<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 27, 1998
REGISTRATION NO. 333-43209
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
Amendment No. 1
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7373 76-0553110
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
10375 RICHMOND AVENUE, SUITE 1620
HOUSTON, TEXAS 77042
(713) 361-2500
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
MARSHALL G. WEBB
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.
10375 RICHMOND AVENUE, SUITE 1620
HOUSTON, TEXAS 77042
(713) 361-2500
FAX: (713) 361-2501
(Name, address, including zip code, and telephone number,
including area code, of registrant's agent for service)
---------------------
Copies to:
<TABLE>
<S> <C>
ROBERT J. VIGUET, JR. CHARLES L. STRAUSS
CHAMBERLAIN, HRDLICKA, WHITE, WILLIAMS & MARTIN FULBRIGHT & JAWORSKI L.L.P.
1200 SMITH STREET, SUITE 1400 1301 MCKINNEY, 51ST FLOOR
HOUSTON, TEXAS 77002-4310 HOUSTON, TEXAS 77010-3095
(713) 658-1818 (713) 651-5151
FAX: (713) 658-2553 FAX: (713) 651-5246
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
---------------------
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,
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, 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,
check the following box. [ ]
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 27, 1998
3,750,000 SHARES
BRIGHTSTAR INFORMATION
TECHNOLOGY GROUP, INC.
COMMON STOCK
------------------------
All of the shares of Common Stock offered hereby (the "Offering") are being
sold by BrightStar Information Technology Group, Inc. ("BrightStar"). Prior to
the Offering, there has been no public market for the Common Stock. It is
anticipated that the initial public offering price will be between $11.00 and
$13.00 per share. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. BrightStar has
applied to have the Common Stock approved for quotation on the Nasdaq National
Market under the symbol "BTSR."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=============================================================================================================
PRICE TO PROCEEDS TO
PUBLIC UNDERWRITING DISCOUNT(1) COMPANY(2)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................ $ $ $
Total(3)......................... $ $ $
=============================================================================================================
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other information.
(2) Before deducting expenses of the Offering payable by BrightStar, estimated
at $3,600,000.
(3) BrightStar has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to 562,500 additional shares of
Common Stock at a Price to Public per share, less the Underwriting Discount,
for the purpose of covering over-allotments, if any. If the Underwriters
exercise such option in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered severally by the Underwriters when,
as and if delivered to and accepted by them, subject to their right to withdraw,
cancel or reject orders in whole or in part and subject to certain other
conditions. It is expected that delivery of certificates representing the shares
will be made against payment on or about , 1998 at the offices of CIBC
Oppenheimer Corp., CIBC Oppenheimer Tower, World Financial Center, New York, New
York 10281.
------------------------
CIBC OPPENHEIMER DAIN RAUSCHER INCORPORATED
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE> 3
Description of Graphics:
Three concentric circles, with "ERP" at the center, with the middle ring
divided into four segments with "Application Development," "Consulting,"
"Outsourcing," and "Systems Integration" in each of the respective segments, and
the outer ring divided into two parts, with "Training" at the top and "Upgrades
and Support" at the bottom. Above the circles, in the top left corner, the
BrightStar logo, and below the circles, "ERP*PLUS(sm) Comprehensive ERP
Solutions and Support."
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE COVERING
TRANSACTIONS AND THE IMPOSITION OF A PENALTY BID. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
This Prospectus may contain trademarks and service marks of other companies.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information appearing elsewhere in this
Prospectus, including "Risk Factors" and the financial statements and the notes
thereto. Concurrently with and as a condition to the closing of the Offering,
BrightStar will (i) acquire, in separate transactions (collectively, the
"Acquisitions"), seven independent information technology ("IT") services
companies (each a "Founding Company") for a combination of cash and shares of
Common Stock, par value $0.001 per share, of BrightStar ("Common Stock") and
(ii) issue Common Stock in exchange for all outstanding shares of common stock
of BIT Group Services, Inc. ("BITG"), including the issuance of 553,710 shares
to BIT Investors, LLC ("BITI") and 346,800 shares to senior management of
BrightStar (the "Share Exchange"). BITG is currently the sole stockholder of
BrightStar. Unless otherwise indicated by the context, references herein to (i)
"BrightStar" mean BrightStar Information Technology Group, Inc. and BITG and
(ii) the "Company" means BrightStar, together with all the Founding Companies.
The number of shares of Common Stock to be issued in the Acquisitions will
depend on the initial public offering price of the Common Stock. However, as
provided in the agreement relating to the Share Exchange (the "Share Exchange
Agreement"), the aggregate number of shares of Common Stock to be issued in
connection with the Acquisitions (excluding any shares that may become issuable
pursuant to post-closing adjustments to the purchase price for two of the
Acquisitions) and the Share Exchange will be 3,588,735 shares. See "The Company"
and "Certain Transactions -- Acquisitions of the Founding Companies." Unless
otherwise indicated, the information set forth in this Prospectus (i) gives
effect to the Acquisitions and the Share Exchange, (ii) assumes an initial
public offering price of $12.00 per share (the mid-point of the initial public
offering price range) and (iii) does not give effect to the Underwriters' over-
allotment option.
THE COMPANY
SUMMARY
BrightStar is a professional services firm providing implementation of
enterprise resource planning ("ERP") software systems and enterprise-wide
business and technology solutions to Fortune 1000 companies and other large
organizations. The Company primarily works with ERP software provided by SAP AG
("SAP"), PeopleSoft and Oracle. Through its ERP*PLUS(SM) services, the Company
provides solutions for the entire range of IT systems development: ERP package
software implementation, consulting, software application development, systems
integration, outsourcing, training, upgrade and support. The Company is a SAP
Implementation Partner in the U.S. and Australia and has preferred business
partner relationships with PeopleSoft, Oracle, Microsoft and Novell. The Company
has entered into agreements to acquire the Founding Companies concurrently with
the closing of the Offering. The Company's goal is to become a leader in the
fragmented IT services industry through consolidation of complementary
companies, expansion of its service and product offerings and cross-selling to
its combined customer base.
BrightStar was founded in May 1997 to acquire companies providing
comprehensive IT services to improve organizations' productivity. The Company
employs more than 630 IT professionals in 13 United States cities and six
international locations and provides its services and products to clients across
a broad spectrum of industries, including communications, consumer products,
energy, financial services, healthcare, industrial, insurance, media,
professional services, retail and technology. The Company has maintained
long-term relationships with many of these clients involving a large number of
projects. On a combined basis, the Founding Companies generated revenues of
$32.6 million and $59.5 million for the twelve months ended December 31, 1996
and 1997, respectively.
The worldwide IT market has expanded significantly in recent years, driven
by the trend towards open systems, greater affordability and improvements in
operating performance. The IT services market has expanded along with the IT
industry in general. Forrester Research, an independent research organization
that provides information concerning the IT services industry, estimates that
the market for IT consulting, design, implementation, management and IT
outsourcing was $124.0 billion in 1996 and will increase to $303.1 billion by
2002, representing an approximate compounded annual growth rate of 16%.
The Company believes that among the leading factors driving growth in the
IT services market is the transition to ERP software systems and to distributed
computing technologies, such as client/server architectures, local area networks
("LANs"), wide area networks ("WANs"), the Internet and intranets.
3
<PAGE> 5
Such systems offer increased functionality and flexibility that is critical to
the competitive needs of businesses. As an integral part of adapting client
server architecture, many organizations are replacing their disparate,
stand-alone legacy software applications with fully integrated, packaged ERP
software applications developed and marketed by leading vendors such as SAP,
PeopleSoft, Inc., Oracle Corp., BAAN B.V. and J.D. Edwards & Company. These ERP
software applications enable organizations to redesign their business processes
in such areas as product development, service delivery, manufacturing, human
resources, finance, and accounting. The Gartner Group, Inc., an internationally
recognized consulting and research organization, has estimated that the global
ERP software market totaled more than $4.4 billion in 1996 and that it will grow
to an estimated $10.0 billion by the year 2000. The Company believes that the
cost to implement and integrate an ERP system ranges from two to ten times the
cost of the software license fee. Although these services may be offered by ERP
software developers, in most cases ERP implementation and systems integration
services are provided by third party service providers, such as the Company.
The Company believes that the challenge of managing this transition while
maintaining older mainframe-based computing and custom software applications
("legacy systems") is placing a severe strain on many corporate IT departments.
Consequently, organizations are increasingly using third party service providers
to implement ERP software and in the design and development of custom solutions
in order to improve efficiency, minimize the financial risks associated with
implementing new technologies and reduce their existing IT infrastructures.
Organizations are also using outsourcing as a cost-effective solution to large
one-time IT projects such as those relating to the year 2000 ("Year 2000")
problem, which Gartner Group, Inc. has estimated will cost in excess of $300
billion to resolve worldwide.
The Company's goal is to be a leading provider of IT solutions. The
Company's approach emphasizes: (i) ERP implementation expertise; (ii) a
nationwide presence with strong local relationships in markets throughout the
U.S. to enhance its responsiveness and client service; (iii) experienced
consultants that address complex, mission critical issues, including developing
custom solutions and implementing purchased software applications designed to
increase productivity, reduce costs and improve customer service; and (iv) a
decentralized management structure to provide flexibility and responsiveness to
client needs and an entrepreneurial, motivating environment for its
professionals.
The Company's growth strategy focuses on: (i) maximizing intrinsic growth
opportunities by centralizing certain administrative functions, thereby allowing
management of the Founding Companies to focus on operations; (ii) capitalizing
on cross-selling opportunities by implementing programs that enable each
Founding Company to offer its particular IT expertise to the broad client base
of all of the other Founding Companies; (iii) attracting, training, motivating
and retaining highly skilled employees through effective recruiting efforts,
training in both legacy systems and emerging technologies, personalized career
and education management and competitive compensation and benefits; (iv)
cultivating and expanding alliances with leading developers and IT vendors in
order to enhance its industry recognition and increase its sales opportunities;
(v) aggressively continuing its acquisition program to broaden the Company's
service and product offerings, enhance its position in or enter into new niche
markets, expand its presence in existing geographic markets or enter into new
geographic markets; and (vi) commercializing products derived from software
applications developed in the course of providing IT services.
BrightStar has entered into definitive agreements to acquire the Founding
Companies concurrently with and as a condition to the closing of the Offering.
The aggregate consideration BrightStar will pay to acquire the Founding
Companies consists of (i) approximately $31.3 million in cash, (ii) 2,688,225
shares of Common Stock, and (iii) the assumption of approximately $7.0 million
of indebtedness of the Founding Companies. Two of the Acquisitions are subject
to post-closing adjustments payable in shares of Common Stock, based on the 1998
financial performance of the subject Founding Companies (the "Post-Closing
Adjustments"). The Company currently estimates that no shares of Common Stock
will be issuable in connection with the Post-Closing Adjustments. Accordingly,
the disclosures in this Prospectus assume that no shares of Common Stock will be
issued in connection with the Post-Closing Adjustments. See "Certain
Transactions -- Acquisitions of the Founding Companies."
4
<PAGE> 6
THE OFFERING
Common Stock offered by the
Company.......................... 3,750,000 shares
Common Stock to be outstanding
after the Offering............... 7,338,735 shares(1)
Use of proceeds.................. To pay the cash portion of the purchase
price for each of the Acquisitions
(estimated at $31.3 million), to repay
certain indebtedness of BrightStar, to pay
certain transaction costs related to the
Offering and the Acquisitions and for
general corporate purposes, which may
include future acquisitions. See "Use of
Proceeds."
Proposed Nasdaq National Market
symbol........................... BTSR
- ---------------
(1) The number of shares to be outstanding when the Offering closes will consist
of (i) an aggregate of 346,800 shares issued to BrightStar management in
connection with the Share Exchange, (ii) an aggregate of 553,710 shares
issued to BITI in connection with the Share Exchange, (iii) an aggregate of
2,688,225 shares issued as consideration in the Acquisitions and (iv) the
3,750,000 shares offered hereby. Such number of shares does not include (a)
approximately 605,000 shares that will be subject to options granted under
BrightStar's 1997 Long-Term Incentive Plan (the "1997 Long-Term Incentive
Plan") on the date the Offering closes, with an exercise price equal to the
initial public offering price per share, (b) an aggregate of 50,000 shares
issuable pursuant to a warrant (the "MG Warrant") issued by BrightStar to
McFarland, Grossman & Company, Inc. ("MGCO"), a financial advisory firm that
assisted the Company in connection with the Acquisitions, and (c) an
aggregate of 16,666 shares issuable pursuant to an option (the "BGCA
Option") issued by BrightStar to Brewer-Gruenert Capital Advisors, LLC
("BGCA"), a consulting firm engaged by the Company to assist in certain
corporate development matters. See "Management -- 1997 Long-Term Incentive
Plan" and "Certain Transactions."
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. See "Risk Factors."
5
<PAGE> 7
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenue................................................... $59,450
Cost of revenue........................................... 44,183
Selling, general and administrative expenses.............. 13,399
Stock compensation expense................................ 305
Depreciation and amortization(2).......................... 1,803
-------
Loss from operations...................................... (240)
Interest expense.......................................... (366)
Other expense, net........................................ (69)
-------
Loss before income taxes.................................. (675)
Income tax provision(3)................................... 177
-------
Net loss.................................................. $ (852)
=======
Net loss per basic and diluted common share............... $ (0.12)
=======
Shares used in computing net loss per basic and diluted
common share........................................... 7,339
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------
PRO
FORMA(1) AS ADJUSTED(4)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash...................................................... $ 1,410 $ 3,645
Working capital (deficit)................................. (32,969) 4,932
Total assets.............................................. 59,370 65,022
Long-term debt, net of current maturities................. 655 306
Stockholders' equity...................................... 9,857 51,523
</TABLE>
- ---------------
(1) The pro forma combined statement of operations data assumes the
Acquisitions, the Share Exchange and the Offering (and the application of
the net proceeds therefrom) all were closed on January 1, 1997. The pro
forma balance sheet data assumes the Acquisitions and the Share Exchange
occurred on December 31, 1997. The pro forma combined statement of
operations data for the year ended December 31, 1997 is presented on the
basis of a year ended December 31 for each Founding Company with the
financial results of Blackmarr, SCS Australia and SII being recast for these
purposes to reflect those results for the twelve-month period ended December
31, 1997. The pro forma combined financial information (i) is not
necessarily indicative of the results the Company would have obtained had
these events actually occurred when assumed or of the Company's future
results, (ii) is based on preliminary estimates (primarily of the aggregate
purchase price of the Acquisitions) and certain assumptions management deems
appropriate and (iii) should be read in conjunction with the financial
statements and notes thereto included in this Prospectus. Excludes the
following non-recurring items: a one-time write-off for in-process research
and development of $3.0 million; and compensation expense of $4.1 million
for Common Stock issued to the members of BrightStar's management at a price
below the initial public offering price.
(2) Includes $1.1 million annual amortization of goodwill to be recorded as a
result of the Acquisitions, calculated using the straight line method over
an amortization period of 40 years.
(3) Assumes an effective tax rate of 39.0% on certain pro forma adjustments.
(4) Reflects the closing of the Offering and application of the net proceeds
therefrom. Adjusted to reflect the sale of 3,750,000 shares of Common Stock
issued by the Company at an assumed initial public offering price of $12.00
per share, deduction of the estimated underwriting discount and offering
expenses payable by the Company and the application of proceeds therefrom.
See "Use of Proceeds."
6
<PAGE> 8
RISK FACTORS
An investment in the shares of Common Stock offered hereby is speculative
in nature and involves a high degree of risk. In addition to the other
information contained in this Prospectus, the following factors should be
considered carefully in evaluating the Company and its business before
purchasing the shares of Common Stock offered hereby. This Prospectus contains
certain forward-looking statements. Any statements contained herein that are not
statements of historical fact may be deemed to be forward-looking statements.
For example, the words "believes," "anticipates," "plans," "expects," "intends"
and similar expressions are intended to identify forward-looking statements.
There are a number of important factors, including the risk factors set forth
below, that could cause the Company's actual results to differ materially from
those indicated by such forward-looking statements.
ABSENCE OF COMBINED OPERATING HISTORY
BrightStar was organized in May 1997 and has conducted no operations to
date other than in connection with the Offering and the Acquisitions. The
Founding Companies have operated as separate, independent businesses and there
can be no assurance that the Company will be able to integrate these businesses
successfully or to institute the necessary systems and procedures, including
accounting and financial reporting systems, to manage the combined enterprises
on a profitable basis. BrightStar's executive management team has only recently
been assembled, and no assurance can be given that it will be able to manage
effectively the combined entity or implement the Company's business strategy.
Until the Company establishes centralized accounting and other administrative
systems, it will rely on the existing systems of the Founding Companies. The
success of the Company will depend, in part, on the extent to which it is able
to centralize these systems, eliminate the unnecessary duplication of other
functions and otherwise integrate the Founding Companies and such additional
businesses as the Company may acquire. The inability of the Company to integrate
the Founding Companies and any subsequently acquired businesses successfully
could have a material adverse effect on the Company. See "Business -- Growth
Strategy" and "Management."
RISKS RELATED TO INTERNAL GROWTH AND OPERATING STRATEGIES
There can be no assurance that the Company will be able to improve the
profitability and expand the net sales of the Founding Companies and any
subsequently acquired businesses. The Company's ability to increase the net
sales of the Founding Companies and any subsequently acquired businesses will be
affected by various factors, including demand for IT services, the Company's
ability to expand the range of services it offers and the Company's ability to
enter new markets successfully. Many of these factors are beyond the control of
the Company. In addition, the Company's ability to effectively manage growth
will require the Company to expand and improve its operational, financial and
other internal systems and to attract, train, motivate and retain qualified
employees. If the Company's management is unable to manage internal growth, or
if new employees are unable to achieve anticipated performance levels, there
could be a material adverse effect on the Company. See "Business -- Growth
Strategy."
ATTRACTION AND RETENTION OF QUALIFIED EMPLOYEES
The Company's success depends in large part on its ability to attract,
train, motivate and retain highly skilled and experienced technical employees.
Qualified technical employees are in great demand and are likely to remain a
limited resource for the foreseeable future. Other providers of technical
staffing services, systems integrators, providers of outsourcing services,
computer consulting firms and temporary personnel agencies provide intense
competition for IT professionals with the skills and experience required to
perform the services offered by the Company. Competition for these professionals
has increased in recent years and the Company expects such competition will
continue to increase for the foreseeable future. There can be no assurance that
the Company will be able to attract and retain sufficient numbers of highly
skilled technical employees in the future. The loss of technical personnel or
the Company's inability to hire or retain sufficient technical personnel could
impair the Company's ability to secure and complete client engagements and could
have a material adverse effect on the Company. See "Business -- Human
Resources."
7
<PAGE> 9
FLUCTUATIONS IN OPERATING RESULTS
The Company's results of operations may fluctuate significantly from
quarter to quarter or year to year because of a number of factors, including but
not limited to: the rate of hiring and the productivity of revenue-generating
personnel; the availability of qualified IT professionals; the significance of
client engagements commenced and completed during a quarter; the number of
business days in a quarter; changes in the relative mix of the Company's
services; changes in the pricing of the Company's services; the timing and rate
of entrance into new geographic or IT speciality markets; departures or
temporary absences of key revenue-generating personnel; the structure and timing
of acquisitions; changes in the demand for IT services; and general economic
factors. The timing of revenue is difficult to forecast because the Company's
sales cycle for certain of its services and products can be relatively long and
is subject to a number of uncertainties, including clients' budgetary
constraints, the timing of clients' budget cycles, clients' internal approval
processes and general economic conditions. In addition, as is customary in the
industry, the Company's engagements generally are terminable without client
penalty. An unanticipated termination of a major project could result in a
higher than expected number of unassigned persons or higher severance expenses
as a result of the termination of the under-utilized employees. Due to all the
foregoing factors, the Company believes period-to-period comparisons of its
revenue and operating results should not be relied on as indicators of future
performance, and the results of any quarterly period may not be indicative of
results to be expected for a full year. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY
As an integral part of its business strategy, the Company will seek to
expand by acquiring additional IT businesses. The timing, size and success of
the Company's acquisition efforts and the associated capital commitments cannot
be predicted. The Company expects to face competition for acquisition
candidates, which may limit the number of acquisition opportunities available to
the Company and may lead to higher acquisition prices. There can be no assurance
that the Company will be able to identify, acquire or profitably manage
additional businesses or successfully integrate acquired businesses, if any,
into the Company without substantial costs, delays or other operational or
financial difficulties. In addition, acquisitions involve a number of other
risks, including failure of the acquired businesses to achieve expected results,
diversion of management's attention and resources to acquisitions, failure to
retain key customers or personnel of the acquired businesses and risks
associated with unanticipated events, liabilities or contingencies. Client
dissatisfaction or performance problems at a single acquired firm could
negatively affect the reputation of the Company. Acquisitions accounted for as
purchases may result in substantial annual noncash amortization charges for
goodwill and other intangible assets in the Company's statements of operations.
If the Company is unable to acquire complementary IT service businesses on
reasonable terms or successfully integrate and manage acquired companies, or if
performance problems occur at acquired companies, there could be a material
adverse effect on the Company. See "Use of Proceeds" and "Business -- Growth
Strategy."
NEED FOR ADDITIONAL FINANCING
The Company's acquisition strategy will require substantial capital. The
Company intends to finance future acquisitions with cash flow from operations,
through issuances of shares of Common Stock or debt securities, including
convertible debt securities, and through borrowings under its credit facilities.
Although the Company has entered into preliminary discussions with potential
lenders regarding a credit facility to be used for general corporate purposes,
including financing acquisitions, the Company has not yet entered into a
definitive credit agreement or received a commitment to provide such credit from
any lender. The Company expects that borrowings under a credit facility, if any,
will be secured by liens on certain of the Company's assets (including accounts
receivable and after-acquired property) and that the credit facility may contain
restrictions on the incurrence of additional indebtedness and the payment of
dividends to holders of BrightStar's equity securities. There can be no
assurance that the Company can obtain a credit facility on terms it deems
acceptable. Using internally generated cash or debt to complete acquisitions
could substantially limit the Company's operational and financial flexibility.
The extent to which the Company will be able or willing to use shares of Common
Stock to consummate acquisitions will depend on its market value from time
8
<PAGE> 10
to time and the willingness of potential sellers to accept it as full or partial
payment. Using shares of Common Stock for this purpose may result in significant
dilution to then existing stockholders. To the extent the Company is unable to
use Common Stock to make future acquisitions, its ability to grow through
acquisitions may be limited by the extent to which it is able to raise capital
for this purpose through debt or additional equity financings. No assurance can
be given the Company will be able to obtain the necessary capital to finance a
successful acquisition program or its other cash needs. If the Company is unable
to obtain additional capital on acceptable terms, it may be required to reduce
the scope of its presently anticipated expansion. In addition to requiring
funding for acquisitions, the Company may need additional funds to implement its
internal growth and operating strategies or to finance other aspects of its
operations. If the Company is unable to obtain additional capital on acceptable
terms, or if the use of internally generated cash or debt to complete
acquisitions significantly limits the Company's operational or financial
flexibility, or if the Company is unable to use shares of Common Stock to make
future acquisitions, there could be a material adverse effect on the Company.
See "Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources -- Pro
Forma Combined."
COMPETITION
The market for IT services is highly competitive and fragmented, is subject
to rapid change and has low barriers to entry. The Company competes for
potential clients with providers of outsourcing services, multinational
accounting firms, systems consulting and implementation firms, application
software firms, service groups of computer equipment companies, facilities
management companies, general management consulting firms and programming
companies. Many of these competitors have significantly greater financial,
technical and marketing resources and greater name recognition than the Company.
In addition, the Company competes with its clients' internal management
information systems ("MIS") departments. The Company believes the principal
competitive factors in the IT services industry include responsiveness to client
needs, availability of technical personnel, speed of applications development,
quality of service, price, project management capabilities, technical expertise
and ability to provide a wide variety of IT services. The Company believes that
its ability to compete also depends in part on a number of competitive factors
outside of its control, including the ability of its competitors to hire, retain
and motivate qualified technical personnel, the ownership by competitors of
software used by potential clients, the development of software that would
reduce or eliminate the need for certain of the Company's services, the price at
which others offer comparable services and the extent of its competitors'
responsiveness to customer needs. The Company expects that competition in the IT
services industry could increase in the future, partly due to low barriers to
entry. Increased competition could result in price reductions, reduced margins
or loss of market share for the Company. There can be no assurance that the
Company will be able to compete successfully against current and future
competitors. If the Company is unable to compete effectively, or if competition
among IT services companies results in a deterioration of market conditions for
IT services companies, there could be a material adverse effect on the Company.
See "Business -- Competition."
SIGNIFICANCE OF RELATIONSHIPS WITH SAP AG AND KPMG PEAT MARWICK LLP
The Company, through two Founding Companies, SCS America and SCS Australia,
has significant relationships with SAP AG of Germany ("SAP") and a member firm
of KPMG International ("KPMG"), from which substantial subcontracting revenue
and business referrals are derived. SCS America and SCS Australia are authorized
to implement and service SAP's technology under terms of their respective SAP
Implementation Partner Agreements with SAP. Each of SCS America and SCS
Australia subcontracts projects from SAP, and each benefits from its status as
an Implementation Partner of SAP, however, SAP is not obligated to refer
business to or subcontract with either company. SCS Australia also generates
significant revenue from subcontracting arrangements with KPMG, which is a
minority interest holder in SCS Australia (which minority interest is being
acquired by BrightStar in connection with its acquisition of SCS Australia).
Other than the agreement concerning such acquisition, neither BrightStar nor SCS
Australia has any contractual relationship with KPMG. The Company believes the
key factor in maintaining and expanding relationships with SAP and KPMG is the
extent to which the Company can timely complete the projects subcontracted or
referred to it by them in a cost-efficient manner. If these relationships
9
<PAGE> 11
were to deteriorate or be discontinued or if the Company's status as an SAP
Implementation Partner in the U.S. or Australia was to be terminated, it could
have a material adverse effect on the Company. See "Business."
NATURE OF PROJECTS
Many of the Company's engagements involve projects that are critical to the
operations of its clients' businesses and provide benefits that may be difficult
to quantify. The Company's failure or inability to meet a client's expectations
in the performance of its services could result in a material adverse change to
the client's operations and therefore could give rise to claims against the
Company or damage the Company's reputation. In addition, the Company is exposed
to various risks and liabilities associated with placing its employees and
consultants in the workplaces of others, including possible claims of errors and
omissions, misuse of client proprietary information, misappropriation of funds,
discrimination and harassment, theft of client property, other criminal activity
or torts and other claims. Although the Founding Companies have not experienced
any material claims of these types, there can be no assurance that the Company
will not experience such claims in the future. If claims are successfully
brought against the Company as a result of the Company's performance on a
project, or if the Company's reputation is damaged, there could be a material
adverse effect on the Company.
In addition, a small percentage of the Company's projects are billed on a
fixed-fee basis. As a result of competitive factors or other reasons, the
Company could increase the number and size of projects billed on a fixed-fee
basis. The Company's failure to estimate accurately the resources and related
expenses required for a fixed-fee project or failure to complete contractual
obligations in a manner consistent with the project plan upon which a fixed-fee
contract is based could have a material adverse effect on the Company.
RAPID TECHNOLOGICAL CHANGE
The Company's success will depend in part on its ability to enhance its
existing products and services, to develop and introduce new services and
products and train its IT professionals in order to keep pace with continuing
changes in IT, evolving industry standards and changing client preferences.
There can be no assurance that the Company will be successful in addressing
these issues or that, even if these issues are addressed, the Company will be
successful in the marketplace. In addition, there can be no assurance that
products or technologies developed by others will not render the Company's
services noncompetitive or obsolete. The Company's failure to address these
issues successfully could have a material adverse effect on the Company.
POTENTIAL DECREASE IN SERVICES AFTER ADDRESSING THE YEAR 2000 PROBLEM
Although the Company has no significant revenues directly attributable to
Year 2000 conversion services to date, it anticipates additional revenue will be
derived from Year 2000 conversion services for at least the next three years.
The Company anticipates such additional revenue based on the needs of its
existing clients and industry reports concerning the demand for Year 2000
conversion services, but there can be no assurance the Company will ultimately
derive significant revenues from those services. In addition, although the
Company believes that demand for Year 2000 conversion services will continue
after the turn of the century, the Company expects this demand will diminish
after the Year 2000 as many Year 2000 solutions are implemented and tested. The
Company also believes that some businesses may decide to replace their existing
systems rather than convert their old systems to full functionality beyond Year
2000, and after the overall demand for Year 2000 solutions has been addressed,
there can be no assurance that the market-wide demand for IT services will not
be materially and adversely affected.
INTELLECTUAL PROPERTY RIGHTS
The Company's success depends on certain methodologies it utilizes in
designing, installing and integrating computer software and systems and other
proprietary intellectual property rights it has developed to serve its clients.
The Company's business includes the development of custom software in connection
with
10
<PAGE> 12
specific client engagements. Ownership of such software is generally assigned to
the client. The Company also develops certain application software products, or
software "tools," which remain the property of the Company.
The Company relies on a combination of nondisclosure and other contractual
arrangements and trade secret, copyright and trademark laws to protect its
proprietary rights and the proprietary rights of third parties from whom the
Company licenses intellectual property. The Company generally enters into
confidentiality agreements with its employees and consultants and limits access
to, and distribution of, its proprietary information. There can be no assurance
that the steps taken by the Company in this regard will be adequate to deter
misappropriation of proprietary information or that the Company will be able to
detect unauthorized use and take appropriate steps to enforce its intellectual
property rights. In addition, the laws of some foreign countries may not protect
the Company's proprietary rights as fully or in the same manner as do the laws
of the U.S. Also, despite the steps taken by the Company to protect its
proprietary rights, there can be no assurance that others will not develop
technologies similar or superior to the Company's technology or design around
the proprietary rights owned by the Company.
Although the Company believes that its services and products do not
infringe on the intellectual property rights of others and that it has all
rights necessary to use the intellectual property employed in its business, the
Company is subject to the risk of litigation alleging infringement of
third-party intellectual property rights. Any such claims could require the
Company to spend significant sums in litigation, pay damages, develop non-
infringing intellectual property or acquire licenses to the intellectual
property which is the subject of the asserted infringement. If the Company is
unable to successfully enforce its intellectual property rights, or if claims
are successfully brought against the Company for infringing the intellectual
property rights of others, there could be a material adverse effect on the
Company. See "Business -- Intellectual Property Rights."
INTERNATIONAL OPERATIONS
The current and planned international operations of the Company are subject
to certain political, economic and other uncertainties not typically encountered
in domestic operations, including, among others, risks of war, expropriation or
nationalization of assets, renegotiation or nullification of existing contracts,
changing political conditions, changing laws and policies affecting trade and
investment, overlap of different tax structures, the general hazards associated
with the assertion of foreign sovereignty over certain areas in which operations
are conducted, costs of localizing services and products for foreign countries,
lack of acceptance of localized services and products in foreign countries,
longer accounts receivable payment cycles and logistical difficulties in
managing international operations. Foreign operations sometimes also face the
additional risks of fluctuating currency values, hard currency shortages and
controls of foreign currency exchange. The Company currently does not engage in
hedging transactions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Exposure to Currency Fluctuations."
Additionally, various foreign jurisdictions have laws limiting the right and
ability of foreign subsidiaries and joint ventures to pay dividends and remit
earnings to affiliated companies, unless specified conditions precedent are met.
The Company's inability to successfully manage the risks of international
operations could have a material adverse effect on the Company.
DEPENDENCE ON KEY MANAGEMENT PERSONNEL
The Company's success will depend on the continuing efforts of its
executive officers and the senior management of the Founding Companies, and
likely will depend on the senior management of any significant businesses the
Company acquires in the future. Each of the Company's employment agreements with
its senior management and other key personnel provides that the employee will
not compete with the Company during the term of the agreement and following the
termination of the agreement for a specified term (ranging from one to three
years) in a specified geographical area. In most states, however, a covenant not
to compete will be enforced only to the extent it is necessary to protect a
legitimate business interest of the party seeking enforcement, does not
unreasonably restrain the party against whom enforcement is sought and is not
contrary to the public interest. This determination is made based on all the
facts and circumstances of the specific case at the time enforcement is sought.
Thus, there can be no assurance that a court will enforce such a covenant in
11
<PAGE> 13
a given situation. If any of the Company's key management personnel do not
continue their management role after joining the Company and the Company is
unable to attract and retain qualified replacements, there could be a material
adverse effect on the Company. See "Management."
CONTROL BY EXISTING MANAGEMENT
Following the closing of the Acquisitions, the Share Exchange and the
Offering, executive officers and directors of BrightStar will beneficially own
approximately 1,671,894 shares of Common Stock (or 22% of the outstanding shares
of Common Stock). These stockholders will control in the aggregate approximately
22% of the votes of all shares of Common Stock, and, if acting in concert, may
be able to exercise substantial influence over the Company's affairs. See
"Security Ownership of Certain Beneficial Owners and Management."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE
On closing of the Acquisitions and the Offering, 7,338,735 shares of Common
Stock will be outstanding. The 3,750,000 shares of Common Stock offered hereby
will be freely tradable unless acquired by affiliates of the Company. All of the
remaining shares of Common Stock to be outstanding on the closing of the
Acquisitions and the Offering (as well as all shares issuable pursuant to the
Post-Closing Adjustments, the MG Warrant and the BGCA Option) may be resold
publicly only following their effective registration under the Securities Act of
1933, as amended (the "Securities Act"), or pursuant to an exemption from the
registration requirements of that act, such as Rule 144 thereunder.
When the Offering closes, options to purchase up to a total of
approximately 605,000 shares of Common Stock pursuant to the 1997 Long-Term
Incentive Plan will be outstanding. BrightStar intends to file a registration
statement on Form S-8 to register the shares issuable pursuant to the 1997
Long-Term Incentive Plan. After that registration statement becomes effective,
the shares registered thereby generally will on issuance be freely tradable by
holders who are not affiliates of BrightStar and, subject to the volume and
other limitations of Rule 144, by holders who are affiliates of BrightStar. See
"Management -- 1997 Long-Term Incentive Plan."
BrightStar and its directors and executive officers, BITI and all persons
who will receive shares of Common Stock in connection with the Acquisitions have
agreed not to offer or sell any shares of Common Stock for a period of one year
from the date of this Prospectus (the "Lockup Period") without the prior written
consent of CIBC Oppenheimer Corp., except that BrightStar may, subject to
certain limitations, issue Common Stock in connection with the Acquisitions and
in connection with future acquisitions, on exercise of the MG Warrant or the
BGCA Option and pursuant to Awards under the 1997 Long-Term Incentive Plan,
provided that the recipients of those shares agree not to offer or sell any of
those shares during the Lockup Period.
The availability for sale, or sale, of the shares of Common Stock eligible
for future sale could adversely affect the market price of the Common Stock
prevailing from time to time. See "Shares Eligible for Future Sale."
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, no public market for the Common Stock has existed,
and the initial public offering price, which BrightStar and representatives of
the Underwriters will negotiate, may not be indicative of the price at which the
Common Stock will trade after the Offering. See "Underwriting" for the factors
to be considered in determining the initial public offering price. BrightStar
has applied to have the Common Stock approved for quotation on the Nasdaq
National Market, but no assurance can be given that an active trading market
will develop or be maintained for the Common Stock. The market price of the
Common Stock after the Offering may fluctuate significantly from time to time in
response to numerous factors, including the timing of any acquisitions by the
Company, variations in the reported financial results of the Company or those of
its competitors, changes by financial research analysts in their estimates of
future earnings of the Company, and changing conditions in the economy in
general or in the Company's industry in particular,
12
<PAGE> 14
unfavorable publicity or changes in applicable laws and regulations (or judicial
or administrative interpretations thereof) affecting the Company or its
business. In addition, the stock markets experience significant price and volume
volatility from time to time, which may affect the market price of the Common
Stock for reasons unrelated to the Company's performance.
POSSIBLE ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS
BrightStar's Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), authorizes the Board of Directors of BrightStar (the "Board of
Directors") to issue, without stockholder approval, one or more series of
preferred stock having such preferences, powers and relative, participating,
optional and other rights (including preferences over the Common Stock
respecting dividends and distributions and voting rights) as the Board of
Directors may determine. The issuance of this "blank-check" preferred stock
could render more difficult or discourage an attempt to obtain control of the
Company by means of a tender offer, merger, proxy contest or otherwise. In
addition, the Certificate of Incorporation contains a prohibition of stockholder
action by less than unanimous written consent. These provisions may also have
the effect of inhibiting or delaying a change in control of the Company. Certain
provisions of the Delaware General Corporation Law (the "DGCL") may also
discourage takeover attempts that have not been approved by the Board of
Directors. See "Description of Capital Stock."
IMMEDIATE AND SUBSTANTIAL DILUTION; BENEFITS OF OFFERING TO EXISTING
STOCKHOLDERS
Purchasers of Common Stock in the Offering will experience immediate,
substantial dilution in the net tangible book value of their stock of $11.03 per
share and may experience further dilution in that value from issuances of Common
Stock in the future. See "Dilution." Benefits of the Offering to current
security holders include, but are not limited to, the creation of a public
market for the Common Stock, the Company's receipt of proceeds of the sale of
3,750,000 shares plus shares sold, if any, pursuant to the underwriters
over-allotment option, and unrealized gain to current security holders upon
consummation of the Offering equal to the difference between the value of the
currently outstanding Common Stock and securities convertible into shares of
Common Stock based on the initial public offering price (approximately $45.0
million, assuming an initial public offering price of $12.00 per share), and the
effective acquisition cost of such securities.
13
<PAGE> 15
THE COMPANY
GENERAL
BrightStar was organized in May 1997 to combine selected complementary
businesses to provide enterprise-wide business and technology solutions to
Fortune 1000 companies and other large organizations. The Company's goal is to
become a leader in the IT services industry through consolidation of
complementary companies, expansion of its service and product offerings and
cross-selling to its combined customer base. BrightStar has entered into
definitive agreements to acquire the Founding Companies concurrently with and as
a condition to the closing of the Offering.
Collectively, the Founding Companies provide implementation of ERP software
systems and comprehensive IT services to improve an organization's productivity.
The Company implements ERP software produced by SAP, PeopleSoft and Oracle.
Through its ERP*PLUS(SM) services, the Company provides solutions for the entire
range of IT systems development: ERP package software implementation and systems
integration, custom software application development, consulting, outsourcing,
training, upgrade and support. The Company is a SAP Implementation Partner in
the U.S. and Australia and has preferred business partner relationships with
PeopleSoft, Oracle, Microsoft and Novell. The following is a brief description
of each of the Founding Companies (the information regarding the number of
employees for each of the Founding Companies is given as of February 1, 1998):
Brian R. Blackmarr and Associates, Inc. ("Blackmarr"), founded in 1979, is
based in Dallas, Texas and has operations throughout the U.S. and in Caracas,
Venezuela and London, England. Blackmarr designs, develops and implements IT
solutions for complex business problems. Blackmarr's core business involves
application development, systems integration and consulting for distributed
computer systems and client/server systems. Blackmarr typically designs IT
solutions that are implemented in cooperation with a variety of vendors,
including Microsoft, PeopleSoft, Oracle, Sybase and Symantec. Blackmarr also
provides custom software development to its clients, and conducts scheduled
training for Microsoft, PeopleSoft, PC Docs and Oracle products, as well as
Internet training, in its certified Microsoft Level Three training facility
located in Dallas.
Blackmarr currently employs 180 IT professionals, supported by a staff of
16. Blackmarr had revenues of $9.3 million and $16.7 million for the years ended
December 31, 1996 and 1997, respectively.
Integrated Controls, Inc. ("ICON"), founded in 1991, is based in Lafayette,
Louisiana, with regional offices along the U.S. Gulf Coast. Its primary focus is
the design and implementation of industrial control and automation systems,
principally for clients in the energy industry. As a systems integrator, ICON
provides IT solutions from the production, process and manufacturing level
through a professional staff which includes computer science specialists and
engineers experienced in implementing information and control systems. ICON
designs and implements software applications for real-time management
information systems and provides maintenance and support services. ICON has
recently expanded its services to provide telecommunications and networking
solutions, including services for implementing and managing web sites, intranets
and LAN and WAN systems. ICON is a Microsoft Partner and a Novell Partner and
has obtained ISO 9001 certification covering its engineering services for
electronic control services, computer systems and digital communications
systems. ISO 9001 is an internationally recognized verification system for
quality-assurance in design, development, production, installation and servicing
that has been established by the International Organization for Standardization,
Geneva, Switzerland.
ICON currently employs 160 IT professionals (45 of which are also
engineers), supported by a staff of 20. ICON had revenues of $6.1 million and
$11.5 million for the years ended December 31, 1996 and 1997, respectively.
Mindworks Professional Education Group, Inc. ("Mindworks"), founded in
1995, is based in Scottsdale, Arizona. Its primary business is developing and
providing advanced training and certification for computer support staff and
network professionals. Its principal training focus is on the Microsoft
Certified Professional and Microsoft Certified System Engineer ("MCSE")
programs. Mindworks also provides training for the
14
<PAGE> 16
Computing Technology Industry Association's A+ certification and the Novell
Certified Network Administrator and Certified Network Engineer programs.
Mindworks has developed computer training products, which it distributes
directly and through a non-exclusive royalty agreement with a major publishing
company throughout the U.S. and internationally. Its products include the
Mindworks MCSE Self-Study Kit and the Mindworks A+ Certification Course.
Mindworks currently employs ten IT professionals, supported by a staff of
six. Mindworks had revenues of $808,192 and $1.4 million for the years ended
December 31, 1996 and 1997, respectively.
Software Consulting Services America, LLC ("SCS America"), founded in 1995,
is based in the San Francisco Bay area and has offices in Chicago, Illinois and
Los Angeles, California. SCS America is one of approximately 35 national
implementation partners in the U.S. for SAP AG of Germany ("SAP"). SAP's R/3
client-server software is a standard for companies seeking to coordinate
manufacturing, purchasing, accounting, finance and personnel data. SCS America
provides a full range of SAP consulting services directly to clients and
indirectly through global "logo" partners, such as multinational accounting and
consulting firms, or through SAP itself. Other services provided by SCS America
include project management, enterprise resource planning and data warehouse and
web site development.
SCS America currently employs 48 IT professionals, supported by a staff of
three. SCS America had revenues of $4.7 million and $8.4 million for the years
ended December 31, 1996 and 1997, respectively.
SCS Unit Trust ("SCS Australia"), founded in 1994, is headquartered in
Melbourne, Australia, with offices in Sydney, Perth and Canberra, Australia. SCS
Australia specializes in providing SAP implementation and support to its
clients. SCS Australia has been a national implementation partner with SAP since
1995.
SCS Australia currently employs 172 IT professionals, supported by a staff
of 13. SCS Australia had revenues of $8.3 million and $16.7 million for the
years ended December 31, 1996 and 1997, respectively.
Software Innovators, Inc. ("SII"), founded in 1989, is located in Little
Rock, Arkansas. Its primary business is providing custom software development
and IT project outsourcing. SII provides business process reengineering and
technology support services, Internet commerce software development, web-site
design services and Year 2000 compliance services and related IT staffing. SII
also offers computer-aided instruction, computer-based education and knowledge
transfer via corporate intranets.
SII currently employs 54 IT professionals, supplemented and supported by a
staff of two. SII had revenues of $2.4 million and $3.6 million for the years
ended December 31, 1996 and 1997, respectively.
Zelo Group, Inc. ("Zelo"), founded in 1992, is located in Ventura,
California. Zelo provides computer-based litigation support services, document
archive services and business process reengineering services to clients engaged
in legal services, health care and other industries. Its litigation support
services include in-court trial support systems, document scanning and indexing
and full-text searching using its proprietary SmartCopy(TM) software. In
connection with its archive services, Zelo scans paper documents and stores the
digital images on compact discs for rapid retrieval using its proprietary
software. Zelo also provides IT integration services in connection with its
document archive services through the design and implementation of turn-key
systems, including LAN and WAN systems, office workflow automation and Internet
systems development and implementation.
Zelo currently employs eight IT professionals, supported by a staff of
nine. Zelo had revenues of $1.1 million and $1.0 million for the years ended
December 31, 1996 and 1997, respectively.
15
<PAGE> 17
SUMMARY INDIVIDUAL FOUNDING COMPANY REVENUE DATA
(IN THOUSANDS)
The following table presents revenue data for each of the Founding
Companies for the three most recent fiscal years.
<TABLE>
<CAPTION>
REVENUE FOR FISCAL YEAR
---------------------------
1995 1996 1997
------ ------ -------
<S> <C> <C> <C>
BLACKMARR (Fiscal Year Ended September 30)
Revenue................................................... $7,043 $9,227 $12,190
ICON (Fiscal Year Ended December 31)
Revenue................................................... $3,745 $6,127 $11,504
MINDWORKS (Fiscal Year Ended December 31)
Revenue(3)................................................ $ -- $ 808 $ 1,444
SCS AMERICA (Fiscal Year Ended December 31)
Revenue................................................... $1,001 $4,672 $ 8,401
SCS AUSTRALIA (Fiscal Year Ended June 30)
Revenue(2)................................................ $1,806(1) $5,062 $ 9,685
SII (Fiscal Year Ended July 31)
Revenue(3)................................................ $ -- $1,953 $ 2,982
ZELO (Fiscal Year Ended December 31)
Revenue(3)................................................ $ -- $1,082 $ 1,049
</TABLE>
- ---------------
(1) From period from October 1, 1994 (inception) to June 30, 1995.
(2) Amounts have been derived by translating Australian dollars into U.S.
dollars at a rate of 1.536 (A$) to 1.0 (US$), the approximate rate of
exchange at December 31, 1997.
(3) Audited financial data is not available for the 1995 fiscal year.
SUMMARY OF TERMS OF THE ACQUISITIONS
The aggregate consideration BrightStar will pay to acquire the Founding
Companies consists of (i) approximately $31.3 million in cash, (ii) 2,688,225
shares of Common Stock and (iii) the assumption of approximately $7.0 million of
indebtedness of the Founding Companies. Two of the Acquisitions are subject to
Post-Closing Adjustments payable in shares of Common Stock, based on the 1998
financial performance of the subject Founding Companies. The Company currently
estimates no shares of Common Stock will be issuable in connection with the
Post-Closing Adjustments. The Post-Closing Adjustments will be determined based
on the (i) actual revenues of SCS Australia for the 12 months ended December 31,
1998 and (ii) actual pre-tax income of SII for the 12 months ended December 31,
1998. The consideration being paid by BrightStar for each Founding Company was
determined by arm's-length negotiations between BrightStar and representatives
of that Founding Company.
The closing of each Acquisition is subject to customary conditions,
including, among others: the continuing accuracy of the representations and
warranties made by the parties thereto; the performance of their respective
covenants included in the agreements relating to the Acquisitions; and the
nonexistence of a material adverse change prior to the closing date.
16
<PAGE> 18
Any Founding Company's acquisition agreement may be terminated under
certain circumstances prior to the closing of the Offering, including: (i) by
the mutual consent of the Board of Directors of BrightStar and the Founding
Company; (ii) if the Offering and the acquisition of that Founding Company are
not closed by April 30, 1998; (iii) by BrightStar if the disclosure schedules to
the acquisition agreement are amended to reflect a material adverse change with
respect to that Founding Company; or (iv) if a material breach or default under
the agreement by one party occurs and is not waived. See "Certain
Transactions -- Acquisitions of the Founding Companies."
Concurrently with the closing of the Acquisitions, BrightStar will enter
into employment agreements with each of the executives and certain key
management personnel of the Founding Companies. These agreements will generally
be for an initial term of from one to three years, with automatic renewals of
one year thereafter. See "Management."
BrightStar is a Delaware corporation. Its corporate offices are located at
10375 Richmond Avenue, Suite 1620, Houston, Texas 77042, and its telephone
number is (713) 361-2500.
17
<PAGE> 19
USE OF PROCEEDS
The net proceeds to BrightStar from the Offering (assuming an initial
public offering price of $12.00 per share) are estimated to be approximately
$38.2 million (approximately $44.5 million if the Underwriters exercise their
overallotment option in full), after deducting underwriting discounts and
commissions and estimated expenses of the Offering payable by the Company
(including the repayment of $1.8 million of expenses previously paid from
advances from BITI under a loan agreement between BrightStar and BITI (the "BITI
Loan Agreement") to fund a portion of the Offering expenses). Of the net
proceeds, (i) $31.3 million will be used to pay the cash portion of the purchase
prices for the Acquisitions and (ii) $3.4 million will be used concurrently for
the repayment of certain outstanding indebtedness of the Founding Companies
(estimated as of the closing of the Offering and excluding the repayment of $1.8
million of expenses previously paid from advances from BITI referred to above).
The approximately $3.5 million of remaining net proceeds will be used for
working capital and general corporate purposes, which may include future
acquisitions. Pending such use, the Company intends to invest those remaining
net proceeds in short-term, interest-bearing investment grade securities. See
"Certain Transactions."
The indebtedness of the Founding Companies to be repaid from the proceeds
of the Offering bears interest at rates ranging from 8.0% to 15.0% per annum and
would otherwise mature at various dates through 2001. Advances under the BIT
Loan Agreement bear interest at a rate of 10% per annum and are due 30 days
after the closing of the Offering.
DIVIDEND POLICY
The Company intends to retain earnings, if any, for general corporate
purposes, and does not anticipate paying any cash dividends on its Common Stock
for the foreseeable future. The payment of cash dividends on the Common Stock
will be within the sole discretion of the Board of Directors, and will depend on
several factors, including the Company's financial condition, results of
operations, cash flows from operations, current and anticipated cash needs and
expansion plans, the income tax laws then in effect, the requirements of
Delaware law and any restrictions that may be imposed by the Company's existing
and future credit facilities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources -- Pro Forma Combined."
18
<PAGE> 20
CAPITALIZATION
The following table sets forth the cash, short-term debt and capitalization
of the Company as of December 31, 1997 (i) on a pro forma combined basis to give
effect to the Acquisitions and the Share Exchange and (ii) on a pro forma
combined basis as adjusted to reflect the Offering at an assumed initial public
offering price of $12.00 per share and the application of the estimated net
proceeds therefrom. This table should be read in conjunction with the Unaudited
Pro Forma Combined Financial Statements of the Company and the notes thereto
included in this Prospectus. See "Use of Proceeds" and "Certain
Transactions -- Acquisitions of the Founding Companies."
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
------------------------
PRO FORMA AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash........................................................ $ 1,410 $ 3,645
======= =======
Notes payable and current maturities of long-term debt and
capital leases(1)......................................... $ 7,601 $ 3,258
Cash consideration payable to Founding Company
stockholders.............................................. 31,322 --
------- -------
Total short-term debt............................. $38,923 $ 3,258
======= =======
Long-term debt and capital leases, net of current
maturities(1)............................................. $ 655 $ 306
Stockholders' equity:
Preferred Stock: $0.001 par value, 3,000,000 shares
authorized; none issued and outstanding................ -- --
Common Stock: $0.001 par value, 35,000,000 shares
authorized; 3,588,735 issued and outstanding, pro
forma; and 7,338,735 shares issued and outstanding, as
adjusted(2)............................................ 321 7
Restricted Common Stock, $0.001 par value, 2,000,000
shares authorized; none issued and outstanding......... -- --
Common Stock warrants..................................... 400
Additional paid-in capital................................ 15,446 57,026
Retained earnings (deficit)............................... (5,910) (5,910)
------- -------
Total stockholders' equity........................ 9,857 51,523
------- -------
Total capitalization........................................ $10,512 $51,829
======= =======
</TABLE>
- ---------------
(1) See the notes to Unaudited Pro Forma Combined Financial Statements and notes
to the Founding Companies' Financial Statements for a description of the
Company's debt.
(2) Excludes: (i) an aggregate of 605,000 shares subject to options granted (or
to be granted prior to the closing of the Offering) pursuant to the 1997
Long-Term Incentive Plan; (ii) 50,000 shares issuable pursuant to the MG
Warrant; and (iii) 16,666 shares issuable pursuant to the BGCA Option.
19
<PAGE> 21
DILUTION
The deficit in pro forma combined net tangible book value of the Company as
of December 31, 1997 was approximately $31.1 million, or approximately $8.67 per
share of Common Stock, after giving effect to the Acquisitions, the Share
Exchange and the net incurrence of indebtedness by the Company since December
31, 1997. The deficit in pro forma combined net tangible book value per share
represents the amount by which the Company's pro forma combined total
liabilities exceed its pro forma combined tangible assets at December 31, 1997,
divided by the number of shares of Common Stock to be outstanding after giving
effect to the Acquisitions (not including the Post-Closing Adjustments, which,
based on current estimates, are not expected to result in the issuance of
additional shares of Common Stock) and the Share Exchange. After giving effect
to the Offering (at an assumed initial public offering price of $12.00 per
share) and the application of the estimated net proceeds therefrom, as described
in "Use of Proceeds," the Company's pro forma combined net tangible book value
as of December 31, 1997 would have been approximately $7.1 million, or
approximately $0.97 per share. This represents an immediate increase in pro
forma combined net tangible book value of approximately $9.64 per share to
existing stockholders and an immediate dilution of approximately $11.03 per
share to investors purchasing shares in the Offering.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $12.00
Pro forma combined net tangible book value (deficit) per
share before the Offering................................. $(8.67)
Increase in pro forma combined net tangible book value per
share attributable to new investors....................... 9.64
------
Pro forma combined net tangible book value per share after
the Offering.............................................. 0.97
------
Dilution per share to new investors(1)...................... $11.03
======
</TABLE>
- ---------------
(1) Does not include (a) approximately 605,000 shares that will be subject to
options granted under the 1997 Long-Term Incentive Plan on the date the
Offering closes, with an exercise price equal to the initial public offering
price per share, (b) 50,000 shares issuable pursuant to the MG Warrant, and
(c) 16,666 shares issuable pursuant to the BGCA Option. Using the treasury
stock method, the effect of the issuance of such shares to new investors
would result in additional dilution per share to new investors of $0.08.
The dilution to new investors purchasing shares in the Offering will
increase if the initial public offering price is higher, and will decrease if
the initial public offering price is lower, than $12.00 per share. See "Certain
Transactions -- Acquisitions of the Founding Companies."
The following table summarizes, on a pro forma basis to give effect to the
Acquisitions and the Share Exchange as of December 31, 1997, the number of
shares of Common Stock purchased from BrightStar, the total consideration paid
and the average price per share paid by existing stockholders (including persons
who will acquire Common Stock in the Acquisitions and the Share Exchange) and
the new investors purchasing shares of Common Stock in the Offering (before
deducting the underwriting discounts and commissions and estimated offering
expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION(1)
------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ 3,588,735 48.9% $(31,120,882) (224.2)% $(8.67)
New investors................ 3,750,000 51.1% 45,000,000 324.2% 12.00
--------- ------ ------------ -------
Total.............. 7,338,735 100.0% $ 13,879,118 100.0%
========= ====== ============ =======
</TABLE>
- ---------------
(1) Total consideration paid by existing stockholders represents the Company's
pro forma combined stockholders' equity less pro forma combined goodwill, in
each case before giving effect to the Offering adjustments set forth in the
Unaudited Pro Forma Combined Balance Sheet of the Company included herein.
20
<PAGE> 22
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected historical financial data of Blackmarr (the
accounting acquiror) has been derived from (i) the audited financial statements
of Blackmarr for the years ended September 30, 1995, 1996 and 1997 and (ii) from
the unaudited financial statements of Blackmarr for the years ended September
30, 1993 and 1994 and as of September 30, 1993, 1994 and 1995, which have been
prepared on the same basis as the audited statements and, in the opinion of
Blackmarr and BrightStar management, reflect all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation of that
information. See the combined historical financial statements of Blackmarr and
the notes thereto included herein. The following summary unaudited pro forma
financial information represents historical information of the Company, as
adjusted to give effect to (i) the Acquisitions, (ii) the Share Exchange, (iii)
the closing of the Offering and the application of the estimated net proceeds
therefrom and (iv) the other pro forma adjustments described below. See the
Unaudited Pro Forma Combined Financial Statements and the notes thereto included
herein.
<TABLE>
<CAPTION>
THREE
MONTHS
YEAR ENDED SEPTEMBER 30, ENDED
----------------------------------------------- DECEMBER 31,
1993 1994 1995 1996 1997 1997
------ ------ ------ ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Historical Operations Data for Blackmarr:
Revenue.............................................. $4,688 $7,451 $7,043 $9,227 $12,190 $6,623
Cost of revenue...................................... 3,768 5,917 5,592 7,659 10,063 5,810
Selling, general and administrative expenses......... 728 1,325 1,413 1,555 1,668 817
Stock compensation expense........................... -- -- -- -- 305 --
Depreciation and amortization........................ 91 87 78 101 135 31
------ ------ ------ ------ ------- ------
Income (loss) from operations........................ 101 122 (40) (88) 19 (35)
Interest expense..................................... (10) (45) (66) (67) (96) (31)
Other income, net.................................... -- -- 186 124 33 7
Income tax provision................................. 22 19 40 -- 6 (22)
------ ------ ------ ------ ------- ------
Net income (loss).................................... $ 69 $ 58 $ 40 $ (31) $ (50) $ (37)
====== ====== ====== ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Pro Forma Combined Operations Data(1):
Revenue................................................... $59,450
Cost of revenue........................................... 44,183
Selling, general and administrative expenses.............. 13,399
Stock compensation expense................................ 305
Depreciation and amortization(2).......................... 1,803
-------
Loss from operations...................................... (240)
Interest expense.......................................... (366)
Other expense, net........................................ (69)
-------
Loss before income taxes.................................. (675)
Income tax provision (3).................................. 177
-------
Net loss.................................................. $ (852)
=======
Net loss per basic and diluted common share............... $ (0.12)
=======
Shares used in computing net loss per basic and diluted
common share............................................ 7,339
=======
</TABLE>
<TABLE>
<CAPTION>
BLACKMARR DECEMBER 31, 1997
------------------------------------------ ------------------------------------------
SEPTEMBER 30, BLACKMARR
------------------------------------------ HISTORICAL PRO FORMA PRO FORMA
1993 1994 1995 1996 1997 (UNAUDITED) COMBINED(1) AS ADJUSTED(4)
------ ------ ------ ------ ------ ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital
(deficit)................ $ 80 $ 134 $ 284 $ 233 $ 337 $ 280 $(32,969) $ 4,932
Total assets............... 1,156 1,923 1,609 1,926 3,501 5,425 59,370 65,022
Long-term debt, net of
current maturities....... 5 497 42 42 17 -- 655 306
Stockholders' equity....... 284 342 396 423 682 645 9,857 51,523
</TABLE>
- ---------------
(1) The pro forma combined statement of operations information assumes the
Acquisitions, the Share Exchange and the Offering (and the application of
the net proceeds therefrom) all were closed on January 1, 1997. The pro
forma balance sheet information assumes the Acquisitions and the Share
Exchange occurred on December 31, 1997. The pro forma combined statement of
operations information for the year ended December 31, 1997 is presented on
the basis of a year ended December 31 for each Founding Company, with the
financial results of Blackmarr, SCS Australia and SII being recast for these
purposes to reflect those results for the twelve-month period ended December
31, 1997. The pro forma combined financial information (i) is not
necessarily indicative of the results the Company would have obtained had
these events actually occurred when assumed or of the Company's future
results, (ii) is based on preliminary estimates (primarily of the aggregate
purchase price of the Acquisitions) and certain assumptions management deems
appropriate and (iii) should be read in conjunction with the financial
statements and notes thereto included in this Prospectus. Excludes the
following non-recurring items: a one-time write-off for in-process research
and development of $3.0 million; and compensation expense of $4.1 million
for Common Stock issued to the members of BrightStar's management at a price
below the initial public offering price.
(2) Includes $1.1 million annual amortization of goodwill to be recorded as a
result of the Acquisitions, calculated using the straight line method over
an amortization period of 40 years.
(3) Assumes an effective tax rate of 39.0% on certain pro forma adjustments.
(4) Reflects the closing of the Offering and application of the net proceeds
therefrom. Adjusted to reflect the sale of 3,750,000 shares of Common Stock
issued by the Company at an assumed initial public offering price of $12.00
per share and deduction of the estimated underwriting discount and offering
expenses payable by the Company, and the application of proceeds therefrom.
See "Use of Proceeds."
21
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Financial Information" and the financial statements and the notes thereto
included in this Prospectus. The following information contains forward-looking
statements. For a discussion of certain limitations inherent in such statements,
see "Risk Factors."
INTRODUCTION
BrightStar was organized in May 1997 to combine selected complementary
businesses to provide enterprise-wide business and technology solutions to
Fortune 1000 companies and other large organizations. BrightStar has entered
into definitive agreements to acquire the Founding Companies concurrently with
and as a condition to the closing of the Offering. Collectively, the Founding
Companies provide comprehensive IT services to a diverse client base. Each of
the Founding Companies is specialized and generally provides its IT services to
clients primarily based on daily rates (or time and materials charges). The
Founding Companies have historically operated as independent, privately owned
entities, and their results of operations reflect varying tax structures
(subchapter S corporations or C corporations) which have influenced the
historical level of owners' compensation. In addition, cost of revenue and
selling, general and administrative expense as a percentage of revenue may not
be comparable among the individual Founding Companies because of differences in
their operations.
The Company's services and products include ERP software implementation
consulting, application development and maintenance, systems integration,
outsourcing and IT training services and related software products. The
Company's services are performed at clients' locations and at the Company's
facilities. In providing ERP implementation and other IT services, the Company
generally assumes responsibility for project management and bills the client on
a time and materials basis, although a small percentage of projects are billed
on a fixed-price basis. IT project outsourcing services are billed on a time and
materials basis and generally have lower gross margins than the Company's other
service offerings.
Revenue is primarily recognized as services are rendered for time and
materials charges or, to a lesser extent, using the percentage-of-completion
method for fixed-price contracts. The timing of revenue is difficult to forecast
because the Company's sales cycle for certain of its services can be relatively
long and is subject to a number of uncertainties, including clients' budgetary
constraints, the timing of clients' budget cycles, clients' internal approval
processes and general economic conditions. In addition, as is customary in the
industry, the Company's engagements generally are terminable without client
penalty. The Company's revenue and results of operations may fluctuate
significantly from quarter to quarter or year to year because of a number of
factors, including but not limited to: the rate of hiring and the productivity
of revenue-generating personnel; the availability of qualified IT professionals;
the significance of client engagements commenced and completed during a quarter;
the number of business days in a quarter; changes in the relative mix of the
Company's services; changes in the pricing of the Company's services; the timing
and rate of entrance into new geographic or IT speciality markets; departures or
temporary absences of key revenue-generating personnel; the structure and timing
of acquisitions; changes in the demand for IT professionals; and general
economic factors.
The Company believes the combination of the Founding Companies will provide
opportunities to improve operating margins and increase profitability. Although
the Company believes it will be able to achieve operating efficiencies by
consolidating certain administrative functions, the pro forma financial
information herein reflects neither expected savings nor margin improvements.
The Company is unable to accurately determine the costs associated with
consolidation of the Founding Companies, but it does not expect such costs to be
material, and accordingly, its pro forma financial information does not reflect
such incremental costs.
Cost of revenue primarily consists of salaries (including non-billable and
training time), benefits and travel expenses for IT professionals. The Company
generally strives to maintain its gross profit margins by offsetting increases
in salaries and benefits with increases in billing rates.
22
<PAGE> 24
Selling, general and administrative ("SG&A") expenses primarily consist of
costs associated with (i) corporate overhead, (ii) sales and account management,
(iii) telecommunications, (iv) human resources, (v) recruiting and training and
(vi) other administrative expenditures.
In July 1996, the Commission issued Staff Accounting Bulletin No. 97 ("SAB
97") relating to business combinations immediately prior to an initial public
offering. SAB 97 requires that these combinations be accounted for using the
purchase method of accounting and requires that one of the companies be
designated as the accounting acquiror. Accordingly, for financial statement
presentation purposes, Blackmarr has been designated as the acquiring company
because its current shareholders, in the aggregate, will acquire more Common
Stock than will the former shareholders of any of the other Founding Companies
in connection with the Acquisitions. For the remaining Founding Companies, $44.4
million (pro forma as of December 31, 1997) of the excess of the purchase price
over the fair value of the net assets to be acquired by BrightStar will be
recorded as "goodwill" and will be amortized as a non-cash charge to the income
statement of BrightStar over a 40-year period. The annual pro forma impact of
this amortization expense, which is generally non-deductible for tax purposes,
is approximately $1.1 million. See "Certain Transactions -- Acquisitions of the
Founding Companies."
The following pro forma combined financial information was derived from the
unaudited pro forma combined financial statements and gives effect to the
Acquisitions, the Share Exchange, the Offering and the application of the
estimated net proceeds therefrom and the effects of certain pro forma
adjustments to the historical financial statements, as if all those events had
taken place on January 1 of each period presented.
The pro forma combined results of operations information presented below
does not purport to be comparable to and may not be indicative of the Company's
post-combination results of operations because (i) the Founding Companies were
not under common control or management and (ii) the Company established a new
basis of accounting to record the purchase of the Acquired Businesses under the
purchase method of accounting. See "Selected Financial Information" and the
Unaudited Pro Forma Combined Financial Statements and the Notes thereto included
herein.
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED
DECEMBER 31,
1997
----------------
(IN THOUSANDS)
<S> <C> <C>
Revenue..................................................... $59,450 100.0%
Costs and expenses:
Cost of revenue........................................... 44,183 74.3%
Selling, general and administrative....................... 13,399 22.5%
Stock compensation expense................................ 305 0.5%
Depreciation and amortization............................. 1,803 3.1%
------- -----
Loss from operations........................................ $ (240) (0.4)%
======= =====
</TABLE>
- ---------------
(1) The pro forma combined statement of operations information for the year
ended December 31, 1997 is presented on the basis of a year ended December
31 for each Founding Company, the financial results of Blackmarr, SCS
Australia and SII being recast for these purposes to reflect those results
for the twelve-month period ended December 31, 1997. The unaudited pro forma
combined statements of operations give effect to the Acquisitions and the
Offering as if they had occurred on January 1, 1997.
LIQUIDITY AND CAPITAL RESOURCES -- PRO FORMA COMBINED
The Company is a holding company that will conduct all of its operations
through its subsidiaries. Accordingly, the Company's principal sources of
liquidity are the cash flow of its subsidiaries, cash available from lines of
credit it may establish and the unallocated net proceeds of this Offering. At
December 31, 1997, on a pro forma combined basis, after giving effect to (i) the
Acquisitions, (ii) the closing of the Offering and BrightStar's application of
its net proceeds therefrom to pay the cash portion of the aggregate
consideration for the Acquisitions and to repay indebtedness of the Founding
Companies (approximately $3.4 million) and
23
<PAGE> 25
(iii) the repayment by BrightStar of advances from BITI under the BITI Loan
Agreement, which have been used to fund payment of a part of the expenses of the
Offering, the Company would have an aggregate of $3.6 million of cash and cash
equivalents, $4.9 million of working capital.
On a combined basis, the Founding Companies made capital expenditures of
approximately $1.0 million in the year ended December 31, 1997, primarily for
office equipment and computers. The Company expects to install or upgrade its
accounting and management information systems and to install an internal network
and communications system to facilitate exchange of information among the
Founding Companies. Management presently anticipates that expenditures for these
items will total approximately $3.0 million over the next two years; however, no
assurance can be made with respect to the actual timing and amount of such
expenditures.
The Company has initiated preliminary discussions with potential lenders
regarding a credit facility (the "Credit Facility"), to be used for general
corporate purposes, including financing of acquisitions, capital expenditures
and working capital. On the basis of those discussions, the Company expects to
enter into the Credit Facility at or prior to the closing of the Offering and
that the Credit Facility will provide for a line of credit up to $30.0 million.
The ability of the Company to secure the Credit Facility is subject to
satisfactory negotiations with prospective lenders as well as the negotiation
and execution of definitive loan documentation. The Company expects that any
borrowings under the proposed Credit Facility will be secured by liens on
certain of the Company's assets (including accounts receivable and
after-acquired property) and that the Credit Facility will contain restrictions
on the incurrence of additional indebtedness and the payment of dividends to
holders of BrightStar's equity securities. There can be no assurance that the
Company can obtain a credit facility on terms currently it deems acceptable. If
the Company fails to obtain the Credit Facility, it could adversely affect the
Company's liquidity and ability to execute its acquisition strategy.
The Company intends to pursue acquisition opportunities. The timing, size
or success of any acquisition effort and the associated potential capital
commitments are unpredictable. The Company expects to fund future acquisitions
through the issuance of additional equity, as well as through a combination of
working capital, cash flow from operations and borrowings, including borrowings
under the Credit Facility.
The Company believes that cash flow from operations, borrowings under the
Credit Facility currently being negotiated and the unallocated net proceeds of
the Offering will be sufficient to fund its capital requirements for the
forseeable future.
INFLATION
Due to the relatively low levels of inflation experienced in the last three
years, inflation did not have a significant effect on the results of operations
of any of the Founding Companies in those periods.
EXPOSURE TO CURRENCY FLUCTUATIONS
During the year ended December 31, 1996 and the nine months ended September
30, 1997, the percentage of the Company's revenues generated outside the United
States was 25% and 28%, respectively. Except for arrangements involving SCS
Australia, the Company's service contracts and sales agreements provide for
payment in U.S. dollars. SCS Australia's sales are payable in Australian
dollars. The exchange rate of Australian dollars to U.S. dollars ranged from A$
= US$0.734 to US$0.816 during 1996, with a daily average of A$ = US$0.783 for
the year, and from A$ = US$0.650 to US$0.798 during 1997, with a daily average
of A$ = US$0.744 for that period. As of February 26, 1998, the exchange rate was
A$ = US$0.672. There can be no assurance that all of the Company's future
contracts will be payable in US or Australian dollars. To the extent that any of
the Company's future contracts are payable in foreign currencies, the Company
could be exposed to fluctuations in currency exchange rates. To hedge a portion
of the risks associated with such fluctuations, the Company may, from time to
time, engage in hedging transactions in the future. As of the date hereof,
however, the Company has no plans to repatriate cash from operations of SCS
Australia and it is not currently engaged in hedging transactions.
24
<PAGE> 26
RESULTS OF OPERATIONS -- BLACKMARR
The following table presents certain selected data (and that data as a
percentage of revenue) of Blackmarr on a historical basis for the periods
indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
------------------------------------------------- -------------------------------
1995 1996 1997 1996 1997
-------------- -------------- --------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue.............................. $7,043 100.0% $9,227 100.0% $12,190 100.0% $2,099 100.0% $6,623 100.0%
Cost of revenue.................... 5,592 79.4% 7,659 83.0% 10,063 82.6% 2,030 96.7% 5,810 87.8%
Selling, general and administrative
expenses......................... 1,413 20.1% 1,555 16.9% 1,668 13.7% 503 23.9% 817 12.3%
Stock compensation expense......... 305 2.5%
Depreciation and amortization...... 78 1.1% 101 1.1% 135 1.1% 26 1.2% 31 0.5%
------ ----- ------ ----- ------- ----- ------ ----- ------ -----
Income (loss) from operations........ $ (40) (0.6)% $ (88) (1.0)% $ 19 0.2% $ (460) (21.8)% $ (35) (0.6)%
====== ===== ====== ===== ======= ===== ====== ===== ====== =====
</TABLE>
Three Months Ended December 31, 1997 Compared to Three Months Ended December 31,
1996
Revenue -- Revenue increased $4.5 million, or 215.5%, for the three months
ended December 31, 1997 compared to the three months ended December 31, 1996.
The increase primarily resulted from (i) the addition of new customer contracts
representing an increase of $2.1 million, (ii) increased sales of hardware and
software products of $2.0 million and (iii) an increase of approximately
$300,000 from the education division, which expanded its course offerings from
the previous year.
Cost of revenue -- Cost of revenue increased $3.8 million, or 186.2%, for
the three months ended December 31, 1997 compared to the three months ended
December 31, 1996. The increase primarily resulted from an increase in variable
costs associated with the increased revenue generated. As a percentage of
revenue, cost of revenue decreased from 96.7% to 87.8%, for the three months
ended December 31, 1997 compared to the three months ended December 31, 1996.
The decrease was primarily attributable to an increase in gross revenue from
consulting services without a proportional increase in the variable costs
(primarily consultants' salaries) associated with that increase.
Selling, general and administrative expenses -- Selling, general and
administrative expenses increased approximately $300,000, or 62.4%, for the
three months ended December 31, 1997 compared to the three months ended December
31, 1996. As a percentage of revenue, selling, general and administrative
expenses decreased from 23.9% to 12.3% for the three months ended December 31,
1997 compared to the three months ended December 31, 1996. The percentage
decrease was attributable to the Company increasing revenue without substantial
additions in the number of support personnel. The increase in overall selling,
general and administrative expenses resulted primarily from higher bad debt
expense of $175,000 and $56,000 of legal expenses for the three months ended
December 31, 1997 as compared to the three months ended December 31, 1996.
Accounts Receivable -- As of December 31, 1997, accounts receivable were
$4.2 million. Revenue for the twelve months ended December 31, 1997 was $16.7
million. Therefore, days outstanding was 91.8 days. However, approximately $1.9
million of non-recurring equipment sales occurred late in the fourth quarter of
1997 and remained outstanding as of December 31, 1997. As adjusted, accounts
receivable were $2.3 million and were outstanding 50.3 days, which was well
within historical operating ranges. The Company does not believe that this
temporary increase will have any significance upon its future liquidity.
Year Ended September 30, 1997 Compared to Year Ended September 30, 1996
Revenue -- Revenues increased $2.9 million, or 32.1%, for the year ended
September 30, 1997 compared to the year ended September 30, 1996. The increase
primarily resulted from the addition of new customer contracts representing
revenue of approximately $2.0 million in the consulting division and an increase
of approximately $900,000 from the education division, which expanded its course
offerings from the previous year.
25
<PAGE> 27
Cost of revenue -- Cost of revenue increased $2.4 million, or 31.4%, for
the year ended September 30, 1997 compared to the year ended September 30, 1996.
The increase was directly proportional to the increase in revenues and was
comprised of additional operational personnel added to support increased client
contracts.
Selling, general and administrative expenses -- Selling, general and
administrative expenses increased approximately $100,000, or 7.3%, for the year
ended September 30, 1997 compared to the year ended September 30, 1996. As a
percentage of revenue, selling, general and administrative expenses decreased
from 16.9% to 13.7% for the year ended September 30, 1997 compared to the year
ended September 30, 1996. The percentage decrease was attributable to the
Company increasing revenue without substantial additions in the number of
support personnel.
Stock compensation expense -- During March 1997, Blackmarr issued 3,068
shares of its common stock to certain employees and in connection with these
stock issuances, compensation expense totaling $305,000 was recognized during
the year ended September 30, 1997 and is included in stock compensation expense.
Year Ended September 30, 1996 Compared to Year Ended September 30, 1995
Revenue -- Revenue increased $2.2 million, or 31.0%, for the year ended
September 30, 1996 compared to the year ended September 30, 1995. This increase
primarily resulted from additional consulting contracts with new customers and
increased sales of Blackmarr's proprietary software.
Cost of revenue -- Cost of revenue increased $2.1 million, or 37.0%, for
the year ended September 30, 1996 compared to year ended September 30, 1995. As
a percentage of revenue, cost of revenue increased from 79.4% to 83.0%, for the
year ended September 30, 1996 compared to the year ended September 30, 1995. The
increase was primarily attributable to a proportional increase in the number of
operational personnel to support new business and compensation increases for
professionals in response to market conditions.
Selling, general and administrative expenses -- Selling, general and
administrative expenses increased approximately $100,000, or 10.0%, for the year
ended September 30, 1996 compared to the year ended September 30, 1995. As a
percentage of revenue, selling, general and administrative expenses decreased
from 20.1% to 16.9% for the year ended September 30, 1996 compared to the year
ended September 30, 1995. This percentage decrease is primarily attributable to
the Blackmarr's revenue increasing without a corresponding increase in the
number of support staff.
LIQUIDITY
The following table sets forth selected information from Blackmarr's
statement of cash flows:
<TABLE>
<CAPTION>
THREE
MONTHS
YEAR ENDED SEPTEMBER 30, ENDED
------------------------ DECEMBER 31,
1995 1996 1997 1997
------ ------ ------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net Cash Provided (Used) by Operating
Activities...................................... $ 4 $ (79) $(256) $ 24
Net Cash Provided (Used) by Investing
Activities...................................... 487 (211) (52) (15)
Net Cash Provided (Used) by Financing
Activities...................................... (521) 237 311 (26)
----- ----- ----- ----
Net Change in Cash................................ $ (30) $ (53) $ 3 $(17)
===== ===== ===== ====
</TABLE>
Accounts receivable increased $1.5 million and other accrued expenses
increased by $1.7 million at December 31, 1997 as compared to September 30, 1997
as a result of increased sales of hardware and software products.
26
<PAGE> 28
At December 31, 1997, Blackmarr had $847,764 of borrowings outstanding
under a revolving line of credit provided by a commercial bank. The borrowing
capacity under the line of credit is $1.0 million, with interest payable monthly
at the bank's prime lending rate (8.5% at December 31, 1997) plus 1.0%.
Borrowings under the line of credit are due and payable on demand, are subject
to borrowing base requirements based on 80% of eligible accounts receivable (as
defined in a related financing and security agreement) and are secured by
Blackmarr's accounts receivable and guaranteed by Blackmarr's principal
stockholder.
On November 5, 1996, Blackmarr refinanced certain outstanding indebtedness
through borrowings under a new term loan in the principal amount of $261,557.
The term loan is payable in 24 monthly installments of $10,898, plus interest at
the bank's prime lending rate (8.5% at December 31, 1997) plus 0.5%. The term
loan is secured by Blackmarr's accounts receivable and a guarantee from
Blackmarr's principal stockholder. At December 31, 1997, the outstanding balance
under the term loan was $108,985 and matures October 1998.
At December 31, 1997, Blackmarr also had indebtedness outstanding under
another note payable in the principal amount of $104,200, which was issued to a
bank and is payable on demand, with interest at 10% per annum.
Year 2000 Compliance -- All of the Company's PC and client server-based
date referenced systems, including computer software and hardware, are already
Year 2000 compliant. There are no internal matters, therefore, that will affect
the Company's ability to process systems date-referenced information when Year
2000 arrives. The Company does not yet know of the extent to which the current
preparedness of its external business associates would show to adversely affect
its business transactions if test of their systems were made today. The Company
is communicating with these external sources and its objective is to obtain
their commitment that they will be year 2000 compliant by December 31, 1998.
ACCOUNTING MATTERS
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share." SFAS No. 128, which is effective for periods ending after December
15, 1997, simplifies the standards for computing earnings per share and replaces
the presentation of primary earnings per share with a presentation of basic
earnings per share. In June 1997, the FASB issued SFAS No. 130 "Reporting
Comprehensive Income," which establishes standards for the reporting and display
of comprehensive income and its components in the financial statements. SFAS No.
130 is effective for fiscal years beginning after December 15, 1997. In June
1997, the FASB also issued SFAS No. 131 "Disclosure About Segments of an
Enterprise and Related Information," which establishes standards for the way
public companies disclose information about operating segments, products and
services, geographic areas and major customers. SFAS 131 is effective for
financial statements for periods beginning after December 31, 1997. In October
1997, the AICPA issued Statement of Position 97-2 (SOP 97-2) "Software Revenue
Recognition" which provides guidance on when revenue should be recognized and in
what amounts for licensing, selling, leasing, or otherwise marketing computer
software. SOP 97-2 is effective for financial statements for periods beginning
after December 15, 1997. The Company believes initial adoption of these
standards will not have a material impact on its financial position or results
of operations.
27
<PAGE> 29
BUSINESS
SUMMARY
BrightStar is a professional services firm providing implementation of ERP
software systems and enterprise-wide business and technology solutions to
Fortune 1000 companies and other large organizations. The Company primarily
works with ERP software provided by SAP, PeopleSoft and Oracle. Through its
ERPQPLUS(SM) services, the Company provides solutions for the entire range of IT
systems development: ERP package software implementation, consulting, software
application development, systems integration, outsourcing, training, upgrade and
support. The Company is a SAP Implementation Partner in the U.S. and Australia
and has preferred business partner relationships with PeopleSoft, Oracle,
Microsoft and Novell. The Company has entered into agreements to acquire the
Founding Companies concurrently with the closing of the Offering. The Company's
goal is to become a leader in the fragmented IT services industry through
consolidation of complementary companies, expansion of its service and product
offerings and cross-selling to its combined customer base.
The Company employs more than 630 IT professionals in 13 U.S. and six
international locations and provides its services and products to clients across
a broad spectrum of industries, including communications, consumer products,
energy, financial services, healthcare, industrial, insurance, media,
professional services, retail and technology. The Company has maintained
long-term relationships with many of these clients involving a large number of
projects.
INDUSTRY BACKGROUND
The worldwide IT market has expanded significantly in recent years, driven
by the trend towards open systems, greater affordability and improvements in
operating performance. The IT services market has expanded along with the IT
industry in general. Forrester Research, an independent research organization
that provides information concerning the IT services industry, estimates that
the market for IT consulting, design, implementation, management and IT
outsourcing was $124.0 billion in 1996 and will increase to $303.1 billion by
2002, representing an approximate compounded annual growth rate of 16%.
The Company believes that among the leading factors driving growth in the
IT services market is the transition to ERP software systems and to distributed
computing technologies, such as client/server architectures, LANs, WANs, the
Internet and intranets, from mainframe-based computing and custom software
applications. Such systems offer increased functionality and flexibility that is
critical to the competitive needs of businesses. As an integral part of adopting
client server architecture, many organizations are replacing their disparate,
stand-alone legacy software applications with fully integrated, packaged ERP
software applications developed and marketed by leading vendors such as SAP,
PeopleSoft, Inc., Oracle Corp., BAAN B.V. and J.D. Edwards & Company. These ERP
software applications enable organizations to redesign their business processes
in such areas as product development, service delivery, manufacturing, human
resources, finance and accounting. The Gartner Group, an internationally
recognized consulting and research organization, has estimated that the global
ERP software market totaled more than $4.4 billion in 1996 and will grow to an
estimated $10.0 billion by the Year 2000.
