitment to the
welfare of the Company and promoting an identity of interest between
stockholders of the Company and these employees and consultants.
So that the appropriate incentive can be provided, the Plan allows for
granting Incentive Stock Options, Nonqualified Stock Options, and Stock Grants,
or any combination thereof to employees, directors and consultants, and stock
grants to directors who are not employees of the Company or a Subsidiary.
2. Definitions
(a) The following definitions shall be applicable throughout the Plan.
(1) "Board" means the Board of Directors of the Company.
(2) "Cause" means the Company or a Subsidiary (as the case may be) having
cause to terminate an Optionee's employment or service in accordance with the
provisions of any then existing employment, consulting or any other agreement
between the Optionee and the Company or a Subsidiary (as the case may be) or, in
the absence of such an employment, consulting or other agreement, upon (i) the
determination by the Company or a Subsidiary (as the case may be) that the
Optionee (A) has committed an act of personal dishonesty, embezzlement, gross
negligence or gross misconduct in the course of employment or service with the
Company or a Subsidiary (as the case may be), (B) has ceased to perform his
duties to the Company or a Subsidiary (as the case may be)(other than as a
result of his incapacity due to physical or mental illness or injury), which
failure amounts to intentional and extended neglect of his duties, (C) has
engaged in or is about to engage in conduct materially injurious to the Company
or a Subsidiary (unless when informed that the proposed conduct would be so
injurious he immediately ceases and corrects such proposed conduct), or (D) has
willfully failed to follow the lawful directions of the Board or a superior
officer of the Company or a Subsidiary (as the case may be) ( without the same
being corrected upon five (5) days notice); or (ii) the Optionee having pled no
contest or guilty to a criminal charge or having been convicted of a crime
(other than a minor traffic violation) which could reasonably be expected to
have a material adverse impact on the reputation and standing of the Company or
a
<PAGE>
Subsidiary in the community or in its business relationships. For purposes of
the Plan, the Committee shall determine whether Cause exists. No Option may be
exercised during any cure period provided above unless the cure has been
accomplished.
(3) "Code" means the Internal Revenue Code of 1986, as amended. Reference
in the Plan to any section of the Code shall be deemed to include any amendments
or successor provisions to such section and any regulations under such section.
(4) "Committee" (subject to the third sentence of Section 4) means a
committee of at least two members appointed by the Board to administer the Plan,
each of whom shall be both a Non-Employee Director and an Outside Director.
(5) "Common Stock" means the common stock, par value $0.01 per share, of
the Company.
(6) "Company" means Etinuum, Inc., a corporation organized under the laws
of the State of Delaware.
(7) "Disability" means an Optionee's disability within the meaning of
Section 22(e)(3) of the Code.
(8) "Eligible Person" means any (i) person regularly employed by the
Company or a Subsidiary; provided, however, that no such employee covered by a
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collective bargaining agreement shall be an Eligible Person unless and to the
extent that such eligibility is set forth in such collective bargaining
agreement or in an agreement or instrument relating thereto; (ii) consultant to
the Company or a Subsidiary; or (iii) member of the Board or the board of
directors of a Subsidiary.
(9) "Exchange Act" means the Securities Exchange Act of 1934.
(10) "Fair Market Value" on a given date means (i) if the Common Stock is
listed on a national securities exchange, the closing sales prices of the Stock
reported as having occurred on the primary exchange with which the Stock is
listed and traded on the date prior to such date, or, if there is no such sale
on that date, then on the last preceding date on which such a sale was reported;
or (ii) if the Common Stock is not listed on any national securities exchange
but is quoted in the National Market System of the National Association of
Securities Dealers Automated Quotation System the average between the high and
low sales price of the Common Stock on the date prior to such date, or, if there
is no such sale on that date, then on the last preceding date on which a sale
was reported; or (iii) if the Common Stock is not listed on a national
securities exchange nor quoted in the National Market System of the National
Association of Securities Dealers Automated Quotation System on a last sale
basis, the amount determined by the Committee to be the fair market value based
upon a good faith attempt to value the Stock accurately.
<PAGE>
(11) "Incentive Stock Option" means an Option granted by the Committee to
an Optionee under the Plan which is designated by the Committee as an "incentive
stock option" within the meaning of Section 422 of the Code.
(12) "Non-Employee Director" means a "non-employee director" within the
meaning of Rule 16b-3 of the Exchange Act or any successor rule or regulation.
(13) "Nonqualified Stock Option" means an Option granted under the Plan
which is not designated as an Incentive Stock Option.
(14) "Normal Termination" means termination of employment or service with
the Company or a Subsidiary:
(a) Upon retirement from active employment or service with the
Company or a Subsidiary (as the case may be) at or after ago 60.
(b) On account of Disability;
(c) By the Company or a Subsidiary (as the case may be) without
Cause; or
(d) With the specific written consent of the Committee.
(15) "Option" means the right and option granted hereunder to purchase any
one share of Stock from the Company, at the per share Option Price.
(16) "Optionee" means the holder of an Option.
(17) "Option Agreement" means the agreement between the Company and an
Optionee who has been granted an Option which defines the rights and obligations
of the parties with respect to such Option.
(18) "Option Period" means the period of time set by the Committee after
which time an Option will expire.
(19) "Option Price" means the exercise price set for an Option.
(20) "Outside Director" means an "outside director" within the meaning of
Section 162(m) of the Code.
(21) "Plan" means the Company's 2000 Stock Incentive Plan.
(22) "Stock" means the Common Stock or such other authorized shares of
stock of the Company as from time to time may be authorized for use under the
Plan.
(23) "Subsidiary" means a corporation which is a "subsidiary corporation"
of the Company as defined in Section 424 of the Code.
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<PAGE>
3. Effective Date, Duration
The Plan is effective upon approval of the Plan by the stockholders and
Board.
The expiration date of the Plan, after which no Options may be granted
hereunder, shall be February 1, 2010; provided, however, that the administration
-------- -------
of the Plan shall continue in effect until all matters relating to the
settlement of Options previously granted have been settled.
4. Administration
The Board or the Committee shall administer the Plan. The Company shall
take into account that under current law Options will not be exempt from the
application of Section 162(m) of the Code unless granted by the Committee
serving as a Compensation Committee as provided in Section 162(m)(4)(C) of the
Code. All references in the Plan to the "Committee" shall be deemed to refer to
the Board whenever the Board is discharging the powers and responsibilities of
administering the Plan. The majority of the members of the Committee shall
constitute a quorum. The acts of a majority of the members present at any
meeting at which a quorum is present or acts approved in writing by a majority
of the Committee shall be deemed the acts of the Committee.
Subject to the provisions of the Plan, and except for varying the terms of
options granted to Eligible Non-Employee Directors pursuant to Section 5, the
Committee shall have exclusive power to:
(a) Select the Eligible Persons to participate in the Plan;
(b) Determine the nature and extent of the Options to be granted to
each Optionee;
(c) Determine the time or times when Options will be granted to
Optionees;
(d) Determine the duration of each Option Period;
(e) Determine the Option Price for each Option and reprice any
outstanding Option;
(f) Determine the vesting schedule, if any, for each Option and
accelerate the vesting for any outstanding Option;
(g) Determine all conditions to which Options may be subject;
(h) Prescribe the form of Option Agreement;
(i) Make stock grants pursuant to Section 9 to members of the Board
who are not employees of the Company or a Subsidiary, determine the amount and
terms of such grants, and modify such terms;
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(j) Provide for the transferability of Nonqualified Stock Options,
(but not Incentive Stock Options except as provided in Section 7(d)(2));
(k) Cause records to be established in which there shall be entered,
from time to time as Options are granted to Optionees, the date of each Option
grant, the number of Incentive Stock Options or Nonqualified Stock Options
granted by the Committee to each Optionee, the expiration date and the duration
of each Option Period and the number of shares of Stock underlying each Option;
(l) At any time prior to, after, or in connection with, any
termination of employment or service of an Optionee with the Company or its
Subsidiaries, provide for a longer post-termination exercise or survival period
with respect to any Option (not to exceed three years) or modify any forfeiture
provisions with respect to any Option; except to the extent that the ability to
so modify an Option shall cause an Option intended to qualify as "performance-
based" under Section 162(m) of the Code to not so qualify; and
The Committee shall have the authority, subject to the provisions of the
Plan, to establish, adopt, and revise such rules and regulations and to make all
such determinations relating to the Plan as it may deem necessary or advisable
for the administration of the Plan. The Committee's interpretation of the Plan
or any documents evidencing Options granted pursuant thereto and all decisions
and determinations by the Committee with respect to the Plan shall be final,
binding, and conclusive on all parties unless otherwise determined by the Board.
