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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 12, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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PROXICOM, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7371 52-1770631
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) No.)
</TABLE>
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11600 SUNRISE VALLEY DRIVE
RESTON, VA 20191
(703) 262-3200
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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RAUL J. FERNANDEZ
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PROXICOM, INC.
11600 SUNRISE VALLEY DRIVE
RESTON, VA 20191
(703) 262-3200
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
<TABLE>
<S> <C>
DAVID B. H. MARTIN, JR., ESQ. DAVID SYLVESTER, ESQ.
HOGAN & HARTSON L.L.P. WILLIAM F. WINSLOW, ESQ.
555 THIRTEENTH STREET, N.W. BARBARA J. O'CONNELL, ESQ.
WASHINGTON, D.C. 20004 HALE AND DORR LLP
(202) 637-5600 1455 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20004
(202) 942-8400
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act of 1933 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 of 1933, check the following box and list the
Securities Act of 1933 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. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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TITLE OF EACH CLASS PROPOSED MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED OFFERING PRICE (1) REGISTRATION FEE
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<S> <C> <C>
Common Stock, $.01 par value... $75,000,000 $20,850
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION,
DATED FEBRUARY 12, 1999
SHARES
[LOGO]
PROXICOM, INC.
COMMON STOCK
This is the initial public offering of Proxicom, Inc. common stock. Proxicom is
offering of the shares to be sold in this offering. The selling stockholders
that we identify in this prospectus are offering an additional
shares. Proxicom will not receive any proceeds from the sale of the
shares by the selling stockholders. At our request, the underwriters have
reserved up to 10% of the shares for purchase by our directors, officers,
employees, associates and related persons.
We anticipate that the initial public offering price will be between $
and $ per share. We intend to list our common stock on the Nasdaq
National Market under the symbol "PXCM."
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE THE RISK FACTORS BEGINNING ON
PAGE .
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price..................................... $ $
Underwriting Discounts and Commissions.................... $ $
Proceeds, Before Expenses, to Proxicom.................... $ $
Proceeds to the Selling Stockholders...................... $ $
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Proxicom has granted the underwriters the right to purchase up to
shares to cover any over-allotments, at any time until 30 days after the date of
this prospectus.
BT ALEX. BROWN
PRUDENTIAL SECURITIES
THOMAS WEISEL PARTNERS LLC
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
, 1999
<PAGE> 3
[INSIDE FRONT COVER PAGE]
GRAPHIC:
Two-page design with "Internet" in large lettering across the top of both
pages. Upper left corner of the graphic's left page contains the statement "what
makes us different". Directly beneath this statement is the following paragraph:
In 1994, Proxicom developed some of the first Internet
commerce storefronts and discovered the key to successful
Internet solutions -- a seamless integration of strategy,
technology and creative design skills. Proxicom has continued to
grow these traditionally disparate talents within an iterative
process that shares best practices and incorporates industry
expertise. The result is a culture where people work together to
create innovative Internet solutions that improve business
processes and create new business opportunities.
The phrase "Integrated Internet Skills" is beneath this paragraph. A circle
with three pegs and the words "strategy", "technology" and "creative design" is
contained in the lower half of the left page.
The upper half of the graphic's right page contains a pyramid with five
levels. A level of the pyramid corresponds to each of the following items:
- Value Through Innovation
Creating innovative Internet solutions for our clients
- Proxicom Process(SM)
Speed, Quality and Reduced Risk
- Internet Best Practices
Sharing our collective Internet knowledge since 1994
- Industry Expertise
Internet focus with industry specific knowledge
- Integrated Skills
Strategy, Technology and Creative Design
Proxicom's logo is in the lower right corner of this page.
FRONT COVER GRAPHIC:
Contains pictures and descriptions of projects Proxicom has completed for
three clients, Calphalon, the American Electronics Association ("AEA") and GE
Plastics. This page is separated into three rows. The first row contains the
boxed word "Internet", a picture of the web site Proxcom designed for Calphalon,
and the following description of the work Proxicom performed for Calphalon as
well as the benefits Calphalon derived as a result:
CALPHALON
Business-to-Consumer Internet Commerce
Calphalon sought to launch a new site to fully exploit the
interactive potential of the Internet. Proxicom created a
solution for Calphalon that differentiates its offerings in
cookware products by uniting a complement of communications,
content and transaction capabilities through a single source.
The solution includes information for consumers, Calphalon's
full portfolio of product information, educational instructions,
a database of recipes and interactive capabilities. Calphalon
establishes a direct link with a new audience, gains invaluable
knowledge of their interests and is able flexibly to influence
and respond to market needs. Proxicom also created the solutions
branding and
<PAGE> 4
user interface to enhance Calphalon's marketing presence. The
solution has created efficiencies for Calphalon's business and
has been used to introduce a new line of cutlery products to
test market acceptance.
The second row contains the boxed word "Extranet" a picture of the extranet
Proxicom designed for AEA, and the following description of the work Proxicom
performed for AEA as well as the benefits AEA derived as a result:
AMERICAN ELECTRONICS ASSOCIATION
A New Internet-Based Membership Service
The American Electronics Association ("AEA"), the largest
high-tech trade association with over 3,000 member companies
nationwide such as Intel, Amazon.com and Yahoo! Inc., sought to
leverage the Internet to improve its business. AEA wanted to
transform the way it worked with its members, an initiative
central to AEA's strategic plans. Proxicom is repositioning AEA,
re-branding the company and creating a new online membership
service. The functional and dynamic extranet Proxicom created
ties into AEA's core systems enabling distributed authoring and
release of content as well as personalization of information for
its users. It will also permit the sales of AEA products and
services with real-time pricing. The solution will redefine how
AEA markets, increasing sales, making publishing more efficient
and establishing direct communication with members and industry
experts.
The third row contains the boxed word "Intranet", a picture of the intranet
Proxicom designed for GE Plastics and the following description of the work
Proxicom performed for GE Plastics as well as the benefits GE Plastics derived
as a result:
GE PLASTICS
Intranet Knowledge Management System
The employees at GE Plastics were faced with time-consuming
searches for marketing, technical, sales and customer service
information which was previously stored in decentralized
databases, file systems and non-networked PCs. Proxicom changed
that by helping GE Plastics transform its knowledge management
and customer care tracking systems through a company-wide,
knowledge management Intranet. The solution eliminated costly
time spent searching for information and provided the marketing,
sales, IT and customer service personnel with a valuable
decision making tool that has helped them dramatically improve
their effectiveness and successfully increase productivity.
The lower right corner of the graphic contains Proxicom's logo.
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"PROXICOM" IS A REGISTERED TRADEMARK OF PROXICOM, INC. IN ADDITION, PROXICOM HAS
FILED FOR TRADEMARK REGISTRATION OF "PROXICOM PROCESS" AND OTHER MARKS. THIS
PROSPECTUS ALSO INCLUDES TRADEMARKS AND TRADE NAMES OF OTHER PARTIES.
-------------------------
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PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and consolidated financial statements and the notes to those
statements which appear elsewhere in this prospectus.
PROXICOM, INC.
OUR BUSINESS
Proxicom is a leading provider of Internet solutions to Global 1000
companies and other large organizations. Since 1994, we have focused exclusively
on the Internet and have successfully completed over 600 client engagements. Our
Internet solutions include business to consumer electronic commerce Internet
sites, business to business electronic commerce extranets and company-specific
intranets.
We apply our proprietary methodology, the Proxicom Process, in all of our
client engagements. Using the Proxicom Process, we integrate strategy,
technology and creative design to help our clients transform their businesses
with Internet solutions.
We sell and deliver our services and expertise through vertical teams
organized into four industry groups:
- energy and telecommunications;
- financial services;
- retail and manufacturing; and
- service industries.
This structure allows us to build industry domain expertise, develop
market-specific solutions for clients and replicate business solutions across
client engagements.
Our Internet solutions have included
- business to consumer electronic commerce Internet sites for Calphalon
Corporation, Cox Interactive Media, Inc. and Owens Corning;
- business to business electronic commerce extranets for the American
Electronics Association, Mercedes-Benz Credit Corp. and McKessonHBOC;
and
- company-specific intranets for GE Plastics, Hoffman-La Roche, Inc. and
Merrill Lynch & Co., Inc.
OUR MARKET OPPORTUNITY
The Internet presents opportunities to transform businesses and entire
industries. Companies use the Internet to
- communicate and transact business on a one-to-one basis with existing
customers;
- target and acquire new customers;
- collaborate with their supply-chain partners;
- enable electronic commerce; and
- manage distribution relationships.
The Internet has also allowed businesses to identify new product and service
offerings which extend and complement their core markets. As a result,
organizations invest in Internet solutions to transform their core business and
technology strategies.
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Few businesses have the range of skills necessary to successfully transform
the way they use technology and implement Internet solutions. Moreover, it is
difficult to find these skills externally in the supply-constrained Internet
professional services market. Even if businesses obtain skills in all three of
the strategy, technology and creative disciplines, they often have little
experience coordinating them.
The combination of these factors is creating a significant and growing
demand for third-party Internet professional services. International Data Corp.,
a technology industry research firm, forecasts that the market for Internet and
electronic commerce services worldwide will grow from $4.6 billion in 1997 to
$43.7 billion by 2002. Forrester Research, Inc., another technology industry
research firm, estimates the market for Internet and electronic commerce
services will grow from $5.4 billion in 1998 to $32.7 billion by 2002. These
projections represent a compound annual growth rate of more than 55% over these
periods. Forrester Research predicts that the Internet will be one of the
fastest-growing areas within the information technology services industry.
Proxicom believes organizations are increasingly searching for a
single-source professional services firm that can deliver integrated strategy,
technology and creative design skills specifically for the Internet.
OUR STRATEGY
Our strategy is to build upon our position as a leading Internet solutions
provider. To do this, we plan to
- leverage existing client relationships;
- further penetrate our vertical markets;
- continue geographic expansion;
- hire and retain skilled professionals;
- evolve the Proxicom Process;
- leverage technology partnerships; and
- extend reusable solutions.
We service our engagements with multi-disciplinary teams that work as
cohesive units. We facilitate collaboration between the client's business,
information technology and marketing functions. We believe our coordinated
approach results in better Internet solutions.
OUR OFFICES AND HISTORY
We started our company in 1991 as a Maryland corporation. We reorganized as
a Delaware corporation in 1996. Our principal offices are located at 11600
Sunrise Valley Drive in Reston, VA 20191. Our telephone number is 703-262-3200.
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THE OFFERING
Common stock offered by Proxicom............ shares
Common stock offered by the selling
stockholders................................ shares
Common stock outstanding after this
offering.................................... shares
Use of proceeds............................. Proxicom will use the proceeds
of this offering for general
corporate purposes, including
working capital, expansion of
operations and sales and
marketing capabilities and
possible acquisitions. Proxicom
will not receive any proceeds
from the sale of shares by the
selling stockholders. See "Use
of Proceeds."
Proposed Nasdaq National Market symbol...... PXCM
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following table summarizes the financial data for our business. The
1998 loss from operations and net loss include an $18.2 million stock-based and
other compensation expense associated with a merger. Of this expense, $17.2
million is a non-cash charge. We provide more detail about this expense in the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations --Results of Operations" section of this prospectus.
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<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1994 1995 1996 1997 1998
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue.................................... $ 1,258 $ 6,089 $12,431 $27,356 $ 42,405
Gross profit............................... 500 3,469 7,675 15,279 18,543
Income (loss) from operations.............. 130 1,165 1,214 2,943 (21,431)
Net income (loss).......................... 96 876 1,084 2,693 (20,642)
Basic net income (loss) per common share... $ 0.01 $ 0.07 $ 0.08 $ 0.21 $ (1.50)
Diluted net income (loss) per common
share.................................... $ 0.01 $ 0.07 $ 0.08 $ 0.16 $ (1.50)
Weighted average common shares
outstanding.............................. 12,492 13,027 12,993 12,626 13,762
Weighted average common shares and common
share equivalents........................ 12,492 13,027 13,536 16,333 13,762
</TABLE>
The following table summarizes our balance sheet on an actual and pro forma
as adjusted basis. The pro forma as adjusted data reflect
- the exercise of warrants to purchase 1,011,378 shares of common stock at
$7.91 per share;
- the conversion of 3,219,816 shares of convertible preferred stock into
common stock;
- a $ million charge to additional paid-in capital associated with
beneficial conversion of preferred stock; and
- the issuance of shares of common stock by Proxicom in this
offering and application of the net proceeds.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
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PRO FORMA
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash equivalents............................................ $ 2,482 $
Working capital............................................. 2,380
Total assets................................................ 22,077
Stockholders' equity........................................ 6,996
</TABLE>
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Unless otherwise specifically stated, information in this prospectus
assumes that immediately prior to the closing of this offering (1) all
outstanding shares of preferred stock are converted into shares of common stock,
(2) 1,011,378 shares of common stock are issued upon the exercise of warrants
and (3) the underwriters' over-allotment option will not be exercised.
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<PAGE> 9
RISK FACTORS
An investment in our common stock involves risks. You should carefully
consider the risks described below and the other information in this prospectus
including our financial statements and the related notes before you decide to
buy our common stock. The trading price of our common stock could decline due to
any of these risks, and you could lose all or part of your investment.
This prospectus contains forward-looking statements. The outcome of the
events described in these forward-looking statements is subject to risks. Actual
results could differ materially. This section and those sections entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" as well as other sections in this prospectus discuss
some of the factors that could contribute to these differences.
WE MAY NOT BE ABLE TO MANAGE GROWTH EFFECTIVELY
We are experiencing substantial growth which we may not be able to manage
effectively. Our business, financial condition and results of operations will be
materially and adversely affected if we fail to manage growth effectively. We
plan to continue to expand our consulting, technical, creative design and sales
and marketing organizations, both internally and through acquisitions. Our
growth has stretched and will continue to stretch our resources. We expect that
we will need to continue to hire and retain management personnel and other
employees. In addition, we must set fixed-price fees accurately, maintain high
employee utilization rates and maintain project quality, particularly if the
average size of our projects continues to increase.
Our management has limited experience managing a business of Proxicom's
size or a public company. Our existing management will need to develop
additional management expertise in these areas.
Our performance may depend on the effective integration of acquired
businesses. This integration, even if successful, may be expensive and time
consuming. It may strain our resources.
WE MAY NOT BE ABLE TO HIRE, TRAIN, MOTIVATE, RETAIN AND MANAGE PROFESSIONAL
STAFF
To succeed, we must hire, train, motivate, retain and manage highly-skilled
employees. Competition for skilled employees who can perform the services we
offer is intense. We might not be able to hire enough of them or to train,
motivate, retain and manage the employees we do hire. This could hinder our
ability to complete existing projects and bid for new projects. Hiring,
training, motivating, retaining and managing employees with the skills we need
is time-consuming and expensive.
OUR QUARTERLY OPERATING RESULTS MAY VARY
Our financial results may fluctuate from quarter to quarter. In fact, we
have incurred operating losses in three of our last four quarters. In future
quarters, our operating results may not meet public market analysts' and
investors' expectations. If that happens, the price of our common stock may
fall. Many factors can cause these fluctuations, including
- the number, size, timing and scope of our projects;
- customer concentration;
- long and unpredictable sales cycles;
- contract terms of projects;
- degrees of completion of projects;
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<PAGE> 10
- project delays or cancellations;
- competition for and utilization of employees;
- how well we estimate the resources we need to complete projects;
- the integration of acquired businesses;
- pricing changes in the industry; and
- economic conditions specific to the Internet and information technology
consulting.
A high percentage of our operating expenses, particularly personnel and rent,
are fixed in advance of any particular quarter. As a result, if we experience
unanticipated changes in our projects or in our employee utilization rates, we
could experience large variations in quarterly operating results and losses in
any particular quarter. Due to these factors, we believe you should not compare
our quarter-to-quarter operating results to predict our future performance.
We have generally realized lower revenue in the first quarter of the year
than in the other quarters. We believe that this has been due primarily to
client budget cycles and the short-term nature of our contracts.
WE MAY LOSE LARGE CLIENTS OR SIGNIFICANT PROJECTS
We generate much of our revenue from a limited number of major clients. As
a result, if we lose a major client or large project, our revenues will be
adversely affected. In 1998, for example, our two largest clients accounted for
approximately 15% and 14% of our revenue. That year, our five largest clients
contributed approximately 38% of our revenue. In 1997, our two largest clients
accounted for approximately 24% and 10% of our revenue. Our five largest clients
contributed approximately 48% of our revenue in that year. We perform varying
amounts of work for specific clients from year to year. A major client in one
year may not use our services in another year. In addition, we may derive
revenue from a major client that constitutes a large portion of a particular
quarter's total revenue. If we lose any major clients or any of our clients
cancel or significantly reduce a large project's scope, our business, financial
condition and results of operations could be materially and adversely affected.
Also, if we fail to collect a large account receivable, we could be subjected to
significant financial exposure.
OUR CLIENTS MAY TERMINATE THEIR CONTRACTS WITH US ON SHORT NOTICE
Our contracts with clients are generally short-term. Also, most clients can
reduce or cancel their contracts for our services without penalty and with
little or no notice. If a significant client or a number of small clients
terminate, significantly reduce or modify business relationships with us, our
business, financial condition and results of operations could be materially and
adversely affected. Consequently, you should not predict or anticipate our
future revenue based on the number of clients we have or the number and size of
our existing projects. When a client postpones, modifies or cancels a project,
we have to shift our employees to other projects and minimize the resulting
adverse impact on our operating results. In addition, our operating expenses are
relatively fixed and cannot be reduced on short notice.
OUR PROJECTS HAVE RISKS
Many of our projects are complex and critical to our clients. As a result,
if we fail or are unable to meet a client's expectations, we could damage our
reputation. This could adversely affect our ability to attract new business from
that client or others. If we fail to perform adequately on a project, a client
could sue us for economic damages.
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<PAGE> 11
WE COULD LOSE MONEY ON OUR CONTRACTS
As part of our strategy, we generally enter into fixed-price,
fixed-timeframe contracts, rather than contracts based on payment for time and
materials. Often, we fix the price or timeframe before we finalize the design
specifications. If we miscalculate the resources or time we need for these
projects, our business, financial condition and results of operations could be
materially and adversely affected.
OUR MARKETS ARE HIGHLY COMPETITIVE
We compete in markets that are new, intensely competitive and rapidly
changing. We may not compete successfully with our competitors. We currently
compete for client assignments and experienced personnel principally with the
following:
- large systems integrators;
- specialty systems integrators;
- strategy consulting firms; and
- Internet professional services providers.
Many of our competitors have significantly greater financial, technical,
marketing and managerial resources than we do. Many also generate greater
revenue and are better known than we are. Our markets have relatively low
barriers to entry. We expect to continue to face competition from new market
entrants, including Internet applications vendors and interactive advertising
agencies.
Competition in our market is based primarily on the following factors:
- Internet expertise and talent;
- quality, pricing and speed of service delivery;
- client references;
- integrated strategy, technology and creative design services; and
- vertical industry knowledge.
Some competitive factors are outside of our control. These factors include our
competitors' hiring and retention of senior staff, development of software that
is competitive with our products and services and response to client needs.
WE DEPEND ON THE EMERGING INTERNET MARKET
We have derived most of our revenue from projects involving the Internet.
The Internet is new and rapidly evolving. Our business will be adversely
affected if Internet usage does not continue to grow. A number of factors may
inhibit Internet usage. These factors include inadequate network infrastructure,
security concerns, inconsistent service quality and lack of cost-effective,
high-speed service. On the other hand, if Internet usage grows, the Internet
infrastructure may not support the demands this growth will place on it. The
Internet's performance and reliability may decline. In addition, outages and
delays have occurred throughout the Internet network infrastructure and have
interrupted Internet service. If these outages or delays occur frequently in the
future, Internet usage could grow more slowly or decline.
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<PAGE> 12
We may also incur substantial costs to keep up with changes surrounding the
Internet. Unresolved critical issues concerning the commercial use and
government regulation of the Internet include the following:
- security;
- cost and ease of Internet access;
- intellectual property ownership;
- privacy;
- taxation; and
- liability issues.
Any costs we incur because of these factors could materially and adversely
affect our business, financial condition and results of operations.
WE HAVE RISKS ASSOCIATED WITH TECHNOLOGY AND TECHNOLOGICAL CHANGE
Our market is characterized by rapidly changing technologies, frequent new
product and service introductions and evolving industry standards. If we cannot
keep pace with these changes, our business could suffer. The Internet's recent
growth and intense competition in our industry exacerbate these characteristics.
To achieve our goals, we need to develop strategic business and Internet
solutions that keep pace with continuing changes in industry standards,
information technology and client preferences. We will have to improve the
performance features and reliability of our services to adapt to rapidly
changing technologies. Also, as part of our business strategy, we reuse elements
of our Internet solutions for which there is repeat customer demand. We could
incur substantial costs if we need to modify our reusable solutions to adapt to
technological changes.
WE DEPEND ON KEY PERSONNEL
Our future success depends in large part on the continued services of a
number of our key personnel, including our founder, Chairman, President and
Chief Executive Officer, Raul J. Fernandez. We have no employment contract with
Mr. Fernandez or many of our other key personnel. The loss of the services of
Mr. Fernandez or any of our other key personnel could have a material adverse
effect on our business, financial condition and results of operations. We might
not be able to prevent key personnel, who may leave our employ in the future,
from disclosing or using our technical knowledge, practices or procedures. One
or more of our key personnel might resign and join a competitor or form a
competing company. As a result, we might lose existing or potential clients.
WE DEPEND ON OUR INTELLECTUAL PROPERTY RIGHTS
Our success depends, in part, upon our proprietary intellectual property
rights. We do not have any patents or patent applications pending. Existing
trade secret and copyright laws afford us only limited protection. Third parties
may attempt to disclose, obtain or use our solutions or technologies. This is
particularly true in foreign countries where laws or law enforcement practices
may not protect our proprietary rights as fully as in the United States. Others
may independently develop and obtain patents or copyrights for technologies that
are similar or superior to our technologies. If that happens, we may not be able
to license those technologies on reasonable terms, or at all.
Generally, we develop software applications for specific client
engagements. We frequently assign software ownership to the client, and retain
only a license for limited uses. Issues relating to ownership of and rights to
use software applications and frameworks can be complicated. We may become
involved in disputes that affect our ability to resell or reuse these
applications and frameworks. Also, we may have to pay economic damages in these
disputes.
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WE ARE, AND WILL CONTINUE TO BE, CONTROLLED BY OUR OFFICERS AND DIRECTORS
When this offering closes, our directors and executive officers will
beneficially own approximately % of the outstanding common stock. As a result,
they will continue to be able to effectively control most matters requiring
stockholder approval. Among other things, they will be able to elect a majority
of the directors and approve significant corporate matters.
THE YEAR 2000 ISSUE MAY ADVERSELY AFFECT US
Year 2000 problems could require us to incur delays and unanticipated
expenses. These delays and expenses could have a material adverse effect on our
business, financial condition and results of operations. Clients' and potential
clients' purchasing patterns may be affected by year 2000 issues as companies
expend significant resources to correct or replace their current systems for
year 2000 compliance. These clients and potential clients may have fewer funds
available to purchase our services. We may experience operations difficulties
because of undetected errors or defects in the technology we use in our internal
systems. We may become involved in disputes regarding year 2000 problems
involving solutions we developed or implemented or the interaction of our
solutions with other applications. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Year 2000 Readiness
Disclosure."
WE HAVE RISKS ASSOCIATED WITH OUR POTENTIAL ACQUISITIONS OR INVESTMENTS
We may acquire or make investments in complementary businesses, products,
services or technologies. For example, in August 1998, we merged with IBIS
Consulting, Inc. In December 1998, we reached a preliminary understanding with
Ericsson Telecommunicazioni SpA to invest in a joint venture company in Italy.
Any acquisitions or investments we make will involve risks. We may not be able
to make acquisitions or investments on commercially acceptable terms. If we do
buy a company, we could have difficulty retaining and assimilating that
company's personnel. In addition, we could have difficulty assimilating acquired
products, services or technologies into our operations. These difficulties could
disrupt our ongoing business, distract our management and employees, increase
our expenses and materially and adversely affect our results of operations.
Furthermore, we may incur debt or issue equity securities to pay for any future
acquisitions. If we issue equity securities, your investment could be diluted.
WE HAVE RISKS ASSOCIATED WITH OUR INTERNATIONAL EXPANSION
We expect to expand our international operations and international sales
and marketing efforts. Recently, we commenced operations in Germany and began
servicing clients in Spain. We also plan to service clients in Italy soon. We
have limited experience in marketing, selling and distributing our services
internationally. International operations are subject to other inherent risks,
including the following:
- recessions in foreign economies;
- political and economic instability;
- fluctuations in currency exchange rates;
- difficulties and costs of staffing and managing foreign operations;
- potentially adverse tax consequences;
- reduced protection for intellectual property rights in some countries;
- changes in regulatory requirements; and
- reductions in business activity during the summer months in Europe.
9
<PAGE> 14
WE HAVE NOT SPECIFICALLY ALLOCATED THE OFFERING'S NET PROCEEDS
We have not determined how the majority of the proceeds of this offering
will be spent. Our management may spend this offering's proceeds in ways with
which you and our other stockholders may not agree. See "Use of Proceeds."
THERE WILL BE DILUTION FOR NEW STOCKHOLDERS
If you purchase shares in the offering, you will incur immediate and
substantial dilution. See "Dilution."
OUR STOCK HAS NOT TRADED PUBLICLY AND ITS PRICE MAY FLUCTUATE WIDELY
Prior to this offering, there has been no public market for our common
stock. Consequently, our management and the underwriters will negotiate the
common stock's initial public offering price per share. The price they determine
may not be indicative of the market price that will prevail after this offering.
The market price of our common stock could fluctuate substantially due to
- future announcements concerning us or our competitors;
- quarterly fluctuations in operating results;
- announcements of acquisitions or technological innovations; or
- changes in earnings estimates or recommendations by analysts.
In addition, the stock prices of many technology companies fluctuate widely for
reasons which may be unrelated to operating results. Fluctuations in our common
stock's market price may affect our visibility and credibility in the Internet
solutions market.
FUTURE SALES OF OUR STOCK COULD DEPRESS ITS PRICE
After this offering there will be shares of our common stock
outstanding. There will be shares outstanding if the underwriters
exercise their over-allotment option in full. Some of these shares will be
freely tradable. In addition, immediately after this offering, holders of
18,226,362 shares of our common stock will have registration rights. Sales of a
large number of shares could have an adverse effect on the market price for our
common stock.
IT MAY BE HARD TO TAKE OUR COMPANY OVER AND THIS COULD DEPRESS OUR STOCK PRICE
Provisions of our certificate of incorporation, our bylaws and Delaware law
could make it difficult for a third party to acquire us, even if doing so would
benefit our stockholders. This could depress our stock price.
WE DO NOT INTEND TO PAY DIVIDENDS
To date, with the exception of Subchapter S Corporation distributions, we
have not paid any cash dividends on our common stock. We do not expect to
declare or pay any cash or other dividends in the foreseeable future. Also, we
are prohibited from paying cash dividends under the terms of our credit
facility.
THERE ARE BENEFITS OF THE OFFERING TO EXISTING STOCKHOLDERS
Several of our stockholders are selling shares in this offering. The
average price per share paid by our existing stockholders is $ . The
net price per share paid to the selling stockholders in this offering is
$ . Therefore, the average realized gain per share to the selling
stockholders is $ .
10
<PAGE> 15
USE OF PROCEEDS
Proxicom will receive estimated proceeds of approximately $ from
the sale of the shares of common stock it is offering, net of
underwriting discounts and estimated expenses, and based on an assumed initial
offering price of $ . Proxicom will not realize any proceeds from the
sale of common stock by the selling stockholders.
The primary purposes of this offering are to obtain additional capital,
create a public market for our common stock and facilitate future access to
public markets. Proxicom intends to use the majority of the offering's net
proceeds for working capital and general corporate purposes (including increases
in personnel and marketing activities). Proxicom will use a portion of the
proceeds to pay off a $1.4 million note payable to an investment bank for
services in connection with the IBIS Consulting transaction. The note accrues
interest at 7.0% per annum and matures upon the earlier of August 21, 1999 or
the completion of an initial public offering. Proxicom may use a portion of the
proceeds for strategic acquisitions. From time to time, in the ordinary course
of business, Proxicom evaluates potential acquisitions of businesses, products
or technologies. Proxicom has reached a preliminary understanding to invest
approximately $360,000 in a joint venture company in Italy with Ericsson
Telecommunicazioni SpA. Other than this potential transaction, Proxicom has no
present understandings or agreements with respect to any acquisition of
businesses, products or technologies.
Pending use of the net proceeds for the above purposes, Proxicom intends to
invest such funds in short-term, interest-bearing, investment-grade securities.
In addition to the use of the net proceeds received by it from the offering,
Proxicom also expects during the next 18 months to meet its working capital
requirements through existing cash and cash equivalents, short-term investments,
cash from sales of services, its credit facility and possibly other borrowings.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
DIVIDEND POLICY
With the exception of Subchapter S Corporation distributions, Proxicom has
never declared or paid any cash dividends on its capital stock. Proxicom intends
to retain future earnings, if any, to finance the expansion of its business and
does not expect to pay any cash dividends in the foreseeable future. Also,
Proxicom is prohibited from paying cash dividends under the terms of its credit
facility. See "Management's Discussion and Analysis of Financial Conditions and
Results of Operations -- Liquidity and Capital Resources."
11
<PAGE> 16
CAPITALIZATION
The following table presents Proxicom's capitalization as of December 31,
1998 (1) on an actual basis and (2) on a pro forma as adjusted basis to reflect
(a) the conversion of all convertible preferred stock into 3,219,816 shares of
common stock, (b) the $ million charge to additional paid-in capital
associated with beneficial conversion of the Series D convertible preferred
stock, (c) the issuance of 1,011,378 shares of common stock upon the exercise of
warrants as indicated in an irrevocable letter of intent from the warrant
holders, and (d) the sale of shares of common stock offered by
Proxicom in this offering at an assumed initial public offering price of
$ per share and the application of the estimated net proceeds. You
should read this information together with Proxicom's consolidated financial
statements and the notes to those financial statements appearing elsewhere in
this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------
PRO FORMA
ACTUAL AS ADJUSTED(1)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
STOCKHOLDERS' EQUITY:
Series A convertible preferred stock, $.01 par value;
2,641,347 shares authorized, 1,629,969 shares issued
and 1,222,469 shares outstanding (actual); no shares
authorized, issued and outstanding (pro forma as
adjusted).............................................. $ 12 $ --
Series B convertible preferred stock, $.01 par value;
359,712 shares authorized, issued and outstanding
(actual); no shares authorized, issued and outstanding
(pro forma as adjusted)................................ 4 --
Series C convertible preferred stock, $.01 par value;
419,302 shares authorized, issued and outstanding
(actual); no shares authorized, issued and outstanding
(pro forma as adjusted)................................ 4
Series D convertible preferred stock, $.01 par value;
no shares authorized, issued and outstanding(2)........ --
Preferred stock, $.01 par value; no shares authorized,
issued and outstanding (actual); 10,000,000 shares
authorized, no shares issued and outstanding (pro forma
as adjusted)(3)........................................ --
Common stock, $.01 par value, 20,000,000 shares
authorized, 14,609,997 shares issued and 14,556,868
shares outstanding (actual); 100,000,000 shares
authorized, shares issued and shares
outstanding (pro forma as adjusted)(3)................. 146
Additional paid-in capital................................ 25,229
Retained deficit.......................................... (18,180)
Comprehensive income...................................... 3
Treasury stock............................................ (222)
-------- --------
Total stockholders' equity........................... 6,996
-------- --------
Total capitalization............................ $ 6,996 $
======== ========
</TABLE>
- -------------------------
(1) Does not include 3,203,907 shares of common stock issuable upon exercise of
stock options outstanding as of December 31, 1998.
(2) Proxicom issued 1,218,333 shares of its Series D convertible preferred stock
for $7.3 million on February 1, 1999.
(3) Pro forma as adjusted information reflects amendments to the certificate of
incorporation which will occur on or before the closing of this offering.
12
<PAGE> 17
DILUTION
Proxicom's pro forma net tangible book value as of December 31, 1998, was
approximately $ , or $ per share of common stock. Pro forma
net tangible book value per share represents the amount of Proxicom's pro forma
stockholders' equity, less intangible assets, divided by pro forma
shares of common stock outstanding as of December 31, 1998. The preceding pro
forma information gives effect to (a) the conversion of all outstanding shares
of convertible preferred stock into 3,219,816 shares of common stock, (b) the
$ million charge to additional paid-in capital associated with the
beneficial conversion of Series D convertible preferred stock, and (c) the
issuance of 1,011,378 shares of common stock upon the exercise of warrants.
Assuming the sale by Proxicom of the shares of common stock offered
hereby at an initial public offering price of $ per share and the
receipt of the estimated net proceeds therefrom, Proxicom's pro forma adjusted
net tangible book value as of December 31, 1998, would have been approximately
$ , or $ per share. This represents an immediate increase in
such net tangible book value of $ per share to existing stockholders
and an immediate dilution of $ per share to new investors. The
following table illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value as of December 31,
1998................................................... $
Increase per share of common stock attributable to the
offering(1)............................................
--------
Pro forma net tangible book value after the offering(1).....
--------
Net tangible book value dilution to new investors(1)........ $
========
</TABLE>
The following table summarizes on a pro forma basis as of December 31,
1998, the total number of shares of common stock purchased from Proxicom, the
total consideration paid to Proxicom and the average price per share paid by
existing stockholders and by new investors (at an assumed initial offering price
of $ per share and without giving effect to the underwriting discount
and estimated offering expenses).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- -------------------- PRICE PAID
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ % $ % $
New investors................
-------- -------- -------- --------
Total.............. 100.0% $ 100.0%
======== ======== ======== ========
</TABLE>
- -------------------------
(1) Does not include options outstanding as of December 31, 1998 to purchase a
total of 3,203,907 shares of common stock with a weighted average per share
exercise price of $6.00. If these options were to be exercised in full for
cash, pro forma net tangible book value per share after the offering would
be $ , the increase per share attributable to new investors would
be $ , and the dilution per share to new investors would be
$ .
13
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables contain selected consolidated financial data as of
December 31 in each of the years 1994 through 1998 and for each of the years in
the five-year period ended December 31, 1998. The selected consolidated
financial data for each of the years in the five-year period ended December 31,
1998 have been derived from Proxicom's consolidated financial statements, which
have been audited by PricewaterhouseCoopers LLP, independent accountants. The
selected financial data are qualified by reference to, and should be read in
conjunction with, Proxicom's consolidated financial statements and the notes to
those financial statements, included elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue..................................... $ 1,258 $ 6,089 $12,431 $27,356 $ 42,405
Cost of revenue............................. 758 2,620 4,756 12,077 23,862
------- ------- ------- ------- --------
Gross profit................................ 500 3,469 7,675 15,279 18,543
------- ------- ------- ------- --------
Operating expenses:
General and administrative............. 370 2,062 5,405 9,664 15,325
Selling and marketing.................. -- 242 652 1,711 2,896
Research and development............... -- -- 404 961 692
Acquisition and merger costs........... -- -- -- -- 2,886
Stock-based and other
compensation(1)...................... -- -- -- -- 18,175
------- ------- ------- ------- --------
Total................................ 370 2,304 6,461 12,336 39,974
------- ------- ------- ------- --------
Income (loss) from operations............... 130 1,165 1,214 2,943 (21,431)
Interest income (expense), net.............. 3 5 55 80 (111)
------- ------- ------- ------- --------
Income (loss) before income taxes........... 133 1,170 1,269 3,023 (21,542)
Income tax provision (benefit).............. 37 294 185 330 (900)
------- ------- ------- ------- --------
Net income (loss)........................... $ 96 $ 876 $ 1,084 $ 2,693 $(20,642)
======= ======= ======= ======= ========
Basic net income (loss) per common share.... $ 0.01 $ 0.07 $ 0.08 $ 0.21 $ (1.50)
======= ======= ======= ======= ========
Diluted net income (loss) per common share.. $ 0.01 $ 0.07 $ 0.08 $ 0.16 $ (1.50)
======= ======= ======= ======= ========
Weighted average common shares outstanding.. 12,492 13,027 12,993 12,626 13,762
======= ======= ======= ======= ========
Weighted average common shares and common
share equivalents......................... 12,492 13,027 13,536 16,333 13,762
======= ======= ======= ======= ========
Unaudited pro forma data(2)(3):
Basic net loss per common share........... $ (1.31)
========
Diluted net loss per common share......... $ (1.31)
========
Weighted average common shares............ 15,763
========
Weighted average common shares and common
share equivalents...................... 15,763
========
</TABLE>
14
<PAGE> 19
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------------------------------ AS ADJUSTED AT
1994 1995 1996 1997 1998 DECEMBER 31, 1998(4)
---- ------ ------ ------- ------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA:
Cash equivalents............ $ 70 $ 802 $1,119 $ 2,343 $ 2,482 $
Working capital............. 177 718 5,663 7,520 2,380
Total assets................ 548 2,395 8,696 16,097 22,077
Stockholders' equity........ 235 1,111 7,085 10,376 6,996
</TABLE>
- -------------------------
(1) Stock-based and other compensation was associated with a merger transaction
with IBIS Consulting and includes (a) a $17.2 million non-cash charge
relating to the elimination of a repurchase requirement for formula stock
and (b) $1.0 million in cash bonus payments required under the historical
IBIS Consulting plan.
(2) Pro forma data reflect the conversion of 2,001,483 shares of preferred stock
outstanding at December 31, 1998 into common stock.
(3) During 1998, Proxicom merged with two companies in transactions accounted
for as poolings of interests. Both companies were Subchapter S Corporations.
If those companies had been subject to taxation in 1998, pro forma net loss
would not have differed materially. See Note 2 to the consolidated financial
statements.
(4) Pro forma as adjusted data reflect (a) the issuance of 1,011,378 shares of
common stock upon the exercise of warrants at a purchase price of $7.91 per
share; (b) the conversion of all shares of convertible preferred stock into
3,219,816 shares of common stock; (c) the $ million charge to
additional paid-in capital associated with the beneficial conversion of
Series D preferred stock; and (d) the issuance of shares of common
stock by Proxicom in this offering and application of the net proceeds.
15
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion together with "Selected
Consolidated Financial Data" and our consolidated financial statements and the
notes to those financial statements elsewhere in this prospectus. In addition to
historical information, this discussion contains forward-looking information
that involves risks and uncertainties. Proxicom's actual results could differ
materially from those anticipated by such forward-looking information due to
competitive factors, risks associated with Proxicom's expansion plans and other
factors discussed under "Risk Factors" and elsewhere in this prospectus.
OVERVIEW
Proxicom is a leading provider of Internet solutions to Global 1000
companies and other large organizations. Since 1994, we have focused exclusively
on the Internet and have successfully completed over 600 client engagements. Our
Internet solutions include business to consumer electronic commerce Internet
sites, business to business electronic commerce extranets, and company-specific
intranets. We apply our proprietary methodology, the Proxicom Process, in all of
our client engagements. Using the Proxicom Process, we integrate strategy,
technology and creative design to help our clients transform their businesses
with Internet solutions.
Our revenue is generally comprised of fees generated for professional
services. We provide our services primarily on a fixed-price, fixed-timeframe
basis. We use an internally developed process to estimate and propose fixed
prices for such projects. The estimation process accounts for standard billing
rates particular to each project, the technology environment and application
type to be applied, and the project's timetable and overall technical
complexity. A Proxicom senior management team member must approve all of our
fixed-price proposals. For these contracts, we recognize revenue using a
percentage-of-completion method primarily based on costs incurred. We make
provisions for estimated losses on uncompleted contracts on a contract-
by-contract basis and recognize such provisions in the period in which the
losses are determined. Less frequently, we provide services on a time and
materials basis. In such cases, we recognize revenue as we incur costs.
Proxicom's financial results may fluctuate from quarter to quarter based on
such factors as the number, complexity, size, scope and lead time of projects in
which the company is engaged. More specifically, these fluctuations can result
from the contractual terms and degree of completion of such projects, any delays
incurred in connection with projects, employee utilization rates, the adequacy
of provisions for losses, the accuracy of estimates of resources required to
complete ongoing projects and general economic conditions. In addition, revenue
from a large client may constitute a significant portion of Proxicom's total
revenue in a particular quarter.
In August 1998, Proxicom completed a merger with IBIS Consulting, Inc. by
exchanging 4,988,297 shares of Proxicom common stock for all the common stock of
IBIS Consulting. In addition, IBIS Consulting options were converted into
options to purchase 345,034 shares of Proxicom common stock. Proxicom incurred
acquisition and merger costs of $2.8 million and stock-based and other
compensation expense of $18.2 million associated with IBIS Consulting. In
connection with this transaction, the president of IBIS Consulting was elected
to Proxicom's Board of Directors. In January 1998, Proxicom completed a merger
with Square Earth, Inc. by exchanging 534,999 shares of Proxicom common stock
for all the common stock of Square Earth. In addition, Square Earth options were
converted into options to purchase 41,474 shares of Proxicom common stock.
Proxicom incurred acquisition and merger costs of $130,000 in connection with
this transaction. Proxicom accounted for each of these transactions as a pooling
16
<PAGE> 21
of interests. All prior period consolidated financial statements have been
restated to include IBIS Consulting's and Square Earth's results of operations,
financial position and cash flows.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the relative
composition of revenue and selected statements of operations data as a
percentage of revenue:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Revenue..................................................... 100.0% 100.0% 100.0%
Cost of revenue............................................. 38.3 44.1 56.3
----- ----- -----
Gross profit................................................ 61.7 55.9 43.7
Operating expenses:
General and administrative................................ 43.5 35.3 36.1
Selling and marketing..................................... 5.2 6.3 6.8
Research and development.................................. 3.2 3.5 1.6
Acquisition and merger costs.............................. -- -- 6.8
Stock-based and other compensation........................ -- -- 42.9
----- ----- -----
Total.................................................. 51.9 45.1 94.2
----- ----- -----
Income (loss) from operations............................... 9.8 10.8 (50.5)
Interest income (expense), net.............................. 0.4 0.3 (0.3)
----- ----- -----
Income (loss) before income taxes........................... 10.2 11.1 (50.8)
Income tax provision (benefit).............................. 1.5 1.2 (2.1)
----- ----- -----
Net income (loss)........................................... 8.7% 9.9% (48.7)%
===== ===== =====
</TABLE>
1998 COMPARED TO 1997
Revenue. In 1998, revenue increased $15.0 million, or 55.0%, to $42.4
million from $27.4 million in 1997. This increase in revenue reflects increases
in both the size and number of our client projects.