The Company believes that the challenge of managing IT system transitions
while maintaining legacy systems is placing a severe strain on many corporate IT
departments. Many organizations do not have the resources to keep pace with
newer technologies and are reluctant to expand their IT departments and retrain
and re-deploy their in-house personnel to develop and implement newer
technologies. The Company believes that the cost to implement and integrate an
ERP system ranges from two to ten times the cost of the software license fee.
Although these services may be offered by ERP software developers, in most cases
ERP implementation and systems integration services are provided by third party
service providers, such as the Company. Moreover, organizations are increasingly
using third party service providers in the design and development of custom IT
solutions in order to improve efficiency, minimize the financial risks
associated with implementing new technologies and reduce their existing IT
infrastructures. Organizations are also using third party IT services providers
as a cost-effective solution to large one-time IT projects such as those
relating to
28
<PAGE> 30
the Year 2000 problem, which Gartner Group, Inc. has estimated will cost in
excess of $300 billion to resolve worldwide.
Although market share in the IT industry was initially concentrated among
large computer manufacturers, the industry has become increasingly competitive
and fragmented. IT outsourcing services are provided by numerous firms including
multinational accounting firms, systems consulting and implementation firms,
software application vendors, service groups of computer equipment companies,
general management consulting firms and technical personnel and data processing
outsourcing companies. Given the complexity of managing these outside
relationships, large businesses and other organizations are seeking to reduce
the number of IT services firms that they deal with to a select few whom they
can trust to complete projects successfully, on time and within budget. The
Company believes it has a opportunity to provide a broad range of services to
large organizations that are seeking to reduce the number of IT services firms
with which they do business.
THE BRIGHTSTAR APPROACH
The Company provides IT solutions based on its ERP*PLUS(SM) services
through experienced consultants located throughout the U.S. and worldwide. The
Company's approach emphasizes the following key advantages:
ERP Implementation Expertise; Comprehensive IT Capabilities. The
Company's services are based on its core ERP implementation expertise.
Through its ERP*PLUS(SM) services, the Company provides comprehensive IT
solutions to improve an organization's productivity. These services include
ERP package software implementation, systems integration, custom software
application development, consulting, outsourcing, IT training, upgrade and
support. The Company offers its clients (i) access to a comprehensive range
of IT solutions, allowing its clients to outsource more of their IT work
while reducing the number of companies with which they must deal, and (ii)
the support and resources of a large firm, with the flexibility and
responsiveness to changing client needs of a smaller firm.
Nationwide Presence with Strong Local Relationships. The Company
believes that its strong local and regional presence enables it to be
responsive to its clients' needs and enhances its ability to establish and
maintain long-term relationships with its clients. The Company believes
that each of its local offices has developed name recognition and goodwill,
and that, collectively, they create an opportunity to build a broad network
to provide enterprise-wide IT solutions to businesses and organizations on
a national basis.
Experienced Staff; Focus on Mission Critical Solutions. A critical
element of the Company's success has been its ability to staff its projects
with skilled and experienced consultants. The Company focuses on providing
IT solutions to its clients' strategic business problems, including
implementing ERP systems and developing custom applications software
designed to increase productivity, reduce costs and improve customer
service. To maintain this focus, the Company recruits and employs skilled,
senior-level consultants, project managers, engineers and other technical
personnel with experience in the vertical markets it serves. The Company
believes its ability to deliver such mission critical solutions fosters
long-term relationships with its existing clients and generates referrals
of new clients.
Creativity; Entrepreneurial Spirit. The Company believes that a key
reason for its historical growth has been the entrepreneurial spirit of
managers and employees of the Founding Companies. The Company operates with
a decentralized management structure which provides a motivating
environment for its staff and encourages the continuation of close client
relationships. Local office management is responsible for initiating client
contacts and establishing business relationships as well as the scheduling
of assignments, the hiring of employees and the development and
implementation of marketing strategies.
29
<PAGE> 31
GROWTH STRATEGY
The Company's goal is to be a leading provider of enterprise-wide IT
solutions by continuing its record growth and focus on ERP implementation. The
Company's growth strategy emphasizes the following elements:
Maximize Intrinsic Growth Opportunities. The Company intends to build
on the Founding Companies' history of internal growth. For the twelve
months ended December 31, 1997, the Founding Companies had combined revenue
of $59.5 million, an 83% increase over the comparable period in 1996. The
Company will centralize certain administrative functions enabling
management of the Founding Companies to focus on sales growth and project
execution. In addition, the Company intends to leverage its client base by
providing additional services to meet their comprehensive IT needs.
Capitalize on Cross-selling Opportunities. The Company intends to
enhance its growth by cross-selling its broad range of services to the
combined client base of the Founding Companies. The Company will continue
the regional and local marketing efforts of the Founding Companies, with
the enhanced capability to offer its clients a wider range of IT services
and products. The Company will implement programs enabling each Founding
Company to offer its particular IT expertise to the Company's combined
client base. The Company plans to coordinate teams consisting of IT
professionals from the Founding Companies to provide services to its major
clients.
Attract, Train, Motivate and Retain Highly Skilled Employees. The
Company maintains programs and personnel, including eight full-time
recruiters, to seek out and employ the best available IT professionals and
to train these professionals in both legacy systems and emerging
technologies. To attract, train, motivate and retain its employees, the
Company focuses on and provides (i) a corporate culture which promotes
creativity and an entrepreneurial spirit, (ii) compensation, incentive
programs and benefits including stock option grant and employee stock
purchase programs and (iii) career and advancement opportunities for its IT
professionals, including interdisciplinary training and access to the same
technical training programs offered to clients' IT professionals.
Expand Alliances With Leading Software Vendors. The Company is a SAP
Implementation Partner in the U.S. and Australia and the Company also has
preferred "business partner" relationships with PeopleSoft, Microsoft,
Novell and Oracle, among others. These relationships allow the Company to
use the business partner's name and the "business partner" designation in
marketing the Company's services. The Company believes these relationships
result in direct client referrals and enhanced industry recognition. The
Company also believes these relationships enable the Company to broaden its
customer base, increase its competitiveness and maintain its technological
leadership through access to the most current information and training on
leading software, hardware and information systems. The Company intends to
continue to cultivate these relationships and form alliances with other
leading software vendors in order to expand and increase its sales
opportunities.
Expand Through Strategic Acquisitions. The Company intends to
aggressively continue its acquisition program. The Company will seek
potential acquisition candidates to increase its expertise or further
broaden its IT service offerings and expand the Company's presence within
its existing geographic markets or enter into new geographic markets. The
Company will seek to acquire companies that have a strong history of growth
and profitability, strong employee retention, strong management and a
reputation for providing quality services. The Company believes that its
ability to add value to acquired operations by cross-selling its broad
range of IT services, providing an entrepreneurial environment and
enhancing access to financial resources will make it attractive to
acquisition candidates.
Commercialize Products Derived from IT Services. In the course of
developing and providing IT services to its clients, the Company has
developed products derived from software applications which can be used in
similar situations over a wide range of industries. The Company has
developed training products and Year 2000 compliance solution products
which it markets to multiple customers in multiple industries and has
executed a non-exclusive royalty agreement with a major publishing company
to distribute its proprietary A+ Certification training materials in the US
and internationally.
30
<PAGE> 32
ERP*PLUS(SM) SERVICES
ERPQPLUS(SM) is the Company's suite of services for implementing IT
solutions within organizations. ERPQPLUS(SM) solutions extend packaged ERP
software functionality throughout the enterprise or business unit. The solutions
are implemented at various operational levels within an organization:
manufacturing, distribution, human resources, finance and administration, among
others. The Company is organized around six service areas -- ERP implementation,
consulting, application development, systems integration, outsourcing, and
training -- which, together with its methodologies, comprise its ERPQPLUS(SM)
solution. The Company is a SAP Implementation Partner in the U.S. and Australia
and has preferred business partner relationships with Microsoft, PeopleSoft,
Novell and Oracle. Terms of these preferred relationships with software
developers vary, but typically include contracts providing for training,
software and marketing assistance by the software developer in exchange for the
maintenance of certain proficiencies and standards.
ERP Software Implementation. The Company assists organizations in all
aspects of implementing packaged software solutions provided by SAP, PeopleSoft
and Oracle. The Company's services include project scope planning, business
process definition, customization of software to meet client requirements,
integration of packaged software with existing systems, system support, database
integration, systems testing, end-user training, and maintenance and upgrade
support. A typical implementation includes the following:
Scenario/Process Workshops to define the project size and business process
methodology employed by the client to establish an implementation plan and
system structure prior to commencement of the project. This is a dynamic
process involving the client's staff and end-users and leveraging of their
knowledge base to identify the system requirements, define business
functions and goals, and develop a systems prototype of the organization's
business functions and goals.
Infrastructure Analysis and Adaptation to develop the architecture and
specifications by the client's technical staff, in conjunction with the
Company's project team, to jointly install and customize the system. This
phase includes the specification of external system interfaces and the
development of bridging methodologies for legacy system components. Package
applications are installed and code is developed for custom application
interfaces.
Data Conversion Planning and Execution to commence detailed recasting of
data and development of bridges to and from existing applications resulting
in a map of the conversion process.
Scenario/Use Case Testing to apply structured testing to confirm that
recasted data and bridges perform as designed and meet the client's stated
objectives and organizational requirements.
Production Implementation and Support to provide ongoing support including
maintenance, enhancement and modification support, design and development
of custom applications supporting additional system components, version
upgrade support and system documentation.
Consulting. The Company assists organizations in modernizing their
information systems and business processes in order to improve productivity and
business performance by defining strategic IT objectives, designing IT
infrastructures to support these objectives and managing implementation of IT
projects. The Company's consulting services include business process modeling
and reengineering, systems architecture and design, project management and
development of migration plans from mainframe legacy systems to distributed
computer networks utilizing client/server architectures. The Company is capable
of providing these IT consulting solutions at either the enterprise-wide or the
business function level.
Application Development. The Company provides mission critical software
application design, development and maintenance across a broad spectrum of
computing environments including client/server, midrange and mainframe business
systems as well as real-time process control systems. The Company's consultants
and software developers are typically engaged for part or all of the lifecycle
of application development, from requirements analysis and systems planning
through coding, testing, deployment and maintenance. The Company uses rapid
prototyping techniques, commercially available database and groupware software
and standard application development tools. As part of its systems maintenance
and support services, the
31
<PAGE> 33
Company assists clients in solving their Year 2000 programming issues. The
Company has designed and developed applications both independent of and as a
follow-on to its consulting engagements.
Systems Integration. The Company provides comprehensive systems integration
services including large-scale database integration, LAN and WAN systems design
and implementation, and the design and implementation of Internet applications
and intranets. The Company also develops and integrates turn-key control systems
for clients in the energy and process industries.
Outsourcing. The Company provides highly skilled IT professionals and
value-added services to augment the internal information systems staff of its
clients. The Company's IT professionals usually provide services at the client's
site, although services may be provided at the Company's facilities. The Company
is currently focused on providing IT professionals with Year 2000 remediation
skills. In addition, the Company provides specialized litigation support and
document management services including the scanning, indexing and electronic
archival of paper documents to assist its clients with their information
management needs.
Training. The Company maintains training centers in Scottsdale, Arizona,
Dallas, Texas and Lafayette, Louisiana. The Company's training programs for IT
professionals cover the Microsoft Certified Professional and MCSE programs, the
Computer Technology Industry Association's A+ Certification program and the
Novell Certified Network Administrator and Certified Network Engineer programs.
Through its preferred relationships with PeopleSoft and Oracle, the Company
provides end-user training to clients implementing those software applications.
The Company also provides training to its clients' IT personnel related to
custom software and applications developed and implemented by the Company. The
Company currently markets two IT training products, a Microsoft MCSE self-study
kit, designed to help students master the various components of the Microsoft
Certified System Engineer Program in preparation for certification, and the
Computing Technology Industry Association's A+ Certification Course, designed to
instruct students in personal computer technical skills. The Company recently
entered into a distribution agreement with a major U. S. publishing company to
distribute its A+ Certification domestically and internationally.
32
<PAGE> 34
CLIENTS AND MARKETS
The Company provides services to a diverse group of clients, primarily
Fortune 1000 companies and other large organizations. Many of these clients have
substantial recurring requirements for IT services and products and have
maintained ongoing relationships with the Company over several years. The
Company sells its services to its clients either directly or through its
relationships with SAP, PeopleSoft, Oracle, Microsoft and KPMG. The Founding
Companies had no customers which represented more than 10% of the pro forma
combined revenue for the year ended December 1997. While the Company is not
dependent on any single customer, the loss of one of its significant customers
could, at least on a short-term basis, have an adverse effect on the Company. A
partial list of clients served by the Company in 1997 is presented in the table
below:
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
COMMUNICATIONS/MEDIA CONSUMER PRODUCTS/RETAIL
- ----------------------------------------------------------------------------------------------------------------
ALLTEL Oxford University Mary Kay Cosmetics Tricon
Australia Post Press Pepsico Tandy
GTE Southwestern Bell Pizza Hut WalMart Stores
Time Warner
- ----------------------------------------------------------------------------------------------------------------
ENERGY FINANCIAL AND PROFESSIONAL SERVICES
- ----------------------------------------------------------------------------------------------------------------
Alinta Gas Pemex EDS O'Melveny & Myers
Chevron USA Shell Ernst & Young Price Waterhouse
Conoco Western Mining KPMG Peat Marwick
Entergy Corporation
Mobil Woodside Petroleum
Ocean Energy
- ----------------------------------------------------------------------------------------------------------------
GOVERNMENT/EDUCATION HEALTH CARE/INSURANCE
- ----------------------------------------------------------------------------------------------------------------
California Attorney Federal Reserve Banks Associated Hospital Johnson & Johnson
General of Dallas and Services of Maine Medical
California Houston Blue Cross/ Kaiser Permanente
Department Southern Methodist Blue Shield
of Transportation University Health Advantage
City of Los Angeles State of Arkansas
County of Ventura U.S. Department of
Agriculture
University of Texas
- ----------------------------------------------------------------------------------------------------------------
INDUSTRIAL TECHNOLOGY
- ----------------------------------------------------------------------------------------------------------------
General Electric Nissan 3Com Motorola
Kintetsu Spectrasite Autodesk SAP
Lockheed-Martin Toyota Australia Yamaha Fujitsu Texas Instruments
Mitsubishi Electric Intel
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
SALES AND MARKETING
The Company markets and provides its services directly through its
headquarters and branch offices. The Company intends to focus its sales and
marketing efforts on (i) cross-selling the Company's complementary service
capabilities across its combined client base, (ii) implementing a national
account program to secure larger clients, (iii) establishing the Company as a
provider of comprehensive IT services on a nationwide basis and (iv) providing
Company-wide marketing support to its sales staff through production and
distribution of marketing materials, telemarketing, and industry association and
trade shows and seminars. As of February 1, 1998, the Company had approximately
20 full time sales and marketing personnel.
33
<PAGE> 35
HUMAN RESOURCES
The Company employs more than 630 IT professionals, supported by a staff of
approximately 90 sales, marketing and administrative personnel. The Company's
success depends in large part upon its ability to attract, train, motivate and
retain highly skilled technical employees. Qualified technical employees are in
great demand and are likely to remain a limited resource for the foreseeable
future. The Company dedicates significant resources to recruiting professionals
with both IT consulting and industry experience, and maintains a staff of
recruiters to aid in this effort. The Company also provides numerous training
programs for its IT professionals, including the training programs offered to
its clients' IT professionals, which it believes provides an advantage in
attracting and retaining such professionals.
None of the Company's employees are subject to a collective bargaining
arrangement. The Company considers its relationships with its employees to be
good.
COMPETITION
The market for IT services is highly competitive and fragmented, is subject
to rapid change and has low barriers to entry. The Company competes for
potential clients with providers of outsourcing services, multinational
accounting firms, systems consulting and implementation firms, application
software firms, service groups of computer equipment companies, facilities
management companies, general management consulting firms and programming
companies. Many of these competitors have significantly greater financial,
technical and marketing resources and greater name recognition than the Company.
In addition, the Company competes with its clients' internal MIS departments.
The Company believes the principal competitive factors in the IT services
industry include responsiveness to client needs, availability of technical
personnel, speed of applications development, quality of service, price, project
management capabilities, technical expertise and ability to provide a wide
variety of IT services. The Company believes that its ability to compete also
depends in part on a number of competitive factors outside of its control,
including the ability of its competitors to attract, train, motivate and retain
qualified technical personnel, the ownership by competitors of software used by
potential clients, the development of software that would reduce or eliminate
the need for the Company's services, the price at which others offer comparable
services and the extent of its competitors' responsiveness to client needs. The
Company expects that competition could increase in the future, partly due to low
barriers to entry. See "Risk Factors -- Competition."
FOREIGN OPERATIONS
The Company believes that significant opportunities exist to sell its
products and services in different geographic regions around the world. Through
geographic diversity, the Company believes it can mitigate its exposure to
downturns in local or regional economies. The Company's foreign operations
accounted for approximately 28% of the Company's revenue on a pro forma combined
basis for the year ended December 31, 1997, of which approximately 98% was
generated by the Company's operations in Australia.
SCS Australia, one of the Founding Companies, is an Australian company and
generates substantially all of its revenue in Australia. Blackmarr, another
Founding Company, has operations in Caracas, Venezuela and London, England. In
addition, several of the other Founding Companies have performed projects
outside the U.S., but maintain no permanent offices outside the U.S. Other than
engagements involving SCS Australia, substantially all of the Company's service
contracts and product sales arrangements have historically been payable in U.S.
dollars.
The current and planned foreign operations of the Company are subject to
certain political, economic and other uncertainties not encountered in domestic
operations, including, among others, risks of war, expropriation or
nationalization of assets, renegotiation or nullification of existing contracts,
changing political conditions, changing laws and policies affecting trade and
investment, overlap of different tax structures, the general hazards associated
with the assertion of foreign sovereignty over certain areas in which operations
are conducted, costs of localizing products and services for foreign countries,
lack of acceptance of localized products and services in foreign countries,
longer accounts receivable payment cycles and logistical difficulties in
managing foreign operations. Foreign operations sometimes also face the
additional risks of fluctuating
34
<PAGE> 36
currency values, hard currency shortages and controls of foreign currency
exchange. See "Risk Factors -- International Operations."
INTELLECTUAL PROPERTY RIGHTS
The Company's success depends on certain methodologies it utilizes in
designing, installing and integrating computer software and systems and on other
proprietary intellectual property rights it has developed to serve its clients.
The Company's business includes the development of custom software in connection
with specific client engagements. Ownership of such software is generally
assigned to the client. The Company develops certain application software
products, or software "tools," which remain the property of the Company.
The Company relies on a combination of nondisclosure and other contractual
arrangements and trade secret, copyright and trademark laws to protect its
proprietary rights and the proprietary rights of third parties from whom the
Company licenses intellectual property. The Company generally enters into
confidentiality agreements with its employees and consultants and limits access
to, and distribution of, its proprietary information. There can be no assurance
that the steps taken by the Company in this regard will be adequate to deter
misappropriation of proprietary information or that the Company will be able to
detect unauthorized use and take appropriate steps to enforce its intellectual
property rights. In addition, the laws of some foreign countries may not protect
the Company's proprietary rights as fully or in the same manner as do the laws
of the U.S. Also, despite the steps taken by the Company to protect its
proprietary rights, there can be no assurance that others will not develop
technologies similar or superior to the Company's technology or design around
the proprietary rights owned by the Company. See "Risk Factors -- Intellectual
Property Rights."
PROPERTY
The Company's principal executive offices are located at 10375 Richmond
Avenue, Suite 1620, Houston, Texas 77042. The Company's lease on these premises
covers 4,658 square feet and expires on November 30, 2002. The headquarters of
the Founding Companies are located in seven facilities, and are leased at
aggregate current monthly rents of approximately $67,500. The Company believes
that its properties are adequate for its needs. Furthermore, the Company
believes that suitable additional or replacement space will be available when
required on terms favorable to the Company.
LEGAL PROCEEDINGS
Neither BrightStar nor any of the Founding Companies is involved in any
legal proceedings which the Company believes could have a material adverse
effect on the Company.
35
<PAGE> 37
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the executive
officers and directors of BrightStar.
<TABLE>
<CAPTION>
NAME AGE(1) POSITION
---- ------ --------
<S> <C> <C>
George M. Siegel...... 60 Chairman of the Board of Directors(2)
Marshall G. Webb...... 55 President, Chief Executive Officer and Director(2)
Michael A. Sooley..... 48 Executive Vice President and Chief Operating Officer
Thomas A. Hudgins..... 57 Executive Vice President of Sales and Marketing and Secretary
Daniel M. Cofall...... 43 Executive Vice President, Chief Financial Officer and Treasurer
Mark D. Diggs......... 50 Senior Vice President, Chief Projects and Integration Officer(5)
Brian R. Blackmarr.... 55 President of Blackmarr; Director(5)
Jennifer T. Barrett... 48 Director(4)(5)
</TABLE>
- ---------------
(1) At December 31, 1997
(2) Member of the Board Executive Committee
(3) Member of the Board Compensation Committee
(4) Member of the Board Audit Committee
(5) Appointment will become effective when the Offering closes
Members of the Board of Directors hold office until the next annual meeting
of stockholders and the election and qualification of their successors. Officers
are elected annually by, and serve at the discretion of, BrightStar's Board of
Directors.
George M. Siegel has served as Chairman of the Board of Directors of
BrightStar since its inception. Mr. Siegel co-founded MindWorks, a Founding
Company, in 1995. In 1990, he founded Dynamex Inc. (formerly Parcelway Courier
Systems, Inc.), and served as its President and Chief Executive Officer until
1995. In 1993, Mr. Siegel co-founded U.S. Delivery Systems, a public company
engaged in consolidating local messenger and delivery companies. Mr. Siegel
received his Bachelor of Science in Business Administration and Marketing from
Roosevelt University.
Marshall G. Webb has served as the President and Chief Executive Officer
of BrightStar since its inception. He co-founded SkillMaster, Inc. in 1987, and
served as its President and Chief Executive Officer from 1987 to 1994. He was
division president for Digital Solutions, Inc., a public company that purchased
SkillMaster's health care division, from 1994 to 1996. He returned to
SkillMaster in 1996 to supervise the successful acquisition by SkillMaster of a
group of privately held staffing services companies. From 1979 to 1987, Mr. Webb
served in the capacities of Chief Operating Officer, Senior Vice President and
Chief Financial Officer for Talent Tree, Inc. and Manpower, Inc., each of which
specializes in staffing services. Mr. Webb is an alumnus of Southern Methodist
University in Dallas, Texas, and is a certified public accountant.
Michael A. Sooley has served as the Executive Vice President and Chief
Operating Officer of BrightStar since September 1997. From 1992 until September
1997, Mr. Sooley served as the Chief Information Officer ("CIO") for Vinson &
Elkins LLP, a major international law firm headquartered in Houston, Texas. He
served as the CIO for Bronson, Bronson & McKinnon in San Francisco, California
from 1990 until 1992. Mr. Sooley previously served as a management consultant
with Peat, Marwick, Mitchell & Co. (now KPMG Peat Marwick LLP, a multinational
accounting firm), and as a systems engineer and project manager with Electronic
Data Systems, Inc., a technology services company. Mr. Sooley earned his
Bachelor of Science degree in Electrical Engineering from Trinity College, and
his Master of Science degree in Management Science from Rensselaer Polytechnic
Institute.
36
<PAGE> 38
Thomas A. Hudgins has served as the Executive Vice President of Sales and
Marketing and Secretary of BrightStar since its inception. He was a co-founder
of Delta X Corporation in 1967, a company engaged in the design and manufacture
of electronic hardware and software for production automation systems, and
served as its Executive Vice President until February of 1997. Mr. Hudgins is a
registered professional engineer licensed to practice in Texas, and received a
Bachelor of Science in Industrial Engineering from Texas Tech University.
Daniel M. Cofall has served as Executive Vice President, Chief Financial
Officer and Treasurer of BrightStar since its inception. From May 1995 to May
1997, Mr. Cofall served as Vice President of Finance and Chief Financial Officer
of Honor Management, Inc. From May 1994 to March 1995, he served in various
capacities, including Vice President of Finance and Administration, Chief
Financial Officer, Chairman of the Board of Directors and Chief Executive
Officer of Automated Telephone Management Systems, Inc., a public company
headquartered in Dallas, Texas. From May 1993 to May 1994, he was Vice President
of Finance for Affiliated Computer Services, Inc., and assisted in its initial
public offering. From 1991 to 1993, Mr. Cofall served as Director of Finance for
Maxum Health Care, a public company. Mr. Cofall graduated from Notre Dame
University with a Bachelor of Business Administration degree, majoring in both
Accounting and Finance. He received his Masters of Business Administration
degree from Southern Methodist University. Mr. Cofall has also been a professor
of corporate finance at the University of Dallas Graduate School of Management
in Dallas, Texas since 1985.
Mark D. Diggs will become BrightStar's Senior Vice President and Chief
Projects and Integration Officer at the closing of the Offering. In 1989, Mr.
Diggs co-founded SII, a Founding Company, and currently serves as its President
and Chief Executive Officer. In 1993, Mr. Diggs was named Entrepreneur of the
Year by the Association of Arkansas Entrepreneurs, and served as the group's
President in 1994. Mr. Diggs formerly served as Chairman of the Governor's
Technology Advisory Subcommittee to the Legislative Committee on Communications
for the State of Arkansas in 1996 and 1997. Mr. Diggs received a Bachelor of
Science in Mathematics from Arkansas State University, and received a Masters of
Science degree in computer science from American Technological University. Since
1986, Mr. Diggs has served as an Adjunct Facility Department Head for Webster
University, and as an adjunct professor for the Webster University Graduate
Center Master Degree Program for computer resources management.
Brian R. Blackmarr will become a director of BrightStar at the closing of
the Offering. Mr. Blackmarr has served as President of Blackmarr, a Founding
Company, since its inception in 1979. He is a registered professional engineer,
and is a member of the Board of Trustees of the Texas A&M University Research
Foundation. Mr. Blackmarr received a Bachelor of Science degree in
Mechanical/Industrial Engineering from the University of Texas -- Arlington, and
a Masters of Science degree in Operations Research and Mechanical/Industrial
Engineering from the University of Texas -- Austin.
Jennifer T. Barrett will become a director of BrightStar at the closing of
the Offering. Ms. Barrett has served in various capacities with Acxiom
Corporation, a leading information management and delivery company with
international operations, since 1974. She served as Vice President of Marketing
from 1986 to 1988 and Vice President of Business Development from 1988 to 1991.
She is currently a Group Leader in the Data Products Division focused on
Business Development reporting directly to the Division Leader. Ms. Barrett
received a Bachelor of Science degree in Mathematics and Computer Science from
the University of Texas at Austin.
In addition to these persons, the Company intends to continue to employ
substantially all the members of senior management of each of the Founding
Companies following the closing of the Acquisitions. The Company also intends to
nominate and elect three additional independent directors in the second quarter
of 1998.
37
<PAGE> 39
The following table sets forth certain information concerning certain
principals of the Founding Companies who will continue as employees of their
respective Founding Company following the consummation of the Acquisitions and
the Offering:
<TABLE>
<S> <C> <C>
Stephen D. Caswell........................... -- Managing Director of SCS Australia
Tom Hagen.................................... -- President of Mindworks
Michael A. Johnson........................... -- President of ICON
Michael A. Ober.............................. -- President of SCS America
Joel Rayden.................................. -- President of Zelo
</TABLE>
Stephen D. Caswell has served as Managing Director of SCS Australia, one of
the Founding Companies, since 1994.
Tom Hagen co-founded Mindworks, one of the Founding Companies, and has
served as its president since 1995.
Michael A. Johnson co-founded ICON, one of the Founding Companies, and has
served as its president since 1991.
Michael A. Ober co-founded SCS America, one of the Founding Companies, and
has served as its president since 1995.
Joel Rayden founded Zelo, one of the Founding Companies, and has served as
its president since 1992.
COMMITTEES OF THE BOARD
The Board of Directors has established an Executive Committee, an Audit
Committee and a Compensation Committee. The Executive Committee advises the
Board of Directors on matters relating to the senior management of BrightStar.
The Audit Committee recommends the appointment of auditors and oversees the
accounting and audit functions of the Company. The Compensation Committee
determines executive officers' and key employees' salaries and bonuses and
administers the 1997 Long-Term Incentive Plan. Messrs. Siegel, Webb and
Blackmarr will serve as members of the Executive Committee and Ms. Barrett will
serve as a member of the Audit Committee and the Compensation Committee.
DIRECTOR COMPENSATION
Directors who are employees of the Company do not receive additional
compensation for serving as directors. Directors who are not employees of the
Company ("Non-Employee Directors") receive no cash compensation for serving as
directors, except for reimbursement of expenses incurred in connection with
their attendance at Board and committee meetings or otherwise incurred in their
capacity as directors. Under BrightStar's 1997 Long-Term Incentive Plan, each
Non-Employee Director will receive options to acquire 5,000 shares of Common
Stock at the beginning of his or her first year of service as a director, and
options to acquire 5,000 shares of Common Stock at the beginning of each year of
service thereafter. See -- "1997 Long-Term Incentive Plan."
EXECUTIVE COMPENSATION AND EMPLOYMENT AGREEMENTS
BrightStar was organized in May 1997 and, prior to the Offering, has not
conducted any operations other than activities related to the Acquisitions and
the Offering. BrightStar has entered into employment agreements with Messrs.
Cofall and Sooley effective August 16, 1997 and October 1, 1997, respectively.
BrightStar has entered into employment agreements with each of Messrs. Webb and
Hudgins effective January 1, 1998. Mr. Blackmarr will enter into an employment
agreement with Brian R. Blackmarr and Associates, Inc. effective on the closing
of the Offering. Mr. Diggs will enter into an employment agreement with Software
Innovators, Inc. effective on the closing of the Offering. Mr. Webb and Mr.
Blackmarr will receive an annualized base salary of $175,000 and $225,000,
respectively. Messrs. Sooley, Hudgins, Cofall and Diggs will receive an
annualized base salary of $150,000.
38
<PAGE> 40
The executives of BrightStar will enter into employment agreements (the
"Executive Employment Agreements") which are similar in terms to those
employment agreements to be entered into between each of the Founding Companies
(or, in the case of SCS America and SCS Australia, successor corporations being
formed by BrightStar) and their executives as part of the Acquisitions. The
following summary of the Executive Employment Agreements does not purport to be
complete and is qualified by reference to them, copies of which have been filed
as exhibits to the Registration Statement of which this Prospectus is a part.
Each such Executive Employment Agreement provides for an annual base salary in
an amount not less than the initial specified amount and entitling the employee
to participate in all employee benefit plans sponsored by BrightStar in which
all other executive officers of BrightStar participate. Each of these agreements
has an initial three-year term and continues thereafter on a year-to-year basis
on the same terms and conditions existing at the time of renewal, subject to the
right of BrightStar and the employee to terminate the employee's employment at
any time. If the employee's employment is terminated by BrightStar without cause
(as defined) during the initial three year term, then that employee will be
entitled to (i) receive his current base salary together with any other earned
and unpaid compensation, vacation time accrued prior to termination plus an
amount equal to the amount of any earned bonuses and/or commissions, if any,
payable to the employee with respect to the 12 calendar months preceding
termination ("Severance Payments"), for the period ending the later of (a) the
end of the initial three year term of the agreement or (b) 12 months after
termination of employment and (ii) continued participation in BrightStar's
employee benefit plans (other than the granting of new awards under the 1997
Long-Term Incentive Plan or any other performance-based plan) for a period of 12
months following the date of termination. If an employee is terminated without
cause during any one-year extension of the initial term of the Agreement, then
that employee shall continue to receive Severance Payments for a period of 12
months after termination of such employment, and shall continue to participate
for such period in BrightStar's employee benefit plans (other than the granting
of new awards under the 1997 Long-Term Incentive Plan or any other
performance-based plan). If a change of control of BrightStar occurs, and the
terms of the employment agreement are not adopted, the employee will be entitled
to receive an amount equal to 36 months of his then-current base salary under
the agreement, payable on a monthly basis. Under the Executive Employment
Agreements, a "change of control" is defined as (i) the sale of substantially
all assets of the Company, or (ii) a merger, consolidation, liquidation or
reorganization of the Company in which the Company or an affiliate of the
Company is not the surviving entity, or which results, in any event, in a change
of control of the Company. The Executive Employment Agreements contain covenants
limiting competition with the Company during the term of the Executive
Employment Agreement and for an additional period to be the longer of four years
from inception of the agreement, or one year after termination of employment for
cause.
1997 LONG-TERM INCENTIVE PLAN
The Board of Directors (the "Board") and the stockholders of BrightStar
have adopted the 1997 Long-Term Incentive Plan which provides for the granting
of stock-based awards ("Awards") to directors, officers, management, and other
key employees of the Company. Pursuant to the Long-Term Incentive Plan, the
Board is authorized to award (1) stock options, (2) stock appreciation rights,
(3) restricted stock awards, (4) performance awards and (5) other stock-based
incentive awards. Stock options granted under the 1997 Long-Term Incentive Plan
may be either options that qualify as "incentive stock options" ("Incentive
Options"), within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), or options that do not qualify as "incentive
stock options" ("Non-qualified Options"). The 1997 Long-Term Incentive Plan,
which permits up to 1,000,000 shares of the Company's Common Stock to be issued,
terminates on December 31, 2007.
The 1997 Long-Term Incentive Plan may be administered by the Board or by
any committee of the Board designated by the Board, which consists of at least
two non-employee directors, to the extent required to qualify for certain
exemptions under Rule 16b-3 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and to satisfy the requirements of Section 162(m) of the
Code. Subject to the terms of the 1997 Long-Term Incentive Plan, the Board or
the committee determines the persons to whom Awards are granted and the terms
and the number of shares covered by each Award.
39
<PAGE> 41
The term of each option may not exceed ten years from the date the option
is granted, or five years in the case of an Incentive Option granted to a holder
of more than 10% of the fully-diluted capital stock of BrightStar. Non-qualified
Options and Incentive Options may become exercisable immediately after the date
of grant and may continue to be exercisable, in whole or in part, up to ten
years after the date of grant, as determined by the Board or the committee.
The 1997 Long-Term Incentive Plan provides that the Board or the committee
may provide for termination of an option in the case of termination of
employment or directorship or any other reason. No Award, other than
Non-qualified Options, may be transferred other than by will or the laws of
descent and distribution, and during the lifetime of an optionee may be
exercised only by the optionee.
The 1997 Long-Term Incentive Plan contains a provision accelerating the
receipt of benefits pursuant to Awards upon the occurrence of specified events,
including a merger or consolidation of BrightStar. The acceleration of vesting
of Awards in the event of a merger or other similar event may have the effect of
discouraging a proposal for merger, a takeover attempt or other efforts to gain
control of the Company.
Pursuant to the 1997 Long-Term Incentive Plan, Incentive Options to
purchase shares of Common Stock have been granted to the persons named in
"-- Executive Compensation and Employment Agreements" above as follows: 74,900
shares to George M. Siegel, 76,000 shares to Mr. Webb, 68,000 shares to Mr.
Cofall, 58,000 shares to Mr. Sooley, 68,000 shares to Mr. Hudgins, 68,000 shares
to Mr. Diggs and 7,500 shares to Mr. Blackmarr. Each of those Incentive Options
will have an exercise price per share equal to the initial price to the public
set forth on the cover of this Prospectus. Other than the Incentive Option to
Mr. Blackmarr, the Incentive Options will vest at the rate of 50% per year,
commencing on the date the initial public offering price is determined. Mr.
Blackmarr's Incentive Option will vest at the rate of 33 1/3% per year,
commencing on the anniversary of the date the initial public offering price is
determined. The Incentive Options will expire at the earlier of ten years from
the date of grant or three months following termination of employment.
Pursuant to action of the Board and under the terms of the 1997 Long-Term
Incentive Plan, BrightStar has approved Non-qualified Options for each of the
initial Non-Employee Directors as follows (the "Non-Employee Director Awards"):
(i) the automatic grant to each of the initial Non-Employee Directors (including
those elected to begin service at the closing of the Offering) of options to
purchase 5,000 shares of Common Stock, effective as of the date the initial
public offering price is determined, at an exercise price per share equal to the
initial per share public offering price, (ii) the automatic grant to each
Non-Employee Director elected after the closing of the Offering of options to
purchase 5,000 shares of Common Stock, effective on the date of that person's
initial election as a director, at an exercise price per share equal to the per
share fair market value of the Common Stock on the date of that grant, and (iii)
the automatic grant to each Non-Employee Director of options to purchase 5,000
shares of Common Stock at each annual meeting of stockholders thereafter at
which that director is re-elected or remains a director, unless such annual
meeting is held within three months following that person's election as a
director, at an exercise price per share equal to the per share fair market
value of the Common Stock on the date of grant. BrightStar has reserved 70,000
shares of Common Stock for issuance pursuant to the Non-Employee Director
Awards; however, the Board may revoke at any time the next automatic grant of
options otherwise provided for pursuant to the Non-Employee Director Awards.
Each option granted pursuant to the Non-Employee Director Awards shall be
exercisable immediately and shall expire ten years after the date of grant,
unless sooner exercised or canceled due to termination of service or death.
Payment on the exercise of an option may be in cash or, at the discretion
of the Board, by delivery of shares of Common Stock.
40
<PAGE> 42
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of February 26, 1998, and as adjusted to give
effect to the closing of the Acquisitions, the Share Exchange and the Offering,
as to (i) all persons who will then be the "beneficial owners", as defined by
the Securities and Exchange Commission ("SEC"), of 5% or more of the Common
Stock, (ii) each director and person nominated to become a director of
BrightStar on closing of the Offering; (iii) each executive officer of
BrightStar and (iv) all executive officers, directors and persons nominated to
become executive officers and directors of BrightStar as a group. All persons
listed have an address at the Company's principal executive offices and have
sole voting and investment power with respect to their shares, unless otherwise
indicated.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(3) OFFERING(3)(4)
------------------- -------------------
NUMBER OF NUMBER OF
BENEFICIAL OWNER(1)(2) SHARES PERCENT SHARES PERCENT
---------------------- --------- ------- --------- -------
<S> <C> <C> <C> <C>
Brian R. Blackmarr............................. -- -- 825,601 11.2%
Mark D. Diggs.................................. 67,900 7.3% 250,506 3.4%
George M. Siegel............................... 104,592 11.2% 137,227 1.9%
Marshall G. Webb............................... 132,242 14.1% 132,242 1.8%
Thomas A. Hudgins.............................. 122,409 13.1% 122,409 1.7%
Daniel M. Cofall............................... 109,909 11.8% 109,909 1.5%
Michael A. Sooley.............................. 89,000 9.6% 89,000 *
Jennifer T. Barrett............................ 5,000 * 5,000 *
All executive officers and directors as a group
(eight persons).............................. 631,052 57.0% 1,671,894 22.1%
</TABLE>
- ---------------
* Less than 1%.
(1) All persons listed have sole voting and investment power with respect to
their shares unless otherwise indicated.
(2) Includes shares subject to options which vest upon the completion of the
Offering held by various members of management, as follows: Mark D.
Diggs -- 34,000 shares; George M. Siegel -- 37,450 shares; Marshall G.
Webb -- 38,000 shares; Thomas A. Hudgins -- 34,000 shares; Daniel M.
Cafall -- 34,000 shares; Michael A. Sooley -- 29,000 shares; and Jennifer T.
Barrett -- 5,000 shares.
(3) Giving effect to the Share Exchange and the dissolution and liquidation of
BITI immediately following the closing of the Offering.
(4) Giving effect to the Offering and the issuance of 2,688,225 shares of Common
Stock in connection with the Acquisitions.
41
<PAGE> 43
CERTAIN TRANSACTIONS
ORGANIZATION OF BRIGHTSTAR
In connection with the formation of BrightStar, BITG issued 100,000 shares
of its common stock to BITI in consideration for a cash payment in the amount of
$10,000. George M. Siegel, Marshall G. Webb, Thomas A. Hudgins, Daniel M.
Cofall, and Mark D. Diggs, each of whom is an executive officer or director of
BrightStar, together with Michael Miller, chief financial officer of SII,
purchased all the outstanding Class B units of BITI, the only units authorized
to vote for the election of BITI managers, for aggregate consideration of
$10,000. Messrs. Siegel, Webb, Hudgins, Diggs and Miller also own all the
outstanding Series A-1 Class A units of BITI. Effective December 15, 1997, BITI
executed a share exchange agreement with BrightStar to effect the Share Exchange
concurrently with the closing of the Offering. The governing regulations of BITI
provide that BITI is to be dissolved and liquidated effective upon the closing
of the Offering. Upon dissolution and liquidation of BITI following the closing
of the Share Exchange and the Offering, (i) the holders of the Series A-1 Class
A units will receive in cash their original purchase price of $490,000
("Purchase Price") for the units, plus shares of Common Stock having an
aggregate value equal to the holder's Purchase Price, based on the initial
public offering price of the Common Stock (the "IPO Price"), (ii) the holders of
the Series A-2 Class A units will receive in cash their Purchase Price of $1.3
million for the units, plus shares of Common Stock having an aggregate value
equal to four times the holder's Purchase Price (based on the IPO Price), and
(iii) the holders of the Class B units are entitled to receive the remaining
shares of Common Stock received by BITI in the Share Exchange and the remaining
cash, if any.
In connection with the formation of BrightStar, BITG issued an aggregate of
41,958 shares of its common stock to its officers and directors (each of whom is
also an officer or director of the Company) at a purchase price of $0.10 per
share. Under the terms of the Share Exchange Agreement, BrightStar will exchange
shares of its newly issued Common Stock for all of the outstanding capital stock
of BITG (on a 8.2655-for-one basis) concurrently with the closing of the
Offering. BITI will receive 553,710 shares of Common Stock in connection with
the Share Exchange (of which an aggregate of 79,545 shares will then be
distributed to the holders of Class B units of BITI (as described above)) and an
aggregate of 474,165 shares will then be distributed to the holders of the
Series A-1 and Series A-2 Class A units of BITI (as described above). In
addition, an aggregate of 346,800 shares of Common Stock (the "Management
Compensation Shares") will be issued to members of BrightStar's management in
exchange for their shares of BITG common stock.
BrightStar has entered into stock repurchase agreements with each of
Messrs. Webb, Hudgins, Cofall and Sooley, pursuant to which BrightStar is
entitled to repurchase, for $0.10 per share, a portion of the Management
Compensation Shares issued to each of them, in the event such individual (i) is
terminated from his employment with BrightStar for cause (as defined in the
agreements) or (ii) voluntarily resigns from his employment with BrightStar
within 12 months of the closing of Offering. All Management Compensation Shares
held by such persons will initially be subject to the repurchase rights and that
number will be reduced pro rata each month thereafter until the end of that
12-month period. Messrs. Webb, Hudgins, Cofall and Sooley may not sell any of
the Management Compensation Shares so long as they remain subject to the
repurchase rights.
Pursuant to the BITI Loan Agreement, BITI has made cash advances to enable
BrightStar to pay various professional and administrative expenses in connection
with the formation of BrightStar, the acquisition of the Founding Companies and
the Offering. As of February 17, 1998, there were outstanding advances under the
BITI Loan Agreement totaling $1.5 million, which advances bear interest at 10%
per annum and are to be repaid within 30 days following the closing of the
Offering. All advances under the BITI Loan Agreement, together with accrued
interest thereon, will be repaid from the net proceeds of the Offering. See "Use
of Proceeds."
ACQUISITIONS OF THE FOUNDING COMPANIES
Concurrently with the closing of the Offering, BrightStar will acquire all
of the issued and outstanding capital stock or substantially all of the assets
of the Founding Companies, at which time, each Founding
42
<PAGE> 44
Company will become a wholly owned subsidiary of BrightStar. The aggregate
consideration BrightStar will pay to acquire the Founding Companies (before the
Post-Closing Adjustments) consists of (i) approximately $31.3 million in cash,
(ii) 2,688,225 shares of Common Stock and (iii) approximately $7.0 million of
indebtedness of the Founding Companies to be assumed by BrightStar. In addition,
the purchase price for each of SCS Australia and SII may be increased by a
Post-Closing Adjustment, which, for SCS Australia, may be up to 209,230 shares
of Common Stock based on actual fiscal 1998 revenues exceeding a certain
threshold, and for SII will be equal to one-third of the amount of SII's actual
fiscal 1998 pre-tax net income in excess of $1.3 million, and which, in each
case, is to be payable in shares of Common Stock valued at the initial price to
the public set forth on the cover of this Prospectus. The Company currently
estimates, however, that no shares of Common Stock will be issuable in
connection with the Post-Closing Adjustments. The consideration being paid in
the Acquisitions was determined by arm's-length negotiations between the Company
and the respective Founding Companies.
The closing of each Acquisition is subject to customary conditions
including, among others: the continuing accuracy of the representations and
warranties made by the parties thereto, the performance of their respective
covenants included in the agreements relating to the Acquisitions; and the
nonexistence of a material adverse change in the results of operations,
financial condition or business of each Founding Company prior to the closing
date. There can be no assurance that the conditions to closing of the
Acquisitions will be satisfied or waived or that the acquisition agreements will
not be terminated prior to consummation.
The following table sets forth the consideration to be paid and debt
assumed for each of the Founding Companies.
<TABLE>
<CAPTION>
SHARES OF DEBT
CASH COMMON STOCK ASSUMED
------- ------------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Blackmarr(1).............................. $ 3,237 1,078,936 $1,125
ICON...................................... 6,136 340,893 1,925
Mindworks................................. 412 68,706 509
SCS America............................... 11,000 416,667 565
SCS Australia(2).......................... 9,769 488,470 1,766
SII(3).................................... 450 232,816 568
Zelo...................................... 318 61,737 523
------- --------- ------
Totals.......................... $31,322 2,688,225 $6,981
======= ========= ======
</TABLE>
- ---------------
(1) Marshall G. Webb, Thomas A. Hudgins, Daniel M. Cofall and Michael A. Sooley
have each agreed to exchange up to an aggregate of 346,800 of their shares
of Common Stock for an equal number of shares of Restricted Common Stock
contemporaneously with the closing of the Offering to the extent necessary
to ensure that the shareholders of Blackmarr will become, collectively, the
largest holder of Common Stock entitled to vote immediately following the
Acquisitions. See "Description of Capital Stock -- Common Stock and
Restricted Common Stock."
(2) Does not include shares of Common Stock issuable in connection with a
Post-Closing Adjustment to be based upon 1998 revenue.
(3) Does not include shares of Common Stock issuable in connection with a
Post-Closing Adjustment to be based upon 1998 pre-tax net income. The cash
consideration includes the assumed repayment of a $550,000 promissory note
(which is not included in the amount shown for debt assumed) issued in
December 1997 to a former stockholder of SII in exchange for his equity
interest in SII in anticipation of BrightStar's acquisition of SII.
43
<PAGE> 45
As consideration for their interests in the Founding Companies, certain
officers, directors and beneficial owners of more than 5% of the outstanding
shares of Common Stock will receive cash and shares of Common Stock of the
Company as set forth in the table below.
<TABLE>
<CAPTION>
SHARES OF
NAME CASH COMMON STOCK
---- ------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
George M. Siegel...................................... $ 196 32,635
Brian R. Blackmarr.................................... 2,477 825,601
Mark D. Diggs......................................... 338 174,612
------ ---------
Total....................................... $3,011 1,032,848
====== =========
</TABLE>
In connection with the Acquisitions, the Company will enter into employment
agreements with certain key employees of the Founding Companies. Total annual
compensation pursuant to such agreements ranges from approximately $90,000 to
approximately $225,000 depending on the duties of such employees and their
positions with the Founding Companies. These employment agreements have terms of
three years and generally provide, among other things, that the employee will
not compete with the Company during the term of the employment agreement and for
additional periods of up to the greater of one year after the termination of
their employment thereunder or the termination date set forth in the agreement.
For a discussion of the employment agreements between the Company and its
executive officers, see "Management -- Executive Compensation and Employment
Agreements."
FINANCIAL ADVISORY SERVICES
In August 1997, BITG engaged McFarland, Grossman & Company, Inc. ("MGCO")
to provide financial advisory services for a period of six months in connection
with the Acquisitions and related financings. Under the terms of the engagement
letter between BrightStar and MGCO (the "MGCO Engagement Letter"), BrightStar
paid MGCO an initial advisory fee of $15,500, plus monthly fees aggregating
$75,000 through December 1997, and reimbursed MGCO for its out-of-pocket
expenses relating to the services provided. In connection with the MGCO
Engagement Letter, BITG issued the MG Warrant to MGCO for $100 in cash. Pursuant
to the Share Exchange Agreement, BrightStar has assumed all obligations of BITG
under the MG Warrant. As adopted by BrightStar, the MG Warrant provides for the
purchase of up to 50,000 shares of Common Stock, at a per share exercise price
equal to the lesser of $6.00 or 60% of the initial public offering price set
forth on the cover page of this Prospectus. The MG Warrant may be exercised in
whole or, from time to time, in part, at any time during the five-year period
beginning on the issuance date of the MG Warrant. BrightStar granted certain
registration rights to MGCO with respect to the shares of Common Stock issuable
upon exercise of the MG Warrant.
Pursuant to the MGCO Engagement Letter, MGCO will be entitled to receive
the following fees in the future: (i) a graduated fee of not less than $400,000
payable upon the closing of the Acquisitions, which is estimated to be $1.5
million; (ii) a senior debt placement fee equal to 2% of the amount of any
future credit facility arranged by MGCO; and (iii) a private placement fee equal
to 6% of the amount of any private placement made by BrightStar within two years
of March 2, 1998 with any capital source introduced to BrightStar by MGCO during
the term of the MGCO Engagement Letter, together with a warrant to purchase an
amount equal to 10% of the securities issued in any such private placement at
the issue price in that private placement.
In September 1997, BITG engaged Brewer-Gruenert Capital Advisors, LLC
("BGCA"), to provide consulting services regarding corporate development matters
for a period of one year in connection with future acquisitions of IT companies
by BrightStar and any private investors introduced to BrightStar by BGCA. Under
the terms of the consulting agreement (the "BGCA Agreement") between BITG and
BGCA, as assumed by BrightStar, BrightStar will pay BGCA, at the close of the
Offering, an executive search fee of $60,000 for services rendered thereunder,
and will reimburse BGCA from time to time for its out-of-pocket expenses
relating to the services provided. In connection with the BGCA Agreement,
BrightStar also issued the BGCA Option giving BGCA the option to purchase the
number of shares of Common Stock equal to
44
<PAGE> 46
$100,000 divided by the difference between the per share initial public offering
price of the Common Stock set forth on the cover page of this Prospectus and the
exercise price of $6.00 per share.
Pursuant to the BGCA Agreement, BGCA will be entitled to receive the
following fees in the future: (i) a graduated success fee, payable on the
closing of an acquisition by the Company of a company presented to the Company
by BGCA and (ii) a cash fee equal to 10% of the amount of the gross investment
proceeds received by the Company from any investor identified by BGCA during the
term of the BGCA Agreement.
COMPANY POLICY
In the future, any material transactions between the Company and directors,
officers, employees or other affiliates of the Company are anticipated to be
minimal and will, in any case, be approved in advance by a majority of the
Board, including a majority of disinterested members of the Board.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Certificate of Incorporation authorizes the issuance of 40,000,000
shares of capital stock, consisting of 35,000,000 shares of Common Stock,
2,000,000 Shares of Restricted Common Stock and 3,000,000 shares of Preferred
Stock ("Preferred Stock"). At February 17, 1997, 100 shares of Common Stock were
outstanding (all of which were held by BITG), and no shares of Restricted Common
Stock or Preferred Stock were outstanding. On closing of the Acquisitions, the
Share Exchange and the Offering, BrightStar will have outstanding 7,338,735
shares of Common Stock, and no shares of Restricted Common Stock or Preferred
Stock will be outstanding. The following summary describes certain terms of
BrightStar's capital stock that the Company considers to be material to
prospective investors. Reference is made to the more detailed provisions of the
Certificate of Incorporation, which is included as an exhibit to the
Registration Statement of which this Prospectus is a part. All capitalized terms
used and not defined below have the respective meanings given to them in the
Certificate of Incorporation.
COMMON STOCK AND RESTRICTED COMMON STOCK
The holders of Common Stock are each entitled to one vote for each share
held on all matters to which they are entitled to vote, including the election
of directors. The holders of Restricted Common Stock have no voting rights.
After the closing of the Offering, the Board of Directors will be elected
annually and will serve one-year terms. Cumulative voting for the election of
directors is not permitted. Any director, or the entire Board of Directors, may
be removed at any time, with cause, by a majority of the aggregate number of
votes which may be cast by the holders of outstanding shares of Common Stock.
Any shares of Restricted Common Stock that may be issued will automatically
convert into Common Stock on a share-for-share basis (i) in the event of a
disposition of such shares of Restricted Common Stock by the holder thereof
(other than a disposition which is a distribution by a holder to its partners or
beneficial owners or a transfer to a related party of such holder), (ii) in the
event any person acquires beneficial ownership of 25% or more of the outstanding
shares of Common Stock of BrightStar at any time after consummation of the
Offering, (iii) 18 months after the closing of the Offering or (iv) in the event
a majority of the aggregate number of votes which may be cast by the holders of
outstanding shares of Common Stock approve such conversion.
Subject to the rights of any then outstanding shares of Preferred Stock,
holders of Common Stock (and Restricted Common Stock if any are issued) are
entitled to participate pro rata in such dividends as may be declared in the
discretion of the Board of Directors out of the funds legally available
therefor. Holders of Common Stock (and Restricted Common Stock if any are
issued) are entitled to share ratably in the net assets of BrightStar on
liquidation after payment or provision for all liabilities and any preferential
liquidation rights of any Preferred Stock then outstanding. Holders of Common
Stock and holders of Restricted Common Stock will have no preemptive rights to
purchase shares of stock of BrightStar. Shares of Common Stock are
45
<PAGE> 47
not subject to any redemption provisions and are not convertible into any other
securities of BrightStar. Shares of Restricted Common Stock, if issued, will not
be subject to any redemption provisions, but will be convertible into Common
Stock on the occurrence of certain events as described above. All outstanding
shares of Common Stock are, and the shares of Common Stock to be issued pursuant
to the Offering and the Acquisitions will be, on payment therefor, fully paid
and non-assessable.
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board in one or
more classes or series. Subject to the provisions of the Certificate of
Incorporation and limitations prescribed by law, the Board is expressly
authorized to adopt resolutions to issue the shares, to fix the number of shares
and to change the number of shares constituting any class or series and to
provide for or change the voting powers, designations, preferences and relative,
participating, optional or other special rights, qualifications, limitations or
restrictions thereof, including dividend rights (including whether dividends are
cumulative), dividend rates, terms of redemption (including sinking fund
provisions), redemption prices, conversion rights and liquidation preferences of
the shares constituting any series of the Preferred Stock, in each case without
any further action or vote by the stockholders. BrightStar has no current plans
to issue any shares of Preferred Stock.
One of the effects of undesignated Preferred Stock may be to enable the
Board to render more difficult or to discourage an attempt to obtain control of
BrightStar by means of a tender offer, proxy contest, merger or otherwise, and
thereby to protect the continuity of BrightStar's management. The issuance of
shares of the Preferred Stock pursuant to the Board's authority described above
may adversely affect the rights of the holders of Common Stock and Restricted
Common Stock. For example, Preferred Stock issued by BrightStar may rank prior
to the Common Stock and Restricted Common Stock as to dividend rights,
liquidation preference or both, may have full or limited voting rights and may
be convertible into shares of Common Stock. Accordingly, the issuance of shares
of Preferred Stock may discourage bids for the Common Stock or may otherwise
adversely affect the market price of the Common Stock.
STATUTORY BUSINESS COMBINATION PROVISION
BrightStar is subject to Section 203 of the DGCL which, with certain
exceptions, prohibits a Delaware corporation from engaging in any of a broad
range of business combinations with any "interested stockholder" for a period of
three years following the date that stockholder became an interested
stockholder, unless: (i) prior to that date, the board of directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, (ii) on closing
of the transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced, excluding
for purposes of determining the number of shares outstanding those shares owned
(a) by persons who are directors and also officers of the corporation and (b)
employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer, or (iii) on or after that date, the
business combination is approved by the board of directors and authorized at an
annual or special meeting of stockholders by the affirmative vote of at least
66 2/3% of the outstanding voting stock not owned by the interested stockholder.
Under Section 203, the restrictions described above also do not apply to certain
business combinations proposed by an interested stockholder following the
announcement or notification of one of certain extraordinary transactions
involving the corporation and a person who had not been an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of a majority of the corporation's directors who
were directors prior to that person becoming an interested stockholder during
the previous three years or were recommended for election or elected to succeed
those directors by a majority of those directors. An "interested stockholder" is
defined as any person that is (a) the owner of 15% or more of the outstanding
voting stock of the corporation or (b) an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting stock of
the corporation at any time within the three-year period immediately prior to
the date it is sought to be determined whether that person was an interested
stockholder.
46
<PAGE> 48
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
Pursuant to the Certificate of Incorporation and as permitted by Delaware
law, a director of BrightStar is not liable to BrightStar or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability in connection with a breach of duty of loyalty to BrightStar or its
stockholders, for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, for dividend payments,
stock repurchases or redemptions illegal under Delaware law or any transaction
in which that director derived an improper personal benefit.
Additionally, the Certificate of Incorporation provides that directors and
officers of BrightStar will be indemnified by BrightStar to the fullest extent
authorized by Delaware law, as it now exists or may in the future be amended,
against all expenses and liabilities actually and reasonably incurred in
connection with service for or on behalf of BrightStar, and further permits the
advancing of expenses incurred in defense of claims.
The Certificate of Incorporation also provides that any action required or
permitted to be taken by the stockholders of BrightStar must be effected at a
duly called meeting and may not be taken or effected by a written consent of
stockholders in lieu thereof. The Certificate of Incorporation provides that a
special meeting of stockholders may be called only by the President, the Board
or by such other person or persons as may be authorized in BrightStar's Bylaws.
BrightStar's Bylaws provide that only those matters set forth in the notice of
the special meeting may be considered or acted on at that special meeting. The
Certificate of Incorporation provides that the Board may adopt, amend or repeal
BrightStar's Bylaws by the affirmative vote of a majority of the Board without
the consent or vote of BrightStar's stockholders; provided, however, that the
stockholders of BrightStar may adopt, amend or repeal BrightStar's Bylaws by the
affirmative vote of the holders of at least a majority of the shares entitled to
vote in the election of directors which are present in person or represented by
proxy at a duly constituted meeting of BrightStar's stockholders at which a
quorum is present.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
On closing of the Acquisitions, the Share Exchange and the Offering,
7,338,735 shares of Common Stock will be outstanding. See "Certain
Transactions -- Acquisitions of the Founding Companies." The 3,750,000 shares of
Common Stock offered hereby will be freely tradeable unless acquired by
affiliates of BrightStar. All the remaining shares of Common Stock to be
outstanding on the closing of the Acquisitions (including shares to be issued in
connection with the Post-Closing Adjustments), the Share Exchange and the
Offering (as well as all shares issuable pursuant to the MG Warrant and the BGCA
Option) may be resold publicly only following their effective registration under
the Securities Act or pursuant to an exemption from the registration
requirements of that act, such as Rule 144 thereunder.
When the Offering closes, BrightStar also will have outstanding (i) options
to purchase approximately 605,000 shares of Common Stock, which were (or will
have been) granted pursuant to the 1997 Long-Term Incentive Plan, (ii) the MG
Warrant (which provides for the issuance of up to 50,000 shares of Common Stock
and grants the holder thereof certain registration rights) and (iii) the BGCA
Option (which provides for the issuance of up to 16,666 shares of Common Stock).
BrightStar intends to file a registration statement on Form S-8 to register the
shares issuable pursuant to its 1997 Long-Term Incentive Plan. After that
registration statement becomes effective, the shares registered thereby
generally will on issuance be available for sale in the open market by holders
who are not affiliates of BrightStar and, subject to the volume and other
limitations of Rule 144, by holders who are affiliates of BrightStar. See
"Management -- 1997 Long-Term Incentive Plan."
In general, under Rule 144, if a minimum of one year has elapsed since the
later of the date of acquisition of the restricted securities from BrightStar or
an affiliate of BrightStar, the holder (or holders whose shares of Common Stock
are aggregated), of such restricted securities, including holders who may be
deemed "affiliates
47
<PAGE> 49
of BrightStar," is entitled to sell within any three-month period a number of
shares that does not exceed the greater of (i) one percent of the then
outstanding shares of the Common Stock (approximately 73,000 shares on
completion of the Offering) or (ii) the average weekly reported volume of
trading of the Common Stock during the four calendar weeks preceding such sale.
Sales under Rule 144 are also subject to certain provisions regarding the manner
of sale, notice requirements and the availability of current public information
about BrightStar. Affiliates may sell shares not constituting restricted
securities in accordance with the foregoing volume limitations and other
requirements but without regard to the one year holding period. Under Rule
144(k), if a period of at least two years has elapsed since the later of the
date on which restricted securities were acquired from BrightStar or an
affiliate of BrightStar, a holder of such restricted securities who is not an
affiliate at the time of the sale and has not been an affiliate for at least
three months prior to the sale is entitled to sell the shares immediately
without regard to the volume limitations and other conditions of Rule 144
described above. The foregoing summary of Rule 144 is not intended to be a
complete description thereof and is qualified in its entirety by reference
thereto. The SEC has proposed certain amendments to Rule 144 that would, among
other things, eliminate the manner of sale requirements and revise the notice
provisions of that rule. The SEC has also solicited comments on other possible
changes to Rule 144, including possible revisions to the one- and two-year
holding periods and volume limitations described above.
BrightStar and its directors and executive officers, BITI, all persons who
will receive BrightStar Common Stock in connection with the Share Exchange and
all persons who receive shares of Common Stock in connection with the
Acquisitions have agreed not to directly or indirectly, offer for sale, sell,
contract to sell, grant any option or other right for the sale of, or otherwise
dispose of (or enter into any transaction or device which is designed to, or
could be expected to, result in the disposition by any person at any time in the
future of) any shares of Common Stock or any securities, indebtedness or other
rights exercisable for or convertible or exchangeable into shares of Common
Stock prior to the expiration of one year after the date of this Prospectus (the
"Lockup Period"), without the prior written consent of CIBC Oppenheimer Corp.,
except that BrightStar may issue Common Stock in connection with the
Acquisitions and in connection with future acquisitions, on exercise of the MG
Warrant and the BGCA Option and pursuant to Awards under the 1997 Long-Term
Incentive Plan, provided that the recipients of those shares agree not to offer
or sell any of those shares during the Lockup Period.
BrightStar intends to register 4,000,000 additional shares of Common Stock
under the Securities Act during the second quarter of 1998 for its use in
connection with future acquisitions. Those shares generally will be freely
tradable after their issuance by persons not affiliated with the Company except
to the extent that the Company contractually restricts their resale. Resales of
those shares during the Lockup Period would require the prior written consent of
CIBC Oppenheimer Corp. The registration rights described above do not apply to
the registration statement relating to the shares registered for use in
connection with future acquisitions.
48
<PAGE> 50
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting Agreement
(the "Underwriting Agreement"), BrightStar has agreed to sell to each of the
underwriters named below (the "Underwriters"), and each of the Underwriters, for
whom CIBC Oppenheimer Corp. and Dain Rauscher Incorporated are acting as the
representatives (the "Representatives"), has severally agreed to purchase from
BrightStar, the respective number of shares of Common Stock set forth opposite
the name of each such Underwriter below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
CIBC Oppenheimer Corp. .....................................
Dain Rauscher Incorporated .................................
---------
Total............................................. 3,750,000
=========
</TABLE>
The Underwriters propose to offer the shares of Common Stock directly to
the public initially at the public offering price set forth on the cover page of
this Prospectus and at such price less a concession of not in excess of
$ per share to certain security dealers, of which a concession not in
excess of $ per share may be reallowed to certain other securities
dealers. After this offering, the public offering price, allowances, concessions
and other selling terms may be changed by the Representatives.
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase Common Stock are subject to certain conditions,
including that if any of the Common Stock is purchased by the Underwriters
pursuant to the Underwriting Agreement, all such shares must be so purchased
(other than those covered by the over-allotment option described below).
BrightStar has granted to the Underwriters an option, exercisable for up to
30 days after the date of this Prospectus, to purchase up to an aggregate of
562,500 additional shares of Common Stock to cover over-allotments, if any. If
the Underwriters exercise such option, the Underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of shares to be purchased by each of them bears to the
3,750,000 shares of Common Stock offered hereby. BrightStar will be obligated,
pursuant to the over-allotment option to the Underwriters, to sell Common Stock
to the Underwriters to the extent that such over-allotment option is exercised.
BrightStar and its directors and executive officers, BITI, all persons who
will receive BrightStar Common Stock in connection with the Share Exchange and
all persons acquiring shares of Common Stock in connection with the Acquisitions
have agreed not to sell, offer, contract to sell, make a short sale, pledge or
otherwise dispose of any shares of Common Stock (or any securities convertible
into or exchangeable or exercisable for any other rights to purchase or acquire
Common Stock other than shares of Common Stock issuable upon exercise of
outstanding options) owned by them, for a period of one year after the date of
this Prospectus, without the prior written consent of CIBC Oppenheimer Corp.,
except that BrightStar may, subject to certain limitations, issue shares of
Common Stock in connection with the Acquisitions and in connection with future
acquisitions, on exercise of the MG Warrant and the BGCA Option and pursuant to
Awards under the 1997 Long-Term Incentive Plan, provided that the recipients of
these shares agree not to offer or sell any of these shares during the Lockup
Period.
49
<PAGE> 51
BrightStar has agreed to indemnify the Representatives and the several
Underwriters against certain liabilities, including, without limitation,
liabilities under the Securities Act, and to contribute, under certain
circumstances, to certain payments that the Underwriters may be required to make
in respect thereof.
The Representatives have informed BrightStar that the Underwriters do not
intend to confirm sales of shares of Common Stock offered hereby to accounts
over which they exercise discretionary authority.
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price will be negotiated between BrightStar
and the Representatives. Among the factors to be considered in determining the
initial public offering price, in addition to prevailing market conditions, will
be the history of and the prospects for the industry in which the Company
competes, the past and present operations of the Founding Companies, the
historical results of operations of the Founding Companies, the Company's
capital structure, estimates of the business potential and earnings prospects of
the Company, an overall assessment of the Company, an assessment of the
Company's management and the consideration of the above factors in relation to
market valuation of companies in related businesses. There can be no assurance
that an active trading market will develop for the Common Stock or as to the
price at which the Common Stock may trade in the public market from time to time
subsequent to the Offering made hereby.
The Representatives, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act.
Over-allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed a
specified maximum. Syndicate covering transactions involve purchases of the
Common Stock in the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit the
Representatives to reclaim a selling concession from a syndicate member when the
Common Stock originally sold by such syndicate member is purchased in a
syndicate covering transaction to cover syndicate short positions. Such
stabilizing transactions, syndicate covering transactions and penalty bids may
cause the price of the Common Stock to be higher than it would otherwise be in
the absence of such transactions. These transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
At the request of BrightStar, the Underwriters have reserved up to 187,500
of the shares of Common Stock offered hereby for sale at the initial public
offering price to employees of the Company and other persons associated with the
Company.
Any offer of the shares of Common Stock in Canada will be made only
pursuant to an exemption from the requirements to file a prospectus in the
relevant province of Canada in which such offer is made.
Purchasers of the shares of Common Stock offered hereby may be required to
pay stamp taxes and other charges in accordance with the law and practices of
the country of purchase, in addition to the offering price set forth on the
cover page hereof.
Dain Rauscher Incorporated ("Dain Rauscher") provided financial advisory
services to BrightStar in connection with the Acquisitions and the Offering, for
which Dain Rauscher will be paid a fee of $100,000, payable by BrightStar. Dain
Rauscher is also the holder of 20 Series A-2 Class A units of BITI, which it
acquired for a Purchase Price of $100,000.
LEGAL MATTERS
Certain legal matters in connection with the Common Stock being offered
hereby will be passed on for the Company by Chamberlain, Hrdlicka, White,
Williams & Martin of Houston, Texas. Certain members of Chamberlain, Hrdlicka,
White, Williams & Martin own Series A-2 Class A units of BITI, representing
approximately 3.8% of the outstanding Series A-2 Class A units. Certain legal
matters related to the Offering will be passed on for the Underwriters by
Fulbright & Jaworski, L.L.P., Houston, Texas.
50
<PAGE> 52
EXPERTS
The audited financial statements of Blackmarr, ICON, Mindworks, SCS
America, SII and Zelo included in this Prospectus have been audited by Deloitte
& Touche LLP, independent auditors, as indicated in their reports (included
herein), and are included in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
The audited financial statements of SCS Australia included in this
Prospectus have been audited by Deloitte Touche Tohmatsu, independent auditors,
as indicated in their report (included herein), and are included in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
ADDITIONAL INFORMATION
BrightStar has not previously been subject to the reporting requirements of
the Exchange Act. BrightStar has filed with the SEC a Registration Statement on
Form S-1 (together with all amendments, schedules and exhibits thereto, the
"Registration Statement") under the Securities Act, with respect to the Common
Stock offered hereby. This Prospectus, which is included as part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain portions of which have been omitted in
accordance with the rules and regulations of the Commission. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to herein are not necessarily complete, and in each instance
that a reference is made to a contract or other document filed as an exhibit to
the Registration Statement, each such statement is qualified in all respects by
such reference. A copy of the Registration Statement may be examined without
charge at the Commission's principal offices at 450 Fifth Street, N. W.,
Washington, D.C. 20549, and at the regional offices of the Commission located at
7 World Trade Center, Suite 1300, New York, New York 10048, and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or
any part of the Registration Statement may be obtained from the Public Reference
Section of the Commission upon payment of certain fees prescribed by the
Commission. Copies of such materials may also be obtained over the Internet at
http://www.sec.gov.
51
<PAGE> 53
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Unaudited Pro Forma Combined Financial Statements
Basis of Presentation of Unaudited Pro Forma Combined
Financial Statements.................................... F-2
Unaudited Pro Forma Combined Balance Sheet as of December
31, 1997................................................ F-3
Unaudited Pro Forma Combined Statement of Operations for
the year ended December 31, 1997........................ F-4
Notes to Unaudited Pro Forma Financial Statements......... F-5
Historical Financial Statements
Brian R. Blackmarr and Associates, Inc.
Independent Auditors' Report............................ F-11
Balance Sheet as of September 30, 1996 and 1997......... F-12
Statement of Operations for each of the three years in
the period ended September 30, 1997.................... F-13
Statement of Stockholders' Equity for each of the three
years in the period ended September 30, 1997........... F-14
Statement of Cash Flows for each of the three years in
the period ended September 30, 1997.................... F-15
Notes to Financial Statements........................... F-16
Integrated Controls, Inc.
Independent Auditors' Report............................ F-20
Balance Sheet as of December 31, 1996 and 1997.......... F-21
Statement of Income for each of the three years in the
period ended December 31, 1997......................... F-22
Statement of Stockholders' Equity for each of the three
years in the period ended December 31, 1997............ F-23
Statement of Cash Flows for each of the three years in
the period ended December 31, 1997..................... F-24
Notes to Financial Statements........................... F-25
Mindworks Professional Education Group, Inc.
Independent Auditors' Report............................ F-30
Balance Sheet as of December 31, 1996 and 1997.......... F-31
Statement of Operations for each of the two years in the
period ended December 31, 1997......................... F-32
Statement of Stockholders' Equity for each of the two
years in the period ended December 31, 1997............ F-33
Statement of Cash Flows for each of the two years in the
period ended December 31, 1997......................... F-34
Notes to Financial Statements........................... F-35
Software Consulting Services America, LLC
Independent Auditors' Report............................ F-39
Balance Sheet as of December 31, 1996 and 1997.......... F-40
Statement of Income for the period ended December 31,
1995 and each of the two years in the period ended
December 31, 1997...................................... F-41
Statement of Members' Equity for the period ended
December 31, 1995 and each of the two years in the
period ended December 31, 1997......................... F-42
Statement of Cash Flows for the period ended December
31, 1995 and each of the two years in the period ended
December 31, 1997...................................... F-43
Notes to Financial Statements........................... F-44
SCS Unit Trust
Independent Auditors' Report............................ F-48
Balance Sheet as of June 30, 1996 and 1997.............. F-49
Statement of Income for the period ended June 30, 1995
and for each of the two years in the period ended June
30, 1997............................................... F-50
Statement of Members' Equity for the period ended June
30, 1995 and for each of the two years in the period
ended June 30, 1997.................................... F-51
Statement of Cash Flows for the period ended June 30,
1995 and for each of the two years in the period ended
June 30, 1997.......................................... F-52
Notes to Financial Statements........................... F-53
Software Innovators, Inc.
Independent Auditors' Report............................ F-57
Balance Sheet as of July 31, 1996 and 1997.............. F-58
Statement of Operations for each of the two years in the
period ended July 31, 1997............................. F-59
Statement of Stockholders' Equity for each of the two
years in the period ended July 31, 1997................ F-60
Statement of Cash Flows for each of the two years in the
period ended July 31, 1997............................. F-61
Notes to Financial Statements........................... F-62
Zelo Group, Inc.
Independent Auditors' Report............................ F-65
Balance Sheet as of December 31, 1996 and 1997.......... F-66
Statement of Operations for each of the two years in the
period ended December 31, 1997......................... F-67
Statement of Stockholders' Deficit for each of the two
years in the period ended December 31, 1997............ F-68
Statement of Cash Flows for each of the two years in the
period ended December 31, 1997......................... F-69
Notes to Financial Statements........................... F-70
BIT Group Services, Inc.
Independent Auditors' Report............................ F-73
Balance Sheet as of December 31, 1997................... F-74
Statement of Operations for the period ended December
31, 1997............................................... F-75
Statement of Stockholder's Deficit for the period ended
December 31, 1997...................................... F-76
Statement of Cash Flows for the period ended December
31, 1997............................................... F-77
Notes to Financial Statements........................... F-78
</TABLE>
F-1
<PAGE> 54
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. AND FOUNDING COMPANIES
BASIS OF PRESENTATION OF UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give effect
to (i) the acquisitions (the "Acquisitions") by BrightStar Information
Technology Group, Inc. ("BrightStar") of (a) the outstanding capital stock of
Brian R. Blackmarr and Associates, Inc. ("Blackmarr"), Integrated Controls, Inc.
("ICON"), Mindworks Professionals Education Group, Inc. ("Mindworks"), Software
Innovators, Inc. ("SII"), Zelo Group, Inc ("Zelo") and (b) substantially all the
net assets of Software Consulting Services America, LLC ("SCS America") and SCS
Unit Trust ("SCS Australia" and, together with Blackmarr, ICON, Mindworks, SII,
Zelo, SCS America and SCS Australia, the "Founding Companies") and (ii) a share
exchange with BIT Investors, LLC ("BITI") and senior management of BrightStar
for all outstanding common stock of BIT Group Services, Inc. ("BITG") and (iii)
the closing of BrightStar's initial public offering (the "Offering") and the
application of the estimated net proceeds therefrom. BrightStar and the Founding
Companies are hereinafter collectively referred to as the "Company." The
Acquisitions will close concurrently with and as a condition to the closing of
the Offering and will be accounted for using the purchase method of accounting,
with Blackmarr being reflected as the "accounting acquiror." Pursuant to the
share exchange agreement between BrightStar and the BITG stockholders (the
"Share Exchange Agreement"), the aggregate amount of common stock issued in
connection with the Acquisitions and the Share Exchange shall be 3,588,735
shares (excluding any shares, par value $0.001 per share, of BrightStar ("Common
Stock") that may become issuable pursuant to post-closing adjustments to the
purchase price for two of the Acquisitions).
The unaudited pro forma combined balance sheet gives effect to the
Acquisitions and the Offering as if they had occurred on December 31, 1997. The
unaudited pro forma combined statements of operations give effect to the
Acquisitions and the Offering as if they had occurred on January 1, 1997.
The Company believes the combination of the Founding Companies will provide
opportunities to improve operating margins and increase profitability, including
the consolidation of certain duplicative administrative functions. The Company
believes it will be able to achieve operating efficiencies by consolidating
certain administrative functions. The pro forma financial information herein
reflects neither expected savings nor margin improvements but does reflect
management's estimate of certain incremental corporate general and
administrative costs.
The pro forma adjustments are based on preliminary estimates (primarily of
the aggregate purchase price of the Acquisitions), available information and
certain assumptions that management deems appropriate, but which may be revised
as additional information becomes available. The pro forma financial information
does not purport to represent what the Company's financial position or results
of operations would actually have been if such transactions had in fact occurred
on the dates assumed and is not necessarily representative of the Company's
financial position or results of operations for any future period. Since the
Founding Companies were not under common control or management, historical
combined results may not be comparable to, or indicative of, future performance.
The unaudited pro forma combined financial statements should be read in
conjunction with the other financial statements and notes thereto included in
this Prospectus. See "Risk Factors" included in this Prospectus.
F-2
<PAGE> 55
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
BLACKMARR ICON MINDWORKS SCS AMERICA SCS AUSTRALIA SII ZELO BITG
---------- ---------- --------- ----------- ------------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents........... $ 2,994 $ 170,711 $ 25,801 $ 332,254 $ 112,594 $ 745,852 $ -- $ 18,259
Accounts receivable,
net of allowance for
doubtful accounts..... 4,243,050 2,773,956 63,125 1,829,256 3,495,676 149,865 123,341
Inventory.............. 24,505
Unbilled revenue....... 652,711 153,391 631,401
Deferred taxes......... 161,564
Prepaid expenses and
other current
assets................ 11,806 11,000 36,190 800
---------- ---------- --------- ---------- ---------- --------- --------- ----------
Total current
assets............ 5,060,319 2,956,473 124,431 2,314,901 4,239,671 931,907 124,141 18,259
Property and equipment,
net................... 276,753 1,213,693 153,750 183,652 131,113 61,266 171,616 136,516
Goodwill............... 99,774
Other assets........... 88,300 87,565 33,985 37,499 40,929 500 4,027 1,950,000
---------- ---------- --------- ---------- ---------- --------- --------- ----------
TOTAL ASSETS........ $5,425,372 $4,357,505 $ 312,166 $2,536,052 $4,411,713 $ 993,673 $ 299,784 $2,104,775
========== ========== ========= ========== ========== ========= ========= ==========
Accounts payable....... $ 423,143 $ 184,723 $ 89,531 $ 981,793 $ 71,335 $ 130,381 $1,112,633
Short-term debt........ 847,764 1,372,583 $ 181,633 565,000 1,766,284 550,000 260,085 1,274,403
Current maturities of
long-term debt........ 213,185 276,600 44,262 130,000
Current portion of
capital lease
obligations........... 64,322 6,303 48,647
Accrued liabilities and
other accrued
expenses.............. 2,610,929 586,918 62,700 488,665 1,608,981 151,567 35,676
Deferred revenue....... 621,329 2,685
Deferred income
taxes................. 608,870 45,545
Payable to Founding
Companies.............
---------- ---------- --------- ---------- ---------- --------- --------- ----------
Total current
liabilities....... 4,780,672 3,029,694 291,280 1,143,196 4,357,058 824,750 569,113 2,422,712
Long-term debt, net of
current maturities.... 66,292 282,877
Capital lease
obligations, net of
current portion....... 209,854 11,907 83,886
Deferred taxes......... 111,594 6,306
---------- ---------- --------- ---------- ---------- --------- --------- ----------
Total long-term
liabilities....... -- 387,740 282,877 -- -- 18,213 83,886 --
Common stock........... 318,068 16,250 600 1,000 5,000 143
Stock warrants.........
Additional paid-in
capital............... 25,248 59,400 54,655 35,882 3,339,137
Retained earnings
(deficit)............. 326,632 1,078,608 (321,991) 1,392,856 667,578 (358,215) (3,657,217)
Treasury stock......... (180,035) (553,750)
---------- ---------- --------- ---------- ---------- --------- --------- ----------
Total equity........ 644,700 940,071 (261,991) 1,392,856 54,655 150,710 (353,215) (317,937)
---------- ---------- --------- ---------- ---------- --------- --------- ----------
TOTAL LIABILITIES
AND EQUITY........ $5,425,372 $4,357,505 $ 312,166 $2,536,052 $4,411,713 $ 993,673 $ 299,784 $2,104,775
========== ========== ========= ========== ========== ========= ========= ==========
<CAPTION>
PRO FORMA OFFERING
ADJUSTMENTS ADJUSTMENTS
BRIGHTSTAR TOTAL (NOTE 3A) PRO FORMA (NOTE 3) AS ADJUSTED
---------- ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents........... $ 1,000 $ 1,409,465 $ -- $ 1,409,465 $ 2,235,942(b)(c) $ 3,645,407
Accounts receivable,
net of allowance for
doubtful accounts..... 12,678,269 12,678,269 12,678,269
Inventory.............. 24,505 24,505 24,505
Unbilled revenue....... 1,437,503 1,437,503 1,437,503
Deferred taxes......... 161,564 161,564 161,564
Prepaid expenses and
other current
assets................ 59,796 59,796 59,796
-------- ------------ ----------- ----------- ----------- ------------
Total current
assets............ 1,000 15,771,102 -- 15,771,102 2,235,942 18,007,044
Property and equipment,
net................... 2,328,359 2,328,359 2,328,359
Goodwill............... 99,774 40,878,243 40,978,017 3,416,004(d) 44,394,021
Other assets........... 2,242,805 (1,950,000) 292,805 292,805
-------- ------------ ----------- ----------- ----------- ------------
TOTAL ASSETS........ $ 1,000 $ 20,442,040 $38,928,243 $59,370,283 $ 5,651,946 $ 65,022,229
======== ============ =========== =========== =========== ============
Accounts payable....... $ -- $ 2,993,539 $ -- $ 2,993,539 $ $ 2,993,539
Short-term debt........ 6,817,752 6,817,752 (3,678,885)(c) 3,138,867
Current maturities of
long-term debt........ 664,047 664,047 (664,047)(c) --
Current portion of
capital lease
obligations........... 119,272 119,272 119,272
Accrued liabilities and
other accrued
expenses.............. 5,545,436 5,545,436 5,545,436
Deferred revenue....... 624,014 624,014 624,014
Deferred income
taxes................. 654,415 654,415 654,415
Payable to Founding
Companies............. -- 31,321,957 31,321,957 (31,321,957)(c) --
-------- ------------ ----------- ----------- ----------- ------------
Total current
liabilities....... -- 17,418,475 31,321,957 48,740,432 (35,664,889) 13,075,543
Long-term debt, net of
current maturities.... 349,169 349,169 (349,169)(c) --
Capital lease
obligations, net of
current portion....... 305,647 305,647 305,647
Deferred taxes......... 117,900 117,900 117,900
-------- ------------ ----------- ----------- ----------- ------------
Total long-term
liabilities....... -- 772,716 772,716 (349,169) 423,547
Common stock........... 1,000 342,061 (20,958) 321,103 (313,765)(b) 7,338
Stock warrants......... 400,000(e) 400,000
Additional paid-in
capital............... 3,514,322 11,931,887 15,446,209 41,579,769(b),(d),(e),(f) 57,025,978
Retained earnings
(deficit)............. (871,749) (5,038,428) (5,910,177) (5,910,177)
Treasury stock......... (733,785) 733,785 -- -- --
-------- ------------ ----------- ----------- ----------- ------------
Total equity........ 1,000 2,250,849 7,606,286 9,857,135 41,666,004 51,523,139
-------- ------------ ----------- ----------- ----------- ------------
TOTAL LIABILITIES
AND EQUITY........ $ 1,000 $ 20,442,040 $38,928,243 $59,370,283 $ 5,651,946 $ 65,022,229
======== ============ =========== =========== =========== ============
</TABLE>
See notes to unaudited pro forma combined financial statements.