(m) Create additional committees composed of one or more Board
members with the limited authority to grant Options in specified limited amounts
to Eligible Persons who are not subject to Section 16(b) of the Exchange Act or
its successor, not subject to Section 162(m) of the Code, or directors of the
Company or a Subsidiary. Any act of such additional committee shall be acts of
the Committee for purposes of this Plan.
5. Grant of Options; Shares Subject to the Plan
(a) The Committee may, from time to time, grant one or more Options to any
one or more Eligible Persons; provided, however, that:
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(1) Subject to Section 11, the aggregate number of shares of Stock
made subject to all awards (including Options and grants of
Stock) may not exceed Two Million Seven Hundred Fifty Thousand
(2,750,000);
(2) In the event any unexercised Option shall be surrendered,
terminate, expire, or be forfeited, the share of Stock no longer
subject thereto shall thereupon be released and shall thereafter
be available for new Options under the Plan;
(3) Stock delivered by the Company in settlement of Options under the
Plan may be authorized and unissued Stock or Stock held in the
treasury of the Company or may be purchased on the open market or
by private purchase;
-5-
<PAGE>
(4) No Eligible Person may receive Options under the Plan with
respect to more than Seven Hundred Fifty Thousand (750,000)
shares of Stock in any one year; and
(5) The Committee may, in its sole discretion, require an Optionee to
pay consideration for an Option in an amount and in a manner as
the Committee deems appropriate.
(b) Options will be granted to Board directors: Each existing and new Non-
Employee Director will receive an initial option to purchase Ten Thousand
(10,000) shares at the time of his or her appointment to the position of
director (the "Initial Grant") and each Non-Employee Director will receive
annual option grants of Five Thousand (5,000) shares on the day after the
regular annual stockholders' meeting if the director has served continuously as
a member of the Board since the prior annual meeting (the "Annual Grant"). The
Committee will have no discretion to select which Non-Employee Directors will be
granted options or to determine the number of option shares, price, vesting
schedule or any other term of the options granted to Non-Employee Directors. All
options granted to Non-Employee Directors will be non-qualified stock options
and will have a term of ten years. The options will terminate one year after the
Non-Employee Director ceases to provide services to the Company either as a
director or consultant. The exercise price of the Initial Grant and the Annual
Grant must equal the fair market value of the common stock on the date of grant.
6. Fractional Shares
No fractional shares will be issued upon exercise of any Option and any
fractional shares will be rounded down to the nearest whole share.
7. Option Terms
The Committee is authorized to grant one or more Incentive Stock Options or
Nonqualified Stock Options to any Eligible Person; provided, however, that no
-------- -------
Incentive Stock Options shall be granted to any Eligible Person who is not an
employee of the Company or a Subsidiary. Each Option so granted shall be
subject to the following conditions, or to such other conditions as may be
reflected in the applicable Option Agreement.
(a) Option price. The Option Price per share of Stock for each Option
------------
shall be set by the Committee at the time of grant, but, in the case of an
Incentive Stock Option or a Nonqualified Stock Option to a Non-Employee
Director, shall not be less than the Fair Market Value of a share of Stock at
the date of grant, or in the case of a Nonqualified Stock Option, eighty-five
percent (85%) of the Fair Market Value on the date of grant.
(b) Manner of exercise and form of payment. Options which have become
--------------------------------------
exercisable may be exercised by delivery of written notice of exercise to the
Committee accompanied by payment of the Option Price. The Option Price shall be
payable in cash or by certified check or, in the discretion of the Committee,
(i) in shares of Stock, valued at the Fair Market Value at the time the Option
is exercised, in sufficient amount to cover the aggregate
-6-
<PAGE>
exercise price (provided that such Stock must have been held by the Optionee for
at least six months prior to exercise of the Option), (ii) by withholding shares
of Stock, valued at the Fair Market Value at the time the Option is exercised,
otherwise deliverable upon exercise of the Options, in sufficient amount to
cover the aggregate exercise price; (iii) in other property having a fair market
value on the date of exercise equal to the Option Price; (iv) by delivering to
the Committee a copy of irrevocable instructions to a stockbroker acceptable to
the Company to deliver promptly to the Company an amount of sale or loan
proceeds sufficient to pay the aggregate exercise price; or (v) by delivery of a
promissory note if in accordance with applicable state and federal law.
(c) Option Period and Vesting. Options shall vest and become exercisable
-------------------------
in such manner and on such date or dates as shall be determined by the
Committee, except that the number of option shares, the option price, vesting
schedules and other terms of Options granted to Non-Employee Directors as
described in Section 5 (b) above shall be determined as provided therein. The
Committee shall also establish an Option Period which shall not exceed ten
years. If an Option is exercisable in installments, exercise of one installment
shall not affect the Optionee's ability to exercise unexercised installments in
accordance with the terms of the Plan and the applicable Option Agreement.
Unless otherwise stated in the applicable Option Agreement, the Option shall
expire upon an Optionee's termination of employment or service with the Company
or a Subsidiary at such times as are set forth in Section 8.
Each Initial Grant to a Non-Employee Director as described in Section 5 (b)
above, shall be immediately exercisable. Each Annual Grant to a Non-Employee
Director will become exercisable beginning one (1) year from the date of the
annual meeting of stockholders after which date the options were granted.
(d) Other Terms and Conditions. Options granted under the Plan shall be
--------------------------
evidenced by an Option Agreement, which shall contain such provisions as may be
determined by the Committee and, except as may be specifically stated otherwise
in such Option Agreement, be subject to the following terms and conditions:
(1) Each share of Stock purchased through the exercise of an Option
shall be paid for in full at the time of the exercise. Each
Option shall cease to be exercisable when the Optionee purchases
the underlying share of Stock or when the Option expires.
(2) Options shall not be transferable by the Optionee except by will
or the laws of descent and distribution and shall be exercisable
during the Optionee's lifetime only by the Optionee.
(3) Subject to any accelerated vesting, each Option shall vest and
become exercisable by the Optionee in accordance with the vesting
schedule established by the Committee and set forth in the Option
Agreement.
(4) Each Option Agreement covering Incentive Stock Options shall
contain a provision requiring the Optionee to notify the Company
in writing
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<PAGE>
immediately after the Optionee makes a disqualifying disposition
of any Stock acquired pursuant to the exercise of any such
Incentive Stock Option. A disqualifying disposition is any
disposition (including any sale) of such Stock before the later
of (a) two years after the date of grant of the Incentive Stock
Option or (b) one year after the date the Optionee acquired the
Stock by exercising the Incentive Stock Option.