Cost of Revenue. Cost of revenue consists primarily of salaries and
associated employee benefits for personnel directly assigned to client projects,
non-research and development efforts and non-reimbursed direct expenses incurred
to complete projects, such as technical consulting fees. These costs increased
$11.8 million, or 97.6%, to $23.9 million in 1998 from $12.1 million in 1997.
The increase during 1998 was due primarily to increases in the size, complexity
and number of client projects and number of personnel needed to service these
projects. Service project personnel increased from 199 at December 31, 1997 to
311 at December 31, 1998. We usually do not fully utilize our consulting and
delivery personnel on billable projects during their initial months of
employment. During this time, they undergo training and become integrated into
our operations. Additionally, in 1998, we re-deployed engineers who were active
in developing and enhancing replicable frameworks. During this transition phase,
the engineer utilization was lower due to start-up requirements. Also, during
the second half of 1998, due to market conditions, customer demand in our
financial services and energy industry groups softened, which adversely affected
service utilization. As a percentage of revenue, cost of revenue increased to
56.3% during 1998 as compared to 44.1% during 1997.
General and Administrative. General and administrative costs consist of
salaries for executive and selected senior management, finance, recruiting,
administrative groups and associated employee benefits, facilities costs
including depreciation and amortization, computer and office equipment operating
leases, training, travel and all other branch and corporate costs.
17
<PAGE> 22
These costs increased $5.6 million, or 58.6%, to $15.3 million in 1998 from $9.7
million in 1997. This increase was due primarily to increases in personnel and
computer operating lease commitments and facilities costs due to expanded
leasing commitments in Reston, VA, New York, NY, San Francisco, CA and the
establishment of new offices in Chicago, IL and Munich, Germany to support the
internal growth of our operations. As a percentage of revenue, general and
administrative expenses increased to 36.1% in 1998 as compared to 35.3% in 1997.
Selling and Marketing. Selling and marketing costs consist primarily of
salaries and associated employee benefits, travel expenses of selling and
marketing personnel and promotional expenses. Selling and marketing costs
increased $1.2 million, or 69.3%, to $2.9 million in 1998 from $1.7 million in
1997. This increase was primarily due to marketing program expenditures and
increased personnel-related costs incurred in sales promotion efforts to broaden
Proxicom's market awareness and customer base. As a percentage of revenue,
selling and marketing increased to 6.8% from 6.3% during 1997.
Research and Development. Research and development costs, primarily
software development, consist of salaries assigned directly to research and
development projects, associated employee benefits and direct expenses incurred
to complete research projects, including non-employee consulting. Research and
development costs decreased $269,000, or 28.0%, to $692,000 in 1998 from
$961,000 in 1997. We attribute this decrease to our re-deploying engineers and
technicians active in developing and enhancing replicable frameworks to client
service projects during the third quarter of 1998. For 1998 and 1997, we charged
all of our costs for research and development to operations as incurred. We did
this because the period between technological feasibility and general release
was relatively short and the costs incurred during this period were not
significant.
Acquisition and Merger Costs. We incurred charges of approximately $2.9
million in 1998 for costs associated with the Square Earth and IBIS Consulting
transactions. These transaction costs related to professional fees and other
direct expenses. We did not record any such expenses for the year ended December
31, 1997 because we did not acquire any entities during that year.
Stock-based and Other Compensation. We incurred charges of $18.2 million
in 1998 for costs associated with our IBIS Consulting transaction. Of these
charges, $17.2 million related to the elimination of a repurchase requirement
for formula stock options and $1.0 million in cash bonus payments required under
the historical IBIS Consulting plan. We did not record any expense of this type
for the year ended December 31, 1997 because no formula based stock options were
exercised.
Interest Income (Expense), Net. Interest income (expense), net decreased
$191,000, or 238.8%, to interest expense of $111,000 in 1998 from interest
income of $80,000 in 1997. This decrease was due primarily to interest expense
we incurred from borrowings under our lines of credit during 1998 to support our
internal growth. Interest expense of $227,000 was offset by interest income of
$116,000 earned during 1998. We generally invest in U.S. Government treasury
bills and money market accounts. The amount of interest income fluctuates based
upon the amount of funds available for investment and prevailing interest rates.
Income Tax Provision (Benefit). Operating losses generated in 1998 were
carried back for tax purposes creating a tax benefit. The $900,000 income tax
benefit in 1998 represents a benefit from combined federal and state income
taxes at an effective rate of 4.2%, or 20.9% excluding the $17.2 million
non-deductible stock-based compensation charge. Income tax expenses of $330,000
in 1997 represented combined federal and state income taxes at an effective rate
of 10.9%. Our effective tax rate was favorably impacted in both 1997 and 1998 by
the transactions with Square Earth and IBIS Consulting, which were Subchapter S
Corporations with pass-through tax status before the transactions.
18
<PAGE> 23
1997 COMPARED TO 1996
Revenue. Revenue increased $15.0 million, or 120.0%, to $27.4 million in
1997 from $12.4 million in 1996. This increase reflects increases in both the
size and number of our client projects.
Cost of Revenue. Cost of revenue increased $7.3 million, or 153.9%, to
$12.1 million in 1997 from $4.8 million in 1996. This increase was due primarily
to increases in the size, complexity and number of our client projects. We also
needed more personnel to service these projects and hired additional consulting
and delivery personnel in various offices. We usually do not fully utilize our
consulting and delivery personnel on billable projects during their initial
months of employment. During this time, they undergo training and become
integrated into our operations. We had 126 consulting and delivery personnel at
December 31, 1996 and 199 at December 31, 1997. As a percentage of revenue, cost
of revenue increased to 44.1% during 1997 as compared to 38.3% during 1996.
General and Administrative. General and administrative costs increased
$4.3 million, or 78.8%, to $9.7 million in 1997 from $5.4 million in 1996. This
increase was due primarily to increases in personnel, the leasing of a new
company headquarters in Reston, VA, costs incurred in connection with the
opening of our New York, NY office in 1997 and related facility costs to support
the growth of our operations.
Selling and Marketing. Selling and marketing costs increased $1.0 million,
or 162.4%, to $1.7 million in 1997 from $652,000 in 1996. This increase was due
to the expansion of our selling and marketing personnel to 15 employees at
December 31, 1997 from nine employees at December 31, 1996 and increased
promotional activities.
Research and Development. Research and development costs increased
$557,000, or 137.9%, to $961,000 in 1997 from $404,000 in 1996. This increase is
attributable to increases in the number of engineers and technicians active in
developing and enhancing replicable frameworks. In 1997 and 1996, all of our
costs for research and development were charged to operations as incurred since
the period between technological feasibility and general release was relatively
short and the costs incurred during this period were not significant.
Interest Income (Expense), Net. Interest income increased $25,000, or
45.5%, to $80,000 in 1997 from $55,000 in 1996. This increase was due primarily
to our interest income earned on the invested portion of the proceeds of our
private financings during 1997. Interest income of $174,000 was offset by
interest expense of $94,000 from increased drawings under our lines of credit
during 1997 to support our internal growth.
Income Tax Provision. Income tax expense increased $145,000, or 78.4%, to
$330,000 in 1997 from $185,000 in 1996 and represented combined federal and
state income taxes at an effective marginal rate of 10.9% in 1997 and 14.6% in
1996. The comparatively low tax rate of 10.9% was caused primarily by the
transactions with Square Earth and IBIS Consulting, which were both Subchapter S
Corporations with pass-through tax status before the transactions.
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<PAGE> 24
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth unaudited consolidated quarterly financial
data for the periods indicated. We derived this data from unaudited consolidated
financial statements, and, in the opinion of our management, they include all
adjustments, which consist only of normal recurring adjustments, necessary to
present fairly the financial results for the periods. Results of operations for
any previous fiscal quarter do not necessarily indicate what results may be for
any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30, DEC. 31,
1997 1997 1997 1997 1998 1998 1998 1998
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue.................. $5,267 $6,835 $7,190 $8,064 $7,744 $10,065 $ 12,123 $12,473
Cost of revenue.......... 2,283 2,971 3,208 3,615 4,450 5,447 6,759 7,206
------ ------ ------ ------ ------ ------- -------- -------
Gross profit............. 2,984 3,864 3,982 4,449 3,294 4,618 5,364 5,267
------ ------ ------ ------ ------ ------- -------- -------
Operating expenses:
General and
administrative....... 1,720 2,245 2,743 2,956 3,003 3,985 4,183 4,154
Selling and
marketing............ 392 389 436 494 712 648 909 627
Research and
development.......... 89 82 183 607 228 220 244 --
Acquisition and merger
costs................ -- -- -- -- 130 -- 2,756 --
Stock-based and other
compensation......... -- -- -- -- -- -- 18,175 --
------ ------ ------ ------ ------ ------- -------- -------
Total................ 2,201 2,716 3,362 4,057 4,073 4,853 26,267 4,781
------ ------ ------ ------ ------ ------- -------- -------
Income (loss) from
operations............. 783 1,148 620 392 (779) (235) (20,903) 486
Interest income
(expense), net......... 26 22 (15) 47 43 (25) (60) (69)
------ ------ ------ ------ ------ ------- -------- -------
Income (loss) before
income taxes........... 809 1,170 605 439 (736) (260) (20,963) 417
Income tax provision
(benefit).............. 4 91 86 149 (491) (452) (132) 175
------ ------ ------ ------ ------ ------- -------- -------
Net income (loss)........ $ 805 $1,079 $ 519 $ 290 $ (245) $ 192 $(20,831) $ 242
====== ====== ====== ====== ====== ======= ======== =======
AS A PERCENTAGE OF
REVENUE:
Revenue.................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue.......... 43.3 43.5 44.6 44.8 57.5 54.1 55.8 57.8
------ ------ ------ ------ ------ ------- -------- -------
Gross profit............. 56.7 56.5 55.4 55.2 42.5 45.9 44.2 42.2
------ ------ ------ ------ ------ ------- -------- -------
Operating expenses:
General and
administrative....... 32.7 32.8 38.2 36.7 38.8 39.6 34.5 33.3
Selling and
marketing............ 7.4 5.7 6.1 6.1 9.2 6.4 7.5 5.0
Research and
development.......... 1.7 1.2 2.5 7.5 2.9 2.2 2.0 --
Acquisition and merger
costs................ -- -- -- -- 1.7 -- 22.7 --
Stock-based and other
compensation......... -- -- -- -- -- -- 149.9 --
------ ------ ------ ------ ------ ------- -------- -------
Total................ 41.8 39.7 46.8 50.3 52.6 48.2 216.6 38.3
------ ------ ------ ------ ------ ------- -------- -------
Income (loss) from
operations............. 14.9 16.8 8.6 4.9 (10.1) (2.3) (172.4) 3.9
Interest income
(expense), net......... 0.5 0.3 (0.2) 0.5 0.6 (0.3) (0.5) (0.6)
------ ------ ------ ------ ------ ------- -------- -------
Income (loss) before
income taxes........... 15.4 17.1 8.4 5.4 (9.5) (2.6) (172.9) 3.3
Income tax provision
(benefit).............. 0.1 1.3 1.2 1.8 (6.3) (4.5) (1.1) 1.4
------ ------ ------ ------ ------ ------- -------- -------
Net income (loss)........ 15.3% 15.8% 7.2% 3.6% (3.2)% 1.9% (171.8)% 1.9%
====== ====== ====== ====== ====== ======= ======== =======
</TABLE>
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<PAGE> 25
We have generally realized lower revenue in the first quarter of the year
than in the other quarters. We believe that this has been due primarily to
client budget cycles and the short-term nature of our contracts. We believe that
period to period comparisons of our operating results are not necessarily
meaningful and that you should not rely on these comparisons as indicators of
future performance.
LIQUIDITY AND CAPITAL RESOURCES
In October 1998, Proxicom entered into a $10.0 million revolving credit
facility with NationsBank, N.A. to be used for working capital purposes and
permitted acquisitions. The interest rate on amounts borrowed under the credit
agreement is LIBOR plus 2.0%. The credit facility expires on August 31, 2000,
and will renew automatically for one additional year at the sole discretion of
NationsBank. The credit facility contains restrictions on Proxicom and its
subsidiaries (including a prohibition on the payment of cash dividends by
Proxicom) and requires Proxicom to comply with financial tests and to maintain
specified financial ratios. The credit agreement is secured by a first priority
lien on all current and future assets of Proxicom and its subsidiaries and a
first priority pledge of the stock of IBIS Consulting and Square Earth. At
February 12, 1999, Proxicom had no outstanding borrowings under the credit
facility.
Cash and cash equivalents increased to $2.5 million at December 31, 1998,
from $2.3 million at December 31, 1997. Net cash provided by operating
activities of $1.3 million for 1997 was attributable to the growth in our
revenue and operations. The net cash used in operating activities of $4.0
million for 1998 was primarily offset with borrowings under our credit facility.
Capital expenditures of approximately $1.7 million, $2.0 million and $1.4
million for 1998, 1997 and 1996, respectively, were used primarily for computer
equipment, office equipment and leasehold improvements related to Proxicom's
growth. Capital expenditures for 1999 are expected to be approximately $2.0
million and will be made principally for computer equipment, internally used
software purchases and leasehold improvements to support our growth. A total of
approximately $631,000 was raised through the exercise of stock options in 1998,
and $3.5 million was raised through the private sale of convertible preferred
stock in 1997.
In February 1999, Proxicom completed the sale of 1,218,333 shares of Series
D convertible preferred stock for $7.3 million. At the closing of this offering,
all of these shares will be converted into common stock on a one-for-one basis.
Proxicom will be required to take a charge to additional paid-in capital for the
difference between the conversion feature and the estimated fair value of the
underlying common stock. Although not reflected on the statement of operations,
the beneficial conversion charge will be reflected as a reduction to income and
earnings per share available for common stockholders. See "Certain
Transactions -- Stock Purchase Agreements and Related Matters -- Series D
Purchase Agreement."
In connection with the issuance of Series A convertible preferred stock,
Proxicom issued warrants to purchase shares of Series A preferred stock that are
convertible into 1,011,378 shares of common stock. Proxicom has received an
irrevocable letter from the holders of the warrants indicating an intention to
exercise the warrants for a purchase price of $8.0 million upon closing of the
offering.
Proxicom anticipates that the net proceeds of this offering, together with
existing sources of liquidity and funds generated from operations, should
provide adequate cash to fund its currently anticipated cash needs through at
least the next 18 months. To the extent Proxicom is unable to fund its
operations from cash flows, it may need to obtain financing from external
sources in the form of either additional equity or indebtedness. There can be no
assurance that additional financing will be available at all, or that, if
available, such financing will be obtainable on terms favorable to Proxicom.
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<PAGE> 26
YEAR 2000 READINESS DISCLOSURE
Background. Many computer systems and applications currently use two-digit
fields to designate a year. As the century date change occurs, date-sensitive
systems will recognize the year 2000 as 1900, or not at all. This inability to
recognize, or properly treat, the year 2000 may cause systems to process
financial and operational information incorrectly, resulting in system failures
and other business problems.
Risk Factors. We may experience operations interruptions because of year
2000 problems. Clients' and potential clients' purchasing patterns may be
affected by year 2000 issues as companies expend significant resources to
correct their current systems for year 2000 compliance. These clients and
potential clients may have fewer funds available to purchase our services. Also,
we may experience operations difficulties caused by undetected errors or defects
in the technology we use in our internal systems. We may become involved in
disputes regarding year 2000 problems involving solutions we developed or
implemented or the interaction of our Internet solutions with other
applications. Year 2000 problems could require us to incur delays and
unanticipated expenses. We have formulated an approach to address our exposure
to these risk factors.
Approach. We are assessing the impact of the year 2000 issue on our
current and future products, internal information systems and non-information
technology systems. We have performed a preliminary assessment of the year 2000
readiness of our information technology systems, including the hardware and
software we use to provide and deliver our Internet solutions. We plan to
perform a year 2000 simulation on our software and systems during the second
quarter of 1999. Based on the results, we will revise our solutions software
code as necessary.
We will require all vendors who provide material hardware or software for
our information technology systems to provide assurances of their year 2000
compliance. We will also seek assurances of year 2000 compliance from our
material non-information technology providers. We plan to complete this process
during the first half of 1999. Until our testing is complete and all of our
material vendors and providers are contacted, we will not be able completely to
evaluate whether our systems will need to be revised or replaced.
We have identified processes that will require year 2000 readiness testing.
We are in the process of establishing dedicated test environments for year 2000
readiness testing. We anticipate that testing will be largely complete by the
second quarter of 1999.
Status. Our testing to date has included our major infrastructure items,
hardware platforms and operating systems in our largest offices. Desktop
computing, servers, switching and routing platforms have been inventoried in
most locations, with only minor modifications required to the network and
routing platforms. Personal computer platforms have been identified and tested
in our Reston, VA and New York, NY locations. This effort is estimated to be 80%
complete. Installation of the software components that will bring the computing
platforms into compliance is estimated to be 25% complete, with full completion
scheduled in all locations by the end of April 1999. Embedded systems are
considered to be tested at a 20% level, with full testing to be completed by
June 1999.
We have largely completed the implementation of year 2000 compliant
internal computer applications for our main financial and order processing
systems.
Cost. Based on the work done to date, we predict that the cost for work
and material and upgrades needed to complete our year 2000 certification process
will be approximately $150,000. This includes the cost of material upgrades,
software modification and related consulting fees.
Contingency Plans. As discussed above, we are engaged in an ongoing year
2000 assessment and have not yet developed any contingency plans. We will assess
the results of our year 2000 simulation testing and third-party vendor and
service provider responses to determine the nature and extent of any contingency
plans.
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<PAGE> 27
BUSINESS
OVERVIEW
Proxicom is a leading provider of Internet solutions to Global 1000
companies and other large organizations. Since 1994, we have focused exclusively
on the Internet and have successfully completed over 600 client engagements. Our
Internet solutions include business to consumer electronic commerce Internet
sites, business to business electronic commerce extranets, and company-specific
intranets.
We apply our proprietary methodology, the Proxicom Process, in all of our
client engagements. Using the Proxicom Process, we integrate strategy,
technology and creative design to help our clients transform their businesses
with Internet solutions.
We sell and deliver our services and expertise through vertical teams
organized into four industry groups:
- energy and telecommunications;
- financial services;
- retail and manufacturing; and
- service industries.
This structure allows us to build industry domain expertise, develop
market-specific solutions for clients and replicate business solutions across
client engagements.
Our Internet solutions have included
- business to consumer electronic commerce Internet sites for Calphalon
Corporation, Cox Interactive Media, Inc. and Owens Corning;
- business to business electronic commerce extranets for the American
Electronics Association, Mercedes-Benz Credit Corp. and McKessonHBOC;
and
- company-specific intranets for GE Plastics, Hoffman-La Roche, Inc. and
Merrill Lynch & Co., Inc.
INDUSTRY BACKGROUND
The Internet presents opportunities to transform businesses and entire
industries as organizations exploit its potential to extend and enhance their
business activities. Companies are using the Internet to communicate and
transact business on a one-to-one basis with existing customers and to target
and acquire new customers. At the same time, companies are using the Internet to
collaborate with their supply-chain partners, enable electronic commerce and
manage distribution relationships. The Internet has also allowed businesses to
identify new product and service offerings which extend and complement their
core markets. As a result, organizations are investing in the strategic use of
Internet solutions to transform their core business and technology strategies.
Faced with growing competition, deregulation and globalization, companies
are increasingly looking to utilize Internet technology to help build
competitive advantage. Much as client/server technologies opened information
access within organizations beginning in the late 1980s, the Internet now offers
the potential for organizations to extend their businesses beyond traditional
limits. The Internet extends the business role of technology from
employee-focused productivity enhancement to customer-focused revenue
generation, raising the importance and complexity of new technology deployment.
Successful adoption of the Internet in this new context poses strategic,
technical and creative design challenges. Alignment of business and Internet
strategies requires an understanding of
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<PAGE> 28
how the Internet transforms relationships between businesses and their internal
organizations, customers and business partners. Also, companies facing
technology investment decisions often need outside technical expertise to
recognize viable Internet tools, develop feasible architectures and implement
strategies. Companies must also be able to integrate new Internet applications
with their existing systems. Finally, a successful solution requires that the
Internet application, particularly the user interface, be engaging and easy to
use.
Few businesses have the range of skills necessary to successfully transform
the way they use technology and implement Internet solutions. Moreover, it is
difficult to find these skills externally in the supply-constrained Internet
professional services market. Even if businesses obtain skills in all three of
the strategy, technology and creative disciplines, they often have little
experience coordinating them to exploit fully the Internet and other advanced
technologies.
The combination of these factors is creating a significant and growing
demand for third-party Internet professional services. International Data Corp.,
a technology industry research firm, forecasts that the market for Internet and
electronic commerce services worldwide will grow from $4.6 billion in 1997 to
$43.7 billion by 2002. Forrester Research, Inc., another technology industry
research firm, estimates the market for Internet and electronic commerce
services will grow from $5.4 billion in 1998, to $32.7 billion by 2002. These
projections represent a compound annual growth rate of more than 55% over these
periods. Forrester Research predicts that the Internet will be one of the
fastest-growing areas within the information technology services industry. While
business to consumer solutions are expected to continue to be a large part of
the Internet and electronic commerce services market, Proxicom believes that
business to business corporate intranet/extranet solutions will represent a
growing percentage of the overall market.
Vendors addressing the Internet professional services market can be broadly
divided into four major categories:
- Large systems integrators provide technology expertise across a wide
range of offerings which address business process requirements.
- Specialty systems integrators frequently offer traditional distributed
computing models adapted to the Internet.
- Strategy consulting firms seek to help companies define models of how
they can use the Internet as a new channel and knowledge-sharing tool.
- Internet professional services providers bring Internet expertise, often
with a focus on either the creative, technology or strategy element.
While vendors in each category have specific strengths, each tends to address
only a piece of the Internet puzzle. Few vendors addressing the Internet
professional services market successfully integrate business and marketing
strategy with expertise in Internet-specific technology and creative design
services to help businesses achieve the full potential that the Internet offers.
Proxicom believes organizations are increasingly searching for a
single-source professional services firm that can deliver integrated strategy,
technology and creative design skills specifically for the Internet.
Furthermore, Proxicom believes that organizations will increasingly look to
Internet solutions providers that can leverage industry best practices, increase
predictability of success for Internet solutions and decrease risks associated
with implementation.
PROXICOM'S SOLUTION
Proxicom is an Internet solutions provider that focuses on creating
business value for its clients. Proxicom's solution has five essential elements:
- a structured methodology, the Proxicom Process;
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<PAGE> 29
- integrated Internet strategy, technology and creative design services;
- industry and business domain expertise;
- in-depth Internet and advanced technologies expertise; and
- knowledge management and knowledge sharing infrastructure.
Proxicom Process: Proprietary Methodology and Managed Risk. The Proxicom
Process is Proxicom's proprietary methodology for managing client engagements
that integrates strategy, technology and creative design services. The Proxicom
Process emphasizes an iterative development cycle with multiple incremental
releases to incorporate user feedback and to keep pace with the Internet's
ongoing technological changes. The four phases of the Proxicom Process'
development cycle are (a) Define Internet Strategy, (b) Plan Solution, (c)
Design Solution and (d) Implement Solution. Using the Proxicom Process, Proxicom
structures projects tightly and offers fixed-price, fixed-timeframe engagements.
This provides clients with greater certainty regarding the time and cost of
implementation. Proxicom's approach improves quality of delivery and alignment
of an Internet initiative with a client's business. This approach is geared
toward minimizing the risk of technical or competitive obsolescence faced by
companies using the Internet.
Integrated Internet Strategy, Technology and Creative Design
Services. Proxicom delivers its solutions through collaborative,
multi-disciplinary teams that apply the collective strengths of their strategy,
technology and creative design professionals. Proxicom believes that this
approach results in coordinated planning among its professionals from all three
disciplines, a challenge that many organizations struggle to address. Proxicom's
delivery process fosters collaboration within its multi-disciplinary teams to
help clients achieve internal cooperation among previously independent business
functions. Proxicom believes its multi-disciplinary approach results in better,
more efficient Internet solutions in which business and communications
strategies are consistently balanced with the opportunities and capabilities of
Internet technologies.
Industry and Business Domain Expertise. Over the course of more than 600
engagements since 1994, Proxicom has gained significant expertise in specific
industries and types of business solutions. Proxicom's expertise provides
clients with a clear vision of the Internet's potential to improve their
business processes and competitive positions. Proxicom organizes its delivery of
services into vertical industry groups: energy and telecommunications, financial
services, retail and manufacturing and service industries. Through strategic
hires and numerous engagements, Proxicom has developed significant knowledge and
expertise in its targeted industries. Proxicom complements its industry
specialization with expertise in cross-industry solution areas such as
electronic commerce, supply chain management and interactive marketing. Proxicom
leverages its experience in these industries and solution areas across the
entire company through best practices as well as proprietary solution
frameworks, software tools and components to provide clients the full value of
Proxicom's industry and business domain expertise.
In-depth Internet and Advanced Technology Expertise. Proxicom has
developed an in-depth understanding of the specific challenges of deploying
Internet solutions. Proxicom is expert at building, extending and complementing
technologies that have the ability to transform businesses. Proxicom helps its
clients utilize leading-edge technologies and minimize the expenses associated
with hiring, training and retaining scarce information technology skill sets.
Because Proxicom's expertise is not limited to a single technology or
architecture, Proxicom is able to help clients choose the appropriate technology
to provide the best long-term business solution.
Knowledge Management and Knowledge Sharing Infrastructure. Through the
Proxicom Process, Proxicom continuously incorporates the multi-disciplinary
knowledge gained in Proxicom's engagements. This intellectual capital is tracked
and stored in the company's corporate intranet, which acts as an integrated
knowledge management repository. Proxicom's intranet is
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<PAGE> 30
both a solutions library that facilitates the dissemination of intellectual
capital across the company and an internal project management system that
captures detailed information on the resources required to achieve specific
tasks on a project. In this way, Proxicom's clients can benefit from industry
best practices as well as Proxicom's experiences. This system improves
Proxicom's ability to predict project completion requirements and increases the
reusability of its intellectual capital, thereby reducing risk for its clients.
Proxicom's week-long "boot camp" orientation and training program for all new
employees also facilitates knowledge sharing.
PROXICOM'S GROWTH STRATEGY
Proxicom's strategy is to build upon its position as a leading provider of
transformational Internet solutions that add significant and measurable business
value to Global 1000 companies and other large organizations. The following are
the key elements of Proxicom's strategy.
Leverage Existing Clients. Proxicom believes it must continue to satisfy
its customers. A strong track record of delivering high quality Internet
solutions often increases the amount, scope and sophistication of services
requested by existing clients. This reinforces Proxicom's growing reputation as
an innovative provider of mission-critical Internet solutions. Proxicom also
believes that maintaining a reputation for delivering innovative Internet
solutions and client satisfaction will increase its ability to attract new
clients through increased referral-driven sales and strong references.
Further Penetrate our Vertical Markets. Proxicom believes that its
expertise in specific industry dynamics and solutions considerably enhances its
ability to help companies apply the Internet to gain competitive advantage. In
each of its vertical industry groups, Proxicom employs industry experts, pursues
targeted sales and marketing, develops industry-specific offerings and
capitalizes on referrals from existing clients. Proxicom will continue to
emphasize this focus and seek to expand the scope of its industry expertise.
Continue Geographic Expansion. Proxicom believes that expanding
geographically will increase its ability to attract and better service clients.
Proxicom has already established offices in Reston, VA, San Francisco, CA, New
York, NY, Munich, Germany, Sacramento, CA, Chicago, IL and Houston, TX. All of
these offices have contributed to Proxicom's continued ability to attract large
clients. Proxicom plans to continue establishing offices in key geographic
locations through an integrated process of organic growth and targeted
acquisitions. Recently, Proxicom reached a preliminary understanding with
Ericsson Telecommunicazioni SpA to invest in a joint venture company. Through
the joint venture company, Proxicom would deliver its Internet consulting
services in Italy.
Hire and Retain Skilled Professionals. Proxicom believes its delivery of
integrated strategy, technology and creative design services distinguishes it
from other Internet professional services providers. To deliver these services,
Proxicom must hire and retain skilled professionals in all three disciplines and
continue to foster collaboration among them. Proxicom has a dedicated
organizational development team that initiates and oversees the training and
development of Proxicom's professionals. Key organizational development
initiatives include a week-long "boot camp" orientation and training program for
all new employees and "Proxicom University," which provides ongoing technical
and project management classes as well as career path management and guidance.
Proxicom is committed to recruiting and hiring quality professionals and to
maintaining a culture that motivates its staff while cultivating collaboration
and retention.
Evolve the Proxicom Process. Proxicom believes that continued evolution of
the Proxicom Process will strengthen its competitive position. Proxicom enhances
the Proxicom Process by incorporating best practices identified over numerous
engagements. This enables clients to benefit from Proxicom's cumulative
experience. Proxicom will continue to refine and enhance the Proxicom Process to
enable continued delivery of high quality solutions to clients on time and on
budget.
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<PAGE> 31
Leverage Technology Partnerships. Proxicom believes its relationships with
leading technology vendors, such as Microsoft Corporation and Netscape
Communications Corporation, will provide increased visibility and sales
opportunities. Proxicom's status as a Microsoft Certified Solution Provider
Partner has yielded considerable sales opportunities. Proxicom has also formed
strategic alliances with leading hosting and co-location providers, such as
Exodus Communications, Inc. Proxicom is committed to furthering these
relationships and building other strategic partnerships that can contribute to
its growth.
Extend Reusable Solutions. Proxicom leverages those elements of its
Internet solutions for which there is repeat customer demand. Reusable solutions
increase productivity, accelerate solutions development and enhance the
profitability of Proxicom's engagements. Proxicom's industry and business
solutions experts develop replicable solutions for target markets, including
best practices, tools, functionality, software and standard interfaces for
leading third-party applications. Proxicom has a dedicated framework reuse group
that supports these efforts and leverages them across the organization. The
group also identifies software reuse opportunities before and after client
engagements, prepares code for reuse and maintains version control. Proxicom
intends to continue to leverage its experience to create reusable solutions that
can be used in future engagements. On most engagements, Proxicom retains the
right to reuse the solutions' underlying components.
PROXICOM'S SERVICES
Proxicom's range of Internet solutions includes business to consumer
electronic commerce Internet sites, business to business electronic commerce
extranets and company-specific intranets. Proxicom's solutions may also extend a
packaged application to the Internet. Proxicom provides Internet solutions
through an integrated set of strategy, technology and creative design services.
Proxicom sells and delivers its solutions through its vertical industry groups.
Through these vertical groups, Proxicom leverages its experience, best
practices, and sales and delivery skills across clients with similar needs.
Proxicom also leverages its cross-industry specialties in electronic commerce,
supply chain management and interactive marketing. Using the Proxicom Process,
Proxicom services every engagement with a multi-disciplinary team headed by a
dedicated project manager who coordinates business strategy, technology and
creative design services.
Strategy. Proxicom uses its business and interactive marketing strategy
services to align a client's Internet strategy with its business and marketing
goals. Business strategy services include business case development, business
process consulting and competitive benchmarking. Interactive marketing strategy
services focus on understanding our clients' customers, competitors, target
markets and opportunities, and advising them on appropriate strategies to take
advantage of the Internet. Proxicom works with clients to evolve, understand and
analyze business and marketing goals, operational methods and success criteria.
Proxicom's industry and solution expertise contributes significantly to its
ability to create Internet strategies that offer distinct competitive advantage.
Technology. Proxicom develops Internet solutions that exploit the latest
proven technologies to transform business processes. Proxicom has extensive
experience providing technology implementation services, including systems and
network architecture design, custom application development, legacy and third
party software integration, as well as technology advisory services. Proxicom is
experienced at designing, developing and deploying mission-critical Internet
solutions and integrating these applications with legacy systems to capitalize
on existing technology investments.
Creative Design. Proxicom's creative design services address navigation,
layout, information architecture, personalization and branding. Proxicom's
creative design services also ensure that its Internet solutions have direct,
immediate and relevant appeal and utility. As the Internet has
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<PAGE> 32
become an important point of contact with customers, employees and business
partners, the user interface of these applications is an increasingly visible
component of a company's brand and identity. Proxicom creates Internet solutions
that maximize the ease and quality of experience for a variety of users.
THE PROXICOM PROCESS
GRAPHIC:
This graphic depicts the Proxicom Process and contains a three-dimensional
circle. The top of the circle is divided into five sections -- a circle in the
center and four equal segments linked by arrows surrounding it. The circle
contains the word "Repository". The four segments linked by arrows contain the
four steps of the Proxicom Process:
- Plan;
- Define;
- Design; and
- Implement.
The sides of the circle contain the terms "Project Management" and "Quality
Assurance."
Proxicom delivers its services using a proprietary multi-phase methodology
called the Proxicom Process, which serves as a roadmap to define, develop and
manage Internet solutions. The Proxicom Process benefits Proxicom's clients by
enabling Proxicom to offer fixed-price, fixed-timeframe engagements and thereby
meet clients' needs for certainty. The iterative nature of the Proxicom Process
enables Proxicom to refine applications through the extensive use of prototypes
and phased application releases. Proxicom also uses the Proxicom Process to
reduce the time-to-market of a deployed solution. The Proxicom Process fully
integrates working groups and emphasizes collaboration between the Proxicom team
and the client.
Proxicom uses the Proxicom Process to manage project scope and client
expectations and to deliver solutions on time and on budget. The Proxicom
Process offers mechanisms for rapid adoption of best practices and reinforces
consistent quality across all projects. It provides for quality assurance with
unit, integration and systems testing procedures throughout design, development
and deployment to ensure quality delivery and client satisfaction. The Proxicom
Process also aggregates and replenishes the intellectual capital of Proxicom's
entire organization, thereby leveraging Proxicom's cumulative experience.
Proxicom continually seeks to evolve the Proxicom Process by identifying best
practices during project reviews with Proxicom's delivery teams and clients.
All of Proxicom's client engagements utilize the Proxicom Process, which
Proxicom customizes to suit specific project needs. The inclusion, timing and
cost of any phase will depend on the type of solution and the scope of work. The
Proxicom Process is scalable and may be used effectively for projects of all
sizes. The following are the phases of the Proxicom Process:
Define Internet Strategy. The scope of the Define Internet Strategy phase
ranges from defining an Internet vision for the client's overall business to
developing a strategy for a specific Internet solution or offering. The Internet
vision is a business strategy engagement where Proxicom assesses the client's
opportunities to leverage the Internet both as a technology and as a profitable
business medium. The Internet vision engagement often involves Proxicom's
interactive marketing discipline, which assesses market opportunities and
competition. For a specific Internet solution, the Define Internet Strategy
deliverable examines the strategic objectives of the solution, how its success
will be measured, and how the solution will be marketed, launched and
publicized.
Plan Solution. The Plan Solution phase determines the scope and nature of
the engagement and articulates the project's tactical objectives. These
objectives are refined over the course of
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multiple working sessions with the client. This phase results in a project plan
outlining tasks, deliverables and key milestones, which are translated into a
detailed contractual agreement for the next phases of the engagement. The plan
includes detailed cost estimates as well as organizational roles and
responsibilities for Proxicom, the client and other parties.
Design Solution. The Design Solution phase uses rapid prototyping
techniques in an iterative fashion to determine and refine application
requirements and specifications. A multi-disciplinary team works in tandem with
the client to translate the business, marketing, technical and creative
requirements of the solution into a cohesive design. This phase generally has
four major parts.
- Business Requirements Definition. Requirements, which form the
foundation for successful solution designs, are refined through
successive iterations and collaborations with appropriate client and
user constituencies.
- Creative Design Composition. Content and information for the solution
are defined and organized. The look and feel of the solution is designed
in a series of detailed site flow compositions that show page content,
navigation and links. Proxicom works closely with the client to
coordinate the brand image and advertising campaigns on an ongoing
basis.
- Technical Architecture Definition. The solution is analyzed from a
technical viewpoint, including the development, test and operational
architectures required. The technical, application and data
architectures of the solution are documented, addressing the
requirements for hardware, software and network environments, databases
and third party products.
- Specification and Prototype Development. Rapid prototyping is used to
construct portions of the solution. A visual prototype is used to define
page style, layout, information architecture and navigation. Functional
prototypes are used to test complex processing requirements and the
effectiveness of the application and data architectures. This iterative
process allows the client to review and refine the application as it
takes shape during the development process.
Implement Solution. The Implement Solution phase involves the further
enhancement of prototypes to construct a production-ready solution by further
developing and combining the prototypes. Unit, integration and systems testing
and quality assurance procedures are incorporated throughout the development
process to verify that the solution conforms with the design specifications.
Testing is performed across multiple browsers and environments to ensure uniform
accessibility. Once the client gives final approval of the developed solution,
Proxicom works with the client through installation and roll-out. This work may
include system migration, data conversion and training.
SALES AND MARKETING
Proxicom's sales and marketing activities are aligned with its vertical
industry groups. Each vertical industry group vice president is responsible for
developing Proxicom's business within each respective industry, targeting new
clients and cultivating repeat business with existing clients. Proxicom believes
that its vertical approach is a differentiating factor during the sales process,
as it demonstrates Proxicom's understanding of the client's specific business
and technology issues. Proxicom's sales approach is highly consultative and
involves industry and solutions experts who draw on their practical experiences
with other clients that have faced similar challenges. Proxicom also assigns
senior client executives to strategic accounts to support and expand client
relationships.
Proxicom has 13 dedicated direct sales professionals to support the
vertical industry groups. These professionals are assigned to specific
geographic regions in order to maximize responsiveness to clients. They work
jointly with the vertical industry groups to secure new opportunities and manage
the sales process. Service directors responsible for delivery collaborate with
the sales
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professionals to form a joint sales approach for identifying and winning
follow-on business. Proxicom's marketing efforts are designed to create brand
recognition and demand for the company's services. Proxicom's four-person
marketing team is organized to provide support for each vertical industry group.
Marketing programs include promoting customer success stories, creating industry
and solution specific campaigns, pursuing public relations opportunities and
promoting the company's executives for speaking opportunities and
Proxicom-sponsored event management.
Proxicom complements its internal sales and marketing efforts with selected
industry partnerships. Several Internet product vendors such as Microsoft
Corporation, Netscape Communications Corporation, Oracle Corporation and
BroadVision, Inc., and high-end hosting vendors, such as Exodus Communications,
Inc., MCI WorldCom, Inc. and ANS Communications, Inc., recommend Proxicom
services to their clients. See "-- Marketing and Technology Relationships."
CLIENTS
Within each vertical group, Proxicom targets Global 1000 companies and
other large organizations. The following is a representative sample of
Proxicom's current clients.
<TABLE>
<S> <C>
ENERGY AND TELECOMMUNICATIONS RETAIL AND MANUFACTURING
Aramco Services Company Amgen, Inc.
Buckeye Pipe Line Company L.P. Calphalon Corporation
Pacific Gas and Electric Company Corning Incorporated
Schlumberger N.V. GAP, Inc.
TransCanada Pipelines Ltd. GE Plastics
Transport4 Harman International
Hewlett-Packard Corporation
FINANCIAL SERVICES Hoffmann-La Roche, Inc.
American International Group, Inc. McKessonHBOC
GE Capital Corporation Owens Corning
Kemper Insurance Companies Ritz Camera Centers, Inc.
Mercedes-Benz Credit Corp. Saab Cars USA, Inc.
Merrill Lynch & Co., Inc. Wyeth-Ayerst Laboratories
SERVICE INDUSTRIES
American Electronics Association
Booz-Allen & Hamilton Inc.
Cox Interactive Media, Inc.
Excite, Inc.
Interealty Corp.
Ziff-Davis Inc.
</TABLE>
In 1998, our five largest clients accounted for approximately 38% of our
revenue. Our two largest clients in 1998, Pacific Gas and Electric Company and
General Electric Company, contributed approximately 15% and 14%, respectively,
of our revenue. In 1997, our five largest clients accounted for approximately
48% of our revenue. Our two largest clients, Pacific Gas and Electric Company
and General Electric Company, contributed approximately 24% and 10%,
respectively, of our revenue.
CASE STUDIES
CALPHALON CORPORATION: BUSINESS-TO-CONSUMER INTERNET SOLUTION
Calphalon Corporation is a leading U.S. manufacturer of cookware products
and kitchen accessories. The company's first Internet initiative was an
internally developed, one-way, static Web site. In preparation for the holidays,
Calphalon sought to launch a new site to take
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advantage of the full interaction potential of the Internet. Calphalon engaged
Proxicom to design and deploy its new consumer focused transactional offering.
The consumer product experts in Proxicom's retail and manufacturing
practice began by determining an Internet strategy that would best differentiate
Calphalon. Through a rapid, iterative development process, Proxicom completed
the project's first phase in less than a month: a transaction enabled solution
including a select catalog of product information and images. Subsequent
expansion increased information for consumers, adding the full complement of
product information, new indexed product instruction, a database of recipes and
expanded transactions and interactive capabilities. A key success of the
solution was Proxicom's design of the site, which was integrated with
Calphalon's overall communications programs and image. The design, based on an
easy-to-navigate information architecture, was created to ensure an intuitive
user experience that meant quick adoption and satisfaction for its audience.
Proxicom helped Calphalon introduce a new means of doing business through
an Internet channel. The solution differentiates Calphalon's offering in
cookware products by uniting a complement of communications, content and
transaction capabilities through a single source. Using the site, Calphalon
gains invaluable knowledge of its customers and their interests. It establishes
a direct connection with a new audience and capitalizes on a new opportunity to
influence and serve the market for cooking enthusiasts. At the same time,
Calphalon enhances its brand presence. The solution has created efficiencies for
Calphalon's business and has been used to introduce a new line of cutlery
products to test market acceptance. As a result of the Internet initiative,
Calphalon has engaged Proxicom for ongoing site enhancements.