F-3
<PAGE> 56
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
BLACKMARR ICON MINDWORKS SCS AMERICA SCS AUSTRALIA SII ZELO
----------- ----------- ---------- ----------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue...................... $16,714,051 $11,503,504 $1,444,095 $8,401,117 $16,719,907 $3,618,324 $1,049,298
Cost of revenue.............. 13,843,732 7,631,356 590,440 6,176,798 13,225,315 2,133,158 582,428
----------- ----------- ---------- ---------- ----------- ---------- ----------
Gross profit................. 2,870,319 3,872,148 853,655 2,224,319 3,494,592 1,485,166 466,870
Selling, general and
administrative expenses.... 1,981,513 2,725,216 891,793 1,571,560 2,004,954 1,247,400 586,789
Stock compensation expense... 305,000
Depreciation and
amortization............... 139,303 275,084 69,726 74,656 67,329 24,352 40,403
Goodwill amortization........
----------- ----------- ---------- ---------- ----------- ---------- ----------
Income (loss) from
operations................. 444,503 871,848 (107,864) 578,103 1,422,309 213,414 (160,322)
Interest expense............. (105,659) (162,186) (27,468) (10,654) (186,230) (2,033) (30,223)
Other income (expense),
net........................ 33,060 20,933 (566) (155,687) 33,502
----------- ----------- ---------- ---------- ----------- ---------- ----------
Income (loss) before income
taxes...................... 371,904 730,595 (135,332) 566,883 1,080,392 244,883 (190,545)
Income tax provision......... 160,059 293,371 93,768
----------- ----------- ---------- ---------- ----------- ---------- ----------
Net income (loss)............ $ 211,845 $ 437,224 $ (135,332) $ 566,883 $ 1,080,392 $ 151,115 $ (190,545)
=========== =========== ========== ========== =========== ========== ==========
Net loss per basic and
diluted common share.......
Shares used in computing net
loss per basic and diluted
common share...............
<CAPTION>
CONSOLIDATED
BITG BRIGHTSTAR TOTAL ADJUSTMENTS PRO FORMA
------------ ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue...................... $ -- $ -- $59,450,296 $ $59,450,296
Cost of revenue.............. 44,183,227 44,183,227
----------- -------- ----------- ----------- -----------
Gross profit................. -- -- 15,267,069 -- 15,267,069
Selling, general and
administrative expenses.... 289,947 11,299,172 2,100,000(d)(f) 13,399,172
Stock compensation expense... 3,329,280 3,634,280 (3,329,280)(e)(g) 305,000
Depreciation and
amortization............... 2,314 693,167 -- 693,167
Goodwill amortization........ 1,109,851(b) 1,109,851
----------- -------- ----------- ----------- -----------
Income (loss) from
operations................. (3,621,541) (359,550) 119,429 (240,121)
Interest expense............. (35,676) (560,129) 194,148(a) (365,981)
Other income (expense),
net........................ (68,758) (68,758)
----------- -------- ----------- ----------- -----------
Income (loss) before income
taxes...................... (3,657,217) (988,437) 313,577 (674,860)
Income tax provision......... 547,198 (370,357)(c) 176,841
----------- -------- ----------- ----------- -----------
Net income (loss)............ $(3,657,217) $ -- $(1,535,635) $ 683,934 $ (851,701)
=========== ======== =========== =========== ===========
Net loss per basic and
diluted common share....... $ (0.12)
===========
Shares used in computing net
loss per basic and diluted
common share............... 7,338,735
===========
</TABLE>
See notes to unaudited pro forma combined financial statements.
F-4
<PAGE> 57
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. GENERAL
BrightStar was formed to create a national provider of information
technology consulting services. BrightStar has conducted no operations to date
and will acquire the Founding Companies concurrently with and as a condition to
the closing of the Offering.
The historical financial statements represent the financial position and
results of operations of the Founding Companies and were derived from the
respective Founding Companies' financial statements as indicated. All Founding
Companies have a December 31 year-end except for Blackmarr, SII and SCS
Australia. The unaudited pro forma combined statement of operations present (i)
the results of operations of Icon, Mindworks, SCS America, SCS Australia, SII
and Zelo for the year ended 1997 and (ii) the results of operations of Blackmarr
for the years ended September 30, 1996 and 1997. The audited historical
financial statements included herein have been included in accordance with Rule
3-05 of Regulation S-X of the Securities and Exchange Commission.
2. ACQUISITION OF FOUNDING COMPANIES
Concurrent with and as a condition to the closing of the Offering,
BrightStar will acquire all of the outstanding capital stock or substantially
all the net assets of the Founding Companies. The acquisitions will be accounted
for using the purchase method of accounting, with Blackmarr being treated as the
accounting acquiror. Management of BrightStar anticipates, based on its
preliminary analysis, that the historical carrying values of the Founding
Companies' assets and liabilities will approximate their fair values.
The following table sets forth the estimated consideration to be paid in
cash and shares of common stock. For purposes of computing the estimated
purchase price for accounting purposes, the value of the shares is determined
using an estimated fair value of $9.60 per share, which represents a discount of
20% from an assumed initial public offering price of $12.00 per share due to
restrictions on the resale and transferability of the shares to be issued in the
Acquisitions. The estimated purchase price for each Acquisition and related
allocations of the excess purchase price are subject to certain purchase price
adjustments at and following closing.
<TABLE>
<CAPTION>
AMOUNT IN COMMON
COMMON STOCK
CASH STOCK SHARES
------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Founding Company:
ICON.............................................. $ 6,136 $ 4,091 340,893
Mindworks......................................... 412 824 68,706
SCS America....................................... 11,000 5,000 416,667
SCS Australia(1).................................. 9,769 5,862 488,470
SII(2)............................................ 450 2,794 232,816
Zelo.............................................. 318 741 61,737
------- ------- ---------
Subtotal.................................. 28,085 19,312 1,609,289
Blackmarr......................................... 3,237 12,947 1,078,936
------- ------- ---------
Total..................................... 31,322 32,259 2,688,225
======= ======= =========
</TABLE>
- ---------------
(1) Does not include any shares of Common Stock that may be issuable in
connection with a post-closing adjustment to be based upon 1998 revenue. The
Company currently estimates that no shares of Common Stock will be issuable
in connection with that post-closing adjustment.
(2) Does not include any shares of Common Stock that may be issuable in
connection with a post-closing adjustment to be based upon 1998 pre-tax net
income. The Company currently estimates that no shares of Common Stock will
be issuable in connection with that post-closing adjustment. The cash
considera-
F-5
<PAGE> 58
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
tion includes the assumed repayment of a $550,000 promissory note issued in
December 1997 to a former stockholder of SII in exchange for his equity
interest in SII in anticipation of BrightStar's acquisition of SII.
In connection with the acquisitions of the Founding Companies, the excess
of cost over fair value of net assets acquired will be amortized using the
straight-line method over 40 years. Management of the acquired businesses have
successfully operated the Founding Companies for a number of years. BrightStar
is not aware of any major changes in the business conditions in which the
acquired Founding Companies operate which might affect the recoverability of the
recorded intangibles. However, in the event business conditions change, the
recoverability will be reevaluated based upon revised projections of future
undiscounted operating income and cash flows and, if impaired, the balances will
be adjusted accordingly.
3. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS AS OF
DECEMBER 31, 1997
PRO FORMA ADJUSTMENTS
a. Records the purchase by Blackmarr (the accounting acquiror for
financial statement purposes) of the other Founding Companies and
BITG, as described in Note 2, for an aggregate purchase price
consisting of an estimated $31.3 million in cash and 2,688,225 shares
of Common Stock, resulting in an aggregate of $40.9 million of
goodwill, which includes the effect of the write off of $1.9 million
of deferred offering costs that had been recorded by BITG. The
purchase price allocation below also gives effect to the writeoff of
the one-time charge for acquired in-process research and development
of $3.0 million discussed in note 4.f.
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
---------------
(IN THOUSANDS)
<S> <C>
Assets:
Goodwill.................................................. $40,878
Other assets,............................................. (1,950)
-------
Total assets...................................... $38,928
=======
Liabilities and stockholders' equity:
Payable to founding stockholders.......................... $31,322
-------
Stockholders' equity:
Common stock........................................... (21)
Paid-in capital........................................ 11,932
Retained earnings...................................... (5,039)
Treasury stock......................................... 734
-------
Total stockholders' equity........................ 7,606
-------
Total liabilities and stockholders' equity........ $38,928
=======
</TABLE>
F-6
<PAGE> 59
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
The following is the calculation of goodwill arising from the Acquisitions
of the Founding Companies and BITG:
<TABLE>
<S> <C>
Cash paid to founding companies............................. $ 31,322
Stock issued to founding companies (valued at $9.60 per
share).................................................... 25,807
Cash paid to Blackmarr, charged to retained earnings........ (3,237)
Discounted value of stock issued to Blackmarr included in
amount of stock issued to founding companies above........ (10,358)
--------
Total consideration (purchase price) attributable to
acquisition of founding companies and BITG by
Blackmarr, the accounting acquiror.................... 43,534
Pro forma combined net assets of all founding companies and
BITG...................................................... (2,251)
Net assets of Blackmarr..................................... 645
Deferred offering costs at BITG............................. 1,950
Goodwill at ICON............................................ 100
In process research and development......................... (3,000)
--------
Total.................................................. $ 40,978
========
</TABLE>
The following research and development projects comprise the $3.0 million
write-off of in-process research and development costs:
<TABLE>
<CAPTION>
ENTITY IN-PROCESS TECHNOLOGY ($ IN MILLION)
------ --------------------- --------------
(VALUE)
<S> <C> <C>
Zelo Group, Inc. ...................... Document Archiving System $0.50
Integrated Controls, Inc. ............. JAK Real Time Data and Intranet 1.50
Employee Analysis Software
Software Innovators, Inc. ............. Bridging/File Conversion Tool 0.60
Mindworks Professional Education Group, 0.40
Inc. ................................ Multimedia Training Software
-----
Total...................................................................... $3.00
=====
</TABLE>
OFFERING ADJUSTMENTS
b. Records the $45.0 million of cash proceeds from the issuance of shares
of Common Stock, net of estimated cash offering costs of $6.8 million.
Offering costs primarily consist of underwriting discounts and
commissions, accounting fees, legal fees, financial advisory fees
(including fees paid through the issuance to advisors of a warrant and
an option to purchase Common Stock) and printing expenses. Also
reflects adjustments to aggregate par value of Common Stock
outstanding after giving effect to the Offering to reflect the total
number of shares to be outstanding, including the shares to be issued
to BrightStar's management (see note 3.d).
c. Records the cash portion of the consideration paid in connection with
the Acquisitions and reduction of certain debt obligations with the
proceeds from the Offering.
d. Records the issuance of 79,545 shares of Common Stock to be issued as
consideration for the Class B units of BITI, which were issued to
members of the Company's management. These shares were valued at a
discount of 20% to the assumed initial public offering price of $12.00
per share, and represent a stock compensation charge of approximately
$.8 million and is reflected as a one-time charge to a contra paid-in
capital and will be amortized over the vesting period.
e. Records the issuance of 474,165 shares of Common Stock as
consideration for the Series A-1 and Series A-2 Class A units of BITI,
which represents financing costs in connection with arrangements
F-7
<PAGE> 60
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
entered into to fund start-up costs. These shares were valued at a
discount of 20% to the assumed initial public offering price of $12.00
per share. These shares less 118,331 shares issued to affiliated parties
have been included in goodwill as a cost of the acquisition of the
Founding Companies. The shares issued to affiliated parties have been
recorded as a charge to paid-in capital. Also, records the issuance of a
warrant and an option to purchase Common Stock, which were issued as
partial payment for certain financial advisory and consulting services.
f. Records the issuance of 346,800 shares of Common Stock issued to
senior management of BrightStar in the Share Exchange. These shares
were valued at a discount of 20% to the assumed initial offering price
of $12.00 per share, and represent a stock compensation charge of
approximately $3.3 million and is reflected as a one-time charge to a
contra paid-in-capital and will be amortized over the vesting period.
<TABLE>
<CAPTION>
OFFERING
(B) (C) (E) ADJUSTMENTS
-------- -------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents................... $ 38,250 $(36,014) $ $ 2,236
Goodwill.................................... 3,416 3,416
-------- -------- -------- --------
Total Assets............................. $ 38,250 $(36,014) $ 3,416 $ 5,652
======== ======== ======== ========
Liabilities and Stockholders' Equity:
Short-term debt payable..................... $ (3,679) $ (3,679)
Long-term debt, including current
maturities............................... (1,013) (1,013)
Cash consideration payable to Founding
Company stockholders..................... (31,322) (31,322)
-------- -------- -------- --------
Total Liabilities........................ (36,014) (36,014)
-------- -------- -------- --------
Stockholders' Equity:
Common stock............................. (314) (314)
Stock warrants........................... 400 400
Paid-in capital(d),(f)................... 38,564 3,016 41,580
-------- -------- -------- --------
Total Stockholders' Equity............... 38,250 3,416 41,666
-------- -------- -------- --------
Total Liabilities and Stockholders'
Equity................................. $ 38,250 $(36,014) $ 3,416 $ 5,652
======== ======== ======== ========
</TABLE>
4. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1997
a. Records the anticipated reduction in interest expense due to repayment
of the outstanding debt of the Founding Companies and the related
effect on the provision (benefit) for income taxes.
b. Records goodwill amortization related to the Acquisitions, using a
40-year estimated life, and the related tax benefit of deductible
goodwill amortization associated with the purchase of SCS America.
c. Records the incremental provisions for federal and state income taxes
relating to the conversion from an S Corporation (or other status not
subject to corporate-level income tax) to a C Corporation for each of
SCS America, SCS Australia, Mindworks and Zelo.
d. Records BrightStar's estimated corporate selling, general and
administrative expenses (consisting principally of salaries for
corporate personnel and related corporate facility costs) and the
related effect on the provision (benefit) for income taxes.
F-8
<PAGE> 61
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
e. Records the reversal of a non-cash compensation charge related to the
issuance of 346,800 shares of common stock issued to senior management
of BrightStar in the Share Exchange due to its non-recurring nature.
f. Excludes a $3.0 million one-time charge for acquired in-process
research and development from the Founding Companies, due to its
non-recurring nature.
g. Excludes a $0.8 million non-cash compensation charge related to the
issuance of 79,545 shares of common stock to be issued to members of
the Company's management, as consideration for the Class B units of
BITI, due to its non-recurring nature.
<TABLE>
<CAPTION>
OFFERING
(A) (B) (C) (D) (E) ADJUSTMENTS
------- ------- ------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenue....................... $ $ $ $ $ $
Cost of revenue...............
Selling, general and
administrative
expenses(f)................. 2,100 2,100
Depreciation and
amortization................
Stock compensation
expense(g).................. (3,329) (3,329)
Interest expense.............. (194) (194)
Goodwill amortization......... 1,110 1,110
------- ------- ------- ------- ------- -------
Income before taxes........... 194 (1,110) (2,100) 3,329 313
Provision (benefit) for income
taxes....................... 75 (142) 515 (819) (371)
------- ------- ------- ------- ------- -------
Net income (loss)........ $ 119 $ (968) $ (515) $(1,281) $ 3,329 $ 684
======= ======= ======= ======= ======= =======
</TABLE>
5. PRO FORMA LOSS PER COMMON SHARE
Basic EPS excludes dilution and is determined by dividing income available
to common stockholders by the weighted average number of common shares
outstanding during the period. The number of shares used to compute pro forma
basic loss per common share includes the total number of shares of common stock
outstanding when the Offering closes of 7,338,735 shares. Diluted EPS reflects
the potential dilution that could occur if securities and other contracts to
issue common stock were exercised or converted into common stock. Common shares
issuable upon exercise of common stock warrants and common stock options are
anti-dilutive (decreases the net loss per share) for the periods presented.
6. STOCKHOLDERS' EQUITY
COMMON STOCK PURCHASE WARRANT AND OPTION
In August 1997, BITG entered into an advisory agreement with an investment
banking firm, and issued a warrant (the "MG Warrant") to the firm for $100. The
MG warrant provides for the purchase of 50,000 shares of Common Stock at an
exercise price of the lesser of $6.00 per share or 60 percent of the initial
price to the public in the Offering and is exercisable at any time prior to
August 14, 2002.
In September 1997, BrightStar engaged Brewer-Gruenert Capital Advisors, LLC
("BGCA") to provide consulting services regarding corporate development matters
for a period of one year. In connection with the BGCA Agreement, BrightStar
issued the BGCA Option giving BGCA the option to purchase the number of shares
of Common Stock equal to $100,000 divided by the difference between the per
share initial public offering price of the Common Stock and $6.00 (16,666 shares
assuming an initial offering price of $12.00 per share).
F-9
<PAGE> 62
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
The estimated combined fair value of the MG Warrant and the BGCA Option of
$400,000 has been included in offering costs in the pro forma financial
statements, as a portion of financial advisory fees.
SHARE EXCHANGE AGREEMENT
In connection with the formation of BrightStar, BITG issued 100,000 shares
of its common stock to BITI in consideration for a cash payment in the amount of
$10,000. Effective December 15, 1997, BITI executed a share exchange agreement
with BrightStar to effect the Share Exchange concurrently with the closing of
the Offering. The governing regulations of BITI provide that BITI is to be
dissolved and liquidated effective upon the closing of the Offering. Upon
dissolution and liquidation of BITI following the closing of the Share Exchange
and the Offering, (i) the holders of the Series A-1 Class A units will receive
in cash their original purchase price of $490,000 ("Purchase Price") for the
units, plus shares of Common Stock having an aggregate value equal to the
holder's Purchase Price, based on the initial public offering price of the
Common Stock (the "IPO Price"), (ii) the holders of the Series A-2 Class A units
will receive in cash their Purchase Price of $1,300,000 for the units, plus
shares of Common Stock having an aggregate value equal to four times the
holder's Purchase Price (based on the IPO Price), and (iii) the holders of the
Class B units are entitled to receive the remaining shares of Common Stock
received by BITI in the Share Exchange and the remaining cash, if any.
In connection with the formation of BrightStar, BITG issued an aggregate of
41,958 shares of its common stock to its officers and directors (each of whom is
also an officer or director of the Company) at a purchase price of $0.10 per
share. Under the terms of the Share Exchange Agreement, BrightStar will exchange
shares of its newly issued Common Stock for all of the outstanding capital stock
of BITG (on a 8.2655-for-one basis) concurrently with the closing of the
Offering. BITI will receive 553,710 shares of Common Stock in connection with
the Share Exchange (of which an aggregate of 79,545 shares will then be
distributed to the holders of Class B units of BITI (as described above)) and an
aggregate of 474,165 shares will then be distributed to the holders of the
Series A-1 and Series A-2 Class A units of BITI (as described above). In
addition, an aggregate of 346,800 shares of Common Stock will be issued to
members of BrightStar's management in exchange for their shares of BITG common
stock.
F-10
<PAGE> 63
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Brian R. Blackmarr and Associates, Inc.:
We have audited the accompanying balance sheets of Brian R. Blackmarr and
Associates, Inc. (the "Company") as of September 30, 1996 and 1997, and the
related statements of operations, stockholders' equity and cash flows for each
of the three years in the period ended September 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Brian R. Blackmarr and Associates, Inc. at
September 30, 1996 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended September 30, 1997, in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
December 19, 1997
F-11
<PAGE> 64
BRIAN R. BLACKMARR AND ASSOCIATES, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------------------ ------------
1996 1997 1997
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................... $ 16,905 $ 19,777 $ 2,994
Certificate of deposit.............................. 60,000
Trade accounts receivable, net of allowance for
doubtful accounts of $442,438, $437,013 and
$451,534 at September 30, 1996 and 1997 and
December 31, 1997, respectively.................. 1,102,791 2,729,262 4,202,180
Accounts receivable -- employees.................... 47,500 39,529 3,355
Income tax refund receivable........................ 18,476 37,515 37,515
Unbilled revenue.................................... 285,046 151,704 652,711
Deferred tax asset.................................. 163,569 161,564 161,564
---------- ---------- ----------
Total current assets........................ 1,694,287 3,139,351 5,060,319
PROPERTY AND EQUIPMENT -- Net......................... 181,035 292,483 276,753
DEFERRED TAX ASSET.................................... 16,051 9,943 31,541
OTHER ASSETS.......................................... 34,702 58,845 56,759
---------- ---------- ----------
TOTAL ASSETS.......................................... $1,926,075 $3,500,622 $5,425,372
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................... $ 423,877 $ 421,293 $ 423,143
Line of credit...................................... 599,764 822,764 847,764
Current maturities of notes payable................. 37,332 234,981 213,185
Current maturities of capital lease obligations..... 30,200 76,299 64,322
Accrued salaries and payroll taxes.................. 224,633 401,740 675,669
Other accrued expenses.............................. 10,537 280,966 1,935,260
Income taxes payable................................ 32,609
Deferred revenue.................................... 101,969 563,987 621,329
---------- ---------- ----------
Total current liabilities................... 1,460,921 2,802,030 4,780,672
LONG-TERM DEBT:
Notes payable, net of current maturities............ 37,336 10,898
Capital lease obligations, net of current portion... 4,348 6,172
---------- ---------- ----------
Total long-term debt........................ 41,684 17,070 --
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value -- 100,000 shares
authorized, 10,000, 13,068 and 13,068 shares
issued and outstanding at September 30, 1996 and
1997 and December 31, 1997, respectively......... 10,000 318,068 318,068
Retained earnings................................... 413,470 363,454 326,632
---------- ---------- ----------
Total stockholders' equity.................. 423,470 681,522 644,700
---------- ---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY.................................... $1,926,075 $3,500,622 $5,425,372
========== ========== ==========
</TABLE>
See notes to financial statements.
F-12
<PAGE> 65
BRIAN R. BLACKMARR AND ASSOCIATES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
--------------------------------------- --------------------------
1995 1996 1997 1996 1997
---------- ---------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE..................... $7,043,296 $9,226,955 $12,189,942 $2,098,702 $6,622,811
COST OF REVENUE............. 5,592,329 7,659,342 10,063,300 2,029,516 5,809,948
---------- ---------- ----------- ---------- ----------
Gross profit.............. 1,450,967 1,567,613 2,126,642 69,186 812,863
OPERATING EXPENSES:
Selling, general and
administrative......... 1,413,485 1,554,926 1,667,897 503,326 816,942
Stock compensation
expense................ 305,000
Depreciation and
amortization........... 78,218 100,661 134,689 25,942 30,556
---------- ---------- ----------- ---------- ----------
Total operating
expenses........ 1,491,703 1,655,587 2,107,586 529,268 847,498
---------- ---------- ----------- ---------- ----------
INCOME (LOSS) FROM
OPERATIONS................ (40,736) (87,974) 19,056 (460,082) (34,635)
OTHER INCOME................ 185,782 124,412 33,414 7,310 6,956
INTEREST EXPENSE............ (66,343) (67,178) (96,020) (21,102) (30,741)
---------- ---------- ----------- ---------- ----------
INCOME (LOSS) BEFORE INCOME
TAXES..................... 78,703 (30,740) (43,550) (473,874) (58,420)
INCOME TAX EXPENSE
(BENEFIT)................. 39,233 106 6,466 (175,191) (21,598)
---------- ---------- ----------- ---------- ----------
NET INCOME (LOSS)........... $ 39,470 $ (30,846) $ (50,016) $ (298,683) $ (36,822)
========== ========== =========== ========== ==========
</TABLE>
See notes to financial statements.
F-13
<PAGE> 66
BRIAN R. BLACKMARR AND ASSOCIATES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
----------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ -------- -------- -------------
<S> <C> <C> <C> <C>
BALANCE, OCTOBER 1, 1994.......................... 10,000 $ 10,000 $404,846 $414,846
Net income...................................... 39,470 39,470
------ -------- -------- --------
BALANCE, SEPTEMBER 30, 1995....................... 10,000 10,000 444,316 454,316
Net loss........................................ (30,846) (30,846)
------ -------- -------- --------
BALANCE, SEPTEMBER 30, 1996....................... 10,000 10,000 413,470 423,470
Issuance of common stock........................ 3,068 308,068 308,068
Net loss........................................ (50,016) (50,016)
------ -------- -------- --------
BALANCE, SEPTEMBER 30, 1997....................... 13,068 318,068 363,454 681,522
Net loss (Unaudited)............................ (36,822) (36,822)
------ -------- -------- --------
BALANCE, DECEMBER 31, 1997 (Unaudited)............ 13,068 $318,068 $326,632 $644,700
====== ======== ======== ========
</TABLE>
See notes to financial statements.
\
F-14
<PAGE> 67
BRIAN R. BLACKMARR AND ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31
------------------------------------- --------------------------
1995 1996 1997 1996 1997
--------- --------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................. $ 39,470 $ (30,846) $ (50,016) $(298,683) $ (36,822)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization................... 78,218 100,661 134,689 25,942 30,556
Additions to allowance for doubtful accounts.... 464,510 (5,425) 15,000 14,521
Deferred income taxes........................... 14,591 (32,503) 8,113 (178,191) (21,598)
Compensation expense on issuance of common
stock......................................... 305,000
Cash provided by (used in) operating working
capital:
Trade accounts receivable..................... (170,773) (330,930) (1,621,046) 111,541 (1,487,439)
Accounts receivable -- employees.............. (39,799) (4,834) 7,971 11,137 36,174
Income tax refund receivable.................. (1,585) (16,891) (19,039)
Unbilled revenue.............................. 5,320 (158,693) 133,342 219,219 (501,007)
Other assets.................................. (14,456) 12,740 (24,143) (33,337) 2,086
Accounts payable.............................. 206,414 (300,708) (2,584) 190,285 1,850
Accrued salaries and payroll taxes............ 2,020 215,633 177,107 (131,188) 273,929
Other accrued expenses........................ 10,537 270,429 1,654,294
Income taxes payable.......................... 6,765 (83,417) (32,609) (2,521) 57,342
Deferred revenue.............................. (121,917) 76,043 462,018 (50,000)
--------- --------- ----------- --------- ----------
Net cash provided by (used in) operating
activities................................ 4,268 (78,698) (256,193) (120,796) 23,886
--------- --------- ----------- --------- ----------
INVESTING ACTIVITIES:
Redemption of (investment in) certificate of
deposit......................................... 500,000 (60,000) 60,000 60,000
Capital expenditures.............................. (13,013) (150,576) (111,612) (92,685) (14,826)
--------- --------- ----------- --------- ----------
Net cash provided by (used in) investing
activities................................ 486,987 (210,576) (51,612) (32,685) (14,826)
--------- --------- ----------- --------- ----------
FINANCING ACTIVITIES:
Borrowings under (payments on) line of credit..... 599,764 223,000 71,000 25,000
Proceeds from (payments on) term loan............. (454,596) (357,900) 141,679 165,593 (32,694)
Payments on note payable and capital lease
obligations..................................... (66,568) (5,068) (57,070) (20,706) (18,149)
Proceeds from issuance of common stock............ 3,068
--------- --------- ----------- --------- ----------
Net cash provided by (used in) financing
activities................................ (521,164) 236,796 310,677 215,887 (25,843)
--------- --------- ----------- --------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS....................................... (29,909) (52,478) 2,872 62,406 (16,783)
CASH AND CASH EQUIVALENTS:
Beginning of period............................... 99,292 69,383 16,905 16,905 19,777
--------- --------- ----------- --------- ----------
End of period..................................... $ 69,383 $ 16,905 $ 19,777 79,311 2,994
========= ========= =========== ========= ==========
SUPPLEMENTAL INFORMATION:
Interest paid..................................... $ 66,343 $ 67,178 $ 96,020 $ 21,102 $ 30,741
========= ========= =========== ========= ==========
Income taxes paid................................. $ 32,609 $ -- $ 50,000 $ -- $ --
========= ========= =========== ========= ==========
Equipment financed through capital leases......... $ -- $ 34,548 $ 47,923 $ 121,131 $ --
========= ========= =========== ========= ==========
</TABLE>
See notes to financial statements.
F-15
<PAGE> 68
BRIAN R. BLACKMARR AND ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization -- Brian R. Blackmarr and Associates, Inc., a Texas
corporation (the "Company"), is an interdisciplinary, professional consulting
firm that provides managerial information system and engineering services to a
variety of businesses and government agencies. The Company was incorporated in
1979 and is headquartered in Dallas, Texas.
Basis of Presentation and Use of Estimates -- The accompanying financial
statements have been prepared in accordance with generally accepted accounting
principles. The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition -- The Company provides its services for fees that are
primarily based on time and materials used to complete projects for clients.
Accordingly, revenue is recognized as consulting services are performed.
Unbilled revenue is recorded for contract services provided for which a billing
has not been rendered. Deferred revenue represents the excess of amounts billed
over contract costs and expenses incurred.
Cash Equivalents -- The Company's cash equivalents consist of liquid
investments purchased with original maturities of three months or less.
Property and Equipment -- The Company's various items of property and
equipment are stated at cost, less accumulated depreciation and amortization.
Depreciation is computed using the declining balance method over the estimated
useful lives of the assets, which range from three to seven years. Amortization
is computed over the estimated useful lives of the assets or the lease term,
whichever is shorter.
Financial Instruments -- The Company's financial instruments consist of
cash and cash equivalents, trade accounts receivable, short-term debt and
accounts and notes payable, the carrying values of which are reasonable
estimates of their fair values due to the short-term maturities or current
interest rates.
Deferred Income Taxes -- The Company provides for deferred income taxes
under the asset and liability method for temporary differences in the
recognition of income and expense for tax and financial reporting purposes.
Other Accrued Expenses -- Other accrued expenses at December 31, 1997
include accrued products costs of $1,584,300 related to costs incurred by the
Company to purchase hardware, software and related products to complete projects
for clients.
Interim Financial Information -- The interim financial statements as of
December 31, 1997 and for the three months ended December 31, 1996 and 1997 are
unaudited, and certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary to fairly present the
financial position, results of operations and cash flows with respect to the
interim financial statements, have been included. The results of operations for
the interim periods are not necessarily indicative of the results to be achieved
for the entire fiscal year.
F-16
<PAGE> 69
BRIAN R. BLACKMARR AND ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Computer equipment and software............................. $365,554 $475,928
Furniture and fixtures...................................... 243,399 244,637
Equipment under capital lease............................... 111,910 246,435
-------- --------
Total....................................................... 720,863 967,000
Less accumulated depreciation and amortization.............. 539,828 674,517
-------- --------
Property and equipment -- net..................... $181,035 $292,483
======== ========
</TABLE>
Depreciation and amortization expense charged to operations was $100,661
and $134,689 for the years ended September 30, 1996 and 1997, respectively.
3. LINE OF CREDIT AND LONG-TERM DEBT
At September 30, 1996 and 1997, the Company had $599,764 and $822,764,
respectively, of borrowings outstanding under a revolving line of credit
provided by a commercial bank. The borrowing capacity under the line of credit
was increased in November 1996 from $750,000 to $1,000,000, with interest
payable monthly at the bank's prime lending rate plus 1.0% (9.5% at September
30, 1997). Borrowings under the line of credit are due and payable on demand,
are subject to borrowing base requirements based on 80% of eligible accounts
receivable (as defined in a related financing and security agreement) and are
secured by the Company's accounts receivable and guaranteed by the Company's
principal stockholder.
At September 30, 1996, the Company also had indebtedness outstanding under
a promissory note issued to a financial institution in the amount of $74,668,
due in 36 monthly principal payments and bearing interest at the lender's prime
rate plus 1.5%. On November 5, 1996, the Company refinanced the indebtedness
outstanding under the line of credit and the promissory note. Through the
refinancing, a term loan in the principal amount of $261,557 was originated to
refinance $250,000 of indebtedness outstanding under the line of credit and the
balance due on the promissory note totaling $71,557, reduced by the Company's
$60,000 certificate of deposit. The term loan is payable in 24 monthly
installments of $10,898, plus interest at the bank's prime lending rate plus
0.5% (9.0% at September 30, 1997). The term loan is secured by the Company's
accounts receivable and a guarantee from the Company's principal stockholder. At
September 30, 1997, the outstanding balance under the term loan was $141,679 and
matures as follows: $130,781 through September 1998 and $10,898 through
September 1999.
At September 30, 1997, the Company also had indebtedness outstanding under
another note payable in the principal amount of $104,200, which was issued to a
bank and is payable on demand, with interest at 10% per annum.
4. INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1995 1996 1997
------- -------- -------
<S> <C> <C> <C>
Current expense...................................... $24,642 $ 32,609 $(1,647)
Deferred expense (benefit)........................... 14,591 (32,503) 8,113
------- -------- -------
Total...................................... $39,233 $ 106 $ 6,466
======= ======== =======
</TABLE>
F-17
<PAGE> 70
BRIAN R. BLACKMARR AND ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the statutory federal income tax rate to the effective
rate is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------------
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
Provision (benefit) at statutory rate............... $27,546 $(10,759) $(14,807)
State taxes, net of federal benefits................ 2,091 6 (1,293)
Nondeductible travel and entertainment.............. 9,596 10,859 22,566
------- -------- --------
Total..................................... $39,233 $ 106 $ 6,466
======= ======== ========
</TABLE>
The tax effects of temporary differences result in a net deferred tax asset
as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Current deferred tax asset -- allowance for doubtful
accounts.................................................. $163,569 $161,564
Noncurrent deferred tax asset -- property and equipment..... 16,051 9,943
-------- --------
Net deferred tax asset............................ $179,620 $171,507
======== ========
</TABLE>
Management believes that no valuation allowance against the net deferred
tax asset is necessary.
5. LEASE COMMITMENTS
The Company leases office space, computer workstations and office equipment
under various operating and capital leases, that expire at various dates through
the year 2000. At September 30, 1996 and 1997, assets recorded under capital
leases were $111,910 and $246,435, respectively, and related accumulated
amortization was $54,851 and $104,579, respectively.
Minimum future commitments under these agreements at September 30, 1997 are
as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
------- ---------
<S> <C> <C>
Year ending September 30:
1998...................................................... $78,063 $208,992
1999...................................................... 6,845 70,582
2000...................................................... 9,637
------- --------
Total minimum lease payments................................ 84,908 $289,211
========
Less amounts representing interest.......................... 2,437
-------
Present value of capital lease obligations.................. 82,471
Less current portion of capital lease obligations........... 76,299
-------
Long-term capital lease obligations, less current portion... $ 6,172
=======
</TABLE>
Rent expense was $365,214, $372,271 and $394,123 during the years ended
September 30, 1995, 1996 and 1997, respectively, and is included in selling,
general and administrative expense in the statements of operations.
6. COMMON STOCK
During March 1997, the Company issued 3,068 shares of common stock with an
estimated fair value of approximately $100 per share to certain employees for $1
per share. In connection with these stock issuances, compensation expense
totaling $305,000 was recognized during the year ended September 30, 1997 and is
included in stock compensation expense.
F-18
<PAGE> 71
BRIAN R. BLACKMARR AND ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. RETIREMENT PLAN
The Company maintains a 401(k) retirement plan in which substantially all
salaried employees are eligible to participate. Employees may contribute up to
15% of their compensation to the plan, subject to certain limits imposed by
regulations under the Internal Revenue Code. The Company may, at its sole
discretion, make contributions to the plan. The Company has not made any
contributions to the plan.
8. PENDING ACQUISITION
In December 1997, the stockholders of the Company entered into a definitive
agreement with BrightStar Information Technology Group, Inc. ("BrightStar") for
the acquisition by BrightStar of all the Company's outstanding common stock. The
consummation of the acquisition is contingent upon BrightStar's initial public
offering of its common stock.
* * * * * *
F-19
<PAGE> 72
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Integrated Controls, Inc.:
We have audited the accompanying balance sheets of Integrated Controls,
Inc. (the "Company") as of December 31, 1996 and 1997, and the related
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Integrated Controls, Inc. at December 31,
1996 and 1997, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 9, 1998
F-20
<PAGE> 73
INTEGRATED CONTROLS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 61,308 $ 170,711
Accounts receivable, net of allowance for doubtful
accounts of $10,000 and 30,000 at December 31, 1996 and
1997, respectively..................................... 1,634,927 2,773,956
Prepaid expenses and other current assets................. 41,748 11,806
---------- ----------
Total current assets.............................. 1,737,983 2,956,473
PROPERTY AND EQUIPMENT -- Net............................... 802,479 1,213,693
OTHER ASSETS:
Investment in and advances to affiliate................... 45,362 66,076
Goodwill, net of accumulated amortization................. 99,774
Deposits and other........................................ 10,926 21,489
---------- ----------
Total other assets................................ 56,288 187,339
---------- ----------
TOTAL ASSETS................................................ $2,596,750 $4,357,505
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings..................................... $ 983,702 $1,372,583
Current maturities of long-term debt and current portion
of capital lease obligations........................... 183,883 276,600
Accounts payable.......................................... 140,072 184,723
Accrued salaries and other liabilities.................... 246,074 586,918
Deferred income taxes..................................... 334,333 608,870
---------- ----------
Total current liabilities......................... 1,888,064 3,029,694
LONG-TERM LIABILITIES:
Long-term debt, net of current maturities................. 112,168 66,292
Capital lease obligations, net of current portion......... 209,854
Deferred income taxes..................................... 92,759 111,594
---------- ----------
Total long-term liabilities....................... 204,927 387,740
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value -- 600,000 shares authorized;
400,000 shares issued and outstanding at December 31,
1996 and December 31, 1997............................. 16,250 16,250
Additional paid-in capital................................ 25,248 25,248
Retained earnings......................................... 641,384 1,078,608
Treasury stock, 71,649 shares and 71,870 shares at cost at
December 31, 1996 and 1997 respectively................ (179,123) (180,035)
---------- ----------
Total stockholders' equity........................ 503,759 940,071
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $2,596,750 $4,357,505
========== ==========
</TABLE>
See notes to financial statements.
\
F-21
<PAGE> 74
INTEGRATED CONTROLS, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
REVENUE................................................ $3,745,356 $6,126,844 $11,503,504
COST OF REVENUE........................................ 2,598,960 4,000,727 7,631,356
---------- ---------- -----------
Gross profit......................................... 1,146,396 2,126,117 3,872,148
OPERATING EXPENSES:
Selling, general and administrative.................. 745,967 1,588,067 2,725,216
Depreciation and amortization........................ 59,665 124,066 275,084
---------- ---------- -----------
Total operating expenses..................... 805,632 1,712,133 3,000,300
---------- ---------- -----------
INCOME FROM OPERATIONS................................. 340,764 413,984 871,848
OTHER INCOME (EXPENSE):
Interest expense..................................... (23,768) (73,306) (162,186)
Equity in earnings of affiliate...................... 3,125 15,922 20,933
---------- ---------- -----------
Total other income (expense)................. (20,643) (57,384) (141,253)
---------- ---------- -----------
INCOME BEFORE INCOME TAXES............................. 320,121 356,600 730,595
INCOME TAX EXPENSE..................................... 117,720 141,151 293,371
---------- ---------- -----------
NET INCOME............................................. $ 202,401 $ 215,449 $ 437,224
========== ========== ===========
</TABLE>
See notes to financial statements.
F-22
<PAGE> 75
INTEGRATED CONTROLS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------- PAID-IN RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
------- ------- ---------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995............. 400,000 $16,250 $ -- $ 223,534 $ -- $ 239,784
Purchase of treasury shares........ (250,000) (250,000)
Net income......................... 202,401 202,401
------- ------- ------- ---------- --------- ---------
BALANCE, DECEMBER 31, 1995........... 400,000 16,250 -- 425,935 (250,000) 192,185
Sale of treasury shares in
connection with employee stock
purchase plan................... 25,248 70,877 96,125
Net income......................... 215,449 215,449
------- ------- ------- ---------- --------- ---------
BALANCE, DECEMBER 31, 1996........... 400,000 16,250 25,248 641,384 (179,123) 503,759
NET INCOME........................... 437,224 437,224
Purchase of treasury shares.......... (912) (912)
------- ------- ------- ---------- --------- ---------
BALANCE, DECEMBER 31, 1997........... 400,000 $16,250 $25,248 $1,078,608 $(180,035) $ 940,071
======= ======= ======= ========== ========= =========
</TABLE>
See notes to financial statements.
F-23
<PAGE> 76
INTEGRATED CONTROLS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
---------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income................................................ $ 202,401 $ 215,449 $ 437,224
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization........................... 59,665 124,066 275,084
Deferred income taxes................................... 117,720 141,151 293,372
Equity in earnings of affiliate......................... (3,125) (15,922) (20,933)
Cash provided by (used in) operating working capital:
Accounts receivable................................... (394,746) (727,566) (1,098,760)
Prepaid expenses and other current assets............. (2,822) (14,745) 29,942
Accounts payable...................................... 36,607 65,694 44,651
Accrued salaries and other liabilities................ 5,015 147,137 303,276
Deposits and other.................................... (2,802) (6,439) (3,455)
---------- ----------- -----------
Net cash provided by (used in) operating
activities....................................... 17,913 (71,175) 260,401
---------- ----------- -----------
INVESTING ACTIVITIES:
Capital expenditures...................................... (243,525) (561,411) (289,951)
Advances to and repayments from affiliate................. 78,323 7,219
Acquisition of Einstein Digital Media..................... (37,597)
---------- ----------- -----------
Net cash used in investing activities.............. (165,202) (554,192) (327,548)
---------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from short-term borrowings....................... 1,178,029 1,791,570 825,627
Repayment of short-term borrowings........................ (963,765) (1,231,779) (561,746)
Proceeds from issuance of long-term-debt.................. 83,692 309,508 183,177
Repayment of long-term-debt and capital lease
obligations............................................. (51,257) (132,914) (269,596)
Repayment of note payable to related party................ (150,000) --
Repurchase of treasury stock.............................. (100,000) (912)
Proceeds from issuance of common stock.................... 96,125 --
---------- ----------- -----------
Net cash provided by financing activities.......... 146,699 682,510 176,550
---------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (590) 57,143 109,403
CASH AND CASH EQUIVALENTS:
Beginning of period....................................... 4,755 4,165 61,308
---------- ----------- -----------
End of period............................................. $ 4,165 $ 61,308 $ 170,711
========== =========== ===========
SUPPLEMENTAL INFORMATION:
Interest paid............................................. $ 23,779 $ 73,363 $ 159,045
========== =========== ===========
Income taxes paid......................................... $ -- $ -- $ --
========== =========== ===========
NONCASH INVESTING AND FINANCING:
Note payable issued in connection with the acquisition of
Einstein Digital Media.................................. $ -- $ -- $ 125,000
========== =========== ===========
Equipment financed through capital leases................. $ -- $ -- $ 343,114
========== =========== ===========
Repurchase of common stock for note payable............... $ 150,000 $ -- $ --
========== =========== ===========
</TABLE>
See notes to financial statements.
F-24
<PAGE> 77
INTEGRATED CONTROLS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization -- Integrated Controls, Inc., a Louisiana corporation (the
"Company"), provides control system consulting, digital communication and
computer consulting services to various customers throughout the Gulf Coast area
of the United States and to certain international customers. The Company was
incorporated in 1991 and is headquartered in Lafayette, Louisiana and maintains
offices in Baton Rouge and New Orleans, Louisiana and Houston, Texas.
Basis of Presentation and Use of Estimates -- The accompanying financial
statements have been prepared in accordance with generally accepted accounting
principles. The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition -- The Company provides its services for fees that are
based on time and materials used to complete projects for clients. Accordingly,
revenue is recognized as digital communication and computer consulting services
are performed.
Cash Equivalents -- The Company's cash equivalents consist of liquid
investments purchased with original maturities of three months or less.
Property and Equipment -- The Company's various items of property and
equipment are stated at cost, less accumulated depreciation and amortization.
Depreciation is computed principally using straight-line methods over the
estimated useful lives of the individual assets, which range from five to 15
years. Leasehold improvements are amortized over the lease term.
Goodwill -- The goodwill reflected on the accompanying balance sheets
represents the cost in excess of estimated fair value of the net assets
(including tax attributions) acquired in the Einstein Digital Media acquisition
(see Note 2). Goodwill is being amortized on a straight-line basis over a
seven-year period.
Equity Investment -- The Company owns 50% of ICON Environmental Services,
Inc. ("ICON Environmental") and accounts for this investment using the equity
method of accounting. The Company's share of earnings of this affiliate totaled
$15,922 and $20,933 for the years ended December 31, 1996 and 1997,
respectively. The Company had outstanding advances to ICON Environmental
totaling $26,315 at December 31, 1996 and $26,096 at December 31, 1997. These
balances are included in the investment in and advances to affiliate account.
Financial Instruments -- The Company's financial instruments consist of
cash and cash equivalents, accounts receivable, short-term debt, and accounts
and notes payable, the carrying values of which are reasonable estimates of
their fair values due to their short-term maturities or current interest rates.
Deferred Income Taxes -- The Company provides for deferred income taxes
under the asset and liability method for temporary differences in the
recognition of income and expense for tax and financial reporting purposes.
2. ACQUISITION
On May 13, 1997, the Company acquired all the assets of Einstein Digital
Media for cash of $37,597, the issuance of a promissory note in the original
principal amount of $125,000 and the assumption of approximately $44,000 in
liabilities. Einstein Digital Media develops Internet-based advertising and
marketing media. Goodwill in the amount of $110,445 was recorded as a result of
the acquisition.
F-25
<PAGE> 78
INTEGRATED CONTROLS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
---------- ----------
<S> <C> <C>
Computer equipment and software............................. $ 769,781 $1,373,212
Furniture, fixtures and equipment........................... 247,412 319,609
Vehicles.................................................... 7,900 7,900
---------- ----------
Total............................................. 1,025,093 1,700,721
Less accumulated depreciation and amortization.............. 222,614 487,028
---------- ----------
Property and equipment -- net..................... $ 802,479 $1,213,693
========== ==========
</TABLE>
4. SHORT-TERM BORROWINGS
Short-term borrowings consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
-------- ----------
<S> <C> <C>
Notes payable to AFCO Credit Corporation, due in nine
monthly installments, with interest at 11.50% per annum,
maturing in September 1997................................ $ 30,569 $ --
Promissory note payable to Ritz Hospitality Association in
the original principal amount of $125,000, payable in 11
monthly installments bearing interest at 8% maturing on
April 13, 1998............................................ 52,000
Bank line of credit (see description below)................. 953,133 1,320,583
-------- ----------
Total short-term borrowings ...................... $983,702 $1,372,583
======== ==========
</TABLE>
Bank Line of Credit -- The Company has a $1,700,000 line of credit
($1,320,583 outstanding at December 31, 1997) with a commercial bank for working
capital requirements. The line of credit bears interest at the bank's prime rate
(9.5% at December 31, 1997) plus 1%, and matures May 31, 1998. Amounts available
for borrowings are based on the level and composition of the Company's accounts
receivable. The line of credit is secured by a first security interest in the
Company's accounts receivable and property and equipment and the continuing
guaranty of the Company's principal stockholders.
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Equipment loans from a commercial bank (the "Bank"), due in
monthly installments, including interest at rates ranging
from 9.75% to 10.25%, maturing through November 2000,
secured by equipment and the continuing guaranty of the
Company's principal stockholders.......................... $296,051 $246,374
Less current portion........................................ 183,883 180,082
-------- --------
Long-term debt, less current portion........................ $112,168 $ 66,292
======== ========
</TABLE>
Equipment Line of Credit -- Borrowings from the Bank for equipment
purchases are made under an equipment line of credit arrangement (the "Equipment
Line"). The Equipment Line provides for borrowings
F-26
<PAGE> 79
INTEGRATED CONTROLS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
through May 31, 1998, with repayment terms over a two-year period. The Equipment
Line bears interest at a rate equal to the Bank's prime rate plus 0.5% to 1.5%.
Borrowings under the Equipment Line are generally subject to the same terms and
conditions as the Company's line of credit facility discussed in Note 4.
The aggregate annual maturities of long-term debt at December 31, 1997 are
as follows:
<TABLE>
<S> <C>
Year ended December 31:
1998.................................................. $180,082
1999.................................................. 39,269
2000.................................................. 27,023
--------
Total......................................... $246,374
========
</TABLE>
6. EMPLOYEE BENEFIT PLANS
The Company maintains a defined contribution (401(k)) plan for all eligible
employees who have completed at least one month of service. Employees may elect
to defer up to 25% of their salary, subject to statutory limits, through
contributions to the plan. Employer matching and profit sharing contributions
are discretionary, and, to date, no matching or profit sharing contributions
have been made.
7. COMMITMENTS AND CONTINGENCIES
The Company has guaranteed certain bank indebtedness of ICON Environmental
in the amount of $40,000 at December 31, 1996 and 1997.
The Company is also jointly listed with ICON Environmental on a
cross-corporate indemnity agreement with an insurance company that entitles
either company to purchase surety bond insurance. In the event there would be a
claim against a performance bond obtained by ICON Environmental, the Company
could be liable in the event of default by ICON Environmental.
The Company entered into a two-year employment agreement with the former
president of Einstein Digital Media. Under the terms of the agreement, the
Company has agreed to pay the employee a bonus of up to $150,000 if certain
performance objectives are achieved. The bonus is payable in May 1998 and is
payable in cash and up to 50% in common stock.
8. STOCKHOLDERS' EQUITY
Stock Split -- In 1996, the Company effected a 1,000-for-1 stock split,
which increased the number of issued shares from 400 to 400,000. The number of
shares of common stock outstanding has been restated to give effect to the stock
split.
Treasury Stock -- During 1995, the Company reacquired 100,000 shares of
common stock from a stockholder for total consideration of $250,000. The Company
paid cash of $100,000 and issued a short-term promissory note in the face amount
of $150,000. The promissory note was repaid in full during 1996. During 1996,
the Company reissued 28,351 of the treasury shares in connection with the
Employee Stock Purchase Plan discussed below. In 1997, the Company reacquired
221 shares of common stock for $4.11 per share.
Employee Stock Purchase Plan -- In 1996, the Company adopted an Employee
Stock Purchase Plan (the "Plan"), which provided eligible employees with the
opportunity to acquire up to 100,000 shares of the Company's common stock at a
price of $4.11 per share, which was the estimated fair value per share based on
an independent appraisal. The Company issued 28,351 shares under the Plan and
raised approximately $96,000, net of offering costs totaling approximately
$20,000. The offering period expired during 1996, and no further shares are
issuable under the Plan. Under the terms of the Plan, the Company had the option
to
F-27
<PAGE> 80
INTEGRATED CONTROLS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
repurchase employees' shares for a period of seven months after termination of
employment at a price based on a specified formula similar to that used in
determining the offering price.
9. CAPITAL AND OPERATING LEASES
The Company leases various equipment and its office facility under
noncancelable operating lease arrangements extending through 2002. Rental
expense was $77,997, $136,503 and $350,940 for the years ended December 31,
1995, 1996 and 1997, respectively, and is included in selling, general and
administrative expense in the statements of income.
Minimum future lease payments under noncancelable operating leases at
December 31, 1997 are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1998................................................... 443,689
1999................................................... 419,565
2000................................................... 320,094
2001................................................... 201,814
2002................................................... 15,318
----------
Total.......................................... $1,400,480
==========
</TABLE>
The Company leases computer equipment under capital lease arrangements
extending through 2000. At December 31, 1997, assets recorded under capital
leases were $343,114. Future minimum lease payments required under these
noncancelable leases are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1998.................................................... $140,944
1999.................................................... 132,709
2000.................................................... 70,940
--------
Total minimum lease payments............................ 344,593
Less amounts representing interest...................... 38,221
--------
Present value of capital lease obligations.............. 306,372
Less current portion of capital lease obligations....... 96,518
--------
Long-term capital lease obligations, less current
portion.............................................. $209,854
========
</TABLE>
10. INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Current............................................ $ -- $ -- $ --
Deferred........................................... 117,720 141,151 293,371
-------- -------- --------
Total.................................... $117,720 $141,151 $293,371
======== ======== ========
</TABLE>
Deferred taxes are principally due to differences in the basis and
depreciable lives for property and equipment for book and tax purposes, net
operating loss carryforwards and the use of the cash method of accounting for
tax purposes.
F-28
<PAGE> 81
INTEGRATED CONTROLS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
--------- ---------
<S> <C> <C>
Asset -- net operating loss carryforward.................... $ 155,940 $ 137,418
Liabilities:
Cash basis differences.................................... (490,431) (746,575)
Property, equipment and other............................. (92,601) (111,307)
--------- ---------
Net deferred tax liability.................................. $(427,092) $(720,464)
========= =========
</TABLE>
For income tax purposes, the Company has available unused net operating
loss carryforwards of approximately $365,000 at December 31, 1997, which may be
applied against future taxable income of the Company. These carryforwards expire
in various years ranging from 2007 through 2011.
The following is a reconciliation of taxes computed at the federal
statutory rate to the provision for income taxes included in the financial
statements:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Taxes computed by applying federal statutory
rate............................................. $108,841 $121,244 $248,402
State income taxes, net of federal benefits........ 11,524 13,454 27,963
Expenses not deductible for tax purposes........... 3,496 6,453 16,652
Other.............................................. (6,141) 354
-------- -------- --------
Total.................................... $117,720 $141,151 $293,371
======== ======== ========
</TABLE>
11. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
A majority of the Company's accounts receivable at December 31, 1997 result
from sales to third-party companies engaged in the oil and gas industry or
related industries. This concentration of customers may impact the Company's
overall credit risk, in that these entities may be similarly affected by changes
in economic or other conditions. In addition, the Company generally does not
require collateral or other security to support customer receivables.
During the year ended December 31, 1996, sales to two customers accounted
for approximately 25% and 12% of the Company's revenues, respectively.
Receivables from these customers totaled approximately $628,000 at December 31,
1996.
During the year ended December 31, 1997, sales to three customers accounted
for approximately 10%, 10% and 8% of the Company's revenues, respectively.
Receivables from these customers totaled approximately $1,430,000 at December
31, 1997.
12. PENDING ACQUISITION
In December 1997, the stockholders of the Company entered into an agreement
with BrightStar Information Technology Group, Inc. ("BrightStar") for the
acquisition by BrightStar of all the Company's outstanding common stock. The
consummation of the acquisition is contingent upon BrightStar's initial public
offering of its common stock.
* * * * * *
F-29
<PAGE> 82
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Mindworks Professional Education Group, Inc.:
We have audited the accompanying balance sheets of Mindworks Professional
Education Group, Inc. (the "Company") as of December 31, 1996 and 1997, and the
related statements of operations, stockholders' deficit and cash flows for each
of the two years in the period ended December 31, 1997. 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 provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Mindworks Professional Education Group, Inc.
at December 31, 1996 and 1997, and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 6, 1998
F-30
<PAGE> 83
MINDWORKS PROFESSIONAL EDUCATION GROUP, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
PROFORMA
(NOTE 9)
DECEMBER 31, (UNAUDITED)
---------------------- -----------
1996 1997 1997
--------- --------- -----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................. $ 17,711 $ 25,801 $ 25,801
Accounts receivable, net of allowance of $10,000 at
December 31, 1997.................................. 63,978 63,125 63,125
Inventory............................................. 5,395 24,505 24,505
Prepaid expenses and other current assets............. 11,000 11,000
--------- --------- ---------
Total current assets.......................... 87,084 124,431 124,431
PROPERTY AND EQUIPMENT -- Net........................... 123,306 153,750 153,750
OTHER ASSETS:
Intangibles, net of accumulated amortization of
$11,250 and $18,750 at December 31, 1996 and 1997,
respectively....................................... 18,750 11,250 11,250
Deposits.............................................. 3,083 22,735 22,735
--------- --------- ---------
Total other assets............................ 21,833 33,985 33,985
--------- --------- ---------
TOTAL ASSETS............................................ $ 232,223 $ 312,166 $ 312,166
========= ========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term debt and capital lease
obligation......................................... $ 41,307 $ 44,262 $ 44,262
Accounts payable...................................... 34,002 181,633 181,633
Accrued liabilities................................... 14,611 62,700 62,700
Deferred revenue...................................... 4,911 2,685 2,685
--------- --------- ---------
Total current liabilities..................... 94,831 291,280 291,280
LONG-TERM DEBT, net of current maturities............... 264,051 282,877 282,877
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Common stock, $.01 par value -- 10,000,000 shares
authorized; 60,000 shares issued and outstanding... 600 600 600
Additional paid-in capital............................ 59,400 59,400 (262,591)
Accumulated deficit................................... (186,659) (321,991) --
--------- --------- ---------
Total stockholders' deficit................... (126,659) (261,991) (261,991)
--------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT... $ 232,223 $ 312,166 $ 312,166
========= ========= =========
</TABLE>
See notes to financial statements.
F-31
<PAGE> 84
MINDWORKS PROFESSIONAL EDUCATION GROUP, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1997 1997
------------ ------------ -----------
PRO FORMA
(NOTE 9)
(UNAUDITED)
<S> <C> <C> <C>
REVENUE................................................. $808,192 $1,444,095 $1,444,095
COST OF REVENUE......................................... 358,289 590,440 590,440
-------- ---------- ----------
Gross profit.......................................... 449,903 853,655 853,655
OPERATING EXPENSES:
Selling, general and administrative................... 407,675 891,793 891,793
Depreciation and amortization......................... 63,435 69,726 69,726
-------- ---------- ----------
Total operating expenses...................... 471,110 961,519 961,519
-------- ---------- ----------
LOSS FROM OPERATIONS.................................... (21,207) (107,864) (107,864)
INTEREST EXPENSE........................................ (33,733) (27,468) (27,468)
-------- ---------- ----------
LOSS BEFORE INCOME TAXES................................ (54,940) (135,332) (135,332)
PRO FORMA INCOME TAX BENEFIT............................ (54,133)
-------- ---------- ----------
NET LOSS................................................ $(54,940) $ (135,332) $ (81,199)
======== ========== ==========
</TABLE>
See notes to financial statements.
F-32
<PAGE> 85
MINDWORKS PROFESSIONAL EDUCATION GROUP, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT DEFICIT
------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995.................. 600 $600 $59,400 $(131,719) $ (71,719)
Net loss................................ (54,940) (54,940)
--- ---- ------- --------- ---------
BALANCE, DECEMBER 31, 1996................ 600 600 59,400 (186,659) (126,659)
Net loss................................ 135,332 135,332
--- ---- ------- --------- ---------
BALANCE, DECEMBER 31, 1997................ 600 $600 $59,400 $(321,991) $(261,991)
=== ==== ======= ========= =========
</TABLE>
See notes to financial statements.
F-33
<PAGE> 86
MINDWORKS PROFESSIONAL EDUCATION GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
---------------------
1996 1997
-------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................. $(54,940) $(135,332)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 63,435 69,726
Provision for allowance for doubtful accounts.......... 10,000
Cash provided by (used in) operating working capital:
Accounts receivable.................................... (63,978) (9,147)
Inventory.............................................. (395) (19,110)
Prepaid expenses and other current assets.............. 3,618 (30,652)
Accounts payable....................................... 3,505 147,631
Accrued liabilities.................................... 14,611 48,089
Deferred revenue....................................... 4,681 (2,226)
-------- ---------
Net cash provided by (used in) operating
activities...................................... (29,463) 78,979
-------- ---------
INVESTING ACTIVITIES -- Capital expenditures................ (55,089) (92,670)
-------- ---------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt.................. 132,296 189,611
Repayment of long-term debt and capital lease............. (34,373) (167,830)
-------- ---------
Net cash provided by (used in) financing
activities...................................... 97,923 21,781
-------- ---------
NET INCREASE IN CASH AND CASH
EQUIVALENTS............................................... 13,371 8,090
CASH AND CASH EQUIVALENTS:
Beginning of period....................................... 4,340 17,711
-------- ---------
End of period............................................. $ 17,711 $ 25,801
======== =========
SUPPLEMENTAL INFORMATION:
Interest paid............................................. $ 33,733 $ 20,468
======== =========
</TABLE>
See notes to financial statements.
F-34
<PAGE> 87
MINDWORKS PROFESSIONAL EDUCATION GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization -- Mindworks Professional Education Group, Inc., an Arizona
corporation (the "Company"), provides technical training and certification
preparation for information technology professionals and others. The Company was
incorporated in 1995 and is headquartered in Scottsdale, Arizona.
Basis of Presentation and Use of Estimates -- The accompanying financial
statements have been prepared in accordance with generally accepted accounting
principles. The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Revenue Recognition -- The Company recognizes revenue from the sale of
training kits and tuition received from training seminars is recognized as
product is shipped or services are performed. Deferred revenue represents
payments received for future training course attendance.
Cash Equivalents -- The Company's cash equivalents consist of liquid
investments purchased with an original maturity of three months or less.
Property and Equipment -- The Company's various items of property and
equipment are stated at cost, less accumulated depreciation and amortization.
Depreciation is computed using the declining balance method over the estimated
useful lives of the assets, which range from five to seven years. Amortization
is computed on a straight-line basis over the estimated useful lives of the
assets or the lease term, whichever is shorter.
Financial Instruments -- The Company's financial instruments consist of
cash and cash equivalents, accounts receivable, short-term debt and accounts and
notes payable, the carrying values of which are reasonable estimates of their
fair values due to the short-term maturities or current interest rates.
Intangibles -- The Company's intangibles consist of intellectual property
rights contributed by certain principals at the inception of the Company.
Amortization is computed using the straight-line method over four years.
Income Taxes -- The Company is a subchapter S Corporation and, accordingly,
is not subject to corporate-level federal income tax. Income generated by the
Company is taxed to the stockholders individually. Accordingly, no income tax
expense has been recorded in the financial statements.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Computer equipment and software............................. $126,709 $198,379
Furniture, fixtures and equipment........................... 56,032 77,032
Leasehold improvements...................................... 24,840 24,840
-------- --------
Total............................................. 207,581 300,251
Less accumulated depreciation and amortization.............. 84,275 146,501
-------- --------
Property and equipment -- net..................... $123,306 $153,750
======== ========
</TABLE>
Depreciation and amortization expense charged to operations was $55,935 and
$62,226 for the years ended December 31, 1996 and 1997, respectively.
F-35
<PAGE> 88
MINDWORKS PROFESSIONAL EDUCATION GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1997
------------ ------------
<S> <C> <C>
Equipment loans, due in monthly installments, including
interest at the bank's prime rate ranging from 9.875% to
10% per annum, maturing through July 2001, secured by
equipment and the continuing guaranty of the Company's
principal stockholders, repaid in September 1997......... $149,166 $ --
Equipment loan, due in monthly installments, including
interest at the bank's prime rate plus 1.5% per annum,
maturing through December 2000, secured by equipment and
the continuing guaranty of the Company's principal
stockholder.............................................. -- 123,187
$300,000 revolving term loan, due in monthly installments
of interest only at the bank's prime rate of 1.5% per
annum through July 31, 1998 (10.0% at December 31, 1997);
after July 31, 1998; balance is payable in 36 monthly
installments plus interest, maturing July 2001, secured
by equipment and the continuing guaranty of the Company's
principal stockholder.................................... -- 53,952
Promissory note payable to a stockholder; due in quarterly
payments through September 30, 1997 -- interest-only at a
rate of 10% per annum; after September 30, 1997 balance
is payable in 30 monthly installments of $5,000 plus
interest................................................. 150,000 150,000
-------- --------
Total long-term debt....................................... 299,166 327,139
Less current portion....................................... 35,115 44,262
-------- --------
Long-term debt, less current portion............. $264,051 $282,877
======== ========
</TABLE>
At December 31, 1997, the Company was not in compliance with certain
financial ratios required under the revolving term loan agreement. The Company
has received a letter from the bank waiving this noncompliance through December
31, 1998.
4. CAPITAL LEASE OBLIGATION
The Company was leasing equipment under a capital lease through October
1997. Future minimum rental payments required under this noncancelable lease at
December 31, 1996 were as follows:
<TABLE>
<S> <C>
Total payments.............................................. $7,170
Less amounts representing interest.......................... 978
------
Capital lease obligation.................................... 6,192
Less current portion........................................ 6,192
------
Capital lease obligation, long-term......................... $ --
======
</TABLE>
5. OPERATING LEASES
The Company leases office space under a noncancelable operating lease
arrangement through October 31, 2000. Rental expenses charged to operations
totaled $35,711 and $42,226 for the year ended December 31, 1996 and 1997,
respectively, and is included in general and administrative expense in the
statements of operations.
F-36
<PAGE> 89
MINDWORKS PROFESSIONAL EDUCATION GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Minimum future lease payments under the noncancelable operating lease at
December 31, 1997 are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1998.................................................... 36,415
1999.................................................... 36,761
2000.................................................... 28,350
--------
Total........................................... $101,526
========
</TABLE>
In October 1997, the Company signed a five-year lease agreement on a new
facility in Scottsdale, Arizona, which will commence on the completion of
certain tenant improvements in 1998. The Company is currently in negotiations to
sublease the existing office space.
Minimum future lease payments under this new operating lease are as
follows:
<TABLE>
<S> <C>
Year ending December 31:
1998.................................................... $105,676
1999.................................................... 183,279
2000.................................................... 186,916
2001.................................................... 190,631
Thereafter.............................................. 276,194
--------
Total........................................... $942,696
========
</TABLE>
6. EMPLOYEE BENEFIT PLANS
The Company currently offers a Salary Reduction Simplified Employee Pension
plan to its employees. Under the plan, the Company withholds a portion of
participants' salaries, which it forwards to the trustee on a monthly basis. The
funds are then invested in individual retirement accounts as designated by the
employees. The Company does not provide any matching funds under the plan.
7. RELATED PARTY TRANSACTIONS
As of December 31, 1996 and 1997, the Company had an outstanding note
payable to a stockholder for $150,000. The note provides for interest at a rate
of 10% per annum, with interest-only payments made quarterly. Interest expense
charged to operations was $13,500 and $15,000 for the years ended December 31,
1996 and 1997.
8. CONCENTRATION OF CREDIT RISK
Financial instruments that subject the Company to potential concentration
of credit risk consist principally of cash and cash equivalents, short-term
investments and trade accounts receivable. The Company places its cash and cash
equivalents and short-term investments in and limits the amount of credit
exposure to one financial institution.
9. PRO FORMA BALANCE SHEET AND STATEMENT OF OPERATIONS (UNAUDITED)
The pro forma statement of operations shows the pro forma effects, of the
estimated deferred taxes related to future deductible temporary differences
arising from the termination of the Company's subchapter S election, recognized
in accordance with the Financial Accounts Standards Board's Statement No. 109,
which the Company will adopt upon such termination.
F-37
<PAGE> 90
MINDWORKS PROFESSIONAL EDUCATION GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma balance sheet at December 31, 1997 shows the pro forma effect
of the reclassification to paid-in capital of the accumulated deficit upon
termination of the Company's subchapter S election.
10. PENDING ACQUISITION
In December 1997, the stockholders of the Company entered into a definitive
agreement with BrightStar Information Technology Group, Inc. ("BrightStar") for
the acquisition by BrightStar of all the Company's outstanding common stock. The
consummation of the acquisition is contingent upon BrightStar's initial public
offering of its common stock.
* * * * * *
F-38
<PAGE> 91
INDEPENDENT AUDITORS' REPORT
To the Members of
Software Consulting Services America, LLC:
We have audited the accompanying balance sheets of Software Consulting
Services America, LLC (the "Company") as of December 31, 1996 and 1997, and the
related statements of income, members' equity and cash flows for the period from
February 7, 1995 (date of inception) to December 31, 1995 and for each of the
two years in the period ended December 31, 1997. 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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Software Consulting Services America, LLC as
of December 31, 1996 and 1997, and the results of its operations and its cash
flows for the period from February 7, 1995 (date of inception) to December 31,
1995 and for each of the two years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 16, 1998
F-39
<PAGE> 92
SOFTWARE CONSULTING SERVICES AMERICA, LLC
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1996 1997 1997
---------- ---------- -----------
PRO FORMA
(NOTE 9)
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................ $ 311,670 $ 332,254 $ 332,254
Trade accounts receivable............................ 622,085 1,829,256 1,829,256
Unbilled revenue..................................... 246,992 153,391 153,391
---------- ---------- ----------
Total current assets......................... 1,180,747 2,314,901 2,314,901
PROPERTY AND EQUIPMENT -- Net.......................... 92,281 183,652 183,652
OTHER ASSETS........................................... 4,358 37,499 37,499
---------- ---------- ----------
TOTAL ASSETS................................. $1,277,386 $2,536,052 $2,536,052
========== ========== ==========
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..................................... $ 2,919 $ 89,531 $ 89,531
Accrued payroll and payroll taxes.................... 206,051 418,768 418,768
Other accrued expenses............................... 118,603 69,897 69,897
Line of credit....................................... 565,000 565,000
Notes payable to members............................. 150,000
---------- ---------- ----------
Total current liabilities.................... 477,573 1,143,196 1,143,196
COMMITMENTS AND CONTINGENCIES
ADDITIONAL PAID-IN CAPITAL............................. 1,392,856
MEMBERS' EQUITY........................................ 799,813 1,392,856 --
---------- ---------- ----------
TOTAL LIABILITIES AND MEMBERS' EQUITY.................. $1,277,386 $2,536,052 $2,536,052
========== ========== ==========
</TABLE>
See notes to financial statements.
F-40
<PAGE> 93
SOFTWARE CONSULTING SERVICES AMERICA, LLC
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, -----------------------------------------
1995 1996 1997 1997
------------ ------------ ------------ -----------
PRO FORMA
(NOTE 9)
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE.............................................. $1,001,402 $4,672,094 $8,401,117 $8,401,117
COST OF REVENUE...................................... 654,827 3,398,398 6,176,798 6,176,798
---------- ---------- ---------- ----------
Gross profit....................................... 346,575 1,273,696 2,224,319 2,224,319
OPERATING EXPENSES:
Selling, general and administrative................ 194,468 753,013 1,571,560 1,571,560
Depreciation and amortization...................... 3,890 19,962 74,656 74,656
---------- ---------- ---------- ----------
Total operating expenses.................... 198,358 772,975 1,646,216 1,646,216
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS............................... 148,217 500,721 578,103 578,103
OTHER INCOME (EXPENSE):
Interest income.................................... 2,485 3,104 329 329
Interest expense................................... (10,654) (10,654)
Other expense...................................... (1,800) (7,775) (895) (895)
---------- ---------- ---------- ----------
Total other income (expense)................ 685 (4,671) (11,220) (11,220)
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES........................... 148,902 496,050 566,883 566,883
PRO FORMA INCOME TAX EXPENSE......................... 226,753
---------- ---------- ---------- ----------
NET INCOME........................................... $ 148,902 $ 496,050 $ 566,883 $ 340,130
========== ========== ========== ==========
</TABLE>
See notes to financial statements.
F-41
<PAGE> 94
SOFTWARE CONSULTING SERVICES AMERICA, LLC
STATEMENTS OF MEMBERS' EQUITY
<TABLE>
<S> <C>
Original capital contributed on February 7, 1995.......... $ 200,000
Net income................................................ 148,902
----------
MEMBERS' EQUITY AT DECEMBER 31, 1995........................ 348,902
Capital contributed....................................... 11,111
Distributions to members.................................. (56,250)
Net income................................................ 496,050
----------
MEMBERS' EQUITY AT DECEMBER 31, 1996........................ 799,813
Capital contributed....................................... 61,111
Distributions to members.................................. (34,951)
Net income................................................ 566,883
----------
MEMBERS' EQUITY AT DECEMBER 31, 1997........................ $1,392,856
==========
</TABLE>
See notes to financial statements.
F-42
<PAGE> 95
SOFTWARE CONSULTING SERVICES AMERICA, LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, ---------------------------------
1995 1996 1997
------------ ------------ -----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income...................................... $ 148,902 $ 496,050 $ 566,883
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization................ 3,890 19,962 74,656
Cash provided by (used in) operating working
capital:
Trade accounts receivable.................. (221,270) (400,815) (1,207,171)
Accounts receivable from employees......... (7,813) 7,813
Unbilled revenue........................... (33,715) (213,277) 93,601
Other assets............................... (3,922) (33,246)
Accounts payable........................... 7,938 (5,019) 86,612
Accrued payroll and payroll taxes.......... 78,355 127,696 212,717
Other accrued expenses..................... 7,400 111,203 (48,706)
--------- --------- -----------
Net cash provided by (used in) operating
activities............................ (16,313) 139,691 (254,654)
--------- --------- -----------
INVESTING ACTIVITIES:
Capital expenditures............................ (20,512) (95,351) (165,922)
Organizational costs............................ (706)
--------- --------- -----------
Net cash used in investing activities... (21,218) (95,351) (165,922)
--------- --------- -----------
FINANCING ACTIVITIES:
Member contributions............................ 200,000 11,111 61,111
Member distributions............................ (56,250) (34,951)
Borrowings (repayments) of notes payable to
members...................................... 150,000 (150,000)
Proceeds from line of credit.................... 565,000
--------- --------- -----------
Net cash provided by financing
activities............................ 200,000 104,861 441,160
--------- --------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS..................................... 162,469 149,201 20,584
CASH AND CASH EQUIVALENTS:
Beginning of period............................. 162,469 311,670
--------- --------- -----------
End of period................................... $ 162,469 $ 311,670 $ 332,254
========= ========= ===========
SUPPLEMENTAL INFORMATION:
Interest paid................................... $ -- $ -- $ 10,655
========= ========= ===========
Income taxes paid............................... $ -- $ -- $ --
========= ========= ===========
</TABLE>
See notes to financial statements.
F-43
<PAGE> 96
SOFTWARE CONSULTING SERVICES AMERICA, LLC
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization -- Software Consulting Services America, LLC, a California
limited liability company (the "Company"), provides professional software
consulting services, primarily under subcontracting arrangements with SAP AG of
Germany ("SAP") in connection with the implementation of software systems
developed by SAP. The Company was organized on February 7, 1995, and is
headquartered in Foster City, California. According to the Company's operating
agreement, the Company will continue in existence until December 31, 2020,
unless sooner dissolved pursuant to the operating agreement or the California
Limited Liability Company Act.
Basis of Presentation and Use of Estimates -- The accompanying financial
statements have been prepared in accordance with generally accepted accounting
principles. The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition -- The Company provides its services for fees that are
primarily based on time and materials used to complete projects for clients.
Accordingly, revenue is recognized as consulting services are performed.
Unbilled revenue is recorded for contract services for which a billing has not
been rendered.
Cash and Cash Equivalents -- The Company's cash equivalents consist of
liquid instruments with original maturities of three months or less.
Property and Equipment -- The Company's various items of property and
equipment are stated at cost, less accumulated depreciation and amortization.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets and amortization, which is three years. Amortization
is computed on a straight-line basis over the estimated useful lives of the
assets or the lease term, whichever is shorter.
Financial Instruments -- The Company's financial instruments consist of
cash and cash equivalents, trade accounts receivable, short-term debt, and
accounts and notes payable, the carrying values of which are reasonable
estimates of their fair values due to their short-term maturities or current
interest rates.
Income Taxes -- The Company is treated as a partnership for income tax
purposes, and therefore, is not a taxpaying entity for federal and California
income tax purposes. Income generated by the Company is taxed to the members
individually. Accordingly, no income tax expense has been recorded in the
accompanying financial statements.
2. PROPERTY AND EQUIPMENT
PROPERTY AND EQUIPMENT CONSIST OF THE FOLLOWING:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Computer equipment and software............................. $115,292 $179,536
Furniture and fixtures...................................... 571 102,249
-------- --------
Total....................................................... $115,863 $281,785
Less accumulated depreciation and amortization.............. 23,582 98,133
-------- --------
Property and equipment -- net..................... $ 92,281 $183,652
======== ========
</TABLE>
Depreciation expense charged to operations was $3,890, $19,962 and $74,551
for the years ended December 31, 1995, 1996 and 1997, respectively.
F-44
<PAGE> 97
SOFTWARE CONSULTING SERVICES AMERICA, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. LINE OF CREDIT AGREEMENT
In January 1997, the Company entered into a revolving line of credit
agreement with a bank to meet short-term working capital requirements. The line
of credit provides for borrowings equal to the lesser of $650,000 or 80% of
eligible accounts receivable, and borrowings thereunder are secured by all the
Company's assets. The line of credit agreement was scheduled to expire on
January 12, 1998. The interest rate applicable to borrowings under the line of
credit is the bank's prime rate (7.7% at December 31, 1997) plus 1.8%. In
January 1998, the Company amended the credit agreement, increasing the line of
credit to the lessor of $850,000 or 80% of eligible accounts receivable and
extending the maturity date to March 12, 1998.
4. LEASE COMMITMENTS
The Company leases office facilities, computers and certain office
equipment under several noncancelable operating lease agreements. The agreements
expire at various dates through the year 2000.
Future minimum lease commitments under these operating leases at December
31, 1997, are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1998.................................................. $132,996
1999.................................................. $124,445
2000.................................................. $ 19,830
--------
$277,271
========
</TABLE>
During the period ended December 31, 1995, and the two years ended December
31, 1996 and 1997, rental expense under the various operating lease arrangements
totaled $1,511, $15,167, and $148,264 respectively, and is included in selling,
general and administrative expense in the statements of income.
5. RELATED PARTY TRANSACTIONS
Revenues for the period ended December 31, 1995, and the years ended
December 31, 1996 and 1997, include sales to a member and an affiliate of a
member of the Company totaling $31,728, $123,950, and $10,906, respectively. At
December 31, 1995, 1996 and 1997, unbilled revenue from a member of the Company
were $29,815, $0, and $0, respectively.
Notes payable to members at December 31, 1996 were $150,000. The notes are
unsecured, are due on demand and do not bear interest.
6. OPTION PLANS
The Company established a 1996 and 1997 Option Plan, pursuant to which
options to purchase membership units in the Company are awarded. The option
awards are subject to vesting, at the rate of approximately 16.7% every six
months, over three years from the grant date. The exercise price per unit is not
less than the fair market value on the date each option is granted. Any
unexercised options will expire on the fifth anniversary of the date of grant.
The option agreements may be subject to termination under certain circumstances,
such as a change in control, as defined in the agreements. Unitholders may
receive up to 10% of the net proceeds resulting from certain changes in control
resulting from the sale of all or substantially all the assets of the Company.
F-45
<PAGE> 98
SOFTWARE CONSULTING SERVICES AMERICA, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Options to purchase units awarded under these Option Plans are summarized
as follows:
<TABLE>
<CAPTION>
WEIGHTED
UNITS OPTION AVERAGE WEIGHTED
UNDER PRICE PER EXERCISE AVERAGE
OPTION UNIT PRICE FAIR VALUE
------ ----------- -------- ----------
<S> <C> <C> <C> <C>
Granted in 1995 and outstanding at
December 31, 1995..................... -- $ -- $ -- $ --
Granted in 1996......................... 27,650 $ 1.60 $1.60 $0.42
------
Outstanding at December 31, 1996........ 27,650 $ 1.60 $1.60 $0.42
======
Granted in 1997......................... 53,260 $ 4.27 $4.27 $1.05
Forfeited in 1997....................... (8,050) $1.60-$4.27 $3.14 $0.78
------
Outstanding at December 31, 1997........ 72,860 $1.60-$4.27 $3.38 $0.84
======
Exercisable at December 31, 1997........ 24,738 $1.60-$4.27 $2.16 $0.75
======
</TABLE>
The Company applies the provisions of Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations
in accounting for its options. Accordingly, no compensation cost has been
recognized for such option grants. Had compensation cost for the Company's
options been determined based on the fair value at the grant dates for awards
consistent with the method prescribed by the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," the Company's pro forma net income would have been
reduced by $2,400 to $493,650 in 1996 and by $11,800 to $555,083 in 1997.
The weighted average fair value of options granted during 1996 and 1997 was
estimated at $0.42 and $1.05, respectively. The fair value of each option grant
is estimated on the date of grant using the Black-Scholes option-pricing model,
with the following weighted average assumptions used for grants in 1996 and
1997: risk-free interest rates of 6.1% and 5.7%, respectively, no dividend
yield, expected lives of five years and no expected volatility (because the
units are not publicly traded).