(5) Each Option Agreement may contain such other provisions (whether
or not applicable to an Option granted to any other Optionee) as
the Committee determines appropriate including, without
limitation, provisions to assist the Optionee in financing the
purchase of Stock upon the exercise of Options which are
consistent with applicable state and federal law, provisions for
the forfeiture of shares of Stock or restrictions on resale or
other disposition of shares of Stock acquired under any Option,
provisions giving the Company the right to repurchase shares of
Stock acquired under any Option in the event the Optionee elects
to dispose of such shares or employment with the Company and its
Subsidiaries terminates, and provisions to comply with Federal
and state securities laws and Federal and state tax withholding
requirements. Any such provisions shall be reflected in the
applicable Option Agreement.
(e) Anything to the contrary in this Section 7, if an Incentive Stock
Option is granted to an Optionee who owns stock representing more than ten
percent of the voting power of all classes of stock of the Company, its parent
or a subsidiary (as provided in Section 422(b) of the Code), the Option Period
shall not exceed five years from the date of grant of such Option and the Option
Price shall be at least 110 percent of the Fair Market Value (on the Date of
Grant) of the Stock subject to the Option.
(f) $100,000 Per Year Limitation for Incentive Stock Options. To the
--------------------------------------------------------
extent the aggregate Fair Market Value (determined as of the date of grant) of
Stock for which Incentive Stock Options are exercisable for the first time by
any Optionee during any calendar year (under all plans of the Company and its
Subsidiaries) exceeds $100,000, the portion of the Options with respect to which
such excess arises shall be treated as a Nonqualified Stock Options.
(g) Voluntary Surrender. The Committee may permit the voluntary surrender
-------------------
of any Nonqualified Stock Option to be conditioned upon the granting to the
Optionee of a new Option for the same or a different number of shares as the
Option surrendered or require such voluntary surrender as a condition precedent
to a grant of a new Option to such Optionee. Such new Option shall be
exercisable at an Option Price, during an Option Period, and in accordance with
any other terms or conditions specified by the Committee at the time the new
Option is granted, all determined in accordance with the provisions of the Plan
without regard to the Option Price, Option Period, or any other terms and
conditions of the Nonqualified Stock Option surrendered.
8. Termination of Employment or Service
(a) Termination of Employment. Except as otherwise determined by the
-------------------------
Committee and set forth in an Option Agreement, the following provisions will
apply to all Options granted
-8-
<PAGE>
to Optionees who are either employers or employees who also serve on the Board.
Upon such an Optionee's (other than a Non-Employee Director) termination of
employment with the Company or a Subsidiary:
(1) If prior to the end of the Option Period the Optionee shall
undergo a Normal Termination, all unvested Options then held by
such Optionee shall expire on the date of Normal Termination and
all vested Options then held by such Optionee shall expire on the
earlier of the last day of the respective Option Period or the
date that is three (3) months after the date of such Normal
Termination. All vesting with respect to Options shall cease on
the date of Normal Termination and all Options which are vested
as of such date shall remain exercisable by the Optionee until
their expiration as provided above.
(2) If the Optionee dies prior to the end of the Option Period and
while still in the employ or service of the Company or a
Subsidiary or within three (3) months following a Normal
Termination, all unvested Options then held by such Optionee
shall expire on the date of death and all vested Options then
held by such Optionee shall expire on the earlier of the last day
of the respective Option Period or the date that is one (1) year
after the date of death of the Optionee. All vesting with respect
to Options shall cease on the earlier of the date of Normal
Termination or the date of death and all such Options which are
vested as of such date shall remain exercisable by the
beneficiary chosen by the Optionee pursuant to Section 10(e) or,
if none has been chosen, by the person or persons to whom the
Optionee's rights under the Options pass by will or the
applicable laws of descent and distribution until their
expiration as provided above.
(3) If an Optionee voluntarily ceases employment or service with the
Company or a Subsidiary under circumstances where the Company or
the Subsidiary could terminate the Optionee's employment or
service for Cause or the Company or a Subsidiary terminates
Optionee's employment or service for Cause, all Options then held
by such Optionee, whether vested or unvested, shall expire
immediately upon such cessation of employment or service.
(4) If an Optionee voluntarily ceases employment or service with the
Company or a Subsidiary other than as provided in other
provisions of Section 8, all unvested Options then held by such
Optionee shall expire on the date of cessation of employment or
service and all vested Options then held by such Optionee shall
expire on the earlier of the last day of the respective Option
Period or the date that is three (3) months after the date of
such cessation.
(b) Termination of Non-Employee Director's Service. Subject to Section
----------------------------------------------
5(b), upon the termination of the service of a Non-Employee Director, his or
her rights to exercise an option then held shall be only as follows:
-9-
<PAGE>
(1) Death. Upon the death of a Non-Employee Director while in
service as a Non-Employee Director of Company, the Non-
Employee Director's rights will be exercisable by his or her
estate or beneficiary at any time during the twelve (12)
months next succeeding the date of death. The number of
shares exercisable by the estate or beneficiary will be the
total number of unexercised shares under the Non-Employee
Director's option on the date of his or her death. If a Non-
Employee Director should die within three (3) months of his
or her termination of service as a Non-Employee Director
with Company, an option will be exercisable by his or her
estate or beneficiary at any time during the twelve (12)
months succeeding the date of termination, but only to the
extent of the number of shares as to which such option was
exercisable as of the date of such termination. A Non-
Employee Director's estate shall mean his or her legal
representative or other person who so acquires the right to
exercise the option.
(2) Normal Termination. Upon Normal Termination of a Non-
Employee Director, the Non-Employee Director's rights to any
non-qualified stock options vested on the date of
termination may be exercised for a period of twelve (12)
months after such Normal Termination.
(3) Other Reasons. Upon termination of a Non-Employee Director's
service as a Non-Employee Director for any reason other than
those stated above, the Non-Employee Director may, within
ninety (90) days following such termination exercise the
option to the extent such option was exercisable on the date
of termination.
9. Stock Grants.
The Committee may, in its sole discretion, make grants of Stock to Eligible
Persons, including to Non-Employee Directors, whether or not in lieu of cash
compensation for their services as members of the Board. Such grants shall be
on such terms as determined by the Committee, but shall be valued at Fair Market
Value. Grants of Stock under this Section 9 shall be in such amounts and have
such terms as the Committee deems appropriate at the time of grant. All the
terms, conditions, limitations, restrictions, and procedures herein applicable
to Options, which are intended to ensure compliance with Section 162(m) of the
Code, apply to Stock grants under this Section 9, and for purposes of Section
162(m) to the extent applicable thereunder, stock grants shall be aggregated
with Options, including the limitation on Options in Section 5(a).
10. General
(a) Privileges of Stock Ownership. Except as otherwise specifically
-----------------------------
provided in the Plan, no person shall be entitled to the privileges of stock
ownership in respect of shares of Stock which are subject to Options hereunder
until such shares have been issued to that person.
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<PAGE>
(b) Government and Other Regulations. The obligation of the Company to
--------------------------------
deliver shares of Stock upon the exercise of Options shall be subject to all
applicable laws, rules, and regulations, and to such approvals by governmental
agencies as may be required. Notwithstanding any terms or conditions of any
Option to the contrary, the Company shall be under no obligation to offer to
sell or to sell and shall be prohibited from offering to sell or selling any
shares of Stock pursuant to an Option unless such shares have been properly
registered for sale pursuant to the Securities Act with the Securities and
Exchange Commission or unless the Company has received an opinion of counsel,
satisfactory to the Company, that such shares may be offered or sold without
such registration pursuant to an available exemption therefrom and the terms and
conditions of such exemption have been fully complied with. The Company shall
be under no obligation to register for sale under the Securities Act any of the
shares of Stock to be offered or sold under the Plan. If the shares of Stock
offered for sale or sold under the Plan are offered or sold pursuant to an
exemption from registration under the Securities Act, the Company may restrict
the transfer of such shares and may legend the Stock certificates representing
such shares in such manner as it deems advisable to ensure the availability of
any such exemption.