AMERICAN ELECTRONICS ASSOCIATION: A NEW INTERNET-BASED MEMBERSHIP SERVICE
The American Electronics Association is the largest high-tech trade
association, with over 3,000 member companies nationwide such as Intel
Corporation, Sun Microsystems Inc., Amazon.com, Yahoo! Inc. and Cisco Systems,
Inc. As a trusted partner for information, industry benchmarking, public policy,
international issues and conferences, AEA sought to leverage the Internet to
transform how it attracted and worked with members. Following a rigorous
competitive process, AEA selected Proxicom because of its experience and
integrated mix of strategy, technology and creative design skills. Proxicom's
charter was to reposition AEA and electronically enable their entire business
through a new Internet-based membership service.
In close collaboration with AEA, Proxicom's team repositioned the AEA brand
and communications identity. The new identity will serve as the front-end to a
fully functional Internet and extranet integrated into AEA's core systems.
Public and private sections are built on the Microsoft Site Server 3.0 Commerce
Edition platform which interacts with the legacy systems and builds off of
membership directory data. The site allows for distributed and dynamic rendering
of content that is presented to users through sophisticated personalization
based on their profile. The electronic commerce solution permits purchasing with
real-time variable pricing for AEA events and products. Additional features
include online discussions in support of grassroots campaigns, member generated
content, a comprehensive job bank section, queries across research data and a
powerful site analysis tool for audience and return on investment analysis.
The solution will redefine how AEA markets itself through a new brand and
message to the industry. AEA will gain a new, easier means to create and
distribute information and a powerful way to personalize it for the end user.
This solution will be a vehicle that increases sales and allows for direct,
real-time communications with members and industry experts. It will also provide
a sophisticated knowledge management, communications and commerce portal that
will enable AEA to better attract and retain members.
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GE PLASTICS: INTRANET KNOWLEDGE MANAGEMENT SYSTEM
GE Plastics, a business unit of the General Electric Company, faced a
problem common to many businesses: electronic methods for internal communication
and information-sharing were inefficient. Employees attempting to share
marketing, technical, sales and customer service information were consistently
faced with time-consuming searches among decentralized databases and file
systems as well as un-networked personal computers. GE Plastics engaged Proxicom
to help define and deploy an organization-wide intranet that would facilitate
knowledge sharing across its five divisions.
Working closely with GE, Proxicom's dedicated client service team began the
project by benchmarking GE Plastics' internal business processes and
technologies. A strategy was then developed to build an intranet that was
searchable across the multiple business units and would leverage their immense
storehouses of information. Proxicom rapidly designed and deployed an
easy-to-use intranet that tied into the legacy databases. Through the intranet,
product, marketing, customer and technology data has become accessible and
searchable from a browser-based interface that simulates a centralized data
source. The intranet has facilitated many workflow improvements, including the
automation of the GE Plastics' customer satisfaction review process, which
includes extensive customer satisfaction surveys. Prior to the intranet, the
process was entirely paper-based. Currently, the surveys are not only available
on the intranet but are part of an overall workflow process incorporating trend
analysis and audit trail capabilities.
The intranet established at GE Plastics leveraged its legacy system
investments and enabled more rapid deployment of solutions at significantly
lower cost than a major infrastructure overhaul. GE Plastics' global intranet
knowledge management system produces significant benefits for GE Plastics as a
valuable decision-making tool. Effectiveness of marketing, sales, information
technology and customer service personnel has improved dramatically, as
employees throughout GE Plastics are spending less time searching and entering
information and more time doing their jobs, making decisions and implementing
strategic plans.
PACIFIC GAS AND ELECTRIC COMPANY: ENTERPRISE DISTRIBUTED OBJECT APPLICATION
Pacific Gas and Electric Company, one of the largest investor-owned
utilities in the country, provides gas and electric services to 12 million
people throughout Northern California. With the Gas Accord, approved by the
California Public Utilities Commission in August 1997, Pacific Gas and Electric
was faced with fundamental changes in its gas business and an increasingly
competitive environment. Pacific Gas and Electric had an opportunity to increase
revenue by offering value-added services, such as different levels of service,
flexible billing options, and helping customers reduce their operational and
financial risk. Pacific Gas and Electric chose Proxicom as its development
partner to design, develop and implement its comprehensive gas transportation
system.
The oil and gas experts in Proxicom's energy practice began by helping
Pacific Gas and Electric design a system that would be flexible enough to
facilitate all business transactions. This meant the system had to do more than
move the gas from place to place; it had to include functionality for selling
Pacific Gas and Electric 's transmission and storage capacity, trading the
commodity gas among energy marketers, delivering the gas to intermediaries and
end users, and billing customers (gas producers, gas marketers and end users).
The real challenge for Proxicom and Pacific Gas and Electric was that the system
had to be developed before the new structure was finalized, which meant that
requirements were changing throughout the development process. Proxicom built a
system that allowed instant access to pipeline capacity and throughput data, was
dispersed across 20 states and Canada, and was extensible enough to allow for
quick time to market new services. Whereas the old system had taken Pacific Gas
and Electric six years to build, this system was put into operation just 12
months after the requirements were developed. Proxicom used an iterative
object-oriented development methodology to create a
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multi-tiered application architecture so that changes in business rules, as are
often necessitated by a rapidly changing industry, could be easily incorporated.
Proxicom helped Pacific Gas and Electric become a competitive player at the
forefront of the newly restructured gas industry. The system that was developed
is at the core of Pacific Gas and Electric 's gas business, accounting for $360
million in revenue, with two million residential, 1,200 industrial and 150
energy marketer customers. This new system provides strategic trend information
to Pacific Gas and Electric and enables it to offer a high level of services to
its customers, including remote access via the Internet. Because the gas
transportation system was designed to be flexible and extensible, Pacific Gas
and Electric and Proxicom were able to reuse the components developed under the
Gas Accord to develop a gas gathering contract system in just three months. This
new system allows Pacific Gas and Electric to leverage its existing system
infrastructure and reduce maintenance and support costs.
MARKETING AND TECHNOLOGY RELATIONSHIPS
Proxicom complements its internal sales and marketing efforts with formal
and selected industry partnerships. A number of Internet product vendors,
including Microsoft Corporation, Netscape Communications Corporation, Oracle
Corporation and BroadVision, Inc. and leading hosting providers, including
Exodus Communications, Inc., Digex Incorporated, MCI WorldCom, Inc. and ANS
Communications, Inc., recommend Proxicom services to their clients.
Proxicom has arrangements with a number of technology vendors to obtain
privileged access to their technologies. By establishing these alliances,
Proxicom has gained pre-release technology which enables it to maintain
leading-edge technical skills. Microsoft, Netscape and BroadVision have all
provided advance versions of their technologies to Proxicom. Obtaining the
validation by industry leaders such as Microsoft and Netscape has added
considerably to Proxicom's visibility, credibility and brand image. Proxicom's
relationships with Microsoft and BroadVision are summarized below.
Proxicom has been a Microsoft Certified Solution Provider Partner since
1995, when it began actively cultivating a broad base of Microsoft products,
skills and certifications. In the spring of 1998, Proxicom was promoted to
Solutions Provider Partner, the highest level within that program. The Solution
Provider Partner program provides Internet-specific technical assistance.
Through this program, Microsoft and Proxicom conduct joint marketing efforts,
training programs and sales initiatives, in particular targeting Proxicom's
specialty industries.
Recently, Proxicom has become a BroadVision Integration Partner.
BroadVision and Proxicom work together to deploy BroadVision's "One-to-One"
commerce platform. In addition, several joint marketing events and sales
activities are planned. As an Integration Partner, Proxicom receives high-level
technical and sales support from BroadVision. Creating this relationship with
BroadVision allows Proxicom to enter the packaged applications systems
integration market, leveraging its Internet expertise with the market demand for
rapid deployment of new technology.
In addition, in December 1998, Proxicom signed a letter of intent with
Ericsson Telecommunicazioni SpA ("Ericsson"). Under the letter of intent,
Proxicom will purchase a 19.9% interest in an Italian joint venture company. The
joint venture company would provide Internet solutions, including consulting,
design and integration services to Italian based businesses. The initial share
capital of the joint venture company is anticipated to be no less than
approximately $1.8 million, which Proxicom and Ericsson would contribute in
proportion to their shareholder percentage interests. The joint venture company
would also pay Proxicom to make available to the joint venture company certain
senior managers and professionals to provide consultancy, project management and
technical design services for a period of at least one year. Proxicom and
Ericsson are currently in the process of negotiating a definitive agreement for
the joint venture.
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IBIS CONSULTING MERGER
On August 21, 1998, Proxicom merged with IBIS Consulting, Inc. by
exchanging 4,988,297 shares of Proxicom common stock and options to purchase
345,034 shares of Proxicom common stock for all the common stock of IBIS
Consulting. IBIS Consulting is a San Francisco-based Internet professional
services provider. IBIS Consulting's services and culture are highly
complementary to those of Proxicom. Proxicom has integrated IBIS Consulting's
systems, Internet professionals and management into its operations. As a result
of this transaction, Proxicom has expanded its presence to the West Coast and
broadened its resource base, sales reach and expertise.
PERSONNEL AND CULTURE
As of December 31, 1998, Proxicom had 380 employees. Of these, 311 were
consulting and service delivery professionals, and 69 were management and
administrative personnel performing marketing, sales, human resources, finance,
accounting, legal, internal information systems and administrative functions.
Proxicom believes that its ability to provide integrated business strategy,
technology and creative design services is dependent upon the continuation of
its culture of mutual respect among the three disciplines. As a result,
Proxicom's employees and its culture are fundamental to the value proposition it
offers clients. Proxicom's culture is predicated on personal integrity, open
communications, collaboration and professional development. Proxicom fosters an
entrepreneurial spirit that attracts talented professionals, creates innovative
solutions and provides the opportunity for every individual to succeed.
Proxicom has a particular emphasis on recruiting and retaining people with
leading-edge technical skills and project management experience. Proxicom has
been very successful with internal referral-driven recruiting, which has
accounted for nearly one-third of its hires to date. Proxicom continues to
encourage employee referrals with monetary incentives. Proxicom has developed a
structured recruiting program including a staff of dedicated recruiters tasked
with bringing in experienced professionals, MBA and college hires, and
maintaining a tracking database of potential candidates. Proxicom runs a
year-round internship program with several leading undergraduate and MBA
programs.
In addition to recruiting, Proxicom is committed to employee training and
retention. Proxicom has a dedicated organizational development team that
initiates and oversees the training and development of Proxicom's professionals.
Key organizational development initiatives include a week-long "boot camp"
orientation and training program for all new employees and "Proxicom
University," which provides ongoing technical and project management classes as
well as career path management and guidance. To support its internal initiatives
for employee development, Proxicom has also instituted programs such as tuition
reimbursement and external training. Proxicom plans to continue to invest in
attracting the best employees and in maintaining a low turnover rate.
None of Proxicom's employees is represented by a labor union, nor has
Proxicom ever experienced a work stoppage. Proxicom believes its employee
relations are good.
COMPETITION
The market for Proxicom's services is subject to rapid technological change
and increased competition from large existing players, new entrants and internal
information systems groups. Traditional players competing in this space can be
broken down into four major categories -- large systems integrators (e.g.,
International Business Machines Corporation, Andersen Consulting and Computer
Sciences Corporation), specialty systems integrators (e.g., Cambridge Technology
Partners, Inc. and Sapient Corporation), strategy consulting firms (e.g.,
McKinsey & Company,
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Inc. and Boston Consulting Group, Inc.), and Internet professional services
providers (e.g., USWeb/CKS, Viant Corporation, Scient Corporation and iXL
Enterprises, Inc.) -- many of which have considerably more financial resources,
marketing depth and name recognition than Proxicom. Occasionally Proxicom
competes with newer entrants including interactive marketing firms (e.g.,
Agency.com, Ltd. and Modem Media . Poppe Tyson, Inc.). Proxicom expects future
consolidation in the Internet professional services market to create larger,
more viable competitors. Potential clients' internal information systems groups
also compete with Proxicom.
Proxicom believes the principal competitive factors in the Internet
professional services market include Internet expertise and talent, client
references, integrated strategy, technology and creative design services,
quality, pricing and speed of service delivery and vertical industry knowledge.
Proxicom believes it competes favorably with respect to these factors. Proxicom
believes it is in a good position to attract talent with its growth and an
entrepreneurial culture. Proxicom believes it offers its clients a unique
combination of integrated strategy, technology and creative design services. In
addition, Proxicom believes it has established itself as a leader in
Internet-specific industry and domain expertise. Through its replicable solution
frameworks and its attention to client satisfaction, Proxicom has created a
strong track record of customer successes. Proxicom believes the market will
continue to offer significant opportunity for multiple players.
INTELLECTUAL PROPERTY RIGHTS
Proxicom's success is dependent, in part, upon its proprietary Proxicom
Process, its solution components, and other intellectual property rights. We do
not have any patents or patent applications pending. Proxicom relies on a
combination of trade secret, nondisclosure and other contractual agreements, and
copyright and trademark laws to protect its proprietary rights. Existing trade
secret and copyright laws afford us only limited protection. Proxicom enters
into confidentiality agreements with its employees, generally requires that its
consultants and clients enter into such agreements, and limits access to and
distribution of the company's proprietary information. There can be no assurance
that the steps Proxicom has taken in this regard will be adequate to deter
misappropriation of its proprietary information or that Proxicom will be able to
detect unauthorized use and take appropriate steps to enforce its intellectual
property rights.
Proxicom's business generally involves the development of software
applications for specific client engagements. Ownership of such software is
frequently assigned to the client, with Proxicom retaining a license or other
contractual rights for certain uses.
FACILITIES
Proxicom's headquarters and principal administrative, finance, legal, sales
and marketing operations are located in approximately 65,000 square feet of
leased office space in Reston, VA. Proxicom's lease is for a term of seven years
and expires on July 13, 2002. The building is beneficially owned by Mario M.
Morino, one of our stockholders and a member of our Board of Directors. Proxicom
also leases office space in San Francisco, CA, New York, NY, Munich, Germany,
Sacramento, CA, Chicago, IL and Houston, TX. Proxicom expects that it will need
additional space as it expands its business and believes that it will be able to
obtain space as needed.
LEGAL PROCEEDINGS
Proxicom is not a party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table presents information about each of Proxicom's executive
officers and directors. Proxicom's Board of Directors is divided in to three
classes serving staggered three-year terms.
<TABLE>
<CAPTION>
TERM AS
DIRECTOR
NAME AGE POSITION(S) WITH COMPANY EXPIRES
---- --- ------------------------ --------
<S> <C> <C> <C>
Raul J. Fernandez.............. 32 President, Chief Executive Officer and Chairman 2001
Brenda A. Wong................. 34 Senior Vice President, Organizational Strategies 2001
and Director
Larry D. Clark................. 41 Senior Vice President, Services
Harold R. Gubnitsky............ 36 Senior Vice President, Sales and Marketing
Scott McDonald................. 35 Senior Vice President, Energy and
Telecommunications
Kenneth J. Tarpey.............. 46 Senior Vice President, Chief Financial Officer
and Treasurer
Christopher Capuano............ 38 Vice President, General Counsel and Corporate
Secretary
David C. Hodgson............... 42 Director 2002
Jack Kemp...................... 63 Director 2000
Theodore J. Leonsis............ 42 Director 2002
John A. McKinley, Jr........... 41 Director 2000
Mario M. Morino................ 55 Director 2000
</TABLE>
Raul J. Fernandez founded Proxicom and has served as President, Chief
Executive Officer and Chairman of the Board of Directors of Proxicom since its
inception in 1991. Prior to starting Proxicom, Mr. Fernandez served as the
Director of Emerging Technologies at a Bethesda, MD based government contracting
firm. Mr. Fernandez is a member of the Board of Directors of the Northern
Virginia Technology Council, a trade organization.
Brenda A. Wong has been Senior Vice President, Organizational Strategies
and a director since August 1998. Prior to joining Proxicom, she was president
of IBIS Consulting, Inc., an Internet and information technology solutions
provider which she co-founded in February 1994 and which merged with Proxicom in
August 1998. From 1989 to 1993, Ms. Wong was a Senior Consultant at Price
Waterhouse LLP.
Larry D. Clark has been Senior Vice President, Services since March 1998.
Prior to joining Proxicom, from May 1992 until March 1998, Mr. Clark held
various executive positions with MCI Systemhouse Corporation, the systems
integration, technology development and information technology outsourcing arm
of MCI Communications Corp., where he was, most recently, Vice President and
General Manager of the United States East Region and was responsible for
managing the company's East Region business unit. From 1990 until 1992, Mr.
Clark was a Senior Engagement Manager at McKinsey & Company, Inc., a consulting
firm. Prior to that, Mr. Clark held various management positions with The
Information Consulting Group and Andersen Consulting.
Harold R. Gubnitsky has been Senior Vice President, Sales and Marketing
since January 1999. Prior to joining Proxicom, from August 1995 to January 1999,
he served as a Vice President of Cambridge Technology Partners, Inc., a
technology systems integration firm. From 1991 to 1995, Mr. Gubnitsky was the
managing director of The Systems Consulting Group, Inc., a technology consulting
company that was sold to Cambridge Technology Partners, Inc.
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Scott McDonald has been Senior Vice President, Energy and
Telecommunications since August 1998. Prior to joining Proxicom, he served as
Vice President of IBIS Consulting, Inc., a company which he co-founded in
February 1994 and which merged with Proxicom in August 1998. From 1990 to 1994,
Mr. McDonald was a consultant with Price Waterhouse LLP.
Kenneth J. Tarpey has been Senior Vice President and Chief Financial
Officer of Proxicom since March 1997. Prior to joining Proxicom, from August
1996 until March 1997, Mr. Tarpey served as Vice President and Chief Financial
Officer of Nat Systems International, Inc., a developer and vendor of software
application development tools. From April 1995 to August 1996, Mr. Tarpey served
as Vice President, Finance, Chief Financial Officer, Treasurer and Assistant
Secretary of SQA, Inc., a developer and marketer of automated quality testing
software products. From November 1989 to April 1995, Mr. Tarpey held various
executive positions at Symbolics, Inc., a hardware and software company,
including Chairman of the Board of Directors, President, Chief Executive Officer
and Chief Financial Officer.
Christopher Capuano has been Vice President, General Counsel and Corporate
Secretary of Proxicom since June 1996 and was a director from August 1996 until
August 1998. Prior to joining Proxicom, from 1993 until June 1996, Mr. Capuano
was a Manager and Senior Manager with Price Waterhouse LLP. From 1994 to 1997,
Mr. Capuano was also an Adjunct Professor of Law at Georgetown University Law
Center. Mr. Capuano was associated previously with the law firm of Willkie, Farr
& Gallagher.
David C. Hodgson has been a director of Proxicom since August 1996. Mr.
Hodgson is a managing member of General Atlantic Partners, LLC, a private equity
investment firm that invests in software and information technology companies on
a worldwide basis. Mr. Hodgson has been with General Atlantic Partners, LLC (or
its predecessor) since 1982. Mr. Hodgson is also a director of Atlantic Data
Services, Inc., a provider of professional computer services for the banking
industry, Baan Company N.V., a business management software company, ProBusiness
Services, Inc., an employee administrative services company, and several private
information technology companies.
Jack Kemp has been a director of Proxicom since January 1997. Mr. Kemp has
been Co-Director of Empower America from 1993 to the present. Mr. Kemp served as
the Secretary of Housing and Urban Development from February 1989 until January
1992 and, before that, for 18 years as a member of the United States House of
Representatives. Mr. Kemp is also a director of Oracle Corporation, American
Bankers Insurance Group, Inc., Carson, Inc., a manufacturer and marketer of
personal care products, Everen Capital Corporation, a securities firm, and The
Sports Authority, Inc., a sporting goods retailer.
Theodore J. Leonsis has been a director of Proxicom since January 1999. Mr.
Leonsis has been President of America Online Studios, a division of America
Online, Inc., since November 1996. Prior to that, Mr. Leonsis was President of
America Online Services Company, also a division of America Online, Inc. from
1994 to 1996. Mr. Leonsis was previously Chief Executive Officer of Redgate
Communications Corporation, a media marketing company which was founded in 1987
and sold to America Online, Inc. in 1994. Mr. Leonsis is also a director of
U.S.A. Floral Products, Inc., a floral retailer, and Preview Travel, Inc., an
Internet travel company.
John A. McKinley, Jr. has been a director of Proxicom since January 1997.
Mr. McKinley has been Senior Vice President, Chief Technology Officer of Merrill
Lynch & Co., Inc. since October 1998. Prior to that, from 1995 to 1998, Mr.
McKinley was the Chief Technology and Information Officer for GE Capital
Corporation. From February 1982 until January 1995, Mr. McKinley held various
positions with Ernst & Young LLP, where he was most recently a partner
concentrating in the financial services and airline industries.
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<PAGE> 42
Mario M. Morino has been a director of Proxicom since January 1997. Mr.
Morino is an investor in and adviser to various firms in the information
technology sector. Mr. Morino was co-founder and Vice Chairman of Legent
Corporation until his retirement in September 1992.
BOARD COMMITTEES
The Audit Committee reviews, acts on and reports to the Board of Directors
with respect to various auditing and accounting matters. These matters include
the selection of Proxicom's auditors, the scope of the annual audits, fees to be
paid to the auditors, the performance of Proxicom's independent auditors and
Proxicom's accounting practices. The Audit Committee consists of Messrs. Hodgson
and McKinley.
The Compensation Committee determines the salaries and incentive
compensation of Proxicom's officers and provides recommendations for the
salaries and incentive compensation of other employees and consultants. The
Compensation Committee also administers Proxicom's various incentive
compensation, stock and benefit plans. The Compensation Committee consists of
Messrs. Hodgson, Leonsis and Morino.
DIRECTOR COMPENSATION
Proxicom does not currently compensate its directors who are also company
employees. Each non-employee director currently receives $1,500 of cash
compensation and is reimbursed for reasonable travel expenses for each board
meeting attended. For a description of the 1997 Stock Option Plan for
Non-Employee Directors, see " -- Stock Plans".
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to or earned by
Proxicom's Chief Executive Officer and all other executive officers whose salary
and bonus for services rendered in all capacities to Proxicom for the fiscal
year ended December 31, 1998 exceeded $100,000. We will use the term "named
executive officers" to refer to these people later in this prospectus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS
----------------------
ANNUAL COMPENSATION SECURITIES
----------------------------- UNDERLYING
NAME AND PRINCIPAL POSITION(S) SALARY BONUS OTHER OPTIONS/SARS
- ------------------------------ -------- -------- ----- ------------
<S> <C> <C> <C> <C>
Raul J. Fernandez............. $185,742 $ -- $720(1) --
Chairman, Chief Executive
Officer
and President
Larry D. Clark................ 262,990 113,836 -- 300,000
Senior Vice President,
Services
Christopher Capuano........... 166,300 41,450 -- 25,000
Vice President, General
Counsel and Secretary
Kenneth J. Tarpey............. 154,553 44,250 -- 50,000
Senior Vice President, Chief
Financial Officer and
Treasurer
</TABLE>
- -------------------------
(1) Pertains to an automobile allowance.
38
<PAGE> 43
OPTION GRANTS IN LAST FISCAL YEAR
The following table summarizes the options granted to each of Proxicom's
named executive officers during the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(1)
OPTIONS EMPLOYEES EXERCISE EXPIRATION ---------------------
NAME GRANTED IN FISCAL YEAR PRICE(2) DATE 5% 10%
- ---- ---------- -------------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Larry D. Clark............ 300,000 13.5% $4.77 3/30/08 $899,948 $2,280,645
Christopher Capuano....... 25,000 1.1 4.77 1/23/08 74,996 190,054
Kenneth J. Tarpey......... 50,000 2.2 7.00 4/1/08 220,113 557,810
</TABLE>
- -------------------------
(1) The potential realizable value is calculated based on the term of the option
at the time of grant (10 years). Assumed stock price appreciation of 5% and
10% is based on the fair value at the time of the grant.
(2) The exercise price equals the fair market value of the common stock as of
the grant date as determined by the Board of Directors.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table presents information with respect to stock options
owned by the named executive officers at December 31, 1998 and with respect to
stock options exercised by the named executive officers during the fiscal year
ended December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Larry D. Clark................... -- 300,000
Christopher Capuano.............. 20,000 55,000
Kenneth J. Tarpey................ 25,000 125,000
</TABLE>
- -------------------------
(1) There was no public trading market for the common stock as of December 31,
1998. Accordingly, these values have been calculated on the basis of the
assumed initial public offering price of $ per share, less the
applicable exercise price per share, multiplied by the number of shares
underlying such options.
STOCK PLANS
1996 Stock Option Plan. The 1996 Stock Option Plan provides for the grant
of (a) shares of common stock, subject to restrictions, (b) options, (c) stock
appreciation rights and (d) performance shares, to employees, directors,
officers and consultants of Proxicom. There are 6,650,000 shares of common stock
reserved for issuance under this plan. As of February 11, 1999 Proxicom had
granted options to purchase of these shares, at a weighted average
exercise price of $ per share. To date, there have been no grants of
restricted common stock, stock appreciation rights or performance shares under
the 1996 Stock Option Plan. Options granted under this plan typically vest over
time, subject to acceleration in the event of a change of control of Proxicom.
No option granted under this plan is exercisable after the tenth anniversary of
the option's date of grant.
39
<PAGE> 44
1997 Stock Option Plan for Non-Employee Directors. The 1997 Stock Option
Plan for Non-Employee Directors provides for automatic grants of stock options
to eligible non-employee directors. There are 350,000 shares of common stock
reserved for issuance under this plan. As of February 8, 1999, Proxicom had
granted options to purchase 198,333 of these shares at a weighted average price
of $5.20 per share. Under the Directors Plan, each non-employee director is
granted an option to purchase 35,000 shares of common stock upon first election
to the board. Each non-employee director is also granted an additional option to
purchase 35,000 shares of common stock upon reelection to the board. See
"-- Director Compensation." Options granted under this plan before December 15,
1998 vest over three years, subject to acceleration in the event of a change of
control of Proxicom. Options granted after December 15, 1998 vest on the date of
grant. No option granted under this plan is exercisable after the tenth
anniversary of the option's date of grant.
Employee Stock Purchase Plan. Proxicom's Employee Stock Purchase Plan
provides for the issuance of 1,000,000 shares of common stock. All Proxicom
employees whose customary employment is more than 20 hours per week and for more
than five months in any calendar year are eligible to participate in the Stock
Purchase Plan, provided that any employee who would own five percent or more of
the total combined voting power or value of Proxicom's stock immediately after
any grant is not eligible to participate. Eligible employees must authorize
Proxicom to deduct an amount from their pay during offering periods established
by the Compensation Committee. Common stock may be purchased at not less than
85% of the lesser of the market price of the common stock on the first or last
business day of each offering period.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For more information about certain transactions and relationships between
Proxicom and Messrs. Hodgson, Leonsis and Morino, you should see the
"-- Executive Officers and Directors" and "Certain Transactions" subsections of
this prospectus.
40
<PAGE> 45
CERTAIN TRANSACTIONS
STOCK PURCHASE AGREEMENTS AND RELATED MATTERS
Series A Purchase Agreement. On August 30, 1996, Proxicom sold the
following numbers of shares of Series A convertible preferred stock to the
following purchasers at a price of $3.27 per share.
<TABLE>
<S> <C>
General Atlantic Partners 34, L.L.P. ....................... 1,389,218
GAP Coinvestment Partners, L.P. ............................ 240,751
</TABLE>
At the same time, Proxicom also granted General Atlantic Partners 34 and GAP
Coinvestment warrants exercisable for 861,834 shares and 149,544 shares,
respectively, of Series A preferred stock, or common stock in the event of an
initial public offering of securities, at an exercise price of $7.91 per share.
In this transaction, Proxicom repurchased from Mr. Fernandez, Proxicom's
Chairman, President and Chief Executive Officer, 100,917 shares of common stock
at a price of $3.27 per share. In addition, Proxicom, General Atlantic Partners
34, GAP Coinvestment and Mr. Fernandez entered into a stockholders agreement and
a registration rights agreement. See "-- Stockholders Agreement" and
"-- Registration Rights Agreement." Under the terms of the Series A preferred
stock, Mr. Hodgson was elected to the Board of Directors. See "Management." In
January 1998, General Atlantic Partners 34 and GAP Coinvestment converted
347,311 shares and 60,189 shares of Series A preferred stock into an equivalent
number of shares of common stock. General Atlantic Partners 34 and GAP
Coinvestment have executed an irrevocable commitment to exercise their warrants
immediately prior to completion of this offering.
Series B Purchase Agreement. On February 20, 1997, Proxicom sold the
following numbers of shares of Series B convertible preferred stock to the
following purchasers at a price of $4.17 per share.
<TABLE>
<S> <C>
General Atlantic Partners 34, L.L.P. ....................... 81,535
GAP Coinvestment Partners, L.P. ............................ 14,388
FBR Technology Venture Partners L.P. ....................... 23,981
The Mario M. Morino Trust................................... 239,808
</TABLE>
In this transaction, Proxicom repurchased from Mr. Fernandez 359,712 shares of
common stock at a price of $4.17 per share. Also, FBR Technology Venture
Partners and the Morino Trust became parties to the above referenced
stockholders agreement and registration rights agreement. See "-- Stockholders
Agreement" and "-- Registration Rights Agreement." Under the stockholders
agreement's terms, Mr. Morino was elected to the Board of Directors. See
"Management."
Series C Purchase Agreement. On November 24, 1997, Proxicom sold 419,302
shares of Proxicom Series C convertible preferred stock to GE Capital
Corporation at a price of $4.77 per share. In this transaction, GE Capital
became a party to the above referenced stockholders agreement and the
registration rights agreement. See "-- Stockholders Agreement" and
"-- Registration Rights Agreement."
During the fiscal years ended December 31, 1996, 1997 and 1998, GE Capital
paid Proxicom approximately $463,000, $1,056,000 and $775,000 for Internet
professional services. Proxicom expects to continue to provide Internet
professional services to GE Capital.
41
<PAGE> 46
Series D Purchase Agreement. On February 1, 1999, Proxicom sold the
following number of shares of Series D convertible preferred stock to the
following purchasers at a purchase price of $6.00 per share.
<TABLE>
<S> <C>
Jack Kemp................................................... 16,373
Theodore Leonsis............................................ 43,660
John McKinley............................................... 43,660
General Atlantic Partners 52, L.P. ......................... 628,850
GAP Coinvestment Partners II, L.P. ......................... 141,571
The Mario M. Morino Trust................................... 54,575
GE Capital Equity Investments, Inc. ........................ 250,350
The Washington Post Company................................. 39,294
</TABLE>
In this transaction, all new investors became parties to the stockholders
agreement and the registration rights agreement. See "-- Stockholders Agreement"
and "-- Registration Rights Agreement." Also, simultaneously with this
transaction, Messrs. Fernandez, Hoenigman and McDonald and Ms. Wong sold a total
of 698,667 shares of common stock to the purchasers of the Series D preferred
stock for aggregate consideration of $4.2 million.
Stockholders Agreement. Proxicom, Messrs. Fernandez, Hoenigman and
McDonald, Ms. Wong and all other preferred stockholders are parties to a
stockholders agreement. The stockholders agreement contains arrangements with
respect to voting, rights of first refusal and "tag-along" rights, as well as
other agreements relating to corporate governance. The stockholders agreement
will terminate by its terms immediately prior to the closing of this offering.
REGISTRATION RIGHTS AGREEMENT
Proxicom has a registration rights agreement with Messrs. Fernandez,
Hoenigman and McDonald, Ms. Wong and all other preferred stockholders. The
stockholder parties to this agreement own beneficially an aggregate of
18,226,362 shares of common stock. After this offering closes, General Atlantic
Partners 34 and 52, GAP Coinvestment and GAP Coinvestment II will be entitled to
one demand registration right with respect to registration of their registrable
shares under the Securities Act, subject to limitations. In addition, all
stockholder parties will be entitled to piggyback registration rights as to the
registration of the sale of their shares of common stock under the Securities
Act. In the event that Proxicom proposes to register any shares of its common
stock under the Securities Act, either for its account or for the account of
other security holders, the holders of shares to be registered are entitled to
receive notice of the registration and are entitled to include their shares in
it. The underwriters of an offering can limit the number of shares of common
stock held by security holders with registration rights to be included in the
registration.
OTHER TRANSACTIONS
In December 1995, Proxicom loaned $155,000 to a partnership owned by Mr.
Fernandez. The partnership purchased computer equipment with the borrowed funds
and leased the equipment to Proxicom. The partnership ceased operations in 1997
and all assets and liabilities of the partnership were transferred to Proxicom
at book value of approximately $90,000.
In February 1997, Proxicom leased approximately 65,000 square feet of
office space in Reston, VA. The lessor is 11600 Sunrise Limited Partnership, a
limited partnership of which Mario M. Morino, a Proxicom director and
stockholder, is the general partner. The lease term commenced on July 1, 1997
and has a seven-year term. Lease payments totaled approximately $331,000 for
1997 and $864,000 for 1998 and will increase at an annual rate of 3%.
We believe that all transactions disclosed above were made on terms no less
favorable to Proxicom than would have been obtained from unaffiliated third
parties.
42
<PAGE> 47
PRINCIPAL AND SELLING STOCKHOLDERS
The following table presents information regarding the beneficial ownership
of common stock as of February 11, 1999 and as adjusted to reflect the sale of
common stock offered hereby: (a) by each person (or group of affiliated persons)
who is the beneficial owner of more than 5% of the outstanding common stock; (b)
by each of the named executive officers; (c) by each Proxicom director; (d) by
all of the executive officers and directors as a group; and (e) by each selling
stockholder.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE AFTER THE
OFFERING(1) OFFERING(1)(2)
----------------------- SHARES -----------------------
NAME NUMBER PERCENTAGE TO BE SOLD NUMBER PERCENTAGE
- ---- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Raul J. Fernandez.............. 8,183,204 43.5%
General Atlantic Partners,
LLC(3)....................... 3,913,664 20.8%
Vincent Hoenigman(4)........... 1,446,494 7.7%
Scott McDonald(5).............. 1,377,983 7.3%
Christopher Capuano(6)......... 46,250 *
Larry D. Clark(7).............. 75,000 *
Kenneth J. Tarpey(8)........... 40,500 *
David C. Hodgson(3)(9)......... 3,936,998 20.9%
Jack Kemp(10).................. 48,334 *
Theodore J. Leonsis(11)........ 101,667 *
John A. McKinley, Jr.(12)...... 90,001 *
Mario M. Morino(13)............ 346,475 1.8%
Brenda A. Wong(14)............. 1,730,820 9.2%
All executive officers and
directors as a group (12
persons)..................... 15,977,232 83.8%
</TABLE>
- -------------------------
* Less than 1% of the outstanding shares.
(1) The persons named in this table have sole voting power with respect to all
shares of common stock shown as beneficially owned by them, subject to
community property laws where applicable and except as indicated in the
other footnotes to this table. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission, or
SEC. In computing the number of shares beneficially owned by a person and
the percentage ownership of that person, shares of common stock subject to
options held by that person that are currently exercisable or exercisable
within 60 days after February 11, 1999, are deemed outstanding. Such
shares, however, are not deemed outstanding for the purpose of computing
the percentage ownership of any other person. All of Proxicom's outstanding
Series A, B, C and D preferred stock will convert into common stock, on a
one share for one share basis, immediately prior to the closing of this
offering. All of the percentages in this table reflect the conversion and
the exercise of the warrants.
(2) Assumes that the option granted the underwriters to purchase additional
shares is not exercised.
(3) General Atlantic Partners 34 holds 1,041,907 shares of Series A preferred
stock, 81,535 shares of Series B preferred stock, 347,311 shares of common
stock and a warrant to purchase 861,834 shares of Series A preferred stock.
GAP Coinvestment holds 180,562 shares of Series A preferred stock, 14,388
shares of Series B preferred stock,
43
<PAGE> 48
60,189 shares of common stock and a warrant to purchase 149,544 shares of
Series A preferred stock. Upon the closing of this offering, the warrants
will be exercised for shares of common stock. General Atlantic Partners 52
holds 628,850 shares of Series D preferred stock and 331,372 shares of
common stock. GAP Coinvestment II holds 141,571 shares of Series D
preferred stock and 74,601 shares of common stock. The general partner of
General Atlantic Partners 34 and General Atlantic Partners 52 is GAP, LLC,
a Delaware limited liability company. The managing members of GAP LLC are
also the general partners of GAP Coinvestment and GAP Coinvestment II. Mr.
Hodgson is a managing member of GAP LLC. Mr. Hodgson is a general partner
of GAP Coinvestment and GAP Coinvestment II. General Atlantic Partners 34,
General Atlantic Partners 52, GAP Coinvestment, GAP Coinvestment II and GAP
LLC, together, are a "group" within the meaning of Rule 13d-5 of the
Securities Exchange Act of 1934. Mr. Hodgson disclaims beneficial ownership
of the securities held by General Atlantic Partners 34, General Atlantic
Partners 52, GAP Coinvestment and GAP Coinvestment II, except to the extent
of his respective pecuniary interest in those entities. The address of GAP
LLC and Mr. Hodgson is c/o General Atlantic Service Corporation, 3 Pickwick
Plaza, Greenwich, CT 06830.
(4) Includes 149,650 shares of common stock held in escrow over which Mr.
Hoenigman has sole voting power. Mr. Hoenigman's address is c/o Proxicom,
Inc., 11600 Sunrise Valley Drive, Reston, VA 20191.
(5) Includes 171,099 shares of common stock held in escrow over which Mr.
McDonald has sole voting power. Mr. McDonald's address is c/o Proxicom,
Inc., 11600 Sunrise Valley Drive, Reston, VA 20191.
(6) Includes 31,250 shares of common stock issuable upon the exercise of stock
options.
(7) Represents 75,000 shares of common stock issuable upon the exercise of
stock options.
(8) Represents 37,500 shares of common stock issuable upon the exercise of
stock options and 3,000 shares of common stock owned by members of Mr.
Tarpey's immediate family.
(9) Includes all of the shares beneficially owned by GAP LLC and 23,334 shares
of common stock issuable upon the exercise of stock options.
(10) Includes 23,334 shares of common stock issuable upon the exercise of stock
options and 16,373 shares of Series D preferred stock.
(11) Includes 35,000 shares of common stock issuable upon the exercise of stock
options and 43,660 shares of Series D preferred stock.
(12) Includes 23,334 shares of common stock issuable upon the exercise of stock
options and 43,660 shares of Series D preferred stock.
(13) Represents (a) 239,808 shares of Series B preferred stock held by the Mario
M. Morino Trust, (b) 54,575 shares of Series D preferred stock and (c)
23,334 shares of common stock issuable upon the exercise of stock options.
(14) Includes 178,082 shares of common stock held in escrow over which Ms. Wong
has sole voting power.
44
<PAGE> 49
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the closing of the offering, Proxicom's authorized capital stock will
consist of 100,000,000 shares of common stock, $.01 par value per share, and
10,000,000 shares of preferred stock, $.01 par value per share.
COMMON STOCK
As of February 11, 1999, there were 14,574,009 shares of common stock
outstanding and held of record by 101 stockholders. Based upon the number of
shares outstanding as of that date and giving effect to the issuance of
shares of common stock in this offering and the conversion of the
outstanding preferred stock there will be shares of common stock
outstanding upon completion of this offering.
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders. They do not have cumulative voting
rights. As a result, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive ratably,
dividends, if any, as the Board of Directors may declare out of funds legally
available, subject to any preferential dividend rights of any then-outstanding
preferred stock. Upon the liquidation, dissolution or winding up of the company,
the holders of common stock are entitled to receive ratably the net assets of
the company available after the payment of all debts and other liabilities and
subject to the prior rights of any then-outstanding preferred stock. Holders of
the common stock have no preemptive, subscription, redemption or conversion
rights. The outstanding shares of common stock are, and the shares offered by
Proxicom in the offering will be, when issued in consideration for payment,
fully paid and nonassessable. The rights, preferences and privileges of holders
of common stock are subject to, and may be adversely affected by, the rights of
the holders of shares of any series of preferred stock which the company may
designate and issue in the future. See "--Preferred Stock."
PREFERRED STOCK
As of February 8, 1999, Proxicom had outstanding an aggregate of 3,219,816
shares of preferred stock, consisting of 1,222,469 shares of Series A
convertible preferred stock, 359,712 shares of Series B convertible preferred
stock, 419,302 shares of Series C convertible preferred stock and 1,218,333
shares of Series D convertible preferred stock. All of these shares will
automatically convert to common stock, on a one share for one share basis,
immediately prior to this offering's closing.
Following the closing of this offering, the Board of Directors will be
authorized, without further stockholder approval, to issue from time to time up
to an aggregate of 10,000,000 shares of preferred stock in one or more series.
The Board of Directors may fix or alter the designations, preferences, rights
and any qualification, limitations or restrictions of the shares of any series,
including the dividend rights, dividend rates, conversion rights, voting rights,
redemption terms and prices, liquidation preferences and the numbers of shares
constituting any series. As of the closing of this offering, no shares of
preferred stock will be outstanding. Although the ability of the Board of
Directors to designate and issue preferred stock could provide flexibility in
possible acquisitions or other corporate purposes, issuance of preferred stock
may have adverse effects on the holders of common stock. The effects include
- restrictions on dividends on the common stock if dividends on the
preferred stock have not been paid;
- dilution of voting power of the common stock to the extent the
preferred stock has voting rights; or
45
<PAGE> 50
- deferral of participation in Proxicom's assets upon liquidation until
satisfaction of any liquidation preference granted to holders of the
preferred stock.
In addition, issuance of preferred stock could make it more difficult for a
third party to acquire a majority of the outstanding voting stock and
accordingly may be used as an "anti-takeover" device. The Board of Directors,
however, currently does not contemplate the issuance of any preferred stock and
is not aware of any pending transactions that would be affected by such
issuance. See "--Anti-Takeover Effects of Provisions of Delaware Law and
Proxicom's Certificate of Incorporation and Bylaws."