7. EMPLOYEE BENEFITS
In September 1996, the Company established an elective salary reduction
profit sharing plan pursuant to Internal Revenue Code Section 401(k). Under the
plan, eligible employees can make voluntary pretax contributions to the plan.
Employee contributions cannot exceed 15% of eligible compensation or other tax-
regulated limits. There are no matching or Company discretionary contributions
under the plan.
Employment agreements with the members require that, in the event of a
change in control of the Company, the Company shall continue the members'
salaries for a one- to two-year period following the change in control.
8. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
Financial instruments that subject the Company to potential concentration
of credit risk consist principally of temporary cash investments. The Company
generally places its temporary cash investments in a single financial
institution. On occasion, the Company maintains deposits in excess of federally
insured amounts at that financial institution.
For the period ended December 31, 1995 and the years ended December 31,
1996 and 1997, 91%, 85% and 39%, respectively, of the Company's revenues
consisted of revenues derived from services performed under subcontracting
arrangements with SAP.
F-46
<PAGE> 99
SOFTWARE CONSULTING SERVICES AMERICA, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Approximately 99%, 69% and 23% of the Company's accounts receivable and
12%, 86% and 13% of the Company's unbilled revenue at December 31, 1995, 1996
and 1997, respectively, were attributable to SAP.
For the year ended December 31, 1997, 11% of the Company's revenues were
from another significant customer. Approximately 32% of the Company's accounts
receivable and 32% of the Company's unbilled revenue at December 31, 1997 were
attributable to that customer.
9. PRO FORMA BALANCE SHEET AND STATEMENT OF INCOME (UNAUDITED)
The pro forma statement of operations shows the pro forma effects, of the
estimated deferred taxes related to future deductible temporary differences
arising from the termination of the Company's current tax status (pursuant to
which it is treated as a pass-through entity for federal income tax purposes),
recognized in accordance with the Financial Accounting Standards Board's
Statement No. 109, which the Company will adopt upon such termination.
The pro forma balance sheet at December 31, 1997 provides the effect, on a
pro forma basis, of the reclassification to paid-in capital of members' equity
upon termination of the Company's current tax status.
10. PENDING ACQUISITION
In December 1997, the Company entered into an agreement with BrightStar
Information Technology Group, Inc. ("BrightStar") for the acquisition by
BrightStar of all the Company's assets and assumption of certain of its
liabilities. The consummation of the acquisition is contingent upon BrightStar's
initial public offering of its common stock.
* * * * *
F-47
<PAGE> 100
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Software Consulting Services Pty. Ltd. as
Trustee for the SCS Unit Trust:
We have audited the accompanying balance sheets of the SCS Unit Trust (the
"Trust") as of June 30, 1996 and 1997, and the related statements of income,
unit capital and beneficiaries' loan accounts and cash flows for the period from
October 1, 1994 (date of inception) to June 30, 1995, and for each of the two
years in the period ended June 30, 1997 (all expressed in Australian dollars).
These financial statements are the responsibility of the management of Software
Consulting Services Pty. Ltd. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Australia and the United States of America. Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the SCS Unit Trust as of June 30, 1996 and
1997, and the results of its operations and its cash flows for the period from
October 1, 1994 (date of inception) to June 30, 1995, and for each of the two
years in the period ended June 30, 1997, in conformity with accounting
principles generally accepted in the United States of America.
Our audits also comprehended the translation of Australian dollar amounts
into U.S. dollar amounts and, in our opinion, such translation has been made in
conformity with the basis stated in Note 1. Such U.S. dollar amounts are
presented solely for the convenience of readers in the United States of America.
DELOITTE TOUCHE TOHMATSU
Melbourne, Australia
December 19 , 1997
F-48
<PAGE> 101
SCS UNIT TRUST
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
US$
DECEMBER 31,
A$ US$ A$ --------------------------
JUNE 30,
----------------------- JUNE 30, DECEMBER 31, PRO FORMA
1996 1997 1997 1997 1997 1997
---------- ---------- ---------- ------------ ------------ -----------
(UNAUDITED) (UNAUDITED) (NOTE 9)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.... $ 427,173 $ 4,790 $ 3,118 $ 172,956 $ 112,594 $ 112,594
Trade accounts receivable.... 1,529,065 3,012,656 1,961,239 5,076,491 3,304,796 3,304,796
Unbilled revenue............. 690,217 449,331 969,894 631,401 631,401
Sundry debtors............... 749 159,803 104,032 269,814 175,649 175,649
Prepaid expenses and other
current assets............ 15,939 23,375 15,217 23,397 15,231 15,231
---------- ---------- ---------- ---------- ---------- ----------
Total current assets.... 1,972,926 3,890,841 2,532,937 6,512,552 4,239,671 4,239,671
PROPERTY AND
EQUIPMENT -- Net............. 58,995 98,809 64,325 201,402 131,113 131,113
OTHER ASSETS................... 34,321 22,343 35,423 23,060 23,060
INVESTMENT IN AFFILIATED
TRUST........................ 27,448 17,869 27,448 17,869 17,869
---------- ---------- ---------- ---------- ---------- ----------
TOTAL ASSETS............. $2,031,921 $4,051,419 $2,637,474 $6,776,825 $4,411,713 $4,411,713
========== ========== ========== ========== ========== ==========
LIABILITIES AND UNIT CAPITAL
CURRENT LIABILITIES:
Accounts payable............. $ 118,057 $ 721,602 $ 469,763 $1,508,131 $ 981,793 $ 981,793
Accrued payroll and payroll
taxes..................... 743,335 1,621,796 1,055,789 2,314,171 1,506,526 1,506,526
Other accrued expenses....... 105,334 118,883 77,393 157,381 102,455 102,455
Beneficiaries' loan
accounts.................. 1,059,359 1,505,302 979,952 2,713,186 1,766,284 1,766,284
---------- ---------- ---------- ---------- ---------- ----------
Total current
liabilities.......... 2,026,085 3,967,583 2,582,897 6,692,869 4,357,058 4,357,058
COMMITMENTS AND CONTINGENCIES
Additional paid-in capital... 54,655
UNIT CAPITAL................... 5,836 83,836 54,577 83,956 54,655
---------- ---------- ---------- ---------- ---------- ----------
TOTAL LIABILITIES AND
UNIT CAPITAL........... $2,031,921 $4,051,419 $2,637,474 $6,776,825 $4,411,713 $4,411,713
========== ========== ========== ========== ========== ==========
</TABLE>
See notes to financial statements.
F-49
<PAGE> 102
SCS UNIT TRUST
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
US$
A$ A$ YEAR AS$
PERIOD FROM ENDED SIX MONTHS ENDED
OCTOBER 1, 1994, YEAR ENDED JUNE 30, JUNE 30, DECEMBER 31,
TO JUNE 30, ------------------------ ---------- -------------------------
1995 1996 1997 1997 1996 1997
---------------- ---------- ----------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUE........................... $2,774,362 $7,775,358 $14,876,861 $9,684,837 $5,943,983 $13,549,180
COST OF REVENUE................... 2,114,792 5,958,918 11,957,304 7,784,205 4,733,351 10,559,178
---------- ---------- ----------- ---------- ---------- -----------
Gross profit.................... 659,570 1,816,440 2,919,557 1,900,632 1,210,632 2,990,002
OPERATING EXPENSES:
Selling, general and
administrative................ 516,977 1,037,333 2,019,064 1,314,410 949,799 1,626,652
Depreciation and amortization... 20,624 55,193 79,431 51,710 28,706 39,807
---------- ---------- ----------- ---------- ---------- -----------
Total operating
expenses................ 537,601 1,092,526 2,098,495 1,366,120 978,505 1,666,459
---------- ---------- ----------- ---------- ---------- -----------
INCOME FROM OPERATIONS............ 121,969 723,914 821,062 534,512 232,127 1,323,543
OTHER INCOME (EXPENSE):
Equity in losses of affiliated
trust......................... (90,216) (58,731) (45,108)
Allowance for investment in
affiliated trust.............. (162,336) (105,681)
Interest income................. 7,234 19,935 20,857 13,579 15,189 1,279
Interest expense................ (24,481) (81,594) (198,325) (129,110) (105,767) (164,799)
Other income.................... 1,674
Gain (loss) on sale of property
and equipment................. 18,222 (2,273) (1,480) (376)
---------- ---------- ----------- ---------- ---------- -----------
Total other income
(expense)............... (17,247) (41,763) (432,293) (281,423) (136,062) (163,520)
---------- ---------- ----------- ---------- ---------- -----------
INCOME BEFORE INCOME TAXES........ 104,722 682,151 388,769 253,089 96,065 1,160,023
PRO FORMA INCOME TAX EXPENSE......
---------- ---------- ----------- ---------- ---------- -----------
NET INCOME................ $ 104,722 $ 682,151 $ 388,769 $ 253,089 $ 96,065 $1,160,023
========== ========== =========== ========== ========== ===========
<CAPTION>
US$
SIX MONTHS ENDED
DECEMBER 31,
-------------------------
1997 1997
----------- -----------
(UNAUDITED) PRO FORMA
(NOTE 9)
(UNAUDITED)
<S> <C> <C>
REVENUE........................... $8,820,515 $8,820,515
COST OF REVENUE................... 6,874,025 6,874,025
---------- ----------
Gross profit.................... 1,946,490 1,946,490
OPERATING EXPENSES:
Selling, general and
administrative................ 1,058,950 1,058,950
Depreciation and amortization... 25,914 25,914
---------- ----------
Total operating
expenses................ 1,084,864 1,084,864
---------- ----------
INCOME FROM OPERATIONS............ 861,626 861,626
OTHER INCOME (EXPENSE):
Equity in losses of affiliated
trust.........................
Allowance for investment in
affiliated trust..............
Interest income................. 833 833
Interest expense................ (107,285) (107,285)
Other income....................
Gain (loss) on sale of property
and equipment.................
---------- ----------
Total other income
(expense)............... (106,452) (106,452)
---------- ----------
INCOME BEFORE INCOME TAXES........ 755,174 755,174
PRO FORMA INCOME TAX EXPENSE...... 302,070
---------- ----------
NET INCOME................ $ 755,174 $ 453,104
========== ==========
</TABLE>
See notes to financial statements.
F-50
<PAGE> 103
SCS UNIT TRUST
STATEMENTS OF UNIT CAPITAL AND BENEFICIARIES' LOAN ACCOUNTS
<TABLE>
<CAPTION>
A$
BENEFICIARIES'
A$ LOAN
UNIT CAPITAL ACCOUNTS
------------ --------------
<S> <C> <C>
Original capital contributed and beneficiaries' loans..... $ 5,836 $ 556,847
Net income................................................ 104,722
Repayment of beneficiaries' loans......................... (156,758)
--------- ----------
BALANCES AT JUNE 30, 1995................................... 5,836 504,811
Interest on beneficiaries' accounts....................... 80,856
Repayment of beneficiaries' loans......................... (208,459)
Net income................................................ 682,151
--------- ----------
BALANCES AT JUNE 30, 1996................................... 5,836 1,059,359
Capital contributed....................................... 577,996 435,337
Capital redemption........................................ (499,996)
Repayment of beneficiaries' loans......................... (562,038)
Interest on beneficiaries' accounts....................... 183,875
Net income................................................ 388,769
--------- ----------
BALANCES AT JUNE 30, 1997................................... 83,836 1,505,302
Capital contributed (Unaudited)........................... 120
Repayment of beneficiaries loans (Unaudited).............. (100,000)
Interest on beneficiaries' accounts (Unaudited)........... 147,861
Net income (Unaudited).................................... 1,160,023
--------- ----------
BALANCES AT DECEMBER 31, 1997 (Unaudited)................... $ 83,956 $2,713,186
========= ==========
</TABLE>
<TABLE>
<CAPTION>
US$
BENEFICIARIES'
US$ LOAN
UNIT CAPITAL ACCOUNTS
------------ --------------
<S> <C> <C>
BALANCES AT JUNE 30, 1996................................... $ 3,799 $ 689,643
Capital contributed....................................... 376,275 283,404
Capital redemption........................................ (325,497)
Repayment of beneficiaries' loans......................... (365,887)
Interest on beneficiaries' accounts....................... 119,703
Net income................................................ 253,089
--------- ----------
BALANCES AT JUNE 30, 1997................................... 54,577 979,952
Capital contributed (Unaudited)........................... 78
Repayment of beneficiaries' loans (Unaudited)............. (65,100)
Interest on beneficiaries' accounts (Unaudited)........... 96,258
Net income (Unaudited).................................... 755,174
--------- ----------
BALANCES AT DECEMBER 31, 1997 (Unaudited)................... $ 54,655 $1,766,284
========= ==========
</TABLE>
See notes to financial statements.
F-51
<PAGE> 104
SCS UNIT TRUST
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
A$
A$ US$
PERIOD FROM A$ US$ SIX MONTHS SIX MONTHS
OCTOBER 1, 1994 YEAR ENDED JUNE 30, YEAR ENDED ENDED DECEMBER 31, ENDED
TO JUNE 30, ----------------------- JUNE 30, ------------------------- DECEMBER 31,
1995 1996 1997 1997 1996 1997 1997
--------------- --------- ----------- ---------- ----------- ----------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income.................. $ 104,722 $ 682,151 $ 388,769 $ 253,089 $ 96,065 $1,160,023 $ 755,175
Adjustments to reconcile net
income to net cash
provided by (used in)
operating activities:
Depreciation and
amortization............ 20,624 55,193 79,431 51,710 28,706 39,807 25,914
Interest expense on
beneficiaries' loan
accounts................ 80,856 183,875 119,703 103,894 147,861 96,258
(Gain) loss on sale of
property and
equipment............... (18,222) 2,273 1,480 376 -- --
Equity in losses of
affiliated trust........ 90,216 58,731 45,108
Allowance for investment
in affiliated trust..... 162,336 105,681
Cash provided by (used in)
operating working
capital:
Trade accounts
receivable............ (822,962) (706,103) (1,483,591) (965,818) (400,117) (2,063,835) (1,343,557)
Unbilled revenue........ (690,217) (449,331) (277,962) (279,677) (182,070)
Sundry debtors.......... (29,600) 28,851 (159,054) (103,544) (69,349) (110,011) (71,617)
Prepaid expenses and
other current assets.. (13,222) (2,717) (7,436) (4,841) 6,990 (22) (14)
Other assets............ (34,321) (22,343) (33,657) (1,102) (717)
Accounts payable........ 34,175 83,882 603,545 392,908 35,375 786,529 512,029
Accrued payroll and
payroll taxes......... 434,708 308,627 878,461 571,876 123,594 692,375 450,736
Other accrued
expenses.............. 105,334 13,549 8,820 88,463 38,498 25,062
--------- --------- ----------- --------- --------- ----------- -----------
Net cash provided by
(used in) operating
activities.......... (271,555) 617,852 27,836 18,121 (252,514) 410,446 267,199
--------- --------- ----------- --------- --------- ----------- -----------
INVESTING ACTIVITIES:
Investment in affiliated
trust..................... (280,000) (182,280) (200,000)
Proceeds from sale of
property and equipment.... 96,883 1,599 1,041 3
Capital expenditures........ (100,406) (108,227) (123,117) (80,149) (73,495) (142,400) (92,702)
--------- --------- ----------- --------- --------- ----------- -----------
Net cash used in
investing
activities.......... (100,406) (11,344) (401,518) (261,388) (273,492) (142,400) (92,702)
--------- --------- ----------- --------- --------- ----------- -----------
FINANCING ACTIVITIES:
Unit capital
contributions............. 996 577,996 376,275 577,996 120 78
Unit capital redemptions.... (499,996) (325,497) (499,996)
Beneficiaries' loans........ 556,847 435,337 283,404 373,145 (100,000) (65,100)
Repayment of beneficiaries'
loans..................... (156,758) (208,459) (562,038) (365,887) (158,133)
Borrowings (repayments) of
unitholders' notes
payable................... 7,243 (7,243)
--------- --------- ----------- --------- --------- ----------- -----------
Net cash provided by
(used in) financing
activities.......... 408,328 (215,702) (48,701) (31,705) 293,012 (99,880) (65,022)
--------- --------- ----------- --------- --------- ----------- -----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS... 36,367 390,806 (422,383) (274,972) (232,994) 168,166 109,475
CASH AND CASH EQUIVALENTS:
Beginning of period......... 36,367 427,173 278,090 427,173 4,790 3,119
--------- --------- ----------- --------- --------- ----------- -----------
End of period............... $ 36,367 $ 427,173 $ 4,790 $ 3,118 $ 194,179 $ 172,956 $ 112,594
========= ========= =========== ========= ========= =========== ===========
</TABLE>
See notes to financial statements.
F-52
<PAGE> 105
SCS UNIT TRUST
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization -- SCS Unit Trust (the "Trust") was formed on October 1, 1994,
and operates as a professional software consulting practice specializing in
implementations of software systems developed by SAP AG of Germany ("SAP"). The
business of the Trust operates under the name of its trustee, Software
Consulting Services Pty. Ltd. (the "Trustee") headquartered in Melbourne,
Australia.
Translation of Australian Dollar Statements to U.S. Dollar
Statements -- The financial statements of the Trust are stated in Australian
dollars ("A$"), the currency of the country in which the Trust is incorporated
and operates. The translation of A$ amounts into U.S. dollar ("US$") amounts as
of June 30, 1997 and December 31, 1997 and for the periods ended June 30, 1997
and December 31, 1997 has been made solely for the convenience of readers in the
United States of America and has been made at the rate of 1.536 (A$) to 1 (US$),
the approximate rate of exchange at December 31, 1997. Such translation should
not be construed as a representation that the A$ amounts could be converted into
US$ at that or any other rate.
Basis of Presentation and Use of Estimates -- The accompanying financial
statements have been prepared in accordance with generally accepted accounting
principles. The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition -- Revenue is recognized as consulting services are
performed. Any anticipated losses on fixed price consulting contracts are
charged to earnings when identified. Accounts receivable represent only amounts
billed and currently due from clients. Recoverable costs and accrued profit
related to fixed price contracts, on which revenue has been recognized but
billings have not been presented to the client, are included in unbilled
revenue.
Cash and Cash Equivalents -- The Company's cash equivalents consist of
liquid instruments purchased with original maturities of three months or less.
Property and Equipment -- The Company's various items of property and
equipment are stated at cost, less accumulated depreciation and amortization.
Depreciation for computer equipment, office equipment and furniture and fixtures
is computed using the declining balance method at rates of 60%, 30% and 20%,
respectively. Leasehold improvements are amortized using the declining balance
method at a rate of 40%.
Investments -- The Trust has a 40% investment in the TCS Discretionary Unit
Trust ("TCS"). Through its investment in TCS, the Trust effectively owns 28% of
the ASAP Discretionary Unit Trust ("ASAP"), which is in the business of
marketing and implementing SAP software for middle-market companies. The Trust's
investment in TCS is accounted for using the equity method of accounting. In
October 1997, the Trust acquired a 100% investment in Data Collection Systems
Integration Pty. Ltd. (DCSI) which is in the business of marketing and
implementing inventory control hardware and software. The Trust's investment in
DCSI has been accounted for using the purchase method of accounting.
Beneficiaries' Loan Accounts -- The beneficiaries of the Trust are the
holders of the Trust's unit capital, are entitled to receive the income of the
Trust and are paid interest on their loan balances at the discretion of the
directors of the Trustee. Profit is allocated to the unitholders at the end of
each fiscal year and is credited to the beneficiaries' accounts. The unitholders
provide funding to the Trust, which is repayable at call. Interest is calculated
on the unpaid balance of the beneficiaries' loan accounts at a rate approved by
the directors of the Trustee, which was 15% for 1995, 1996 and 1997.
Financial Instruments -- The Company's financial instruments consist of
cash and cash equivalents, trade accounts receivable and accounts payable, the
carrying values of which are reasonable estimates of their fair values due to
their short-term maturities or current interest rates.
F-53
<PAGE> 106
SCS UNIT TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes -- Under current income tax legislation, the Trustee and the
Trust are not subject to income tax, provided the unitholders are presently
entitled to the net income of the Trust for taxation purposes. Accordingly, no
income tax expense has been recorded in the financial statements.
Interim Financial Information -- The interim financial statements as of
December 31, 1997, and for the six months ended December 31, 1996 and 1997, are
unaudited, and certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary to fairly present the
financial position, results of operations and cash flows with respect to the
interim financial statements, have been included. The results of operations for
the interim periods are not necessarily indicative of the results to be achieved
for the entire fiscal year.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
A$
JUNE 30, US$
--------------------- JUNE 30,
1996 1997 1997
-------- --------- --------
<S> <C> <C> <C>
Computer equipment and software................... $ 71,190 $ 145,401 $105,546
Furniture, fixtures and equipment................. 34,244 73,010 52,998
Leasehold improvements............................ 5,054 3,669
-------- --------- --------
Total............................................. 105,434 223,465 162,213
Less accumulated depreciation and amortization.... (46,439) (124,656) (90,488)
-------- --------- --------
Property and equipment -- net........... $ 58,995 $ 98,809 $ 71,725
======== ========= ========
</TABLE>
Depreciation and amortization expense charged to operations was A$55,193
and A$79,431 (US$57,659) for the years ended June 30, 1996 and 1997,
respectively.
3. OVERDRAFT FACILITY
The Trust has a A$900,000 (US$653,310) bank overdraft facility agreement. A
debenture charge over the assets of the trust and the trustee and a deed of
subordination over the beneficiaries' loan accounts of $1,200,000 serves as
collateral for borrowings under the facility. The facility bears interest at the
bank's overdraft interest rate plus 0.4%. At June 30, 1997, the interest rate
was 9.85%.
Approximately A$444,000 (US$322,300) was outstanding under the facility at
June 30, 1997. No borrowings were outstanding at June 30, 1996.
F-54
<PAGE> 107
SCS UNIT TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. LEASE COMMITMENTS
The Trust leases office facilities and certain computer and office
equipment under several noncancelable operating lease agreements. The agreements
expire at various dates through the year 2001.
Future minimum lease commitments under these operating leases at June 30,
1997, are as follows:
<TABLE>
<CAPTION>
A$ US$
-------- --------
<S> <C> <C>
Year ending June 30:
1998................................................. $443,264 $321,765
1999................................................. 286,660 208,086
2000................................................. 37,182 26,990
2001................................................. 2,457 1,784
-------- --------
$769,563 $558,625
======== ========
</TABLE>
During the periods ended June 30, 1995, 1996 and 1997, rental expense under
the various operating lease obligations totaled A$8,470, A$59,272 and A$333,505
(US$242,091), respectively, and is included in selling, general and
administrative expense in the statements of income.
5. RELATED PARTY TRANSACTIONS
The Trust is subcontracted by a unitholder of the Trust and an affiliated
trust to provide software implementation services. Revenue included sales to a
unitholder of the Trust for the period ended June 30, 1997, totaling A$4,193,598
(US$3,044,133). Sales to an affiliated trust for the periods ended June 30, 1996
and 1997, were A$132,825 and A$2,601,464 (US$1,888,403), respectively.
Trade Accounts Receivables and Unbilled Revenue regarding the sales to a
unitholder of the Trust at June 30, 1997 are A$650,310 (US$472,060) and
A$504,802 (US$366,436), respectively.
Receivables from an affiliated trust at June 30, 1996 and 1997 are
A$132,825 and A$409,208 (US$297,044), respectively.
Expenses include payments for consultants to a unitholder of the Trust for
the period ended June 30, 1997 of A$256,888 (US$186,475) and a reimbursement of
expenses by an affiliated trust for the same period of A$128,541 (US$93,308).
Payables to a unitholder of the Trust for the period ended June 30, 1997
are A$145,970 (US$105,960).
All of the transactions noted above were on terms and conditions no more
favorable than the normal commercial terms and conditions applicable to the
Trust and its affiliate.
6. INVESTMENT IN AFFILIATED TRUST
At June 30, 1997, the Trust's equity investment in TCS exceeded the Trust's
share of the net assets of TCS. This excess has resulted in a write-down of the
carrying value of the investment as follows:
<TABLE>
<CAPTION>
A$ US$
-------- --------
<S> <C> <C>
Cost of investment in TCS................................... $280,000 $203,253
Share of operating losses................................... 90,216 65,488
-------- --------
Equity accounted investment................................. 189,784 137,765
Allowance to reduce investment to estimated fair value...... 162,336 117,840
-------- --------
Investment in affiliated trust.............................. $ 27,448 $ 19,925
======== ========
</TABLE>
F-55
<PAGE> 108
SCS UNIT TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. SUPERANNUATION
Employees other than contractors participate in a superannuation plan,
which is a mandatory retirement savings plan in Australia. Under the plan,
employers must contribute 6% of the salary of eligible employees to the plan.
The Trust does not sponsor a specific plan, and employees may contribute to the
superannuation plan of their choice. There are no matching or discretionary
contributions by the Trust.
8. CONCENTRATION OF CREDIT RISK
Financial instruments that subject the Trust to potential concentration of
credit risk consist principally of cash and cash equivalents, short-term
investments and trade accounts receivable. The Trust places its cash and cash
equivalents and short-term investments in and limits the amount of credit
exposure to one financial institution.
9. PRO FORMA BALANCE SHEET AND STATEMENT OF INCOME (UNAUDITED)
The pro forma statement of operations shows the pro forma effects, of the
estimated deferred taxes related to future deductible temporary differences
arising from the termination of the Company's current tax status (pursuant to
which it is not subject to any income tax) and recognized in accordance with the
Financial Accounting Standards Board's Statement No. 109, which the Company will
adopt upon such termination.
The pro forma balance sheet at December 31, 1997 shows the effect, on a pro
forma basis, of the reclassification to paid-in capital of unit capital upon
termination of the Company's current tax status.
10. PENDING ACQUISITION
In December 1997, the Trust entered into an agreement with BrightStar
Information Technology Group, Inc. ("BrightStar") for the acquisition by
BrightStar of all the Trust's assets and assumption of certain of its
liabilities. The consummation of the acquisition is contingent upon BrightStar's
initial public offering of its common stock.
* * * * * *
F-56
<PAGE> 109
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Software Innovators, Inc.:
We have audited the accompanying balance sheets of Software Innovators,
Inc. (the "Company") as of July 31, 1996 and 1997, and the related statements of
operations, stockholders' equity and cash flows for the years then ended. 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 accompanying financial statements present fairly, in
all material respects, the financial position of Software Innovators, Inc. as of
July 31, 1996 and 1997, and the results of its operations and its cash flows for
the years then ended in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
December 19, 1997
F-57
<PAGE> 110
SOFTWARE INNOVATORS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JULY 31,
-------------------- JANUARY 31,
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................... $163,053 $354,754 $407,318
Accounts receivable..................................... 173,815 196,782 222,529
Note receivable......................................... 90,000
Prepaid expenses and other current assets............... 50,014 18,549 6,139
-------- -------- --------
Total current assets............................ 386,882 570,085 725,986
PROPERTY AND EQUIPMENT -- Net............................. 60,545 69,986 134,782
DEFERRED TAX ASSET........................................ 7,463
-------- -------- --------
TOTAL ASSETS.................................... $447,427 $640,071 $868,231
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................................ $ 10,202 $ 4,052 $ 856
Current portion of capital lease obligation............. 4,522 4,750
Note payable............................................ 550,000
Income taxes payable.................................... 127,530
Accrued expenses........................................ 40,104 258,575 128,582
Deferred income taxes................................... 56,832 45,545 63,532
-------- -------- --------
Total current liabilities....................... 107,138 312,694 875,250
CAPITAL LEASE OBLIGATION, net of current portion.......... 15,518 13,084
DEFERRED INCOME TAXES..................................... 11,184 6,306
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY(DEFICIT):
Common stock, $1 par value -- 1,000 shares authorized,
issued and outstanding; nonvoting common stock $1 par
value -- 9,000 shares authorized, none outstanding... 1,000 1,000 1,000
Additional paid-in capital.............................. 9,000 35,882 35,882
Retained earnings....................................... 325,855 272,421 496,765
Treasury stock, 450 shares and 250 shares, respectively,
at cost................................................. (6,750) (3,750) (553,750)
-------- -------- --------
Total stockholders' equity(deficit)............. 329,105 305,553 (20,103)
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...... $447,427 $640,071 $868,231
======== ======== ========
</TABLE>
See notes to financial statements.
F-58
<PAGE> 111
SOFTWARE INNOVATORS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
JULY 31, JANUARY 31,
----------------------- -----------------------
1996 1997 1997 1998
---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE...................................... $1,952,713 $2,981,802 $1,393,536 $2,032,706
COST OF REVENUE.............................. 1,262,822 1,948,546 926,838 1,268,422
---------- ---------- ---------- ----------
Gross profit............................... 689,891 1,033,256 466,698 764,284
OPERATING EXPENSES:
Selling, general and administrative........ 501,181 1,100,335 272,059 414,816
Depreciation and amortization.............. 26,221 23,444 11,881 7,611
---------- ---------- ---------- ----------
Total operating expenses........... 527,402 1,123,779 283,940 422,427
---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS................ 162,489 (90,523) 182,758 341,857
OTHER INCOME:
Interest income............................ 6,440 17,231 6,211 10,353
Other, net................................. 5,685 3,694 22,191 20,189
---------- ---------- ---------- ----------
Total other income................. 12,125 20,925 28,402 30,542
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES............ 174,614 (69,598) 211,160 372,399
INCOME TAX EXPENSE (BENEFIT):
Current.................................... 8,314 92,307 143,836
Deferred................................... 61,582 (16,164) (8,082) 4,219
---------- ---------- ---------- ----------
Total income tax expense
(benefit)........................ 69,896 (16,164) 84,225 148,055
---------- ---------- ---------- ----------
NET INCOME (LOSS)............................ $ 104,718 $ (53,434) $ 126,935 $ 224,344
========== ========== ========== ==========
</TABLE>
See notes to financial statements.
F-59
<PAGE> 112
SOFTWARE INNOVATORS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL TREASURY STOCK STOCKHOLDERS'
--------------- PAID-IN RETAINED ------------------ EQUITY
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT (DEFICIT)
------ ------ ---------- -------- ------ --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, AUGUST 1, 1995........... 1,000 $1,000 $ 9,000 $221,137 450 $ (6,750) $ 224,387
Net income...................... 104,718 104,718
----- ------ ------- -------- ---- --------- ---------
BALANCE, JULY 31, 1996............ 1,000 1,000 9,000 325,855 450 (6,750) 329,105
Reissuance of 200 shares of
treasury stock............... 26,882 (200) 3,000 29,882
Net loss........................ (53,434) (53,434)
----- ------ ------- -------- ---- --------- ---------
BALANCE, JULY 31, 1997............ 1,000 1,000 35,882 272,421 250 (3,750) 305,553
Purchase of 150 shares of
treasury stock (Unaudited)... 150 (550,000) (550,000)
Net income (Unaudited).......... 224,344 224,344
----- ------ ------- -------- ---- --------- ---------
BALANCE, JANUARY 31, 1998
(Unaudited)..................... 1,000 $1,000 $35,882 $496,765 400 $(553,750) $ (20,103)
===== ====== ======= ======== ==== ========= =========
</TABLE>
See notes to financial statements.
F-60
<PAGE> 113
SOFTWARE INNOVATORS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JULY 31, JANUARY 31,
------------------- -------------------------
1996 1997 1997 1998
-------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................ $104,718 $(53,434) $126,935 $224,344
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Depreciation and amortization................. 26,221 23,444 11,881 7,611
Deferred income taxes......................... 61,582 (16,164) (8,082) 5,220
Cash provided by (used in) operating working
capital:
Accounts receivable......................... (90,002) (22,967) (9,953) (25,747)
Note receivable............................. (90,000)
Prepaid expenses and other assets........... (50,604) 31,465 10,501 12,410
Accounts payable............................ (38,936) (6,150) (7,272) (3,196)
Income taxes payable........................ 127,530
Accrued expenses............................ (14,820) 218,463 97,484 (129,993)
-------- -------- -------- --------
Net cash provided by (used in) operating
activities............................. (1,841) 174,657 221,494 128,179
-------- -------- -------- --------
INVESTING ACTIVITIES:
Proceeds from sale of equipment.................. 10,000
Capital expenditures............................. (5,245) (7,891) -- (73,410)
-------- -------- -------- --------
Net cash provided by (used in) investing
activities............................. 4,755 (7,891) -- (73,410)
-------- -------- -------- --------
FINANCING ACTIVITIES:
Payments on capital lease obligation............. (4,947) (1,959) (2,205)
Proceeds from issuance of treasury stock......... 29,882 29,882
-------- -------- -------- --------
Net cash provided by financing
activities............................. -- 24,935 27,923 (2,205)
-------- -------- -------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS.......... 2,914 191,701 249,417 52,564
CASH AND CASH EQUIVALENTS:
Beginning of period.............................. 160,139 163,053 163,053 354,754
-------- -------- -------- --------
End of year period............................... $163,053 $354,754 $412,470 $407,318
======== ======== ======== ========
SUPPLEMENTAL INFORMATION:
Interest paid.................................... $ -- $ 2,227 $ 1,152 $ 3,399
======== ======== ======== ========
Income taxes paid................................ $ 33,600 $ -- $ -- $ --
======== ======== ======== ========
Equipment financed through capital lease......... $ -- $ 24,987 $ 24,140 $ 24,140
======== ======== ======== ========
Issuance of note payable for purchase of common
stock......................................... $ -- $ -- $ -- $550,000
======== ======== ======== ========
</TABLE>
See notes to financial statements.
F-61
<PAGE> 114
SOFTWARE INNOVATORS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization -- Software Innovators, Inc., an Arkansas corporation (the
"Company"), provides computer and data processing consulting services to a
variety of businesses and government agencies. The Company was incorporated in
1989 and operates primarily within the State of Arkansas.
Basis of Presentation and Use of Estimates -- The accompanying financial
statements have been prepared in accordance with generally accepted accounting
principles. The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition -- The Company provides its services for fees that are
primarily based on time and materials used to complete projects for clients.
Accordingly, revenue is recognized as consulting services are performed.
Cash Equivalents -- The Company's cash equivalents consist of liquid
investments purchased with original maturities of three months or less.
Property and Equipment -- The Company's various items of property and
equipment are stated at cost, less accumulated depreciation and amortization.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, which range from three to 15 years. Leasehold
improvements are amortized on the straight-line method over the primary term of
the lease.
Financial Instruments -- The Company's financial instruments consist of
cash and cash equivalents, accounts receivable, short-term debt and accounts and
notes payable, the carrying values of which are reasonable estimates of their
fair values due to their short maturities or current interest rates.
Deferred Income Taxes -- The Company provides for deferred income taxes
under the asset and liability method for temporary differences in the
recognition of income and expense for tax and financial reporting purposes.
Interim Financial Information -- The interim financial statements as of
January 31, 1998, and for the six months ended January 31, 1997 and 1998, are
unaudited, and certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary to fairly present the
financial position, results of operations and cash flows with respect to the
interim financial statements, have been included. The results of operations for
the interim periods are not necessarily indicative of the results to be achieved
for the entire fiscal year.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
JULY 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Computer and office equipment............................... $ 77,082 $ 77,082
Furniture and fixtures...................................... 27,165 27,165
Leasehold improvements...................................... 17,415 46,700
-------- --------
Total....................................................... 121,662 150,947
Less accumulated depreciation and amortization.............. 61,117 80,961
-------- --------
Property and equipment -- net..................... $ 60,545 $ 69,986
======== ========
</TABLE>
F-62
<PAGE> 115
SOFTWARE INNOVATORS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. INCOME TAXES
The components of deferred income taxes in the accompanying balance sheets
are as follows:
<TABLE>
<CAPTION>
JULY 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Accounts receivable....................................... $ 66,554 $ 75,348
Accumulated depreciation and amortization................. 11,184 6,308
Other..................................................... 9,543 1,884
-------- --------
87,281 83,540
Deferred tax assets -- accrued vacation and other
expenses.................................................. (19,265) (31,688)
-------- --------
Net deferred tax liabilities................................ $ 68,016 $ 51,852
======== ========
</TABLE>
The provisions for income taxes in the financial statements differ from the
amounts determined by applying the federal statutory rate of 34% to earnings
(loss) before income taxes. The reconciling items and amounts as of July 31 are
as follows:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Provision (benefit) at statutory rate....................... $ 59,369 $(25,348)
Permanent differences....................................... 3,036 12,382
State taxes, net of federal benefits........................ 7,491 (3,198)
-------- --------
$ 69,896 $(16,164)
======== ========
</TABLE>
4. COMMITMENTS
The Company leases office space and certain equipment and vehicles under
several noncancelable operating lease agreements that expire at various dates
through June 2000. Future minimum lease payments under these agreements at July
31, 1997, are as follows:
<TABLE>
<S> <C>
Year Ending July 31:
1998.................................................... $ 62,338
1999.................................................... 32,841
2000.................................................... 11,772
--------
$106,951
========
</TABLE>
The Company incurred lease expense of $47,116 and $57,396 in fiscal 1996
and fiscal 1997, respectively, which is included in selling, general and
administrative expense in the statements of operations.
F-63
<PAGE> 116
SOFTWARE INNOVATORS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company is leasing a telephone system under a capital lease that
extends through May 2001. Future minimum rental payments required under this
noncancelable lease at July 31, 1997 are as follows:
<TABLE>
<S> <C>
Year ending July 31:
1998...................................................... $ 6,303
1999...................................................... 6,303
2000...................................................... 6,303
2001...................................................... 5,251
-------
24,160
Less amounts representing interest.......................... 4,120
-------
Capital lease obligation at July 31, 1997................... 20,040
Less current portion........................................ 4,522
-------
Capital lease obligation, long-term......................... $15,518
=======
</TABLE>
In December 1997, the Company issued a note payable to a stockholder for
$550,000 for the purchase of 150 shares of common stock.
In December 1997, the Company entered in a revolving loan agreement with
BIT Group Services, Inc to advance up to $125,000, with interest accrued at
prime rate plus 1% (9.5% at December 31, 1997). There are no scheduled repayment
terms and the note receivable matures at the earlier of October 31, 1998, or 30
days following the successful completion of BrightStar's initial public
offering.
5. EMPLOYEE BENEFIT PLANS
The Company has established a 401(k) plan effective January 1, 1997, for
all employees who have attained the age of 21 and completed at least one year of
service. Each plan participant can contribute up to the maximum amount allowed
by the Internal Revenue Code to the plan through payroll deductions. The
Company's matching contribution to the plan is discretionary and is determined
each year by the Board of Directors. The employee's vested percentage regarding
the Company's matching contribution varies according to years of service. The
Company's expense for contributions to the plan was $15,256 during fiscal 1997.
No contributions were made by the Company in fiscal 1996.
6. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
The Company maintains its cash in bank deposit accounts that, at times, may
exceed federally insured limits.
For the years ended July 31, 1996 and 1997, programming and consulting
services to one customer accounted for approximately 63% and 62%, respectively,
of the Company's total revenues. This customer accounted for approximately 44%
and 68% of the outstanding accounts receivable balance at July 31, 1996 and
1997, respectively.
7. PENDING ACQUISITION
In December 1997, the stockholders of the Company entered into a definitive
agreement with BrightStar Information Technology Group, Inc. ("BrightStar") for
the acquisition by BrightStar of all the Company's outstanding common stock. The
consummation of the acquisition is contingent upon BrightStar's initial public
offering of its common stock.
* * * * * *
F-64
<PAGE> 117
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
Zelo Group, Inc.:
We have audited the accompanying balance sheets of Zelo Group, Inc. (the
"Company") as of December 31, 1996 and 1997, and the related statements of
operations, stockholder's deficit and cash flows for each of the two years in
the period ended December 31, 1997. 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Zelo Group, Inc. at December 31, 1996 and
1997, and the results of its operations and its cash flows for each of the two
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 16, 1998
F-65
<PAGE> 118
ZELO GROUP, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------
1996 1997 PRO FORMA
------------ ------------- -------------
(NOTE 7)
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 3,014 $ -- $ --
Trade accounts receivable less allowance of 18,341
in 1997......................................... 35,337 123,341 123,341
Prepaid expenses and other current assets.......... 800 800 800
--------- --------- ---------
Total current assets....................... 39,151 124,141 124,141
PROPERTY AND EQUIPMENT -- Net........................ 18,878 171,616 171,616
OTHER ASSETS......................................... 1,400 4,027 4,027
--------- --------- ---------
TOTAL ASSETS............................... $ 59,429 $ 299,784 $ 299,784
========= ========= =========
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES:
Current maturities of notes payable................ $ 145,000 $ 130,000 $ 130,000
Current obligations under capital leases........... 48,647 48,647
Credit facilities.................................. 47,282 260,085 260,085
Accounts payable and accrued liabilities........... 29,817 130,381 130,381
Total current liabilities.................. 222,099 569,113 569,113
--------- --------- ---------
OBLIGATIONS UNDER CAPITAL LEASES -- Less current
portion............................................ 83,886 83,886
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S DEFICIT:
Common stock, no par value -- 25,000 shares
authorized; 2,500 shares issued and
outstanding..................................... 5,000 5,000 5,000
Additional paid-in capital......................... (358,215)
Accumulated deficit................................ (167,670) (358,215) --
--------- --------- ---------
Total stockholder's deficit................ (162,670) (353,215) (353,215)
--------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDER'S
DEFICIT.................................. $ 59,429 $ 299,784 $ 299,784
========= ========= =========
</TABLE>
See notes to financial statements.
F-66
<PAGE> 119
ZELO GROUP, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1997 1997
---------- ---------- -----------
PRO FORMA
(NOTE 7)
(UNAUDITED)
<S> <C> <C> <C>
REVENUE................................................ $1,081,694 $1,049,298 $1,049,298
COST OF REVENUE........................................ 729,760 582,428 582,428
---------- ---------- ----------
Gross profit......................................... 351,934 466,870 466,870
OPERATING EXPENSES:
Selling, general and administrative.................. 374,468 586,789 586,789
Depreciation and amortization........................ 11,534 40,403 40,403
---------- ---------- ----------
Total operating expenses..................... 386,002 627,192 627,192
---------- ---------- ----------
LOSS FROM OPERATIONS................................... (34,068) (160,322) (160,322)
OTHER EXPENSE -- Interest.............................. (12,473) (30,223) (30,223)
---------- ---------- ----------
LOSS BEFORE INCOME TAXES............................... (46,541) (190,545) (190,545)
PRO FORMA INCOME TAX BENEFIT........................... (76,218)
---------- ---------- ----------
NET LOSS............................................... $ (46,541) $ (190,545) $ (114,327)
========== ========== ==========
</TABLE>
See notes to financial statements.
F-67
<PAGE> 120
ZELO GROUP, INC.
STATEMENTS OF STOCKHOLDER'S DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- ACCUMULATED STOCKHOLDER'S
SHARES AMOUNT DEFICIT DEFICIT
------ ------ ----------- -------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996......................... 2,500 $5,000 $(121,129) $(116,129)
Net loss....................................... (46,541) (46,541)
----- ------ --------- ---------
BALANCE, DECEMBER 31, 1996....................... 2,500 5,000 (167,670) (162,670)
Net loss....................................... (190,545) (190,545)
----- ------ --------- ---------
BALANCE, DECEMBER 31, 1997....................... 2,500 $5,000 $(358,215) $(353,215)
===== ====== ========= =========
</TABLE>
See notes to financial statements.
F-68
<PAGE> 121
ZELO GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1997
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)......................................... $ (46,541) $(190,545)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization.......................... 11,534 40,403
Cash provided by (used in) operating working capital:
Accounts receivable.................................. 86,224 (88,004)
Prepaid expenses and other current assets............ (400) (2,627)
Accounts payable and accrued liabilities............. (148,373) 100,564
--------- ---------
Net cash used in operating activities............. (97,556) (140,209)
--------- ---------
INVESTING ACTIVITIES -- Capital expenditures................ (13,867) (34,452)
--------- ---------
FINANCING ACTIVITIES:
Borrowings (payments) on notes payable.................... 95,000 (15,000)
Payments on capital lease obligations..................... (26,156)
Net borrowings from line of credit........................ 19,437 212,803
--------- ---------
Net cash provided by financing activities......... 114,437 171,647
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 3,014 (3,014)
CASH AND CASH EQUIVALENTS:
Beginning of period....................................... 3,014
--------- ---------
End of period............................................. $ 3,014 $ --
========= =========
SUPPLEMENTAL INFORMATION:
Interest paid............................................. $ 7,106 $ 24,662
========= =========
Income taxes paid......................................... $ -- $ --
========= =========
Equipment financed through capital leases................. $ -- $ 158,689
========= =========
</TABLE>
See notes to financial statements.
F-69
<PAGE> 122
ZELO GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization -- Zelo Group, Inc., a California corporation (the "Company"),
provides document management services using digital scanning equipment to store
documents on compact disc. The Company also provides system integration services
for complex document management systems to various customers primarily in the
legal and medical professions. The Company was incorporated in 1992 and is
headquartered in Ventura, California.
Basis of Presentation and Use of Estimates -- The accompanying financial
statements have been prepared in accordance with generally accepted accounting
principles. The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition -- The Company provides its services for fees that are
primarily based on time and materials used to complete projects for clients.
Accordingly, revenue is recognized as services are performed.
Cash Equivalents -- The Company's cash equivalents consist of liquid
investments purchased with original maturities of three months or less.
Property and Equipment -- The Company's various items of property and
equipment are stated at cost, less accumulated depreciation and amortization.
Depreciation is provided principally using straight-line methods over the
estimated useful lives of the individual assets of five years. Amortization is
computed on a straight-line basis over the estimated useful lives of the assets
or the lease term, whichever is shorter.
Financial Instruments -- The Company's financial instruments consist of
cash and cash equivalents, accounts receivable, short-term debt and accounts and
notes payable, the carrying values of which are reasonable estimates of their
fair values due to their short-term maturities or current interest rates.
Income Taxes -- The Company is a Subchapter S Corporation and, accordingly,
is not subject to corporate-level federal income tax. Income generated by the
Company is taxed to the stockholder. Accordingly, no income tax expense has been
recorded in the financial statements.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1997
------- --------
<S> <C> <C>
Computers, equipment and software........................... $39,233 $231,782
Furniture, fixtures and equipment........................... 18,438 18,438
------- --------
Total....................................................... 57,671 250,220
Less accumulated depreciation and amortization.............. 38,793 78,604
------- --------
Property and equipment -- net..................... $18,878 $171,616
======= ========
</TABLE>
3. SHORT-TERM BORROWINGS
The Company has a $175,000 line of credit facility with a commercial bank
for working capital requirements. Borrowings outstanding of $160,085 at December
31, 1997 under this facility bear interest at a rate of 13% per annum and are
due on demand.
F-70
<PAGE> 123
ZELO GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company also has a $400,000 non-revolving line of credit facility with
a commercial bank for working capital requirements. Borrowings outstanding of
$100,000 at December 31, 1997 under the Facility bear interest at the bank's
prime rate plus 2% (10.5% at December 31, 1997) and are due March 26, 1998. The
Company has promissory notes payable to Madison Management Company in the
aggregate original principal amount of $150,000, with an aggregate balance of
$130,000 at December 31, 1997. The notes have no scheduled repayment terms, bear
interest at rates ranging from 8.75% to 12% per annum and mature on March 31,
1998.
4. LEASE COMMITMENTS
The Company leases various equipment and its office facility under
noncancelable lease arrangements extending through 2001. Rental expense was
$24,230 and $95,749 for the year ended December 31, 1996 and 1997, respectively.
Minimum future lease payments under noncancelable operating leases at
December 31, 1997 are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1998.................................................... $$141,436
1999.................................................... 96,364
2000.................................................... 90,145
2001.................................................... 39,067
--------
Total........................................... $367,012
========
</TABLE>
In March 1997, the Company began leasing computer equipment under capital
lease arrangements extending through 2001. Future minimum lease payments
required under these noncancelable leases are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1998.................................................... $ 62,897
1999.................................................... 46,544
2000.................................................... 35,916
2001.................................................... 13,897
--------
Total minimum lease payments.................... 159,254
Less amounts representing interest.............. 26,721
--------
Present value of net minimum lease payments..... 132,533
Less current portion of capital lease
obligations................................... 48,647
--------
Long-term capital lease obligation, less current
portion....................................... $ 83,886
========
</TABLE>
6. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
Document management services to three major customers accounted for an
aggregate of approximately 59% and 44% of the Company's total revenue for the
year ended December 31, 1997 and 1996, respectively. These customers accounted
for an aggregate of approximately 80% and 53% of the outstanding accounts
receivable balance at December 31, 1997 and 1996, respectively.
7. PRO FORMA BALANCE SHEET AND STATEMENT OF OPERATIONS (UNAUDITED)
The pro forma statement of operations shows the pro forma effects, of the
estimated deferred taxes related to future deductible temporary differences
arising from the termination of the Company's subchapter
F-71
<PAGE> 124
ZELO GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
S election and recognized in accordance with the Financial Accounting Standards
Board's Statement No. 109, which the Company will adopt upon such termination.
The pro forma balance sheet at December 31, 1997 shows the pro forma effect
of the reclassification to paid-in capital of the accumulated deficit upon
termination of the Company's subchapter S election.
8. PENDING ACQUISITION
In December 1997, the stockholder of the Company entered into an agreement
with BrightStar Information Technology Group, Inc. ("BrightStar") for the
acquisition by BrightStar of all the Company's outstanding common stock. The
consummation of the acquisition is contingent upon BrightStar's initial public
offering of its common stock.
* * * * * *
F-72
<PAGE> 125
INDEPENDENT AUDITORS' REPORT
To the Board of directors
BIT Group Services, Inc
We have audited the accompanying balance sheet of BIT Group Services, Inc,
a Delaware corporation (the "Company"), as of December 31, 1997, and the related
statements of operations, stockholder's deficit and cash flows for the period
from July 24, 1997 (date of inception) to December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of BIT Group Services, Inc. as
of December 31, 1997, and the results of its operations and its cash flows for
the period from July 24, 1997 (date of inception) to December 31, 1997, in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 16, 1998
F-73
<PAGE> 126
BIT GROUP SERVICES, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 18,259
Total current assets.............................. 18,259
PROPERTY AND EQUIPMENT -- Net............................... 136,516
DEFERRED OFFERING COSTS..................................... 1,950,000
-----------
TOTAL ASSETS................................................ $ 2,104,775
===========
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses..................... $ 1,148,309
Notes payable to related parties.......................... 1,274,403
-----------
Total current liabilities......................... 2,422,712
STOCKHOLDER'S DEFICIT:
Common stock, .001 par value - 200,000 shares authorized,
142,957 shares issued and outstanding.................. 143
Additional paid-in capital................................ 3,339,137
Accumulated deficit....................................... (3,657,217)
-----------
Total stockholder's deficit............................... (317,937)
-----------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT................. $ 2,104,775
===========
</TABLE>
See notes to financial statements.
F-74
<PAGE> 127
BIT GROUP SERVICES, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JULY 24, 1997 TO
DECEMBER 31, 1997
-----------------
<S> <C>
REVENUE..................................................... $ --
COST OF REVENUE.............................................
-----------
Gross profit..............................................
OPERATING EXPENSES:
Selling, general and administrative....................... 289,947
Stock compensation expense................................ 3,329,280
Depreciation and amortization............................. 2,314
-----------
Total operating expenses.......................... 3,621,541
-----------
LOSS FROM OPERATIONS........................................ (3,621,541)
INTEREST EXPENSE............................................ (35,676)
-----------
NET LOSS.................................................... $(3,657,217)
===========
</TABLE>
See notes to financial statements.
F-75
<PAGE> 128
BIT GROUP SERVICES, INC.
STATEMENT OF STOCKHOLDER'S DEFICIT
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
CONTRIBUTED ACCUMULATED STOCKHOLDER'S
AMOUNT CAPITAL DEFICIT DEFICIT
------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
Original capital contributed............... $100 $ 9,900 $ -- $ 10,000
Issuance of common stock................... 43 3,329,237 3,329,280
Net loss................................... (3,657,217) (3,657,217)
---- ---------- ----------- -----------
Balance, December 31, 1997................. $143 $3,339,137 $(3,657,217) $ (317,937)
==== ========== =========== ===========
</TABLE>
See notes to financial statements.
F-76
<PAGE> 129
BIT GROUP SERVICES, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JULY 24, 1997 TO
DECEMBER 31, 1997
-----------------
<S> <C>
OPERATING ACTIVITIES:
Net loss.................................................. $(3,657,217)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization.......................... 2,314
Compensation expense on issuance of common stock....... 3,329,280
Cash provided by (used in) operating working capital:
Accounts payable and accrued liabilities............. 1,148,309
Deferred offering costs.............................. (1,950,000)
-----------
Net cash used in operating activities............. (1,127,314)
-----------
INVESTING ACTIVITIES -- Capital expenditures................ (138,830)
-----------
FINANCING ACTIVITIES:
Short-term borrowings..................................... 1,274,403
Capital contributions..................................... 10,000
-----------
Net cash provided by financing activities......... 1,284,403
-----------
INCREASE IN CASH AND CASH EQUIVALENTS....................... 18,259
CASH AND CASH EQUIVALENTS:
Beginning of period....................................... --
-----------
End of period............................................. $ 18,259
===========
SUPPLEMENTAL INFORMATION:
Interest paid............................................. $ --
===========
Income taxes paid......................................... $ --
===========
</TABLE>
See notes to financial statements.
F-77
<PAGE> 130
BIT GROUP SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
BIT Group Services, Inc., a Delaware corporation ("BITG" or the "Company"),
was founded in July 1997 to create a single-source provider of a wide range of
IT services to Fortune 1000 organizations. BITG is a wholly owned subsidiary of
BIT Investors, LLC, a Texas limited liability company, ("BITI"). The
shareholders of the Company have entered into a share exchange agreement with
BrightStar Information Technology Group, Inc., a Delaware corporation
("BrightStar"), to exchange (the "Share Exchange") all outstanding common stock
of the Company, for BrightStar common stock ("Common Stock"). BrightStar has
entered into agreements to acquire (the "Acquisitions") all of the common stock
or substantially all the net assets of seven established IT service providers
(the "Founding Companies") concurrently with the Share Exchange and the
completion of an initial public offering (the "Offering") of Common Stock.
BrightStar was formed in October 1997 as a wholly owned subsidiary of BITG.
The Company has not conducted any operations, other than payment of salary
to certain officers, and all activities to date have related to the Offering and
the Acquisitions. The Company's cash balances were provided from advances from
its stockholders and loans from BITI. There is no assurance that the pending
Share Exchange, Acquisitions or Offering will be completed or that the Company
or BrightStar will be able to generate future operating revenue.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Use of Estimates -- The accompanying financial
statements have been prepared in accordance with generally accepted accounting
principles. The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash Equivalents -- The Company's cash equivalents consist of liquid
financial instruments with original maturities of three months or less.
Property and Equipment -- The Company's various items of property and
equipment are stated at cost less accumulated depreciation. Depreciation is
provided using the straight-line method over the estimated useful lives of the
assets of primarily five years.
Deferred Offering Costs -- The Company's deferred offering costs primarily
consist of costs incurred for the Offering. These costs, which include legal,
accounting and financial advisory fees, have been deferred and relate to the
Offering.
Financial Instruments -- The Company's financial instruments consist of
cash and cash equivalents, short-term debt, and notes payable, the carrying
values of which are reasonable estimates of their fair values due to their
short-term maturities or current interest rates.
Federal Income Taxes -- Deferred tax assets of approximately $328,000 as of
December 31, 1997 consist primarily of net operating loss carryforwards and are
offset by a valuation allowance. SFAS No. 109 requires that a valuation
allowance be recorded against tax assets which are not likely to be realized.
Due to the uncertain nature of their ultimate realization, the Company has
established a full valuation allowance against carryforward benefits and is
recognizing the benefits only as reassessment demonstrates they are realizable.
Realization is entirely dependent upon future earnings. While the need for this
valuation allowance is subject to periodic review, if the allowance is reduced,
the tax benefits of the carryforwards will be recorded in future operations as a
reduction of the Company's income tax expense.
F-78
<PAGE> 131
BIT GROUP SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Computer equipment.......................................... $ 56,604
Furniture, fixtures and equipment........................... 82,226
--------
Total............................................. 138,830
Less accumulated depreciation and amortization.............. 2,314
--------
Property and equipment -- net..................... $136,516
========
</TABLE>
4. NOTES PAYABLE TO RELATED PARTIES
Notes payable to related parties consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1997
-----------
<S> <C>
$125,000 revolving loan agreement with one of the Founding $ 15,000
Companies which accrues interest at prime rate plus 1%
(9.5% at December 31, 1997), has no scheduled repayment
terms and matures at the earlier of October 31, 1998 or 30
days following the successful completion of the Offering.
$1,800,000 line of credit agreement with BIT Investors, LLC 1,259,403
which accrues interest at 10% and matures on or before the
earlier of June 1, 1998 or 30 days following the
successful completion of the Offering.
----------
Total $1,274,403
==========
</TABLE>
5. STOCK COMPENSATION
In July 1997, BITG issued 41,958 shares of common stock (which will be
exchanged for 346,800 shares of Common Stock in connection with the Offering) to
certain members of management. In connection with these stock issuances,
compensation expense totaling $3,329,280 was recognized during the period ended
December 31, 1997.
6. STOCKHOLDER'S EQUITY
Common Stock Purchase Warrant
In August 1997, BITG entered into an advisory agreement with an investment
banking firm, and issued a warrant (the "MG Warrant") to that firm for $100. The
MG warrant provides for the purchase of 50,000 shares of Common Stock at an
exercise price of the lesser of $6 per share or 60 percent of the initial price
to the public in the Offering and is exercisable at any time prior to August 14,
2004.
Common Stock Option
In September 1997, BrightStar engaged Brewer-Gruenert Capital Advisors, LLC
("BGCA"), to provide consulting services regarding corporate development matters
for a period of one year . In connection with the BGCA Agreement, BrightStar
issued the BGCA Option giving BGCA the option to purchase the number of shares
of Common Stock equal to $100,000 divided by the difference between the per
share initial public offering price of the Common Stock and $6 (16,666 shares
assuming an initial offering price of $12.00 per share).
F-79
<PAGE> 132
BIT GROUP SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Share Exchange Agreement
In connection with the formation of BrightStar, BITG issued 100,000 shares
of its common stock to BITI in consideration for a cash payment in the amount of
$10,000. Effective December 15, 1997, BITI executed a share exchange agreement
with BrightStar to effect the Share Exchange concurrently with the closing of
the Offering. The governing regulations of BITI provide that BITI is to be
dissolved and liquidated effective upon the closing of the Offering. Upon
dissolution and liquidation of BITI following the closing of the Share Exchange
and the Offering, (i) the holders of the Series A-1 Class A units will receive
in cash their original purchase price of $490,000 ("Purchase Price") for the
units, plus shares of Common Stock having an aggregate value equal to the
holder's Purchase Price, based on the initial public offering price of the
Common Stock (the "IPO Price"), (ii) the holders of the Series A-2 Class A units
will receive in cash their Purchase Price of $1,300,000 for the units, plus
shares of Common Stock having an aggregate value equal to four times the
holder's Purchase Price (based on the IPO Price), and (iii) the holders of the
Class B units are entitled to receive the remaining shares of Common Stock
received by BITI in the Share Exchange and the remaining cash, if any.
In connection with the formation of BrightStar, BITG issued an aggregate of
41,958 shares of its common stock to its officers and directors (each of whom is
also an officer or director of the Company) at a purchase price of $0.10 per
share. Under the terms of the Share Exchange Agreement, BrightStar will exchange
shares of its newly issued Common Stock for all of the outstanding capital stock
of BITG (on a 8.2655-for-one basis) concurrently with the closing of the
Offering. BITI will receive 553,710 shares of Common Stock in connection with
the Share Exchange (of which an aggregate of 79,545 shares will then be
distributed to the holders of Class B units of BITI (as described above)) and an
aggregate of 474,165 shares will then be distributed to the holders of the
Series A-1 and Series A-2 Class A units of BITI (as described above). In
addition, an aggregate of 346,800 shares of Common Stock will be issued to
members of BrightStar's management in exchange for their shares of BITG common
stock.
* * * * * *
F-80
<PAGE> 133
Inside back cover
[DESCRIPTION OF GRAPHIC]
Map of the World with inset map of North America with points representing
office locations.
BrightStar logo in the top right corner with "ERP*PLUS(SM) Services" under
the North American map. A list of U.S. and international cities appears at the
bottom of the page.
<PAGE> 134
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED ON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY PERSON
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY, OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT, AS OF ANY DATE SUBSEQUENT TO THE DATE
OF THIS PROSPECTUS.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................................... 3
Risk Factors............................................ 7
The Company............................................. 14
Use of Proceeds......................................... 18
Dividend Policy......................................... 18
Capitalization.......................................... 19
Dilution................................................ 20
Selected Financial Data................................. 21
Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 22
Business................................................ 28
Management.............................................. 36
Security Ownership of Certain Beneficial Owners and
Management............................................ 41
Certain Transactions.................................... 42
Description of Capital Stock............................ 45
Shares Eligible for Future Sale......................... 47
Underwriting............................................ 49
Legal Matters........................................... 50
Experts................................................. 51
Additional Information.................................. 51
Index to Financial Statements........................... F-1
</TABLE>
------------------
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE
COMMON STOCK OFFERED HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION,
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.
================================================================================
================================================================================
3,750,000 SHARES
BRIGHTSTAR
INFORMATION
TECHNOLOGY
GROUP, INC.
COMMON STOCK
--------------------
PROSPECTUS
--------------------
CIBC OPPENHEIMER
DAIN RAUSCHER INCORPORATED
, 1998
================================================================================
<PAGE> 135
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses (other than
underwriting discounts and commissions) payable by the Registrant in connection
with the issuance and distribution of the securities being registered. All
amounts are estimates except for the fees payable to the SEC.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 17,811
NASD Filing Fee............................................. 6,538
NASDAQ Listing Fee.......................................... 35,880
Legal Fees and Expenses..................................... 600,000
Accounting Fees and Expenses................................ 800,000
Blue sky fees and expenses (including counsel fees)......... 5,000
Printing Costs.............................................. 300,000
Transfer Agent and Registrar fees and expenses.............. 10,000
Financial and Acquisition Advisory Fees..................... 1,780,000
Miscellaneous............................................... 44,771
----------
Total............................................. $3,600,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
BrightStar's Certificate of Incorporation, as amended, and Bylaws
incorporate substantially the provisions of the Delaware General Corporation Law
("DGCL") providing for indemnification of directors and officers of BrightStar
against expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with any proceeding arising by reason of the
fact that such person is or was an officer or director of BrightStar or is or
was serving at the request of BrightStar as a director, officer or employee of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise.
As permitted by Section 102 of the DGCL, BrightStar's Certificate of
Incorporation, as amended, contains provisions eliminating a director's personal
liability for monetary damages to BrightStar and its stockholders arising from a
breach of a director's fiduciary duty except for liability (a) for any breach of
the director's duty of loyalty to BrightStar or its stockholders, (b) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under Section 174 of the DGCL, or (d) for any
transaction from which the director derived an improper personal benefit.
Section 145 of the DGCL provides generally that a person sued as a
director, officer, employee or agent of a corporation may be indemnified by the
corporation for reasonable expenses, including attorneys' fees, if in the case
of other than derivative suits such person has acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation (and, in the case of a criminal proceeding, had no
reasonable cause to believe that such person's conduct was unlawful). In the
case of a derivative suit, an officer, employee or agent of the corporation
which is not protected by the Certificate of Incorporation may be indemnified by
the corporation for reasonable expenses, including attorneys' fees, if such
person has acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification shall be made in the case of a derivative suit in respect of any
claim as to which an officer, employee or agent has been adjudged to be liable
to the corporation unless that person is fairly and reasonably entitled to
indemnity for proper expenses. Indemnification is mandatory in the case of a
director, officer, employee, or agent who is successful on the merits in defense
of a suit against such person.
The Company intends to purchase liability insurance policies covering
directors and officers in certain circumstances.
II-1
<PAGE> 136
Under Section 8 of the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement, the Underwriters have agreed to indemnify, under certain
conditions, BrightStar, its officers and directors, and persons who control
BrightStar, within the meaning of the Securities Act of 1933, as amended,
against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth below is certain information concerning all sales of securities
by BrightStar that were not registered under the Securities Act.
Effective October 17, 1997, BrightStar issued and sold 100 shares of Common
Stock to BITG for $1,000.
Concurrently with the closing of the Offering and pursuant to the Share
Exchange Agreement dated as of December 15, 1997, (i) the Company will issue to
BITI an aggregate of 553,710 shares of Common Stock in exchange for all the
shares of common stock of BITG held by BITI and (ii) the Company will issue up
to an aggregate of 346,800 shares of Common Stock in exchange for all the shares
of common stock of BITG held by members of BrightStar's management, as follows:
42,900 shares to George M. Siegel; 70,000 shares to Marshall G. Webb; 60,000
shares to Thomas A. Hudgins; 60,000 shares to Daniel M. Cofall; 60,000 shares to
Michael A. Sooley; 33,900 shares to Tarrant Hancock; and 20,000 shares to Mark
D. Diggs. In connection with the Share Exchange, BrightStar assumed all
obligations of the issuer pursuant to the MG Warrant, which provides for the
purchase of up to 50,000 shares of Common Stock, at a per share exercise price
equal to the lesser of $6.00 or 60% of the initial public offering price per
share of the Common Stock (the "IPO Price"), and all obligations of the issuer
pursuant to the BGCA Option, which provides for the purchase of up to a number
of shares of Common Stock equal to the amount obtained by dividing $100,000 by
the IPO Price, at an exercise price of $6.00 per share.
Concurrently with the closing of the Offering, the Company will issue to
SCS America, SCS Australia and the Stockholders of the other Founding Companies
an aggregate of 2,688,225 shares of Common Stock in connection with the
Acquisitions in consideration of substantially all the assets of SCS America and
SCS Australia and all of the outstanding capital stock of the other Founding
Companies.
The sales and issuances of the securities by BrightStar, by BITG to BITI
and to BrightStar's management and by BITI to its members, referenced above were
or will be, as applicable, exempt from registration under the Securities Act
pursuant to Section 4(2) thereof as transactions not involving any public
offerings, with the recipients representing their intentions to acquire the
securities for their own accounts and not with a view to the distribution
thereof.
See "Certain Transactions" for a discussion of the issuance of shares of
Common Stock in connection with the Acquisitions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<C> <S>
*1.1 -- Form of Underwriting Agreement.
3.1 -- Certificate of Incorporation, as amended.
+3.2 -- Bylaws.
4.1 -- Specimen Common Stock Certificates.
4.2 -- Agreement and Plan of Exchange dated December 15, 1997
among BrightStar, BITG, BITI and the holders of the
outstanding capital stock of BITG.
4.3 -- Warrant dated as of August 14, 1997 issued to McFarland,
Grossman and Company, Inc.
4.4 -- Option Agreement dated as of December 16, 1997 between
BrightStar and Brewer-Gruenert Capital Advisors, LLC.
5.1 -- Opinion of Chamberlain, Hrdlicka, White, Williams &
Martin as to the legality of the securities being
registered.
</TABLE>
II-2
<PAGE> 137
<TABLE>
.1 10 -- BrightStar 1997 Long-Term Incentive Plan.
<C> <S>
+10.2 -- Agreement and Plan of Exchange by and among BrightStar
and the holders of the outstanding capital stock of Brian
R. Blackmarr and Associates, Inc.
+10.3 -- Agreement and Plan of Exchange by and among BrightStar
and the holders of the outstanding capital stock of
Integrated Controls, Inc.
+10.4 -- Agreement and Plan of Exchange by and among BrightStar
and the holders of the outstanding capital stock of
Mindworks Professional Education Group, Inc.
+10.5 -- Agreement and Plan of Exchange by and among BrightStar,
Software Consulting Services America, LLC and the holders
of the outstanding ownership interests of Software
Consulting Services America, LLC.
+10.6 -- Agreement and Plan of Exchange by and among BrightStar
and Software Consulting Services Pty. Ltd. in its
capacity as Trustee of the Software Consulting Services
Unit Trust and the holders of all of the outstanding
ownership interests in the Software Consultants Unit
Trust.
+10.7 -- Agreement and Plan of Exchange by and among BrightStar
and the holders of the outstanding capital stock of
Software Innovators, Inc.
+10.8 -- Agreement and Plan of Exchange by and among BrightStar
and the holder of the outstanding capital stock of Zelo
Group, Inc. and Joel Rayden.
10.9 -- Form of Employment Agreement between BrightStar and
Marshall G. Webb, Thomas A. Hudgins and Daniel M. Cofall.
10.10 -- Form of Employment Agreement between Brian R. Blackmarr
and Associates, Inc. and Brian R. Blackmarr.
+10.11 -- Letter Agreement dated August 14, 1997 between BITG and
McFarland, Grossman and Company, Inc.
+10.12 -- Letter Agreement dated September 26, 1997 between BITG
and Brewer-Gruenert Capital Advisors, LLC, and amended as
of December 15, 1997.
10.13 -- Loan Agreement dated October 16, 1997 between BITI and
BITG.
10.14 -- Form of Stock Repurchase Agreement between BrightStar and
Marshall G. Webb, Daniel M. Cofall, Thomas A. Hudgins,
and Michael A. Sooley.
10.15 -- R/3 Regional Implementation Partner Agreement dated July
10, 1995 between Software Consulting Services America,
LLC and SAP America, Inc.
10.16 -- R/3 National Implementation Partner Agreement dated March
14, 1995 between Software Consulting Services Pty. Ltd.
and SAP Australia Pty. Ltd.
10.17 -- Form of Employment Agreement between Software Innovators,
Inc. and Mark D. Diggs.
10.18 -- Form of Agreement Regarding Repurchase of Stock by and
among BrightStar, George M. Siegel, Marshall G. Webb,
Thomas A. Hudgins, Daniel M. Cofall, Mark D. Diggs,
Michael A. Sooley, Michael B. Miller, and Tarrant Hancock
21.1 -- List of Subsidiaries of the Company.
23.1 -- Consent of Deloitte & Touche, LLP.
23.2 -- Consent of Deloitte Touche Tohmatsu.
23.3 -- Consent of Chamberlain, Hrdlicka, White, Williams &
Martin (included in Exhibit 5.1).
+23.4 -- Consent of Brian R. Blackmarr to be named as a director.
23.5 -- Consent of Jennifer T. Barrett to be named as a director.
+24.1 -- Power of Attorney.
</TABLE>
- ---------------
* To be filed by Amendment.
+ Previously filed
II-3
<PAGE> 138
(b) Financial Statement Schedules
All schedules are omitted because they are not applicable or because the
required information is contained in the Financial Statements or Notes thereto.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes:
(1) That for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
(2) That for the purposes of determining any liability under the
Securities Act of 1933, each posteffective 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.
(3) 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.
II-4
<PAGE> 139
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Houston, State of Texas on February 27, 1998.
BRIGHTSTAR INFORMATION
TECHNOLOGY GROUP, INC.
By: /s/ MARSHALL G. WEBB
-----------------------------------
Marshall G. Webb
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated as of February 27, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
GEORGE M. SIEGEL* Chairman of the Board of Directors
- -----------------------------------------------------
George M. Siegel
/s/ MARSHALL G. WEBB President, Chief Executive Officer, Director
- ----------------------------------------------------- (Principal Executive Officer)
Marshall G. Webb
/s/ DANIEL M. COFALL Executive Vice President, Chief Financial
- ----------------------------------------------------- Officer and Treasurer (Principal Financial
Daniel M. Cofall and Accounting Officer)
*By: /s/ MARSHALL G. WEBB
------------------------------------------------
Marshall G. Webb
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 140
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
-------- -----------
<C> <S>
*1.1 -- Form of Underwriting Agreement.
3.1 -- Certificate of Incorporation, as amended.
+3.2 -- Bylaws.
4.1 -- Specimen Common Stock Certificates.
4.2 -- Agreement and Plan of Exchange dated December 15, 1997
among BrightStar, BITG, BITI and the holders of the
outstanding capital stock of BITG.
4.3 -- Warrant dated as of August 14, 1997 issued to McFarland,
Grossman and Company, Inc.
4.4 -- Option Agreement dated as of December 16, 1997 between
BrightStar and Brewer-Gruenert Capital Advisors, LLC.
5.1 -- Opinion of Chamberlain, Hrdlicka, White, Williams &
Martin as to the legality of the securities being
registered.
10.1 -- BrightStar 1997 Long-Term Incentive Plan.
+10.2 -- Agreement and Plan of Exchange by and among BrightStar
and the holders of the outstanding capital stock of Brian
R. Blackmarr and Associates, Inc.
+10.3 -- Agreement and Plan of Exchange by and among BrightStar
and the holders of the outstanding capital stock of
Integrated Controls, Inc.
+10.4 -- Agreement and Plan of Exchange by and among BrightStar
and the holders of the outstanding capital stock of
Mindworks Professional Education Group, Inc.
+10.5 -- Agreement and Plan of Exchange by and among BrightStar,
Software Consulting Services America, LLC and the holders
of the outstanding ownership interests of Software
Consulting Services America, LLC.
+10.6 -- Agreement and Plan of Exchange by and among BrightStar
and Software Consulting Services Pty. Ltd. in its
capacity as Trustee of the Software Consulting Services
Unit Trust and the holders of all of the outstanding
ownership interests in the Software Consultants Unit
Trust.
+10.7 -- Agreement and Plan of Exchange by and among BrightStar
and the holders of the outstanding capital stock of
Software Innovators, Inc.
+10.8 -- Agreement and Plan of Exchange by and among BrightStar
and the holder of the outstanding capital stock of Zelo
Group, Inc. and Joel Rayden.
10.9 -- Form of Employment Agreement between BrightStar and
Marshall G. Webb, Thomas A. Hudgins and Daniel M. Cofall.
10.10 -- Form of Employment Agreement between Brian R. Blackmarr
and Associates, Inc. and Brian R. Blackmarr.
+10.11 -- Letter Agreement dated August 14, 1997 between BITG and
McFarland, Grossman and Company, Inc.
+10.12 -- Letter Agreement dated September 26, 1997 between BITG
and Brewer-Gruenert Capital Advisors, LLC, and amended as
of December 15, 1997.
10.13 -- Loan Agreement dated October 16, 1997 between BITI and
BITG.
10.14 -- Form of Stock Repurchase Agreement between BrightStar and
Marshall G. Webb, Daniel M. Cofall, Thomas A. Hudgins,
and Michael A. Sooley.
10.15 -- R/3 Regional Implementation Partner Agreement dated July
10, 1995 between Software Consulting Services America,
LLC and SAP America, Inc.
10.16 -- R/3 National Implementation Partner Agreement dated March
14, 1995 between Software Consulting Services Pty. Ltd.
and SAP Australia Pty. Ltd.
10.17 -- Form of Employment Agreement between Software Innovators,
Inc. and Mark D. Diggs.
</TABLE>
<PAGE> 141
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
-------- -----------
<C> <S>
10.18 -- Form of Agreement Regarding Repurchase of Stock by and
among BrightStar, George M. Siegel, Marshall G. Webb,
Thomas A. Hudgins, Daniel M. Cofall, Mark D. Diggs,
Michael A. Sooley, Michael B. Miller, and Tarrant Hancock
21.1 -- List of Subsidiaries of the Company.
23.1 -- Consent of Deloitte & Touche, LLP.
23.2 -- Consent of Deloitte Touche Tohmatsu.
23.3 -- Consent of Chamberlain, Hrdlicka, White, Williams &
Martin (included in Exhibit 5.1).
+23.4 -- Consent of Brian R. Blackmarr to be named as a director.
23.5 -- Consent of Jennifer T. Barrett to be named as a director.
+24.1 -- Power of Attorney.
</TABLE>
- ---------------
* To be filed by Amendment.
+ Previously filed.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.
ARTICLE ONE
The name of the corporation is BrightStar Information Technology
Group, Inc.
ARTICLE TWO
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, New Castle County, Wilmington, Delaware 19801.
The name of its registered agent at such address is The Corporation Trust
Company.
ARTICLE THREE
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware (the "DGCL").
ARTICLE FOUR
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 40,000,000 shares which shall be
divided into (a) 5,000,000 shares, designated as Preferred Stock, having a par
value of $.001 per share (the "Preferred Stock"), and (b) 35,000,000 shares,
designated as Common Stock, having a par value of $.001 per share (the "Common
Stock").
A statement of the powers, preferences and rights, and the
qualifications, limitations or restrictions thereof, in respect of each class
of stock of the Corporation is as follows:
A. PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of this Certificate of Incorporation and the limitations prescribed by law, the
Board of Directors is expressly authorized by adopting resolutions to issue the
shares, fix the number of shares and change the number of shares constituting
any series, and to provide for or change the voting powers, designations,
preferences and relative, participating, optional or other special rights,
qualifications, limitations or restrictions thereof, including dividend rights
(and whether dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), a redemption price or prices, conversion
rights
1
<PAGE> 2
and liquidation preferences of the shares constituting any class or series of
the Preferred Stock, without any further action or vote by the stockholders.
B. COMMON STOCK
1. DIVIDENDS.
Subject to the preferred rights of the holders of shares of any class
or series of Preferred Stock as provided by the Board of Directors with respect
to any such class or series of Preferred Stock, the holders of the Common Stock
shall be entitled to receive, as and when declared by the Board of Directors
out of the funds of the Corporation legally available therefor, such dividends
(payable in cash, stock or otherwise) as the Board of Directors may from time
to time determine, payable to stockholders of record on such dates, not
exceeding 60 days preceding the dividend payment dates, as shall be fixed for
such purpose by the Board of Directors in advance of payment of each particular
dividend.
2. LIQUIDATION.
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after the distribution or
payment to the holders of shares of any class or series of Preferred Stock as
provided by the Board of Directors with respect to any such class or series of
Preferred Stock, the remaining assets of the Corporation available for
distribution to stockholders shall be distributed among and paid to the holders
of Common Stock ratably in proportion to the number of shares of Common Stock
held by them respectively.
3. VOTING RIGHTS.
Except as otherwise required by law, each holder of shares of Common
Stock shall be entitled to one vote for each share of Common Stock standing in
such holder's name on the books of the Corporation.
ARTICLE FIVE
A. BOARD OF DIRECTORS.
The number of directors shall be fixed from time to time exclusively
by the Board of Directors pursuant to a resolution adopted by a majority of the
directors then in office.
At each annual meeting of stockholders, the successors to the
directors whose term expires at that meeting shall be elected to hold office
for a term expiring at the annual meeting of stockholders held in the year
following the year of their election and until their successors have been duly
elected and qualified. At each annual meeting of stockholders at which a quorum
is present, the persons receiving a plurality of the votes cast shall be
directors. No director may be
2
<PAGE> 3
removed from office by a vote of the stockholders at any time except for cause.
Election of directors need not be by written ballot unless the Bylaws of the
Corporation so provide.
B. VACANCIES.
Any vacancy on the Board of Directors resulting from death,
retirement, resignation, disqualification or removal from office or other
cause, as well as any vacancy resulting from an increase in the number of
directors which occurs between annual meetings of the stockholders at which
directors are elected, shall be filled only by a majority vote of the remaining
directors then in office, though less than a quorum, except that those
vacancies resulting from removal from office by a vote of the stockholders may
be filled by a vote of the stockholders at the same meeting at which such
removal occurs. The directors chosen to fill vacancies shall hold office for a
term expiring at the end of the next annual meeting of stockholders at which
the term to which they have been elected expires. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
Notwithstanding the foregoing, whenever the holders of one or more
classes or series of Preferred Stock shall have the right, voting separately,
as a class or series, to elect directors, the election, term of office, filling
of vacancies, removal and other features of such directorships shall be
governed by the terms of the resolution or resolutions adopted by the Board of
Directors pursuant to ARTICLE FOUR applicable thereto, and each director so
elected shall not be subject to the provisions of this ARTICLE FIVE unless
otherwise provided therein.
C. POWER TO MAKE, ALTER AND REPEAL BYLAWS.
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, amend and
repeal the Bylaws of the Corporation subject to the power of the stockholders
of the Corporation to adopt, amend and repeal any Bylaw whether adopted by them
or otherwise.
D. AMENDMENT AND REPEAL OF ARTICLE FIVE.
Notwithstanding any provision of this Certificate of Incorporation and
of the Bylaws, and notwithstanding the fact that a lesser percentage may be
specified by Delaware law, in addition to approval by the Board of Director as
required by Delaware law, the affirmative vote of the majority of the votes
which all stockholders of the then outstanding shares of capital stock of the
Corporation would be entitled to cast thereon, voting together as a single
class, shall be required and shall be sufficient to amend or repeal any
provisions of this ARTICLE FIVE or to adopt any provision inconsistent with
this ARTICLE FIVE.
3
<PAGE> 4
ARTICLE SIX
The Corporation reserves the right to amend, alter, change or repeal
any provision in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute.
ARTICLE SEVEN
No director of the Corporation shall be liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL or (iv) for any transaction from which
the director derived an improper personal benefit.
ARTICLE EIGHT
The Corporation shall, to the fullest extent permitted by Section 145
of the DGCL, as the same may be amended and supplemented, indemnify each
director and officer of the Corporation from and against any and all of the
expenses, liabilities or other matters referred to in or covered by such
section and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any Bylaw, agreement, vote of stockholders, vote of disinterested directors or
otherwise, and shall continue as to a person who has ceased to be a director or
officer and shall inure to the benefit of the heirs, executors and
administrators of such persons and the Corporation may purchase and maintain
insurance on behalf of any director or officer to the extent permitted by
Section 145 of the DGCL.
ARTICLE NINE
Special Meetings of the Corporation's stockholders may be called by
the President, the Board of Directors, or such other person or persons as may
be authorized in the Bylaws.
ARTICLE TEN
Any action required or permitted to be taken by the stockholders of
the Corporation at an annual or special meeting of stockholders must be
effected at a duly called meeting and may not be taken or effected by a written
consent of stockholders in lieu thereof.
ARTICLE ELEVEN
The incorporator of the corporation is Frank S. Wu, whose mailing
address is 1200 Smith Street, Suite 1400, Houston, Texas 77002.
