<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 29, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
COLLEGIS, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 7379 23-2414968
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
2300 MAITLAND CENTER PARKWAY
SUITE 340
MAITLAND, FLORIDA 32751
(407) 660-1199
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
ROBERT E. LUND
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
COLLEGIS, INC.
2300 MAITLAND CENTER PARKWAY, SUITE 340
MAITLAND, FLORIDA 32751
(407) 660-1199
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
R. CABELL MORRIS, JR. DOUGLAS NEWKIRK
Winston & Strawn Sachnoff & Weaver, Ltd.
35 West Wacker Drive 30 South Wacker Drive
Chicago, Illinois 60601 Suite 2900
(312) 558-5600 Chicago, Illinois 60611
(312) 207-1000
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (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, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO OFFERING OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per
share................................ 4,255,000 shares $16.00 $68,080,000 $20,084
</TABLE>
(1) Includes 555,000 shares that the Underwriters may purchase to cover
over-allotments, if any.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(a) under the Securities Act.
--------------------------
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 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 29, 1998
PROSPECTUS
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
, 1998
3,700,000 SHARES
COLLEGIS, INC.
COMMON STOCK
Of the 3,700,000 shares of Common Stock offered hereby, shares are
being sold by COLLEGIS, Inc. ("COLLEGIS" or the "Company") and shares are
being sold by the Selling Stockholders. See "Principal and Selling
Stockholders." The Company will not receive any of the proceeds from the sale of
shares by the Selling Stockholders.
Prior to this Offering, there has been no public market for the Common Stock
of the Company. It is currently anticipated that the initial public offering
price will be between $ and $ per share. See "Underwriting" for
information relating to factors to be considered in determining the initial
public offering price.
The Company has made application for quotation of the Common Stock on the
Nasdaq National Market under the symbol "CLGS."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
---------------------
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>
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO THE DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
- --------------------------------------------------------------------------------------------
Per Share............... $ $ $ $
Total(3)................ $ $ $ $
- --------------------------------------------------------------------------------------------
</TABLE>
(1) SEE "UNDERWRITING" FOR INDEMNIFICATION ARRANGEMENTS WITH THE UNDERWRITERS.
(2) BEFORE DEDUCTING OFFERING EXPENSES, ESTIMATED AT $ , WHICH WILL BE
PAID BY THE COMPANY.
(3) THE COMPANY HAS GRANTED TO THE UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP
TO 555,000 ADDITIONAL SHARES OF COMMON STOCK AT THE PRICE TO THE PUBLIC,
LESS UNDERWRITING DISCOUNTS AND COMMISSIONS, SOLELY TO COVER OVER-
ALLOTMENTS, IF ANY. IF SUCH OPTION IS EXERCISED IN FULL, THE TOTAL PRICE TO
THE PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS AND PROCEEDS TO THE
COMPANY WILL BE $ , $ AND $ , RESPECTIVELY. SEE "UNDERWRITING."
The shares of Common Stock are being offered by the several Underwriters
when, as and if delivered to and accepted by the Underwriters and subject to
various prior conditions, including their right to reject orders in whole or in
part. It is expected that delivery of share certificates will be made in New
York, New York, on or about , 1998.
DONALDSON, LUFKIN & JENRETTE BT ALEX. BROWN
<PAGE>
[CHART DEPICTING COLLEGIS SERVICE AREAS AND OFFERINGS]
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE
SUBSTANTIAL RISKS AND UNCERTAINTIES. WHEN USED IN THIS PROSPECTUS, THE WORDS
"ANTICIPATE," "BELIEVE," "ESTIMATE," "EXPECT" AND SIMILAR EXPRESSIONS AS THEY
RELATE TO THE COMPANY OR ITS MANAGEMENT ARE INTENDED TO IDENTIFY SUCH
FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS, PERFORMANCE OR
ACHIEVEMENTS COULD DIFFER MATERIALLY FROM THE RESULTS EXPRESSED IN, OR IMPLIED
BY, THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO
SUCH DIFFERENCES INCLUDE THOSE DISCUSSED IN "RISK FACTORS."
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND
SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION, INCLUDING
INFORMATION SET FORTH IN "RISK FACTORS" AND THE FINANCIAL STATEMENTS AND RELATED
NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS INDICATED
OTHERWISE, THE INFORMATION CONTAINED IN THIS PROSPECTUS: (i) ASSUMES THAT THE
UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED; AND (ii) GIVES RETROACTIVE
EFFECT TO THE CONVERSION, ON A ONE-FOR-ONE BASIS, OF ALL OUTSTANDING SHARES OF
EACH CLASS OF COMMON STOCK OF THE COMPANY INTO SHARES OF THE COMPANY'S SINGLE
CLASS OF COMMON STOCK, $0.01 PAR VALUE PER SHARE (THE "COMMON STOCK"), WHICH
WILL OCCUR UPON THE CLOSING OF THE OFFERING.
THE COMPANY
COLLEGIS, Inc. ("COLLEGIS" or the "Company") is a leading nationwide
provider of information technology ("IT") enterprise solutions and services to
clients in the higher education marketplace. The Company offers its IT services
through three principal service areas: (i) Operational and Financial IT
Services; (ii) Networking and Internet Services; and (iii) Instructional
Technology Services. COLLEGIS' primary competitive advantage is its in-depth
higher education IT experience, which it applies to assist
colleges and universities to succeed in an environment of increasing competition
for students and rapidly evolving technology. The Company has competed
successfully in this environment, having achieved compound annual revenue growth
of 55% from 1993 to 1997. Moreover, because of the long term nature of most of
the Company's client engagements, COLLEGIS enjoys significant recurring revenues
with the majority of its revenues in 1996 and 1997 having been committed at the
beginning of such years.
The higher education market today is characterized by increased competition
for students, budgetary constraints, outdated IT systems, a rapidly changing
technological environment and student demand for remote access to academic and
administrative services. Colleges and universities are striving to improve the
quality of the educational experience and to lower operating costs by upgrading
their technology infrastructure to provide both academic and administrative
services. In addition, technological advances such as the Internet have made
distance learning and other on-line educational applications feasible and many
schools are recognizing this as an opportunity for revenue enhancement. Outside
IT solution providers are well positioned to address the IT issues facing higher
education because: (i) technological change, especially the advent of client
server computing and Internet/intranet related services, is outpacing internal
resources; (ii) hiring and retaining qualified technical staff is difficult due
to the competitive environment for IT specialists and limited job advancement
opportunities for IT professionals within higher education; (iii) outside
specialists often deliver a greater return on an institution's IT investment
because they enable a college or university to more rapidly and cost-effectively
upgrade its systems; and (iv) external IT specialists can often formulate more
objective advice, free of internal cultural or political forces. The Company
believes that a significant opportunity exists in the higher education market
because most colleges and universities are currently addressing their technology
requirements in-house. The Company estimates that of the approximately 3,500
higher education institutions in the United States, only 55 have engaged a
third-party IT specialist, such as COLLEGIS, under a long-term contract to
operate all or a major portion of their IT function.
COLLEGIS' three service areas are designed to provide a complete range of IT
solutions and services to assist colleges and universities with every aspect of
their technology needs. The Operational and Financial IT Services area provides
strategic planning, project installation and management, training, user support
and IT staffing solutions. The Networking and Internet Services area plans,
designs and implements comprehensive network infrastructures that include
sophisticated Internet/intranet applications, as well as ongoing network
maintenance, training and user support services. The Instructional Technology
Services area uses the Web-based COLLEGIS Learning Network to assist colleges
and universities in designing and developing on-line courses and other on-line
educational, administrative and student service applications.
3
<PAGE>
The Company believes that it possesses several business strengths that
provide it with a competitive advantage, including: (i) vertical market focus
resulting in a thorough understanding of the information technology needs of
U.S. colleges and universities; (ii) broad range of services enabling the
Company to be a single-source provider to the higher education market; (iii)
established industry reputation earned by successfully providing 13 years of IT
solutions to colleges and universities; (iv) proven operating model facilitating
COLLEGIS' goal of becoming an educational institution's IT partner; (v) strong
client relationships fostered through the close working relationships between
the client and COLLEGIS' on-site staff and corporate management; (vi) recruiting
advantage provided by hiring significant numbers of technical staff from
clients; and (vii) the COLLEGIS Learning Network, an on-line service that
assists academic institutions in using Web-based technology to transform the
learning environment.
The Company's goal is to become the nation's leading provider of IT
enterprise solutions and services to the higher education marketplace. Key
elements of COLLEGIS' strategy to achieve this goal are: (i) expand client base
by increasing the size and scope of its sales and marketing organization and
technical staff; (ii) expand long-term relationships with existing clients to
increase length and scope of client engagements; (iii) maintain role as leader
in emerging higher education technologies by allocating sufficient resources to
offer new technologies; (iv) expand the COLLEGIS Learning Network to capture
service opportunities associated with the emerging instructional technology
area; (v) partner with software vendors to broaden customer base, increase
competitiveness and maintain technological sophistication; and (vi) pursue
strategic acquisitions that complement existing service offerings. There can be
no assurance that the Company will be successful in implementing any or all of
its strategies or achieving its goal.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............. shares
Common Stock offered by the Selling
Stockholders.................................. shares
Common Stock to be outstanding after the
Offering...................................... 9,189,060 shares(1)
Use of proceeds................................. To repay bank indebtedness, pay certain
bonuses arising in connection with the
Offering and for general corporate
purposes.
Proposed Nasdaq National Market Symbol.......... CLGS
</TABLE>
- ------------------------
(1) Includes 274,912 shares of Common Stock to be issued upon the exercise of a
warrant by a Selling Stockholder in connection with this Offering and
excludes (i) 2,150,404 shares of Common Stock issuable upon the exercise of
stock options outstanding as of June 30, 1998, of which 1,850,404 are
outstanding under the Company's 1996 Stock Option Plan and 300,000 are held
by an executive officer of the Company, and (ii) 298,360 shares of Common
Stock reserved for grant of future options or direct issuances under the
Company's 1996 Stock Option Plan. See "Management--Employee Benefit
Plans--1996 Stock Option Plan" and "Certain Transactions."
4
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------------- ------------------------------
PRO PRO
FORMA FORMA
1993 1994 1995 1996 1997 1997(1) 1997 1998 1998(2)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Service revenue............. $ 3,990 $ 7,074 $ 9,708 $ 15,226 $ 22,808 $22,808 $ 10,240 $ 15,858 $15,858
Operating expenses:
Cost of services.......... 2,210 3,996 5,632 8,828 13,072 13,072 5,834 9,027 9,027
Selling, general and
administrative
expenses................ 1,686 2,027 2,317 3,545 6,002 6,002 2,691 4,376 4,376
Depreciation and
amortization............ 14 27 40 104 153 153 68 91 91
Special compensation
expense(3).............. -- -- -- -- -- -- -- 2,474 --
Relocation costs(4)....... -- -- -- 613 488 488 488 -- --
Recapitalization
expenses(5)............. -- -- -- 1,587 -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total operating
expenses.............. 3,910 6,050 7,989 14,677 19,715 19,715 9,081 15,968 13,494
-------- -------- -------- -------- -------- -------- -------- -------- --------
Operating income (loss)..... 80 1,024 1,719 549 3,093 3,093 1,159 (110) 2,364
Interest expense(5)......... (8) (8) -- (787) (1,012) -- (536) (391) --
Interest income............. 25 64 124 131 143 143 79 71 71
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes..................... 97 1,080 1,843 (107) 2,224 3,236 702 (430) 2,435
Income tax (expense)
benefit(6)................ (15) (385) 67 571 (938) (1,365) (324) 170 (963)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item........ 82 695 1,910 464 1,286 1,871 378 (260) 1,472
Loss on early extinguishment
of debt--net of income tax
benefit of $180........... -- -- -- -- (271) -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)........... $ 82 $ 695 $ 1,910 $ 464 $ 1,015 $ 1,871 $ 378 $ (260) $ 1,472
-------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) per
share--basic.............. $ 0.02 $ 0.14 $ 0.33 $ 0.08 $ 0.16 $ 0.27 $ 0.06 $ (0.04) $ 0.21
Net income (loss) per
share--diluted............ $ 0.02 $ 0.13 $ 0.31 $ 0.07 $ 0.14 $ 0.24 $ 0.05 $ (0.04) $ 0.19
Weighted average shares
outstanding--basic........ 5,007 4,970 5,820 6,050 6,304 7,009 6,299 6,316 6,970
Weighted average shares
outstanding--diluted...... 5,294 5,494 6,104 6,537 7,014 7,720 7,021 6,316 7,940
PRO FORMA NET INCOME DATA(6):
Income (loss) before income
taxes..................... $ 1,843 $ (107)
Pro forma income tax
(expense) benefit......... (765) 44
-------- --------
Pro forma net income
(loss).................... 1,078 (63)
-------- --------
-------- --------
Pro forma net income (loss)
per share--basic.......... $ 0.19 $ (0.01)
Pro forma net income (loss)
per share--diluted........ $ 0.18 $ (0.01)
Pro forma weighted average
shares
outstanding--basic........ 5,820 6,050
Pro forma weighted average
shares
outstanding--diluted...... 6,104 6,050
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
----------------------------
ACTUAL AS ADJUSTED(7)
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................... $ 1,293
Working capital......................................................................... 3,760
Total assets............................................................................ 9,702
Long-term debt, including current portion............................................... 8,575
Total stockholders' equity (deficit).................................................... (2,694)
</TABLE>
- ------------------------------
(1) The pro forma statement of operations data for the year ended December 31,
1997 are presented as if, on January 1, 1997, the Offering had been
consummated and a portion of the net proceeds therefrom had been applied to
repay all outstanding long-term debt, including current portion, resulting
in the elimination of interest expense (and the related income tax benefit).
The 1997 pro forma statement of operations data also reflect the elimination
of the extraordinary loss on early extinguishment of debt. The 1997 pro
forma net income per share data (basic and diluted) include an additional
704.9 shares of Common Stock
5
<PAGE>
assumed to be outstanding, reflecting that portion of the Offering necessary
to repay outstanding debt at January 1, 1997. See "Capitalization," "Use of
Proceeds" and Note 7 of Notes to Financial Statements.
(2) The pro forma statement of operations data for the six months ended June 30,
1998 are presented as if, on January 1, 1998, the Offering had been
consummated and a portion of the net proceeds therefrom had been applied to
repay all outstanding long-term debt, including current portion, resulting
in the elimination of interest expense (and the related income tax benefit).
The 1998 interim period pro forma statement of operations data also reflect
the elimination of special compensation expense (and the related income tax
benefit) recognized as a result of the sale of stock and granting of options
at prices below fair value to certain officers and employees of the Company
in May and June 1998. The 1998 interim period pro forma information does not
include $1,225 in aggregate bonus obligations payable to certain current
officers and a significant stockholder of the Company upon the successful
completion of an initial public offering. The 1998 interim period pro forma
net income per share data-basic include an additional 654.1 shares of Common
Stock assumed to be outstanding reflecting that portion of the Offering
necessary to repay outstanding debt at January 1, 1998 and the 1998 interim
period pro forma net income per share data-diluted includes such 654.1
additional shares plus a further 969.2 shares representing the potential
dilutive impact of outstanding options and warrants that were not considered
in the actual results for the six months ended June 30, 1998 as their impact
would have been anti-dilutive. See "Capitalization," "Use of Proceeds" and
Notes 7 and 11 of Notes to Financial Statements.
(3) Special compensation expense relates to the issuance of stock and options in
connection with the May 1998 hiring of the Company's Chairman and Chief
Executive Officer and certain other employees at prices below the fair value
of the underlying shares. The Chairman's options and shares vested
immediately and are subject to call rights held by the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Management--Executive Compensation," "Certain Transactions"
and Note 11 of Notes to Financial Statements.
(4) During late 1996 and early 1997, the Company incurred costs to relocate its
corporate offices from Pennsylvania to Orlando, Florida. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Note 10 of Notes to Financial Statements.
(5) On April 11, 1996, the Company completed the Recapitalization whereby
combined proceeds of approximately $21,132 from the issuance of common
stock, debt and warrants were used to redeem 5,637 shares of common stock,
to terminate certain options to purchase common stock and to pay
transaction-related expenses including cash bonuses paid to certain key
executives, and certain legal, accounting and other miscellaneous expenses.
Immediately after the Recapitalization, previous shareholders held 20.3% of
the outstanding voting common stock of the Company. Interest expense for
periods after April 11, 1996 reflects the debt incurred as part of the
Recapitalization. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 4 of Notes to Financial
Statements.
(6) For the period January 1, 1995 to April 11, 1996 the Company was treated as
an S Corporation for federal income tax purposes. During such period, the
Company was not subject to federal income taxes, but was subject to certain
state income taxes. Upon the termination of its S Corporation election, the
Company recognized a deferred tax benefit of $271 related to the initial
recording of deferred tax assets and liabilities. The pro forma net income
data show the significant effects on the historical financial information
had the Company not been treated as an S Corporation during this period and
reflect a provision for income taxes at an effective rate of 41.5% and 41.0%
during 1995 and a portion of 1996, respectively. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Notes 1, 2 and 14 of Notes to Financial Statements.
(7) Adjusted to give effect to the sale of shares of Common Stock offered
by the Company hereby (at an assumed initial public offering price of
$ per share) and the application of the estimated net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."
6
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, INVESTORS
SHOULD CONSIDER CAREFULLY THE FOLLOWING FACTORS IN CONNECTION WITH AN INVESTMENT
IN THE SHARES OF COMMON STOCK OFFERED HEREBY.
RELIANCE ON HIGHER EDUCATION INSTITUTIONS
Substantially all of the Company's clients are colleges and universities.
The Company estimates that there are approximately 3,500 colleges and
universities in the United States. The Company's success will depend, to a large
extent, on its ability to persuade institutions that currently perform
information technology functions through their own in-house departments to
contract with a third-party provider such as the Company to perform those
functions. The Company's ability to increase revenues would also be impaired if
the Company were unsuccessful in persuading clients to use the Company as their
single-source provider of a number of critical information technology services.
Because client referrals are an important component in obtaining new engagements
in the higher education market, a failure or inability to meet a customer's
expectations could seriously damage the Company's reputation and affect its
ability to attract new business. The Company cannot give any assurance of
success in expanding its presence in its target market or otherwise increasing
its revenues from its current clients.
Unfavorable economic conditions adversely impacting the higher education
market could also have a material adverse effect on the Company's business,
financial condition and results of operations. A general economic downturn could
further intensify the competitive pressures facing small private colleges, which
constitute a significant market for the Company's services. In addition, the
Company derives a significant portion of its revenues from public institutions
whose fiscal stability is dependent, in part, on state and local government
funding. As a result, a decrease in government funding in a state or
municipality in which the Company derives a significant portion of its revenue
could have a material adverse effect on the Company's business, financial
condition or results of operations. During the years ended December 31, 1996 and
1997 and the six months ended June 30, 1998, the Company derived 23.2%, 33.1%
and 31.6%, respectively, of its service revenue from New Jersey-based community
colleges.
EXECUTION RISKS OF IT PROJECTS; YEAR 2000 RISKS
The Company's services, especially the outsourcing of a substantial portion
of an institution's IT functions, involve key aspects of computer systems and
are typically critical to a client's operations. Failures in a client's system
could result in a claim for substantial damages against the Company, regardless
of the Company's actual responsibility. Additionally, the Company maintains
general liability insurance coverage, including coverage for errors and
omissions. However, there is no assurance that such coverage will continue to be
available on acceptable terms, or will be available in sufficient amounts to
cover one or more large claims. The successful assertion of one or more large
claims against the Company that exceed available insurance coverage, or changes
in the Company's insurance policies including premium increases or the
imposition of large deductible or co-insurance requirements, could each have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Year 2000 problem is an example of this risk. While the Company is not
aware of any existing or potential claims, the occurrence of Year 2000 related
system failures in the information systems of clients of the Company could
result in a material claim for damages against the Company or the early
termination of the Company from a significant engagement, whether or not the
Company bears any responsibility, legal or otherwise, for the occurrence of
those problems. No assurance can be given that clients will not attempt to
assert that the scope of the Company's engagement, as the administrator of their
IT function, encompasses responsibility for Year 2000 system failures.
7
<PAGE>
DEPENDENCE ON KEY CLIENTS
The Company derives a significant portion of its revenues from a relatively
limited number of clients. COLLEGIS is currently engaged by 28 institutions on
significant long-term projects. The Company's top 10 clients accounted for
approximately 70% of the Company's 1997 revenues, with the top two clients
accounting for approximately 13.5% and 9.0% of such revenues, respectively. For
the six months ended June 30, 1998, the Company's top 10 clients accounted for
approximately 61% of the Company's revenues, with the top two clients accounting
for approximately 10.2% and 9.0% of such revenues, respectively. The loss of any
one of the Company's major clients could have a material adverse effect on the
Company's business, financial condition or results of operations. See
"Business--Clients."
It is the Company's general practice to enter into long-term contracts
having a typical term of five years. Of these long-term client contracts, five
expire prior to December 31, 1999. The Company cannot give any assurance of its
ability to renew contracts or to renew contracts on terms as favorable to the
Company as those contained in the existing contracts.
NEED TO MANAGE GROWTH
The Company is continuing to experience significant growth, which has
placed, and could continue to place, a strain on the Company's financial,
managerial and human resources. From December 31, 1996 through June 30, 1998,
the number of the Company's full-time employees has increased from 195 to 388
and the Company is planning substantial increases in the future. The Company's
future performance and profitability will depend, in large part, on its ability
to manage this growth, particularly with respect to its decentralized workforce
that is located principally at its clients' sites. To manage this growth, the
Company must continue to improve its operational, financial and other internal
systems and the training, motivation, management and retention of its employees.
If the Company is unable to manage growth effectively, it could have an adverse
affect on the Company's business, financial condition or results of operations.
NEED TO ATTRACT AND RETAIN KEY PERSONNEL IN HIGHLY COMPETITIVE MARKETPLACE
The Company's business involves the delivery of professional and technical
services and is labor intensive. The Company's performance depends, to a large
extent, on the continued service of its key technical employees and client
managers and its ability to continue to attract, retain and motivate such
personnel. Competition for such personnel is intense, particularly for highly
skilled and experienced IT professionals who also have backgrounds serving
higher education. Such technical personnel are in great demand and are likely to
remain a limited resource for the foreseeable future. The Company can give no
assurance that it will attract, retain and motivate sufficient numbers of highly
skilled employees in the future. The inability to do so could have a material
adverse effect upon the Company's business, operating results or financial
condition. Competitive forces may require the Company to increase the
compensation of its IT professionals to levels payable by the IT services
industry generally. There is no assurance that the Company would be able to pass
any such increase on to its clients. See "Business--Human Resources."
RISKS ASSOCIATED WITH GROWTH THROUGH ACQUISITIONS
The Company's business strategies include growth through acquisitions of
complementary businesses that meet client and market demands for new services or
enhanced skills. To date, the Company has no experience in making business
acquisitions or integrating acquired businesses. The Company's success in
executing its acquisition strategy will depend, in part, on its ability to
identify potential targets that meet the Company's criteria, which include a
reputation as a leading service provider with strong client relationships and a
complementary culture. The Company can give no assurance that it will have
success in identifying potential acquisitions or that, if identified, it will
complete the acquisitions on acceptable terms or that it will successfully
integrate any acquired assets or business into the Company's operations. The
Company may use Common Stock or preferred stock (which could result in dilution
to the purchasers of
8
<PAGE>
Common Stock in the Offering) or may incur indebtedness or use a combination of
stock and indebtedness for all or a portion of the consideration to be paid in
future acquisitions, all of which could be dilutive to the Company's earnings or
earnings per share.
RISKS INVOLVED IN MANAGING FIXED PRICE PROJECTS
Substantially all of the Company's revenues are generated under long-term,
fixed priced contracts. The Company's failure to accurately estimate the
resources and related expenses required for a fixed fee contract or its failure
to complete its contractual obligations in a manner consistent with the project
plan upon which its fixed fee contract was based, could have a material adverse
impact on the Company's business, financial condition and results of operations.
At the start of a contract for the management of an institution's IT
function, the Company may incur significant start-up expenses prior to receiving
any payments under its contract. Such expenses include the costs of hiring,
training and relocating sufficient personnel.
VARIABILITY OF QUARTERLY OPERATING RESULTS
Variations in the Company's revenues and operating results may occur from
quarter to quarter as a result of a number of factors, including a slowdown in
new client engagements, the failure to renew existing client engagements, the
Company incurring expenditures in connection with an engagement substantially in
excess of the fixed fees paid by the client, the business failure of a
significant client, the length of the Company's sales cycle, the size and scope
of assignments and general economic conditions. Because a significant portion of
the Company's expenses are relatively fixed, a variation in the number of client
assignments or the timing of the initiation or the completion of client
assignments can cause significant variations in operating results from quarter
to quarter. To the extent that increases in the number of professional personnel
are not followed by corresponding increases in revenues, the Company's operating
results could be materially adversely affected. Due to all of the foregoing
factors, it is possible that in some future periods the Company's results of
operations will be below the expectations of public market analysts and
investors. In such event, the price of the Company's Common Stock could be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations-- Unaudited Quarterly Results."
COMPETITION
The IT services industry is intensely competitive, highly fragmented and
subject to rapid technological and market changes. The Company's primary
competitive challenge is overcoming the initial resistance to the IT outsourcing
model from the internal IT departments of its prospective clients. The Company
also competes for client projects and experienced personnel with a number of IT
service organizations having significantly greater financial, technical and
marketing resources and revenues than the Company. Many of these competitors
also have greater name recognition in the IT services industry. The Company's
competitors include systems consulting and integration services providers,
application software and professional service organizations, major accounting
firms and general management consulting firms. The emerging instructional
technology market is highly fragmented with no single dominant participant. As
this market matures, the Company anticipates facing increasing competition from
larger, better financed participants than the Company.
The Company expects to experience increasing competition from IT service
providers offering established services and new service offerings and
technologies. In addition, current and potential competitors may make strategic
acquisitions or establish cooperative relationships among themselves or with
others, thereby increasing their ability to expand or increase their service
offerings to higher education
9
<PAGE>
institutions. Accordingly, it is possible that new competitors or alliances
among current and new competitors may emerge and rapidly gain significant market
share. Increased competition could result in downward pricing pressures, fewer
client engagements, reduced gross margins and loss of market share for the
Company. See "Business--Competition."
DEPENDENCE ON KEY EXECUTIVES
The success of the Company is highly dependent upon the efforts, abilities,
business generation capabilities and project execution skills of its executive
officers and senior managers. The loss of one or more of the Company's key
executive officers could have a material adverse effect on the Company and its
prospects. See "Management."
DEPENDENCE ON ABILITY TO ANTICIPATE TECHNOLOGICAL ADVANCES
The success of the Company will depend, to a large extent, on its ability to
anticipate and develop solutions that keep pace with changes in information
ttechnology, evolving industry standards and changing client needs and
preferences. The Company cannot give any assurance of success in anticipating
and addressing these developments in a timely manner or that it will be able to
successfully introduce new service offerings. The Company's failure to
anticipate and address these developments could have a material adverse effect
on the Company's business, financial condition or results of operations. In
addition, the Company cannot give any assurance that products or technologies
that third parties develop will not render the information technology services
of the Company noncompetitive or obsolete. See "Business-- Service Areas."
LIMITED PROTECTION OF PROPRIETARY SYSTEMS AND PROCEDURES
The Company's performance is in part dependent upon its internal information
and communication systems, databases, tools, and the methodologies that it has
developed to serve its clients. The Company has no patents; consequently, it
relies on a combination of nondisclosure and other contractual arrangements and
copyright and trade secret laws to protect its proprietary systems, information
and procedures. The Company cannot give any assurance that the steps that it
takes or will take to protect its proprietary rights will be adequate to prevent
misappropriation of such rights or that the Company will detect unauthorized use
and take appropriate steps to enforce its proprietary rights. The Company
believes that its systems and procedures and other proprietary rights do not
infringe upon the rights of third parties. However, the Company cannot give any
assurance in this regard or that any infringement claims will not require the
Company to enter into costly litigation or materially adverse settlements to
litigation, regardless of the merits of such litigation.
SIGNIFICANT UNALLOCATED NET PROCEEDS
The Company has not designated a substantial portion of the anticipated net
proceeds of this Offering. Therefore, the Company's management will have broad
discretion with respect to the use of the net proceeds of this Offering. The
Company could allocate a significant percentage of the net proceeds to uses that
stockholders may not consider desirable, and there can be no assurance that the
net proceeds can or will be invested to yield an acceptable return. See "Use of
Proceeds."
BENEFITS OF OFFERING TO SELLING STOCKHOLDERS
The Selling Stockholders will receive substantial proceeds and certain other
benefits from their participation in this Offering. This Offering will establish
a public market for the Common Stock and provide significantly increased
liquidity to the Selling Stockholders for the shares of Common Stock they will
own after this Offering. After deducting underwriting discounts and commissions,
the aggregate proceeds (before deduction of estimated income taxes) to the
Selling Stockholders from their sale of
10
<PAGE>
shares in this Offering will be approximately $ million. The Company will not
receive any part of the proceeds from the sale of shares by the Selling
Stockholders. See "Use of Proceeds," "Dilution" and "Principal and Selling
Stockholders."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, the Common Stock has not been publicly traded. The
management of the Company and the representatives of the Underwriters (the
"Representatives") will determine through negotiations the initial public
offering price per share of the Common Stock. See "Underwriting" for factors to
be considered in determining the initial public offering price per share.
Although the Common Stock has been approved for quotation on the Nasdaq National
Market, the Company cannot offer any assurance that an active trading market
will develop or be sustained after this Offering. The market price of the Common
Stock may fluctuate substantially due to a variety of factors, including
quarterly fluctuations in its results of operations, the failure to win a
significant contract on which it has bid, a client's termination of a material
contract, the Company's or a competitor's announcements of technological
innovations or new services, changes in earnings estimates by securities
analysts, changes in accounting principles, sales of Common Stock by existing
holders, negative publicity, loss of key personnel, lack of market acceptance
regarding the Company's announcement of an acquisition and other factors. In
addition, the stock market is subject to extreme price and volume fluctuations.
This volatility has often had a significant effect on the market prices of
securities for reasons unrelated to the operating performance of these
companies. In the past, following periods of volatility in the market price of a
company's securities, certain companies became defendants in securities class
action litigation. Any such litigation initiated against the Company could
result in substantial costs and a diversion of management's attention and
resources, which could have a material adverse effect on the Company's business,
financial condition and results of operations.
INFLUENCE OF PRINCIPAL STOCKHOLDERS
After completion of this Offering, the Company's directors and executive
officers will beneficially own an aggregate of approximately % of the
Company's outstanding shares of Common Stock ( % if the Underwriters'
over-allotment option is exercised in full). As a result, these stockholders
will retain sufficient voting power to exercise significant influence over the
outcome of matters requiring a stockholder vote, including the election of the
members of the Board of Directors, thereby controlling the affairs and
management of the Company. Such control could adversely affect the market price
of the Common Stock or delay or prevent a change in control of the Company. See
"Principal and Selling Stockholders."
DILUTION
The purchasers of the shares of Common Stock in this Offering will
experience an estimated immediate dilution of $ per share. The per share
purchase price of the Common Stock in this Offering will exceed the net tangible
book value per share of the Common Stock immediately following the Offering. See
"Dilution."
ANTI-TAKEOVER MATTERS
The Company's Restated Certificate of Incorporation and By-Laws contain
certain provisions that may delay, defer or prevent a takeover of the Company
that stockholders might consider in their best interests. The Company's Board of
Directors has the authority to issue up to 3,000,000 shares of preferred stock
and to determine the price, rights, preferences and restrictions, including
voting rights, of these shares, without any further vote or action by the
stockholders of the Company. The rights of holders of Common Stock are subject
to, and may be adversely affected by, the rights of holders of any preferred
stock that the Company may issue in the future. The Restated Certificate of
Incorporation also provides
11
<PAGE>
for a classified board of directors, with three classes of directors, each class
being elected for three-year, staggered terms, prohibits the removal of
directors except for "cause" and prohibits stockholder action by written
consent. The Company's By-Laws include provisions establishing advance notice
procedures with respect to stockholder proposals and director nominations and
permits only the Board of Directors, the Chairman or the President to call
special stockholder meetings. In addition, Section 203 of the General
Corporation Law of the State of Delaware, if applicable, may be deemed to have
an anti-takeover effect and may discourage takeover attempts not first approved
by the Board of Directors, which could adversely affect the market price of the
Company's Common Stock. See "Description of Capital Stock and Corporate
Charter."
SHARES ELIGIBLE FOR FUTURE SALE
Immediately after completion of this Offering, the Company will have
9,189,060 shares (excluding 2,150,404 shares issuable upon exercise of currently
issued and outstanding options) of Common Stock outstanding, of which the
3,700,000 shares sold pursuant to this Offering will generally be freely
tradable without restriction or further registration under the Securities Act.
The remaining 5,489,060 shares (excluding shares issuable upon exercise of
currently issued and outstanding options) of Common Stock constitute "restricted
securities" under Rule 144 under the Securities Act ("Rule 144"). Of these
"restricted securities," 5,384,324 shares will be eligible for sale by the
holders thereof subject, however, to the manner of sale, volume, notice
information requirements and other restrictions (other than the holding period)
of Rule 144, as applicable. The remaining 104,736 "restricted securities" will
become eligible for sale under Rule 144 at various times beginning in 1999. The
Company, together with the Selling Stockholders and executive officers and
directors of the Company (holding in the aggregate approximately shares of
Common Stock after completion of this Offering), will enter into agreements,
subject to certain exceptions, not to register the sale of, sell, offer to sell,
contract to sell, grant any option to purchase or otherwise dispose of, directly
or indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, other than the shares offered
hereby, for a period of 180 days after the date of this Prospectus, without the
prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation.
However, Donaldson, Lufkin & Jenrette Securities Corporation may, in its
discretion, waive the foregoing restrictions in whole or in part, with or
without a public announcement of such action. The sale of a substantial number
of shares of Common Stock, or the perception that such sales could occur, could
adversely affect prevailing market prices for the Common Stock. In addition, any
such sale or such perception could make it more difficult for the Company to
sell equity securities or equity-related securities in the future at a time and
price that the Company deems appropriate.
DIVIDEND POLICY; ABSENCE OF DIVIDENDS
The Company has not paid cash dividends on its capital stock since it
converted to a C Corporation for tax purposes and does not anticipate paying
cash dividends in the foreseeable future. The Company currently intends to
retain all earnings for the development of its business. See "Dividend Policy."
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
Included in this Prospectus are various forward-looking statements,
including, among others, the Company's goals and strategies, the expected growth
of the higher education market's demand for IT solutions and services, the pace
of change in that marketplace, the demand for educational outsourcing services,
the Company's goal to expand service offerings and to pursue acquisitions, the
ability to enter into additional contracts with existing clients, and the
ability to obtain new outsourcing contracts.
These statements are forward-looking and reflect the Company's current
expectations. Such statements are subject to a number of risks and uncertainties
including, but not limited to, changes in the
12
<PAGE>
economic and political environments, changes to technology and changes in the
higher education marketplace. In light of the many risks and uncertainties
surrounding the Company and the higher education marketplace, the Company can
give no assurance that the events described in forward-looking statements
contained in this Prospectus will take place.
COMPANY HISTORY
The Company was organized in 1986 under the laws of Pennsylvania. On April
11, 1996, the Company completed a recapitalization transaction (the
"Recapitalization") in which combined proceeds of approximately $21.1 million
from the issuance of Common Stock, debt and warrants were used to (i) redeem
5,637,152 shares of common stock, (ii) terminate certain options to purchase
common stock and (iii) pay transaction-related expenses. Immediately after the
Recapitalization, previous stockholders held 20.3% of the outstanding voting
common stock of the Company. Except for the change in the Company's capital
structure, the operations and nature of the Company's business remained
substantially unchanged. In connection with the Recapitalization, on May 23,
1996 the Company reincorporated in Delaware. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 4 of Notes
to the Financial Statements.
The Company's principal executive offices are located at 2300 Maitland
Center Parkway, Suite 340, Maitland, Florida 32751. The Company's World Wide Web
address is http://www.collegis.com. The Company's Web site is not part of this
Prospectus. The Company's telephone number is (407) 660-1199.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered by the Company (after deducting underwriting discounts and commissions
and estimated offering expenses payable by the Company) are estimated to be
$ , based upon an assumed initial public offering price of $ per
share.
The Company intends to use such net proceeds to (i) repay $8.6 million of
bank indebtedness, (ii) pay $1.2 million in aggregate bonus obligations payable
to certain current officers and a significant stockholder and former director
and executive officer of the Company upon the successful completion of an
initial public offering, and (iii) for general corporate purposes, including
expansion of existing operations, investing in new technologies or future
acquisitions of complimentary businesses. The indebtedness consists of a
revolving credit facility which bears interest at either the applicable Prime or
LIBOR rate, plus a variable spread. Such indebtedness matures on December 31,
2003 and is subject to quarterly amortization payments. The Company currently
has no agreements, understandings or commitments regarding any future
acquisitions.
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Stockholders. See "Principal and Selling Stockholders."
DIVIDEND POLICY
The Company anticipates that it will retain all of its earnings for
expansion of the Company's business, and does not anticipate paying any cash
dividends in the foreseeable future. Future cash dividends, if any, will be at
the discretion of the Company's Board of Directors and will depend upon, among
other things, the Company's future operations and earnings, capital requirements
and surplus, general financial condition, contractual restrictions and such
other factors as the Board of Directors may deem relevant.
13
<PAGE>
CAPITALIZATION
The following table sets forth the current portion of long-term debt and the
capitalization of the Company as of June 30, 1998, and as adjusted to reflect
the sale of shares of Common Stock offered by the Company and the
application of the estimated net proceeds therefrom as described in "Use of
Proceeds." The following table should be read in conjunction with the Financial
Statements and related Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
-----------------------
ACTUAL AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt.................................... $ 1,050 $ --
---------- -----------
---------- -----------
Long-term debt, net of unamortized discount.......................... $ 7,525 $ --
---------- -----------
Redeemable Common Stock; $.01 par value; 374,000 shares issued and
outstanding actual, at redemption value; no shares outstanding as
adjusted(1)........................................................ $ 913 --
Stockholders' equity:
Preferred Stock, $.01 par value; 3,000,000 shares authorized as
adjusted; no shares issued and outstanding as adjusted........... --
Common Stock, $.01 par value; 32,500,000 shares authorized;
6,040,148 shares issued and outstanding actual; 9,189,060 shares
issued and outstanding as adjusted(2)............................ 60
Additional paid-in capital......................................... 14,566
Warrants........................................................... 404
Treasury stock-at cost(3).......................................... (18,943)
Retained earnings.................................................. 1,219
Total stockholders' equity (deficit)............................. (2,694)
---------- -----------
Total capitalization........................................... $ 6,794 $
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) In connection with the Recapitalization, the Company entered into an
agreement with a former executive officer and director that provided for
certain put rights with respect to 374,000 shares of Common Stock held by
the former officer. The existence of the put rights requires the Company to
separately record these shares as redeemable equity. The agreement granting
the put rights expires upon the completion of this Offering. See "Certain
Transactions" and Note 7 of Notes to Financial Statements.
(2) The issued and outstanding as adjusted shares of Common Stock include
274,912 shares of Common Stock to be issued upon exercise of a warrant by a
Selling Stockholder in connection with this Offering and exclude (i)
2,150,404 shares of Common Stock issuable upon the exercise of stock options
outstanding as of June 30, 1998, of which 1,850,404 are outstanding under
the Company's 1996 Stock Option Plan and 300,000 are held by an executive
officer of the Company, and (ii) 298,360 shares of Common Stock reserved for
grant of future options or direct issuances under the Company's 1996 Stock
Option Plan. See "Management--Employee Benefit Plans--1996 Stock Option
Plan" and "Certain Transactions."
(3) In connection with the Recapitalization, the Company redeemed substantially
all of the Company's then-outstanding common stock. The cost of the
purchased shares was recorded as treasury stock and a portion of the shares
held in treasury will be reissued by the Company in connection with the
Offering. See Note 4 of Notes to Financial Statements.
14
<PAGE>
DILUTION
As of June 30, 1998, the net tangible book value of the Company was $ or
$ per share. Tangible book value per share represents the amount of total
tangible assets of the Company, less total liabilities, divided by the number of
shares of Common Stock outstanding. After giving effect to the sale by the
Company of shares of Common Stock and the application of the
estimated net proceeds therefrom as described under "Use of Proceeds," the net
tangible book value of the Company at June 30, 1998 would have been $ or
$ per share. This amount represents an immediate increase in net tangible
book value of $ per share to existing stockholders of the Company and an
immediate dilution in net tangible book value per share of $ per share to
purchasers of Common Stock in this Offering. The following table illustrates
this per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share............................ $
Net tangible book value per share at June 30, 1998....................... $
Increase per share attributable to new investors.........................
---------
Net tangible book value per share after this Offering......................
---------
Dilution in net tangible book value per share to new investors............. $
---------
---------
</TABLE>
As of June 30, 1998, there were options outstanding to purchase a total of
2,150,404 shares of Common Stock at a weighted average exercise price of $2.13
per share. To the extent outstanding options are exercised, there will be
further dilution to investors.
The following table summarizes, on a pro forma basis as of June 30, 1998,
the differences in the number of shares of capital stock purchased from the
Company, the total consideration paid and the average price paid per share by
existing shareholders and new investors:
<TABLE>
<CAPTION>
TOTAL CONSIDERATION
SHARES PURCHASED -----------------------------------
------------------------ AVERAGE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)....................................... % $ % $
New investors(1)............................................... $
----------- ----- --------- -----
Total........................................................ 100.0% $ 100.0%
----------- ----- --------- -----
----------- ----- --------- -----
</TABLE>
- ------------------------
(1) Sales by the Selling Stockholders in this Offering will reduce the number of
shares of Common Stock held by existing stockholders of the Company to or
% of the total number of shares outstanding after this Offering ( % if
the Underwriters' over-allotment option is exercised in full), and will
increase the number of shares held by new investors to shares of Common
Stock or % of the total number of shares of Common Stock outstanding
after this Offering ( shares or % if the Underwriters' over-allotment
option is exercised in full). See "Principal and Selling Stockholders."
15
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data as of and for the years ended December
31, 1996 and 1997 are derived from the Company's Financial Statements and
related Notes thereto included elsewhere in this Prospectus, which have been
audited by Deloitte & Touche, LLP, independent auditors. The selected financial
data for the year ended December 31, 1995 are derived from the Company's
Financial Statements included elsewhere in this Prospectus, which have been
audited by Zweig, Ramick & Associates, independent auditors. The selected
financial data as of December 31, 1993, 1994 and 1995 and for the years ended
December 31, 1993 and 1994 are derived from the Company's audited financial
statements not included in this Prospectus. The selected financial data as of
and for the six months ended June 30, 1997 and 1998 are derived from the
Company's unaudited financial statements, and include, in the opinion of
management, all adjustments necessary for a fair statement of the results for
the interim periods, and all such adjustments are of a normal recurring nature.
The selected financial data for the six months ended June 30, 1998 are not
necessarily indicative of the results to be expected for the full year. The
selected financial data set forth below should be read in conjunction with the
Company's Financial Statements and related Notes thereto and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------------- ------------------------------
PRO PRO
FORMA FORMA
1993 1994 1995 1996 1997 1997(1) 1997 1998 1998(1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Service revenue............. $ 3,990 $ 7,074 $ 9,708 $ 15,226 $ 22,808 $22,808 $ 10,240 $ 15,858 $15,858
Operating expenses:
Cost of services.......... 2,210 3,996 5,632 8,828 13,072 13,072 5,834 9,027 9,027
Selling, general and
administrative
expenses................ 1,686 2,027 2,317 3,545 6,002 6,002 2,691 4,376 4,376
Depreciation and
amortization............ 14 27 40 104 153 153 68 91 91
Special compensation
expense(3).............. -- -- -- -- -- -- -- 2,474 --
Relocation costs(4)....... -- -- -- 613 488 488 488 -- --
Recapitalization
expenses(5)............. -- -- -- 1,587 -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total operating
expenses.............. 3,910 6,050 7,989 14,677 19,715 19,715 9,081 15,968 13,494
-------- -------- -------- -------- -------- -------- -------- -------- --------
Operating income (loss)..... 80 1,024 1,719 549 3,093 3,093 1,159 (110) 2,364
Interest expense(5)......... (8) (8) -- (787) (1,012) -- (536) (391) --
Interest income............. 25 64 124 131 143 143 79 71 71
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes..................... 97 1,080 1,843 (107) 2,224 3,236 702 (430) 2,435
Income tax (expense)
benefit(6)................ (15) (385) 67 571 (938) (1,365) (324) 170 (963)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item........ 82 695 1,910 464 1,286 1,871 378 (260) 1,472
Loss on early extinguishment
of debt--net of income tax
benefit of $180........... -- -- -- -- (271) -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)........... $ 82 $ 695 $ 1,910 $ 464 $ 1,015 $ 1,871 $ 378 $ (260) $ 1,472
-------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) per
share--basic.............. $ 0.02 $ 0.14 $ 0.33 $ 0.08 $ 0.16 $ 0.27 $ 0.06 $ (0.04) $ 0.21
Net income (loss) per
share--diluted............ $ 0.02 $ 0.13 $ 0.31 $ 0.07 $ 0.14 $ 0.24 $ 0.05 $ (0.04) $ 0.19
Weighted average shares
outstanding--basic........ 5,007 4,970 5,820 6,050 6,304 7,009 6,299 6,316 6,970
Weighted average shares
outstanding--diluted...... 5,294 5,494 6,104 6,537 7,014 7,720 7,021 6,316 7,940
PRO FORMA NET INCOME DATA(6):
Income (loss) before income
taxes..................... $ 1,843 $ (107)
Pro forma income tax
(expense) benefit......... (765) 44
-------- --------
Pro forma net income
(loss).................... 1,078 (63)
-------- --------
-------- --------
Pro forma net income (loss)
per share--basic.......... $ 0.19 $ (0.01)
Pro forma net income (loss)
per share--diluted........ $ 0.18 $ (0.01)
Pro forma weighted average
shares outstanding--
basic..................... 5,820 6,050
Pro forma weighted average
shares outstanding--
diluted................... 6,104 6,050
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
----------------------------------------------------- ----------------------------
1993 1994 1995 1996 1997 1997(UNAUDITED)1998
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................ $ 1,110 $ 1,059 $ 2,726 $ 2,614 $ 3,568 $ 1,950 $ 1,293
Working capital.......................... 1,139 1,794 2,703 2,661 2,793 2,369 3,760
Total assets............................. 1,588 2,856 3,628 6,978 8,257 6,167 9,702
Long-term debt, including current
portion................................ 100 9,088 9,000 8,788 8,575
Redeemable common stock.................. -- -- -- 913 913 913 913
Total stockholders' equity (deficit)..... 1,073 1,892 2,800 (5,963) (5,253) (5,585) (2,694)
</TABLE>
- ------------------------------
(1) The pro forma statement of operations data for the year ended December 31,
1997 are presented as if, on January 1, 1997, the Offering had been
consummated and a portion of the net proceeds therefrom had been applied to
repay all outstanding long-term debt, including current portion, resulting
in the elimination of interest expense (and the related income tax benefit).
The 1997 pro forma statement of operations data also reflect the elimination
of the extraordinary loss on early extinguishment of debt. The 1997 pro
forma net income per share data (basic and diluted) include an additional
704.9 shares of Common Stock assumed to be outstanding, reflecting that
portion of the Offering necessary to repay outstanding debt at January 1,
1997. See "Capitalization," "Use of Proceeds" and Note 7 of Notes to
Financial Statements.
(2) The pro forma statement of operations data for the six months ended June 30,
1998 are presented as if, on January 1, 1998, the Offering had been
consummated and a portion of the net proceeds therefrom had been applied to
repay all outstanding long-term debt, including current portion, resulting
in the elimination of interest expense (and the related income tax benefit).
The 1998 interim period pro forma statement of operations data also reflect
the elimination of special compensation expense (and the related income tax
benefit) recognized as a result of the sale of stock and granting of options
at prices below fair value to certain officers and employees of the Company
in May and June 1998. The 1998 interim period pro forma information does not
include $1,225 in aggregate bonus obligations payable to certain current
officers and a significant stockholder of the Company upon the successful
completion of an initial public offering. The 1998 interim period pro forma
net income per share data-basic include an additional 654.1 shares of Common
Stock assumed to be outstanding reflecting that portion of the Offering
necessary to repay outstanding debt at January 1, 1998 and the 1998 interim
period pro forma net income per share data-diluted includes such 654.1
additional shares plus a further 969.2 shares representing the potential
dilutive impact of outstanding options and warrants that were not considered
in the actual results for the six months ended June 30, 1998 as their impact
would have been anti-dilutive. See "Capitalization," "Use of Proceeds" and
Notes 7 and 11 of Notes to Financial Statements.
(3) Special compensation expense relates to the issuance of stock and options in
connection with the May 1998 hiring of the Company's Chairman and Chief
Executive Officer and certain other employees at prices below the fair value
of the underlying shares. The Chairman's options and shares vested
immediately and are subject to call rights held by the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Management--Executive Compensation," "Certain Transactions"
and Note 11 of Notes to Financial Statements.
(4) During late 1996 and early 1997, the Company incurred costs to relocate its
corporate offices from Pennsylvania to Orlando, Florida. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Note 10 of Notes to Financial Statements.
(5) On April 11, 1996, the Company completed the Recapitalization whereby
combined proceeds of approximately $21,132 from the issuance of common
stock, debt and warrants were used to redeem 5,637 shares of common stock,
to terminate certain options to purchase common stock and to pay
transaction-related expenses including cash bonuses paid to certain key
executives, and certain legal, accounting and other miscellaneous expenses.
Immediately after the Recapitalization, previous shareholders held 20.3% of
the outstanding voting common stock of the Company. Interest expense for
periods after April 11, 1996 reflects the debt incurred as part of the
Recapitalization. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 4 of Notes to Financial
Statements.
(6) For the period January 1, 1995 to April 11, 1996 the Company was treated as
an S Corporation for federal income tax purposes. During such period, the
Company was not subject to federal income taxes, but was subject to certain
state income taxes. Upon the termination of its S Corporation election, the
Company recognized a deferred tax benefit of $271 related to the initial
recording of deferred tax assets and liabilities. The pro forma net income
data show the significant effects on the historical financial information
had the Company not been treated as an S Corporation during this period and
reflects a provision for income taxes at an effective rate of 41.5% and
41.0% during 1995 and a portion of 1996, respectively. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Notes 1, 2 and 14 of Notes to Financial Statements.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING SECTION OF THE PROSPECTUS, MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, SHOULD BE READ IN
CONJUNCTION WITH THE INFORMATION CONTAINED IN THE FINANCIAL STATEMENTS AND NOTES
THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. THE FOLLOWING DISCUSSION
CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND
UNCERTAINTIES. WHEN USED IN THIS SECTION, THE WORDS "ANTICIPATE," "BELIEVE,"
"ESTIMATE," "EXPECT" AND SIMILAR EXPRESSIONS AS THEY RELATE TO THE COMPANY OR
ITS MANAGEMENT ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THE
COMPANY'S ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS COULD DIFFER MATERIALLY
FROM THE RESULTS EXPRESSED IN, OR IMPLIED BY, THESE FORWARD-LOOKING STATEMENTS.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE
DISCUSSED IN "RISK FACTORS."
OVERVIEW
COLLEGIS is a leading nationwide provider of IT enterprise solutions and
services to clients in the higher education marketplace. The Company offers its
IT services through three principal areas: (i) Operational and Financial IT
Services; (ii) Networking and Internet Services; and (iii) Instructional
Technology Services. These services are generally provided under single,
multi-year, fixed-price contracts with durations ranging from three to seven
years. The average annualized revenue under the Company's long-term contracts
has grown from $905,000 per client at December 31, 1996 to $1,360,000 per client
at June 30, 1998.
Service revenue is generally recognized as services are provided in
accordance with the percentage of completion method. Changes in project
conditions, performance and profitability may result in revisions to costs and
revenues, which are recognized in the period in which such revisions are
determined. Service revenue excludes reimbursable expenses charged to the
client. Billings are based on payment schedules that may differ from the timing
of revenue recognition.
The fixed-price contracts subject the Company to the risk of cost overruns
and inflation. This risk is partially mitigated by contract clauses that allow
for fee increases in the event of inflation and by the active management of
individual project costs by the Company's on-site, regional and corporate
management teams. To date, the Company has not incurred a loss under a
fixed-price contract.
Because the Company's services are provided under multi-year client
agreements, a substantial portion of the Company's service revenue is committed
at the beginning of the year. Committed revenues as of December 31, 1995 and
December 31, 1996 represented in excess of 75% of the following year's revenue.
The remaining revenues are derived from new client engagements and additional
services sold to existing clients.
The Company's most significant expense is the cost of services provided,
which consists principally of the salaries, benefits and travel expenses of its
IT professionals. Project personnel are typically full-time professionals
employed by the Company. The Company also supplements its project personnel from
time to time with independent contractors. By retaining independent contractors
on a per-engagement basis, the Company is afforded greater flexibility to adjust
professional personnel levels in response to changes in demand for the services
provided.
Selling, general and administrative expenses include the costs of
maintaining the Company's corporate offices and infrastructure, including the
sales and marketing, human resources and recruiting, finance and administration,
and instructional technologies departments. To support its growth, the Company
has made, and anticipates that it will continue to make, a significant
investment in additional sales, marketing and recruiting personnel,
communication systems infrastructure and its instructional technologies area.
Relocation costs represent the costs associated with moving the corporate
headquarters from Pennsylvania to Florida in late 1996 and early 1997.
Relocation costs include certain facility and employee moving expenses, as well
as estimated severance costs for employees who elected not to relocate. See Note
10 of Notes to Financial Statements.
Recapitalization expenses include bonuses paid to certain key executives,
amounts paid to terminate certain stock options and miscellaneous legal,
accounting and other expenses incurred in connection with the recapitalization
of the Company on April 11, 1996. See Note 4 of Notes to Financial Statements.
18
<PAGE>
For the period January 1, 1995 through April 11, 1996, the Company was taxed
as a Subchapter S Corporation for Federal income tax purposes. As a result,
substantially all of the income of the Company was reported for tax purposes by
its stockholders rather than by the Company during this period. Effective with
the Recapitalization on April 11, 1996, the Company's Federal tax status changed
to a C Corporation.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, statements of
operations data as a percentage of revenue:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- -----------------------
1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C>
Service revenue.................................................. 100.0% 100.0% 100.0% 100.0% 100.0 %
Operating expenses:
Cost of services............................................... 58.0 58.0 57.3 57.0 56.9
Selling, general and administrative expenses................... 23.9 23.3 26.3 26.3 27.6
Depreciation and amortization.................................. 0.4 0.7 0.7 0.6 0.6
Special compensation expense................................... -- -- -- -- 15.6
Relocation costs............................................... -- 4.0 2.1 4.8 --
Recapitalization expenses...................................... -- 10.4 -- -- --
--------- --------- --------- --------- -----
Total operating expenses..................................... 82.3 96.4 86.4 88.7 100.7
--------- --------- --------- --------- -----
Operating income (loss).......................................... 17.7 3.6 13.6 11.3 (0.7)
Interest expense................................................. -- (5.2) (4.4) (5.2) (2.5)
Interest income.................................................. 1.3 0.9 0.6 0.8 0.4
--------- --------- --------- --------- -----
Income (loss) before income taxes................................ 19.0 (0.7) 9.8 6.9 (2.7)
Income tax (expense) benefit..................................... 0.7 3.8 (4.1) (3.2) 1.1
Income (loss) before extraordinary item.......................... 19.7 3.0 5.6 3.7 (1.6)
Loss on early extinguishment of debt -
net of income tax benefit...................................... -- -- (1.2) -- --
--------- --------- --------- --------- -----
Net income (loss)................................................ 19.7% 3.0% 4.5% 3.7% (1.6)%
--------- --------- --------- --------- -----
--------- --------- --------- --------- -----
</TABLE>
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
SERVICE REVENUE. Service revenue increased 54.9% from $10.2 million for the
six months ended June 30, 1997 to $15.9 million for the six months ended June
30, 1998. The increase in the Company's service revenue reflects the addition of
new clients as well as leveraging the Company's existing client base by
undertaking additional projects for these clients. For the six months ended June
30, 1998, $2.0 million of service revenue was derived from services delivered to
new clients and $13.9 million related to the continuation of existing contracts
and the undertaking of additional projects for the Company's client base of the
previous year. The Company serviced 27 clients under long-term contracts for the
six months ended June 30, 1998 versus 20 clients in the corresponding prior
period.
COST OF SERVICES. Cost of services increased 54.7% from $5.8 million for
the six months ended June 30, 1997 to $9.0 million for the six months ended June
30, 1998. The increase was due primarily to the number of additional
professional staff required to support the Company's growth during the period.
The Company increased the number of its IT professionals from 207 at June 30,
1997 to 337 at June 30, 1998. As a percentage of service revenue, cost of
services remained stable at 56.9% for the six months ended June 30, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 62.6% from $2.7 million in the six months
ended June 30, 1997 to $4.4 million for the six months ended June 30, 1998. The
increase was primarily attributable to the costs associated with establishing
the instructional technologies services area, increasing sales and recruiting
staff and enhancing support systems, reflecting the Company's continued
investment in its corporate infrastructure to support its growth. As a
percentage of service revenue, selling, general and administrative expenses
increased from 26.3% of revenues in the six months ended June 30, 1997 to 27.6%
in the six months ended June 30, 1998
19
<PAGE>
as increases in sales, recruiting and instructional technologies expenditures as
a percent of service revenue were offset by lower rates of growth in
expenditures in other administrative areas.
SPECIAL COMPENSATION EXPENSE. The Company incurred $2.5 million of special
compensation expense relating to the sale of stock and granting of options in
connection with the hiring of the Company's Chairman and Chief Executive Officer
and certain other employees at prices below the fair value. The Chairman's
options vest immediately and are subject to call rights held by the Company. See
"Management--Executive Compensation" and Note 11 of Notes to Financial
Statements.
RELOCATION COSTS. During late 1996 and early 1997, the Company relocated
its corporate headquarters from Pennsylvania to Orlando, Florida. Since the move
was completed in 1997, no relocation expenses were incurred in 1998.
OPERATING INCOME (LOSS). The Company incurred an operating loss of $0.1
million in the six months ended June 30, 1998 due to the special compensation
expense. Without consideration of this charge, the Company would have had
operating income of $2.4 million (14.9% of service revenue) in the six months
ended June 30, 1998 compared to $1.2 million (11.3% of service revenue) for the
corresponding prior period.
INTEREST EXPENSE. Interest expense declined $0.1 million reflecting lower
loan balances and interest rates for the 1998 period.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
SERVICE REVENUE. Service revenue increased 49.8% from $15.2 million in 1996
to $22.8 million in 1997. The increase in service revenue reflects the addition
of new clients as well as leveraging the Company's existing client base by
undertaking additional projects for these clients. In 1997, $3.0 million of
service revenue was derived from services delivered to new clients and $19.8
million related to the continuation of existing contracts and the undertaking of
additional projects from the Company's client base of the previous year. The
Company serviced 23 clients under long-term contracts in 1997 versus 20 clients
in 1996.
COST OF SERVICES. Cost of services increased 48.1% from $8.8 million in
1996 to $13.1 million in 1997. The increase was primarily due to the number of
additional professional staff required to support the Company's growth during
the period. The Company increased the number of its IT professionals from 179 at
December 31, 1996 to 256 at December 31, 1997. As a percentage of service
revenue, cost of services remained relatively stable.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 69.3% from $3.5 million in 1996 to $6.0
million in 1997. This increase was primarily attributable to the costs
associated with increasing sales, recruiting and other corporate staff and
enhancing support systems, reflecting the Company's continued investment in its
corporate infrastructure to support its growth. As a percentage of service
revenue, selling, general and administrative expenses increased from 23.3% in
1996 to 26.3% in 1997. This increase, as a percentage of revenue, reflects
increases in the costs associated with establishing the instructional
technologies services area and expanding the sales and marketing area, which
were partially offset by lower rates of growth in expenditures in other
administrative areas.
RELOCATION COSTS. Relocation costs were $0.5 million in 1997, down
marginally from the $0.6 million incurred in 1996.
RECAPITALIZATION EXPENSES. Recapitalization expenses include bonuses paid
to certain key executives, amounts paid to terminate certain stock options, and
miscellaneous legal, accounting and other expenses incurred in connection with
the Recapitalization. See Note 4 of Notes to Financial Statements.
OPERATING INCOME. Operating income increased 463.3% from $0.5 million in
1996 to $3.1 million in 1997. Operating income grew more rapidly than revenue
because the 1996 operating income was reduced by Recapitalization expenses.
INTEREST EXPENSE. Interest expense increased from $0.8 million in 1996 to
$1.0 million in 1997. This increase is a result of the existence of the
long-term debt for a full year as compared to nine months in
20
<PAGE>
1996. In September 1997, the Company refinanced approximately $9.5 million of
outstanding term debt and interest with a new lender.