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF DELAWARE LAW AND PROXICOM'S CERTIFICATE
OF INCORPORATION AND BYLAWS
Upon the closing of this offering, Proxicom's certificate of incorporation
and bylaws will both contain provisions that are intended to enhance the
likelihood of continuity and stability in the Board of Directors' composition
and policies. In addition, provisions of Delaware law may hinder or delay an
attempted takeover of the company other than through negotiation with the Board
of Directors. These provisions could discourage attempts to acquire the company
or remove incumbent management. These attempts would be discouraged even if some
or a majority of the stockholders believed these attempts were in their best
interest. Some of these attempts might result in the stockholders' receiving a
premium over the market price for their shares of common stock.
Classified Board of Directors; Removal; Vacancies. The certificate of
incorporation provides that the Board of Directors is divided into three classes
of directors serving staggered three-year terms. The classification of directors
makes it more difficult for stockholders to change the composition of the Board
of Directors in a relatively short period of time. The certificate of
incorporation further provides that directors may be removed only for cause and
then only by the affirmative vote of the holders of at least two-thirds of the
entire voting power of all the then-outstanding shares of Proxicom stock
entitled to vote generally in the election of directors, voting together as a
single class. In addition, vacancies and newly created directorships resulting
from any increase in the size of the Board of Directors may be filled only by
the affirmative vote of a majority of the directors then in office (even if such
directors do not constitute a quorum) or by a sole remaining director. These
provisions could prevent stockholders from removing incumbent directors without
cause and filling the resulting vacancies with their own nominees.
Advance Notice Provisions for Stockholder Proposals and Stockholder
Nominations of Directors. The bylaws will establish an advance notice procedure
with regard to the nomination, other than by the Board of Directors, of
candidates for election to the Board of Directors and with regard to matters to
be brought before an annual meeting of stockholders of the company. For
nominations and other business to be brought properly before an annual meeting
by a stockholder, the stockholder must deliver notice to the company not less
than 60 days nor more than 90 days prior to the first anniversary of the
preceding year's annual meeting. Separate provisions based on public notice by
the company specify how this advance notice requirement operates in the event
that the date of the annual meeting is advanced by more than 30 days or delayed
by more than 60 days from the anniversary date. The stockholder's notice must
contain specified information regarding the stockholder and its holdings, as
well as background information regarding any director nominee (together with
such person's written consent to being named as a nominee and to serving as a
director if elected) and a brief description of any business desired to be
brought before the meeting, the reasons for conducting the business at the
meeting and any material interest of the stockholder in the business proposed.
In the case of a special meeting of stockholders called for the purpose of
electing directors, nominations by a stockholder may be made only by delivering
a notice that complies with the above requirements to the company no later than
the tenth day following the day on which public announcement of the special
meeting is made. The bylaws may have the effect of precluding a nomination for
the
46
<PAGE> 51
election of directors or precluding the conduct of certain business at a
particular meeting if the proper procedures are not followed. This may
discourage or deter a third party from conducting a solicitation of proxies to
elect its own slate of directors or otherwise attempting to obtain control of
the company.
Special Stockholders' Meetings. The certificate of incorporation and the
bylaws will permit special meetings of the stockholders to be called only by the
Board of Directors, the Chairman, the Chief Executive Officer or the President
or holders of at least 75% of Proxicom's securities that are outstanding and
entitled to vote in an election of directors.
Limitations on Stockholder Action by Written Consent. The certificate of
incorporation will place limits on the stockholders' ability to act by written
consent. Specifically, any action to be taken at a stockholders' meeting may be
taken without a meeting only if consented to generally by shares having voting
power of at least 75% of the voting power of all shares of each class or series
entitled to vote on such action.
Authorized But Unissued Shares. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
stockholder approval except as the Nasdaq rules require. These additional shares
may be utilized for a variety of corporate purposes, including future public
offerings to raise additional capital, corporate acquisitions and employee
benefit plans. The existence of authorized but unissued shares of common stock
and preferred stock could render more difficult or discourage an attempt to
obtain control of the company by means of a proxy contest, tender offer, merger
or otherwise.
Section 203 of Delaware Law. In addition to the foregoing provisions of
the certificate of incorporation and the bylaws, Proxicom will be subject to the
provisions of Section 203 of the Delaware General Corporation Law. This section
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to an interested stockholder. Subject to some
exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years did own, 15% or more of
the corporation's voting stock. These provisions could have the effect of
delaying, deferring or preventing a change in control of Proxicom or reducing
the price that investors might be willing to pay in the future for shares of
common stock.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The certificate of incorporation will provide that directors of Proxicom
shall not be personally liable to the company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (1) for
any breach of the director's duty of loyalty to the company or its stockholders,
(2) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (3) under a provision of Delaware law
relating to unlawful payment of dividends or unlawful stock purchase or
redemption of stock or (4) for any transaction from which the director derives
an improper personal benefit. As a result of this provision, Proxicom and its
stockholders may be unable to obtain monetary damages from a director for breach
of his or her duty of care.
The bylaws will provide for the indemnification of directors and officers
and any person who is or was serving at the request of the company as a
director, officer, employee, partner or agent of another corporation or of a
partnership, joint venture, limited liability company, trust or other enterprise
to the fullest extent authorized by, and subject to the conditions set forth in,
the Delaware General Corporation Law against all expenses, liabilities and
losses. The indemnification provided under the bylaws will include the right to
be paid by the company the expenses in
47
<PAGE> 52
advance of any proceeding for which indemnification may be had in advance of its
final disposition.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is the Bank of New
York.
LISTING
We intend to apply to have our common stock listed on the Nasdaq National
Market under the trading symbol "PXCM."
48
<PAGE> 53
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market could
adversely affect our common stock's prevailing market price. Upon completion of
this offering, we will have outstanding an aggregate of shares of our
common stock, assuming no exercise of the underwriters over-allotment option and
no exercise of outstanding options. Of these shares, all of the shares sold in
this offering will be freely tradable without restriction or further
registration under the Securities Act, unless the shares are purchased by
"affiliates" of Proxicom as that term is defined in Rule 144 under the
Securities Act.
The remaining 14,574,009 shares of common stock held by existing
stockholders are "restricted securities" as that term is defined in Rule 144
under the Securities Act. Restricted securities may be sold in the public market
only if registered or if they qualify for an exemption from registration under
Securities Act Rule 144 or 701. We summarize these two rules below. The
provisions of Rules 144 and 701 provide that the restricted securities will be
available for sale in the public market on the date which is one year from the
date they were issued, subject to the volume limitations and other conditions of
Rule 144.
LOCK-UP AGREEMENTS
All of Proxicom's officers and directors, and several of its stockholders,
who will own an aggregate of shares of common stock after this
offering closes, have signed lock-up agreements under which they agreed, among
other things, not to transfer or dispose of, directly or indirectly, any shares
of common stock or any securities convertible into or exercisable or
exchangeable for shares of common stock, for a period of 180 days after the date
of this prospectus. Transfers or dispositions can be made sooner with the prior
written consent of BT Alex. Brown Incorporated. This consent may be given at any
time without public notice.
RULE 144
Under Rule 144, shares of common stock will be freely tradable 90
days after this offering closes. Of these shares of common stock,
shares are subject to lock-up agreements. In general, under Rule 144, beginning
90 days after the date of this prospectus, a person who has beneficially owned
shares of our common stock for at least one year would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of:
- one percent of the number of shares of common stock then outstanding,
which will equal approximately shares immediately after this
offering; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions and
notice requirements and to the availability of current public information about
Proxicom.
Under Rule 144(k), 23,981 shares of common stock will be freely tradable
after this offering closes. Of these shares of common stock, shares
are subject to lock-up agreements. Under Rule 144(k), a person who is not one of
our affiliates 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, is
entitled to sell the shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, "Rule 144(k) shares" may be sold immediately upon
the completion of this offering.
49
<PAGE> 54
RULE 701
A total of shares of common stock have been issued or are
issuable upon the exercise of options. All of these shares will be eligible for
sale in reliance on Rule 701. Of these shares of common stock, are
subject to lock-up agreements. In general, under Rule 701 as currently in
effect, any of our employees, consultants or advisors who has purchased shares
from us in connection with a compensatory plan or other agreement is eligible to
resell such shares 90 days after the effective date of this offering in reliance
on Rule 144, but without compliance with certain restrictions, including the
holding period, contained in Rule 144.
REGISTRATION RIGHTS
Upon completion of this offering, certain Proxicom stockholders, who will
own an aggregate of 18,226,362 shares of common stock, will have registration
rights as to their shares. Of these shares of common stock, shares are
subject to lock-up agreements. GAP 34, GAP 52, GAP Coinvestment and GAP
Coinvestment II, who will own an aggregate of 3,913,664 shares of our common
stock, or their transferees, will be entitled to demand that Proxicom register
their shares. In addition, all of the Proxicom stockholders who have
registration rights are entitled to piggyback registration. See "Certain
Transactions -- Registration Rights Agreement." After registration, these shares
will be freely tradable without restriction under the Securities Act, unless the
shares are purchased by affiliates. Any sales of securities by these
stockholders could have a material adverse effect on the trading price of our
common stock.
STOCK PLANS
As soon as practicable after this offering, we intend to file a
registration statement under the Securities Act covering 8,000,000 shares of
common stock reserved for issuance under our Stock Option Plan, Directors Plan
and Stock Purchase Plan. As of December 31, 1998, options to purchase 3,203,907
shares of common stock were outstanding. Upon the expiration of the lock-up
agreements described above, at least shares of common stock will be
subject to vested options (based on options outstanding as of December 31,
1998). Such registration statement is expected to be filed and become effective
as soon as practicable after the effective date of this offering. Accordingly,
shares registered under such registration statement will, subject to vesting
provisions and Rule 144 volume limitations applicable to our affiliates, be
available for sale in the open market shortly after this offering closes, and in
the case of our officers, directors and stockholders who have entered into
lock-up agreements, after the 180-day lock-up agreements expire.
50
<PAGE> 55
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated the
date hereof (the "Underwriting Agreement"), the underwriters named below,
through their representatives BT Alex. Brown Incorporated, Prudential Securities
Incorporated, Thomas Weisel Partners LLC and Friedman, Billings, Ramsey & Co.,
Inc., have severally agreed to purchase from Proxicom and the selling
stockholders the following respective numbers of shares of common stock at the
public offering price less the underwriting discounts and commissions set forth
on the cover page of this prospectus.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
BT Alex. Brown Incorporated.................................
Prudential Securities Incorporated..........................
Thomas Weisel Partners LLC..................................
Friedman, Billings, Ramsey & Co., Inc. .....................
----
Total.............................................
====
</TABLE>
The Underwriting Agreement provides that the obligations of the several
underwriters to purchase the shares of common stock offered hereby are subject
to certain conditions. The underwriters are obligated to purchase all of the
shares of common stock offered hereby, other than those covered by the
over-allotment option described below, if any such shares are purchased.
The underwriters propose to offer the shares of common stock to the public
at the public offering price set forth on the cover page of this prospectus and
to certain dealers at a price that represents a concession not in excess of
$ per share under the public offering price. The underwriters may allow, and
such dealers may re-allow, a concession not in excess of $ per share to
certain other dealers. After the initial offering, the offering price and other
selling terms may be changed by the representatives of the underwriters.
Proxicom has granted to the underwriters an option, exercisable not later
than 30 days after the date of this prospectus, to purchase up to
additional shares of common stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
prospectus. The underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the common stock offered
hereby. To the extent that the underwriters exercise such options, each of the
underwriters will become obligated, subject to certain conditions, to purchase
approximately the same percentage of additional shares of common stock as the
number of shares of common stock to be purchased by it in the above table bears
to . Proxicom will be obligated, pursuant to the option, to sell such
shares to the underwriters to the extent the option is exercised. If any
additional shares of common stock are purchased, the underwriters will offer
additional shares on the same terms as those on which the shares are being
offered.
51
<PAGE> 56
The following table summarizes the compensation to be paid to the
underwriters by the Proxicom and the selling stockholders, and the expenses
payable by Proxicom.
<TABLE>
<CAPTION>
TOTAL
--------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting Discounts and Commissions paid by
Proxicom.......................................
Expenses payable by Proxicom.....................
Underwriting Discounts and Commissions paid by
selling stockholders...........................
</TABLE>
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 10% of the shares of the common stock offered
hereby for purchase by our directors, officers and employees and certain of
their business associates and related persons. The number of shares of our
common stock offered to the public will be reduced to the extent these persons
purchase such reserved shares. The underwriters will offer to the public on the
same basis as the other shares offered hereby any reserved shares which are not
so purchased by these persons.
Proxicom has agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act.
Each of Proxicom's officers and directors and certain of Proxicom's
stockholders have agreed not to offer, sell, contract to sell or otherwise
dispose of, or enter into any transaction which is designed to, or could be
expected to, result in the disposition of any portion of, any common stock for a
period of 180 days after the effective date of the registration statement of
which this prospectus is a part without the prior written consent of BT Alex.
Brown Incorporated. This consent may be given at any time without public notice.
Proxicom has entered into a similar agreement, except that we may issue,
and grant options or warrants to purchase, shares of common stock or any
securities convertible into, exercisable for or exchangeable for shares of
common stock, pursuant to the exercise of outstanding options and warrants and
our issuance of options and stock granted under the existing stock option and
stock purchase plans.
The representatives of the underwriters have advised Proxicom that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of the common stock. Specifically, the underwriters may over-allot
shares of the common stock in connection with this offering, thereby creating a
short position in the common stock for their own account. Additionally, to cover
such over-allotments or to stabilize the market price of the common stock, the
underwriters may bid for, and purchase, shares of the common stock in the open
market. Finally, the representatives, on behalf of the underwriters, also may
reclaim selling concessions allowed to an underwriter or dealer if the
underwriting syndicate repurchases shares distributed by that underwriter or
dealer. Any of these activities may maintain the market price of our common
stock at a level above that which might otherwise prevail in the open market.
The underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time.
FBR Technology Venture Partners L.P., an affiliate of Friedman, Billings,
Ramsey & Co., Inc., owns 23,981 shares of Series B preferred stock.
52
<PAGE> 57
PRICING OF THIS OFFERING
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock will
be negotiated among Proxicom, the selling stockholders and the representatives
of the underwriters. Among the factors to be considered in determining the
public offering price will be:
- the history and prospects of Proxicom's business and the industry in
which it competes;
- an assessment of Proxicom's management and the present state of
Proxicom's development;
- prevailing market conditions in the U.S. economy and the industry in
which Proxicom competes;
- Proxicom's revenues, operating cash flow and earnings in recent periods;
- the market capitalizations and stages of development of other companies
which the representatives of the underwriters believe to be comparable to
Proxicom; and
- estimates of Proxicom's business potential.
LEGAL MATTERS
The validity of the shares of common stock being offered hereby and other
legal matters will be passed upon for Proxicom by Hogan & Hartson L.L.P.,
Washington, D.C. Certain legal matters in connection with the offering will be
passed upon for the underwriters by Hale and Dorr LLP, Washington, D.C.
EXPERTS
The financial statements as of December 31, 1998 and 1997 and for each of
the three years in the period ended December 31, 1998 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1. It
includes exhibits and schedules. This prospectus is part of the registration
statement. It does not contain all of the information that is in the
registration statement. The registration statement contains more information
about our company and the common stock. Statements contained in this prospectus
concerning the provisions of documents filed as exhibits to the registration
statement are necessarily summaries of such documents. Each of these statements
is qualified in its entirety by reference to the copy of the applicable document
filed with the SEC. You may read and copy all or any portion of the registration
statement at the SEC's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You can request copies of these documents, upon payment
of a duplicating fee, by writing to the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the public reference room's
operations. The registration statement is also available to you on the SEC's
Internet site (http://www.sec.gov). We intend to furnish our stockholders with
annual reports containing financial statements audited by our independent
accountants and quarterly reports containing unaudited financial statements for
the first three quarters of each fiscal year.
53
<PAGE> 58
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Changes in Stockholders'
Equity.................................................... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 59
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of Proxicom, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of changes in stockholders'
equity and of cash flows present fairly, in all material respects, the financial
position of Proxicom, Inc. and its subsidiaries at December 31, 1998 and 1997,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
McLean, Virginia
February 5, 1999
F-2
<PAGE> 60
PROXICOM, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
------------------ DECEMBER 31,
1997 1998 1998
------- -------- -------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 2,343 $ 2,482
Investments............................................... 1,101 278
Accounts receivable, net of allowance of $626 and $500,
respectively............................................ 7,747 9,613
Unbilled services......................................... 1,369 4,259
Prepaid income taxes...................................... 207 130
Prepaid expenses.......................................... 305 402
Other current assets...................................... 169 297
------- --------
Total current assets.................................... 13,241 17,461
Property and equipment, net................................. 2,572 2,858
Deferred tax assets and other............................... 284 1,758
------- --------
Total assets............................................ $16,097 $ 22,077
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Lines of credit........................................... $ 264 $ 5,436
Trade accounts payable.................................... 1,245 639
Accrued compensation...................................... 1,404 3,714
Deferred revenue.......................................... 1,147 1,356
Deferred tax liabilities.................................. 616 1,423
Note payable.............................................. -- 1,400
Other accrued liabilities................................. 1,045 1,113
------- --------
Total current liabilities............................... 5,721 15,081
------- --------
Commitments and contingencies (Note 14)
STOCKHOLDERS' EQUITY:
Series A convertible preferred stock, $.01 par value;
2,641,347 shares authorized; 1,629,969 shares issued
and outstanding at December 31, 1996 and 1997;
1,629,969 shares issued and 1,222,469 shares
outstanding at December 31, 1998..................... 16 12 --
Series B convertible preferred stock, $.01 par value;
359,712 shares authorized, issued and outstanding at
December 31, 1997 and 1998........................... 4 4 --
Series C convertible preferred stock, $.01 par value;
419,302 shares authorized, issued and outstanding at
December 31, 1997 and 1998........................... 4 4 --
Common stock, $.01 par value, 20,000,000 shares
authorized; 13,026,801 shares and 14,609,997 shares
issued at December 31, 1997 and 1998, respectively;
12,566,172 and 14,556,868 shares outstanding at December
31, 1997 and 1998, respectively......................... 130 146 166
Additional paid-in capital................................ 8,794 25,229 25,229
Retained earnings (deficit)............................... 3,255 (18,180) (18,180)
Comprehensive income...................................... 3 3 3
Treasury stock............................................ (1,830) (222) (222)
------- -------- -------
Total stockholders' equity.............................. 10,376 6,996 6,996
------- -------- -------
Total liabilities and stockholders' equity.............. $16,097 $ 22,077
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 61
PROXICOM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Revenue.................................................. $12,431 $27,356 $ 42,405
Cost of revenue.......................................... 4,756 12,077 23,862
------- ------- --------
Gross profit............................................. 7,675 15,279 18,543
------- ------- --------
Operating expenses:
General and administrative............................. 5,405 9,664 15,325
Selling and marketing.................................. 652 1,711 2,896
Research and development............................... 404 961 692
Acquisition and merger costs........................... -- -- 2,886
Stock-based and other compensation..................... -- -- 18,175
------- ------- --------
Total............................................... 6,461 12,336 39,974
------- ------- --------
Income (loss) from operations............................ 1,214 2,943 (21,431)
Interest income (expense), net........................... 55 80 (111)
------- ------- --------
Income (loss) before income taxes........................ 1,269 3,023 (21,542)
Income tax provision (benefit)........................... 185 330 (900)
------- ------- --------
Net income (loss)........................................ $ 1,084 $ 2,693 $(20,642)
======= ======= ========
Basic net income (loss) per common share................. $ 0.08 $ 0.21 $ (1.50)
======= ======= ========
Diluted net income (loss) per common share............... $ 0.08 $ 0.16 $ (1.50)
======= ======= ========
Weighted average common shares outstanding............... 12,993 12,626 13,762
======= ======= ========
Weighted average common shares and common share
equivalents............................................ 13,536 16,333 13,762
======= ======= ========
Unaudited pro forma data (Note 3):
Basic net loss per common share........................ $ (1.31)
========
Diluted net loss per common share...................... $ (1.31)
========
Weighted average common shares outstanding............. 15,763
========
Weighted average common shares and common share
equivalents......................................... 15,763
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 62
PROXICOM, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(dollars in thousands)
<TABLE>
<CAPTION>
UNREALIZED
GAIN
COMMON STOCK PREFERRED STOCK ADDITIONAL (LOSS) TREASURY STOCK RETAINED
------------------- ------------------ PAID-IN ON ------------------ EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL SECURITIES SHARES AMOUNT (DEFICIT)
---------- ------ --------- ------ ---------- ---------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995.................... 12,491,802 $125 -- $-- $ -- $-- -- $ -- $ 986
Issuance of preferred
Series A and warrants... -- -- 1,629,969 16 5,314 -- -- -- --
Capitalization of Square
Earth, Inc.............. 534,999 5 -- -- 17 -- -- -- (8)
Treasury stock
acquired................ -- -- -- -- -- -- 100,917 (330) --
Unrealized holding
loss.................... -- -- -- -- -- (4) -- -- --
Net income............... -- -- -- -- -- -- -- -- 1,084
Distributions............ -- -- -- -- -- -- -- -- (120)
---------- ---- --------- --- ------- --- -------- ------- --------
Balance at December 31,
1996.................... 13,026,801 130 1,629,969 16 5,331 (4) 100,917 (330) 1,942
Issuance of preferred
Series B................ -- -- 359,712 4 1,496 -- -- -- --
Treasury stock
acquired................ -- -- -- -- -- -- 359,712 (1,500) --
Issuance of preferred
Series C................ -- -- 419,302 4 1,967 -- -- -- --
Comprehensive income..... -- -- -- -- -- 7 -- -- --
Net income............... -- -- -- -- -- -- -- -- 2,693
Subchapter S Corporation
distributions........... -- -- -- -- -- -- -- -- (1,380)
---------- ---- --------- --- ------- --- -------- ------- --------
Balance at December 31,
1997.................... 13,026,801 130 2,408,983 24 8,794 3 460,629 (1,830) 3,255
Conversion of preferred
Series A................ -- -- (407,500) (4) (1,604) -- (407,500) 1,608 --
Exercise of stock
options................. 86,702 1 -- -- 302 -- -- -- --
Subchapter S Corporation
distributions........... -- -- -- -- -- -- -- -- (793)
Stock-based
compensation............ 1,496,494 15 -- -- 17,956 -- -- -- --
Unearned stock-based
compensation............ -- -- -- -- (219) -- -- -- --
Net loss................. -- -- -- -- -- -- -- -- (20,642)
---------- ---- --------- --- ------- --- -------- ------- --------
Balance at December 31,
1998.................... 14,609,997 $146 2,001,483 $20 $25,229 $ 3 53,129 $ (222) $(18,180)
========== ==== ========= === ======= === ======== ======= ========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance at December 31,
1995.................... $ 1,111
Issuance of preferred
Series A and warrants... 5,330
Capitalization of Square
Earth, Inc.............. 14
Treasury stock
acquired................ (330)
Unrealized holding
loss.................... (4)
Net income............... 1,084
Distributions............ (120)
--------
Balance at December 31,
1996.................... 7,085
Issuance of preferred
Series B................ 1,500
Treasury stock
acquired................ (1,500)
Issuance of preferred
Series C................ 1,971
Comprehensive income..... 7
Net income............... 2,693
Subchapter S Corporation
distributions........... (1,380)
--------
Balance at December 31,
1997.................... 10,376
Conversion of preferred
Series A................ --
Exercise of stock
options................. 303
Subchapter S Corporation
distributions........... (793)
Stock-based
compensation............ 17,971
Unearned stock-based
compensation............ (219)
Net loss................. (20,642)
--------
Balance at December 31,
1998.................... $ 6,996
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 63
PROXICOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1997 1998
------- ------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 1,084 $ 2,693 $ (20,642)
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization.......................... 356 818 1,407
Increase (decrease) in deferred income taxes........... 52 321 (667)
Provision for stock compensation....................... -- 220 17,425
Provision for doubtful accounts........................ 225 389 (126)
Changes in assets and liabilities:
Increase in accounts receivable...................... (2,104) (5,506) (1,740)
Increase in unbilled services........................ (383) (649) (2,890)
(Increase) decrease in prepaid income taxes.......... (276) 77 77
Increase in prepaid expenses......................... (122) (175) (97)
Increase in other assets............................. (43) (55) (128)
Increase (decrease) in trade accounts payable........ 173 979 (606)
(Decrease) increase in accrued compensation.......... (201) 769 2,310
Increase in note payable............................. -- -- 1,400
Increase in deferred revenue......................... 499 648 209
Increase in other accrued liabilities................ 255 722 68
------- ------- ---------
Net cash (used in) provided by operating
activities...................................... (485) 1,251 (4,000)
------- ------- ---------
Cash flows from investing activities:
Purchases of property and equipment....................... (1,374) (1,999) (1,694)
Purchases of investments.................................. (2,285) (104) (390)
Sales of investments...................................... -- 1,288 1,213
------- ------- ---------
Net cash used in investing activities............. (3,659) (815) (871)
------- ------- ---------
Cash flows from financing activities:
Issuance of preferred stock and warrants, Series A........ 5,330 -- --
Issuance of preferred stock, Series B..................... -- 1,500 --
Issuance of preferred stock, Series C..................... -- 1,971 --
Issuance of common stock.................................. 22 -- --
Exercise of stock options................................. -- -- 631
Purchase of treasury stock................................ (330) (1,500) --
Borrowings under line of credit........................... 3,585 6,690 11,881
Payments under line of credit............................. (3,826) (6,493) (6,709)
Subchapter S Corporation distributions.................... (120) (1,380) (793)
Decrease in due to majority stockholder................... (200) -- --
------- ------- ---------
Net cash provided by financing activities......... 4,461 788 5,010
------- ------- ---------
Net increase in cash and cash equivalents................... 317 1,224 139
Cash and cash equivalents at beginning of period............ 802 1,119 2,343
------- ------- ---------
Cash and cash equivalents at end of period.................. $ 1,119 $ 2,343 $ 2,482
======= ======= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 64
PROXICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Proxicom, Inc. ("Proxicom") is a leading provider of Internet solutions to
Global 1000 companies and other large organizations. Since 1994, Proxicom has
focused exclusively on the Internet. Proxicom's Internet solutions include
business to consumer electronic commerce Internet sites, business to business
electronic commerce extranets, and company-specific intranets.
In August 1996, Proxima, Inc. ("Proxima"), a Maryland corporation
reincorporated as a Delaware corporation, through a merger transaction, changing
its name to Proxicom, Inc.
Renaissance Leasing Corp. ("Renaissance") was a partnership substantially
owned by the majority stockholder of Proxicom. Renaissance purchased computer
equipment with funds borrowed from Proxicom and leased all such assets to
Proxicom. Renaissance ceased operations in 1997 and all assets and liabilities
of Renaissance were transferred to Proxicom at book value of approximately
$90,000. Proxicom and Renaissance were companies under common control and have
been accounted for in a manner similar to a pooling of interests.
2. MERGERS
In August 1998, Proxicom completed a merger with IBIS Consulting, Inc.
("IBIS Consulting"), a Subchapter S Corporation incorporated during 1994, by
exchanging 4,988,297 shares of Proxicom's common stock for all the common stock
of IBIS Consulting. Each share of IBIS Consulting was exchanged for 0.2327868
shares of Proxicom common stock. In addition, outstanding IBIS Consulting
employee stock options were converted at the same exchange factor into options
to purchase 345,034 shares of Proxicom common stock (Note 9).
There were no transactions between Proxicom and IBIS Consulting prior to
the combination. No material adjustments were made to conform to Proxicom's
accounting policies.
Effective January 1, 1998, Proxicom completed a merger with Square Earth,
Inc. ("Square Earth"), a Subchapter S Corporation incorporated during 1996, by
exchanging 534,999 shares of its common stock for all the common stock of Square
Earth. Each share of Square Earth was exchanged for 0.445833 shares of Proxicom
common stock. In addition, outstanding Square Earth employee stock options were
converted at the same exchange factor into options to purchase 41,474 shares of
Proxicom common stock (Note 9).
There were no transactions between Proxicom and Square Earth prior to the
combination. No material adjustments were made to conform to Proxicom's
accounting policies.
F-7
<PAGE> 65
PROXICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stand-alone financial information is shown in the following table.
<TABLE>
<CAPTION>
SIX
YEAR ENDED MONTHS
DECEMBER 31, ENDED
----------------- JUNE 30,
1996 1997 1998
------ ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue
IBIS Consulting................. $3,884 $10,170 $8,054
Square Earth.................... 593 1,403 --
Net income (loss)
IBIS Consulting................. $ 938 $ 2,078 $1,391
Square Earth.................... (95) 2 --
</TABLE>
The IBIS Consulting and Square Earth mergers constituted tax-free
reorganizations and have been accounted for as poolings of interests under
Accounting Principles Board Opinion No. 16, Business Combinations. Accordingly,
all prior period consolidated financial statements presented have been restated
to include the combined results of operations, financial position and cash flows
of IBIS Consulting and Square Earth as though they had been a part of Proxicom
since their inception.
Proxicom incurred charges of approximately $2.9 million in 1998 for costs
associated with the IBIS Consulting and Square Earth transactions. Those
transaction costs related to professional fees and other direct expenses
relating to the acquisitions.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 amounts reported in the consolidated financial
statements. Actual results may differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts and
balances of Proxicom, IBIS Consulting, Square Earth and Renaissance (hereafter
collectively the "Company" or "Proxicom"). All significant intercompany
transactions and balances have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Highly liquid investments having original maturities of 90 days or less at
the date of acquisition are classified as cash equivalents. The carrying values
of cash equivalents approximate fair values.
REVENUE RECOGNITION
Revenue from Internet professional services are recognized based on the
nature of the contract. Revenue from fixed-price contracts is recognized using
the percentage-of-completion method based on the ratio of costs incurred to
total estimated costs. Revenue from time-and-
F-8
<PAGE> 66
PROXICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
materials contracts is accounted for as time is incurred and billed. Net
revenues exclude reimburseable expenses charged to clients.
The Company periodically evaluates cost and revenue assumptions in
fixed-price contracts. Provisions for estimated losses on uncompleted contracts
are made on a contract by contract basis and are recognized in the period in
which such losses are determined. Most contracts are cancellable by either the
Company or the customer upon 30 days notice, with payment due for services
completed through the date of termination. No significant losses have been
incurred on cancelled contracts.
Deferred revenue is recognized on fixed-price contracts to reflect billings
in excess of revenue recognized under the percentage-of-completion method.
Unbilled services on contracts are comprised of costs plus earnings in
excess of contractual billings on such contracts. Billings in excess of cost
plus earnings are classified as deferred revenue.
RESEARCH AND DEVELOPMENT EXPENSES FOR SOFTWARE PRODUCTS
Research and development costs are expensed as incurred. Statement of
Financial Accounting Standards ("SFAS") No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed, requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility and prior to general release of the
software. Based on the Company's development process, technological feasibility
is established upon completion of a working model. The period between
technological feasibility and general release is relatively short and the costs
incurred during this period have been insignificant for capitalization.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization
are computed on the straight-line method over the estimated useful lives of the
related assets ranging from three to five years. Leasehold improvements are
amortized on a straight-line method over the shorter of the improvements'
estimated useful lives or related remaining lease term. Long-lived assets held
and used by the Company are reviewed for impairment whenever changes in
circumstances indicate the carrying value of an asset may not be recoverable.
INVESTMENTS
The Company classifies its investments as available-for-sale as defined by
SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, net of taxes, reported as comprehensive income within
stockholders' equity. Comprehensive income is not materially different from net
income in any period presented.
INCOME TAXES
The provision for income taxes is determined in accordance with SFAS No.
109, Accounting for Income Taxes, which requires the use of the asset and
liability approach. Under this approach, deferred taxes represent the expected
future tax consequences of temporary differences between the carrying amounts
and tax bases of assets and liabilities.
F-9
<PAGE> 67
PROXICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board ("APB") Opinion No.
25, Accounting for Stock Issued to Employees, and complies with the disclosure
provisions of SFAS No. 123, Accounting for Stock-Based Compensation. Under APB
No. 25, compensation expense is based on the difference, if any, on the date of
the grant, between the fair value of the Company's stock and the exercise price.
A new measurement date for purposes of determining compensation is established
when there is a substantive change to the terms of an underlying option. See
Note 9.
BASIC AND DILUTED NET INCOME PER COMMON SHARE
Basic net income per common share is based on the weighted average number
of shares of common stock outstanding during each year. Diluted net income per
common share is based on the weighted average number of shares of common stock
outstanding during each year, adjusted for the effect of common stock
equivalents arising from the assumed exercise of stock options, if dilutive. See
Note 15.
All per share amounts have been restated to reflect the re-incorporation
discussed at Note 1 and the mergers of IBIS Consulting and Square Earth
discussed at Note 2.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's cash and cash equivalents,
investments, accounts receivable, trade accounts payable and note payable
approximate fair value due to the short maturity and ready liquidity of those
instruments.
CONCENTRATION OF CREDIT RISK
Revenues in the years ended 1996, 1997 and 1998 and receivables as of
December 31, 1997 and 1998 were concentrated with four customers as follows
(amounts represent percentage of total revenues and accounts receivable,
respectively):
<TABLE>
<CAPTION>
ACCOUNTS
REVENUES RECEIVABLE
--------------------- -------------
YEAR ENDED
DECEMBER 31, DECEMBER 31,
--------------------- -------------
1996 1997 1998 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Customer A....................................... 14.4% 23.8% 14.7% 20.2% 7.8%
Customer B....................................... * 10.1 13.7 3.8 13.7
Customer C....................................... 14.7 * * * *
Customer D....................................... 13.5 * * * *
</TABLE>
- -------------------------
* Represents less than 10% of total.
The Company performs initial credit evaluations of its new customers and
generally does not require collateral from its customers. The Company maintains
an allowance for potential losses when identified.
F-10
<PAGE> 68
PROXICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
During 1998, the Company adopted FAS 131, Disclosures About Segments of An
Enterprise and Related Information. This Statement changes the way public
companies report information about segments of their business in annual
financial statements and requires disclosure of selected segment information. It
also requires entity-wide disclosures about the products and services an entity
provides, the material countries in which it holds assets and reports revenues,
and its major customers. The Company currently operates in one operating and
geographic segment. The adoption of SFAS No. 131 does not have a material effect
on the current reporting or disclosure requirements.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. SFAS No. 133 will be effective for the Company's
fiscal year ending December 31, 2000. The Company has no derivative or hedging
activity in any of the periods presented.
PRO FORMA BALANCE SHEET, NET INCOME AND EARNINGS PER SHARE (UNAUDITED)
The pro forma stockholders' equity presents the effect of the automatic
conversion of the preferred stock outstanding as of December 31, 1998, as
described in Note 10, at the consummation of the public offering.
As discussed in Note 2, the Company merged with IBIS Consulting and Square
Earth during 1998, both previously Subchapter S Corporations. Pro forma net
income (loss) assuming that IBIS Consulting and Square Earth were taxable
entities during the periods presented is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1997 1998
------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Income (loss) before income taxes........................... $1,269 $3,023 $(21,542)
Pro forma income tax provision (benefit).................... 781 1,248 (900)
Pro forma net income (loss)................................. 488 1,775 (20,642)
</TABLE>
4. INVESTMENTS
The following is a summary of investments classified as current assets at
December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------ ---------- ---------- ------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
U.S. Treasury securities and obligations
of U.S. government agencies............ $1,098 $4 $(1) $1,101
DECEMBER 31, 1998
U.S. Treasury securities and obligations
of U.S. government agencies............ $275 $3 $-- $ 278
</TABLE>
F-11
<PAGE> 69
PROXICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The cost and fair value of available-for-sale securities by contractual
maturity are as follows (in thousands):
<TABLE>
<CAPTION>
FAIR
COST VALUE
------ ------
<S> <C> <C>
DECEMBER 31, 1997
Due in one year or less................................... $ 501 $ 501
Due after one year through three years.................... 597 600
------ ------
$1,098 $1,101
====== ======
DECEMBER 31, 1998
Due in one year or less................................... $ 200 $ 202
Due after one year through three years.................... 75 76
------ ------
$ 275 $ 278
====== ======
</TABLE>
5. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1998
------ -------
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable......................................... $8,373 $10,113
Allowance for doubtful accounts............................. (626) (500)
------ -------
Net accounts receivable..................................... $7,747 $ 9,613
====== =======
</TABLE>
The Company wrote off doubtful accounts of $59,000, $71,000 and $959,000
for the years ended December 31, 1996, 1997 and 1998, respectively.
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1998
------ ------
(IN THOUSANDS)
<S> <C> <C>
Computer equipment.......................................... $2,530 $3,304
Office and other equipment.................................. 536 693
Purchased software.......................................... 397 596
Leasehold improvements...................................... 345 934
Automobile.................................................. 26 --
------ ------
3,834 5,527
Less: Accumulated depreciation and amortization............. (1,262) (2,669)
------ ------
Total property and equipment, net........................... $2,572 $2,858
====== ======
</TABLE>
7. LINES OF CREDIT
At December 31, 1997, the Company had a $2.0 million revolving line of
credit with a bank. Interest is payable monthly at the bank's prime rate plus
0.5% (9.00% at December 31, 1997). The line of credit is secured by
substantially all of the Company's assets, and includes various customary
financial and other covenants including maintenance of a minimum level of
tangible
F-12
<PAGE> 70
PROXICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
net worth. No borrowings were outstanding under the line of credit as of
December 31, 1997. There are no commitment fees under this line of credit.
In February 1998, the Company increased the line of credit to $5.0 million
and the bank decreased the interest rate to prime. All other material financial
covenants remained unchanged. No borrowings were outstanding under this facility
as of December 31, 1998.
At December 31, 1997, Square Earth had a $350,000 line of credit with a
bank. The line of credit included various customary financial and other
covenants including maintenance of a minimum level of tangible net worth.
Borrowings of $264,000 and $0 were outstanding under the line of credit as of
December 31, 1997 and 1998, respectively.
In July 1998, IBIS Consulting entered into a line of credit with a bank in
the amount of $500,000. The line expires in August 1999. This line of credit
replaced a previously existing $200,000 line of credit with the same bank. No
borrowings were outstanding under this facility as of December 31, 1998.
In October 1998, the Company entered into a $10.0 million revolving line of
credit with a bank. All prior existing lines of credit were paid in full and
terminated. The use of the line generally is restricted to working capital
requirements and approved acquisitions as defined in the line of credit
agreement. Interest on this line is payable on a monthly basis at a variable
rate of LIBOR plus 2%. The line of credit is secured by the Company's
consolidated real and personal property, including intellectual property rights
and all cash and non-cash proceeds of these assets. Included in the line of
credit are various customary financial and other covenants including maintenance
of a minimum level of tangible net worth. The line of credit expires on August
31, 2000. At December 31, 1998, the Company has outstanding letters of credit of
$205,000 which reduce amounts available under the line. Borrowings of $5.4
million and $4.4 million were outstanding and available, respectively, against
the line as of December 31, 1998.
Commitment fees of 0.25% paid on the unused line of credit during 1998 were
not material. There were no commitment fees under the previous lines of credit
for 1997 and 1998.
Interest expense was $33,000, $94,000 and $227,000 for the years ended
December 31, 1996, 1997 and 1998, respectively.
8. NOTE PAYABLE
On August 10, 1998, the Company entered into a $1.4 million note payable
with an investment banking firm in connection with professional services for the
IBIS Consulting transaction. The note accrues interest at 7% per annum and
matures in the earlier of August 21, 1999 or upon completion of an initial
public offering. This unsecured note is subordinated only to the Company's
senior bank facilities.
9. STOCK OPTION PLANS
PROXICOM STOCK OPTION PLANS FOR EMPLOYEES AND NON-EMPLOYEES
In 1996, Proxicom established a stock option plan (the "Plan") under which
eligible employees and eligible non-employees may be granted options to purchase
shares of the Company's common stock. The Plan provides for the issuance of a
maximum of 4,150,000 shares of common stock. Under the Plan, the option purchase
price for each grant is equal to the fair value of the common stock at the date
of the grant as determined by the Board of Directors.
F-13
<PAGE> 71
PROXICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Options granted under the plan generally vest ratably over a four-year period
and expire 10 years from the date of the grant.
IBIS CONSULTING
In January and August 1997, IBIS Consulting granted options to two key
employees to purchase 1,759,031 shares with an exercise price of $0.219 per
share. Options for 1,496,494 shares became exercisable upon grant, with the
remaining 262,537 shares vesting over a two-year period commencing January 1,
1999. Under the terms of the option agreement, prior to the completion of an
initial public offering or sale of IBIS Consulting, IBIS Consulting was required
to repurchase and the employee was required to sell the shares or vested options
upon termination of employment, based on a pre-determined formula. After
exercise, IBIS Consulting retained the right and obligation to reacquire the
shares based on the formula price upon termination of the employee prior to the
completion of an initial public offering or sale of IBIS Consulting.
In July 1998, one employee exercised his option to acquire 1,496,494
shares. The employee paid IBIS Consulting $330,000 to exercise the options and
received $275,000, less applicable taxes under a tax reimbursement cash bonus
arrangement.
The Company recognized compensation expense in 1997 and a liability related
to both these options and the underlying cash bonus arrangement in the amount of
$220,000.
In January 1997, IBIS Consulting granted options to purchase 256,065 shares
to another employee with an exercise price of $0.403 per share. These options
were subject to a vesting schedule. Employment was terminated in 1997 and the
unvested options lapsed upon termination.
In January 1998, IBIS Consulting announced the grant of options under a
1998 plan and the conversion of options outstanding under the 1997 plan. In July
1998, IBIS Consulting granted such options to employees covering 82,497 shares
with an exercise price of $4.72 per share. The options are subject to an
18-month vesting schedule. Concurrent with this 1998 option grant, the remaining
1997 options of 262,537 shares were converted to the 1998 Plan. IBIS
Consulting's previous obligation to repurchase and the employees obligation to
sell the vested options upon termination of employment was eliminated.