The undersigned incorporator of the corporation hereby acknowledges
that the foregoing certificate of incorporation is his act and deed on this
10th day of October, 1997.
/s/ FRANK WU
-----------------------------------
Frank S. Wu
4
<PAGE> 5
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC., a corporation
organized and existing under and by virtue of the General Corporation Law of
the State of Delaware (the "Corporation"), does hereby certify:
FIRST: That by the unanimous written consent of the Board of Directors
of the Corporation, the directors adopted resolutions setting forth a proposed
amendment of the Certificate of Incorporation of the Corporation and declared
such amendment to be advisable. The resolution setting forth the proposed
amendment is as follows:
RESOLVED, That Article 4 of the Certificate of Incorporation
of the Corporation is deleted in its entirety and a new Article 4
which reads as follows is inserted in its place:
"ARTICLE FOUR
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 40,000,000 shares which
shall be divided into (a) 3,000,000 shares, designated as Preferred
Stock, having a par value of $.001 per share (the "Preferred Stock"),
(b) 35,000,000 shares, designated as Common Stock, having a par value
of $.001 per share (the "Common Stock"), and (c) 2,000,000 shares,
designated as Restricted Common Stock, having a par value of $.001 per
share (the "Restricted Common Stock").
A statement of the powers, preferences and rights, and the
qualifications, limitations or restrictions thereof, in respect of
each class of stock of the Corporation is as follows:
A. PREFERRED STOCK
The Preferred Stock may be issued from time to time by the
Board of Directors as shares of one or more classes or series. Subject
to the provisions of this Certificate of Incorporation and the
limitations prescribed by law, the Board of Directors is expressly
authorized by adopting resolutions to issue the shares, fix the number
of shares and change the number of shares constituting any series, and
to provide for or change the voting powers, designations, preferences
and relative, participating, optional or other special rights,
qualifications, limitations or restrictions thereof, including
dividend rights (and whether dividends are
1
<PAGE> 6
cumulative), dividend rates, terms of redemption (including sinking
fund provisions), a redemption price or prices, conversion rights and
liquidation preferences of the shares constituting any class or series
of the Preferred Stock, without any further action or vote by the
stockholders.
B. COMMON STOCK
1. DIVIDENDS.
Subject to the preferred rights of the holders of shares of
any class or series of Preferred Stock as provided by the Board of
Directors with respect to any such class or series of Preferred Stock,
the holders of the Common Stock shall be entitled to receive, as and
when declared by the Board of Directors out of the funds of the
Corporation legally available therefor, such dividends (payable in
cash, stock or otherwise) as the Board of Directors may from time to
time determine, payable to stockholders of record on such dates, not
exceeding 60 days preceding the dividend payment dates, as shall be
fixed for such purpose by the Board of Directors in advance of payment
of each particular dividend. All dividends on Common Stock shall be
paid pari passu with dividends on Restricted Common Stock.
2. LIQUIDATION.
In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, after the
distribution or payment to the holders of shares of any class or
series of Preferred Stock as provided by the Board of Directors with
respect to any such class or series of Preferred Stock, the remaining
assets of the Corporation available for distribution to stockholders
shall be distributed among and paid to the holders of Common Stock and
Restricted Common Stock ratably in proportion to the number of shares
of Common Stock and Restricted Common Stock held by them respectively.
3. VOTING RIGHTS.
Except as otherwise required by law, each holder of shares of
Common Stock shall be entitled to one vote for each share of Common
Stock standing in such holder's name on the books of the Corporation.
C. RESTRICTED COMMON STOCK
1. DIVIDENDS.
Subject to the preferred rights of the holders of shares of
any class or series of Preferred Stock as provided by the Board of
Directors with respect to any such
2
<PAGE> 7
class or series of Preferred Stock, the holders of the Restricted
Common Stock shall be entitled to receive, as and when declared by the
Board of Directors out of the funds of the Corporation legally
available therefor, such dividends (payable in cash, stock or
otherwise) as the Board of Directors may from time to time determine,
payable to stockholders of record on such dates, not exceeding 60 days
preceding the dividend payment dates, as shall be fixed for such
purpose by the Board of Directors in advance of payment of each
particular dividend. All dividends on Restricted Common Stock shall be
paid pari passu with dividends on Common Stock.
2. LIQUIDATION.
In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, after the
distribution or payment to the holders of shares of any class or
series of Preferred Stock as provided by the Board of Directors with
respect to any such class or series of Preferred Stock, the remaining
assets of the Corporation available for distribution to stockholders
shall be distributed among and paid to the holders of Restricted
Common Stock and Common Stock ratably in proportion to the number of
shares of Restricted Common Stock and Common Stock held by them
respectively.
3. VOTING RIGHTS.
Holders of Restricted Common Stock shall have no voting
rights.
4. CONVERSION OF THE RESTRICTED COMMON STOCK.
Each share of Restricted Common Stock outstanding shall
automatically convert into Common Stock on a share for share basis (a)
in the event of a disposition of such share of Restricted Common Stock
by the holder thereof (other than a disposition which is a
distribution by a holder to its partners or beneficial owners or a
transfer to a related party of such holder (as defined in Sections
267, 707, 318 and/or 4946 of the Internal Revenue Code of 1986)), (b)
in the event any person acquires beneficial ownership of 25% or more
of the outstanding shares of Common Stock of the Corporation at any
time after consummation of the Corporation's initial public offering
of Common Stock (the "Initial Public Offering"), (c) eighteen months
after the consummation of the Corporation's Initial Public Offering,
or (d) in the event a majority of the aggregate number of votes which
may be cast by the holders of outstanding shares of Common Stock
approve such conversion."
3
<PAGE> 8
SECOND: That in lieu of a meeting and vote of stockholders, the
stockholders of the Corporation have given unanimous written consent to said
amendment in accordance with the provisions of Section 228 of the General
Corporation Law of the State of Delaware.
THIRD: That said amendment was duly adopted in accordance with the
applicable provisions of Sections 242 and 228 of the General Corporation Law of
the State of Delaware.
FOURTH: That the capital of the Corporation shall not be reduced under
or by reason of said amendment.
IN WITNESS WHEREOF, BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. has
caused this certificate to be signed by Marshall G. Webb, its Chief Executive
Officer, this 26th day of January, 1998.
BRIGHTSTAR INFORMATION TECHNOLOGY
GROUP, INC.
By: /s/ MARSHALL G. WEBB
--------------------------------
Marshall G. Webb,
Chief Executive Officer
4
<PAGE> 1
EXHIBIT 4.1
THIS CERTIFICATE IS TRANSFERABLE
IN NEW YORK, NY
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK
SEE REVERSE FOR
CERTAIN DEFINITIONS
AND LEGENDS
CUSIP 10947N 10 4
THIS CERTIFIES THAT
__________________________________________________________________________ IS
THE OWNER OF ________ FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF
$.001 PER SHARE OF THE COMMON STOCK OF
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This
certificate and the shares represented hereby are issued and shall be held
subject to the provisions of the laws of the State of Delaware and to all of
the provisions of the Certificate of Incorporation and the Bylaws of the
Corporation, as amended from time to time (copies of which are on file at the
office of the Corporation), to all of which the holder of this certificate by
acceptance hereof assents. This certificate is not valid until countersigned
by the Transfer Agent and registered by the Registrar.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by its duly authorized officers and its corporate seal to be hereto
affixed.
Dated PRESIDENT
SECRETARY
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY TRANSFER AGENT
AND REGISTRAR
AUTHORIZED SIGNATURE
<PAGE> 2
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.
In addition to Common Stock, the Corporation is authorized to issue
Preferred Stock, par value $.001 per share. The Board of Directors of the
Corporation has authority to fix the number of shares and the designation of
any series of Preferred Stock and to determine the powers, designations,
preferences and relative, participating, optional or other special rights
between owners of stock or series thereof of the Corporation, and the
qualifications, limitations or restrictions of such preferences and/or rights.
The Corporation will furnish without charge to each stockholder who so requests
a full statement of the foregoing as established from time to time by the
Certificate of Incorporation of the Corporation, as amended from time to time,
and by any certificate of designations. Any such request should be made to the
Secretary of the Corporation at the offices of the Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable law or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common.
UNIF GIFT MIN ACT - _____________________ Custodian _________________________
(Cust) (Minor)
Under Uniform Gifts to Minors Act___________________________
(State)
UNIF TRF MIN ACT - ________________ Custodian (until age __) ________________
(Cust) (Minor)
Under Uniform Transfer to Minor Act ________________________
(State)
Additional abbreviations may also be used though not in above list.
For value received, _______________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------- shares of the capital stock
represented by the within Certificate, and do hereby irrevocably constitute and
appoint ____________________ Attorney to transfer the said stock on the books
of the within named Corporation with full power of substitution in the premises.
Dated ____________________________
NOTICE:
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST X
CORRESPOND WITH THE NAME(S) AS WRITTEN ON --------------------------------
THE FACE OF THE CERTIFICATE IN EVERY (SIGNATURE)
PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER X
--------------------------------
(SIGNATURE)
--------------------------------
THE SIGNATURE(S) SHOULD BE
GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS AND SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT
UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM). PURSUANT
TO S.E.C. RULE 17Ad-15.
--------------------------------
SIGNATURE(S) GUARANTEED BY:
<PAGE> 1
EXHIBIT 4.2
AGREEMENT AND PLAN OF EXCHANGE
BY AND AMONG
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.
BIT GROUP SERVICES, INC.
AND
THE HOLDERS OF THE
OUTSTANDING CAPITAL STOCK
OF
BIT GROUP SERVICES, INC.
DECEMBER 15, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. AGREEMENT FOR EXCHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Exchange of Shares and Other Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Aggregate Consideration from BrightStar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Payment of Exchange Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.6 Assignment and Assumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.6.1 Assumption of obligations pursuant to MGCO Warrant. . . . . . . . . . . . . . . . . . . . . 4
1.6.2 Assumption of obligations pursuant to BGCA Option . . . . . . . . . . . . . . . . . . . . . . 4
1.7 Cancellation of BrightStar Stock Held by the Company . . . . . . . . . . . . . . . . . . . . . . . . . 4
2. THE RESTRICTED STOCK EXCHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Exchange for Restricted Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3. SHARE REPURCHASE AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4. THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.1 Delivery of Company Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.2.1 Closing of the Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.2.2 Closing of the Restricted Stock Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.2.3 Assignments of Company Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.2.4 Payment In Full Satisfaction of All Rights . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.1 Stock Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.2 Shareholder Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.4 Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.5 Capitalization of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.6 Company Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.7 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6. REPRESENTATIONS AND WARRANTIES OF BRIGHTSTAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.2 Capitalization of BrightStar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.3 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.4 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
i
<PAGE> 3
<TABLE>
<S><C> <C>
7. CERTAIN COVENANTS AND AGREEMENTS OF SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.1 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.2 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.3 Filings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.4 Agreements of Shareholders to be Effective Upon Closing . . . . . . . . . . . . . . . . . . . . . . . 9
8. CONDITIONS PRECEDENT; CLOSING DELIVERIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8.1 Conditions Precedent to the Obligations of BrightStar . . . . . . . . . . . . . . . . . . . . . . . . 9
8.1.1 Performance of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8.1.2 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8.2 Conditions Precedent to the Obligations of the Shareholders and the Company . . . . . . . . . . . . . 9
8.2.1 Performance of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8.2.2 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8.3 Deliveries by the Shareholders at the Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8.3.1 Documents, Stock Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8.4 Conditions Precedent to the IPO Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8.4.1 IPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8.5 Delivery of the Closing Exchange Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9. SURVIVAL, INDEMNIFICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
9.2.1 BrightStar Indemnified Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
9.2.2 Minimum Losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
9.2.3 BrightStar Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.3 Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.4 Procedures for Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.4.1 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.4.2 Legal Defense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.4.3 Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
9.4.4 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
9.5 Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
10. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
10.1 Grounds for Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
10.1.1 Prior to Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
10.1.2 After the Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
10.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
11.1 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
11.2 Further Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
11.3 Assignability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
11.4 Exhibits and Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
11.5 Sections and Articles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
11.6 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
11.7 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
11.8 CONTROLLING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
11.9 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
11.10 No Third Party Beneficiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
11.11 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
11.12 No Employee Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
11.13 Non-Recourse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
11.14 When Effective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
11.15 Takeover Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
11.16 Number and Gender of Words . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
11.17 Invalid Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
11.18 Multiple Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
11.19 No Rule of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
11.20 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
Schedule 1.2 Common Stock Owned by the Shareholders
Exhibit 3.1 Stock Repurchase Agreement
Exhibit 4.1 Letter of Transmittal from Shareholders
Exhibit 4.2 Escrow Agreement
iii
<PAGE> 5
AGREEMENT AND PLAN OF EXCHANGE
This AGREEMENT AND PLAN OF EXCHANGE (this "Agreement") made effective
as of December 15, 1997, by and among BRIGHTSTAR INFORMATION TECHNOLOGY GROUP,
INC., a Delaware corporation (the "BrightStar"), BIT GROUP SERVICES, INC., a
Delaware corporation (the "Company"), BIT INVESTORS, LLC, a Texas limited
liability company ("BITI"), and the undersigned holders ("Managers") of
outstanding capital stock of the Company (collectively, BITI and the Managers
are the "Shareholders");
WHEREAS, the Shareholders are owners of all of the issued and
outstanding capital stock of the Company; and
WHEREAS, BrightStar and the Shareholders desire to provide for the
transfer (the "Exchange") by the Shareholders to BrightStar of all the
outstanding shares of capital stock of the Company in exchange for common stock
of BrightStar; and
WHEREAS, the Exchange is one of several related transactions involving
the assignment of property to BrightStar in exchange for common stock and cash
of BrightStar as part of an overall plan that includes an initial public
offering of BrightStar common stock, par value $.001 per share ("BrightStar
Common Stock"); and for federal income tax purposes, it is intended that this
Exchange and the other related exchange transactions with BrightStar shall
qualify as exchanges under the provisions of Section 351 of the Internal
Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the board of directors of the Company has adopted and
approved the respective Agreements and Plan of Exchange (collectively, the
"Acquisition Agreements") with each of Brian R. Blackmarr and Associates, Inc.,
a Texas corporation ("Blackmarr"), Integrated Controls, Inc., a Louisiana
corporation ("ICON"), Mindworks Professional Education Group, Inc., an Arizona
corporation ("Mindworks"), Software Consulting Services America, LLC., a
California limited liability company ("SCS America"), Software Consulting
Services Pty. Ltd., a company chartered under the laws of Victoria, Australia,
in its capacity as trustee of the SCS Unit Trust ("SCS Australia"), Software
Innovators, Inc., an Arkansas corporation ("SII"), and Zelo Group, Inc., a
California corporation ("Zelo") (collectively, Blackmarr, ICON, Mindworks, SCS
America, SCS Australia, SII and Zelo are the "Acquired Companies"); and
WHEREAS, The Company owns 100 shares of BrightStar Common Stock, being
all of the issued and outstanding shares of BrightStar Common Stock as of the
date hereof, and as a result of the transactions contemplated herein, the
Company will become a wholly owned subsidiary of BrightStar;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained, and intending to
be legally bound hereby, the parties agree as follows:
1. AGREEMENT FOR EXCHANGE
1.1 Exchange of Shares and Other Consideration. The Shareholders
agree to assign, transfer and deliver to BrightStar all right, title and
interest in and to all of the outstanding shares of
<PAGE> 6
common stock of the Company ("Company Common Stock") in exchange for the
Exchange Consideration (as defined below) which BrightStar hereby agrees to
pay, assign, transfer and deliver to the Shareholders in accordance with this
Agreement.
1.2 Aggregate Consideration from BrightStar. The aggregate
consideration to be delivered by BrightStar in connection with the Exchange
shall be the number of validly issued, fully paid and non-assessable shares of
BrightStar Common set forth opposite each Shareholder's name below (the
"Exchange Consideration"):
<TABLE>
<CAPTION>
Exchange Consideration
Number of Shares of in Shares of
Shareholder Company Common Stock BrightStar Common Stock
----------- --------------------- -----------------------
<S> <C> <C>
BITI 100,000 BITI Exchange Amount (1)
George M. Siegel 5,190 42,900(2)
Marshall G. Webb 8,469 70,000(2)
Thomas A. Hudgins 7,259 60,000(2)
Daniel M. Cofall 7,259 60,000(2)
Mark D. Diggs 2,420 20,000(2)
Michael A. Sooley 7,259 60,000(2)
Tarrant Hancock 4,102 33,900(2)
------- ------
TOTAL 41,958 346,800(2)(3)
</TABLE>
______________________
(1) The "BITI Exchange Amount" is that number of shares of BrightStar
Common Stock as shall equal 3,588,735 minus the sum of (a) 346,800
and (b) the Business Acquisition Shares (as defined below).
(2) Subject to reduction (but not increase), on a pro rata basis with all
other Shareholders (other than BITI), in proportion to the total
number of shares of Company Common Stock held by such Shareholders,
only in the event that the BITI Exchange Amount is equal to zero, such
that the total number of shares of BrightStar Common Stock issuable as
Exchange Consideration to those Shareholders will equal 3,588,735
minus the Business Acquisition Shares .
(3) Represents total shares to be received in the Exchange excluding the
BITI Exchange Amount.
1.3 Payment of Exchange Consideration. All of the Exchange
Consideration shall be paid and delivered by BrightStar to the Escrow Agent
(defined below) for release to the Shareholders on the IPO Closing Date.
2
<PAGE> 7
1.4 Fractional Shares. No fractional shares of BrightStar Common
Stock will be issued pursuant to this Agreement, and if any Shareholder would
otherwise be entitled to receive a fractional share of BrightStar Common Stock
but for this provision, that Shareholder will be entitled to receive a cash
payment for and in lieu thereof in the amount (rounded upward to the nearest
whole cent) equal to that Shareholder's fractional interest in a share of
BrightStar Common Stock multiplied by the IPO Price.
1.5 Certain Definitions. The following terms shall have the
meaning ascribed below for purposes of this Agreement:
(i) "Business Acquisition Shares" means the total number
of shares of BrightStar Common Stock issuable to the owners of the
Acquired Companies in connection with the Acquisition Agreements,
assuming that all shares issuable upon satisfaction of the condition
set forth in Subsection 1.5(b) of the SCS Australia Acquisition
Agreement will be issued, and excluding (i) all shares issuable to key
employees of SCS Australia pursuant to Section 6.6 of the SCS
Australia Acquisition Agreement, and (ii) all shares issuable with
respect to the 1998 financial performance of SII to former
shareholders of SII, as set forth in Section 1.2.2 of the SII
Acquisition Agreement; and
(ii) "IPO" means BrightStar's first underwritten public
offering of BrightStar Common Stock (other than any offering pursuant
to any registration statement (a) relating to any capital stock of
BrightStar or options, warrants or other rights to acquire any such
capital stock issued or to be issued primarily to directors, officers
or employees of BrightStar or any of its subsidiaries, (b) relating to
any employee benefit plan or interest therein, (c) relating
principally to any preferred stock or debt securities of BrightStar,
or (d) filed pursuant to Rule 145 under the Securities Act of 1933, as
amended ("Securities Act"), or any successor or similar provision).
(iii) "IPO Closing Date" means the date that BrightStar
receives funds in consideration for the sale of its securities in the
IPO.
(iv) "IPO Price" means the initial price per share to the
public for shares of BrightStar Common Stock in the IPO.
1.6 Assignment and Assumption. The Company does hereby assign to
BrightStar all of the Company's rights in, to and under all contracts and
agreements of the Company (subject, in each case where applicable to any
necessary consents of the other parties to those contracts and agreements).
BrightStar does hereby assume and agree to pay, perform or discharge any and
all liabilities or obligations of the Company, whether accrued, absolute,
contingent or otherwise, under all contracts and agreements of the Company
(subject, in each case where applicable to any necessary consents of the other
parties to those contracts and agreements) including, without limitation: (i)
all of the Company's liabilities and obligations under the various letters of
intent that the Company has entered into during 1997 for purposes of acquiring
either the ownership of or certain assets of various target companies; (ii) all
of the Company's liabilities and obligations under that certain Loan Agreement
and related Promissory Note dated as of October 16, 1997 with BITI as lender,
together with all advances thereunder, and all extensions and renewals thereof;
(iii) all of the Company's
3
<PAGE> 8
obligations arising under or in connection with that certain engagement letter,
dated as of August 14, 1997, between the Company and McFarland, Grossman &
Company, Inc. ("MGCO"), whereby MGCO has agreed to provide certain financial
advisory services to the Company ("MGCO Engagement"); (iv) all of the Company's
obligations arising under or in connection with that certain consulting
agreement, dated as of September 26, 1997, between the Company and
Brewer-Gruenert Capital Advisors, LLC ("BGCA"), whereby BGCA has agreed to
provide certain consulting services to the Company. The Company expressly does
not assign to BrightStar, and BrightStar expressly does not assume from the
Company, any liabilities or obligations except as specifically set forth in
this Section 1.6.
1.6.1 Assumption of obligations pursuant to MGCO Warrant.
Pursuant to the terms of the MGCO Engagement, BrightStar shall assume,
effective as of the IPO Closing Date, all of the Company's obligations under
the terms of the warrant issued to MGCO pursuant to the MGCO Engagement (the
"MGCO Warrant"), including the obligation to issue shares of common stock upon
the exercise of such warrant, provided that all references contained in the
MGCO Warrant with respect to the Company Common Stock shall be deemed to be
references to BrightStar Common Stock.
1.6.2 Assumption of obligations pursuant to BGCA Option.
Pursuant to terms of the BGCA Engagement, BrightStar shall assume, effective as
of the IPO Closing Date, all of the Company's obligations under terms of the
option issued to BGCA pursuant to the BGCA Engagement (the "BGCA Option"),
including the obligation to issue shares of common stock upon the exercise of
such option, provided that all references contained in the BGCA Warrant with
respect to the Company Common Stock shall be deemed to be references to
BrightStar Common Stock.
1.7 Cancellation of BrightStar Stock Held by the Company. All
shares of BrightStar Common Stock that are owned by the Company shall be
canceled and retired and shall cease to exist and no stock of BrightStar or
other consideration shall be delivered in exchange therefor.
2. THE RESTRICTED STOCK EXCHANGE
2.1 Exchange for Restricted Common Stock. Each of the Managers
hereby agrees to exchange (the "Restricted Stock Exchange") any and all shares
of BrightStar Common Stock included in the Exchange Consideration received by
them pursuant to Section 1.2 above (the "Exchangeable Shares") for shares of
restricted common stock, par value $.001 per share of BrightStar ("Restricted
Common Stock") as shall be required to ensure that the aggregate voting power
of all BrightStar Common Stock received by all shareholders of Blackmarr will
exceed the aggregate voting power of all BrightStar capital stock held by the
Managers and Michael B. Miller, in the aggregate (collectively, the Managers
and such persons are the "Founders"), immediately following the acquisition of
Blackmarr pursuant to the Blackmarr Acquisition Agreement (the "Blackmarr
Acquisition"). For purposes of the Restricted Stock Exchange, only the shares
of BrightStar Common Stock received by the Managers pursuant to the exchange
described in Section 1.2 above, and all additional shares received in
connection with stock splits, share dividends or distributions with respect
thereto, shall be deemed to be Exchangeable Shares. The Restricted Stock
Exchange shall be consummated only in the event that the Company successfully
closes the IPO within one year following the date of this Agreement, and only
to the extent that the aggregate voting
4
<PAGE> 9
power of all BrightStar capital stock held by the Founders would exceed the
aggregate voting power of all BrightStar Common Stock received by shareholders
of Blackmarr in the Blackmarr Acquisition (without giving effect to the
Restricted Stock Exchange). In such event, the Restricted Stock Exchange shall
occur with respect to Exchangeable Shares held by each Manager, pro rata, in
proportion to the total number of Exchangeable Shares held by all Managers in
the aggregate, and shall be consummated immediately following the Blackmarr
Acquisition. BrightStar agrees to issue and deliver Restricted Common Stock to
the Managers in exchange for shares of BrightStar Common Stock pursuant to
terms of the Restricted Stock Exchange described above.
3. SHARE REPURCHASE AGREEMENTS
3.1 Delivery of Stock Repurchase Agreements. Each of Marshall G.
Webb, Thomas A. Hudgins, Daniel M. Cofall and Michael A. Sooley (the
"Participating Managers") hereby agree to execute and deliver a stock
repurchase agreement on the Closing Date in the form attached hereto as Exhibit
3.1 (the "Stock Repurchase Agreements") granting to BrightStar the option to
repurchase the shares of BrightStar Common Stock included in the Exchange
Consideration received by each of the Participating Managers pursuant to
Section 1.2 above, and shares of Restricted Common Stock, if any, received by
the Participating Managers pursuant to the Restricted Stock Exchange, under
certain terms and conditions provided in the Share Repurchase Agreements.
4. THE CLOSING
4.1 Delivery of Company Common Stock. Prior to the Closing (as
defined below), BrightStar will deliver to each Shareholder a letter of
transmittal, in substantially the form attached hereto as Exhibit 4.1, to be
used by the Shareholders for surrendering to BrightStar certificates
representing all the Company Common Stock in exchange for the right to receive
the Exchange Consideration. On the Closing Date, certificates for all of the
Company Common Stock held by the Shareholders will be delivered by the
Shareholders to the Escrow Agent in accordance with the Escrow Agreement for
the benefit of BrightStar together with properly completed and executed letters
of transmittal.
4.2 Closing. A closing into Escrow (the "Closing") will take
place at the offices of Chamberlain, Hrdlicka, White, Williams & Martin in
Houston, Texas at the time and on the day that BrightStar and its underwriters
agree on the IPO Price for shares of BrightStar Common Stock offered in
BrightStar's IPO (the "Pricing Date") as set forth in an executed underwriting
agreement, but in no event later than December 31, 1998 (the "Closing Date");
provided that each of the conditions precedent to the obligations of the
parties to effect the Closing pursuant to Article 8 of this Agreement are then
satisfied or waived by the applicable party. At the Closing, the parties will
deliver or cause to be delivered into escrow with the escrow agent ("Escrow
Agent") under the Escrow Agreement set forth in Exhibit 4.2 hereto, the
documents described in Sections 4.2.1 and 4.2.2 below. On the IPO Closing
Date, such documents shall be delivered out of escrow to the parties designated
to receive such documents under this Agreement in accordance with the Escrow
Agreement and Article 8 of this Agreement.
4.2.1 Closing of the Exchange. On the Closing Date, (i)
BITI and the Managers, respectively, will deliver certificates evidencing all
outstanding shares of Company Common Stock
5
<PAGE> 10
to the Escrow Agent in accordance with the Escrow Agreement for the benefit of
BrightStar together with properly completed and executed letters of
transmittal, (ii) BrightStar will issue and deliver to the Escrow Agent
certificates in the name of BITI and the Managers, respectively, representing
the number of shares of BrightStar Common Stock to be received by the
Shareholders in the Exchange according to the provisions in Section 1.2 above,
(iii) BrightStar and each of the Participating Managers will execute and
deliver a Stock Repurchase Agreement to the Escrow Agent; (iv) BrightStar and
the Company will execute and deliver to the Escrow Agent any further documents
or instruments necessary or desirable to consummate the assignment of rights
and assumption of obligations of the Company described in Section 1.6 above,
(v) BITI will execute and deliver to the Escrow Agent a letter of transmittal
directing BrightStar and its transfer agent to reissue in the name of the
respective Managers certain shares of BrightStar Common Stock formerly held by
BITI and representing such Managers' distributive shares of BITI assets in
accordance with the Regulations of BITI in connection with the dissolution and
liquidation of BITI, and (vi) the Company will deliver to the Escrow Agent any
and all of its certificates representing BrightStar Common Stock to be
surrendered for cancellation.
4.2.2 Closing of the Restricted Stock Exchange. If the
conditions for the Restricted Stock Exchange provided in Section 2.1 above are
satisfied, on the Closing Date, (i) each of the Managers shall deliver written
instructions to the Escrow Agent on the Closing Date, effective as of the IPO
Closing Date, directing BrightStar and its transfer agent to issue and deliver
to such Manager a certificate representing number of shares of Restricted
Common Stock equal to such Manager's pro rata portion of the total number of
Exchangeable Shares held by all of the Managers in the aggregate, and directing
BrightStar and its transfer agent to issue a new share certificate evidencing
his remaining shares BrightStar Common Stock, and (ii) the Escrow Agent shall
direct BrightStar and its transfer agent to issue and deliver to Escrow Agent
for the benefit of the Managers the share certificates in accordance with such
written instructions.
4.2.3 Assignments of Company Common Stock. It is agreed
that no assignment, transfer or other disposition of record or beneficial
ownership of any shares of Company Common Stock may be made on or after the
date hereof other than as provided herein.
4.2.4 Payment In Full Satisfaction of All Rights. The
delivery of the Exchange Consideration to the Shareholders with respect to
shares of the Company Common Stock shall be deemed to be payment in full
satisfaction of all rights pertaining to the outstanding shares.
5. REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDERS
The Shareholders hereby represent and warrant to BrightStar as follow:
5.1 Stock Ownership. Each Shareholder owns, beneficially and of
record, with full power to vote, transfer and assign, the number of shares of
Company Common Stock set forth opposite such Shareholder's name on Schedule
1.2, and such shares are so held by the Shareholder free and clear of all
liens, encumbrances and adverse claims whatsoever.
6
<PAGE> 11
5.2 Shareholder Authority. Each Shareholder has full right,
power, legal capacity and authority to (i) execute, deliver and perform this
Agreement, and all other documents and instruments referred to herein or
contemplated hereby to be executed, delivered and/or performed by the
Shareholders (each a "Shareholder Related Document") and (ii) consummate the
transactions contemplated herein and thereby. This Agreement has been duly
executed and delivered by each of the Shareholders and constitutes, and each
Shareholder Related Document, when duly executed and delivered by the
Shareholders will constitute, legal, valid and binding obligations of each of
the Shareholders enforceable against the Shareholder in accordance with their
respective terms and conditions, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity (whether applied in a proceeding at law or in equity).
5.3 Consents. No approval, consent, order or action of or filing
with any court, administrative agency, governmental authority or other third
party is required for the execution, delivery or performance by any of the
Shareholders of this Agreement or any Shareholder Related Document other than
filings related to the IPO. The execution, delivery and performance by any of
the Shareholders of this Agreement and the Shareholder Related Documents do not
violate any mortgage, indenture, contract, agreement, lease or commitment or
other instrument of any kind to which any of the Shareholders is a party or by
which any of the Shareholders or the Shareholders' assets or properties may be
bound or affected or any law, rule or regulation applicable to any of the
Shareholders or any court injunction, order or decree or any valid and
enforceable order of any governmental agency in effect as of the date hereof
having jurisdiction over any of the Shareholders.
5.4 Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and is duly qualified or licensed as a foreign corporation authorized to do
business in all other states in which any of its assets or properties may be
situated or where the business of the Company is conducted except where the
failure to obtain such qualification or license will not have a material
adverse effect on the Company.
5.5 Capitalization of the Company. The total authorized capital
stock of the Company is 200,000 shares of Company Common Stock, $.001 par
value, of which an aggregate of 141,958 shares are issued and outstanding and
held of record and beneficially by the Shareholders, and of which 0 are held in
the treasury of the Company. The outstanding shares of Company Common Stock
have been duly and validly authorized and issued, and are fully paid and
non-assessable. Except for the outstanding shares of Company Common Stock
owned beneficially and of record by the Shareholders, shares issuable pursuant
to the MGCO Warrant and the BGCA Option, and shares issuable under the
Acquisition Agreements, there are no outstanding shares of capital stock,
convertible or exchangeable securities, subscriptions, calls, options,
warrants, rights or other agreements or commitments of any character relating
to the issuance or sale of any shares of capital stock of, or other equity
ownership interest in, the Company.
5.6 Company Authority. The Company has full right, power, legal
capacity and authority to execute, deliver and perform this Agreement and all
documents and instruments referred to in the Agreement or herein or
contemplated hereby or thereby to be executed, delivered and/or performed by
the Company (the "Company Related Documents") and to consummate the
transactions contemplated hereby and thereby. All of the Company Related
Documents, when duly executed and
7
<PAGE> 12
delivered by the Company, will constitute, legal, valid and binding obligations
of the Company, enforceable against the Company in accordance with their
respective terms, except as such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity
(whether applied in a proceeding at law or in equity).
5.7 Consents. No approval, consent, order or action of or filing
with any court, administrative agency, governmental authority or other third
party is required for the execution, delivery or performance by the Company of
the Company Related Documents.
6. REPRESENTATIONS AND WARRANTIES
OF BRIGHTSTAR
BrightStar hereby represents and warrants to the Shareholders as
follows:
6.1 Organization. BrightStar is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
BrightStar is duly qualified or licensed as a foreign corporation authorized to
do business in all states in which any of its assets or properties may be
situated or where its business is conducted except where the failure to obtain
such qualification or license would not have a material adverse effect on
BrightStar.
6.2 Capitalization of BrightStar. The total authorized capital
stock of BrightStar is as set forth in BrightStar's private offering
memorandum, dated November 14, 1997, together with a supplement thereto dated
as of December 16, 1997 (the "Offering Memorandum") . The outstanding shares
of BrightStar Common Stock have been duly and validly authorized and issued,
and are fully paid and non-assessable.
6.3 Authority. BrightStar has the requisite, power and authority
to execute, deliver and perform this Agreement and all documents and
instruments referred to herein or contemplated hereby (the "BrightStar Related
Documents") and to consummate the transactions contemplated herein and thereby.
This Agreement has been duly executed and delivered by BrightStar and
constitutes, and all BrightStar Related Documents, when executed and delivered
by BrightStar will constitute, legal, valid and binding obligations of
BrightStar, enforceable in accordance with their respective terms and
conditions except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (whether
applied in a proceeding at law or in equity).
6.4 Consents. No approval, consent, order or action of or filing
with any court, administrative agency, governmental authority or other third
party is required for the execution, delivery or performance by BrightStar of
this Agreement or BrightStar Related Documents or the consummation by
BrightStar of the transactions contemplated hereby, except for the filing of
BrightStar's registration statement with respect to the IPO (including all
amendments thereto, the "Registration Statement") with the U.S. Securities and
Exchange Commission ("SEC") pursuant to the Securities Act and the SEC's
declaration of effectiveness of such Registration Statement and the
8
<PAGE> 13
completion of all necessary filings required under, and the obtaining of all
necessary consents and approvals required pursuant to, state securities or
"blue sky" laws in connection with the IPO.
7. CERTAIN COVENANTS AND AGREEMENTS OF SHAREHOLDERS
The Shareholders further jointly and severally agree with BrightStar
that from the date hereof through the Closing Date:
7.1 Conduct of Business. The Shareholders shall cause the Company
to conduct its operations according to its ordinary and usual course of
business to preserve substantially intact its business organization, keep
available the services of its officers and employees, and maintain its present
relationships with licensors, suppliers, distributors, customers and others
having significant business relationships with it.
7.2 Cooperation. The Shareholders will cooperate fully with
BrightStar, and will cause the Company to cooperate fully with BrightStar, as
to arrangements for the consummation of the transactions contemplated hereby in
an orderly fashion.
7.3 Filings. The Shareholders will make, and cause the Company to
make, all filings which are required to be made by them to lawfully consummate
the transactions contemplated hereby.
7.4 Agreements of Shareholders to be Effective Upon Closing.
Effective upon Closing, and without further action on the part of any party or
other person, the Shareholders covenant and agree that the Shareholders do
hereby (i) release, acquit and forever discharge the Company from any and all
liabilities, obligations, claims, demands, actions or causes of action arising
from or relating to any event, occurrence, act, omission or condition occurring
or existing on or prior to the Closing Date, including, without limitation, any
claim for indemnity or contribution from the Company in connection with the
obligations or liabilities of the Shareholders hereunder; (ii) waive all
breaches, defaults or violations of any agreement applicable to the Company
Common Stock and agree that any and all such agreements are terminated as of
the Closing Date, and (iii) waive any and all preemptive or other rights to
acquire any shares of capital stock of the Company and release any and all
claims arising in connection with any prior default, violation or failure to
comply with or satisfy any such preemptive or other rights.
8. CONDITIONS PRECEDENT; CLOSING DELIVERIES
8.1 Conditions Precedent to the Obligations of BrightStar. The
obligations of BrightStar to effect the Closing under this Agreement are
subject to the satisfaction of each of the following conditions, unless waived
by BrightStar in writing to the extent permitted by applicable law.
8.1.1 Performance of Covenants. The Shareholders shall
have performed and complied with all covenants of this Agreement to be
performed or complied with by them at or prior to the Closing Date.
9
<PAGE> 14
8.1.2 Closing Deliveries. All documents required to be
executed or delivered at Closing by the Shareholders pursuant to Sections 4.2.1
and 4.2.2 of this Agreement shall have been so executed and delivered.
8.2 Conditions Precedent to the Obligations of the Shareholders
and the Company. The obligations of the Shareholders to effect the Closing
under this Agreement are subject to the satisfaction of each of the following
conditions, unless waived by the Shareholders in writing.
8.2.1 Performance of Covenants. BrightStar shall have
performed and complied with all covenants of this Agreement to be performed or
complied with by them at or prior to the Closing Date.
8.2.2 Closing Deliveries. All documents required to be
executed or delivered at Closing by BrightStar pursuant to Sections 4.2.1 and
4.2.2 of this Agreement shall have been so executed and delivered.
8.3 Deliveries by the Shareholders at the Closing. In accordance
with Section 4.2 above, at the Closing, simultaneously with the deliveries by
BrightStar specified in Sections 4.2.1 and 4.2.2 below, and in addition to any
deliveries required to be made by the Shareholders pursuant to any other
transaction document at the Closing, the Shareholders shall deliver or cause to
be delivered to the Escrow Agent the following:
8.3.1 Documents, Stock Certificates. The Shareholders
shall execute and deliver, and shall cause the Company to execute and deliver,
the documents, certificates, opinions, instruments and agreements required to
be executed and delivered by the Company or its officers or directors or the
Shareholders at the Closing as contemplated hereby or as may be reasonably
requested by BrightStar and shall deliver or cause to be delivered the
documents and evidence required under this Agreement. Stock certificates
representing all of the outstanding Company Common Stock and properly executed
and completed letters of transmittal shall be delivered by the Shareholders to
the Escrow Agent.
8.4 Conditions Precedent to the IPO Closing. The obligations of
the parties to consummate the share exchange transaction under this Agreement
on the IPO Closing Date are subject to the satisfaction of each of the
following conditions (unless waived by each of the parties in writing):
8.4.1 IPO. BrightStar shall have completed the IPO on
terms described in the Registration Statement, and the net proceeds thereof
shall have been received by BrightStar.
8.5 Delivery of the Closing Exchange Consideration. On the
Closing Date, BrightStar shall deliver the Closing Exchange Consideration to
the Escrow Agent. On the IPO Closing Date, provided the conditions precedent
to the IPO Closing are then satisfied, the Escrow Agent shall release and
deliver all the Exchange Consideration to the Shareholders, and the Escrow
Agent shall release and deliver all other documents and certificates held in
escrow to the appropriate parties.
10
<PAGE> 15
9. SURVIVAL, INDEMNIFICATIONS
9.1 Survival. The representations and warranties set forth in
this Agreement and the other documents, instruments and agreements contemplated
hereby shall survive for a period of 12 months after the date hereof (the
"Survival Period"). The liabilities of the parties under their respective
representations and warranties shall expire as of the expiration of the
Survival Period and no claim for indemnification may thereafter be made with
respect to any breach of any representation or warranty, except to the extent
that written notice of such breach shall have been given to the party against
which such claim is asserted on or before the date of such expiration. The
covenants and agreements of the parties herein and in other documents and
instruments executed and delivered in connection with the closing of the
transactions contemplated hereby shall survive for the maximum period permitted
by law.
9.2 Indemnification.
9.2.1 BrightStar Indemnified Parties. Subject to the
provisions of Sections 9.1 and 9.3 hereof, the Shareholders shall indemnify,
save and hold harmless BrightStar, the Company and any of their assignees
(including lenders) and all of their respective officers, directors, employees,
representatives, agents, advisors and consultants and all of their respective
heirs, legal representatives, successors and assigns (collectively the
"BrightStar Indemnified Parties") from and against any and all damages,
liabilities, losses, claims, deficiencies, penalties, interest, expenses,
fines, assessments, charges and costs, including reasonable attorneys' fees and
court costs (collectively "Losses") arising from, out of or in any manner
connected with or based on:
(i) any breach of any covenant of any Shareholders or the
Company or the failure by any Shareholder or the Company to perform
any obligation of any Shareholder or the Company contained herein or
in any Company Related Document or Shareholder Related Document;
(ii) any inaccuracy in or breach of any representation or
warranty of any Shareholder contained herein or in any Shareholder
Related Document;
(iii) any inaccuracy in or breach of any representation or
warranty of the Company contained herein or in any Company Related
Document; and
(iv) indemnification payments made by the Company to the
Company's present or former officers, directors, employees, agents,
consultants, advisors or representatives in respect of actions taken
or omitted to be taken prior to the Closing.
Notwithstanding the foregoing, the foregoing indemnities shall not apply to the
extent that such Losses are reimbursed to BrightStar Indemnified Parties under
provisions of any errors and omissions or professional liability insurance
policy containing waiver of subrogation provisions applicable to claims
relating to such Losses. The foregoing indemnities shall not limit or
otherwise adversely affect the Shareholder Indemnified Parties' rights of
indemnity for Losses under Section 9.2.3.
9.2.2 Minimum Losses. For purposes of this Section 9.2.2,
Losses shall be calculated with respect to any inaccuracy or breach of any
representation or warranty of any
11
<PAGE> 16
Shareholder contained herein or in any Shareholder Related Document without
giving effect to any clause which would permit such inaccuracy or breach up to
an amount which would have an adverse effect on the properties, assets,
financial position, results of operations, long-term debt, other indebtedness,
cash flows or contingent liabilities of the Company in an amount of $5,000 or
more. The Shareholders shall have no obligation under Section 9.2.1 until the
aggregate amount of all such Losses equal or exceed $25,000, at which time the
Shareholders shall be subject to the provisions of Section 9.2.1 with respect
to all Losses of BrightStar Indemnified Parties, including the first $5,000 of
Losses.
9.2.3 BrightStar Indemnity. Subject to the provisions of
Sections 9.1 and 9.3, BrightStar shall indemnify, save and hold harmless the
Shareholders and the Shareholders' legal representatives, successors and
assigns (the "Shareholder Indemnified Parties") from and against all Losses
arising from, out of or in any manner connected with or based on:
(i) any breach of any covenant of BrightStar or the
failure by BrightStar to perform any of its obligations contained
herein or in BrightStar Related Documents;
(ii) any inaccuracy in or breach of any representation or
warranty of BrightStar contained herein or in BrightStar Related
Documents; and
(iii) any act, omission, event, condition or circumstance
occurring or existing at any time after (but not on or before) the
Closing Date and involving or relating to the assets, properties,
businesses or operations of the Company; provided, however, that this
clause (iii) shall not apply to any Losses to the extent that such
Losses result from the Shareholders' acts or omissions after the
Closing Date as an officer, director and/or employee of BrightStar,
the Surviving Corporation and/or any other affiliate of BrightStar.
The foregoing indemnities shall not limit or otherwise adversely affect
BrightStar Indemnified Parties' rights of indemnity for Losses under Section
9.2.1.
9.3 Limitations. The aggregate liability of the Shareholders
under Section 9.2.1 shall not exceed the cash amount equal to the aggregate of
the Exchange Consideration with BrightStar Common Stock being valued at the IPO
Price for such purpose. The aggregate liability of BrightStar under Section
9.2.3 shall not exceed the cash amount equal to the aggregate of the Exchange
Consideration with BrightStar Common Stock being valued at the IPO Price for
such purpose.
9.4 Procedures for Indemnification.
9.4.1 Notice. The party (the "Indemnified Party") that may
be entitled to indemnity hereunder shall give prompt notice to the party
obligated to give indemnity hereunder (the "Indemnifying Party") of the
assertion of any claim, or the commencement of any suit, action or proceeding
in respect of which indemnity may be sought hereunder. Any failure on the part
of any Indemnified Party to give the notice described in this Section 9.4.1
shall relieve the Indemnifying Party of its obligations under this Article 9
only to the extent that such Indemnifying Party has been prejudiced by the lack
of timely and adequate notice (except that the Indemnifying Party shall not be
liable for any expenses incurred by the Indemnified Party during the period in
which the
12
<PAGE> 17
Indemnified Party failed to give such notice). Thereafter, the Indemnified
Party shall deliver to the Indemnifying Party, promptly (and in any event
within 10 days thereof) after the Indemnified Party's receipt thereof, copies
of all notices and documents (including court papers) received by the
Indemnified Party relating to such claim, action, suit or proceeding.
9.4.2 Legal Defense. BrightStar shall have the obligation
to assume the defense or settlement of any third-party claim, suit, action or
proceeding in respect of which indemnity may be sought hereunder, provided that
(i) the Shareholders shall at all times have the right, at their option, to
participate fully therein, and (ii) if BrightStar does not proceed diligently
to defend the third-party claim, suit, action or proceeding within 10 days
after receipt of notice of such third-party claim, suit, action or proceeding,
the Shareholders shall have the right, but not the obligation, to undertake the
defense of any such third-party claim, suit, action or proceeding.
9.4.3 Settlement. The Indemnifying Party shall not be
required to indemnify the Indemnified Party with respect to any amounts paid in
settlement of any third-party suit, action, proceeding or investigation entered
into without the written consent of the Indemnifying Party; provided, however,
that if the Indemnified Party is a BrightStar Indemnified Party, such
third-party suit, action, proceeding or investigation may be settled without
the consent of the Indemnifying Party on 10 days' prior written notice to the
Indemnifying Party if such third-party suit, action, proceeding or
investigation is then unreasonably interfering with the business or operations
of the Company and the settlement is commercially reasonable under the
circumstances; and provided further, that if the Indemnifying Party gives 10
days' prior written notice to the Indemnified Party of a settlement offer which
the Indemnifying Party desires to accept and to pay all Losses with respect
thereto ("Settlement Notice") and the Indemnified Party fails or refuses to
consent to such settlement within 10 days after delivery of the Settlement
Notice to the Indemnified Party, and such settlement otherwise complies with
the provisions of this Section 9.4, the Indemnifying Party shall not be liable
for Losses arising from such third-party suit, action, proceeding or
investigation in excess of the amount proposed in such settlement offer.
Notwithstanding the foregoing, no Indemnifying Party will consent to the entry
of any judgment or enter into any settlement without the consent of the
Indemnified Party, if such judgment or settlement imposes any obligation or
liability upon the Indemnified Party other than the execution, delivery or
approval thereof and customary releases of claims with respect to the subject
matter thereof.
9.4.4 Cooperation. The parties shall cooperate in
defending any such third-party suit, action, proceeding or investigation, and
the defending party shall have reasonable access to the books and records, and
personnel in the possession or control of the Indemnified Party that are
pertinent to the defense. The Indemnified Party may join the Indemnifying
Party in any suit, action, claim or proceeding brought by a third party, as to
which any right of indemnity created by this Agreement would or might apply,
for the purpose of enforcing any right of the indemnity granted to such
Indemnified Party pursuant to this Agreement.
9.5 Subrogation. Each Indemnifying Party hereby waives for itself
and its affiliates any rights to subrogation against any Indemnified Party or
its insurers for Losses arising from any third-party claims for which it is
liable or against which it indemnifies any Indemnified Party and, if necessary,
each Indemnifying Party shall obtain waivers of such subrogation from its
insurers.
13
<PAGE> 18
10. TERMINATION
10.1 Grounds for Termination. This Agreement may be terminated
only as provided below.
10.1.1 Prior to Closing. The parties may terminate this
Agreement at any time prior to the Closing only as provided below:
(i) Mutual Consent. BrightStar and the
Shareholders may terminate this Agreement by mutual written
consent at any time prior to the Closing;
(ii) Termination by BrightStar. BrightStar may
terminate this Agreement by giving written notice thereof to
the Shareholders at any time prior to the Closing in the event
that the IPO Closing Date shall not have occurred on or before
December 31, 1998 by reason of the failure of any condition
precedent under Section 8.1 hereof (unless the failure results
primarily from BrightStar itself breaching any representation,
warranty, or covenant contained in this Agreement); and
(iii) Termination by the Shareholders . The
Shareholders may terminate this Agreement by giving written
notice thereof to BrightStar at any time prior to Closing by
reason of the failure of any condition precedent under Section
8.2 hereof (unless the failure results primarily from the
Shareholders breaching any representation, warranty, or
covenant contained in this Agreement).
10.1.2 After the Closing Date. This agreement may be
terminated after the Closing only as follows:
(i) Termination of Underwriting Agreement. Upon
termination, prior to the successful completion of the IPO, of
the agreement between BrightStar and certain investment
banking firms (the "Underwriting Agreement") under which such
firms agree to purchase shares of BrightStar Common Stock from
BrightStar on a firm commitment basis for resale to the public
initially at the IPO Price, BrightStar or the Shareholders may
each terminate this Agreement by providing written notice to
the other.
(ii) Automatic Termination. This Agreement shall
terminate automatically and without action on the part of any
party hereto if the IPO is not consummated within 10 business
days after the Closing.
10.2 Effect of Termination. If this Agreement is terminated as
permitted under Section 10.1, such termination shall be without liability of
any party to any other party, except that such termination shall be without
prejudice to any and all remedies the parties may have against each other for
breach of this Agreement.
14
<PAGE> 19
11. MISCELLANEOUS
11.1 Notice. Any notice, delivery or communication required or
permitted to be given under this Agreement shall be in writing, and shall be
mailed, postage prepaid, or delivered, to the addresses given below, or sent by
telecopy to the telecopy numbers set forth below, as follows:
To the Shareholders:
c/o BIT Investors, LLC
12011 Surrey Lane
Houston, Texas 77024
Attn: President
To BrightStar:
BrightStar Information Technology Group, Inc.
10375 Richmond Avenue, Suite 1620
Houston, Texas 77042
Attn: President
or other such address as shall be furnished in writing by any such party to the
other party, and such notice shall be effective and be deemed to have been
given as of the date actually received.
To the extent any notice provision in any other agreement, instrument
or document required to be executed or executed by the parties in connection
with the transactions contemplated herein contains a notice provision which is
different from the notice provision contained in this Section 11.1 with respect
to matters arising under such other agreement, instrument or document, the
notice provision in such other agreement, instrument or document shall control.
11.2 Further Documents. The Shareholders shall, at any time and
from time to time after the date hereof, upon request by BrightStar and without
further consideration, execute and deliver such instruments or other documents
and take such further action as may be reasonably required in order to perfect
any other undertaking made by the Shareholders hereunder.
11.3 Assignability. The Shareholders shall not assign this
Agreement in whole or in part without the prior written consent of BrightStar,
except by the operation of law. BrightStar may assign its rights under this
Agreement, the Company Related Documents and the Shareholder Related Documents
without the consent of the Shareholders; provided, however, that no such
assignment shall affect the Shareholders' right to receive the Exchange
Consideration. After the Closing Date, the Company may assign its rights under
this Agreement, the Company Related Documents and the Shareholder Related
Documents without the consent of the Shareholders.
11.4 Exhibits and Schedules. The Exhibits and Schedules (and any
appendices thereto) referred to in this Agreement are and shall be incorporated
herein and made a part hereof.
15
<PAGE> 20
11.5 Sections and Articles. Unless the context otherwise requires,
all Sections, Articles, Schedules and Exhibits referred to herein are,
respectively, sections and articles of, and schedules and exhibits to, this
Agreement.
11.6 Entire Agreement. This Agreement constitutes the full
understanding of the parties, a complete allocation of risks between them and a
complete and exclusive statement of the terms and conditions of their agreement
relating to the subject matter hereof and supersedes any and all prior
agreements, whether written or oral, that may exist between the parties with
respect thereto. Except as otherwise specifically provided in this Agreement,
no conditions, usage of trade, course of dealing or performance, understanding
or agreement purporting to modify, vary, explain or supplement the terms or
conditions of this Agreement shall be binding unless hereafter made in writing
and signed by the party to be bound, and no modification shall be effected by
the acknowledgment or acceptance of documents containing terms or conditions at
variance with or in addition to those set forth in this Agreement. No waiver
by any party with respect to any breach or default or of any right or remedy
and no course of dealing shall be deemed to constitute a continuing waiver of
any other breach or default or of any other right or remedy, unless such waiver
be expressed in writing signed by the party to be bound. Failure of a party to
exercise any right shall not be deemed a waiver of such right or rights in the
future.
11.7 Headings. Headings as to the contents of particular articles
and sections are for convenience only and are in no way to be construed as part
of this Agreement or as a limitation of the scope of the particular articles or
sections to which they refer.
11.8 CONTROLLING LAW. THE VALIDITY, INTERPRETATION AND PERFORMANCE
OF THIS AGREEMENT AND ANY DISPUTE CONNECTED HEREWITH SHALL BE GOVERNED AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE
EXTENT THE APPLICABLE CORPORATE LAW MANDATORILY APPLIES WITH RESPECT THERETO.
11.9 No Third Party Beneficiaries. Except as set forth in Article
9, no person or entity not a party to this Agreement shall have rights under
this Agreement as a third party beneficiary or otherwise.
11.10 Amendments and Waivers. This Agreement may be amended by
BrightStar and the Shareholders; provided that all amendments to this Agreement
must be by an instrument in writing signed on behalf of BrightStar and the
Shareholders. Any term or provision of this Agreement (other than the
requirements for shareholder approvals) may be waived in writing at any time by
the party which is, or whose shareholders are, entitled to the benefits
thereof.
11.11 No Employee Rights. Nothing herein expressed or implied shall
confer upon any employee of the Company, any other employee or legal
representatives or beneficiaries of any thereof any rights or remedies,
including any right to employment or continued employment for any specified
period, of any nature or kind whatsoever under or by reason of this Agreement,
or shall cause the employment status of any employee to be other than
terminable at will.
16
<PAGE> 21
11.12 Non-Recourse. No recourse for the payment of any amounts due
hereunder or for any claim based on this Agreement or the transactions
contemplated hereby or otherwise in respect thereof, and no recourse under or
upon any obligation, covenant or agreement of BrightStar in this Agreement
shall be had against any incorporator, organizer, promoter, shareholder,
officer, director, employee or representative as such (other than the
Shareholders as set forth herein), past, present or future, of BrightStar or of
any successor corporation, whether by virtue of any constitution, statute or
rule of law, or by enforcement of any assessment or penalty or otherwise; it
being expressly understood that all such liability is hereby expressly waived
and released as a condition of, and as a consideration for, the execution of
this Agreement.
11.13 When Effective. This Agreement shall become effective only
upon the execution and delivery of one or more counterparts of this Agreement
by each of BrightStar and the Shareholders.
11.14 Number and Gender of Words. Whenever herein the singular
number is used, the same shall include the plural where appropriate and words
of any gender shall include each other gender where appropriate.
11.15 Invalid Provisions. If any provision of this Agreement is
held to be illegal, invalid, or unenforceable under present or future laws,
such provisions shall be fully severable as if such invalid or unenforceable
provisions had never comprised a part of the Agreement; and the remaining
provisions of the Agreement shall remain in full force and effect and shall not
be affected by the illegal, invalid or unenforceable provision or by its
severance from this Agreement. Furthermore, in lieu of such illegal, invalid
or unenforceable provision, there shall be automatically as a part of this
Agreement, a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
11.16 Multiple Counterparts. This Agreement may be executed in a
number of identical counterparts. If so executed, each of such counterparts is
to be deemed an original for all purposes and all such counterparts shall,
collectively, constitute one agreement, but, in making proof of this Agreement,
it shall not be necessary to produce or account for more than one such
counterpart.
11.17 No Rule of Construction. All of the parties hereto have been
represented by counsel in the negotiations and preparation of this Agreement;
therefore, this Agreement will be deemed to be drafted by each of the parties
hereto, and no rule of construction will be invoked respecting the authorship
of this Agreement.
11.18 Expenses. Each of the parties shall bear all of their own
expenses in connection with the negotiation and closing of this Agreement and
the transactions contemplated hereby.
[SIGNATURES ON FOLLOWING PAGE]
17
<PAGE> 22
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered on the date first hereinabove written.
BRIGHTSTAR:
BRIGHTSTAR INFORMATION
TECHNOLOGY GROUP, INC.
By: /s/ MARSHALL G. WEBB
------------------------------------------
Marshall G. Webb, President
BIT GROUP SERVICES, INC.
By: /s/ MARSHALL G. WEBB
------------------------------------------
Marshall G. Webb, President
SHAREHOLDERS:
BIT INVESTORS, LLC
By: /s/ THOMAS A. HUDGINS
------------------------------------------
Thomas A. Hudgins, Manager
/s/ GEORGE M. SIEGEL
---------------------------------------------
George M. Siegel
/s/ MARSHALL G. WEBB
---------------------------------------------
Marshall G. Webb
/s/ THOMAS A. HUDGINS
---------------------------------------------
Thomas A. Hudgins
/s/ DANIEL M. COFALL
---------------------------------------------
Daniel M. Cofall
/s/ MARK D. DIGGS
---------------------------------------------
Mark D. Diggs
/s/ MICHAEL A. SOOLEY
---------------------------------------------
Michael A. Sooley
/s/ TARRANT HANCOCK
---------------------------------------------
Tarrant Hancock
<PAGE> 23
SCHEDULE 1.2
COMMON STOCK OWNED BY THE SHAREHOLDERS
Shareholder Number of Shares
----------- ----------------
BIT Investors, LLC 100,000
George M. Siegel 5,190
Marshall G. Webb 8,469
Thomas A. Hudgins 7,259
Daniel M. Cofall 7,259
Mark D. Diggs 2,420
Michael A. Sooley 7,259
Tarrant Hancock 4,102
19
<PAGE> 1
EXHIBIT 4.3
THESE SECURITIES (THE "SECURITIES") HAVE BEEN (I) ACQUIRED FOR INVESTMENT; (II)
ISSUED AND SOLD IN RELIANCE UPON THE EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES LAWS OF VARIOUS STATES; AND (III) ISSUED AND SOLD IN RELIANCE UPON
THE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "1933 ACT") PROVIDED BY SECTION 4(2) OF THE 1933 ACT. THE SECURITIES
CANNOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED OTHER THAN PURSUANT TO (A) AN
EFFECTIVE REGISTRATION UNDER THE 1933 ACT OR ANY TRANSACTION WHICH IS OTHERWISE
IN COMPLIANCE WITH THE 1933 ACT; AND (B) EVIDENCE SATISFACTORY TO THE ISSUER OF
COMPLIANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY OTHER JURISDICTION. THE
ISSUER SHALL BE ENTITLED TO RELY UPON AN OPINION OF COUNSEL SATISFACTORY TO IT
WITH RESPECT TO COMPLIANCE WITH THE ABOVE LAWS.
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF NOR ANY
INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED, ENCUMBERED OR IN ANY OTHER MANNER TRANSFERRED OR DISPOSED OF
EXCEPT AS PROVIDED HEREIN. THE HOLDER OF THIS WARRANT AND THE SECURITIES
ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT TO THE RESTRICTIONS HEREIN SET FORTH.
_________________________________________________
Warrant No. 1
--------
WARRANT
TO
PURCHASE SHARES OF COMMON STOCK
OF
BRIGHTSTAR INFORMATION
TECHNOLOGY GROUP, INC.
_________________________________________________
This Warrant (this "Warrant"), dated as of August 14, 1997 (the
"Issuance Date"), certifies that, for good and valuable consideration,
BrightStar Information Technology Group, Inc., a Delaware corporation, or any
of its successors in interest (the "Company"), grants to McFarland, Grossman &
Company, Inc. (acting as both a beneficial owner and nominee) and, together
with any transferee of this Warrant or Warrant Shares (as defined below) (the
"Warrantholder" or "Warrantholders"), subject to the terms and conditions set
forth herein, the right to subscribe for and purchase from the Company the
number of shares (the "Warrant Shares") of the Company's common stock ("Common
Stock") which would be equivalent to 50,000 shares of Common Stock on the
closing date of the Company's initial public offering of its Common Stock (the
"IPO") pursuant to the Securities Act of 1933, as amended, exercisable during
the period from and after the
1
<PAGE> 2
Issuance Date (the "Initial Exercise Date") to and including 5:00 p.m. Houston,
Texas time on the date that is five years after the Initial Exercise Date (the
"Expiration Date") at a purchase price (the "Exercise Price") equal to the
lesser of (i) $6.00 per share or (ii) 60% of the initial per share public
offering price of common stock sold to the public in the IPO. In the event the
IPO has not been successfully completed on or before the date one year after the
Issuance Date (which, if applicable, shall be deemed the Initial Exercise Date),
then the Warrant shall be exercisable for 50,000 shares at a price of $6.00 per
share for a period of five years after the Initial Exercise Date (which shall be
deemed to be the Expiration Date). The Warrant Shares shall be identical (in
terms of rights and features) to the shares of Common Stock issued by the
Company in the IPO and shall be equivalent to 50,000 shares of Common Stock
issued in the IPO. The Exercise Price and the number of Warrant Shares are
subject to adjustment from time to time, as provided in Section 5. The Exercise
Price may be paid (i) in cash, by certified or official bank check payable to
the order of the Company; or (ii) by the exercise of the Warrant for "Net
Warrant Shares." Net Warrant Shares means a number of whole shares of Common
Stock, and cash in lieu of any fractional share at the MP price (defined below),
determined as described by the following formula: Net Warrant Shares = [WS x
(MP-EP)]/MP. "WS" is the number of Warrant Shares issuable upon exercise of the
Warrant or portion of the Warrant in question. "EP" shall mean the Exercise
Price. "MP" is the Market Price of the Common Stock on the last trading day
preceding the date of the request to exercise the Warrant. "Market Price" on
any day shall mean the average of the closing prices on such day of the Common
Stock on all domestic exchanges on which the Common Stock is then listed, or, if
there shall have been no sales on any such exchange on such day, the average of
the highest bid and lowest asked prices on all such exchanges at the end of such
day, or, if the Common Stock shall not be so listed, the average of the
representative bid and asked prices quoted in the NASDAQ National Market System
as of 3:30 p.m., New York time, on such day, or if the Common Stock shall not be
quoted in the NASDAQ National Market System, the average of the high and low bid
and asked prices on such day in the domestic over-the-counter market as reported
by the National Quotation Bureau, Incorporated, or any similar successor
organization. Upon the exercise of the Warrant for Net Warrant Shares, the
number of shares for which the Warrant is thereafter exercisable shall be
reduced by the corresponding number of Warrant Shares determined in accordance
with such formula (giving effect to any fractional Net Warrant Share).
1. Duration and Exercise of Warrant, Limitation on Exercise; Payment of
Taxes.
1.1 Duration and Exercise of Warrant. The rights
represented by this Warrant may be exercised by the Warrantholder of record, in
whole, or from time to time in part (but covering at least the greater of 500
shares or the remaining unexercised portion of this Warrant), by surrender of
this Warrant, accompanied by the Exercise Form annexed hereto (the "Exercise
Form") duly executed by the Warrantholder of record and specifying the number
of Warrant Shares to be purchased, to the Company at the office of the Company
located at 10375 Richmond Avenue, Suite 1620, Houston, Texas 77042 (or such
other office or agency as it may designate by notice to the Warrantholder at
the address of such Warrantholder appearing on the books of the Company) during
normal business hours on any day (a "Business Day") other than a Saturday,
Sunday or a day on which the Company is otherwise closed for business (a
"Non-business Day") on or after 9:00 a.m., Houston, Texas time on the Initial
Exercise Date but not later than 5:00 p.m. on the Expiration Date (or 5:00 p.m.
on the next succeeding Business Day, if the Expiration Date is a Non-business
Day), delivery of payment to the Company of the Exercise Price for the number
of Warrant Shares
2
<PAGE> 3
specified in the Exercise Form, payable in cash or certified bank check, and
such documentation as to the identity and authority of the Warrantholder as the
Company may reasonably request. Such Warrant Shares shall be deemed by the
Company to be issued to the Warrantholder that is the record holder of such
Warrant Shares as of the close of business on the date on which this Warrant
shall have been surrendered and payment made for the Warrant Shares as
aforesaid. Certificates for the Warrant Shares specified in the Exercise Form
shall be delivered to the Warrantholder as promptly as practicable, and in any
event within 5 business days, thereafter. The stock certificates so delivered
shall be in denominations specified by the Warrantholder, and shall be issued
in the name of the Warrantholder or, if permitted by subsection 1.4 and in
accordance with the provisions thereof, such other name as shall be designated
in the Exercise Form. If this Warrant shall have been exercised only in part,
the Company shall, at the time of delivery of the certificates for the Warrant
Shares, deliver to the Warrantholder a new Warrant evidencing the rights to
purchase the remaining Warrant Shares, which new Warrant shall in all other
respects be identical with this Warrant. No adjustments or payments shall be
made on or in respect of Warrant Shares issuable on the exercise of this
Warrant for any cash dividends paid or payable to holders of record of Common
Stock prior to the date as of which the Warrantholder shall be deemed to be the
record holder of such Warrant Shares.
1.2 Limitation on Exercise. If this Warrant is not
exercised prior to 5:00 p.m. on the Expiration Date (or the next succeeding
Business Day, if the Expiration Date is a Non-business Day), this Warrant, or
any new Warrant issued pursuant to Section 1.1, shall cease to be exercisable
and shall become void and all rights of the Warrantholder hereunder shall
cease. This Warrant shall not be exercisable and no Warrant Shares shall be
issued hereunder, prior to 9:00 a.m. Houston, Texas time on the Initial
Exercise Date.
1.3 Payment of Taxes. The issuance of certificates for
Warrant Shares shall be made without charge to the Warrantholder for any stock
transfer or other issuance tax in respect thereto; provided, however, that the
Warrantholder shall be required to pay any and all taxes which may be payable
in respect of any transfer involved in the issuance and delivery of any
certificates for Warrant Shares in a name other than that of the then
Warrantholder as reflected upon the books of the Company.
1.4 Transfer; Restriction on Transfer and Legend.
(a) Subject to the provisions of Section 1.4(b)
below, this Warrant shall be transferable, in whole
or in part, at any time after the consummation date
of the IPO (the "IPO Date"), without the consent of
the Company, by notice from Warrantholder. The
Company shall keep at its principal office a register
in which, subject to such reasonable regulations as
it may prescribe, the Company shall provide for the
registration, transfer and exchange of this Warrant.
The Company will not at any time, except upon the
dissolution, liquidation or winding up of the
Company, close such register so as to prevent or
delay the exercise or transfer of this Warrant.
(b) Neither this Warrant nor any of the Warrant
Shares, nor any interest or participation in either,
may be in any manner transferred or
3
<PAGE> 4
disposed of, in whole or in part, except in
compliance with applicable United States federal
and state securities laws.
Each certificate for Warrant Shares and any Warrant issued at any time
in exchange or substitution for any Warrant bearing such a legend shall bear a
legend similar in effect to the foregoing paragraph unless, in the opinion of
counsel for the Company, the Warrant need no longer be subject to the
restriction contained herein. The provisions of this subsection 1.4 shall be
binding upon all subsequent holders of this Warrant, if any. Warrant Shares
transferred to the public as expressly permitted by, and in accordance with,
the provisions of this Warrant shall thereafter cease to be deemed to be
"Warrant Shares" for purposes hereof.
1.5 Divisibility of Warrant. This Warrant may be divided
into warrants representing five hundred Warrant Shares, multiples thereof or
the remaining unexercised portion of this Warrant, upon surrender at the
principle office of the Company on any Business Day, without charge to any
Warrantholder, except as provided below. Upon any such division, and, if
permitted by subsection 1.4 and in accordance with the provisions thereof, the
Warrants may be transferred of record to a name other than that of the
Warrantholder of record; provided, however, that the Warrantholder shall be
required to pay any and all transfer taxes with respect thereto.
1.6 Representations, Warranties and Covenants of the
Company. The Company hereby represents, warrants and covenants as follows:
(a) Existence. The Company is a corporation duly
organized and validly existing under the laws of the
State of Delaware and is authorized to do business
and is in good standing as a foreign corporation in
every jurisdiction in which it owns or leases real
property or in which the nature of its business
requires it to be so qualified, except where the
failure to so qualify, individually or in the
aggregate, could not reasonably be expected to have a
material adverse effect on the Company.
(b) Power and Authority. The Company has all
requisite corporate power and authority, and has
taken all corporate action necessary, to execute,
deliver and perform this Warrant, to grant, issue and
deliver this Warrant and to authorize and reserve for
issuance and, upon payment from time to time of the
Exercise Price, to issue and deliver the shares of
Common Stock issuable upon exercise of the Warrant.
This Warrant has been duly executed and delivered by
the Company.
(c) Reservation, Issuance and Delivery of Common
Stock. There have been reserved for issuance, and
the Company shall at all times keep reserved, out of
the authorized and unissued shares of Common Stock, a
number of shares sufficient to provide for the
exercise of the rights of purchase represented by
this Warrant, and such shares, when issued upon
receipt of payment therefor in accordance with the
terms
4
<PAGE> 5
of this Warrant, will be legally and validly issued,
fully paid and nonassessable and will be free of any
preemptive rights of stockholders.
(d) No Violation. Neither the execution or
delivery of this Warrant nor the consummation of the
transactions herein contemplated does or will result
in a breach or violation of any of the terms or
provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument to which the Company is
a party or by which the Company is bound or to which
any of the property or assets of the Company is
subject, nor will such action result in any violation
of any provision of the Certificate of Incorporation
or Bylaws of the Company or any statute or any order,
rule or regulation or any court or governmental
agency or body having jurisdiction over the Company
or any of its properties.
(e) Valid and Binding Obligation. This Warrant,
when duly executed and delivered, will constitute
legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, subject to
any applicable bankruptcy, insolvency or other laws
of general application affecting creditors' rights
and judicial decisions interpreting any of the
foregoing.
2. Reservation and Listing of Shares. All Warrant Shares which
are issued upon the exercise of the rights represented by this Warrant shall,
upon issuance and payment of the Exercise Price, be validly issued, fully paid
and nonassessable and free, from all taxes, liens, security interests, charges
and other encumbrances with respect to the issue thereof other than taxes in
respect of any transfer occurring contemporaneously with such issue. During
the period within which this Warrant may be exercised, the Company shall at all
times have authorized and reserved, and keep available free from preemptive
rights, a sufficient number of shares of Common Stock to provide for the
exercise of this Warrant, and shall at its expense procure such listing thereof
(subject to official notice of issuance) as then may be required on all stock
exchanges on which the Common Stock is then listed. The Company shall, from
time to time, take all such action as may be required to assure that the par
value per share of the Warrant Shares is at all time equal to or less than the
then effective Exercise Price.
3. Exchange, Loss or Destruction of Warrant. If permitted by
subsection 1.4 or 1.5 and in accordance with the provisions thereof, upon
surrender of this Warrant to the company with a duly executed instrument of
assignment and funds sufficient to pay any transfer tax, the company shall,
without charge, execute and deliver a new Warrant of like tenor in the name of
the assignee named in such instrument of assignment and this Warrant shall
promptly be canceled. Upon receipt by the Company of evidence satisfactory to
it of the loss, theft, destruction or mutilation of this Warrant, and, in the
case of loss, theft or destruction, of such bond or indemnification as the
Company may reasonably require, and, in the case of such mutilation, upon
surrender and cancellation of this
5
<PAGE> 6
Warrant, the Company will execute and deliver a new Warrant of like tenor. The
term "Warrant" as used herein includes any Warrants issued in substitution or
exchange of this Warrant.
4. Ownership of Warrant. The Company may deem and treat the
person in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership) or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any
notice to the contrary, until presentation of this Warrant for registration of
transfer as provided in subsections 1.1, 1.4 and 1.5 or in Section 3.
5. Certain Adjustments. The Exercise Price at which Warrant
Shares may be purchased hereunder, and the number of Warrant Shares to be
purchased upon exercise hereof, are subject to change or adjustment after the
Issuance Date as follows:
5.1 General. The number of Warrant Shares purchasable
upon the exercise of this Warrant and the Exercise Price shall be subject to
adjustment as follows:
(a) In case the Company shall after the IPO Date
(i) pay a dividend in shares of Common Stock or make
a distribution in shares of Common Stock, (ii)
subdivide its outstanding shares of Common Stock into
a greater number of shares of Common Stock, (iii)
combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock or (iv)
issue by reclassification of its shares of Common
Stock other securities of the Company (including any
such reclassification in connection with a
consolidation or merger in which the Company is the
surviving corporation), the number of Warrant Shares
purchasable upon exercise of this Warrant shall be
adjusted so that the Warrantholder shall be entitled
to receive the kind and number of Warrant Shares or
other securities of the Company that the
Warrantholder would have owned or have been entitled
to receive after the happening of any of the events
described above, had this Warrant been exercised
immediately prior to the happening of such event or
any record date with respect thereto. An adjustment
made pursuant to this paragraph 5.1(1) shall become
effective immediately after the effective date of
such event retroactive to the record date, if any,
for such event.
(b) As of the IPO Date, the number of Warrant
Shares purchasable upon exercise of this Warrant
shall be automatically adjusted, without action by
any party, so that the Warrantholder shall be
entitled to receive the equivalent of 50,000 shares
of Common Stock as of the IPO Date.
(c) In case the Company shall after the IPO:
(i) issue rights, options or warrants
generally to holders of its outstanding
Common Stock, without any charge to such
6
<PAGE> 7
holders, entitling them at the time of such
issuance to subscribe for or purchase,
pursuant to such an issuance, shares of
Common Stock at a price per share which is
lower at the record date for the
determination of stockholders entitled to
receive such rights, options or warrants than
the then current Market Price per share of
Common Stock; or
(ii) distribute generally to holders of
its shares of Common Stock evidences of its
indebtedness or assets (excluding cash
dividends or distributions and dividends or
distributions referred to in paragraph 5.1(1)
of this subsection 5.1) or rights, options or
warrants, or convertible or exchangeable
securities containing the right to subscribe
for or purchase shares of Common Stock; then
Appropriate adjustments shall be made to the number
of Warrant Shares purchasable upon the exercise of
the Warrant and/or the Exercise Price in order to
preserve the relative rights and interests of the
Warrantholders, such adjustments to be made by the
good faith determination of the Board of Directors of
the Company; provided, however, that in the event
such rights, options, warrants or distributions
(other than cash dividends) are for the purpose of
providing compensation to officers, directors or
employees of the Company and not for the benefit of
securities holders generally, no such adjustment
shall be provided.
5.2 Voluntary Adjustment by the Company. The company
may, at its option, at any time during the term of the Warrant, reduce the then
current Exercise Price to any amount consistent with applicable law, deemed
appropriate by the Board of Directors of the Company.
5.3 Notice of Adjustment. Whenever the number of Warrant
Shares or the Exercise Price of such Warrant Shares is adjusted, as herein
provided, the company shall promptly mail first class, postage prepaid, to all
Warrantholders, notice of such adjustment.
5.4 No Adjustment for Cash Dividends. No adjustment in
respect of any cash dividends shall be made during the term of this Warrant or
upon the exercise of this Warrant.
5.5 Preservation of Purchase Rights Upon Merger,
Consolidation, etc. In case of any consolidation of the Company with or merger
of the Company into another person or in case of any sale, transfer or lease to
another corporation of all or substantially all of the assets of the Company,
the company or such successor or purchaser, as the case may be, shall execute
with the Warrantholders an agreement that the Warrantholders shall have the
right thereafter upon payment of the Exercise Price in effect immediately
prior to such action to purchase upon exercise of each Warrant the kind and
amount of shares and other securities and property that the holder thereof
would have owned or have been entitled to receive after the happening of such
consolidation, merger, sale, transfer or lease had such Warrant been exercised
immediately prior to such action;
7
<PAGE> 8
provided, however, that no adjustment in respect of cash dividends,
interest or other income on or from such shares or other securities
and property shall be made during the term of this Warrant or upon the
exercise of this Warrant. Such agreement shall provide for
adjustment, which shall be as nearly equivalent as practicable to the
adjustments provided for in this Section 5. The provisions of this
subsection 5.5 shall apply similarly to successive consolidations,
mergers, sales, transfers or leases.
6. Registration Rights.
6.1 Piggy-back Registration Rights. The Company
covenants and agrees that in the event the Company proposes to file a
registration statement under the Securities Act of 1933, as amended (the
"Act"), subsequent to the IPO and prior to the Expiration Date, with respect to
the offering of Common Stock (other than in connection with an exchange offer
or a registration statement on Form S-4, Form S-8 or other form of registration
statement not available to register securities so requested to be included),
the Company shall in each case give written notice of such proposed filing to
(i) if this Warrant has been exercised, the holders of the Warrant Shares and
(ii) if this Warrant has not been exercised, the Warrantholders, in each case
at least 20 days before the earlier of the anticipated or the actual effective
date of the registration statement and at least ten days before the initial
filing of such registration statement, and such notice shall offer to such
Warrantholders the opportunity to include in such registration statement such
number of Warrant Shares as they may request. Warrantholders desiring
inclusion of Warrant Shares in such registration statement shall so inform the
Company by written notice, given with 10 days of the giving of such notice by
the Company in accordance with the provisions of Section 9.6 hereof. The
Company shall permit, or shall cause the managing underwriter of a proposed
offering to permit, the holders of Warrant Shares requested to be included in
the registration to include such securities in the proposed offering on the
same terms and conditions as applicable to other securities of the Company, if
any, included therein for the account of any person other than the Company and
the holders of Warrants and/or Warrant Shares. The Company shall continuously
maintain in effect any registration statement with respect to which the Warrant
Shares have been requested to be included (and so included) for a period of not
less than (i) 180 days after the effectiveness of such registration statement
of (ii) the consummation of the distribution by the Warrantholders of the
Warrant Shares ("Piggy-back Termination Date"); provided, however, that if at
the Piggy-back Termination Date the Warrant Shares are covered by a
registration statement which is, or is required to remain, in effect beyond the
Piggy-back Termination Date, the company shall maintain in effect the
registration statement as it relates to the Warrant Shares for so long as such
registration statement remains or is required to remain in effect for any of
such other securities. All expenses of such registration shall be borne by the
Company, except that underwriting commissions and expenses attributable to the
Warrant Shares and fees and distributions of counsel (if any) to the
Warrantholders requesting that the Warrant Shares be offered will be borne by
such Warrantholders.
6.2 Other Matters. In connection with the registration
of Warrant Shares in accordance with Section 6.1 above, the Company agrees to:
(a) Use its best efforts to register or qualify
the Warrant Shares for offer or sale under state
securities or Blue Sky laws of such jurisdictions in
which the holders of such Warrants and/or Warrant
8
<PAGE> 9
Shares shall reasonably designate; provided, that in
no event shall the Company be obligated to qualify to
do business in any jurisdiction where it is not now
so qualified or to take any action which would
subject it to general service of process or taxation
in any jurisdiction where it is not now so subject,
and use its best efforts to do any and all other acts
and things which may be necessary or advisable to
enable the Warrantholders to consummate the sale,
transfer or other disposition of such securities in
any jurisdiction.
(b) Enter into indemnity and contribution
agreements, each in customary form, with each
underwriter, if any, and each holder of Warrant
Shares included in such registration statement; and,
if requested, enter into an underwriting agreement
containing customary representations, warranties,
covenants, allocation of expenses, and customary
closing conditions including, but not limited to,
opinions of counsel, and accountants' cold comfort
letters with any underwriter who participates in the
offering of Warrant Shares; and
(c) Pay all expenses in connection with the
registration of the Warrants and/or Warrant Shares
under the Act and compliance with the provisions of
clause 6.2(1) above.
In connection with the registration of
Warrant Shares in accordance with Section 6.1 above,
the Warrantholders agree to enter into an
underwriting agreement containing customary
representations, warranties, covenants, allocation of
expenses (not otherwise inconsistent with this
Warrant), and customary closing conditions, with any
underwriter who participates in the offering of
Warrant Shares.
7. Restriction on Transfer.
7.1 Initial Public Offering. Notwithstanding the
registration rights granted to Warrantholder pursuant to the provisions of
Section 6 of this Warrant, the Warrantholder hereby agrees that for a period of
one year following the date of the IPO (the "IPO Period"), the Warrantholder
will not, without the prior written consent of the underwriters, directly or
indirectly, offer to sell, assign, pledge, issue, distribute, sell, contract to
sell, grant any option or enter into any contract for the sale of, or otherwise
voluntarily transfer or dispose of, or announce any offer, sale, grant of any
option to purchase or other transfer or disposition of, any Warrant Shares.
7.2 Other Public Offerings. Following the IPO Period,
the Warrantholder agrees upon request of the underwriters managing any
underwritten public offering of the Company's securities, not to offer to sell,
assign, pledge, issue, distribute, sell, contract to sell, grant any option or
enter into any contract for the sale of, or otherwise voluntarily transfer or
dispose of, or announce any offer, sale, grant of any option to purchase or
other transfer or disposition of, any Warrant Shares without the prior written
consent of such underwriters, for such period of time following the
9
<PAGE> 10
effective date of the registration statement relating to each such underwritten
public offering as may be requested by the underwriters; provided however, that
(i) such request shall not be for a period extending longer than that
applicable to management shareholders of the Company; (ii) this Section 7.2
shall not limit the Warrantholder's right to sell Warrant Shares pursuant to
any piggyback registration right that the Warrantholder may have pursuant to
the provisions of Section 6 of this Warrant, and (iii) any restrictions
recommended by the underwriters are no more restrictive than those imposed on
the management shareholders of the Company.
8. No Impairment. The Company shall not by any action,
including, without limitation, amending its Certificate of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of the Warrantholders against impairment.
Without limiting the generality of the foregoing, the Company will (a) not
change the par value of any shares of Common Stock receivable upon the exercise
of this Warrant to an amount greater than the amount payable therefor upon such
exercise, (b) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and non-assessable
shares of Common Stock upon the exercise of this Warrant, (c) obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to person its
obligations under this Warrant, and (d) not undertake any reverse stock split,
combination, reorganization or other reclassification of its capital stock
which would have the effect of making this Warrant exercisable for less than
one share of Common Stock.