INCOME TAX (EXPENSE) BENEFIT. The year ended December 31, 1997 represented
the first full year the Company was taxed as a C Corporation. For the period
January 1, 1995 through April 11, 1996, the Company was taxed as a Subchapter S
Corporation and income taxes were paid directly by the Company's stockholders.
From April 11, 1996 through December 31, 1996 the Company was taxed as a C
Corporation. During 1996, the Company experienced a taxable loss as a result of
Recapitalization expenses and also received a $0.3 million deferred tax benefit
related to its change in tax status.
LOSS ON THE EARLY EXTINGUISHMENT OF DEBT. In September 1997, the Company
refinanced approximately $9.5 million of outstanding term debt and interest with
a new lender. As part of this transaction, the Company recognized a loss related
to the write-off of the unamortized debt issuance cost and discount related to
the warrants issued as part of the old credit agreement.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
SERVICE REVENUE. Service revenues increased 56.8% from $9.7 million in 1995
to $15.2 million in 1996. The increase in service revenue reflects the addition
of new clients as well as leveraging of the Company's existing client base by
undertaking additional projects for these clients. In 1996, $3.1 million of
service revenue was derived from services delivered to new clients and $12.1
million was related to the continuation of contracts or undertaking additional
projects from the Company's client base in the previous fiscal year. The Company
served 20 clients under long-term contracts in 1996 versus 16 clients in 1995.
COST OF SERVICES. Cost of services increased 56.7% from $5.6 million in
1995 to $8.8 million in 1996. The increase was primarily due to the number of
additional professional staff required to support the Company's growth during
the period. The Company increased the number of its IT professionals from 114 at
December 31, 1995 to 179 at December 31, 1996. As a percentage of service
revenue, cost of services remained stable.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 53.0% from $2.3 million in 1995 to $3.5
million in 1996. This increase was primarily attributable to the costs
associated with increasing sales, recruiting and other corporate staff and
enhancing support systems, reflecting the Company's continued investment in its
corporate infrastructure to support growth. As a percentage of service revenue,
these expenses remained relatively stable.
RELOCATION COSTS. During late 1996, the Company began relocating its
corporate headquarters from Pennsylvania to Orlando, Florida.
RECAPITALIZATION EXPENSES. Recapitalization expenses include bonuses paid
to certain key executives, amounts paid to terminate certain stock options, and
miscellaneous legal, accounting and other expenses incurred in connection with
the Recapitalization. See Note 4 of Notes to Financial Statements.
OPERATING INCOME. Operating income decreased from $1.7 million in 1995 to
$0.5 million in 1996. This decrease was due primarily to recapitalization and
relocation expenses incurred in 1996.
INTEREST EXPENSE. The Company incurred interest expense as a result of the
debt issued in connection with the Recapitalization. See Note 4 of Notes to
Financial Statements. The $0.8 million of interest expense incurred by the
Company in 1996 represents interest charges from April 11, 1996 through December
31, 1996. The Company had virtually no indebtedness in 1995.
INCOME TAX (EXPENSE) BENEFIT. During 1995 the Company was taxed as a
Subchapter S Corporation. From April 11, 1996 through December 31, 1996, the
Company was taxed as a C Corporation. During this period, the Company
experienced a taxable loss as a result of recapitalization expenses and also
received a $0.3 million deferred tax benefit related to its change in tax
status.
21
<PAGE>
UNAUDITED QUARTERLY RESULTS
The following table sets forth certain unaudited quarterly operating
information for each of the ten quarters ending June 30, 1998. These data have
been prepared on the same basis as the audited financial statements contained
elsewhere in this Prospectus and include all adjustments, consisting only of
normal recurring adjustments, that management considers necessary for a fair
presentation of the information for the periods presented, when read in
conjunction with the Company's Financial Statements and related Notes thereto.
Results for any previous quarter are not necessarily indicative of results for
the full year or for any future quarter.
<TABLE>
<CAPTION>
QUARTERS ENDED
-------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30, DEC. 31,
1996 1996 1996 1996 1997 1997 1997 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Service revenue.................... $ 2,950 $ 3,214 $ 4,178 $ 4,884 $ 5,018 $ 5,222 $ 5,715 $ 6,853
Cost of services................... 1,713 1,864 2,425 2,826 2,874 2,960 3,335 3,903
Selling, general and administrative
expenses......................... 546 845 981 1,173 1,287 1,404 1,462 1,849
Depreciation and amortization...... 10 24 31 39 30 38 44 41
Special compensation expense.......
Relocation costs................... 613 488
Recapitalization expenses.......... 1,587
-------- -------- -------- -------- -------- -------- -------- --------
Operating income (loss)............ 681 (1,106) 741 233 339 820 874 1,060
Net interest (expense) income...... 24 (209) (242) (229) (220) (237) (208) (204)
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes............................ 705 (1,315) 499 4 119 583 666 856
Income tax (expense) benefit....... 778 (205) (2) (56) (268) (267) (347)
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary
item............................. 705 (537) 294 2 63 315 399 509
Loss on early extinquishment of
debt-net of income tax benefit... (271)
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss).................. $ 705 $ (537) $ 294 $ 2 $ 63 $ 315 $ 128 $ 509
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
Earnings per share -- basic
Income (loss) before
Extraordinary item............. $ 0.12 $ (0.10) $ 0.05 $ 0.00 $ 0.01 $ 0.05 $ 0.06 $ 0.08
Extraordinary loss............... (0.04)
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)................ $ 0.12 $ (0.10) $ 0.05 $ 0.00 $ 0.01 $ 0.05 $ 0.02 $ 0.08
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
Earning per share -- diluted
Income (loss) Before extraordinary
item............................. $ 0.11 $ (0.10) $ 0.04 $ 0.00 $ 0.01 $ 0.05 $ 0.06 $ 0.07
Extraordinary loss................. (0.04)
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss).................. $ 0.11 $ (0.10) $ 0.04 $ 0.00 $ 0.01 $ 0.05 $ 0.02 $ 0.07
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
Pro forma net income data
(unaudited)
Income (loss) before income taxes,
as reported...................... $ 705 $ (1,315)
Pro forma income tax (Expense)
benefit.......................... (288) 539
-------- --------
Pro forma net income (Loss)........ $ 417 $ (776)
-------- --------
-------- --------
Pro forma net income (loss) per
share (unaudited)
Basic.............................. $ 0.07 $ (0.14)
-------- --------
-------- --------
Diluted............................ $ 0.07 $ (0.14)
-------- --------
-------- --------
Weighted average shares
Basic.............................. 5,997.4 5,605.8 6,297.9 6,297.9 6,297.9 6,299.3 6,309.4 6,311.1
Diluted............................ 6,230.0 5,605.8 6,793.0 6,947.5 7,045.5 6,996.9 7,018.9 6,997.6
<CAPTION>
MAR. 31, JUNE 30,
1998 1998
<S> <C> <C>
Service revenue.................... $ 7,376 $ 8,482
Cost of services................... 4,209 4,818
Selling, general and administrative
expenses......................... 2,032 2,344
Depreciation and amortization...... 45 46
Special compensation expense....... 2,474
Relocation costs...................
Recapitalization expenses..........
-------- --------
Operating income (loss)............ 1,090 (1,200)
Net interest (expense) income...... (155) (165)
-------- --------
Income (loss) before income
taxes............................ 935 (1,365)
Income tax (expense) benefit....... (375) 545
-------- --------
Income (loss) before extraordinary
item............................. 560 (820)
Loss on early extinquishment of
debt-net of income tax benefit...
-------- --------
Net income (loss).................. $ 560 $ (820)
-------- --------
-------- --------
Earnings per share -- basic
Income (loss) before
Extraordinary item............. $ 0.09 $ (0.13)
Extraordinary loss...............
-------- --------
Net income (loss)................ $ 0.09 $ (0.13)
-------- --------
-------- --------
Earning per share -- diluted
Income (loss) Before extraordinary
item............................. $ 0.08 $ (0.13)
Extraordinary loss.................
-------- --------
Net income (loss).................. $ 0.08 $ (0.13)
-------- --------
-------- --------
Pro forma net income data
(unaudited)
Income (loss) before income taxes,
as reported......................
Pro forma income tax (Expense)
benefit..........................
Pro forma net income (Loss)........
Pro forma net income (loss) per
share (unaudited)
Basic..............................
Diluted............................
Weighted average shares
Basic.............................. 6,313.9 6,318.6
Diluted............................ 7,097.9 6,318.6
</TABLE>
22
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATIONS. The Company's primary source of liquidity has
been cash flows from operations. The Company's fixed-price contracts typically
provide for delayed billing arrangements in early contract years to coincide
with clients' budget cycles. Also, the Company typically experiences negative
cash flow from operations in the first six months of a year as the timing of the
receipt of contract payments is more heavily weighted to the July through
December period to coincide with the peak cash inflows experienced by the
Company's higher education clients. The Company anticipates that cash flow from
operations will be positive for the full year 1998. The Company's cash flow in
1996 was negatively impacted by the Recapitalization and the relocation of the
Company's headquarters to Orlando, Florida. Cash flow from operations in 1997
was negatively impacted by the payment of corporate income taxes as a C
Corporation, interest payments made on the long-term debt incurred in connection
with the Recapitalization and relocation costs. Since the Company elected to be
treated as a Subchapter S Corporation for tax purposes in 1995 and part of 1996,
the Company's net cash provided by operations for those periods reflects only
state taxes.
CASH FLOWS USED IN INVESTING ACTIVITIES. Net cash used in investing
activities is largely attributable to capital expenditures for furniture and
personal computers to support the expansion and growth of the organization. The
Company has no major commitments for capital expenditures. However, the Company
will continue to need computer and office equipment as it expands its
operations.
CASH FLOWS FROM FINANCING ACTIVITIES. During 1997, the Company generated
cash by refinancing approximately $9.5 million of outstanding, long-term debt
and interest with a new lender pursuant to a new credit agreement. The new
credit agreement provides for maximum borrowings of up to $9.5 million, which is
reduced through annual scheduled principal payments and additional mandatory
principal payments beginning in 1999 in the event the Company has excess cash
flows (as defined). The new credit agreement expires in December 31, 2003 and
provides for interest at either the prime rate plus a variable spread or LIBOR
plus a variable spread at the option of the Company. Interest is payable
quarterly. At June 30, 1998, the Company had approximately $1.6 million and $7.0
million designated as prime borrowings and LIBOR borrowings, respectively.
Borrowings under the new credit agreement are secured by substantially all the
assets of the Company. The new credit agreement subjects the Company to certain
covenants and requires the Company to maintain certain financial ratios. At
December 31, 1997, the Company was in compliance with all of the covenants and
ratios contained in the new credit agreement. At June 30, 1998, the Company was
in compliance with all covenants and ratios in the new credit agreement after
taking into account the receipt in July 1998 of a waiver relating to covenants
and ratios impacted by the special compensation expense. It is anticipated that
all amounts outstanding under the new credit agreement will be repaid with a
portion of the net proceeds received by the Company in the Offering and the
agreement will terminate at such time. The Company anticipates obtaining a new
bank facility following the Offering, which will be used for working capital
purposes.
In 1996, cash was used to finance the Recapitalization. See Note 4 of Notes
to Financial Statements. Proceeds of $11.5 million from the sale of Common Stock
to new investors, along with net proceeds of approximately $9.6 million from the
issuance of debt and warrants were used to (i) redeem substantially all of the
Company's then-issued and outstanding common stock, (ii) terminate certain
outstanding options to purchase shares of the Company's common stock, and (iii)
pay fees and expenses related to the Recapitalization. Immediately following the
Recapitalization, the prior stockholders of the Company held 20.3% of the voting
Common Stock of the Company.
SUMMARY. The Company believes the net proceeds from the sale of the Common
Stock offered hereby, together with the funds generated by operations, will
provide adequate cash to fund the anticipated cash needs over the next 12
months. Such needs may include investments in new products and services,
expansion of the internal infrastructure for the Company to support future
growth and acquisitions of complementary businesses.
23
<PAGE>
YEAR 2000 ISSUE
The Company has installed Year 2000 compliant software in many of its major
systems. The Company is in the process of either modifying or replacing software
used in the Company's systems. The cost of these efforts is not expected to be
material. The Company presently believes that the Year 2000 issue will not have
a significant impact on the Company's operations. However, Year 2000 issues
could have a significant impact on the Company's operations and its financial
results if modifications cannot be completed on a timely basis, unforeseen needs
or problems arise or the systems operated by its clients, vendors or
subcontractors are not Year 2000 compliant.
24
<PAGE>
BUSINESS
OVERVIEW
COLLEGIS is a leading nationwide provider of IT enterprise solutions and
services to clients in the higher education marketplace. The Company offers its
IT services through three principal service areas: (i) Operational and Financial
IT Services; (ii) Networking and Internet Services; and (iii) Instructional
Technology Services. COLLEGIS' primary competitive advantage is its in-depth
higher education IT experience, which it applies to assist colleges and
universities to succeed in an environment of increasing competition for students
and rapidly evolving technology. The Company has competed successfully in this
environment, having achieved compound annual revenue growth of 55% from 1993 to
1997. Moreover, because of the long term nature of most of the Company's client
engagements, COLLEGIS enjoys significant recurring revenues with the majority of
its revenues in 1996 and 1997 having been committed at the beginning of such
years.
The business of providing higher education is competitive with colleges and
universities constantly seeking new ways to attract students and to stabilize
costs. Information technology is an important tool used to increase enrollment
and contain costs of operations. To fully leverage the advantages of information
technology, higher education institutions must upgrade and maintain their
existing systems and incorporate new technologies to enhance the delivery of
their educational offerings and administrative and student services. Outside IT
solution providers are well positioned to address the IT issues facing higher
education because: (i) technological change, especially the advent of client
server computing and Internet/ intranet related services, is outpacing internal
resources; (ii) hiring and retaining qualified technical staff is difficult due
to the competitive environment for IT specialists and limited job advancement
opportunities for IT professionals within higher education; (iii) outside
specialists often deliver a greater return on an institution's IT investment
because they enable a college or university to more rapidly and cost-effectively
upgrade its systems; and (iv) external IT specialists can often formulate more
objective advice, free of internal cultural or political forces. There are
approximately 3,500 colleges and universities in the United States, which the
Company estimates have aggregate annual IT spending of approximately $9.0
billion.
COLLEGIS' three service areas are designed to provide a complete range of IT
solutions and services to assist colleges and universities with every aspect of
their technology needs. The Operational and Financial IT Services area provides
strategic planning, project installation and management, training, user support
and IT staffing solutions. The Networking and Internet Services area plans,
designs and implements comprehensive network infrastructures that include
sophisticated Internet/intranet applications, as well as ongoing network
maintenance, training and user support services. The Instructional Technology
Services area uses the Web-based COLLEGIS Learning Network to assist colleges
and universities in designing and developing on-line courses and other on-line
educational, administrative and student service applications.
INDUSTRY OVERVIEW
GENERAL
The education marketplace is one of the largest industries in the United
States, representing nearly 9% of gross domestic product. Of the $670 billion in
annual expenditures in 1996 estimated by the U.S. Department of Education, $280
billion can be attributed to the post-secondary segment of the market, which
includes over 77 million adults. The largest component of the post-secondary
market is traditional colleges and universities with estimated 1996 expenditures
of $211 billion.
A key driver of the growth in the educational marketplace is a combination
of favorable demographic and market trends. According to the National Center for
Education Statistics ("NCES"), between 1985 and 1995, the number of students in
higher education under age 25 increased 13% and those over 25 rose by 22%.
Enrollment of 18-24 year olds is expected to continue to grow 20% from 1996 to
2007, largely as a
25
<PAGE>
result of the "baby boom echo." In addition, growing interest in adult education
is expected to fuel demand for distance learning programs.
The higher education market today is characterized by increased competition
for students, budgetary constraints, outdated IT systems, a rapidly changing
technological environment and student demand for remote access to academic and
administrative services. Colleges and universities are striving to improve the
quality of the educational experience and to lower operating costs by upgrading
their technology infrastructure to provide both academic and administrative
services. In addition, technological advances such as the Internet have made
distance learning and other on-line educational applications feasible and many
schools are recognizing this as an opportunity for revenue enhancement.
INFORMATION TECHNOLOGY
Higher education institutions are increasingly using IT to achieve cost
savings and increase the quality of the educational experience. Furthermore,
potential students now evaluate an institution's ability to provide remote
access to resources such as the Internet, e-mail, library and administrative
services when deciding which school to attend. According to a recent
International Data Corporation survey, over 60% of college students believe that
an institution's technological environment is an important factor in evaluating
a school. Education providers are implementing IT solutions to re-engineer
inefficient processes such as registration, financial aid and payroll. Faculty
members are using the Internet to distribute course materials, link students to
useful Web sites and host on-line discussions. As a result, higher education
represents a significant market for IT service providers. The Company estimates
that U.S. higher education institutions have annual IT spending of approximately
$9.0 billion.
The change in demographics has also led to the implementation of new IT
services, as the number of students pursuing post-secondary education continues
to shift towards students over age 25. With this demographic shift, higher
education institutions are facing an increased demand for distance learning.
This education delivery mechanism allows students, who often lack the time or
schedule flexibility to attend classes in a traditional setting, to participate
in courses and earn credit towards a degree from a variety of geographic
locations including satellite campuses or their own homes. Distance learning,
coupled with on-line access to information and administrative resources, allows
higher education institutions to offer their services to an otherwise
unreachable market. According to NCES, in 1995 33% of higher education
institutions provided distance learning courses and an additional 25% were
expected to provide these services by 1998.
The Company believes that a significant opportunity exists in the higher
education market because most colleges and universities are currently addressing
their technology requirements in-house. The Company estimates that of the
approximately 3,500 higher education institutions in the United States, only 55
have engaged a third-party IT specialist, such as COLLEGIS, under a long-term
contract to operate all or a major portion of their IT function. Competitive
pressures are forcing institutions to rapidly make the transition to client
server-based, Internet/intranet operating environments. The Company believes
that colleges and universities will increasingly realize that independent IT
service providers can more timely and cost-efficiently implement and maintain an
upgraded technology infrastructure than the institution itself.
THE COLLEGIS SOLUTION
The Company applies its experience in higher education information
technology to help colleges and universities manage their IT function through
planning, developing, implementing and managing IT solutions and strategies. The
Company believes that the following business strengths position it to capitalize
on the significant market opportunities presented by the current college and
university environment of increasing competition for students and rapidly
evolving technologies:
26
<PAGE>
VERTICAL MARKET FOCUS. The Company has a singular market focus on the
information technology needs of U.S. colleges and universities. As a result,
COLLEGIS has accumulated a detailed knowledge base and understanding of IT
systems and technology needs of colleges and universities that allows it to
apply proven methodologies, skills and solutions to new projects in a
cost-effective and timely fashion. In addition, the Company believes its
competitive position is enhanced by its understanding of the unique cultural
environment of colleges and universities, where academic considerations
significantly influence IT investment decisions.
BROAD SERVICE OFFERINGS. The Company is a single-source provider of a broad
range of IT services tailored to assist colleges and universities with every
aspect of their technology needs. The Company's services include the development
of strategic IT plans and objectives, the implementation of application systems,
networking and other technology initiatives, and management of existing and
newly-implemented IT plans and systems. Because client engagements often require
creative solutions that must be drawn from diverse areas of IT expertise, the
Company bundles its services as a single, fixed-fee IT solution. The Company
continuously monitors emerging technologies and market developments in order to
expand its service offerings to meet the evolving needs of its clients. A recent
example is the creation of the COLLEGIS Learning Network.
ESTABLISHED INDUSTRY REPUTATION. COLLEGIS has 13 years experience in
successfully providing IT enterprise solutions and services to higher education
institutions and is currently engaged in 28 significant long-term relationships
with colleges and universities. Based upon successful client engagements,
COLLEGIS has earned a reputation for providing high quality IT solutions and
services to colleges and universities supported by industry-knowledgeable
personnel. The Company believes that its reputation and longstanding
relationships with influential members of the higher education community are a
significant source of new business due to the important role industry referrals
play in obtaining new engagements.
PROVEN OPERATING MODEL. The Company believes that its proven operating
model significantly contributes to its success and facilitates COLLEGIS' goal of
becoming an educational institution's IT partner. The Company initially applies
its internally developed client assessment methodology to accurately identify a
client's direct and indirect IT expenditures. The thoroughness and accuracy of
this assessment is critical in managing a client's expectations regarding the
scope and price of COLLEGIS' service offerings. COLLEGIS then works closely with
client personnel to create and implement a strategic plan that meets an
institution's IT needs and objectives. The Company appoints an experienced
on-site client manager to oversee the engagement and become an integral member
of an institution's management. COLLEGIS provides its on-site personnel with
additional technical support both regionally and at the corporate level. As the
IT needs of the Company's clients change and develop, COLLEGIS has a competitive
advantage in its ability to quickly identify and respond to changes and
developments, thereby expanding its presence as a single-source provider.
STRONG CLIENT RELATIONSHIPS. A substantial portion of the Company's
personnel work at a client's site and become intimately involved in an
institution's IT systems on a day-to-day basis. Through this close working
relationship, COLLEGIS' on-site staff becomes an integral part of the client's
IT function and effectively serves as the institution's IT partner. COLLEGIS
fosters and maintains its role as an institution's IT partner by emphasizing
continued high-level relations between its corporate officers and a college or
university's senior administrators.
TECHNICAL STAFF RECRUITING ADVANTAGE. The existing IT personnel of a new
client are a significant source of technical employees for the Company. Because
the Company's engagements generally encompass all or a major portion of a
client's IT function, COLLEGIS frequently hires a significant number of a
client's existing IT personnel as part of a typical contract. As a result,
COLLEGIS does not face the same level of IT recruiting pressure faced by many IT
service providers.
27
<PAGE>
COLLEGIS LEARNING NETWORK. The recently launched COLLEGIS Learning Network
is a key feature in a package of services and tools intended to help colleges
and universities utilize Web-based technology to provide educational course and
related academic, administrative and student services. The COLLEGIS Learning
Network was developed by nationally recognized academic leaders in the area of
instructional technology. Their expertise allows the Company to maintain a
leading edge in emerging instructional technologies.
STRATEGY
The Company's goal is to become the nation's leading provider of IT
enterprise solutions and services to the higher education marketplace. Key
elements of the Company's strategy to achieve this goal include the following:
EXPAND CLIENT BASE. The Company intends to expand its client base by
increasing the size and scope of its sales and marketing organization and
continuing to recruit highly skilled professionals. Because client referrals
play a significant role in obtaining new business in the higher education
marketplace, the Company also intends to target new clients by highlighting its
superior performance record with its existing clients.
EXPAND LONG-TERM RELATIONSHIPS WITH EXISTING CLIENTS. As part of its
business model the Company serves as an educational institution's IT partner,
focused not only on delivering on time, on-budget services, but also on
identifying and defining additional value-added client services. The Company's
strong client relationships, which are fostered by its on-site presence and
broad range of service offerings, allows it to increase the length and scope of
its client engagements and to grow with its clients' needs.
MAINTAIN ROLE AS LEADER IN EMERGING HIGHER EDUCATION TECHNOLOGIES. The
Company's continued status as a leader in emerging higher education IT
technologies is a key to its growth. The Company plans to allocate sufficient
financial and personnel resources to identify and offer new technologies to the
higher education market. For example, The COLLEGIS Research Institute has a
significant role on a major project to establish a universal set of compliance
standards to permit distributed Internet-based learning environments to work
together.
EXPAND THE COLLEGIS LEARNING NETWORK. The Company is aggressively marketing
the COLLEGIS Learning Network as a key feature in a package of services,
expertise and tools intended to help colleges and universities utilize Web-based
technology to transform the learning environment. The Company believes that the
service opportunities associated with the emerging learning technology area are
significant.
PARTNER WITH SOFTWARE VENDORS. The Company believes that establishing
relationships with leading software vendors that offer applications tailored to
higher education will enable it to broaden its customer base, increase its
competitiveness and maintain its technological sophistication. However, the
Company does not intend to develop or exclusively represent any proprietary
hardware or software products. The Company believes that this product
independence allows it to objectively provide IT services and solutions designed
to meet a particular client's unique requirements.
PURSUE STRATEGIC ACQUISITIONS. The Company plans to selectively pursue
strategic acquisitions that will complement its existing service offerings.
Acquisitions can provide the Company with a rapid, cost-effective method to grow
its number of IT specialists, broaden its client base, establish new or expand
existing service offerings and obtain additional skill sets.
SERVICE AREAS
The Company offers and delivers IT enterprise solutions and services through
three principal service areas: (i) Operational and Financial IT Services; (ii)
Networking and Internet Services, and
28
<PAGE>
(iii) Instructional Technology Services. Within these areas the Company provides
a complete range of IT planning, management and implementation solutions and
services that assist colleges and universities with every aspect of their short
and long-term technology initiatives. By bundling together a wide variety of IT
services and solutions, the Company is able to position itself as a fully
integrated, single-source provider.
OPERATIONAL AND FINANCIAL IT SERVICES
The Company provides operational and financial IT services in connection
with a variety of IT processes used by institutions of higher education. The
Company's services address a variety of problems related to its clients' IT
processes including the ineffectiveness of existing IT systems and the
difficulty in implementation of sophisticated distributed and Year 2000
compliant systems. In response to such problems, the Company will initially
conduct an overall assessment of the client's existing situation and identify
potential IT risks, opportunities and alternatives. The Company has planned,
implemented, modified and managed a wide range of applications systems including
student, human resource and finance systems; fundraising and alumni development;
library and executive information systems; as well as ancillary systems such as
bookstore inventory, central purchasing, physical security, smart cards and
information kiosks.
The Company's personnel work at a client's site and become an integral part
of the client's operational and financial IT operations, working with
administrators and faculty at all levels. Company personnel support and manage
most aspects of a client's IT systems and operations, including short- and
long-term planning, applications support, user training and help-desk support,
technical support services, data center management and operations, office
automation, personal computer maintenance and disaster recovery. The Company's
staff is involved in all phases of services delivery, from the installation and
conversion of new applications systems to the servicing and monitoring of such
systems during the lifetime of the client contract. These on-site services are
supported by an additional two tiers of management support at the regional and
corporate level. See "--Service Delivery Model."
NETWORKING AND INTERNET SERVICES
The Company provides networking and Internet services and solutions to
establish a flexible network infrastructure for institutions of higher
education. Networking and Internet services address a variety of problems
including the ineffectiveness of outdated, incompatible and incomplete networks
and the difficulty in implementation and integration of voice, data and video
technologies and Internet/intranet applications. In response to such problems,
the Company will develop and implement a comprehensive network plan. The Company
also assumes responsibility for the management, monitoring and maintenance of
the network infrastructure. Company personnel provide networking and Internet
training services to a client's employees and tiered networking and Internet
user support services at the client, regional and corporate levels. See "Service
Delivery Model."
The Company utilizes sophisticated diagnostic and utility tools to remotely
monitor client networks from its corporate headquarters. Remote network
management allows the Company to detect and prevent network problems and to
better serve its client's demands for a timely and reliable resolution. The
Company also assists its clients in negotiating with hardware and software
vendors and guiding its clients through a request-for-proposal process to ensure
they are getting the maximum value out of their IT budget.
INSTRUCTIONAL TECHNOLOGY SERVICES
THE COLLEGIS LEARNING NETWORK. Internet-based distance learning is a newly
emerging IT application that is generating significant interest in the academic
community. The proliferation of the Internet and other network-based
applications has increased the competitive pressures on academic institutions to
provide Internet-based tools and services to their students and faculty members.
In response to these
29
<PAGE>
demands, the Company has created the COLLEGIS Learning Network (the "Learning
Network") to provide student-centered, flexible solutions. Although the Learning
Network is a relatively new component of the IT services offered by the Company,
the Company believes that this initiative for new instructional technologies
will be an integral part of its future growth.
Through the Learning Network, the Company provides clients with a variety of
Internet-based tools and services including (i) the on-line delivery of
instruction, (ii) the on-line delivery of student service programs such as
orientation and career counseling, (iii) development and implementation of home
pages and on-line discussion forums and (iv) formation of on-line communities by
faculty members as a basis for professional developmental partnerships with
other members of the academic community. Through its own Web server, the Company
allows clients to fill in simple templates to generate easy to manage databases
that provide a variety of customized Web-based collaboration services and
information resources. In connection with the Learning Network and related web
servers, the Company provides for all systems administration and maintenance.
THE COLLEGIS RESEARCH INSTITUTE. In connection with the development of the
Learning Network, the Company created The COLLEGIS Research Institute, a
not-for-profit research and development center (the "Research Institute"), which
conducts academic research in instructional technology and on-line learning
communities. The Research Institute provides technology expertise to
institutions of higher education in an effort to maximize the impact of
technology on their academic and instructional programs. The Company's
relationship with the Research Institute provides many operational, academic and
competitive benefits to the Company by providing dedicated resources to apprise
clients of the latest technological developments and their application to
academic and instructional challenges. The Company believes that the Research
Institute's research in this area has generated increased awareness among higher
education institutions of the opportunities presented by academic technologies
which the Company is uniquely positioned to capitalize on.
The Research Institute is headed by Dr. William H. Graves, who founded the
Institute for Academic Technology at the University of North Carolina ("UNC")
and served for over 30 years in various senior faculty and administrative
positions at UNC. Dr. Graves has been joined at the Research Institute by
several former colleagues at UNC who are nationally recognized leaders in the
area of instructional technology. Members of the Research Institute are active
in numerous nonprofit organizations dedicated to advancing Internet-based
learning technology, including EDUCAUSE, a consortium of 600 colleges and
universities dedicated to the transformation of higher education through
information technology, and the Internet2 steering committee.
The Company provides personnel, facilities, and overhead support to the
Research Institute pursuant to a services agreement on a cost-basis, and serves
as liaison on behalf of the Research Institute with outside advisors. In
addition, the Company has the right to appoint three members to the Research
Institute's seven-member Board of Directors. The Research Institute attempts to
cover its operating costs through grants and contracts that support the research
projects it undertakes. In the event the Research Institute is unable to obtain
necessary grants or funding or to otherwise cover its operating costs, the
Company is obligated to cover such operating costs as requested by the Research
Institute. In exchange for the Company's financial and corporate support, the
Company has a non-exclusive, royalty-free right to use any intellectual property
developed by the Research Institute. See "Certain Transactions."
30
<PAGE>
SERVICE DELIVERY MODEL
In delivering its IT services and solutions, the Company employs a tiered
management structure consisting of managerial oversight at the on-site, regional
and corporate levels. This tiered delivery model provides clients with immediate
access to professionals who possess highly specialized technical expertise and
tools, including corporate personnel who provide Company-wide technical support
to client sites. The Company's communication and control systems further support
its service delivery by providing immediate access to an on-line forum in which
COLLEGIS employees can collaborate by means of individual and group
communications thereby drawing on Company-wide expertise.
On-site managers and staff are responsible for establishing and implementing
the Company's services on a campus-wide basis. Regional managers oversee and
provide support to the on-site managers located within their respective regions.
In addition, they serve as a conduit for communication between the on-site and
corporate tiers and build working relationships with a client's middle
management. The Company believes that these regional managers ensure consistency
in the quality of IT services delivered in their respective region. At the
corporate tier, managers are primarily responsible for highly specialized
technical skills, new business development and maintenance of existing client
relationships. Managers are integral to the implementation of the Company's
overall business plan and the development and maintenance of new and existing
client relationships.
31
<PAGE>
REPRESENTATIVE SERVICES
The chart below sets forth, by Company service area, the services that the
Company provides to its higher education clients, along with the functional
areas affected by such services.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
----------------------------------------------------------------------
INSTRUCTIONAL
OPERATIONAL AND NETWORK AND TECHNOLOGY
FINANCIAL IT SERVICES INTERNET SERVICES SERVICES
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- Conduct analysis of - Plan, implement and - Conduct analysis of
existing IT manage network existing
operations infrastructure instructional
technologies system
Description of
Services:
- Develop strategic - Establish access to - Develop long-range
plans including IT Internet and IT strategic plan which
spending and resources for identifies new
investment objectives student population technology learning
initiatives
- Consolidate and - Monitor and maintain - Introduce emerging
integrate existing IT on-line network learning
operations technologies into
classrooms
- Develop migration - Develop intranet - Create and design
plan to client Internet/intranet
server-based forums for use by
technology faculty and student
body
- Provide IT - Provide Internet and - Provide access to a
management and Web-site support library of software
technical personnel and courseware
- Install, convert and - Provide user - Establish help desk
manage IT support/ help desk and user support
implementations services system for faculty
and student body
- Create and manage - Create and design
classroom computer courses and provide
labs faculty services
- Create a Year 2000
migration and
implementation plan
Functional Area - Strategic planning - Voice/Data - Distance learning
Affected: communications
- Student systems - Local and wide area - On-line
networks collaboration
- Financial systems - Internet/intranet - Faculty development
- Payroll systems - Academic computer - Curriculum
labs development
- Human resource
systems
- Library systems
- Fundraising/Alumni
development
- ------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
CLIENTS
The Company currently provides IT enterprise services and solutions to 37
separate colleges and universities located throughout the United States. Of
these institutions, 28 are parties to significant long-term engagements and the
remainder represent instructional technology projects independent of long-term
engagements. Clients include private, four-year institutions, community colleges
and public, four-year institutions. The Company generally targets institutions
that have IT personnel budgets in excess of $1 million. Brookdale Community
College, a New Jersey community college ("Brookdale"), accounted for
approximately 13.5% and 10.2% of the Company's revenues in 1997 and the six
months ended June 30, 1998, respectively. The typical term of the Company's
existing client engagements is five years, ranging from a minimum of one year to
a maximum of ten years. In addition, the average annualized revenue under the
Company's long-term contracts has increased from $905,000 per client at December
31, 1996 to $1,360,000 per client at June 30, 1998.
REPRESENTATIVE ENGAGEMENTS
Set forth below is a summary of services currently being performed by the
Company for representative clients:
GOLDEN GATE UNIVERSITY. In 1994, COLLEGIS entered into a four-year service
contract with Golden Gate University ("GGU"), an independent four-year
university with an enrollment of more than 6,500 students. GGU was seeking to
update its administrative systems network and infrastructure. COLLEGIS has
provided on-site staff to assist GGU in developing a strategic plan which has
included the research and selection of Internet-based learning tools, a
comprehensive faculty development program and the provision of instructional
designers, web and multi-media developers. In 1997, the existing service
contract was extended to 2001. Pursuant to such extended contract, GGU engaged
COLLEGIS to assist it in implementing a comprehensive distance learning program
utilizing the Internet for "any time, any place" learning.
EAST TENNESSEE STATE UNIVERSITY. In April 1998, COLLEGIS entered into a
five-year contract with East Tennessee State University ("ETSU"), a four-year
institution with an enrollment of more than 12,000 students. ETSU chose COLLEGIS
to help it achieve its goal of being a leading provider of higher education in
the region, which required significant improvement of its IT environment.
COLLEGIS has initiated work on a strategic and tactical IT plan to ensure Year
2000 compliance and a comprehensive faculty development program to introduce
distance learning applications and integrate learning technology tools into the
curriculum. Additionally, COLLEGIS' on-site staff is upgrading the network and
communications infrastructure and is implementing a telecommunications system.
COLLEGIS is also heading an effort to consolidate three disparate computing
offices into an integrated service delivery organization.
BROOKDALE COMMUNITY COLLEGE. In January 1997, COLLEGIS entered into a
five-year service contract with Brookdale, which has an enrollment of more than
12,000 students. At the time, Brookdale maintained a decentralized IT
organization that was supported by outdated hardware and software. After an
extensive nine-month analysis of Brookdale's existing IT operations, COLLEGIS'
on-site management and support team reengineered and consolidated Brookdale's IT
organization. COLLEGIS has assumed day-to-day planning, implementation and
management of all facets of Brookdale's IT operations including management of
Brookdale's data center, its network systems and technology-related initiatives
such as distance learning, administration systems and information sharing. In
addition, the COLLEGIS solution has included the planning and implementation of
Brookdale's new administrative and network systems.
SALES AND MARKETING
The Company sells and markets its services directly through its sales and
marketing staff and senior management. Due to the unique culture of higher
education, the Company attempts to capitalize on the
33
<PAGE>
experience of its personnel in such field and believes such experience is a
significant factor in its success. As of June 30, 1998, the Company's sales and
marketing staff consisted of 15 employees.
The Company employs a variety of business development and marketing
techniques to communicate directly with senior officers of current and
prospective clients, including focused lead generation initiatives using
customer and industry references, industry seminars and conferences featuring
presentations by the Company's executives and on-site presentations by the
Company's sales representatives to faculty and senior officers of prospective
clients.
The Company has organized its sales and marketing personnel into separate
teams, each of which is given quarterly and annual financial objectives for
their respective geographic regions. The Company's typical sales cycle is six to
nine months, calculated from the time of identification of a prospective client
to execution of the definitive service contract. The Company's typical sales
cycle includes the following components:
- LEAD GENERATION--The Company's sales staff identify potential clients
though directed telesales marketing, client and industry referrals and
industry conferences. During the initial lead generation stage of the
sales cycle, the sales staff qualifies viable prospects through data
collection and interviews of the potential client's personnel regarding
their IT needs.
- QUALIFYING PROCESS--Upon identification of a potential client, the Company
conducts an on-site due diligence review of the potential client's IT
operations, structure and needs and makes a preliminary presentation to a
potential client summarizing the IT services and solutions currently
offered by the Company. Throughout this stage, the Company meets with the
potential client's senior executives, establishes relationships,
identifies a senior executive advocate within the potential client and
evaluates the potential for a long-term relationship. Following this
on-site meeting, the Company's management makes an internal determination
as to whether such potential client is a qualified candidate for the
Company's IT services based, in part, on an assessment of the client's
size, systems and financial resources, existing IT operations and
long-term IT objectives.
- ASSESSMENT--Following the determination that a potential client's IT
organization is a qualified candidate for the Company's services, the
Company initiates either a client-paid, in-depth on-site due diligence
assessment of the prospective client's current IT environment or an
abbreviated evaluation of the prospect's IT delivery capabilities.
Following this data collection, the Company analyzes the results of its
on-site due diligence and formulates its proposal and recommendations, and
reviews the proposed service offerings with its advocate and the other
members of the client's executive team. Included in such proposal is a
detailed budget and schedule for the contemplated engagement.
- INTERIM SERVICES--When an institution requires immediate IT services prior
to the finalization of contractual terms and conditions, the Company
typically provides an interim chief information officer and staff to the
client on a fee-basis, to provide consultation on and management of
day-to-day operations. This enables the Company to initiate the
integration of its personnel with the client and begin the implementation
of the IT solutions and services.
An important portion of new business arises from existing client
engagements. The Company expects to provide further IT services to its clients
as their IT needs develop. Also, the Company's on-site presence affords it the
opportunity to identify and define additional value-added services. The strong
client relationships arising out of long-term engagements often facilitate the
Company's ability to offer additional capabilities to its clients in the future.
The Company's senior management team actively meets with faculty members and
administrators of colleges and universities which have not yet engaged the
Company to make them aware of the Company's capabilities. In addition, as part
of its sales and marketing strategy, the Company leverages its relationship with
the Research Institute to further enhance its credibility within the academic
community and further its
34
<PAGE>
reputation as a leading provider of on-line instructional technologies. The
recent introduction of the Instructional Technology Services area furthers
COLLEGIS' ability to market itself as a full service, integrated provider of IT
solutions and services to the academic community.
The Company is exploring relationships with leading software vendors and
other services providers who tailor their offerings to the higher education
marketplace. The Company believes that these relationships may result in
increased access to potential clients, referrals, expanded service offerings and
enhanced recognition within the academic community. The Company also believes
these relationships will enable it to increase its competitiveness and maintain
its technological sophistication through access to the most current information
and training on leading software and information systems.
HUMAN RESOURCES
The Company's success depends in large part on attracting, retaining and
motivating talented, creative and experienced professionals at all levels.
Qualified technical employees are in great demand and are likely to remain a
limited resource for the foreseeable future. Because the Company's typical
engagement encompasses all or a major portion of a client's IT function, the IT
personnel of its clients are a significant source of employees for the Company.
The Company frequently will hire a large portion of a client's existing IT
personnel as part of a typical contract. As a result, the Company does not face
the same level of IT recruiting pressure typically faced by many IT service
providers.
The Company dedicates significant resources to recruiting employees with IT
and higher education experience. In connection with its hiring efforts, the
Company has its own internal recruiting and human resources department that
includes a Vice President of Recruiting and Human Resources and internal
recruiters. Recruiting is managed in a fashion similar to an independent
recruiting organization. The Company's recruiters have hiring targets and are
compensated on an incentive basis. Their primary recruitment activity is direct
recruiting of targeted candidates. The Internet and World Wide Web are used
extensively as a source for applicants in addition to advertising and employee
referrals. Human resource personnel utilize a comprehensive recruiting
information system that tracks recruitment activities and maintains a database
of candidate information. Recruiting activities are continually monitored and
adjusted to meet the Company's hiring needs. In addition, the Company has
relationships with several recruiting firms to supplement recruiting efforts as
needed.
The Company has historically experienced turnover rates that it believes are
below industry averages for IT professional services companies principally due
to its continuous and extensive professional development opportunities and
diverse and challenging work projects within the higher education marketplace.
However, there is no assurance that these favorable rates will continue. The
Company believes its management structure, corporate culture, human resources
organization, comprehensive and specialized training programs and extensive
benefits package maximize its ability to retain and recruit IT staff. None of
the Company's employees are represented by labor unions and the Company
considers its relationship with its employees to be good.
As of June 30, 1998, the Company had 388 full-time employees. The Company
also supplements its employees on certain engagements with independent
contractors, many of whom are former employees of the Company. The Company
believes that this practice provides it with greater flexibility in adjusting
professional personnel levels in response to changes in demand for its services.
COMPETITION
Although the Company believes its exclusive focus on the higher education
institutions is unique, the IT services industry is intensely competitive,
highly fragmented and subject to rapid technological and market changes. The
Company's primary competitive challenge is helping prospective clients
understand the potential benefits of the IT outsourcing model relative to their
internal IT departments. In addition, the Company competes for client projects
and experienced personnel with a number of companies having
35
<PAGE>
significantly greater financial, technical and marketing resources and revenues
than the Company. Many of these competitors also have greater name recognition
in the IT services industry. The Company's competitors include systems
consulting and integration services providers, application software and
professional service organizations, major accounting firms and general
management consulting firms. The emerging instructional technology market is
highly fragmented with no single dominant participant. As this market matures,
the Company anticipates facing increasing competition from larger, better
financed participants than the Company.
The Company expects to experience increasing competition from IT service
providers offering established services and new service offerings and
technologies, including instructional technology and distance learning. In
addition, current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with others, thereby
increasing their ability to expand or increase their service offerings to higher
education institutions. Accordingly, it is possible that new competitors or
alliances among current and new competitors may emerge and rapidly gain
significant market share. Increased competition could result in downward pricing
pressures, fewer client engagements, reduced gross margins, and loss of market
share for the Company.
The Company believes the principal competitive factors in its market are
knowledge of the higher education marketplace, responsiveness to client needs,
product and vendor independence, quality of service, project management
capability, technical expertise and price. The Company believes it competes
favorably in most of these areas and excels in the depth of knowledge and
experience it brings to its clients. The ability of the Company to compete also
depends in part on factors outside of its control, including the ability of its
competitors to attract, motivate and retain management, technical and industry
expertise.
FACILITIES
The Company's headquarters and administrative, sales and marketing
operations are located in Maitland, Florida, where the Company leases
approximately 12,000 square feet of office space. This lease expires on January
31, 2002. In addition to its headquarters, the Company leases 8,700 square feet
of office space on behalf of the Learning Network in a building located near
Research Triangle Park, North Carolina. This lease expires on February 28, 2003.
The Company believes that additional space will be required as its business
expands geographically and that it will be able to obtain suitable space as
needed.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
36
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The table below sets forth certain information with respect to the executive
officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Robert E. Lund............................ 54 Chairman, Chief Executive Officer and
Director
Robert Foley, Jr.......................... 49 President and Director
Robert C. Bowers.......................... 52 Chief Financial Officer, Executive Vice
President and Director
Dr. William H. Graves..................... 58 Senior Vice President and Director
Dr. Robert H. Atwell...................... 67 Director
James E. Cowie............................ 43 Director
Bernard Goldstein......................... 67 Director
Robert E. King............................ 62 Director
Dr. Thurston E. Manning................... 72 Director
Kenneth G. Pigott......................... 54 Director
Dr. Marvin Wachman........................ 81 Director
</TABLE>
ROBERT E. LUND has served as Chairman, Chief Executive Officer and a
Director of the Company since May 1998. Mr. Lund also serves as Chairman of the
Executive Committee of the Board of Directors. Prior to joining the Company, Mr.
Lund served from December 1996 to April 1998 as President and Chief Executive
Officer of Intrepid Technologies, LLC, from November 1995 to May 1996 as interim
President and Chief Executive Officer of Peoples Telephone Company, from
November 1994 to November 1995 as President and Chief Executive Officer of S2
Software, Inc., and from February 1993 to November 1994 as Chief Operating
Officer of Newtrend, L.P., a software and computer services company focused on
the financial services sector ("Newtrend"). Mr. Lund's positions at COLLEGIS,
Intrepid Technologies, LLC and Newtrend resulted from his association with
financial investors common to such companies. Mr. Lund additionally was Chairman
and Chief Executive Officer of International Telecharge, Inc. from 1990 to 1992
and President of the Payment Services Division of Electronic Data Systems from
1988 to 1990. Mr. Lund has also been a director of Peoples Telephone Company
since 1994.
ROBERT FOLEY, JR. has served as President and a Director of the Company
since December 1993. Mr. Foley served from April 1988 to October 1993 as
President of Sysorex Information Systems and is a former executive of Science
Application International Corporation, GE Information Systems, Inc. and
Electronic Data Systems.
ROBERT C. BOWERS has served as a Director of the Company since April 1996,
as Executive Vice President and Chief Financial Officer of the Company since May
1996 and as Assistant Secretary of the Company since July 1997. Prior to joining
the Company, Mr. Bowers served as Senior Vice President and Chief Financial
Officer of Newtrend from June 1985 to December 1994 and then as Vice President
and Chief Financial Officer of HTE Inc. from June 1995 to May 1996. Mr. Bowers
has also been a director of U.S. Servis, Inc. since 1995.
DR. WILLIAM H. GRAVES has served as Senior Vice President of Instructional
Technologies and as a Director of the Company since November 1997. Dr. Graves
has also served as President of the COLLEGIS Research Institute since November
1997. Dr. Graves is the founder and a former director of the Institute for
Academic Technology and for over twenty years prior to joining COLLEGIS was a
Professor at the University of North Carolina at Chapel Hill. Dr. Graves also
serves on several national academic information technology boards, including
NLII, IMC, Internet2, CNI and EDUCAUSE.
37
<PAGE>
DR. ROBERT H. ATWELL has served as a Director of the Company since November,
1996. Dr. Atwell has served as Senior Consultant to A.T. Kearney since 1986 and
is a director of Education Management Company. Dr. Atwell was President of the
American Council on Education from 1984 to 1996 and formerly served as President
of Pitzer College and as Vice Chancellor of the University of Wisconsin.
JAMES E. COWIE has served as a Director of the Company since April, 1996.
Since 1989, Mr. Cowie has been a General Partner of Frontenac Company. Mr. Cowie
also serves on the Boards of Directors of 3COM Corporation, PLATINUM TECHNOLOGY,
INC. and US Servis, Inc., and is a Trustee of the Illinois Institute of
Technology.
BERNARD GOLDSTEIN has served as a Director of the Company since April 1996.
He also serves as a director of Broadview Associates, LLC, SPSS, Inc., Sungard
Data Systems Inc. and Franklin Electronic Publishers Inc. Mr. Goldstein is a
former Chairman of National CSS, Inc.
ROBERT E. KING has served as a Director of the Company since April 1996. Mr.
King served from May 1996 to May 1998 as Chairman of the Executive Committee of
the Board of Directors. Since 1994, Mr. King has served as Chairman of Salt
Creek Ventures, a private investment firm. From 1983 to 1994, Mr. King was
Chairman and Chief Executive Officer of Newtrend. He also serves as a director
of American Floral Services, DeVry, Inc., and US Servis, Inc. Mr. King also
founded and served as Chief Executive Officer of DELTAK, Inc.
DR. THURSTON E. MANNING has served as a Director of the Company since
November 1996. Since 1991, he has served as a self-employed consultant in higher
education administration and accreditation. In addition, Dr. Manning served from
1992 to 1997 as Senior Consultant to International University and from 1987 to
1991 as President of the Council on Post-secondary Accreditation. Dr. Manning
was formerly President of the University of Bridgeport and Vice President for
Academic Affairs of the University of Colorado. Dr. Manning is a director of
DeVry, Inc.
KENNETH G. PIGOTT has served as a Director of the Company since April 1996.
He also serves as Managing Partner of Pigott & Company and as Chairman of
Compass Asset Management, LLC. Mr. Pigott is a former Chairman of Specialty
Packaging Products, Inc. and of Intertech Resources, Inc. and is a former
partner of Winston & Strawn.
DR. MARVIN WACHMAN has served as a Director of the Company since 1993 and is
currently Vice Chairman of the Board of Directors. Dr. Wachman served as
Chairman of the Board of Directors from 1993 to May 1998. Dr. Wachman has been
Chancellor of Temple University since 1982 and was President of Temple
University from 1973 to 1982. Dr. Wachman is a former President of Lincoln
University and a past President of the Pennsylvania Association of Colleges &
Universities.
The Company's executive officers are appointed annually by, and serve at the
discretion of, the Board of Directors. Each executive officer is a full-time
employee of the Company. The Board of Directors currently consists of 11
members. The Board of Directors is divided into three classes, each of whose
members serve for a staggered three-year term. The Board is comprised of three
Class I Directors (Messrs. Lund, Cowie and Atwell), four Class II Directors
(Messrs. Foley, Graves, King and Manning) and four Class III Directors (Messrs.
Bowers, Pigott, Goldstein and Wachman). At each annual meeting of stockholders
the appropriate number of directors will be elected for a three-year term to
succeed the directors of the same class whose terms are then expiring. The terms
of the Class I Directors, Class II Directors and Class III Directors will expire
upon the election and qualification of successor directors at the annual
meetings of stockholders held in calendar years 1999, 2000 and 2001,
respectively. There are no family relationships between any director or
executive officer of the Company.
BOARD COMMITTEES
The Executive Committee is responsible for the development and review of
corporate strategies. The Executive Committee meets monthly and makes strategic
recommendations to the Board of Directors. The
38
<PAGE>
members of the Executive Committee currently consist of Messrs. Lund, Foley,
Bowers, Graves, Cowie, King, Pigott and Wachman.
The Audit Committee is responsible for reviewing with management the
financial controls, accounting, audit and reporting activities of the Company.
The Audit Committee reviews the qualifications of the Company's independent
auditors, makes recommendations to the Board of Directors regarding the
selection of independent auditors and reviews the scope, fees and results of the
Company's annual audit and other matters related to internal control systems.
The members of the Audit Committee currently consist of Messrs. Cowie, Manning
and Pigott.
The Compensation Committee performs certain duties in connection with the
administration of salary and incentive compensation plans for officers and key
employees of the Company, including bonuses. The members of the Compensation
Committee currently consist of Messrs. King, Foley and Goldstein.
The Board of Directors also maintains a Nominating Committee currently
consisting of Messrs. Lund, Atwell and Wachman. The Nominating Committee
identifies and recommends nominees for appointment to the Board of Directors.
DIRECTOR COMPENSATION
Directors of the Company who are not employees of the Company or significant
stockholders, currently consisting of Messrs. Atwell, Wachman and Manning,
receive (i) an annual retainer fee of $10,000 in connection with their service
as a director of the Company, (ii) a daily fee of $1,000 for Board of Directors
meetings attended and (iii) a consulting fee of $150 per hour, up to a maximum
of $1,200 per day, for time spent consulting with the Company on business
matters independent of their board duties. In 1997, the fees paid to such
outside directors ranged from approximately $20,000 to $47,000. Directors are
reimbursed for reasonable out-of-pocket expenses incurred in connection with
attending Board of Directors meetings. Directors are also eligible for
participation in the Company's 1996 Stock Option Plan. See "Employee Benefit
Plans--1996 Stock Option Plan."
39
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation that was paid to the
Company's Chief Executive Officer and each other executive officer of the
Company in 1997 (the "Named Executive Officers") and the number of shares of
Common Stock underlying options issued pursuant to the 1996 Stock Option Plan
that were granted for services rendered to the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -------------
------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS(1) COMPENSATION(2) OPTIONS(#) COMPENSATION(3)
<S> <C> <C> <C> <C> <C>
Robert E. Lund(4).................. $ -- $ -- $ -- -- $ --
Chairman and Chief
Executive Officer
Robert Foley, Jr................... 187,500 63,190 -- -- --
President
Robert C. Bowers................... 140,000 47,181 -- -- 2,257
Chief Financial Officer and
Executive Vice President
Dr. William H. Graves(5)........... 33,334 -- -- 100,000 --
Senior Vice President
</TABLE>
- ------------------------------
(1) Represents bonus earned in respect of the year ended December 31, 1997, all
of which was paid in 1998.
(2) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal benefits
has been omitted in those instances where the aggregate amount of such
perquisites and other personal benefits constituted less than the lesser of
$50,000 or 10% of the total amount of annual salary and bonus for the
executive officer for 1997.
(3) Represents amounts paid by the Company as matching contributions under the
Company's 401(k) Plan.
(4) Mr. Lund became Chairman and Chief Executive Officer of the Company on May
1, 1998 and is currently paid an annual base salary of $220,000. Mr. Lund
also participates in incentive packages generally available to other
officers of the Company. See "Employment Related Agreements" and "Employee
Benefit Plans."
(5) Dr. Graves became Senior Vice President of the Company on November 1, 1997
and is currently paid an annual base salary of $200,000. Dr. Graves also
participates in incentive packages generally available to other officers of
the Company. See "Employment Related Agreements" and "Employee Benefit
Plans."
40
<PAGE>
The table below sets forth information as to options granted during 1997 to
the Named Executive Officers.
OPTIONS GRANTS IN 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTION/SARS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(1)
OPTIONS/SARS EMPLOYEES IN BASE PRICE/ EXPIRATION ----------------------
NAME GRANTED (#) FISCAL YEAR SHARE DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Robert E. Lund...................... -- -- -- -- -- --
Robert Foley, Jr.................... -- -- -- -- -- --
Robert C. Bowers.................... -- -- -- -- -- --
Dr. William H. Graves(2)............ 100,000 15.58% $ 2.75 11/01/04 $ 111,953 $ 260,897
</TABLE>
- ------------------------------
(1) Amounts reported in this column represent hypothetical values that may be
realized upon exercise of the options immediately prior to the expiration of
their term, assuming that the stock price on the date of grant appreciates
at the specified annual rates of appreciation, compounded annually over the
term of the options. These numbers are calculated based on rules promulgated
by the Securities and Exchange Commission. Actual gains, if any, on stock
option exercises and Common Stock holdings are dependent on the time of such
exercise and the future performance of the Company's Common Stock.
(2) The options were granted on November 1, 1997 pursuant to the Company's 1996
Stock Option Plan (at the fair market value as determined by the Board of
Directors at the time of the grant). Dr. Graves' options vest in equal
installments on the first four anniversaries of the grant date.
The following table provides information regarding unexercised stock options
held as of December 31, 1997 by each of the Named Executive Officers. No stock
options were exercised by any of the Named Executive Officers during fiscal year
1997.
AGGREGATED 1997 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
YEAR-END(#) YEAR-END($)(1)
-------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Robert E. Lund(2)...................................... -- -- -- --
Robert Foley, Jr....................................... 383,500 250,500 $ 1,204,858 $ 662,572
Robert C. Bowers....................................... -- -- -- --
Dr. William H. Graves.................................. -- 100,000 -- 102,000
</TABLE>
- ------------------------------
(1) There was no public trading market for the Common Stock as of December 31,
1997. Accordingly, these values have been calculated by determining the
difference between the estimated fair market value of the securities
underlying the option as of December 31, 1997 and the exercise price of the
applicable Named Executive Officer's options.
(2) Mr. Lund became Chairman and Chief Executive Officer of the Company on May
1, 1998 and on such date received options to purchase 360,000 shares of
Common Stock at an exercise price of $4.00 per share. See "Employment
Related Agreements" and "Employee Benefit Plans".
41
<PAGE>
EMPLOYEE BENEFIT PLANS
1996 STOCK OPTION PLAN
In 1996, the Board of Directors adopted the 1996 Stock Option Plan (the
"1996 Stock Option Plan"). The 1996 Stock Option Plan is designed to enhance the
long-term profitability and stockholder value of the Company by aligning the
interests of selected directors, officers, employees and consultants with the
Company's performance targets.
The 1996 Stock Option Plan is administered by the Board of Directors, which
has exclusive authority to grant awards under the 1996 Stock Option Plan and to
make all interpretations and determinations affecting the 1996 Stock Option
Plan. The Board of Directors has the sole discretion, for example, to determine
the individuals to be granted options, the number of shares of Common Stock to
be subject to each option granted, the exercise price of each option, the
conditions with respect to vesting and exercisability of options and all other
conditions of any grant of options under the 1996 Stock Option Plan. The Board
of Directors may delegate all or any portion of the authority granted to it
under the 1996 Stock Option Plan to a committee appointed by the Board of
Directors. Following the Offering, the 1996 Stock Option Plan provides that the
1996 Stock Option Plan will be administered by a committee consisting of at
least two "disinterested persons" within the meaning of Rule 16b-3 under the
Exchange Act.
Participation in the 1996 Stock Option Plan is limited to directors,
officers, employees and consultants of the Company who are selected from time to
time by the Board of Directors or by a committee appointed by the Board of
Directors. Awards under the 1996 Stock Option Plan may be in the form of
incentive stock options meeting the requirements of Section 422 of the Internal
Revenue Code or non-statutory options which are not intended to meet the
requirements of Section 422 of the Internal Revenue Code.
The Company has reserved an aggregate of 2,200,000 shares of Common Stock
for issuance under the 1996 Stock Option Plan. As of June 30, 1998, options to
purchase 1,850,404 shares of Common Stock were outstanding and 298,360 shares
are reserved for issuance under the 1996 Stock Option Plan.
PERFORMANCE INCENTIVE PLAN
In each of 1996, 1997 and 1998, the Company established an annual
performance incentive plan pursuant to which all employees of the Company were
made eligible to be paid a bonus based on individual performance and the
Company's results of operations for such fiscal year. The Company currently
anticipates establishing a performance incentive plan in 1999. The Compensation
Committee approves levels of allocations of the bonus pool among employee groups
and cash bonuses, if any, are paid following the Company's annual audit. In
1997, the Company contributed $485,000 for payment under the 1997 performance
incentive plan.
EMPLOYMENT RELATED AGREEMENTS
The Company entered into an employment agreement with Robert E. Lund in May
1998 that provides for an annual base salary of $220,000, as subsequently
increased by the Board of Directors, and for participation in incentive plan and
benefit packages generally available to other officers of the Company. In
connection with his employment, Mr. Lund purchased 65,000 shares of Common Stock
at a purchase price of $4.00 per share, and was granted 360,000 fully-vested
options under the 1996 Stock Option Plan at an exercise price of $4.00 per
share. The options are subject to certain call rights held by the Company. See
Note 11 of Notes to the Financial Statements. Under the agreement, in the event
that an acquiring company terminates Mr. Lund's employment with the Company
after the second anniversary of Mr. Lund's employment with the Company or within
six months following a "fundamental change" or a "stock sale" (each as defined
in the agreement), Mr. Lund is entitled to a severance payment in the amount of
one-half his then-annual base salary.
42
<PAGE>
The Company entered into an employment agreement with Dr. William H. Graves
in November 1997 that provides for an annual base salary of $200,000 and for
participation in certain incentive plan and benefit packages generally available
to other officers of the Company. Dr. Graves was also granted the right to
receive incentive compensation not in excess of $50,000 per year payable
annually in arrears based on the Company's achievement of certain performance
goals and objectives and options under the 1996 Stock Option Plan to purchase an
aggregate of 100,000 shares at an exercise price of $2.75 per share. The
agreement further provides for the payment of a one-time bonus in the amount of
$250,000 upon the consummation of an initial underwritten public offering of
common stock of the Company. Dr. Graves is also entitled to receive a lump sum
cash payment equal to seventy-five percent of his then-annual salary if the
Company terminates his employment without cause.
43
<PAGE>
CERTAIN TRANSACTIONS
AGREEMENT WITH EXECUTIVE OFFICER AND DIRECTOR
In connection with the Recapitalization, the Company entered into an
agreement with Robert Foley, Jr. in April, 1996, pursuant to which the Company
has agreed to pay Mr. Foley a bonus of $500,000 upon the occurrence of the
Company's first underwritten public offering of its capital stock, so long as
Mr. Foley has been continuously employed with the Company through the date of
such Offering. In addition, Mr. Foley agreed to certain restrictive covenants
including certain non-compete and confidentiality covenants to be effective
during the two-year period following the termination of his employment with the
Company. The Company also granted Mr. Foley certain put rights with respect to
his options to purchase 300,000 shares of Common Stock. The put rights expire
upon the completion of the Offering. See Note 7 of Notes to Financial
Statements.