In connection with the Company's merger with IBIS Consulting, the Company
assumed all outstanding options to purchase shares of common stock of IBIS
Consulting. These options were converted into options to purchase equivalent
shares of the Company's common stock based on the merger exchange formula.
SQUARE EARTH, INC.
In connection with the Company's merger with Square Earth, the Company
assumed all outstanding options to purchase shares of common stock of Square
Earth. These options were converted into options to purchase equivalent shares
of the Company's common stock based on the merger exchange formula.
STOCK-BASED AND OTHER COMPENSATION
In early 1997, prior to Proxicom's investment in IBIS Consulting, IBIS
Consulting entered into an arrangement with an employee providing that
individual with 1,496,494 fully vested stock options which were subject to
certain conditions, including provisions requiring IBIS Consulting
F-14
<PAGE> 72
PROXICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to buy back the common stock resulting from exercise of the options and
requiring the employee to sell such shares to IBIS Consulting at a
pre-determined formula upon termination of employment. The employee exercised
these options in July 1998. Due to a change of control provision in the initial
option agreement, concurrent to the merger of IBIS Consulting and Proxicom, the
repurchase requirement on the stock and stock options was eliminated allowing
the employees to freely trade the stock.
As a consequence of the above change of control provision triggered by the
merger, and the conversion of options from the 1997 plan to the 1998 plan, the
Company recorded non-cash stock-based compensation of approximately $17.0
million equal to the difference between the pre-determined formula price and the
then fair value of the underlying stock or stock options. As the shares were
fully vested, the compensation expense was recognized at the time of the merger.
In connection with other stock option grants during the year ended December
31, 1998, the Company recognized additional stock-based compensation totaling
$219,000, and deferred stock-based compensation which is being amortized through
December 31, 1999, the 18-month vesting period of the related options. The
Company did not recognize any amortization expense during the years ended
December 31, 1996 and 1997.
PROXICOM STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
In February 1997, the Company established a stock option plan for
non-employee directors (the "Directors Plan") and has reserved 350,000 shares of
common stock for issuance under the provisions of this plan. Options granted
prior to December 15, 1998 generally vest over the three-year term as a
director. Options under the Directors Plan issued subsequent to December 15,
1998 are expected to be issued on a fully vested basis. Options for 175,000
shares have been granted through December 31, 1998 under the Directors Plan.
ACCOUNTING FOR STOCK OPTIONS ISSUED TO EMPLOYEES AND NON-EMPLOYEE DIRECTORS
The Company accounts for its stock options issued to employees and
non-employee directors in accordance with APB 25 under which compensation
expense of $0, $220,000, and $17.2 million was recognized for the options
granted in 1996, 1997 and 1998, respectively. The Company has provided
additional pro forma disclosures as required by SFAS No. 123, "Accounting for
Stock-Based Compensation."
For disclosure purposes, the fair value of each stock option granted is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions used for stock options granted in
1996, 1997 and 1998; no annual dividends, expected volatility of 0.0%, risk-free
interest rate ranging from 5.1% to 6.1% and expected life of one to four years.
The weighted-average fair values of the stock options granted in 1996, 1997 and
1998 were $0.75, $3.18 and $1.21, respectively.
Under the above model, the total value of stock options granted in 1996,
1997 and 1998 were $490,000, $8.8 million and $2.4 million, respectively, which
would be amortized on a pro forma basis over the option vesting period. Had the
Company determined compensation cost for these plans in accordance with SFAS No.
123, the Company's pro forma net income (loss) would have been approximately
$1.1 million, ($635,000) and ($7.0 million) in 1996, 1997 and 1998,
respectively, and pro forma basic and diluted earnings per common share would
have been $0.08, ($0.05) and ($0.51) in 1996, 1997 and 1998, respectively.
F-15
<PAGE> 73
PROXICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ACCOUNTING FOR STOCK OPTIONS ISSUED TO NON-EMPLOYEES
The Company accounts for its stock options granted to eligible
non-employees on the fair value method in accordance with SFAS No.123.
Stock-based compensation related to non-employee stock option grants is not
material in any period presented.
STOCK OPTION ACTIVITY
The following tables summarize stock option activity for non-compensatory
Proxicom option grants and compensatory IBIS Consulting option grants:
<TABLE>
<CAPTION>
PROXICOM IBIS CONSULTING
NON-COMPENSATORY COMPENSATORY
OPTIONS OUTSTANDING OPTIONS OUTSTANDING
------------------------- --------------------------
NUMBER OF NUMBER OF
SHARES OPTION PRICE SHARES OPTION PRICE
--------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
December 31, 1995
Grants........................... 652,750 $3.30 -- $ --
Exercised........................ -- -- -- --
Cancellations.................... -- -- -- --
--------- ----------
December 31, 1996................ 652,750 3.30 -- --
Grants........................... 756,324 4.25 2,015,096 0.24
Exercised........................ -- --
Cancellations.................... (161,550) 3.41 (256,065) .40
--------- ----------
December 31, 1997................ 1,247,524 3.86 1,759,031 0.22
Grants........................... 2,051,584 7.94 82,497 4.72
Exercised........................ (86,702) 3.49 (1,496,494) 0.22
Cancellations.................... (353,533) 5.75 -- --
--------- ----------
December 31, 1998................ 2,858,873 6.57 345,034 1.30
========= ==========
Options exercisable at:
December 31, 1998................ 365,030 3.73 304,183 0.83
========= ==========
</TABLE>
The weighted-average exercise price for non-compensatory options
outstanding at December 31, 1996, 1997 and 1998 were $3.30, $3.86 and $6.57,
respectively. The weighted-average exercise price for compensatory options at
December 31, 1997, and 1998 were $0.22 and $1.30. These options will expire if
not exercised at specific dates ranging from January 1998 to December 2008 and
the weighted-average remaining contractual life of the options outstanding was
approximately nine years.
10. CONVERTIBLE PREFERRED STOCK AND WARRANTS
On August 30, 1996, the Company consummated a transaction whereby: (i) the
Company repurchased from the Company's Chief Executive Officer 100,917 shares of
common stock at a price of $3.27 per share, for a total purchase price of
approximately $330,000; and, (ii) the Company issued a total of 1,629,969 shares
of Series A convertible preferred stock (the "Series A Preferred Stock") at a
price of $3.27 per share, or approximately $5.3 million. At the stockholders'
option, but in any event automatically upon an initial public offering of the
Company's common stock, each share of Series A Preferred Stock will be
convertible into one share of common stock. The Series A Preferred Stock has a
liquidation preference and is not
F-16
<PAGE> 74
PROXICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
entitled to any dividends (unless cash dividends are declared and paid on the
common stock, in which case the Series A Preferred Stock will share on an "as
if" converted basis). The holders of the Series A Preferred Stock have
registration rights and are entitled to place two persons on the Company's
Board.
One investor in the Series A Preferred Stock also received warrants to
purchase 1,011,378 additional shares of Series A Preferred Stock from the
Company at a price of $7.91 per share. The warrants expire in August 2003 and
are exercisable after December 31, 1997. After December 31, 1997, the warrants
may be converted into shares of common stock at the option of the warrant
holder. The conversion formula is based on the difference between the market
value of the common stock less the warrant exercise price divided by the market
value of the common stock. The value of the warrants was not material.
In February 1997, the Company consummated a transaction whereby: (i) the
Company repurchased from the Company's Chief Executive Officer 359,712 shares of
common stock at a price of $4.17 per share, for a total purchase price of
approximately $1.5 million; (ii) the Company issued a total of 359,712 shares of
Series B convertible preferred stock (the "Series B Preferred Stock") at a price
of $4.17 per share or approximately $1.5 million. The Series B Preferred Stock
has essentially the same rights and privileges as the Series A Preferred Stock.
In December 1997, the Company issued a total of 419,302 shares of Series C
convertible preferred stock (the "Series C Preferred Stock") at a price of $4.77
per share or approximately $2.0 million. The Series C Preferred Stock has
essentially the same rights and privileges as the Series A and B Preferred
Stock.
In January 1998, the Company issued 407,500 shares of treasury stock in
conjunction with the conversion of 407,500 shares of Series A Preferred Stock
into common stock.
In February 1999, the Company issued a total of 1,218,333 shares of Series
D convertible preferred stock (the "Series D Preferred Stock") at a price of
$6.00 per share or approximately $7.3 million. In connection with this
transaction, 758,667 shares of common stock were purchased by the investors from
selling stockholders in amounts proportionate to the investors participation in
the Series D Preferred Stock issuance. The Series D Preferred Stock has
essentially the same rights and privileges as the Series A, B and C Preferred
Stock. Because the Series D Preferred Stock was sold at a price of $6.00, it is
anticipated that such securities will be accounted for giving effect to its
beneficial conversion features. Under such accounting, the Company will record a
charge against additional paid-in capital to reflect the difference between the
conversion feature and the estimated fair value of the underlying common stock.
Although not reflected on the statement of operations, the beneficial conversion
charge will be reflected as a reduction to income and earnings per share
available for common stockholders.
F-17
<PAGE> 75
PROXICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1996 1997 1998
---- ---- -----
(IN THOUSANDS)
<S> <C> <C> <C>
CURRENT TAXES:
Federal................................................... $ 82 $ -- $(155)
State..................................................... 16 10 (52)
---- ---- -----
Total current income tax provision (benefit)........... 98 10 (207)
---- ---- -----
DEFERRED TAXES:
Federal................................................... 78 249 (589)
State..................................................... 9 71 (104)
---- ---- -----
Total current income tax provision (benefit)........... 87 320 (693)
---- ---- -----
Total provision (benefit) for income taxes........... $185 $330 $(900)
==== ==== =====
</TABLE>
The reconciliation of the Company's income tax provision to the federal
statutory tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
---- ---- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax provision (benefit) at federal statutory tax rate
of 34%.................................................... $144 $321 $(7,324)
State income taxes, net..................................... 17 57 (34)
Subchapter S Corporation income............................. -- (72) (455)
Stock option revaluation.................................... -- -- 4,905
Acquisition costs........................................... -- -- 646
Increase in valuation allowance............................. -- -- 944
Other....................................................... 24 24 418
---- ---- -------
Income tax provision (benefit).............................. $185 $330 $ (900)
==== ==== =======
</TABLE>
F-18
<PAGE> 76
PROXICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax assets (liabilities) were comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997 1998
----- ----- -------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS:
NOL carryforward.......................................... $ -- $ 107 $ 1,796
Revenue recognition....................................... 349 -- --
Vacation accrual.......................................... 35 49 81
Bad debt expense.......................................... 14 149 137
Depreciation.............................................. -- -- 176
Other accrued expenses.................................... -- -- 241
Revaluation of stock options.............................. -- -- 1,083
Other..................................................... 2 -- 37
----- ----- -------
Total gross deferred tax assets...................... 400 305 3,551
----- -----
Valuation allowance......................................... (1,083)
-------
Net deferred tax assets.............................. 2,468
-------
LIABILITIES:
Depreciation.............................................. (30) 5 --
Unbilled service revenue.................................. (396) (665) (1,654)
Subchapter S Corporation cash to accrual adjustment....... -- -- (479)
Other..................................................... (11) (2) --
----- ----- -------
Total gross deferred tax liabilities................. (437) (662) (2,133)
----- ----- -------
Net deferred tax (liability) asset................... $ (37) $(357) $ 335
===== ===== =======
</TABLE>
The Company paid $374,000, $196,000 and ($207,000) for income taxes for the
year ended December 31, 1996, 1997, and 1998, respectively.
At December 31, 1998, the Company has a $4.6 million net operating loss
carryforward and a $20,000 research and development tax credit carryforward both
expiring in 2018. The Company establishes valuation allowances in accordance
with the provisions of SFAS No. 109. The Company continually reviews the
adequacy of the valuation allowance.
12. RELATED PARTY TRANSACTIONS
In February 1997, the Company entered into a lease for office space in
Reston, VA. The lease commenced on July 1, 1997 and has a term of seven years.
Rent payments for the years ended December 31, 1997 and 1998 were approximately
$331,000 and $864,000, respectively, and increased at an annual rate of 3.0%.
The lessor is a company wholly-owned by a member of the Company's Board of
Directors and stockholder. In accordance with the lease agreement, the Company
must maintain a letter of credit in the amount of $131,000 as a security deposit
during the term of the lease. The Company's current letter of credit expires in
December 1999.
The Company has provided Internet professional services to two
stockholders. Revenue generated from one stockholder totalled $463,000,
$1,056,000 and $775,000 for the years ended December 31, 1996, 1997 and 1998,
respectively. The Company recorded receivable balances of $0 and $316,000 as of
December 31, 1997 and 1998, respectively. A second stockholder generated revenue
of $68,000 and $181,000 for the years ended December 31, 1997 and 1998,
F-19
<PAGE> 77
PROXICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
respectively. The Company recorded receivable balances of $19,000 and $1,000 as
of December 31, 1997 and 1998, respectively.
13. EMPLOYEE BENEFIT PLANS
PROFIT SHARING AND BONUS PLANS
In August 1996, the Company adopted a 401(k) defined contribution profit
sharing plan. The plan covers all full-time employees who are at least 21 years
of age. Participants may contribute up to 15.0% of pretax compensation, subject
to certain limitations. The Company may make discretionary annual profit sharing
contributions up to the total of each participant's annual contribution. The
Company has made no profit sharing contributions to date.
In January 1996, IBIS Consulting adopted a 401(k) defined contribution
profit sharing plan. The plan covers all full-time employees who are at least 21
years of age. Participants may contribute up to 15.0% of pretax compensation,
subject to certain limitations. The Company may make discretionary annual profit
sharing contributions up to 25% of each participant's annual contribution, up to
6% of the respective participant's annual compensation. Company contributions
vest ratably over five years. No contributions were made in 1996 and 1997. The
Company has made profit sharing contributions of $71,000 in 1998.
The Company recorded $1.0 million in bonuses due under the 1998 IBIS
Consulting plan. No bonus plan existed in 1997.
EMPLOYEE STOCK PURCHASE PLAN
In February 1999, the Company's Board of Directors authorized an Employee
Stock Purchase Plan ("ESPP"). The ESPP, which commences upon completion of an
initial public offering, provides substantially all full time employees an
opportunity to purchase shares of Proxicom Common Stock through payroll
deductions of up to 10% of eligible compensation, not to exceed $25,000
annually. Semi-annually, participant account balances will be used to purchase
stock at the lesser of 85% of the fair market value on the trading day before
the participation period starts or the trading day preceding the day on which
the participation period ends. A total of 1,000,000 shares are available for
purchase under the ESPP.
14. COMMITMENTS AND CONTINGENCIES
The Company leases certain office space in Virginia, California, New York,
and Illinois under non-cancelable operating leases expiring in various years
through 2005. Total rent expense for all operating leases amounted to
approximately $258,000, $796,000 and $2,574,000 in 1996, 1997, and 1998,
respectively. Future minimum lease payments under non-cancelable operating
leases as of December 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
AMOUNT
-------
<S> <C>
1999..................................................... $ 3,640
2000..................................................... 3,123
2001..................................................... 2,722
2002..................................................... 2,459
2003..................................................... 1,785
Thereafter............................................... 3,522
-------
Total............................................. $17,251
=======
</TABLE>
F-20
<PAGE> 78
PROXICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In March 1997 the Company entered into a lease for office space in New
York, NY ("Initial Lease") which was subsequently incorporated into the
September 1997 additional space agreement ("Amended Lease"). The Initial Lease
commenced July 1, 1997 and ends in August 2002 and has minimum annual lease
payments ranging from approximately $144,000 to approximately $160,000 over the
lease term. The Amended Lease approximately doubled the office space and
extended the initial lease term to seven years through March 2005. In accordance
with the Amended Lease, the Company is required to have a letter of credit as a
security deposit in the amount of $74,000 throughout the lease term. The current
letter of credit will expire in December 1999.
15. BASIC AND DILUTED EARNINGS PER COMMON SHARE
The Company implemented SFAS No. 128, Earnings per Share, in 1997, which
requires certain disclosures relating to the calculation of earnings per common
share. The following is a reconciliation of the numerators and denominators of
the basic and diluted earnings per common share computations for net income.
BASIC NET INCOME (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1997 1998
------- ------- --------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C> <C>
Net income (loss).......................................... $ 1,084 $ 2,693 $(20,642)
======= ======= ========
Weighted average shares of common stock outstanding........ 12,993 12,626 13,762
======= ======= ========
Basic net income (loss) per common share................... $ 0.08 $ 0.21 $ (1.50)
======= ======= ========
</TABLE>
SFAS No. 128 replaces primary earnings per share with basic net income per
share and excludes the effect of common stock equivalents when computing basic
net income per share.
DILUTED NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1997 1998
------- ------- --------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C> <C>
Net income (loss).......................................... $1,084 $2,693 $(20,642)
======= ======= ========
Adjustment of shares outstanding:
Weighted average shares of common stock outstanding...... 12,993 12,626 13,762
Shares of common stock issuable upon the assumed
conversion of preferred stock......................... 543 1,965 --
Incremental shares assumed exercised under common stock
options plans......................................... -- 1,742 --
------- ------- --------
Adjusted shares of common stock and common stock
equivalents for computation........................... 13,536 16,333 13,762
======= ======= ========
Diluted net income (loss) per common share................. $0.08 $0.16 $(1.50)
======= ======= ========
</TABLE>
F-21
<PAGE> 79
PROXICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SFAS No. 128 replaces fully diluted earnings per share with diluted net
income per share which reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity.
16. PENDING INVESTMENT
In December 1998, Proxicom executed a letter of intent to make a cash
investment of approximately $360,000 in a recently formed joint venture entity
in Italy (the "Entity") created by Ericsson Telecommunicazioni SpA ("Ericsson").
Proxicom will own 19.9% of the common stock of the Entity and will have the
ability to nominate one member of the entity's board of directors.
The Entity was formed to deliver Internet professional services in Italy.
It is anticipated that the Entity will contract with Proxicom for certain
consulting services, at arm's length market rates on a time and materials basis.
Also the Entity will utilize the "Proxicom Process," Proxicom's proprietary,
multi-phase methodology, which Ericsson will transfer to the Entity for a fee.
Proxicom will not participate in the management or policy making of the
business. Inasmuch as Proxicom will not have the ability to influence
significantly the entity or its operations, Proxicom intends to account for its
investment on the cost basis. Proxicom also will have an option to buy an
additional 20% share in the common stock of the Entity, subject to certain
conditions and restrictions.
F-22
<PAGE> 80
[INSIDE BACK COVER PAGE]
BACK COVER GRAPHIC:
The graphic contains the logos and names of some of Proxicom's clients. The
upper half of the graphic contains the logos of the following corporations:
- Merrill Lynch & Co., Inc.
- Host Marriott Corporation
- Ritz Camera Centers, Inc.
- Owens Corning
- Amgen
- Excite, Inc.
- ZD Net
- American Electronics Association
- Pacific Gas and Electric Company
- Cox Interactive Media, Inc.
- SAAB Cars USA, Inc.
- Corning, Inc.
- Calphalon Corporation
The bottom half of the graphic contains the names of the following corporations:
- Mercedes-Benz Credit Corp.
- GE Plastics
- Harman International
- Hewlett-Packard Corporation
- Kemper Insurance Companies
- GAP, Inc.
- GE Capital Corporation
- ARAMCO Services Company
- Buckeye Pipeline Company L.P.
- Schulmberger N.V.
- Wyeth-Ayerst Laboratories
- Transcanada Pipelines Ltd.
- Transport4
- American International Group, Inc.
- Booz-Allen & Hamilton
- Hoffman-La Roche, Inc.
- McKessonHBOC
The lower right corner of the graphic contains Proxicom's logo.
<PAGE> 81
- ------------------------------------------------------
- ------------------------------------------------------
YOU MAY RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NEITHER WE NOR
ANY OF THE UNDERWRITERS OR THE SELLING STOCKHOLDERS HAVE AUTHORIZED ANYONE TO
PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. WHEN YOU
MAKE A DECISION ABOUT WHETHER TO INVEST IN OUR COMMON STOCK, YOU SHOULD NOT RELY
UPON ANY INFORMATION OTHER THAN THE INFORMATION IN THIS PROSPECTUS. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR SALE OF COMMON STOCK MEANS THAT INFORMATION
CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE DATE OF THIS PROSPECTUS. THIS
PROSPECTUS IS NOT AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY THESE
SHARES OF THE COMMON STOCK IN ANY CIRCUMSTANCES UNDER WHICH THE OFFER OR
SOLICITATION IS UNLAWFUL.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.....................
Risk Factors...........................
Use of Proceeds........................
Dividend Policy........................
Capitalization.........................
Dilution...............................
Selected Consolidated Financial Data...
Management's Discussion and Analysis of
Financial Condition and Results of
Operations...........................
Business...............................
Management.............................
Certain Transactions...................
Principal and Selling Stockholders.....
Description of Capital Stock...........
Shares Eligible for Future Sale........
Underwriting...........................
Legal Matters..........................
Experts................................
Where You Can Find More Information....
Index to Financial Statements.......... F-1
</TABLE>
------------------------
DEALER PROSPECTUS DELIVERY OBLIGATION:
UNTIL , 1999 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL
DEALERS THAT BUY, SELL OR TRADE THESE SHARES OF COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
SHARES
[LOGO]
PROXICOM, INC.
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
BT ALEX. BROWN
PRUDENTIAL SECURITIES
THOMAS WEISEL PARTNERS LLC
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
, 1999
------------------------------------------------------
------------------------------------------------------
<PAGE> 82
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various fees and expenses, other than
the underwriting discounts and commissions, payable by the Registrant in
connection with the sale of the common stock being registered hereby. All
amounts shown are estimates except for the Securities and Exchange Commission
("SEC") registration fee, the NASD filing fee and the Nasdaq National Market
listing fee.
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
SEC registration fee........................................ $ 20,850
NASD filing fee............................................. 8,000
Nasdaq National Market listing fee.......................... 17,500
Blue sky qualification fees and expenses.................... *
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Printing and engraving expenses............................. *
Transfer agent and registrar fees...........................
Miscellaneous expenses...................................... *
--------
Total.................................................. $ *
========
</TABLE>
- -------------------------
* To be provided supplementally.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Restated Certificate of Incorporation and Bylaws of the Registrant
provide for the indemnification of the Registrant's directors and officers to
the fullest extent authorized by, and subject to the conditions set forth in the
General Corporation Law of the State of Delaware (the "DGCL"), except that the
Registrant will indemnify a director or officer in connection with a proceeding
(or part thereof) initiated by such person only if such proceeding (or part
thereof) was authorized by the Registrant's Board of Directors. The
indemnification provided under the Restated Certificate of Incorporation and
Bylaws includes the right to be paid by the Registrant the expenses (including
attorneys' fees) in advance of any proceeding for which indemnification may be
had in advance of its final disposition, provided that the payment of such
expenses (including attorneys' fees) incurred by a director or officer in
advance of the final disposition of a proceeding may be made only upon delivery
to the Registrant of an undertaking by or on behalf of such director or officer
to repay all amounts so paid-in advance if it is ultimately determined that such
director or officer is not entitled to be indemnified. Pursuant to the Bylaws,
if a claim for indemnification is not paid by the Registrant within 60 days
after a written claim has been received by the Registrant, the claimant may at
any time thereafter bring an action against the Registrant to recover the unpaid
amount of the claim, and, if successful in whole or in part, the claimant will
be entitled to be paid also the expense of prosecuting such action.
As permitted by the DGCL, the Registrant's Restated Certificate of
Incorporation provides that directors of the Registrant shall not be liable to
the Registrant or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Registrant or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL, relating to unlawful
payment of dividends or unlawful stock purchase or redemption or (iv) for any
transaction from which the director derived an improper personal
II-1
<PAGE> 83
benefit. As a result of this provision, the Registrant and its stockholders may
be unable to obtain monetary damages from a director for breach of his or her
duty of care.
Under the Bylaws, the Registrant has the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Registrant, or is or was serving at the request of the Registrant
as a director, officer, employee, partner (limited or general) or agent of
another corporation or of a partnership, joint venture, limited liability
company, trust or other enterprise, against any liability asserted against such
person or incurred by such person in any such capacity, or arising out of such
person's status as such, and related expenses, whether or not the Registrant
would have the power to indemnify such person against such liability under the
provisions of the DGCL. The Registrant maintains director and officer liability
insurance on behalf of its directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The information presented below does not reflect the conversion of the
Registrant's Convertible Preferred Stock into common stock upon the closing of
the Offering:
(a) In July 1996, the Registrant sold one share of common stock to its
founder, Raul J. Fernandez, for aggregate consideration of $.01. This share
was issued without registration under the Securities Act of 1933 (the
"Securities Act"), in reliance upon an exemption from registration under
Section 4(2) thereof ("Section 4(2)").
(b) In August 1996, the Registrant sold 1,629,969 shares of Series A
Convertible Preferred Stock to two institutional investors. In connection
with this transaction, the Registrant issued these investors two warrants
exercisable for an aggregate of 1,011,378 shares of Series A Convertible
Preferred Stock at an exercise price of $7.91. These securities were issued
without registration under the Securities Act in reliance upon an exemption
from registration under Section 4(2).
(c) In February 1997, the Registrant sold 359,712 shares of Series B
Convertible Preferred Stock to four institutional investors for aggregate
consideration of $1,500,000. These shares were issued without registration
under the Securities Act in reliance upon an exemption from registration
under Section 4(2).
(d) In November 1997, the Registrant sold 419,302 shares of Series C
Convertible Preferred Stock to an institutional investor for aggregate
consideration of $2,000,071. These shares were issued without registration
under the Securities Act in reliance upon an exemption from registration
under Section 4(2).
(e) On February 1, 1999, the Registrant sold 1,218,333 shares of
Series D Convertible Preferred Stock to eight investors for aggregate
consideration of $7,310,000. These sales were issued without registration
under the Securities Act in reliance upon an exemption from registration
under Section 4(2).
(f) In January 1998, the holders of Series A Convertible Preferred
Stock converted 407,500 shares of Series A Preferred Stock into an
equivalent number of shares of common stock. The shares of common stock
were issued without registration under the Securities Act in reliance upon
an exemption from registration under Section 3(a)(9).
(g) In January 1998, the Registrant issued 534,999 shares of common
stock in a merger with Square Earth, Inc. ("Square Earth") in exchange for
all of the shares of common stock of Square Earth. In addition, outstanding
Square Earth employee stock options were converted into options to purchase
41,474 shares of Proxicom common stock. These shares were issued without
registration under the Securities Act in reliance upon an exemption from
registration under Section 4(2).
II-2
<PAGE> 84
(h) In August 1998, the Registrant issued 4,988,297 shares of common
stock in a merger with IBIS Consulting, Inc. ("IBIS") in exchange for all
of the shares of common stock of IBIS. In addition, outstanding IBIS
employee stock options were converted into options to purchase 310,420
shares of Proxicom common stock. These shares were issued without
registration under the Securities Act in reliance upon an exemption from
registration under Section 4(2) and Rule 701.
(i) Between October 15, 1996 and February 12, 1999, Proxicom granted
options to purchase a total of shares of common stock under the
1996 Stock Option Plan and 1997 Stock Option Plan for Non-Employee
Directors to certain of its employees and directors. During that period,
optionees exercised options to purchase shares of
common stock. These securities were issued without registration under the
Securities Act in reliance upon an exemption from registration under Rule
701.
None of the foregoing transactions were effected with an underwriter.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<C> <S>
1* Form of Underwriting Agreement
2.1* Agreement and Plan of Merger, dated August 23, 1996, between
Proxima, Inc. and the Registrant
2.2 Agreement and Plan of Merger, dated as of January 30, 1998,
among the Registrant, Proxicom Acquisition Corp., Square
Earth, Inc. and the stockholders of Square Earth, Inc.
2.3 Agreement and Plan of Merger, dated as of August 21, 1998,
among the Registrant, Proxicom Merger Sub, Inc., IBIS
Consulting, Inc. and the stockholders of IBIS Consulting,
Inc.
3.1* Certificate of Incorporation of the Registrant, as amended
3.2* Form of Restated Certificate of Incorporation of the
Registrant to be effective upon closing of the Offering
3.3* Bylaws of the Registrant
3.4* Form of Bylaws of the Registrant to be effective upon
closing of the Offering.
4.1* Form of Common Stock Certificate of the Registrant
5* Opinion of Hogan & Hartson L.L.P.
10.1 Preferred Stock and Warrant Purchase Agreement, dated August
30, 1996, among the Registrant, General Atlantic Partners
34, L.P. and GAP Coinvestment Partners, L.P.
10.2 Preferred Stock Purchase Agreement, dated February 20, 1997,
among the Registrant, General Atlantic Partners 34, L.P.,
GAP Coinvestment Partners, L.P., FBR Venture Capital
Managers, Inc. and The Mario M. Morino Trust
10.3 Preferred Stock Purchase Agreement, dated November 24, 1997,
between the Registrant and General Electric Capital
Corporation
10.4 Preferred Stock Purchase Agreement, dated February 1, 1999,
among the Registrant, Jack Kemp, Theodore J. Leonsis, John
McKinley, The Washington Post Company, General Atlantic
Partners 52, L.P., GAP Coinvestment Partners II, L.P., The
Mario M. Morino Trust and GE Capital Equity Investments,
Inc.
10.5 Second Amended and Restated Registration Rights Agreement,
dated February 1, 1999, among the Registrant, General
Atlantic Partners 34, L.P., General Atlantic Partners 52,
L.P., GAP Coinvestment Partners, L.P., GAP Coinvestment
Partners II, L.P., Raul Fernandez, The Mario M. Morino
Trust, FBR Venture Capital Managers Inc., General Electric
Capital Corporation, GE Capital Equity Investments, Inc.,
Brenda Wong, Scott McDonald, Vincent Hoenigman, Jack Kemp,
Theodore J. Leonsis, John McKinley, and The Washington Post
Company
</TABLE>
II-3
<PAGE> 85
<TABLE>
<C> <S>
10.6* Proxicom, Inc. 1996 Stock Option Plan
10.7* Proxicom, Inc. 1997 Stock Option Plan for Non-employee
Directors
10.8* Proxicom, Inc. Employee Stock Purchase Plan
10.9* Lease Agreement, dated February , 1997 between Sunrise
Limited Partnership and the Registrant
10.10 Secured Credit Agreement, dated as of October 30, 1998,
between the Registrant and NationsBank, N.A.
21.1 Subsidiaries of the Registrant
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- -------------------------
* To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
Schedules have been omitted because the information required to be set
forth therein is not applicable or is included elsewhere in the Financial
Statements or the notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as may be required by the underwriter
to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 of this
Registration Statement, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, 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.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in 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 purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 86
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 Reston, Commonwealth of
Virginia, on February 12, 1999.
PROXICOM, INC.
By: /s/ RAUL J. FERNANDEZ
------------------------------------------
Raul J. Fernandez
Chairman, President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Raul J. Fernandez and Kenneth J. Tarpey, and each
of them, his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, from such person and in each person's
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement or any
Registration Statement relating to this Registration Statement under Rule 462
and to file the same, with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done as
fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
any of them, or his or their substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ RAUL J. FERNANDEZ Chairman, President and Chief February 12, 1999
- --------------------------------------------- Executive Officer (Principal
Raul J. Fernandez Executive Officer)
/s/ KENNETH J. TARPEY Senior Vice President, Chief February 12, 1999
- --------------------------------------------- Financial Officer and Treasurer
Kenneth J. Tarpey (Principal Financial and
Accounting Officer)
/s/ BRENDA A. WONG Senior Vice President, February 12, 1999
- --------------------------------------------- Organizational Strategies and
Brenda A. Wong Director
/s/ DAVID C. HODGSON Director February 12, 1999
- ---------------------------------------------
David C. Hodgson
</TABLE>
II-5
<PAGE> 87
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ JACK KEMP Director February 12, 1999
- ---------------------------------------------
Jack Kemp
/s/ THEODORE J. LEONSIS Director February 12, 1999
- ---------------------------------------------
Theodore J. Leonsis
/s/ JOHN A. MCKINLEY, JR. Director February 12, 1999
- ---------------------------------------------
John A. McKinley, Jr.
/s/ MARIO M. MORINO Director February 12, 1999
- ---------------------------------------------
Mario M. Morino
</TABLE>
II-6
<PAGE> 88
EXHIBIT INDEX
<TABLE>
<C> <S>
1* Form of Underwriting Agreement
2.1* Agreement and Plan of Merger, dated August 23, 1996, between
Proxima, Inc. and the Registrant
2.2 Agreement and Plan of Merger, dated as of January 30, 1998,
among the Registrant, Proxicom Acquisition Corp., Square
Earth, Inc. and the stockholders of Square Earth, Inc.
2.3 Agreement and Plan of Merger, dated as of August 21, 1998,
among the Registrant, Proxicom Merger Sub, Inc., IBIS
Consulting, Inc. and the stockholders of IBIS Consulting,
Inc.
3.1* Certificate of Incorporation of the Registrant, as amended
3.2* Form of Restated Certificate of Incorporation of the
Registrant to be effective upon closing of the Offering.
3.3* Bylaws of the Registrant
3.4* Form of Bylaws of the Registrant to be effective upon
closing of the Offering.
4.1* Form of Common Stock Certificate of the Registrant
5* Opinion of Hogan & Hartson L.L.P.
10.1 Preferred Stock and Warrant Purchase Agreement, dated August
30, 1996, among the Registrant, General Atlantic Partners
34, L.P. and GAP Coinvestment Partners, L.P.
10.2 Preferred Stock Purchase Agreement, dated February 20, 1997,
among the Registrant, General Atlantic Partners 34, L.P.,
GAP Coinvestment Partners, L.P., FBR Venture Capital
Managers, Inc. and The Mario M. Morino Trust
10.3 Preferred Stock Purchase Agreement, dated November 24, 1997,
between the Registrant and General Electric Capital
Corporation
10.4 Preferred Stock Purchase Agreement, dated February 1, 1999,
among the Registrant, Jack Kemp, Theodore J. Leonsis, John
McKinley, The Washington Post Company, General Atlantic
Partners 52, L.P., GAP Coinvestment Partners II, L.P., The
Mario M. Morino Trust and GE Capital Equity Investments,
Inc.
10.5 Second Amended and Restated Registration Rights Agreement,
dated February 1, 1999, among the Registrant, General
Atlantic Partners 34, L.P., General Atlantic Partners 52,
L.P., GAP Coinvestment Partners, L.P., GAP Coinvestment
Partners II, L.P., Raul Fernandez, The Mario M. Morino
Trust, FBR Venture Capital Managers Inc., General Electric
Capital Corporation, GE Capital Equity Investments, Inc.,
Brenda Wong, Scott McDonald, Vincent Hoenigman, Jack Kemp,
Theodore J. Leonsis, John McKinley, and The Washington Post
Company
10.6* Proxicom, Inc. 1996 Stock Option Plan
10.7* Proxicom, Inc. 1997 Stock Option Plan for Non-employee
Directors
10.8* Proxicom, Inc. Employee Stock Purchase Plan
10.9* Lease Agreement, dated February , 1997 between Sunrise
Limited Partnership and the Registrant
10.10 Secured Credit Agreement, dated as of October 30, 1998,
between the Registrant and NationsBank, N.A.
21.1 Subsidiaries of the Registrant
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- -------------------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 2.2
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
PROXICOM, INC.,
PROXICOM ACQUISITION CORP.,
SQUARE EARTH, INC.,
AND
THE STOCKHOLDERS OF SQUARE EARTH, INC.
DATED AS OF JANUARY 30, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AGREEMENT AND PLAN OF MERGER..................................................1
ARTICLE I THE MERGER..............................................................2
SECTION 1.1. The Merger.......................................................2
SECTION 1.2. Effective Time...................................................2
SECTION 1.3. Effect of the Merger.............................................2
SECTION 1.4. Certificate of Incorporation; Bylaws.............................2
SECTION 1.5. Directors and Officers...........................................3
SECTION 1.6. Closing..........................................................3
SECTION 1.7. Subsequent Actions...............................................3
SECTION 1.8. Tax and Accounting Treatment of the Merger.......................3
ARTICLE II CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES.....................4
SECTION 2.1. Conversion of Securities.........................................4
SECTION 2.2. Escrowed Merger Stock; Stockholders' Representative..............5
SECTION 2.3. Exchange of Certificates.........................................5
SECTION 2.4. Stock Transfer Books.............................................6
SECTION 2.5. Transferability of Acquiror Common Stock.........................6
SECTION 2.6. Legend; Subsequent Transfer......................................6
SECTION 2.7. Conversion of Company Stock Options..............................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS....7
SECTION 3.1. Organization and Qualification...................................7
SECTION 3.2. Subsidiaries.....................................................8
SECTION 3.3. Certificate of Incorporation and Bylaws..........................8
SECTION 3.4. Capitalization...................................................8
SECTION 3.5. Authority........................................................9
SECTION 3.6. No Conflict; Required Filings and Consents.......................9
SECTION 3.7. Company Financial Statements; No Liabilities.....................10
SECTION 3.8. Accounts Receivable..............................................10
SECTION 3.9. Absence of Certain Changes or Events.............................10
SECTION 3.10. Assets..........................................................11
SECTION 3.11. Leases..........................................................11
SECTION 3.12. Contracts.......................................................11
SECTION 3.13. Real Property...................................................12
SECTION 3.14 Intellectual Property............................................13
SECTION 3.15. Environmental Matters...........................................14
SECTION 3.16 Absence of Litigation............................................15
</TABLE>
- i -
<PAGE> 3
<TABLE>
PAGE
----
<S> <C>
SECTION 3.17 Pooling of Interests.............................................15
SECTION 3.18. Books and Records...............................................15
SECTION 3.19. Taxes and Assessments...........................................16
SECTION 3.20. Employment Matters..............................................16
SECTION 3.21. Employee Benefit Plans..........................................17
SECTION 3.22. Transactions with Related Parties...............................18
SECTION 3.23. Insurance.......................................................19
SECTION 3.24. Brokers.........................................................19
SECTION 3.25. Minute Books....................................................19
SECTION 3.26. Disclosure......................................................19
SECTION 3.27. Permits.........................................................20
SECTION 3.28. Reorganization Treatment........................................20
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.....................20
SECTION 4.1. Authority and Capacity...........................................20
SECTION 4.2. Absence of Violation.............................................20
SECTION 4.3. Restrictions and Consents........................................21
SECTION 4.4. Title to Capital Stock...........................................21
SECTION 4.5. Non-Registration of Securities; Purchase for Investment Only.....21
SECTION 4.6. Ability of Stockholder to Evaluate Investment and Bear
Economic Risk..........................................................22
SECTION 4.7. Waiver of Dissenter's Rights.....................................22
ARTICLE V REPRESENTATIONS AND WARRANTIES OF ACQUIROR..............................22
SECTION 5.1. Organization and Qualification...................................22
SECTION 5.2. Certificate of Incorporation and Bylaws..........................23
SECTION 5.3. Capitalization...................................................23
SECTION 5.4. Authority........................................................23
SECTION 5.5. No Conflict; Required Filings and Consents.......................24
SECTION 5.6. Acquiror Financial Statements; No Liabilities....................24
SECTION 5.7. Absence of Certain Changes or Events.............................25
SECTION 5.8. Absence of Litigation............................................25
SECTION 5.9. Taxes and Assessments............................................26
SECTION 5.10. Permits.........................................................26
SECTION 5.11. Labor...........................................................26
SECTION 5.12. Brokers.........................................................26
SECTION 5.13. Disclosure......................................................27
SECTION 5.14. Reorganization Treatment........................................27
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF MERGER SUB...........................27
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 6.1. Organization and Qualification...................................27
SECTION 6.2. Certificate of Incorporation and Bylaws..........................27
SECTION 6.3. Authority........................................................28
SECTION 6.4. No Conflict; Required Filings and Consents.......................28
ARTICLE VII COVENANTS..............................................................29
SECTION 7.1. Affirmative Covenants of the Company.............................29
SECTION 7.2. Negative Covenants of the Company................................29
SECTION 7.3. Negative Covenants of the Stockholders...........................31
ARTICLE VIII ADDITIONAL AGREEMENTS................................................31
SECTION 8.1. Consents and Approvals; Filings and Notices......................31
SECTION 8.2. Access to Information............................................31
SECTION 8.3. Confidentiality..................................................32
SECTION 8.4. Further Action; Reasonable Best Efforts..........................32
SECTION 8.5. Public Announcements.............................................32
SECTION 8.6. No Solicitation..................................................32
SECTION 8.7. Employees........................................................33
SECTION 8.8. Pooling Accounting...............................................33
SECTION 8.9. Acquiror Financial Statements and Other Information..............33
SECTION 8.10. Stockholders' Covenant Not To Compete...........................33
ARTICLE IX CLOSING CONDITIONS.....................................................35
SECTION 9.1. Conditions to Obligations of the Parties.........................35
SECTION 9.2. Additional Conditions to Obligations of Acquiror.................35
SECTION 9.3. Additional Conditions to Obligations of the Company and the
Stockholders...........................................................37
SECTION 9.4. Waiver...........................................................37
ARTICLE X TERMINATION, AMENDMENT AND WAIVER.......................................38
SECTION 10.1. Termination.....................................................38
SECTION 10.2. Effect of Termination...........................................39
SECTION 10.3. Amendment.......................................................39
SECTION 10.4. Waiver..........................................................39
ARTICLE XI SURVIVAL OF REPRESENTATIONS; ESCROW ARRANGEMENTS; REMEDIES.............39
SECTION 11.1. Survival of Representations.....................................39
SECTION 11.2. Indemnification by the Stockholders; Escrow Arrangements........40
SECTION 11.3. Indemnification by Acquiror.....................................40
SECTION 11.4. Third Party Claims..............................................41
SECTION 11.5. Remedies Cumulative.............................................42
ARTICLE XII GENERAL PROVISIONS....................................................43
SECTION 12.1. Notices.........................................................43
</TABLE>
- iii -
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 12.2. Certain Definitions.............................................44
SECTION 12.3. Headings........................................................46
SECTION 12.4. Severability....................................................46
SECTION 12.5. Entire Agreement................................................46
SECTION 12.6. Specific Performance............................................47
SECTION 12.7. Assignment......................................................47
SECTION 12.8. Third Party Beneficiaries.......................................47
SECTION 12.9. Governing Law...................................................47
SECTION 12.10. Counterparts...................................................48
SECTION 12.11. Fees and Expenses..............................................48
</TABLE>
- iv -
<PAGE> 6
<TABLE>
<CAPTION>
SCHEDULES
---------
<S> <C>
Schedule 3.4 Beneficial and Record Ownership of Shares of the Company
Schedule 3.6 Company Required Consents
Schedule 3.10 Encumbrances
Schedule 3.11 Leases
Schedule 3.12 Contracts
Schedule 3.13 Real Property
Schedule 3.14 Intellectual Property
Schedule 3.15 Environmental Matters
Schedule 3.16 Company's Litigation
Schedule 3.20 Employment Matters
Schedule 3.21 Employee Benefit Plans
Schedule 3.22 Transactions with Related Parties
Schedule 3.23 Insurance
Schedule 5.3 Capitalization
Schedule 5.9 Acquiror Tax Matters
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C>
Exhibit A Form of Escrow Agreement
Exhibit B Form of Legal Opinion of Pitney, Hardin, Kipp & Szuch
Exhibit C-1 Form of Legal Opinion of Acquiror's General Counsel
Exhibit C-2 Form of Legal Opinion of Hogan & Hartson L.L.P.