Upon the request of a Warrantholder, the company will at any time
during the period this Warrant is outstanding acknowledge in writing, in form
reasonably satisfactory to such Warrantholder, the continued validity of this
Warrant and the Company's obligations hereunder.
9. Miscellaneous.
9.1 Entire Agreement. This Warrant constitutes the
entire agreement between the Company and the Warrantholders with respect to
this Warrant and the Warrant Shares.
9.2 Binding Effects; Benefits. This Warrant shall inure
to the benefit of and shall be binding upon the Company, the Warrantholders and
holders of Warrant Shares and their respective heirs, legal representatives,
successors and assigns. Nothing in this Warrant, expressed or implied, is
intended to or shall confer on any person other than the Company, the
Warrantholders and holders of Warrant Shares, or their respective heirs, legal
representatives, successors or assigns, any rights, remedies, obligations or
liabilities under or by reason of this Warrant or the Warrant Shares.
9.3 Amendments and Waivers. This Warrant may not be
modified or amended except by an instrument in writing signed by the Company
and the Warrantholders. The company, and Warrantholder or holders of Warrant
Shares may, by an instrument in writing, waive compliance by the other party
with any term or provision of this Warrant on the part of such other party
hereto
10
<PAGE> 11
to be performed or complied with. The waiver by any such party of a breach of
any term or provision of this Warrant shall not be construed as a waiver of any
subsequent breach.
9.4 Section and Other Headings. This section and other
headings contained in this Warrant are for reference purposes only and shall
not be deemed to be a part of this Warrant or to affect the meaning or
interpretation of this Warrant.
9.5 Further Assurances. Each of the Company, the
Warrantholders and holders of Warrant Shares shall do and perform all such
further acts and things and execute and deliver all such other certificates,
instruments and/or powers of attorney as may be necessary or appropriate as any
party hereto may, at any time and from time to time, reasonably request in
connection with the performance of any of the provisions of this Warrant.
9.6 Notices. All demands, requests, notices and other
communications required or permitted to be given under this Warrant shall be in
writing and shall be deemed to have been duly given if delivered personally or
sent by United States certified or registered mail, postage prepaid, to the
parties hereto at the following addresses or at such other address as any party
hereto shall hereafter specify by notice to the other party hereto:
(a) if to the Company, addressed to:
BrightStar Information Technology Group, Inc.
10375 Richmond Avenue, Suite 1620
Houston, Texas 77042
Attention: President
(b) if to any Warrantholder or holder of Warrant
Shares, addressed to the address of such person
appearing on the books of the Company.
Except as otherwise provided herein, all such
demands, requests, notices and other communications
shall be deemed to have been received on the date of
personal delivery thereof or on the third Business
Day after the mailing thereof.
9.7 Severability. Any term or provision of this Warrant
which 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 any other term or
provision of this Warrant or affecting the validity or enforceability of any of
the terms or provisions of this Warrant in any other jurisdiction.
9.8 Fractional Shares. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. Except as otherwise provided herein, with respect to any fraction of
a share called for upon any exercise hereof, the Company shall pay to the
Warrantholder an amount in cash equal to such fraction multiplied by the
then-current Market Price.
11
<PAGE> 12
9.9 Rights of the Holder. No Warrantholder shall, solely
by virtue of this Warrant, be entitled to any rights of a stockholder of the
Company, either at law or in equity.
9.10 Governing Law. This Warrant shall be deemed to be a
contract made under the laws of the State of Delaware and for all purposes
shall be governed by and construed in accordance with the laws of such State
applicable to contracts made and performed in Delaware.
9.11 Expenses. The Company shall pay all reasonable legal
and other reasonable out-of-pocket expenses of the Warrantholders and their
counsel in connection with the exercise and sale of the Warrant Shares as
contemplated by this Warrant.
9.12 Right to Information. The company will provide to a
Warrantholder and to all holders of Warrant Shares, on a timely basis, copies
of all documents and reports filed with the Securities and Exchange Commission
(the "Commission") and publicly available annual and quarterly financial
statements, as may be requested in writing by the Warrantholder or as otherwise
agreed in another agreement between the Company and the Warrantholder.
9.13 Merger or Consolidation of the Company. So long as
this Warrant remains in effect, the Company will not merge or consolidate with
or into, or sell, transfer or lease all or substantially all of its property
to, any other corporation unless the successor or purchasing corporation, as
the case may be (i) shall be the Company or (ii) if not the Company, shall
expressly assume, by supplemental agreement executed and delivered to the
Warrantholders, the performance and observance of each and every covenant and
condition of this Warrant to be performed and observed by the Company under
this Warrant.
9.14 Rule 144. With a view to making available to
Warrantholders the benefits of certain rules of the Commission that may permit
the sale of shares of Common Stock to the public without registration, in the
event that the IPO is successfully completed by the Company, the Company hereby
covenants and agrees to use its reasonable business efforts after the Initial
Exercise Date to file in a timely manner all reports and other documents
required to be filed by it under the Act and the Securities Exchange Act of
1934, as amended, and the rules and regulations adopted by the Commission
thereunder necessary to permit sales under Rule 144 under the Act, and the
Company will take such further action which does not have material costs to the
Company to the extent required form time to time to enable Warrantholders to
sell shares of Common Stock (whether or not any such securities have been the
subject of a piggy-back request pursuant to the agreement set forth in Section
6 hereof) without registration under the Act within the limitation of the
exemptions provided by (a) Rule 144 under the 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 written request of a Warrantholder, the Company will
deliver to such Warrantholder a written statement as to whether it has complied
with such requirements.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer as of the date first written above.
BrightStar Information Technology Group, Inc.
12
<PAGE> 13
By: /s/ MARSHALL G. WEBB
-----------------------------
Marshall G. Webb, President
EXERCISE FORM
(To be executed upon exercise of this Warrant)
The undersigned, record holder of this Warrant, hereby irrevocably
elects to exercise the right, represented by this Warrant, to purchase
___________________ of the Warrant Shares and herewith tenders payment for such
Warrant Shares to the order of BrightStar Information Technology Group, Inc. in
the amount of $_________________ in accordance with the terms of this Warrant.
The undersigned requests that a certificate for such Warrant Shares be
registered in the name of _____________________ and that such certificate be
delivered to ________________________________________________________ whose
address is
_______________________________________________________________________________
_____________________________________________________________.
Date:___________________ Signature:_________________________________________
_______________________________________
(Name Printed)
13
<PAGE> 1
*EXHIBIT 4.4
OPTION AGREEMENT
THIS AGREEMENT made effective as of December 16, 1997 between
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC., a Delaware corporation, and any
of its successors in interest (the "Company"), and BREWER-GRUENERT CAPITAL
ADVISORS, LLC (the "Option Holder").
1. Grant of Option. Subject to the terms and conditions of this
Agreement, the Company hereby grants to the Option Holder effective December
16, 1997 (the "Grant Date") an option (the "Option") to purchase the number of
shares (the "Stock") of the common stock of the Company, $.001 par value
("Common Stock"), equal to $100,000 divided by the difference between (i) the
per share initial public offering price of Common Stock sold to the public in
the Company's initial public offering and (ii) the Option Price (defined
below). The Option shall be exercisable at a price of $6.00 per share (the
"Option Price"). This Agreement and the purchase of the shares of Stock
hereunder is not intended and should not be interpreted to qualify as an
Incentive Stock Option as that term is used in Section 422 of the Internal
Revenue Code of 1986, as it may be amended from time to time (the "Internal
Revenue Code").
2. Method for Exercising the Option. The Option may be exercised
in whole or in part only by delivery in person or through certified or
registered mail to the Company at its principal office in Houston, Texas
(attention: Corporate Secretary) of written notice specifying the Option that
is being exercised and the number of shares of Stock with respect to which the
Option is being exercised. The notice must be accompanied by payment of the
total Option Price, payable in cash or by certified or cashier's check to the
order of BrightStar Information Technology Group, Inc.
Upon such notice to the Corporate Secretary and payment of the
total Option Price, the exercise of the Option shall be deemed to be effective,
and a properly executed certificate or certificates representing the Stock so
purchased shall be issued by the Company and delivered to the Option Holder.
3. Adjustment of the Option.
(a) Adjustment by Stock Split, Stock Dividend, Etc. If
at any time the Company increases or decreases the number of its outstanding
shares of Common Stock, or changes in any way the rights and privileges of its
Common Stock, by means of the payment of a stock dividend or the making of any
other distribution on such shares payable in Common Stock, or though a stock
split or subdivision of shares of Common Stock, or a consolidation or
combination of shares of Common Stock, or through a reclassification or
recapitalization involving the Common Stock, the numbers, rights and privileges
of the shares of Stock included in the Option shall be increased, decreased or
changed in like manner as if such shares of Stock had been issued and
outstanding, fully paid and non-assessable at the time of such occurrence.
<PAGE> 2
(b) Dividends Payable in Stock of Another Corporation,
Etc. If at any time the Company pays or makes any dividend or other
distribution upon its Common Stock payable in securities or other property
(except money or Stock), a proportionate part of such securities or other
property shall be set aside and delivered to the Option Holder upon issuance of
the Stock purchased at the time of the exercise of the Option. The securities
and other property delivered to the Option Holder upon exercise of the Option
shall be in the same ratio to the total securities and property set aside for
the Option Holder as the number of shares of Stock with respect to which the
Option is then exercised is to the total shares of Common Stock subject to the
Option. Prior to the time that any such securities or other property are
delivered to the Option Holder in accordance with the foregoing, the Company
shall be the owner of such securities or other property and Option Holder shall
not have the right to vote the securities, receive any dividends payable on
such securities, or in any other respect be treated as the owner. If
securities or other property which have been set aside by the Company in
accordance with this Section 3 are not delivered to the Option Holder because
the Option is not exercised, then such securities or other property shall
remain the property of the Company and shall be dealt with by the Company as it
shall determine in its sole discretion.
(c) Other Changes in Stock. In the event there shall be
any change, other than as specified in the preceding subsections 3(a) and (b),
in the number or kind of outstanding shares of Common Stock or of any stock or
other securities into which the Common Stock shall be changed or for which it
shall have been exchanged, then and if the Board of Directors of the Company
shall in its discretion determine that such change equitably requires an
adjustment in the number or kind of shares subject to the Option, such
adjustments shall be made by the Board of Directors and shall be effective for
all purposes as of this Agreement.
(d) Apportionment of Option Price. Upon any occurrence
described in the preceding subsections 3(a), (b), and (c), the aggregate Option
Price for the shares of Stock then subject to the Option shall remain unchanged
and shall be apportioned ratably over the increased or decreased number or
changed kinds of securities or other properties subject to the Option.
4. Reorganization. In case of any consolidation of the Company
with or merger of the Company into another person or in case of any sale,
transfer or lease to another corporation of all or substantially all of the
assets of the Company, the Company or such successor or purchaser, as the case
may be, shall execute with the Option Holder an agreement that the Option
Holder shall have the right thereafter upon payment of the Option Price in
effect immediately prior to such action to purchase upon exercise of the Option
the kind and amount of shares and other securities and property that the holder
thereof would have owned or have been entitled to receive after the happening
of such consolidation, merger, sale, transfer or lease had the Option been
exercised immediately prior to such action; provided, however, that no
adjustment in respect of cash dividends, interest or other income on or from
such shares or other securities and property shall be made during the Option
Period or upon the exercise of the Option. Such agreement shall provide for
appropriate adjustment to the number of shares of Stock purchasable upon the
exercise of the Option and/or the Option Price in order to preserve the
relative rights and interests of the Option Holder, such adjustment to be made
by the good faith determination of the Board of Directors of the Company. The
provisions of this subsection 4 shall apply similarly to successive
consolidations, mergers, sales, transfers or leases.
<PAGE> 3
5. Expiration and Termination of the Option. The Option shall
expire at 5:00 p.m. Houston, Texas, time on December 16, 2002 (the period from
the date of this Agreement to the expiration date is defined as the "Option
Period").
6. Transferability; Restriction on Transfer. Neither the Option
nor the Stock, nor any interest or participation in either, may be in any
manner transferred or disposed of, in whole or in part, except in compliance
with applicable United States federal and state securities laws. The Option
Holder agrees upon request of the underwriters managing any underwritten public
offering of the Company's securities, not to offer to sell, assign, pledge,
issue, distribute, sell, contract to sell, grant any option or enter into any
contract for the sale of, or otherwise voluntarily transfer or dispose of, or
announce any offer, sale, grant of any option to purchase or other transfer or
disposition of, any shares of Stock without the prior written consent of such
underwriters, for such period of time following the effective date of the
registration statement relating to each such underwritten public offering as
may be requested by the underwriters; provided however, that (i) such request
shall not be for a period extending longer than that applicable to management
shareholders of the Company; and (ii) any restrictions recommended by the
underwriters are no more restrictive than those imposed on the management
shareholders of the Company.
7. Compliance with Securities Laws. Upon the acquisition of any
shares pursuant to the exercise of the Option herein granted, Option Holder
will enter into such written representations, warranties and agreements as the
Company may reasonably request in order to comply with applicable securities
laws or with this Agreement.
8. Legends on Certificates. The Certificates representing the
shares of Common Stock purchased by exercise of an Option will be stamped or
otherwise imprinted with legends in such form as the Company or its counsel may
require with respect to any applicable restrictions on sale or transfer and the
stock transfer records of the Company will reflect stock-transfer instructions
with respect to such shares.
9. Miscellaneous.
(a) Notices. Any notice required or permitted to be
given under this Agreement shall be in writing and shall be given by first
class registered or certified mail, postage prepaid, or by personal delivery to
the appropriate party, addressed:
(i) If to the Company:
BrightStar Information Technology Group, Inc.
10375 Richmond Avenue, Suite 1620
Houston, Texas 77042
Attention: Corporate Secretary
(ii) If to the Option Holder, to the Option Holder
at his address on file with the Company or at such other address as may have
been furnished to the Company by the Option Holder.
<PAGE> 4
Any such notice shall be deemed to have been given as of the
fourth day after deposit in the United States Postal Service, postage prepaid,
properly addressed as set forth above, in the case of mailed notice, or as of
the date delivered in the case of personal delivery.
(b) Amendment. The Board of Directors may make any
adjustment in the Option Price, the number of shares of Stock subject to, or
the terms of the Option by amendment or by substitution of an outstanding
Option. Such amendment or substitution may result in terms and conditions
(including Option Price, the number of shares of Stock covered or Option
Period) that differ from the terms and conditions of this Option. The Board of
Directors may not, however, adversely affect the rights of the Option Holder
without the consent of the Option Holder. If such action is effective by
amendment, the effective date of such amendment will be the date of the
original grant of this Option. Except as provided herein, this Agreement may
not be amended or otherwise modified unless evidenced in writing and signed by
the Company and the Option Holder.
(c) Severability. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, and each other provision of this
Agreement shall be severable and enforceable to the extent permitted by law.
(d) Waiver. Any provision contained in this Agreement
may be waived, either generally or in any particular instance, by the Company.
(e) Binding Effect. This Agreement shall be binding upon
and inure to the benefit of the Company and the Option Holder and their
respective heirs, executors, administrators, legal representatives, successors
and assigns.
(f) Gender and Number. Except when otherwise indicated
by the context, the masculine gender shall also include the feminine gender,
and the definition of any term herein in the singular shall also include the
plural.
(g) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware without
giving effect to the conflicts of laws provisions thereof.
<PAGE> 5
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
BRIGHTSTAR INFORMATION TECHNOLOGY
GROUP, INC.
By: /s/ MARSHALL G. WEBB
--------------------------------
Name: Marshall G. Webb
--------------------------------
Title: President
--------------------------------
BREWER-GRUENERT CAPITAL ADVISORS, LLC
By: /s/ THOMAS G. GRUENERT
--------------------------------
Name: Thomas G. Gruenert
--------------------------------
Title: Managing Director
--------------------------------
<PAGE> 1
EXHIBIT 5.1
February 27, 1998
BrightStar Information Technology Group, Inc.
10375 Richmond Avenue, Suite 1620
Houston, Texas 77042
Gentlemen:
We have acted as counsel to BrightStar Information Technology Group,
Inc., a Delaware corporation (the "Company"), in connection with the
preparation and filing by the Company of a Registration Statement on Form S-1
(the "Registration Statement") under the Securities Act of 1933, as amended,
relating to the proposed offering of up to 4,312,500 shares (the "Shares") of
the common stock, par value $.001 per share, of the Company, to be offered
upon the terms and subject to the conditions set forth in a proposed
Underwriting Agreement by and among CIBC Oppenheimer Corp. and Dain Rauscher
Incorporated, as representatives of the several underwriters, and the Company.
In so acting, we have examined the Registration Statement, originals
or copies, certified or otherwise identified to our satisfaction, of the
Certificate of Incorporation of the Company, and any amendments thereto, the
Bylaws of the Company, the corporate proceedings with respect to the offering
of the Shares, and such corporate records, agreements, documents and other
instruments, and such certificates or comparable documents of public officials
and of officers and representatives of the Company, and have made such
inquiries of such officers and representatives, as we have deemed relevant and
necessary as a basis for the opinions hereinafter set forth.
In such examination, we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity and
completeness of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified or photostatic
copies, the authenticity and completeness of the originals of such latter
documents, and the correctness of all statements of fact contained in all
documents that we have examined.
Based on the foregoing, and subject to the qualifications stated
herein, we are of the opinion that the Shares are duly authorized and, when
issued and delivered to the purchasers thereof against payment therefor in
accordance with the terms of the Underwriting Agreement, will be validly
issued, fully paid and non-assessable.
<PAGE> 2
The opinions expressed herein are limited to the corporate laws of the
State of Delaware, and we express no opinion as to the effect on the matters
covered by this letter of the laws of any other jurisdiction.
The opinions expressed herein are rendered solely for your benefit in
connection with the transactions described herein. Those opinions may not be
used or relied upon by any other person, nor may this letter or any copies
thereof be furnished to a third party, filed with a governmental agency,
quoted, cited or otherwise referred to without our prior written consent,
except that we hereby consent to the filing of this opinion as an exhibit to
the Registration Statement. Consent also is given to the reference to this
firm under the caption "Legal Matters" in the prospectuses forming a part of
the Registration Statement.
Very truly yours,
/s/ CHAMBERLAIN, HRDLICKA, WHITE,
WILLIAMS & MARTIN
<PAGE> 1
EXHIBIT 10.1
BRIGHTSTAR
INFORMATION TECHNOLOGY GROUP, INC.
1997 LONG-TERM INCENTIVE PLAN
<PAGE> 2
BRIGHTSTAR INFORMATION
TECHNOLOGY GROUP, INC.
1997 LONG-TERM INCENTIVE PLAN
SECTION DESCRIPTION
------- -----------
1 Purpose of the Plan
2 Definitions
3 Types of Awards Covered
4 Administration
5 Eligibility
6 Shares of Stock Subject to the Plan
7 Non-Employee Director Awards
8 Stock Options
9 Stock Appreciation Rights
10 Restricted Stock
11 Performance Awards
12 Other Stock-Based Incentive Awards
13 Exercise of Options
14 Rights in Event of Death or Disability
15 Award Agreements
16 Tax Withholding
17 Change of Control
18 Dilution or Other Adjustment
19 Transferability
20 Amendment or Termination
21 General Provisions
22 Plan Effective Date
23 Plan Termination
<PAGE> 3
BRIGHTSTAR
INFORMATION TECHNOLOGY GROUP, INC.
1997 LONG-TERM INCENTIVE PLAN
SECTION 1
PURPOSE OF THE PLAN
1.1 The 1997 Long-term Incentive Plan, maintained by BrightStar
Information Technology Group, Inc., is intended to motivate key
employees to enhance shareholder value by offering incentives to its
key employees who are primarily responsible for the growth of the
Company and to attract and retain qualified employees and non-employee
directors.
SECTION 2
DEFINITIONS
2.1 Unless the context indicates otherwise, the following terms, when used
in this Plan, shall have the meanings set forth in this Section:
(a) "AWARD" shall mean grants or awards under this Plan in the
form of Options, SARs, Restricted Stock, Performance Awards or
other stock-based incentive awards.
(b) "BOARD" shall mean the Board of Directors of the Company.
(c) "CHANGE OF CONTROL" shall be deemed to have taken place on an
occurrence of an event as defined in Section 17 of this Plan.
(d) "CODE" shall mean the Internal Revenue Code of 1986 as it may
be amended from time to time and related Treasury Regulations.
(e) "COMMITTEE" shall mean the Board, or any Committee comprised
of two or more Outside Directors, to the extent required to
qualify for an exemption pursuant to Rule 16b-3 under the
Exchange Act and to satisfy the requirements regarding
committees of "outside directors" under Section 162(m) of the
Code, that may be designated by the Board to administer the
Plan, in accordance with Section 4 hereof.
(f) "COMMON STOCK" shall mean the common stock, par value $.01, of
the Company.
(g) "COMPANY" shall mean BrightStar Information Technology Group,
Inc.
(h) "DEFERRED SHARES" an award made pursuant to Section 12 of the
Plan of the right to receive Common Stock in lieu of cash
thereof at the end of a specified time period.
(i) "DIRECTOR" shall mean any member of the Board.
(j) "DISABILITY" shall mean permanent and total disability within
the meaning of Section 22(e)(3) of the Code.
<PAGE> 4
(k) "EMPLOYEE" shall mean any full-time employee of the Company or
its Subsidiaries (including Directors who are otherwise
employed on a full-time basis by the Company or its
Subsidiaries).
(l) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934
as it may be amended from time to time.
(m) "FAIR MARKET VALUE" of the Common Stock on a given date shall
be based upon either (i) if the Common Stock is listed on a
national securities exchange or quoted in an interdealer
quotation system, the last sales price or, if unavailable, the
average of the closing bid and asked prices per share of the
Common Stock on such date (or, if there was no trading or
quotation in the Common Stock on such date, on the next
preceding date on which there was trading or quotation) as
provided by one of such organizations or (ii) if the Common
Stock is not listed on a national securities exchange or
quoted in an interdealer quotation system, the price will be
equal to the Company's fair market value, as determined by the
Committee in good faith based upon the best available facts
and circumstances at the time.
(n) "GRANTEE" shall mean a person granted an Award under the Plan.
(o) "IMMEDIATE FAMILY" shall mean with respect to a given Grantee
that Grantee's spouse, children, or grandchildren (including
adopted children or grandchildren).
(p) "IPO DATE" shall mean the date of closing of the initial
public offering of the Company's Common Stock.
(q) "ISO" shall mean an Award granted pursuant to the Plan to
purchase shares of the Stock and is intended to qualify as an
incentive stock option under Section 422 of the Code, as now
or hereafter constituted.
(r) "NON-EMPLOYEE DIRECTOR" shall mean a Director of the Company
who is not an Employee nor has been an Employee at any time
during the prior one-year period.
(s) "NQSO" shall mean an Award granted pursuant to the Plan to
purchase shares of stock and is not intended to qualify as an
incentive stock option under Section 422 of the Code, as now
or hereafter constituted.
(t) "OPTIONS" shall refer collectively to NQSOs and ISOs issued
under and subject to the Plan.
(u) "OUTSIDE DIRECTOR" shall mean a non-employee Director within
the meaning of Rule 16b-3(b)(3) under the Exchange Act, or any
successor thereto, who are also "outside directors" within the
meaning of Section 162(m) of the Code and the regulations
thereunder.
2
<PAGE> 5
(v) "PERFORMANCE AWARDS" shall mean Awards under the
Plan, payable in cash, Common Stock, other securities
or other awards and shall confer on the holder
thereof the right to receive payments, upon the
achievement of such performance goals during such
performance periods as the Committee shall establish.
(w) "PERMITTED TRANSFEREE" shall mean any individual or entity as
defined in Section 19.2 of this Plan.
(x) "PLAN" shall mean this 1997 Long-term Incentive Plan as set
forth herein and as amended from time to time.
(y) "RESTRICTED STOCK" shall mean an Award of Common Stock subject
to restrictions on transfer and/or such other restrictions on
incidents of ownership as the Committee may determine.
(z) "RULES" means Rule 16(b)(3) and any successor provisions
promulgated by the Securities and Exchange Commission under
Section 16 of the Exchange Act.
(aa) "SAR" shall mean an Award constituting the right to receive,
upon surrender of the right, but without payment, an amount
payable in cash.
(ab) "SUBSIDIARY or SUBSIDIARIES" shall mean any entity or entities
in which the Company owns a majority of the voting power.
(ac) "TEN PERCENT SHAREHOLDER" shall mean any Grantee who owns more
than 10% of the combined voting power of all classes of stock
of the Company, within the meaning of Section 422 of the Code.
SECTION 3
TYPES OF AWARDS COVERED
3.1 Awards granted, under the Plan may be:
(a) stock options ("Options") which may be designated as:
(i) nonqualified stock options ("NQSOs"); or
(ii) incentive stock options ("ISOs");
(b) stock appreciation rights ("SARs");
(c) restricted stock awards ("Restricted Stock");
(d) performance awards ("Performance Awards"); or
3
<PAGE> 6
(e) other forms of stock-based incentive awards.
SECTION 4
ADMINISTRATION
4.1 The Plan shall be administered by the Committee. Subject to the
provisions of the Plan and applicable law, the Committee shall have
full discretion and the exclusive power to:
(a) select the Employees who will participate in the Plan and to
make Awards to such Employees;
(b) determine the time at which such Awards shall be granted and
any terms and conditions with respect to such Awards as shall
not be inconsistent with the provisions of the Plan; and
(c) resolve all questions relating to the administration of the
Plan, and applicable law.
4.2 The interpretation of and application by the Committee of any
provision of the Plan shall be final and conclusive. The Committee,
in its sole discretion, may establish such rules and guidelines
relating to the Plan as it may deem appropriate.
4.3 The Committee may employ such legal counsel, consultants, and agents
as it may deem desirable for the administration of the Plan and may
rely upon any opinion received from any such counsel or consultant and
any computation received from any such consultant or agent. The
Committee shall keep minutes of its actions under the Plan.
4.4 No member of the Board of Directors or the Committee shall be liable
for any action or determination made in good faith with respect to the
Plan or any Awards granted hereunder. All members of the Committee
shall be fully protected by the Company in respect to any such action,
determination or interpretation.
SECTION 5
ELIGIBILITY
5.1 The individuals who shall be eligible to participate in the Plan shall
be officers, management, and such other key Employees of the Company
and Subsidiaries (including any directors who are also employees) as
the Committee may from time to time determine.
5.2 Directors of the Company who are not employees of the Company shall be
eligible to participate in the Plan as provided in Section 7.
5.3 An Employee or Non-Employee Director who has been granted an Award in
one year shall not necessarily be entitled to be granted Awards in
subsequent years.
4
<PAGE> 7
SECTION 6
SHARES OF STOCK SUBJECT TO THE PLAN
6.1 Awards may be granted with respect to the Common Stock of the Company.
6.2 Shares delivered upon exercise of the Awards, at the election of the
Board of Directors of the Company, may be Common Stock that is
authorized but previously unissued, or stock reacquired by the
Company, or both.
6.3 Subject to the provisions of Section 18, the maximum number of shares
available for issuance under the Plan shall be 1,000,000 and will
represent thirteen percent (13%) of the total number of shares
outstanding as of the IPO date. As such shares outstanding increase
subsequent to the IPO Date (which limit shall be determined without
considering as outstanding any shares that are the subject of any
unexercised options under the Plan or any other option plan of the
Company or any shares owned by the Company or any of its subsidiaries)
such shares available for issuance under the plan shall increase
proportionately; provided, however, that the maximum number of shares
for which ISOs may be granted under the Plan shall not exceed 930,000
shares (which number is subject to adjustment as provided in Section
18.2). The number of shares of Common Stock reserved under the Plan
shall not be less than the total number of shares granted, whether
exercised or unexercised for all Awards under the Plan.
6.4 Notwithstanding any other provision of the Plan to the contrary, in no
event may any Grantee in any calendar year receive more than 200,000
Options whether they be ISOs or NQSOs, subject to adjustments as
provided in Section 18 of the Plan.
6.5 Notwithstanding any other provision of the Plan to the contrary, in no
event may any Grantee in any calendar year receive more than 500,000
SARs, subject to adjustments as provided in Section 18 of the Plan.
6.6 Notwithstanding any other provision of the Plan to the contrary, in no
event may any Grantee in any calendar year receive an award of
Performance Awards having an aggregate maximum value as of their
respective date of grant in excess of $1,000,000
6.7 Any shares of Common Stock awarded under the Plan, which Award for any
reason expires or is terminated unexercised as to such shares, shall
again be available for the grant of other Awards under the Plan;
provided, however, that forfeited shares or other securities shall not
be available for further Awards if the Grantee has realized any
benefits of ownership from such shares.
5
<PAGE> 8
SECTION 7
NON-EMPLOYEE DIRECTOR AWARDS
7.1 The Board may grant NQSOs to Non-Employee Directors in such amounts
and at such times as the Board may determine.
7.2 Each option granted to a Non-Employee Director shall be exercisable in
full immediately upon the date of grant.
7.3 Each option granted to a Non-Employee Director may not be exercised
more than 10 years after the date such option is granted and such
option shall expire on such date unless sooner exercised or cancelled
due to termination of service or death.
7.4 Upon the termination of directorship, such Non-Employee Director's
option privileges shall be limited to the shares which were
immediately purchasable at the date of such termination of
directorship and shall expire unless exercised on or before the second
annual anniversary of the date of such termination of directorship.
7.5 If a Non-Employee Director dies while a member of the Board, his or
her option shall become fully exercisable and shall remain exercisable
by such Non-Employee Director's estate (or other successor) until the
first annual anniversary date of death, at which time they shall
expire.
SECTION 8
STOCK OPTIONS
8.1 The Committee may grant Options, as follows, which shall be evidenced
by a stock option agreement and may be designated as (i) NQSOs or (ii)
ISOs:
(a) NQSOS
(i) A NQSO is a right to purchase a specified number of
shares of Common Stock during such time as the
Committee may determine, not to exceed ten years, at a
price determined by the Committee that is not less than
50% of the Fair Market Value of the Common Stock on the
date the option is granted.
(ii) The purchase price of the Common Stock subject to the
NQSO may be paid in cash. At the discretion of the
Committee, the purchase price may also be paid by the
tender of Common Stock or through a combination of
Common Stock and cash or through such other means as
the Committee determines are consistent with the Plan's
purpose and applicable law. No fractional shares of
Common Stock will be issued or accepted.
(iii) No NQSO may be exercised more than ten years after the
date the NQSO is granted.
6
<PAGE> 9
(iv) Without limiting the foregoing, to the extent permitted
by law (including relevant state law):
A. the Committee may agree to accept, as full or
partial payment of the purchase price of Common
Stock issued upon the exercise of the NQSO, a
promissory note of the person exercising the
NQSO evidencing the person's obligation to make
future cash payments to the Company, which
promissory note shall be payable as determined
by the Company (but in no event later than five
years after the date thereof), shall be secured
by a pledge of the shares of Common Stock
purchased and shall bear interest at a rate
established by the Committee; and
B. the Committee may permit the person exercising
the NQSO, either on a selective or aggregate
basis, to simultaneously exercise the NQSO and
sell the shares of Common Stock acquired,
pursuant to a brokerage or similar arrangement
approved in advance by the Committee, and use
the proceeds from sale as payment of the
exercise price of the NQSO.
(b) ISOS
(i) No ISO may be granted under the Plan to a Non-Employee
Director.
(ii) The aggregate Fair Market Value (determined at the time
of the grant of the Award) of the shares of Common
Stock subject to ISOs which are exercisable by a
Grantee for the first time during a particular calendar
year shall not exceed $100,000. To the extent that ISOs
granted to a Grantee exceed the limitation set forth in
the preceding sentence, ISOs granted last shall be
treated as NQSOs.
(iii) No ISO may be exercisable more than:
A. in the case of a Grantee who is not a Ten
Percent Shareholder, on the date the ISO is
granted, ten years after the date the ISO is
granted; and
B. in the case of a Grantee who is a Ten Percent
Shareholder, on the date the ISO is granted,
five years after the date the ISO is granted.
(iv) The exercise price of any ISO shall be determined by
the Committee and shall not be less than:
A. in the case of a Grantee who is not a Ten
Percent Shareholder on the date the ISO is
granted, the Fair Market Value of the Common
Stock subject to the ISO on such date; and
7
<PAGE> 10
B. in the case of an employee who is a Ten Percent
Shareholder on the date the ISO is granted, not
less than 110 percent of the Fair Market Value of
the Common Stock subject to the ISO on such date.
(v) The Committee may provide that the option price under an
ISO may be paid by one or more of the methods available
for paying the option price of an NQSO per Section
8.1(a)(iv).
8.2 The Committee shall specify in the stock option agreement the terms
upon which the Options shall become exercisable.
8.3 The aggregate number of shares of Common Stock to be issued pursuant
to ISOs shall not exceed 930,000 shares except in the event of a
change in capitalization as described in Section 18.2.
SECTION 9
STOCK APPRECIATION RIGHTS
9.1 The amount payable with respect to each SAR shall be equal in value to
the applicable percentage of the excess, if any, of the Fair Market
Value of a share of Common Stock on the exercise date over the
exercise price of the SAR. The exercise price of the SAR shall be
determined by the Committee and shall not be less than 50% of the Fair
Market Value of a share of Common Stock on the date the SAR is
granted. SARs may be granted in tandem with an Option in which event
the Grantee has the right to elect to exercise either the SAR or the
Option. Upon their election to exercise one of these Awards, the
other Award is subsequently terminated. SARs may also be granted as
an independent Award.
9.2 In the case of an SAR granted in tandem with an ISO to an employee who
is a Ten Percent Shareholder on the date of such grant, the amount
payable with respect to each SAR shall be equal in value to the
applicable percentage of the excess, if any, of the Fair Market Value
of a share of Common Stock on the exercise date over the exercise
price of the SAR, which exercise price shall not be less than 110
percent of the Fair Market Value of a share of Common Stock on the
date the SAR is granted.
9.3 The applicable percentage and exercise price shall be established by
the Committee at the time the SAR is granted.
8
<PAGE> 11
SECTION 10
RESTRICTED STOCK
10.1 Restricted Stock is Common Stock of the Company that is issued to a
Grantee at a price determined by the Committee, which price may be
zero, and is subject to restrictions on transfer and/or such other
restrictions on incidents of ownership as the Committee may determine.
10.2 The Committee shall specify in the Award agreement the terms upon
which such shares of Common Stock granted to a Grantee as an Award
shall vest; provided, however that the Grantee continues to be
employed by the Company on such date.
10.3 The Committee may, in its discretion, provide for accelerated vesting
of Restricted Stock upon the achievement of specified performance
goals to be determined by the Committee.
10.4 Grantee may make the election under Section 83(b) of the Code.
SECTION 11
PERFORMANCE AWARDS
11.1 A Performance Award granted under the Plan:
(a) may be denominated or payable in cash, Common Stock,
Restricted Stock, other securities, or other Awards; and
(b) shall confer on the holder thereof the right to receive
payments, in whole or in part, upon the achievement of such
performance goals during such performance periods as the
Committee shall establish.
11.2 Subject to the terms of the Plan and any applicable Award agreement,
the performance goals to be achieved during any performance period,
the length of any performance period, the amount of any Performance
Award granted and the amount of any payment or transfer to be made
pursuant to any Performance Award shall be determined by the
Committee. Such performance goals that the Committee may select are
earnings before interest and taxes, net income, gross sales, earnings
per share, return on equity, return on investment, economic value
added, divisional performance goals, etc.
9
<PAGE> 12
SECTION 12
OTHER STOCK-BASED INCENTIVE AWARDS
12.1 The Committee may from time to time grant Awards under this Plan that
provide a Grantee the right to purchase Common Stock or units that are
valued by reference to the Fair Market Value of the Common Stock
(including, but not limited to, phantom securities or dividend
equivalents) or to receive Deferred Shares which are stock-based
incentive grants in lieu of a cash deferral of bonuses. Such Awards
shall be in a form determined by the Committee (and may include terms
contingent upon a change of control of the Company); provided that
such Awards shall not be inconsistent with the terms and purposes of
the Plan.
12.2 The Committee shall determine the price of any Award and may accept
any lawful consideration.
SECTION 13
EXERCISE OF OPTIONS
13.1 The Committee may provide for the exercise of Options in installments
and upon such terms, conditions and restrictions as it may determine
subject to applicable law and the other requirements of this Plan.
13.2 The Committee may provide for termination of an Option in the case of
termination of employment or directorship or any other reason.
13.3 An Option granted hereunder shall be exercisable, in whole or in part,
only by written notice delivered in person or by mail to the Secretary
of the Company at its principal office, specifying the number of
shares of Common Stock to be purchased and accompanied by payment
thereof and otherwise in accordance with the stock option agreement
pursuant to which the Option was granted.
SECTION 14
RIGHTS IN EVENT OF DEATH OR DISABILITY
14.1 If a Grantee dies or becomes subject to a Disability prior to
termination of his or her right to exercise an Option in accordance
with the provisions of his or her stock option agreement without
having totally exercised the Option, the stock option agreement may
provide that the Option may be exercised, to the extent that the
shares with respect to the Option could have been exercised by the
Grantee on the date of his or her death or Disability, by (i), in the
event of the Grantee's death, the Grantee's estate or by the person
who acquired the right to exercise the Option by bequest or
inheritance or (ii), in the event of the Grantee's Disability, the
Grantee or his or her personal representative.
14.2 In the event of the Grantee's death or Disability, the Option shall
not be exercisable after the date of its expiration or more than six
months from the date of the Grantee's death or Disability, whichever
first occurs.
10
<PAGE> 13
14.3 The date of Disability of a Grantee shall be determined by the
Committee.
SECTION 15
AWARD AGREEMENTS
15.1 Each Award granted under the Plan shall be evidenced by an award
agreement between the Grantee to whom the Award is granted and the
Company, setting forth the number of shares of Common Stock, SARs, or
units subject to the Award and such other terms and conditions
applicable to the Award not inconsistent with the Plan as the
Committee may deem appropriate.
15.2 The award agreement for an Option shall also be referred to as a stock
option agreement.
SECTION 16
TAX WITHHOLDING
16.1 The Committee may establish such rules and procedures as it considers
desirable in order to satisfy any obligation of the Company to
withhold federal income taxes or other taxes with respect to any Award
made under the Plan. Such rules and procedures may provide:
(a) in the case of Awards paid in shares of Common Stock, the
Company may withhold shares of Common Stock otherwise issuable
upon exercise of such Award in order to satisfy withholding
obligations, unless otherwise instructed by the Grantee or
unless the Committee determines otherwise at the time of
Grant; and
(b) in the case of an Award paid in cash, that the withholding
obligation shall be satisfied by withholding the applicable
amount and paying the net amount in cash to the Grantee;
provided that the requirements of the Rules, to the extent
applicable, must be satisfied with regard to any withholding
pursuant to clause (a).
SECTION 17
CHANGE OF CONTROL
17.1 For the purpose of the Plan, a "Change of Control" shall be deemed to
have occurred if:
(a) the Company is merged or consolidated with another corporation
and as a result of such merger or consolidation less than 50%
of the outstanding voting securities of the surviving or
resulting corporation are owned in the aggregate by the former
shareholders of the Company;
(b) the Company sells, leases or exchanges all or substantially
all of its assets to another corporation, which is not a
wholly-owned Subsidiary of the Company;
(c) any person or "group" within the meaning of Section 13(d)(3)
of the Exchange Act acquires (together with voting securities
of the Company held by such person or
11
<PAGE> 14
"group") 50% or more of the outstanding voting securities
of the Company (whether directly, indirectly, beneficially
or of record) pursuant to any transaction or combination of
transactions;
(d) there is a change of control of the Company of a nature that
would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Exchange
Act, whether or not the Company is then subject to such
reporting requirements; or
(e) the individuals who, at the beginning of any period of twelve
consecutive months, constituted the Board of Directors cease,
for any reason, to constitute at least a majority thereof,
unless the nomination for election or election by the
Company's shareholders of each new Director of the Company was
approved by a vote of at least two-thirds of the Directors
then still in office who either were Directors at the
beginning of such period or whose election or nomination for
election was previously so approved.
17.2 In the event of a Change of Control affecting the Company, then,
notwithstanding any provision of the Plan or of any provisions of any
Award agreements entered into between the Company and any Grantee to
the contrary, all Awards that have not expired and which are then held
by any Grantee (or the person or persons to whom any deceased
Grantee's rights have been transferred) shall, as of such Change of
Control, become fully and immediately vested and exercisable and may
be exercised for the remaining term of such Awards.
SECTION 18
DILUTION OR OTHER ADJUSTMENT
18.1 If the Company is a party to any merger or consolidation, or undergoes
any merger, consolidation, separation, reorganization, liquidation or
the like, the Committee shall have the power to make arrangements,
which shall be binding upon the holders of unexpired Awards, for the
substitution of new Awards for, or the assumption by another
corporation of, any unexpired Awards then outstanding hereunder.
18.2 In the event of a reclassification, stock split, combination of
shares, separation (including a spin-off), dividend on shares of the
Common Stock payable in stock or other similar change in
capitalization or in the corporate structure of shares of the Common
Stock, the Committee shall conclusively determine the appropriate
adjustment in the option prices of outstanding Options, and the number
and kind of shares or other securities as to which outstanding Awards
shall be exercisable, and in the aggregate number of shares with
respect to which Awards may be granted.
18.3 The number of shares reserved under the Plan shall adjust as the
number of shares of Common Stock increase as provided in Section 6.3
of this Plan.
12
<PAGE> 15
SECTION 19
TRANSFERABILITY
19.1 No Award, other than an NQSO, shall be sold, pledged, assigned,
transferred, or encumbered by a Grantee other than by will or by the
laws of descent and distribution.
19.2 Only an NQSO may be pledged, assigned, transferred, or gifted by a
Grantee to another individual provided that the NQSO is pledged,
assigned, transferred or gifted without consideration by a Grantee,
subject to such rules as the Committee may adopt, to (i) a member of
the Grantee's immediate family, (ii) a trust solely for the benefit of
the Grantee and his or her immediate family or (iii) a partnership or
limited liability company whose only partners or members are the
Grantee and his or her Immediate Family (hereinafter referred to as
the Permitted Transferee); provided that the Committee is notified in
advance in writing of the terms and conditions of any proposed pledge,
assignment, transfer, or gift and the Committee determines that such
pledge, assignment, transfer or gift complies with the requirements of
the Plan and the applicable Award agreement.
19.3 Any pledge, assignment or gift of an Award that does not comply with
the provisions of the Plan and the applicable Award agreement shall be
void and unenforceable against the Company.
19.4 All terms and conditions of a pledged, assigned, transferred or gifted
Award shall apply to the beneficiary, executor, administrator, and
Permitted Transferee, whether one or more, of the Grantee (including
the beneficiary, executor and administrator of a permitted
transferee), including the right to amend the applicable Award
agreement; provided that the Permitted Transferee shall not pledge,
assign, transfer, or gift an Award other than by will or by the laws
of descent and distribution.
SECTION 20
AMENDMENT OR TERMINATION
20.1 The Committee may at any time amend, suspend or terminate the Plan;
provided, that:
(a) no change in any Awards previously granted may be made without
the consent of the holder thereof; and
(b) no amendment, other than an amendment authorized by Section 18
or Section 6.3, may be made increasing the aggregate number of
shares of the Common Stock with respect to which ISOs may be
granted, or changing the class of employees eligible to
receive ISOs hereunder, without the approval of the holders of
a majority of the outstanding voting shares of the Company.
13
<PAGE> 16
SECTION 21
GENERAL PROVISIONS
21.1 No Awards may be exercised by a Grantee if such exercise, and the
receipt of cash or stock thereunder, would be, in the opinion of
counsel selected by the Company, contrary to law or the regulations of
any duly constituted authority having jurisdiction over the Plan.
21.2 A bona fide leave of absence approved by a duly constituted officer of
the Company shall not be considered interruption or termination of
service of any Grantee for any purposes of the Plan or Awards granted
thereunder, except that no Awards may be granted to an Employee while
he or she is on a bona fide leave of absence.
21.3 No Grantee shall have any rights as a shareholder with respect to any
shares subject to Awards granted to him or her under the Plan prior to
the date as of which he or she is actually recorded as the holder of
such shares upon the stock records of the Company.
21.4 Nothing contained in the Plan or in an Award agreement granted
thereunder shall confer upon any Grantee any right to (i) continue in
the employ of the Company or any of its Subsidiaries or continue
serving on the Board of Directors of the Company or (ii) interfere in
any way with the right of the Company or any of its Subsidiaries to
terminate the Grantee's employment at any time or service on the
Board.
21.5 Any Award agreement may provide that stock issued upon exercise of any
Awards may be subject to such restrictions, including, without
limitation, restrictions as to transferability and restrictions
constituting substantial risks of forfeiture as the Committee may
determine at the time such Award is granted.
SECTION 22
PLAN EFFECTIVE DATE
22.1 The Plan shall become effective on the date of its adoption by the
Board of Directors of the Company subject to approval of the Plan by
the holders of a majority of the outstanding voting shares of the
Company within twelve (12) months after the date of the Plan's
adoption by said Board of Directors. In the event of the failure to
obtain such shareholder approval, the Plan and any Awards granted
thereunder, shall be null and void and the Company shall have no
liability thereunder.
22.2 No Award granted under the Plan shall be exercisable until such
shareholder approval has been obtained.
14
<PAGE> 17
SECTION 23
PLAN TERMINATION
23.1 No Award may be granted under the Plan on or after December 31, 2007,
but Awards previously granted may be exercised in accordance with their
terms.
15
<PAGE> 1
EXHIBIT 10.9
EXECUTIVE EMPLOYMENT AGREEMENT
(3 years)
This Employment Agreement ("Agreement") is made as of __________,
199__, by and between BrightStar Information Technology Group, Inc., a Delaware
corporation, located at 10375 Richmond Avenue, Suite 1620, Houston, Texas 77042
(the "Company"), and____________________________________________, an individual
with an address of __________________________
_______________________________________ (the "Employee").
1. Employment. The Company hereby agrees to employ the Employee
and the Employee hereby agrees to work for the Company under the terms and
conditions set forth herein. This Agreement supersedes and replaces any prior
employment agreement or other agreement between the parties dealing with the
subject matter hereof and such prior agreements, if any, are hereby terminated;
provided however, that this agreement shall not affect any provisions of that
certain Stock Repurchase Agreement to be executed by and between Employee and
the Company pursuant to terms of that certain Share Exchange Agreement dated as
of December 15, 1997, by and among the Company, BIT Group Services, Inc., a
Delaware corporation ("BITG"), and the holders of the outstanding capital stock
of BITG, including, without limitation, the definition of termination for
"Cause" contained in such Stock Repurchase Agreement.
2. Term of Employment. The term of employment pursuant to this
Agreement shall begin on the date set forth above (the "Effective Date") and
shall continue in effect for an initial term of three (3) years from the date
set forth above unless terminated in accordance with Section 7, and shall be
extended from year to year thereafter, unless terminated effective as of the
end of the initial term or any one-year extension thereafter by written notice
from the Company to Employee, or by written notice of Employee to the Company,
delivered not less than sixty (60) days prior to the end of the initial term,
or the end of such one-year extension, as applicable.
3. Scope of Duties; Covenants.
(a) The Employee shall be employed by the Company in the
position set forth on Schedule A hereto and shall perform the duties as set
forth on Schedule A hereto. At all times, Employee shall serve under the
direction of the Board of Directors and [the Chief Executive Officer] of the
Company and shall perform such services and exercise such authority as is
customary for such position.
(b) So long as he is employed by the Company, Employee
shall devote his skill, energy and best efforts to the faithful discharge of
his duties as an employee of the Company. The Employee agrees that in the
provision of all services to the Company, he will comply with and follow the
provisions of this Agreement and all directives, policies, standards and
regulations from time to time established by the Board of Directors of the
Company.
<PAGE> 2
(c) Employee represents and warrants that Employee is
under no contractual or other restrictions or obligations which will
significantly limit the performance of Employee's obligations under this
Agreement or which will prohibit or limit the use by the Employee of any
information which relates to the business of the Company or the services to be
rendered by the Employee under this Agreement (including, without limitation,
any agreement relating to any proprietary information, knowledge or data
acquired by Employee in confidence, trust or under other obligation prior to
Employee's employment by the Company). Employee covenants and agrees that
Employee shall not disclose to the Company, or induce the Company to use, any
such proprietary information, knowledge or data belonging to any previous
employer or others. Employee further covenants and agrees not to enter into
any agreement or understanding, either written or oral, in conflict with the
provisions of this Agreement during the term of this Agreement.
(d) To the extent they relate to, or result from,
directly or indirectly, the actual or anticipated operations of the Company,
the Employee hereby agrees that all Intellectual Property (defined below)
developed, purchased or acquired by the Company, shall be the exclusive
property of the Company, and unless otherwise agreed by the Company, all right,
title and interest therein shall remain in the Company.
(e) The Employee will hold all Intellectual Property and
Confidential Information (defined below) in trust for the Company and will
deliver all Intellectual Property and Confidential Information in his
possession or control to the Company upon request and, in any event, at the end
of his employment with the Company. During the term of his employment with the
Company, the Employee will promptly disclose to the Company all Confidential
Information that comes to Employee's attention which has not previously been
disclosed to the Company, as well as any business opportunity reasonably
related to the scope of business of the Company or an Assisted Affiliate as
described in Section 8, which comes to his attention. The Employee will not
take advantage of or divert from the Company any such business opportunity for
the benefit of himself or any other party without the prior written consent of
the Company.
4. Compensation.
(a) During the first year of the term of employment
hereunder, the Company shall pay the Employee a base salary, payable in equal
periodic installments in accordance with the Company's customary payroll
practices, not less frequently than semi-monthly, at an annual rate or rates
set forth on Schedule A attached hereto and incorporated by reference herein.
Schedule A may also set forth certain other compensation payable to Employee.
In each subsequent year of the term of employment, the Company shall pay to the
Employee a salary and any such other compensation determined by the Board of
Directors following its annual salary and performance review; provided,
however, that such salary and compensation shall not be less than the amount
determined in accordance with Schedule A.
(b) Employee shall receive an annual cash performance
bonus for each calendar year during the term of this Agreement to be determined
according to the following procedure except as may be otherwise mutually agreed
to between the Employee and the Company. The Board of Directors of the Company,
or the Compensation Committee of the Board of Directors, if so
2
<PAGE> 3
authorized, shall establish specific annual performance goals for the
Company and for Employee with respect to each calendar year (or
portion thereof) during the term of this Agreement commencing on
January 1, 1998. Such goals shall be communicated to Employee not
later than the end of the first quarter of the applicable calendar
year. At the end of each calendar year during the term of this
Agreement, or within a reasonable time thereafter, the Board of
Directors of the Company, or the Compensation Committee of the Board
of Directors, if so authorized, shall review the actual performance of
the Company and Employee, giving due consideration to market and other
developments outside of the control or influence of Employee and the
Company, and based upon the extent to which the applicable annual
performance goals have been achieved, shall determine in its sole and
absolute discretion, the amount of performance bonus payable to
Employee with respect to such year.
(c) The Company shall also pay Employee a monthly
automobile allowance in the amount set forth on Schedule A attached hereto.
(d) All payments of salary and other compensation to the
Employee shall be made after deduction of any taxes which are required to be
withheld with respect thereto under applicable federal and state laws.
5. Vacation/Personal Time. Employee shall be entitled to leave
for vacation and personal time off as provided on Schedule A attached hereto
and incorporated by reference herein. Unused holidays and days for personal
time off and vacation may not be carried over from one fiscal year to another.
The aggregate number of days specified on Schedule A for vacation and personal
time off need not be taken by Employee in succession, but in any increments and
at any time during the year as approved by the Company. For purposes of this
Agreement, "personal time off" shall include time taken off by Employee on
account of illness, family emergency or death in the immediate family.
6. Fringe Benefits; Expenses. So long as the Employee is
employed by the Company, the Employee shall participate in any employee benefit
plans sponsored by the Company generally for its employees serving in similar
employment capacities as the Employee as determined from time to time by the
board of directors of the Company or any compensation committee of the board of
directors, if any, and on terms at least as favorable to Employee as are
generally offered to other employees of the Company serving in a similar
capacity. The Company shall also reimburse Employee for his reasonable travel
and other out-of-pocket business expenses incurred in connection with his
employment under this Agreement pursuant to expense reports filed in accordance
with the Company's policies in effect from time to time, provided that if
Employee receives an automobile allowance pursuant hereto, then Employee shall
not otherwise be reimbursed for automobile expenses under this provision,
except for out-of-town rental automobiles.
7. Termination.
(a) General. The Company and Employee agree that
Employee's employment hereunder may be terminated by the Employee resigning or
by the Company's declaration of termination with or without "Cause" at any
time, subject to the terms of this Section 7. Such
3
<PAGE> 4
termination shall be effective upon delivery of written notice from the acting
party to the other of its election to terminate employment pursuant to this
Section 7. "Cause" when used in connection with the termination of employment
with the Company, shall mean the termination of the Employee's employment by
the Company by reason of (i) Employee's material breach of any of Sections 3,
7, 8, 9, 10, 11 and 12 of this Agreement which breach is not cured within
thirty (30) days of written notice to Employee of such breach; (ii) the
conviction of, or the entering of a guilty plea or no contest plea by, the
Employee for a crime involving felony by a court of competent jurisdiction;
(iii) the commission by the Employee of an act of fraud upon the Company or any
of its affiliates; (iv) the misappropriation of any funds or property of the
Company or any of its affiliates by the Employee; (v) the failure by the
Employee to perform material duties assigned to him pursuant to Schedule A or
otherwise assigned to and accepted by Employee, or to comply with any written
Company policy after reasonable written notice and opportunity to cure such
performance; (vi) the engagement by the Employee in any direct, material
conflict of interest with the Company or any of its Assisted Affiliates without
compliance with the Company's conflict of interest policy, if any, then in
effect; or (vii) the engagement in any activity which would constitute a
material violation of the provisions of the BrightStar Information Technology
Group, Inc. ("BrightStar") insider trading policy, if any, then in effect.
(b) Termination for Cause or Resignation. If the Company
terminates the Employee's employment for Cause or the Employee voluntarily
resigns, the Company shall pay the Employee's base salary earned through the
date of termination (and any other earned but unpaid compensation and accrued
vacation time prior to termination), but all rights to any other compensation
or benefits arising hereunder, shall be canceled and terminated in all respects
concurrently with such termination of employment; provided that the Employee
may elect to continue to participate, at Employee's own expense, in such health
insurance and other benefits as to which the opportunity for continuing
participation is mandated by applicable laws.
(c) Termination Without Cause. In the event that the
Employee's employment is terminated by the Company without Cause other than at
the end of the initial term or one of the one year renewal terms of this
Agreement, the Company shall, subject to the terms of subsections 7.(e) and
7.(f) below, and only if and as long as Employee is not in breach of his
obligations under this Agreement, pay compensation to Employee in the manner
set forth below. If the Employee is terminated without Cause during the initial
three-year term of this Agreement, then the Company shall continue to pay to
Employee his current base salary provided for under this Agreement, plus any
other earned and unpaid compensation and accrued vacation time prior to
termination, plus a per annum amount of additional compensation based on prior
earned bonuses and/or commissions, if any, equal to the amount of earned
bonuses or commissions of Employee during the twelve complete calendar months
immediately preceding the date of termination ("Severance Payments"), in
periodic payments in accordance with its customary payroll practices for the
period ending the later of (i) the end of the initial three-year term of the
Agreement or (ii) twelve months after termination of employment. If the
Employee is terminated without Cause during any one-year extension of the
initial term of the Agreement, then the Company shall continue to pay to
Employee Severance Payments in accordance with its customary payroll practices
for a period of twelve months after termination of such employment. If the
Employee is terminated by the Company without Cause, the Company shall also
continue to provide benefits in the kind and amounts provided to its
4
<PAGE> 5
employees generally for up to twelve months following the date of termination,
including continuation of any Company-paid benefits provided pursuant hereto,
for the Employee and Employee's spouse and minor children, provided such
benefits will be subject to immediate termination to the extent Employee
receives benefits under another similar benefit plan. If the Company fails to
make any of the payments required under this Section 7.(c) when reasonably due,
then any restrictions imposed by Section 8 hereof against Employee competing
with the Company shall immediately lapse, but this shall not release the
Company's obligation for Severance Payments. Employee agrees that the above
payments shall be a full settlement of the Company's obligations to Employee
hereunder in the event of a termination without Cause.
(d) Termination Following Change of Control. In the
event of (i) the sale of all or substantially all of the assets of the Company,
or (ii) a merger, consolidation, liquidation or reorganization of the Company,
in which the Company or an affiliate of the Company is not the surviving
entity, or which results, in any event, in a change of control of the Company
(each, a "Change in Control Transaction"), the Company or the surviving entity,
as the case may be, may either (A) terminate Employee's employment hereunder
and pay to the Employee an amount equal to thirty-six months (36) compensation
at Employee's then current annual salary, payable not less frequently than
monthly, and continue to provide benefits in the kind and amounts provided to
its employees generally for such thirty-six (36) month period (collectively,
"Change of Control Compensation") or (B) adopt this Agreement; provided,
however, that if the Company or the surviving entity elects to adopt this
Agreement following a Change in Control Transaction and it shall subsequently
terminate Employee's term of employment without Cause, then it shall pay and
provide to Employee salary and benefits equal to the greater of (x) the salary
and benefits to be provided under Section 7.(c), and (y) the difference between
the salary and benefits provided to Employee pursuant to clause (A) above and
the aggregate amount of salary and benefits actually paid to Employee following
the Change in Control Transaction.
(e) Disability; Death. If at any time during the term of
this Agreement, Employee is unable, due to physical or mental disability, to
perform effectively his duties hereunder, the Company shall continue payment of
compensation as provided in Section 4 during the first six months of such
disability to the extent not covered by the Company's disability insurance
policies. Upon the expiration of such six month period, the Company, at its
sole option, may continue payment of Employee's salary for such additional
periods as the Company elects, or may terminate this Agreement without any
further obligations hereunder. If Employee should die during the term of this
Agreement, Employee's employment and the Company's obligations hereunder shall
terminate as of the end of the month in which Employee's death occurs and there
will be no salary and benefit continuation period. Employee shall be deemed to
have incurred a disability if Employee suffers a physical or mental condition
which (i) satisfies the definition of "total disability" in the Company's
disability insurance policies, or (ii) if no such policy or plan is then
covering Employee, in the reasonable judgment of the Board of Directors,
prevents Employee from engaging in any substantial gainful employment with the
Company for a period of more than six (6) months.
(f) Standstill Agreement; Lock-up Letters. So long as
Employee is employed by the Company or receives severance compensation as
provided above, Employee agrees that he will sign any reasonable securities
lock-up letters, standstill agreements, or other similar documentation
5
<PAGE> 6
required by an underwriter in connection with a public offering of securities
by BrightStar or take other actions reasonably related thereto as requested by
the Board of Directors of the Company under similar terms and conditions as for
other management employees of the Company or BrightStar generally. Failure to
take any such action shall be a "Cause" for termination and shall cause
Employee to forfeit any further rights to compensation or other payments
hereunder. In addition, Employee agrees that in such event the Company can
seek and obtain specific performance of such covenant, including any injunction
requiring execution thereof, and the Employee hereby appoints the then current
President of the Company to sign any such documents on his behalf so long as
such documents are prepared on the same basis as for other management
shareholders generally.
8. Covenant Not to Compete.
(a) During Term of Employment. During Employee's term of
employment pursuant to this Agreement, Employee will not compete with the
Company or its affiliates, directly or indirectly, either for himself or as a
member of a partnership or a limited liability company or as a stockholder
(except as a stockholder of less than one percent (1%) of the issued and
outstanding stock of a publicly-held company whose gross revenues exceed $100
million), investor, owner, officer or director of a company or other entity, or
as an employee, agent, trustee, manager, associate or consultant of any person,
partnership, corporation or other entity, in any business in competition with
that carried on by the Company or any of its affiliates. As of the date hereof,
the Company anticipates that it will engage principally in the business of
providing information technology services to a variety of industries, but the
provisions of this Section 8.(a) shall apply to any business in which the
Company or its affiliates are engaged during the term of Employee's employment.
(b) Restricted Periods. Section 8.(c) below restricts
Employee's ability to compete against the Company or it affiliates following
Employee's term of employment. For purposes of this Section 8, and in
particular Section 8.(c), if Employee voluntarily resigns his employment with
the Company, or is terminated by the Company for Cause, then the period for
which Employee cannot compete with the Company shall be the longer of (i) two
(2) years from the date hereof, or (ii) one (1) year after the termination of
employment ("Restricted Period For Cause"). If Employee is terminated by
Employer without Cause or pursuant to Section 7.(d) above, then the period for
which Employee cannot compete with the Company or its affiliates (the
"Restricted Period Without Cause"), shall be based upon whether Employee was
terminated during the initial three-year term or during any extension thereof.
If Employee was terminated without Cause during the initial three-year term,
the Restricted Period Without Cause shall be the greater of (i) the remaining
months left of the initial three-year term, but not to exceed two (2) years, or
(ii) until one (1) year after the termination of employment without Cause. If
Employee was terminated during any one (1) year extension of the initial
three-year term, the Restricted Period Without Cause shall be equal to one (1)
year after the termination of employment without Cause.
(c) Following Term of Employment. Employee further
agrees that, during the Restricted Period For Cause or the Restricted Period
Without Cause, as applicable, Employee will not represent, engage in or carry
on, directly or indirectly, any business with any customer or client of the
Company (or any customer or client of an affiliate of the Company for which the
Employee has materially assisted such affiliate in serving such customer or
client ("Assisted Affiliate")) at the
6
<PAGE> 7
time of termination of employment, or any business within 100 miles of the city
or county limits of any city or county in the United States or foreign
countries where the Company or any Assisted Affiliate has an office or in which
the Company provides services which produce Company revenues of an amount equal
to 2% or more of the Company's revenues for the twelve complete calendar months
preceding the time of termination, which business competes with any business,
services or products produced, sold, conducted, developed, or in the process of
development by the Company or jointly by the Company and an Assisted Affiliate
during the term of Employee's employment, including any business that involves
the furnishing of information technology services that are the type of services
furnished by the Company, either for himself, as a member or equity owner of a
partnership or a limited liability company, or as a shareholder (other than as
a shareholder of less than one percent (1%) of the issued and outstanding stock
of a publicly-held company whose gross revenues exceed $100 million), investor,
owner, officer or director of a company or other entity, or as an employee,
agent, trustee, manager, associate or consultant of any person, partnership,
corporation or other entity. As of the date hereof, the Company anticipates
that it will engage principally in the business of providing information
technology services to a variety of industries, but the provisions of this
Section 8.(c) shall apply to any business in which the Company is engaged at
the termination of Employee's employment.
(d) Employee Agrees to Limitations. Employee agrees that
the limitations set forth herein on his rights to compete with the Company and
its affiliates are reasonable and necessary for the protection of the Company
and its affiliates. In this regard, Employee specifically agrees that the
limitations as to period of time and geographic area, as well as all other
restrictions on his activities specified herein, are reasonable and necessary
for the protection of the Company and its affiliates. In particular, Employee
acknowledges that the parties anticipate that the Employee will be actively
seeking markets for the Company's products throughout the United States and in
other countries of the world during Employee's employment with the Company. In
the event that the provisions of this Agreement should ever be legally held to
exceed the scope of business, time or geographic limitations permitted by
applicable law, such provisions shall be and are hereby reformed to the maximum
scope of business, time or geographic limitations permitted by applicable law.
(e) Affiliates. For purposes of this Agreement, an
"affiliate" of the Company is any person or entity that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, the Company.
(f) Specific Performance. Employee agrees that the
remedy at law for any breach by him of this Section 8 will be inadequate and
that the Company shall also be entitled to injunctive relief.
9. Confidential Information and Results of Services.
(a) Treatment of Confidential Information. Employee
agrees that during the term of this Agreement, and for five (5) years after his
termination of employment, he will not use or disclose, without the prior
consent of the Company, the Confidential Information (as hereinafter defined)
owned by or subject contractually to be safeguarded by the Company, or any of
its
7
<PAGE> 8
affiliates, and further agrees, that he will return to the Company all written,
printed, or other physical presentation or holding of materials in his
possession embodying such Confidential Information. Employee acknowledges that
any information and materials received by the Company from third parties in
confidence (or subject to non-disclosure or similar covenants) shall be deemed
to be and shall be Confidential Information within the meaning of this Section
9. As a material inducement to the Company to employ (or to continue to
employ) Employee and to pay to Employee compensation for such services to be
rendered to the Company by Employee (it being understood and agreed by the
parties hereto that such compensation shall also be paid and received in
consideration hereof), Employee covenants and agrees that Employee shall not,
except with the prior written consent of the Company, or unless Employee is
acting as an employee of the Company solely for the benefit of the Company in
connection with the Company's business and in accordance with the Company's
business practices and employee policies, at any time during or following the
term of Employee's employment by the Company, directly or indirectly, disclose,
divulge, reveal, report, publish, transfer or use, for any purpose whatsoever,
any of such information which has been obtained by or disclosed to Employee as
a result of Employee's employment by the Company.
(b) Definition of Confidential Information. For purposes
of this Agreement, "Confidential Information" includes information conveyed or
assigned to the Company by Employee or conceived, compiled, created, developed,
discovered or obtained by Employee from and during his employment relationship
with the Company, whether solely by the Employee or jointly with others, which
concerns the affairs of the Company or its affiliates and which the Company
could reasonably be expected to desire be held in confidence, or the disclosure
of which would likely be materially embarrassing, detrimental or
disadvantageous to the Company or its affiliates and without limiting the
generality of the foregoing includes information relating to inventions, and
the trade secrets, technologies, algorithms, products, services, systems,
programs (including, without limitation, the Company's computer software
programs), procedures, manuals, confidential reports and communications,
finances, business plans, marketing plans, legal affairs, supplier lists,
client lists, potential clients, business prospects, business opportunities,
personnel assignments, contracts and assets of the Company and information made
available to the Company by other parties under a confidential relationship.
Confidential Information, however, shall not include information (i) which is,
at the time in question, in the public domain through no wrongful act of
Employee, (ii) which is later disclosed to Employee by one not under
obligations of confidentiality to the Company or Employee, (iii) which the
Company has expressly given Employee the right to disclose pursuant to written
agreement, or (iv) which is required by court or governmental order, law or
regulation to be disclosed; provided, that Employee shall first have given
prompt notice to the Company of any such possible or prospective order (or
proceeding pursuant to which any such order may result) such that the Company
shall have been afforded a reasonable opportunity to prevent or limit any such
disclosure. Employee agrees that the remedy at law for any breach by him of
this Section 9 will be inadequate and that the Company shall also be entitled
to injunctive relief.
10. Definition of Intellectual Property.
(a) For purposes of this Agreement, the term
"Intellectual Property" shall mean all of the information referred to in
Section 9 hereof and all of the following materials and information (whether or
not reduced to writing and whether or not patentable or protectible by
8
<PAGE> 9
copyright) which Employee receives, receives access to, conceives or develops
or has received, received access to, conceived or developed, in whole or in
part, directly or indirectly, in connection with Employee's employment with the
Company and any assistance to affiliates of the Company and related to the
Company's and its affiliates scope of business (in any capacity, whether
executive, managerial, planning, technical, sales, research, development,
manufacturing, engineering or otherwise) or through the use of any of the
Company's facilities or resources:
(b) Discoveries, concepts, and ideas including, without
limitation, the nature and results of research and development activities,
processes, formulas, inventions, computer-related equipment or technology,
techniques, "know-how," designs, drawings and specifications;
(c) Production processes, marketing techniques and
arrangements, mailing lists, purchasing information, pricing policies, quoting
procedures, financial information, customer and prospect names and
requirements, employee, customer, supplier and distributor data and other
materials or information relating to the Company's business and activities and
the manner in which the Company does business;
(d) Applications, operating systems, data bases,
communications and other computer software, whether now or hereafter existing
and developed for use on any operating system, and all modifications,
enhancements and versions and all options available with respect thereto, and
all future products developed or derived therefrom;
(e) Source and object codes, flowcharts, algorithms,
coding sheets, routines, sub-routines, compilers, assemblers, design concepts
and related documentation and manuals;
(f) Any other materials or information related to the
business or activities of the Company which are not generally known to others
engaged in similar businesses or activities; and
(g) Patents, trademarks, copyrights, trade secrets, all
inventions, whether or not patentable, and any product, drawing, design,
recording, computer software program, writing, literary work or other author's
work, in any other tangible form developed in whole or in part by Employee
during the term of this Agreement;
(h) All ideas, inventions, techniques, modifications,
processes, or improvements which are derived from or relate to Employee's
access to or knowledge of any of the above enumerated materials and
information, or which are created, conceived, developed, purchased or acquired
by Employee, either solely or in conjunction with others, during the term of
Employee's employment with the Company which relate to, or are useful in, the
business being conducted or proposed to be conducted by the Company or its
affiliates, and any such item created by the Employee, either solely or in
conjunction with others, following termination of the Employee's employment
with the Company, that is based upon or uses Intellectual Property.
(i) Failure to mark any of the Intellectual Property as
confidential, proprietary or Intellectual Property shall not affect its status
as part of the Intellectual Property under the terms of this Agreement.
9
<PAGE> 10
(j) For purposes of this Agreement, the term
"Intellectual Property" shall not apply to any ideas, inventions, techniques,
modifications, processes, or improvements for which no equipment, supplies,
facility or Intellectual Property of the Company was used, which was developed
entirely on Employee's own time, and which does not (i) relate to the business
of the Company, (ii) relate to the Company's actual or demonstrably anticipated
research or development or (iii) result from any work performed by Employee for
the Company.
11. Ownership of Information.
(a) Employee covenants and agrees that all right, title
and interest in any Intellectual Property shall be and shall remain the
exclusive property of the Company. Employee agrees immediately to disclose to
the Company all Intellectual Property developed in whole or in part by Employee
during the term of Employee's employment with the Company and to assign to the
Company any right, title or interest Employee may have in such Intellectual
Property. Employee agrees to execute any instruments and to do all other
things reasonably requested by the Company (both during and after Employee's
employment with the Company) in order to vest more fully in the Company all
ownership rights in those items transferred by Employee to the Company;
(b) Employee will not contest the validity of any
invention, any copyright, any trademark or any mask work registration owned by
or vesting in the Company under this Agreement;
(c) Employee will execute, acknowledge, and deliver to
the Company such applications, assignments (including patent applications and
assignments), and other documents as the Company may request in order to apply
for and obtain patents or other registrations with respect to any Intellectual
Property in the United States and any foreign jurisdictions;
(d) Employee will sign all other papers necessary to
carry out the above obligations; and
(e) Employee will give testimony and render any other
assistance but without expense to the Employee in support of the Company's
rights to any Intellectual Property.
(f) If any one or more of the foregoing items are
protectible by copyright and are deemed in any way to fall within the
definition of "work made for hire," as such term is defined in 17 U.S.C.
Section 101, such work shall be considered a "work made for hire," the
copyright of which shall be owned solely, completely and exclusively by the
Company. If any one or more of the aforementioned items are protectible by
copyright and are not considered to be included in the categories of works
covered by the "work made for hire" definition contained in 17 U.S.C. Section
101, such items shall be deemed to be assigned and transferred completely and
exclusively to the Company by virtue of the execution of this Agreement.
12. Covenants Not to Hire Employees. It is recognized and
understood by the parties hereto that the employees of the Company are an
integral part of the Company's business and that it is extremely important for
the Company to use its maximum efforts to prevent the Company from losing
employees. It is therefore understood and agreed by the parties hereto that,
because of the
10
<PAGE> 11
nature of the business of the Company, it is necessary to afford fair
protection to the Company from the loss of any such employees. Consequently,
as a material inducement to the Company to employ (or continue to employ)
Employee, Employee covenants and agrees that, for the period commencing on the
date of Employee's termination of employment for any reason whatsoever and
ending two (2) years after Employee's termination of employment with the
Company, Employee shall not, directly or indirectly, hire or engage or attempt
to hire or engage any individual who shall have been an employee of the Company
at any time during the one (1) year period prior to the date of Employee's
termination of employment with the Company, whether for or on behalf of
Employee or for any entity in which Employee shall have a direct or indirect
interest (or any subsidiary or affiliate of any such entity), whether as a
proprietor, partner, co-venturer, financier, investor or stockholder, director,
officer, employer, employee, servant, agent, representative or otherwise. If
Employee violates this Section 12, Employee agrees that, as part of the damages
recoverable by the Company, Employee shall pay to the Company a liquidated
damages amount equal to the compensation of the employee of the Company
solicited away from employment with the Company by Employee for the twelve
months preceding the date of said employee's termination from the Company.
13. Injunctive Relief. Employee understands and agrees that the
Company shall suffer irreparable harm in the event that Employee breaches any
of Employee's obligations under this Agreement and that monetary damages shall
be inadequate to compensate the Company for such breach. Accordingly, Employee
agrees that, in the event of a breach or threatened breach by Employee of any
of the provisions of this Agreement, the Company, in addition to and not in
limitation of any other rights, remedies or damages available to the Company at
law or in equity, shall be entitled to a temporary restraining order,
preliminary injunction and permanent injunction in order to prevent or to
restrain any such breach by Employee, or by any or all of Employee's partners,
co-venturers, employers, employees, servants, agents, representatives and any
and all persons directly or indirectly acting for, on behalf of or with
Employee.
14. Materials. All notes, data, tapes, reference items, sketches,
drawings, memoranda, records and other materials in any way relating to any of
the Confidential Information or Intellectual Property or to the Company's
business shall belong exclusively to the Company and Employee agrees to turn
over to the Company all copies of such materials in Employee's possession or
under Employee's control at the request of the Company or, in the absence of
such a request, upon the termination of Employee's employment with the Company.
15. Remedies. Employee covenants and agrees that, if Employee
shall violate any of Employee's covenants or agreements under this Agreement,
the Company shall be entitled to an accounting and repayment from Employee of
all profits, compensation, royalties, commissions, remunerations or other
payments (collectively "Payments") which Employee realizes as a result of the
violative actions. Employee shall also reimburse the Company for all
reasonable costs and expenses (including reasonable attorneys fees) incurred in
pursuing its rights hereunder if Employee has violated this Agreement. Such
remedy shall be in addition to and not in limitation of any injunctive relief
or other rights or remedies to which the Company is or may be entitled at law
or in equity or otherwise under this Agreement, provided that recovery of any
Payments shall be reduced by the amount of any compensatory damages otherwise
recovered.
11
<PAGE> 12
16. Employee's Status. Except as expressly provided by terms of
this Agreement, nothing in this Agreement shall be construed as constituting a
commitment, guarantee, agreement or understanding of any kind or nature that
the Company shall continue to employ Employee, nor shall this Agreement affect
in any way the right of the Company to terminate the employment of Employee at
any time and for any reason whatsoever. No change of Employee's duties as an
employee of the Company shall result in, or be deemed to be, a modification of
the terms of this Agreement.
17. Notice. All notices, requests, demands and other
communications required by or permitted under this Agreement shall be in
writing and shall be sufficiently delivered if delivered by hand, by courier
service, or sent by registered or certified mail, postage prepaid, to the
parties at their respective addresses listed below:
(a) If to the Employee, to the address set out in the
beginning of this Agreement;
(b) If to the Company:
__________________________________________
BrightStar Information Technology Group, Inc.
10375 Richmond Avenue, Suite 1620
Houston, Texas 77042
Either party may change such party's address by such notice
to the other parties.
18. Assignment. This Agreement is personal to the Employee, and
he shall not assign any of his rights or delegate any of his duties hereunder
without the prior written consent of the Company. Neither the employee nor his
spouse will have the right to commute, encumber, or otherwise dispose of any
prospective payments under this Agreement. The Company shall have the right to
assign this Agreement to a successor in interest in connection with a merger,
sale of substantially all assets, or the like; provided however, that an
assignment of this Agreement to an entity with operations, products or services
outside of the industries in which the Company is then active shall not be
deemed to expand the scope of Employee's covenant not to compete with such
operations, products or services without Employee's written consent.
19. Survival. The provisions of Sections 7 through 15 of this
Agreement shall survive the termination of the Employee's employment hereunder
in accordance with their terms, provided that all provisions of this Agreement
shall terminate five years after termination of employment (if not already
expired in accordance with their specific time of applicability) except with
respect to the resolution of any claims asserted prior to such termination.
20. Applicable Law. The substantive laws of the State of Texas,
excluding any law, rule or principle which might refer to the substantive law
of another jurisdiction, will govern the interpretation, validity and effect of
this Agreement without regard to the place of execution or the place for
performance thereof.
12
<PAGE> 13
21. Binding Upon Successors. This Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto and their
respective heirs, legal representatives, successors and permitted assigns.
22. Entire Agreement. This Agreement constitutes the entire
agreement between the Company and the Employee with respect to the terms of
employment of the Employee by the Company and supersedes all prior agreements
and understandings, whether written or oral, between them concerning such terms
of employment.
23. Waiver and Amendments; Cumulative Rights and Remedies.
(a) This Agreement may be amended, modified or
supplemented, and any obligation hereunder may be waived, only by a written
instrument executed by the parties hereto. The waiver by either party of a
breach of any provision of this Agreement shall not operate as a waiver of any
subsequent breach.
(b) No failure on the part of any party to exercise, and
no delay in exercising, any right or remedy hereunder shall operate as a waiver
hereof, nor shall any single or partial exercise of any such right or remedy by
such party preclude any other or further exercise thereof or the exercise of
any other right or remedy. All rights and remedies hereunder are cumulative
and are in addition to all other rights and remedies provided by law, agreement
or otherwise.
(c) The obligations of the parties hereto and such
parties' rights and remedies hereunder are in addition to all other obligations
of such parties, and all rights and remedies of such parties, created pursuant
to any other agreement.
24. Construction. Each party to this Agreement has had the
opportunity to review this Agreement with legal counsel. This Agreement shall
not be construed or interpreted against any party on the basis that such party
drafted or authored a particular provision, parts of or the entirety of this
Agreement.
25. Severability. In the event that any provision or provisions
of this Agreement is held to be invalid, illegal or unenforceable by any court
of law or otherwise, the remaining provisions of this Agreement shall
nevertheless continue to be valid, legal and enforceable as though the invalid
or unenforceable parts had not been included therein. In addition, in such
event the parties hereto shall negotiate in good faith to modify this Agreement
so as to effect the original intent of the parties as closely as possible with
respect to those provisions which were held to be invalid, illegal or
unenforceable.
13
<PAGE> 14
IN WITNESS WHEREOF, the Company and the Employee have executed this
Agreement under seal on the date first above written, to be effective as of
_______________, 199 .
BRIGHTSTAR INFORMATION TECHNOLOGY
GROUP, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
EMPLOYEE:
-----------------------------------------
14
<PAGE> 15
SCHEDULE A TO EMPLOYMENT AGREEMENT
----------------------------------
<TABLE>
<CAPTION>
Name Position Salary Effective Date
<S> <C> <C> <C>
Marshall G. Webb President and Chief Operating Officer $ 175,000.00 January 1, 1998
Michael Sooley Executive Vice President and Chief $ 150,000.00O October 1, 1997
Operating Officer
Daniel M. Cofall Executive Vice President and Chief $ 150,000.00 August 16, 1997
Financial Officer
Thomas Hudgins Executive Vice President of Sales and $ 150,000.00 January 1, 1998
Marketing and Secretary
</TABLE>
<PAGE> 1
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
(Alternate 1 - 3 years)
This Employment Agreement ("Agreement") is made as of __________,
1998, by and between B.R. BLACKMARR & ASSOCIATES, a Texas corporation, located
at Chateau Plaza, Suite 1700, 2515 McKinney Ave., LB-17, Dallas, Texas 75201
(the "Company"), and BRIAN R. BLACKMARR, an individual with an address of
Chateau Plaza, Suite 1700, 2515 McKinney Ave., LB-17, Dallas, Texas 75201 (the
"Employee").
1. Employment. The Company hereby agrees to employ the Employee and
the Employee hereby agrees to work for the Company under the terms and
conditions set forth herein. This Agreement supersedes and replaces any prior
employment agreement or other agreement between the parties dealing with the
subject matter hereof and such prior agreements, if any, are hereby terminated.
2. Term of Employment. The term of employment pursuant to this
Agreement shall begin on the date set forth above (the "Effective Date") and
shall continue in effect for an initial term of three (3) years from the date
set forth above unless terminated in accordance with Section 7, and shall be
extended from year to year thereafter, unless terminated effective as of the
end of the initial term or any one-year extension thereafter by written notice
from the Company to Employee, or by written notice of Employee to the Company,
delivered not less than sixty (60) days prior to the end of the initial term,
or the end of such one-year extension, as applicable.
3. Scope of Duties; Covenants.
(a) The Employee shall be employed by the Company in the
position set forth on Schedule A hereto and shall perform the duties as set
forth on Schedule A hereto. At all times, Employee shall serve under the
direction of the Board of Directors and the Chief Executive Officer of the
Company and shall perform such services and exercise such authority as is
customary for such position.
(b) So long as he is employed by the Company, Employee shall
devote his skill, energy and best efforts to the faithful discharge of his
duties as an employee of the Company. The Employee agrees that in the provision
of all services to the Company, he will comply with and follow the provisions
of this Agreement and all directives, policies, standards and regulations from
time to time established by the Board of Directors of the Company.
(c) Employee represents and warrants that Employee is under
no contractual or other restrictions or obligations which will significantly
limit the performance of Employee's obligations under this Agreement or which
will prohibit or limit the use by the Employee of any information which relates
to the business of the Company or the services to be rendered by the
1
<PAGE> 2
Employee under this Agreement (including, without limitation, any agreement
relating to any proprietary information, knowledge or data acquired by Employee
in confidence, trust or under other obligation prior to Employee's employment
by the Company). Employee covenants and agrees that Employee shall not disclose
to the Company, or induce the Company to use, any such proprietary information,
knowledge or data belonging to any previous employer or others. Employee
further covenants and agrees not to enter into any agreement or understanding,
either written or oral, in conflict with the provisions of this Agreement
during the term of this Agreement.