AGREEMENT WITH FORMER DIRECTOR
The Company entered into an agreement with Claire Reid in May 1997 pursuant
to which Ms. Reid terminated her employment as Vice Chairman and resigned as a
Director of the Company. The agreement, which provides that Ms. Reid shall be
entitled to a bonus in the amount of $475,000 upon the closing of an initial
public offering by the Company, modified the terms of an earlier agreement
between Ms. Reid and the Company entered into in connection with the
Recapitalization. In addition, upon the request of Ms. Reid, the Company will
use its "reasonable best efforts" to cause Ms. Reid's shares to be registered in
any such Offering in accordance with the terms of the Registration Agreement.
Ms. Reid has also agreed to be available to perform certain consulting services
for the Company through December 31, 1998. Ms. Reid has agreed to certain
non-compete covenants effective through December 31, 1998 and has been granted
certain put rights by the Company with respect to 374,000 shares of Common Stock
owned by Ms. Reid. The put rights expire upon the completion of the Offering.
See Note 7 of Notes to Financial Statements.
RESEARCH INSTITUTE SERVICES AGREEMENT
Pursuant to a Services Agreement dated February 15, 1998 by and between the
Company and the Research Institute, the Company has agreed to provide to the
Research Institute outsourcing, management and administrative services and to
serve as liaison on behalf of the Research Institute with outside advisors, to
the extent such services are specifically authorized by the President of the
Research Institute. The Research Institute has agreed to reimburse the Company
for its costs in providing such services to the Research Institute. The Research
Institute has agreed to grant to the Company a perpetual, royalty-free,
non-exclusive right to and license in all intellectual property developed by the
Research Institute and a right to use the name of the Research Institute in its
marketing efforts. The Research Institute has further agreed that, unless
otherwise specifically authorized in writing by the Company, it will not license
its intellectual property to any third party for use in a for-profit enterprise.
The Services Agreement exempts the Company from liability to the Research
Institute for damages arising in connection with the Company's failure to
provide, or the misperformance of, any required services under the agreement. In
addition, the Research Institute has agreed to indemnify the Company for any
damages arising in connection with the Company's obligations under the Services
Agreement, except to the extent arising out of the willful and intentional
misconduct of the Company. The Services Agreement extends through February 15,
2008 and is thereafter automatically extended for one-year periods unless either
party provides written notice of its desire to terminate. During the six months
ended June 30, 1998, the Company provided approximately $225,000 in reimbursable
services and costs to the Research Institute.
44
<PAGE>
REGISTRATION AGREEMENT
The Company and certain of its stockholders are parties to a Registration
Agreement providing for the registration of certain shares of Common Stock in
future periods. See "Shares Eligible for Future Sale--Registration Rights."
MANAGEMENT FEES
Pursuant to the authorization of the Board of Directors, an entity
controlled by two of the Company's directors, Messrs. King and Pigott, is paid
an aggregate management fee of $25,000 per quarter for periods commencing April
1996. Such fees totalled $75,000, $100,000 and $50,000 in 1996, 1997 and the six
months ended June 30, 1998.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Prior to the consummation of the Offering, the Company expects to enter into
agreements to provide indemnification for its directors and executive officers
in addition to the indemnification provided for in the Company's Restated
Certificate of Incorporation and By-Laws.
45
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of June 30, 1998, and as adjusted to reflect the
sale of the Common Stock offered hereby, by (i) all persons known by the Company
to own beneficially more than 5% of the outstanding shares of Common Stock, (ii)
each director of the Company, (iii) each of the Named Executive Officers, (iv)
each Selling Stockholder and (v) all directors and executive officers as a
group. Unless otherwise indicated, each of the stockholders has sole voting and
investment power with respect to the shares of Common Stock beneficially owned
by them.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE NUMBER OF OWNED AFTER THE
OFFERING(1) SHARES OFFERING(1)
----------------------- BEING -----------------------
NAME AND ADDRESS OF BENEFICIAL OWNERS NUMBER PERCENT OFFERED NUMBER PERCENT
<S> <C> <C> <C> <C> <C>
DIRECTORS AND NAMED EXECUTIVE OFFICERS
Robert E. Lund(2)...................................... 433,995 6.4%
Robert Foley, Jr.(3)................................... 467,000 6.8
Robert C. Bowers....................................... 362,707 5.7
Dr. William H. Graves.................................. -- *
Dr. Marvin Wachman(4).................................. 14,440 *
Dr. Robert H. Atwell(3)................................ 5,220 *
James E. Cowie(5)...................................... 2,519,169 39.3
Bernard Goldstein...................................... 44,974 *
Robert E. King(6)...................................... 1,105,274 17.2
Dr. Thurston E. Manning(3)............................. 5,220 *
Kenneth G. Pigott(7)................................... 1,112,470 17.3
All Directors and Executive Officers as a group
(consisting of 11 persons)........................... 6,070,469 83.6
5% STOCKHOLDERS
Frontenac VI Limited Partnership....................... 2,519,169 39.25 375,000 2,144,169 23.32%
Claire Reid(8)......................................... 436,500 6.73 436,500 -- *
OTHER SELLING STOCKHOLDERS
Chase Bank............................................. 274,912 4.11 274,912 -- *
</TABLE>
- ------------------------
* Represents less than one percent.
(1) Applicable percentage of ownership prior to the Offering is based upon
6,414,148 shares of Common Stock issued and outstanding. Applicable
percentage of ownership after the Offering is based upon 9,189,060 shares
issued and outstanding. Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission and includes voting
and investment power with respect to the shares shown as beneficially owned.
Number of shares of Common Stock deemed beneficially owned by any person
includes any shares of Common Stock issuable upon exercise of options held
by such person exercisable within 60 days.
(2) Includes 360,000 shares issuable upon the exercise of options pursuant to
the 1996 Stock Option Plan.
(3) Represents shares issuable upon the exercise of stock options.
(4) Includes 10,440 options issuable upon the exercise of options pursuant to
the 1996 Stock Option Plan.
(5) Represents 2,519,169 shares held by Frontenac VI Limited Partnership. Mr.
Cowie is a General Partner of Frontenac Company, which is the sole general
partner of Frontenac VI Limited Partnership. As a result, Mr. Cowie may be
deemed to have beneficial ownership of the shares held by Frontenac VI
Limited Partnership.
(6) Includes 35,979 shares held by Flagg Creek Foundation, of which Mr. King is
a director. Also includes certain shares held in trust for Mr. King's spouse
and minor children, of which trusts Mr. King is a trustee. Mr. King
disclaims beneficial ownership of all such attributed shares.
(7) Includes 21,587 shares owned by Mr. Pigott's spouse, 10,794 shares owned by
a trust for the benefit of a minor child of Mr. Pigott and 10,794 shares
owned by The Dearborn Foundation, of which Mr. Pigott is a director. Mr.
Pigott disclaims beneficial ownership of all such attributed shares.
(8) Includes 62,500 shares issuable upon the exercise of options pursuant to the
1996 Stock Option Plan.
46
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the completion of the Offering, the authorized capital stock of the
Company will consist of 32,500,000 shares of Common Stock, par value $.01 per
share, and 3,000,000 shares of Preferred Stock, par value $.01 per share (the
"Preferred Stock") and the Company will have outstanding 9,189,060 shares of
Common Stock and no shares of Preferred Stock.
As of June 30, 1998, and without giving effect to the Offering, there were
1,899,688 shares of Class A Voting Common Stock, 4,398,224 shares of Class A
Voting Common Stock, 116,236 shares of Class B Common Stock and no shares of
Class C Common Stock held by five, one, six and no stockholders of record,
respectively. Upon the completion of the Offering, all outstanding shares of
stock will be converted into Class C Common Stock, which shall thereafter be
redesignated as a single class of Common Stock.
The following discussion describes the Company's capital stock, the Restated
Certificate of Incorporation and By-Laws as in effect upon completion of the
Offering. The following summary of certain provisions of the Company's capital
stock describes all material provisions of, but does not purport to be complete
and is subject to, and qualified in its entirety by, the Restated Certificate of
Incorporation and the By-Laws, which are included as exhibits to the
Registration Statement of which this Prospectus forms a part and by the
provisions of applicable law.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share for the election
of directors and all other matters submitted for stockholder vote, except
matters submitted to the vote of another class or series of shares. Holders of
Common Stock are not entitled to cumulative voting rights. Therefore, the
holders of a majority of the shares voting for the election of directors can
elect all of the directors if they choose to do so. The holders of Common Stock
are entitled to dividends in such amounts and at such times, if any, as may be
declared by the Board of Directors or by a committee duly appointed by the Board
of Directors out of funds legally available therefor. The Company has not paid
any dividends on its Common Stock and does not anticipate paying any cash
dividends on such stock in the foreseeable future. See "Dividend Policy." Upon
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all net assets available for distribution
to stockholders after payments to creditors. The Common Stock is not redeemable
and has no preemptive or conversion rights.
The rights of the holders of Common Stock are subject to the rights of the
holders of any Preferred Stock which may, in the future, be issued. All
outstanding shares of Common Stock are, and the shares of Common Stock to be
sold by the Company in this Offering when issued will be, duly authorized,
validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority to issue the Preferred Stock in one
or more series and to fix the price, rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, without further vote or action by the stockholders. The issuance
of Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company without further action by the stockholders and
may adversely affect the voting and other fights of the holders of Common Stock.
The issuance of Preferred Stock with voting and conversion rights may adversely
affect the voting power of the holders of Common Stock, including the loss of
voting control to others.
WARRANTS
In connection with the Recapitalization, the Company issued warrants to
purchase 274,912 shares of Common Stock to Chase Bank at an exercise price of
$0.4675 per share. Chase Bank has elected to
47
<PAGE>
participate as a Selling Stockholder in the Offering and will sell 274,912
shares of Common Stock representing all shares issuable upon the exercise of its
warrant.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE RESTATED CERTIFICATE OF
INCORPORATION,
BY-LAWS AND DELAWARE LAW
Certain provisions of the Company's Restated Certificate of Incorporation
and By-Laws could discourage potential acquisition proposals and could delay,
defer or prevent a change in control of the Company. These provisions are
intended to enhance the likelihood of continuity and stability in the
composition of the Board of Directors and in the policies formulated by the
Board of Directors and to discourage certain types of transactions that may
involve an actual or threatened change of control of the Company. These
provisions are designed to reduce the vulnerability of the Company to an
unsolicited acquisition proposal. The provisions also are intended to discourage
certain tactics that may be used in proxy fights. However, such provisions could
have the effect of discouraging others from making tender offers for the
Company's shares and, as a consequence, they also may inhibit fluctuations in
the market price of the Company's shares that could result from actual or
rumored takeover attempts. Such provisions also may have the effect of
preventing changes in the management of the Company. See "Risk Factors-- Certain
Anti-Takeover Matters."
CLASSIFIED BOARD OF DIRECTORS. The Company's Restated Certificate of
Incorporation provides for the Board of Directors to be divided into three
classes of directors serving staggered three-year terms. As a result,
approximately one-third of the Board of Directors will be elected each year.
Classification of the Board of Directors expands the time required to change the
composition of a majority of directors and may tend to discourage a proxy
contest or other takeover bid for the Company. Moreover, under the Delaware
General Corporation Law, in the case of a corporation having a classified board
of directors, the stockholders may remove a director only for cause. These
provisions, when coupled with provisions of the Company's Restated Certificate
of Incorporation authorizing only the Board of Directors to fill vacant
directorships, will preclude stockholders of the Company from removing incumbent
directors without cause and simultaneously gaining control of the Board of
Directors by filling the vacancies with their own nominees.
SPECIAL MEETINGS OF STOCKHOLDERS. The Company's By-Laws provide that
special meetings of stockholders may be called by the Chairman of the Board or
the President and shall be called by the President or the Secretary at the
request in writing of a majority of the Board of Directors of the Company.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The Company's By-Laws provide that stockholders seeking to bring
business before a meeting of stockholders, or to nominate candidates for
election as directors at a meeting of stockholders, must provide timely notice
thereof in writing. To be timely, a stockholder's notice must be delivered to,
or mailed and received at, the principal executive office of the Company, not
less than 60 days nor more than 90 days prior to the scheduled meeting (or, if a
special meeting, not later than the close of business on the tenth day following
the earlier of (i) the day on which such notice of the date of the meeting was
mailed, or (ii) the day on which public disclosure of the date of the special
meeting was made). The By-Laws also specify certain requirements pertaining to
the form and substance of a stockholder's notice. These provisions may preclude
some stockholders from making nominations for directors at an annual or special
meeting or from bringing other matters before the stockholders at a meeting.
NO ACTION BY WRITTEN CONSENT OF THE STOCKHOLDERS. The Company's Restated
Certificate of Incorporation does not allow the stockholders of the Company to
take action by written consent.
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW. The Company is subject to Section
203 of the Delaware General Corporation Law ("Section 203"), which, subject to
certain exceptions, prohibits a Delaware corporation from engaging in any
business combination with any interested stockholder for a period of three years
following the date that such stockholder became an interested stockholder,
unless: (i) prior to such date, the board of directors of the corporation
approved either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder; (ii) upon consummation of the
transaction that resulted in the stockholder becoming an interested stockholder,
the interested
48
<PAGE>
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 and (b) by employee stock plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to such plans will be tendered in a tender or exchange
offer; or (iii) on or subsequent to such date. the business combination is
approved by the board of directors and authorized at an annual or special
meeting of the stockholders, and not by written consent, by the affirmative vote
of at least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
LIMITATION OF LIABILITY. As permitted by the Delaware General Corporation
Law, the Company's Restated Certificate of Incorporation provides that directors
of the Company shall not be personally liable for monetary damages to the
Company for certain breaches of their fiduciary duty as directors, unless they
violated their duty of loyalty to the Company or its stockholders, acted in bad
faith, knowingly or intentionally violated the law, authorized illegal dividends
or redemptions, or derived an improper personal benefit from their action as
directors. This provision would have no effect on the availability of equitable
remedies or nonmonetary relief, such as an injunction or rescission for breach
of the duty of care. In addition, the provision applies only to claims against a
director arising out of his or her role as a director and not in any other
capacity (such as an officer or employee of the Company). Further, liability of
a director for violations of the federal securities laws will not be limited by
this provision. Directors will, however, no longer be liable for monetary
damages arising from decisions involving violations of the duty of care which
could be deemed grossly negligent.
INDEMNIFICATION. The Restated Certificate of Incorporation provides that
directors and officers of the Company shall be indemnified by the Company to the
fullest extent authorized by Delaware law, as it now exists or may in the future
be amended, against all expenses and liabilities reasonably incurred in
connection with service for or on behalf of the Company. The Restated
Certificate of Incorporation also authorizes the Company to enter into one or
more agreements with any person that provide for indemnification greater or
different from that provided in the Restated Certificate of Incorporation. The
Company has entered into indemnification agreements with all current members of
the Board of Directors and executive officers. The Company believes that these
provisions and agreements are desirable to attract and retain qualified
directors and officers. Insofar as indemnification for liabilities arising the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is .
49
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no market for the Common Stock. Sales
of substantial amounts of Common Stock in the public market, or the perception
that such sales could occur, could adversely affect market prices prevailing
from time to time. Furthermore, since certain contractual and legal restrictions
on resale described below restrict the ability of the Company and current
shareholders of the Company from selling Common Stock, sales of substantial
amounts of Common Stock in the public market after the restrictions lapse could
adversely affect the prevailing market price and the ability of the Company to
raise equity capital in the future.
Upon completion of this Offering, the Company will have outstanding an
aggregate of 9,189,060 shares of Common Stock. Of these shares of Common Stock
outstanding, the 3,700,000 shares of Common Stock sold in this Offering will be
freely tradable without restriction or further registration under the Securities
Act, unless purchased by "affiliates" of the Company as that term is defined in
Rule 144 under the Securities Act. The remaining 5,489,060 shares of Common
Stock held by existing shareholders are "restricted securities" as that term is
defined in Rule 144 under the Securities Act ("Restricted Shares"). Restricted
Shares may be sold in the public market only if registered or if they qualify
for an exemption from registration under Rules 144 or 701 promulgated under the
Securities Act, which are summarized below. Sales of the Restricted Shares in
the public market, or the availability of such shares for sale, could adversely
affect the market price of the Common Stock.
Each of the Company, its executive officers and directors, and certain
stockholders of the Company (including the Selling Stockholders) has agreed that
during the 180-day period after the date of this Prospectus, they will not,
without prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation, sell, offer to sell, contract to sell, grant any option to purchase
or otherwise dispose of any Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, other than the Common Stock
offered hereby, except that the Company may issue shares upon the exercise of
stock options granted prior to the date of the Offering, and may grant
additional options under stock option and other employee compensation plans,
provided that, without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation, such options shall not be exercisable during such
period.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or person whose shares are aggregated)
who has beneficially owned Restricted Shares for at least one year (including
the holding period of any prior owner other than an affiliate of the Company)
would be entitled to sell within any three-month period a number of shares that
does not exceed the greater of: (i) one percent of the number of shares of
Common Stock then outstanding (which will equal approximately 91,800 shares
immediately after this Offering); or (ii) the average weekly trading volume of
the Common Stock during the four calendar weeks preceding the filing of a Form
144 with respect to such sale. Sales under Rule 144 are also subject to certain
manner of sales provisions and notice requirements and to the availability of
current public information about the Company. Under Rule 144(k), a person who is
not deemed to have been an affiliate of the Company at any time during the 90
days preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least two years (including the holding period of any prior owner
other than an affiliate), is entitled to sell such shares without complying with
the manner of sale, public information, volume limitation or notice provisions
of Rule 144.
Any employee, officer or director of or consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or contract
may be entitled to rely on the resale provisions of Rule 701. Rule 701 permits
affiliates to sell their Rule 701 shares under Rule 144 without complying with
the holding period requirements of Rule 144. Rule 701 further provides that
non-affiliates may sell such shares in reliance on Rule 144 without having to
comply with the public information, volume limitation or notice provisions of
Rule 144. In both cases, a holder of rule 701 shares is required to wait until
90 days after the date of this Prospectus before selling such shares.
50
<PAGE>
REGISTRATION RIGHTS
Pursuant to a Registration Rights Agreement dated April 11, 1996 (the
"Registration Rights Agreement") by and among the Company, TSI Investment
Company I, L.L.C., TSI Investment Company II, L.L.C., Chase Bank, Robert Foley,
Jr. and Claire Reid (collectively, the "Investors"), the Company has granted
certain "piggyback" registration rights (collectively, the "Registration
Rights") with respect to the shares of Common Stock held by the Investors.
Subject to certain conditions and limitations, the Registration Rights permit
the Investors to include their shares of Common Stock in conjunction with a
primary offering pursuant to a registration statement filed with the Commission
or whenever the securities of the Company then issued and outstanding are to be
registered under the Securities Act upon compliance with certain notice
provisions set forth in the Registration Rights Agreement. The Company has
retained the right to postpone or withdraw any piggyback registration without
obligation or liability to any Investor. In general, the Company will bear
expenses arising from exercise of the Registration Rights. In addition, the
Company has further agreed to indemnify, to the fullest extent permitted by law,
each Investor and certain of their affiliates against all losses, claims,
damages, liabilities and expenses caused by any untrue or alleged untrue
statement of a material fact contained in any registration statement, any
prospectus or preliminary prospectus or any amendment thereof or supplement
thereto or any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein not misleading.
51
<PAGE>
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, dated
, 1998 (the "Underwriting Agreement"), the Underwriters named below,
who are represented by Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ") and BT Alex. Brown (collectively, the "Representatives"), have severally
agreed to purchase from the Company and the Selling Stockholders, the respective
number of shares of Common Stock set forth opposite their names below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation........................
BT Alex. Brown.............................................................
-----------------
Total.................................................................. 3,700,000
-----------------
-----------------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to approval by their counsel of certain legal matters
and to certain other conditions. The Underwriters are obligated to purchase and
accept delivery of all the shares of Common Stock offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased.
The Underwriters initially propose to offer the shares of Common Stock in
part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and in part to certain dealers (including the
Underwriters) at such price less a concession not in excess of $ per share.
The Underwriters may allow, and such dealers may re-allow, to certain other
dealers a concession not in excess of $ per share. After the initial
offering of the Common Stock, the public offering price and other selling terms
may be changed by the Representatives at any time without notice. The
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable within 30
days after the date of this Prospectus, to purchase, from time to time, in whole
or in part, up to an aggregate of 555,000 additional shares of Common Stock at
the initial public offering price less underwriting discounts and commissions.
The Underwriters may exercise such option solely to cover over-allotments, if
any, made in connection with the Offering. To the extent that the Underwriters
exercise such option, each Underwriter will become obligated, subject to certain
conditions, to purchase its pro rata portion of such additional shares based on
such Underwriter's percentage underwriting commitment as indicated in the
preceding table.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
Each of the Company, its executive officers and directors and certain
stockholders of the Company (including the Selling Stockholders) has agreed,
subject to certain conditions, not to (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any swap or other arrangement that transfers all or a portion of the
economic consequences associated with the ownership of any Common Stock
(regardless of whether any of the transactions described in clause (i) or (ii)
is to be settled by the delivery of Common Stock, or such other securities, in
cash or otherwise) for a period of 180 days after the date of this Prospectus
without the prior written
52
<PAGE>
consent of DLJ. In addition, during such period, the Company has also agreed not
to file any registration statement with respect to, and each of its executive
officers, directors and certain stockholders of the Company (including the
Selling Stockholders) has agreed not to make any demand for, or exercise any
right with respect to, the registration of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock
without DLJ's prior written consent.
Prior to the Offering, there has been no established trading market for the
Common Stock. The initial public offering price for the shares of Common Stock
offered hereby will be determined by negotiation among the Company and the
Representatives. The factors to be considered in determining the initial public
offering price include the history of and the prospects for the industry in
which the Company competes, the past and present operations of the Company, the
historical results of operations of the Company, the prospects for future
earnings of the Company, the recent market prices of securities of generally
comparable companies and the general condition of the securities markets at the
time of the Offering.
Application has been made to list the Common Stock on the Nasdaq National
Market ("Nasdaq"). In order to meet the requirements for listing the Common
Stock on Nasdaq, the Underwriters have undertaken to sell lots of 100 or more
shares to a minimum of 2,000 beneficial owners.
Other than in the United States, no action has been taken by the Company,
the Selling Stockholders or the Underwriters that would permit a public offering
of the shares of Common Stock offered hereby in any jurisdiction where action
for that purpose is required. The shares of Common Stock offered hereby may not
be offered or sold, directly or indirectly, nor may this Prospectus or any other
offering material or advertisements in connection with the offer and sale of any
such shares of Common Stock be distributed or published in any jurisdiction,
except under circumstances that will result in compliance with the applicable
rules and regulations of such jurisdiction. Persons into whose possession this
Prospectus comes are advised to inform themselves about and to observe any
restrictions relating to the offering of the Common Stock and the distribution
of this Prospectus. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any shares of Common Stock offered hereby in any
jurisdiction in which such an offer or a solicitation is unlawful.
In connection with the Offering, the Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock.
Specifically, the Underwriters may overallot the Offering, creating a syndicate
short position. The Underwriters may bid for and purchase shares of Common Stock
in the open market to cover such syndicate short position or to stabilize the
price of the Common Stock. In addition, the underwriting syndicate may reclaim
selling concessions from syndicate members, if DLJ repurchases previously
distributed Common Stock in syndicate covering transactions, in stabilization
transactions or otherwise or if DLJ receives a report that indicates that the
clients of such syndicate members have "flipped" the Common Stock. These
activities may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.
53
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the Common Stock offered hereby are
being passed upon for the Company by Winston & Strawn, Chicago, Illinois.
Certain legal matters will be passed upon for the Underwriters by Sachnoff &
Weaver, Ltd., Chicago, Illinois.
EXPERTS
The balance sheets of the Company as of December 31, 1997 and 1996, and the
related statements of operations, stockholders' equity (deficit), and cash flows
of the Company for each of the two years in the period ended December 31, 1997,
included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein and are
included in reliance upon the report of such firm given on their authority as
experts in accounting and auditing.
The statements of operations, stockholders' equity (deficit), and cash flows
of the Company for the year ended December 31, 1995, included in this Prospectus
have been audited by Zweig, Ramick &
Associates, independent auditors, as stated in their report appearing herein and
are included in reliance upon the report of such firm given on their authority
as experts in accounting and auditing.
At a meeting of the Board of Directors of the Company held on May 20, 1996,
the Board of Directors determined to engage Deloitte & Touche LLP as independent
accountants. Deloitte & Touche LLP was formally engaged on February 3, 1997.
Zweig, Ramick and Associates had been engaged to audit the Company's
financial statements for the twelve months ended December 31, 1994 and 1995.
Zweig, Ramick and Associates' reports on the Company's financial statements for
those years do not contain an adverse opinion or a disclaimer of opinion, and
such reports are not qualified or modified as to uncertainty, audit scope or
accounting principles. During those two years, there were no disagreements with
Zweig, Ramick and Associates on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which, if not resolved to the satisfaction of Zweig, Ramick and Associates,
would have caused it to make reference thereto in such reports nor were there
any reportable events during those two years required to be disclosed. In
accordance with the rules of the Securities and Exchange Commission (the
"Commission"), Zweig, Ramick and Associates has reviewed and concurred with the
above discussion. A copy of Zweig, Ramick and Associates' letter is filed as an
exhibit to the registration statement of which the Prospectus is a part.
Prior to being engaged as its principal accountant, Deloitte & Touche LLP
did not consult with the Company as to either the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Company's financial statements.
In addition, Deloitte & Touche LLP did not consult with the Company as to any
matter that was either the subject of a disagreement or a reportable event as
defined in the Commission's rules.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and, in accordance therewith, is required to file reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the Public Reference Section of the
Commission at Room 1024, 540 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of the reports, proxy statements and other
information can be obtained from the Public Reference Section of the Commission,
Washington, D.C. 20549, upon payment of prescribed rates and, in certain cases,
by accessing the Commission's World Wide Web site at http://www.sec.gov.
54
<PAGE>
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act (together with all amendments, exhibits, schedules
and supplements thereto, the "Registration Statement"), of which this Prospectus
forms a part, with respect to the shares of Common Stock offered hereby. This
Prospectus, which forms a part of the Registration Statement, does not contain
all of the information set forth in the Registration Statement. Certain items
are omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement and the exhibits
thereto. Statements contained in this Prospectus regarding the contents of any
contract or any other document to which reference is made are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. A copy of the
Registration Statement may be inspected without charge at the public reference
facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048, and copies of all or any part of the Registration Statement may be
obtained from such offices upon the payment of the fees prescribed by the
Commission. The Registration Statement can also be inspected by accessing the
Commission's World Wide Web site at http://www.sec.gov.
55
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Independent Auditors' Reports......................................................... F-2
<S> <C>
Balance Sheets as of December 31, 1996 and 1997 and June 30, 1998 (unaudited)......... F-4
Statements of Operations for the years ended December 31, 1995, 1996 and 1997 and for
the six months ended June 30, 1997 and 1998 (unaudited)............................. F-5
Statements of Stockholders' Equity for the years ended December 31, 1995, 1996 and
1997 and for the six months ended June 30, 1998 (unaudited)......................... F-6
Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997 and for
the six months ended June 30, 1997 and 1998 (unaudited)............................. F-7
Notes to Financial Statements......................................................... F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
COLLEGIS, Inc.:
We have audited the accompanying balance sheets of COLLEGIS, Inc. as of December
31, 1996 and 1997, and the related statements of operations, stockholders'
equity (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 provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of COLLEGIS, Inc. as of 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
Chicago, Illinois
February 20, 1998
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
COLLEGIS, Inc.:
We have audited the accompanying statements of operations, stockholders' equity,
and cash flows of COLLEGIS, Inc. (formerly Technology Specialists, Inc.) for the
year ended December 31, 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statements of operations, stockholders' equity, and
cash flows are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statements of
operations, stockholders' equity, and cash flows. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the statements of
operations, stockholders' equity, and cash flows. We believe that our audit of
the statements of operations, stockholders' equity, and cash flows provides a
reasonable basis for our opinion.
In our opinion, the statements of operations, stockholders' equity, and cash
flows referred to above present fairly, in all material respects, the results of
the operations, stockholders' equity, and the cash flows of COLLEGIS, Inc.
(formerly Technology Specialists, Inc.) for the year ended December 31, 1995 in
conformity with generally accepted accounting principles.
Zweig, Ramick & Associates
Philadelphia, Pennsylvania
January 23, 1996
F-3
<PAGE>
COLLEGIS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------- -----------
1996 1997 1998
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................................. $ 2,614 $ 3,568 $ 1,293
Cash collateral deposit.................................................... 1,500
Accounts receivable........................................................ 1,447 2,337 3,086
Unbilled receivables on contracts.......................................... 179 749 2,704
Prepaid expenses and other current assets.................................. 231 400 582
Deferred income taxes--current............................................. 392 186 53
---------- ---------- -----------
Total current assets................................................... 6,363 7,240 7,718
PROPERTY AND EQUIPMENT--Net.................................................. 122 649 806
OTHER ASSETS................................................................. 290 168 220
DEFERRED INCOME TAXES........................................................ 203 200 958
---------- ---------- -----------
TOTAL ASSETS........................................................... $ 6,978 $ 8,257 $ 9,702
---------- ---------- -----------
---------- ---------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt.......................................... $ 762 $ 850 $ 1,050
Accounts payable........................................................... 45 113 25
Deferred revenue........................................................... 1,798 1,746 1,322
Other current liabilities.................................................. 1,061 1,738 1,561
Income taxes currently payable............................................. 36
---------- ---------- -----------
Total current liabilities.............................................. 3,702 4,447 3,958
LONG-TERM DEBT--Net of unamortized discount of $611 at December 31, 1996 and
$0 at December 31, 1997 and June 30, 1998.................................. 8,326 8,150 7,525
COMMITMENTS AND CONTINGENCIES (Note 13)
REDEEMABLE COMMON STOCK--$.01 par value; 374,000 shares issued and
outstanding, at redemption value........................................... 913 913 913
STOCKHOLDERS' DEFICIT:
Common stock; par value $.01; authorized, 32,000,000 shares at December 31,
1996 and 1997, 32,500,000 shares at June 30, 1998; issued and outstanding,
5,923,912 shares at December 31, 1996, 5,939,412 shares at December 31,
1997, 6,040,148 shares at June 30, 1998.................................... 59 59 60
Additional paid-in capital................................................... 11,722 11,748 14,566
Warrants..................................................................... 735 404 404
Treasury stock-at cost....................................................... (18,943) (18,943) (18,943)
Retained earnings............................................................ 464 1,479 1,219
---------- ---------- -----------
Total stockholders' deficit............................................ (5,963) (5,253) (2,694)
---------- ---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT............................ $ 6,978 $ 8,257 $ 9,702
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See Notes to Financial Statements
F-4
<PAGE>
COLLEGIS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- ----------------------------
1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
SERVICE REVENUE.................................. $ 9,708 $ 15,226 $ 22,808 $ 10,240 $ 15,858
OPERATING EXPENSES:
Cost of services............................... 5,632 8,828 13,072 5,834 9,027
Selling, general and administrative expenses... 2,317 3,545 6,002 2,691 4,376
Depreciation and amortization.................. 40 104 153 68 91
Special compensation expense................... 2,474
Relocation costs............................... 613 488 488
Recapitalization expense....................... 1,587
--------- --------- --------- ------------- -------------
Total operating expenses................... 7,989 14,677 19,715 9,081 15,968
--------- --------- --------- ------------- -------------
OPERATING INCOME (LOSS).......................... 1,719 549 3,093 1,159 (110)
INTEREST EXPENSE................................. (787) (1,012) (536) (391)
INTEREST INCOME.................................. 124 131 143 79 71
--------- --------- --------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES................ 1,843 (107) 2,224 702 (430)
INCOME TAX (EXPENSE) BENEFIT..................... 67 571 (938) (324) 170
--------- --------- --------- ------------- -------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM.......... 1,910 464 1,286 378 (260)
LOSS ON EARLY EXTINGUISHMENT OF DEBT-- NET OF
INCOME TAX BENEFIT OF $180..................... (271)
--------- --------- --------- ------------- -------------
NET INCOME (LOSS)................................ $ 1,910 $ 464 $ 1,015 $ 378 $ (260)
--------- --------- --------- ------------- -------------
--------- --------- --------- ------------- -------------
EARNINGS PER SHARE--BASIC
Income (Loss) Before Extraordinary Item........ $ 0.33 $ 0.08 $ 0.20 $ 0.06 $ (0.04)
Extraordinary Loss............................. (0.04)
--------- --------- --------- ------------- -------------
Net Income (Loss).............................. $ 0.33 $ 0.08 $ 0.16 $ 0.06 $ (0.04)
--------- --------- --------- ------------- -------------
--------- --------- --------- ------------- -------------
EARNINGS PER SHARE--DILUTED
Income (Loss) Before Extraordinary Item........ $ 0.31 $ 0.07 $ 0.18 $ 0.05 $ (0.04)
Extraordinary Loss............................. (0.04)
--------- --------- --------- ------------- -------------
Net Income (Loss).............................. $ 0.31 $ 0.07 $ 0.14 $ 0.05 $ (0.04)
--------- --------- --------- ------------- -------------
--------- --------- --------- ------------- -------------
PRO FORMA NET INCOME DATA (UNAUDITED)
Income (Loss) Before Income Taxes, as
reported..................................... $ 1,843 $ (107)
Pro Forma Income Tax (Expense) Benefit......... (765) 44
--------- ---------
Pro Forma Net Income (Loss).................... $ 1,078 $ (63)
--------- ---------
--------- ---------
PRO FORMA EARNINGS PER SHARE (UNAUDITED)
Basic.......................................... $ 0.19 $ (0.01)
--------- ---------
--------- ---------
Diluted........................................ $ 0.18 $ (0.01)
--------- ---------
--------- ---------
WEIGHTED AVERAGE SHARES
Basic.......................................... 5,819.5 6,049.8 6,304.4 6,298.6 6,316.3
Diluted........................................ 6,104.1 6,537.0 7,014.7 7,021.2 6,316.3
PRO FORMA WEIGHTED AVERAGE SHARES
Basic.......................................... 5,819.5 6,049.8
Diluted........................................ 6,104.1 6,049.8
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
COLLEGIS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
---------------------- PAID-IN -------------------- RETAINED
SHARES AMOUNT CAPITAL WARRANTS SHARES COST EARNINGS
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995....... 5,743,192 $ 144 $ 1,323 $ 425
Exercise of stock options...... 228,960 5 55
S Corporation dividend declared
and paid on common stock
($.18 per share)............. (1,062)
Net income..................... 1,910
--------- ----- ----------- ----- --------- --------- -----------
BALANCE, DECEMBER 31, 1995..... 5,972,152 149 1,378 1,273
Exercise of stock options...... 51,000 1 11
Cash dividend declared and paid
on common stock ($.27 per
share)....................... (1,603)
Reclassification of
undistributed accumulated
losses to additional paid-in
capital upon termination of S
Corporation election......... (330) 330
Conversion of common stock in
connection with
recapitalization............. (89) 89
Issuance of common stock....... 5,911,912 16 11,483
Repurchase of common stock..... (5,637,152) (14) 5,637,152 $ (18,943)
Issuance of stock warrants..... $ 735
Reclassification of redeemable
common stock................. (374,000) (4) (909)
Net income..................... 464
--------- ----- ----------- ----- --------- --------- -----------
BALANCE, DECEMBER 31, 1996..... 5,923,912 59 11,722 735 5,637,152 (18,943) 464
Exercise of stock options...... 15,500 18
Income tax benefit on exercised
options...................... 8
Adjustment for unissued
warrants forfeited upon early
extinguishment of debt....... (331)
Net income..................... 1,015
--------- ----- ----------- ----- --------- --------- -----------
BALANCE, DECEMBER 31, 1997..... 5,939,412 59 11,748 404 5,637,152 (18,943) 1,479
Exercise of stock options
(unaudited).................. 35,736 52
Issuance of stock
(unaudited).................. 65,000 1 259
Income tax benefit on exercised
options (unaudited).......... 33
Special compensation expense
recognized upon issuance of
stock and options
(unaudited).................. 2,474
Net loss (unaudited)........... (260)
--------- ----- ----------- ----- --------- --------- -----------
BALANCE, JUNE 30, 1998
(UNAUDITED).................. 6,040,148 $ 60 $ 14,566 $ 404 5,637,152 $ (18,943) $ 1,219
--------- ----- ----------- ----- --------- --------- -----------
--------- ----- ----------- ----- --------- --------- -----------
<CAPTION>
TOTAL
EQUITY
(DEFICIT)
<S> <C>
BALANCE, JANUARY 1, 1995....... $ 1,892
Exercise of stock options...... 60
S Corporation dividend declared
and paid on common stock
($.18 per share)............. (1,062)
Net income..................... 1,910
-------
BALANCE, DECEMBER 31, 1995..... 2,800
Exercise of stock options...... 12
Cash dividend declared and paid
on common stock ($.27 per
share)....................... (1,603)
Reclassification of
undistributed accumulated
losses to additional paid-in
capital upon termination of S
Corporation election.........
Conversion of common stock in
connection with
recapitalization.............
Issuance of common stock....... 11,499
Repurchase of common stock..... (18,957)
Issuance of stock warrants..... 735
Reclassification of redeemable
common stock................. (913)
Net income..................... 464
-------
BALANCE, DECEMBER 31, 1996..... (5,963)
Exercise of stock options...... 18
Income tax benefit on exercised
options...................... 8
Adjustment for unissued
warrants forfeited upon early
extinguishment of debt....... (331)
Net income..................... 1,015
-------
BALANCE, DECEMBER 31, 1997..... (5,253)
Exercise of stock options
(unaudited).................. 52
Issuance of stock
(unaudited).................. 260
Income tax benefit on exercised
options (unaudited).......... 33
Special compensation expense
recognized upon issuance of
stock and options
(unaudited).................. 2,474
Net loss (unaudited)........... (260)
-------
BALANCE, JUNE 30, 1998
(UNAUDITED).................. $ (2,694)
-------
-------
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE>
COLLEGIS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1995 1996 1997 1997 1998
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................................... $ 1,910 $ 464 $ 1,015 $ 378 $ (260)
Adjustments to reconcile net income (loss) to net cash
from operating activities:
Depreciation and amortization......................... 41 104 153 68 91
Amortization of discount on long-term debt............ 124 110 87
Extraordinary loss on early extinguishment of debt -
gross............................................... 451
Special compensation expense recognized upon issuance
of stock and options................................ 2,474
Provision for deferred income taxes................... (342) (595) 209 50 (625)
Changes in:
Accounts receivable and unbilled receivables on
contracts......................................... 452 (963) (1,460) (1,107) (2,704)
Prepaid expenses and other assets................... 222 (83) (286) (67) (234)
Accounts payable and accrued expenses............... 84 932 745 197 (265)
Deferred revenue.................................... 300 1,206 (52) (1,214) (424)
Income taxes payable................................ 63 (27) (36) 128
--------- --------- --------- --------- ---------
Net cash flows from operating activities.......... 2,730 1,162 849 (1,480) (1,947)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment..................... (51) (103) (629) (297) (248)
--------- --------- --------- --------- ---------
Net cash flows from investing activities.......... (51) (103) (629) (297) (248)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of long-term debt (net of
debt issuance costs)................................ 8,897 9,409
Repayments of long-term debt.......................... (300) (10,200) (387) (425)
Cash collateral deposit............................... (1,500) 1,500 1,500
Proceeds from the issuance of stock................... 11,499 260
Repurchase of stock................................... (18,957)
Exercise of stock options (inclusive of income tax
benefit)............................................ 60 13 25 85
Proceeds from issuance of warrants.................... 735
Cash dividends paid................................... (1,062) (1,558)
--------- --------- --------- --------- ---------
Net cash flows from financing activities.......... (1,002) (1,171) 734 1,113 (80)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... 1,677 (112) 954 (664) (2,275)
CASH AND CASH EQUIVALENTS, JANUARY 1...................... 1,049 2,726 2,614 2,614 3,568
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................. $ 2,726 $ 2,614 $ 3,568 $ 1,950 $ 1,293
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest.................................. $ 664 $ 789 $ 536 $ 551
Cash paid for income taxes.............................. $ 2 52 722 146 342
</TABLE>
See Notes to Financial Statements.
F-7
<PAGE>
COLLEGIS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS--COLLEGIS, Inc. (the "Company") is a nationwide
provider of information technology ("IT") enterprise solutions and services to
clients in the higher education marketplace. The Company provides services in
areas that include operational and financial IT services, networking and
Internet services, and instructional technology services. These services are
normally bundled into a multi-year contract with lengths ranging from three to
ten years.
ORGANIZATION--Formerly, the Company was organized as a corporation under the
laws of the Commonwealth of Pennsylvania. On April 11, 1996, the Company
completed a recapitalization transaction (the "Recapitalization"--see Note 4)
and, on May 23, 1996, the Company reincorporated in the State of Delaware.
Coincident with the reincorporation, the Company effected a stock split (the
"Stock Split") whereby existing shareholders received four shares of common
stock for each share of common stock held at that date. Additionally, all
outstanding options to purchase shares of the Company's common stock were
adjusted at that date for the effect of the Stock Split. All applicable share
amounts and per share prices have been adjusted for the effect of the Stock
Split.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
REVENUE RECOGNITION--Substantially all of the Company's revenues are
generated under long-term, fixed-priced contracts. Revenues are recognized as
services are provided in accordance with the percentage of completion method.
Changes in project conditions, performance and profitability may result in
revisions to costs and revenues and are recognized in the period in which such
revisions are determined. Service revenue excludes reimbursable expenses charged
to the client. Billings are based on payment schedules that may differ from the
timing of revenue recognition. These differences are reflected in the balance
sheets as either unbilled receivables on contracts or deferred revenue.
CASH AND CASH EQUIVALENTS--Cash and cash equivalents consist primarily of
amounts held in demand deposit accounts and amounts in highly liquid time
deposit instruments having an original maturity of three months or less, and are
recorded at cost which approximates fair value.
PROPERTY AND EQUIPMENT--Property and equipment are recorded at cost and
depreciated over the estimated useful lives of the related assets under the
straight-line method. The estimated useful lives range from three to seven
years.
INCOME TAXES--The provision for income taxes is calculated under the
liability method pursuant to Statement of Financial Accounting Standards No.
109, ACCOUNTING FOR INCOME TAXES. Deferred tax assets and liabilities are
recorded based on the difference, if any, between the financial statement and
tax bases of assets and liabilities at the enacted tax rates.
Effective April 11, 1996, as a result of the Recapitalization (see Note 4),
the Company's federal tax status changed to a C Corporation. Prior to that date,
beginning January 1, 1995, the Company's federal
F-8
<PAGE>
COLLEGIS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
tax status was an S Corporation. As an S Corporation, the Company did not incur
or pay federal and certain state corporation income taxes on its taxable income.
Instead, shareholders were liable for individual federal and certain state
income taxes, as applicable, on their proportionate share of the Company's
taxable income. Upon termination of the S Corporation election on April 11, 1996
undistributed accumulated losses of $330 were reclassified to additional paid-in
capital. (See Note 3).
EARNINGS PER SHARE--Basic earnings per share is computed based on the
weighted average number of common shares outstanding. Diluted earnings per share
is computed based on the weighted average number of dilutive potential common
shares outstanding. The following summarizes the effects of dilutive securities
for the periods in arriving at diluted earnings per share (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEARS ENDED DECEMBER 31, 30,
------------------------------- ------------------------
1995 1996 1997 1997 1998
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Weighted average common shares--basic................. 5,819.5 6,049.8 6,304.4 6,298.6 6,316.3
Impact of dilutive securities:
Options............................................. 284.6 224.1 455.1 452.3 603.5
Written put options................................. 97.7
Warrants and contingent warrants.................... 165.4 255.2 270.3 185.6
--------- --------- --------- ----------- -----------
Weighted average common shares--diluted............... 6,104.1 6,537.0 7,014.7 7,021.2 7,105.4
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
</TABLE>
The effects of potentially dilutive securities on earnings per share for the
years ended December 31, 1996 (pro forma) and six months ended June 30, 1998
have been ignored as their impact would have been antidilutive.
RECLASSIFICATIONS--Certain 1996 and 1997 amounts have been reclassified to
conform with the 1998 presentation.
2. INTERIM AND PRO FORMA INFORMATION
INTERIM FINANCIAL DATA--The financial statements and related notes thereto
as of June 30, 1998 and for the six months ended June 30, 1997 and 1998 are
unaudited. In the opinion of management, such information reflects all
adjustments, consisting only of normal recurring adjustments, that management
considers necessary for a fair presentation of the financial position at such
date and the results of operations and cash flows for the periods indicated.
Results of operations for the six months ended June 30, 1998 are not necessarily
indicative of the results to be expected for the full fiscal year.
PRO FORMA ADJUSTMENTS--As discussed in Note 1, for the period January 1,
1995 to April 11, 1996 the Company was treated as an S Corporation for federal
income tax purposes. The Company was not subject to federal income taxes during
1995 and for a portion of 1996. Upon the termination of its S Corporation
election in April of 1996, the Company recognized a deferred tax benefit of
approximately $271 related to the initial recording of deferred tax assets and
liabilities. The objective of the pro forma financial information is to show
what the significant effects on the historical financial information might have
been
F-9
<PAGE>
COLLEGIS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2. INTERIM AND PRO FORMA INFORMATION (CONTINUED)
had the Company not been treated as an S Corporation during 1995 and the portion
of 1996. The pro forma adjustments reflect a provision for income taxes at an
effective rate of 41.5% in 1995 and 41.0% in 1996.
3. STOCKHOLDERS' EQUITY
On April 10, 1996 and May 21, 1998, stockholders authorized amendments to
the Company's Articles of Incorporation that provided for changes to its capital
structure and the creation of four classes of common stock. The following
summarizes the number of common shares authorized for each class at:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1996 1997 1998
<S> <C> <C> <C>
(UNAUDITED)
Series A Voting Common Stock (par value, $.01).......................... 10,000,000 10,000,000 10,000,000
Series A Non-Voting Common Stock (par value, $.01)...................... 10,000,000 10,000,000 10,000,000
Series B Common Stock (par value, $.01)................................. 2,000,000 2,000,000 2,500,000
Series C Common Stock (par value, $.01)................................. 10,000,000 10,000,000 10,000,000
------------ ------------ ------------
Total shares authorized................................................. 32,000,000 32,000,000 32,500,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The following summarizes the number of shares issued and outstanding for
each class, including the 374,000 shares of Series A Voting Common Stock
classified as Redeemable Common Stock in the balance sheets, at:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1996 1997 1998
<S> <C> <C> <C>
(UNAUDITED)
Series A Voting Common Stock (par value, $.01).......................... 1,899,688 1,899,688 1,899,688
Series A Non-Voting Common Stock (par value, $.01)...................... 4,398,224 4,398,224 4,398,224
Series B Common Stock (par value, $.01)................................. 15,500 116,236
Series C Common Stock (par value, $.01).................................
------------ ------------ ------------
Total shares issued and outstanding..................................... 6,297,912 6,313,412 6,414,148
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
SERIES A VOTING AND NON-VOTING COMMON STOCK--Each share of the Series A
Voting Common Stock ("Series A Voting") entitles the holder to one vote on each
matter submitted to a vote of stockholders. Holders of Series A Voting and
Series C Common Stock ("Series C") will vote together and not as separate
classes. Series A Voting and Series A Non-Voting Common Stock (collectively,
"Series A") are senior to the Series B Common Stock ("Series B") and Series C
with respect to dividend and liquidation preferences. In the event of a
liquidation of the Company, out of the assets of the Company available for
distribution to stockholders, holders of Series A are entitled to receive $1.94
per share plus any declared or unpaid dividends. If upon liquidation the assets
to be distributed to holders of Series A is insufficient to fulfill payment of
the preferential amount, available assets of the Company will be distributed
ratably
F-10
<PAGE>
COLLEGIS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
3. STOCKHOLDERS' EQUITY (CONTINUED)
among holders of Series A. The total liquidation preference to holders of Series
A shares was $12,218 at December 31, 1996 and 1997 and June 30, 1998.
SERIES B COMMON STOCK--Holders of Series B are not entitled to voting
rights. In the event of a liquidation of the Company, holders of Series B Common
Stock shall be entitled to receive $1.125 per share of any assets available
after preferential distribution to holders of Series A. If the amount of assets
available after preferential distribution to holders of Series A is insufficient
to fulfill payment of the preferential amount, the available assets will be
distributed ratably among holders of Series B. The total liquidation preference
to holders of Series B shares were $17 and $131 at December 31, 1997 and June
30, 1998, respectively.
SERIES C COMMON STOCK--Each share of the Series C Common Stock ("Series C")
entitles the holder to one vote on each matter submitted to a vote of
stockholders. In the event of a liquidation of the Company, any remaining assets
available for distribution to stockholders after preferential payments to
holders of Series A and Series B will be distributed ratably to holders of
Series A, Series B and Series C. Upon the closing of an initial public offering
of Series C, each share of the Series A and Series B will be automatically
converted into one share of Series C, which shall thereafter be redesignated a
single class of Common Stock.
4. RECAPITALIZATION
As part of the Recapitalization, each outstanding common share of the
Company was converted into one share of Series A Voting and all outstanding
options became exercisable for shares of Series A Voting. This conversion
resulted in a reclassification from common stock par to additional paid-in
capital of $89.
On April 11, 1996, the Company completed the Recapitalization whereby
1,513,688 shares of Series A Voting and 4,398,224 shares of Series A Non-Voting
were issued to investors previously unrelated to the Company. Proceeds of
approximately $11,500 from the stock issuance, along with the net proceeds of
approximately $9,632 from the issuance of debt and warrants (see Notes 5 and 6),
were used to redeem 93.5% of the Company's common stock held by existing
shareholders at that date, to terminate certain outstanding options to purchase
shares of the Company's common stock and to pay transaction-related expenses
("Recapitalization Expenses"). Immediately after the Recapitalization, previous
shareholders held 20.3% of the outstanding voting common stock of the Company.
The shares purchased from previous shareholders are classified as treasury stock
in the balance sheet at cost.
Recapitalization Expenses of $1,587 include approximately $600 of cash
bonuses paid to certain key executives and approximately $766 used to terminate
certain outstanding options to purchase shares of the Company's common stock
(see Note 11). The balance of Recapitalization Expenses includes certain legal,
accounting and other miscellaneous expenses.
5. LONG-TERM DEBT
In September 1997, the Company refinanced approximately $9,500 of
outstanding term debt and interest (the "Refinancing") with a new lender (the
"New Lender") pursuant to a new revolving credit
F-11
<PAGE>
COLLEGIS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
5. LONG-TERM DEBT (CONTINUED)
agreement (the "New Credit Agreement"). The New Credit Agreement provides for
maximum borrowings of up to $9,500, reduced quarterly through scheduled
principal and commitment reductions, as defined; calls for additional mandatory
principal reductions beginning in 1999 in the event the Company has excess cash
flows, as defined; and expires December 31, 2003. Borrowings under the New
Credit Agreement bear interest at either the prime rate plus a variable spread
(as defined in the New Credit Agreement, 9.0% at December 31, 1997 and 9.0% at
June 30, 1998 (unaudited)) or LIBOR plus a variable spread (as defined in the
New Credit Agreement, 8.4% at December 31, 1997 and 8.2% at June 30, 1998
(unaudited)) at the option of the Company. Interest is payable quarterly. At
December 31, 1997 and June 30, 1998, the Company had $2,000 and $1,575
(unaudited) designated as prime borrowings and $7,000 and $7,000 (unaudited)
designated as LIBOR borrowings, respectively. Borrowings under the New Credit
Agreement are secured by substantially all of the assets of the Company.
Finally, the New Credit Agreement restricts dividends without the prior written
consent of the New Lender, makes the Company subject to certain covenants and
requires the Company to maintain certain financial ratios. At December 31, 1997,
the Company was in compliance with all covenants and ratios contained in the New
Credit Agreement. At June 30, 1998, the company was in compliance with all
covenants and ratios contained in the New Credit Agreement, after taking into
account the receipt in July 1998 of a waiver relating to covenants and ratios
impacted by the special compensation expense.
Debt issuance costs of approximately $91 incurred in connection with the New
Credit Agreement have been capitalized and are reflected in the balance sheet at
December 31, 1997 and June 30, 1998 as Prepaid Expenses and Other Assets and are
net of accumulated amortization of approximately $6 and $13 (unaudited),
respectively.
At December 31, 1996, long-term debt consisted of a term note (the "Term
Note") issued pursuant to a credit agreement entered into by the Company with a
lender (the "Old Lender") in connection with the Recapitalization (the "Old
Credit Agreement"). The Term Note was paid in full and the Old Credit Agreement
was terminated in connection with the Refinancing in September 1997. The Term
Note was issued with a face amount of $10,000 and bore interest at prime plus 1%
(9.25% at December 31, 1996). Principal and interest were payable in quarterly
installments through April 11, 2002, with mandatory accelerated principal
payments to commence during 1998 in the event the Company had excess cash flows,
as defined.
The Old Credit Agreement also provided for a Revolving Credit Facility (the
"Revolving Facility") for maximum borrowings of up to $1,000. The Revolving
Facility was to expire on April 11, 2002 and bore interest at prime plus 1%
(9.25% at December 31, 1996). The Company paid a quarterly commitment fee at the
rate of 1/2 of 1% per annum on the average daily unused amount of the Revolving
Facility. No borrowings under the Revolving Facility were made during 1996 or
1997.
The Old Credit Agreement also required that the Company maintain cash
balances of $1,500 as collateral until certain leverage and interest coverage
ratios were met. This amount is classified as cash collateral deposit in the
balance sheet at December 31, 1996.
Debt issuance costs of approximately $368 incurred in connection with the
Old Credit Agreement were capitalized and are reflected in the balance sheet at
December 31, 1996 as Prepaid Expenses and
F-12
<PAGE>
COLLEGIS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
5. LONG-TERM DEBT (CONTINUED)
Other Assets and are net of accumulated amortization of approximately $41. The
Refinancing resulted in an extraordinary loss for the early extinguishment of
debt, due principally to the write-off of approximately $280 of unamortized debt
issuance costs related to the Old Credit Agreement and the write-off of
unamortized discount related to warrants (see Note 6).
The following summarizes the annual maturities of long-term debt for years
subsequent to 1997:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1998.............................................................. $ 850
1999.............................................................. 1,250
2000.............................................................. 1,600
2001.............................................................. 1,750
2002.............................................................. 1,750
Thereafter........................................................ 1,800
---------
Total............................................................... $ 9,000
---------
---------
</TABLE>
6. WARRANTS
Concurrent with entering into the Old Credit Agreement, the Company issued
warrants to the Old Lender to purchase 274,912 shares of the Series A Non-Voting
Common Stock at a price of $0.47 per share. On January 1, 1998, 1999 and 2000,
additional warrants to purchase 72,358, 73,684 and 75,472 shares, respectively,
were to be issued to the Old Lender with an exercise price of $0.47 per share.
Approximately $735 of the debt proceeds were allocated to the warrants (both
issued and unissued) based on the relative fair values of the warrants and the
debt at the date of issuance. This amount was recorded as contributed capital
with a corresponding discount recorded on the Term Note. The discount was being
amortized to interest expense over the remaining term of the Term Note based on
the effective interest method.
The fair value of the warrants was estimated using the Black-Scholes
option-pricing model assuming a risk-free interest rate of 6.3%, an expected
life of five years and an expected annual dividend yield of 0.0%. As the
Company's stock is not publicly traded, the effects of volatility have been
ignored, given the uncertainty of future prices.
As a result of the Refinancing, the Old Lender's rights to receive
additional warrants were canceled. At the date of the Refinancing, approximately
$171 of the unamortized discount related to the issued warrants was written off
and is classified with the extraordinary item, net of the related income tax
benefit, in the 1997 statement of operations. The remaining approximate $331 of
unamortized discount related to those warrants which would no longer be issued
was charged to contributed capital.
F-13
<PAGE>
COLLEGIS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
7. REDEEMABLE COMMON STOCK
In connection with the Recapitalization (see Note 4), an officer and a
former officer of the Company entered into separate Incentive, Put and
Noncompetition Agreements (the "Put Agreements") with the Company.
In the event of an initial public offering ("IPO") or other qualifying sale,
as defined, the former officer may require the Company to purchase her 374,000
shares of Series A Voting at $1.17 per share (in the event of an IPO) or $2.44
per share (in the event of another qualifying sale). The Put Agreement expires
upon the completion of an IPO or other qualifying sale. The redeemable common
stock is recorded at the maximum redemption price of $2.44 per share. Management
believes it to be impracticable to estimate the fair market value of the
redeemable common stock given the contingent nature of the put options and the
lack of a specified term. At December 31, 1996 and 1997 and at June 30, 1998,
the estimated fair market value of the underlying common stock was in excess of
the maximum redemption price.
In the event of an IPO or other qualifying sale, as defined, the officer may
require the Company to purchase his shares issued upon the exercise of options
to purchase 300,000 shares of Series A Voting (exercisable at $0.49 per share),
at $0.58 per share (in the event of an IPO), or $2.24 (in the event of another
qualifying sale). The Put Agreement expires upon the completion of an IPO or
other qualifying sale.
8. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1996 1997 1998
(UNAUDITED)
<S> <C> <C> <C>
Furniture and equipment............................... $ 257 $ 788 $ 963
Leasehold improvements................................ 47 50
Computer software..................................... 22 53 117
----------- ----------- ------------
279 888 1,130
Accumulated depreciation and amortization............. (157) (239) (324)
----------- ----------- ------------
Property and equipment--net........................... $ 122 $ 649 $ 806
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
Depreciation and amortization expense related to property and equipment was
approximately $41, $63 and $103 in 1995, 1996 and 1997, respectively.
Depreciation and amortization expense related to property and equipment was
approximately $68 (unaudited) and $83 (unaudited) for the six months ended June
30, 1997 and 1998, respectively.
F-14
<PAGE>
COLLEGIS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
9. OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997 JUNE 30,
1998
(UNAUDITED)
<S> <C> <C> <C>
Accrued payroll and bonuses.................................. $ 378 $ 645 $ 652
Accrued interest............................................. 223 63
Accrued relocation costs..................................... 318 170 83
Other accrued expenses....................................... 365 700 763
--------- --------- -----------
Total other current liabilities.............................. $ 1,061 $ 1,738 $ 1,561
--------- --------- -----------
--------- --------- -----------
</TABLE>
F-15
<PAGE>
COLLEGIS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
10. RELOCATION COSTS
During 1996 and 1997, the Company relocated its corporate headquarters from
Pennsylvania to Orlando, Florida. Relocation costs include certain facility and
employee moving expenses, as well as estimated severance costs for selected
employees who elected not to relocate. Cash paid for relocation costs was
approximately $296 and $636 for the years ended December 31, 1996 and 1997,
respectively, and $258 and $87 for the six months ended June 30, 1997 and 1998
(unaudited), respectively. The remaining accrued relocation costs are
anticipated to be paid by the end of 1998.
11. STOCK OPTION PLANS
The COLLEGIS, Inc. 1996 Stock Option Plan (the "1996 Plan") was adopted on
June 19, 1996. Under the provisions of the 1996 Plan, options to purchase shares
of Series B may be granted to selected directors, officers, employees, and
consultants of the Company at the discretion of the Board of Directors. Option
terms, including the number of shares subject to the options, the exercise price
and the conditions with respect to the vesting or exercisability of such
options, are determined at the sole discretion of the Board of Directors. The
maximum number of shares authorized to be issued under the 1996 Plan was
1,692,336 at December 31, 1997 and 2,200,000 at June 30, 1998. During 1996 and
1997, options were granted with exercise prices greater than or equal to the
fair value of the Series B at the date of grant. These options generally vest
over four to six years and expire seven years from the date of grant.
During May and June of 1998, the Company issued and sold 65,000 shares of
Series B at a purchase price of $4.00 per share to an officer. In the same
period, the Company granted to that officer and other employees an aggregate of
431,000 options to purchase Series B at an exercise price of $4.00 per share. In
each instance, the $4.00 price was less than the estimated fair market value,
resulting in compensation expense of approximately $2,474. Of the total options
granted, the 360,000 granted to the officer vested immediately and are subject
to call rights held by the Company. Under the terms of the call rights, the
Company has the right to purchase any stock issued upon the exercise of such
options at $4.00 per share, not to exceed the number of shares listed below for
the applicable time periods:
<TABLE>
<CAPTION>
PERIOD SHARES
<S> <C>
May 1, 1998 to April 30, 1999...................................................... 270,000
May 1, 1999 to April 30, 2000...................................................... 202,500
May 1, 2000 to April 30, 2001...................................................... 135,000
May 1, 2001 to April 30, 2002...................................................... 67,500
</TABLE>
Prior to the Recapitalization, options to purchase shares of common stock of
the Company had been granted under various plans (the "Pre-Recapitalization
Plans") at prices equal to the fair market value of the stock on the dates the
options were granted. These options were generally exercisable in not more than
six annual installments, as defined in the individual option agreements, and
expired ten years from the date of grant. As discussed in Note 4, at the date of
the Recapitalization, all outstanding options under the Pre-Recapitalization
Plans were redeemed, excluding options to purchase 300,000 shares of Series A
Voting with an exercise price of $0.49. Compensation expense recognized in
connection with the redemption of these options was approximately $750 and is
included in recapitalization expense in the 1996 Statement of Operations.