</TABLE>
The Exhibits and Schedules to this Agreement and Plan of Merger are not included
with this Registration Statement on Form S-1. The Registrant will provide these
Exhibits and Schedules upon the request of the Securities and Exchange
Commission.
- i -
<PAGE> 7
Index of Defined Terms
<TABLE>
<CAPTION>
Section
-------
<S> <C>
Acquiror.................................................... PREAMBLE
Acquiror Audited Financial Statements....................... 5.6
Acquiror Common Stock....................................... PREAMBLE
Acquiror Financial Statements............................... 5.6
Acquiror Indemnified Persons................................ 11.2
Acquiror Material Adverse Effect............................ 12.2(a)
Acquiror Unaudited Financial Statements..................... 5.6
Affiliate Agreement......................................... PREAMBLE
affiliate and/or Affiliate.................................. PREAMBLE, 12.2(b)
Agreement .................................................. PREAMBLE
Assets...................................................... 12.2(c)
Balance Sheet Date.......................................... 3.7
benefit liabilities......................................... 3.21(c)
Benefit Plans............................................... 3.21(a)
business day................................................ 12.2(d)
Certificate and/or Certificates............................. 2.1(a)
Certificate of Merger....................................... 1.2
Closing..................................................... 1.6
Closing Date................................................ 1.6
Code........................................................ 1.8
Commonly Controlled Entity.................................. 3.21(a)
Company..................................................... PREAMBLE
Company Balance Sheet....................................... 3.7
Company Common Stock........................................ 2.1(a)
Company Confidential Information............................ 3.14(g)
Company Financial Statements................................ 3.7
Company Material Adverse Effect............................. 12.2(e)
Competitive Business........................................ 8.10(a)
Contract Workers............................................ 3.20(a)
Contracts................................................... 3.12(a)
control, controlled by, under common control with........... 12.2(f)
DGCL........................................................ PREAMBLE
Effective Time.............................................. 1.2
employee benefit plans...................................... 3.21(a)
employee pension benefit plan............................... 3.21(a)
Employment Agreements....................................... PREAMBLE
Encumbrances................................................ 12.2(g)
Environmental Laws.......................................... 3.15(b)(i)
ERISA....................................................... 3.21(a)
ERISA Plan.................................................. 3.21(a)
</TABLE>
- i -
<PAGE> 8
<TABLE>
<CAPTION>
Section
-------
<S> <C>
Escrow Agent................................................ PREAMBLE
Escrow Agreement............................................ PREAMBLE
Escrow Stock................................................ 2.2(a)
Exchange Ratio.............................................. 2.1(a)
Government Entity........................................... 12.2(h)
Hazardous Materials......................................... 3.15(b)(ii)
Indemnified Party........................................... 11.4(a)
Indemnifying Party.......................................... 11.4(a)
Intellectual Property....................................... 3.14(a)
Laws........................................................ 12.2(i)
Legend...................................................... 2.6
Letter of Intent............................................ 8.3
Losses...................................................... 12.2(j)
Merger...................................................... 1.1
Merger Stock................................................ 2.1(a)
Merger Sub.................................................. PREAMBLE
Multiemployer Plan.......................................... 3.21(d)
New Option.................................................. 2.7
Noncompete Period........................................... 8.10(a)
Nondisclosure Agreement..................................... 8.3
person...................................................... 12.2(k)
plan of reorganization...................................... 1.8
qualified................................................... 3.21(b)
Real Property ............................................. 3.13
Related Agreements.......................................... PREAMBLE
Securities Act.............................................. 2.5
Stock Option................................................ 2.7
Stockholders................................................ PREAMBLE
Stockholders' Representative................................ 2.2(b)
Subsidiary.................................................. 12.2(l)
Surviving Corporation....................................... 1.1
Taxes....................................................... 12.2(m)
Third Party Claim........................................... 12.2(n)
Third Party Intellectual Property Rights.................... 3.14(b)
unfunded current liability.................................. 3.21(c)
</TABLE>
- ii -
<PAGE> 9
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered
into this 30th day of January, 1998, by and among PROXICOM, INC., a Delaware
corporation ("Acquiror"), PROXICOM ACQUISITION CORP., a Delaware corporation and
a wholly-owned subsidiary of Acquiror ("Merger Sub"), SQUARE EARTH, INC., a
Delaware corporation (the "Company"), and the undersigned stockholders of the
Company (the "Stockholders").
WHEREAS, the Boards of Directors of each of Acquiror, Merger Sub
and the Company have determined that it is in the best interests of their
respective companies and stockholders that Merger Sub merge with and into the
Company, pursuant to and subject to the terms and conditions of this Agreement
and the Delaware General Corporation Law (the "DGCL");
WHEREAS, concurrently with the execution of this Agreement and as
an inducement to Acquiror and Merger Sub to enter into this Agreement, the
Stockholders have entered into employment agreements with Acquiror (the
"Employment Agreements"), the effectiveness of which is conditioned upon
consummation of the Merger;
WHEREAS, in connection with the transactions contemplated by this
Agreement and as a condition to consummation of the Merger, at Closing, the
Company, the Stockholders and the Stockholders' Representative (as defined in
Section 2.2(b)) shall enter into an escrow agreement with Acquiror, Merger Sub
and Crestar Bank (the "Escrow Agent"), in the form attached hereto as Exhibit A
(the "Escrow Agreement" and together with the Employment Agreements, the
"Related Agreements"), pursuant to which a certain percentage of the shares of
common stock, par value $.01 per share, of Acquiror (the "Acquiror Common
Stock"), to be issued as consideration in the Merger will be retained in escrow;
and
WHEREAS, as a material inducement for Acquiror to enter into this
Agreement and to consummate the Merger, each of the "affiliates" of the Company
(as such term is used in SEC Accounting Series Release Number 130 and Release
Number 135 and Rule 145 under the Securities Act) has executed and delivered a
written agreement (the "Affiliate Agreement") which, among other things,
contains a representation by each affiliate that such affiliate will not offer
to sell, sell or otherwise dispose of any of the shares of Acquiror Common Stock
issued to such affiliate in connection with the Merger, except in accordance
with the terms of the Affiliate Agreement.
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth in
this Agreement, the parties hereto agree as follows:
<PAGE> 10
ARTICLE I
THE MERGER
SECTION 1.1. THE MERGER.
Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with the DGCL, at the Effective Time (as defined in
Section 1.2), Merger Sub shall be merged with and into the Company (the
"Merger"). As a result of the Merger, the separate corporate existence of Merger
Sub shall cease and the Company shall continue as the surviving corporation of
the Merger (sometimes referred to herein as the "Surviving Corporation") as a
wholly-owned subsidiary of Acquiror. The name of the Company shall continue as
the name of the Surviving Corporation.
SECTION 1.2. EFFECTIVE TIME.
At the Closing (as defined in Section 1.6), the parties hereto
shall cause the Merger to be consummated by filing a certificate of merger (the
"Certificate of Merger") with the Secretary of State of the State of Delaware in
such form as required by, and executed in accordance with the relevant
provisions of the DGCL and in such form as approved by the Company and Acquiror
prior to such filing (the date and time of the filing of the Certificate of
Merger or such subsequent date or time specified therein being the "Effective
Time").
SECTION 1.3. EFFECT OF THE MERGER.
At the Effective Time, the effect of the Merger shall be as
provided in this Agreement and the applicable provisions of the DGCL. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, except as otherwise provided herein, all the property, rights, privileges,
powers and franchises of Merger Sub and the Company shall vest in the Surviving
Corporation, and all debts, liabilities and duties of Merger Sub and the Company
shall become the debts, liabilities and duties of the Surviving Corporation.
SECTION 1.4. CERTIFICATE OF INCORPORATION; BYLAWS.
At the Effective Time, the certificate of incorporation of Merger
Sub, as in effect immediately prior to the Effective Time and as amended by the
Certificate of Merger, shall be the certificate of incorporation of the
Surviving Corporation, and the bylaws of Merger Sub, as in effect immediately
prior to the Effective Time, shall be the bylaws of the Surviving Corporation.
- 2 -
<PAGE> 11
SECTION 1.5. DIRECTORS AND OFFICERS.
The directors of Merger Sub (or such other or additional
individuals as Acquiror may designate prior to Closing) shall be the initial
directors of the Surviving Corporation, each to hold office in accordance with
the certificate of incorporation and bylaws of the Surviving Corporation; and
the officers of Merger Sub shall continue as the officers of the Surviving
Corporation, in each case until their respective successors are duly elected or
appointed and qualified.
SECTION 1.6. CLOSING.
Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "Closing") will take place as promptly as practicable
after satisfaction of the latest to occur or, if permissible, waiver of the
conditions set forth in Article IX hereof (the "Closing Date"), at the offices
of Hogan & Hartson L.L.P., 8300 Greensboro Drive, Suite 1100, McLean, Virginia
22102, unless another date or place is agreed to by the parties hereto.
SECTION 1.7. SUBSEQUENT ACTIONS.
If, at any time after the Effective Time, the Surviving
Corporation shall consider or be advised that any deeds, bills of sale,
assignments, assurances or any other actions or things are necessary or
desirable to continue in, vest, perfect or confirm of record or otherwise in the
Surviving Corporation its right, title or interest in, to or under any of the
rights, properties, privileges, franchises or Assets of either of its
constituent corporations acquired or to be acquired by the Surviving Corporation
as a result of, or in connection with, the Merger or otherwise to carry out this
Agreement, the officers and directors of the Surviving Corporation shall be
directed and authorized to execute and deliver, in the name and on behalf of
either of such constituent corporations, all such deeds, bills of sale,
assignments and assurances and to take and do, in the name and on behalf of each
of such corporations or otherwise, all such other actions and things as may be
necessary or desirable to vest, perfect or confirm any and all right, title and
interest in, to and under such rights, properties, privileges, franchises or
Assets in the Surviving Corporation or otherwise to carry out this Agreement.
SECTION 1.8. TAX AND ACCOUNTING TREATMENT OF THE MERGER.
It is intended by the parties hereto that the Merger shall (a)
constitute a reorganization of Merger Sub and the Company within the meaning of
Section 368 of the Internal Revenue Code of 1986, as amended (the "Code") and
(b) qualify for accounting treatment as a pooling of interests. The parties
hereby adopt this Agreement as a "plan of reorganization" of Merger Sub and the
Company
- 3 -
<PAGE> 12
within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States
Treasury Regulations.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.1. CONVERSION OF SECURITIES.
At the Effective Time, by virtue of the Merger and without any
action on the part of the parties hereto or the holders of the following
securities:
(a) Outstanding Company Common Stock. Subject to the provisions
hereof, each share of common stock, par value $.01 per share of the Company (the
"Company Common Stock"), issued and outstanding immediately prior to the
Effective Time shall be converted into the right to receive 0.445833 share of
Acquiror Common Stock (the "Exchange Ratio") (The shares of Acquiror Common
Stock issuable pursuant to this Section 2.1(a) are referred to herein as the
"Merger Stock"). All such shares of Company Common Stock shall cease to be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each certificate (a "Certificate") previously evidencing such shares
shall thereafter represent only the right to receive the Acquiror Common Stock.
The Stockholders shall cease to have any rights with respect to such shares of
Company Common Stock.
(b) Treasury Stock. All shares of capital stock of the Company
held in the treasury of the Company immediately prior to the Effective Time
shall be canceled and extinguished without any conversion thereof and no
Acquiror Common Stock or other consideration shall be delivered or deliverable
in exchange therefor.
(c) Merger Sub Stock. Each share of common stock, par value $.01
per share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one (1) duly and
validly issued, fully paid and nonassessable share of common stock of the
Surviving Corporation.
(d) No Fractional Shares. No fraction of a share of Acquiror
Common Stock shall be issued in connection with the Merger. In lieu of any such
fractional share, the holder of the Company Common Stock that would be entitled
to a fractional share shall have the right to receive an amount in cash, without
interest, equal to the product of such fractional share multiplied by $4.77.
- 4 -
<PAGE> 13
SECTION 2.2. ESCROWED MERGER STOCK; STOCKHOLDERS'
REPRESENTATIVE.
(a) When making the issuances of the Merger Stock required by
Section 2.1(a) above, Acquiror shall withhold and retain in escrow from the
Stockholders ten percent (10%) of the aggregate number of shares of Acquiror
Common Stock issuable pursuant to Section 2.1(a) (as adjusted pursuant to
Section 2.1(d)) (the "Escrow Stock"). The Escrow Stock will be placed in escrow
pursuant to the Escrow Agreement as security for the performance of the
indemnity obligations of the Company and the Stockholders under Section 11.2 of
this Agreement. The Escrow Stock shall be registered in the name of the
Stockholders and the certificates therefor shall contain a legend indicating
that the Escrow Stock is being held in escrow pursuant to the Escrow Agreement.
The Escrow Stock shall be released to the Stockholders or Acquiror, as the case
may be, only in accordance with the terms of the Escrow Agreement.
(b) Each Stockholder hereby appoints Bradley Galle as
attorney-in-fact with full power and authority to act for and on behalf of any
or all of the Stockholders (with full power of substitution in the premises), in
connection with the indemnity provisions of Section 11.2 as they relate to the
Stockholders generally and such other matters as are reasonably necessary for
the consummation of the transactions contemplated hereby including, without
limitation, (i) to review all claims for indemnification asserted by an Acquiror
Indemnified Person, and, to the extent deemed appropriate, dispute, question the
accuracy of, compromise, settle or otherwise resolve any and all such claims,
(ii) to compromise on their behalf with Acquiror any claims asserted thereunder,
(iii) to authorize payments to be made with respect to any such claims for
indemnification, (iv) to execute and deliver on behalf of the Stockholders any
document or agreement contemplated by or necessary or desirable in connection
with this Agreement, the Escrow Agreement and the transactions contemplated
hereby and thereby, and (v) to take such further actions including coordinating
and administering post-closing matters related to the rights and obligations of
the Stockholders as are authorized in this Agreement (the above named
representative, as well as any subsequent representative of the Stockholders
appointed by the Stockholders being referred to herein as the "Stockholders'
Representative"). Acquiror and Merger Sub shall be entitled to rely on such
appointment and treat such Stockholders' Representative as the duly appointed
attorney-in-fact of each Stockholder.
SECTION 2.3. EXCHANGE OF CERTIFICATES.
At the Closing, each Stockholder shall deliver to Acquiror for
cancellation, such Stockholder's Certificate(s) representing his shares of
Company Common Stock held immediately prior to the Effective Time, duly endorsed
in blank
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or with duly executed stock powers attached. In exchange for the Certificates,
promptly following the Effective Time, Acquiror shall deliver to each
Stockholder (i) a stock certificate representing the aggregate number of whole
shares of Merger Stock issuable pursuant to Section 2.1(a) (less shares of
Escrow Stock to be deposited in escrow pursuant to Section 2.2(a)), which shares
of Merger Stock shall be deemed to have been issued at the Effective Time and
(ii) sufficient cash to pay the amounts contemplated by Section 2.1(d).
SECTION 2.4. STOCK TRANSFER BOOKS.
At the Effective Time, the stock transfer books of the Company
with respect to all shares of capital stock of the Company shall be closed and
no further registration of transfers of such shares of capital stock shall
thereafter be made on the records of the Company.
SECTION 2.5. TRANSFERABILITY OF ACQUIROR COMMON STOCK.
The shares of Acquiror Common Stock to be issued and delivered to
the Stockholders in the Merger in accordance with the provisions of Section 2.1
hereof will not have been registered under the Securities Act of 1933, as
amended (the "Securities Act") or under the securities laws of any state as of
the Effective Time. Accordingly, such shares of Acquiror Common Stock will not
be transferable except upon compliance with the Securities Act, any state
securities laws, the rules, regulations and other administrative regulations
promulgated under the Securities Act and any state securities laws and shall
bear appropriate legends to this effect as set forth in Section 2.6 below. In
addition, where applicable, the legend shall provide notice as to the
restrictions on transfer pursuant to the Affiliate Agreement.
SECTION 2.6. LEGEND; SUBSEQUENT TRANSFER.
Each certificate representing Acquiror Common Stock issued to the
Stockholders hereunder shall be stamped or otherwise imprinted with a legend
(the "Legend") in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE
SECURITIES LAWS OF ANY STATE. THE SECURITIES MAY NOT BE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH
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LAWS UPON RECEIPT BY PROXICOM, INC. ("ACQUIROR") OF A WRITTEN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO ACQUIROR THAT SUCH REGISTRATION IS
NOT REQUIRED.
Acquiror agrees to remove such Legend upon the earlier of the
registration under the Securities Act of the Acquiror Common Stock received by
the Stockholders or the expiration of any required holding period of Rule 144
under the Securities Act.
SECTION 2.7. CONVERSION OF COMPANY STOCK OPTIONS.
As of the Effective Time, each outstanding unexpired and
unexercised option to purchase shares of Company Common Stock described on
Schedule 3.4 hereto (each a "Stock Option"), shall automatically be converted
into an option (each a "New Option") to purchase a number of whole shares of
Acquiror Common Stock equal to the number of shares of Company Common Stock that
could have been purchased (assuming full vesting) under such Stock Option
multiplied by the Exchange Ratio, at a price per share of Acquiror Common Stock
equal to the per-share option exercise price specified in such Stock Option
divided by the Exchange Ratio. Nothing in this Section 2.7 shall affect the
vesting schedule in effect for each Stock Option as of the date hereof, and each
New Option shall have the same vesting schedule as in effect for the
corresponding Stock Option as of the date hereof. In addition to the New
Options, promptly after the Effective Time, Acquiror shall issue to certain
holders of Stock Options such additional options to purchase shares of Acquiror
Common Stock that, when added together with the New Options, shall equal options
to acquire, in the aggregate, 67,738 shares of Acquiror Common Stock.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
STOCKHOLDERS
The Company and the Stockholders jointly and severally represent
and warrant to Acquiror and Merger Sub as follows:
SECTION 3.1. ORGANIZATION AND QUALIFICATION.
The Company is a corporation duly organized, validly existing and
in good standing under the laws of the state of Delaware. The Company has the
requisite power and authority to own, lease and operate its business as it is
now being conducted and to perform the terms of this Agreement and the
transactions
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contemplated hereby. The Company is duly qualified to conduct its business, and
is in good standing, in Delaware, New York and California and, to the knowledge
of the Company, each other jurisdiction in which the ownership or leasing of its
Assets or the nature of its activities in connection with the conduct of its
business makes such qualification necessary.
SECTION 3.2. SUBSIDIARIES.
The Company has no Subsidiaries and no equity interest or other
investment in any person.
SECTION 3.3. CERTIFICATE OF INCORPORATION AND BYLAWS.
The Company has heretofore delivered to Acquiror a complete and
correct copy of each of the certificate of incorporation and bylaws of the
Company, each as amended to date. Such certificate of incorporation and bylaws
are in full force and effect. The Company is not in violation of any of the
provisions of its certificate of incorporation or bylaws.
SECTION 3.4. CAPITALIZATION.
The authorized capital stock of the Company consists of one
million five hundred thousand (1,500,000) shares of Company Common Stock, of
which one million two hundred thousand (1,200,000) shares are issued and
outstanding. All of the outstanding shares of capital stock of the Company are
owned beneficially and of record by the Stockholders as set forth in Schedule
3.4, free and clear of all Encumbrances. Except as set forth in Schedule 3.4
there are no options, warrants or other rights, agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock of
the Company or obligating the Company to issue or sell any shares of capital
stock of, or other equity interests in the Company, including any securities
directly or indirectly convertible into or exercisable or exchangeable for any
capital stock or other equity securities of the Company. There are no
outstanding obligations of the Company to repurchase, redeem or otherwise
acquire any shares of its capital stock or make any investment (in the form of a
loan, capital contribution or otherwise) in any other person. All of the issued
and outstanding shares of Company Common Stock have been duly authorized and
validly issued in accordance with applicable laws and are fully paid and
nonassessable and not subject to preemptive rights. Except as set forth in
Schedule 3.4, no shares of capital stock of the Company have been reserved for
any purpose.
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SECTION 3.5. AUTHORITY.
The Company has the necessary corporate power and authority to
enter into this Agreement and the Related Agreements and to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the Related Agreements by the Company and the consummation by the Company of
the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action and no other corporate proceedings on the part of
the Company are necessary to authorize this Agreement and the Related Agreements
or to consummate the transactions contemplated hereby and thereby. This
Agreement and the Related Agreements have been duly executed and delivered by
the Company and, assuming the due authorization, execution and delivery by
Acquiror and Merger Sub, constitute legal, valid and binding obligations of the
Company, enforceable in accordance with their terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general applicability relating to or
affecting creditors' rights generally and by the application of general
principles of equity.
SECTION 3.6. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Except as set forth in Schedule 3.6 hereto, the execution and
delivery of this Agreement and the Related Agreements by the Company do not, and
the performance by the Company of its obligations under this Agreement and the
Related Agreements will not, (i) conflict with or violate the certificate of
incorporation, bylaws or other organizational document of the Company, (ii)
conflict with or violate any Laws applicable to the Company or to its Assets, or
(iii) result in any breach of or constitute a default (or an event which with
notice or lapse of time or both would become a default) under any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Company is a party or by which the
Company is bound or to which any of its Assets is subject.
(b) Except as set forth in Schedule 3.6 hereto, the Company's
execution and delivery of this Agreement and the Related Agreements does not,
and the Company's performance of this Agreement and the Related Agreements will
not, require any consent, approval, authorization or permit of, or filing with
or notification to, any third party or any court, arbitral tribunal,
administrative agency or commission, whether national or foreign, or Government
Entity, except for the filing and recordation of appropriate merger documents as
required by the DGCL.
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SECTION 3.7. COMPANY FINANCIAL STATEMENTS; NO LIABILITIES.
The Company has furnished to the Acquiror an unaudited balance
sheet of the Company as at each of December 31, 1996, and December 31, 1997, and
an unaudited statement of income and cash flow for each of the years ended
December 31, 1996, and December 31, 1997 (the "Company Financial Statements").
The Company Financial Statements were prepared by management or based on
information supplied by management of the Company, and are true and complete in
all material respects and accurately reflect in all material respects the
financial condition of the Company as at such dates and the results of its
operations over such years. Except as reflected in the balance sheet of the
Company (the "Company Balance Sheet") as at December 31, 1997 (the "Balance
Sheet Date"), the Company has no material liabilities, contingent or absolute,
matured or unmatured, except for liabilities incurred in the ordinary course of
business since the Balance Sheet Date, none of which would have a Company
Material Adverse Effect.
SECTION 3.8. ACCOUNTS RECEIVABLE.
The accounts receivable of the Company shown on the Company
Balance Sheet, or acquired by the Company after the Balance Sheet Date, have
been collected or are collectible in amounts not less than the amounts thereof
carried on the books of the Company, except to the extent of the allowance for
doubtful accounts shown on such balance sheets.
SECTION 3.9. ABSENCE OF CERTAIN CHANGES OR EVENTS.
Since the Balance Sheet Date, there has been no Company Material
Adverse Effect. Since the Balance Sheet Date, the Company has conducted its
business in the ordinary course, and the Company has not (a) paid any dividend
or distribution in respect of, or redeemed or repurchased any of, its capital
stock; (b) issued any capital stock, bonds or other corporate securities or debt
instruments, granted any options, warrants or other rights calling for the
issuance thereof, or borrowed any funds; (c) incurred loss of, or significant
injury to, any of their respective Assets as the result of any fire, explosion,
flood, windstorm, earthquake, labor trouble, riot, accident, act of God or
public enemy or armed forces, or other casualty; (d) incurred, or become subject
to, any obligation or liability (absolute or contingent, matured or unmatured,
known or unknown), except current liabilities incurred in the ordinary course of
business; (e) mortgaged, pledged or subjected to any Encumbrance any of its
Assets; (f) sold, exchanged, transferred or otherwise disposed of any of its
Assets or canceled any debts or claims; (g) written down the value of any of its
Assets or written off as uncollectible any accounts receivable, except write
downs and write-offs in the ordinary course of business, none of which,
individually or in the aggregate, are material; (h) entered into any
transactions
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<PAGE> 19
other than in the ordinary course of business; (i) made any change in any method
of accounting or accounting practice; or (j) made any agreement to do any of the
foregoing.
SECTION 3.10. ASSETS.
The Company is the sole and exclusive legal and equitable owner
of and has good and marketable title to its Assets free and clear of all
Encumbrances, except as set forth in Schedule 3.10. No person or Government
Entity has an option to purchase, right of first refusal or other similar right
with respect to all or any part of the Company's Assets. All of the personal
property of the Company is in good working order and repair, ordinary wear and
tear excepted, and is suitable and adequate for the uses for which it is
intended or is being used.
SECTION 3.11. LEASES.
Schedule 3.11 lists and describes all leases and other agreements
under which the Company is lessee or lessor of any Asset, or holds, manages or
operates any Asset owned by any third party, or under which any Asset owned by
the Company is held, operated or managed by a third party and under which the
Company is obligated to pay or is entitled to receive more than One Thousand
Dollars ($1,000) per year. To the Company's knowledge, each such lease and other
agreement grants the leasehold estate it purports to grant free and clear of all
Encumbrances. To the Company's knowledge, (a) all necessary governmental
approvals with respect thereto required to be obtained by the Company have been
obtained, (b) all necessary filings or registrations therefor required to be
made by the Company have been made, and (c) there have been no threatened
cancellations thereof and no outstanding disputes thereunder. The Company has
performed in all material respects all obligations thereunder required to be
performed by the Company to date. To the knowledge of the Company, no party is
in default in any material respect under any of the foregoing, and there has not
occurred any event which (whether with or without notice, lapse of time or the
happening or occurrence of any other event) would constitute such a default.
SECTION 3.12. CONTRACTS.
(a) Schedule 3.12 sets forth a complete and correct list of all
agreements, contracts and commitments (whether written or oral) to which the
Company is a party or by which the Company or any of its Assets are bound
(collectively, the "Contracts"), including, without limitation, the following
types of contracts and agreements: (i) employment, severance, termination,
consulting and retirement agreements; (ii) license agreements or distributor,
dealer, manufacturer's representative, sales agency and advertising agreements;
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(iii) agreements with any labor organization or other collective bargaining
unit; (iv) agreements for the future purchase of materials, supplies, services,
merchandise or equipment involving payments of more than $1,000 individually (or
$5,000 in the aggregate for all such agreements) over its remaining term
(including, without limitation, periods covered by any option to renew by either
party); (v) agreements for the purchase, sale or lease of any real estate or
other Assets; (vi) profit-sharing, bonus, incentive compensation, deferred
compensation, stock option, severance pay, stock purchase, employee benefit,
insurance, hospitalization, pension, retirement or other similar plans or
agreements; (vii) agreements for the sale of Assets other than in the ordinary
course of business or the grant of any preferential rights to purchase Assets;
(viii) agreements which contain provisions requiring the Company to indemnify
any person; (ix) joint venture agreements or other agreements involving the
sharing of profits; (x) outstanding loans to any persons or entities or
receivables due from any stockholders or any affiliates of the Company; (xi)
agreements (including, without limitation, agreements not to compete and
exclusivity agreements) that reasonably could be interpreted to impose any
restriction on any business operations of the Company; (xii) agreements, notes
and other instruments evidencing indebtedness for borrowed money and grants of
Encumbrances on any of the Assets of the Company and (xiii) other agreement
which by its terms does not terminate or is not terminable by the Company within
thirty (30) days or upon thirty (30) days' (or less) notice. Schedule 3.12
includes a brief description of all oral Contracts of the types described in
clauses (i) through (xiii) above.
(b) All the Contracts are valid and in full force and effect and
constitute legal, valid and binding obligations of, and are legally enforceable
against, the Company and, to the knowledge of the Company, the other party or
respective parties thereto. To the knowledge of the Company, (i) all necessary
governmental approvals with respect thereto required to be obtained by the
Company have been obtained, (ii) all necessary filings or registrations therefor
required to be made by the Company have been made, and (iii) there have been no
threatened cancellations thereof and no outstanding disputes thereunder. The
Company has in all material respects performed all the obligations thereunder
required to be performed by the Company to date. The Company is not and, to the
knowledge of the Company, no other party is in default in any material respect
under any of the Contracts, and there has not occurred any event which (whether
with or without notice, lapse of time or the happening or occurrence of any
other event) would constitute such a default. True and complete copies of all
Contracts have been delivered to Acquiror or made available for inspection.
SECTION 3.13. REAL PROPERTY.
Schedule 3.13 contains a list and brief description of all
leasehold interests in real estate, easements, rights to access, rights-of-way
and other real
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property interests which are owned, leased, used or held for use by the Company
(collectively, the "Real Property"). The Company does not hold any fee simple
interest in any real estate. The Real Property described in Schedule 3.13
constitutes all real property interests of the Company.
SECTION 3.14 INTELLECTUAL PROPERTY.
(a) The Company owns, or is licensed or otherwise possesses all
necessary rights to use all patents, trademarks, trade names, service marks,
copyrights and any applications therefor, maskworks, net lists, schematics,
technology, know-how, trade secrets, inventory, ideas, algorithms, processes,
computer software programs and applications (in both source code and object code
form), and tangible or intangible proprietary information or material
("Intellectual Property") that are used in the business of the Company.
(b) Schedule 3.14 lists all (i) registered and unregistered
trademarks, trade names and service marks, registered and unregistered
copyrights, and maskworks, included in the Intellectual Property, including the
jurisdictions in which each such Intellectual Property right has been issued or
registered or in which any application for such issuance and registration has
been filed, (ii) licenses, sublicenses and other agreements as to which the
Company is a party and pursuant to which any person is authorized to use any
Intellectual Property, and (iii) licenses, sublicenses and other agreements as
to which the Company is a party and pursuant to which the Company is authorized
to use any third party patents, trademarks or copyrights, including software
("Third Party Intellectual Property Rights") which are incorporated in, are or
form a part of any Company product.
(c) To the knowledge of the Company, there is no unauthorized
use, disclosure, infringement or misappropriation of any Intellectual Property
rights of the Company, any trade secret material to the Company, or any
Intellectual Property right of any third party to the extent licensed by or
through the Company, by any third party, including any employee or former
employee of the Company. Except as set forth in Schedule 3.14, the Company has
not entered into any agreement to indemnify any other person against any charge
of infringement of any Intellectual Property. Except as set forth in Schedule
3.14, there are no royalties, fees or other payments payable by the Company to
any person by reason of the ownership, use, sale or disposition of Intellectual
Property.
(d) The Company is not, nor will it be as a result of the
execution and delivery of this Agreement or the performance of it obligations
under this Agreement, in breach of any license, sublicense or other agreement
relating to the Intellectual Property or Third Party Intellectual Property
Rights.
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(e) The Company has no patents, registered trademarks, registered
service marks or registered copyrights. The Company (i) has not been served with
process, and is not aware that any person is intending to serve process on the
Company, in any suit, action or proceeding which involves a claim of
infringement of any patents, trademarks, service marks, copyrights or violation
of any trade secret or other proprietary right of any third party; (ii) has no
knowledge that the conduct of the business of the Company infringes any patent,
trademark, service mark, copyright, trade secret or other propriety right of any
third party; and (iii) has not brought any action, suit or proceeding for
infringement of Intellectual Property or breach of any license or agreement
involving Intellectual Property against any third party.
(f) All officers, employees and consultants of the Company have
executed and delivered to the Company an agreement regarding the protection of
proprietary information and the assignment to the Company of any Intellectual
Property arising from services performed for the Company by such persons.
(g) The Company has, to the extent it deemed necessary and
appropriate, obtained or entered into written agreements with third parties in
connection with the disclosure to, or use or appropriation by, third parties, of
trade secret or proprietary Intellectual Property owned by the Company and not
otherwise protected by a patent, a patent application, copyright, trademark, or
other registration or legal scheme ("Company Confidential Information"), and
does not know of any situation involving such third party use, disclosure or
appropriation of Company Confidential Information where the lack of such a
written agreement is likely to result in any Company Material Adverse Effect.
SECTION 3.15. ENVIRONMENTAL MATTERS.
(a) To the knowledge of the Company, the Company has complied and
is in compliance with all Environmental Laws (as defined below). There are no
pending or, to the knowledge of the Company, threatened actions, suits, claims,
legal proceedings or other proceedings based on, and the Company has not
directly or indirectly received any notice of any complaint, order, directive,
citation, notice of responsibility, notice of potential responsibility, or
information request from any Government Entity or any other person arising out
of or attributable to: (i) the current or past presence at any part of the Real
Property of Hazardous Materials (as defined below) or any substances that pose a
hazard to human health or an impediment to working conditions; (ii) the current
or past release or threatened release into the environment from the Real
Property (including, without limitation, into any storm drain, sewer, septic
system or publicly owned treatment works) of any Hazardous Materials or any
substances that pose a hazard to human health or an impediment to working
conditions; (iii) the off-site disposal of Hazardous Materials originating on or
from the Real Property; or (iv) any violation of
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Environmental Laws at any part of the Real Property or otherwise arising from
the Company's activities involving Hazardous Materials.
(b) As used herein, these terms shall have the following
meanings:
(i) "Environmental Laws" means all applicable federal, state
and local laws (including the common law), rules, requirements and regulations
relating to pollution, the environment (including, without limitation, ambient
air, surface water, groundwater, land surface or subsurface strata) or
protection of human health as it relates to the environment including, without
limitation, laws and regulations relating to releases of Hazardous Materials, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials or relating to
management of asbestos in buildings.
(ii) "Hazardous Materials" means wastes, substances, or
materials (whether solids, liquids or gases) that are deemed hazardous, toxic,
pollutants, or contaminants, including without limitation, substances defined as
"hazardous substances", "toxic substances", "radioactive materials", or other
similar designations in, or otherwise subject to regulation under, any
Environmental Laws.
SECTION 3.16 ABSENCE OF LITIGATION.
Except as set forth in Schedule 3.16, there are (a) no claims,
actions, suits, investigations, or proceedings pending or, to the Company's
knowledge, threatened against the Company or any of its properties or Assets
before any court, administrative, governmental, arbitral, mediation or
regulatory authority or body, domestic or foreign, that challenge or seek to
prevent, enjoin, alter or materially delay the transactions contemplated hereby,
and (b) no judgments, decrees, injunctions or orders of any Government Entity or
arbitrator outstanding against the Company or any of its properties or Assets.
SECTION 3.17 POOLING OF INTERESTS.
Neither the Company nor any of its directors, officers or
stockholders has taken any action which would interfere with Acquiror's ability
to account for the Merger as a pooling of interests.
SECTION 3.18. BOOKS AND RECORDS.
The books of account, stock records, minute books and other
records of the Company are true and complete in all material respects, and the
matters
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contained therein are appropriately and accurately reflected in the financial
statements to the extent required to be reflected therein.
SECTION 3.19. TAXES AND ASSESSMENTS.
The Company has duly and timely paid all Taxes (as defined below)
which have become due and payable by it. The Company has not received notice of,
nor does the Company have any knowledge of, any notice of deficiency or
assessment or proposed deficiency or assessment from any taxing Government
Entity. To the Company's knowledge, there are no audits pending and there are no
outstanding agreements or waivers by the Company that extend the statutory
period of limitations applicable to any federal, state, local, or foreign tax
returns or Taxes.
SECTION 3.20. EMPLOYMENT MATTERS.
(a) Schedule 3.20 contains a true and complete list of names,
positions and annual rates of compensation (including bonuses) of all current
directors, officers and employees of the Company, and all workers currently
supplied to the Company pursuant to that certain Client Service Agreement dated
January 28, 1997, between Ambrose Employer Group, LLC and the Company (such
workers, collectively, the "Contract Workers"). With respect to any persons
employed by the Company and the Contract Workers, the Company is in compliance
with all Laws respecting employment conditions and practices, have withheld all
amounts required by any applicable Laws to be withheld from wages or any Taxes
or penalties for failure to comply with any of the foregoing.
(b) There are no collective bargaining agreements applicable to
any Company employees and the Company does not have a duty to bargain with any
labor organization with respect to any such persons. There is not pending any
demand for recognition or any other request or demand from a labor organization
for representative status with respect to any persons employed by the Company.
(c) With respect to the Contract Workers and any persons employed
by the Company, (i) the Company has not engaged in any unfair labor practice
within the meaning of the National Labor Relations Act and has not violated any
legal requirement prohibiting discrimination on the basis of race, color,
national origin, sex, religion, age, marital status, or handicap in its
employment conditions or practices; and (ii) there are no pending or, to the
knowledge of the Company, threatened unfair labor practice charges or
discrimination complaints relating to race, color, national origin, sex,
religion, age, marital status, or handicap against the Company before any
Government Entity nor, to the knowledge of the Company, does any basis therefor
exist.
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SECTION 3.21. EMPLOYEE BENEFIT PLANS.
(a) Schedule 3.21 sets forth a list of all of the pension,
retirement, profit-sharing, deferred compensation, stock option, employee stock
ownership, severance pay, sabbatical, vacation, bonus, loans, medical, dental,
vision care, disability, life insurance or other employee programs, arrangements
or agreements and all other material employee benefit plans or fringe benefit
plans, including, without limitation, all "employee benefit plans" as that term
is defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), currently adopted, maintained by, sponsored in whole
or in part by, or contributed to by the Company or for which the Company could
incur a liability or any entity required to be aggregated with the Company
(each, a "Commonly Controlled Entity") pursuant to Section 414 of the Code for
the benefit of present and former employees, Contract Workers or directors of
the Company or their beneficiaries, or providing benefits to such persons in
respect of services provided to any such entity (collectively, the "Benefit
Plans"). Any of the Benefit Plans which is an "employee pension benefit plan",
as that term is defined in Section 3(2) of ERISA, is referred to herein as an
"ERISA Plan".
(b) Each of the Benefit Plans intended to be "qualified" within
the meaning of Section 401(a) or 501 of the Code has been determined by the
Internal Revenue Service to be so qualified and to the Company's knowledge, no
circumstances exist that could reasonably be expected by the Company to result
in the revocation of any such determination. Each of the Benefit Plans is in
compliance with their terms and the applicable terms of ERISA and the Code and
any other applicable laws, rules and regulations the breach or violation of
which could result in a material liability to the Company or any Commonly
Controlled Entity.
(c) No ERISA Plan which is a defined benefit pension plan has any
"unfunded current liability", as that term is defined in Section 302(d)(8)(A) of
ERISA, and the present fair market value of the assets of any such plan equals
or exceeds the plan's "benefit liabilities", as that term is defined in Section
4001(a)(16) of ERISA, when determined under actuarial factors that would apply
if the plan terminated in accordance with all applicable legal requirements. All
contributions, premiums and other payments with respect to each ERISA Plan which
have become due and payable have been paid.
(d) No Benefit Plan is or has been a multiemployer plan within
the meaning of Section 3(37) of ERISA (a "Multiemployer Plan"). Neither the
Company nor any Commonly Controlled Entity has completely or partially withdrawn
from any Multiemployer Plan. No termination liability to the Pension Benefit
Guaranty
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Corporation or withdrawal liability to any Multiemployer Plan that is
material in the aggregate has been or is reasonably expected to be incurred with
respect to any Multiemployer Plan by the Company or any Commonly Controlled
Entity.
(e) The Company has made available to Acquiror complete copies,
as of the date hereof, of all of the Benefit Plans that have been reduced to
writing, together with all documents establishing or constituting any related
trust, annuity contract, insurance contract or other funding instrument. The
Company has made available to Acquiror complete copies of current plan
summaries, employee booklets, personnel manuals and other material documents or
written materials concerning the Benefit Plans that are in the possession of the
Company as of the date hereof.
(f) No claim, lawsuit, arbitration or other action has been
threatened or instituted against any Benefit Plan.
(g) Except as set forth in Schedule 3.21 or as otherwise
contemplated by the terms of this Agreement, the consummation of the
transactions contemplated by this Agreement will not give rise to any liability,
including, without limitation, liability for severance pay or termination pay,
or accelerate the time of payment or vesting or increase the amount of
compensation or benefits due to any employee, Contract Worker, director or
stockholder of the Company (whether current, former, or retired) or their
beneficiaries solely by reason of such transactions. No amounts payable under
any Benefit Plan will fail to be deductible for federal income tax purposes by
virtue of Section 280G or 162(m) of the Code.
(h) The Company does not maintain, contribute to, or in any way
provide for any benefits of any kind (other than under Section 4980B of the
Code, the Federal Social Security Act, or a plan qualified under Section 401(a)
of the Code) to any current or future retiree or terminee.
(i) Neither the Company nor any Commonly Controlled Entity has
(or could incur) any liability under Title IV of ERISA.
SECTION 3.22. TRANSACTIONS WITH RELATED PARTIES.
Except as set forth in Schedule 3.22, no present or former
officer, director, stockholder or person known by the Company to be an affiliate
of the Company, nor any person known by the Company to be an affiliate of any
such person, is currently a party to any transaction or agreement with the
Company, including any agreement providing for any loans, advances, the
employment of, furnishing of services by, rental of their respective Assets from
or to, or otherwise requiring payments to, any such officer, director,
stockholder or affiliate.