(d) To the extent they relate to, or result from, directly or
indirectly, the actual or anticipated operations of the Company, the Employee
hereby agrees that all Intellectual Property (defined below) developed,
purchased or acquired by the Company, shall be the exclusive property of the
Company, and unless otherwise agreed by the Company, all right, title and
interest therein shall remain in the Company.
(e) The Employee will hold all Intellectual Property and
Confidential Information (defined below) in trust for the Company and will
deliver all Intellectual Property and Confidential Information in his
possession or control to the Company upon request and, in any event, at the end
of his employment with the Company. During the term of his employment with the
Company, the Employee will promptly disclose to the Company all Confidential
Information that comes to Employee's attention which has not previously been
disclosed to the Company, as well as any business opportunity reasonably
related to the scope of business of the Company or an Assisted Affiliate as
described in Section 8, which comes to his attention. The Employee will not
take advantage of or divert from the Company any such business opportunity for
the benefit of himself or any other party without the prior written consent of
the Company.
4. Compensation.
(a) During the first year of the term of employment
hereunder, the Company shall pay the Employee a base salary, payable in equal
periodic installments in accordance with the Company's customary payroll
practices, not less frequently than semi-monthly, at an annual rate or rates
set forth on Schedule A attached hereto and incorporated by reference herein.
Schedule A may also set forth certain other compensation payable to Employee.
In each subsequent year of the term of employment, the Company shall pay to the
Employee a salary and any such other compensation determined by the Board of
Directors following its annual salary and performance review; provided,
however, that such salary and compensation shall not be less than the amount
determined in accordance with Schedule A.
(b) Employee shall receive an annual cash performance bonus
for each calendar year during the term of this Agreement to be determined
according to the following procedure except as may be otherwise mutually agreed
to between the Employee and the Company. The Board of Directors of the Company,
or the Compensation Committee of the Board of Directors, if so authorized,
shall establish specific annual performance goals for the Company and for
Employee with respect to each calendar year (or portion thereof) during the
term of this Agreement commencing on January 1, 1998. Such goals shall be
communicated to Employee not later than the end of the first quarter of the
applicable calendar year. At the end of each calendar year during the term of
this
2
<PAGE> 3
Agreement, or within a reasonable time thereafter, the Board of Directors of
the Company, or the Compensation Committee of the Board of Directors, if so
authorized, shall review the actual performance of the Company and Employee,
giving due consideration to market and other developments outside of the
control or influence of Employee and the Company, and based upon the extent to
which the applicable annual performance goals have been achieved, shall
determine in its sole and absolute discretion, the amount of performance bonus
payable to Employee with respect to such year.
(c) The Company shall also pay Employee a monthly automobile
allowance in the amount set forth on Schedule A attached hereto.
(d) All payments of salary and other compensation to the
Employee shall be made after deduction of any taxes which are required to be
withheld with respect thereto under applicable federal and state laws.
5. Vacation/Personal Time. Employee shall be entitled to leave for
vacation and personal time off as provided on Schedule A attached hereto and
incorporated by reference herein. Unused holidays and days for personal time
off and vacation may not be carried over from one fiscal year to another. The
aggregate number of days specified on Schedule A for vacation and personal time
off need not be taken by Employee in succession, but in any increments and at
any time during the year as approved by the Company. For purposes of this
Agreement, "personal time off" shall include time taken off by Employee on
account of illness, family emergency or death in the immediate family.
6. Fringe Benefits; Expenses. So long as the Employee is employed by
the Company, the Employee shall participate in any employee benefit plans
sponsored by the Company generally for its employees serving in similar
employment capacities as the Employee as determined from time to time by the
board of directors of the Company or any compensation committee of the board of
directors, if any, and on terms at least as favorable to Employee as are
generally offered to other employees of the Company serving in a similar
capacity. The Company shall also reimburse Employee for his reasonable travel
and other out-of-pocket business expenses incurred in connection with his
employment under this Agreement pursuant to expense reports filed in accordance
with the Company's policies in effect from time to time, provided that if
Employee receives an automobile allowance pursuant hereto, then Employee shall
not otherwise be reimbursed for automobile expenses under this provision,
except for out-of-town rental automobiles.
7. Termination.
(a) General. Employer and Employee agree that Employee's
employment hereunder may be terminated by the Employee resigning or by the
Company's declaration of termination with or without "Cause" at any time,
subject to the terms of this Section 7. Such termination shall be effective
upon delivery of written notice from the acting party to the other of its
election to terminate employment pursuant to this Section 7. "Cause" when used
in connection with the termination of employment with the Company, shall mean
the termination of the Employee's employment by the Company by reason of (i)
Employee's material breach of any of Sections 3, 7, 8,
3
<PAGE> 4
9, 10, 11 and 12 of this Agreement which breach, if curable, is not cured
within thirty (30) days of written notice to Employee of such breach; (ii) the
conviction of, or the entering of a guilty plea or no contest plea by, the
Employee for a crime involving moral turpitude by a court of competent
jurisdiction; (iii) the commission by the Employee of an act of fraud upon the
Company or any of its affiliates; (iv) the misappropriation of any funds or
property of the Company or any of its affiliates by the Employee; (v) the
failure by the Employee to perform material duties assigned to him pursuant to
Schedule A or otherwise assigned to and accepted by Employee, or to comply with
any written Company policy after reasonable written notice and opportunity to
cure such performance; (vi) the engagement by the Employee in any direct,
material conflict of interest with the Company or any of its Assisted
Affiliates without compliance with the Company's conflict of interest policy,
if any, then in effect; or (vii) the engagement in any activity which would
constitute a material violation of the provisions of the BrightStar Information
Technology Group, Inc. ("BrightStar") insider trading policy, if any, then in
effect.
(b) Termination for Cause or Resignation. If the Company
terminates the Employee's employment for Cause or the Employee voluntarily
resigns, the Company shall pay the Employee's base salary earned through the
date of termination (and any other earned but unpaid compensation and accrued
vacation time prior to termination), but all rights to any other compensation
or benefits arising hereunder, shall be canceled and terminated in all respects
concurrently with such termination of employment; provided that the Employee
may elect to continue to participate, at Employee's own expense, in such health
insurance and other benefits as to which the opportunity for continuing
participation is mandated by applicable laws.
(c) Termination Without Cause. In the event that the
Employee's employment is terminated by the Company without Cause other than at
the end of the initial term or one of the one year renewal terms of this
Agreement, the Company shall, subject to the terms of subsections 7.(e) and
7.(f) below, and only if and as long as Employee is not in breach of his
obligations under this Agreement, pay compensation to Employee in the manner
set forth below. Employee may not be terminated without Cause unless such
termination has been approved in writing by BrightStar. If the Employee is
terminated without Cause during the initial three-year term of this Agreement,
then the Company shall continue to pay to Employee his current base salary
provided for under this Agreement, plus any other earned and unpaid
compensation and accrued vacation time prior to termination, plus a per annum
amount of additional compensation based on prior earned bonuses and/or
commissions, if any, equal to the amount of earned bonuses or commissions of
Employee during the twelve complete calendar months immediately preceding the
date of termination ("Severance Payments"), in periodic payments in accordance
with its customary payroll practices for the period ending the later of (i) the
end of the initial three-year term of the Agreement or (ii) twelve months after
termination of employment. If the Employee is terminated without Cause during
any one-year extension of the initial term of the Agreement, then the Company
shall continue to pay to Employee Severance Payments in accordance with its
customary payroll practices for a period of twelve months after termination of
such employment. If the Employee is terminated by the Company without Cause,
the Company shall also continue to provide benefits in the kind and amounts
provided to its employees generally for up to twelve months following the date
of termination, including continuation of any Company-paid benefits provided
pursuant hereto, for the Employee and Employee's spouse and minor children,
provided such benefits will be subject to immediate
4
<PAGE> 5
termination to the extent Employee receives benefits under another similar
benefit plan. If the Company fails to make any of the payments required under
this Section 7.(c) when reasonably due, then any restrictions imposed by
Section 8 hereof against Employee competing with the Company shall immediately
lapse, but this shall not release the Company's obligation for Severance
Payments. Employee agrees that the above payments shall be a full settlement of
the Company's obligations to Employee hereunder in the event of a termination
without Cause.
(d) Termination Following Change of Control. In the event of
(i) the sale of all or substantially all of the assets of the Company, or (ii)
a merger, consolidation, liquidation or reorganization of the Company, in which
the Company or an affiliate of the Company is not the surviving entity, or
which results, in any event, in a change of control of the Company (each, a
"Change in Control Transaction"), the Company or the surviving entity, as the
case may be, may either (A) terminate Employee's employment hereunder and pay
to the Employee an amount equal to thirty-six months (36) compensation at
Employee's then current annual salary, payable not less frequently than
monthly, and continue to provide benefits in the kind and amounts provided to
its employees generally for such thirty-six (36) month period (collectively,
"Change of Control Compensation") or (B) adopt this Agreement; provided,
however, that if the Company or the surviving entity elects to adopt this
Agreement following a Change in Control Transaction and it shall subsequently
terminate Employee's term of employment without Cause, then it shall pay and
provide to Employee salary and benefits equal to the greater of (x) the salary
and benefits to be provided under Section 7.(c), and (y) the difference between
the salary and benefits provided to Employee pursuant to clause (A) above and
the aggregate amount of salary and benefits actually paid to Employee following
the Change in Control Transaction.
(e) Disability; Death. If at any time during the term of this
Agreement, Employee is unable, due to physical or mental disability, to perform
effectively his duties hereunder, the Company shall continue payment of
compensation as provided in Section 4 during the first six months of such
disability to the extent not covered by the Company's disability insurance
policies. Upon the expiration of such six month period, the Company, at its
sole option, may continue payment of Employee's salary for such additional
periods as the Company elects, or may terminate this Agreement without any
further obligations hereunder. If Employee should die during the term of this
Agreement, Employee's employment and the Company's obligations hereunder shall
terminate as of the end of the month in which Employee's death occurs and there
will be no salary and benefit continuation period. Employee shall be deemed to
have incurred a disability if Employee suffers a physical or mental condition
which (i) satisfies the definition of "total disability" in the Company's
disability insurance policies, or (ii) if no such policy or plan is then
covering Employee, in the reasonable judgment of the Board of Directors,
prevents Employee from engaging in any substantial gainful employment with the
Company for a period of more than six (6) months.
(f) Standstill Agreement; Lock-up Letters. So long as
Employee is employed by the Company or receives severance compensation as
provided above, Employee agrees that he will sign any reasonable securities
lock-up letters, standstill agreements, or other similar documentation required
by an underwriter in connection with a public offering of securities by
BrightStar or take other actions reasonably related thereto as requested by the
Board of Directors of the Company under similar terms and conditions as for
other management employees of the Company or BrightStar
5
<PAGE> 6
generally. Failure to take any such action shall be a "Cause" for termination
and shall cause Employee to forfeit any further rights to compensation or other
payments hereunder. In addition, Employee agrees that in such event the Company
can seek and obtain specific performance of such covenant, including any
injunction requiring execution thereof, and the Employee hereby appoints the
then current president of the Company to sign any such documents on his behalf
so long as such documents are prepared on the same basis as for other
management shareholders generally.
(g) Relocation or Material Change in Duties. If Employee's
employment is terminated because of Employee's refusal to relocate to another
office of the Company or to accept a material change in duties, such
termination shall not be deemed a termination for Cause or a termination
without Cause. In the event of such a termination, the Company shall continue
to pay to Employee his current base salary plus any other earned and unpaid
compensation and accrued vacation time prior to termination, plus a per annum
amount of additional compensation based on prior earned bonuses and/or
commissions, if any, equal to the amount of earned bonuses or commission of
Employee during the twelve complete calendar months immediately preceding the
date of termination, in customary periodic payments for twelve (12) months
after such termination; and the Company shall continue to provide benefits to
Employee the same as are available to its employees generally for up to twelve
(12) months after termination, provided that such benefits will be terminated
to the extent Employee receives benefits under another similar benefit plan.
8. Covenant Not to Compete.
(a) During Term of Employment. During Employee's term of
employment pursuant to this Agreement, Employee will not compete with the
Company or its affiliates, directly or indirectly, either for himself or as a
member of a partnership or a limited liability company or as a stockholder
(except as a stockholder of less than one percent (1 %) of the issued and
outstanding stock of a publicly-held company whose gross revenues exceed $100
million), investor, owner, officer or director of a company or other entity, or
as an employee, agent, trustee, manager, associate or consultant of any person,
partnership, corporation or other entity, in any business in competition with
that carried on by the Company or any of its affiliates. As of the date hereof,
the Company anticipates that it will engage principally in the business of
providing information technology services to a variety of industries, but the
provisions of this Section 8.(a) shall apply to any business in which the
Company or its affiliates are engaged during the term of Employee's employment.
(b) Restricted Periods. Section 8.(c) below restricts
Employee's ability to compete against the Company or it affiliates following
Employee's term of employment. For purposes of this Section 8, and in
particular Section 8.(c), if Employee voluntarily resigns his employment with
the Company, or is terminated by the Company for Cause, then the period for
which Employee cannot compete with the Company shall be the longer of (i) four
(4) years from the date hereof, or (ii) one (1) year after the termination of
employment ("Restricted Period For Cause"). If Employee is terminated by
Employer without Cause or pursuant to Section 7(d) above, then the period for
which Employee cannot compete with the Company or its affiliates (the
"Restricted Period Without Cause"), shall be based upon whether Employee was
terminated during the initial three-year term or during any extension thereof.
If Employee was terminated without Cause during the initial three-year term,
the Restricted Period Without Cause shall be the greater of (i) the remaining
months left of the initial
6
<PAGE> 7
three-year term, or (ii) until one (1) year after the termination of employment
without Cause. If Employee was terminated during any one (1) year extension of
the initial three-year term, the Restricted Period Without Cause shall be equal
to one (1) year after the termination of employment without Cause. If Employee
is terminated under the circumstances in Section 7(g) above, then the period
for which the Employee may not compete pursuant hereto shall be for one year
after the date of termination. If Employee is also a party to that certain
Agreement and Plan of Exchange dated December 18, 1997 among BrightStar
Information Technology Group, Inc. and the Shareholders of the Company (or its
predecessor) at that time and bound by certain non-competition provisions
contained therein, then any restricted non-compete periods under such agreement
are hereby modified so as to conform with the restricted periods contained in
this Section 8.(b).
(c) Following Term of Employment. Employee further agrees
that, during the Restricted Period For Cause or the Restricted Period Without
Cause or the restricted period if termination occurs under the circumstances in
Section 7(g), as applicable, Employee will not represent, engage in or carry
on, directly or indirectly, any business with any customer or client of the
Company (or any customer or client of an affiliate of the Company for which the
Employee has materially assisted such affiliate in serving such customer or
client ("Assisted Affiliate")) at the time of termination of employment, or any
business within 100 miles of the city or county limits of any city or county in
the United States or foreign countries where the Company or any Assisted
Affiliate has an office or in which the Company provides services which produce
Company revenues of an amount equal to 2% or more of the Company's revenues for
the twelve complete calendar months preceding the time of termination, which
business competes with any business, services or products produced, sold,
conducted, developed, or in the process of development by the Company or
jointly by the Company and an Assisted Affiliate during the term of Employee's
employment, including any business that involves the furnishing of information
technology services that are the type of services furnished by the Company,
either for himself, as a member or equity owner of a partnership or a limited
liability company, or as a shareholder (other than as a shareholder of less
than one percent (1%) of the issued and outstanding stock of a publicly-held
company whose gross revenues exceed $100 million), investor, owner, officer or
director of a company or other entity, or as an employee, agent, trustee,
manager, associate or consultant of any person, partnership, corporation or
other entity. As of the date hereof, the Company anticipates that it will
engage principally in the business of providing information technology services
to a variety of industries, but the provisions of this Section 8.(c) shall
apply to any business in which the Company is engaged at the termination of
Employee's employment.
(d) Employee Agrees to Limitations. Employee agrees that the
limitations set forth herein on his rights to compete with the Company and its
affiliates are reasonable and necessary for the protection of the Company and
its affiliates. In this regard, Employee specifically agrees that the
limitations as to period of time and geographic area, as well as all other
restrictions on his activities specified herein, are reasonable and necessary
for the protection of the Company and its affiliates. In particular, Employee
acknowledges that the parties anticipate that the Employee will be actively
seeking markets for the Company's products throughout the United States and in
other countries of the world during Employee's employment with the Company. In
the event that the provisions of this Agreement should ever be legally held to
exceed the scope of business, time or geographic limitations permitted by
applicable law, such provisions shall be and are hereby reformed to the maximum
scope of business, time or geographic limitations permitted by applicable law.
7
<PAGE> 8
(e) Affiliates. For purposes of this Agreement, an
"affiliate" of the Company is any person or entity that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, the Company.
(f) Specific Performance. Employee agrees that the remedy at
law for any breach by him of this Section 8 will be inadequate and that the
Company shall also be entitled to injunctive relief.
9. Confidential Information and Results of Services.
(a) Treatment of Confidential Information. Employee agrees
that during the term of this Agreement, and for five (5) years after his
termination of employment, he will not use or disclose, without the prior
consent of the Company, the Confidential Information (as hereinafter defined)
owned by or subject contractually to be safeguarded by the Company, or any of
its affiliates, and further agrees, that he will return to the Company all
written, printed, or other physical presentation or holding of materials in his
possession embodying such Confidential Information. Employee acknowledges that
any information and materials received by the Company from third parties in
confidence (or subject to non-disclosure or similar covenants) shall be deemed
to be and shall be Confidential Information within the meaning of this Section
9. As a material inducement to the Company to employ (or to continue to employ)
Employee and to pay to Employee compensation for such services to be rendered
to the Company by Employee (it being understood and agreed by the parties
hereto that such compensation shall also be paid and received in consideration
hereof), Employee covenants and agrees that Employee shall not, except with the
prior written consent of the Company, or unless Employee is acting as an
employee of the Company solely for the benefit of the Company in connection
with the Company's business and in accordance with the Company's business
practices and employee policies, at any time during or following the term of
Employee's employment by the Company, directly or indirectly, disclose,
divulge, reveal, report, publish, transfer or use, for any purpose whatsoever,
any of such information which has been obtained by or disclosed to Employee as
a result of Employee's employment by the Company.
(b) Definition of Confidential Information. For purposes of
this Agreement, "Confidential Information" includes information conveyed or
assigned to the Company by Employee or conceived, compiled, created, developed,
discovered or obtained by Employee from and during his employment relationship
with the Company, whether solely by the Employee or jointly with others, which
concerns the affairs of the Company or its affiliates and which the Company
could reasonably be expected to desire be held in confidence, or the disclosure
of which would likely be materially embarrassing, detrimental or
disadvantageous to the Company or its affiliates and without limiting the
generality of the foregoing includes information relating to inventions, and
the trade secrets, technologies, algorithms, products, services, systems,
programs (including, without limitation, the Company's computer software
programs), procedures, manuals, confidential reports and communications,
finances, business plans, marketing plans, legal affairs, supplier lists,
client lists, potential clients, business prospects, business opportunities,
personnel assignments, contracts and assets of the Company and information made
available to the Company by other parties under a confidential relationship.
Confidential Information, however, shall not include information (i) which is,
at the time in question, in the public domain through no wrongful act of
Employee, (ii) which is
8
<PAGE> 9
later disclosed to Employee by one not under obligations of confidentiality to
the Company or Employee, (iii) which the Company has expressly given Employee
the right to disclose pursuant to written agreement, or (iv) which is required
by court or governmental order, law or regulation to be disclosed; provided,
that Employee shall first have given prompt notice to the Company of any such
possible or prospective order (or proceeding pursuant to which any such order
may result) such that the Company shall have been afforded a reasonable
opportunity to prevent or limit any such disclosure. Employee agrees that the
remedy at law for any breach by him of this Section 9 will be inadequate and
that the Company shall also be entitled to injunctive relief.
10. Definition of Intellectual Property.
(a) For purposes of this Agreement, the term "Intellectual
Property" shall mean all of the information referred to in Section 9 hereof and
all of the following materials and information (whether or not reduced to
writing and whether or not patentable or protectible by copyright) which
Employee receives, receives access to, conceives or develops or has received,
received access to, conceived or developed, in whole or in part, directly or
indirectly, in connection with Employee's employment with the Company and any
assistance to affiliates of the Company and related to the Company's and its
affiliates scope of business (in any capacity, whether executive, managerial,
planning, technical, sales, research, development, manufacturing, engineering
or otherwise) or through the use of any of the Company's facilities or
resources:
(b) Discoveries, concepts, and ideas including, without
limitation, the nature and results of research and development activities,
processes, formulas, inventions, computer-related equipment or technology,
techniques, "know-how," designs, drawings and specifications;
(c) Production processes, marketing techniques and
arrangements, mailing lists, purchasing information, pricing policies, quoting
procedures, financial information, customer and prospect names and
requirements, employee, customer, supplier and distributor data and other
materials or information relating to the Company's business and activities and
the manner in which the Company does business;
(d) Applications, operating systems, data bases,
communications and other computer software, whether now or hereafter existing
and developed for use on any operating system, and all modifications,
enhancements and versions and all options available with respect thereto, and
all future products developed or derived therefrom;
(e) Source and object codes, flowcharts, algorithms, coding
sheets, routines, sub-routines, compilers, assemblers, design concepts and
related documentation and manuals;
(f) Any other materials or information related to the
business or activities of the Company which are not generally known to others
engaged in similar businesses or activities; and
(g) Patents, trademarks, copyrights, trade secrets, all
inventions, whether or not patentable, and any product, drawing, design,
recording, computer software program, writing, literary
9
<PAGE> 10
work or other author's work, in any other tangible form developed in whole or
in part by Employee during the term of this Agreement;
(h) All ideas, inventions, techniques, modifications,
processes, or improvements which are derived from or relate to Employee's
access to or knowledge of any of the above enumerated materials and
information, or which are created, conceived, developed, purchased or acquired
by Employee, either solely or in conjunction with others, during the term of
Employee's employment with the Company which relate to, or are useful in, the
business being conducted or proposed to be conducted by the Company or its
affiliates, and any such item created by the Employee, either solely or in
conjunction with others, following termination of the Employee's employment
with the Company, that is based upon or uses Intellectual Property.
(i) Failure to mark any of the Intellectual Property as
confidential, proprietary or Intellectual Property shall not affect its status
as part of the Intellectual Property under the terms of this Agreement.
(j) For purposes of this Agreement, the term "Intellectual
Property" shall not apply to any ideas, inventions, techniques, modifications,
processes, or improvements for which no equipment, supplies, facility or
Intellectual Property of the Company was used, which was developed entirely on
Employee's own time, and which does not (i) relate to the business of the
Company, (ii) relate to the Company's actual or demonstrably anticipated
research or development or (iii) result from any work performed by Employee for
the Company.
11. Ownership of Information.
(a) Employee covenants and agrees that all right, title and
interest in any Intellectual Property shall be and shall remain the exclusive
property of the Company. Employee agrees immediately to disclose to the Company
all Intellectual Property developed in whole or in part by Employee during the
term of Employee's employment with the Company and to assign to the Company any
right, title or interest Employee may have in such Intellectual Property.
Employee agrees to execute any instruments and to do all other things
reasonably requested by the Company (both during and after Employee's
employment with the Company) in order to vest more fully in the Company all
ownership rights in those items transferred by Employee to the Company;
(b) Employee will not contest the validity of any invention,
any copyright, any trademark or any mask work registration owned by or vesting
in the Company under this Agreement;
(c) Employee will execute, acknowledge, and deliver to the
Company such applications, assignments (including patent applications and
assignments), and other documents as the Company may request in order to apply
for and obtain patents or other registrations with respect to any Intellectual
Property in the United States and any foreign jurisdictions;
(d) Employee will sign all other papers necessary to carry
out the above obligations; and
10
<PAGE> 11
(e) Employee will give testimony and render any other
assistance but without expense to the Employee in support of the Company's
rights to any Intellectual Property.
(f) If any one or more of the foregoing items are protectible
by copyright and are deemed in any way to fall within the definition of "work
made for hire," as such term is defined in 17 U.S.C. ss. 101, such work shall
be considered a "work made for hire," the copyright of which shall be owned
solely, completely and exclusively by the Company. If any one or more of the
aforementioned items are protectible by copyright and are not considered to be
included in the categories of works covered by the "work made for hire"
definition contained in 17 U.S.C. ss. 101, such items shall be deemed to be
assigned and transferred completely and exclusively to the Company by virtue of
the execution of this Agreement.
12. Covenants Not to Hire Employees. It is recognized and understood
by the parties hereto that the employees of the Company are an integral part of
the Company's business and that it is extremely important for the Company to
use its maximum efforts to prevent the Company from losing employees. It is
therefore understood and agreed by the parties hereto that, because of the
nature of the business of the Company, it is necessary to afford fair
protection to the Company from the loss of any such employees. Consequently, as
a material inducement to the Company to employ (or continue to employ)
Employee, Employee covenants and agrees that, for the period commencing on the
date of Employee's termination of employment for any reason whatsoever and
ending two (2) years after Employee's termination of employment with the
Company, Employee shall not, directly or indirectly, hire or engage or attempt
to hire or engage any individual who shall have been an employee of the Company
at any time during the one (1) year period prior to the date of Employee's
termination of employment with the Company, whether for or on behalf of
Employee or for any entity in which Employee shall have a direct or indirect
interest (or any subsidiary or affiliate of any such entity), whether as a
proprietor, partner, co-venturer, financier, investor or stockholder, director,
officer, employer, employee, servant, agent, representative or otherwise. If
Employee violates this Section 12, Employee agrees that, as part of the damages
recoverable by the Company, Employee shall pay to the Company a liquidated
damages amount equal to the compensation of the employee of the Company
solicited away from employment with the Company by Employee for the twelve
months preceding the date of said employee's termination from the Company.
13. Injunctive Relief. Employee understands and agrees that the
Company shall suffer irreparable harm in the event that Employee breaches any
of Employee's obligations under this Agreement and that monetary damages shall
be inadequate to compensate the Company for such breach. Accordingly, Employee
agrees that, in the event of a breach or threatened breach by Employee of any
of the provisions of this Agreement, the Company, in addition to and not in
limitation of any other rights, remedies or damages available to the Company at
law or in equity, shall be entitled to a temporary restraining order,
preliminary injunction and permanent injunction in order to prevent or to
restrain any such breach by Employee, or by any or all of Employee's partners,
co-venturers, employers, employees, servants, agents, representatives and any
and all persons directly or indirectly acting for, on behalf of or with
Employee.
14. Materials. All notes, data, tapes, reference items, sketches,
drawings, memoranda, records and other materials in any way relating to any of
the Confidential Information or Intellectual
11
<PAGE> 12
Property or to the Company's business shall belong exclusively to the Company
and Employee agrees to turn over to the Company all copies of such materials in
Employee's possession or under Employee's control at the request of the Company
or, in the absence of such a request, upon the termination of Employee's
employment with the Company.
15. Remedies. Employee covenants and agrees that, if Employee shall
violate any of Employee's covenants or agreements under this Agreement, the
Company shall be entitled to an accounting and repayment from Employee of all
profits, compensation, royalties, commissions, remunerations or other payments
(collectively "Payments") which Employee realizes as a result of the violative
actions. Employee shall also reimburse the Company for all reasonable costs and
expenses (including reasonable attorneys fees) incurred in pursuing its rights
hereunder if Employee has violated this Agreement. Such remedy shall be in
addition to and not in limitation of any injunctive relief or other rights or
remedies to which the Company is or may be entitled at law or in equity or
otherwise under this Agreement, provided that recovery of any Payments shall be
reduced by the amount of any compensatory damages otherwise recovered.
16. Employee's Status. Except as expressly provided by terms of this
Agreement, nothing in this Agreement shall be construed as constituting a
commitment, guarantee, agreement or understanding of any kind or nature that
the Company shall continue to employ Employee, nor shall this Agreement affect
in any way the right of the Company to terminate the employment of Employee at
any time and for any reason whatsoever. No change of Employee's duties as an
employee of the Company shall result in, or be deemed to be, a modification of
the terms of this Agreement.
17. Notice. All notices, requests, demands and other communications
required by or permitted under this Agreement shall be in writing and shall be
sufficiently delivered if delivered by hand, by courier service, or sent by
registered or certified mail, postage prepaid, to the parties at their
respective addresses listed below:
(a) If to the Employee, to the address set out in the
beginning of this Agreement;
(b) If to the Company:
B.R. Blackmarr & Associates
2515 McKinney Avenue, LB-17
Dallas, Texas 75201
(c) With a copy to:
BrightStar Information Technology Group, Inc.
10375 Richmond Avenue, Suite 1620
Houston, Texas 77042
Either party may change such party's address by such notice
to the other parties.
12
<PAGE> 13
18. Assignment. This Agreement is personal to the Employee, and he
shall not assign any of his rights or delegate any of his duties hereunder
without the prior written consent of the Company. Neither the employee nor his
spouse will have the right to commute, encumber, or otherwise dispose of any
prospective payments under this Agreement. The Company shall have the right to
assign this Agreement to a successor in interest in connection with a merger,
sale of substantially all assets, or the like; provided however, that an
assignment of this Agreement to an entity with operations, products or services
outside of the industries in which the Company is then active shall not be
deemed to expand the scope of Employee's covenant not to compete with such
operations, products or services without Employee's written consent.
19. Survival. The provisions of Sections 7 through 15 of this
Agreement shall survive the termination of the Employee's employment hereunder
in accordance with their terms, provided that all provisions of this Agreement
shall terminate five years after termination of employment (if not already
expired in accordance with their specific time of applicability) except with
respect to the resolution of any claims asserted prior to such termination.
20. Applicable Law. The substantive laws of the State of Texas,
excluding any law, rule or principle which might refer to the substantive law
of another jurisdiction, will govern the interpretation, validity and effect of
this Agreement without regard to the place of execution or the place for
performance thereof.
21. Binding Upon Successors. This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective heirs,
legal representatives, successors and permitted assigns.
22. Entire Agreement. This Agreement constitutes the entire agreement
between the Company and the Employee with respect to the terms of employment of
the Employee by the Company and supersedes all prior agreements and
understandings, whether written or oral, between them concerning such terms of
employment.
23. Waiver and Amendments; Cumulative Rights and Remedies.
(a) This Agreement may be amended, modified or supplemented,
and any obligation hereunder may be waived, only by a written instrument
executed by the parties hereto. The waiver by either party of a breach of any
provision of this Agreement shall not operate as a waiver of any subsequent
breach.
(b) No failure on the part of any party to exercise, and no
delay in exercising, any right or remedy hereunder shall operate as a waiver
hereof, nor shall any single or partial exercise of any such right or remedy by
such party preclude any other or further exercise thereof or the exercise of
any other right or remedy. All rights and remedies hereunder are cumulative and
are in addition to all other rights and remedies provided by law, agreement or
otherwise.
13
<PAGE> 14
(c) The obligations of the parties hereto and such parties'
rights and remedies hereunder are in addition to all other obligations of such
parties, and all rights and remedies of such parties, created pursuant to any
other agreement.
24. Construction. Each party to this Agreement has had the opportunity
to review this Agreement with legal counsel. This Agreement shall not be
construed or interpreted against any party on the basis that such party drafted
or authored a particular provision, parts of or the entirety of this Agreement.
25. Severability. In the event that any provision or provisions of
this Agreement is held to be invalid, illegal or unenforceable by any court of
law or otherwise, the remaining provisions of this Agreement shall nevertheless
continue to be valid, legal and enforceable as though the invalid or
unenforceable parts had not been included therein. In addition, in such event
the parties hereto shall negotiate in good faith to modify this Agreement so as
to effect the original intent of the parties as closely as possible with
respect to those provisions which were held to be invalid, illegal or
unenforceable.
IN WITNESS WHEREOF, the Company and the Employee have executed this
Agreement under seal on the date first above written, to be effective as of
_______________, 1998.
COMPANY:
B. R. BLACKMARR & ASSOCIATES
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
EMPLOYEE:
---------------------------------------
Brian R. Blackmarr
14
<PAGE> 15
SCHEDULE A TO EMPLOYMENT AGREEMENT
BRIAN R. BLACKMARR
26. DUTIES: President, Chairman and CEO
Corporate level management including final decisions
and approvals regarding
- Financial arrangements and taxes
- Contractual and lease obligations
- Legal proceedings and registrations
- Senior personnel
- Product and service lines
- Marketing programs
- Sales and marketing support (Top Level)
- Management of direct reports*
27. SALARY PROVISIONS: $225,000 annual salary plus bonus arrangements per
attached letter dated September 28, 1997 from Brian R.
Blackmarr to Pat Quinn
28. MONTHLY AUTOMOBILE ALLOWANCE: $500.00
29. ANNUAL NUMBER OF VACATION DAYS: 20
30. ANNUAL NUMBER OF DAYS FOR PERSONAL TIME OFF: 10
* Note: Direct reports to B.R. Blackmarr include:
- Rob Rowe; C.O.O. and E.V.P. Professional Services
- Mark Hall; Supervisor of Sales
- Pat Quinn; C.E.O. and V.P. Finance and Administration
- Christopher Patterson; V.P. Training and Education
- Lori Moody; V.P. BRBA Products (CMS)
- David Redwine Director of Internal Services
- Jennifer Wiggins; Director of Marketing
- Chris Rathman; Manager Products (REGEN/IT)
15
<PAGE> 16
Schedule B Chateau Plaza, Suite 1700
Brian R. Blackmarr 2515 McKinney Avenue, LB-17
Dallas, Texas 75201
214/922-9030
FAX 214/922-8118
B. R. BLACKMARR & ASSOCIATES
________________ CONSULTANTS
September 28, 1997
Mr. Pat Quinn
B. R. Blackmarr & Associates
2515 McKinney Avenue, LB-17
Dallas, Texas 75201
Dear Pat:
The following is to be my personal compensation plan for 1998 and is to go into
effect as of October 1, 1997, and extend through September 30, 1998.
1. SALARY: My salary will be $225,000.
2. I will be eligible for a 1% sales commission on all work sold and
contracted by BRBA where I am the lead technical sales person (working
closely with a regular BRBA sales department employee). This is
expected to be in effect primarily for large and complex project work
(not T & M). This commission will be based on invoiced amounts and all
project work must be sold in a regularly profitable manner after all
sales commissions and project acquisition costs.
3. EXCEEDING MANAGED PROFIT CONTRIBUTION TARGET BONUS: I will receive a
monthly bonus of 2.5% of all profit contributions in excess of the
targeted amounts of the approved BRBA annual budgets for those areas
which I directly control. These bonus calculations will apply to BRBA
products, the BRBA Executive Group International Group, BRA Products
and BRBA Training Division budgets. This bonus is to be paid quarterly
within thirty (30) days of month end closing.
4. YEAR END BRBA PROFIT BASED BONUS: I will receive a pre-tax profit
based bonus of 2.5% of BRBA profits above the $1.75 million annual
target planned for 1998. This bonus is to be calculated and paid
thirty (30) days of year end closing.
CONFIDENTIAL
CARACAS, VENEZUELA - LONDON, ENGLAND - MEXICO CITY, MEXICO
16
<PAGE> 17
5. YEAR END BRBA GROWTH GOAL BONUS: This is a one-time annual bonus of
$40,000 to be paid if the total 1998 invoiced revenue of BRBA exceeds
$23.5 million. This will be paid within thirty (30) days of year end
closing.
These compensation plans are almost identical to those of 1997. Please let me
know if you have any questions.
Cordially,
\s\ Brian R. Blackmarr
Brian R. Blackmarr
President
BRB/jr
CONFIDENTIAL
B. R. BLACKMARR & ASSOCIATES
<PAGE> 1
LOAN AGREEMENT
Date: Effective as of October 16, 1997
Borrower: BIT GROUP SERVICES, INC.
a Delaware corporation
12011 Surrey Lane
Houston, Texas 77024
Lender: BIT INVESTORS, LLC
a Texas limited liability company
12011 Surrey Lane
Houston, Texas 77024
This Loan Agreement (the "Agreement") is made on the above date by and
between Borrower and Lender, each as identified above.
1. THE LOAN.
A. Lender agrees to make line of credit loans to the Borrower,
including the renewal, extension and modification of loans
outstanding on the date hereof in the aggregate principal
amount of ONE HUNDRED TWENTY-NINE THOUSAND SEVEN HUNDRED
NINETY-SIX AND EIGHTY-FOUR HUNDREDTHS DOLLARS ($129,796.84 ),
together with such amounts as the Borrower may request from
time to time up to the maximum amount hereinafter stated, and
the Borrower may make borrowings and prepayments and
reborrowings in respect thereof; provided, however, that the
aggregate principal amount of all such loans at any one time
outstanding shall not exceed the sum of ONE MILLION, EIGHT
HUNDRED THOUSAND DOLLARS ($1,800,000.00) (the "Loan") on the
terms and conditions set forth herein. The Loan will be
evidenced by Borrower's promissory note or notes in the form
or forms attached hereto as Exhibit "A" or any renewal thereof
with interest and principal payable as stated therein (the
"Note").
B. The final maturity date of the Loan will be the earlier of
June 1, 1998 or thirty days following the successful
completion of Borrower's proposed IPO. For the purposes of
this Agreement, the term "IPO" shall mean any underwritten
public offering of the Company's common stock other than any
offering pursuant to any registration statement (i) relating
to any capital stock of the Company or options, warrants or
other rights to acquire any such capital stock issued or to be
issued primarily to directors, officers or employees of the
Company, or any of its subsidiaries (ii) relating to any
employee benefit plan or interest therein, (iii) relating
principally to any preferred stock or debt securities of the
Company, or (iv) filed pursuant to Rule 145 under the
Securities Act of 1933, as amended, or any successor or
similar provisions.
<PAGE> 2
2. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to
Lender as follows:
A. GOOD STANDING. Borrower is a corporation, duly organized and
in good standing, under the laws of Delaware and has the power
to own its property and to carry on its business in each
jurisdiction in which the Borrower operates.
B. AUTHORITY AND COMPLIANCE. Borrower has full power and
authority to enter into this Agreement, to make the borrowing
hereunder, to execute and deliver the Note and to incur the
obligations provided for herein, all of which has been duly
authorized by all proper and necessary action. No consent or
approval by any stockholder or public authority is required as
a condition to the validity of this Agreement or the Note (or
if required, has been obtained), and Borrower is in compliance
with all laws and regulatory requirements to which it is
subject.
C. BINDING AGREEMENT. This Agreement constitutes, and the Note
when issued and delivered pursuant hereto for value received
will constitute, valid and legally binding obligations of
Borrower enforceable in accordance with their respective
terms.
D. NO CONFLICTING AGREEMENTS. There are no charter, bylaw or
stock provisions of Borrower and no provisions of any existing
agreement, mortgage, indenture or contract binding on Borrower
or affecting its property, which would conflict with or in any
way prevent the execution, delivery or carrying out of the
terms of this Agreement and the Note.
E. OWNERSHIP OF ASSETS. Borrower has good title to all of the
tangible and intangible personalty and realty used in its
business operations and such property is owned free and clear
of any liens, encumbrances, or adverse claims of any type or
nature. Borrower will at all times maintain its tangible
property, real and personal, in good order and repair, taking
into consideration reasonable wear and tear.
F. TAXES. All taxes and assessments due and payable by Borrower
have been paid or are being contested in good faith by
appropriate proceedings and the Borrower has filed all tax
returns which it is required to file.
G. FINANCIAL STATEMENTS. The financial statements of Borrower
heretofore delivered to Lender have been prepared in
accordance with GAAP applied on a consistent basis throughout
the period involved and fairly present Borrower's financial
condition as of the date or dates thereof, and there has been
no material adverse change in Borrower's financial condition
or operations since the dates thereof. To the best of
Borrower's knowledge, all factual information furnished by
Borrower to Lender in connection with this Agreement and the
other Loan Documents is and will be accurate and complete on
the date as of which such information is delivered to
Loan Agreement/Page 2 of 8
<PAGE> 3
Lender and is not and will not be incomplete by the omission
of any material fact necessary to make such information not
misleading.
3. AFFIRMATIVE COVENANTS. So long as Borrower may borrow hereunder and
until payment in full of the Note and performance of all other
obligations of Borrower hereunder, Borrower will:
A. FINANCIAL RECORDKEEPING. Maintain a system of accounting that
is substantively reasonable and customary for a company such
as borrower and in accordance with generally accepted
accounting principles consistently applied, and will permit
Lender's officers or authorized representatives to visit and
inspect Borrower's books of account and other records at such
reasonable times and as often as Lender may desire, and will
pay the reasonable fees and disbursements of any accountants
or other agents of Lender selected by Lender for the foregoing
purposes; and unless written notice of another location is
given to Lender, Borrower's books and records will be located
at the address set forth on the first page of this Agreement.
B. FINANCIAL AND OTHER REPORTING.
(1) Furnish to Lender year-end financial statements to
include a balance sheet, operating statement and
surplus reconciliation, together with an officer's
certificate of compliance with this Agreement
including computations of all quantitative covenants,
within 90 days after the end of each annual
accounting period.
(2) Furnish to Lender quarterly financial statements, to
include a balance sheet and profit and loss
statement, together with an officer's certificate of
compliance with this Agreement including computations
of all quantitative covenants, within 30 days of the
end of each quarterly accounting period.
(3) Promptly provide Lender with such additional
information, reports or statements respecting its
business operations and financial condition as Lender
may reasonably request from time to time.
C. INSURANCE. Maintain insurance with responsible insurance
companies on such of its properties, in such amounts and
against such risks as is customarily maintained by similar
businesses operating in the same vicinity, specifically to
include a policy of fire and extended coverage insurance
covering all assets, business interruption insurance and
liability insurance, all to be with such companies and in such
amounts satisfactory to Lender and to contain a mortgagee
clause naming Lender as its interest may appear; and evidence
of such insurance will be supplied to Lender.
Loan Agreement/Page 3 of 8
<PAGE> 4
D. EXISTENCE AND COMPLIANCE WITH LAWS. As appropriate, maintain
its existence in good standing and comply with all laws,
regulations and governmental requirements applicable to it or
to any of its property, business operations and transactions.
E. ADVERSE CONDITIONS OR EVENTS. Promptly advise Lender in
writing of (i) any condition, event or act which comes to its
attention that would or might materially adversely affect
Borrower's financial condition or operations, or Lender's
rights under the Loan Documents, (ii) any litigation filed by
or against Borrower, (iii) any event that has occurred that
would constitute an event of default under any Loan Documents
and (iv) any uninsured or partially uninsured loss through
fire, theft, liability or property damage in excess of an
aggregate of $10,000.
F. TAXES. Pay all of its taxes, assessments and other
obligations, including, but not limited to taxes, costs or
other expenses arising out of this transaction, as the same
become due and payable, except to the extent the same are
being contested in good faith by appropriate proceedings in a
diligent manner.
G. MAINTENANCE. Maintain all of its tangible property in good
condition and repair and make all necessary replacements
thereof, and preserve and maintain all licenses, privileges,
franchises, certificates and the like necessary for the
operation of its business.
4. NEGATIVE COVENANTS. So long as Borrower may borrow hereunder and
until payment in full of the Note and performance of all other
obligations of Borrower hereunder, Borrower will not, without the
prior written consent of Lender:
A. TRANSFER OF ASSETS OR CONTROL. Sell, lease, assign or
otherwise dispose of all or substantially all of the assets or
properties of Borrower, or enter into any merger,
consolidation, or other business combination, unless Borrower
is the surviving corporation.
B. LIENS. Knowingly grant, suffer or permit liens on or security
interests in any Borrower's assets, or fail to promptly pay
all lawful claims, whether for labor, materials or otherwise,
other than liens with respect to assets of Borrower's
subsidiaries.
C. LOANS. Make any loans, advances or investments to or in any
joint venture, corporation or other entity, except for the
purchase of obligations of Lender or U.S. Government
obligations, and loans, advances or investments to or in
subsidiaries of Borrower.
D. BORROWINGS. Create, incur, assume or become liable in any
manner for any indebtedness (for borrowed money, deferred
payment for the purchase of assets, lease
Loan Agreement/Page 4 of 8
<PAGE> 5
payments, as surety or guarantor for the debt of another, or
otherwise) other than to Lender, except for indebtedness with
a maturity of less than one year and normal trade debts
incurred in the ordinary course of Borrower's business.
E. CHARACTER OF BUSINESS. Change the general character of
business as conducted at the date hereof, or engage in any
type of business not reasonably related to its business as
presently and normally conducted.
F. VIOLATE OTHER COVENANTS. Violate or fail to comply with any
covenants or agreements regarding other debt which will or
would with the passage of time or upon demand cause the
maturity of any other debt to be accelerated.
5. EVENTS OF DEFAULT. If one or more of the following events of default
shall occur, all outstanding principal plus unpaid interest of the
Loan and any other indebtedness of Borrower to Lender shall, at the
option of Lender, be due and payable immediately and Lender shall have
no further obligation to fund under this Agreement or the Note:
A. Default shall be made in the payment of any installment of
principal or interest upon the Note or any other obligation of
Borrower to Lender when due and payable, whether at maturity
or otherwise; or
B. Default shall be made in the performance of any term, covenant
or agreement contained herein or in any deed of trust,
security agreement, mortgage, assignment, guaranty or other
contract or agreement evidencing, executed in connection with
or securing payment or any indebtedness of Borrower to Lender;
or
C. Any representation or warranty herein contained or in any
financial statement, certificate, report or opinion submitted
to Lender in connection with the Loan or pursuant to the
requirements of this Agreement shall prove to have been
incorrect or misleading in any material respect when made; or
D. Any judgment against Borrower or any attachment or other levy
against the property of Borrower with respect to a claim
remains unpaid on appeal, undischarged, not bonded or not
dismissed for a period of 30 days; or
E. Borrower makes an assignment for the benefit of creditors,
admits in writing its inability to pay its debts generally as
they become due, files a petition in bankruptcy, is
adjudicated insolvent or bankrupt, petitions or applies to any
tribunal for any receiver or any trustee of Borrower or any
substantial part of its property, commences any action
relating to Borrower under any reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statue
of any jurisdiction, whether now or hereafter in effect, or if
there is commenced against Borrower any such action, or
Borrower by any act indicates its consent to or approval of
any trustee for Borrower
Loan Agreement/Page 5 of 8
<PAGE> 6
of any substantial part of its property, or suffers any such
receivership or trustee to continue undischarged;
then upon the happening of any of the foregoing events of default which shall
be continuing, the Note shall become and be immediately due and payable upon
declaration to that effect by Lender.
6. MISCELLANEOUS.
A. DEFINITIONS. In addition to any other terms defined herein,
the term, "Loan Documents", means this Loan Agreement and any
and all promissory notes executed by Borrower in favor of
Lender and all other documents, instruments, guarantees,
certificates and agreements executed and/or delivered by
Borrower, any guarantor or third party in connection with any
Loan.
B. EXPENSES. Borrower shall pay to Lender immediately upon
demand the full amount of all costs and expenses, including
reasonable attorneys' fees (to include outside counsel fees
and all allocated costs of Lender's in-house counsel if
permitted by applicable law), incurred by Lender in connection
with (a) negotiation and preparation of this Agreement and
each of the Loan Documents, and (b) Lender's continued
administration thereof. Borrower also agrees to pay all
out-of-pocket expenses of Lender in connection with the
collection of the Note.
C. DOCUMENTS. All documents, certificates and other items
required under this Loan Agreement to be executed and/or
delivered to Lender shall be in form and content satisfactory
to Lender and its counsel.
D. CUMULATIVE RIGHTS AND WAIVERS. Each and every right granted
to Lender hereunder or under any other document delivered
hereunder or in connection herewith, or allowed it by law or
equity shall be cumulative of, and may be exercised in
addition to, any and all other rights of Lender, and no delay
in exercising any right shall operate as a waiver thereof, or
shall any single or partial exercise by Lender of any right
preclude any other or future exercise thereof or the exercise
of any other right. Any of the foregoing covenants and
agreements may be waived by lender but only in writing signed
by a Vice President or higher level officer of Lender.
Borrower expressly waives any presentment, demand, protest or
other notice of any kind. No notice to or demand on Borrower
in any case shall, of itself, entitle Borrower to any other or
further notice of demand in similar or other circumstances.
No delay or omission by Lender in exercising any power or
right hereunder shall impair any such right or power or be
construed as a waiver thereof or any acquiescence therein, nor
shall any single or partial exercise of any such power
preclude other or further exercise thereof, or the exercise of
any other right or power hereunder.
Loan Agreement/Page 6 of 8
<PAGE> 7
E. INDEMNIFICATION. The Borrower agrees to indemnify, defend and
hold Lender harmless from and against any and all loss,
liability, obligation, damage, penalty, judgment, claim,
deficiency and expense (including interest, penalties,
attorneys' fees and amounts paid in settlement) to which the
Lender may become subject arising out of or based upon the
Loan Documents, or any Loan, including that resulting from
Lender's own negligence, except and to the extent caused by
Lender's gross negligence or willful misconduct. The
Borrower's obligations under this paragraph shall survive the
repayment of the Loan.
F. ASSURANCES. Borrower agrees to promptly execute and deliver
any and all further agreements, documents, instruments, and
other writings that Lender may request to cure any defect in
the execution and delivery of any Loan Document or more fully
to describe particular aspects of the agreements set forth or
intended to be set forth in the Loan Documents.
G. NOTICES. All notices required under the Loan Documents shall
be in writing and either delivered against receipt therefor,
or mailed by registered or certified mail, return receipt
requested, in each case addressed to the address shown on the
first page of this Agreement or to such other address as
either Borrower or Lender may designate. Notices shall be
deemed to have been given (whether actually received or not)
when delivered (or, if mailed, on the next Business Day).
H. APPLICABLE LAW. This Agreement and the rights and obligations
of the parties hereunder shall be governed by and interpreted
in accordance with the laws of the State of Texas.
I. AMENDMENT. No modification, consent, amendment or wavier of
any provision of this Agreement, nor consent to any departure
by Borrower therefrom, shall be effective unless the same
shall be in writing and signed by an authorized officer of
Lender, and then shall be effective only in the specific
instance and for the purpose for which given. This Agreement
is binding upon Borrower, its successors and assigns, and
inures to be benefit of Lender, its successors and assigns.
J. MULTIPLE COUNTERPARTS. This Agreement may be executed in one
or more counterparts, and each counterpart when so executed
and delivered shall constitute an original hereof, but all
such separate counterparts shall constitute one and the same
instrument.
K. SEVERABILITY OF PROVISIONS. In case one or more provisions of
this Agreement shall be invalid, illegal or unenforceable in
any respect under applicable law, the validity, legality and
enforceability of the remaining provisions contained herein
shall not be affected or impaired.
Loan Agreement/Page 7 of 8
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
BIT GROUP SERVICES, INC. BIT INVESTORS, LLC
By: /s/ MARSHALL G. WEBB By: /s/ THOMAS A. HUDGINS
----------------------------- ----------------------------------
Marshall G. Webb Thomas A. Hudgins
President Manager
Loan Agreement/Page 8 of 8
<PAGE> 9
EXHIBIT "A"
Form of Promissory Note
<PAGE> 10
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR UNDER ANY STATE SECURITIES OR BLUE SKY
LAWS (COLLECTIVELY, THE "ACTS"), AND NO SUCH REGISTRATION IS CONTEMPLATED. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL. IN THE ABSENCE OF ANY EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACTS, THIS PROMISSORY NOTE MAY NOT BE OFFERED,
SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF SUCH ACTS.
REVOLVING CREDIT NOTE NOT UNDER
CHAPTER 15
$1,800,000 Houston, Texas October 16, 1997
BIT GROUP SERVICES, INC.("Borrower"), for value received, promises to
pay to the order of BIT INVESTORS, L.L.C. (hereinafter called "Lender"), on or
before the earlier to occur of (i) June 1, 1998, or (ii) 30 days following the
successful completion of Borrower's proposed IPO as defined in the Loan
Agreement as referenced below, at its main business office in Houston, Texas,
in lawful money of the United States of America, ONE HUNDRED TWENTY-NINE
THOUSAND SEVEN HUNDRED NINETY-SIX AND EIGHTY-FOUR HUNDREDTHS DOLLARS
($129,796.84), being the outstanding principal balance owing to Lender by
Borrower as of the date hereof, together with such sums as the holder hereof
may loan or advance to or for the benefit of Borrower on or after the date
hereof in accordance with the terms hereof, together with interest on the
unpaid principal balance outstanding from time to time hereon computed from the
date of each advance until maturity at the rate of ten percent (10%) per annum.
Interest shall be calculated on a per annum basis of 360 days unless such
calculation would result in a usurious rate, in which event, interest shall be
calculated on a full calendar year basis.
THE UNPAID principal balance hereof shall, including the principal
amount outstanding as of the date hereof, shall at no time exceed the sum of
ONE MILLION EIGHT HUNDRED THOUSAND DOLLARS ($1,800,000).
INTEREST on this note is payable in installments of accrued interest
which shall be due and payable quarterly so long as any principal of this note
is unpaid, commencing on the 1st day of June, 1998, and thereafter on the same
day of each consecutive September, December, March and June during the term
hereof and at maturity.
Page 1 of 5 page Promissory Note
<PAGE> 11
IF ANY PAYMENT of principal or interest on this note shall become due
on a Saturday, Sunday, or public holiday under the laws of the State of Texas,
such payment shall be made on the next succeeding business day of Lender,
unless the effect of such extension would be to carry the payment over to the
next calendar month, in which event such payment shall be due on the preceding
business day of Lender, and any such extension or reduction of time shall in
such case be included in computing interest in connection with such payment.
PAYMENT of this note before maturity may be made at any time or from
time to time, in whole or in part, without penalty or premium. Any such
payment shall be applied first to accrued interest and secondly to principal.
THE UNPAID PRINCIPAL BALANCE of this note at any time shall be the
total amounts lent or advanced hereunder by the holder hereof, less the amount
of payments or prepayments of principal made hereon by or for the account of
Borrower. Borrower may borrow, repay and reborrow funds under this revolving
promissory note and there is no limit on the number of advances against this
note so long as the total unpaid principal at any time outstanding does not
exceed face amount of the note. It is contemplated that by reason of
prepayments hereon there may be times when no indebtedness is owing hereunder;
but notwithstanding such occurrences, this note shall remain valid and shall be
in full force and effect as to loans or advances made pursuant to and under the
terms of this note subsequent to each occurrence. All loans or advances and
all payments or prepayments made hereunder on account of principal or interest
may be endorsed by the holder hereof on the Schedule attached hereto and made a
part hereof for all purposes. Additional Schedule pages may be attached hereto
from time to time by the holder hereof if more space is necessary. The amounts
of the advances and payments recorded by Lender on the reverse hereof or on
such schedule shall be binding upon Borrower as to the amount owed by Borrower.
This Note may be paid in full from time to time, but shall nevertheless remain
in full force and effect to evidence any advances made under such revolving
line of credit after any such payment in full. Borrower hereby authorizes the
holder hereof to endorse on the Schedule attached to this Note or any
continuation thereof, all advances made to Borrower hereunder and all payments
made on account of the principal thereof, which endorsements shall be prima
facie evidence as to the outstanding principal amount of this Note; provided,
however, any failure by the holder hereof to make any endorsement shall not
limit or otherwise affect the obligations of Borrower under this Note.
ADVANCES hereunder may be made by the holder hereof at the oral or
written request of any of the undersigned or of any officer or agent of
Borrower designated by or acting under the authority of resolutions of the
Board of Directors of Borrower, a duly certified or executed copy of which
shall be furnished to the holder hereof, until written notice of the revocation
of such authority is received by the holder hereof. Borrower agrees to furnish
to the holder hereof written confirmation of any such oral request within five
(5)
Page 2 of 5 page Promissory Note
<PAGE> 12
days of the resulting loan or advance, but any such loan or advance shall be
deemed to be made under and entitled to the benefits of this note irrespective
of any failure by Borrower to furnish such written confirmation.
IF ANY installment of principal and/or interest on this note is not
paid when due; or if Borrower or any drawer, acceptor, endorser, guarantor,
surety, accommodation party or other person liable upon or for payment of this
note (each hereinafter called an "other liable party"), shall die, or become
insolvent (however such insolvency may be evidenced); or if Borrower or any
partnership of which Borrower is a member shall suspend the transaction of his,
its or their usual business, or be expelled from or suspended by any stock or
securities exchange or other exchange; or if any proceeding, procedure or
remedy supplementary to or in enforcement of judgment shall be resorted to or
commenced against, or with respect to any property of, Borrower or other liable
party; or if a petition in Bankruptcy or for any relief under any law relating
to the relief of debtors, re-adjustment of indebtedness, re-organization,
composition or arrangement shall be filed, or any proceedings shall be
instituted under any such law, by or against Borrower or any such partnership
or other liable party; or if any governmental authority or any court at the
instance thereof shall take possession of any substantial part of the property
of, or assume control over the affairs or operations of, or a receiver shall be
appointed of the property of, or a writ or order of attachment or garnishment
shall be issued or made against any of the property of, Borrower or any such
partnership or other liable party; or if any indebtedness of Borrower or of any
such partnership or of other liable party for borrowed money shall become due
and payable by acceleration of maturity thereof; or if Borrower or any such
partnership or other liable party ceases to generally pay his or its debts as
they become due; or if Borrower (if a corporation) shall be dissolved or be a
party to any merger or consolidation without the written consent of Lender; or
if Borrower or other liable party fails to furnish financial information
requested by Lender; or if a default occurs under any instrument now or
hereafter executed in connection with or as security for this note; thereupon,
at the option of Lender, this note and any and all other indebtedness of
Borrower to Lender shall become and be due and payable forthwith without
demand, notice of nonpayment, presentment, protest or notice of dishonor, all
of which are hereby expressly waived by Borrower and each other liable party.
IF THIS NOTE is not paid at maturity whether by acceleration or
otherwise and is placed in the hands of an attorney for collection, or suit is
filed hereon, or proceedings are had in probate, bankruptcy, receivership, re-
organization, arrangement or other legal proceedings for collection hereof,
Borrower and each other liable party agree to pay Lender a reasonable amount as
attorney's fees which is agreed to be an additional amount equal to ten percent
of the unpaid principal and interest hereof. Borrower and each other liable
party are and shall be directly and primarily, jointly and severally, liable
for the payment of all sums called for hereunder, and Borrower and each other
liable party hereby expressly waive demand, notice of nonpayment, presentment,
protest, notice of dishonor, bringing of suit and
Page 3 of 5 page Promissory Note
<PAGE> 13
diligence in taking any action to collect any sums owing hereon and in the
handling of any security, and Borrower and each other liable party hereby agree
to any and all renewals, extensions for any period, rearrangements and/or
partial prepayments hereon and to any release or substitution of security, in
whole or in part, with or without notice, before or after maturity. Borrower
and each other liable party also waive, to the full extent permitted by law,
all right to plead any statute of limitation as a defense to any action
hereunder.
IT IS the intention of Borrower and Lender to conform strictly to
applicable usury laws. Accordingly, if the transactions contemplated hereby
would be usurious under applicable law (including the laws of the State of
Texas and the laws of the United States of America), then, in that event,
notwithstanding anything to the contrary in any agreement entered into in
connection with or as security for this note, it is agreed as follows: (i) the
aggregate of all consideration which constitutes interest under applicable law
that is taken, reserved, contracted for, charged or received under this note or
under any of the other aforesaid agreements or otherwise in connection with
this note shall under no circumstances exceed the maximum amount of interest
allowed by applicable law, and any excess shall be credited on the note by the
holder hereof (or, if this note shall have been paid in full, refunded to the
Borrower); and (ii) in the event that maturity of this note is accelerated by
reason of an election by the holder hereof resulting from any default hereunder
or otherwise, or in the event of any required or permitted prepayment, then
such consideration that constitutes interest may never include more than the
maximum amount allowed by applicable law, and excess interest, if any, provided
for in this note or otherwise shall be canceled automatically as of the date of
such acceleration or prepayment and, if theretofore prepaid, shall be credited
on this note (or if this note shall have been paid in full, refunded to the
Borrower).
THIS NOTE is the promissory note referred to in that certain Loan
Agreement of even date herewith by and between the Borrower and Lender (the
"Loan Agreement"), reference to which Loan Agreement is hereby made for all
purposes, and as such, this Note is made and delivered thereunder and is
entitled to the benefits of and is governed by such Loan Agreement. Among
other things, the Loan Agreement contains certain events of default and
provisions for mandatory prepayments. Capitalized terms used but not defined
herein shall have the meanings assigned to them in the Loan Agreement. A
default under the terms and conditions of said Loan Agreement shall constitute
default under the terms of this Note, and all other instruments or documents
securing this Note or executed in connection therewith.
THIS NOTE has been executed and delivered in and shall be construed in
accordance with and governed by the laws of the State of Texas and of the
United States of America except that Tex. Rev. Civ. Stat. Ann. art. 5069 Ch.
15, as amended (which regulates certain revolving credit loan accounts and
revolving triparty accounts) shall not apply to the
Page 4 of 5 page Promissory Note
<PAGE> 14
revolving loan account created pursuant hereto. Unless changed in accordance
with law, the applicable rate ceiling under Texas law shall be the indicated
(weekly) rate ceiling as provided in Tex. Rev. Civ. Stat. Ann. art. 5069-1.04,
as amended.
EXECUTED, by its duly authorized representative, effective as of
October 16, 1997.
BIT GROUP SERVICES, INC.
By:
-------------------------------------
Marshall G. Webb
President
Page 5 of 5 page Promissory Note
<PAGE> 15
SCHEDULE
OF
ADVANCES AND PAYMENTS OF PRINCIPAL AND INTEREST
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Outstanding
Principal
Balance of
Amount Amount of Amount of Loan
of Principal Interest Following Notation
Date Advance Paid Paid Payment Made By
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE> 1
EXHIBIT 10.14
STOCK REPURCHASE AGREEMENT
This Stock Repurchase Agreement (this "Agreement") dated as of
____________________, 1997 is entered into by and between BRIGHTSTAR
INFORMATION TECHNOLOGY GROUP, INC., a Delaware corporation (the "Company") and
__________________ (the "Grantor") .
W I T N E S S E T H:
WHEREAS, Grantor owns certain shares of common stock of the Company
(the "Common Stock");
WHEREAS, in order to facilitate certain additional funding of the
Company, Grantor, the Company desires that Grantor grant to the Company an
option to purchase certain shares of Common Stock on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants and obligations contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
1. SHARES SUBJECT TO PURCHASE OPTION. Grantor currently owns
___________ shares of Common Stock (the "Shares") which shall initially
be subject to the terms, provisions and conditions of the Purchase Option (as
hereafter defined). The term "IPO" means the first underwritten public
offering of the Company's common stock other than any offering pursuant to any
registration statement (i) relating to any capital stock of the Company or
options, warrants or other rights to acquire any such capital stock issued or
to be issued primarily to directors, officers or employees of the Company, or
any of its subsidiaries (ii) relating to any employee benefit plan or interest
therein, (iii) relating principally to any preferred stock or debt securities
of the Company, or (iv) filed pursuant to Rule 145 under the Securities Act of
1933, as amended, or any successor or similar provisions.
2. PURCHASE OPTION.
a. The Shares shall be subject to the option (the
"Purchase Option") set forth in this Section 2. In the event that Grantor
shall cease to be engaged, either as a consultant or as an employee, by the
Company (including a parent or subsidiary of the Company) under the
circumstances set forth in Section 2(b) of this Agreement (the "Section 2(b)
Event"), the Company shall have the right, at any time within 90 days after the
date Grantor ceases to be so engaged (the "Option Period"), to exercise the
Purchase Option, which consists of the right to purchase from Grantor at a
purchase price of $.10 per share (as adjusted pursuant to Section 4 below) (the
"Option Price"), up to but not exceeding the number of Shares specified in
Section 2(b) below, upon the terms hereinafter set forth.
b. If any of the following items (i) or (ii) occurs:
i. Grantor repudiates or renounces that certain
Employment Agreement between the Company and Grantor (the "Employment
Agreement") or voluntarily ceases his engagement with the Company
(other than by reason of death or disability) prior to the date
<PAGE> 2
which is 12 months following the date of the successful completion of
the IPO without the prior written consent of the Company; or
ii. Grantor's engagement by the Company under the
Employment Agreement is terminated by the Company at any time prior to
the date which is 12 months following the date of the successful
completion of the IPO, with "Cause," (as defined below);
prior to the occurrence of any Termination Event (as defined in Section 9),
then the Company may exercise the Purchase Option at the Option Price as to the
number of Shares determined as follows:
(A) Prior to the IPO, the Company may exercise the
Purchase Option as to all of the Shares;
(B) Following the IPO, the Company may exercise the
Purchase Option as to a number of Shares equal to the total number of
Shares less an aggregate number of Shares equal to the product
(rounded down to the nearest whole Share) of (i) 1/12 times (ii) the
aggregate number of full calendar months following the IPO that
Grantor has been engaged as an employee to the Company, times (iii)
the total number of Shares (_______).
For the purposes of this Agreement, "Cause" means the conviction of Grantor of
a crime involving fraud against the Company or any of its affiliates or the
theft or embezzlement of assets of the Company or any of its affiliates.
The Company shall not have the right to exercise the Purchase Option
in the event Grantor's employment by the Company under the Employment Agreement
is terminated for death, disability, without "Cause" or for any other reason
except as provided in Section 2(b) above.
c. The Purchase Option may be exercised by the Company by giving
notice to the Grantor in accordance with Section 13.1 hereof stating that the
Company has elected to acquire the Shares subject to the Purchase Option. Each
sale and purchase in accordance with the rights so exercised shall be
thereafter completed without avoidable delay by the transfer and assignment of
such Shares to the Company and payment of the Option Price. The Option Price
shall be payable, at the option of the Company, by cancellation of all or a
portion of any outstanding indebtedness of the Grantor to the Company or by
payment in cash (by check), or both.
d. Nothing in this Agreement shall affect in any manner
whatsoever the right or power of the Company, or a parent or subsidiary of the
Company, to terminate Grantor's engagement with the Company, for any reason,
with or without cause as provided in the applicable Employment Agreement.
3. ASSIGNMENT. Neither the Company nor Grantor may assign this
Agreement or any of its respective rights and obligations hereunder.
4. ADJUSTMENTS. If, from time to time during the term of the
Purchase Option (i) there is any dividend of stock or other securities or
liquidating dividend of cash or property, stock split,
2
<PAGE> 3
reverse stock split, subdivision, combination, recapitalization,
reorganization, reclassification or other change in the character or amount of
any of the outstanding securities of the Company, or (ii) there is any
transaction involving the consolidation or merger of the Company in which the
Company is the surviving entity (collectively, (i) and (ii) shall be referred
to as a "Reorganization"), then, in such event, any and all new, substituted or
additional securities or other property to which Grantor is entitled by reason
of Grantor's ownership of the Shares shall be immediately subject to the
Purchase Option and be included in the term "Shares" for all purposes of the
Purchase Option with the same force and effect as the Shares subject to the
Purchase Option under the terms of Section 2 hereof. In the event that the
outstanding Common Stock is at any time increased or decreased solely by reason
of a Reorganization, appropriate adjustments to the Option Price shall be made
effective as of the date of such occurrence so that the total Option Price upon
exercise of the Purchase Option will be the same as it would have been had the
Company exercised the Purchase Option immediately prior to the occurrence of
such event.
5. LEGENDS. All certificates representing any of the Shares
subject to the provisions of this Agreement shall have endorsed thereon a
legend substantially as follows:
"ANY DISPOSITION, GRANT OR OTHER TRANSFER OF ANY
INTEREST IN THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO RESTRICTIONS, AND THE SECURITIES REPRESENTED BY
THIS CERTIFICATE ARE SUBJECT TO AN OPTION, CONTAINED IN A
CERTAIN AGREEMENT EXECUTED BY THE RECORD HOLDER HEREOF, THE
CORPORATION AND CERTAIN OTHER PARTIES, A COPY OF WHICH WILL BE
MAILED TO ANY HOLDER OF THIS CERTIFICATE WITHOUT CHARGE AFTER
RECEIPT BY THE CORPORATION OF A WRITTEN REQUEST THEREFOR."
Upon presentation to the Company or any authorized transfer agent of
certificates representing the Shares, the number of Shares represented thereby
which are no longer subject to the Purchase Option shall be exchanged for
certificates not bearing such legend, and all Shares, if any, which remain
subject to the Purchase Option, shall be represented by certificates endorsed
with the legend set forth above.
6. NO RESALE OR TRANSFER. Grantor shall not sell, assign or
otherwise transfer (otherwise than by operation of law) any of the Shares which
are subject to the Purchase Option or any interest therein, or grant or
otherwise allow to exist any lien, claim or other encumbrance on or with
respect to any of the Shares then subject to the Purchase Option.
7. NO TRANSFER. The Company shall not be required (i) to
transfer on its books any of the Shares which shall have been sold or
transferred in violation of any of the provisions set forth in this Agreement
or (ii) to treat as owner of such Shares or to accord the right to vote as such
owner or to pay dividends to any transferee to whom such Shares shall have been
so transferred.
3
<PAGE> 4
8. RIGHTS AS A SHAREHOLDER. Subject to the provisions of Section
7 above, Grantor shall, during the term of this Agreement, exercise all rights
and privileges of a shareholder of the Company with respect to the Shares.
9. TERMINATION. This Agreement and the Purchase Option granted
hereunder shall terminate on the earlier to occur of any of the following
events (each a "Termination Event"):
a. the 91st calendar day immediately succeeding the date
which is 12 months following the date of the successful completion of
the IPO;
b. upon expiration of the Option Period;
c. the commencement by the Company of a voluntary case
or proceeding under any applicable federal or state bankruptcy,
insolvency, reorganization or other similar law or of any other case
or proceeding to be adjudicated a bankrupt or insolvent, or the
consent to the entry of a decree or order for relief in respect of the
Company in an involuntary case or proceeding under any applicable
federal or state bankruptcy, insolvency, reorganization or other
similar law or to the commencement of any bankruptcy or insolvency
case or proceeding against it, or the filing of a petition or answer
or consent seeking reorganization or relief under any applicable
federal or state law, or the consent to the filing of such petition or
to the appointment of or taking possession by a custodian, receiver,
liquidator, assignee trustee, sequestrator or other similar official
of the Company or of any substantial part of its property, or the
making of an assignment for the benefit of creditors, or the admission
in writing of inability to pay debts generally as they become due, or
the taking of corporate action by the Company in furtherance of any
such action; or
d. the sale of all or substantially all of the assets of
the Company.
10. FURTHER ASSURANCES. The parties agree to execute such further
instruments and to take such further actions as may reasonably be necessary to
carry out the purposes and intent of this Agreement.
11. FAILURE TO DELIVER SHARES. If Grantor becomes obligated to
sell any Shares to the Company under this Agreement and fails to deliver such
Shares in accordance with the terms of this Agreement, the Company may, at its
option, in addition to all other remedies it may have, send to the Grantor the
purchase price for such Shares as is herein specified. Thereupon, the Company
upon written notice to the Grantor, (a) shall cancel on its books the
certificate or certificates representing the Shares to be sold and (b) shall
issue, in lieu thereof, in the name of the Company a new certificate or
certificates representing such Shares, and thereupon all of the Grantor's
rights in and to such Shares shall terminate.
12. SPECIFIC ENFORCEMENT. Grantor expressly agrees that the
Company will be irreparably damaged if this Agreement is not specifically
enforced. Upon a breach of the terms, covenants and/or conditions of this
Agreement by Grantor, the Company shall, in addition to all other remedies, be
4
<PAGE> 5
entitled to a temporary or permanent injunction, without showing any actual
damage, and/or a decree for specific performance, in accordance with the
provisions hereof.
13. MISCELLANEOUS.
a. Notice. For purposes of this Agreement, notices and
all other communications provided for herein shall be in writing and
shall be deemed to have been duly given when personally delivered or
when mailed by United States registered or certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Company: BrightStar Information
Technology Group, Inc.
10375 Richmond Avenue, Suite 1620
Houston, Texas 77042
If to Grantor, at the address identified on the signature page
hereof, or to such other address as either party may furnish to the
other in writing in accordance herewith, except that notices of
changes of address shall be effective only upon receipt.
b. Applicable Law. The substantive laws of the State of
Texas, excluding any law, rule or principle which might refer to the
substantive law of another jurisdiction, will govern the
interpretation, validity and effect of this Agreement without regard
to the place of execution or the place for performance thereof. This
Agreement is to be negotiated, executed and performed in Harris
County, Texas, and, as such, the Company and Grantor agree that
personal jurisdiction and venue shall be proper with the state or
federal courts situated in Harris County, Texas, to hear such disputes
arising under this Agreement.
c. No Waiver. No failure by either party hereto at any
time to give notice of any breach by the other party of, or to require
compliance with, any condition or provision of this Agreement shall be
deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.
d. Severability. If a court of competent jurisdiction
determines that any provision of this Agreement, including any
appendices attached hereto, is invalid or unenforceable, then the
invalidity or unenforceability of that provision shall not affect the
validity or enforceability of any other provision of this Agreement,
and all other provisions shall remain in full force and effect.
Further, such provisions shall be reformed and construed to the extent
permitted by law so that it may be valid, legal and enforceable to the
maximum extent possible.
e. Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original,
but all of which together will constitute one and the same Agreement.
f. Headings. The section headings have been inserted
for purposes of convenience and shall not be used for interpretive
purposes.
5
<PAGE> 6
g. Successors. This Agreement shall inure to the
benefit of the permitted successors and assigns of the Company and be
binding upon Grantor and his or her heirs, executors, administrators
and successors.
h. Construction. Each party to this Agreement has had
the opportunity to review this Agreement with legal counsel. This
Agreement shall not be construed or interpreted against any party on
the basis that such party drafted or authored a particular provision,
parts of or the entirety of this Agreement.
i. Entire Agreement. This Agreement and the agreements
referred to herein constitute the entire agreement of the parties with
regard to the subject matter hereof, and contains all the covenants,
promises, representations, warranties and agreements between the
parties with respect to the subject matter hereof. Each party to this
Agreement acknowledges that no representation, inducement, promise or
agreement, oral or written, with regard to the subject matter hereof,
has been made by either party, or by anyone acting on behalf of either
party, which is not embodied herein, and that no agreement, statement
or promise relating to the subject matter hereof which is not
contained in this Agreement or in such other agreements shall be valid
or binding.
j. Amendments. No amendment or modification to this
Agreement will be effective unless it is in writing and signed by the
Company and Grantor.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above written.
COMPANY:
BRIGHTSTAR INFORMATION
TECHNOLOGY GROUP, INC.
By:
-------------------------------------
Name:
----------------------------------
Title:
---------------------------------
SPOUSE OF GRANTOR (IF APPLICABLE) GRANTOR:
- --------------------------------- ----------------------------------------
Name:
---------------------------- ----------------------------------------
Address:
-------------------------------
-------------------------------
6
<PAGE> 1
EXHIBIT 10.15
R/3 REGIONAL IMPLEMENTATION PARTNER AGREEMENT
SAP AMERICA, INC. - SOFTWARE CONSULTING SERVICES AMERICA, LLC
This R/3 Regional Implementation Partner Agreement (the "Agreement"), made this
10th day of July 1995, is by and between Software Consulting Services America,
LLC ("SCSA"), a California corporation with offices at 40703 Rainwater Ct.,
Fremont, CA 94539 and SAP America, Inc., ("SAP"), a Delaware corporation with
its principal place of business at Chesterbrook Corporate Center, 701 Lee
Road, Suite 200, Wayne PA 19087
RECITALS
A. WHEREAS SCSA and SAP, desiring to work together, in connection with
the SAP R/3 Implementation Partner Program (as defined below), with the goal of
furthering the implementation of SAP's R/3 Software System;
B. WHEREAS SAP desires to enhance its capabilities to market and support
SAP Products through the use of SCSA's services; and
C. WHEREAS SCSA and SAP desire to formalize their relationship by
entering into this Agreement to undertake cooperative efforts for SAP R/3
Products within the SAP SCSA Program.
NOW, THEREFORE, in reliance upon the foregoing recitals, intending to
be legally bound, and for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, SCSA and SAP agree as follows:
1. Definitions.
As used in this Agreement:
(a) The SAP-SCSA Regional Implementation Partner Program (the "R/3
RIP Program") means the business relationship set forth in this Agreement and
Appendix A to this Agreement.
(b) Software. Software shall mean all SAP R/3 software, in whole
or in part, licensed by SAP AG or SAP America, Inc. in any release, version or
correction level and including all improvements, modifications, and extensions
thereto, whether in human or machine readable form.
(c) Documentation. Documentation shall mean all human and machine
readable materials and copies of SAP manuals, program listings, flow charts,
logic diagrams, input and output forms, data models, specifications, and
instructions relating to the Software made available to SCSA under this
Agreement, or, generally, to SAP end-user licensees.
(d) R/3 Products. R/3 Products shall mean the Software,
Documentation, and related materials.
(e) Confidential Information. Confidential Information shall
include information concerning SCSA and SCSA's clients, and their respective
products, businesses, techniques, designs, formulations,
<PAGE> 2
systems, programs, processes, policies, business strategies and plans or other
information which is not in the public domain, and SAP's R/3 Products, program
concepts including literal and nonliteral elements, such as structure, sequence
and organization, SAPs training materials, literature, and related SAP
materials, SAP's customers and licensors, their respective products,
businesses, techniques, designs, formulations, systems, programs, processes,
policies, business strategies and plans and all other information which is
disclosed by either party to the other party either in writing and marked
bearing a legend such as "confidential" or "proprietary" or "for internal use
only" or orally when contemporaneously described as such.
(f) Territory. Territory shall mean SAP's western region.
2. Authorization and Commitment of Resources.
(a) SAP hereby authorizes SCSA to offer services as related to R/3
Products to potential users in the Territory under the terms of this Agreement
and any Appendices hereto. This authorization does not include maintenance of
the R/3 Products, physical installation of the R/3 Products, and training. This
authorization is non-exclusive and non-transferable.
(b) SAP in its sole discretion shall have the right to limit the
Territory, the R/3 Products, and the type of customers to be covered by this
Agreement, as SAP deems advisable in its sole discretion following reasonable
notice and consultation with SCSA. SAP may authorize other parties to offer
services as related to the R/3 Products in the Territory as it deems advisable
in its sole discretion.
(c) Services to be provided by either party to its clients and
customers are to be contracted for separately by each party, independently of
each other, unless otherwise expressly agreed upon in writing between SAP and
SCSA for that specific engagement. Each party shall be solely liable to its
customers and clients for its own services.
3. Services and Responsibilities of SAP.
(a) Should SCSA desire to license all or any part of the Software
for use in the operation of its own business, SAP will license it to SCSA under
the terms of SAP's standard end-user license agreement and at SAP's standard
license fees then in effect.
(b) With regard to training for the Software, SAP shall:
(i) invite SCSA, on a space available basis, at
negotiated rates, to SAP regularly scheduled alliance partner training. SCSA
shall be responsible for all related travel and living expenses;
(ii) provide access, on a space available basis, to SCSA
for its personnel participating in the R/3 RIP Program to customer training
courses generally offered by SAP, such training courses to be available at
SAP's current prices and terms;
(iii) provide marketing-oriented training courses to SCSA
on a cost-sharing basis to be agreed upon between the parties; and
(c) SAP shall otherwise inform and instruct SCSA as to R/3
Products and provide guidance, as SAP deems necessary in its sole judgment, for
SCSA to carry out its responsibilities under this Agreement.
4. Services and Responsibilities of SCSA.
2
<PAGE> 3
SCSA agrees that it shall:
(a) acquire as soon as possible and maintain a comprehensive and
fundamental knowledge of the R/3 Products and ensure that its employees are
technically qualified and sufficiently trained in SAP courses, including
ongoing training at SAP, and internally, to provide appropriate advice on the
use of the R/3 Products to clients and prospective users of the Software;
(b) use its best efforts to promote internally the R/3 Products
and to offer services as related to the R/3 Products throughout the Territory
and ensure that its employees who perform any services hereunder shall have the
proper skill, training and background to enable them to demonstrate the R/3
Products in a competent and professional manner, it being understood that SCSA
will have no liability to SAP in the event that it fails to successfully
promote R/3 Products and related services except as committed to in this
Agreement;
(c) use its best efforts to meet the goals relative to the R/3 RIP
Program set out in SCSA's annual business plan, which is attached hereto as
Appendix A, and to update such business plan quarterly;
(d) ensure that it has the necessary number of qualified personnel
available according to SCSA's annual business plan attached as Appendix A;
(e) continually improve its training of all personnel as offered
in Section 3. who are or will be acting under this Agreement;
(f) use its best efforts to make the R/3 Products known to its
customers and potential customers; make every effort to see that the R/3
Products it suggests to each potential customer meet that entity's application
requirements; present the R/3 Products using only the product names given by
SAP; provide potential customers such marketing materials and nonconfidential
information necessary for evaluating the R/3 Products being considered (except
as limited by Section 10.(b) below); and, make no warranties, assurances or
statements concerning R/3 Product features that are misleading or materially
divergent from the descriptive literature supplied by SAP;
(g) not engage in any business activity, either directly or
indirectly, in any manner or capacity, in its own behalf or in behalf of any
other person, firm, corporation or organization, nor accept or continue any
obligations which may interfere with or impair its ability to perform any of
its duties or obligations under this Agreement;
(h) to the extent it conducts end-user training within its other
consultation activities, not offer or conduct end user training which competes
with official SAP courses offered by SAP or SAP AG or any other SAP-related
entity without prior written authorization from SAP;
(i) upon invitation by SAP to participate in SAP sponsored
marketing events by presenting speeches, providing information to potential
prospects (subject to Section 10.(b) below), and assisting, where requested, in
the organization and implementation of the events;
(j) expressly inform its customers that modifications and
extensions to the Software may impair or terminate the maintenance or support
services provided by SAP and may nullify the warranty;
(k) undertake to provide customers with release and version
management and migration support as related to the Software throughout the
period of productive installation of the Software; and
3
<PAGE> 4
(l) dedicate a coordinator with an adequate support structure to
act as the central focal point to coordinate activities with SAP and designate
a contact person within the support group to be available to SAP who is
authorized to act on behalf of SCSA within the scope of this Agreement.