F-15
<PAGE>
COLLEGIS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
11. STOCK OPTION PLANS (CONTINUED)
The following summarizes changes in stock options for the years ended
December 31, 1995, 1996 and 1997 and for the six months ended June 30, 1998:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------------------------------------------------------------------- ------------------------
1995 1996 1997 1998
------------------------ ------------------------ ------------------------ ------------------------
WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of year............... 850,960 $ 0.38 625,760 $ 0.50 1,418,240 $ 0.99 1,702,140 $ 1.58
Granted................. 134,000 0.83 1,166,240 1.13 642,000 2.75 498,500 4.00
Exercised............... (228,960) 0.26 (51,000) 0.25 (15,500) 1.13 (35,736) 1.34
Cancelled, forfeited or
repurchased........... (130,240) 0.49 (322,760) 0.63 (342,600) 1.39 (14,500) 2.94
--------- ----- --------- ----- --------- ----- --------- -----
Outstanding, end of
period................ 625,760 0.50 1,418,240 0.99 1,702,140 1.58 2,150,404 2.13
Exercisable, end of
period................ 339,600 0.40 255,000 0.49 550,863 0.81 1,073,097 1.97
Weighted-average fair
value of options
granted:
Exercise price greater
than market price of
stock............... 0.42
Exercise price equals
market price of
stock............... 0.83 0.30 0.68 0.68
Exercise price is less
than market price of
stock............... 6.42
</TABLE>
The following summarizes information on the exercise prices for options
outstanding as of December 31, 1997 and June 30, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------ ------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OUTSTANDING REMAINING OUTSTANDING REMAINING EXERCISABLE REMAINING EXERCISABLE REMAINING
EXERCISE PRICE AT 12/31/97 USEFUL LIFE AT 6/30/98 USEFUL LIFE AT 12/31/97 LIFE AT 6/30/98 LIFE
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0.49 300,000 5.4 300,000 4.9 300,000 5.4 300,000 4.9
1.13 815,640 5.4 784,140 4.9 239,160 5.4 374,380 4.9
2.75 586,500 6.6 568,764 6.1 11,703 6.2 38,717 5.8
4.00 N/A N/A 497,500 6.8 N/A N/A 360,000 6.8
</TABLE>
F-16
<PAGE>
COLLEGIS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
11. STOCK OPTION PLANS (CONTINUED)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model using the following weighted-average
assumptions for options granted in the years ended December 31, 1995, 1996, 1997
and the six months ended June 30, 1998:
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------------------- --------------
1995 1996 1997 JUNE 30,
1998
(UNAUDITED)
<S> <C> <C> <C> <C>
Expected future dividend yield...................... 0.0% 0.0% 0.0% 0.0%
Risk-free interest rate............................. 6.0% 6.2% 6.3% 5.6%
Expected life (years)............................... 5.0 5.0 5.0 3.6
</TABLE>
As the Company's stock is not publicly traded, the effects of volatility
have been ignored, given the uncertainty of future stock prices.
In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"), was issued and is effective for financial statements for
fiscal years beginning after December 15, 1995. As permitted by the statement,
the Company will continue to measure compensation cost for stock option plans in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees." Had compensation cost for the Company's stock option
plans been determined consistent with the fair value method prescribed by SFAS
No. 123, the impact on the Company's net income (loss) and earnings per share
would have been as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------------------- ------------
1995 1996 1997 JUNE 30,
1998
(UNAUDITED)
<S> <C> <C> <C> <C>
Net income (loss):
As reported............................... $ 1,910 $ 464 $ 1,015 $ (260)
Pro forma................................. 1,908 796 963 (209)
Earnings per share-basic:
As reported............................... $ 0.33 $ 0.08 $ 0.16 $ (0.04)
Pro forma................................. 0.33 0.13 0.15 (0.03)
Earnings per share-diluted:
As reported............................... 0.31 0.07 0.14 (0.04)
Pro forma................................. 0.31 0.12 0.14 (0.03)
</TABLE>
12. EMPLOYEE BENEFIT PLAN
Most employees are eligible to participate in the Company's 401(k) defined
contribution profit-sharing plan. Through December 31, 1997, the Company made
matching contributions of 25% (increased to 50% in January 1, 1998) of employee
contributions up to 1.5% of the employees' compensation and may
F-17
<PAGE>
COLLEGIS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
12. EMPLOYEE BENEFIT PLAN (CONTINUED)
contribute additional amounts at the discretion of the Board of Directors. The
Company made matching contributions of approximately $43, $55 and $113 in 1995,
1996 and 1997, respectively.
13. COMMITMENTS AND CONTINGENCIES
The Company leases certain office facilities under agreements classified as
operating leases. The following represents future minimum lease commitments
under noncancellable operating leases at December 31, 1997:
<TABLE>
<S> <C>
1998............................................................... $ 223
1999............................................................... 225
2000............................................................... 228
2001............................................................... 231
2002............................................................... 19
-----
Total $ 926
-----
-----
</TABLE>
Rental expense was approximately $55, $81 and $194 in 1995, 1996 and 1997,
respectively. Rental expense was approximately $62 (unaudited) and $198
(unaudited) for the six months ended June 30, 1997 and 1998, respectively. In
March 1998, the Company entered into a lease agreement for additional space
through February 2003. Annual rent under this lease agreement is approximately
$160.
EXECUTIVE IPO BONUSES
Pursuant to terms of certain executive employment agreements and incentive
provisions included in the Put Agreements (see Note 7), certain current and
former executives are entitled to cash bonuses totaling $1,225 upon the
successful completion of an IPO of the Company's Common Stock.
LONG-TERM SERVICE CONTRACTS
The Company is contractually obligated to provide services under the terms
and conditions of various long-term, fixed-price contracts.
F-18
<PAGE>
COLLEGIS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
14. INCOME TAXES
The components of the income tax benefit (expense) were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------- ------------------------
1995 1996 1997 1997 1998
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal........................................ $ (408) $ (196) $ (351)
State.......................................... $ (44) $ (24) (140) (78) (103)
Deferred:
Federal........................................ 106 463 (166) (42) 482
State.......................................... 5 132 (44) (8) 142
---------- ---------- ----------- ----------- -----------
Total income tax benefit (expense)............... 67 571 (758) (324) 170
Income tax benefit allocated to extraordinary
item........................................... (180)
---------- ---------- ----------- ----------- -----------
Income tax benefit (expense)..................... $ 67 $ 571 $ (938) $ (324) $ 170
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
</TABLE>
As discussed in Notes 1 and 2, effective April 11, 1996, the Company's
federal tax status changed from an S Corporation to a C Corporation as a result
of the Recapitalization. The income tax benefit for 1995 includes federal S
Corporation "built-in gains" tax of approximately $256 related to the federal S
Corporation election made in 1995. Included in the income tax benefit for 1996
was approximately $271 of deferred tax benefit related to the recognition of
deferred tax assets and liabilities at the date of the change in tax status.
F-19
<PAGE>
COLLEGIS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
14. INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------- 1998
1996 1997 (UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Accrued liabilities...................................................... $ 224 $ 130 $ 36
Relocation expenses...................................................... 191 56 36
Amortization of bond discount............................................ 53 174 174
Change from cash to accrual basis of tax accounting...................... 219 146 109
Special compensation expense recognized upon issuance of stock and
options................................................................ 905
Other.................................................................... 15 44
---------- ---------- -------------
Total gross deferred tax assets........................................ 702 550 1,260
---------- ---------- -------------
Deferred tax liabilities:
Prepaid expenses......................................................... 51 87 128
Property and equipment................................................... 11 47 44
Deferred state taxes..................................................... 45 30 77
---------- ---------- -------------
Total gross deferred tax liabilities................................... 107 164 249
---------- ---------- -------------
Net deferred tax asset..................................................... $ 595 $ 386 $ 1,011
---------- ---------- -------------
---------- ---------- -------------
</TABLE>
A reconciliation of the provision for income taxes follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------------- ------------------------
1996 1997 1997 1998
(UNAUDITED)
<S> <C> <C> <C> <C>
Tax at federal statutory rate............................................ 34.0% 34.0% 34.0% 34.0%
State taxes.............................................................. 66.1 6.9 7.8 5.9
Recapitalization......................................................... 440.0
Permanent differences.................................................... (9.0) 0.5 0.5
Other.................................................................... 1.4 3.2
--------- ----- --- ---
Effective rate........................................................... 531.1% 42.8% 45.5% 39.9%
--------- ----- --- ---
--------- ----- --- ---
</TABLE>
15. RELATED PARTY TRANSACTIONS
The Company paid approximately $75 and $120 to selected directors for
certain management fees and consulting services during the years ended December
31, 1996 and 1997, respectively. For the six months ended June 30, 1998, the
Company paid approximately $50 (unaudited) for such management fees and
consulting services.
F-20
<PAGE>
COLLEGIS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
15. RELATED PARTY TRANSACTIONS (CONTINUED)
In October 1997, The COLLEGIS Research Institute (the "Research Institute"),
a not-for-profit research organization related to the Company through common
directors, was formed to engage in research and development activities in
connection with the innovation, use and application of information technologies
in teaching and learning. Pursuant to a Services Agreement dated February 15,
1998, by and between the Company and the Research Institute, the Company has
agreed to provide to the Research Institute outsourcing, management and
administrative services and to serve as liaison on behalf of the Research
Institute with outside advisors, to the extent such services are specifically
authorized by the President of the Research Institute. The Research Institute
has agreed to reimburse the Company for its costs in providing such services to
the Research Institute. The Research Institute has agreed to grant the Company a
perpetual, royalty-free, non-exclusive right to and license in all intellectual
property developed by the Research Institute and a right to use the name of the
Research Institute in its marketing efforts. The Research Institute has further
agreed that, unless otherwise specifically authorized in writing by the Company,
it will not license its intellectual property to any third party for use in a
for-profit enterprise. The Company has agreed to make annual contributions to
the Research Institute in the amount of the Research Institute's annual net
loss, if any, which may be offset against amounts owed to the Company under the
Services Agreement. The Services Agreement extends through February 15, 2008 and
is thereafter automatically extended for one-year periods unless either party
provides written notice of its desire to terminate.
Amounts received from the Research Institute as reimbursement of the cost of
services provided are accounted for as a reduction of the related expense
amounts in the statement of operations. During the six months ended June 30,
1998, the Company provided approximately $225 in reimbursable services and costs
to the Research Institute.
16. FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to concentrations
of credit risk consisted principally of accounts receivable. The Company
believes that concentrations of credit risk are limited due to the credit
quality of the Company's customers.
The carrying amounts reflected in the balance sheets for cash and cash
equivalents, accounts receivable and long-term debt approximate their respective
fair values given their terms are at or near market. See Note 7 for fair value
disclosure associated with Redeemable Common Stock.
17. SEGMENT INFORMATION
The Company operates primarily in one industry segment. The Company has
derived and expects to continue to derive a significant portion of its revenue
from a relatively limited number of customers.
F-21
<PAGE>
COLLEGIS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
17. SEGMENT INFORMATION (CONTINUED)
The following summarizes revenues from significant customers (defined as
representing 10%, or more, of total revenues):
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEARS ENDED DECEMBER 31, 30,
------------------------------- ------------------------
1995 1996 1997 1997 1998
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Customer A......... 13.5% 14.3% 10.2%
Customer B......... 19.3% 14.1% 10.9%
Customer C......... 16.0%
Customer D......... 12.5%
</TABLE>
The loss of any one of the Company's major customers could have a material
adverse effect on the Company's business, financial condition or results of
operations.
Additionally, the Company derives a significant portion of its revenues from
public institutions whose fiscal stability is dependent, in part, on state and
local government funding. As the Company currently operates in a limited number
of states, a decrease in government funding in a state or local municipality in
which the Company derives a significant portion of its revenue could have a
material adverse effect on the Company's business, financial condition or
results of operations. During the years ended December 31, 1996 and 1997 and the
six months ended June 30, 1998 the Company derived 23.2%, 33.1%, and 31.6%
(unaudited), respectively, of its service revenue from New Jersey-based
community colleges.
F-22
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary............................. 3
The Company.................................... 3
Risk Factors................................... 7
Company History................................ 13
Use of Proceeds................................ 13
Dividend Policy................................ 13
Capitalization................................. 14
Dilution....................................... 15
Selected Financial Data........................ 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 17
Business....................................... 25
Management..................................... 37
Certain Transactions........................... 44
Principal and Selling Stockholders............. 46
Description of Capital Stock................... 47
Shares Eligible for Future Sale................ 50
Underwriting................................... 52
Legal Matters.................................. 54
Experts........................................ 54
Additional Information......................... 54
Index to Financial Statements.................. F-1
</TABLE>
--------------
UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
3,700,000 SHARES
COLLEGIS, INC.
COMMON STOCK
-----------------
PROSPECTUS
-----------------
DONALDSON, LUFKIN & JENRETTE
BT ALEX. BROWN
, 1998
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth fees payable by the Company incurred in
connection with the issuance and distribution of the Common Stock. All such fees
and expenses, except the Securities and Exchange Commission registration fee,
are estimated:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............... $ 20,084
NASD Fee.......................................................... 7,308
Nasdaq Stock Market Listing Fee................................... *
Transfer Agent Fees and Expenses.................................. *
Printing Engraving Fees and Expenses.............................. *
Legal Fees and Expenses........................................... *
Accounting Fees and Expenses...................................... *
Miscellaneous..................................................... *
---------
Total......................................................... $ *
---------
---------
</TABLE>
- ------------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("DGCL") provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding whether civil, criminal or investigative (other than an action by or
in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Section 145 further
provides that a corporation similarly may indemnify any such person serving in
any such capacity who was or is a party or is threatened to be a made a party to
any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor, against expenses (including
attorneys' fees) actually and reasonably incurred in connection with the defense
or settlement of such action or suit if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Delaware Court
of Chancery or such other court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all of the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
The Company's Restated Certificate of Incorporation and By-Laws provide that
indemnification shall be to the fullest extent permitted by the DGCL for all
current or former directors or officers of the Company.
As permitted by the DGCL, the Restated Certificate of Incorporation provides
that directors of the Company shall have no personal liability to the Company or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except (i) for any breach of a director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional
<PAGE>
misconduct or knowing violations of law, (iii) under Section 174 of the DGCL or
(iv) for any transaction in which a director derives an improper personal
benefit.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1, 1995, the Company has issued the following securities which
were not registered under the Securities Act:
(i) Prior Option Plan. In 1995, the Company granted 134,000 options to purchase
shares of common stock at a weighted average exercise price of $0.83 per
share and issued 228,960 shares of common stock pursuant to option exercises
at a weighted average exercise price of $0.26.
(ii) On April 11, 1996, in connection with the Recapitalization, the Company
issued 1,513,680 shares of Series A Voting Stock to TSI Management Company
I, L.L.C. ("TICI"), in exchange for a purchase price of $1.95 per share, and
4,398,224 shares of Class A Non-Voting Stock to TSI Management Company II,
L.L.C. ("TICII") in exchange for a purchase price of $1.95 per share.
(iii) On April 11, 1996, in connection with the certain loans advanced as part
of the Recapitalization, the Company issued a warrant exercisable into
274,912 shares to Chase Bank at an exercise price of $0.47 per share.
(iv) 1996 Stock Option Plan Issuances. The following option grants at the
indicated dates and exercise prices were made by the Company pursuant to the
1996 Stock Option Plan:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
DATE SHARES PRICE
- ------------------------------------------------------------------- ---------- -------------
<S> <C> <C>
06/19/96........................................................... 1,040,480 $ 1.125
11/19/96........................................................... 125,760 1.125
02/13/97........................................................... 56,500 2.750
03/27/97........................................................... 185,000 2.750
05/22/97........................................................... 99,000 2.750
10/01/97........................................................... 85,500 2.750
11/01/97........................................................... 216,000 2.750
02/20/98........................................................... 67,500 4.000
05/01/98........................................................... 360,000 4.000
06/01/98........................................................... 71,000 4.000
</TABLE>
(v) 1996 Stock Option Plan Exercises. The Company issued the following shares on
the dates indicated to employees who exercised options under the 1996 Stock
Option Plan:
<TABLE>
<CAPTION>
NUMBER OF
DATE SHARES
- ---------------------------------------------------------------------------------- -----------
<S> <C>
06/19/97.......................................................................... 11,500
11/22/97.......................................................................... 3,000
11/25/97.......................................................................... 1,000
02/13/98.......................................................................... 1,000
06/19/98.......................................................................... 34,736
07/01/98.......................................................................... 4,000
</TABLE>
(vi) On May 1, 1998, Mr. Lund purchased 65,000 shares at a purchase price of
$4.00 per share.
In each of the above instances, exemption from registration was claimed on
the grounds that the issuance of such securities did not involve any public
offering within the meaning of Section 4(2) of the Securities Act.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The following exhibits are filed as part of this Registration Statement:
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.**
3.1 Restated Certificate of Incorporation of the Company dated May 23, 1996,
as amended.*
3.3 By-Laws of the Company.*
4.1 Specimen Common Stock Certificate.**
4.2 Registration Agreement by and among the Company, TSI Investment Company I,
L.L.C., TSI Investment Company II, L.L.C., Chase Bank, Robert Foley,
Jr., and Claire Reid.*
5.1 Opinion of Winston & Strawn as to the legality of the securities to be
registered.*
10.1 Loan and Security Agreement dated September 23, 1997 between the Company
and LaSalle National Bank.**
10.2 Warrant Agreement dated April 11, 1996 between the Company and Chase
Bank.*
10.3 Letter Agreement between Robert E. Lund and the Company dated May 1, 1998
relating to his employment by the Company.*
10.4 Employment Agreement dated November 1, 1997 between the Company and Dr.
William H. Graves.*
10.5 Incentive, Put and Non-Competition Agreement dated April 11, 1996 between
the Company and Robert Foley.*
10.6 Services Agreement dated February 15, 1998 between the Company and The
COLLEGIS Research Institute.*
10.7 Settlement Agreement dated May 28, 1997 between the Company and Claire
Reid.*
10.8 1996 Stock Option Plan.*
16.1 Letter re change in Certifying Accountant.*
23.1 Consent of Deloitte & Touche LLP.*
23.2 Consent of Zweig, Ramick & Associates.*
23.3 Consent of Winston & Strawn (contained in the opinion filed as Exhibit
5.1).*
27.1 Financial Data Schedule.*
</TABLE>
- ------------------------
* Filed herewith
** To be filed by amendment
(b) Financial Statement Schedules
None required.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of
II-3
<PAGE>
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 Securities Act and will be governed by
the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required
by the underwriters to permit prompt delivery to each purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Maitland, in the State of
Florida, on the 29th day of July, 1998.
<TABLE>
<S> <C> <C>
COLLEGIS, INC.
By: /s/ ROBERT E. LUND
-----------------------------------------
Name: Robert E. Lund
Title: CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
</TABLE>
POWER OF ATTORNEY
The undersigned directors and officers of COLLEGIS, Inc. do hereby
constitute and appoint Robert E. Lund and Robert C. Bowers, and each of them,
with full power of substitution, our true and lawful attorneys-in-fact and
agents to do any and all acts and things in our name and behalf in our
capacities as directors and officers, and to execute any and all instruments for
us and in our names in the capacities indicated below which such person may deem
necessary or advisable to enable COLLEGIS, Inc. to comply with the Securities
Act of 1933, as amended (the "Securities Act"), and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with this
Registration Statement, including specifically, but not limited to, power and
authority to sign for us, or any of us, in the capacities indicated below and
any and all amendments (including pre-effective and post-effective amendments or
any other registration statement filed pursuant to the provisions of Rule 462(b)
under the Securities Act) hereto; and we do hereby ratify and confirm all that
such person or persons shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Act, this Registration Statement has
been signed below by the following persons in the capacities and on the dates
indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ ROBERT E. LUND
- ------------------------------ Chairman, Chief Executive July 29, 1998
Robert E. Lund Officer and Director
/s/ ROBERT FOLEY, JR.
- ------------------------------ President and Director July 29, 1998
Robert Foley, Jr.
Chief Financial Officer,
/s/ ROBERT C. BOWERS Executive Vice President
- ------------------------------ and Director (Principal July 29, 1998
Robert C. Bowers Financial and Accounting
Officer)
/s/ DR. WILLIAM H. GRAVES
- ------------------------------ Senior Vice President and July 29, 1998
Dr. William H. Graves Director
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ DR. ROBERT H. ATWELL
- ------------------------------ Director July 29, 1998
Dr. Robert H. Atwell
/s/ JAMES E. COWIE
- ------------------------------ Director July 29, 1998
James E. Cowie
/s/ BERNARD GOLDSTEIN
- ------------------------------ Director July 29, 1998
Bernard Goldstein
/s/ ROBERT E. KING
- ------------------------------ Director July 29, 1998
Robert E. King
/s/ DR. THURSTON E. MANNING
- ------------------------------ Director July 29, 1998
Dr. Thurston E. Manning
/s/ KENNETH G. PIGOTT
- ------------------------------ Director July 29, 1998
Kenneth G. Pigott
/s/ DR. MARVIN WACHMAN
- ------------------------------ Director July 29, 1998
Dr. Marvin Wachman
</TABLE>
II-6
<PAGE>
EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.**
3.1 Restated Certificate of Incorporation of the Company dated May 23, 1996, as
amended.*
3.3 By-Laws of the Company.*
4.1 Specimen Common Stock Certificate.**
4.2 Registration Agreement by and among the Company, TSI Investment Company I, L.L.C.,
TSI Investment Company II, L.L.C., Chase Bank, Robert Foley, Jr., and Claire
Reid.*
5.1 Opinion of Winston & Strawn as to the legality of the securities to be registered.*
10.1 Loan and Security Agreement dated September 23, 1997 between the Company and LaSalle
National Bank.**
10.2 Warrant Agreement dated April 11, 1996 between the Company and Chase Bank.*
10.3 Letter Agreement between Robert E. Lund and the Company dated May 1, 1998 relating
to his employment by the Company.*
10.4 Employment Agreement dated November 1, 1997 between the Company and Dr. William H.
Graves.*
10.5 Incentive, Put and Non-Competition Agreement dated April 11, 1996 between the
Company and Robert Foley.*
10.6 Services Agreement dated February 15, 1998 between the Company and The COLLEGIS
Research Institute.*
10.7 Settlement Agreement dated May 28, 1997 between the Company and Claire Reid.*
10.8 1996 Stock Option Plan.*
16.1 Letter re Change in Certifying Accountant.
23.1 Consent of Deloitte & Touche LLP.*
23.2 Consent of Zweig, Ramick & Associates.*
23.3 Consent of Winston & Strawn (contained in the opinion filed as Exhibit 5.1).*
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* Filed herewith
** To be filed by amendment
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
TSI MANAGEMENT COMPANY
FIRST: The name of the Corporation is TSI Management Company.
SECOND: The address of the Corporation's registered office in the
State of Delaware is: 1209 Orange Street in the City of Wilmington, County of
New Castle. The name of the Corporation's registered agent at such address
is: The Corporation Trust Company.
THIRD: 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, including, but not limited to,
acquiring, owning, using, dealing in and disposing of real and personal
property of any nature whatsoever.
FOURTH: The Corporation shall have perpetual existence.
FIFTH: The total number of shares of capital stock of all classes
which the Corporation shall have authority to issue is Thirty-Two Million
(32,000,000) shares of Common Stock, which shall be divided as follows: (i)
Ten Million (10,000,000) shares of Series A Voting Common Stock, par value
$.01 per share (the "Series A Voting Common Stock"), (ii) Ten Million
(10,000,000) shares of Series A Non-Voting Common Stock, par value $.01 per
share (the "Series A Non-Voting Common Stock"), (iii) Two Million (2,000,000)
shares of Series B Common Stock, par value $.01 per share (the "Series B
Common Stock"), and (iv) Ten Million (10,000,000) shares of Series C Common
Stock, par value $.01 per share (the "Series C Common Stock") (the Series A
Voting Common Stock and the Series A Non-Voting Common Stock are collectively
referred to herein as the "Series A Common Stock", and the Series A
<PAGE>
Common Stock, the Series B Common Stock and Series C Common Stock are
collectively referred to herein as the "Common Stock").
The powers, preferences and relative, participating, optional or other
rights of the capital stock and the qualifications, limitations or
restrictions thereof are as follows:
A. SERIES A COMMON STOCK PROVISIONS
1. VOTING RIGHTS. (a) Except as otherwise required by law, each
share of Series A Voting Common Stock shall entitle the holder thereof to one
vote on each matter submitted to a vote of the stockholders of the
Corporation. Except as otherwise required by law, the holders of shares of
Series A Voting Common Stock and Series C Common Stock shall vote together
and not as separate classes.
(b) Except as otherwise required by law or expressly provided
herein, each share of Series A Non-Voting Common Stock shall not entitle the
holder thereof to vote on any matter submitted to a vote of the stockholders
of the Corporation, except that such holders will be entitled to vote as a
separate class on any amendment to this Article FIFTH, Section A and on any
amendment, repeal or modification of any provision of this Certificate of
Incorporation that adversely affects the powers, preferences or special
rights of the Series A Non-Voting Common Stock in a manner different than the
adverse effect on the powers, preferences or special rights of the Series A
Voting Common Stock.
(c) Any amendment, repeal or modification of any provision of this
Certificate of Incorporation that adversely affects the powers, preferences
or special rights of the Series A Non-Voting Common Stock and the Series A
Voting Common Stock in the same
2
<PAGE>
manner must be submitted to a vote of the Series A Non-Voting Common Stock
and the Series A Voting Common Stock considered as a single class.
2. DIVIDEND RIGHTS. Subject to provisions of law and of this
Certificate of Incorporation, the holders of Series A Common Stock shall be
entitled to receive, prior to the occurrence of a Public Offering, prior and
in preference to the payment or declaration of any dividends on the Series B
Common Stock and, after the occurrence of a Public Offering, on a parity with
the Series C Common Stock, dividends at such times and in such amounts as may
be determined by the Board of Directors of the Corporation or a duly
authorized committee thereof (an "Authorized Board Committee").
3. LIQUIDATION RIGHTS. (a) In the event of a dissolution,
liquidation or winding up of the Corporation, whether voluntary or
involuntary (a "Liquidation"), the holders of the Series A Common Stock shall
be entitled to receive out of the assets of the Corporation available for
distribution to stockholders, the amount of $1.941 per share (such amount to
be adjusted proportionately in the event the shares of Series A Common Stock
are subdivided into a greater number or combined into a lesser number), plus
any declared but unpaid dividends to which such holders shall be entitled
pursuant to Section A(2) hereof, before any payment or distribution shall be
made on the other series of Common Stock or pursuant to paragraph (b) of this
Section A(3). For purposes of this Section A(3), the merger or consolidation
of the Corporation with or into any other entity or the sale of all or
substantially all of the Corporation's assets shall not be deemed to be a
Liquidation. If upon any Liquidation, the assets to be distributed to the
holders of Series A Common Stock shall be insufficient to permit the payment
to such stockholders of the full preferential amount aforesaid, then all of
the assets of
3
<PAGE>
the Corporation available for distribution to the holders of Series A Common
Stock shall be distributed ratably in accordance with the amount payable with
respect to each share.
(b) In the event of any Liquidation, after payment or provision
for payment of the debts and other liabilities of the Corporation, the
preferential amounts to which the holders of shares of Series A Common Stock
shall be entitled upon Liquidation, pursuant to paragraph (a) of this Section
A(3) and the preferential amounts to which the holders of shares of Series B
Common Stock shall be entitled upon Liquidation pursuant to paragraph (a) of
Section B(3) hereof, the holders of the Series A Common Stock, the Series B
Common Stock and the Series C Common Stock shall be entitled to share ratably
in the remaining assets of the Corporation. Except for the preferential
amounts to which the holders of shares of Series A Common Stock shall be
entitled pursuant to paragraph (a) of this Section A(3) and the preferential
amounts to which the holders of shares of Series B Common Stock shall be
entitled upon Liquidation pursuant to paragraph (a) of Section B(3) hereof,
the Series A Common Stock, the Series B Common Stock and the Series C Common
Stock shall be treated as one class for the purpose of Liquidation.
4. CONVERSION. (a) Each share of Series A Common Stock shall
automatically be converted into one share of Series C Common Stock upon the
closing of an underwritten initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended,
resulting in a sale of Series C Common Stock to the public (a "Public
Offering"). Upon the occurrence of the Public Offering, the outstanding
shares of Series A Common Stock shall be converted automatically without any
further action by the holders of such shares or the Corporation, and whether
or not the certificates representing such
4
<PAGE>
shares are surrendered to the Corporation. At such time as such conversion
has occurred, the rights of the holder of such shares of Series A Common
Stock as such holder will cease and such holder will be deemed to have become
the holder or holders of record of the shares of Series C Common Stock
represented thereby.
(b) Notice of the automatic conversion of shares of Series A
Common Stock shall be promptly given by the Corporation by mailing a notice
to holders of record of the shares of Series A Common Stock at their
respective addresses appearing on the books of the Corporation. Said notice
shall indicate (i) that all shares of Series A Common Stock have been
converted into shares of Series C Common Stock, (ii) the place (which shall
be the principal office of the Corporation) at which certificates for the
shares of Series A Common Stock will, upon presentation and surrender of the
certificates of stock evidencing such shares, be exchanged for certificates
of the shares of Series C Common Stock and (iii) that the Series A Common
Stock is no longer deemed to be outstanding. Any failure or defect in such
notice shall not, in any event. affect the validity or effectiveness of such
conversion.
(c) The Corporation shall not be obligated to issue certificates
evidencing the shares of Series C Common Stock issuable upon such conversion
unless certificates evidencing such shares of the Series A Common Stock being
converted are delivered to the principal office of the Corporation, or the
holder notifies the Corporation that such certificates have been lost,
stolen, destroyed or mutilated and executes an agreement satisfactory to the
Corporation to indemnify the Corporation from, or otherwise satisfies the
Corporation with respect to, any loss incurred by it in connection therewith.
5
<PAGE>
(d) The Corporation will, as soon as practicable after the deposit of
certificates for shares of Series A Common Stock, deliver at the principal
office of the Corporation to the person for whose account such Series A Common
Stock was so surrendered (i) certificates for the number of shares of Series C
Common Stock to which he shall be entitled as aforesaid and (ii) a payment in an
amount equal to all accrued and unpaid dividends on the shares of Series A
Common Stock held by such person immediately prior to such conversion. If for
any reason the Corporation is unable to pay any dividends owing pursuant to this
Article FIFTH, Section A on the shares of Series A Common Stock being converted,
the Corporation will pay such dividends to the converting holder as soon
thereafter as funds of the Corporation are legally available for such payment.
At the request of any such converting holder, the Corporation will provide such
holder with written evidence of its obligation to such holder.
(e) The issuance of certificates for shares of Series C Common
Stock upon conversion of shares of Series A Common Stock will be made without
charge to the holders of such shares of Series A Common Stock for any
issuance tax in respect thereof or other cost incurred by the Corporation in
connection with such conversion and the related issuance of shares of Series
C Common Stock. Upon conversion of each share of Series A Common Stock, the
Corporation will take all such actions as are necessary in order to insure
that the Series C Common Stock issuable with respect to such conversion will
be validly issued, fully paid and non-assessable.
(f) The Corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Series C Common Stock, solely for the
purpose of effecting the conversion of the shares of Series A Common Stock, such
number of its shares of Series C
6
<PAGE>
Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of Series A Common Stock.
(g) Any notice required by the provisions of this Section A(4) to
be given to the holders of shares of Series A Common Stock shall be deemed
given when personally delivered to such holder or three (3) business days
after the same has been deposited in the United States mail, certified or
registered mail, return receipt requested, postage prepaid, and addressed to
each holder of record at his address appearing on the books of the
Corporation.
5. CANCELLATION OF SHARES. Upon conversion of all of the shares
of Series A Common Stock pursuant to Section A(4) hereof, all shares of
Series A Common Stock shall be deemed canceled and the Company shall no
longer be authorized to issue shares of Series A Common Stock.
6. STOCK SPLITS AND COMBINATIONS. If the Corporation in any
manner subdivides (by stock split, stock dividend or otherwise) or combines
(by reverse stock split or otherwise) the outstanding shares of any other
series of Common Stock, the outstanding shares of Series A Common Stock will
be proportionately subdivided or combined in a similar manner.
B. SERIES B COMMON STOCK PROVISIONS
1. VOTING RIGHTS. Except as otherwise required by law, each
share of Series B Common Stock shall have no voting rights.
2. DIVIDEND RIGHTS. Subject to provisions of law and of this
Certificate of Incorporation, the holders of the Series B Common Stock shall
be entitled to receive, prior to the occurrence of a Public Offering, after
payment or declaration of any dividends on the Series A Common Stock and,
after the occurrence of a Public Offering, on a parity with the
7
<PAGE>
Series C Common Stock, dividends at such times and in such amounts as may be
determined by the Board of Directors of the Corporation or an Authorized
Board Committee.
3. LIQUIDATION RIGHTS. (a) In the event of a Liquidation, the
holders of the Series B Common Stock shall be entitled to receive out of the
assets of the Corporation available for distribution to stockholders, after
the payment or provision for payment of the preferential amounts to which the
holders of shares of Series A Common Stock are entitled upon Liquidation
pursuant to paragraph (a) of Section A(3) hereof, the amount of $1.125 per
share (such amount to be adjusted proportionately in the event the shares of
Series B Common Stock are subdivided into a greater number or combined into a
lesser number), before any payment or distribution shall be made on the other
series of Common Stock or pursuant to paragraph (b) of this Section B(3).
For purposes of this Section B(3), the merger or consolidation of the
Corporation with or into any other entity or the sale of all or substantially
all of the Corporation's assets shall not be deemed to be a Liquidation. If
upon any Liquidation, the assets to be distributed to the holders of Series B
Common Stock shall be insufficient to permit the payment to such stockholders
of the full preferential amount aforesaid, then all of the assets of the
Corporation available for distribution to the holders of Series B Common
Stock shall be distributed ratably in accordance with the amount payable with
respect to each share.
(b) In the event of any Liquidation, after payment or provision
for payment of the debts and other liabilities of the Corporation, the
preferential amounts to which the holders of shares of Series A Common Stock
shall be entitled upon Liquidation pursuant to paragraph (a) of Section A(3)
hereof and the preferential amounts to which the holders of shares of Series
B Common Stock shall be entitled upon Liquidation pursuant to paragraph (a)
of this
8
<PAGE>
Section B(3), the holders of the Series A Common Stock, the Series B Common
Stock and the Series C Common Stock shall be entitled to share ratably in the
remaining assets of the Corporation. Except for the preferential amounts to
which the holders of shares of Series A Common Stock shall be entitled
pursuant to paragraph (a) of Section A(3) and the preferential amounts to
which the holders of shares of Series B Common Stock shall be entitled
pursuant to paragraph (a) of this Section B(3), the Series A Common Stock,
the Series B Common Stock and the Series C Common Stock shall be treated as
one class for the purpose of Liquidation.
4. CONVERSION. (a) Each share of Series B Common Stock shall
automatically be converted into one share of Series C Common Stock upon the
closing of a Public Offering. Upon the occurrence of the Public Offering,
the outstanding shares of Series B Common Stock shall be converted
automatically without any further action by the holders of such shares or the
Corporation, and whether or not the certificates representing such shares are
surrendered to the Corporation. At such time as such conversion has
occurred, the rights of the holder of such shares of Series B Common Stock as
such holder will cease and such holder will be deemed to have become the
holder of record of the shares of Series C Common Stock represented thereby.
(b) Notice of the automatic conversion of shares of Series B
Common Stock shall be promptly given by the Corporation by mailing a notice
to holders of record of the shares of Series B Common Stock at their
respective addresses appearing on the books of the Corporation. Said notice
shall indicate (i) that all shares of Series B Common Stock have been
converted into shares of Series C Common Stock, (ii) the place (which shall
be the principal office of the Corporation) at which the certificates for the
shares of Series B Common Stock
9
<PAGE>
will, upon presentation and surrender of the certificates of stock evidencing
such shares, be exchanged for certificates of the shares of Series C Common
Stock and (iii) that the Series B Common Stock is no longer deemed to be
outstanding. Any failure or defect in such notice shall not, in any event,
affect the validity or effectiveness of such conversion.
(c) The Corporation shall not be obligated to issue certificates
evidencing the shares of Series C Common Stock issuable upon such conversion
unless certificates evidencing such shares of the Series B Common Stock being
converted are delivered to the principal office of the Corporation, or the
holder notifies the Corporation that such certificates have been lost,
stolen, destroyed or mutilated and executes an agreement satisfactory to the
Corporation to indemnify the Corporation from, or otherwise satisfies the
Corporation with respect to, any loss incurred by it in connection therewith.
(d) The Corporation will, as soon as practicable after the deposit
of certificates for shares of Series B Common Stock, deliver at the principal
office of the Corporation to the person for whose account such Series B
Common Stock was so surrendered certificates for the number of shares of
Series C Common Stock to which he shall be entitled as aforesaid.
(e) The issuance of certificates for shares of Series C Common
Stock upon conversion of shares of Series B Common Stock will be made without
charge to the holders of such shares of Series B Common Stock for any
issuance tax in respect thereof or other cost incurred by the Corporation in
connection with such conversion and the related issuance of shares of Series
C Common Stock. Upon conversion of each share of Series B Common Stock, the
Corporation will take all such actions as are necessary in order to insure
that the Series C
10
<PAGE>
Common Stock issuable with respect to such conversion will be validly issued,
fully paid and non-assessable.
(f) The Corporation shall at all times reserve and keep available
out of its authorized but unissued shares, of Series C Common Stock, solely
for the purpose of effecting the conversion of the shares of Series B Common
Stock, such number of its shares of Series C Common Stock as shall from time
to time be sufficient to effect the conversion of all outstanding shares of
Series B Common Stock.
(g) Any notice required by the provisions of this Section B(4) to
be given to the holders of shares of Series B Common Stock shall be deemed
given when personally delivered to such holder or three (3) business days
after the same has been deposited in the United States mail, certified or
registered mail, return receipt requested, postage prepaid, and addressed to
each holder of record at his address appearing on the books of the
Corporation.
5. CANCELLATION OF SHARES. Upon conversion of all of the shares
of Series B Common Stock pursuant to Section B(4) hereof, all shares of
Series B Common Stock shall be deemed canceled and the Company shall no
longer be authorized to issue shares of Series B Common Stock.
6. STOCK SPLITS AND COMBINATIONS. If the Corporation in any
manner subdivides (by stock split, stock dividend or otherwise) or combines
(by reverse stock split or otherwise) the outstanding shares of any other
series of Common Stock, the outstanding shares of Series B Common Stock will
be proportionately subdivided or combined in a similar manner.
11
<PAGE>
C. SERIES C COMMON STOCK PROVISIONS
1. VOTING RIGHTS. Except as otherwise required by law, each
share of Series C Common Stock shall entitle the holder thereof to one vote
on each matter submitted to a vote of the stockholders of the Corporation.
Except as otherwise required by law, the holders of shares of Series A Voting
Common Stock and Series C Common Stock shall vote together and not as
separate classes.
2. DIVIDEND RIGHTS. Subject to provisions of law and of this
Certificate of Incorporation, the holders of the Series C Common Stock shall
be entitled to receive dividends at such times and in such amounts as may be
determined by the Board of Directors of the Corporation or an Authorized
Board Committee. After the occurrence of a Public Offering, the Series A
Common Stock, the Series B Common Stock and the Series C Common Stock shall
be treated as one class for the purpose of declaration of dividends.
3. LIQUIDATION RIGHTS. In the event of any Liquidation, after
payment or provision for payment of the debts and other liabilities of the
Corporation, the preferential amounts to which the holders of shares of
Series A Common Stock shall be entitled upon Liquidation pursuant to
paragraph (a) of Section A(3) hereof and the preferential amounts to which
the holders of shares of Series B Common Stock shall be entitled upon
Liquidation pursuant to paragraph (a) of Section B(3) hereof, the holders of
the Series A Common Stock, the Series B Common Stock and the Series C Common
Stock shall be entitled to share ratably in the remaining assets of the
Corporation. Except for the preferential amounts to which the holders of
Series A Common Stock and Series B Common Stock are entitled upon
Liquidation,
12
<PAGE>
the Series A Common Stock, the Series B Common Stock and Series C Common
Stock shall be treated as one class for the purpose of Liquidation.
4. STOCK SPLITS AND COMBINATIONS. If the Corporation in any
manner subdivides (by stock split, stock dividend or otherwise) or combines
(by reverse stock split or otherwise) the outstanding shares of any other
series of its Common Stock, the outstanding shares of Series C Common Stock
will be proportionately subdivided or combined in a similar manner.
5. REDESIGNATION. Upon conversion of all of the shares of Class A
Common Stock and Class B Common Stock, the shares of Class C Common Stock shall
be redesignated as "Common Stock" and all of the references to Class C Common
Stock herein shall be deemed to be references to Common Stock.
SIXTH: The name and mailing address of the incorporator is:
Gwen A. Fransen
Hopkins & Sutter
Three First National Plaza
Suite 4100
Chicago, Illinois 60602
SEVENTH: In furtherance and not in limitation of the powers conferred by
statute, the directors are expressly authorized to adopt, amend and repeal the
by-laws of the Corporation.
EIGHTH: Elections of directors need not be by written ballot unless the
by-laws of the Corporation so provide.
NINTH: The Corporation reserves the right to amend, alter or repeal any
provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by
13
<PAGE>
statute, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
TENTH: Each person who is or was a director or officer of the
Corporation and each person who serves or served at the request of the
Corporation as a director, officer or partner of another enterprise shall be
indemnified by the Corporation in accordance with, and to the fullest extent
authorized by, the General Corporation Law of the State of Delaware as the
same now exists or may be hereafter amended. No amendment to or repeal of
this Article TENTH shall apply to or have any effect on the rights of any
individual referred to in this Article TENTH for or with respect to acts or
omissions of such individual occurring prior to such amendment or repeal.
ELEVENTH: To the fullest extent permitted by the General Corporation
Law of the State of Delaware as the same now exists or way be hereafter
amended, a director of the Corporation shall not be liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director. No amendment to or repeal of this Article ELEVENTH shall apply to
or have any effect on the liability or alleged liability of any director of
the Corporation for or with respect to any acts or omissions of such director
occurring prior to the effective date of such amendment or repeal.
Dated: May 23, 1996.
/s/ Gwen A. Fransen
----------------------------------------
Gwen A. Fransen, Incorporator
14
<PAGE>
CERTIFICATE OF MERGER OF
TECHNOLOGY SPECIALISTS, INC.
INTO TSI MANAGEMENT COMPANY
DATED MAY 31, 1996
The undersigned corporation formed and existing under and by virtue of
the Delaware General Corporation Law, 8 DEL. C.Section 17-101, ET SEQ. (the
"Act").
DOES HEREBY CERTIFY:
FIRST: The name and jurisdiction of formation or organization of each
of the constituent entities which is to merge are as follows:
<TABLE>
<CAPTION>
JURISDICTION OF
NAME FORMATION OR ORGANIZATION
---- -------------------------
<S> <C>
Technology Specialists, Inc. Pennsylvania
TSI Management Company Delaware
</TABLE>
SECOND: An Agreement and Plan of Merger has been approved, adopted,
certified, executed and acknowledged by Technology Specialists, Inc. in
accordance with Sections 1922(c) and 1924(a) of the Business Corporation Law
of 1988, as amended, of the Commonwealth of Pennsylvania and by TSI
Management Company in accordance with Section 252(c) of the Delaware General
Corporation Law, pursuant to which Technology Specialists, Inc. will be
merged with and into TSI Management Company.
THIRD: TSI Management Company, a Delaware corporation, shall be the
surviving corporation in the merger.
FOURTH: The certificate of incorporation of TSI Management Company
shall be the certificate of incorporation of the surviving corporation.
FIFTH: The merger of Technology Specialists, Inc. into TSI Management
Company shall be effective upon the filing of this Certificate of Merger with
the Secretary of State of the State of Delaware.
SIXTH: The executed Agreement and Plan of Merger is on file at the
principal place of business of the surviving corporation. The address of the
principal place of business of the surviving corporation is 801 Springdale
Drive, Suite 130, Exton, Pennsylvania 19341.
SEVENTH: A copy of the Agreement and Plan of Merger will be furnished
by the surviving corporation, on request and without cost, to any shareholder
of Technology Specialists, Inc. and to any stockholder of TSI Management
Company.
<PAGE>
EIGHTH: The authorized capital stock of Technology Specialists, Inc. is
31,000,000 shares of Common Stock, which are divided as follows: (i)
10,000,000 shares of Series A Voting Common Stock, par value $.01 per share,
(ii) 10,000,000 shares of Series A Non-Voting Common Stock, par value $.01
per share, (iii) 1,000,000 shares of Series B Common Stock, par value $.01
per share, and (iv) 10,000,000 shares of Series C Common Stock, par value
$.01 per share.
TSI MANAGEMENT COMPANY
By: /s/ Robert Foley, Jr.
-------------------------------------
Its: President
-------------------------------
2
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE CERTIFICATE OF INCORPORATION
OF
TSI MANAGEMENT COMPANY
(Original Certificate of Incorporation
filed May 23, 1996)
TSI MANAGEMENT COMPANY, a corporation organized and existing under and
by virtue of the laws of the State of Delaware (the "Corporation"), does
hereby certify.
I. That the Board of Directors of the Corporation, by unanimous
written consent without a meeting pursuant to Section 141(f) of the General
Corporation Law of the State of Delaware (the "Law"), adopted a resolution
setting forth the amendment to the Certificate of Incorporation set forth
below, declaring it advisable and submitting it to the stockholders of the
Corporation for their consideration of such amendment to the Certificate of
Incorporation.
II. That by written consent executed in accordance with Section 228 of
the Law, the stockholders of the Corporation voted in favor of the adoption
of the amendment to the Certificate of Incorporation set forth below.
RESOLVED: That Article First of the Certificate of Incorporation of the
Corporation be amended in its entirety to read as follows:
FIRST: The name of the corporation is COLLEGIS, Inc.
III. That the foregoing amendment to the Certificate of Incorporation
was duly adopted in accordance with the provisions of Section 242 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused its President and
Chief Executive Officer to execute this Certificate of Amendment to the
Certificate of Incorporation on its behalf this 20th day of June, 1996.
TSI MANAGEMENT COMPANY
By: /s/ Robert Foley, Jr.
-------------------------------------
Robert Foley, Jr., its President
and Chief Executive Officer
<PAGE>
COLLEGIS, INC.
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
COLLEGIS, Inc. (f/k/a TSI Management Company), a corporation organized
and existing under and by virtue of the General Corporation Law of the State
of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Directors of said corporation, by unanimous consent, adopted
a resolution proposing and declaring advisable the following amendment
to the Certificate of Incorporation of said corporation:
RESOLVED, that clause (iii) of Article Fifth of this Company's
Certificate of Incorporation be amended to read as follows:
"Two Million Five Hundred Thousand (2,500,000)
shares of Series B Common Stock, par value of $.01
per share (the 'Series B Common Stock');"
SECOND: That in lieu of a meeting and vote of stockholders, the holders of the
Corporation's Series A Voting Common Stock 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 the aforesaid amendment has been duly adopted in accordance with
the applicable provisions of Sections 242 and 228 of the General
Corporation Law of the State of Delaware.
[signature page follows]
<PAGE>
IN WITNESS WHEREOF, said COLLEGIS, Inc. has caused this certificate to
be signed by Robert C. Bowers, its Vice President and Chief Financial
Officer, this 10th day of June, 1998.
COLLEGIS, INC.
By: /s/ Robert C. Bowers
-------------------------------------
Robert C. Bowers, Vice President
2
<PAGE>
Exhibit 3.3
BY-LAWS
OF
TSI MANAGEMENT COMPANY
A DELAWARE CORPORATION
ARTICLE I
OFFICES
SECTION 1.1 The corporation shall maintain a registered office in the
State of Delaware as required by law. The corporation may also have such
other offices, either within or without the State of Delaware, as the
business of the corporation may require.
ARTICLE II
STOCKHOLDERS
SECTION 2.1 ANNUAL MEETING. An annual meeting of the stockholders
shall be held commencing in 1997 on the third Thursday of May of each year,
if not a legal holiday, and if a legal holiday, then on the next succeeding
business day, for the election of directors and for the transaction of such
other business as may come before the meeting.
SECTION 2.2 SPECIAL MEETINGS. Special meetings of the stockholders may
be called by the President, the board of directors, or by a request in
writing from the holders of not less than 25% of the issued and outstanding
voting stock of the corporation. Within ten days after the receipt of such a
written request, the President or another officer designated by the President
must send a notice of meeting in accordance with section 2.4 hereof.
SECTION 2.3 PLACE OF MEETING. The board of directors may designate any
place, either within or without the State of Delaware, as the place of
meeting for any annual meeting or for any special meeting called by the board
of directors. If a special meeting be called otherwise than by the board of
directors, the place of meeting must be in the county of Chester, State of
Pennsylvania.
SECTION 2.4 NOTICE OF MEETING. Written notice stating the place, date
and hour of the meeting, the place where the stockholder list may be examined
prior to the meeting, if different from the place of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called, shall be given in person or sent by mail or overnight express service
not less than ten nor more than sixty days before the date of the meeting, or
in the case of a merger or consolidation of the corporation requiring
stockholder approval or a sale, lease or exchange of all or substantially all
of the corporation's assets, not less than twenty nor more than sixty days
before the date of meeting, to each stockholder of record entitled to vote at
such meeting, If mailed, notice shall be deemed given when deposited in the
United States mail, postage prepaid, directed to the stockholder at his
address as it appears on the records of the corporation. If notice is given
by
<PAGE>
overnight express service, such notice shall be deemed given one day after
delivery to such express service. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken, unless the adjournment is for more than thirty days, or unless, after
adjournment, a new record date is fixed for the adjourned meeting, in either
of which cases notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting. Notice need not be
given to any stockholder who submits a written waiver of notice signed by
such stockholder either before or after any meeting. Attendance by a
stockholder at a meeting of stockholders shall constitute a waiver of notice
of such meeting, except when the stockholder attends the meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting need be specified in any waiver of notice of such
meeting.
SECTION 2.5 FIXING OF RECORD DATE. (a) In order that the corporation
may determine the stockholders entitled to notice of or to vote at any
meeting of stockholders or any adjournment thereof, the board of directors
may fix a record date, which record date shall not precede the date upon
which the resolution fixing the record date is adopted by the board of
directors, and which record date shall not be more than sixty nor less than
ten days before the date of such meeting. If no record date is fixed by the
board of directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day
on which the meeting is held. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to
any adjournment of the meeting; provided, however, that the board of
directors may fix a new record date for the adjourned meeting.
(b) In order that the corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the
board of directors may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
board of directors, and which date shall not be more than ten days after the
date upon which the resolution fixing the record date is adopted by the board
of directors. If no record date has been fixed by the board of directors,
the record date for determining stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the board of
directors is required by the Delaware General Corporation Law, shall be the
first date on which a signed written consent setting forth the action taken
or proposed to be taken is delivered to the corporation by delivery to its
registered office in Delaware, its principal place of business, or an officer
or agent of the corporation having custody of the book in which proceedings
of meetings of stockholders are recorded. Delivery made to the corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. If no record date has been fixed by the board of directors
and prior action by the board of directors is required by the Delaware
General Corporation Law, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be
at the close of business on the day on which the board of directors adopts
the resolution taking such prior action.
-2-
<PAGE>
(c) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or
allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose
of any other lawful action, the board of directors may fix a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted, and which record date shall be not more than
sixty days prior to such action. If no record date is fixed, the record date
for determining stockholders for any such purpose shall be at the close of
business on the day on which the board of directors adopts the resolution
relating thereto.
SECTION 2.6 VOTING LISTS. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders entitled
to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and number of shares registered in his name,
which list, for a period of ten days prior to such meeting, shall be kept on
file either at a place within the city where the meeting is to be held and
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held, and shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
at any time during ordinary business hours. Such list shall also be produced
and kept at the time and place of the meeting during the whole time thereof,
and may be inspected by any stockholder who is present.
SECTION 2.7 STOCK LEDGER. The stock ledger shall be the only evidence
as to who are the stockholders entitled to examine the stock ledger or the
books of the corporation, or to vote in person or by proxy at any meeting of
stockholders.
SECTION 2.8 QUORUM. A majority of the outstanding shares of voting
stock of the corporation, represented in person or by proxy, shall constitute
a quorum at any meeting of stockholders; provided, however, that if less than
a majority of the outstanding shares of voting stock are represented at said
meeting, a majority of the shares of voting stock so represented may adjourn
the meeting. If a quorum is present, the affirmative vote of a majority of
the shares of voting stock represented at the meeting shall be the act of the
stockholders in all matters other than the election of directors, who shall
be elected by a plurality of the votes of the shares present in person or by
proxy and entitled to vote on the election of directors, unless the vote of a
greater number or voting by classes is required by the Delaware General
Corporation Law, the certificate of incorporation or these by-laws. At any
adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the original meeting.
Requirements of notice at any adjourned meeting are governed by Section 2.4
hereof. Withdrawal of stockholders from any meeting shall not cause failure
of a duly constituted quorum at that meeting.
SECTION 2.9 PROXIES. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period. Every proxy must be
signed by the stockholder or his attorney-in-fact. A duly executed proxy
shall be irrevocable if it states that it is irrevocable, and if, and only as
long as, it is coupled with an interest sufficient in law to support
-3-
<PAGE>
an irrevocable power. A proxy may be made irrevocable regardless of whether
the interest with which it is coupled is an interest in the stock itself or
an interest in the corporation generally.
SECTION 2.10 VOTING OF STOCK. Subject to the provisions of the
certificate of incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote for each share of the voting stock held
by such stockholder.
SECTION 2.11 VOTING OF STOCK BY CERTAIN HOLDERS. Persons holding stock
in a fiduciary capacity shall be entitled to vote the shares so held.
Persons whose stock is pledged shall be entitled to vote, unless in the
transfer by the pledgor on the books of the corporation he has expressly
empowered the pledgee to vote thereon, in which case only the pledgee or his
proxy may represent such stock and vote thereon. Shares of its own stock
belonging to the corporation or to another corporation, if a majority of the
shares entitled to vote in the election of directors of such other
corporation is held, directly or indirectly, by the corporation, shall
neither be entitled to vote nor counted for quorum purposes, but shares of
its stock held by the corporation in a fiduciary capacity may be voted by it
and counted for quorum purposes.
SECTION 2.12 CONSENT OF STOCKHOLDERS. (a) Unless otherwise provided in
the certificate of incorporation, any action required to be taken at any
annual or special meeting of stockholders of the corporation, or any action
which may be taken at any annual or special meeting of stockholders, may be
taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted and shall be
delivered to the corporation by delivery to its principal place of business,
or to an officer or agent of the corporation having custody of the book in
which proceedings of meetings of stockholders are recorded. Delivery made to
the corporation's registered office in Delaware shall be by hand or by
certified or registered mail, return receipt requested.
(b) Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective
to take the corporate action referred to therein unless, within sixty days of
the earliest dated consent delivered in the manner required by this section
to the corporation, written consents signed by a sufficient number of holders
to take such action are delivered to the corporation by delivery to its
registered office in Delaware, its principal place of business, or an officer
or agent of the corporation having custody of the book in which proceedings
of meetings of stockholders are recorded. Delivery made to the corporation's
registered office in Delaware shall be by hand or by certified or registered
mail, return receipt requested.
(c) Prompt notice of the taking of any corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented thereto in writing.
SECTION 2.13 VOTING BY BALLOT. Voting in any election of directors
may, if permitted by the certificate of incorporation, be by voice vote, and
voting on any other question shall be by
-4-
<PAGE>
voice vote unless, in each case, the presiding officer shall order or any
stockholder shall demand that voting be by ballot.
SECTION 2.14 INSPECTORS. The board of directors, in advance of any
meeting, may, but need not, appoint one or more inspectors of election to act
at the meeting or any adjournment thereof. If an inspector or inspectors are
not appointed, the person presiding at the meeting may, or upon the request
of any stockholder shall, appoint one or more inspectors. In case any person
who may be appointed as an inspector fails to appear or act, the vacancy may
be filled by appointment made by the directors in advance of the meeting or
at the meeting by the person presiding thereat. Each inspector, if any,
before entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if
any, shall determine the number of shares of stock outstanding and the voting
power of each, the shares of stock represented at the meeting, the existence
of a quorum, the validity and effect of proxies, and shall receive votes,
ballots or consents, hear and determine all challenges and questions arising
in connection with the right to vote, count and tabulate all votes, ballots
or consents, determine the result, and do such acts as are proper to conduct
the election or vote with fairness to all stockholders. On request of the
person presiding at the meeting, the inspector or inspectors, if any, shall
make a report in writing of any challenge, question or matter determined by
him or them and execute a certificate of any fact found by him or them.
ARTICLE III
DIRECTORS
SECTION 3.1 GENERAL POWERS. The business of the corporation shall be
managed by or under the direction of its board of directors, except as
otherwise provided in the certificate of incorporation.
SECTION 3.2 NUMBER AND QUALIFICATIONS. The number of directors of the
corporation shall be nine (9) or such other number as may be determined from
time to time by the board of directors of the corporation at a duly held
meeting thereof. Directors need not be stockholders of the corporation,
citizens of the United States or residents of the State of Delaware.
SECTION 3.3 ELECTION AND TERM. The board of directors shall be elected
at the annual meeting of the stockholders of the corporation and shall hold
office until their successors are elected and qualified or until their
earlier death, resignation or removal. Any director may resign at any time
upon written notice to the corporation. Thereafter, directors who are
elected at an annual meeting of stockholders, and directors who are elected
in the interim to fill vacancies and newly created directorships, shall hold
office until the next annual meeting of stockholders and until their
successors are elected and qualified or until their earlier death,
resignation or removal. In the interim between annual meetings of
stockholders or of special meetings of stockholders called for the election
of directors and/or for the removal of one or more directors and for the
filling of any
-5-
<PAGE>
vacancy in that connection, newly created directorships and any vacancies in
the board of directors, including vacancies resulting from the removal of
directors, may be filled by the vote of a majority of the remaining directors
then in office, although less than a quorum, or by the sole remaining
director.
SECTION 3.4 REGULAR MEETINGS. A regular meeting of the board of
directors shall be held without other notice than this by-law, immediately
after, and at the same place as, the annual meeting of stockholders.
Meetings of the board of directors may be held either within or without the
State of Delaware. The board of directors may provide, by resolution, the
time and place for the holding of additional regular meetings without other
notice than such resolution.
SECTION 3.5 SPECIAL MEETINGS. Special meetings of the board of
directors may be called by or at the request of the President or any
director. The person or persons calling such special meeting of the board of
directors shall fix a place, either within or without the State of Delaware,
as the place for holding such special meeting of the board of directors.
SECTION 3.6 NOTICE. Notice of any special meeting stating the time and
place of such meeting shall be given at least three days previous thereto by
written notice delivered personally or sent by mail or overnight express
service to each director at his business address. Such notice shall be
deemed to be delivered when deposited in the United States mail or given to
such overnight express service so addressed, with postage thereon prepaid.
Notice need not be given to any director who submits a written waiver of
notice signed by him either before or after any meeting. The attendance of a
director at any meeting shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special
meeting of the board of directors need be specified in the notice or waiver
of such meeting.
SECTION 3.7 QUORUM. A majority of the number of directors fixed by or
determined in accordance with these by-laws (or of the members of any
committee in the case of a meeting of a committee of the board of directors)
shall constitute a quorum for the transaction of business at any meeting of
the board of directors or of such committee, provided, however, that if less
than a majority of such number of directors are present at said meeting, a
majority of the directors present may adjourn the meeting from time to time
without further notice. Interested directors may be counted in determining
the presence of a quorum at a meeting of the board of directors or of a
committee thereof.
SECTION 3.8 MANNER OF ACTING. The vote of a majority of the directors
present at a meeting at which a quorum is present shall be the act of the
board of directors or of a committee of the board, as the case may be.
SECTION 3.9 ACTION WITHOUT A MEETING. Any action required or permitted
to be taken at any meeting of the board of directors or of any committee
thereof may be taken without a
-6-
<PAGE>
meeting if all the members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
SECTION 3.10 COMPENSATION. The board of directors shall have authority
to establish reasonable compensation of all directors for services to the
corporation as directors, officers or otherwise.
SECTION 3.11 LIABILITY FOR UNLAWFUL PAYMENT OF DIVIDEND. In case of
any willful or negligent violation of the provisions of sections 160 or 173
of the Delaware General Corporation Law regarding the payment of dividends,
any director who may have been absent when the same was done, or who may have
dissented from the act or resolution by which the same was done, may
exonerate himself from such liability by causing his dissent to be entered on
the books containing the minutes of the proceedings of the directors at the
time the same was done, or immediately after he has notice of the same.