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SECTION 3.23. INSURANCE.
Schedule 3.23 contains a list of all insurance policies of title,
property, fire, casualty, liability, life, worker's compensation, libel and
slander, and other forms of insurance of any kind relating to the Assets or the
business and operations of the Company, true and correct copies of which have
been made available to Acquiror. All premiums with respect to such policies
covering all periods up to and including the date hereof have been paid, and no
notice of cancellation or termination has been received with respect to any such
policy. All such policies are in full force and effect. There are no pending
claims under any insurance policies and the Company is not aware of any facts
which would lead the Company to believe that the Company will likely receive a
claim under any insurance policies.
SECTION 3.24. BROKERS.
No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company.
SECTION 3.25. MINUTE BOOKS.
The minute books of the Company made available to Acquiror
contain a complete and accurate summary of all meetings of directors and
shareholders or actions by written consent since the time of incorporation of
the Company through the date of this Agreement, and reflect all transactions
referred to in such minutes accurately in all material respects.
SECTION 3.26. DISCLOSURE.
No representations or warranties by the Company in this Agreement
and no statement or information contained in the Schedules hereto or any
certificate furnished or to be furnished by the Company to Acquiror pursuant to
the provisions of this Agreement, contains or will contain any untrue statement
of a material fact or omits or will omit to state any fact necessary, in light
of the circumstances under which it was made, in order to make the statements
herein or therein not misleading.
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SECTION 3.27. PERMITS.
The Company holds all licenses and permits from Government
Entities which are necessary for the conduct of its business, except where the
failure to hold any such license or permit would not have a Company Material
Adverse Effect.
SECTION 3.28. REORGANIZATION TREATMENT.
Neither the Company nor any Stockholder has taken, agreed to
take, or intends to take any action that would cause the Merger to fail to
qualify as a reorganization within the meaning of Section 368 of the Code.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
In addition to the representations and warranties made by the
Stockholders in Article III hereof, each Stockholder hereby jointly and
severally, represents and warrants to Acquiror and Merger Sub as follows:
SECTION 4.1. AUTHORITY AND CAPACITY.
Such Stockholder has full legal right, capacity, power and
authority necessary to execute and deliver this Agreement and all other Related
Agreements, to perform the obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. This Agreement and
the Related Agreements have been duly executed and delivered by such Stockholder
and, assuming due authorization, execution and delivery by Acquiror, Merger Sub
and the other parties hereto and thereto, constitute legal, valid and binding
obligations of such Stockholder, enforceable in accordance with their respective
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws of general applicability
relating to or affecting creditor's rights generally and by the applications of
general principles of equity.
SECTION 4.2. ABSENCE OF VIOLATION.
The execution, delivery and performance by such Stockholder of
this Agreement and all other Related Agreements, the fulfillment of and the
compliance with the respective terms and provisions hereof and thereof, and the
consummation of the transactions contemplated hereby and thereby, do not and
will not (a) conflict with, or violate any provision of, any Laws applicable to
the Stockholder; or (b) conflict with, or result in any breach of, or constitute
a default under, any
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agreement to which such Stockholder is a party or by which such Stockholder or
such Stockholder's property is bound or affected.
SECTION 4.3. RESTRICTIONS AND CONSENTS.
Such Stockholder's execution and delivery of this Agreement and
the Related Agreements does not, and such Stockholder's performance of this
Agreement and the Related Agreements will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any third party
or any court, arbitral tribunal, administrative agency or commission or
Government Entity, except for the filing and recordation of appropriate merger
documents as required by the DGCL.
SECTION 4.4. TITLE TO CAPITAL STOCK.
The shares of Company Common Stock reflected on Schedule 3.4 as
being owned by such Stockholder are the only shares of voting stock owned
beneficially or of record by such Stockholder, and except as set forth in
Schedule 3.4, such Stockholder does not own any other options, warrants or
rights to acquire shares of any class of capital stock of the Company. Such
Stockholder has the sole power respecting voting and transfer of such
Stockholder's shares. The shares of Company Common Stock of such Stockholder are
now, and at all times prior to the Effective Time will be, owned as indicated on
Schedule 3.4 by such Stockholder, free and clear of all Encumbrances.
SECTION 4.5. NON-REGISTRATION OF SECURITIES; PURCHASE FOR
INVESTMENT ONLY.
(a) The Merger Stock issued to such Stockholder will be acquired
for investment for such Stockholder's own account, not as a nominee or agent,
and not with a view to the sale or distribution of any part thereof, and such
Stockholder has no present intention of selling, granting any participation in,
or otherwise distributing the same. Such Stockholder represents that the legal
and beneficial interest of the Merger Stock issued to such Stockholder
(including the Escrow Stock) will be held for such Stockholder's account only,
and neither in whole or in part for any other person. Such Stockholder further
represents that such Stockholder has no present contract, undertaking, agreement
or arrangement with any person to sell, transfer, or grant participation to such
person or to any third person, with respect to any of the Merger Stock.
(b) Such Stockholder understands and acknowledges that the
offering of the Merger Stock pursuant to the Merger Agreement is being conducted
on the basis of an exemption from registration under the Securities Act and that
the
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Acquiror's reliance upon such exemption is predicated upon such Stockholder's
representations.
SECTION 4.6. ABILITY OF STOCKHOLDER TO EVALUATE INVESTMENT AND BEAR
ECONOMIC RISK.
Such Stockholder further represents that he: (a) has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of such Stockholder's prospective investment in
the Merger Stock and such Stockholder's liabilities and obligations under this
Agreement; (b) has received all of the information he has requested from the
Acquiror for deciding whether to accept the Merger Stock; (c) has the ability to
bear the economic risks of such Stockholder's prospective investment; (d) is
able, without materially impairing his financial condition, to hold the Merger
Stock for an indefinite period of time and to suffer complete loss on his
investment; and (e) has been given sufficient time and opportunity to seek the
advice of counsel regarding such Stockholder's liabilities and obligations
hereunder.
SECTION 4.7. WAIVER OF DISSENTER'S RIGHTS.
Such Stockholder, by executing this Agreement, approves the
Merger and hereby waives any dissenter's rights to receive payment of the
appraisal value of such shares of the Company Common Stock held by them pursuant
to Section 262 of the DGCL.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror represents and warrants to the Company as follows:
SECTION 5.1. ORGANIZATION AND QUALIFICATION.
Acquiror is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Acquiror has the
requisite power and authority to own, lease and operate its Assets and
properties and to carry on its business as it is now being conducted and to
perform the terms of this Agreement and the transaction
contemplated hereby. Acquiror is duly qualified to conduct its business, and is
in good standing, in each jurisdiction where the ownership or leasing of its
properties or the nature of its activities in connection with the conduct of its
business makes such qualification necessary.
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<PAGE> 31
SECTION 5.2. CERTIFICATE OF INCORPORATION AND BYLAWS.
Acquiror has heretofore delivered to the Company a complete and
correct copy of the certificate of incorporation and the bylaws of Acquiror,
each as amended to date. Such certificate of incorporation and bylaws are in
full force and effect. Acquiror is not in violation of any of the provisions of
its certificate of incorporation or bylaws.
SECTION 5.3. CAPITALIZATION.
The authorized capital stock of Acquiror consists of: (i) twenty
million (20,000,000) shares of Acquiror Common Stock, of which eight million
nine hundred forty-six thousand eight hundred seventy-one (8,946,871) shares are
issued and outstanding; and (ii) five million (5,000,000) shares of preferred
stock, par value $.01 per share, of which two million twelve thousand eight
hundred sixty-one (2,012,861) shares are issued and outstanding. Except as set
forth in Schedule 5.3 there are no options, warrants or other rights,
agreements, arrangements or commitments of any character relating to the issued
or unissued capital stock of Acquiror or obligating Acquiror to issue or sell
any shares of capital stock of, or other equity interests in Acquiror, including
any securities directly or indirectly convertible into or exercisable or
exchangeable for any capital stock or other equity securities of Acquiror. There
are no outstanding obligations of Acquiror to repurchase, redeem or otherwise
acquire any shares of its capital stock or make any investment (in the form of a
loan, capital contribution or otherwise) in any other person. All of the issued
and outstanding shares of Acquiror Common Stock have been, and the shares of
Acquiror Common Stock to be issued in the Merger will be, duly authorized and
validly issued in accordance with applicable laws and are and will be fully paid
and nonassessable and not subject to preemptive rights. Except as set forth in
Schedule 5.3, no shares of capital stock of Acquiror have been reserved for any
purpose.
SECTION 5.4. AUTHORITY.
Acquiror has the necessary corporate power and authority to enter
into this Agreement and the Related Agreements, to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the Related
Agreements by Acquiror and the consummation by Acquiror of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of Acquiror are
necessary to authorize this Agreement and the Related Agreements or to
consummate the transactions contemplated hereby and thereby. This Agreement and
the Related Agreements have been duly executed and delivered by Acquiror and,
assuming the due authorization, execution and delivery by the Company,
constitute legal, valid and
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binding obligations of Acquiror, enforceable in accordance with their terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws of general applicability
relating to or affecting creditors' rights generally and by the application of
general principles of equity.
SECTION 5.5. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement and the Related
Agreements by Acquiror do not, and the performance by Acquiror of its
obligations under this Agreement and the Related Agreements will not, (i)
conflict with or violate the certificate of incorporation, bylaws or other
organizational document of Acquiror, (ii) conflict with or violate any Laws
applicable to Acquiror or its Assets, or (iii) result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Acquiror is a party or by which Acquiror is bound, or by which any of
its Assets is subject.
(b) The execution and delivery of this Agreement and the Related
Agreements by Acquiror does not, and the performance of this Agreement by
Acquiror will not, require any consent, approval, authorization or permit of, or
filing with or notification to, any third party or any court, arbitral tribunal,
administrative agency or commission or Government Entity, except for the filing
and recordation of appropriate merger documents as required by the DGCL.
SECTION 5.6. ACQUIROR FINANCIAL STATEMENTS; NO LIABILITIES.
The Acquiror has furnished to the Company (a) the audited balance
sheets of the Acquiror as of December 31, 1995, and 1996, and the related
audited statements of income and cash flows for the fiscal years then ended
(such audited financial statements, including the schedules and notes thereto,
collectively, the "Acquiror Audited Financial Statements"); and (b) the
unaudited balance sheet of the Acquiror as of December 31, 1997, and the
unaudited statements of income and cash flows for the year then ended (such
unaudited financial statements, collectively, the "Acquiror Unaudited Financial
Statements" and together with the Audited Acquiror Financial Statements, the
"Acquiror Financial Statements"). The Acquiror Financial Statements referred to
in this Section 5.6, including the related schedules and notes, present fairly
the financial condition of the Acquiror as of their respective dates and the
results of operations and cash flows for the respective periods indicated and
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis (except as otherwise noted in the notes thereto
and that the Acquiror Unaudited Financial Statements do not contain all required
footnotes and are subject to normal recurring year-end adjustments). Except as
reflected in the Acquiror Unaudited Financial Statements as of the
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Balance Sheet Date, Acquiror has no liabilities, contingent or absolute, matured
or unmatured, known or unknown, except for liabilities incurred in the ordinary
course of business since the Balance Sheet Date, none of which, individually or
in the aggregate, would have an Acquiror Material Adverse Effect.
SECTION 5.7. ABSENCE OF CERTAIN CHANGES OR EVENTS.
Since the Balance Sheet Date, there has been no Acquiror Material
Adverse Effect and Acquiror has conducted its business in the ordinary course,
and Acquiror has not (a) paid any dividend or distribution in respect of, or
redeemed or repurchased any of, its capital stock; (b) issued any capital stock,
bonds or other corporate securities or debt instruments, granted any options,
warrants or other rights calling for the issuance thereof, or borrowed any
funds; (c) incurred loss of, or significant injury to, any of the Assets as the
result of any fire, explosion, flood, windstorm, earthquake, labor trouble,
riot, accident, act of God or public enemy or armed forces, or other casualty;
(d) incurred, or become subject to, any obligation or liability (absolute or
contingent, matured or unmatured, known or unknown), except current liabilities
incurred in the ordinary course of business; (e) mortgaged, pledged or subjected
to any Encumbrance any of the Assets; (f) sold, exchanged, transferred or
otherwise disposed of any of its Assets except in the ordinary course of
business, or canceled any debts or claims; (g) written down the value of any
Assets or written off as uncollectible any accounts receivable, except write
downs and write-offs in the ordinary course of business, none of which,
individually or in the aggregate, are material; (h) entered into any
transactions other than in the ordinary course of business; (i) made any change
in any method of accounting or accounting practice; or (j) made any agreement to
do any of the foregoing.
SECTION 5.8. ABSENCE OF LITIGATION.
There are (a) no claims, actions, suits, investigations, or
proceedings pending or, to Acquiror's knowledge, threatened against Acquiror or
any of its properties or Assets before any court, administrative, governmental,
arbitral, mediation or regulatory authority or body, domestic or foreign, that
challenge or seek to prevent, enjoin, alter or materially delay the transactions
contemplated hereby, or which, if determined adversely against Acquiror or
Merger Sub would have an Acquiror Material Adverse Effect, and (b) no judgments,
decrees, injunctions or orders of any Government Entity or arbitrator
outstanding against Acquiror or any of its properties or Assets which would have
an Acquiror Material Adverse Effect. The United States Securities and Exchange
Commission (the "Commission") has not issued an order preventing or suspending
the right of the Acquiror or any affiliate of the Acquiror from being engaged in
any offer or sale of any securities, nor instituted proceedings for that purpose
nor to Acquiror's knowledge, are any such proceedings contemplated by the
Commission.
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SECTION 5.9. TAXES AND ASSESSMENTS.
Except as set forth on Schedule 5.9, Acquiror has duly and timely
paid all Taxes which have become due and payable by it. Acquiror has not
received notice of, nor does Acquiror have any knowledge of, any notice of
deficiency or assessment or proposed deficiency or assessment from any taxing
Government Entity. To Acquiror's knowledge, there are no audits pending and
there are no outstanding agreements or waivers by Acquiror that extend the
statutory period of limitations applicable to any federal, state, local, or
foreign tax returns or Taxes.
SECTION 5.10. PERMITS.
Acquiror holds all licenses and permits from Government Entities
which are necessary for the conduct of its business, except where the failure to
hold any such license or permit would not have an Acquiror Material Adverse
Effect.
SECTION 5.11. LABOR.
(a) Acquiror is in compliance in all material respects with all
provisions of ERISA presently applicable to Acquiror; no "reportable event" (as
defined in ERISA) has occurred with respect to any "pension plan" (as defined in
ERISA) of Acquiror for which the Acquiror would have any material liability;
Acquiror has not incurred and does not reasonably expect to incur material
liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Section 412 or 4971 of the Code; and
each "pension plan" for which Acquiror would have any liability that is intended
to be qualified under Section 401(a) of the Code is so qualified in all material
respects and, to Acquiror's knowledge, nothing has occurred, whether by action
or by failure to act, which would reasonably be expected to cause the loss of
such qualification.
(b) No material labor dispute between Acquiror and its employees
exists as of the date hereof, and Acquiror is not aware that any material labor
dispute with its employees is imminent.
SECTION 5.12. BROKERS.
No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Acquiror.
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SECTION 5.13. DISCLOSURE.
No representations or warranties by Acquiror in this Agreement
and no statement or information contained in the Schedules hereto or any
certificate furnished or to be furnished by Acquiror to the Company pursuant to
the provisions of this Agreement, contains or will contain any untrue statement
of a material fact or omits or will omit to state any fact necessary, in light
of the circumstances under which it was made, in order to make the statements
herein or therein not misleading.
SECTION 5.14. REORGANIZATION TREATMENT.
Neither Acquiror nor the Merger Sub has taken, agreed to take, or
intends to take any action that would cause the Merger to fail to qualify as a
reorganization within the meaning of Section 368 of the Code.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
OF MERGER SUB
Acquiror and Merger Sub jointly and severally represent and
warrant to the Company and the Stockholders as follows:
SECTION 6.1. ORGANIZATION AND QUALIFICATION.
Merger Sub is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. Merger Sub was formed
solely for the purpose of engaging in the transactions contemplated by this
Agreement. As of the date of this Agreement, except for obligations or
liabilities incurred in connection with its incorporation or organization and
the transactions contemplated by this Agreement, Merger Sub has not incurred,
directly or indirectly, any obligations or liabilities or engaged in any
business activities of any type or kind whatsoever or entered into any
agreements or arrangements with any person.
SECTION 6.2. CERTIFICATE OF INCORPORATION AND BYLAWS.
Merger Sub has heretofore made available to the Company a
complete and correct copy of the certificate of incorporation and the bylaws of
Merger Sub, each as amended to date. Such certificate of incorporation and
bylaws are in full force and effect. Merger Sub is not in violation of any of
the provisions of its
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certificate of incorporation or bylaws or other organizational or governing
document.
SECTION 6.3. AUTHORITY.
Merger Sub has the necessary corporate power and authority to
enter into this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Merger Sub and the consummation by Merger Sub of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of
Merger Sub are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Merger Sub and, assuming the due authorization, execution and
delivery by the Company and Acquiror, constitutes a legal, valid and binding
obligation of Merger Sub, enforceable in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general applicability relating to or
affecting creditors' rights generally and by the application of general
principles of equity.
SECTION 6.4. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by Merger Sub do
not, and the performance by Merger Sub of its obligations under this Agreement
will not, (i) conflict with or violate the certificate of incorporation or
bylaws of Merger Sub, (ii) conflict with or violate any Laws applicable to
Merger Sub or its Assets, or (iii) result in any breach of or constitute a
default under any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which Merger Sub
is a party or by which Merger Sub is bound, or by which any of its Assets is
subject.
(b) The execution and delivery of this Agreement by Merger Sub
does not, and the performance of this Agreement by Merger Sub will not, require
any consent, approval, authorization or permit of, or filing with or
notification to, any Government Entity, except for the filing and recordation of
appropriate merger documents as required by the DGCL.
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ARTICLE VII
COVENANTS
SECTION 7.1. AFFIRMATIVE COVENANTS OF THE COMPANY.
The Company hereby covenants and agrees that, prior to the
Effective Time, unless otherwise expressly contemplated by this Agreement or
consented to in writing by Acquiror, the Company shall (a) operate its business
in the usual and ordinary course consistent with past practices and in
accordance with applicable Laws; (b) preserve substantially intact its business
organization, maintain its rights and contracts, use its best efforts to retain
the services of its respective principal officers and key employees and maintain
its relationship with its respective suppliers, contractors, distributors,
customers and others having business relationships with it; (c) keep its Assets
in as good repair and condition as at present, ordinary wear and tear excepted;
and (d) keep in full force and effect insurance comparable in amount and scope
of coverage to that currently maintained.
SECTION 7.2. NEGATIVE COVENANTS OF THE COMPANY.
Except as expressly contemplated by this Agreement or otherwise
consented to in writing by Acquiror, from the date hereof until the Effective
Time, the Company shall not do any of the following:
(a) (i) increase the compensation payable to or to become payable
to any of its directors, officers or employees; (ii) grant any severance or
termination pay to, or enter into or modify any employment or severance
agreement with, any of its directors, officers or employees; or (iii) adopt or
amend any employee benefit plan or arrangement, except as may be required by
applicable Law;
(b) declare, set aside or pay any dividend on, or make any other
distribution in respect of, any of its capital stock;
(c) (i) redeem, repurchase or otherwise reacquire any share of
its capital stock or any securities or obligations convertible into or
exchangeable for any share of its capital stock, or any options, warrants or
conversion or other rights to acquire any shares of its capital stock or any
such securities or obligations; (ii) effect any reorganization or
recapitalization; or (iii) split, combine or reclassify any of its capital stock
or issue or authorize or propose the issuance of any other securities in respect
of, in lieu of, or in substitution for, shares of its capital stock;
(d) (i) issue, deliver, award, grant or sell, or authorize or
propose the issuance, delivery, award, grant or sale (including the grant of any
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Encumbrances) of, any shares of any class of its capital stock (including shares
held in treasury) or other equity securities, any securities or obligations
directly or indirectly convertible into or exercisable or exchangeable for any
such shares, or any rights, warrants or options to acquire, any such shares or
securities or any rights, warrants or options directly or indirectly to acquire
any such shares or securities; or (ii) amend or otherwise modify the terms of
any such securities, obligations, rights, warrants or options in a manner
inconsistent with the provisions of this Agreement or the effect of which shall
be to make such terms more favorable to the holders thereof;
(e) acquire or agree to acquire, by merging or consolidating
with, by purchasing an equity interest in or a portion of the Assets of, or by
any other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or agree
to acquire any Assets of any other person (other than the purchase of inventory
in the ordinary course of business and consistent with past practice), or make
or commit to make any capital expenditures;
(f) sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge,
transfer or otherwise dispose of, any of its Assets;
(g) propose or adopt any amendments to its certificate of
incorporation or bylaws;
(h) (i) change any of its methods of accounting in effect at
January 1, 1997, or (ii) make or rescind any express or deemed election relating
to taxes, settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to taxes, or change
any of its methods of reporting income or deductions for federal income tax
purposes from those employed in the preparation of the federal income tax
returns for the taxable years ending December 31, 1996 and 1997, except, in the
case of clause (i) or clause (ii), as may be required by law or generally
accepted accounting principles, consistently applied;
(i) prepay, before the scheduled maturity thereof, any of its
long-term debt, or incur any obligation for borrowed money, whether or not
evidenced by a note, bond, debenture or similar instrument, other than trade
payables incurred in the ordinary course of business consistent with past
practices.
(j) enter into or modify in any material respect any Contract;
(k) take any action that would or could reasonably be expected to
result in any of its representations and warranties set forth in this Agreement
being
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untrue or in any of the conditions to the Merger set forth in Article IX not
being satisfied; or
(l) agree in writing or otherwise to do any of the foregoing.
SECTION 7.3. NEGATIVE COVENANTS OF THE STOCKHOLDERS.
Each Stockholder covenants and agrees that such Stockholder will
not sell, transfer, pledge, assign or otherwise encumber or dispose of or enter
into any contract, option or other agreement with respect to, the sale,
transfer, pledge, assignment or other encumbrance or disposition of, any shares
of Company Common Stock or any other voting interests in the Company now owned
or hereafter acquired beneficially or of record by such Stockholder, except for
the conversion of any such shares in accordance with the terms of this
Agreement.
ARTICLE VIII
ADDITIONAL AGREEMENTS
SECTION 8.1. CONSENTS AND APPROVALS; FILINGS AND NOTICES.
The Company shall use reasonable efforts to as promptly as
possible make all filings with, provide all notices to and obtain all consents
and approvals from third parties required to be obtained by the Company in
connection with the transactions contemplated hereunder, including all filings
with, notices to and consents and approvals from any Government Entities and
other persons.
SECTION 8.2. ACCESS TO INFORMATION.
The Company has afforded and shall afford Acquiror and its
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to (a) all of the
Company's properties, books, contracts, commitments and records, and (b) all
other information concerning the business, properties and personnel (subject to
restrictions imposed by applicable law) of the Company and as Acquiror may
reasonably request. The Company agrees to provide to Acquiror and its
accountants, counsel and other representatives copies of internal financial
statements promptly upon request. No information or knowledge obtained in any
investigation pursuant to this Section 8.2 shall affect or be deemed to modify
any representation or warranty of the Company or the Stockholders contained
herein. In the event of the termination of this Agreement, Acquiror shall
destroy or deliver to the Company all confidential documents, work papers and
other materials, and all copies thereof, obtained by Acquiror from the Company
as a result of this
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Agreement or in connection herewith, whether obtained before or after the
execution and delivery of this Agreement.
SECTION 8.3. CONFIDENTIALITY.
Each of the parties hereto hereby agrees that any and all
information or knowledge obtained pursuant to this Agreement, or pursuant to the
negotiation and execution of this Agreement or the effectuation of the
transactions contemplated hereby shall be subject to the Mutual Non-Disclosure
Agreement dated November 5, 1997 (the "Nondisclosure Agreement") and the Letter
of Intent dated December 15, 1997 (the "Letter of Intent").
SECTION 8.4. FURTHER ACTION; REASONABLE BEST EFFORTS.
Subject to the terms and conditions herein provided, each of the
parties shall use reasonable best efforts to take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary, proper or
advisable under applicable Laws or otherwise to consummate and make effective
the transactions contemplated by this Agreement as promptly as practicable,
including using its reasonable best efforts to obtain all licenses, permits,
consents, approvals, authorizations, qualifications and orders of Government
Entities and parties to contracts with the Company and Acquiror as are necessary
for the transactions contemplated herein.
SECTION 8.5. PUBLIC ANNOUNCEMENTS.
Acquiror and the Company agree that neither will issue any press
release or otherwise make any public statements concerning this Agreement or the
transactions contemplated hereby without the prior written consent of the other
party.
SECTION 8.6. NO SOLICITATION.
During the term of this Agreement, neither the Company, any
Stockholder nor any of their respective affiliates or any person acting on
behalf of such party shall (a) solicit or favorably respond to indications of
interest from, or enter into negotiations with, any third party for any proposed
merger, consolidation, sale or acquisition of the Company, the Assets or the
Company Common Stock or (b) furnish or cause to be furnished any nonpublic
information concerning the business to any person other than in the ordinary
course of business or pursuant to applicable Laws and after prior written notice
to Acquiror.
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SECTION 8.7. EMPLOYEES.
(a) The Company shall, subject to the terms and conditions of
this Agreement, use its reasonable efforts to encourage the current employees of
the Company and Contract Workers to continue their employment and relationship
with the Company following the Effective Time.
(b) Acquiror agrees that, as of the Effective Time, Acquiror
shall use reasonable efforts to cause the Surviving Corporation to continue to
employ or retain all of the employees and Contract Workers of the Company, it
being understood that nothing in this Agreement shall be deemed to create any
employment status other than employment at will.
SECTION 8.8. POOLING ACCOUNTING.
Acquiror and the Company shall each use its reasonable efforts to
cause the business combination to be effected by the Merger to be accounted for
as a pooling of interests. Each of Acquiror and the Company shall use its
reasonable efforts to cause its Affiliates not to take any action that would
adversely affect the ability of Acquiror to account for the business combination
to be effected by the Merger as a pooling of interests.
SECTION 8.9. ACQUIROR FINANCIAL STATEMENTS AND OTHER
INFORMATION
Commencing with the fiscal quarter ending March 31, 1998 and for
each fiscal quarter thereafter for so long as each Stockholder shall own at
least 80% of the Acquiror Common Stock issued to him in the Merger, Acquiror
shall deliver to such Stockholder an unaudited balance sheet and related
statements of operations and cash flows for such quarter. In addition, Acquiror
shall use reasonable efforts to keep the Stockholders' Representative informed
of the status of Acquiror's initial public offering. The provisions of this
Section 8.9 shall automatically terminate upon the completion of Acquiror's
initial public offering.
SECTION 8.10. STOCKHOLDERS' COVENANT NOT TO COMPETE
(a) Each Stockholder acknowledges that the business of the
Company and Acquiror are conducted throughout the United States, and
acknowledges and recognizes the highly competitive nature of the industry in
which such business is involved. Accordingly, in consideration of the premises
contained herein, the consideration to be received by the Stockholders hereunder
and their Employment Agreements, and in consideration of and as an inducement to
Acquiror to consummate the transactions contemplated hereby, each Stockholder
covenants
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<PAGE> 42
and agrees that during the Noncompete Period (as defined below), such
Stockholder shall not, directly or indirectly: (i) engage in, participate in,
represent in any way or be connected with, as officer, director, partner, owner,
employee, agent, sales representative, distributor, independent contractor,
consultant, proprietor, stockholder or otherwise, any Competitive Business (as
defined below) in the United States; (ii) solicit (other than on behalf of the
Company or Acquiror) business or contracts for any products or services of the
type provided, developed or under development by the Company or Acquiror during
the Noncompete Period, from or with (A) any person or entity which was a client
of the Company or Acquiror for such products or services as of, or within twelve
(12) months prior to the expiration of, the Noncompete Period, or (B) any
prospective client which the Company or Acquiror was actively soliciting as of,
or within twelve (12) months prior to the expiration of, the Noncompete Period;
(iii) solicit or induce or attempt to solicit or induce any employee of the
Company or Acquiror to leave the employ of the Company or Acquiror for any
reason whatsoever, or hire any employee or any person who was an employee of the
Company or Acquiror within the twelve (12) month period prior to such hiring
(provided it shall not be a breach of this Section 8.10 to unknowingly hire any
such employee or person if upon notice and evidence of such former employment,
such Shareholder or other entity terminates its employment of, and any other
business relationship with, such individual); or (iv) interfere with, disrupt or
attempt to disrupt the relationship, contractual or otherwise, between the
Company or Acquiror and any third party, including, without limitation, any
customer, supplier or employee of the Company or Acquiror.
The "Noncompete Period" for each Stockholder shall mean the
period from and after the Effective Time until the later to occur of (i) two (2)
years after the Effective Time, or (ii) one (1) year after the effective date of
termination of such Stockholder's employment or Employment Agreement with the
Company or Acquiror. A "Competitive Business" shall mean any business in which
the Company or Acquiror is engaged at any time during the Noncompete Period,
including without limitation, the business of providing internet-based solutions
for business.
(b) The covenants contained in this Section 8.10 shall be
construed as a series of separate and severable covenants which are identical in
terms except for geographic coverage. The parties hereto agree that if in any
proceeding, the tribunal shall refuse to enforce fully any covenants contained
herein because such covenants cover too extensive a geographic area or too long
a period of time or for any other reason whatsoever, any such covenant shall be
deemed amended to the extent (but only to the extent) required by law. Each
party acknowledges that the covenants contained in this Section 8.10 are
reasonable and necessary to protect the business and interests of the Company
and Acquiror and that any violation of these covenants would cause substantial
irreparable injury. Accordingly, each party agrees that a remedy at law for any
breach of the foregoing covenants would be
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<PAGE> 43
inadequate and that the Company and Acquiror, in addition to any other remedies
available, shall be entitled to obtain preliminary and permanent injunctive
relief to secure specific performance of such covenants and to prevent a breach
or contemplated breach of such covenants without the necessity of proving actual
damage.
(c) The obligations of each Stockholder under this Section 8.10
shall survive the Effective Time of the Merger and the termination of such
Stockholder's Employment Agreement.
ARTICLE IX
CLOSING CONDITIONS
SECTION 9.1. CONDITIONS TO OBLIGATIONS OF THE PARTIES.
The respective obligations of the parties hereto to effect the
Merger and the other transactions contemplated herein shall be subject to the
satisfaction at or prior to the Effective Time of the following condition, which
may be waived, in whole or in part, to the extent permitted by applicable law:
(a) Legal Proceedings. No action or proceeding before any
Government Entity shall have been instituted or threatened (and not subsequently
settled, dismissed, or otherwise terminated) which is reasonably expected to
restrain, prohibit or invalidate the Merger or other transactions contemplated
by this Agreement other than an action or proceeding instituted or threatened by
a party hereto.
SECTION 9.2. ADDITIONAL CONDITIONS TO OBLIGATIONS OF ACQUIROR.
The obligations of Acquiror and Merger Sub to effect the Merger
and the other transactions contemplated in this Agreement are also subject to
the fulfillment at or prior to the Effective Time of the following conditions,
any or all of which may be waived, in whole or in part, to the extent permitted
by applicable law:
(a) Representations and Warranties. The representations and
warranties of the Company and the Stockholders made in this Agreement shall be
true and correct in all material respects, on and as of the Effective Time with
the same effect as though such representations and warranties had been made on
and as of the Effective Time (provided that any representation or warranty
contained herein that is qualified by a materiality standard shall not be
further qualified hereby), except for representations and warranties that speak
as of a specific date or time (which need only be true and correct in all
material respects as of such date
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<PAGE> 44
or time). Acquiror shall have received a certificate signed on behalf of the
Company by the chief executive officer of the Company to that effect with
respect to the Company's representations and warranties and a certificate signed
by each Stockholder to that effect with respect to such Stockholder's
representations and warranties.
(b) Agreements and Covenants. The agreements and covenants of the
Company and the Stockholders required to be performed on or before the Effective
Time shall have been performed in all material respects. Acquiror shall have
received a certificate signed on behalf of the Company by the chief executive
officer of the Company to that effect with respect to the Company's covenants
and agreements and a certificate signed by each Stockholder to that effect with
respect to such Stockholder's covenants and agreements.
(c) No Company Material Adverse Effect. Since the date of this
Agreement, no Company Material Adverse Effect shall have occurred and be
continuing.
(d) Required Consents. The Company shall have delivered to
Acquiror at or before Closing all consents or notices necessary to be obtained
or made by the Company in connection with the transactions contemplated by this
Agreement.
(e) Pooling of Interests. Acquiror shall have received reasonable
assurances from Price Waterhouse, in form and substance reasonably satisfactory
to Acquiror that the Merger will qualify as a "pooling of interests" in
accordance with generally accepted accounting principles.
(f) Escrow Agreement. Acquiror, Merger Sub, the Escrow Agent and
the Stockholders' Representative shall have entered into the Escrow Agreement at
or before Closing in a form substantially similar to Exhibit A, pursuant to
which the Escrow Stock shall have been retained in escrow.
(g) Legal Opinion. Acquiror shall have received an opinion from
Pitney, Hardin, Kipp & Szuch, counsel to the Company, substantially in the form
of Exhibit B hereto.
(h) Employment Agreements. The Employment Agreements shall remain
in full force and effect.
(i) Other Closing Documents. The Company shall have executed
and/or delivered to Acquiror such additional documents, certificates, opinions
and agreements as Acquiror may reasonably request.
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<PAGE> 45
SECTION 9.3. ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY AND
THE STOCKHOLDERS.
The obligations of the Company and the Stockholders to effect the
Merger and the other transactions contemplated in this Agreement are also
subject to the fulfillment at or prior to the Effective Time of the following
conditions any or all of which may be waived, in whole or in part, to the extent
permitted by applicable law:
(a) Representations and Warranties. The representations and
warranties of Acquiror and Merger Sub made in this Agreement shall be true and
correct in all material respects, on and as of the Effective Time with the same
effect as though such representations and warranties had been made on and as of
the Effective Time (provided that any representation or warranty contained
herein that is qualified by a materiality standard shall not be further
qualified hereby), except for representations and warranties that speak as of a
specific date or time other than the Effective Time (which need only be true and
correct in all material respects as of such date or time). The Company and the
Stockholders shall each have received a certificate of the chief executive
officer of Acquiror to that effect.
(b) Agreements and Covenants. The agreements and covenants of
Acquiror and Merger Sub required to be performed on or before the Effective Time
shall have been performed in all material respects. The Company and the
Stockholders shall each have received a certificate of the chief executive
officer of Acquiror to that effect.
(c) Legal Opinion. The Stockholders shall each have received (i)
an opinion from Acquiror's General Counsel, substantially in the form of Exhibit
C-1 hereto, and (ii) an opinion from Hogan & Hartson L.L.P., substantially in
the form of Exhibit C-2 hereto.
(d) No Acquiror Material Adverse Effect. Since the date of this
Agreement, no Acquiror Material Adverse Effect shall have occurred and be
continuing.
SECTION 9.4. WAIVER.
To the extent any condition precedent set forth in this Article
IX has not been satisfied as of the occurrence of the Effective Time, such
condition precedent shall be deemed to have been waived by the party which could
have required the same; provided, however, that the acceptance by any party
hereto of delivery of the certificates required by Sections 9.2(a) and (b) and
Sections 9.3(a) and (b) shall not be deemed to waive any rights of such party
pursuant to Article XI hereof.
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ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
SECTION 10.1. TERMINATION.
This Agreement may be terminated at any time prior to the
Effective Time:
(a) by mutual written consent of Acquiror and the Company;
(b) by Acquiror if the Company or any Stockholder shall have
breached any of its representations, warranties, covenants or agreements
contained in this Agreement, or any such representation or warranty shall have
become untrue, in any such case such that the conditions precedent to the
obligations of Acquiror to close specified in Section 9.2 will not be satisfied
and such breach has not been promptly cured within thirty (30) days following
receipt by the Company of written notice of such breach;
(c) by either the Company or any Stockholder if Acquiror or
Merger Sub shall have breached any of its representations, warranties, covenants
or agreements contained in this Agreement, or any such representation or
warranty shall have become untrue, in any such case such that the conditions
precedent to the obligation of the Company and the Stockholders to close
specified in Section 9.3, will not be satisfied and such breach has not been
promptly cured within thirty (30) days following receipt by Acquiror of written
notice of such breach;
(d) by either Acquiror or the Company if any decree, permanent
injunction, judgment, order or other action by any court of competent
jurisdiction or any Government Entity preventing or prohibiting consummation of
the Merger shall have become final and nonappealable; or
(e) by either Acquiror or the Company if the Effective Time has
not occurred on or prior to March 31, 1998 (unless such date shall be extended
by the mutual written consent of the parties); provided, that the right to
terminate this Agreement under this Section 10.1(e) shall not be available to
any party whose breach of representations, warranties, covenants or agreements
contained in this Agreement has been the sole cause of, or resulted in, the
failure of the Effective Time to occur by such date or the inability of such
condition to be satisfied.
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SECTION 10.2. EFFECT OF TERMINATION.
If this Agreement is terminated pursuant to Section 10.1, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of any party hereto, except that the provisions of
Sections 3.25, 8.3 and 12.11 shall not be extinguished but shall survive such
termination, and nothing herein shall relieve any party from liability for any
breach hereof and each party shall be entitled to any remedies at law or in
equity for such breach.
SECTION 10.3. AMENDMENT.
This Agreement may not be amended except by an instrument in
writing signed by the Company, Acquiror, Merger Sub and the Stockholders'
Representative.
SECTION 10.4. WAIVER.
At any time prior to the Effective Time, one party may (a) extend
the time for the performance of any of the obligations or other acts of the
other party, (b) waive any inaccuracies in the representations and warranties
contained in this Agreement or in any document delivered pursuant to this
Agreement of the other party and (c) waive compliance by the other party with
any of the agreements or conditions contained in this Agreement. Any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party.
ARTICLE XI
SURVIVAL OF REPRESENTATIONS; ESCROW ARRANGEMENTS;
REMEDIES
SECTION 11.1. SURVIVAL OF REPRESENTATIONS.
All representations, warranties, covenants, indemnities and other
agreements made by any party to this Agreement herein, shall be deemed made on
and as of the Effective Time as though such representations, warranties,
covenants, indemnities and other agreements were made on and as of such date,
and all such representations, warranties, covenants, indemnities and other
agreements shall survive for a period of eighteen (18) months after the
Effective Time; provided, that the covenants and agreements of the Stockholders
contained in Section 8.10 hereof shall survive for the period of time set forth
therein. Notwithstanding anything herein to the contrary, any representation,
warranty, covenant, agreement or indemnity which is the subject of a claim which
is asserted in writing prior to the
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expiration of the applicable period set forth above shall survive solely with
respect to such claim until the final resolution thereof.
SECTION 11.2. INDEMNIFICATION BY THE STOCKHOLDERS; ESCROW
ARRANGEMENTS.
Each Stockholder, jointly and severally, hereby agrees to
indemnify and hold Acquiror and the Surviving Corporation (collectively, the
"Acquiror Indemnified Persons") harmless against all Losses resulting from,
imposed upon or incurred by any Acquiror Indemnified Person, directly or
indirectly, as a result of (a) any inaccuracy or breach of a representation or
warranty of the Company or any Stockholder, or (b) any failure by the Company or
any Stockholder to perform or comply with any covenant or agreement contained in
this Agreement or in any Related Agreement; provided, however, that except for
Losses arising out of a willful or intentional breach of representations,
warranties or covenants by the Company or any Stockholder, none of which shall
be subject to the following limitation, no Stockholder shall have liability
under Section 11.2 unless and until the aggregate amount of claims for Losses
asserted under such Section exceeds thirty thousand dollars ($30,000) and then
only to the extent of such excess (subject to the other limitations set forth
herein). The Escrow Stock shall be available to the Acquiror Indemnified Persons
to compensate them for any such Losses pursuant to the terms and conditions of
the Escrow Agreement. The Escrow Stock shall in no way be deemed to be a
limitation on the recourse available to the Acquiror Indemnified Persons for the
indemnification obligations of the Stockholders hereunder; provided, however, in
no event shall the aggregate amount of liability of the Stockholders for Losses
in excess of the Escrow Stock (except for Losses arising out of a willful or
intentional breach of representations, warranties or covenants by the Company or
any Stockholder), exceed two hundred fifty-five thousand one hundred ninety-five
dollars ($255,195). No Losses shall be deemed to have been paid which might
otherwise be subject to indemnification hereunder to the extent of any proceeds
Acquiror or the Surviving Corporation receives from any insurance policies owned
by any Stockholder or the Company prior to the Effective Time.
SECTION 11.3. INDEMNIFICATION BY ACQUIROR.
Acquiror hereby agrees to indemnify and hold the Stockholders
harmless against all Losses resulting from, imposed upon or incurred by any
Stockholder, directly or indirectly, as a result of (a) any inaccuracy or breach
of a representation or warranty of Acquiror or Merger Sub or (b) any failure by
Acquiror or Merger Sub to perform or comply with any covenant or agreement
contained in this Agreement or in any Related Agreement; provided, however, that
except for Losses arising out of a willful or intentional breach of
representations, warranties or covenants by Acquiror, none of which shall be
subject to the following limitation,
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<PAGE> 49
Acquiror shall not have any liability under Section 11.3 except to the extent
that the aggregate amount of claims for Losses asserted under such Section
exceeds Thirty Thousand Dollars ($30,000) and then only to the extent of such
excess (subject to the other limitations set forth herein). No Losses shall be
deemed to have been paid which might otherwise be subject to indemnification
hereunder to the extent of any proceeds any Stockholder receives from any
insurance policies owned by the Company or any Stockholder prior to the
Effective Time. The aggregate amount of liability of Acquiror for Losses
asserted under this Section 11.3 (except for Losses arising out of a willful or
intentional breach of representations, warranties or covenants by Acquiror),
shall not exceed five hundred ten thousand three hundred ninety dollars
($510,390).