(c) Tax Withholding. Notwithstanding any other provision of the Plan, the
---------------
Company or a Subsidiary, as appropriate, shall have the right to deduct from the
number of shares of Stock issued upon the exercise of Options such number of
shares of Stock, valued at Fair Market Value on the date of payment, in an
amount necessary to satisfy all Federal, state or local taxes as required by law
to be withheld with respect to such Options. In the alternative, at the sole
discretion of the Committee, an Optionee or other person receiving Stock upon
exercise of an Option may be required to pay to the Company or a Subsidiary, as
appropriate, prior to delivery of such Stock, the amount of any such taxes which
the Company or a Subsidiary, as appropriate, is required to withhold, if any,
with respect to such Stock. Subject in particular cases to the disapproval of
the Committee, the Company may accept shares of Stock of equivalent Fair Market
Value in payment of such withholding tax obligations if the Optionee elects to
make payment in such manner. In furtherance of the foregoing, the Company may
require that (i) shares of Stock surrendered have been owned by the Optionee for
at least six months prior to the exercise or (ii) the Optionee, attesting in
writing to the Company ownership of shares of Stock having a Fair Market Value
at the time of attestation equal to such additional withholding obligations and
allowing the Company to withhold from the shares such Optionee would otherwise
receive an equal number of shares of Stock.
(d) Claim to Options, and Employment Rights. No employee or other person
----------------------------------------
shall have any claim or right to be granted an Option under the Plan or, having
been selected for the grant of an Option, to be selected for a grant of any
other Option. Neither the Plan nor any action taken hereunder shall be
construed as giving any Optionee any right to be retained in the employ or
service of the Company or any Subsidiary. The grant of an Option does not imply
that the Company or any Subsidiary does not anticipate either a general
reduction in force or the termination of the employment, directorship or
consulting position of an Optionee.
The grant of a Stock Option does not create a fiduciary relationship
between the Optionee and the Company or any other person or entitle the Optionee
to require the Company or any other person to provide any information except as
required by applicable securities or employee
-11-
<PAGE>
benefits statutes and rules and regulations issued thereunder. An Optionee shall
have no rights as a Stockholder with respect to any shares of Common Stock
subject to an Option.
(e) Designation and Change of Beneficiary. Each Optionee may file with
-------------------------------------
the Committee a written designation of one or more persons as the beneficiary
who shall be entitled to exercise the rights with respect to an Option granted
under the Plan upon the Optionee's death. An Optionee may, from time to time,
revoke or change his beneficiary designation without the consent of any prior
beneficiary by filing a new designation with the Committee. The last such
designation received by the Committee shall be controlling; provided, however,
-------- -------
that no designation, or change or revocation thereof, shall be effective unless
received by the Committee prior to the Optionee's death, and in no event shall
it be effective as of a date prior to such receipt.
(f) Payments to Persons Other Than Optionees. If the Committee shall find
----------------------------------------
that any person entitled to exercise an Option granted under the Plan is unable
to care for his affairs because of illness or accident, or is a minor, then the
delivery of shares of Stock due to such person or his estate upon such exercise
(unless a prior claim therefor has been made by a duly appointed legal
representative) may, if the Committee so directs the Company, be made to his
spouse, child, relative, an institution maintaining or having custody of such
person, or any other person deemed by the Committee to be a proper recipient on
behalf of such person otherwise entitled to delivery. Any such delivery shall
be a complete discharge of the liability of the Committee and the Company
therefor.
(g) Time of Exercise. Unless an earlier time is determined by the
----------------
Committee, all exercises of Options during or within ten (10) days after the end
of employment or service, may be processed by the Company five (5) days after
notice of exercise is given by the Optionee. If prior to the processing of any
Option exercise the Company determines that it had as of the time of the end of
employment or service or has as of the time of processing grounds to terminate
the Option under Section 8(c), the Option may be canceled without exercise.
(h) No Liability of Company or Committee Members. No member of the
--------------------------------------------
Committee shall be personally liable by reason of any contract or other
instrument executed by such member or on his behalf in his capacity as a member
of the Committee nor for any mistake of judgment made in good faith, and the
Company shall indemnify and hold harmless each member of the Committee and each
other employee, officer or director of the Company to whom any duty or power
relating to the administration or interpretation of the Plan may be allocated or
delegated, against any cost or expense (including counsel fees) or liability
(including any sum paid in settlement of a claim) arising out of any act or
omission to act in connection with the Plan unless arising out of such person's
own fraud or willful bad faith; provided, however, that approval of the Board
-------- -------
shall be required for the payment of any amount in settlement of a claim against
any such person. The foregoing right of indemnification shall not be exclusive
of any other rights of indemnification to which such persons may be entitled
under the Company's Certificate of Incorporation or By-Laws, as a matter of law,
or otherwise, or any power that the Company may have to indemnify them or hold
them harmless. The Company, Subsidiaries, the Board and the Committee
(including any additional committee) shall have no liability to the Optionee, or
the Optionee's estate or transferee if: (i) an Option intended to be an
Incentive Stock Option does not at any time qualify as an incentive stock option
under the Code; (ii) an Option grant or
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<PAGE>
exercise, or the subsequent sale of securities received on such exercise, does
not qualify as exempt from the application of Section 16(b) of the Exchange Act;
or (iii) an Option grant or exercise, or the subsequent sale of securities
received on such exercise, is subject to Section 162(m) or 280G of the Code; in
each case even if the Optionee, estate to transferee was informed it would
qualify or not be so subject.
(i) Governing Law. The Plan shall be governed by and construed in
-------------
accordance with the internal laws of the State of Delaware applicable to
contracts made and performed within such state, without regard to the principles
of conflicts of law thereof, except as such laws may be supplanted by the
federal laws of the United States of America, which laws shall then govern its
effect and its construction to the extent they supplant Delaware law.
(j) Reliance on Reports. Each member of the Committee and each member of
-------------------
the Board shall be fully justified in relying, acting or failing to act, and
shall not be liable for having so relied, acted or failed to act in good faith,
upon any report made by the independent public accountant of the Company and its
Subsidiaries and upon any other information furnished in connection with the
Plan by any person or persons other than himself.
(k) Relationship to Other Benefits. No payment under the Plan shall be
------------------------------
taken into account in determining any benefits under any pension, retirement,
profit sharing, group insurance or other benefit plan of the Company except as
otherwise specifically provided in such other plan.
(l) Expenses. The expenses of administering the Plan shall be borne by the
--------
Company.
(m) Pronouns. Masculine pronouns and other words of masculine gender shall
--------
refer to both men and women.
(n) Titles and Headings. The titles and headings of the sections in the
-------------------
Plan are for convenience of reference only, and in the event of any conflict,
the text of the Plan, rather than such titles or headings shall control.
11. Changes in Capital Structure
Options granted under the Plan and any agreements evidencing such Options
shall be subject to equitable adjustment or substitution, as determined by the
Committee in its sole discretion, as to the number of shares, the exercise
price, the price or kind of a share of Stock or other consideration subject to
such Options (i) in the event of changes in the outstanding Common Stock or in
the capital structure of the Company by reason of stock dividends paid in
securities of the Company, stock splits, reverse stock splits,
recapitalizations, reorganizations, mergers, consolidations, combinations,
exchanges, or other relevant changes in capitalization occurring after the date
of grant of any such Option, (ii) in the event of any change in applicable laws
or any change in circumstances which results in or would result in any
substantial dilution or enlargement of the rights granted to, or available for,
Optionees in the Plan, or (iii) upon the occurrence of any other event which
otherwise warrants equitable adjustment because it interferes with the intended
operation of the Plan. In addition, upon any such event, the
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<PAGE>
aggregate number of shares of Stock available under the Plan and the maximum
number of shares of Stock with respect to which any one person may be granted in
connection with Options during any year, if applicable, shall be appropriately
adjusted by the Committee, whose determination shall be conclusive. With respect
to Options intended to qualify as "performance-based compensation" under Section
162(m) of the Code, such adjustments or substitutions shall be made only to the
extent that the Committee determines that such adjustments or substitutions may
be made without a loss of deductibility for such Options under Section 162(m) of
the Code. The Company shall give each Optionee notice of an adjustment hereunder
and, upon notice, such adjustment shall be conclusive and binding for all
purposes.