SECTION 3.12 TELEPHONE MEETINGS. Members of the board of directors or
of any committee thereof may participate in a meeting of the board by means
of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and such
participation shall constitute presence in person at the meeting.
SECTION 3.13 REMOVAL. Any director or the entire board of directors
may be removed with or without cause by the holders of a majority of the
shares then entitled to vote at an election of directors.
SECTION 3.14 COMMITTEES. The board of directors may, by resolution
passed by a majority of the whole board, designate one or more committees,
each committee to consist of one or more of the directors of the corporation.
Any such committee, to the extent provided in the resolution of the board of
directors, shall have and may exercise all the powers and authority of the
board of directors in the management of the business and affairs of the
corporation, to the extent permitted under the Delaware General Corporation
Law.
ARTICLE IV
OFFICERS
SECTION 4.1 NUMBER. The officers of the corporation shall be a
Chairman of the Board, a Vice-Chairman of the Board, a President and Chief
Executive Officer, a Vice President - Finance, a Treasurer, a Secretary, an
Assistant Secretary, and such other Vice Presidents, Assistant Treasurers,
Assistant Secretaries or other officers as may be elected by the board of
directors. Any two or more offices may be held by the same person.
SECTION 4.2 ELECTION AND TERM OF OFFICE. The officers of the
corporation shall be elected annually by the board of directors at the first
meeting of the board of directors held after
-7-
<PAGE>
each annual meeting of stockholders. If the election of officers shall not
be held at such meeting, such election shall be held as soon thereafter as
convenient. New offices may be created and filled at any meeting of the
board of directors. Each officer shall hold office until his successor is
elected and has qualified or until his earlier death, resignation or removal.
Any officer may resign at any time upon written notice to the corporation.
Election of an officer shall not of itself create contract rights.
SECTION 4.3 REMOVAL. Any officer elected by the board of directors may
be removed by the board of directors whenever in its judgment the best
interests of the corporation would be served thereby, but such removal shall
be without prejudice to the contract rights, if any, of the person so removed.
SECTION 4.4 VACANCIES. A vacancy in any office occurring because of
death, resignation, removal or otherwise, may be filled by the board of
directors.
SECTION 4.5 THE CHAIRMAN OF THE BOARD. The Chairman of the Board shall
preside at all meetings of the board of directors, and shall have such other
duties and responsibilities as may be assigned to him from time to time by
the board of directors.
SECTION 4.6 THE VICE-CHAIRMAN OF THE BOARD. The Vice-Chairman of the
Board shall report to the Chairman of the Board, and shall have such duties
and responsibilities as may be assigned to him from time to time by the
Chairman of the Board or the board of directors.
SECTION 4.7 THE PRESIDENT AND CHIEF EXECUTIVE OFFICER. The President
shall be the chief executive officer of the corporation and, subject only to
the board of directors, shall have general authority over, and general
management and control of, the property, business and affairs of the
corporation. The President shall preside at all meetings of the
stockholders. The President shall have authority to vote all shares of stock
of any other corporation standing in the name of the corporation, at any
meeting of the stockholders of such other corporation or by written consent
of the stockholders of such other corporation, and may, on behalf of the
corporation, waive any notice of the calling of any such meeting, and may
give a written proxy in the name of the corporation to vote any or all shares
of stock of such other corporation owned by the corporation at any such
meeting. The President shall perform such other duties as may be prescribed
by the board of directors from time to time.
SECTION 4.8 VICE PRESIDENT - FINANCE. The Vice President - Finance
shall report to the President or such other officer as may be determined by
the board of directors. Such Vice President - Finance shall have general
authority over the financial affairs of the corporation, and such other
duties and responsibilities as from time to time may be assigned to him by
the President or the board of directors.
SECTION 4.9 OTHER VICE PRESIDENTS. All other Vice Presidents, if any,
shall report to the President or such other officer as may be determined by
the board of directors. Each Vice
-8-
<PAGE>
President shall have such duties and responsibilities as from time to time
may be assigned to him by the President or the board of directors.
SECTION 4.10 THE TREASURER. The Treasurer shall: (a) have charge and
custody of and be responsible for all funds and securities of the
corporation; receive and give receipts for moneys due and payable to the
corporation from any source whatsoever, and deposit all such moneys in the
name of the corporation in such banks, trust companies or other depositories
as shall be selected in accordance with the provisions of Article V of these
by-laws; (b) in general, perform all the duties incident to the office of the
treasurer and such other duties as may from time to time be assigned to him
by the President or the board of directors. In the absence of the Treasurer,
or in the event of his incapacity or refusal to act, or at the direction of
the Treasurer, the Vice President - Finance or any Assistant Treasurer may
perform the duties of the Treasurer.
SECTION 4.11 THE SECRETARY. The Secretary shall: (a) record all the
proceedings of the meetings of the stockholders and board of directors in one
or more books kept for that purpose; (b) see that all notices are duly given
in accordance with the provisions of these by-laws or as required by law;
(c) be custodian of the corporate records and of the seal of the corporation
and see that the seal of the corporation is affixed to all certificates for
shares of stock, instruments and all other documents, the execution of which
on behalf of the corporation under its seal is duly authorized in accordance
with the provisions of these by-laws; (d) keep a register of the post office
address of each stockholder which shall be furnished to the Secretary by such
stockholder; (e) have general charge of the stock transfer books of the
corporation and (f) in general, perform all duties incident to the office of
secretary and such other duties as from time to time may be assigned to him
by the President or the board of directors. In the absence of the Secretary,
or in the event of his incapacity or refusal to act, or at the direction of
the Secretary, any Assistant Secretary may perform the duties of Secretary.
SECTION 4.12 THE ASSISTANT SECRETARY. The Assistant Secretary reports
to the Secretary of the corporation and shall have such duties and
responsibilities as may be assigned to him from time to time by the
President, the Secretary or the board of directors.
ARTICLE V
CONTRACTS, LOANS
CHECKS AND DEPOSITS
SECTION 5.1 CONTRACTS. Except as otherwise determined by the board of
directors or provided in these by-laws, all deeds and mortgages made by the
corporation and all other written contracts and agreements to which the
corporation shall be a party shall be executed in its name by the President
or any Vice President.
-9-
<PAGE>
SECTION 5.2 LOANS. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name
unless authorized by a resolution of the board of directors. Such authority
may be general or confined to specific instances.
SECTION 5.3 CHECKS AND DRAFTS. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation, shall be signed by such officer or officers, agent
or agents of the corporation and in such manner as shall from time to time be
determined by resolution of the board of directors.
SECTION 5.4 DEPOSITS. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the
corporation in such banks, trust companies or other depositories as the board
of directors may select.
ARTICLE VI
CERTIFICATES FOR SHARES OF
STOCK AND THEIR TRANSFER
SECTION 6.1 CERTIFICATES FOR SHARES OF STOCK. Certificates
representing shares of stock of the corporation shall be in such form as may
be determined by the board of directors. Such certificates shall be signed
by the President or any Vice President and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary. If any such
certificate is manually countersigned by a transfer agent other than the
corporation or its employee, any other signature on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon such certificate shall have
ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same
effect as if he were such officer, transfer agent or registrar at the date of
issue. The name of the person to whom the shares represented thereby are
issued, with the number of shares and date of issue, shall be entered on the
books of the corporation. All certificates surrendered to the corporation
for transfer shall be canceled and no new certificates shall be issued until
the former certificate for a like number of shares shall have been
surrendered and canceled, except that in case of a lost, destroyed or
mutilated certificate, a new certificate may be issued therefor upon such
terms, indemnity and surety to the corporation as the board of directors may
prescribe.
SECTION 6.2 TRANSFER OF SHARES OF STOCK. Transfers of shares of stock
of the corporation shall be made on the books of the corporation by the
holder of record thereof or by his legal representative, who shall furnish
proper evidence of authority to transfer, or by his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the corporation, and on surrender for cancellation of the certificate for
such shares. The person in whose name shares of stock stand on the books of
the corporation shall be deemed the owner thereof for all purposes as regards
the corporation.
-10-
<PAGE>
SECTION 6.3 TRANSFER AGENTS AND REGISTRARS. The board of directors may
appoint one or more transfer agents or assistant transfer agents and one or
more registrars of transfers, and may require all certificates for shares of
stock of the corporation to bear the signature of a transfer agent or
assistant transfer agent and a registrar of transfers. The board of
directors may at any time terminate the appointment of any transfer agent or
any assistant transfer agent or any registrar of transfers.
ARTICLE VII
INDEMNIFICATION
SECTION 7.1 DIRECTORS AND OFFICERS. (a) The corporation shall indemnify
any person who was or is a party or is threatened to be made party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director
or officer of the corporation, or is or was serving at the request of the
corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of NOLO
CONTENDERE or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, had reasonable cause
to believe that his conduct was unlawful.
(b) The corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that he is or was a director or officer of
the corporation, or is or was serving at the request of the corporation as a
director or officer of another corporation, partnership, joint venture, trust
or other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation,
and except that no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable
to the corporation unless and only to the extent that the Court of Chancery
of the State of Delaware or the court in which action or suit was brought
shall determine upon application that, despite the adjudication of liability
but in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of
Chancery of the State of Delaware or such other court shall deem proper.
-11-
<PAGE>
(c) To the extent that any person referred to in paragraphs (a) and (b)
of this Section 7.1 has been successful on the merits or otherwise in defense
of any action, suit or proceeding referred to therein or in defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(d) Any indemnification under paragraphs (a) and (b) of this section 7.1
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of
the director or officer is proper in the circumstances because he has met the
applicable standard of conduct set forth in paragraphs (a) and (b) of this
section 7.1. Such determination shall be made (i) by the board of directors
by a majority vote of a quorum consisting of directors who were not parties
to such action, suit or proceeding or (ii) if such quorum is not obtainable,
or, even if obtainable a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or (iii) by the stockholders.
(e) Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of the director or officer to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the corporation as
provided in this section 7.1.
(f) The indemnification and advancement of expenses provided by or
granted pursuant to this section 7.1 shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of
expenses may be entitled under any statute, by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in
his official capacity and as to action in another capacity while holding such
office.
(g) The corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this section 7.1.
(h) For purposes of this section 7.1, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan;
and references to "serving at the request of the corporation" shall include
any service as a director, officer, employee or agent of the corporation
which imposes duties on, or involves services by, such director, officer,
employee, or agent with respect to an employee benefit plan, its participants
or beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to
in this section.
-12-
<PAGE>
(i) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(j) Unless otherwise determined by the board of directors, references
in this section to "the corporation" shall not include in addition to the
resulting corporation, any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger which, if its
separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any
person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall
stand in the same position under this section with respect to the resulting
or surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
SECTION 7.2 EMPLOYEES AND AGENTS. The board of directors may, by
resolution, extend the indemnification provisions of the foregoing section 7.1
to any person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding by reason of
the fact that he is or was an employee or agent of the corporation, or is or
was serving at the request of the corporation as an employee or agent of
another corporation, partnership, joint venture, trust or other enterprise.
ARTICLE VIII
FISCAL YEAR
SECTION 8.1 The fiscal year of the corporation shall end on December 31
or on such other date as the board of directors may from time to time
determine by resolution.
ARTICLE IX
DIVIDENDS
SECTION 9.1 The board of directors may from time to time declare, and
the corporation may pay, dividends on its outstanding shares of stock in the
manner and upon the terms and conditions provided by law and its certificate
of incorporation.
-13-
<PAGE>
ARTICLE X
SEAL
SECTION 10.1 The corporate seal of the corporation shall be in the form
of a circle and shall have the name of the corporation and the words
"Corporate Seal, Delaware" written therein or inscribed thereon.
ARTICLE XI
WAIVER OF NOTICE
SECTION 11.1 Whenever any notice whatever is required to be given under
any provision of these by-laws or of the certificate of incorporation or of
the Delaware General Corporation Law, a written waiver thereof, signed by the
person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of a person at a meeting
shall constitute a waiver of notice of such meeting, except when the person
attends a meeting for the express purpose of objecting, at the beginning of
the meeting, to the transactions of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor
the purpose of, any regular or special meeting of the stockholders or
directors or of a committee of the board of directors need be specified in
any written waiver of notice.
ARTICLE XII
AMENDMENTS
SECTION 12.1 These by-laws may be altered, amended or repealed and new
by-laws may be adopted at any meeting of the board of directors of the
corporation by a majority of the whole board of directors then in office, or
by the stockholders.
-14-
<PAGE>
Exhibit 4.2
REGISTRATION AGREEMENT
THIS REGISTRATION AGREEMENT (this "AGREEMENT"), dated April 11, 1996, is
by and among Technology Specialists, Inc., a Pennsylvania corporation (the
"CORPORATION"), the persons and entities identified on SCHEDULE 1 hereto (the
"INVESTORS"), Robert Foley, Jr. ("FOLEY"), Claire Reid ("REID" and, together
with Foley, the "EXECUTIVES") and Chemical Bank ("CHEMICAL BANK").
RECITALS
A. The Investors have agreed to acquire approximately 80% of the
securities of the Corporation pursuant to (i) that certain Stock Purchase
Agreement, dated March 28, 1996 (the "PURCHASE AGREEMENT"), by and among the
Corporation, the Investors and certain security holders of the Corporation
and (ii) that certain Stock Redemption and Option Termination Agreement,
dated as of March 28, 1996 (the "REDEMPTION AGREEMENT"), between the
Corporation and certain security holders of the Corporation.
B. The Executives have agreed to remain in the employ of the
Corporation and retain ownership of certain securities of the Corporation
held thereby, provided that certain securities registration rights are
granted to the Executives.
C. The Corporation and Chemical Bank have entered into that certain
Warrant Agreement, dated as of April 11, 1996 (the "WARRANT AGREEMENT"),
between the Corporation and Chemical Bank, pursuant to which the Corporation
will issue warrants to purchase shares of Series A Non-Voting Common Stock to
Chemical Bank (the "WARRANTS").
D. The Corporation, the Investors, the Executives and Chemical Bank
deem it desirable to enter into this Agreement in order to grant securities
registration rights to the Investors, the Executives and Chemical Bank.
AGREEMENTS
In consideration of the recitals and the mutual promises and covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
1. DEFINITIONS. As used in this Agreement:
(a) "CHEMICAL BANK" means Chemical Bank, a New York banking
corporation.
(b) "CHEMICAL BANK SHARES" means at any time (i) any shares of
Common Stock then outstanding that were issued, directly or indirectly, upon
the exercise of the Warrants or upon the conversion of shares of Series A
Non-Voting Common Stock issued upon the exercise of the Warrants; (ii) any
Common Stock then issuable, directly or indirectly, upon the exercise of the
Warrants or conversion of shares of Series A Non-Voting Common Stock issuable
<PAGE>
upon the exercise of the Warrants; (iii) any shares of Common Stock then
outstanding which were issued, directly or indirectly, as, or were issued,
directly or indirectly, upon the conversion or exercise of other securities
issued as, a dividend or other distribution with respect to or in replacement
of other Chemical Bank Shares; and (iv) any shares of Common Stock then
issuable, directly or indirectly, upon the conversion or exercise of other
securities which were issued as a dividend or other distribution with respect
to or in replacement of other Chemical Bank Shares; provided, however, that
Chemical Bank Shares shall not include any shares the sale of which has been
registered pursuant to the Securities Act or sold to the public pursuant to
Rule 144 promulgated by the Commission under the Securities Act. For
purposes of this Agreement, a Person will be deemed to be a Holder of
Chemical Bank Shares whenever such Person holds a security exercisable for or
convertible into such Chemical Bank Shares, whether or not such exercise or
conversion has actually been effected.
(c) "COMMISSION" means the Securities and Exchange Commission.
(d) "COMMON STOCK" means the Series C Common Stock, par value $.01
per share, of the Corporation.
(e) "EXECUTIVES' SHARES" means the Foley Shares and the Reid Shares.
(f) "FOLEY" means Robert Foley, Jr.
(g) "FOLEY OPTIONS" means the Old Options and the New Foley Options.
(h) "FOLEY SHARES" means at any time (i) any shares of Common
Stock then outstanding that were issued, directly or indirectly, upon the
exercise of the Foley Options or upon the conversion of shares of Series A
Voting Common Stock or Series B Common Stock issued, directly or indirectly,
upon the exercise of the Foley Options; (ii) any shares of Common Stock then
issuable, directly or indirectly, upon the exercise of the Foley Options or
upon the conversion of shares of Series A Voting Common Stock or Series B
Common Stock issuable upon the exercise of the Foley Options; (iii) any
shares of Common Stock then outstanding which were issued, directly or
indirectly, as, or were issued, directly or indirectly, upon the conversion
or exercise of other securities issued as a dividend or other distribution
with respect to or in replacement of other Foley Shares; and (iv) any shares
of Common Stock then issuable, directly or indirectly, upon the conversion or
exercise of other securities which were issued as, a dividend or other
distribution with respect to or in replacement of other Foley Shares;
provided, however, that Foley Shares shall not include any shares the sale of
which has been registered pursuant to the Securities Act or sold to the
public pursuant to Rule 144 promulgated by the Commission under the
Securities Act. For purposes of this Agreement, a Person will be deemed to
be a Holder of Foley Shares whenever such Person holds a security exercisable
for or convertible into, directly or indirectly, such Foley Shares, whether
or not such exercise or conversion has actually been effected.
2
<PAGE>
(i) "HOLDER" is any holder of Registrable Shares who is a
successor or assign or subsequent holder contemplated by Section 11 hereof.
(j) "INVESTORS' SHARES" means at any time (i) any shares of Common
Stock then outstanding that were issued, directly or indirectly, upon the
conversion of shares of Series A Voting Common Stock or Series A Non-Voting
Common Stock issued pursuant to the Purchase Agreement; (ii) any shares of
Common Stock then issuable, directly or indirectly, upon the conversion of
shares of Series A Voting Common Stock or Series A Non-Voting Common Stock
issued pursuant to the Purchase Agreement; (iii) any shares of Common Stock
then outstanding which were issued, directly or indirectly, as, or were
issued, directly or indirectly, upon the conversion or exercise of other
securities issued as, a dividend or other distribution with respect to or in
replacement of other Investors' Shares; and (iv) any shares of Common Stock
then issuable, directly or indirectly, upon the conversion or exercise of
other securities which were issued as a dividend or other distribution with
respect to or in replacement of other Investors' Shares; provided. however,
that Investors' Shares shall not include any shares the sale of which has
been registered pursuant to the Securities Act or sold to the public pursuant
to Rule 144 promulgated by the Commission under the Securities Act. For
purposes of this Agreement, a Person will be deemed to be a Holder of
Investors' Shares whenever such Person holds a security exercisable for or
convertible into, directly or indirectly, such Investors' Shares, whether or
not such exercise or conversion has actually been effected.
(k) "IPO" means the Corporation's first underwritten public
offering of shares of Common Stock pursuant to a registration statement filed
with the Commission.
(l) "MATERIAL ADVERSE EFFECT" means a material adverse effect on
the per share price of the securities to be sold in the offering.
(m) "NEW FOLEY OPTIONS" means options to purchase 83,500 shares of
Series B Common Stock issued by the Corporation to Foley pursuant to the New
Option Plan.
(n) "NEW OPTION PLAN" means the Technology Specialists, Inc. 1996
Stock Option Plan adopted by the Board of Directors of the Corporation on
April 11, 1996.
(o) "OLD FOLEY OPTIONS" means options to purchase 75,000 shares of
Series A Voting Common Stock issued by the Corporation to Foley pursuant to
the Corporation's 1988 Nonqualified Stock Option Plan.
(p) "PERSON" means a natural person, a partnership, a corporation,
a limited liability company, an association, a joint stock company, a trust,
a joint venture, an unincorporated organization or a governmental entity or
any department, agency or political subdivision thereof.
3
<PAGE>
(q) "PURCHASE AGREEMENT" means that certain Stock Purchase
Agreement, dated March 28, 1996, by and among the Corporation, the Investors
and certain security holders of the Corporation.
(r) "REDEMPTION AGREEMENT" means that certain Stock Redemption and
Option Termination Agreement, dated as of March 28, 1996, between the
Corporation and certain security holders of the Corporation.
(s) "REGISTRABLE SHARES" means the Investors' Shares, the
Executives' Shares and the Chemical Bank Shares.
(t) "REGISTRATION EXPENSES" has the meaning ascribed to such term
in Section 5 hereof.
(u) "REID" means Claire Reid.
(v) "REID OPTIONS" means options to purchase 62,500 shares of
Series B Common Stock issued by the Corporation to Reid pursuant to the New
Option Plan.
(w) "REID SHARES" means at any time (i) any shares of Common Stock
then outstanding that were issued, directly or indirectly, upon the exercise
of the Reid Options or upon the conversion of shares of Series A Voting
Common Stock held by Reid on the date hereof, after giving effect to the
consummation of the transactions contemplated by the Redemption Agreement;
(ii) any shares of Common Stock then issuable, directly or indirectly, upon
the exercise of the Reid Options or upon the conversion of shares of Series A
Voting Common Stock held by Reid on the date hereof, after giving effect to
the consummation of the transactions contemplated by the Redemption
Agreement; (iii) any shares of Common Stock then outstanding which were
issued, directly or indirectly, as, or were issued, directly or indirectly,
upon the conversion or exercise of other securities issued as, a dividend or
other distribution with respect to or in replacement of other Reid Shares;
and (iv) any shares of Common Stock then issuable, directly or indirectly,
upon the conversion or exercise of other securities which were issued as a
dividend or other distribution with respect to or in replacement of other
Reid Shares; provided, however, that Reid Shares shall not include any shares
the sale of which has been registered pursuant to the Securities Act or sold
to the public pursuant to Rule 144 promulgated by the Commission under the
Securities Act. For purposes of this Agreement, a Person will be deemed to
be a Holder of Reid Shares whenever such Person holds a security exercisable
for or convertible into, directly or indirectly, such Reid Shares, whether or
not such exercise or conversion has actually been effected.
(x) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(y) "SECURITIES EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.
4
<PAGE>
(z) "SERIES A NON-VOTING COMMON STOCK " means the Series A
Non-Voting Common Stock, par value $.01 per share, of the Corporation.
(aa) "SERIES A VOTING COMMON STOCK" means the Series A Voting
Common Stock, par value $.01 per share, of the Corporation.
(bb) "SERIES B COMMON STOCK" means the Series B Common Stock, par
value $.01 per share, of the Corporation.
(cc) "WARRANT AGREEMENT" means that certain Warrant Agreement,
dated as of April 11, 1996, among the Corporation and Chemical Bank.
(dd) "WARRANTS" means warrants to purchase shares of Series A
Non-Voting Common Stock issued by the Corporation to Chemical Bank pursuant
to the Warrant Agreement.
2. PIGGYBACK REGISTRATIONS.
(a) RIGHT TO PIGGYBACK.. Whenever (i) the Corporation intends to
sell its securities in a primary offering pursuant to a registration
statement filed with the Commission or whenever the securities of the
Corporation then issued and outstanding are to be registered under the
Securities Act (other than pursuant to a registration statement on Form S-8
or Form S-4, or their successors) and (ii) the registration form to be used
may be used for the registration of Registrable Shares (a "PIGGYBACK
REGISTRATION"), the Corporation will give prompt written notice to all
Holders of Registrable Shares of its intention to effect such a registration
and will include in such registration, subject to the terms of paragraph (b)
of this Section 2, all Registrable Shares with respect to which the
Corporation has received written requests for inclusion therein within 30
days after the Corporation's notice has been given. The Corporation shall
have the right to postpone or withdraw any Piggyback Registration without
obligation or liability to any Holder of Registrable Shares.
(b) PRIORITY ON REGISTRATIONS. If a Piggyback Registration is an
underwritten registration on behalf of the Corporation and the managing
underwriters advise the Corporation in writing that in their opinion the
number of securities requested to be included in such registration exceeds
the number which can be sold in such offering without having a Material
Adverse Effect, the Corporation will include in such registration (A) FIRST,
the securities the Corporation proposes to sell, if any, (B) SECOND, the
Registrable Shares requested to be included therein which in the opinion of
such underwriters (after taking into account the securities to be sold
pursuant to clause (A)) can be sold without having a Material Adverse Effect,
allocated PRO RATA among the Holders of such Registrable Shares on the basis
of the number of Registrable Shares owned by such Holders, with further
successive PRO RATA allocations among the Holders of Registrable Shares if
any such Holder has requested the registration of fewer than all such
Registrable Shares he, she or it is entitled to register and (C) THIRD, other
securities requested to be included in such registration which in the opinion
of such underwriters can be sold (after taking into account the securities to
be sold pursuant to clauses (A) and (B)) without having a Material Adverse
Effect.
5
<PAGE>
3. HOLDBACK AGREEMENTS.
(a) Each of the Holders of Registrable Shares agrees not to effect
any public sale or distribution of equity securities of the Corporation,
including any public sale pursuant to Rule 144 under the Securities Act, or
any securities convertible into or exchangeable or exercisable for such
securities, during the period commencing 7 days prior to and ending 120 days
after the effective date of any underwritten Piggyback Registration (except
as part of such underwritten registration), unless the underwriters managing
the registered public offering otherwise agree.
(b) The Corporation agrees (i) not to effect any public sale or
distribution of its equity securities including any public sale pursuant to
Rule 144 under the Securities Act, or any securities convertible into or
exchangeable or exercisable for such securities, during the period commencing
7 days prior to and ending 120 days after the effective date of any
underwritten Piggyback Registration (except as part of such underwritten
registration or pursuant to registrations on Form S-8 or any successor form),
unless the underwriters managing the offering otherwise agree, and (ii) to
cause each holder of at least 3% (on a fully-diluted basis) of its equity
securities, or any securities convertible into or exchangeable or exercisable
for such securities, purchased from the Corporation at any time after the
date of this Agreement (other than in a registered public offering) to agree
not to effect any public sale or distribution of any such securities during
such period (except as part of such underwritten registration, if otherwise
permitted), unless the underwriters managing the offering otherwise agree.
4. REGISTRATION PROCEDURES. (a) Subject to Section 2, whenever the
Holders of Registrable Shares have requested that any Registrable Shares be
registered pursuant to the terms of this Agreement, the Corporation will use
its best efforts to effect the registration of such Registrable Shares under
the Securities Act in accordance with the intended method of disposition
thereof and pursuant thereto the Corporation will as expeditiously as
possible:
(i) prepare and file with the Commission a registration
statement with respect to such Registrable Shares and use its best efforts to
cause such registration statement to become and remain effective for such
period as may be reasonably necessary to effect the sale of such securities,
not to exceed nine months with respect to any "shelf registration" and ninety
days with respect to any other registration statement;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for such period as may be reasonably necessary to effect the sale
of such securities, and otherwise as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof
set forth in such registration statement; PROVIDED, HOWEVER, that, such
period need not exceed nine months with respect to any "shelf registration"
and ninety days with respect to any other registration statement;
6
<PAGE>
(iii) furnish to each seller of such Registrable Shares and the
underwriters of the securities being registered such number of copies of such
registration statement, each amendment and supplement thereto, the prospectus
included in such registration statement (including each preliminary
prospectus) and such other documents as such seller or underwriters may
reasonably request in order to facilitate the disposition of the Registrable
Shares owned by such seller or the sale of such securities by such
underwriters;
(iv) use its best efforts to register or qualify such Registrable
Shares under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller to consummate
the disposition in such jurisdictions of the Registrable Shares owned by such
seller (provided, however, that the Corporation will not be required to (A)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this paragraph (iv), (B) subject
itself to taxation in any such jurisdiction or (C) consent to general service
of process in any such jurisdiction);
(v) cause all such Registrable Shares to be listed on each
securities exchange on which similar securities issued by the Corporation are
then listed;
(vi) provide a transfer agent and registrar for all such
Registrable Shares not later than the effective date of such registration
statement;
(vii) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the Holders
of a majority of the Registrable Shares being sold or the underwriters, if
any, reasonably request in order to expedite or facilitate the disposition of
such Registrable Shares (including, without limitation, effecting a stock
split or a combination of shares);
(viii) make available for inspection by the seller of such
Registrable Shares, any managing underwriter participating in any disposition
pursuant to such registration statement, and any attorney, accountant or
other agent retained by any such seller or underwriter, all financial and
other records, pertinent corporate documents and properties of the
Corporation, and cause the Corporation's officers, directors, employees and
independent accountants to supply all information reasonably requested by any
such seller, underwriter, attorney, accountant or agent in connection with
such registration statement;
(ix) notify each seller of such Registrable Shares, promptly
after it shall receive notice thereof, of the time when such registration
statement has become effective or a supplement to any prospectus forming a
part of such registration statement has been filed;
(x) notify each seller of such Registrable Shares of any request
by the Commission for the amending or supplementing of such registration
statement or prospectus or for additional information;
7
<PAGE>
(xi) prepare and promptly file with the Commission and promptly
notify each seller of such Registrable Shares of the filing of such amendment
or supplement to such registration statement or prospectus as may be
necessary to correct any statements or omissions if, at the time when a
prospectus relating to such securities is required to be delivered under the
Securities Act, any event shall have occurred as the result of which any such
prospectus or any other prospectus as then in effect would include an untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances in which they
were made, not misleading; and
(xii) advise each seller of such Registrable Shares, promptly
after it shall receive notice or obtain knowledge thereof, of the issuance of
any stop order by the Commission suspending the effectiveness of such
registration statement or the initiation or threatening of any proceeding for
such purpose and promptly use all reasonable efforts to prevent the issuance
of any stop order or to obtain its withdrawal if such stop order should be
issued.
(b) Each of the Holders of Registrable Shares hereby agrees that upon
receipt of any notice from the Corporation of the happening of any event of
the kind described in paragraph (xi) of Section 4(a) hereof, such Holder will
promptly discontinue such Holder's disposition of Registrable Shares pursuant
to the registration statement relating to such Registrable Shares until such
Holder's receipt of the copies of the supplemented or amended prospectus
contemplated by paragraph (xi) of Section 4(a) hereof, and, if so directed by
the Corporation, will deliver to the Corporation all copies, other than
permanent file copies, then in such Holder's possession of the prospectus
relating to such Registrable Shares at the time of receipt of such notice.
5. REGISTRATION EXPENSES. All expenses incident to the Corporation's
performance of or compliance with this Agreement, including, without
limitation, all registration and filing fees, fees and expenses of compliance
with securities or blue sky laws, printing expenses, messenger and delivery
expenses, the expenses and fees for listing the securities to be registered
on each securities exchange or other market on which any shares of Common
Stock are then listed, and fees and disbursements of counsel for the
Corporation and its independent certified public accountants, underwriters
(excluding discounts and commissions attributable to the Registrable Shares
included in such registration) and other Persons retained by the Corporation
(all such expenses being herein called "REGISTRATION EXPENSES"), will be
borne by the Corporation. In addition, the Corporation will pay its internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit or quarterly review and the expense of any liability
insurance obtained by the Corporation.
6. INDEMNIFICATION.
(a) The Corporation agrees to indemnify, to the fullest extent
permitted by law, each seller of Registrable Shares, its officers, members,
partners and directors and each Person who controls such seller (within the
meaning of the Securities Act or the Exchange Act) against all losses,
claims, damages, liabilities and expenses (including, without limitation,
8
<PAGE>
attorneys' fees except as limited by Section 6(c) hereof) caused by any
untrue or alleged untrue statement of a material fact contained in any
registration statement, any prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as the same are caused by
or contained in any information furnished in writing to the Corporation by
such seller expressly for use therein or by such seller's failure to deliver
a copy of the registration statement or prospectus or preliminary prospectus
or any amendments or supplements thereto after the Corporation has furnished
such seller with a sufficient number of copies of the same. In connection
with an underwritten offering, the Corporation will indemnify such
underwriters, their officers and directors and each Person who controls such
underwriters (within the meaning of the Securities Act) to the same extent as
provided above with respect to the indemnification of the sellers of
Registrable Shares. The reimbursements required by this Section 6(a) will be
made by periodic payments during the course of the investigation or defense,
as and when bills are received or expenses incurred.
(b) In connection with any registration statement in which a
seller of Registrable Shares is participating, each such seller will furnish
to the Corporation in writing such information and affidavits as the
Corporation reasonably requests for use in connection with any such
registration statement or prospectus and, to the fullest extent permitted by
law, will indemnify the Corporation, its directors and officers and each
underwriter (if any) and each Person who controls the Corporation or such
underwriter (within the meaning of the Securities Act or the Exchange Act)
against any losses, claims, damages, liabilities and expenses (including,
without limitation, attorneys' fees except as limited by Section 6(c) hereof)
resulting from (i) any untrue statement of a material fact contained in the
registration statement, prospectus or preliminary prospectus, or any
amendment thereof or supplement thereto or any omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or omission is
contained in any information or affidavit so furnished in writing by such
seller expressly for use therein or (ii) such Seller's failure to comply with
the provisions of Section 4(b) hereof; provided that the obligation to
indemnify will be several, not joint and several, among such sellers of
Registrable Shares.
(c) Any Person entitled to indemnification hereunder will (i)
give prompt written notice to the indemnifying party of any claim with
respect to which it seeks indemnification and (ii) unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified
and indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is
assumed, the indemnifying party will not be subject to any liability for any
settlement made by the indemnified party without its consent (which consent
will not be unreasonably withheld). The indemnified party will not settle
any claim or liability without first providing the indemnifying party a
reasonable opportunity to assume the defense. An indemnifying party who is
not entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all
parties indemnified by such indemnifying party with respect to such claim,
unless in the
9
<PAGE>
reasonable judgment of any indemnified party a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such claim.
(d) The indemnification provided for under this Agreement will
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling
Person of such indemnified party and will survive the transfer of securities.
The Corporation also agrees to make such provisions as are reasonably
requested by any indemnified party for contribution to such party in the
event the Corporation's indemnification is unavailable for any reason.
7. CURRENT PUBLIC INFORMATION. At all times after the Corporation has
filed a registration statement with the Commission pursuant to the
requirements of either the Securities Act or the Securities Exchange Act, the
Corporation will file in a timely manner all reports and documents required
to be filed by it under the Securities Act and the Securities Exchange Act
and the rules and regulations adopted by the Commission thereunder and will
take such further action as any holder or holders of Registrable Shares may
reasonably request, all to the extent required to enable such holders to sell
Registrable Shares pursuant to (i) Rule 144 adopted by the Commission under
the Securities Act (as such rule may be amended from time to time) or any
similar rule or regulation hereafter adopted by the Commission or (ii) a
registration statement on Form S-3 or any similar registration form hereafter
adopted by the Commission. Upon request, the Corporation shall deliver to
any holder of Registrable Shares a written statement as to whether it has
complied with such requirements.
8. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may
participate in any registration hereunder which is underwritten unless such
Person (a) agrees to sell such Person's securities on the basis provided in
any underwriting arrangements approved by the Person or Persons entitled
hereunder to approve such arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
The Corporation will have the right to select the managing underwriters to
administer any Piggyback Registration.
9. REMEDIES. Any Person having rights under any provision of this
Agreement will be entitled to enforce such rights specifically, to recover
damages caused by reason of any breach of any provision of this Agreement and
to exercise all other rights granted by law.
10. AMENDMENTS AND WAIVERS. Except as otherwise expressly provided
herein, the provisions of this Agreement may be amended or waived at any time
only by the written agreement of the Corporation and the Holders of a
majority of the Registrable Shares. Any waiver, permit, consent or approval
of any kind or character on the part of any such Holders of any provision or
condition of this Agreement must be made in writing and shall be effective
only to the extent specifically set forth in writing.
11. SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions of this Agreement shall be binding upon and inure to
the benefit of the respective
10
<PAGE>
successors, assigns, heirs, executors and administrators of the parties
hereto, whether so expressed or not. In addition and whether or not any
express assignment has been made, the provisions of this Agreement which are
for the benefit of Holders of Registrable Shares are also for the benefit of,
and enforceable by, any subsequent Holder of Registrable Shares who consents
to be bound by this Agreement.
12. FINAL AGREEMENT. This Agreement constitutes the final agreement of
the parties concerning the matters referred to herein, and supersedes all
prior agreements and understandings.
13. SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.
14. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement
are inserted for convenience of reference only and do not constitute a part
of and shall not be utilized in interpreting this Agreement.
15. NOTICES. Any notices required or permitted to be sent hereunder
shall be delivered personally or mailed, certified mail, return receipt
requested, or delivered by overnight courier service to the following
addresses, or such other addresses as shall be given by notice delivered
hereunder, and shall be deemed to have been given upon delivery, if delivered
personally, three business days after mailing, if mailed, or one business day
after delivery to the courier, if delivered by overnight courier service:
If to the Holders of Registrable Shares, to the addresses set forth on
the stock record books of the Corporation.
If to the Corporation, to:
Technology Specialists, Inc.
801 Springdale Drive
Suite 130
Exton, Pennsylvania 19341
With a copy to:
Stanford J. Goldblatt
Hopkins & Sutter
Three First National Plaza
Suite 3800
Chicago, Illinois 60602
11
<PAGE>
16. GOVERNING LAW. All questions concerning the construction, validity
and interpretation of, and the performance of the obligations imposed by,
this Agreement shall be governed by and construed in accordance with the laws
of the State of Illinois.
17. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute one instrument.
12
<PAGE>
This Registration Agreement was executed on the date first set forth above.
TECHNOLOGY SPECIALISTS, INC.
By: /s/ Robert Foley
------------------------------------
Title: CEO
---------------------------------
TSI INVESTMENT COMPANY I, L.L.C.
By: King-Pigott, L.P., the Manager
By: /s/ Kenneth Pigott
------------------------------------
Title: a General Partner
---------------------------------
TSI INVESTMENT COMPANY II, L.L.C.
By: King-Pigott, L.P., the Manager
By: /s/ Kenneth Pigott
------------------------------------
Title: a General Partner
---------------------------------
/s/ Robert Foley, Jr.
---------------------------------------
Robert Foley, Jr.
/s/ Claire Reid
---------------------------------------
Claire Reid
CHEMICAL BANK
By: /s/ Edward Devine
------------------------------------
Title: Managing Director
---------------------------------
13
<PAGE>
SCHEDULE 1
TSI Investment Company I, L.L.C.
TSI Investment Company II, L.L.C.
<PAGE>
Exhibit 5.1
[Letterhead of Winston & Strawn]
July 29, 1998
-----------------
COLLEGIS, INC.
2300 Maitland Center Parkway
Suite 340
Maitland, Florida 32751
Re: 4,255,000 Shares of Common Stock, $0.01 par value, of
COLLEGIS, Inc.
Dear Sir or Madam:
We refer to the Registration Statement on Form S-1 (as amended the
"Registration Statement"), filed on July 28, 1998 by COLLEGIS, Inc. (the
"Company") with the Securities and Exchange Commission under the Securities
Act of 1933, as amended, (the "Act"), relating to the registration and sale
of up to 4,255,000 shares of Common Stock, $0.01 par value (the "Shares"), of
the Company by the Company and certain selling stockholders.
This opinion is delivered in accordance with the requirements of Item
601(b)(5) of Regulation S-K under the Act.
In connection with this opinion, we have examined and are familiar with an
original or copies, certified or otherwise identified to our satisfaction, of
(i) the Registration Statement; (ii) the Certificate of Incorporation of the
Company, as amended and as currently in effect; (iii) the By-laws of the
Company, as currently in effect; and (iv) resolutions of the Board of Directors
of the Company relating to, among other things, the filing of the Registration
Statement. We have also examined such other documents and records as we have
deemed necessary or appropriate as a basis for the opinion set forth below.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
and records submitted to us as certified or photostatic copies and the
authenticity of the originals of such latter documents. As to any facts
material to this opinion which we did not independently establish or verify, we
have relied
<PAGE>
COLLEGIS, Inc.
July 29 , 1998
- ---------
Page 2
upon oral or written statements and representations of officers and other
representatives of the Company and others.
Based on the foregoing, we are of the opinion that the Shares when sold,
will be legally issued, fully paid and non-assessable when the Shares shall have
been delivered to the purchasers thereof against payment of the agreed
consideration therefor.
We do not find it necessary for the purposes of this opinion to cover, and
accordingly we express no opinion as to, the application of the securities or
blue sky laws of the various states to the sale of the Shares.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to all references to our firm included in or made a
part of the Registration Statement. In giving such consent, we do not concede
that we are experts within the meaning of the Act or the rules and regulations
thereunder or that this consent is required by Section 7 of the Act.
Very truly yours,
/s/ Winston & Strawn
<PAGE>
Exhibit 10.2
TECHNOLOGY SPECIALISTS, INC.
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of April 11, 1996 (the "AGREEMENT"), between
TECHNOLOGY SPECIALISTS, INC., a Pennsylvania corporation (the "COMPANY") and
CHEMICAL BANK (the "Lender
WITNESSETH:
-----------
WHEREAS, the Company, the Lender and Chemical Bank, as Administrative
Agent, are parties to the Credit Agreement dated as of April __, 1996 (as the
same may be amended, supplemented or otherwise modified from time to time, the
"CREDIT AGREEMENT"), pursuant to which, among other things, the Lender made term
loans to the Company;
WHEREAS, in order to induce the Lender to execute and deliver the
Credit Agreement and to make such term loan to the Company, the Company has
agreed to execute and deliver this Agreement and to issue to the Lender the
warrants hereinafter described;
WHEREAS, the Company wishes to set forth, in this Agreement, among
other things, the form and provisions of the Warrant Certificates and the terms
and conditions on which they may be issued, exchanged, exercised and replaced;
NOW, THEREFORE, in consideration of the premises herein contained the
parties hereto agree as follows:
1. DEFINITIONS
-----------
As used in this Agreement the following terms have the respective
meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common
Stock issued by the Company after the Closing Date, other than Warrant Stock.
"Affiliate" shall mean as to any Person (the "Primary Person"), any
Person which, directly or indirectly, is in control of, is controlled by, or is
under common control with, the Primary Person. For purposes of this definition,
control of a Person shall mean the power, directly or indirectly, to (i) vote
20% or more of the securities having ordinary voting power for the election of
directors of such Person or
<PAGE>
(ii) direct or cause the direction of the management and policies of such Person
whether by contract or otherwise.
"Appraisal Procedure" shall mean a procedure whereby two independent
appraisers, one chosen by the Company and one by a majority in interest of the
Disputing Holders, shall be selected in order to select a third independent
appraiser. Each party shall deliver a notice to the other appointing its
appraiser within 15 days after the Appraisal Procedure is invoked. The third
independent appraiser shall be chosen within 10 days thereafter by the mutual
consent of such first two appraisers or, if such first two appraisers fail to
agree, the appointment shall be made by the American Arbitration Association, or
any organization successor thereto, from a panel of arbitrators having
experience in the appraisal of the subject matter to be appraised. The decision
of the third appraiser so appointed and chosen shall be given within 30 days
after the selection of such third appraiser and shall be binding and conclusive
on the Company and the Holders. The costs of conducting any Appraisal Procedure
shall be done as follows: (a) the fees and expenses of the appraiser appointed
by the Disputing Holders shall be done by the Disputing Holders; (b) the fees
and expenses of the appraiser appointed by the Company and any costs incurred by
the Company shall be home by the Company and (c) the fees and expenses of a
third appraiser shall be done (i) by the Company if such Appraisal Procedure
shall result in a determination that is disparate by 10% or more from the
Company's initial determination and (ii) by the Disputing Holders if such
Appraisal Procedure shall result in a determination that is disparate by less
than 10% from the Company's initial determination.
"Business Day" shall mean any day that is not a Saturday or Sunday or
a day on which banks are required or permitted to be closed in the State of New
York.
"Change of Control" shall mean a change of at least 50% of the Fully
Diluted Outstanding ownership of the Company from the Closing Date.
"Closing Date" shall mean April 11, 1996.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" shall mean the conunon stock, $.01 par value per share,
of the Company, as constituted on the Closing Date, and any capital stock into
which such Common Stock may thereafter be changed, and shall also include (i)
capital stock of the Company of any other class (regardless of how denominated)
issued to the holders of shares of Common Stock upon any reclassification
thereof which is also not preferred as to dividends or assets over any other
class of stock of the Company and which is not subject to redemption and (ii)
shares of common stock of any successor or acquiring corporation (as defined in
Section 4.8) received by or distributed to the holders of Common Stock of the
Company in the circumstances contemplated by Section 4.8.
2
<PAGE>
"Contractual Obligation" shall mean, as to any Person, any provision
of any security issued by such Person or of any agreement, instrument or other
undertaking for which such Person is a party or by which it or any of its
property is bound.
"Convertible Securities" shall mean evidences of indebtedness, shares
of stock or other securities which are convertible into or exchangeable, with or
without payment of additional consideration in cash or property, for Additional
Shares of Common Stock, either immediately or upon the occurrence of a specified
date or a specified event.
"Current Market Price" shall mean, in respect of any security on any
date herein specified, (a) if there shall then be a public market for the
security, the average of the daily market prices for 10 consecutive Business
Days commencing 15 days before such date; the daily market price for each such
Business Day being (i) the last sale price on such day on the principal stock
exchange on which such security is then listed or admitted to trading, (ii) if
no sale takes place on such day on any such exchange, the average of the last
reported closing bid and asked prices on such day as officially quoted on any
such exchange, (iii) if the security is not then listed or admitted to trading
on any stock exchange, the average of the last reported closing bid and asked
prices on such day in the over-the-counter market, as furnished by the National
Association of Securities Dealers Automated Quotations System or the National
Quotation Bureau, Inc., (iv) if neither such corporation at the time is engaged
in the business of reporting such prices, as furnished by any similar firm then
engaged in such business, or (v) if there is no such firm, as furnished by any
member of the NASD selected mutually by the Required Holders and the Company or,
if they cannot agree upon such selection, as selected by two such members of the
NASD, one of which shall be selected by the Required Holders and one of which
shall be selected by the Company; or (b) at any time prior to the time there is
a public market for the security, the Fair Market Value per share of such
security.
"Current Warrant Price" shall mean, in respect of a share of Common
Stock at any date herein specified, $1.87 as adjusted pursuant to this
Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"Fair Market Value" shall mean the fair market value of the business
or property (including any security) in question, as determined in good faith by
the Board of Directors of the Company, PROVIDED, however, that the Fair Market
Value of any security for which a Current Market Price (determined without
regard to clause (b) of the definition thereof) is available shall be such
Current Market Price of such security. The Fair Market Value of the Company
shall be the Fair Market Value of the Company and its subsidiaries.
Notwithstanding the foregoing, if, at any date of determination of the Fair
Market Value of the Company, the Common Stock of any class shall then be
publicly traded, the Fair Market Value of the Company on such date shall be the
Current Market Price on such date multiplied by the number of Fully Diluted
Outstanding shares of Common
3
<PAGE>
Stock.
"Fully Diluted Outstanding" shall mean, when used with reference to
Common Stock, at any date as of which the number of shares thereof is to be
determined, all shares of Common Stock Outstanding at such date and all shares
of Common Stock issuable in respect of the Warrants and other options or
warrants to purchase, or securities convertible into, shares of common stock
outstanding on such date.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as from time to time in effect.
"Holder" shall mean each Person in whose name the Warrants or any
Warrant Stock are registered on the books of the Company maintained for such
purpose.
"Issue Date" shall mean any of the dates listed in Section 2.1 or the
first Business Day after such date.
"NASD" shall mean the National Association of Securities Dealers,
Inc., or any successor corporation thereto.
"Other Property" shall have the meaning set forth in Section 4.8.
"Outstanding" shall mean, when used with reference to Common Stock, at
any date as of which the number of shares thereof is to be determined, all
issued shares of Common Stock, except shares then owned or held by or for the
account of the Company or any Subsidiary, and shall include all shares issuable
in respect of outstanding scrip or any certificates representing fractional
interests in shares of Conunon Stock.
"Permitted Issuances" shall mean (i) the issuance of shares of Common
Stock upon exercise of the Warrants, (ii) if there shall then be a public market
for the Common Stock, the issuance of shares of Conunon Stock upon receipt by
the Company of the Current Market Price therefor described in clause (a) of the
definition of "Current Market Price", (iii) the issuance of options or shares
relating to any benefit plan, stock option plan, stock purchase plan or any
other compensation plan, agreement or arrangement offered solely to the
officers, directors, employees and/or consultants of the Company and its
Affiliates, (iv) at any time prior to the time there is a public market for the
Common Stock, the issuance of shares of Common Stock for consideration equal to
the fair value of such shares as determined in good faith by the Board of
Directors of the Company, (v) issuance of shares of Common Stock upon exercise
of the option to purchase 75,000 shares of Common Stock held by Robert Foley as
of the date hereof, (vi) the issuance of any shares of Common Stock upon the
conversion of shares of any other class of Common Stock and (vii) the issuance
of shares of Common Stock in a Public Offering. Any determination by the Board
of Directors of the Company pursuant to the preceding sentence may be challenged
in good faith by Required Holders with 15 days of receipt of notice of such
determination, and any dispute shall be
4
<PAGE>
resolved by the Appraisal Procedure.
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, incorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Public Company" shall have the meaning set forth in Section 13.1.
"Public Offering" shall mean the offering of shares of Common Stock
pursuant to a registration statement declared effective by the Commission.
"Required Holders" shall mean the Holders of Warrants exercisable for
in excess of 50% of the aggregate number of shares of Common Stock then
purchasable upon exercise of all outstanding Warrants, whether or not then
exercisable.
"Requirement of Law" shall mean, as to any Person, the certificate of
incorporation and by-laws or other organizational OT governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitration or a court or other governmental authority, in each case applicable
to or binding on such Person or any of the property thereof or to which such
Person or any of its property is subject.
"Restricted Conunon Stock" shall mean shares of Common Stock which
are, or which upon their issuance on the exercise of this Warrant would be,
evidenced by a certificate bearing the restrictive legend set forth in Section
9.1.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Series A Non-Voting Conunon Stock" shall mean the series A NonVoting
Common Stock of the Company, par value $.01 per share.
"Subsidiary" shall mean any Person of which an aggregate of more than
50% of the outstanding stock or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other managers of such
Person (irrespective of whether, at the time, stock or other ownership interests
of any other class or classes of such Person shall have or might have voting
power by reason of the happening of any contingency) is at the time, directly or
indirectly, owned legally or beneficially by the Company and/or one or more
Subsidiaries of the Company.
5
<PAGE>
"Termination Event" shall mean the first to occur of the following:
(i) payment or prepayment of the Loans (as defined in the Credit Agreement) made
under the Credit Agreement, (ii) a Change of Control and (iii) a Public
Offering.
"Transfer Notice" shall have the meaning set forth in Section 9.2.
"Warrant Certificate" shall mean a certificate evidencing one or more
Warrants, substantially in the form of Exhibit A hereto, with such changes
therein as may be required to reflect any adjustments made pursuant to Section
4.
"Warrant Price" shall mean an amount equal to (i) the number of shares
of Common Stock being purchased upon exercise of Warrants pursuant to Section
2.2, multiplied by (ii) the Current Warrant Price as of the date of such
exercise.
"Warrant Stock" shall mean the shares of Common Stock purchased by the
Holders of the Warrants upon the exercise thereof.
"Warrants" shall mean the warrants issued pursuant to this Agreement
and shall include all warrants issued upon transfer, division or combination of,
or in substitution for, any thereof. All Warrants shall at all times be
identical as to terms and conditions and date, except as to the number of shares
of Common Stock for which they may be exercised. A Warrant shall entitle the
holder thereof to purchase from the Company one share of Common Stock (subject
to adjustment as provided in Section 4).
2. ISSUANCE, EXERCISE OF WARRANT
-----------------------------
2.1. ISSUANCE OF Warrants. The Company hereby agrees to issue in
favor of the Lender on each Issue Date set forth below (or, if such Issue Date
is not a Business Day, on any of the next 20 Business Days following such Issue
Date), PROVIDED that no Termination Event has occurred, Warrants in an amount
equal to the number of Warrants listed for such Issue Date set forth below:
<TABLE>
<CAPTION>
ISSUE DATE WARRANTS TO PURCHASE NO. OF SHARES
---------- ----------------------------------
<S> <C>
Closing Date 68,728
I/i/1998 18,087
I/i/1999 18,471
I/l/2000 18,868
</TABLE>
On each Issue Date (PROVIDED that no Termination Event has occurred), the
Company shall deliver to the Lender Warrant Certificates evidencing the Warrants
then being issued to the Lender. Each
6
<PAGE>
issued Warrant shall entitle the Holder thereof to purchase from the Company
one share of Series A Non-Voting Common Stock (subject to adjustment as
provided in Section 4). The failure of the Company to issue any Warrants as
contemplated above shall be without prejudice to the rights of the Lender to
cause such Warrants to be issued at any time after the relevant Issue Date at
the Lender's request.
2.2. MANNER OF EXERCISE. The Holder may at any time and from time
to time, prior to a Termination Event and from and after the earliest of (a) one
year from the Closing Date, (b) the occurrence of a Termination Event and (c)
each respective Issue Date, exercise the Warrants issued on such Issue Date
evidenced by a Warrant Certificate, on any Business Day, for all or any part of
the number of shares of Series A Non-Voting Common Stock purchasable thereunder.
In order to exercise the Warrants, in whole or in part, a Holder
shall deliver to the Company at its principal office at 801 Springdale Drive,
Suite 130, Exton, Pennsylvania 19341, Attention: Robert Foley, or at the
office or agency designated by the Company pursuant to Section 12, (i) a
written notice of such Holder's election to exercise the Warrants, which
notice shall specify the number of shares of Common Stock to be purchased,
(ii) payment of the Warrant Price in the manner provided below, and (iii) the
Warrant Certificate or Warrant Certificates evidencing the Warrants. Such
notice shall be substantially in the form of the form of election to purchase
appearing at the end of the Warrant Certificate as Exhibit A, duly executed
by such Holder or its agent or attorney. Upon receipt thereof, the Company
shall, as promptly as practicable, and in any event within three (3) Business
Days thereafter, execute or cause to be executed and deliver or cause to be
delivered to such Holder a certificate or certificates representing the
aggregate number of full shares of Series A Non-Voting Common Stock issuable
upon such exercise, together with cash in lieu of any fraction of a share, as
hereinafter provided. The stock certificate or certificates so delivered
shall be, to the extent possible, in such denomination or denominations as
such Holder shall request in the notice and shall be registered in the name
of Holder or, subject to Section 9, such other name as shall be designated in
the notice. The Warrants shall be deemed to have been exercised and such
certificate or certificates shall be deemed to have been issued, and such
Holder or any other Person so designated to be named therein shall be deemed
to have become a holder of record of such shares for all purposes, as of the
date the notice, together with the check or checks representing payment of
the Warrant Price and the Warrant Certificate or Warrant Certificates, is
received by the Company as described above and all taxes required to be paid
by such Holder, if any, pursuant to Section 2.3 prior to the issuance of such
shares have been paid. If the Warrants evidenced by a Warrant Certificate
shall have been exercised, the Company shall, at the time of delivery of the
certificate or certificates representing Warrant Stock, deliver to Holder a
new Warrant Certificate evidencing the rights of Holder to purchase the
unpurchased shares of Series A Non-Voting Common Stock represented by the old
Warrant Certificate, which new Warrant Certificate shall in all other
respects be identical with the old Warrant Certificate. Notwithstanding any
provision herein to the contrary, the Company shall not be required to
register shares in the name of any Person who acquired any Warrant or any
Warrant Stock otherwise than in accordance with this Agreement.
7
<PAGE>
Payment of the Warrant Price shall be made at the option of the Holder
(i) by certified or official bank check or (ii) if such Holder shall then be a
lender under the Credit Agreement, by such Holder's transferring to the Company
a principal amount of the outstanding term loans of such Holder under the Credit
Agreement, or any other debt of the Company held by such Holder, equal to the
Warrant Price or (iii) by termination of Warrants having a Fair Market Value
equal to the Warrant Price or (iv) in immediately available funds or (v) any
combination thereof.
2.3. PAYMENT OF Taxes. All shares of Series A Non-Voting Common
Stock issuable upon the exercise of Warrants pursuant to the terms hereof shall
be validly issued, fully paid and nonassessable and without any preemptive
fights. The Company shall pay all expenses in connection with, and all taxes
and other governmental charges that may be imposed with respect to, the issuance
or delivery thereof, unless such tax or charge is imposed by law upon Holder, in
which case such taxes or charges shall be paid by Holder. The Company shall not
be required, however, to pay any tax or other charge imposed in connection with
any transfer involved in the issue of any certificate for shares of Warrant
Stock issuable upon exercise of Warrants in any name other than that of Holder,
and in such case the Company shall not be required to issue or deliver any stock
certificate until such tax or other charge has been paid or it has been
established to the satisfaction of the Company that no such tax or other charge
is due.
2.4. FRACTIONAL SHARES. The Company shall not be required to issue
a fractional share of Series A Non-Voting Common Stock upon the exercise of
Warrants. As to any fraction of a share which the Holder of Warrants would
otherwise be entitled to purchase upon such exercise, the Company shall pay a
cash adjustment in respect of such final fraction in an amount equal to the same
fraction of the Current Market Price per share of Common Stock on the date of
exercise.
2.5. CONTINUED VALIDITY. A Holder of shares of Warrant Stock
(other than a holder who acquires such shares after the same have been publicly
sold pursuant to a Registration Statement under the Securities Act) shall
continue to be entitled with respect to such shares to all rights to which it
would have been entitled as Holder under Sections 6, 7, 9, 10, 11 and 13 of this
Agreement. The Company will, at the time of each exercise of Warrants upon the
request of the Holder of the shares of Warrant Stock issued upon the exercise
thereof, acknowledge in writing, in form reasonably satisfactory to such Holder,
its continuing obligation to afford to such Holder all such rights; PROVIDED,
HOWEVER, that if such Holder shall fail to make any such request, such failure
shall not affect the continuing obligation of the Company to afford to such
Holder all such rights.
3. TRANSFERS, DIVISION AND COMBINATION
-----------------------------------
3.1. TRANSFER. Subject to compliance with Section 9, transfer of
Warrants, in whole or in part, shall be registered on the books of the Company
to be maintained for such purpose, upon surrender of the Warrant Certificate
representing such Warrants at the principal office of the Company referred to in
Section 2.2 or the office or agency designated by the Company pursuant to
8
<PAGE>
Section 12, together with a written assignment substantially in the form of
Exhibit B to the Warrant Certificate duly executed by the Holder or its agent or
attorney, and funds sufficient to pay any transfer taxes payable by such Holder
upon the making of such transfer. Upon such surrender and, if required, such
payment, the Company shall, subject to Section 9, execute and deliver a new
Warrant Certificate or Warrant Certificates in the name of the assignee or
assignees and in the denomination specified in such instrument of assignment,
and shall issue to the assignor a new Warrant Certificate or Warrant
Certificates evidencing the portion of the old Warrant Certificate not so
assigned, and the old Warrant Certificate shall promptly be canceled. A
Warrant, if properly assigned in compliance with Section 9, may be exercised by
a new Holder for the purchase of shares of Warrant Stock without having a new
Warrant Certificate or Warrant Certificates issued. If requested by the
Company, a new Holder shall acknowledge in writing, in form reasonably
satisfactory to the Company, such Holder's continuing obligation under
Section 9.
3.2. DIVISION AND COMBINATION. Subject to Section 9, any Warrant
Certificate may be divided or combined with other Warrant Certificates upon
presentation hereof at the aforesaid office or agency of the Company, together
with a written notice specifying the names and denominations in which new
Warrant Certificates are to be issued, signed by a Holder or its agent or
attorney. Subject to compliance with Section 3.1 as to any transfer which may
be involved in such division or combination, the Company shall execute and
deliver a new Warrant Certificate or Warrant Certificates in exchange for the
Warrant Certificate or Warrant Certificates to be divided or combined in
accordance with such notice.
3.3. EXPENSES. Subject to subsection 2.3, the Company shall
prepare, issue and deliver at its own expense (other than transfer taxes) the
new Warrant Certificate or Warrant Certificates under this Section 3.
3.4. MAINTENANCE OF BOOKS. The Company agrees to maintain, at its
aforesaid office or agency, books for the registration and the registration of
transfer and exchange of the Warrants and the Warrant Stock.
4. ADJUSTMENTS
The number of shares of Warrant Stock for which Warrants are
exercisable, and the price at which such shares may be purchased upon exercise
of Warrants, shall be subject to adjustment from time to time after the Closing
Date as set forth in this Section 4. Such adjustment shall apply whether or not
the related Warrants have been issued and any unissued Warrants shall be
adjusted as though such Warrants had been issued. When issued, any Warrants
issued after the Closing Date shall be issued in amounts reflecting any
adjustment pursuant to this Section 4 during the period from the Closing Date to
the date of issuance thereof that would have been made to such Warrants had they
been outstanding since the Closing Date. The Company promptly shall give each
Holder written notice of any event described below which requires an adjustment
pursuant to this Section 4 at the time of such event.
9
<PAGE>
4.1. STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If at any
time after the Closing Date the Company shall:
(a) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Additional Shares of Conunon Stock,
(b) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then (i) the number of shares of Common Stock for which a Warrant is
exercisable immediately after the occurrence of any such event shall be
adjusted to equal the number of shares of Conunon Stock which a record holder
of the same number of shares of Common Stock for which a Warrant is
exercisable immediately prior to the occurrence of such event would own or be
entitled to receive after the happening of such event, and (ii) the Current
Warrant Price shall be adjusted to equal the Current Warrant Price multiplied
by a fraction, the numerator of which shall be the number of shares of Common
Stock for which a Warrant is exercisable immediately prior to the adjustment
and the denominator of which shall be the number of shares for which a
Warrant is exercisable immediately after such adjustment.