5. Services and Responsibilities of the Parties.
To the extent reasonable under the circumstances, the parties shall
undertake the following cooperative activities with respect to identifying and
bringing to each other opportunities to promote the R/3 Products:
(a) Regularly inform each other about general market developments
and factors relating to the R/3 Products in the marketplace and current
projects and customer implementations in which SCSA is involved; this
information shall be designated and treated as Confidential information under
Section 10. of this Agreement;
(b) Furnish each other with appropriate information for support
and planning purposes; provided, however, that each party. reserves the right,
in its sole discretion, to determine the content and availability of such
information;
(c) Inform appropriate personnel in their respective organizations
of the existence of this Agreement;
(d) Subject to confidentiality constraints, endeavor to keep each
other appraised about new products and services;
(e) Exchange such other information and conduct such other
activities as the parties agree will carry out the intent of this Agreement.
6. Representations and Warranties.
Each party hereby represents and warrants to the other that:
(a) it has the right and power to enter into this Agreement;
(b) entering into this Agreement does not violate the terms and
conditions of any other agreement providing for cooperative marketing of
products of another entity, or any other legal obligations;
(c) the information which it may disclose to the other party, and
the process of disclosure and use of such information in accordance with the
provisions of this Agreement, will not violate any trade secret right,
trademark, issued United States patent, copyright or other proprietary right of
any third party;
(d) it holds good title or right, free and clear of all liens and
encumbrances, to the products and services which it is providing under this
Agreement;
(e) the products and services being provided under this Agreement
do not infringe any United States copyright, trademark, issued United States
patent, trade secret or other proprietary right of any third party; and
4
<PAGE> 5
(f) EXCEPT AS SPECIFICALLY SET FORTH HEREIN, NEITHER PARTY MAKES
ANY OTHER WARRANTY TO THE OTHER PARTY, EITHER EXPRESS, IMPLIED OR STATUTORY, OR
ARISING BY COURSE OF CONDUCT OR PERFORMANCE, CUSTOM OR USAGE IN THE TRADE,
INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
7. Term and Termination.
(a) This Agreement shall have an initial term expiring on December
31, 1996, with an automatic renewal for one (1) additional year unless, at
least six (6) weeks prior to the renewal date, either party gives written
notice of its intention not to renew this Agreement.
(b) At least four (4) months prior to any scheduled expiration
date, SAP will decide whether to continue or terminate the Agreement applying
the following criteria:
i. Customer satisfaction with the projects conducted by
SCSA, with special regard to the length and cost of
the project, the project objectives met by SCSA, and
the achievements and professionalism of SCSA
employees;
ii. Number and scope of R/3 projects executed;
iii. Thoroughness of employee training;
iv. Accomplishment of goals set herein and in the annual
business plans; and
v. Level of effective communication with SAP.
The procedures for such audits and the weights to be assigned each
criterion will be provided in writing by SAP to SCSA prior to the first such
audit.
On the basis of this evaluation and subsequent consultations with
SCSA, SCSA agrees that SAP, in its sole discretion, may choose to terminate
this Agreement six (6) weeks prior to the next scheduled expiration date.
(c) Notwithstanding the above, either party may terminate this
Agreement:
(i) In accordance with the provisions of Section 7.(a)
and (b) at the end of a term;
(ii) Upon thirty (30) days prior written notice in the
event of material breach of a material provision of this Agreement by the other
party, except that the party in breach shall have the right, during that 30-day
period, to cure the claimed breach or default; or
(iii) Immediately upon prior written notice if there is:
(a) a consolidation, merger or reorganization of the other party with or into
another corporation or entity; (b) creation of a new majority interest in, or
change in majority ownership of, the other party; (c) a sale of all or
substantially all of the assets of the other party; or (d) a breach of the
confidentiality provisions as specified in Section 10. below.
(d) Upon any termination of this Agreement:
5
<PAGE> 6
(i) each party shall, within ten (10) business days after
termination is effective, return to the other party or dispose of as mutually
agreed all advertising materials and other properties, including all
Confidential Information, furnished to it by the other party pursuant to this
Agreement and so certify in writing;
(ii) within ten (10) business days after termination is
effective, SCSA shall promptly return R/3 Products and related materials and
all copies thereof to SAP, or as the case may be, delete all R/3 Products and
Confidential Information from SCSA hardware, including binary or other
resulting files (if any), and erase all R/3 Products and Confidential
Information from any storage media before discarding such and so certify in
writing;
(iii) SCSA shall not hold itself out as a participant in
the R/3 RIP Program; and
(iv) both parties shall cease acting in a manner that
would suggest any continuing relationship between the parties regarding SAP's
Software, and shall cease all display and advertising contemplated under this
Agreement.
(e) Termination of this Agreement shall not impact upon any active
engagements in process prior to such termination.
(f) The following provisions of this Agreement shall in all events
survive its termination: Section 6. (General Representations and Warranties);
7. (Provisions Applicable to Termination); 8. (Relationship of Parties); 10.
(Confidentiality); and 11. (General Provisions).
8. Relationship of Parties.
(a) SCSA and SAP are independent contractors acting for their own
account, and neither party or its employees are authorized to make any
representation otherwise or any commitment on the other party's behalf unless
previously authorized by such party in writing. Neither party is responsible to
any end user for the quality of services or products provided by the other
party. Each party is solely responsible for establishing the prices for its own
products.
(b) Neither party is a distributor or agent for the products or
services of the other. Each party's products and services shall be available to
a prospective client only through separate agreement between that party and the
client. Each party, shall independently develop and price its respective
products and services offered between such party and a client.
(c) It is understood and agreed upon by the parties hereto, that
during the term of this Agreement, the use of the terms "joint venturer,"
"co-venturer," "partner," "marketing partner," "partnership" or similar terms
to be used to describe the relationship between the parties under this
Agreement refer to the spirit of cooperation between SCSA and SAP, and do not
describe, or expressly or by implication create, a legal partnership or joint
venture, or any responsibility by one party for the actions of the other.
9. Intellectual Property Rights.
(a) The name "R/3 RIP Program" shall be used by the parties only
jointly and pursuant to the terms of this Agreement; and upon any termination
of this Agreement, neither SAP nor SCSA may use the name in conjunction with
the parties' respective corporate names; however, SAP shall have the right to
use the name with any other parties who choose to participate in the SAP R/3
RIP Programs.
6
<PAGE> 7
(b) Nothing in this Agreement grants to either party the right to
use or display any other names, trademarks, trade names, logos or service marks
of the other party, except to identify the products and associated services and
deliverables of the other party to the extent obligations are undertaken
pursuant to this Agreement, Except in the case of correspondence and proposals
issued in the ordinary course of business, each party agrees to submit to the
other party for written prepublication approval, any materials which may use or
display any name, trademark, trade name, logo or service mark of the other
party. Notwithstanding the foregoing, nothing contained in this Agreement shall
affect either party's rights and obligations to use any trademarks, service
marks or proprietary words or symbols of the other party to properly identify
the goods or services of such other party to. the extent otherwise permitted by
applicable law or by written agreement between the parties.
(c) SCSA herein acknowledges that title to all intellectual
property rights, including patent, copyright, trademark, and trade secret
rights, in R/3 Products, including any modifications, enhancements, versions,
releases, or correction levels thereto, program concepts including literal or
nonliteral structure, sequence and organization, training materials,
literature, and other SAP related materials shall remain exclusively with SAP
AG, Walldorf, Germany, or SAP as the case may be, and that by virtue of this
Agreement, no such rights have been transferred, licensed, granted, assigned or
acquired by SCSA from SAP AG or SAP.
10. Confidentiality.
(a) Each party acknowledges that, during the term of this
Agreement, it will receive Confidential Information from the other party.
Neither party shall disclose, provide or otherwise make available to any third
party (including any prospective client) any Confidential Information of the
other party and shall utilize such Confidential Information on an internal
organization need-to-know basis only to the extent necessary to effect the
provisions and purposes of, and as expressly contemplated under the terms of,
this Agreement and for no other purpose.
(b) Each party agrees that it will protect the Confidential
Information of the other party through the exercise of no less protection and
care than it customarily uses in safeguarding its own confidential and
proprietary information which it desires to retain in confidence, but always at
least a reasonable degree of care. Disclosure of the other party's Confidential
Information to employees shall only be made on a need-to-know basis. Further,
each party shall take reasonable steps to advise their employees of the
confidential nature of Confidential Information, to ensure by agreement or
otherwise that such employees are prohibited from copying, revealing or using
such Confidential Information except to the extent required to carry out the
parties' obligations under this Agreement, and to require that Confidential
Information be kept in a secure location. Each party will promptly notify the
other if it believes that Confidential Information has lost its status as such.
(c) The foregoing shall not prohibit or limit a party's use of
information, including but not limited to ideas, concepts, know how, techniques
and methodologies, which: (i) is or become publicly available through no act of
failure, to act of the receiving party; (ii) rightfully obtained by the
receiving party without restriction; (iii) is released by the receiving party
in response to lawful legal process and with prior notice to the other party;
(iv) is rightfully already known to or is independently developed by the
receiving party prior to disclosure.
(d) Notwithstanding the foregoing, each party hereto understands
that they may become familiar with each other's services and that SCSA may
become familiar with SAP's R/3 Products and Confidential Information,
specifically its proprietary software. Accordingly, SCSA agrees, with respect
to Confidential Information, the R/3 Products (including all program concepts
therein) SAP's training materials, literature
7
<PAGE> 8
and other SAP related materials, that as the case may be, SCSA shall not copy,
translate, disassemble or decompile, nor create or attempt to create by reverse
engineering or otherwise the source code from the object code, or to use such
items to create derivative works, unless so authorized in advance, in writing,
by SAP. All updates, replacements, revisions, enhancements, additions, or
conversions to such SAP items specified above shall be subject to the
provisions as stated herein.
11. General Provisions.
(a) Non-solicitation. During the term of this Agreement and for
one (1) year after its termination, SAP and SCSA agree that neither shall
directly or indirectly solicit for employment any staff of the other party who
have been directly and substantively involved in performance under this
Agreement.
(b) Non-exclusivity. Nothing in this Agreement shall limit or
restrict either party from entering into or continuing any agreement or other
arrangement with any other party, whether similar to this Agreement in nature
or scope. Moreover, each party shall remain free to provide products and
services to any client or prospective client so long as the terms of this
Agreement are not violated.
(c) Notices. All notices required to be given under this Agreement
shall be sent by certified mail to:
40703 Rainwater Ct.
Fremont, CA 94539
Attention: Mike Ober,
and to
SAP America, Inc.
Attn: Contracts Department
Chesterbrook Corporate Center
701 Lee Road, Suite 200
Wayne, PA 19087
(d) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
without reference to its choice of law rules. To the extent that the parties
are permitted under this Agreement to seek judicial remedies, each party hereby
consents to the jurisdiction of the federal and state courts within the
Commonwealth of Pennsylvania to resolve any and all such matters.
(e) Merger. This Agreement and any Appendices hereto constitute the
entire agreement between the parties with respect to the manors set forth
herein. All prior agreements, oral or otherwise, between the parties and
relating to the subject matter contained herein, are hereby superseded,
provided, however, that in the event SCSA executed an Alliance Agreement and
related License and Maintenance Agreement for SAP's R/2 Software Systems, such
agreement shall continue pursuant to its terms.
(f) Amendments. This Agreement may not be modified except by a
writing signed by both parties.
(g) Severability. If any of the provisions of this Agreement are
held invalid, such provisions shall be deemed severed and the remaining
provisions shall remain in full force and effect.
8
<PAGE> 9
(h) Non-assignment. This Agreement may not be assigned or
transferred, nor may rights or obligations be delegated, without the prior
written agreement of the parties; notwithstanding the foregoing, this Agreement
shall be binding upon and inure to the benefit of the parties of this
Agreement, as well as their respective permitted successors and assigns.
(i) Waiver. Failure of any party to enforce, in any one or more
instances, any of the terms or conditions of this Agreement shall not be
construed as a waiver of the future performance of any such terms or
conditions.
(j) Limitation of Liability.
(i) SAP AND ITS LICENSORS SHALL NOT BE LIABLE TO SCSA OR
THIRD PARTIES FOR ANY LOSS OF BUSINESS, LOSS OF PROFITS, LOSS OF DATA OR
COMPUTER MALFUNCTION, OR ANY INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL OR
PUNITIVE DAMAGES, EVEN IF SAP HAS BEEN APPRISED OF THE POSSIBILITY THEREOF;
(ii) in no event shall the liability of SAP under this
Agreement, for any reason whatsoever. whether in contract, tort or statute
(including, without limitation, negligence), or otherwise, exceed
$1,000,000.00; provided, however, that this limitation shall not apply to
claims for personal injury caused by SAP's gross negligence or willful
misconduct.
(k) No Endorsement. Execution of this Agreement does not, and
shall not be construed to be, an endorsement by either party of the products or
services of the other party.
(l) Press Releases and Publicity. Any, news release, public
announcement, advertisement, or publicity proposed to be released by either
party concerning the R/3 RIP Program or any matters arising under this
Agreement shall be subject to the approval of the designated representatives of
both parties.
(m) Dispute Resolution Procedures.
(i) Any dispute, disagreement, claim or controversy
between the parties arising under or relating to this Agreement or the parties'
performance thereunder (the "Disputed Matter") which cannot be resolved by
consultations between the senior executives of SCSA and SAP shall be resolved
by binding arbitration, according to the then prevailing Commercial Arbitration
Rules of the American Arbitration Association, before a panel of three
arbitrators. Each party will select one arbitrator, and the third arbitrator
will be selected by the party-selected arbitrators. Any such arbitration shall
be held in the City of Philadelphia, Pennsylvania. The parties will share the
cost of the arbitration equally, subject to any final apportionment by the
arbitrators. The arbitrators will apply Pennsylvania law, without reference to
its choice of law rules, in resolving the Disputed Matter. The decision of the
arbitrators will be final and conclusive on the parties, and each party
consents that judgment upon an award rendered by the arbitrators may be entered
in any court of competent jurisdiction.
(ii) Neither party shall institute any action or
proceeding against the other in any court concerning any Disputed Matter that
is or could be the subject of a claim or proceeding under this Section;
provided, however, that if a party believes in good faith that a temporary or
preliminary injunction is necessary to preserve the status quo or otherwise to
avoid irreparable harm to such party, such as in the event of a breach of
Section 9. or Section 10., such party shall not be precluded by this Section
from seeking such injunctive relief from a court of competent jurisdiction.
9
<PAGE> 10
(iii) Pending the resolution of a Disputed Matter, to the
extent feasible, both parties shall continue their performance under this
Agreement.
IN WITNESS WHEREOF and intending to be legally bound, the parties have
caused this Agreement to be signed by their authorized representatives as of
the date shown above.
SAP America, Inc. Software Consulting Services America. LLC
SAP SCSA
By: /s/ JAMES J. SOENKSEN By: /s/ MICHAEL A. OBER
---------------------- -----------------------
Name: James J. Soenksen Name: Michael A. Ober
---------------------- -----------------------
Title: VP-WRO Title: President
---------------------- -----------------------
Date: September 12, 1995 Date: July 10, 1995
---------------------- -----------------------
<PAGE> 1
EXHIBIT 10.16
R/3 NATIONAL IMPLEMENTATION PARTNER AGREEMENT
SAP AUSTRALIA PTY LTD - SOFTWARE CONSULTING SERVICES PTY LTD
This R/3 National Implementation Partner Agreement (the "Agreement"), made as
of 14 March 1995,
is by and between SOFTWARE CONSULTING SERVICES PTY LTD (ACN 005 931
886) ("SCS"), with its principal place of business at
Suite 3, 23 Dudley Street, Eltham Victoria, 3095,
Australia;
and SAP AUSTRALIA PTY LTD (ACN 003 682 504) ("SAP") with
its principal place of business at Level 8, 67 Albert
Avenue, Chatswood, NSW 2067 Australia.
RECITALS
A. WHEREAS SCS and SAP, desiring to work together, in connection with the
SAP R/3 National Implementation Partner Program (as defined below),
with the goal of furthering the implementation of SAP's R/3 Software
System;
B. WHEREAS SAP desires to enhance its capabilities to market and support
SAP Products through the use of SCS's services; and
C. WHEREAS SCS and SAP desire to formalize their relationship by entering
into this Agreement to undertake co-operative efforts for SAP R/3
Products within the SAP R/3 NIP Program.
NOW, THEREFORE, in reliance upon the foregoing recitals, intending to be
legally bound, and for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, SCS and SAP agree as follows:
1. DEFINITIONS.
As used in this Agreement:
(a) The SAP - SCS R/3 National Implementation Partner Program (the "R/3
NIP Program") means the business relationship set forth in this
Agreement and Appendix A to this Agreement.
(b) Software. Software shall mean all SAP R/3 software, in whole or in
part, licensed by SAP AG or SAP Australia Pty Ltd in any release,
version or correction level and including all improvements,
modifications, and extensions thereto, whether in human or machine
readable form.
<PAGE> 2
(c) Documentation. Documentation shall mean all human and machine
readable materials and copies of SAP manuals, program listings, flow
charts, logic diagrams, input and output forms, data models,
specifications, and instructions relating to the Software made
available to SCS under this Agreement, or, generally, to SAP end-user
licensees.
(d) R/3 Products. R/3 Products shall mean the Software, Documentation and
related materials.
(e) Confidential Information. Confidential Information shall include all
information concerning SCS and SCS's clients, and their respective
products, businesses, techniques, designs, formulations, systems,
programs, processes, policies, business strategies and plans or other
information which is not in the public domain, and SAP's R/3 Products,
program concepts including literal and nonliteral elements, such as
structure, sequence and organisation, SAP's training materials,
literature, and related SAP materials, SAP's customers, their
respective products, businesses, techniques, designs, formulations,
systems, programs, processes, policies, business strategies and plans
and all other information which is disclosed by either party to the
other party either in writing and marked bearing a legend such as
"confidential" or "proprietary" or "for internal use only" or orally
when contemporaneously described as such.
(f) Territory. Territory shall mean Australia and New Zealand.
2. AUTHORIZATION AND COMMITMENT OF RESOURCES.
(a) SAP hereby authorises SCS to offer services as related to R/3 Products
to potential users in the Territory under the terms of this Agreement
and any Appendices thereto. This authorisation does not include
maintenance of the R/3 Products, physical installation of the R/3
Products, and training. This authorisation is non-exclusive and
non-transferable.
(b) SAP in its sole discretion shall have the right to limit the
Territory, the R/3 Products, and the type of customers to be covered
by this Agreement, as SAP deems reasonably advisable in its sole
discretion following reasonable notice and consultation with SCS. SAP
may authorise other parties to offer services as related to the R/3
Products in the Territory as it deems advisable in its sole
discretion.
(c) Services to be provided by either party to its clients and customers
are to be contracted for separately by each party, independently of
each other, unless otherwise expressly agreed upon in writing between
SAP and SCS for that specific engagement. Except as otherwise
required by Law, each party shall be solely liable to its customers
and clients for its own services.
2
<PAGE> 3
3. SERVICES AND RESPONSIBILITIES OF SAP.
(a) Should SCS desire to license all or any part of the Software for use
in the operation of its own business, SAP will license it to SCS under
the terms of SAP's standard end-user license agreement and at SAP's
standard license fees then in effect.
(b) With regard to training in use of the Software, SAP shall:
(i) invite SCS, on a space available basis, at negotiated rates,
to SAP regularly scheduled alliance partner training. SCS
shall be responsible for all related travel and living
expenses;
(ii) provide access, on a space available basis, to SCS for its
personnel participating in the R/3 NIP Program to customer
training courses generally offered by SAP, such training
courses to be available at SAP's current prices and terms;
(iii) provide marketing-oriented training courses to SCS on a
cost-sharing basis to be agreed upon between the parties; and
(c) SAP shall otherwise inform and instruct SCS as to the use and
operation of R/3 Products and provide guidance, as SAP deems necessary
in its sole judgement, for SCS to carry out its responsibilities under
this Agreement.
4. SERVICES AND RESPONSIBILITIES FOR SCS.
SCS agrees that it shall:
(a) acquire as soon as possible and maintain a comprehensive and
fundamental knowledge of the R/3 Products and ensure that its
employees are technically qualified and sufficiency trained in SAP
courses, including ongoing training at SAP, and internally, to provide
appropriate advice on the use of the R/3 Products to clients and
prospective users of the Software;
(b) use its best efforts to promote internally the R/3 Products and to
offer services as related to the R/3 Products throughout the Territory
and ensure that its employees who perform any services hereunder shall
have the proper skill, training and background to enable them to
demonstrate the R/3 Products in a competent and professional manner,
it being understood that SCS will have no liability to SAP in the
event that it fails to successfully promote R/3 Products and related
services except as committed to in this Agreement;
(c) use its best efforts to meet the goals relative to the R/3 NIP Program
set out in SCS's annual business plan, which is attached hereto as
Appendix A, and to update such business plan quarterly;
3
<PAGE> 4
(d) ensure that it has the necessary number of qualified personnel
available according to SCS's annual business plan attached as Appendix
A;
(e) continually improve its training of all personnel who are or will be
acting under this Agreement by utilising the training offered under
clause 3;
(f) use its best efforts to make the R/3 Products known to its customers
and potential customers; make every effort to see that the R/3
Products it suggests to each potential customer meet that entity's
application requirements; present the R/3 Products using only the
product names given by SAP; provide potential customers such marketing
materials and nonconfidential information necessary for evaluating the
R/3 Products being considered (except as limited by Section 10.(b)
below); and, make no warranties, assurances or statements concerning
R/3 Product features that are misleading or materially divergent from
the descriptive literature supplied by SAP;
(g) not engage in any business activity, either directly or indirectly, in
any manner or capacity, on its own behalf or in behalf of any other
person, firm, corporation or organisation, nor accept or continue any
obligations which may interfere with or impair its ability to perform
any of its duties or obligations under this Agreement;
(h) to the extent it conducts end-user training within its other
consultation activities, not offer or conduct end user training which
competes with official SAP courses offered by SAP or SAP AG or any
other SAP-related entity without prior written authorisation from SAP;
(i) upon invitation by SAP, participate in SAP sponsored marketing events
by presenting speeches, providing information to potential prospects
(subject to Section 10.(b) below), and assisting, where requested, in
the organisation and implementation of the events;
(j) expressly inform its customers that unauthorised modifications and
extensions to the Software by the Customer may impair or terminate the
maintenance or support services provided by SAP and may nullify the
warranty;
(k) undertake to provide customers with release and version management and
migration support as related to the Software throughout the period of
productive installation of the Software; and
(l) dedicate a co-ordinator with an adequate support structure to act as
the central focal point to co-ordinate activities with SAP and
designate a contact person within the support group to be available to
SAP who is authorised to act on behalf of SCS within the scope of this
Agreement.
4
<PAGE> 5
5. SERVICES AND RESPONSIBILITIES OF THE PARTIES.
To the extent reasonable under the circumstances, the parties shall
undertake the following co-operative activities with respect to
identifying and bringing to each other opportunities to promote the
R/3 Products;
(a) regularly inform each other about general market developments and
factors relating to the R/3 Products in the marketplace and current
projects and customer implementations in which SCS is involved; this
information shall be designated and treated as Confidential
Information under Section 10. of this Agreement;
(b) furnish each other with appropriate information for support and
planning purposes; provided, however, that each party reserves the
right, in its sole discretion, to determine the content and
availability of such information;
(c) inform appropriate personnel in their respective organisations of the
existence of this Agreement;
(d) subject to confidentiality constraints, endeavor to keep each other
appraised about new products and services;
(e) exchange such other information and conduct such other activities as
the parties agree will carry out the intent of this Agreement.
6. GENERAL REPRESENTATIONS AND WARRANTIES.
Each party hereby represents and warrants to the other that:
(a) it has the right and power to enter into this Agreement;
(b) entering into this Agreement does not violate the terms and conditions
of any other agreement providing for co-operative marketing of
products of another entity, or any other legal obligations;
(c) the information which it may disclose to the other party, and the
process of disclosure and use of such information in accordance with
the provisions of this Agreement, will not violate any trade secret
right, trademark, issued United States patent, copyright or other
proprietary right of any third party;
(d) it holds good title or right, free and clear of all liens and
encumbrances, to the products and services which it is providing under
this Agreement;
5
<PAGE> 6
(e) the products and services being provided under this Agreement do not
infringe any Australian copyright, trademark, issued Australian
patent, trade secret or other proprietary right of any third party;
and
(f) Except as specifically set forth herein, neither party makes any other
warranty to the other party, either express, implied or statutory, or
arising by course of conduct or performance, custom or usage in the
trade, including but not limited to any implied warranties of
merchantability or fitness for a particular purpose, except as may be
otherwise required by law.
7. TERM AND TERMINATION.
(a) This Agreement shall have an initial term expiring on December 31,
1996, with an automatic renewal for one (1) additional year unless, at
least six (6) weeks prior to the renewal date, either party gives
written notice of its intention not to renew this Agreement.
(b) At least four (4) months prior to any scheduled expiration date, SAP
will decide whether to continue or terminate the Agreement by applying
the following criteria:
i. Customer satisfaction with the projects conducted by SCS, with
special regard to the length and cost of the project, the
project objectives met by SCS, and the achievements and
professionalism of SCS employees;
ii. Number and scope of R/3 projects executed;
iii. Thoroughness of employee training;
iv. Accomplishment of goals set herein and in the annual business
plans; and
v. Level of effective communication with SAP.
The procedures for such audits and the weights to be assigned each
criterion will be provided in writing by SAP to SCS prior to the first
such audit.
On the basis of this evaluation and subsequent consultations with SCS,
SCS agrees that SAP may, based on a reasonable evaluation of whether
the specified criteria have been met, choose to terminate this
Agreement six (6) weeks prior to the next scheduled expiration date.
(c) Notwithstanding the above, either party may terminate this Agreement:
(i) In accordance with the provisions of Section 7(a) and (b) at
the end of a term;
6
<PAGE> 7
(ii) Upon thirty (30) days prior written notice in the event of
material breach of a material provision of this Agreement by
the other party, except that the party in breach shall have
the right, during the 30-day period, to cure the claimed
breach or default; or
(iii) Immediately upon prior written notice if there is: (a) a
consolidation, merger or reorganisation of the other party
with or into another corporation or entity; (b) creation of a
new majority interest in, or change in majority ownership of,
the other party; (c) a sale of all or substantially all of the
assets of the other party; or (d) a breach of the
confidentiality provisions as specified in Section 10. below.
(d) Upon any termination of this Agreement:
(i) each party shall, within ten (10) business days after
termination is effective, return to the other party or dispose
of as mutually agreed all advertising materials and other
properties, including all Confidential Information, furnished
to it by the other party pursuant to this Agreement and so
certify in writing;
(ii) within ten (10) business days after termination is effective,
SCS shall return to SAP materials and all copies thereof to
SAP, or as the case may be, delete all R/3 Products from SCS's
hardware, including binary or other resulting files (if any),
and erase all R/3 Products from any storage media before
discarding such, and so certify in writing, unless SCS has a
continuing End User licence which allows it to retain the
Software and/or any other R/3 Products;
(iii) SCS shall not hold itself out as a participant in the R/3 NIP
Program; and
(iv) both parties shall cease acting in a manner that would suggest
any continuing relationship between the parties regarding
SAP's Software, and shall cease all display and advertising
contemplated under this Agreement.
(e) Termination of this Agreement shall not impact upon any active
engagements in process prior to such termination.
(f) The following provisions of this Agreement shall in all events survive
its termination: Section 6. (General Representations and
Warranties); 7. (Provisions Applicable to Termination); 8.
(Relationship of Parties); 10. (Confidentiality); and 11. (General
Provisions).
8. RELATIONSHIP OF PARTIES.
(a) SCS and SAP are independent contractors acting for their own account,
and neither party or its employees are authorised to make any
representation otherwise or any commitment on the other party's behalf
unless previously authorised by such party in writing. Neither party
7
<PAGE> 8
is responsible to any end user for the quality of services or products
provided by the other party. Each party is solely responsible for
establishing the prices for its own products.
(b) Neither party is a distributor or agent for the products or services
of the other. Each party's products and services shall be available
to a prospective client only through separate agreement between that
party and the client. Each party shall independently develop and
price its respective products and services offered between such party
and a client.
(c) It is understood and agreed upon by the parties hereto, that during
the term of this Agreement, the use of the terms "joint venturer,"
"co-venturer," "partner," "marketing partner," "partnership" or
similar terms to be used to describe the relationship between the
parties under this Agreement refer to the spirit of co-operation
between SCS and SAP, and do not describe, or expressly or by
implication create, a legal partnership or joint venture, or any
responsibility by one party for the actions of the other.
9. INTELLECTUAL PROPERTY RIGHTS.
(a) The name "R/3 NIP Program" shall be used by the parties only jointly
and pursuant to the terms of this Agreement; and upon any termination
of this Agreement, neither SAP nor SCS may use the name in conjunction
with the parties' respective corporate names; however, SAP shall have
the right to use the name with any other parties who choose to
participate in the SAP R/3 NIP Programs.
(b) Nothing in this Agreement grants to either party the right to use or
display any other names, trademarks, trade names, logos or service
marks of the other party, except to identify the products and
associated services and deliverables of the other party to the extent
obligations are undertaken pursuant to this Agreement. Except in the
case of correspondence and proposals issued in the ordinary course of
business, each party agrees to submit to the other party for written
pre-publication approval, any materials which may use or display any
name, trademark, trade name, logo or service mark of the other party.
Notwithstanding the foregoing, nothing contained in this Agreement
shall affect either party's rights and obligations to use any
trademarks, service marks or proprietary words or symbols of the other
party to properly identify the goods or services of such other party
to the extent otherwise permitted by applicable law or by written
agreement between the parties.
(c) SCS herein acknowledges that title to all intellectual property
rights, including patent, copyright, trademark, and trade secret
rights in R/3 Products, including any modifications, enhancements,
versions, releases, or correction levels thereto, program concepts
including literal or nonliteral structure, sequence and organisation,
training materials, literature, and other SAP related materials shall
remain exclusively with SAP AG, Walldorf, Germany, or SAP as the case
may be, and that by virtue of this Agreement, no such rights have been
transferred, licensed, granted, assigned or acquired by SCS from SAP
AG or SAP.
8
<PAGE> 9
10. CONFIDENTIALITY.
(a) Each party acknowledges that, during the term of this Agreement, it
will receive Confidential Information from the other party. Neither
party shall disclose, provide or otherwise make available to any third
party (including any prospective client) any Confidential Information
of the other party and shall utilize such Confidential Information on
an internal organisation need-to-know basis only to the extent
necessary to effect the provisions and purposes of, and as expressly
contemplated under the terms of, this Agreement and for no other
purpose.
(b) Each party agrees that it will protect the Confidential Information of
the other party through the exercise of no less protection and care
than it customarily uses in safeguarding its own confidential and
propriety information which it desires to retain in confidence, but
always at least a reasonable degree of care. Disclosure of the other
party's Confidential Information to employees shall only be made on a
need-to-know basis. Further, each party shall take reasonable steps
to advise their employees of the confidential nature of Confidential
Information, to ensure by agreement or otherwise that such employees
are prohibited from copying, revealing or using such Confidential
Information except to the extent required to carry out the parties'
obligations under this Agreement, and to require that Confidential
Information be kept in a secure location. Each party will promptly
notify the other if it believes that Confidential Information has lost
its status as such.
(c) The foregoing shall not prohibit or limit a party's use of
information, including but not limited to ideas, concepts, know how,
techniques and methodologies, which: (i) is or become publicly
available through no act or failure to act of the receiving party;
(ii) rightfully obtained by the receiving party without restriction;
(iii) is released by the receiving party in response to lawful legal
process and with prior notice to the other party; (iv) is rightfully
already known to or is independently developed by the receiving party
prior to disclosure.
(d) Neither party will be liable to the other for any inadvertent or
accidental disclosure of Confidential Information if the disclosure
occurs notwithstanding the party's exercise of (i) the precautions set
forth in this Section; and (ii) the same level of care that each party
customarily uses in preserving and safeguarding its Confidential
Information, but always at least a reasonable degree of care.
(e) Notwithstanding the foregoing, each party hereto understands that they
may become familiar with each other's services and that SCS may become
familiar with SAP's R/3 Products, specifically its proprietary
software. Accordingly, SCS agrees, with respect to the R/3 Products
(including all program concepts therein) SAP's training materials,
literature and other SAP related materials, as the case may be, that
SCS shall not copy, translate, disassemble or decompile, nor create or
attempt to create by reverse engineering or otherwise the source code
from the object code, or to use such items to create derivative works,
unless so authorised in advance, in writing, by SAP. All updates,
replacements, revisions,
9
<PAGE> 10
enhancements, additions, or conversions to such SAP items specified
above shall be subject to the provisions as stated herein.
11. GENERAL PROVISIONS.
(a) Non-solicitation. During the term of this Agreement and for one (1)
year after its termination, SAP and SCS agree that neither shall
directly or indirectly solicit for employment any staff of the other
party who have been directly and substantively involved in performance
under this Agreement.
(b) Non-exclusivity. Nothing in this Agreement shall limit or restrict
either party from entering into or continuing any agreement or other
arrangement with any other party, whether similar to this Agreement in
nature or scope. Moreover, each party shall remain free to provide
products and services to any client or prospective client so long as
the terms of this Agreement are not violated.
(c) Notices. All notices required to be given under this Agreement shall
be sent by certified mail to:
SAP Australia Pty Ltd
Level 8
67 Albert Avenue
Chatswood NSW 2067
Australia
Telephone: (02) 415 1700
Facsimile: (02) 415 1677
and to
Software Consulting Services Pty Ltd
Suite 3
23 Dudley Street
Eltham Victoria 3069
Australia
Telephone: (03) 439 1592
Facsimile: (03) 439 6557
(d) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New South Wales. To the
extent that the properties are permitted under this Agreement to seek
judicial remedies, each party hereby consents to the jurisdiction of
10
<PAGE> 11
the federal and state courts within the commonwealth of Australia to
resolve any and all such matters.
(e) Merger. This Agreement and any Appendices hereto constitute the
entire agreement between the parties with respect to the matters set
forth herein. All prior agreements, oral or otherwise, between the
parties and relating to the subject matter contained herein, are
hereby superseded, provided, however, that in the event SCS executed
an Alliance Agreement and related License and Maintenance Agreement
for SAP's R/2 Software Systems, such agreement shall continue pursuant
to its terms.
(f) Amendments. This agreement may not be modified except by a writing
signed by both parties.
(g) Severability. If any of the provisions of this Agreement are held
invalid, such provisions shall be deemed severed and the remaining
provisions shall remain in full force and effect.
(h) Non-assignment. This Agreement may not be assigned or transferred nor
may rights or obligations be delegated, without the prior written
agreement of the parties. Notwithstanding the foregoing, this
Agreement shall be binding upon and inure to the benefit of the
parties of this Agreement, as well as their respective permitted
successors and assigns.
(i) Waiver. Failure of any party to enforce, in any one or more
instances, any of the terms or conditions of this Agreement shall not
be construed as a waiver of the future performance of any such terms
or conditions.
(j) Limitation of Liability.
(i) SAP shall not be liable to SCS or third parties for any loss
of business, loss of profits, loss of data or computer
malfunction, or any indirect, incidental, special,
consequential or punitive damages, even if SAP has been
apprised of the possibility thereof; or
(ii) In no event shall the liability of SAP under this Agreement,
for any reason whatsoever, whether in contract, tort or
statute (including, without limitation, negligence), or
otherwise, exceed $1,000,000.00; provided, however, that this
limitation shall not apply to claims for personal injury
caused by SAP's gross negligence or wilful misconduct.
(k) No Endorsement. Execution of this Agreement does not, and shall not
be construed to be, an endorsement by either party of the products or
services of the other party.
(l) Press Releases and Publicity. Any news release, public announcement,
advertisement, or publicity proposed to be released by either party
concerning the R/3 NIP Program or any
11
<PAGE> 12
matters arising under this Agreement shall be subject to the approval
of the designated representatives of both parties.
(m) Dispute Resolution Procedures.
(i) Any dispute, disagreement, claim or controversy between the
parties arising under or relating to this Agreement or the
parties' performance thereunder (the "Disputed Matter") which
cannot be resolved by consultations between the senior
executives of SCS and SAP shall be resolved by binding
arbitration, according to the then prevailing commercial
arbitration rules of the Australian Arbitration Association,
before a panel of three arbitrators. Each party will select
one arbitrator, and the third arbitrator will be selected by
the party-selected arbitrators. Any such arbitration shall be
held in the City of Sydney, New South Wales. The parties will
share the cost of the arbitration equally, subject to any
final apportionment by the arbitrators. The arbitrators will
apply New South Wales law in resolving the Disputed Matter.
The decision of the arbitrators will be final and conclusive
on the parties, and each party consents that judgment upon an
award rendered by the arbitrators may be entered in any court
of competent jurisdiction.
(ii) Neither party shall institute any action or proceeding against
the other in any court concerning any Disputed Matter that is
or could be the subject of a claim or proceeding under this
Section; provided, however, that if a party believes in good
faith that a temporary or preliminary injunction is necessary
to preserve the status quo or otherwise to avoid irreparable
harm to such part, such as in the event of a breach of Section
9. or Section 10., such party shall not be precluded by this
Section from seeking such injunctive relief from a court of
competent jurisdiction.
(iii) Pending the resolution of a Disputed Matter, to the extent
feasible, both parties shall continue their performance under
this Agreement.
IN WITNESS WHEREOF and intending to be legally bound, the parties have cause
this Agreement to be signed by their authorized representatives as of the date
shown above.
SAP AUSTRALIA PTY LTD. SOFTWARE CONSULTING SERVICES PTY LTD
Name: Les Hayman Name: Paul M. Batrouney
Title: Managing Director Title: Director-Business Manager
Date: 14 March 1995 Date: 14 March 1995
12
<PAGE> 13
SAP:R3 NIP AGREEMENT
11.(m) Dispute Resolution Procedure
(i) The parties to this Agreement will comply with
sub-clauses ll(m)(i)-(iv), before commencing court
proceedings or arbitration in relation to any dispute
under this Agreement, except that where a party
believes in good faith that urgent interlocutory
relief is reasonably necessary, (such as in the event
of a breach of Section 9 or Section 10), a party need
not comply with this clause before seeking relief
from a court of competent jurisdiction.
(ii) A party claiming that a dispute has arisen under this
Agreement which cannot be resolved by consultation
between the senior executives of SCS and SAP shall
give written notice to the other party designating as
its representative in any negotiations relating to
the dispute a person who has their authority to
settle the dispute and the party given that notice
shall promptly give return notice in writing
designating as its representative a person with
similar authority.
(iii) The persons designated under sub-clause (ii) shall,
seek to resolve any dispute between the parties
within 14 days of the last appointment required by
that clause.
(iv) If the dispute is not resolved within 14 days
following the representatives appointment (or within
any further period as the representative may agree is
appropriate) the parties in dispute shall within a
further 7 days (or within any further period as the
representatives may agree is appropriate) agree on a
process for resolving the whole or part of the
dispute through means other than litigation or
arbitration, such as mediation, independent expert
determination, or mini-trial and in particular the
parties shall agree in writing on:
A. the procedure and timetable for any exchange
of documents and other information relating
to that dispute;
B. procedural rules and a timetable for the
conduct of the selected means of dispute
resolution;
C. a procedure for selection and compensation of
any neutral person who may be employed by the
parties in dispute; and
D. whether the parties should seek the
assistance of a professional dispute
resolution organisation.
13
<PAGE> 14
(v) The parties acknowledge that the purpose of any
exchange of information or documents or the making of
any offer of settlement pursuant to this clause is to
attempt to settle the dispute between the parties.
No party may use any information or documents
obtained through the dispute resolution process
established by this clause for any purpose other than
in an attempt to settle a dispute between the
parties.
(vi) If after the expiration of the time established by or
agreed under sub-clause (iv) of this clause for
agreement on a dispute resolution process, no
agreement is reached any party which has complied
with the provisions of sub-clauses (i)-(iv) of this
clause may in writing terminate the dispute
resolution process provided for and may refer the
dispute to arbitration.
(vii) If any dispute is referred to arbitration pursuant to
sub-clause (vi) of this clause, the dispute will be
resolved according to the then prevailing commercial
arbitration rules of the Australian Arbitration
Association, before a panel of three arbitrators.
Each party will select one arbitrator and the third
arbitrator will be selected by the party-selected
arbitrators. Any such arbitration shall be held in
the City of Sydney, New South Wales. The parties
will share the cost of the arbitration equally,
subject to any final apportionment by the
arbitrators. The arbitrators will apply New South
Wales law in resolving the dispute. The decision of
the arbitrators will be final and conclusive on the
parties and each party acknowledges that any judgment
on an award rendered by the arbitrators may be
entered in any court of competent jurisdiction.
14
<PAGE> 1
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
(Alternate 1 - 3 years)
This Employment Agreement ("Agreement") is made as of __________,
1998, by and between SOFTWARE INNOVATORS, INC., a Texas corporation, located at
1501 N. University, Suite 670, Little Rock, Arkansas 72207 (the "Company"), and
MARK D. DIGGS, an individual with an address of 1501 N. University, Suite 670,
Little Rock, Arkansas 72207 (the "Employee").
1. Employment. The Company hereby agrees to employ the Employee and
the Employee hereby agrees to work for the Company under the terms and
conditions set forth herein. This Agreement supersedes and replaces any prior
employment agreement or other agreement between the parties dealing with the
subject matter hereof and such prior agreements, if any, are hereby terminated.
2. Term of Employment. The term of employment pursuant to this
Agreement shall begin on the date set forth above (the "Effective Date") and
shall continue in effect for an initial term of three (3) years from the date
set forth above unless terminated in accordance with Section 7, and shall be
extended from year to year thereafter, unless terminated effective as of the
end of the initial term or any one-year extension thereafter by written notice
from the Company to Employee, or by written notice of Employee to the Company,
delivered not less than sixty (60) days prior to the end of the initial term,
or the end of such one-year extension, as applicable.
3. Scope of Duties; Covenants.
(a) The Employee shall be employed by the Company in the
position set forth on Schedule A hereto and shall perform the duties as set
forth on Schedule A hereto. At all times, Employee shall serve under the
direction of the Board of Directors and the Chief Executive Officer of the
Company and shall perform such services and exercise such authority as is
customary for such position.
(b) So long as he is employed by the Company, Employee shall
devote his skill, energy and best efforts to the faithful discharge of his
duties as an employee of the Company. The Employee agrees that in the provision
of all services to the Company, he will comply with and follow the provisions
of this Agreement and all directives, policies, standards and regulations from
time to time established by the Board of Directors of the Company.
(c) Employee represents and warrants that Employee is under
no contractual or other restrictions or obligations which will significantly
limit the performance of Employee's obligations under this Agreement or which
will prohibit or limit the use by the Employee of any information which relates
to the business of the Company or the services to be rendered by the Employee
under this Agreement (including, without limitation, any agreement relating to
any
1
<PAGE> 2
proprietary information, knowledge or data acquired by Employee in confidence,
trust or under other obligation prior to Employee's employment by the Company).
Employee covenants and agrees that Employee shall not disclose to the Company,
or induce the Company to use, any such proprietary information, knowledge or
data belonging to any previous employer or others. Employee further covenants
and agrees not to enter into any agreement or understanding, either written or
oral, in conflict with the provisions of this Agreement during the term of this
Agreement.
(d) To the extent they relate to, or result from, directly or
indirectly, the actual or anticipated operations of the Company, the Employee
hereby agrees that all Intellectual Property (defined below) developed,
purchased or acquired by the Company, shall be the exclusive property of the
Company, and unless otherwise agreed by the Company, all right, title and
interest therein shall remain in the Company.
(e) The Employee will hold all Intellectual Property and
Confidential Information (defined below) in trust for the Company and will
deliver all Intellectual Property and Confidential Information in his
possession or control to the Company upon request and, in any event, at the end
of his employment with the Company. During the term of his employment with the
Company, the Employee will promptly disclose to the Company all Confidential
Information that comes to Employee's attention which has not previously been
disclosed to the Company, as well as any business opportunity reasonably
related to the scope of business of the Company or an Assisted Affiliate as
described in Section 8, which comes to his attention. The Employee will not
take advantage of or divert from the Company any such business opportunity for
the benefit of himself or any other party without the prior written consent of
the Company.
4. Compensation.
(a) During the first year of the term of employment
hereunder, the Company shall pay the Employee a base salary, payable in equal
periodic installments in accordance with the Company's customary payroll
practices, not less frequently than semi-monthly, at an annual rate or rates
set forth on Schedule A attached hereto and incorporated by reference herein.
Schedule A may also set forth certain other compensation payable to Employee.
In each subsequent year of the term of employment, the Company shall pay to the
Employee a salary and any such other compensation determined by the Board of
Directors following its annual salary and performance review; provided,
however, that such salary and compensation shall not be less than the amount
determined in accordance with Schedule A.
(b) Employee shall receive an annual cash performance bonus
for each calendar year during the term of this Agreement to be determined
according to the following procedure except as may be otherwise mutually agreed
to between the Employee and the Company. The Board of Directors of the Company,
or the Compensation Committee of the Board of Directors, if so authorized,
shall establish specific annual performance goals for the Company and for
Employee with respect to each calendar year (or portion thereof) during the
term of this Agreement commencing on January 1, 1998. Such goals shall be
communicated to Employee not later than the end of the first quarter of the
applicable calendar year. At the end of each calendar year during the term of
this Agreement, or within a reasonable time thereafter, the Board of Directors
of the Company, or the
2
<PAGE> 3
Compensation Committee of the Board of Directors, if so authorized, shall
review the actual performance of the Company and Employee, giving due
consideration to market and other developments outside of the control or
influence of Employee and the Company, and based upon the extent to which the
applicable annual performance goals have been achieved, shall determine in its
sole and absolute discretion, the amount of performance bonus payable to
Employee with respect to such year.
(c) The Company shall also pay Employee a monthly automobile
allowance in the amount set forth on Schedule A attached hereto.
(d) All payments of salary and other compensation to the
Employee shall be made after deduction of any taxes which are required to be
withheld with respect thereto under applicable federal and state laws.
5. Vacation/Personal Time. Employee shall be entitled to leave for
vacation and personal time off as provided on Schedule A attached hereto and
incorporated by reference herein. Unused holidays and days for personal time
off and vacation may not be carried over from one fiscal year to another. The
aggregate number of days specified on Schedule A for vacation and personal time
off need not be taken by Employee in succession, but in any increments and at
any time during the year as approved by the Company. For purposes of this
Agreement, "personal time off" shall include time taken off by Employee on
account of illness, family emergency or death in the immediate family.
6. Fringe Benefits; Expenses. So long as the Employee is employed by
the Company, the Employee shall participate in any employee benefit plans
sponsored by the Company generally for its employees serving in similar
employment capacities as the Employee as determined from time to time by the
board of directors of the Company or any compensation committee of the board of
directors, if any, and on terms at least as favorable to Employee as are
generally offered to other employees of the Company serving in a similar
capacity. The Company shall also reimburse Employee for his reasonable travel
and other out-of-pocket business expenses incurred in connection with his
employment under this Agreement pursuant to expense reports filed in accordance
with the Company's policies in effect from time to time, provided that if
Employee receives an automobile allowance pursuant hereto, then Employee shall
not otherwise be reimbursed for automobile expenses under this provision,
except for out-of-town rental automobiles.
7. Termination.
(a) General. Employer and Employee agree that Employee's
employment hereunder may be terminated by the Employee resigning or by the
Company's declaration of termination with or without "Cause" at any time,
subject to the terms of this Section 7. Such termination shall be effective
upon delivery of written notice from the acting party to the other of its
election to terminate employment pursuant to this Section 7. "Cause" when used
in connection with the termination of employment with the Company, shall mean
the termination of the Employee's employment by the Company by reason of (i)
Employee's material breach of any of Sections 3, 7, 8, 9, 10, 11 and 12 of this
Agreement which breach, if curable, is not cured within thirty (30) days of
3
<PAGE> 4
written notice to Employee of such breach; (ii) the conviction of, or the
entering of a guilty plea or no contest plea by, the Employee for a crime
involving moral turpitude by a court of competent jurisdiction; (iii) the
commission by the Employee of an act of fraud upon the Company or any of its
affiliates; (iv) the misappropriation of any funds or property of the Company
or any of its affiliates by the Employee; (v) the failure by the Employee to
perform material duties assigned to him pursuant to Schedule A or otherwise
assigned to and accepted by Employee, or to comply with any written Company
policy after reasonable written notice and opportunity to cure such
performance; (vi) the engagement by the Employee in any direct, material
conflict of interest with the Company or any of its Assisted Affiliates without
compliance with the Company's conflict of interest policy, if any, then in
effect; or (vii) the engagement in any activity which would constitute a
material violation of the provisions of the BrightStar Information Technology
Group, Inc. ("BrightStar") insider trading policy, if any, then in effect.
(b) Termination for Cause or Resignation. If the Company
terminates the Employee's employment for Cause or the Employee voluntarily
resigns, the Company shall pay the Employee's base salary earned through the
date of termination (and any other earned but unpaid compensation and accrued
vacation time prior to termination), but all rights to any other compensation
or benefits arising hereunder, shall be canceled and terminated in all respects
concurrently with such termination of employment; provided that the Employee
may elect to continue to participate, at Employee's own expense, in such health
insurance and other benefits as to which the opportunity for continuing
participation is mandated by applicable laws.
(c) Termination Without Cause. In the event that the
Employee's employment is terminated by the Company without Cause other than at
the end of the initial term or one of the one year renewal terms of this
Agreement, the Company shall, subject to the terms of subsections 7.(e) and
7.(f) below, and only if and as long as Employee is not in breach of his
obligations under this Agreement, pay compensation to Employee in the manner
set forth below. Employee may not be terminated without Cause unless such
termination has been approved in writing by BrightStar. If the Employee is
terminated without Cause during the initial three-year term of this Agreement,
then the Company shall continue to pay to Employee his current base salary
provided for under this Agreement, plus any other earned and unpaid
compensation and accrued vacation time prior to termination, plus a per annum
amount of additional compensation based on prior earned bonuses and/or
commissions, if any, equal to the amount of earned bonuses or commissions of
Employee during the twelve complete calendar months immediately preceding the
date of termination ("Severance Payments"), in periodic payments in accordance
with its customary payroll practices for the period ending the later of (i) the
end of the initial three-year term of the Agreement or (ii) twelve months after
termination of employment. If the Employee is terminated without Cause during
any one-year extension of the initial term of the Agreement, then the Company
shall continue to pay to Employee Severance Payments in accordance with its
customary payroll practices for a period of twelve months after termination of
such employment. If the Employee is terminated by the Company without Cause,
the Company shall also continue to provide benefits in the kind and amounts
provided to its employees generally for up to twelve months following the date
of termination, including continuation of any Company-paid benefits provided
pursuant hereto, for the Employee and Employee's spouse and minor children,
provided such benefits will be subject to immediate termination to the extent
Employee receives benefits under another similar benefit plan. If the
4
<PAGE> 5
Company fails to make any of the payments required under this Section 7.(c)
when reasonably due, then any restrictions imposed by Section 8 hereof against
Employee competing with the Company shall immediately lapse, but this shall not
release the Company's obligation for Severance Payments. Employee agrees that
the above payments shall be a full settlement of the Company's obligations to
Employee hereunder in the event of a termination without Cause.
(d) Termination Following Change of Control. In the event of
(i) the sale of all or substantially all of the assets of the Company, or (ii)
a merger, consolidation, liquidation or reorganization of the Company, in which
the Company or an affiliate of the Company is not the surviving entity, or
which results, in any event, in a change of control of the Company (each, a
"Change in Control Transaction"), the Company or the surviving entity, as the
case may be, may either (A) terminate Employee's employment hereunder and pay
to the Employee an amount equal to thirty-six months (36) compensation at
Employee's then current annual salary, payable not less frequently than
monthly, and continue to provide benefits in the kind and amounts provided to
its employees generally for such thirty-six (36) month period (collectively,
"Change of Control Compensation") or (B) adopt this Agreement; provided,
however, that if the Company or the surviving entity elects to adopt this
Agreement following a Change in Control Transaction and it shall subsequently
terminate Employee's term of employment without Cause, then it shall pay and
provide to Employee salary and benefits equal to the greater of (x) the salary
and benefits to be provided under Section 7.(c), and (y) the difference between
the salary and benefits provided to Employee pursuant to clause (A) above and
the aggregate amount of salary and benefits actually paid to Employee following
the Change in Control Transaction.
(e) Disability; Death. If at any time during the term of this
Agreement, Employee is unable, due to physical or mental disability, to perform
effectively his duties hereunder, the Company shall continue payment of
compensation as provided in Section 4 during the first six months of such
disability to the extent not covered by the Company's disability insurance
policies. Upon the expiration of such six month period, the Company, at its
sole option, may continue payment of Employee's salary for such additional
periods as the Company elects, or may terminate this Agreement without any
further obligations hereunder. If Employee should die during the term of this
Agreement, Employee's employment and the Company's obligations hereunder shall
terminate as of the end of the month in which Employee's death occurs and there
will be no salary and benefit continuation period. Employee shall be deemed to
have incurred a disability if Employee suffers a physical or mental condition
which (i) satisfies the definition of "total disability" in the Company's
disability insurance policies, or (ii) if no such policy or plan is then
covering Employee, in the reasonable judgment of the Board of Directors,
prevents Employee from engaging in any substantial gainful employment with the
Company for a period of more than six (6) months.
(f) Standstill Agreement; Lock-up Letters. So long as
Employee is employed by the Company or receives severance compensation as
provided above, Employee agrees that he will sign any reasonable securities
lock-up letters, standstill agreements, or other similar documentation required
by an underwriter in connection with a public offering of securities by
BrightStar or take other actions reasonably related thereto as requested by the
Board of Directors of the Company under similar terms and conditions as for
other management employees of the Company or BrightStar generally. Failure to
take any such action shall be a "Cause" for termination and shall cause
5
<PAGE> 6
Employee to forfeit any further rights to compensation or other payments
hereunder. In addition, Employee agrees that in such event the Company can seek
and obtain specific performance of such covenant, including any injunction
requiring execution thereof, and the Employee hereby appoints the then current
president of the Company to sign any such documents on his behalf so long as
such documents are prepared on the same basis as for other management
shareholders generally.
(g) Relocation or Material Change in Duties. If Employee's
employment is terminated because of Employee's refusal to relocate to another
office of the Company or to accept a material change in duties, such
termination shall not be deemed a termination for Cause or a termination
without Cause. In the event of such a termination, the Company shall continue
to pay to Employee his current base salary plus any other earned and unpaid
compensation and accrued vacation time prior to termination, plus a per annum
amount of additional compensation based on prior earned bonuses and/or
commissions, if any, equal to the amount of earned bonuses or commission of
Employee during the twelve complete calendar months immediately preceding the
date of termination, in customary periodic payments for twelve (12) months
after such termination; and the Company shall continue to provide benefits to
Employee the same as are available to its employees generally for up to twelve
(12) months after termination, provided that such benefits will be terminated
to the extent Employee receives benefits under another similar benefit plan.
8. Covenant Not to Compete.
(a) During Term of Employment. During Employee's term of
employment pursuant to this Agreement, Employee will not compete with the
Company or its affiliates, directly or indirectly, either for himself or as a
member of a partnership or a limited liability company or as a stockholder
(except as a stockholder of less than one percent (1 %) of the issued and
outstanding stock of a publicly-held company whose gross revenues exceed $100
million), investor, owner, officer or director of a company or other entity, or
as an employee, agent, trustee, manager, associate or consultant of any person,
partnership, corporation or other entity, in any business in competition with
that carried on by the Company or any of its affiliates. As of the date hereof,
the Company anticipates that it will engage principally in the business of
providing information technology services to a variety of industries, but the
provisions of this Section 8.(a) shall apply to any business in which the
Company or its affiliates are engaged during the term of Employee's employment.
(b) Restricted Periods. Section 8.(c) below restricts
Employee's ability to compete against the Company or it affiliates following
Employee's term of employment. For purposes of this Section 8, and in
particular Section 8.(c), if Employee voluntarily resigns his employment with
the Company, or is terminated by the Company for Cause, then the period for
which Employee cannot compete with the Company shall be the longer of (i) four
(4) years from the date hereof, or (ii) one (1) year after the termination of
employment ("Restricted Period For Cause"). If Employee is terminated by
Employer without Cause or pursuant to Section 7(d) above, then the period for
which Employee cannot compete with the Company or its affiliates (the
"Restricted Period Without Cause"), shall be based upon whether Employee was
terminated during the initial three-year term or during any extension thereof.
If Employee was terminated without Cause during the initial three-year term,
the Restricted Period Without Cause shall be the greater of (i) the remaining
months left of the initial three-year term, or (ii) until one (1) year after
the termination of employment without Cause. If
6
<PAGE> 7
Employee was terminated during any one (1) year extension of the initial
three-year term, the Restricted Period Without Cause shall be equal to one (1)
year after the termination of employment without Cause. If Employee is
terminated under the circumstances in Section 7(g) above, then the period for
which the Employee may not compete pursuant hereto shall be for one year after
the date of termination. If Employee is also a party to that certain Agreement
and Plan of Exchange dated December 18, 1997 among BrightStar Information
Technology Group, Inc. and the Shareholders of the Company (or its predecessor)
at that time and bound by certain non-competition provisions contained therein,
then any restricted non-compete periods under such agreement are hereby
modified so as to conform with the restricted periods contained in this Section
8.(b).
(c) Following Term of Employment. Employee further agrees
that, during the Restricted Period For Cause or the Restricted Period Without
Cause or the restricted period if termination occurs under the circumstances in
Section 7(g), as applicable, Employee will not represent, engage in or carry
on, directly or indirectly, any business with any customer or client of the
Company (or any customer or client of an affiliate of the Company for which the
Employee has materially assisted such affiliate in serving such customer or
client ("Assisted Affiliate")) at the time of termination of employment, or any
business within 100 miles of the city or county limits of any city or county in
the United States or foreign countries where the Company or any Assisted
Affiliate has an office or in which the Company provides services which produce
Company revenues of an amount equal to 2% or more of the Company's revenues for
the twelve complete calendar months preceding the time of termination, which
business competes with any business, services or products produced, sold,
conducted, developed, or in the process of development by the Company or
jointly by the Company and an Assisted Affiliate during the term of Employee's
employment, including any business that involves the furnishing of information
technology services that are the type of services furnished by the Company,
either for himself, as a member or equity owner of a partnership or a limited
liability company, or as a shareholder (other than as a shareholder of less
than one percent (1%) of the issued and outstanding stock of a publicly-held
company whose gross revenues exceed $100 million), investor, owner, officer or
director of a company or other entity, or as an employee, agent, trustee,
manager, associate or consultant of any person, partnership, corporation or
other entity. As of the date hereof, the Company anticipates that it will
engage principally in the business of providing information technology services
to a variety of industries, but the provisions of this Section 8.(c) shall
apply to any business in which the Company is engaged at the termination of
Employee's employment.
(d) Employee Agrees to Limitations. Employee agrees that the
limitations set forth herein on his rights to compete with the Company and its
affiliates are reasonable and necessary for the protection of the Company and
its affiliates. In this regard, Employee specifically agrees that the
limitations as to period of time and geographic area, as well as all other
restrictions on his activities specified herein, are reasonable and necessary
for the protection of the Company and its affiliates. In particular, Employee
acknowledges that the parties anticipate that the Employee will be actively
seeking markets for the Company's products throughout the United States and in
other countries of the world during Employee's employment with the Company. In
the event that the provisions of this Agreement should ever be legally held to
exceed the scope of business, time or geographic limitations permitted by
applicable law, such provisions shall be and are hereby reformed to the maximum
scope of business, time or geographic limitations permitted by applicable law.
7
<PAGE> 8
(e) Affiliates. For purposes of this Agreement, an
"affiliate" of the Company is any person or entity that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, the Company.
(f) Specific Performance. Employee agrees that the remedy at
law for any breach by him of this Section 8 will be inadequate and that the
Company shall also be entitled to injunctive relief.
9. Confidential Information and Results of Services.
(a) Treatment of Confidential Information. Employee agrees
that during the term of this Agreement, and for five (5) years after his
termination of employment, he will not use or disclose, without the prior
consent of the Company, the Confidential Information (as hereinafter defined)
owned by or subject contractually to be safeguarded by the Company, or any of
its affiliates, and further agrees, that he will return to the Company all
written, printed, or other physical presentation or holding of materials in his
possession embodying such Confidential Information. Employee acknowledges that
any information and materials received by the Company from third parties in
confidence (or subject to non-disclosure or similar covenants) shall be deemed
to be and shall be Confidential Information within the meaning of this Section
9. As a material inducement to the Company to employ (or to continue to employ)
Employee and to pay to Employee compensation for such services to be rendered
to the Company by Employee (it being understood and agreed by the parties
hereto that such compensation shall also be paid and received in consideration
hereof), Employee covenants and agrees that Employee shall not, except with the
prior written consent of the Company, or unless Employee is acting as an
employee of the Company solely for the benefit of the Company in connection
with the Company's business and in accordance with the Company's business
practices and employee policies, at any time during or following the term of
Employee's employment by the Company, directly or indirectly, disclose,
divulge, reveal, report, publish, transfer or use, for any purpose whatsoever,
any of such information which has been obtained by or disclosed to Employee as
a result of Employee's employment by the Company.
(b) Definition of Confidential Information. For purposes of
this Agreement, "Confidential Information" includes information conveyed or
assigned to the Company by Employee or conceived, compiled, created, developed,
discovered or obtained by Employee from and during his employment relationship
with the Company, whether solely by the Employee or jointly with others, which
concerns the affairs of the Company or its affiliates and which the Company
could reasonably be expected to desire be held in confidence, or the disclosure
of which would likely be materially embarrassing, detrimental or
disadvantageous to the Company or its affiliates and without limiting the
generality of the foregoing includes information relating to inventions, and
the trade secrets, technologies, algorithms, products, services, systems,
programs (including, without limitation, the Company's computer software
programs), procedures, manuals, confidential reports and communications,
finances, business plans, marketing plans, legal affairs, supplier lists,
client lists, potential clients, business prospects, business opportunities,
personnel assignments, contracts and assets of the Company and information made
available to the Company by other parties under a confidential relationship.
Confidential Information, however, shall not include information (i) which is,
at the time in question, in the public domain through no wrongful act of
Employee, (ii) which is
8
<PAGE> 9
later disclosed to Employee by one not under obligations of confidentiality to
the Company or Employee, (iii) which the Company has expressly given Employee
the right to disclose pursuant to written agreement, or (iv) which is required
by court or governmental order, law or regulation to be disclosed; provided,
that Employee shall first have given prompt notice to the Company of any such
possible or prospective order (or proceeding pursuant to which any such order
may result) such that the Company shall have been afforded a reasonable
opportunity to prevent or limit any such disclosure. Employee agrees that the
remedy at law for any breach by him of this Section 9 will be inadequate and
that the Company shall also be entitled to injunctive relief.
10. Definition of Intellectual Property.
(a) For purposes of this Agreement, the term "Intellectual
Property" shall mean all of the information referred to in Section 9 hereof and
all of the following materials and information (whether or not reduced to
writing and whether or not patentable or protectible by copyright) which
Employee receives, receives access to, conceives or develops or has received,
received access to, conceived or developed, in whole or in part, directly or
indirectly, in connection with Employee's employment with the Company and any
assistance to affiliates of the Company and related to the Company's and its
affiliates scope of business (in any capacity, whether executive, managerial,
planning, technical, sales, research, development, manufacturing, engineering
or otherwise) or through the use of any of the Company's facilities or
resources:
(b) Discoveries, concepts, and ideas including, without
limitation, the nature and results of research and development activities,
processes, formulas, inventions, computer-related equipment or technology,
techniques, "know-how," designs, drawings and specifications;
(c) Production processes, marketing techniques and
arrangements, mailing lists, purchasing information, pricing policies, quoting
procedures, financial information, customer and prospect names and
requirements, employee, customer, supplier and distributor data and other
materials or information relating to the Company's business and activities and
the manner in which the Company does business;
(d) Applications, operating systems, data bases,
communications and other computer software, whether now or hereafter existing
and developed for use on any operating system, and all modifications,
enhancements and versions and all options available with respect thereto, and
all future products developed or derived therefrom;
(e) Source and object codes, flowcharts, algorithms, coding
sheets, routines, sub-routines, compilers, assemblers, design concepts and
related documentation and manuals;
(f) Any other materials or information related to the
business or activities of the Company which are not generally known to others
engaged in similar businesses or activities; and
(g) Patents, trademarks, copyrights, trade secrets, all
inventions, whether or not patentable, and any product, drawing, design,
recording, computer software program, writing, literary
9
<PAGE> 10
work or other author's work, in any other tangible form developed in whole or
in part by Employee during the term of this Agreement;
(h) All ideas, inventions, techniques, modifications,
processes, or improvements which are derived from or relate to Employee's
access to or knowledge of any of the above enumerated materials and
information, or which are created, conceived, developed, purchased or acquired
by Employee, either solely or in conjunction with others, during the term of
Employee's employment with the Company which relate to, or are useful in, the
business being conducted or proposed to be conducted by the Company or its
affiliates, and any such item created by the Employee, either solely or in
conjunction with others, following termination of the Employee's employment
with the Company, that is based upon or uses Intellectual Property.
(i) Failure to mark any of the Intellectual Property as
confidential, proprietary or Intellectual Property shall not affect its status
as part of the Intellectual Property under the terms of this Agreement.
(j) For purposes of this Agreement, the term "Intellectual
Property" shall not apply to any ideas, inventions, techniques, modifications,
processes, or improvements for which no equipment, supplies, facility or
Intellectual Property of the Company was used, which was developed entirely on
Employee's own time, and which does not (i) relate to the business of the
Company, (ii) relate to the Company's actual or demonstrably anticipated
research or development or (iii) result from any work performed by Employee for
the Company.
11. Ownership of Information.
(a) Employee covenants and agrees that all right, title and
interest in any Intellectual Property shall be and shall remain the exclusive
property of the Company. Employee agrees immediately to disclose to the Company
all Intellectual Property developed in whole or in part by Employee during the
term of Employee's employment with the Company and to assign to the Company any
right, title or interest Employee may have in such Intellectual Property.
Employee agrees to execute any instruments and to do all other things
reasonably requested by the Company (both during and after Employee's
employment with the Company) in order to vest more fully in the Company all
ownership rights in those items transferred by Employee to the Company;
(b) Employee will not contest the validity of any invention,
any copyright, any trademark or any mask work registration owned by or vesting
in the Company under this Agreement;
(c) Employee will execute, acknowledge, and deliver to the
Company such applications, assignments (including patent applications and
assignments), and other documents as the Company may request in order to apply
for and obtain patents or other registrations with respect to any Intellectual
Property in the United States and any foreign jurisdictions;
(d) Employee will sign all other papers necessary to carry
out the above obligations; and
10
<PAGE> 11
(e) Employee will give testimony and render any other
assistance but without expense to the Employee in support of the Company's
rights to any Intellectual Property.
(f) If any one or more of the foregoing items are protectible
by copyright and are deemed in any way to fall within the definition of "work
made for hire," as such term is defined in 17 U.S.C. ss. 101, such work shall
be considered a "work made for hire," the copyright of which shall be owned
solely, completely and exclusively by the Company. If any one or more of the
aforementioned items are protectible by copyright and are not considered to be
included in the categories of works covered by the "work made for hire"
definition contained in 17 U.S.C. ss. 101, such items shall be deemed to be
assigned and transferred completely and exclusively to the Company by virtue of
the execution of this Agreement.
12. Covenants Not to Hire Employees. It is recognized and understood
by the parties hereto that the employees of the Company are an integral part of
the Company's business and that it is extremely important for the Company to
use its maximum efforts to prevent the Company from losing employees. It is
therefore understood and agreed by the parties hereto that, because of the
nature of the business of the Company, it is necessary to afford fair
protection to the Company from the loss of any such employees. Consequently, as
a material inducement to the Company to employ (or continue to employ)
Employee, Employee covenants and agrees that, for the period commencing on the
date of Employee's termination of employment for any reason whatsoever and
ending two (2) years after Employee's termination of employment with the
Company, Employee shall not, directly or indirectly, hire or engage or attempt
to hire or engage any individual who shall have been an employee of the Company
at any time during the one (1) year period prior to the date of Employee's
termination of employment with the Company, whether for or on behalf of
Employee or for any entity in which Employee shall have a direct or indirect
interest (or any subsidiary or affiliate of any such entity), whether as a
proprietor, partner, co-venturer, financier, investor or stockholder, director,
officer, employer, employee, servant, agent, representative or otherwise. If
Employee violates this Section 12, Employee agrees that, as part of the damages
recoverable by the Company, Employee shall pay to the Company a liquidated
damages amount equal to the compensation of the employee of the Company
solicited away from employment with the Company by Employee for the twelve
months preceding the date of said employee's termination from the Company.
13. Injunctive Relief. Employee understands and agrees that the
Company shall suffer irreparable harm in the event that Employee breaches any
of Employee's obligations under this Agreement and that monetary damages shall
be inadequate to compensate the Company for such breach. Accordingly, Employee
agrees that, in the event of a breach or threatened breach by Employee of any
of the provisions of this Agreement, the Company, in addition to and not in
limitation of any other rights, remedies or damages available to the Company at
law or in equity, shall be entitled to a temporary restraining order,
preliminary injunction and permanent injunction in order to prevent or to
restrain any such breach by Employee, or by any or all of Employee's partners,
co-venturers, employers, employees, servants, agents, representatives and any
and all persons directly or indirectly acting for, on behalf of or with
Employee.
14. Materials. All notes, data, tapes, reference items, sketches,
drawings, memoranda, records and other materials in any way relating to any of
the Confidential Information or Intellectual
11
<PAGE> 12
Property or to the Company's business shall belong exclusively to the Company
and Employee agrees to turn over to the Company all copies of such materials in
Employee's possession or under Employee's control at the request of the Company
or, in the absence of such a request, upon the termination of Employee's
employment with the Company.
15. Remedies. Employee covenants and agrees that, if Employee shall
violate any of Employee's covenants or agreements under this Agreement, the
Company shall be entitled to an accounting and repayment from Employee of all
profits, compensation, royalties, commissions, remunerations or other payments
(collectively "Payments") which Employee realizes as a result of the violative
actions. Employee shall also reimburse the Company for all reasonable costs and
expenses (including reasonable attorneys fees) incurred in pursuing its rights
hereunder if Employee has violated this Agreement. Such remedy shall be in
addition to and not in limitation of any injunctive relief or other rights or
remedies to which the Company is or may be entitled at law or in equity or
otherwise under this Agreement, provided that recovery of any Payments shall be
reduced by the amount of any compensatory damages otherwise recovered.
16. Employee's Status. Except as expressly provided by terms of this
Agreement, nothing in this Agreement shall be construed as constituting a
commitment, guarantee, agreement or understanding of any kind or nature that
the Company shall continue to employ Employee, nor shall this Agreement affect
in any way the right of the Company to terminate the employment of Employee at
any time and for any reason whatsoever. No change of Employee's duties as an
employee of the Company shall result in, or be deemed to be, a modification of
the terms of this Agreement.
17. Notice. All notices, requests, demands and other communications
required by or permitted under this Agreement shall be in writing and shall be
sufficiently delivered if delivered by hand, by courier service, or sent by
registered or certified mail, postage prepaid, to the parties at their
respective addresses listed below:
(a) If to the Employee, to the address set out in the
beginning of this Agreement;
(b) If to the Company:
Software Innovators, Inc.
1501 N. University, Suite 670
Little Rock, Arkansas 72207
(c) With a copy to:
BrightStar Information Technology Group, Inc.
10375 Richmond Avenue, Suite 1620
Houston, Texas 77042
Either party may change such party's address by such notice
to the other parties.
12
<PAGE> 13
18. Assignment. This Agreement is personal to the Employee, and he
shall not assign any of his rights or delegate any of his duties hereunder
without the prior written consent of the Company. Neither the employee nor his
spouse will have the right to commute, encumber, or otherwise dispose of any
prospective payments under this Agreement. The Company shall have the right to
assign this Agreement to a successor in interest in connection with a merger,
sale of substantially all assets, or the like; provided however, that an
assignment of this Agreement to an entity with operations, products or services
outside of the industries in which the Company is then active shall not be
deemed to expand the scope of Employee's covenant not to compete with such
operations, products or services without Employee's written consent.
19. Survival. The provisions of Sections 7 through 15 of this
Agreement shall survive the termination of the Employee's employment hereunder
in accordance with their terms, provided that all provisions of this Agreement
shall terminate five years after termination of employment (if not already
expired in accordance with their specific time of applicability) except with
respect to the resolution of any claims asserted prior to such termination.
20. Applicable Law. The substantive laws of the State of Arkansas,
excluding any law, rule or principle which might refer to the substantive law
of another jurisdiction, will govern the interpretation, validity and effect of
this Agreement without regard to the place of execution or the place for
performance thereof.
21. Binding Upon Successors. This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective heirs,
legal representatives, successors and permitted assigns.
22. Entire Agreement. This Agreement constitutes the entire agreement
between the Company and the Employee with respect to the terms of employment of
the Employee by the Company and supersedes all prior agreements and
understandings, whether written or oral, between them concerning such terms of
employment.
23. Waiver and Amendments; Cumulative Rights and Remedies.
(a) This Agreement may be amended, modified or supplemented,
and any obligation hereunder may be waived, only by a written instrument
executed by the parties hereto. The waiver by either party of a breach of any
provision of this Agreement shall not operate as a waiver of any subsequent
breach.
(b) No failure on the part of any party to exercise, and no
delay in exercising, any right or remedy hereunder shall operate as a waiver
hereof, nor shall any single or partial exercise of any such right or remedy by
such party preclude any other or further exercise thereof or the exercise of
any other right or remedy. All rights and remedies hereunder are cumulative and
are in addition to all other rights and remedies provided by law, agreement or
otherwise.
13
<PAGE> 14
(c) The obligations of the parties hereto and such parties'
rights and remedies hereunder are in addition to all other obligations of such
parties, and all rights and remedies of such parties, created pursuant to any
other agreement.
24. Construction. Each party to this Agreement has had the opportunity
to review this Agreement with legal counsel. This Agreement shall not be
construed or interpreted against any party on the basis that such party drafted
or authored a particular provision, parts of or the entirety of this Agreement.
25. Severability. In the event that any provision or provisions of
this Agreement is held to be invalid, illegal or unenforceable by any court of
law or otherwise, the remaining provisions of this Agreement shall nevertheless
continue to be valid, legal and enforceable as though the invalid or
unenforceable parts had not been included therein. In addition, in such event
the parties hereto shall negotiate in good faith to modify this Agreement so as
to effect the original intent of the parties as closely as possible with
respect to those provisions which were held to be invalid, illegal or
unenforceable.
IN WITNESS WHEREOF, the Company and the Employee have executed this
Agreement under seal on the date first above written, to be effective as of
_______________, 1998.
COMPANY:
SOFTWARE INNOVATORS, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
EMPLOYEE:
------------------------------------
Mark D. Diggs
14
<PAGE> 15
SCHEDULE A TO EMPLOYMENT AGREEMENT
Mark D. Diggs
1. Duties: Chief Executive Officer and President
2. Salary Provisions: $150,000/yr
Bonus for 1998 in accordance with the bonus
arrangements currently in effect with the
Company consistent and customary with prior
Company practice.
3. Monthly automobile allowance: $1,000/month
4. Annual Number of Vacation Days: 15 days
5. Annual Number of Days for Personal Time Off: 5 days
15
<PAGE> 1
AGREEMENT REGARDING REPURCHASE OF STOCK
This Agreement is made effective as of February 25, 1998, by and among
BrightStar Information Technology Group, Inc., a Delaware corporation
("BrightStar"), George M. Siegel, Marshall G. Webb, Thomas A. Hudgins, Daniel M.
Cofall, Mark D. Diggs, Michael A. Sooley, Michael B. Miller, and Tarrant Hancock
(the "Shareholders");
WHEREAS, pursuant to that certain Agreement and Plan of Exchange, dated as
of December 15, 1997 (the "Exchange Agreement"), entered into by and among
BrightStar, BIT Group Services, Inc., a Delaware corporation ("BITG"), BIT
Investors, LLC, a Texas limited liability company ("BITI"), and the holders of
the outstanding capital stock of BITG, all of the Shareholders except Michael B.
Miller will acquire shares (the "Management Shares") of common stock of
BrightStar, par value $.001 per share (the "BrightStar Common Stock"); and
WHEREAS, pursuant to Section 3.1 of the Exchange Agreement, Marshall G.
Webb, Thomas A. Hudgins, Daniel M. Cofall and Michael A. Sooley have previously
agreed to execute and deliver a stock repurchase agreement granting BrightStar
the option to repurchase their respective Management Shares;
WHEREAS, pursuant to Section 1.2 of the Exchange Agreement, George M.
Siegel, Mark D. Diggs and Tarrant Hancock are entitled to receive the Exchange
Consideration, which is an amount of shares of BrightStar Common Stock which may
be up to the following number of shares: George M. Siegel--42,900 shares, Mark
D. Diggs--20,000 shares, Tarrant Hancock--33,900 shares;
WHEREAS, upon the successful completion of BrightStar's initial public
offering of BrightStar Common Stock (the "IPO") and the dissolution of BITI, it
is anticipated that the following Shareholders (the "Class B Holders") will
receive the indicated number of shares of BrightStar Common Stock upon the
liquidation of the Class B Units of BITI, based on the current estimated IPO
price of the BrightStar Common Stock, although the actual number of such shares
(the "Class B Shares") may vary substantially:
<TABLE>
<CAPTION>
NAME NO. OF SHARES
---- -------------
<S> <C>
George M. Siegel 15,909
Marshall G. Webb 15,909
Thomas A. Hudgins 15,909
Daniel M. Cofall 15,909
Mark D. Diggs 12,727
Michael B. Miller 3,182
</TABLE>
NOW THEREFORE, in consideration of the mutual promises, covenants and
obligations contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree as
follows:
<PAGE> 2
1. Share Repurchase Agreements. The Shareholders hereby agree to execute
and deliver a stock repurchase agreement on or before the Closing Date (defined
below) in the form attached hereto as Exhibit A (the "Stock Repurchase
Agreements") granting BrightStar the option to repurchase, under certain terms
and conditions provided in the Stock Repurchase Agreements, the number of shares
of BrightStar Common Stock set forth in Section 2 hereof, and shares of
Restricted Common Stock, if any received by the Shareholders pursuant to the
Restricted Stock Exchange as set forth in Section 2.1 of the Exchange Agreement.
2. Shares Subject to Repurchase.
2.1 Management Shares. All shares of BrightStar Common Stock included in
the Exchange Consideration received by George M. Siegel, Mark D. Diggs and
Tarrant Hancock shall be subject to repurchase by BrightStar pursuant to the
terms of the Stock Repurchase Agreement.
2.2 Class B Shares. All of the Class B Shares, if any, received by the
Class B Holders shall be subject to repurchase by BrightStar pursuant to the
terms of the Stock Repurchase Agreements.
3. Closing Date. For purposes hereof, the Closing Date shall mean the date
that BrightStar receives funds in consideration for the sale of its securities
in its initial public offering.
[SIGNATURES ON FOLLOWING PAGE]
<PAGE> 3
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered on
the date first hereinabove written.
BRIGHTSTAR INFORMATION
TECHNOLOGY GROUP, INC.
By:
--------------------------
Name:
--------------------------
Title:
--------------------------
--------------------------------
George M. Siegel
--------------------------------
Marshall G. Webb
--------------------------------
Thomas A. Hudgins
--------------------------------
Daniel M. Cofall
--------------------------------
Mark D. Diggs
--------------------------------
Michael A. Sooley
--------------------------------
Michael B. Miller
--------------------------------
Tarrant Hancock
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF THE COMPANY
BIT Group Services, Inc., a Delaware corporation
Brian R. Blackmarr and Associates, Inc., a Texas corporation
Integrated Controls, Inc., a Louisiana corporation
Mindworks Professional Education Group, Inc., a Arizona corporation
Software Consulting Services America, LLC,
a California limited liability company
Software Consulting Services Pty. Ltd., Australia
Software Innovators, Inc., an Arkansas corporation
Zelo Group, Inc., a California corporation
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of BrightStar Information
Technology Group, Inc. on Form S-1 of our reports for Brian R. Blackmarr and
Associates, Inc. dated December 19, 1997, Integrated Controls, Inc. dated
February 9, 1998, Mindworks Professional Education Group, Inc. dated February 6,
1998, Software Consulting Services America, LLC dated February 16, 1998,
Software Innovators, Inc. dated December 19, 1997, Zelo Group, Inc. dated
February 16, 1998, and BIT Group Services, Inc. dated February 16, 1998,
appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading of "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 27, 1998
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of BrightStar
Information Technology Group, Inc. on Form S-1 of our report for SCS Unit Trust
dated December 19, 1997, appearing in the Prospectus, which is part of this
Registration Statement.
We also consent to the reference to us under the heading of "Experts" in
such Prospectus.
DELOITTE TOUCHE TOHMATSU
Melbourne, Australia
February 27, 1998
<PAGE> 1
EXHIBIT 23.5
CONSENT OF PERSON TO BECOME A DIRECTOR
Pursuant to Rule 438 under the Securities Act of 1933, as amended (the
"Act"), I hereby consent to the use of my name and any reference to me as a
person nominated to become a director of BrightStar Information Technology
Group, Inc. ("BrightStar") in the Prospectus constituting a part of BrightStar's
Registration Statement on Form S-1 to be filed with the Securities and Exchange
Commission pursuant to the Act, and any amendments thereto.
Dated: February 17, 1998
/s/ JENNIFER T. BARRETT
-----------------------------
Jennifer T. Barrett