Notwithstanding the above, in the event of any of the following:
(1) The Company is merged or consolidated with another corporation or
entity and, in connection therewith, consideration is received by Stockholders
of the Company in a form other than stock or other equity interests of the
surviving entity;
(2) All or substantially all of the assets of the Company are acquired by
another person; or
(3) The reorganization or liquidation of the Company;
then the Committee may, in its sole discretion and upon at least 10 days advance
notice to the affected persons, immediately prior to and subject to the
consummation of such event cancel any particular or all outstanding Options
(vested or unvested) and pay to the Optionees thereof, in cash, the value of
such Options vested as of such cancellation (taking into account any
acceleration of vesting as a result of such event) based upon the price per
share of Stock received or to be received by other Stockholders of the Company
in the event, less the exercise price. The terms of this Section 10 may be
varied by the Committee in any particular Option Agreement.
12. Change in Control
(a) Except to the extent reflected in a particular Option Agreement, in
the event of a "Change in Control" (as defined below), notwithstanding any
vesting schedule with respect to any Options, all then unexercised and unexpired
Options which would otherwise be vested and exercisable within twelve (12)
months after the Change in Control, assuming a continuation of employment or
service had occurred, shall become immediately vested and exercisable.
(b) For purposes of the Plan, Change in Control shall, unless the Board
otherwise directs by resolution adopted prior thereto or, in the case of a
particular Option, the particular Option Agreement states otherwise, be deemed
to occur if:
(1) Any person, entity or group (within the meaning of Section
13(d)(3) of the Exchange Act) becomes, directly or indirectly, by
way of merger, consolidation or other business combination, or
otherwise, the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act) of the capital stock of the Company entitled to
more than 50% of the aggregate votes represented by the capital
stock of all classes of common stock of the
-14-
<PAGE>
Company entitled to vote generally in the election of directors
("Outstanding Voting Securities"); provided, however, that the
-------- -------
following acquisitions will not constitute a Change in Control:
(i) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any Subsidiary
or (ii) any acquisition by any corporation pursuant to a
reorganization, merger or consolidation, if, following such
reorganization, merger or consolidation, the conditions described
in clauses (A) and (B) of clause (3) of this definition are
satisfied;
(2) Individuals who, as of the effective date of the Plan, constitute
the Board of Directors of the Company (the "Incumbent Board")
cease for any reason to constitute at least a majority of the
Company's Board of Directors; provided, however, that any
individual becoming a director subsequent to the effective date
of the Plan whose election, or nomination for election by the
Company's Stockholders was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board,
will be considered as though such individual were a member of the
Incumbent Board; provided, further, however, that no individual
shall be considered a member of the Incumbent Board if such
individual initially assumed office as a result of either an
actual or threatened "Election Contest" (as described in Rule 14
a-11 under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a person
other than the Board (a "Proxy Contest"), included by reason of
any agreement intended to avoid or settle any Election Contest or
Proxy Contest; or
(3) The occurrence of a reorganization, merger or consolidation
involving the Company or in which securities of the Company are
issued, in each case, unless, following such reorganization,
------
merger or consolidation, (A) more than 50% of, respectively, the
then outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation and
the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the
election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Voting Securities immediately prior to such
reorganization, merger or consolidation in substantially the same
proportions as their ownership, immediately prior to such
reorganization, merger or consolidation, of the Outstanding
Voting Securities, and (B) at least a majority of the members of
either, (x) the board of directors of the corporation resulting
from such reorganization, merger or consolidation (the "Surviving
Corporation") if 50% or more of the combined voting power of the
then outstanding voting securities of the Surviving Corporation
is not beneficially owned, directly or indirectly, by another
corporation (a "Parent Corporation"), or, (y) the board of
directors of the Parent Corporation, if 50% or more of the
combined voting power of the Surviving Corporation's then
outstanding voting securities is
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<PAGE>
beneficially owned, directly or indirectly, by a Parent
Corporation, were members of the Board at the time of the
execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(4) Approval by the Stockholders of the Company of (A) a complete
liquidation or dissolution of the Company, as applicable, or (B)
the sale or other disposition of all or substantially all of the
assets of the Company, other than to a corporation, with respect
----- ----
respect to which following such sale or other disposition, (1)
more than 50% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of
the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively of the Outstanding Voting
Securities immediately prior to such sale or other disposition,
in substantially the same proportion as their ownership
immediately prior to such sale or other disposition, of the
Outstanding Voting Securities, and (2) at least a majority of the
members of the board of directors of such corporation were
members of the Board at the time of the execution of the initial
agreement or action of the Board providing for such sale or other
disposition of assets of the Company; provided, however, that no
transaction resulting in the disposition of one or more
subsidiaries or other business units of the Company will be
treated as substantially all of the assets of the Company unless
the assets so disposed of comprise more than 70% of all assets of
the Company measured by fair market value
13. Nonexclusivity of the Plan
Neither the adoption of this Plan by the Board nor the submission of this
Plan to the stockholders of the Company for approval shall be construed as
creating any limitations on the power of the Board to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the
granting of stock options otherwise than under this Plan, and such arrangements
may be either applicable generally or only in specific cases.
14. Amendments and Termination
The Board may at any time terminate the Plan. With the express written
consent of an individual Optionee, the Board or the Committee may cancel or
reduce or otherwise alter outstanding Options. The Board or the Committee may,
at any time, or from time to time, amend or suspend and, if suspended,
reinstate, the Plan in whole or in part; provided, however, that no amendment
which requires stockholder approval in order for Options granted pursuant to the
Plan to be exempt from the application of Section 162(m) of the Code or for
Options which are Incentive Stock Options to continue to meet the requirements
of Section 422 of the Code, shall be effective unless the same shall be approved
by the requisite vote of the stockholders of the Company.
-16-
<PAGE>
15. Effect of Section 162(m) of the Code
The Plan, and all Options issued thereunder, are intended to be exempt from
the application of Section 162(m) of the Code, which restricts under certain
circumstances the Federal income tax deduction for compensation paid by a
publicly held corporation to named executives in excess of $1 million per year.
One of the requirements for such exemption is that the Plan be approved by the
stockholders of the Company. To the extent that the Committee determines as of
the date of grant of an Option that (i) the Option is intended to comply with
Section 162(m) of the Code and (ii) the exemption described above is not
available with respect to such Option because the stockholders have not approved
the Plan, such Option shall not be effective until such stockholder approval
required under Section 162(m) of the Code has been obtained.
Options may be granted prior to the date of such stockholder approval made
subject to stockholder approval. In such event and prior to such grant, the
Committee shall consult with the Company's accountants as to the accounting
implications thereof and, if Incentive Stock Options are to be granted, the
Company's legal counsel as to the requirements for such grants.
* * *
As adopted by the Board of Directors of
Intek Information, Inc. as of
January 14, 2000
By: /S/ KRIS DANIELSON
--------------------------------
Assistant Secretary
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<PAGE>
Exhibit 10.12.1
Amendment No. 1
to
Tax Separation Agreement
This Amendment No. 1 to Tax Separation Agreement is entered into by and
between Etinuum, Inc. (f/k/a Intek Information, Inc.) ("Etinuum"), a Delaware
corporation, and Spider Technologies, Inc. ("Spider"), a Delaware corporation,
and amends the Tax Separation Agreement dated as of October 1, 1999 (the
"Agreement").