4.2. CERTAIN OTHER DISTRIBUTIONS. If at any time after the Closing
Date the Company shall take a record of the holders of its Common Stock for the
purpose of entitling them to receive any dividend or other distribution of-
(a) cash;
(b) any evidences of its indebtedness (other than Convertible
Securities), any shares of its stock (other than Additional Shares of Common
Stock or Convertible Securities) or any other securities or property of any
nature whatsoever (other than cash); or
(c) any warrants or other rights to subscribe for or purchase any
evidences of its indebtedness (other than Convertible Securities), any shares of
its stock (other than Additional Shares of Common Stock or Convertible
Securities) or any other securities (other than Additional Shares of Common
Stock or Convertible Securities) or property of any nature whatsoever; then (i)
the number of shares of Common Stock for which a Warrant is exercisable shall be
adjusted to equal the product obtained by multiplying the number of shares of
Common Stock for which a Warrant is exercisable immediately prior to such
adjustment by a fraction (A) the numerator of which shall be the Current Market
Price per share of Common Stock at the date of taking such record and (B) the
denominator of which shall be such Current Market Price per share of Common
Stock, minus the amount allocable to one share of Common Stock of any such cash
so distributable and of the fair value (as determined in good faith by the Board
of Directors of the Company, which may be
10
<PAGE>
challenged in good faith by Required Holders within 15 days of receipt of
notice of such determination, and any dispute shall be resolved by the
Appraisal Procedure) of any and all such evidences of indebtedness, shares of
stock, other securities or property or warrants or other subscription or
purchase rights so distributable, and (ii) the Current Warrant Price shall be
adjusted to equal (A) the Current Warrant Price multiplied by the number of
shares of Common Stock for which a Warrant is exercisable immediately prior
to the adjustment divided by (B) the number of shares for which a Warrant is
exercisable immediately after such adjustment. A reclassification of the
Common Stock (other than a change in par value, or from par value to no par
value or from no par value to par value) into shares of Common Stock and
shares of any other class of stock other than Convertible Securities shall be
deemed a distribution by the Company to the holders of its Common Stock of
such shares of such other class of stock within the meaning of this Section
4.2 and, if the outstanding shares of Common Stock shall be changed into a
larger or smaller number of shares of Common Stock as a part of such
reclassification, such change shall be deemed a subdivision or combination,
as the case may be, of the outstanding shares of Common Stock within the
meaning of Section 4. 1.
4.3. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK,. (a) (i) If
at any time after the Closing Date the Company shall (except as hereinafter
provided) issue or sell any Additional Shares of Common Stock, other than
Permitted Issuances, for consideration in an amount per Additional Share of
Common Stock less than the Current Market Price, then the Current Warrant
Price shall be reduced to a price determined by dividing (A) an amount equal
to the sum of (X) the number of shares of Common Stock Outstanding
immediately prior to such issuance or sale multiplied by the then existing
Current Warrant Price, plus (Y) the consideration, if any, received by the
Company upon such issuance or sale, by (B) the total number of shares of
Common Stock Outstanding immediately after such issuance or sale and (ii)
upon each adjustment of the Current Warrant Price as a result of the
calculations made pursuant to this Section 4, each Warrant outstanding prior
to the making of the adjustment in the Current Warrant Price shall thereafter
be treated as that number of Warrants, and shall evidence the right to
purchase, at the adjusted Current Warrant Price, that number of shares of
Common Stock, obtained by (i) multiplying the number of shares of Common
Stock for which a Warrant is exercisable immediately prior to the adjustment
by the Current Warrant Price in effect immediately prior to the adjustment,
and (ii) dividing the product so obtained by the Current Warrant Price
obtained immediately after such adjustment of the Current Warrant Price.
(b) The provisions of paragraph (a) of Section 4.3 shall not
apply to any issuance of Additional Shares of Common Stock for which an
adjustment is provided under Section 4.1 or 4.2. No adjustment of the number
of shares of Common Stock for which a Warrant shall be exercisable shall be
made under paragraph (a) of Section 4.3 upon the issuance of any Additional
Shares of Common Stock which are issued pursuant to the exercise of any
warrants or other subscription or purchase rights or pursuant to the exercise
of any conversion or exchange rights in any Convertible Securities, if any
such adjustment shall previously have been made (or if no adjustment was
required) upon the issuance of such warrants or other rights or upon the
issuance of such Convertible Securities (or upon the issuance of any warrant
or other rights therefor) pursuant
11
<PAGE>
to Section 4.4 or Section 4.5.
4.4. ISSUANCE OF WARRANTS OR OTHER RIGHTS. (a) If at any time
after the Closing Date the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or
distribution of, or shall in any manner (whether directly or by assumption in
a merger in which the Company is the surviving corporation) issue or sell,
any warrants or other rights to subscribe for or purchase any Additional
Shares of Common Stock or any Convertible Securities, whether or not the
rights to exchange or convert thereunder are immediately exercisable other
than Permitted Issuances, then: (i) in the case of any such dividend or
distribution, the number of shares of Common Stock for which a Warrant is
exercisable shall be adjusted to equal the product obtained by multiplying
the number of shares of Common Stock for which a Warrant is exercisable
immediately prior to the taking of such record or such issuance or sale by a
fraction (A) the numerator of which is the number of shares of Common Stock
which would be Outstanding immediately after the issuance or sale of the
maximum number of Additional Shares of Common Stock issuable pursuant to all
such warrants or other rights or necessary to effect the conversion or
exchange of all such Convertible Securities, and (B) the denominator of which
is the number of shares of Common Stock Outstanding immediately prior to the
taking of such record or the issuance or sale of such warrants or other
rights; and (ii) in the case of any such issuance (other than as a dividend
or distribution) or sale, if the price per share for which Common Stock is
issuable upon the exercise of such warrants or other rights or upon
conversion or exchange of such Convertible Securities shall be less than the
Current Market Price in effect immediately prior to the time of such
distribution, issue or sale, then the Current Warrant Price shall be adjusted
as provided in Section 4.3(a) on the basis that (A) the maximum number of
Additional Shares of Conunon Stock issuable pursuant to all such warrants or
other rights or necessary to effect the conversion or exchange of all such
Convertible Securities shall be deemed to have been issued and outstanding,
(B) the price per share for such Additional Shares of Common Stock shall be
deemed to be the lowest possible price per share in any range of prices per
share at which such Additional Shares of Common Stock are available to such
holders, and (C) the Company shall be deemed to have received all of the
consideration payable therefor, if any, as of the date of the actual issuance
of such warrants or other rights. No further adjustments of the Current
Warrant Price shall be made upon the actual issuance of such Common Stock or
of such Convertible Securities upon exercise of such warrants or other rights
or upon the actual issuance of such Common Stock upon such conversion or
exchange of such Convertible Securities.
(b) If any Additional Share of Common Stock issuable pursuant to
all such warrants or other rights or necessary to effect the conversion or
exchange of all such Convertible Securities is issuable in exchange for
consideration in an amount per such Additional Share of Common Stock equal to
or more than the greater of the Current Warrant Price and the Current Market
Price at the time such record is taken or such warrants or other rights are
issued or sold, then the Current Warrant Price as to the number of shares of
Common Stock for which a Warrant is exercisable prior to the adjustment under
Section 4.4(a)(i) shall not change, and the Current Warrant Price for each of
the incremental number of shares of Common Stock for which this Warrant
becomes exercisable after such adjustment shall be equal to the fair value of
such consideration per
12
<PAGE>
Additional Share of Common Stock.
4.5. ISSUANCE OF CONVERTIBLE SECURITIES. (a) If at any time the
Company shall take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend or distribution of, or shall
in any manner (whether directly or by assumption in a merger in which the
Company is the surviving corporation) issue or sell, any Convertible
Securities, whether or not the rights to exchange or convert thereunder are
immediately exercisable, other than Permitted Issuances, then: (i) in the
case of any such dividend or distribution, the number of shares of Common
Stock for which a Warrant is exercisable shall be adjusted to equal the
product obtained by multiplying the number of shares of Common Stock for
which a Warrant is exercisable immediately prior to the taking of such record
or such issuance or sale by a fraction (A) the numerator of which is the
number of shares of Common Stock which would be Outstanding immediately after
the issuance or sale of the maximum number of Additional Shares of Common
Stock necessary to effect the conversion or exchange of all such Convertible
Securities, and (B) the denominator of which is the number of shares of
Common Stock Outstanding immediately prior to the taking of such record or
the issuance or sale of such Convertible Securities; and (ii) in the case of
any such issuance (other than a dividend or distribution) or sale, if the
price per share for which Conunon Stock is issuable upon such conversion or
exchange shall be less than the Current Market Price in effect immediately
prior to the time of such issue or sale of Convertible Securities, then the
Current Warrant Price shall be adjusted as provided in Section 4.3(a) on the
basis that (A) the maximum number of Additional Shares of Common Stock
necessary to effect the conversion or exchange of all such Convertible
Securities shall be deemed to have been issued and outstanding, (B) the price
per share of such Additional Shares of Common Stock shall be deemed to be the
lowest possible price in any range of prices at which such Additional Shares
of Common Stock are available to such holders, and (C) the Company shall be
deemed to have received all of the consideration payable therefor, if any, as
of the date of actual issuance of such Convertible Securities. No adjustment
of the Current Warrant Price shall be made under this Section 4.5 upon the
issuance of any Convertible Securities which are issued pursuant to the
exercise of any warrants or other subscription or purchase rights therefor,
if any such adjustment shall previously have been made upon the issuance of
such warrants or other rights pursuant to Section 4.4. No further adjustments
of the Current Warrant Price shall be made upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible Securities and,
if any issue or sale of such Convertible Securities is made upon exercise of
any warrant or other right to subscribe for or to purchase or any warrant or
other right to purchase any such Convertible Securities for which adjustments
of the Current Warrant Price have been or are to be made pursuant to other
provisions of this Section 4, or if no such adjustment was required, no
further adjustments of the Current Warrant Price shall be made by reason of
such issue or sale.
(b) If any Additional Share of Common Stock issuable upon
conversion or exchange of all such Convertible Securities is issuable in
exchange for consideration in an amount per such Additional Share of Conunon
Stock equal to or more than the greater of the Current Warrant Price and the
Current Market Price at the time such record is taken or such Convertible
Securities are issued or sold, then the Current Warrant Price as to the
number of shares of Common Stock for which this Warrant is exercisable prior
to the adjustment under Section 4.5(a)(i) shall not
13
<PAGE>
change, but the Current Warrant Price for each of the incremental number of
shares of Common Stock for which
a War-rant becomes exercisable after such adjustment shall be equal to the
fair value of such consideration per Additional Share of Common Stock.
4.6. SUPERSEDING ADJUSTMENT. If, at any time after any
adjustment of the number of shares of Common Stock for which a Warrant is
exercisable shall have been made pursuant to Section 4.4 or Section 4.5 as
the result of any issuance of warrants, options, rights or Convertible
Securities, and such warrants, options or rights, or the right of conversion
or exchange in such other Convertible Securities, shall expire, and all or a
portion of such warrants, options or rights, or the fight of conversion or
exchange with respect to all or a portion of such other Convertible
Securities, as the case may be, shall not have been exercised, then such
previous adjustment shall be rescinded and annulled and the Additional Shares
of Common Stock which were deemed to have been issued by virtue of the
computation made in connection with the adjustment so rescinded and annulled
shall no longer be deemed to have been issued by virtue of such computation.
Thereupon, a recomputation shall be made of the effect of such warrants,
rights or options or other Convertible Securities on the then outstanding
Warrants, but not on any then outstanding Warrant Stock, on the basis of
treating the number of Additional Shares of Common Stock or other property,
if any, theretofore actually issued or issuable pursuant to the previous
exercise of any such warrants, rights or options or any such right of
conversion or exchange, as having been issued on the date or dates of any
such exercise and for the consideration actually received and receivable
therefor.
4.7. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS
SECTION. The following provisions shall be applicable to the making of
adjustments of the number of shares of Common Stock for which a Warrant is
exercisable provided for in this Section 4:
(a) COMPUTATION OF CONSIDERATION. To the extent that any
Additional Shares of Common Stock or any Convertible Securities or any
warrants, options or other rights to subscribe for or purchase any Additional
Shares of Common Stock or any Convertible Securities shall be issued for cash
consideration, the consideration received by the Company therefor shall be
the amount of the cash received by the Company therefor, or, if such
Additional Shares of Cormnon Stock or Convertible Securities are offered by
the Company for subscription, the subscription price, or, if such Additional
Shares of Common Stock or Convertible Securities are sold to underwriters or
dealers for public offering without a subscription offering, the initial
public offering price (in any such case subtracting any amounts paid or
receivable for accrued interest or accrued dividends, but not subtracting any
compensation, discounts or expenses paid or incurred by the Company for and
in the underwriting of, or otherwise in connection with, the issuance
thereof). To the extent that such issuance shall be for a consideration
other than cash, then, except as herein otherwise expressly provided, the
amount of such consideration shall be deemed to be the fair value of such
consideration at the time of such issuance as mutually determined in good
faith by the Required Holders and the Board of Directors of the Company. In
case any Additional Shares of Conunon Stock or any Convertible Securities or
any warrants or other rights to subscribe for or purchase such Additional
14
<PAGE>
Shares of Common Stock or Convertible Securities shall be issued in
connection with any merger in which the Company issues any securities, the
amount of consideration therefor shall be deemed to be the fair value, as
determined in good faith by the Board of Directors of the Company or, if
Required Holders object to such determination within 15 days of notice
thereof, as determined in an Appraisal Procedure, of such portion of the
assets and business of the nonsurviving corporation as the Required Holders
and such Board in good faith shall mutually determine to be attributable to
such Additional Shares of Common Stock, Convertible Securities, warrants or
other rights, as the case may be. The consideration for any Additional
Shares of Common Stock issuable pursuant to any warrants, options or other
rights to subscribe for or purchase the same shall be the consideration
received by the Company for issuing such warrants or other rights plus the
additional consideration payable to the Company upon exercise of such
warrants or other rights. The consideration for any Additional Shares of
Common Stock issuable pursuant to the terms of any Convertible Securities
shall be the consideration, if any, received by the Company for issuing
warrants or other rights to subscribe for or purchase such Convertible
Securities, plus the consideration paid or payable to the Company in respect
of the subscription for or purchase of such Convertible Securities, plus the
additional consideration, if any, payable to the Company upon the exercise of
the right of conversion or exchange in such Convertible Securities. In case
of the issuance at any time of any Additional Shares of Common Stock or
Convertible Securities in payment or satisfaction of any dividends upon any
class of stock other than Common Stock, the Company shall be deemed to have
received for such Additional Shares of Common Stock or Convertible Securities
a consideration equal to the amount of such dividend so paid or satisfied.
(b) WHEN ADJUSTMENTS TO BE MADE. The adjustments required by
this Section 4 shall be made whenever and as often as any specified event
requiring an adjustment shall occur, except that any adjustment that would
otherwise be required may be postponed (except in the case of a subdivision
or combination of shares of the Common Stock, as provided for in Section 4.1)
up to, but not beyond, the date of exercise of any Warrants if such
adjustment either by itself or with other adjustments not previously made
adds or subtracts less than 1% to the number of shares of Common Stock for
which the Warrants initially issued pursuant to this Agreement are
exercisable immediately prior to the making of such adjustment. Any
adjustment representing a change of less than such minimum amount (except as
aforesaid) which is postponed shall be carried forward and made as soon as
such adjustment, together with other adjustments required by this Section 4
and not previously made, would result in a minimum adjustment or on the date
of exercise. For the purpose of any adjustment, any specified event shall be
deemed to have occurred at the close of business on the date of its
occurrence.
(c) FRACTIONAL INTERESTS. In computing adjustments under this
Section 4, fractional interests in Common Stock resulting from an issuance of
additional Warrants to any Holder pursuant to this Section 4 shall be taken
into account to the nearest 1/10th of a share.
(d) WHEN ADJUSTMENT NOT REQUIRED. If the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them
to receive a dividend or distribution or subscription or purchase rights and
shall, thereafter and before the distribution to stockholders
15
<PAGE>
thereof, legally abandon its plan to pay or deliver such dividend,
distribution, subscription or purchase rights, then thereafter no adjustment
shall be required by reason of the taking of such record and any such
adjustment previously made in respect thereof shall be rescinded and annulled.
(e) ESCROW OF WARRANT STOCK. If after any property becomes
distributable pursuant to this Section 4 by reason of taking of any record of
the holders of Common Stock, but prior to the occurrence of the event for
which such record is taken, any Holder exercises Warrants, any Additional
Shares of Common Stock issuable upon exercise by reason of such adjustment
shall be deemed the last shares of Common Stock for which this Warrant is
exercised (notwithstanding any other provision to the contrary herein) and
such shares or other property shall be held in escrow for Holder by the
Company to be issued to Holder upon and to the extent that the event actually
takes place, upon payment of the then Current Warrant Price. Notwithstanding
any other provision to the contrary herein, if the event for which such
record was taken fails to occur or is rescinded, then such escrowed shares
shall be canceled by the Company and escrowed property returned.
(f) CHALLENGE TO GOOD FAITH DETERMINATION. Whenever the Board
of Directors of the Company shall be required to make a determination in good
faith of the fair value of any item under this Section 4, such determination
may be challenged in good faith by the Required Holders within 15 days of
notice of such determination, and any dispute shall be resolved by the
Appraisal Procedure.
4.8. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR
DISPOSITION OF ASSETS. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with and into another
corporation (where the Company is not the surviving corporation or where
there is a change in or distribution with respect to the Common Stock of the
Company), or sell, transfer or otherwise dispose of all or substantially all
its property, assets or business to another corporation and, pursuant to the
terms of such reorganization, reclassification, merger, consolidation or
disposition of assets, shares of common stock of the successor or acquiring
corporation, or any cash, shares of stock or other securities or property of
any nature whatsoever (including warrants or other subscription or purchase
rights) in addition to or in lieu of common stock of the successor or
acquiring corporation ("Other Property"), are to be received by or
distributed to the holders of Common Stock of the Company, then each Holder
shall have the right thereafter to receive, upon exercise of a Warrant,
solely the number of shares of common stock of the successor or acquiring
corporation or of the Company, if it is the surviving corporation, and Other
Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation, sale, transfer or disposition by a
holder of the number of shares of Common Stock for which a Warrant is
exercisable immediately prior to such event. In case of any such
reorganization, reclassification, merger, consolidation, sale, transfer or
disposition, the successor or acquiring corporation (if other than the
Company) shall expressly assume the due and punctual observance and
performance of each and every covenant and condition of this Agreement to be
performed and observed by the Company and all the obligations and liabilities
hereunder, subject to such modifications as may be deemed appropriate (as
determined by resolution of the Board of Directors of the Company) in order
to provide for adjustments of shares of the Common Stock for which a Warrant
is exercisable which
16
<PAGE>
shall be as nearly equivalent as practicable to the adjustments provided for
in this Section 4. For purposes of this Section 4.8 "common stock of the
successor or acquiring corporation" shall include stock of such corporation
of any class which is not preferred as to dividends or assets over any other
class of stock of such corporation and which is not subject to redemption and
shall also include any evidences of indebtedness, shares of stock or other
securities which are convertible into or exchangeable for any such stock,
either immediately or upon the arrival of a specified date or the happening
of a specified event and any warrants or other rights to subscribe for or
purchase any such stock. The foregoing provisions of this Section 4.8 shall
similarly apply to successive reorganizations, reclassifications, mergers,
consolidations, sales, transfers or dispositions.
5. NOTICES TO WARRANT HOLDERS
5.1. NOTICE OF ADJUSTMENTS. Whenever the number of shares of
Common Stock for which a Warrant is exercisable, or whenever the price at
which a share of such Common Stock may be purchased upon exercise of the
Warrants, shall be adjusted pursuant to Section 4, the Company shall
forthwith prepare a certificate to be executed by the chief financial officer
of the Company setting forth, in reasonable detail, the event requiring the
adjustment and the method by which such adjustment was calculated (including
a description of the basis on which the Board of Directors of the Company
determined the fair value of any evidences of indebtedness, shares of stock,
other securities or property or warrants or other subscription or purchase
rights referred to in Section 4), specifying the number of shares of Common
Stock for which a Warrant is exercisable and (if such adjustment was made
pursuant to Section 4.8) describing the number and kind of any other shares
of stock or Other Property for which a Warrant is exercisable, and any change
in the purchase price or prices thereof, after giving effect to such
adjustment or change. The Company shall promptly cause a signed copy of such
certificate to be delivered to each Holder. The Company shall keep at its
office or agency designated pursuant to Section 12 copies of all such
certificates and cause the same to be available for inspection at said office
during normal business hours by any Holder or any prospective purchaser of a
Warrant designated by a Holder thereof.
5.2. NOTICE OF CERTAIN CORPORATE ACTION. Each Holder shall be
entitled to the same rights to receive notice of corporate action as any
holder of Common Stock.
6. REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants as follows:
(a) The Company is a corporation duly organized and validly
existing under the laws of the State of Pennsylvania, has the power and
authority to execute and deliver this Agreement and the Warrant
Certificates, to issue the Warrants and to perform its obligations under
this Agreement and the Warrant Certificates.
(b) The execution, delivery and performance by the Company of this
Agreement
17
<PAGE>
and the Warrant Certificates, the issuance of the Warrants and the
issuance of the Warrant Stock upon exercise of the Warrants have been
duly authorized by all necessary corporate action and do not and will
not violate, or result in a breach of, or constitute a default under or
require any consent under, or result in the creation of any lien or
security interest upon the
assets of the Company pursuant to, any Requirement of Law or any
Contractual Obligation binding upon the Company.
(c) This Agreement has been duly executed and delivered by the
Company and constitutes a legal, valid, binding and enforceable obligation
of the Company. When the Warrants and the Warrant Certificates have been
issued as contemplated hereby, (i) the Warrants and the Warrant
Certificates will constitute legal, valid, binding and enforceable
obligations of the Company and (ii) the Warrant Stock, when issued upon
exercise of the Warrants in accordance with the terms hereof, will be duly
authorized, validly issued, fully paid and nonassessable shares of Common
Stock with no personal liability attaching to the ownership thereof.
(d) (i) The total number of shares of all classes of stock that
the Company shall have authority to issue is 31,000,000 shares, consisting
solely of shares of Common Stock, par value $.01 per share, of which, after
giving effect to the transactions contemplated herein and all other
issuances of capital stock of the Company as of the date hereof, 1,574,478
shares of Common Stock will be issued and outstanding and 512,346 shares of
Common Stock will be reserved for future issuance. The delivery hereunder
by the Company to the Lender of the Warrants issued on the Closing Date
will transfer and convey to the Lender good and marketable title to such
Warrants and, upon exercise of such Warrants and payment of the Warrant
Price in accordance with this Agreement, good and marketable title to the
Conunon Stock purchased upon such exercise, free and clear of all
preemptive rights, liens, charges and encumbrances, except for restrictions
on transfer set forth in this Agreement or arising under the Federal and
state securities laws. Except as contemplated by the shares reserved for
future issuance referred to above, the Company does not have outstanding
any stock or securities convertible into or exchangeable for any shares of
its stock, nor, except as so contemplated, does it have outstanding any
agreements, rights or options entitling any person to subscribe for or to
purchase any capital stock or securities convertible into or exchangeable
for any of its shares of stock. The Company is not subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital stock, other than put rights to Claire
Reid and Robert Foley.
(e) The Company has provided to the Holder copies of (i) the
audited consolidated balance sheet of the Company as at December 31, 1995,
(ii) audited consolidated statements of income, shareholders' equity and of
cash flow of the Company as at December 31, 1995, (iii) annual projections
of the Company for 1996, and (iv) quarterly projections of the Company
for 1996.
18
<PAGE>
6.2. WARRANT Holders. Each Holder hereby represents and warrants as
follows:
(a) It is acquiring the Warrants for its own account, as
principal, for the purpose of investment and not with a view to or for sale
in connection with any distribution thereof. Each Holder hereby represents
that it will not offer to sell, sell or otherwise dispose of any of the
Warrants or any Warrant Stock in violation of the Securities Act or any
other applicable state or federal securities laws.
(b) It has to its satisfaction reviewed the business and affairs
of the Company and understands the risks of, and other considerations
relating to, its receipt of the Warrant Stock. Such Holder has been
furnished a copy of the Company's most recent audited financial statements,
annual projections, monthly projections and all other information requested
by it relating to the Company and its activities and proposed activities.
(c) It has sufficient knowledge and experience in business and
financial matters to be capable of utilizing the information made available
to it to fully and completely evaluate the merits and risks of owning the
Warrant Stock.
(d) it has been furnished with or given adequate access to such
information about the Company and the Warrants as it has requested, (ii) it
has made its own independent inquiry and investigation into, and based
thereon has formed an independent judgment concerning, the Company, (iii)
it is able to bear the economic risks of the investment in the Common Stock
upon exercise of the Warrants, (iv) it has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits
and risks of an investment in the Company and (v) it is an "accredited
investor" within the meaning of "accredited investor" under Regulation D of
the Securities Act of 1933, as amended.
7. CERTAIN COVENANTS
7.1. 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
Agreement, 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 each Holder against Impairment. Without
limiting the generality of the foregoing, the Company will use reasonable
good faith efforts to obtain all such authorizations, exemptions or consents
from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations under this
Agreement.
Upon the request of a Holder, the Company will at any time during
the period this Agreement is in effect acknowledge in writing, in form
satisfactory to such Holder, the continuing
19
<PAGE>
validity of this Agreement and the obligations of the Company hereunder.
7.2. RESERVATION AND AUTHORIZATION OF CONUNON STOCK, REGISTRATION
WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY. From and after the Closing
Date, the Company shall at all times reserve and keep available for issue
upon the exercise of Warrants such number of its authorized but unissued
shares of Common Stock as will be sufficient to permit the exercise in full
of all outstanding Warrants. All shares of Common Stock which shall be so
issuable, when issued upon exercise of any Warrants and payment therefor in
accordance with the terms of this Agreement, shall be duly and validly issued
and fully paid and nonassessable, and not subject to preemptive rights.
Before taking any action which would cause an adjustment reducing
the Current Warrant Price below the then par value, if any, of the shares of
Common Stock issuable upon exercise of the Warrants, the Company shall take
any corporate action which may be necessary in order that the Company may
validly and legally issue fully paid and nonassessable shares of such Cormnon
Stock at such adjusted Current Warrant Price.
Before taking any action which would result in an adjustment in the
number of shares of Common Stock for which a Warrant is exercisable or in the
Current Warrant Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
If any shares of Common Stock required to be reserved for issuance
upon exercise of Warrants require registration or qualification with any
governmental authority under any federal or state law (otherwise than as
provided in the Securities Act) before such shares may be so issued, the
Company will in good faith and as expeditiously as possible and at its
expense endeavor to cause such shares to be duly registered.
8. TAKING OF RECORD, STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the Company
to the holders of its Conunon Stock with respect to which any provision of
Section 4 refers to the taking of a record of such holders, the Company will
in each such case take such a record and will take such record as of the
close of business on a Business Day. The Company will not at any time,
except upon dissolution, liquidation or winding up of the Company, close its
stock transfer books or Warrant transfer books so as to result in preventing
or delaying the exercise or transfer of any Warrants or any Warrant Stock.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred before
satisfaction of the conditions specified in this Section 9, which conditions
are intended to ensure compliance with
20
<PAGE>
the provisions of the Securities Act with respect to the transfer of any
Warrant or any Warrant Stock. Each Holder, by entering into this Agreement
and accepting the Warrants, agrees to be bound by the provisions of this
Section 9.
21
<PAGE>
9.1. RESTRICTIVE LEGEND. Except as otherwise provided in this
Section 9, each certificate representing Warrants or Warrant Stock, shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or any
applicable state securities laws, and may not be sold or transferred
in the absence of such registration or an exemption therefrom. Such
securities are subject to the restrictions and privileges specified in
a Warrant Agreement, dated as of April ___, 1996, between the Company
and the initial holders of securities named therein, a copy of which
is on file with the Secretary of the Company and will be furnished
without charge to the holder hereof upon written request, and the
holder of this certificate agrees to be bound thereby."
9.2. NOTICE OF PROPOSED TRANSFERS, REQUESTS FOR REGISTRATION.
Prior to any transfer of any Warrants or any shares of Restricted Conunon
Stock, the Holder of such Warrants or Restricted Common Stock shall give five
days' prior written notice to the Company of such Holder's intention to
effect such transfer (a "TRANSFER Notice"). Holder agrees that it will not
sell, transfer or otherwise dispose of Warrants or any shares of Restricted
Common Stock, in whole or in part, except pursuant to an effective
registration statement under the Securities Act or an exemption from
registration thereunder. Each certificate, if any, evidencing such shares of
Restricted Common Stock issued upon such transfer shall bear the restrictive
legend set forth in Section 9.1, and each Warrant Certificate issued upon
such transfer shall bear the restrictive legend set forth in Section 9.1,
unless in either case such transfer is pursuant to an effective registration
statement under the Securities Act or in the opinion of the transferee's or
Holder's counsel delivered to the Company in connection with such transfer
(which opinion and counsel shall be reasonably satisfactory to the Company)
such legend is not required in order to ensure compliance with the Securities
Act.
9.3. TERMINATION OF RESTRICTIONS. Notwithstanding the foregoing
provisions of Section 9, the restrictions imposed by this Section upon the
transferability of the Warrants, the Warrant Stock and the Restricted Common
Stock (or Common Stock issuable upon the exercise of the Warrants) and the
legend requirement of Section 9.1 shall terminate as to any particular
Warrant or share of Warrant Stock or Restricted Common Stock (or Common Stock
issuable upon the exercise of the Warrants) (i) when and so long as such
security shall have been effectively registered under the Securities Act and
disposed of pursuant thereto, or (ii) when the holder thereof shall have
delivered to the Company the written opinion of counsel to such holder, which
opinion and counsel shall be reasonably satisfactory to the Company, stating
that such legend is not required in order to ensure compliance with the
Securities Act. Whenever the restrictions imposed by Section 9 shall
terminate as to any Warrants or any Restricted Common Stock, as hereinabove
provided, the Holder thereof shall be entitled to receive from the Company,
at the expense of the Company, a new Warrant Certificate or a new certificate
representing such Common Stock, as the case may be, not bearing the
restrictive legend set forth in Section 9.1.
22
<PAGE>
9.4. LISTING ON SECURITIES EXCHANGE. If the Company shall list
any shares of Common Stock on any securities exchange, it will, at its
expense, use its best efforts to list thereon, maintain and, when necessary,
increase such listing of, all shares of Common Stock issued or, to the extent
permissible under the applicable securities exchange rules, issuable upon the
exercise of the Warrants so long as any shares of Common Stock shall be so
listed. Nothing contained in this subsection 9.4 shall require the Company
to register any security under the Securities Act.
10. SUPPLYING INFORMATION
The Company shall reasonably cooperate with each Holder of a
Warrant and each Holder of Restricted Common Stock in supplying such
information as may be reasonably necessary for such Holder to complete and
file any information reporting forms presently or hereafter required by the
Commission as a condition to the availability of an exemption from the
Securities Act for the sale of any Warrant or Restricted Conunon Stock.
11. LOSS OR MUTILATION
Upon receipt by the Company from any Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of a certificate representing Warrants or Warrant Stock and
indemnity reasonably satisfactory to it (it being understood that the written
agreement of the Lender shall be sufficient indemnity) and in case of
mutilation upon surrender and cancellation hereof or thereof, the Company
will execute and deliver in lieu hereof or thereof a new Warrant or new stock
certificate as the case may be, of like tenor to such Holder; PROVIDED, in
the case of mutilation, no indemnity shall be required if the certificate
representing Warrants or Warrant Stock in identifiable form is surrendered to
the Company for cancellation.
12. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the Company
shall maintain an office or agency (which may be the principal executive
offices of the Company) where the Warrants may be presented for exercise,
registration or transfer, division or combination as provided herein.
13. FINANCIAL AND BUSINESS INFORMATION
13.1. QUARTERLY INFORMATION. The Company will deliver to each
Holder the quarterly information delivered in accordance with subsection
7.1(b) of the Credit Agreement, accompanied by the certification of the
Company's chief executive officer or chief financial officer in accordance
with subsection 7.2 of the Credit Agreement.
23
<PAGE>
13.2. ANNUAL INFORMATION. The Company will deliver to each Holder
the annual information delivered in accordance with subsection 7.1(a) of the
Credit Agreement, accompanied by the certification of the Company's chief
executive officer or chief financial officer in accordance with subsection
7.2 of the Credit Agreement.
13.3. FILINGS. The Company will file on or before the required
date all required regular or periodic reports (pursuant to the Exchange Act)
with the Commission and will deliver to each Holder promptly upon their
becoming available one copy of each report, notice or proxy statement sent by
the Company to its stockholders generally.
14. APPRAISAL RIGHTS
Upon each determination of Fair Market Value of any business or
property (including any security) hereunder (other than a determination
relating solely to setting the value of fractional shares), the Company shall
promptly give notice thereof to all Holders, setting forth in reasonable
detail the calculation of such Fair Market Value and the method and basis of
determination thereof, as the case may be. Unless a majority in interest of
the Holders agree in writing with such determination prior to the expiration
of the 15-day period referred to below, if a majority in interest of Holders
(the "DISPUTING HOLDERS") shall disagree with such determination and shall,
by notice to the Company given within 15 days after the Company's notice of
such determination, elect to dispute such determination, such dispute shall
be resolved in accordance with this Section 14. In the event that a
determination of Current Market Price of a security pursuant to clause (a) of
the definition thereof is disputed, such dispute shall be submitted to a New
York Stock Exchange member firm selected by the Company and reasonably
acceptable to a majority in interest of the Disputing Holders, whose
determination of Current Market Price shall be binding on the Company and the
Holders. If such determination is disparate by less than 10% from the
Company's initial determination, the fees and expenses of such determination
shall be done by the Disputing Holders and if such determination is disparate
by 10% or more from the Company's initial determination, the fees and
expenses of such determination shall be done by the Company. In the event
that a determination of Fair Market Value, other than a determination solely
involving clause (a) of the definition of Current Market Price, is disputed,
such dispute shall be resolved through the Appraisal Procedure.
15. LIMITATION OF LIABILITY, NO RIGHTS AS STOCKHOLDER
No provision hereof, in the absence of affirmative action by any
Holder to purchase shares of Common Stock, and no enumeration herein of the
rights or privileges of any Holder, shall give rise to any liability of such
Holder for the purchase price of any Common Stock or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company. Except as may otherwise be provided by law or by separate
agreement between a Holder and the Company, no Holder, as such, shall be
entitled to vote or be deemed the holder of Common Stock or any other
securities (other than Warrants) of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained herein be
construed to confer upon
24
<PAGE>
any Holder the rights of a stockholder of the Company or the right to vote
for the election of directors or upon any matters submitted to stockholders
at any meeting thereof, or to give or withhold consent to any corporate
action or to receive notice of meetings or other actions affecting
stockholders (except as provided herein), or to receive dividends or
otherwise, until the Warrants shall have been exercised in accordance with
the terms and conditions hereof.
16. MISCELLANEOUS
16.1. NONWAIVER AND EXPENSES. No course of dealing or any delay
or failure to exercise any right hereunder on the part of any Holder shall
operate as a waiver of such right or otherwise prejudice such Holder's
rights, powers or remedies. If the Company fails to make, when due, any
payments provided for hereunder, or fails to comply with any other provision
of this Agreement, the Company shall pay to the applicable Holders such
amounts as shall be sufficient to cover any reasonable costs and expenses
including, but not limited to, reasonable attorneys' fees, including those of
appellate proceedings, incurred by the Holders in collecting any amounts due
pursuant hereto or in otherwise enforcing any of its rights, powers or
remedies hereunder.
16.2. NOTICE GENERALLY. Any notice, demand, request, consent,
approval, declaration, delivery or other communication hereunder to be made
pursuant to the provisions of this Agreement shall be sufficiently given or
made if in writing and either delivered in person with receipt acknowledged
or sent by registered or certified mail, return receipt requested, postage
prepaid, telex, telecopier or overnight air courier guaranteeing next day
delivery, addressed as follows:
(a) If to any Holder at:
Chemical Bank
270 Park Avenue
New York, New York 100 1 7
Attention: Kevin Cornwell
Telecopy No.: (212) 270-6068
(b) If to the Company at:
Technology Specialists, Inc.
801 Springdale Drive
Suite 130
Exton, Pennsylvania 19341
Attention: Robert Foley
Telecopy No.: (610) 363-5305
with a copy to:
25
<PAGE>
Hopkins & Sutter
Three First National Place Suite 3800
Chicago, Illinois 60602
Attention: Stanford J. Goldblatt Telecopy No.: (312) 558-6538
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in
writing by the party entitled to receive such notice. Every notice, demand,
request, consent, approval, declaration, delivery or other communication
hereunder shall be deemed to have been duly given or served on the date on
which personally delivered, with receipt acknowledged, or three (3) Business
Days after the same shall have been deposited in the United States mail.
16.3. INDEMNIFICATION. (a) The Company agrees to indemnify and
hold harmless each Holder, its officers, directors, employees, agents, and
attorneys from and against any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, attorneys' fees,
expenses and disbursements of any kind which may be imposed upon, incurred by
or asserted against such Holder relating to or arising out of (i) such
Holder's exercise of the Warrants and/or ownership of any shares of Warrant
Stock issued in consequence thereof, or (ii) any litigation to which such
Holder is made a party in its capacity as a stockholder or warrantholder of
the Company; PROVIDED, HOWEVER that the Company will not be liable hereunder
to the extent that any liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, attorneys' fees, expenses or
disbursements (A) arise from or relate to any violation by such Holder of any
law or regulation applicable to it or (B) are found in a final non-appealable
judgment by a court to have resulted from such Holder's gross negligence, bad
faith or willful misconduct or violation of law.
(b) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any person or
entity entitled to indemnification hereunder shall (i) give prompt written
notice to the indemnifying party after the receipt by the indemnified party
of a written notice of the commencement of any action, suit, proceeding or
investigation or threat thereof made in writing for which such indemnified
party will claim indemnification or contribution pursuant to this Agreement;
PROVIDED, HOWEVER, that the failure of any indemnified party to give notice
as provided herein shall not relieve the indemnifying party of its
obligations under subsection 16.3 hereof, except to the extent that the
indemnifying party is actually prejudiced by such failure to give notice, and
(ii) unless in such indemnified party's reasonable judgment a conflict of
interest may exist between such indemnified and indemnifying parties with
respect to such claim, permit such indemnifying party to assume the defense
of such claim with counsel reasonably satisfactory to the indemnified party.
If the indemnifying party is entitled to, and does, assume the defense of
such claim, the indemnified party shall have the right to employ separate
counsel and to participate in the defense thereof, but the fees and expenses
of such counsel shall be done by the indemnified party. Whether or not such
defense is assumed by the indemnifying party, the indemnifying party shall
not be subject to any liability for any settlement made without its consent
(but such consent will not be unreasonably withheld). No indemnifying party
shall be permitted to consent to the entry of any judgment or to enter into
any settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such
26
<PAGE>
indemnified party of a release from all liability in respect of such claim or
litigation. An indemnifying party who is not entitled to, or elects not to,
assume the defense of a claim shall not be obligated to pay the fees and
expenses of more than one counsel in any one jurisdiction for all parties
indemnified by such indemnifying party with respect to such claim, unless in
the reasonable judgment of any indemnified party a conflict of interest may
exist between such indemnified party and any other of such indemnified
parties with respect to such claim, in which event the indemnifying party
shall be obligated to pay the fees and expenses of such additional counsel or
counsels.
16.4. REMEDIES. Each Holder of Warrants and Warrant Stock, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under Section 9 of this Agreement. The Company agrees that monetary damages
would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of Section 9 of this Agreement and hereby
agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate.
16.5. SUCCESSORS AND ASSIGNS. Subject to the provisions of
subsection 3.1, this Agreement and the rights evidenced hereby shall inure to
the benefit of and be binding upon the successor of the Company and the
successors and assigns of any Holder. The provisions of this Agreement are
intended to be for the benefit of all Holders from time to time of the
Warrants and Warrant Stock, and shall be enforceable by any such Holder.
16.6. AMENDMENT. This Agreement may be modified or amended or the
provisions hereof waived with the written consent of the Company and the
Required Holders, provided that no Warrant may be modified or amended to
reduce the number of shares of Common Stock for which such Warrant is
exercisable or to increase the price at which such shares may be purchased
upon exercise of such Warrant (before giving effect to any adjustment as
provided therein) without the prior written consent of the Holder thereof,
unless substantially similar adjustments are made to all the Warrants then
outstanding.
16.7. SEVERABILITY. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
16.8. HEADINGS. The headings used in this Agreement are for the
convenience of reference only and shall not, for any purpose, be deemed a
part of this Agreement.
16.9. GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE. In all
respects, including all matters of construction, validity and performance,
this Agreement and the obligations arising hereunder shall be governed by,
and construed and enforced in accordance with, the laws of the State of New
York applicable to contracts made and performed in such state, without regard
to the
27
<PAGE>
principles thereof regarding conflict of laws, and any applicable laws of the
United States of America. THE COMPANY CONSENTS TO PERSONAL JURISDICTION,
WAIVES ANY OBJECTION AS TO JURISDICTION OR VENUE, AND AGREES NOT TO ASSERT
ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE, IN THE COUNTY OF NEW
YORK, STATE OF NEW YORK. Service of process on the Company or any Holder in
any action arising out of or relating to this Agreement shall be effective if
mailed to such party in accordance with the procedures and requirements set
forth in 16.2. Nothing herein shall preclude any Holder or the Company from
bringing suit or taking other legal action in any other jurisdiction.
16.10. MUTUAL WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND
ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES
WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION
RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE
APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF
THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO
WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO
ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER TIES AGREEMENT.
28
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the date first above written.
TECHNOLOGY SPECIALISTS, INC.
By /s/ Robert Foley, Jr.
-------------------------------------
Name: Robert Foley, Jr.
Title: CEO
CHEMICAL BANK, as Lender
By /s/ Edward Devine
-------------------------------------
Name: Edward Devine
Title: Managing Director
29
<PAGE>
EXHIBIT A
To Warrant
AGREEMENT
[FORM OF WARRANT CERTIFICATE]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAWS, AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION
OR AN EXEMPTION THEREFROM. SUCH SECURITIES ARE SUBJECT TO THE RESTRICTIONS
AND PRIVILEGES SPECIFIED IN THE WARRANT AGREEMENT, DATED AS OF APRIL ,
1996, BETWEEN TECHNOLOGY SPECIALISTS, INC., AND THE INITIAL HOLDER OF
SECURITIES NAMED THEREIN, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF
THE COMPANY AND WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER HEREOF UPON
WRITTEN REQUEST, AND THE HOLDER OF THIS CERTIFICATE AGREES TO BE BOUND
THEREBY.
No. -
--- ---
WARRANT CERTIFICATE
TECHNOLOGY SPECIALISTS, INC.
This Warrant Certificate certifies that ___________________________________,
or registered assigns, is the registered holder of - Warrants (the
"WARRANTS") to purchase shares of series A non-voting common stock of
Technology Specialists, Inc., (the "COMPANY"). Each Warrant entitles the
holder, but only subject to the conditions set forth herein and in the
Warrant Agreement referred to below, to purchase from the Company, during the
Exercise Period, as such term is defined in the Warrant Agreement, one fully
paid and nonassessable share of series A non-voting comrnon stock of the
Company (a "WARRANT SHARE") at a price (the "EXERCISE PRICE") of $1.87 per
Warrant Share payable in lawful money of the United States of America
(subject to adjustment as provided in Section 4 of the Warrant Agreement),
or, as provided in Section 2.2 of the Warrant Agreement, by the transfer of
certain debt to the Company, upon surrender of this Warrant Certificate,
execution of the annexed Election to Purchase Form and payment of the
Exercise Price at the office of the Company at _________________________ or
such other address as the Company may specify in writing to the registered
holder of the Warrants evidenced hereby. The Exercise Price is subject to
adjustment upon the occurrence of certain events as set forth in the Warrant
Agreement.
30
<PAGE>
The Company may deem and treat the registered holders of the
Warrants evidenced hereby as the absolute owner thereof (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the
purpose of any exercise hereof and of any distribution to the holders hereof,
and for all other purposes.
Warrant Certificates, when surrendered at the office of the Company
at the above-mentioned office address or at the Company's headquarters by the
registered holder hereof in person or by a legal representative duly
authorized in writing, may be exchanged, in the manner and subject to the
limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of
like tenor evidencing in the aggregate a like number of Warrants.
Upon due presentment for registration of transfer of this Warrant
Certificate at the office of the Company at the above-mentioned address, a
new Warrant Certificate or Warrant Certificates of like tenor and evidencing
in the aggregate a like number of Warrants shall be issued to the transferee
in exchange for this Warrant Certificate to the transferee(s) and, if less
than all the Warrants evidenced hereby are to be transferred, the registered
holder hereof, subject to the limitations provided in the Warrant Agreement,
without charge except for any tax or other governmental charge imposed in
connection therewith.
This Warrant Certificate is one of the Warrant Certificates
referred to in the Warrant Agreement, dated as of April __, 1996, between the
Company and the initial holder of Warrants party thereto (the "WARRANT
AGREEMENT"). Said Warrant Agreement is hereby incorporated by reference in
and made a part of this instrument and is hereby referred to for a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Company and the holders, and in the event of any
conflict between the terms of this Warrant Certificate and the provisions of
the Warrant Agreement, the provisions of the Warrant Agreement shall control.
31
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be duly executed as of the date set forth below.
Dated: , 199
-------------------- -
TECHNOLOGY SPECIALISTS, INC.
By
--------------------------------------
Title:
32
<PAGE>
EXHIBIT A TO
WARRANT CERTIFICATE
ELECTION TO PURCHASE FORM
[To be executed only upon exercise of Warrants]
The undersigned registered owner of this Warrant Certificate
irrevocably EXERCISES____________ Warrants for the purchase of ________
Shares of Series A Non-Voting Common Stock of Technology Specialists, Inc.,
and herewith makes payment therefor, all at the price and on the terms and
conditions specified in this War-rant Certificate and the Warrant Agreement
and requests that certificates for the shares of Series A Non-Voting Common
Stock hereby purchased (and any securities or other property issuable upon
such exercise) be issued in the name of and delivered to
________________________ whose address is _________________________ and, if
such shares of Series A Non-Voting Common Stock shall not include all of the
shares of Series A Non-Voting Common Stock issuable as provided in this
Warrant Certificate, that a new Warrant Certificate of like tenor and date
for the balance of the shares of Series A Non-Voting Common Stock issuable
hereunder be delivered to the undersigned.
- -------------------------------------
(Name of Registered Owner)
- -------------------------------------
(Signature of Registered Owner)
- -------------------------------------
(Street Address)
- -------------------------------------
(City) (State) (Zip Code)
33
<PAGE>
EXHIBIT B TO
WARRANT CERTIFICATE
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
Certificate hereby sells, assigns and transfers unto the assignee named below
all of the rights of the undersigned under this Warrant Certificate, with
respect to the number of shares of Series A Non-Voting Common Stock set forth
below:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF ASSIGNEE NO. OF SHARES OF COMMON STOCK
- ---------------------------- -----------------------------
<S> <C>
</TABLE>
and does hereby irrevocably constitute and appoint ______________________
attorney-in-fact to register such transfer on the books of Technology
Specialists, Inc., maintained for the purpose, with full power of
substitution in the premises.
Dated:
---------------------------------
Name:
----------------------------------
Signature:
-----------------------------
Witness:
-------------------------------
The assignee named above hereby agrees to purchase and take the Warrant
Certificate pursuant to and in accordance with the terms and conditions of
the Warrant Agreement, dated as of April __, 1996, between Technology
Specialists, Inc., and the initial holder named therein and agrees to be
bound thereby.
Dated:
---------------------------------
Name:
----------------------------------
Signature:
-----------------------------
34
<PAGE>
EXHIBIT B
To Warrant
AGREEMENT
WARRANT REGISTER
NAME AND
ADDRESS
WARRANT ORIGINAL NUMBER OF WARRANT
CERTIFICATE NO. OF WARRANTS HOLDER
- --------------- --------------- ----------
------------------------
------------------------
------------------------
------------------------
Attn:
-------------------
35
<PAGE>
EXHIBIT C
To Warrant
AGREEMENT
April 11, 1996
Chemical Bank
270 Park Avenue
New York, New York 10017
Attention: Kevin Cornwell
Gentlemen:
Reference is made to that certain Warrant Agreement, dated as of April 1
1, 1996, between Technology Specialists, Inc., a Pennsylvania corporation
(the "Company"), and Chemical Bank (the "Lender"), pursuant to which the
Company will issue warrants to purchase shares of Common Stock of the Company
(the "Warrant Agreement"). Capitalized terms used but not defined herein are
used herein as defined in the Warrant Agreement.
Each of TSI Investment Company 1, L.L.C. ("TIC-1") and TSI Investment
Company II, L.L.C. ("TIC-II") agree as follows:
1 . (a) TIC-I and TIC-11 will not sell a majority of the Company's
Common Stock, in a single transaction or a series of related transactions (a
"Sale"), except to an independent third party who agrees to purchase Common
Stock as part of a transaction in which a PRO RATA portion (the group for PRO
RATA purposes consisting of TIC-1, TIC-II and the Holders) of the aggregate
number of shares of Common Stock being purchased by such independent third
party will be purchased from each Holder who chooses to participate in such
transaction.
(b) Before TIC-1 or TIC-II accepts any offer to sell shares of
Common Stock in connection with a Sale, TIC-1 and TIC-11 will give written
notice (the "Takealong Notice") to the Company (which will, within five days
of the date of receipt of such notice (the "Take-along Notice Date"), send or
deliver a copy of the Take-along Notice to the Holders), stating the material
terms of such offer. Any Holder who wishes to participate in such Sale as to
its PRO RATA portion (the group for PRO RATA purposes consisting of TIC-I,
TIC-II and the Holders) will give the Company notice to such effect within
fifteen (15) days of the Take-along Notice Date.
2. TIC-1 or TIC-11 may transfer shares of Common Stock, without
complying with the terms of Paragraph 1 of this letter agreement, (i) in a
registered public offering, or (ii) to Permitted
36
<PAGE>
Transferees (as hereinafter defined) who consent in writing to be bound by
the terms of this letter agreement. "Permitted Transferees" means the owners
of equity interests in TIC-1 or TIC-II, the owners of equity interests in
such owners, the spouse or lineal descendants of any such owner, any trust
for the benefit of any such owner or the benefit of such owner's spouse or
lineal descendants, any corporation, partnership or limited liability company
in which any such owner and the spouse and the lineal descendants of such
owner are the owners of all of the equity interests and the personal
representative of any such owner upon such owner's death for purposes of
administration of such owner's estate or upon such owner's incompetency for
purposes of the protection and management of the assets of such owner.
3. This letter agreement shall terminate upon the earlier of (a) the
consummation of a public offering of Common Stock of the Company pursuant to
a registration statement declared effective by the Securities and Exchange
Commission and (b) the sale of the Company, including, but not limited to, a
Sale, by any means to an independent third party.
Sincerely,
TSI INVESTMENT COMPANY I, L.L.C.
By: King-Pigott L.P., its Manager
By: /s/ Kenneth Pigott
--------------------------------
a General Partner
TSI INVESTMENT COMPANY 11, L.L.C.
By: King-Pigott L.P., its Manager
By: /s/ Kenneth Pigott
--------------------------------
a General Partner
37
<PAGE>
Exhibit 10.3
COLLEGIS, Inc.
2300 Maitland Center Parkway
Suite 340
Maitland, Florida 32751
May 1, 1998
Robert E. Lund
Dear Bob:
The purpose of this letter is to set forth certain understandings
with respect to your employment with COLLEGIS, Inc. (the "Company").
1. You will be employed on an "at will" basis as Vice Chairman of
the Company effective as of May 1, 1998. In such capacity you will receive
an annual base salary of $187,500 and be entitled to participate in the
senior executive performance incentive plans on a basis comparable to the
other senior executives of the Company. You and your dependents will also be
entitled to participate in the medical and life insurance plans and programs
on the same basis as other senior executives of the Company. The Company
will coordinate with Premier Systems Integrators, L.L.C. to make sure you do
not suffer a "gap" in medical insurance coverage.
2. You and the Company will agree upon your duties and
responsibilities to the Company. You agree that you will devote your full
business time to your duties and responsibilities to the Company.
3. You will be elected to the Board of Directors of the Company
and become a member of the Executive Committee effective as of May 1, 1998.
4. You will be entitled to purchase from the Company 65,000
shares of Series B Common Stock of the Company for a purchase price of $4.00
per share, simultaneously with the execution of this letter agreement. You
acknowledge that these shares (a) have not been registered under the
Securities Act of 1933, as amended (the "Act") and may only be sold pursuant
to registration statement filed pursuant to the Act or if a valid exemption
from registration under the Act is available for resale; and (b) are being
sold to you in reliance upon your being an "accredited investor" and your
representation that you are acquiring these shares for investment and not
with a view toward distribution thereof. You acknowledge that the shares may
be legended to reflect the foregoing.
<PAGE>
5. You will also be granted stock options under the Company's
Employee Stock Option Plan ("Plan") in the amounts and pursuant to the terms
set forth below, as well as subject to such other terms required by the Plan
(to the extent not inconsistent with the following):
(a) 90,000 shares of Series B Common Stock at an exercise price of
$4.00 per share all of which shall be vested upon the grant date; and
(b) 270,000 shares of Series B Common Stock at an exercise price
of $4.00 per share vesting 25% per year, and vesting shall not be accelerated
upon a "fundamental change" or "stock sale" (as those terms are defined in
the Plan) or an initial public offering by the Company which occurs prior to
full vesting.
6. In the event of a "fundamental change" or a "stock sale" after
the second anniversary of your employment with the Company, the Company will
require the acquiring company to agree that if the acquiring company
terminates your employment within 6 months after such transaction than you
shall receive a severance payment (in addition to any other benefits you may
be entitled to) equal to one-half of your then annual base salary.
7. The Company agrees that so long as you are employed with the
Company and your permanent residence is not the Orlando, Florida area the
Company shall pay to you each month an amount (as you and the Company shall
hereafter agree upon after investigation of the various costs involved) as
reimbursement for temporary living expenses in Orlando. This amount will be
paid to you on the first day of each month.
8. This Agreement may be amended, modified or supplemented only
by a duly authorized and executed written agreement of each of the parties
hereto.
9. THE VALIDITY AND EFFECT OF THIS AGREEMENT SHALL BE GOVERNED
EXCLUSIVELY BY THE LAWS OF THE STATE OF ILLINOIS, EXCLUDING THE "CONFLICT OF
LAWS" PROVISIONS OF THE STATE OF ILLINOIS.
10. The rights and obligations of the Company under this Agreement
shall inure to the benefit of, and shall be binding upon, the successors and
assigns of the Company. This Agreement and the obligations created hereunder
may not be assigned by you.
<PAGE>
If this is acceptable, please execute this letter in the space
provided below.
COLLEGIS, INC.
By:
------------------------------
Title:
---------------------------
Agreed to as of the 1st day of May, 1998.
/s/ Robert E. Lund
------------------------------
Robert E. Lund
<PAGE>
Exhibit 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT"), is made and entered into
as of this 1st day of November, 1997, by and between COLLEGIS, Inc., a
Delaware corporation ("EMPLOYER"), with its principal place of business at
101 Southhall Lane, Suite 400, Maitland, Florida 32751, and Dr. William H.
Graves, an individual ("EMPLOYEE").
WHEREAS, Employer is engaged in the business of providing services
related to computing and information technology throughout the United States
including, without limitation, the development, use and application of
Internet technologies and resources in the area of higher education;
WHEREAS, Employer may form a not-for-profit corporation (the "NEW
INSTITUTE") to engage in research and development activities in connection
with the innovation, use and application of distributed learning technologies
and resources; and
WHEREAS, Employee desires to be employed by Employer and Employer
desires to employ Employee pursuant to the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto hereby
agree as follows:
1. EMPLOYMENT; EXECUTIVE COMMITTEE. Subject to the terms of this
Agreement, Employer hereby employs Employee as "Senior Vice President for
Academic Technology." In this position, Employee shall report to the
Executive Committee and President of Employer.
2. TERM. Unless earlier terminated as provided herein, the term of
this Agreement shall be a period commencing on the date hereof and ending
October 31, 2002. If neither party provides notice within thirty (30) days
prior to the termination of this Agreement, then this Agreement will be
considered renewed for successive one (1) year periods.
3. DUTIES. Employee hereby accepts employment and agrees to serve
Employer on a full-time basis and to perform his duties faithfully,
diligently and to the best of his ability. During the term of this
Agreement, Employee shall perform such duties as may be assigned to him from
time to time by the Executive Committee and President of Employer.
Employee's duties shall consist of duties which are typical for an executive
officer of a business in a similar industry including, without limitation,
the development of a conceptual strategy and detailed business plan (in
coordination with the Executive Committee of Employer) for Employer's
Academic Technology Business Unit (the "Business Unit) and the supervision of
all marketing, sales and other activities conducted by such Business Unit in
respect of the Business (as defined in the Stock Option Agreement described
in SECTION 4(c) below). In the event Employer forms the New Institute,
<PAGE>
Employee shall be responsible for managing and directing the activities of
the New Institute, including the supervision of all research and development
related thereto. Employee shall have the power to hire, terminate, promote
and assign titles to employees of Employer employed in connection with the
operation of the Business Unit, subject to review and approval by the
President of Employer. Additionally, Employee shall, as requested, advise
and consult with the Executive Committee and President of Employer on all
major issues affecting the future growth and profitability of Employer as it
pertains to the Business Unit and its conduct of the Business.
4. COMPENSATION. Employer agrees to pay Employee, and Employee agrees
to accept from Employer, in full payment for Employee's services hereunder,
compensation consisting of the following:
(a) an annual salary of $200,000 payable in accordance with
payroll practices in effect from time to time for all salaried employees of
Employer;
(b) aggregate incentive compensation not in excess of $50,000 per
year (the "INCENTIVE AMOUNT") payable annually in arrears upon completion of
Employer's annual audit for each year during the term of this Agreement
(beginning with the audit for the year ended December 31, 1998). Employer
and Employee acknowledge and agree that fifty percent (50%) of the Incentive
Amount shall be payable based on the achievement of certain performance goals
and objectives to be mutually agreed upon by Employer and Employee and fifty
percent (50%) of the Incentive Amount shall be payable in accordance with the
terms and conditions of the COLLEGIS Corporate Profit Incentive Plan as in
effect from time to time, a copy of which has been delivered to Employee by
Employer prior to the date hereof; and
(c) options to purchase an aggregate amount of 100,000 shares of
Series B Common Stock of Employer at a per share price of $2.75 (the "STOCK
OPTIONS"). The Stock Options shall vest at a rate of twenty-five percent
(25%) per annum and shall otherwise be subject to the terms and conditions
set forth in that certain Stock Option Agreement dated the date hereof and
substantially in the form of EXHIBIT A attached hereto.
5. BENEFITS. Employer shall provide to Employee the benefits provided
to salaried employees of Employer in accordance with the terms and conditions
set forth in the Employer's employee manual, as amended from time to time in
Employer's sole and exclusive discretion.
6. INITIAL PUBLIC OFFERING. Employer agrees to pay Employee, and
Employee agrees to accept from Employer, a one-time bonus payment in the
aggregate amount of $250,000 in the event that:
(a) Employer successfully consummates an initial underwritten
public offering of its capital stock pursuant to a registration statement
declared effective under the Securities Act of 1933, as amended, prior to (i)
the transfer (whether by sale, merger or otherwise) of a majority of the
outstanding common stock of Employer or (ii) the sale of all or substantially
all of the assets of Employer (a "QUALIFIED OFFERING"); and
2
<PAGE>
(b) Employee has been continuously employed by Employer pursuant
to the terms and conditions of this Agreement from the date hereof to and
including the date of the Qualified Offering and Employee has theretofore
delivered written notice to the University of North Carolina-Chapel Hill of
his resignation therefrom.
Any amount payable pursuant to this SECTION 6 shall be paid no
later than thirty (30) days following the consummation of the Qualified
Offering.
7. EXPENSES. Employer agrees to reimburse Employee for his
out-of-pocket business expenses as may be determined by Employer to be
reasonably necessary in connection with services rendered by Employee
pursuant to this Agreement.
8. TERMINATION. This Agreement shall terminate upon: (a) the death of
Employee; (b) the inability of Employee to perform his duties hereunder by
reason of disability or incapacity, due to physical or mental illness, for a
period of sixty (60) days out of any consecutive 120-day period; (c) the
mutual written consent of Employer and Employee; (d) five (5) days written
notice of Employer without "cause"; or (e) the written notice of Employer for
"cause." For purposes of this Agreement, "cause" shall include, without
limitation, Employee's commission of a felony, fraud, misappropriation or
embezzlement; failure to materially perform his duties hereunder; dishonest
conduct in the performance of his duties; incompetence, insubordination,
gross negligence or violation of any express direction, rule or regulation
established by Employer from time to time; or breach of any covenant
contained in this Agreement.
9. COMPENSATION UPON TERMINATION.
(a) If this Agreement is terminated pursuant to Section 8(a), (b)
or (e), Employee shall not be entitled to receive any compensation or
benefits from Employer other than compensation accrued and unpaid at the time
of termination.
(b) If this Agreement is terminated pursuant to Section 8(c),
Employee shall be entitled to receive such compensation and benefits from
Employer as may be specified in a written agreement, if any, between Employer
and Employee.
(c) If this Agreement is terminated pursuant to Section 8(d),
Employee shall be entitled to receive a lump sum payment equal to
seventy-five percent (75%) of Employee's annual salary then in effect LESS
any required payroll withholding taxes. In addition, Employee shall be
entitled to receive payment in the amount of $250,000 in the event that
Employer consummates a Qualified Offering within the six-month period
following such termination.
10. ASSIGNMENT. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any party hereto without
the prior written consent of the other parties; PROVIDED, that Employer may
3
<PAGE>
assign any or all of his rights, interests and obligations under this
Agreement to any of its affiliates without the consent of Employee.
11. NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or by overnight
courier service or telecopier, upon receipt, or if mailed by registered or
certified mail (return receipt requested), postage prepaid, upon receipt or
refusal. Notice to either party hereto, if mailed or sent by overnight
courier service, shall be to the following addresses (or to such other
address as the recipient party shall designate in writing to the other party):
IF TO EMPLOYEE:
Dr. William H. Graves
P.O. Box 4696
Chapel Hill, NC 27515
IF TO EMPLOYER:
COLLEGIS, Inc.
101 Southhall Lane, Suite 340
Maitland, Florida 32751
Attn: Robert Foley, Jr.
Facsimile: 407/660-2471
with a copy to:
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Attn: Stanford J. Goldblatt
Facsimile: 312/558-5700
12. ENTIRE AGREEMENT. This Agreement and the Exhibits hereto
constitute and contain the entire agreement of the parties and supersede any
and all prior negotiations, correspondence, agreements, representations and
understandings among the parties respecting the subject matter hereof. No
waiver or amendment to this Agreement shall be effective unless reduced to
writing and executed by the parties hereto.
13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED,
INTERPRETED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
FLORIDA, WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS THEREOF.
4
<PAGE>
14. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same agreement.
15. AMENDMENT AND MODIFICATION. This Agreement may be amended,
modified or supplemented only by a duly authorized and executed written
agreement of each of the parties hereto.
16. INTERPRETATION. The section headings contained in this Agreement
are solely for the purpose of reference, are not part of the agreement of the
Parties and shall not in any way affect the meaning or interpretation of this
Agreement.
17. PARTIAL INVALIDITY. If any provision of this Agreement shall be
invalid or unenforceable, in whole or in part, or as applied to any
circumstance, under the laws of any jurisdiction which may govern for such
purpose, then such provision shall be deemed to be modified or restricted to
the extent and in the manner necessary to render the same valid and
enforceable, either generally or as applied to such circumstance, or shall be
deemed excised from this Agreement, as the case may require, and this
Agreement shall be construed and enforced to the maximum extent permitted by
law as if such provision had been originally incorporated herein as so
modified or restricted, or as if such provision had not been originally
incorporated herein, as the case may be.
18. OPPORTUNITY TO EMPLOY COUNSEL. Employee hereby acknowledges
receipt of this Agreement prior to his employment with Employer and that he
has had ample time and opportunity to employ legal counsel of his choice
concerning the terms and conditions of this Agreement and his employment with
Employer.
[signature page follows]
5
<PAGE>
IN WITNESS WHEREOF, this Employment Agreement has been duly executed by
and on behalf of the parties hereto as of the day and year first above
written.
COLLEGIS, INC.
By: /s/ Robert C. Bowers
------------------------------
Name: Robert C. Bowers
----------------------------
Title: EVP
---------------------------
/s/ Dr. William H. Graves
------------------------------
Dr. William H. Graves
<PAGE>
EXHIBIT A
FORM OF STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "AGREEMENT"), is made and entered into
as of this 1st day of November, 1997, by and between COLLEGIS, Inc., a
Delaware corporation (the "COMPANY"), and William H. Graves (the "HOLDER").
1. BACKGROUND. The Company and Holder have entered into that certain
Employment Agreement dated the date hereof (as amended, restated,
supplemented or otherwise modified from time to time, the "EMPLOYMENT
AGREEMENT") pursuant to which Holder has accepted employment with the
Company. As a condition precedent to such employment, the Company and Holder
have agreed to enter into this Agreement. On June 19, 1996, the Board of
Directors of the Company (the "BOARD") adopted and approved the Company's
1996 Stock Option Plan (the "PLAN"), which has subsequently been amended by
the Board in order to, among other things, (i) increase the number of shares
that may be granted thereunder from 1,252,768 to 1,692,336 (in addition to
300,000 carry-over options) and (ii) provide for the Company's authority, at
the Board's discretion, to issue stock options thereunder to employees of the
Company. This Agreement (a) is being entered into as of the date hereof,
which is the date on which the Company granted a stock option (the "STOCK
OPTION") to the Holder pursuant to the terms and conditions of the Employment
Agreement and (b) documents the relative rights, privileges, powers, duties,
responsibilities and obligations of the parties hereto with respect to the
Stock Option. The Stock Option is issued, and this Agreement is entered
into, in accordance with the terms of the Plan and the provisions of the
Plan, including, but not limited to, Sections 13, 14, 15, 16, 17, 18, 19 and
20 thereof, are hereby incorporated in this Agreement by reference. The
Stock Option is not intended to be an Incentive Stock Option (as defined in
the Plan).
2. DEFINITIONS. In addition to the other terms defined herein, when
used herein, the following capitalized terms shall have the following
meanings:
"BUSINESS" means the business of providing information technology
outsourcing services, facilities management services, Internet-Registered
Trademark- access, distance learning services, systems integration, consulting
and professional services relating to information technology to the
B-1
<PAGE>
administrative and academic departments of colleges, community colleges,
medical institutes (other than hospitals in their health care providing
capacity), graduate schools, universities and other institutions of higher
learning and any other business in which the Company or any Subsidiary may
engage while the Holder is employed by, or has a relationship with, the
Company or any Subsidiary.
"EMPLOYMENT AGREEMENT" has the meaning set forth in SECTION 1 hereof.
"EXERCISE PRICE" has the meaning set forth in SECTION 3.1 hereof.
"EXPIRATION DATE" has the meaning set forth in SECTION 3.2 hereof.
"FUNDAMENTAL CHANGE" means (a) a sale or transfer of all or
substantially all the assets of the Company on a consolidated basis in any
transaction or series of related transactions (other than sales in the
ordinary course of business), or (b) any merger, consolidation or
reorganization to which the Company is a party, except for a merger,
consolidation or reorganization in which, after giving effect to such merger,
consolidation or reorganization, the holders of the Company's outstanding
capital stock (on a fully-diluted basis) immediately prior to the merger,
consolidation or reorganization will own immediately following the merger,
consolidation or reorganization the outstanding capital stock (on a fully
diluted basis) of the surviving or resulting corporation or entity having the
voting power (under ordinary circumstances) to elect a majority of the board
of directors of the surviving or resulting corporation or entity.
"INDEPENDENT AUDITOR" has the meaning set forth in SECTION 7.2(d)
hereof.
"IPO" means the Company's first underwritten public offering of its
capital stock pursuant to a registration statement declared effective under
the Securities Act.
"LIQUIDATION" means the dissolution, liquidation or winding-up of
the Company, whether voluntary or involuntary.
"MARKET VALUE" has the meaning set forth in SECTION 7.2(d) hereof.
"NEW INSTITUTE" means a not-for-profit corporation that may be
formed by the Company to engage in research and development activities in
connection with the innovation, use and application of distributed learning
technologies and resources.
"OPTION SHARES" means 100,000 shares of Series B Common Stock, subject
to adjustment as set forth in SECTION 3.7 hereof; PROVIDED, HOWEVER, that upon
the closing of an IPO, the Stock Option shall be exercisable for the same number
of shares of Series C Common Stock as the number of shares of Series B Common
Stock that would have been issuable upon exercise of the
B-2
<PAGE>
Stock Option if an IPO had not occurred and all references herein to Series B
Common Stock shall thereafter be deemed to be references to Series C Common
Stock.
"ORIGINAL COST" means, with respect to each Purchased Option Share,
the price per share actually paid by the Holder upon the purchase of such
Purchased Option Share, such amount to be adjusted proportionately in the
event the Purchased Option Shares are subdivided into a greater number
(whether by stock split, stock dividend or otherwise) or combined into a
lesser number (whether by reverse stock split or otherwise) at any time or
from time to time after the purchase of such Purchased Option Shares.
"PERMITTED TRANSFEREES" has the meaning set forth in SECTION 7.3
hereof.
"PERSON" means any individual, corporation, partnership, limited
liability company, firm, joint venture, association, joint-stock company,
trust, unincorporated organization, governmental or regulatory body or other
entity.
"PURCHASED OPTION SHARES" means (a) the Option Shares purchased by
the Holder hereunder, (b) any shares of Series C Common Stock issued upon
conversion of any Purchased Option Shares and (c) any shares of capital stock
of the Company issued as a dividend or other distribution with respect to or
in replacement of other Purchased Option Shares (including, but not limited
to, any shares of capital stock of the Company issued in connection with a
stock dividend, stock split, reverse stock split or similar event).
"REPRESENTATIVE" means the executor(s) or administrator(s) of the
Holder's estate or, if the Holder is incompetent, the Holder's guardian(s).
"RESTRICTED PERIOD" means the period commencing on the date hereof
and ending eighteen (18) months after the termination of the Employment
Agreement.
"RESTRICTIVE COVENANTS" has the meaning set forth in SECTION 6.6
hereof.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or
any similar federal law then in force.
"SERIES B COMMON STOCK" means the Series B Common Stock, par value
$0.01 per share, of the Company.
"SERIES C COMMON STOCK" means the Series C Common Stock, par value
$0.01 per share, of the Company.
"STOCK OPTION" has the meaning set forth in SECTION 1 hereof.
B-3
<PAGE>
"STOCK SALE" means any sale or issuance of shares of the capital
stock of the Company by the holders thereof or the Company, if after giving
effect to such sale or issuance the holders of the Company's capital stock
(on a fully diluted basis) prior to such sale or issuance do not own
immediately following such sale or issuance outstanding capital stock of the
Company (on a fully diluted basis) having the voting power (under ordinary
circumstances) to elect a majority of the Board.
"SUBSIDIARY" means any corporation, association or other business
entity of which securities or other ownership interest representing more than
fifty percent (50%) of the ordinary voting power of such corporation,
association or other business entity are, at the time as of which any
determination is being made, owned or controlled by the Company or one or
more Subsidiaries of the Company or the Company and one or more Subsidiaries
of the Company.
"TERMINATION DATE" means the date on which the Employment Agreement
terminates for any reason.
"UNPURCHASED OPTION SHARES" means all Option Shares (whether or not
available for purchase by the Holder pursuant to SECTION 3.3 hereof) which
have not yet been purchased pursuant to this Agreement.
3. TERMS OF STOCK OPTION.
3.1 GRANT OF THE OPTION. Upon the terms and conditions
hereinafter set forth, the Company hereby grants to the Holder an option to
purchase the Option Shares for a purchase price of $2.75 per share, subject
to adjustment as set forth in SECTION 3.7 hereof (the "EXERCISE PRICE").
3.2 PROCEDURES FOR EXERCISE. Subject to the Stock Option
becoming vested and exercisable pursuant to SECTION 3.3 hereof, the Holder,
during his lifetime, may exercise the Stock Option, in whole or in part, at
any time prior to the earlier of (a) 5:00 p.m. (Orlando time) on October 31,
2004 if such date falls on a day on which national banks are open for
business or, if such date falls on a day which is not a business day, on the
next succeeding business day (the "EXPIRATION DATE") and (b) the Stock
Option's earlier termination pursuant to the terms set forth herein. In
order to exercise the Stock Option, the Holder (or, in the event of the
Holder's death or permanent disability, his Representative) shall give to the
Company a written notice specifying the number of Option Shares to be
purchased, accompanied by payment in full of the entire Exercise Price for
such Option Shares in cash or other immediately available funds payable to
the order of the Company.
B-4
<PAGE>
3.3 VESTING SCHEDULE. One-fourth of the Option Shares shall
become vested and exercisable on each of the first, second, third and fourth
anniversaries of the date hereof; PROVIDED, however, that if a Fundamental
Change or Stock Sale occurs at any time prior to the earlier of the
Expiration Date or the termination of the Stock Option pursuant to the terms
hereof, the Stock Option will become fully vested and exercisable for all of
the Option Shares immediately prior to the consummation of such Fundamental
Change or Stock Sale, as the case may be; PROVIDED further, however, that if
the Holder's employment with the Company is terminated pursuant to Section
8(a) or (b) of the Employment Agreement at any time prior to the earlier of
the Expiration Date or the termination of the Stock Option pursuant to the
terms hereof, the Stock Option shall become fully vested and exercisable for
all of the Option Shares on the Termination Date.
3.4 FRACTIONAL SHARES. Fractional shares will not be issued upon
the exercise of the Stock Option but in any case where the Holder would,
except for the provisions of this SECTION 3.4, be entitled under the terms of
this Agreement to receive a fractional share upon the complete exercise of
the Stock Option, the Company will, upon the exercise of the Stock Option for
the largest number of whole shares then called for, pay a sum in cash equal
to the excess of the value of such fractional share (determined in such
reasonable manner and in good faith by the Board or an authorized committee
thereof) over the proportional part of the Exercise Price represented by such
fractional share.
3.5 TERMINATION EVENTS. (a) If the Holder's employment with the
Company terminates pursuant to Section 8(a) or (b) of the Employment
Agreement while the Stock Option is outstanding and unexercised, in whole or
in part, the Stock Option shall terminate and cease to be exercisable with
respect to any Unpurchased Option Shares on the first anniversary of the
Termination Date.
(b) If the Holder's employment with the Company terminates
for any reason (other than pursuant to Section 8(a) or (b) of the Employment
Agreement) while the Stock Option is outstanding and unexercised, in whole or
in part, the Stock Option shall terminate and cease to be exercisable (i)
with respect to any Unpurchased Option Shares which have not become vested
and exercisable hereunder as of such Termination Date, and (ii) with respect
to any Unpurchased Option Shares which have become vested and exercisable
hereunder as of the Termination Date, on the first anniversary of such
Termination Date.
B-5
<PAGE>
(c) In the event of a Liquidation, the Stock Option shall
terminate for all Unpurchased Option Shares at the close of business on the
business day on which banks are open for business immediately prior to the
effective date of such Liquidation. Upon the consummation of a Fundamental
Change or a Stock Sale, the Stock Option shall terminate for all Unpurchased
Option Shares.
(d) The Company shall use its reasonable best efforts to give
notice to the Holder not less than fifteen (15) days prior to the
consummation of a Fundamental Change, a Stock Sale or a Liquidation.
(e) Notwithstanding subsections (a), (b), (c) or (d) above,
if the Holder (or a Permitted Transferee, if applicable) violates SECTIONS 6,
7 or 8 hereof, the Stock Option shall, at the option of the Board, terminate
and cease to be exercisable as of and after the time of such violation.
3.6 CERTAIN RULES For purposes of this Agreement, (a) employment
of the Holder by any Subsidiary shall be deemed employment by the Company,
(b) a transfer of the Holder's employment, without any intervening period,
from the Company to any Subsidiary or vice versa, from such Subsidiary to
another, shall not be deemed a termination of the Holder's employment and (c)
the term "employment" as used in this Agreement shall also be deemed to
include the Company's engagement of the Holder as a director, officer,
consultant, independent contractor or otherwise. Nothing contained in the
Plan or this Agreement shall confer upon the Holder any right with respect to
the continuation of the Holder's employment by, or relationship with, the
Company or any Subsidiary or interfere in any way with the right of the
Company or any Subsidiary at any time to terminate such employment or
relationship or to increase or decrease the compensation of the Holder.
3.7 ANTIDILUTION PROVISIONS. In the event of (a) any stock
dividend, stock split, combination, or exchange of shares of Series B Common
Stock or any recapitalization or similar change in capitalization affecting
shares of Series B Common Stock or (b) the closing of an IPO and the related
conversion of Series B Common Stock into Series C Common Stock, the number and
kind of shares that are subject to the Stock Option and the Exercise Price may
be proportionately and appropriately adjusted, without any change in the
aggregate Exercise Price to be paid for all Option Shares upon full exercise of
the Stock Option. Any adjustments under this SECTION 3.7 will
B-6
<PAGE>
be made by the Board, whose determination as to what adjustments, if any,
will be made and the extent thereof will be final, binding and conclusive.
4. REPRESENTATIONS OF THE HOLDER. The Holder represents and warrants
to the Company as follows:
(a) the Holder will acquire the Option Shares, to the extent that
the Stock Option becomes exercisable pursuant to the terms hereof and the
Holder exercises the Stock Option, in whole or in part, solely for investment
for the Holder's own account and not with a view to the resale or
distribution of all or any part thereof;
(b) the Holder understands that (i) the Holder may purchase the
Option Shares only to the extent that the Stock Option becomes exercisable
pursuant to SECTION 3.3 hereof, (ii) it is possible that the Stock Option
will not become exercisable for any of the Option Shares, (iii) none of the
Company or any Subsidiary is obligated to continue the Holder's employment
other than pursuant to the terms and conditions of the Employment Agreement,
and (iv) none of the Option Shares have been registered under the Securities
Act of 1933, as amended (the "SECURITIES ACT"), and the Holder may have to
hold the Option Shares, to the extent they become Purchased Option Shares
hereunder, for an indefinite period unless the offer and sale thereof is
subsequently registered under the Securities Act (and the Company is under no
obligation to so register any Purchased Option Shares) or an exemption is
available therefrom; and
(c) the Holder's permanent residence is at the address specified
on the signature page hereof.
5. REPRESENTATIONS OF THE COMPANY. The Company represents and
warrants to the Holder that (a) the Company is a corporation validly
existing, and in good standing under the laws of the State of Delaware, (b)
this Agreement has been duly authorized, executed, and delivered by the
Company and has received all necessary approvals from the Company's existing
shareholders and the Board, (c) the Company has the requisite power and
authority to issue the Option Shares and to perform its obligations under
this Agreement, and (d) the execution, delivery, and performance of this
Agreement by the Company do not and will not violate or result in a default
under the Company's certificate of incorporation or by-laws or any material
agreement or instrument to which the Company is a party or by which it or any
of its property is bound.
B-7
<PAGE>
6. RESTRICTIVE COVENANTS.
6.1 NON-COMPETE. During the Restricted Period, the Holder shall
not, in the United States or any other place where the Company, New Institute
or any Subsidiary, whether such Subsidiary is now existing or hereafter
formed, conducts the Business or any part thereof, directly or indirectly,
(i) engage in the Business (other than on behalf of and at the written
request of the Company and or any Subsidiary); (ii) enter the employ of, or
render any services to, any Person (other than the Company or any Subsidiary)
engaged in the Business; or (iii) become interested in any such person in any
capacity, including, without limitation, as an individual, partner, member,
manager, shareholder, creditor, officer, director, principal, agent or
trustee; PROVIDED, HOWEVER, that, the foregoing notwithstanding, the Holder
may own, directly or indirectly, solely as an investment, securities of any
publicly-traded person if the Holder is not a controlling person of, or a
member of a group which controls, such person and the Holder does not,
directly or indirectly, own 5 % or more of any class of securities of such
person. Nothing contained herein shall prevent Holder from being employed
by, teaching at or providing consulting services (individually and not as an
employee, partner or owner of a professional consulting company) to, any
entity so long as (i) Holder does not thereby or in connection therewith
violate the terms of subsections 6.2, 6.3, 6.4 or 6.5 hereof and (ii) either
(A) such entity is not providing or making available services or products
similar to or competitive with services or products included in the Business
to any third party in exchange for payment in any form or (B) such
employment, teaching or consulting services are not competitive with services
included in the Business. Without limiting the foregoing, nothing contained
herein shall prevent Holder from participating in any symposiums, conferences
or similar forums (collectively, "CONFERENCES") pertaining to the Business so
long as (i) Holder does not thereby or in connection therewith violate the
terms of subsections 6.2, 6.3, 6.4 or 6.5 hereof, (ii) Holder's affiliation
with the Company and New Institute is disclosed in any program literature or
materials relating to the forum in a manner reasonably satisfactory to the
Company, (iii) the Conferences are not sponsored or promoted by any entity
that is a competitor of the Company or New Institute, (iv) such participation
does not materially interfere with Holder's ability to perform his duties
pursuant to the this Agreement and (v) Holder's compensation for such
participation is limited to the reimbursement of his incidental expenses and
an honorarium or fee that is reasonable and customary for events of such kind.
B-8
<PAGE>
6.2 CONFIDENTIAL INFORMATION. At all times during and after the
Restricted Period, the Holder shall keep secret and retain in strictest
confidence, and shall not use for the benefit of himself or others, or
disclose, except as may be required in connection with any judicial or
administrative proceeding or inquiry, to any person or entity, other than an
officer or director of the Company (or of any Subsidiary) or a person or
entity to whom disclosure is reasonably necessary or appropriate in
connection with the performance by the Holder of the Holder's duties as an
employee or director of the Company (or of New Institute or any Subsidiary)
any Confidential Information (as hereinafter defined) obtained by the Holder
while in the employ of, or providing services for, the Company (or New
Institute or any Subsidiary thereof) or any predecessor of any such entity
with respect to the Business or its assets. For purposes of this Agreement,
"CONFIDENTIAL INFORMATION" includes, without limitation, information relating
to the properties, accounts, books, records, suppliers, intellectual
property, trade secrets, contracts, business relationship and service models,
pricing policies, methods, algorithms and relation information, operational
methods, marketing plans or strategies, business acquisition plans and new
personnel acquisition plans of the Company (or of New Institute or any
Subsidiary) or any predecessor of any such entity; PROVIDED, HOWEVER, that
Confidential Information shall not include any information known or available
to the public (other than as a result of unauthorized disclosure by the
Holder or any of his agents or representatives).
6.3 PROPERTY OF THE BUSINESS. All memoranda, notes, lists,
records and other documents or papers (and all copies thereof), including
such items stored in computer memories, or microfiche or by any other means,
made or compiled by or on behalf of the Holder, or made available to the
Holder relating to the Business, are and shall be the Company's property and
shall be delivered to the Company promptly upon the termination of Employment
Agreement or at any other time on request.
6.4 EMPLOYEES OF THE BUSINESS. During the Restricted Period, the
Holder shall not, directly or indirectly, hire or solicit (other than on
behalf of the Company and in accordance with this Agreement) any employee of
the Company, New Institute or any Subsidiary (or any person who was an
employee thereof on or after the date hereof) or encourage any such employee
to leave such employment.
B-9
<PAGE>
6.5 CONSULTANTS OF THE BUSINESS. During the Restricted Period,
the Holder shall not, directly or indirectly, hire or solicit (other than on
behalf of the Company) any consultant then under contract with or otherwise
engaged by the Company, New Institute or any Subsidiary unless the engagement
is unrelated to the Business or encourage such consultant to terminate such
relationship.
6.6 RIGHTS AND REMEDIES UPON BREACH. If the Holder breaches, or
threatens to commit a breach of, any of the provisions of this SECTION 6 (the
"RESTRICTIVE COVENANTS"), the Company shall have the following rights and
remedies, each of which shall be independent of the others and severally
enforceable, and each of which is in addition to, and not in lieu of, any
other rights and remedies available to the Company under law or in equity:
6.6.1 SPECIFIC PERFORMANCE. The right and remedy to
have the Restrictive Covenants specifically enforced by any
court of competent jurisdiction, it being agreed that any
breach or threatened breach of the Restrictive Covenants would
cause irreparable injury to the Company and that money damages
would not provide an adequate remedy to the Company.
6.6.2 ACCOUNTING. The right and remedy to require the
Holder to account for and pay over to the Company, all
compensation, monies, accruals, increments and other benefits
derived or received by the Holder as the result of any
transaction constituting a breach of the Restrictive Covenants.
6.6.3 DAMAGES. The right and remedy to require the
Holder to reimburse the Company for all reasonable
out-of-pocket costs and expenses (including, but not limited
to, attorneys' and accountants' fees and disbursements)
incurred by the Company in connection with, or with respect to,
such breach or breaches. In the event a court of competent
jurisdiction ultimately determines that the Holder has not
breached the Restrictive Covenants, the Company will reimburse
the Holder for all reasonable out-of-pocket costs and expenses
(including, but not limited to, reasonable Attorneys' and
accountants' fees and disbursements) incurred by the Holder
B-10
<PAGE>
in connection with, or with respect to, the defense of any such
alleged breach or breaches.
6.7 SEVERABILITY OF COVENANTS. The Holder acknowledges and
agrees that the Restrictive Covenants are reasonable and valid in duration
and geographical scope and in all other respects. If any court determines
that any of the Restrictive Covenants, or any part thereof, is invalid or
unenforceable, the remainder of the Restrictive Covenants shall not be
affected thereby and shall be given full effect without regard to the invalid
portions.
6.8 REFORMATION. If any court determines that any of the
Restrictive Covenants, or any part thereof, is unenforceable because of the
duration or geographical scope of such provisions, such court shall have the
power to reform the duration or scope of such provision, as the case may be,
and such provision shall then be enforceable as reformed.
6.9 TERMINATION OF RESTRICTIVE COVENANTS. The provisions of this
SECTION 6 shall survive (a) the exercise or expiration of the Stock Option
and (b) the termination of the Employment Agreement.
7. RESTRICTIONS ON DISPOSITION OF PURCHASED OPTION SHARES.
7.1 DISPOSITION OF PURCHASED-OPTION SHARES. Except (a) in
connection with a Fundamental Change or a Stock Sale or (b) in compliance
with SECTION 7.2 of this Agreement or as permitted by SECTION 7.3 of this
Agreement, the Holder will not transfer, sell, convey, exchange or otherwise
dispose of (herein referred to as a "disposition" or "to dispose of") any
Purchased Option Shares.
7.2 REPURCHASE OPTION.(a) In the event the Employment Agreement
is terminated for any reason, the Purchased Option Shares (including any
Purchased Option Shares then held by any Permitted Transferee) will be
subject to repurchase pursuant to the terms and conditions set forth in this
SECTION 7.2 (the "REPURCHASE OPTION").
(b) If the Employment Agreement is terminated by the Company
for "Cause" (as defined in the Employment Agreement), the purchase price per
share for each Purchased Option Share (the "REPURCHASE PRICE") will be equal
to the lesser of (A) the Original Cost and (B) the Market Value.
(c) If the Employment Agreement is terminated for any reason
other than for Cause, the Repurchase Price will be equal to the Market Value.
B-11
<PAGE>
(d) For purposes of this Agreement, "MARKET VALUE" means,
with respect to each Purchase Option Share, such Purchase Option Share's fair
value determined pursuant to this SECTION 7.2. Within thirty (30) days after
the Termination Date, the Board shall determine the fair value of each
Purchased Option Share and notify the Holder thereof (the "VALUATION
NOTICE"). If the Holder does not notify the Company, in writing, of the
Holder's objection to such fair value within fifteen (15) days of the date of
the Valuation Notice, then such fair value, as determined by the Board, shall
be the Market Value. If the Holder notifies the Company, in writing, of the
Holder's objection to such fair value determination within fifteen (15) days
of the date of the Valuation Notice, then the Company and the Holder will
each select an independent auditor of national standing (an "INDEPENDENT
AUDITOR") within ten (10) days after the Company's receipt of such written
objection and such Independent Auditors will select a third Independent
Auditor within ten (10) days after their selection, which third Independent
Auditor must agree to determine the fair value of each Purchased Option
Share. The fair value as determined by the third Independent Auditor shall
be the Market Value. The Holder will pay one hundred percent (100%) of the
fees and expenses for the Independent Auditors if the fair value, as
ultimately determined by the third Independent Auditor, is equal to, or
greater than, ninety percent (90%) of the fair value determined by the Board;
otherwise, the Company will pay one hundred percent (100%) of such fees and
expenses. The Market Value of each Purchased Option Share, as ultimately
determined pursuant to this SECTION 7.2, shall be conclusive and binding on
the parties hereto.
(e) The Company may elect to purchase all or any portion of
the Purchased Option Shares subject to repurchase by delivering written
notice (the "REPURCHASE NOTICE") to the Holder within ninety (90) days after
the later of (i) the Termination Date and (ii) the date on which the Holder
purchased the Purchased Option Shares. The Repurchase Notice will set forth
the number of Purchased Option Shares to be acquired from the Holder and the
time and place for the closing of the transaction, which will be within
thirty (30) days after the date of the Repurchase Notice. The Company will
pay for the Purchased Option Shares to be purchased pursuant to the
Repurchase Option by delivery of a check or wire transfer in the aggregate
amount of the total purchase price. The Company will be entitled to receive
customary representations and warranties from the Holder regarding ownership
of the Purchased Option Shares.
B-12
<PAGE>
(f) In the event the Company does not deliver the Repurchase
Notice to the Holder in accordance with SECTION 7.2(e), the provisions of
this SECTION 7.2 shall terminate and be of no further force or effect.
7.3 PERMITTED TRANSFERS. The Holder may transfer Purchased
Option Shares (a) in connection with a Fundamental Change or a Stock Sale or
(b) to any Permitted Transferee who agrees in a writing delivered to the
Company (i) that, upon termination of the Employment Agreement, such
Purchased Option Shares shall be subject to, and such Permitted Transferee
shall be bound by, the Repurchase Option in the same manner as the Holder and
(ii) to otherwise be bound by the terms of this Agreement in the same manner
as the Holder as if an original party hereto. For purposes of this
Agreement, "PERMITTED TRANSFEREES" means the spouse or lineal descendants of
the Holder; any trust for the benefit of the Holder or the benefit of the
spouse or lineal descendants of the Holder; any corporation, limited
liability company, or partnership in which the Holder, the spouse and the
lineal descendants of the Holder are the direct and beneficial owners of all
of the equity interests (provided the Holder, spouse and lineal descendants
agree in writing to remain the direct and beneficial owners of all such
equity interests); and the personal representative of the Holder upon the
Holder's death for purposes of administration of the Holder's estate or upon
the Holder's incompetency for purposes of the protection and management of
the assets of the Holder.
7.4 PLEDGES. The Holder will not pledge or otherwise grant a
security interest in any Purchased Option Shares without the Company's prior
written consent.
7.5 LEGENDS. (a) The Company will cause each certificate or other
instrument representing Purchased Option Shares to be stamped or otherwise
imprinted, throughout the term of the applicability of this SECTION 7, with a
legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AND REPURCHASE RIGHTS SET FORTH IN
A CERTAIN STOCK OPTION AGREEMENT OF COLLEGIS, INC. (THE "COMPANY")
DATED AS OF NOVEMBER 1, 1997, A COPY OF WHICH IS AVAILABLE UPON
REQUEST AT THE PRINCIPAL OFFICE OF THE COMPANY."
(b) Until (i) the Purchased Option Shares represented by such
certificate are effectively registered under the Securities Act (and the
Company, absent an express written
B-13
<PAGE>
agreement to the contrary, is under no obligation at any time to so register
any of such Purchased Option Shares), or (ii) the holder of such securities
delivers to the Company a written opinion of counsel, which counsel and
opinion are reasonably acceptable to the Company, to the effect that such
legend is no longer necessary, the Company shall be entitled to cause each
certificate representing Purchased Option Shares to be stamped or otherwise
imprinted with a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THUS
MAY NOT BE TRANSFERRED UNLESS SO REGISTERED OR UNLESS AN EXEMPTION
FROM REGISTRATION IS AVAILABLE."'
7.6 TERMINATION OF RESTRICTIONS ON TRANSFERS OF PURCHASED OPTION
SHARES. The provisions of this SECTION 7 shall survive (a) the exercise or
expiration of the Stock Option and (b) the termination of the Employment
Agreement; PROVIDED, HOWEVER, that the provisions of SECTION 7.2 shall
terminate in accordance with their terms and all of the provisions of this
SECTION 7 shall terminate and be of no further force or effect immediately
upon the consummation of an IPO, a Stock Sale or a Fundamental Change.
8. MISCELLANEOUS.
8.1 SUCCESSORS AND ASSIGNS; BINDING AGREEMENT.
Subject to the provisions of the Plan and SECTION 8.2 hereof, this
Agreement shall inure to the benefit of, be enforceable by and binding upon,
the respective successors and assigns of the Company and the Holder and their
respective successors, assigns, trustees, custodians, personal or legal
representatives, executors, administrators, heirs, distributees, devisees and
legatees.
8.2 LIMITATION ON ALIENATION. Except as expressly set forth
herein, the Holder shall not dispose of the Stock Option and rights and
privileges set forth herein, the Option Shares and the Purchased Option
Shares without the prior written consent of the Company.
8.3 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal law of, and not the law of
conflicts of, the State of Delaware applicable to contracts entered into and
to be wholly performed in Delaware.
8.4 WAIVERS. The waiver by either party of any right hereunder or
of any failure to perform or breach by the other party shall not be deemed a
waiver of any other right hereunder
B-14
<PAGE>
or of any other failure or breach by the other party, whether of the same or
a similar nature or otherwise. No waiver shall be deemed to have occurred
unless set forth in a writing executed by or on behalf of the waiving party.
No such written waiver shall be deemed a continuing waiver unless
specifically stated therein, and each such waiver shall operate only as to
the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
8.5 NOTICES. All notices and communications that are required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given when delivered personally or upon dispatch by any form of mail
or private express carrier providing for receipted delivery, postage or charges
prepaid, as follows:
If to the Company, to:
COLLEGIS, Inc.
2300 Maitland Center Parkway, Suite 340
Maitland, Florida 32751
Attention: Mr. Robert Foley
If to the Holder, to the address set forth on the signature page hereto; or
to such other address as may be specified in a confirming notice given by one
party to the other
8.6 SEVERABILITY. If for any reason any term or provision of this
Agreement is held to be invalid or unenforceable, all other valid terms and
provisions hereof shall remain in full force and effect, and all of the terms
and provisions of this Agreement shall be deemed to be severable in nature.
8.7 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
8.8 AMENDMENT. This Agreement may be amended or canceled by mutual
agreement of the parties in writing without the consent of any other person or
entity and, so long as the Holder lives, no person or entity, other than the
parties, shall have any rights under or interest in this Agreement or the
subject matter hereof.
8.9 ENTIRE AGREEMENT. This Agreement and the Plan constitute the
entire agreement between the parties, and supersedes all prior oral or written
understandings between the parties, relating to the Option Shares and the
Purchased Option Shares. The Holder acknowledges
B-15
<PAGE>
that he has received a copy of the Plan and in the event that any provision
of this Agreement is inconsistent with any provision of the Plan, the
provisions of the Plan shall be controlling.
8.10 EXHIBITS AND SCHEDULES. All exhibits and schedules hereto are
an integral part of this Agreement.
8.11 NO ATTACHMENT. Except as required by law, no right to receive
Option Shares under this Agreement shall be subject to anticipation,
commutation, alienation, sale, assignment, encumbrance, charge, pledge, or
hypothecation or to execution, attachment, levy, or similar process or
assignment by operation of law, and any attempt, voluntary or involuntary, to
effect any such action shall be null, void and of no effect.
8.12 NO RIGHTS AS SHAREHOLDER. The Holder will not have any of the
rights of a Shareholder with respect to the Option Shares except to the extent
that such Option Shares are actually issued pursuant to exercise of the Stock
Option. The existence of the Stock Option shall not affect in any way the right
or power of the Company or its shareholders to make or authorize any or all
adjustments, recapitalizations, reorganizations, or other changes to the
Company's capital structure or its business, or to effect any sale, merger or
consolidation of the Company, nor create any preemptive right on behalf of the
holder of the Stock Option to acquire any capital stock of the Company or
securities or indebtedness convertible into or exchangeable for capital stock of
the Company.
[signature page follows]
B-16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Stock Option Agreement as of the date first above written.
COLLEGIS, INC.
By: /s/ Robert C. Bowers
----------------------------
Name: Robert C. Bowers
--------------------------
Title: Chief Financial Officer
-------------------------
/s/ William H. Graves
-------------------------------
Dr. William H. Graves
Address:
P.O. Box 4696
Chapel Hills, NC 27515
B-17
<PAGE>
Exhibit 10.5
INCENTIVE, PUT AND NONCOMPETITION AGREEMENT
THIS INCENTIVE, PUT AND NONCOMPETITION AGREEMENT (this "Agreement"), dated
as of April 11, 1996, between Technology Specialists, Inc., a Pennsylvania
corporation (the "Company"), and Robert Foley, Jr. (the "Executive"), an
employee and security holder of the Company.
RECITAL
In connection with the TSI Stock Purchase Agreement and the Redemption and
Termination Agreement, and in order to induce the Executive to remain in the
employ of the Company, the Company and the Executive desire to enter into this
Agreement.
AGREEMENTS
In consideration of the recitals and the mutual promises, covenants and
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound hereby, hereby agree as follows:
1. DEFINITIONS. In addition to the other terms defined herein, the
following capitalized terms shall have the following meanings:
"Aggregate Exercise Price" means the aggregate amount that would be
paid by the Executive upon the exercise of all Options held by the Executive on
the Triggering Sale Date, immediately prior to the consummation of the
Triggering Sale and the Put, assuming the exercise price of each Option so held
by the Executive were paid to the Company in full in cash.
"Aggregate Put Purchase Price" means an amount equal to the product of
(a) the Per Share Put Purchase Price, TIMES (b) the aggregate number of
Executive's Shares purchased by the Company pursuant to Section 3 hereof.
"Company Business" means (a) the business of providing computer
outsourcing,
<PAGE>
facilities management services, Internet* access, distance learning services,
systems integration, consulting and professional services relating to
information technology to the administrative and academic departments of
colleges, community colleges, medical institutes (other than hospitals in
their health care providing capacity), graduate schools, universities and
other institutions of higher learning and (b) any other business in which the
Company, its Parent or any Subsidiary may engage while the Executive is
employed by, or has a relationship with, the Company or any Subsidiary.
"Confidential Information" has the meaning set forth in Section 4.2
hereof.
"Executive's Shares" means (i) the Options and (ii) any shares of
Series A Voting Common Stock issued upon exercise of the Options.
"Fundamental Change" means (a) a sale or transfer of all or
substantially all the assets of the Company on a consolidated basis in any
transaction or series of related transactions (other than sales in the ordinary
course of business), or (b) any merger, consolidation or reorganization to which
the Company is a party, except for a merger, consolidation or reorganization in
which, after giving effect to such merger, consolidation or reorganization, the
holders of the Company's outstanding capital stock (on a fully-diluted basis)
immediately prior to the merger, consolidation or reorganization will own
immediately following the merger, consolidation or reorganization the
outstanding capital stock (on a fully diluted basis) of the surviving or
resulting corporation or entity having the voting power (under ordinary
circumstances) to elect a majority of the board of directors of the surviving or
resulting corporation or entity.
"IPO" means the Company's first underwritten public offering of its
capital stock pursuant to a registration statement declared effective under the
Securities Act.
"IPO Bonus" has the meaning set forth in Section 2 hereof.
2
<PAGE>
"IPO Date" means the date on which the closing of the IPO actually
occurs.
"Notice" has the meaning set forth in Section 3 hereof.
"Options" means the options held by the Executive on the date hereof
to purchase 75,000 shares of Series A Voting Common Stock.
"Parent" has the meaning set forth in Section 424(e) of the Internal
Revenue Code of 1986, as amended or replaced from time to time.
"Person" means a natural person, partnership, corporation, limited
liability company, association, joint stock company, trust, estate, joint
venture, unincorporated organization or other entity, or a governmental entity
or any department, agency or political subdivision thereof.
"Per Share Put Purchase Price" means an amount equal to the quotient
of (a)(i) the Triggering Sale Base Price, MINUS (ii) the Aggregate Exercise
Price, divided by (b) 75,000, such amount to be adjusted proportionately in the
event the Executive's Shares are subdivided into a greater number (whether by
stock split, stock dividend or otherwise) or combined into a lesser number
(whether by reverse stock split or otherwise) at any time or from time to time
after the date hereof.
"Put" means the right to sell Executive's Shares to the Company
pursuant to, and as set forth in, Section 3 hereof.
"Put Election" has the meaning set forth in Section 3(b) hereof.
"Redemption and Termination Agreement" means that certain Stock
Redemption and Option Termination Agreement, dated as of March 28, 1996, by and
between the Company and certain persons and entities.
"Restricted Period" means the period commencing on the date hereof and
ending
3
<PAGE>
twenty-four (24) months after the termination of the Executive's employment
with the Company for any reason.
"Restrictive Covenants" has the meaning set forth in Section 4.6
hereof.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal law then in force.
"Series A Voting Common Stock" means the Series A Voting Common Stock,
par value $0.01 per share, of the Company.
"Stock Sale" means any sale, issuance or redemption of shares of the
capital stock of the Company by the holders thereof or by the Company (including
an IPO), other than the transactions contemplated by the TSI Stock Purchase
Agreement and the Redemption and Termination Agreement, if, after giving effect
to such sale, issuance or redemption, the holders of the Company's capital stock
(on a fully diluted basis) prior to such sale, issuance or redemption do not own
immediately following such sale, issuance or redemption outstanding capital
stock of the Company (on a fully diluted basis) having the voting power (under
ordinary circumstances) to elect a majority of the Board of Directors of the
Company; PROVIDED, HOWEVER, that a "Stock Sale" shall not include, or be deemed
to include, the transfer of shares of the capital stock of the Company on a
dissolution, winding up or liquidation of a shareholder of the Company or the
conversion of shares of capital stock of the Company into other shares of
capital stock of the Company.
"Subsidiary" means any corporation, association or other business
entity of which securities or other ownership interest representing more than
fifty percent (50%) of the ordinary voting power of such corporation,
association or other business entity are, at the time as of which any
determination is being made, owned or controlled (a) by the Company or one or
more
4
<PAGE>
Subsidiaries of the Company or (b) by the Company and one or more
Subsidiaries of the Company.
"TSI Stock Purchase Agreement" means that certain Stock Purchase
Agreement, dated as of March 28, 1996, by and among the Company, the
Shareholders (as defined therein) and TSI Investment Company I, L.L.C., a
Delaware limited liability company, and TSI Investment Company II, L.L.C., a
Delaware limited liability company.
"Triggering Sale" has the meaning set forth in Section 3 hereof.
"Triggering Sale Base Price" means $673,035; PROVIDED, HOWEVER, in the
event the Triggering Sale is an IPO, the Executive shall be deemed to have sold
all of the Executive Shares then held by an Executive in the IPO for the public
offering price, and "Triggering Sale Base Price" shall mean $673,035, MINUS the
IPO Bonus.
"Triggering Sale Date" means the date on which the Triggering Sale
actually occurs.
2. IPO BONUS. Upon the terms and conditions hereinafter set forth, the
Company hereby agrees to pay to the Executive a bonus in the amount of $500,000
(the "IPO Bonus") upon the IPO Date, PROVIDED that (a) such closing occurs prior
to the earliest of (i) the fourth anniversary of the date hereof, (ii) the
consummation of a Stock Sale and (iii) the consummation of a Fundamental Change
AND (b) the Executive is employed by the Company as of the IPO Date and has been
continuously employed by the Company since the date hereof. In the event the
Company (1) terminates the Executive or (2) assigns duties or responsibilities
to the Executive which are materially inconsistent with the duties generally
performed by an employee employed in the Executive's capacity, in each case in
order to avoid payment of the IPO Bonus, clause (b) above shall become
ineffective and of no further force or effect. Nothing contained in this
Agreement shall confer upon the Executive any right with respect to the
continuation of the Executive's employment
5
<PAGE>
by, or relationship with, the Company or interfere in any way with the right
of the Company at any time to terminate such employment or relationship or to
increase or decrease the compensation of the Executive.
3. PUT OPTION.(a) If the Board of Directors and/or a majority of the
shareholders of the Company authorize or approve a Fundamental Change or a
Stock Sale in which the gross proceeds per share to be received by the
Executive are less than $7.013 (the "Triggering Sale"), such amount to be
adjusted proportionately in the event the Executive's Shares are subdivided
into a greater number (whether by stock split, stock dividend or otherwise)
or combined into a lesser number (whether by reverse stock split or
otherwise) at any time or from time to time after the date hereof, the
Company shall give prompt written notice (the "Notice") to the Executive
describing the material terms and conditions thereof and the gross proceeds
to be received by the Executive in connection therewith. For purposes of
this Section 3, in the case of a Fundamental Change or Stock Sale in which
the gross proceeds to be distributed to the Executive are, in whole or in
part, in a form other than cash, the Board of Directors of the Company shall
determine, and notify the Executive in the Notice (which Notice shall be
given to the Executive thirty-five (35) days prior to the contemplated
closing of such Fundamental Change or Stock Sale) of, the fair value of the
non-cash gross proceeds to be distributed to the Executive. If the Executive
does not notify the Company, in writing of the Executive's objection to such
fair value within two (2) days of receipt of the Notice, then such fair
value, as determined by the Board, shall be conclusive. If the Executive
notifies the Company, in writing, of the Executive's objection to such fair
value within two (2) days of receipt of the Notice, then the Company and the
Executive will select a mutually acceptable, nationally recognized appraiser,
which appraiser must agree to determine the fair value of such non-cash gross
proceeds
6
<PAGE>
within fifteen (15) days after its selection, and the fair value of such
non-cash gross proceeds, as determined by the appraiser, shall be conclusive.
The Executive will pay one hundred percent (100%) of the fees and expenses
for the appraiser if the fair value, as ultimately determined by the
appraiser, is equal to, or greater than, ninety-five percent (95%) of the
fair value determined by the Board of Directors of the Company; otherwise,
the Company will pay one hundred percent (100%) of such fees and expenses.
(b) Upon written notice delivered to the Company within ten (10) days
after the later of (i) the date of the Notice (ii) the date on which the fair
value of the non-cash gross proceeds, if any, to be distributed to the Executive
is ultimately determined in accordance with the foregoing paragraph (a), and in
any event at least three (3) days prior to the Triggering Sale Date, the
Executive may elect to sell to the Company on the Triggering Sale Date all, but
not less than all, of the Executive's Shares then held by the Executive for a
purchase price per share equal to the Per Share Put Purchase Price (the "Put
Election"); provided, however, in the event the Triggering Sale is not
consummated for any reason, the Put Election shall automatically terminate and
be of no further force or effect as to such Fundamental Change or Stock Sale and
the Put shall remain available to the Executive, to the extent it has not
terminated or expired in accordance with its terms, with respect to subsequent
Triggering Sales, if any. On the Triggering Sale Date, at and simultaneous with
the closing of the Triggering Sale, the Executive shall deliver to the Company
certificates or other instruments evidencing the Executive Shares held by the
Executive, accompanied by, with respect to the capital stock of the Company held
by the Executive and included in such Executive's Shares, stock powers executed
by the Executive in blank and, with respect to the Options held by the Executive
and included in such Executive's Shares, an agreement,
7
<PAGE>
in form and substance reasonably acceptable to the Company, executed by the
Executive terminating the Options held by the Executive against payment by
the Company of the Aggregate Put Purchase Price. Notwithstanding anything
herein to the contrary, the provisions of this Section 3 shall terminate and
be of no further force or effect (a) in their entirety, upon the closing of
an IPO and (b) with respect to any of the Executive's Shares, upon the sale,
transfer, assignment or other disposition thereof by the Executive.
4. RESTRICTIVE COVENANTS.
4.1 NON-COMPETE. During the Restricted Period, the Executive shall
not, in the United States or any other place where the Company, its Parent or
any Subsidiary, whether such Subsidiary is now existing or hereafter formed,
conducts the Company Business or any part thereof, directly or indirectly, (1)
engage in the Company Business (other than on behalf of and at the written
request of the Company, its Parent and or any Subsidiary); (ii) enter the employ
of, or render any services to, any Person (other than the Company, its Parent or
any Subsidiary) engaged in the Company Business; or (iii) become interested in
any such person in any capacity, including, without limitation, as an
individual, partner, member, manager, shareholder, creditor, officer, director,
principal, agent or trustee; PROVIDED, HOWEVER, that, the foregoing
notwithstanding, the Executive may own, directly or indirectly, solely as an
investment, securities of any publicly-traded person if the Executive is not a
controlling person of, or a member of a group which controls, such person and
the Executive does not, directly or indirectly, own 5% or more of any class of
securities of such person. Nothing contained herein shall prevent or prohibit
the Executive from engaging in technology outsourcing, systems integration or
facilities management in lines of business or markets other than those included
in the Company Business.
8
<PAGE>
4.2 CONFIDENTIAL INFORMATION. At all times during and after the
Restricted Period, the Executive shall keep secret and retain in strictest
confidence, and shall not use for the benefit of himself or others, or disclose,
except as may be required in connection with any judicial or administrative
proceeding or inquiry, to any person or entity, other than an officer or
director of the Company (or of its Parent or any Subsidiary) or a person or
entity to whom disclosure is reasonably necessary or appropriate in connection
with the performance by the Executive of the Executive's duties as an employee
or director of the Company (or of its Parent or any Subsidiary) any Confidential
Information (as hereinafter defined) obtained by the Executive while in the
employ of or providing services for, the Company (or its Parent or any
Subsidiary thereof) or any predecessor of any such entity with respect to the
Company Business or its assets. For purposes of this Agreement, "Confidential
Information" includes, without limitation, information relating to the
properties, accounts, books, records, suppliers, trade secrets, contracts,
pricing policies, operational methods, marketing plans or strategies, business
acquisition plans and new personnel acquisition plans of the Company (or of its
Parent or any Subsidiary) or any predecessor of any such entity; PROVIDED,
HOWEVER, that Confidential Information shall not include any Information known
or available to the public (other than as a result of unauthorized disclosure by
the Executive or any other Person).
4.3 PROPERTY OF THE COMPANY BUSINESS. All memoranda, notes, lists,
records and other documents or papers (and all copies thereof), including such
items stored in computer memories, or microfiche or by any other means, made or
compiled by or on behalf of the Executive, or made available to the Executive
relating to the Company Business, are and shall be the Company's property and
shall be delivered to the Company promptly upon the termination of the
Executive's
9
<PAGE>
employment with the Company.
4.4 EMPLOYEES OF THE COMPANY BUSINESS. During the Restricted Period, the
Executive shall not, directly or indirectly, hire or solicit (other than on
behalf of the Company) any employee of the Company (or any person who was an
employee of the Company on or after the date hereof) or encourage any such
employee to leave such employment.
4.5 CONSULTANTS OF THE COMPANY BUSINESS. During the Restricted Period,
the Executive shall not, directly or indirectly, hire or solicit (other than on
behalf of the Company) any consultant then under contract with or otherwise
engaged by the Company, its Parent or any Subsidiary unless the engagement is
unrelated to the Company Business or encourage such consultant to terminate such
relationship.
4.6 RIGHTS AND REMEDIES UPON BREACH. If the Executive breaches, or
threatens to commit a breach of, any of the provisions of this Section 4 (the
"Restrictive Covenants"), the Company shall have the following rights and
remedies, each of which shall be independent of the others and severally
enforceable, and each of which is in addition to, and not in lieu of, any other
rights and remedies available to the Company under law or in equity:
4.6.1 SPECIFIC PERFORMANCE. The right and remedy to have
Restrictive Covenants specifically enforced by any court of competent
jurisdiction, it being agreed that any breach or threatened breach of the
Restrictive Covenants would cause irreparable injury to the Company and
that money damages would not provide an adequate remedy to the Company.
4.6.2 ACCOUNTING. The right and remedy to require the Executive
to account for and pay over the Company, all compensation, monies,
accruals, increments and other benefits derived or received by the
Executive as the result of any transaction constituting a
10
<PAGE>
breach of the Restrictive Covenants.
4.6.3 DAMAGES. The right and remedy to require the Executive to
reimburse the Company for all reasonable out-of-pocket costs and expenses
(including, but not limited to, attorneys' and accountants' fees and
disbursements) incurred by the Company in connection with, or with respect
to, such breach or breaches. In the event a court of competent
jurisdiction ultimately determines that the Executive has not breached the
Restrictive Covenants, the Company will reimburse the Executive for all
reasonable out-of-pocket costs and expenses (including, but not limited to,
reasonable attorneys' and accountants' fees and disbursements) incurred by
the Executive in connection with, or with respect to, the defense of any
such alleged breach or breaches.
4.7 SEVERABILITY OF COVENANTS. The Executive acknowledges and agrees that
the Restrictive Covenants are reasonable and valid in duration and geographical
scope and in all other respects as of the date hereof. If any court determines
that any of the Restrictive Covenants, or any part thereof, is invalid or
unenforceable, the remainder of the Restrictive Covenants shall not be affected
thereby and shall be given full effect without regard to the invalid portions.
4.8 REFORMATION. If any court determines that any of the Restrictive
Covenants, or any part thereof, is unenforceable because of the duration or
geographical scope of such provisions, such court shall have the power to reform
the duration or scope of such provision, as the case may be, and such provision
shall then be enforceable as reformed.
5. MISCELLANEOUS.
5.1 SUCCESSORS AND ASSIGNS; BINDING AGREEMENT.
The Executive may not assign or otherwise transfer this Agreement or
any of the
11
<PAGE>
Executive's rights or obligations hereunder, PROVIDED, HOWEVER, in the event
of the Executive's death or disability, that the Put shall be enforceable by
the Executive's heirs or personal representatives to the extent it would have
been enforceable in the Executive's hands; PROVIDED FURTHER, HOWEVER, in the
event the Executive dies after the Company has entered into a firm commitment
underwriting agreement with respect to an IPO, but prior to the closing
thereof, and such IPO actually closes, the IPO Bonus shall be payable to the
Executive's estate or his heirs. This Agreement shall inure to the benefit
of, be enforceable by and binding upon, the respective successors and assigns
of the Company.
5.2 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal law of, and not the law of conflicts of, the
Commonwealth of Pennsylvania applicable to contracts entered into and to be
wholly performed in Pennsylvania.
5.3 WAIVERS. The waiver by either party of any right hereunder or of any
failure to perform or breach by the other party shall not be deemed a waiver of
any other right hereunder or of any other failure or breach by the other party,
whether of the same or a similar nature or otherwise. No waiver shall be deemed
to have occurred unless set forth in a writing executed by or on behalf of the
waiving party. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
5.4 NOTICES. All notices and communications that are required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given when delivered personally or upon dispatch by any form of mail
or private express courier providing for receipted
12
<PAGE>
delivery, postage or charges prepaid, as follows:
If to the Company, to:
Technology Specialists, Inc.
801 Springdale Drive
Suite 130
Exton, Pennsylvania 19341
Attention: Chairman
With a copy to:
Mr. Robert E. King
15 Salt Creek Lane
Suite 411
Hinsdale, Illinois 60521
If to the Executive, to the address set forth on the signature page hereto;
or to such other address as may be specified in a notice given by one party to
the other hereunder.
5.5 SEVERABILITY. If for any reason any term or provision of this
Agreement is held to be invalid or unenforceable, all other valid terms and
provisions hereof shall remain in full force and effect, and all of the terms
and provisions of this Agreement shall be deemed to be severable in nature.
5.6 COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
5.7 AMENDMENT. This Agreement may be amended or canceled by mutual
agreement of the parties in writing without the consent of any other person or
entity and, so long as the Executive lives, no person or entity, other than the
parties, shall have any rights under or interest in this Agreement or the
subject matter hereof.
5.8 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the
13
<PAGE>
parties, and supersedes all prior oral or written understandings between the
parties, relating to the subject matter hereof other than that certain Stock
Option Agreement between the parties hereto.
IN WITNESS WHEREOF, the parties hereto have duly executed this Incentive,
Put and Noncompetition Agreement as of the date first above written.
TECHNOLOGY SPECIALISTS, INC.
By: /s/ Kenneth Pigott
----------------------------------
Title: Director
-------------------------------
/s/ Robert Foley, Jr.
-------------------------------------
Robert Foley, Jr.
Address:
606 Righters Mill Road
Penn Valley, Pennsylvania 19072
14
<PAGE>
Exhibit 10.6
SERVICES AGREEMENT
------------------
This SERVICES AGREEMENT (this "AGREEMENT") is made this 15th day of
February, 1998 by and between COLLEGIS, INC., a Delaware corporation (the
"COMPANY"), and THE COLLEGIS RESEARCH INSTITUTE, a North Carolina not-for-profit
corporation (the "INSTITUTE").
W I T N E S S E T H:
--------------------
WHEREAS, the Company is engaged in the business of providing services
related to computing and information technology throughout the United States
including, without limitation, the development, use and application of Internet
technologies and resources in the area of higher education;
WHEREAS, the Institute is a not-for-profit corporation engaged in
research and development activities in connection with the innovation, use and
application of distributed learning technologies and resources; and
WHEREAS, the Company wishes to provide to the Institute, and the
Institute wishes to obtain from the Company, certain outsourcing, management,
administrative and financial services in accordance with the terms and
conditions set forth herein.
NOW THEREFORE, in consideration of the mutual premises and agreements
contained herein, and for other consideration the receipt and sufficiency of
which is hereby acknowledged, the parties hereto hereby agree as follows:
Section 1. MANAGEMENT SERVICES.
(a) The Company and the Institute hereby agree that during the period
beginning on the date hereof and continuing throughout the term of this
Agreement, the Company and/or its
<PAGE>
affiliates shall provide to the Institute outsourcing, management, financial
and administrative services including, without limitation, the following:
(i) professional services enabling the Institute to perform
work for third parties for which it has contracted pursuant to grants or
otherwise;
(ii) supervision and management of financial information
services (i.e., general ledger, payroll, accounts receivable, accounts
payable and fixed assets reports) and internal auditing, tax reporting,
financial management and treasury services; and
(iii) accounting and legal services.
The services to be provided pursuant to this SECTION 1(a) are hereinafter
sometimes referred to individually as a "SERVICE" and, collectively, as the
"SERVICES". So as to ensure that the Company will be able to perform the
Services to be performed pursuant to subsection (i) above and that the Institute
will be able to pay for such Services pursuant to SECTION 2 below, the Institute
agrees to consult with the Company prior to the acceptance of any assignment of
work or any grant from any third party.
(b) The Company agrees that any Service provided to the Institute
hereunder shall be reasonably necessary to the Institute in the conduct of its
business.
(c) Any Service hereunder shall be provided to the Institute by
the Company and/or its affiliates or such consultants, subcontractors or agents
as may be selected from time to time by the Company in its discretion. The
Company shall serve as liaison on behalf of the Institute with outside advisors
such as legal counsel, tax and accounting advisors, investment advisors and
banks.
2
<PAGE>
(d) Services shall not be provided by the Company pursuant to
SECTION 1(a)(i) unless such Services shall have been specifically authorized in
writing by the President of the Institute or his duly authorized representative.
Section 2. FEES; PAYMENT.
(a) In consideration for the Company's provision of the Services
hereunder, the Institute agrees to reimburse the Company for its costs incurred
in providing the Services. The amount of such costs to be reimbursed shall be
equal to the sum of the amounts described in the following clauses (i), (ii) and
(iii):
(i) the portion of the total direct costs of the Company
(E.G. gross compensation, payroll taxes and retirement, health and other
benefits) which are attributable to provision of the Services to the
Institute by employees of the Company (including officers, directors and
any other personnel); PLUS
(ii) all out-of-pocket costs incurred by the Company in
connection with providing the Services to the Institute; PLUS
(iii) the portion of the indirect costs of the Company
attributable to the Company's provision of Services to the Institute,
calculated in accordance with industry standards for the reimbursement of
such costs and in a manner mutually agreed to by the Company and the
Institute.
For purposes of clause (i) above, the portion so attributable during
each applicable period shall be determined by the ratio of (a) the amount of
hours during the period which an employee of the Company spent providing
Services to the Institute to (B) the total amount of hours worked in such period
by such employee.
3
<PAGE>
(b) During the term of this Agreement, within ten (10) days after
each month, the Company shall prepare and submit to the Institute a statement
requesting payment for the Services performed in the preceding month calculated
in accordance with SECTION 2(a) hereof. Each statement furnished to the
Institute hereunder shall be paid in full within ten (10) days of the date of
such statement. All payments of such statements shall be sent to the Company at
the address set forth in SECTION 9 hereof (or to such other address as the
Company may specify from time to time by written notice to the Institute).
Section 3. THIRD PARTY EXPENSES. It is understood that the consideration
to be paid by the Institute to the Company pursuant to SECTION 2 hereof for
Services performed hereunder shall be in addition to, and not in lieu of,
consideration for costs and expenses incurred by the Company on the Institute's
behalf (other than the out-of-pocket expenses billed to the Institute by the
Company pursuant to SECTION 2(a) hereof) for Services rendered to the Institute
by third parties including, but not limited to, legal, accounting and insurance
expenses. The Institute shall pay any compensation (including employee benefit
costs and any related out-of-pocket expenses) to officers and other employees of
the Institute who provide substantially full-time services to the Institute,
notwithstanding that said officers and other employees may simultaneously be
officers or employees of the Company or its affiliates.