RECITALS
--------
The spin off of the capital stock of Spider was a taxable transaction to
Etinuum and the amount of the tax was computed on a gross fair market value of
$8,100,000. The parties agree that if it is subsequently determined that the
gross fair market value was greater than $8,100,000 that it is appropriate for
Spider, not Etinuum, to bear the economic effect of such excess tax liability as
Spider is the beneficiary of such greater value.
AGREEMENT
---------
For good and valuable consideration, including the cancellation of $10,000
of current receivables owed by Spider to Etinuum, and the avoidance of disputes
regarding Etinuum and Spider on the subject matter hereof, the parties agree as
follows:
1. A new Section 19 is added to the Tax Separation Agreement reading as
follows:
19. Spin Off Value.
If (i) the gross value of the capital stock of Spider distributed
pursuant to the Distribution is finally determined by a court or taxing
authority to have a value for Tax purposes as of the Distribution of
more than $8,100,000, or (ii) after due consultation with Spider and
providing Spider the opportunity to contest the valuation, Intek
settles or agrees with a taxing authority that such capital stock had a
value for Tax purposes of more than $8,100,000, each of (i) and (ii),
an "Adverse Determination," then Spider shall indemnify the Intek Group
for any incremental Taxes incurred by the Intek Group, which indemnity
shall be paid 5 days prior to the date on which the Intek Group is
required to make a payment to the appropriate taxing authority with
respect to the Adverse Determination; provided, however, if because of
other tax attributes such as credits, offsets, or loss carryforwards,
the Intek Group is not required to make an actual payment to a taxing
authority with respect to the Adverse Determination, such indemnity
shall be paid 5 days prior to the first date on which the Intek Group
is required to make a payment to the appropriate taxing authority with
respect to another item of income or gain, which payment would not have
been required but for the use of such tax attributes in connection with
the Adverse Determination. If Spider distributes any of its assets, it
will make due provision to assure sufficient assets remain available to
satisfy its potential obligations
<PAGE>
hereunder.
SPIDER TECHNOLOGIES, INC.
By: ________________________________
Title: _____________________________
ETINUUM, INC.
By: ________________________________
Title: _____________________________
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<PAGE>
Exhibit 10.13
FORM OF
CONSULTING AGREEMENT
(Timothy C. O'Crowley)
This CONSULTING AGREEMENT is made as of January 1, 2000, by and between
Spider Technologies, Inc., a Delaware corporation (the "Company"), and Timothy
C. O'Crowley ("Consultant").
WHEREAS, Consultant has previously been employed by the Company as its
Chief Executive Officer pursuant to that certain Management Employment Agreement
dated as of May 4, 1999 by and between Consultant and the Company (the
"O'Crowley Employment Agreement"); and
WHEREAS, Consultant and the Company wish to terminate the O'Crowley
Employment Agreement and replace it in its entirety with this Agreement, which
shall constitute the sole and entire agreement among the parties hereto.
NOW, THEREFORE, in consideration of the mutual covenants herein, the
parties agree as follows:
1. Consulting Arrangement. Consultant shall serve as a consultant and
Chairman of the Board of Directors of the Company to perform the duties
described in Section 2 below from the date hereof on and through the period
ending May 4, 2001, at a consulting fee of $7,500 per month payable in
accordance with the customary practices of the Company plus such additional
remuneration as shall be approved by the Board of Directors from time to time.
The monthly consulting fee, as in effect from time to time, is referred to as
the "Base Fee". After such two year period, this Agreement will automatically
continue on a month to month basis until terminated as provided herein.
Consultant agrees to accept the above amounts and the benefits described in
Section 5 in full payment for the services to be rendered by him hereunder. The
Company, by action of a majority of its Board of Directors and the consent of
The Beacon Group III - Focus Value Fund, L.P. and Conning Insurance Capital
Limited Partnership V, L.P., so long as each has a right to appoint a director
to the Company's Board of Directors pursuant to the Stockholders' and Voting
Agreement (the "Stockholders Agreement") may adopt additional compensation
arrangements with Consultant.
2. Duties. The Consultant shall during the term of this Agreement:
A. perform such duties as they may be established from time to time by
the Board of Directors consistent with Consultant's role as Chairman and
consultant; provided, however, that in setting any work requirements,
Consultant's required service to Intek Information, Inc. ("Intek") shall be
taken into account for purposes of this Agreement [and Consultant shall not be
required to devote an excessive hours per month to such activities].
Consultant's services hereunder shall be performed solely as an independent
contractor. Nothing contained herein shall be construed in any manner as
appointing Consultant as an employee of
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the Company. Consultant is an independent contractor, engaged in an independent
business from Company, and is free from Company's control and direction in the
performance of services. Consultant is not required to work exclusively for
Company at any time. Company shall not provide Consultant with any professional
training for completions of his services. Consultant is not entitled to workers'
compensation benefits through Company, and is obligated to pay federal and state
income tax on any moneys paid pursuant to this Agreement. Consultant is not
entitled to unemployment insurance benefits through Company.
B. comply with all reasonable rules, regulations and administrative
directions now or hereafter established by the Company;
C. be reimbursed by the Company from time to time (but at least
monthly) for all reasonable and necessary business expenses incurred by him in
the performance of his duties hereunder, provided that Consultant shall render
to the Company such accounts and vouchers covering expenditures as the Company
reasonably requires and as are necessary for tax purposes, and shall follow
normal Company policy on expenses; and
D. not engage in any activity or employment which would reasonably be
expected to materially conflict with or have a material adverse affect on, the
present or prospective business of the Company.
3. Termination.
A. Mutual Agreement. This Agreement may be terminated at any time by
the mutual agreement of the Company and Consultant, expressed in writing.
B. Voluntary. Consultant may terminate this Agreement with or without
the consent of the Company by giving written notice of his intent to terminate
with the effective date of termination at least one hundred (100) days after the
effective date of the notice of termination. After such notice the Company may
accelerate the date of termination without being in breach hereof.
C. Without Cause. The Company may terminate this Agreement at any
time without Cause upon twenty (20) days prior notice.
D. Disability or Death. The Company may terminate this Agreement upon
the death or disability of Consultant. For purposes of this Agreement,
Consultant shall be considered disabled if he is unable to perform his duties
under this Agreement as a result of injury, illness or other disability for a
period of one hundred eighty (180) consecutive days, or one hundred eighty (180)
days in a three hundred sixty-five (365) day period, and the Board of Directors
of the Company reasonably determines that Consultant has been unable to perform
his duties for the one hundred eighty (180) day period as a result of injury,
illness or other disability.
E. For Cause by the Company.
The Company may terminate this Agreement for "Cause", as defined
below, immediately upon written notice to Consultant. "Cause" shall mean:
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<PAGE>
(i) If Consultant materially violates any term of this Agreement
and such action or failure is not substantially remedied or reasonable steps to
effect such substantial remedy are not commenced within twenty (20) days of
written notice from the Company to Consultant.
(ii) Dishonesty which is not the result of an inadvertent or
innocent mistake of Consultant with respect to the Company or any of its
subsidiaries;
(iii) Willful misfeasance or nonfeasance of duty by Consultant
intended to injure or having the effect of injuring in some material fashion the
reputation, business or business relationships of the Company or any of its
subsidiaries or any of their respective officers, directors or employees;
(iv) Conviction of Consultant upon a charge of any crime
involving moral turpitude or a crime other than a vehicle offense which could
reflect in some material fashion unfavorably upon the Company or any of its
subsidiaries; or
(v) Willful or prolonged absence from work by the Consultant
(other than by reason of disability due to physical or mental illness) or
failure, neglect or refusal by the Consultant to perform his duties and
responsibilities without the same being corrected upon twenty (20) days prior
written notice.
F. For Cause by the Consultant. If the Company (i) materially
violates any term of this Agreement, (ii) materially alters Consultant's duties,
title or responsibilities (including reporting responsibilities) without his
consent; provided, however, that Consultant shall not be permitted to terminate
this Agreement pursuant to this clause (ii) for so long as he is either Chairman
or a consultant of the Company, (iii) reduces or seeks to reduce any of
Consultant's compensation or benefits hereunder, or (iv) requires Consultant
without his consent to move from the Denver, Colorado metropolitan area as a
condition of his continued service under this Agreement and in each case such
action or failure is not remedied after twenty (20) days written notice,
Consultant may terminate this Agreement immediately upon written notice to the
Company. Such termination is a termination by Consultant for Cause.
4. Payments at Termination.
A. Upon (i) termination of this Agreement by the Company under
Subsection 3.C. titled "Without Cause" or (ii) termination of this Agreement by
Consultant under Subsection 3.F. titled "For Cause by the Consultant,"
Consultant shall receive monthly payments equal to his last Base Fee prior to
termination ("Applicable Base Fee") for a period of eighteen (18) months
beginning in the month next following such termination. In either case
Consultant shall receive all accrued compensation and unreimbursed expenses to
the date of termination as provided herein. The monthly payments provided for in
this Subsection shall be paid on a monthly basis on the first of each month and
shall not be reduced by compensation the Consultant may receive from other
sources. In either such case of termination, all unexercised options granted
pursuant to the Company's 1999 Stock Option/Stock Issuance Plan (the "1999
Plan") shall vest and become exercisable on the day of termination. For any such
non-statutory stock option or incentive stock option, the period for exercise of
the option shall continue for the shorter of the
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<PAGE>
maximum length of time the option is exercisable under the Company's 1999 Plan
as though the service of Consultant had not terminated, and three (3) years
after the date of termination of service, provided, however, that if the
existence of this sentence would cause any incentive stock option not to qualify
as an incentive stock option pursuant to Section 422 of the Internal Revenue
Code of 1986, as amended, ("Section 422") at any time prior to ninety (90) days
after termination of employment as provided in Section 422, this sentence shall
be null and void as to such incentive stock option.
B. If Consultant terminates this Agreement without cause under
Subsection 3.B., titled "Voluntary", or if this Agreement is terminated under
Subsection 3.A., titled "Mutual Agreement," or if this Agreement is terminated
by the Company under Subsection 3.E. titled "For Breach or Cause by the
Company," Consultant shall not be entitled to any further payments except
unreimbursed expenses to the date of termination as provided herein and any
accrued compensation and as provided in Section 4.C.
C. In each of the foregoing cases, termination is the date of actual
termination, not the date notice of termination is given. All payments for
reimbursement shall be made within forty-five (45) days after the end of the
month following the month in which termination occurred.
D. Unless specified otherwise in the bonus plan or bonus agreement, if
termination occurs during the bonus period pursuant to Subsection 3.C. titled
"Without Cause" or Subsection 3.F. titled "For Cause by the Consultant," or
Subsection 3.D. titled "Disability or Death," and based upon the results of the
full bonus period the bonus would have been earned, any bonus which would have
been earned shall be based upon the number of calendar days in such bonus period
which have elapsed at the date of termination. Unless specified otherwise in
the bonus plan or bonus agreement, if Consultant is terminated "For Cause by the
Company," or Consultant terminates without Cause or Consultant after
termination violates a confidentiality, covenant not to compete, or "no hire" or
"no raid" agreement with the Company, its parent (if any) or a direct or
indirect Company subsidiary or affiliate, then the Company shall have no
obligation to pay any earned or unearned bonus or the payments provided for in
the first sentence of Section 4.A. hereof.
E. If this Agreement is operating under the month-to-month provision
of Section 1, any payment for unpaid future compensation shall in any case be
limited to the remainder of the month in which termination occurs, except as
provided in Subsection 4.D.
F. The foregoing rights in this Section 4 are Consultant's exclusive
rights to payment from the Company in the event of termination of this Agreement
except for amounts which the Company is required to pay under applicable statute
or regulation, payments under insurance policies, and payments owing under other
written agreement(s) (if any) between the Company and Consultant.
5. Options.
A. Consultant acknowledges and agrees that all of his non-issued and
vested options in the Company which are not exercised within 90 days of the date
of this Agreement
4
<PAGE>
shall no longer qualify as incentive sstock options pursuant to Section 422 of
the Internal Revenue Code of 1986.
B. If this Agreement is in effect at and for six (6) months after the
time of the Company's initial public offering or at the time the Company is a
reporting company, pursuant to the Securities and Exchange Act of 1934, under
circumstances that would permit mandatory conversion of the Company's Series A
Preferred Stock pursuant to the Company's Amended and Restated Certificate of
Incorporation as in effect on the date hereof, then all options granted pursuant
to the Option Agreements (as defined above) shall vest and become exercisable
one day after the end of such six (6) month period.
6. Non-Competition.
A. The Company and Consultant recognize that the Consultant has been
retained to occupy a position that constitutes part of the professional,
management and executive staff of the Company, whose duties will include the
formulation and execution of management policy. The Consultant, for and in
consideration of the payments, rights and benefits provided herein, agrees that
for so long as this Agreement is in effect and during the 18 month period
immediately thereafter, Consultant shall not, anywhere within the continental
United States or in any other market in which the Company is conducting business
at the time this Agreement is terminated, (i) work, (ii) assist, (iii) own any
interest, directly or indirectly and whether individually or as a joint
venturer, partner, member, officer, director, shareholder, consultant, employee
or otherwise, in or (iv) make a financial investment, whether in the form of
equity or debt, in any business that is in the business of (i) direct to
customer order entry software and/or (ii) such other business of the Company as
Consultant is actively involved in, at or within six months before termination
of this Agreement, (the "Business"). The parties agree that, during such
period, they shall not make public statements in derogation of each other,
except as may be required by law. For the purposes of this Section 6 and
Sections 7, 8, 9 and 10, the term "the Company" shall be deemed to include
subsidiariesand parents of the Company. This Subsection 6.A. shall no longer
apply if both (i)(A) Consultant has terminated this Agreement for Cause under
Subsection 3.F, or if the Company has terminated this Agreement and (B) the
Company has obligations to make post-termination payments under this Agreement
and (ii) after twenty (20) days notice by Consultant to the Company that the
Company has failed to make such post-termination payments, the Company has not
cured such failure to make payments. In recognition of Consultant's existing
service to Intek, for purposes of this Agreement, Intek, its parents and direct
and indirect subsidiaries are not considered engaged in competitive activities
with the Company as of the date hereof.
B. Notwithstanding the foregoing, nothing herein shall prohibit the
Consultant from holding 5% or less of any class of voting securities of any
entity whose equity securities are listed on a national securities exchange or
regularly traded in The Nasdaq National Market.
C. Upon the termination of this Agreement and for 18 months
thereafter, the Consultant shall immediately notify the Company of each
employment or agency relationship entered into by Consultant, and each
corporation, proprietorship or other entity formed or used by the Consultant,
the business of which is directly or indirectly similar to or competition with
5
<PAGE>
the Business. The provisions of this Subsection 6.C. shall survive termination
of this Agreement for any reason.
D. The Consultant agrees that the restrictions contained in this
Section 6 are reasonable as to time and geographic scope because of the nature
of the Business and the Consultant agrees, in particular, that the geographic
scope of this restriction is reasonable because companies engaged in the
Business compete on a nationwide basis. The Consultant acknowledges that the
Company is in direct competition with all other companies engaged in the
Business throughout the continental United States and other markets in which the
Company may be conducting business at the time the Consultant's employment with
the Company is terminated, and because of the nature of the Business, the
Consultant agrees that the covenants contained in this Section 6 cannot
reasonably be limited to any smaller geographic area.