Section 4. INTELLECTUAL PROPERTY RIGHTS.
(a) All right, title and interest in Intellectual Property (as
hereafter defined) made, created, conceived or developed by the Institute in the
operation of its business shall vest exclusively in the Institute. The
Institute hereby grants and agrees to grant to the Company a perpetual,
royalty-free, worldwide non-exclusive right to and license in its Intellectual
Property and to use such Intellectual Property in the conduct of the Company's
business, including, without limitation, in
4
<PAGE>
connection with the Company's provision of outsourcing and other services to
unrelated third parties, and to make reproductions of and any and all
modifications to such Intellectual Property as are necessary for use in the
conduct of the Company's business. For purposes of this Agreement,
"Intellectual Property" shall mean any and all patents, inventions, models,
processes, tools, formulas, designs, know-how trademarks, tradenames,
servicemarks, copyrighted works and trade secrets (including applications and
licenses therefor), whether now or hereafter existing. Intellectual property
developed by the Company or employees of the Company for use in the conduct
of the Company's business shall not be deemed to be "Intellectual Property"
for purposes of this Agreement.
(b) Unless specifically authorized in writing by the Company, the
Institute will not license Intellectual Property to any third party for use in a
for-profit enterprise. Unless such authorization has been earlier obtained, any
license of Intellectual Property must contain a prohibition of such a use and
any sublicensing of Intellectual Property to for-profit entities or for
for-profit uses.
(c) Nothing contained herein is intended to limit or prohibit the
publication and dissemination of Intellectual Property or the licensing of
Intellectual Property to non-profit institutions (for non-profit use) or for
other non-profit uses.
(d) During the term of this Agreement, the Institute hereby grants
to the Company a royalty free, non-exclusive right to use in any and all media
and without territorial limitation the name "The COLLEGIS Research Institute"
and consents to the Institute being identified in marketing, fundraising and
promotional materials as a not-for-profit research institute supported by the
Company.
5
<PAGE>
Section 5. FINANCIAL STATEMENTS AND FUNDING.
(a) Beginning with the calendar year ending December 31, 1998,
the Institute shall prepare and deliver to the Company within ninety (90) days
after the end of each such calendar year (i) an audited balance sheet, a
statement of support and revenues, expenses, changes in net assets and statement
of cash flows for such year (the "YEAR-END FINANCIAL STATEMENTS") and
(ii) calculations setting forth the Net Loss (as defined below), if any, for
such calendar year (the "NET LOSS CALCULATION"). The Year-End Financial
Statement and the Net Loss Calculation shall be prepared in accordance with
generally accepted accounting principles consistently applied.
(b) Within thirty (30) days after the Year-End Financial
Statement and the Net Loss Calculation are delivered to the Company, the
Company shall deliver to the Institute either (i) a written acknowledgment
accepting the Year-End Financial Statement and the Net Loss Calculation or
(ii) a written report setting forth in reasonable detail any proposed
adjustments to the Year-End Financial Statement and the Net Loss Calculation
(the "ADJUSTMENT REPORT"). If the Company fails to respond to the Institute
within such 30-day period, it shall be deemed to have accepted and agreed to
the Year-End Financial Statement and the Net Loss Calculation as originally
delivered. During such 30-day period, the Institute shall provide any
records, reports, invoices or other material to the Company which the Company
may reasonably request in connection with its preparation of the Adjustment
Report.
(c) In the event that the Company and the Institute fail to agree
on any of the Company's proposed adjustments set forth in the Adjustment Report
within fifteen (15) days after the Institute receives the Adjustment Report, the
Company and the Institute agree that a mutually acceptable independent auditor
of nationally recognized standing (the "INDEPENDENT AUDITOR") shall, within the
45-day period immediately following such 15-day period, make the final
determination
6
<PAGE>
of the Net Loss Calculation. The Institute and the Company shall each
provide the Independent Auditor with their respective determinations of the
Net Loss Calculation and the Independent Auditor shall select either the
Institute's or the Company's determination in establishing the final Net Loss
Calculation. The decision of the Independent Auditor shall be final and
binding on the Company and the Institute. The fees, costs and expenses of
the Independent Auditors shall be paid by the non-prevailing party.
(d) In the event the Institute incurs a Net Loss in any calendar
year (or partial calendar year, if applicable) during the term of this
Agreement, the Company hereby covenants and agrees that it shall make a
contribution to the Institute in the aggregate amount of such Net Loss in
accordance with the provisions set forth in this SECTION 5. For purposes of
this Agreement, "Net Loss" shall mean, for any period, the reduction in net
assets of the Institute, if any, calculated on an accrual basis, and adjusted
to exclude (i) any loss from investments, (ii) any compensation or payments
to any officers, directors or affiliates of the Institute not authorized by
the Board of Directors of the Institute and (iii) any loss, expense or other
liability attributable to any research or other activity not authorized by
the Board of Directors of the Institute.
(e) Amounts payable by the Company to the Institute, if any, under
this SECTION 5 shall be paid by wire transfer of immediately available federal
funds to an account designated by the Institute in writing. At the option of
the Company, the Company may offset any amounts due and owing to the Institute
from the Company pursuant to this SECTION 5 against amounts due and owing to the
Company from the Institute pursuant to SECTION 2 hereof.
Section 6. BOARD OF DIRECTORS AND EXECUTIVE OFFICERS. During the term of
this Agreement, the Institute shall consult with, and seek the advice of, the
Company with respect to the selection and compensation of its Board of Directors
and executive officers.
7
<PAGE>
Section 7. TERM. This Agreement shall initially consist of a term
beginning on the date hereof and ending February 15, 2008, and shall
thereafter be automatically extended for additional one (1) year terms unless
either party hereto provides written notice of its desire to terminate this
Agreement to the other party not less than sixty (60) days prior to the
expiration of the applicable term. The termination of this Agreement shall
not otherwise affect the Institute's obligations under SECTIONS 2, 3, 4(a)
and 8 hereof.
Section 8. LIMITATION OF LIABILITY; INDEMNIFICATION.
(a) The Company and its affiliates shall not be liable to the
Institute or affiliates thereof for any cost, damage, expense or loss
including, without limitation, any special, indirect, consequential or
punitive damages, arising out of (i) the Company's and/or its affiliates'
failure to perform any Services for the Institute hereunder or the
misperformance of any such Service, or (ii) the Institute's or such
affiliates' reliance on any advice or data the Company or its affiliates may
provide to the Institute pursuant to this Agreement.
(b) The Institute shall indemnify the Company and each of its
affiliates, officers, directors, employees, consultants and subcontractors,
and any person or entity controlling the Company, its affiliates, or any such
consultant or subcontractor and shall hold the Company and each of its
affiliates and each such officer, director, employee, consultant,
subcontractor and controlling person or entity, harmless against any damage,
loss, cost or expense (including, without limitation, accountants' and
attorneys' fees) which the Company, its affiliates, or any such officer,
director, employee, consultant, subcontractor or controlling person or entity
may sustain or incur by reason of any claim, demand, suit or recovery by any
person or entity arising in connection with this Agreement or out of the
Company's, its affiliates', or any consultant's or subcontractor's,
performance of the Company's obligations under this Agreement, PROVIDED,
HOWEVER, that the
8
<PAGE>
Institute shall have no obligation to so indemnify in the event such damage,
loss, cost or expense is the result of a claimant's willful and intentional
misconduct.
Section 9. NOTICES. All notices or other communications required by or
specifically provided for in this Agreement shall be in writing and shall be
deemed to have been given (a) when delivered in person, (b) when sent by
telecopier, when transmitted and the appropriate telephonic confirmation
received if transmitted on a business day and during normal business hours of
the recipient, and otherwise on the next business day following transmission,
(c) if given by certified or registered mail, three (3) days after having
been deposited in the U.S. mails, or (d) if given by electronic mail, when
received, or courier or other means, when delivered, and in any case
addressed to the party for which it is intended at that party's address as
set forth below, or at such other address as the addressee shall have
designated by notice hereunder to the other party.
If to the Company:
COLLEGIS, Inc.
2300 Maitland Center Parkway, Suite 340
Maitland, FL 32751
Attention: Robert Foley
Facsimile: 407/660-2471
E-Mail: [email protected]
If to the Institute:
The COLLEGIS Research Institute
2000 Perimeter Parkway, Suite 160
Morrisville, NC 27560
Attention: Dr. William H. Graves
Facsimile: (919) 547-7205
E-Mail: [email protected]
Section 10. AMENDMENT; ASSIGNMENT; BINDING EFFECTS. This Agreement may
be amended or modified only by a written instrument signed by the parties
hereto. No party shall assign or transfer this Agreement, in whole or in
part, or any of such party's rights or obligations hereunder,
9
<PAGE>
to any other person or entity without the prior written consent of the other
parties except that the Company may transfer or assign all of its rights and
obligations hereunder to any affiliate thereof or any entity directly or
indirectly succeeding to the Company by merger, consolidation or
reorganization. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective permitted assigns.
Section 11. WAIVER; SEVERABILITY. The failure of a party to insist in
any instance upon the strict and punctual performance of any provision of
this Agreement shall not constitute a continuing waiver of such provision.
No party shall be deemed to have waived any right, power, or privilege under
this Agreement or any provisions hereof unless such waiver shall have been in
writing and duly executed by the party to be charged with such waiver, and
such waiver shall be a waiver only with respect to the specific instance
involved and shall in no way impair the rights of the waiving party or the
obligations of any other party in any other respect or at any other time. If
any provisions of this Agreement shall be waived, or be invalid, illegal or
unenforceable, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain binding and in full force and effect.
Section 12. RELATIONSHIP OF THE PARTIES. In all matters relating to
this Agreement, each party hereto shall be solely responsible for the acts of
its employees, and employees of one party shall not be considered employees
of the other party. Except as otherwise provided herein, no party shall have
any right, power or authority to create any obligation, express or implied,
on behalf of any other party.
Section 13. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida without giving
effect to the conflict of laws rules thereof.
10
<PAGE>
Section 14. CHANGE IN TAX STATUS OR CHANGE IN LAW. If for U.S. federal
income tax purposes the status of the Institute changes or there is a change
in law that changes the tax treatment of the Institute, the parties agree to
make all necessary changes to this Agreement (including, but not limited to,
terminating this Agreement) to ensure that the Institute and its directors,
officers, and other employees are not subject to any taxes or penalties under
the Internal Revenue Code of 1986, as amended, by reason of the Institute
being a party to this Agreement.
Section 15. ENTIRE AGREEMENT. This Agreement constitutes the entire
Agreement between the parties hereto with respect to the subject matter
hereof, and supersedes all prior agreements and understandings, either oral
or written, with respect thereto.
[signature page follows]
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Services
Agreement on the date first above written.
COLLEGIS, INC.
By: /s/ Robert C. Bowers
-----------------------------------
Title: EVP/CFO
--------------------------------
THE COLLEGIS RESEARCH INSTITUTE
By: /s/ William H. Graves
-----------------------------------
Title: President
--------------------------------
<PAGE>
Exhibit 10.7
SETTLEMENT AGREEMENT
This Settlement Agreement (this "Agreement") is made as of May 28, 1997
by and between COLLEGIS, Inc., a Delaware corporation formerly known as TSI
Management Company and the successor to Technology Specialists, Inc.
("COLLEGIS"), and Claire Reid ("Reid").
RECITALS
WHEREAS, COLLEGIS and Reid are parties to a certain Incentive, Put and
Noncompetition Agreement, dated as of April 11, 1996, a copy of which is
attached hereto as EXHIBIT A (the "Incentive Agreement"), a certain
Registration Agreement, dated April 11, 1996, a copy of which is attached
hereto as EXHIBIT B (the "Registration Agreement"), a certain Stock Option
Agreement, dated as of April 11, 1996, a copy of which is attached hereto as
EXHIBIT C (the "Old Option Agreement"), and a certain Stock Option Agreement,
dated as of June 20, 1996, a copy of which is attached hereto as EXHIBIT D
(the "Option Agreement", and, together with the Incentive Agreement, the
Registration Agreement and the Old Stock Option Agreement, the "Operative
Documents");
WHEREAS, Reid was an employee and officer of COLLEGIS until March 3,
1997; and
WHEREAS, COLLEGIS and Reid desire to resolve all issues that have arisen
between them, to release each other from all present and potential mutual
claims and to modify certain contractual arrangements between them;
AGREEMENTS
NOW THEREFORE, the parties agree as follows:
1. TERMINATION OF EMPLOYMENT AND EMPLOYMENT COMPENSATION. Reid's
employment with COLLEGIS terminated as of March 3, 1997. Notwithstanding the
foregoing, COLLEGIS shall continue to (i) pay to Reid an amount equal to her
current annual base salary of $140,000, less any deductions required by law,
until December 31, 1997, in accordance with COLLEGIS' customary payroll
practices and calculated and paid in the same manner as if Reid had been
employed by COLLEGIS for the full 1997 calendar year and (ii) provide Reid
with all life, disability, accident, health insurance and other employment
and fringe benefits and programs currently provided to her by COLLEGIS
through such date in accordance with the terms and provisions of COLLEGIS'
plans and programs as in effect on the date hereof, PROVIDED, HOWEVER, that,
except as set forth in the following sentence, Reid shall have no rights or
claims whatsoever under, pursuant to or with respect to any COLLEGIS
incentive or bonus plan or program, including, but not limited to, the
COLLEGIS Performance Incentive Plan. In addition, COLLEGIS shall pay to Reid
a lump sum payment of $40,000, less any deductions required by law, as
compensation under the COLLEGIS Performance Incentive Plan on or about March
31, 1998.
2. BOARD MEMBERSHIP. Reid's membership on the Board of Directors and
the Executive Committee of COLLEGIS shall terminate on the date hereof. By
executing this
<PAGE>
Agreement, Reid resigns as of the date hereof as a member and Vice Chairman
of the Board of Directors of COLLEGIS and as a member of the Executive
Committee of COLLEGIS.
3. INCENTIVE AGREEMENT.
(a) The Incentive Agreement shall remain in full force and effect
without amendment or modification except that:
(i) the term "Restricted Period" in Section 1 of the Incentive
Agreement shall be deemed to be amended by deleting the phrase "twenty-four
(24) months after the termination of the Executive's employment with the
Company for any reason" therein and replacing it with the phrase "on December
31, 1998";
(ii) Section 2 of the Incentive Agreement shall be deemed to be
amended as follows: (A) the phrase "a bonus in the amount of $300,000 (the
"IPO Bonus") upon the IPO Date" in the first sentence thereof shall be
deleted in its entirety and replaced with the phrase "on the IPO Date a bonus
in the amount of $475,000 (the "IPO Bonus") upon the closing of the IPO"; and
(B) the text of clause (b) in the first sentence thereof shall be deleted in
its entirety and replaced with the following phrase "the Executive takes all
appropriate and necessary actions in connection with the closing of the IPO";
(iii) Section 4.1 of the Incentive Agreement shall be deemed to be
amended by deleting the last sentence thereof in its entirety and replacing
it with the following sentence: "Nothing contained herein shall prevent or
prohibit the Executive from (i) during the entire Restricted Period, engaging
in technology outsourcing, systems integration or facilities management in
lines of business or markets other than those included in the Company
Business, (ii) during the entire Restricted Period, being employed by,
teaching at, or providing consulting services which are not competitive with
or similar to those services then or previously offered by the Company to,
universities or other institutions of higher education included in the
Company Business, or (iii) during that portion of the Restricted Period from
January 1, 1998 through December 31, 1998, providing consulting services
which are competitive with or similar to those services then or previously
offered by the Company to colleges or universities which were not existing
clients or customers of the Company as of March 3, 1997, provided that the
provision of such consulting services does not breach or otherwise violate
Section 4.2 of this Incentive Agreement."; and
(iv) Section 4.2 of the Incentive Agreement shall be deemed to be
amended by deleting the last sentence thereof in its entirety and replacing
it with the following two (2) sentences: "For purposes of this Agreement,
"Confidential Information" includes, without limitation, information relating
to the properties, accounts, books, records, suppliers, trade secrets,
contracts, pricing policies, operational methods, marketing plans or
strategies, business acquisition plans and new personnel acquisition plans of
the Company (or of its Parent or any Subsidiary) or any predecessor of any
such entity; PROVIDED, HOWEVER, that Confidential Information shall not
include any information known or available to the public (other than as a
result of unauthorized disclosure by the Executive or any other Person);
PROVIDED FURTHER, HOWEVER, that for all periods after January
-2-
<PAGE>
1, 1998, with respect to the provision by the Executive of consulting
services to colleges or universities which were not existing clients or
customers of the Company as of March 3, 1997, Confidential Information shall
not include information relating to the methods, techniques and modes of
effort utilized by the Company in the provision of services or the marketing
of information technology (other than information relating to business
relationship and service models (commonly referred to as the "black box"),
pricing policies, methods, algorithms and related information (the "Company's
Pricing Policies Information")). Notwithstanding anything herein to the
contrary, the Company and the Executive expressly acknowledge and agree that
the term "Confidential Information" shall at all times during and after the
Restricted Period include the Company's Pricing Policies."
(b) It is expressly acknowledged by the parties that (i) the
"Restricted Period (as that term is defined and used in the Incentive
Agreement, as amended by Section 3(a)(i) hereof) is not terminated by this
Agreement and shall continue until December 31, 1998, (ii) the "Restrictive
Covenants" (as that term is defined and used in the Incentive Agreement) are
binding and enforceable, and shall continue in full force and effect, in
accordance with the terms and provisions of the Incentive Agreement, as
amended by this Agreement, and (iii) the "Restrictive Covenants" (as that
term is defined and used in the Incentive Agreement, as amended by this
Agreement) are reasonable and valid in duration and geographic scope and in
all other respects.
4. REGISTRATION AGREEMENT. The Registration Agreement shall remain in
full force and effect without amendment. In the event Reid requests that all
or any portion of the "Reid Shares" (as that term is defined and used in the
Registration Agreement), including, but not limited to, all or any portion of
the "Vested Option Shares" (as that term is defined and used in Section 5(b)
hereof), be registered in the "IPO" (as that term is defined and used in the
Registration Agreement) in accordance with the Registration Agreement (the
"Preferred Reid Shares"), COLLEGIS agrees, to the extent permitted by law, to
use its reasonable best efforts to cause the Preferred Reid Shares to be
included in the IPO in accordance with the Registration Agreement. Without
limiting the generality of the foregoing, COLLEGIS agrees to cause the
"Holders" (as that term is defined and used in the Registration Agreement) of
a majority of the "Registrable Shares" (as that term is defined and used in
the Registration Agreement) to waive compliance with Section 2(b) of the
Registration Agreement if such waiver is necessary in order to effectuate the
registration of the Preferred Reid Shares under this Section 4.
5. STOCK OPTION AGREEMENT.
(a) The Option Agreement shall remain in full force and effect without
amendment except that:
(i) the term "Restricted Period" in Section 2 of the Option
Agreement shall be deemed to be amended by deleting the phrase "twenty-four
(24) months after the termination of the Holder's employment with the Company
for any reason" therein and replacing it with the phrase "on December 31,
1998";
-3-
<PAGE>
(ii) Section 6.1 of the Option Agreement shall be deemed to be
amended by deleting the last sentence thereof in its entirety and replacing
it with the following sentence: "Nothing contained herein shall prevent or
prohibit the Holder from (i) during the entire Restricted Period, engaging in
technology outsourcing, systems integration or facilities management in lines
of business or markets other than those included in the Company Business,
(ii) during the entire Restricted Period, being employed by, teaching at, or
providing consulting services which are not competitive with or similar to
those services then or previously offered by the Company to, universities or
other institutions of higher education included in the Company Business, or
(iii) during that portion of the Restricted Period from January 1, 1998
through December 31, 1998, providing consulting services which are
competitive with or similar to those services then or previously offered by
the Company to colleges or universities which were not existing clients or
customers of the Company as of March 3, 1997, provided that the provision of
such consulting services does not breach or otherwise violate Section 6.2 of
this Option Agreement."; and
(iii) Section 6.2 of the Option Agreement shall be deemed to be
amended by deleting the last sentence thereof in its entirety and replacing
it with the following two (2) sentences: "For purposes of this Agreement,
"Confidential Information" includes, without limitation, information relating
to the properties, accounts, books, records, suppliers, trade secrets,
contracts, pricing policies, operational methods, marketing plans or
strategies, business acquisition plans and new personnel acquisition plans of
the Company (or of its Parent or any Subsidiary) or any predecessor of any
such entity; PROVIDED, HOWEVER, that Confidential Information shall not
include any information known or available to the public (other than as a
result of unauthorized disclosure by the Holder or any other Person);
PROVIDED FURTHER, HOWEVER, that for all periods after January 1, 1998, with
respect to the provision by the Holder of consulting services to colleges or
universities which were not existing clients or customers of the Company as
of March 3, 1997, Confidential Information shall not include information
relating to the methods, techniques and modes of effort utilized by the
Company in the provision of services or the marketing of information
technology (other than information relating to business relationship and
service models (commonly referred to as the "black box"), pricing policies,
methods, algorithms and related information (the "Company's Pricing Policies
Information")). Notwithstanding anything herein to the contrary, the Company
and the Holder expressly acknowledge and agree that the term "Confidential
Information" shall at all times during and after the Restricted Period
include the Company's Pricing Policies."
(b) It is expressly acknowledged by the parties that (i) the Old Option
Agreement has previously been terminated and is of no further force or effect,
(ii) the "Termination Date" (as that term is defined and used in the Option
Agreement) shall be March 3, 1997, (iii) 62,500 "Option Shares" (as that term is
defined and used in the Option Agreement), subject to adjustment as set forth in
Section 3.7 of the Option Agreement (the "Vested Option Shares"), shall be
deemed to be vested and exercisable during the period commencing as of the date
hereof and ending on December 31, 1998, (iv) the "Stock Option" (as that term is
defined and used in the Option Agreement) shall terminate and cease to be
exercisable with respect to 187,500 "Option Shares" (as that term is defined and
used in the Option Agreement), subject to adjustment as set forth in Section 3.7
of the Option Agreement, as of the date hereof, (v) the "Restricted Period" (as
that term is defined and used in the Option Agreement, as amended by Section
5(a) hereof is not terminated by this Agreement
-4-
<PAGE>
and shall continue until December 31, 1998, (vi) the "Restrictive Covenants"
(as that term is defined and used in the Option Agreement) are binding and
enforceable, and shall continue in full force and effect, in accordance with
the terms of the Option Agreement, as amended by this Agreement, and (vii)
the "Restrictive Covenants" (as that term is defined and used in the Option
Agreement, as amended by this Agreement) are reasonable and valid in duration
and geographic scope and in all other respects.
6. CONSULTING AGREEMENT. COLLEGIS agrees to employ Reid, and Reid
agrees to accept employment, as a consultant under the following terms and
conditions:
(a) The term of the consulting arrangement established by this Section
6 will commence on January 1, 1998 and end on December 31, 1998; unless the
consulting arrangement established by this Section 6 is earlier terminated by
reason of Reid's death or disability, Reid's voluntary termination thereof or
Reid's breach of Section 10 of this Agreement or the "Restrictive Covenants"
(as that term is defined and used in the Incentive Agreement and the Option
Agreement, each as amended by this Agreement).
(b) Throughout the term of the consulting arrangement established by
this Section 6, Reid's obligation to provide services shall be to make
herself reasonably available to COLLEGIS by telephone and, upon not less than
three days' notice, subject to Reid's reasonable availability, in person to
perform such services relating to technology assessment, customer relations,
new business opportunities and employee relations as shall be assigned to her
from time to time by the President of COLLEGIS to advance the interests of
COLLEGIS. The parties hereto acknowledge that in providing services under
this Section 6, Reid will be acting solely as an independent contractor and
will not be considered or deemed to be, or represent to third parties that
she is, an agent, employee, director, joint venturer or partner of COLLEGIS
or any of its affiliates. Neither COLLEGIS nor any of its affiliates shall
be responsible for, and each shall be held harmless by Reid from, any
liability to any governmental authority for any federal or state withholding
tax, payroll tax or unemployment, disability or workers compensation
insurance payments or deductions with respect to the consideration paid to
Reid under this Section 6. Other than an independent contractor relationship,
no other relationship is intended or created by this Section 6 by and between
COLLEGIS or any of its affiliates, on the one hand, and Reid, on the other
hand. Reid acknowledges and agrees that under this Section 6, except as
expressly set forth in Section 6(d) hereof, she is not entitled to
participate in, and shall not claim any right with respect to, any employment
or fringe benefits or programs of COLLEGIS.
(c) During the term of the consulting arrangement established by this
Section 6, COLLEGIS shall pay to Reid $2,000 per day for each day during
which Reid provides such requested services to COLLEGIS; provided, however,
that notwithstanding the foregoing, COLLEGIS shall pay Reid for a minimum of
twelve and one-half (12.5) days during each quarter in calendar year 1998
under this Section 6, with payments to be made for each such calendar quarter
within fifteen (15) days after the end of such calendar quarter.
-5-
<PAGE>
(d) During the term of the consulting arrangement established by this
Section 6, COLLEGIS shall provide to Reid medical, hospitalization, health
and accident/disability insurance benefits and plans, as are offered by
COLLEGIS to its executive employees and at the same cost or contribution rate
to Reid as such benefits or plans are offered by COLLEGIS to its executive
employees.
7. DISPOSITION OF ORLANDO HOUSE. Within sixty (60) days after the
date hereof, COLLEGIS shall purchase, or cause to be purchased, Reid's house
in Orlando, Florida (the "Orlando House") for $235,000 upon (i) a showing by
Reid that $235,000 was the purchase price actually paid by Reid for the
Orlando House and (ii) the execution and delivery by Reid to the Company or
its designee of a warranty deed, in appropriate form for recording to be
prepared by the Company and submitted to Reid, conveying the Orlando House to
the Company or its designee. COLLEGIS shall pay, or reimburse Reid with
respect to the payment of, Reid's actual out-of-pocket mortgage interest,
real estate tax, utility, insurance and maintenance expenses incurred with
respect to the Orlando House for the period commencing on February 1, 1997
and ending on the date the closing of the purchase of the Orlando House by
the Company or its designee actually occurs (the "House Closing Date") up to
a maximum of $16,000 upon the delivery to the Company by Reid of reasonably
detailed, itemized bills, invoices or receipts with respect such expenses.
In addition, COLLEGIS shall pay, or reimburse Reid with respect to the
payment of, reasonable out-of-pocket moving expenses actually incurred by
Reid in connection with relocating and moving Reid's household goods and
automobile from Orlando, Florida to Pennsylvania upon the delivery to the
Company by Reid of reasonably detailed, itemized bills, invoices or receipts
with respect such moving expenses. Reid agrees to leave her furniture at the
Orlando House until the House Closing Date. Reid further agrees to cooperate
with the Company, and to take all actions reasonably necessary, in connection
with the consummation of the purchase of the Orlando House by the Company or
its designee.
8. REID RELEASE. In consideration of the payments to be made to Reid
under this Agreement (which Reid hereby acknowledges and agrees represent
additional consideration which she would not otherwise be entitled to receive)
and the promises, covenants and agreements contained herein, Reid, for herself,
her successors, assigns, affiliates, and agents and her and their respective
heirs, executors, administrators, successors, assigns and agents (collectively,
the "Reid Releasing Parties"), hereby releases, waives and forever discharges
COLLEGIS, its affiliates and subsidiaries, and their respective officers,
directors, shareholders, partners, supervisors, employees, agents,
representatives, successors and assigns (collectively, the "COLLEGIS Released
Parties") from any and all actions, suits, damages, claims and demands
heretofore arising out of, under, or in connection with (i) the Operative
Documents, (ii) any Reid Releasing Party's employment by, or business dealing
with, any COLLEGIS Released Party, or (iii) any Reid Releasing Party's ownership
of the shares of common stock of, or any other equity interest in, any COLLEGIS
Released Party, which any Reid Releasing Party may have against any COLLEGIS
Released Party, in law or equity, known or unknown, fixed or contingent,
liquidated or unliquidated, and whether heretofore arising from tort, statute or
contract, including, but not limited to, any claims arising under Title VII of
the Civil Rights Act of 1964, the Civil Rights Act of 1866, the Civil Rights Act
of 1991, the Americans with Disabilities Act, the Rehabilitation Act, the Equal
Pay Act of 1963, the Employee Retirement Income Security Act of 1974, the Family
& Medical Leave Act of 1993, the Age Discrimination in
-6-
<PAGE>
Employment Act (the "ADEA"), any other federal or state equal employment
opportunity, gender or age discrimination law, wage payment law, or any other
federal or state law, statute, decision, order, policy or regulation
establishing or relating to claims or rights of employees, the Securities Act
of 1933, and the Securities and Exchange Act of 1934. Notwithstanding the
foregoing, nothing herein is intended to release COLLEGIS from any of its
obligations under this Agreement or any continuing obligations under the
Operative Documents, as amended by this Agreement.
9. COLLEGIS RELEASE. COLLEGIS, for itself and its predecessors,
successors, assigns, affiliates, employees and agents (collectively, the
"COLLEGIS Releasing Parties"), hereby release, waive and forever discharge
Reid and her agents, representatives, successors and assigns (collectively,
the "Reid Released Parties") from any and all actions, suits, damages, claims
and demands heretofore arising out of, under, or in connection with (i)
Operative Documents, (ii) any Reid Released Party's employment by, or
business dealing with, any COLLEGIS Releasing Party, or (iii) any Reid
Released Party's ownership of the shares of common stock of, or any other
equity interest in, any COLLEGIS Releasing Party, which any COLLEGIS
Releasing Party may have against any Reid Released Party, in law or equity,
known or unknown, fixed or contingent, liquidated or unliquidated, and
whether arising from tort, statute or contract, it being the intention of the
parties to make this release as broad and general as the law permits.
Notwithstanding the foregoing, nothing herein is intended to release Reid
from any of her obligations under this Agreement or any continuing
obligations under the Operative Documents, as amended by this Agreement.
10. NONDISCLOSURE; NONDISPARAGEMENT; PUBLICITY. The parties agree not
to disclose the financial terms of this Agreement to any persons inside or
outside of COLLEGIS except members of the Board of Directors of COLLEGIS and
those persons who, for financial, accounting and legal reasons, need to know
such terms. COLLEGIS, on the one hand, and Reid, on the other, regret that
differences have arisen between them and agree not to publicly or privately
disparage one another or to take any action knowingly intended to harm the
other.
11. DELIBERATION. COLLEGIS hereby advises Reid by this writing to consult
with legal counsel prior to executing this Agreement. COLLEGIS hereby notifies
Reid that under the ADEA and the Federal Older Workers Benefit Protection Act,
she has twenty-one (21) calendar days from the date upon which this Agreement is
delivered to her within which to consider the release of any ADEA claims
referenced in Section 8 hereof. COLLEGIS hereby notifies Reid that, if she
executes this Agreement, she may revoke the ADEA portion of the release set
forth in Section 8 hereof within a period of seven (7) calendar days following
the date on which she executes this Agreement (the "Revocation Period"). This
Agreement shall not become effective or enforceable until after the Revocation
Period has expired without Reid exercising her right of revocation. Such
revocation by Reid shall be communicated in writing to the President of
COLLEGIS, and must be received by the President of COLLEGIS, on or before the
expiration of the Revocation Period; otherwise Reid shall be deemed to have
waived her right of revocation and this Agreement shall be binding on all
parties in all respects. If Reid exercises her right of revocation within the
Revocation Period, this Agreement shall have full force and effect as to all of
its terms except the release of claims under the ADEA, and COLLEGIS will have
three (3) business days within which to rescind the entire
-7-
<PAGE>
Agreement in writing if it elects to do so. Such election by COLLEGIS shall
be communicated in writing to Reid.
12. NOTICES. All notices, demands and requests required or permitted
to be given under the provisions of this Agreement or under the Employment
Agreement shall be deemed duly given if made in writing and delivered
personally or mailed by postage prepaid certified or registered mail, return
receipt requested, which notices shall be addressed as follows (or addressed
to such other address that a party shall later designate to the other
parties):
If to the Company or to COLLEGIS:
COLLEGIS, Inc.
2300 Maitland Center Parkway
Suite 340
Maitland, FL 32751
Attn: President
with a copy to:
Stanford J. Goldblatt
Hopkins & Sutter
Three First National Plaza
Suite 4100
Chicago, IL 60602
If to Reid:
Claire Reid
-------------------
-------------------
-------------------
with a copy to:
Lewis Kates, Esq.
Lewis Kates Law Offices
1604 Locust Street
Philadelphia, PA 19103
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered
-8-
<PAGE>
shall be deemed to be an original and all of which taken together shall
constitute but one and the same instrument.
[Remainder of Page Intentionally Omitted.
Signature Page Follows.]
-9-
<PAGE>
The parties hereto indicate their agreement herewith and their
willingness to be bound by the terms of this Agreement by signing this
Agreement.
COLLEGIS, INC.
By:
---------------------------
Its:
---------------------
/s/ Claire Reid
------------------------------
Claire Reid
<PAGE>
Exhibit 10.8
TECHNOLOGY SPECIALISTS, INC.
1996 STOCK OPTION PLAN
Adopted by the Board of Directors on April 11, 1996
1. PURPOSE.
The purpose of this 1996 Stock Option Plan (this "Plan") of Technology
Specialists, Inc., a Pennsylvania corporation (the "Company"), is to provide
a means whereby selected directors, officers and employees of the Company may
be granted options to purchase shares of Series B Common Stock, par value
$0.01 per share, of the Company ("Series B Common Stock"), in order to
attract or retain the services of such directors, officers and employees by
creating incentive compensation that directly relates to the Company's future
performance and appreciation in value and to insure that such directors,
officers and employees are aligned with the same performance target -- the
maximization of the Company's value. Except where the context otherwise
requires, the term "Company" shall include the parent, if any, and all
present and future subsidiaries of the Company as defined in Sections 424(e)
and 424(f) of the Internal Revenue Code of 1986, as amended or replaced from
time to time (the "Code").
2. TYPE OF OPTIONS AND ADMINISTRATION.
(a) TYPES OF OPTIONS. Options granted pursuant to this Plan shall be
authorized by action of the Board of Directors of the Company (the "Board") (or
a committee designated by the Board as hereinafter provided) and may be either
incentive stock options meeting the requirements of Section 422 of the Code
("Incentive Stock Options") or non-statutory options which are notintended
<PAGE>
to meet the requirements of Section 422 of the Code. Those provisions of
this Plan which make express reference to Section 422 of the Code shall apply
only to Incentive Stock Options.
(b) ADMINISTRATION. This Plan will be administered by the Board, whose
construction and interpretation of the terms and provisions of this Plan
shall be final and conclusive. Subject to the terms and conditions expressly
set forth in this Plan, the Board will have the authority, in its sole
discretion, to determine all matters relating to the options to be granted
under this Plan, including, but not limited to, the selection of the
individuals to be granted options, the number of shares of Series B Common
Stock to be subject to each option, the exercise price, the conditions with
respect to the vesting or exercisability of such options and all other terms
and conditions of the options, to adopt and approve the stock option
agreements evidencing such options consistent with the terms of the grant of
such options and this Plan, which stock option agreements need not be
identical, even when made simultaneously, and to issue shares of Series B
Common Stock upon exercise of such options as provided in this Plan and the
stock option agreements. In addition, the Board shall have authority,
subject to the express provisions of this Plan, to construe the respective
stock option agreements and this Plan, to prescribe, amend and rescind rules
and regulations relating to this Plan and to make all other determinations in
the judgment of the Board necessary or desirable for the administration of
this Plan. The Board may correct any defect or supply any omission or
reconcile any inconsistency in this Plan or in any stock option agreement in
the manner and to the extent it shall deem expedient to carry this Plan into
effect and it shall be the sole and final judge of such expediency. The
Board may, to the full extent permitted by or consistent with applicable laws
or regulations, delegate any or all of its powers under this Plan to a
committee (the "Committee")
2
<PAGE>
appointed by the Board, and if the Committee is so appointed all references
to the Board in this Plan shall mean and relate to such Committee.
From and after the registration of the Series B Common Stock (or of the
Series C Common Stock, par value $0.01 per share, of the Company ("Series C
Common Stock"), into which the Series B Common Stock shall convert upon the
closing of the Company's first underwritten public offering of any series of
its Common Stock, par value $0.01 per share ("Common Stock"), pursuant to a
registration statement declared effective under the Securities Act of 1933,
as amended (the "IPO")) under Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), this Plan will be administered either
(i) by the Board, of which all members shall be "disinterested persons" (as
hereinafter defined), or (ii) by a Committee consisting of two or more
directors having full authority to act in the matter, each of whom shall be a
"disinterested person." For the purposes of this Plan, a director shall be
deemed to be a "disinterested person" only if such person qualifies as a
"disinterested person" within the meaning of Rule 16b-3 promulgated under the
Exchange Act, or any successor rule ("Rule 16b-3"), as such term is
interpreted from time to time.
(c) APPLICABILITY OF RULE 16B-3. Those provisions of this Plan which
make express reference to Rule 16b-3 shall apply only to persons that are
required to file reports under Section 16(a) of the Exchange Act (a
"Reporting Person"). Furthermore, until and after such time as the Series B
Common Stock (or the Series C Common Stock into which the Series B Common
Stock shall convert upon the closing of the IPO) is registered under Section
12 of the Exchange Act, references herein to Rule 16b-3 shall be of no force
or effect.
3. ELIGIBILITY.
3
<PAGE>
Options may be granted to persons specified by the Board, in its sole
discretion, who are, at the time of grant, directors, officers or employees
of the Company; PROVIDED, HOWEVER, that Incentive Stock Options may be
granted only to employees of the Company. A person who has been granted an
option may, if he or she is otherwise eligible, be granted additional options
if the Board shall so determine.
4. STOCK SUBJECT TO PLAN.
The stock subject to this Plan shall be the Series B Common Stock
presently authorized but unissued or subsequently acquired by the Company;
PROVIDED, HOWEVER, that upon the closing of the IPO the stock subject to this
Plan shall be the Series C Common Stock and all references herein to the
Series B Common Stock shall be deemed references to the Series C Common
Stock. Subject to adjustment as provided in Section 15 hereof, the maximum
number of shares of Series B Common Stock which may be issued and sold under
this Plan is 313,192 shares. If an option granted under this Plan shall
expire or terminate for any reason without having been exercised in full, the
unpurchased shares subject to such option shall again be available for
subsequent option grants under this Plan.
5. FORMS OF STOCK OPTION AGREEMENTS.
Options granted under this Plan shall be evidenced by written stock
option agreements in such form or forms not inconsistent with this Plan as
may be approved by the Board from time to time, which stock option agreements
shall contain such terms, conditions, limitations, restrictions and other
provisions as the Board shall deem advisable and which are not inconsistent
with this Plan. Such stock option agreements may differ among recipients,
even when made simultaneously. The provisions of Sections 13, 14, 15, 16,
17, 18, 19 and 20 of this Plan shall be included in such stock
4
<PAGE>
option agreements or incorporated therein by reference. The grant of an
option pursuant to this Plan shall be conditional on the execution of the
applicable stock option agreement by the recipient of such grant.
6. PURCHASE PRICE.
(a) GENERAL. The purchase price per share of Series B Common Stock
deliverable upon the exercise of an option shall be determined by the Board
and set forth in the applicable stock option agreement; PROVIDED, HOWEVER,
that the purchase price per share of Series B Common Stock shall not be less
than (i) in the case of an Incentive Stock Option (other than Incentive Stock
Options described in Section 11(b) hereof), 100% of the fair market value of
a share of Series B Common Stock, as determined by the Board, at the time of
grant of such option (without regard to any restriction other than a
restriction which, by its terms, will never lapse), and (ii) in the case of
Incentive Stock Options described in Section 11(b) hereof, 110% of such fair
market value, as so determined.
(b) PAYMENT OF PURCHASE PRICE. Options granted under this Plan may
provide for the payment of the exercise price by delivery of cash or a certified
check to the order of the Company in an amount equal to the aggregate exercise
price of such options, or, to the extent provided in the applicable stock option
agreement, (i) by delivery to the Company of shares of any series of Common
Stock already owned by the optionee having a fair market value equal in amount
to the aggregate exercise price of the options being exercised, (ii) by any
other means (including, but not limited to, (A) by delivery of a promissory note
of the optionee payable on such terms as are specified by the Board or (B) by
cancellation of outstanding options of the optionee or withholding shares of
Common Stock issuable to the optionee upon the exercise of such option upon
terms set
5
<PAGE>
by the Board, which the Board determines are consistent with the purpose of
this Plan and with applicable laws and regulations (including, but not
limited to, the provisions of Rule 16b-3 or (iii) by any combination of such
methods of payment. The fair market value of any shares of any series of
Common Stock or other non-cash consideration which may be delivered upon
exercise of an option shall be determined by the Board.
7. OPTION PERIOD.
Each option and all rights with respect thereto shall expire on such
date as shall be set forth in the applicable stock option agreement, except
that (a) in the case of an Incentive Stock Option (other than an Incentive
Stock Option described in Section 11(b) hereof), such date shall not be later
than ten years after the date on which such option is granted, (b) in the
case of an Incentive Stock Option described in Section 11(b) hereof, such
date shall not be later than five years after the date on which such option
is granted, and (c) in all cases, options may be subject to earlier
termination as provided in this Plan or in the applicable stock option
agreement.
8. EXERCISE OF OPTIONS.
Each option granted under this Plan shall become exercisable either in
full or in installments at such time or times and during such period as shall
be set forth in the stock option agreement evidencing such option, subject to
the provisions of this Plan.
9. NONTRANSFERABILITY OF OPTIONS.
Options granted under this Plan and the rights and privileges conferred
thereby may not be transferred, assigned, pledged or hypothecated in any manner
(whether by operation of law or otherwise), other than (a) by will, or (b) by
the applicable laws of descent and distribution, and shall not be subject to
execution, attachment or similar process. Any attempt to transfer, assign,
pledge,
6
<PAGE>
hypothecate or otherwise dispose of any such option or of any right or
privilege conferred thereby, contrary to this Plan, or the sale or levy or
similar process upon the rights and privileges conferred thereby, shall be
void.
10. EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP.
Except as provided in Section 11 hereof with respect to Incentive Stock
Options, and subject to the provisions of this Plan, the Board shall
determine the period of time, if any, during which an optionee may exercise
an option following (i) the termination of the optionee's employment or other
relationship with the Company or (ii) the death or disability of the
optionee. Such periods shall be set forth in the stock option agreement
evidencing such option.
11. INCENTIVE STOCK OPTIONS.
Options granted under this Plan which are intended to be Incentive Stock
Options shall be subject to the following additional terms and conditions:
(a) EXPRESS DESIGNATION. All Incentive Stock Options granted under
this Plan shall, at the time of grant, be specifically designated as such in
the stock option agreement covering such Incentive Stock Options.
(b) 10% SHAREHOLDER. If any employee to whom an Incentive Stock Option
is to be granted under this Plan is, at the time of the grant of such option,
the owner of stock possessing more than 10% of the total combined voting
power of all classes or series of stock of the Company (after taking into
account the attribution of stock ownership rules of Section 424(d) of the
Code), then the following special provisions shall be applicable to the
Incentive Stock Option granted to such individual:
7
<PAGE>
(i) The purchase price per share of the Series B Common Stock
subject to such Incentive Stock Option shall not be less than 110% of the
fair market value of a share of Series B Common Stock at the time of grant;
and
(ii) the option exercise period shall not exceed five years
from the date of grant.
(c) DOLLAR LIMITATION. For so long as the Code shall so provide,
options granted to any employee under this Plan (and any other incentive
stock option plans of the Company) which are otherwise designated as
Incentive Stock Options shall not constitute Incentive Stock Options to the
extent that such options, in the aggregate, become exercisable for the first
time in any calendar year for shares of Series B Common Stock or of any other
class of stock of the Company with an aggregate fair market value (determined
as of the respective date or dates of grant) in excess of $100,000.
(d) TERMINATION OF EMPLOYMENT, DEATH OR DISABILITY. No Incentive Stock
Option may be exercised unless, at the time of such exercise, the optionee
is, and has been continuously since the date of grant of his or her option,
in the employment of the Company, except that:
(i) an Incentive Stock Option may be exercised within the
period of three months after the date the optionee ceases to be an employee
of the Company (or within such lesser period as may be specified in the
applicable option agreement), PROVIDED, HOWEVER, that the stock option
agreement with respect to such option may designate a longer exercise
period and if such option is exercised after such three-month period the
exercise of such option shall be treated as the exercise of a non-statutory
option under this Plan;
8
<PAGE>
(ii) if the optionee dies while in the employ of the Company,
or within three months after the optionee ceases to be such an employee,
the Incentive Stock Option may be exercised by the person to whom it is
transferred by will or the laws of descent and distribution within the
period of one year after the date of death (or within such lesser period as
may be specified in the applicable stock option agreement); and
(iii) if the optionee becomes disabled (within the meaning of
Section 22(e)(3) of the Code or any successor provision thereto) while in
the employ of the Company, the Incentive Stock Option may be exercised
within the period of one year after the date the optionee ceases to be such
an employee because of such disability (or within such lesser period as may
be specified in the applicable stock option agreement).
For purposes of this Plan and any option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of
the Income Tax Regulations (or any successor regulations). Notwithstanding
the foregoing provisions, no Incentive Stock Option may be exercised after
its expiration date.
12. ADDITIONAL PROVISIONS.
(a) ADDITIONAL OPTION PROVISIONS. The Board may, in its sole
discretion, include additional provisions in stock option agreements covering
options granted under this Plan and shares of Series B Common Stock issued
upon exercise of such options, including, but not limited to, (i)
restrictions on transfer and disposition, (ii) the grant of registration
rights, (iii) repurchase rights, (iv) commitments to pay cash bonuses, to
make, arrange for or guaranty loans or to transfer other property to
optionees upon exercise of options, (v) restrictions on voting, and (vi) any
additional conditions to the issuance of shares of Series B Common Stock upon
the exercise of options,
9
<PAGE>
including, without limitation, the execution of one or more shareholders
agreements; PROVIDED, HOWEVER, that such additional provisions shall not be
inconsistent with any other term or condition of this Plan and such
additional provisions shall not cause any Incentive Stock Option granted
under this Plan to fail to qualify as an Incentive Stock Option within the
meaning of Section 422 of the Code.
(b) ACCELERATION, EXTENSION AND OTHER MATTERS. The Board may, in its
sole discretion, (i) accelerate the date or dates on which all or any
particular option or options granted under the Plan may be exercised or (ii)
extend the dates during which all or any particular option or options granted
under the Plan may be exercised; PROVIDED, HOWEVER, that no such extension
shall be permitted if it would cause the Plan to fail to comply with (A)
Section 422 of the Code and (B) Rule 16b-3.
13. GENERAL RESTRICTIONS.
(a) INVESTMENT REPRESENTATIONS. The Board may require any person to
whom an option is granted, as a condition of exercising such option, to give
written assurances in form and substance satisfactory to the Board in its
sole discretion to the effect that such person is acquiring the Series B
Common Stock subject to the option for his or her own account for investment
and not with any present intention of selling or otherwise distributing the
same, and to such other effects as the Board deems necessary or appropriate
in its sole discretion in order to comply with federal and applicable state
securities laws, or with covenants or representations made by the Company in
connection with any public offering of its Common Stock.
(b) COMPLIANCE WITH SECURITIES LAWS. Each option shall be subject to
the requirement that if, at any time, counsel to the Company shall determine
that (i) the listing, registration or qualification of the shares subject to
such option upon any securities exchange or under any federal,
10
<PAGE>
state or foreign law, (ii) the consent or approval of any governmental or
regulatory body, or (iii) the disclosure of non-public information or the
satisfaction of any other condition is necessary as a condition of, or in
connection with, the issuance or purchase of shares thereunder, such option
may not be exercised, in whole or in part, unless such listing, registration,
qualification, consent or approval, disclosure or satisfaction of such
condition, shall have been effected or obtained on conditions acceptable to
the Board in its sole discretion. Nothing contained herein shall be deemed
to require the Company to apply for or to obtain such listing, registration,
qualification, or approval, to make such disclosure or to satisfy such
condition.
14. RIGHTS AS A SHAREHOLDER.
The holder of an option shall have no rights as a shareholder with
respect to any shares covered by the option (including, but not limited to,
any rights to receive dividends or distributions with respect to such shares)
until the date of issue of a stock certificate to him or her for such shares.
No adjustment shall be made for dividends, distributions or other rights for
which the record date is prior to the date such stock certificate is issued.
15. ADJUSTMENT PROVISIONS FOR RECAPITALIZATIONS AND RELATED TRANSACTIONS.
(a) GENERAL. If, as a result of any merger, consolidation,
reorganization, recapitalization, reclassification, stock dividend, stock
split, reverse stock split or other similar transaction or the consummation
of the IPO, (i) the outstanding shares of Series B Common Stock are
increased, decreased, exchanged for or converted into a different number or
kind of shares or other securities of the Company, or (ii) additional shares
or new or different shares or other securities of the Company or other
non-cash assets are distributed with respect to such shares of Series B
Common Stock or other securities, an appropriate and proportionate adjustment
may be made in (x) the
11
<PAGE>
maximum number and kind of shares reserved for issuance under this Plan, (y)
the number and kind of shares or other securities subject to any then
outstanding options under this Plan, and (z) the price for each share subject
to any then outstanding options under this Plan, without changing the
aggregate purchase price as to which such options remain exercisable.
Notwithstanding the foregoing, no adjustment shall be made pursuant to this
Section 15 if such adjustment would cause this Plan to fail to comply with
(A) Section 422 of the Code and (B) Rule 16b-3.
(b) BOARD AUTHORITY TO MAKE ADJUSTMENTS. Any adjustments under this
Section 15 will be made by the Board, whose determination as to what
adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive.
16. CERTAIN MERGERS, CONSOLIDATIONS AND OTHER REORGANIZATIONS.
(a) GENERAL. In the event of a consolidation or merger in which
outstanding shares of Series B Common Stock are exchanged for securities,
cash or other property of any other corporation or entity or in the event of
the sale of all or substantially all of the assets of the Company or in the
event of a liquidation of the Company or in the event of any sale or series
of sales of shares of the Company's capital stock by the holders thereof
which results in any person or entity or group of affiliated persons or
entities (other than the owners of the Company's capital stock prior to such
sale or sales) owning capital stock of the Company possessing the voting
power (under ordinary circumstances) to elect a majority of the Board, the
Board, or the board of directors of any corporation assuming the obligations
of the Company, may, in its sole discretion, take any one or more of the
following actions, as to outstanding options: (i) provide that such options
shall be assumed, or equivalent options shall be substituted, by the
acquiring or succeeding corporation or entity (or an affiliate thereof),
PROVIDED, HOWEVER, that any such options substituted for Incentive
12
<PAGE>
Stock Options shall meet the requirements of Section 424(a) of the Code, (ii)
upon written notice to the optionees, provide that (A) all exercisable but
unexercised options will terminate immediately prior to the consummation of
such transaction unless exercised by the optionee within a specified period
following the date of such notice and prior to the consummation of such event
or transaction and (B) all unexercisable options will terminate upon
consummation of such event or transaction, (iii) in the event of a merger or
consolidation under the terms of which holders of the Series B Common Stock
of the Company will receive upon consummation thereof a payment for each
share surrendered in the merger or consolidation (the "Merger Price"), make
or provide for a payment to the optionees equal to the difference between (A)
the Merger Price times the number of shares of Series B Common Stock subject
to such outstanding options (to the extent then exercisable at prices not in
excess of the Merger Price) and (B) the aggregate exercise price of all such
outstanding options, in exchange for the termination of such options, (iv)
provide that all or any outstanding options shall become exercisable in full
immediately prior to such event or transaction and shall cease to be
exercisable at any time after such event or transaction, or (v) take any
other action with respect to outstanding options that is not prohibited by
(A) any other term or condition of this Plan, (B) such terms and provisions
of the Exchange Act (and the rules promulgated thereunder) that bear upon
this Plan or the options authorized or granted under it and (C) in the case
of Incentive Stock Options, such terms and provisions of the Code (and the
rules promulgated thereunder) that apply to such Incentive Stock Options.
(b) SUBSTITUTE OPTIONS. The Company may grant options under this Plan in
substitution for options held by employees of another corporation who become
employees of the Company or a subsidiary of the Company as the result of a
merger or consolidation of the employing corporation
13
<PAGE>
with the Company or a subsidiary of the Company, or as a result of the
acquisition by the Company, or one of its subsidiaries, of property or stock
of the employing corporation. The Company may direct that substitute options
be granted on such terms and conditions as the Board considers appropriate in
its sole discretion in the circumstances consistent with the provisions of
this Plan.
17. NO SPECIAL EMPLOYMENT OR RELATIONSHIP RIGHTS.
Nothing contained in this Plan or in any option shall confer upon any
optionee any right with respect to the continuation of his or her employment
by or relationship with the Company or any parent or subsidiary of the
Company or interfere in any way with the right of the Company or any parent
or subsidiary of the Company at any time to terminate such employment or
relationship or to increase or decrease the compensation of the optionee.
18. OTHER EMPLOYEE BENEFITS.
Except as to plans which by their express terms include such amounts as
compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an option or the sale of shares
received upon such exercise will not constitute compensation with respect to
which any other employee benefits of such employee are determined, including,
but not limited to, benefits under any bonus, pension, profit-sharing, life
insurance or salary continuation plan, except as otherwise specifically
determined by the Board.
19. AMENDMENT OF THIS PLAN.
(a) The Board may at any time, and from time to time, modify or amend
this Plan in any respect, except that, if at any time the approval of the
shareholders of the Company is required under Section 422 of the Code or any
successor provision with respect to Incentive Stock Options, or Rule 16b-3,
such modification or amendment shall not become effective until such approval
is obtained.
14
<PAGE>
(b) Except as provided in the last sentence of this Section 19(b), the
termination or any modification or amendment of this Plan shall not, without
the consent of an optionee, affect his or her rights under an option
previously granted to him or her. With the consent of the optionee, however,
the Board may amend outstanding stock option agreements between the Company
and such optionee in a manner not inconsistent with this Plan. In addition,
the Board shall in any event have the right to amend or modify (i) the terms
and provisions of this Plan and of any outstanding Incentive Stock Options
granted under this Plan to the extent necessary to qualify any or all such
options for such favorable federal income tax treatment (including deferral
of taxation upon exercise) as may be afforded Incentive Stock Options under
Section 422 of the Code and (ii) the terms and provisions of this Plan and of
any outstanding option to the extent necessary to ensure the qualification of
this Plan under Rule 16b-3.
20. WITHHOLDING.
(a) The Company shall have the right to deduct from payments of any kind
otherwise due to the optionee any federal, state, local or foreign taxes of any
kind required by law to be withheld with respect to any shares issued upon
exercise of options under this Plan. Subject to the prior approval of the
Board, which may be withheld by the Board in its sole discretion, the optionee
may elect to satisfy such obligations, in whole or in part, (i) by causing the
Company to withhold shares of Series B Common Stock otherwise issuable pursuant
to the exercise of an option or (ii) by delivering to the Company shares of
Series B Common Stock already owned by the optionee. The shares so delivered or
withheld shall have a fair market value equal to such withholding obligation.
The fair market value of the shares used to satisfy such withholding obligation
shall be determined by the Board as of the date that the amount of tax to be
withheld is to be determined. An optionee
15
<PAGE>
who has made an election described above under his or her stock option
agreement with the Company, consistent with the terms of this Section 20(a),
may only satisfy his or her withholding obligation with shares of Series B
Common Stock which are not subject to any repurchase, forfeiture, unfulfilled
vesting or other similar requirements.
(b) Notwithstanding the foregoing, in the case of a Reporting Person,
no election to use shares for the payment of withholding taxes shall be
effective unless made in compliance with any applicable requirements of Rule
16b-3.
21. CANCELLATION AND NEW GRANT OF OPTIONS.
In addition to, and not in limitation of, the provisions contained in
Sections 15 and 16 hereof, the Board shall have the authority to effect, at
any time and from time to time, with the consent of the affected optionees
and consistent with the Plan, (a) the cancellation of any or all outstanding
options under this Plan and the grant in substitution therefor of new options
under this Plan covering the same or different numbers of shares of Series B
Common Stock and having an option exercise price per share which may be lower
or higher than the exercise price per share of the canceled options or (b)
the amendment of the terms of any and all outstanding options under this Plan
to provide an option exercise price per share which is higher or lower than
the then-current exercise price per share of such outstanding options.
22. EFFECTIVE DATE AND TERMINATION OF THIS PLAN.
(a) EFFECTIVE DATE. This Plan shall become effective upon adoption by
the Board. Options may be granted under this Plan at any time after the
effective date and before the date fixed for termination of this Plan.
16
<PAGE>
(b) TERMINATION. Unless sooner terminated in accordance with Section
16 hereof, this Plan shall terminate upon the tenth anniversary of the date
of its adoption by the Board. Options outstanding on such date shall
continue to have force and effect in accordance with the provisions of the
stock option agreement applicable to such options.
17
<PAGE>
[LETTERHEAD]
Exhibit 16.1
July 28, 1998
Securities and Exchange Commission
Mail Stop 9-5
450 5th Street, N. W.
Washington, D.C. 20549
Dear Sirs/Mesdames:
We have read and agree with the comments in the fourth (4th) paragraph under
the heading "Experts" in the Prospectus which is a part of the registration
statement on Form S-1 of COLLEGIS, Inc. dated July 29, 1998.
Yours truly,
/s/ ZWEIG, RAMICK & ASSOCIATES
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders of
COLLEGIS, Inc.:
We consent to the use in this Registration Statement of COLLEGIS, Inc. on
Form S-1 of our report dated February 20, 1998, appearing in the Prospectus,
which is a part of this Registration Statement, and to the references to us
under the headings "Selected Financial Data" and "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
- ------------------------------
Chicago, Illinois
July 28, 1998
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITOR'S CONSENT
To the Board of Directors and Stockholders of
COLLEGIS, Inc.
We consent to the use in this Registration Statement relating to 4,255,000
shares of Common Stock of COLLEGIS, Inc. (formerly Technology Specialists,
Inc.) on Form S-1 of our report dated January 23, 1996, appearing in the
Prospectus, which is a part of this Registration Statement, and to the
references to us under the headings "Selected Financial Data" and "Experts"
in such Prospectus.
/s/ Zweig, Ramick & Associates
- ------------------------------------
Philadelphia, Pennsylvania
July 28, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF COLLEGIS, INC. AS OF DECEMBER 31, 1996 AND 1997 AND FOR EACH OF
THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1998 AND AS OF JUNE 30, 1997
AND 1998 AND FOR THE SIX MONTH PERIODS THEN ENDED AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<C>
<PERIOD-TYPE> YEAR YEAR YEAR 6-MOS
6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1997 DEC-31-1997
DEC-31-1998
<PERIOD-START> JAN-01-1995 JAN-01-1996 JAN-01-1997 JAN-01-1997
JAN-01-1998
<PERIOD-END> DEC-31-1995 DEC-31-1996 DEC-31-1997 JUN-30-1997
JUN-30-1998
<CASH> 2,726 4,114 3,568 1,950
1,293
<SECURITIES> 0 0 0 0
0
<RECEIVABLES> 664 1,626 3,086 2,733
5,790
<ALLOWANCES> 0 0 0 0
0
<INVENTORY> 0 0 0 0
0
<CURRENT-ASSETS> 3,530 6,363 7,240 5,170
7,718
<PP&E> 176 279 888 525
1,130
<DEPRECIATION> 94 157 239 174
324
<TOTAL-ASSETS> 3,628 6,978 8,257 6,167
9,702
<CURRENT-LIABILITIES> 828 3,702 4,447 2,801
3,958
<BONDS> 0 8,326 8,150 7,951
7,525
0 0 0 0
0
0 0 0 0
0
<COMMON> 149 972 972 972
972
<OTHER-SE> 2,651 (6,022) (5,312) (5,644)
(2,754)
<TOTAL-LIABILITY-AND-EQUITY> 3,628 6,978 8,257 6,167
9,702
<SALES> 9,708 15,226 22,808 10,240
15,858
<TOTAL-REVENUES> 9,708 15,226 22,808 10,240
15,858
<CGS> 5,632 8,828 13,072 5,834
9,027
<TOTAL-COSTS> 5,632 8,828 13,072 5,834
9,027
<OTHER-EXPENSES> 2,357 5,849 6,643 3,247
6,941
<LOSS-PROVISION> 0 0 0 0
0
<INTEREST-EXPENSE> (124) 656 869 457
320
<INCOME-PRETAX> 1,843 (107) 2,224 702
(430)
<INCOME-TAX> (67) (571) 938 324
(170)
<INCOME-CONTINUING> 1,910 464 1,286 378
(260)
<DISCONTINUED> 0 0 0 0
0
<EXTRAORDINARY> 0 0 (271) 0
0
<CHANGES> 0 0 0 0
0
<NET-INCOME> 1,910 464 1,015 378
(260)
<EPS-PRIMARY> $0.33 $0.08 $0.16 $0.06
$(0.04)
<EPS-DILUTED> $0.31 $0.07 $0.14 $0.05
$(0.04)
</TABLE>