7. Non-Raid.
A. The Consultant acknowledges that the Company has invested
substantial time and effort in assembling its present staff of personnel. The
Consultant agrees that until the termination of this Agreement and during the 18
month period immediately thereafter, the Consultant shall not employ, solicit
for employment, or advise or recommend to any other person that such other
person employ or solicit for employment, any of the Company's employees.
B. The Consultant acknowledges that all customers of the Company,
which the Consultant has serviced or hereafter shall service during the term of
this Agreement and all prospective customers from whom the Consultant has
solicited or may solicit business during the term of this Agreement, shall be
solely the customers of the Company. The Consultant agrees that until the
termination of this Agreement and during the 18 month period immediately
thereafter, the Consultant shall not solicit business, as to products or
services competitive with the Business of the Company, from any of the Company's
customers with whom the Consultant had contact during the term of this
Agreement.
C. The Consultant agrees that during the term of this Agreement and
during the 18 month period immediately thereafter, the Consultant shall not
interfere with any relationship between the Company and any of its suppliers,
clients or employees. The Consultant agrees that during such 18 month period, he
will not influence or attempt to influence any of the customers or clients of
the Company not to do business with the Company.
D. The Consultant agrees that the restrictions contained in this
Section 7 are reasonable as to time and geographic scope because of the nature
of the Business and the Consultant agrees, in particular, that the geographic
scope of this restriction is reasonable because companies engaged in the
Business compete on a nationwide basis. The Consultant acknowledges that the
Company is in direct competition with all other companies engaged in the
Business throughout the continental United States and other markets in which the
Company may be conducting business at the time thethis Agreement is terminated,
and because of the nature of the Business, the Consultant agrees that the
covenants contained in this Section 7 cannot reasonably be limited to any
smaller geographic area.
6
<PAGE>
8. Blue Pencil Provision. Consultant acknowledges that the periods, scope
and geographic area of restriction imposed by Section 6 and Section 7 are fair
and reasonable and are reasonably required for the protection of the Company.
If any part or parts of Section 6 or Section 7 shall be held to be unenforceable
or invalid, the remaining parts thereof shall nevertheless continue to be valid
and enforceable as though the invalid portion or portions were not a part
hereof. If any of the provisions of Section 6 or Section 7 relating to the
scope, periods of time or geographic area of restriction shall be deemed to
exceed the maximum scope, periods of time or geographic area which a court of
competent jurisdiction would deem enforceable, the scope, times and geographic
area shall, for the purposes of Section 6 and Section 7, be deemed to be the
maximum scope, time periods and geographic area which a court of competent
jurisdiction would deem valid and enforceable in any state in which such court
of competent jurisdiction shall be convened. The invalidity or unenforceability
of any provision of Section 6 or 7 in one jurisdiction shall not affects its
validity or enforceability in another jurisdiction.
9. Confidentiality. Consultant acknowledges that he has had and will have
access to certain information related to the business, operations, future plans
and customers of the Company, the disclosure or use of which could cause the
Company substantial losses and damages. Accordingly, Consultant covenants that
during the term of this Agreement with the Company and thereafter he will keep
confidential all information and documents furnished to him by or on behalf of
the Company and not use the same to his advantage, except to the extent such
information or documents are lawfully obtained from other sources on a non-
confidential (as to the Company) basis or are in public domain through no fault
on his part or is consented to in writing by the Company. Upon termination of
this Agreement, Consultant shall return to the Company all records, lists, files
and documents, or media and other Company property which are in his possession
and which relate to the Company.
10. Right to Injunctive Relief. Consultant agrees and acknowledges that a
violation of the covenants contained in Sections 6, 7 and 9 of this Agreement
will cause irreparable damage to the Company, and that it is and may be
impossible to estimate or determine the damage that will be suffered by the
Company in the event of a breach by Consultant of any such covenant. Therefore,
Consultant further agrees that in the event of any violation or threatened
violation of such covenants, the Company shall be entitled as a matter of course
to an injunction out of any court of competent jurisdiction restraining such
violation or threatened violation by Consultant, such right to an injunction to
be cumulative and in addition to whatever other remedies the Company may have.
11. Exceptions. Consultant may continue his activities with the following
companies: Eden Financial Services, Inc. and its subsidiaries, and Intek and
its direct or indirect subsidiaries, each of which Consultant is a beneficial
shareholder and/or a director, and may invest in and/or serve as a director for
any other company, provided that such activities do not materially interfere
with Consultant's duties and responsibilities hereunder and such activities do
not otherwise violate this Agreement. All future Board of Director positions
other than with the Company or its subsidiaries must be approved by the
Company's Board of Directors (which approval will not be unreasonably withheld).
12. Delivery of Files. At or immediately after termination hereof
Consultant will deliver all files, records, disks, and other media with Company
information, to the Company.
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<PAGE>
13. Integration. This Agreement shall constitute the entire Agreement
between Consultant and Company relating to the subject matter hereof and
supersedes and replaces in its entirety that certain Management Employment
Agreement dated as of May 4, 1999 between Consultant and the Company. This
Agreement shall be governed by the laws of Colorado, excluding laws on choice of
law. Any litigation regarding this Agreement shall only be brought and heard in
the federal or state courts located in Denver, Colorado and no transfer of venue
outside such area shall be permitted.
14. Unenforceability. If any paragraph or subparagraph of this Agreement
or any part thereof shall be unenforceable under any applicable laws,
notwithstanding such unenforceability the remainder of this Agreement shall
remain in full force and effect.
15. Binding. This Agreement shall inure to the benefit of and be binding
upon, the Company and 80% or more owned subsidiaries of the Company.
16. Attorneys' Fees. In the event of any legal or arbitration action or
proceeding to enforce or interpret the provisions hereof, the prevailing party
shall be entitled to reasonable attorneys' fees and costs, whether or not the
proceeding results in a final judgment.
17. Survival. Terms which by their terms or sense are to survive
termination hereof shall so survive.
18. Notice. Notices hereunder shall be in writing and sent to the
residence address of the Consultant last provided to the Company, and to the
then current business address of the Company. Notices may be sent by first
class U.S. mail and shall be effective three (3) days after deposit. Notices
sent by other means shall be effective when actually delivered to the above-
described address.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Consulting Agreement as of
the date first above written.
SPIDER TECHNOLOGIES, INC.
By:______________________________
Title:___________________________
CONSULTANT
_________________________________
Timothy C. O'Crowley
STATE OF COLORADO )
) ss.
COUNTY OF ___________ )
Timothy C. O'Crowley personally appeared before me and acknowledged that
the foregoing Consulting Agreement was executed as his voluntary act and deed,
this _____ day of ______________, 2000. In witness whereof, I hereunto set my
hand and official seal.
_______________________________________
Notary Public, State of Colorado
My Commission Expires:
9
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Exhibit 21.1
SUBSIDIARIES OF INTEK INFORMATION, INC.
Intek Teleservices, Inc.
Intek Insurance Agency, Inc.
Brokerage Administrators Corp.
Acorn Information Services, Inc.
Etinuum Creative Services, Inc.
<PAGE>
Exhibit 23.2
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Denver, Colorado,
March 20, 2000
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in this Registration Statement on Form S-1 of
Etinuum, Inc. of our report dated June 28, 1999, except as to the proposed
acquisition described in the second and third paragraphs of Note 10 which is as
of July 16, 1999, relating to the financial statements of Acorn Information
Services, Inc., which appear in such Registration Statement. We also consent to
the reference to us under the headings "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Stamford, Connecticut
March 20, 2000