SECTION 11.4. THIRD PARTY CLAIMS.
The obligations and liabilities of the parties hereto with
respect to their respective indemnities pursuant to this Article XI, resulting
from any Third Party Claim shall be subject to the following terms and
conditions:
(a) The party seeking indemnification (the "Indemnified Party")
must give the other party (the "Indemnifying Party"), notice of any Third Party
Claim which is asserted against, resulting to, imposed upon or incurred by the
Indemnified Party and which may give rise to liability of the Indemnifying Party
pursuant to this Article XI, stating (to the extent known or reasonably
anticipated) the nature and basis of such Third Party Claim and the amount
thereof; provided that the failure to give such notice shall not affect the
rights of the Indemnified Party hereunder except to the extent (i) that the
Indemnifying Party shall have suffered actual material damage by reason of such
failure, or (ii) such failure or delay materially adversely affects the ability
of the Indemnifying Party to defend, settle or compromise such Third Party
Claim.
(b) Subject to Section 11.4(c) below, if the Indemnifying Party
assumes responsibility for Losses arising out of such Third Party Claim, then
the Indemnifying Party shall have the right to undertake, by counsel or other
representatives of its own choosing, the defense of such Third Party Claim at
the Indemnifying Party's risk and expense.
(c) In the event that (i) the Indemnifying Party shall elect not
to undertake such defense, (ii) within a reasonable time after notice from the
Indemnified Party of any such Third Party Claim, the Indemnifying Party shall
fail to undertake to defend such Third Party Claim, (iii) there is a reasonable
probability that such Third Party Claim may materially and adversely affect the
Indemnified Party other than as a result of money damages or other money
payments, or (iv) there is a reasonable probability that the amount of Losses
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<PAGE> 50
asserted under such Third Party Claim may exceed the Indemnifying Party's
obligations under this Article XI, then the Indemnified Party (upon further
written notice to the Indemnifying Party) shall have the right to undertake the
defense, compromise or settlement of such Third Party Claim, by counsel or other
representatives of its own choosing, on behalf of and for the account and risk
of the Indemnifying Party. In the event that the Indemnified Party undertakes
the defense of a Third Party Claim under this Section 11.4(c), the Indemnifying
Party shall pay to the Indemnified Party, in addition to the other sums required
to be paid hereunder, the reasonable costs and expenses incurred by the
Indemnified Party in connection with such defense, compromise or settlement as
and when such costs and expenses are so incurred.
(d) Anything in this Section 11.4 to the contrary
notwithstanding, (i) neither Party shall, without the other party's written
consent (which consent shall not be unreasonably withheld or delayed), settle or
compromise such Third Party Claim or consent to entry of any judgment which does
not include as an unconditional term thereof the giving by the claimant or the
plaintiff to the Indemnified Party of a release from all liability in respect of
such Third Party Claim in form and substance satisfactory to the Indemnified
Party; (ii) in the event that a party hereto undertakes defense of such Third
Party Claim in accordance with this Section 11.4, the other parties, by counsel
or other representative of their own choosing and at their sole cost and
expense, shall have the right to participate in the defense, compromise or
settlement thereof and each party and its counsel and other representatives
shall cooperate with the other party and its counsel and representatives in
connection therewith; and (iii) the party that undertakes the defense of such
Third Party Claim in accordance with this Section 11.4, shall have an obligation
to keep the other parties informed of the status of the defense of such Third
Party Claim and furnish the other parties with all documents, instruments and
information that the other parties shall reasonably request in connection
therewith.
(e) Any claim for indemnification under this Article XI must be
made (i) on or prior to the Claims Deadline (as defined in the Escrow Agreement)
for any claims against the Escrow Stock, and (ii) on or prior to eighteen (18)
months after the Effective Time otherwise.
SECTION 11.5. REMEDIES CUMULATIVE
Subject to the limitations and qualifications set forth in this
Article XI, the remedies provided herein shall be cumulative and shall not
preclude the assertion by the parties hereto of any other rights or the seeking
of any other remedies against the other, or their respective successors or
assigns.
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ARTICLE XII
GENERAL PROVISIONS
SECTION 12.1. NOTICES.
All notices, demands, requests, or other communications which may
be or are required to be given, served, or sent by any party to any other party
pursuant to this Agreement shall be in writing and shall be hand delivered, sent
by overnight courier or mailed by first-class, registered or certified mail,
return receipt requested, postage prepaid, or transmitted by telegram, telecopy
or telex, addressed as follows:
(a) If to Acquiror:
Proxicom, Inc.
11600 Sunrise Valley Drive
Reston, Virginia 20191
Telecopy: (703) 262-3201
Attention: Christopher Capuano, Esq.,
General Counsel
With a copy (which shall not constitute notice) to:
Hogan & Hartson L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004
Telecopier No.: (202) 637-5910
Attention: David B.H. Martin, Jr.
(b) If to the Company:
Square Earth, Inc.
55 Broad Street, 17th Floor
New York, New York 10004
Telecopier No.: (212) 269-1386
Attention: Bradley Galle
Chief Executive Officer
With a copy (which shall not constitute notice) to:
Pitney, Hardin, Kipp & Szuch
P.O. Box 1945
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<PAGE> 52
Morristown, New Jersey 07962
Telecopier No.: (973) 966-1550
Attention: Michael J. Dunne
(c) If to the Stockholders:
Bradley Galle
c/o Square Earth, Inc.
55 Broad Street, 17th Floor
New York, New York 10004
Telecopier No.: (212) 269-1386
David Uyttendaele
c/o Square Earth, Inc.
55 Broad Street, 17th Floor
New York, New York 10004
Telecopier No.: (212) 269-1386
Jeffrey Stewart
c/o Square Earth, Inc.
55 Broad Street, 17th Floor
New York, New York 10004
Telecopier No.: (212) 269-1386
Each party may designate by notice in writing a new address to
which any notice, demand, request or communication may thereafter be so given,
served or sent. Each notice, demand, request, or communication which shall be
hand delivered, sent, mailed, telecopied or telexed in the manner described
above, or which shall be delivered to a telegraph company, shall be deemed
sufficiently given, served, sent, received or delivered for all purposes at such
time as it is delivered to the addressee (with the return receipt, the delivery
receipt, or (with respect to a telecopy or telex) the answerback being deemed
conclusive, but not exclusive, evidence of such delivery) or at such time as
delivery is refused by the addressee upon presentation.
SECTION 12.2. CERTAIN DEFINITIONS.
For purposes of this Agreement, the term:
(a) "Acquiror Material Adverse Effect" means any material
adverse effect on the Assets or the business, financial condition or results of
operations of Acquiror.
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<PAGE> 53
(b) "affiliate" means a person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned person.
(c) "Assets" shall mean the assets, rights and properties,
whether owned, leased or licensed, real, personal or mixed, tangible or
intangible, that are used, useful or held for use in connection with the
business of an entity.
(d) "business day" shall mean any day other than a day on which
banks in the Commonwealth of Virginia are authorized or obligated to be closed.
(e) "Company Material Adverse Effect" means any material adverse
effect on the Assets or the business, financial condition or results of
operations of the Company.
(f) "control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of stock or as trustee or
executor, by contract or credit arrangement or otherwise.
(g) "Encumbrances" means mortgages, liens, pledges,
encumbrances, security interests, deeds of trust, options, encroachments,
reservations, orders, decrees, judgments, restrictions, charges, contract
rights, claims or equity of any kind.
(h) "Government Entity" means any United States or other
national, state, municipal or local government, domestic or foreign, any
subdivision, agency, entity, commission or authority thereof, or any
quasi-governmental or private body exercising any regulatory, taxing, importing
or other governmental or quasi-governmental authority.
(i) "Laws" means all foreign, federal, state and local laws,
statutes, regulations and rules applicable to the specified person or entity,
and all resolutions, orders, determinations, writs, injunctions, awards
(including, without limitation, awards of any arbitrator), judgments and decrees
applicable to the specified persons or entities.
(j) "Losses" means all demands, losses, claims, actions or
causes of action, assessments, damages, liabilities, costs and expenses,
including, without limitation, interest, penalties and reasonable attorneys'
fees and disbursements.
(k) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d) of the Securities Exchange Act of 1934, as amended).
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<PAGE> 54
(l) "Subsidiary" means any corporation, partnership, joint
venture or other legal entity of which such person (either alone or through or
together with any other Subsidiary) (i) owns, directly or indirectly, fifty
percent (50%) or more of the stock, partnership interests or other equity
interests the holders of which are generally entitled to vote for the election
of the board of directors or other governing body of such corporation,
partnership, joint venture or other legal entity; or (ii) possesses, directly or
indirectly, control over the direction of management or policies of such
corporation, partnership, joint venture or other legal entity (whether through
ownership of voting securities, by agreement or otherwise).
(m) "Taxes" shall mean all federal, state, local and foreign
taxes (including income, profit, franchise, sales, use, real property, personal
property, ad valorem, excise, employment, social security and wage withholding
taxes) and installments of estimated taxes, assessments, deficiencies, levies,
imports, duties, license fees, registration, fees, withholdings or other similar
charges of every kind, character or description imposed by any governmental
authorities, and any interest, penalties or additions to tax imposed thereon or
in connection therewith.
(n) "Third Party Claim" means any claim or other assertion of
liability by any third party.
SECTION 12.3. HEADINGS.
The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
SECTION 12.4. SEVERABILITY.
If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.
SECTION 12.5. ENTIRE AGREEMENT.
This Agreement (together with the Exhibits, the Schedules and the
other documents delivered pursuant hereto), together with the Related
Agreements,
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<PAGE> 55
the Nondisclosure Agreement and the Letter of Intent constitute the entire
agreement of the parties and supersede all prior agreements and undertakings,
both written and oral, between the parties, or any of them, with respect to the
subject matter hereof and, except as otherwise expressly provided herein, are
not intended to confer upon any other person any rights or remedies hereunder.
SECTION 12.6. SPECIFIC PERFORMANCE.
The transactions contemplated by this Agreement are unique.
Accordingly, each of the parties acknowledges and agrees that, in addition to
all other remedies to which it may be entitled, each of the parties hereto is
entitled to a decree of specific performance, provided such party is not in
material default hereunder.
SECTION 12.7. ASSIGNMENT.
Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
party; provided, however, that Acquiror and Merger Sub shall have the right to
assign this Agreement without the prior written consent of the Company to a
direct or indirect subsidiary of Acquiror, but no such assignment shall relieve
Acquiror or Merger Sub, as the case may be, of its obligations hereunder.
Subject to the preceding sentence, this Agreement shall be binding upon, inure
to the benefit of and be enforceable by the parties and their respective
successors and assigns.
SECTION 12.8. THIRD PARTY BENEFICIARIES.
This Agreement shall be binding upon and inure solely to the
benefit of each party hereto, and nothing in this Agreement, express or implied,
is intended to or shall confer upon any other person any right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement.
SECTION 12.9. GOVERNING LAW.
This Agreement shall be governed by, and construed in accordance
with, the laws of the Commonwealth of Virginia, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law, except
that, to the extent applicable, the laws of the State of Delaware shall govern
the effectiveness and effect of the Merger.
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SECTION 12.10.COUNTERPARTS.
This Agreement may be executed and delivered in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed and delivered shall be deemed to be an original but all
of which taken together shall constitute one and the same agreement.
SECTION 12.11.FEES AND EXPENSES.
Except as otherwise provided for in this Agreement, each party
hereto shall pay its own fees, costs and expenses incurred in connection with
this Agreement and in the preparation for and consummation of the transactions
provided for herein.
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<PAGE> 57
IN WITNESS WHEREOF, the parties hereto have caused this AGREEMENT
AND PLAN OF MERGER to be executed and delivered as of the date first written
above.
PROXICOM, INC.
By: /s/ Raul J. Fernandez
-------------------------------
Name: Raul J. Fernandez
-----------------------------
Title: President and CEO
----------------------------
PROXICOM ACQUISITION CORP.
By: /s/ Kenneth J. Tarpey
-------------------------------
Name: Kenneth J. Tarpey
-----------------------------
Title: President
----------------------------
SQUARE EARTH, INC.
By: /s/ Bradley C. Galle
-------------------------------
Name: Bradley C. Galle
-----------------------------
Title: President
----------------------------
STOCKHOLDERS
/s/ Bradley C. Galle
----------------------------------
Bradley Galle
/s/ David Uyttendaele
----------------------------------
David Uyttendaele
/s/ Jeffrey Stewart
----------------------------------
Jeffrey Stewart
<PAGE> 1
EXHIBIT 2.3
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
PROXICOM, INC.,
PROXICOM MERGER SUB, INC.,
IBIS CONSULTING, INC.,
AND
THE STOCKHOLDERS OF IBIS CONSULTING, INC.
DATED AS OF AUGUST 21, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1. The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2. Effective Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.3. Effect of the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.4. Articles of Incorporation; Bylaws. . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.5. Directors and Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.6. Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 1.7. Subsequent Actions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 1.8. Tax and Accounting Treatment of the Merger. . . . . . . . . . . . . . . . . 3
ARTICLE II CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES . . . . . . . . . . . . . . . . 4
SECTION 2.1. Conversion of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 2.2. Escrowed Merger Stock; Stockholders' Representative. . . . . . . . . . . . . 4
SECTION 2.3. Exchange of Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 2.4. Stock Transfer Books. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.5. Transferability of Acquiror Common Stock. . . . . . . . . . . . . . . . . . 6
SECTION 2.6. Legend. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.7. Conversion of Company Stock Options. . . . . . . . . . . . . . . . . . . . . 8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS . . . . . . . . 9
SECTION 3.1. Organization and Qualification. . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 3.2. Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 3.3. Articles of Incorporation and Bylaws. . . . . . . . . . . . . . . . . . . . 9
SECTION 3.4. Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 3.5. Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 3.6. No Conflict; Required Filings and Consents. . . . . . . . . . . . . . . . . 10
SECTION 3.7. Company Financial Statements; No Liabilities. . . . . . . . . . . . . . . . 11
SECTION 3.8. Accounts Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 3.9. Absence of Certain Changes or Events. . . . . . . . . . . . . . . . . . . . 12
SECTION 3.10. Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 3.11. Leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 3.12. Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 3.13. Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 3.14 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 3.15. Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 3.16 Absence of Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 3.17 Pooling of Interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
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<TABLE>
<S> <C>
SECTION 3.18. Books and Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 3.19. Taxes and Assessments. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 3.20. Employment Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 3.21. Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 3.22. Transactions with Related Parties. . . . . . . . . . . . . . . . . . . . . 23
SECTION 3.23. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 3.24. Permits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 3.25. Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 3.26. Minute Books. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 3.27. Reorganization Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 3.28 HSR Act Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 3.29. Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS . . . . . . . . . . . . . . . . 25
SECTION 4.1. Authority and Capacity. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 4.2. Absence of Violation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 4.3. Restrictions and Consents. . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 4.4. Title to Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 4.5. Non-Registration of Securities; Purchase for Investment Only. . . . . . . . 26
SECTION 4.6. Ability of Stockholder to Evaluate Investment and Bear Economic Risk. . . . 27
SECTION 4.7. Waiver of Dissenter's Rights. . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE V REPRESENTATIONS AND WARRANTIES OF ACQUIROR . . . . . . . . . . . . . . . . . . . . . 27
SECTION 5.1. Organization and Qualification. . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 5.2. Certificate of Incorporation and Bylaws. . . . . . . . . . . . . . . . . . . 28
SECTION 5.3. Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 5.4. Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 5.5. No Conflict; Required Filings and Consents. . . . . . . . . . . . . . . . . 29
SECTION 5.6. Acquiror Financial Statements; No Liabilities. . . . . . . . . . . . . . . . 29
SECTION 5.7. Accounts Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 5.8. Absence of Certain Changes or Events. . . . . . . . . . . . . . . . . . . . 30
SECTION 5.9. Absence of Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 5.10. Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 5.11. Reorganization Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 5.12. HSR Act Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 5.13. Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 5.14. Leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 5.15. Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 5.16. Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 5.17. Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 5.18. Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
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<TABLE>
<S> <C>
SECTION 5.19. Pooling of Interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 5.20. Books and Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 5.21. Taxes and Assessments. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 5.22. Employment Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 5.23. Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 5.24. Transactions with Related Parties. . . . . . . . . . . . . . . . . . . . . 39
SECTION 5.25. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 5.26. Permits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 5.27. Minute Books. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 5.28. Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF MERGER SUB . . . . . . . . . . . . . . . . . . . 41
SECTION 6.1. Organization and Qualification. . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 6.2. Articles of Incorporation and Bylaws. . . . . . . . . . . . . . . . . . . . 41
SECTION 6.3. Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 6.4. No Conflict; Required Filings and Consents. . . . . . . . . . . . . . . . . 42
ARTICLE VII COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 7.1. Affirmative Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 7.2. Negative Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE VIII ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 8.1. Consents and Approvals; Filings and Notices. . . . . . . . . . . . . . . . . 45
SECTION 8.2. Access to Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 8.3. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 8.4. Further Action; Reasonable Best Efforts. . . . . . . . . . . . . . . . . . . 45
SECTION 8.5. Public Announcements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 8.6. No Solicitation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 8.7. Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 8.8. Pooling Accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 8.9. Stockholders' Covenants Not To Compete . . . . . . . . . . . . . . . . . . . 47
SECTION 8.11. Stockholders' Nominee on Acquiror's Board of Directors. . . . . . . . . . . 48
SECTION 8.12. Sale of Certain Merger Stock in Acquiror's IPO. . . . . . . . . . . . . . . 48
SECTION 8.13. Additional Acquiror Stock Options. . . . . . . . . . . . . . . . . . . . . 49
ARTICLE IX CLOSING CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 9.1. Conditions to Obligations of Acquiror and Merger Sub. . . . . . . . . . . . 49
SECTION 9.2. Additional Conditions to Obligations of the Company and the Stockholders. . 51
ARTICLE X TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 10.1. Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 10.2. Effect of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 10.3. Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 10.4. Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
</TABLE>
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<TABLE>
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ARTICLE XI SURVIVAL OF REPRESENTATIONS; ESCROW ARRANGEMENTS; REMEDIES . . . . . . . . . . . . 54
SECTION 11.1. Survival of Representations. . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 11.2. Indemnification by the Stockholders; Escrow Arrangements. . . . . . . . . . 54
SECTION 11.3. Third Party Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 11.4. Limitation of Liability of Acquiror and Merger Sub. . . . . . . . . . . . . 57
ARTICLE XII GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 12.1. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 12.2. Certain Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 12.3. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 12.4. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 12.5. Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 12.6. Specific Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 12.7. Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 12.8. Third Party Beneficiaries. . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 12.9. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 12.10. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 12.11. Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
</TABLE>
The Exhibits and Schedules to this Agreement and Plan of Merger are not
included with this Registration Statement on Form S-1. The Registrant will
provide these Exhibits and Schedules upon the request of the Securities and
Exchange Commission.
- iv -
<PAGE> 6
Index of Defined Terms
<TABLE>
<CAPTION>
Section
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<S> <C>
accredited investor . . . . . . . . . . . . . . . . . . . . . . . . . 4.6
Acquiror . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PREAMBLE
Acquiror Audited Financial Statements . . . . . . . . . . . . . . . . 5.6
Acquiror Balance Sheet Date . . . . . . . . . . . . . . . . . . . . . 5.6
Acquiror Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . 5.23(a)
Acquiror Common Stock . . . . . . . . . . . . . . . . . . . . . . . . 2.1(a)
Acquiror Commonly Controlled Entity . . . . . . . . . . . . . . . . . 5.23(a)
Acquiror Contract . . . . . . . . . . . . . . . . . . . . . . . . . . 5.15(b)
Acquiror ERISA Plan . . . . . . . . . . . . . . . . . . . . . . . . . 5.23(a)
Acquiror Financial Statements . . . . . . . . . . . . . . . . . . . . 5.6
Acquiror Indemnified Persons . . . . . . . . . . . . . . . . . . . . 11.2(a)
Acquiror Material Adverse Effect . . . . . . . . . . . . . . . . . . 12.2(a)
Acquiror Real Property . . . . . . . . . . . . . . . . . . . . . . . 5.16
Acquiror Software . . . . . . . . . . . . . . . . . . . . . . . . . . 12.2(b)
Acquiror Unaudited Financial Statements . . . . . . . . . . . . . . . 5.6
affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.2(c)
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PREAMBLE
Amended and Restated Registration Rights Agreement . . . . . . . . . 9.2(h)
Amendment No. 2 to Stockholders' Agreement . . . . . . . . . . . . . 2.5(b)
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.2(d)
benefit liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 3.21(c); 5.23(c)
business day . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.2(e)
California Blue Sky Laws . . . . . . . . . . . . . . . . . . . . . . 3.6(b)
Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(a)
CGCL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PREAMBLE
Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.6
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.6
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.8
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PREAMBLE
Company Audited Financial Statements . . . . . . . . . . . . . . . . 3.7
Company Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . 3.7
Company Balance Sheet Date . . . . . . . . . . . . . . . . . . . . . 3.7
Company Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . 3.21(a)
Company Common Stock . . . . . . . . . . . . . . . . . . . . . . . . 2.1(a)
Company Commonly Controlled Entity . . . . . . . . . . . . . . . . . 3.21(a)
Company Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 3.12(a)
Company Custom Software . . . . . . . . . . . . . . . . . . . . . . . 12.2(f)
Company ERISA Plan . . . . . . . . . . . . . . . . . . . . . . . . . 3.21(a)
Company Financial Statements . . . . . . . . . . . . . . . . . . . . 3.7
Company Material Adverse Effect . . . . . . . . . . . . . . . . . . . 12.2(g)
</TABLE>
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<PAGE> 7
<TABLE>
<CAPTION>
Section
-------
<S> <C>
Company Real Property . . . . . . . . . . . . . . . . . . . . . . . . 3.13
Company Unaudited Financial Statements . . . . . . . . . . . . . . . 3.7
Competitive Business . . . . . . . . . . . . . . . . . . . . . . . . 8.9(a)
Confidentiality Agreement . . . . . . . . . . . . . . . . . . . . . . 8.3
control, controlled by, under common control with . . . . . . . . . . 12.2(h)
DGCL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PREAMBLE
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2
employee benefit plans . . . . . . . . . . . . . . . . . . . . . . . 3.21(a); 5.23(a)
employee pension benefit plan . . . . . . . . . . . . . . . . . . . . 3.21(a); 5.23(a)
Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . PREAMBLE
Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.2(i)
Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . 3.15(c)(i)
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.21(a)
Escrow Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2(a)
Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2(a)
Escrow Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2(a)
Exchange Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(a)
Government Entity . . . . . . . . . . . . . . . . . . . . . . . . . . 12.2(j)
Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . 3.15(c)(ii)
HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.2(k)
Indemnified Party . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3(a)
Indemnifying Party . . . . . . . . . . . . . . . . . . . . . . . . . 11.3(a)
Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . 12.2(l)
IPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.12
Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.2(m)
Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.6
Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.2(n)
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1
Merger Filing Documents . . . . . . . . . . . . . . . . . . . . . . . 1.2
Merger Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(a)
Merger Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PREAMBLE
Multiemployer Plan . . . . . . . . . . . . . . . . . . . . . . . . . 3.21(d)
New Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.7
Noncompete Period . . . . . . . . . . . . . . . . . . . . . . . . . . 8.9(a)
Original Stockholders . . . . . . . . . . . . . . . . . . . . . . . . 2.5(b)
person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.2(o)
plan of reorganization . . . . . . . . . . . . . . . . . . . . . . . 1.8
qualified . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.21(b); 5.23(b)
Related Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 12.2(p)
Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.15(c)(iii)
SEC Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5(c)
</TABLE>
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<PAGE> 8
<TABLE>
<CAPTION>
Section
-------
<S> <C>
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5(a)
Stock Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.7
Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . PREAMBLE
Stockholders' Agreement . . . . . . . . . . . . . . . . . . . . . . . 2.5(b)
Stockholders' Representative . . . . . . . . . . . . . . . . . . . . 2.2(b)
Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.2(q)
Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . 1.1
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.2(r)
Third Party Claim . . . . . . . . . . . . . . . . . . . . . . . . . . 12.2(s)
Third Party Products . . . . . . . . . . . . . . . . . . . . . . . . 3.14(g)
unfunded current liability . . . . . . . . . . . . . . . . . . . . . 3.21(c); 5.23(c)
</TABLE>
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<PAGE> 9
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into
this 21st day of August, 1998, by and among PROXICOM, INC., a Delaware
corporation ("Acquiror"), PROXICOM MERGER SUB, INC., a Delaware corporation and
a wholly-owned subsidiary of Acquiror ("Merger Sub"), IBIS CONSULTING, INC., a
California corporation (the "Company"), and the undersigned stockholders of the
Company (the "Stockholders").
WHEREAS, the Boards of Directors of each of Acquiror, Merger Sub and
the Company have determined that it is in the best interests of their
respective companies and stockholders that Merger Sub merge with and into the
Company, pursuant to and subject to the terms and conditions of this Agreement
and the General Corporation Law of the State of California (the "CGCL") and the
General Corporation Law of the State of Delaware ("DGCL");
WHEREAS, concurrently with the execution of this Agreement and as a
further inducement to Acquiror and the Stockholders to enter into this
Agreement, Acquiror has entered into an employment agreement with each
Stockholder and with each of Kenneth Page and Carsten Sorensen, each of which
sets forth the terms and conditions of such Stockholder's and such person's
employment with Acquiror from and after the Effective Time (collectively, the
"Employment Agreements").
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1. THE MERGER.
Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with the CGCL and the DGCL, at the Effective Time
(as defined in Section 1.2), Merger Sub shall be merged with and into the
Company (the "Merger"). As a result of the Merger, the separate corporate
existence of Merger Sub shall cease and the Company shall continue as the
surviving corporation of the Merger (sometimes referred to herein as the
"Surviving Corporation") as a wholly-owned subsidiary of Acquiror. The name of
the Company shall continue as the name of the Surviving Corporation.
<PAGE> 10
SECTION 1.2. EFFECTIVE TIME.
At the Closing (as defined in Section 1.6), the parties hereto
shall cause the Merger to be consummated by filing (a) a merger agreement and
required officer's certificates with the Secretary of State of the State of
California, and (b) a certificate of merger with the Secretary of State of the
State of Delaware (collectively, the "Merger Filing Documents"), all in such
form as required by, and executed in accordance with the relevant provisions of
the CGCL and the DGCL and in such form as approved by the Company and Acquiror
prior to such filing (the date and time that the Merger Filing Documents are
deemed effective by the Secretary of State of the State of California and the
Secretary of State of the State of Delaware, or such subsequent date or time
specified therein being the "Effective Time").
SECTION 1.3. EFFECT OF THE MERGER.
At the Effective Time, the effect of the Merger shall be as
provided in this Agreement and the applicable provisions of the CGCL and the
DGCL. Without limiting the generality of the foregoing, and subject thereto,
at the Effective Time, except as otherwise provided herein, all the property,
rights, privileges, powers and franchises of Merger Sub and the Company shall
vest in the Surviving Corporation, and all debts, liabilities and duties of
Merger Sub and the Company shall become the debts, liabilities and duties of
the Surviving Corporation.
SECTION 1.4. ARTICLES OF INCORPORATION; BYLAWS.
At the Effective Time, the articles of incorporation of Merger
Sub, as in effect immediately prior to the Effective Time and as amended by the
Merger Filing Documents, shall be the articles of incorporation of the
Surviving Corporation, and the bylaws of Merger Sub, as in effect immediately
prior to the Effective Time, shall be the bylaws of the Surviving Corporation.
SECTION 1.5. DIRECTORS AND OFFICERS.
The director of Merger Sub (or such other or additional
individuals as Acquiror may designate prior to Closing) shall be the initial
director of the Surviving Corporation, who will hold office in accordance with
the articles of incorporation and bylaws of the Surviving Corporation; and the
officers of Merger Sub shall continue as the officers of the Surviving
Corporation, in each case until their respective successors are duly elected or
appointed and qualified.
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<PAGE> 11
SECTION 1.6. CLOSING.
Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "Closing") will take place as promptly as
practicable after satisfaction of the latest to occur or, if permissible,
waiver of the conditions set forth in Article IX hereof (the "Closing Date"),
at the offices of Hogan & Hartson L.L.P., 8300 Greensboro Drive, Suite 1100,
McLean, Virginia 22102, unless another date or place is agreed to in writing by
the parties hereto.
SECTION 1.7. SUBSEQUENT ACTIONS.
If, at any time after the Effective Time, the Surviving
Corporation shall consider or be advised that any deeds, bills of sale,
assignments, assurances or any other actions or things are necessary or
desirable to continue in, vest, perfect or confirm of record or otherwise in
the Surviving Corporation its right, title or interest in, to or under any of
the rights, properties, privileges, franchises or Assets of either of its
constituent corporations acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger or otherwise to
carry out this Agreement, the officers and directors of the Surviving
Corporation shall be directed and authorized to execute and deliver, in the
name and on behalf of either of such constituent corporations, all such deeds,
bills of sale, assignments and assurances and to take and do, in the name and
on behalf of each of such corporations or otherwise, all such other actions and
things as may be necessary or desirable to vest, perfect or confirm any and all
right, title and interest in, to and under such rights, properties, privileges,
franchises or Assets in the Surviving Corporation or otherwise to carry out
this Agreement.
SECTION 1.8. TAX AND ACCOUNTING TREATMENT OF THE MERGER.
It is intended by the parties hereto that the Merger shall (a)
constitute a reorganization of Merger Sub and the Company within the meaning of
Section 368 of the Internal Revenue Code of 1986, as amended (the "Code") and
(b) qualify for accounting treatment as a pooling of interests under Accounting
Principle Board Opinion No. 16. The parties hereby adopt this Agreement as a
"plan of reorganization" of Merger Sub and the Company within the meaning of
Sections 1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations.
- 3 -
<PAGE> 12
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.1. CONVERSION OF SECURITIES.
At the Effective Time, by virtue of the Merger and without any
action on the part of the parties hereto or the holders of the following
securities:
(a) Outstanding Company Common Stock. Subject to the
provision hereof, each share of common stock, no par value, of the Company
(the "Company Common Stock"), issued and outstanding immediately prior to the
Effective Time shall be converted into the right to receive 0.2327868 share of
common stock, par value $0.01 per share, of Acquiror ("Acquiror Common Stock")
(such number, the "Exchange Ratio"), rounded up to the nearest whole number
(the shares of Acquiror Common Stock issuable pursuant to this Section 2.1(a)
are referred to herein as the "Merger Stock"). All such shares of Company
Common Stock shall cease to be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each certificate (a "Certificate")
previously evidencing such shares shall thereafter represent only the right to
receive Acquiror Common Stock. The Stockholders shall cease to have any rights
with respect to such shares of Company Common Stock.
(b) Treasury Stock. All shares of capital stock of the Company
held in the treasury of the Company immediately prior to the Effective Time
shall be canceled and extinguished without any conversion thereof and no
Acquiror Common Stock or other consideration shall be delivered or deliverable
in exchange therefor.
(c) Merger Sub Stock. Each share of common stock, par value
$0.01 per share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one (1) duly and
validly issued, fully paid and nonassessable share of common stock of the
Surviving Corporation.
(d) No Fractional Shares. No fraction of a share of Acquiror
Common Stock shall be issued in connection with the Merger.
SECTION 2.2. ESCROWED MERGER STOCK; STOCKHOLDERS' REPRESENTATIVE.
(a) When making the issuances of the Merger Stock pursuant to
Section 2.1(a) above, Acquiror shall withhold and retain in escrow from the
Stockholders ten percent (10%) of the aggregate number of shares of Acquiror
Common Stock issuable pursuant to Section 2.1(a), and rounded up to the nearest
whole number (such shares, collectively, the "Escrow Stock"). The Escrow Stock
- 4 -
<PAGE> 13
will be placed in escrow pursuant to an Escrow Agreement, in the form of
Exhibit A hereto (the "Escrow Agreement"), to be entered into at Closing among
Acquiror, the Surviving Corporation, the Stockholders, the Stockholders'
Representative (as defined below) and Crestar Bank, as escrow agent (the
"Escrow Agent"). The Escrow Stock shall be held in escrow pursuant to the
Escrow Agreement. The Escrow Stock shall be registered in the name of the
Stockholders and the certificates therefor shall contain a legend to the effect
that the Escrow Stock is being held in escrow pursuant to the Escrow Agreement.
The Escrow Stock shall be released to the Stockholders or Acquiror, as the case
may be, only in accordance with the terms of the Escrow Agreement.
(b) Each Stockholder hereby appoints Brenda Wong as
attorney-in-fact with full power and authority to act for and on behalf of any
or all of the Stockholders (with full power of substitution in the premises),
in connection with the indemnity provisions of Section 11.2 as they relate to
the Stockholders generally and such other matters as are reasonably necessary
for the consummation of the transactions contemplated hereby including, without
limitation, (i) to review all claims for indemnification asserted by an
Acquiror Indemnified Person, and, to the extent deemed appropriate, dispute,
question the accuracy of, compromise, settle or otherwise resolve any and all
such claims, (ii) to compromise on their behalf with Acquiror any claims
asserted thereunder, (iii) to authorize payments to be made with respect to any
such claims for indemnification, (iv) to execute and deliver on behalf of the
Stockholders any document or agreement contemplated by or necessary or
desirable in connection with this Agreement, the Escrow Agreement and the
transactions contemplated hereby and thereby, and (v) to take such further
actions including coordinating and administering post-closing matters related
to the rights and obligations of the Stockholders as are authorized in this
Agreement (the above named representative, as well as any subsequent
representative of the Stockholders appointed by the Stockholders being referred
to herein as the "Stockholders' Representative"). Acquiror and Merger Sub
shall be entitled to rely on such appointment and treat such Stockholders'
Representative as the duly appointed attorney-in-fact of each Stockholder.
Each of the Stockholders, other than the Stockholders' Representative, hereby
agrees to indemnify and hold the Stockholders' Representative harmless against
all Losses resulting from, imposed upon or incurred by each such Stockholder,
directly or indirectly, as a result of the Stockholders' Representative's
actions as attorney-in-fact as provided in this Section 2.2(b).
SECTION 2.3. EXCHANGE OF CERTIFICATES.
At the Closing, each Stockholder shall deliver to Acquiror for
cancellation, such Stockholder's Certificate(s) representing his or her shares
of Company Common Stock held immediately prior to the Effective Time, duly
- 5 -
<PAGE> 14
endorsed in blank or with duly executed stock powers attached. In exchange for
the Certificates, promptly following the Effective Time, Acquiror shall deliver
to each Stockholder a stock certificate representing the aggregate number of
whole shares of Merger Stock issuable pursuant to Section 2.1(a) (less shares
of Escrow Stock to be deposited in escrow pursuant to Section 2.2(a)), which
shares of Merger Stock shall be deemed to have been issued at the Effective
Time.
SECTION 2.4. STOCK TRANSFER BOOKS.
At the Effective Time, the stock transfer books of the Company with
respect to all shares of Company Common Stock shall be closed and no further
registration of transfers of such shares of Company Common Stock shall
thereafter be made on the records of the Company.
SECTION 2.5. TRANSFERABILITY OF ACQUIROR COMMON STOCK.
(a) The shares of Acquiror Common Stock to be issued and delivered
to the Stockholders in the Merger in accordance with the provisions of this
Article II will not have been registered under the Securities Act of 1933, as
amended (the "Securities Act") or under the securities laws of any state as of
the Effective Time. Accordingly, such shares of Acquiror Common Stock will not
be transferable except upon compliance with the Securities Act, any state
securities laws, the rules, regulations and other administrative regulations
promulgated under the Securities Act and any state securities laws and shall
bear appropriate legends to this effect as set forth in Section 2.6 below. In
addition, the shares of Escrow Stock shall contain a legend providing notice as
to the Escrow Agreement.
(b) The shares of Acquiror Common Stock to be issued and delivered
to the Stockholders in the Merger in accordance with the provisions of this
Article II will also be subject to that certain Amended and Restated
Stockholders Agreement, dated February 20, 1997, among Acquiror, General
Atlantic Partners 34, L.P., GAP Coinvestment Partners, L.P., Raul Fernandez,
The Mario M. Morino Trust and FBR Venture Capital Managers Inc. (collectively,
the "Original Stockholders"), as amended by that certain Amendment No. 1 to
Amended and Restated Stockholders Agreement, dated November 24, 1997, among the
Original Stockholders and General Electric Capital Corporation (collectively,
the "Stockholders' Agreement"). Each Stockholder acknowledges and agrees that
such Stockholder has been given a copy of the Stockholders' Agreement and
afforded ample opportunity to read it, and is thoroughly familiar with its
terms. In addition to the other legends described in this Agreement, each
Stockholder acknowledges and agrees that the certificates evidencing the shares
of Merger Stock (including the Escrow Stock) will contain a legend providing
notice as to the Stockholders' Agreement. At Closing, each Stockholder,
Acquiror and the parties to the Stockholders' Agreement shall execute
- 6 -
<PAGE> 15
and deliver an Amendment No. 2 to Amended and Restated Stockholders Agreement
in the form of Exhibit B hereto (the "Amendment No. 2 to Stockholders'
Agreement").
(c) Each Stockholder further acknowledges and agrees that such
Stockholder may be deemed to be an "affiliate" of the Company as that term is
used in SEC Accounting Series Release Nos. 130 and 135 (together, the "SEC
Release") and Rule 145 of the rules and regulations of the SEC under the
Securities Act. Accordingly, each Stockholder agrees not to sell, exchange,
transfer, pledge or otherwise dispose of such Stockholder's interests in, or
reduce such Stockholder's risk relative to, any of the (i) shares of Company
Common Stock over which such Stockholder has or shares voting or dispositive
power or (ii) shares of Acquiror Common Stock into which such shares of Company
Common Stock are converted upon consummation of the Merger or upon the exercise
of any Acquiror options, until such time as financial results covering at least
thirty (30) days of post-Merger combined operations of Acquiror and the Company
have been published by Acquiror within the meaning of the SEC Release. Each
Stockholder understands that reducing such Stockholder's risk relative to such
shares of Company Common Stock or Acquiror Common Stock includes, but is not
limited to, using such shares to secure a non-recourse loan, purchasing a put
option to sell such shares or otherwise entering a put agreement with respect
to such shares.
SECTION 2.6. LEGEND.
Each certificate representing Acquiror Common Stock issued to the
Stockholders hereunder shall be stamped or otherwise imprinted with a legend
(the "Legend") in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES
MAY NOT BE SOLD, OFFERED FOR SALE OR OTHERWISE HYPOTHECATED
OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH STATE
SECURITIES LAWS UPON RECEIPT BY PROXICOM, INC. (THE "COMPANY")
OF A WRITTEN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
- 7 -
<PAGE> 16
IN ADDITION, THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE
ISSUED PURSUANT TO A BUSINESS COMBINATION WHICH IS ACCOUNTED FOR
AS A "POOLING OF INTERESTS" AND MAY NOT BE SOLD, NOR MAY THE OWNER
THEREOF REDUCE HIS OR HER RISKS RELATIVE THERETO IN ANY WAY, UNTIL
SUCH TIME AS THE COMPANY HAS PUBLISHED THE FINANCIAL RESULTS COVERING
AT LEAST 30 DAYS OF COMBINED OPERATIONS AFTER THE EFFECTIVE DATE OF
THE MERGER THROUGH WHICH THE BUSINESS COMBINATION WAS EFFECTED.
Such legend will also be placed on any certificate representing
Acquiror securities issued subsequent to the original issuance of the Acquiror
Common Stock pursuant to the Merger as a result of any stock dividend, stock
split, or other recapitalization, or upon the exercise of any Acquiror stock
options, as long as the Acquiror Common Stock issued to the Stockholder
pursuant to the Merger is subject to the restrictions set forth herein or in
the Amendment No. 2 to Stockholders' Agreement.
SECTION 2.7. CONVERSION OF COMPANY STOCK OPTIONS.
As of the Effective Time, each outstanding unexpired and unexercised
option to purchase shares of Company Common Stock described on Schedule 3.4
hereto (each a "Stock Option"), shall automatically be converted into an option
(each a "New Option") to purchase a number of whole shares of Acquiror Common
Stock equal to the number of shares of Company Common Stock that could have
been purchased (assuming full vesting) under such Stock Option multiplied by
the Exchange Ratio, at a price per share of Acquiror Common Stock equal to the
per-share option exercise price specified in such Stock Option divided by the
Exchange Ratio. Nothing in this Section 2.7 shall affect the vesting schedule
in effect for each Stock Option as of the date hereof, and each New Option
shall have the same vesting schedule as in effect for the corresponding Stock
Option as of the date hereof.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders jointly represent and warrant to
Acquiror and Merger Sub as follows:
SECTION 3.1. ORGANIZATION AND QUALIFICATION.
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of California. The Company has the
requisite power and authority to own, lease and operate its business as it is
now being conducted and to perform the terms of this Agreement and the
transactions contemplated hereby. The Company is duly qualified to conduct its
business as a foreign corporation, and is in good standing, in each
jurisdiction in which the ownership or leasing of its Assets or the nature of
its activities in connection with the conduct of its business makes such
qualification necessary.
SECTION 3.2. SUBSIDIARIES.
The Company has no Subsidiaries and no equity interest or other
investment in, nor has the Company made advances or loans to, any person.
SECTION 3.3. ARTICLES OF INCORPORATION AND BYLAWS.
The Company has heretofore delivered to Acquiror a complete and
correct copy of each of the articles of incorporation and bylaws of the
Company, each as amended to date. Such articles of incorporation and bylaws
are in full force and effect. The Company is not in violation of any of the
provisions of its articles of incorporation or bylaws.
SECTION 3.4. CAPITALIZATION.
The authorized capital stock of the Company consists of one hundred
million (100,000,000) shares of Company Common Stock, of which twenty-one
million four hundred twenty-eight thousand six hundred (21,428,600) shares are
issued and outstanding. All of the outstanding shares of capital stock of the
Company are owned beneficially and of record by the Stockholders as set forth
in Schedule 3.4, free and clear of all Encumbrances, except as set forth in
Schedule 3.4. Except as set forth in Schedule 3.4 there are no options,
warrants or other rights, agreements, arrangements or commitments of any
character relating to the issued or unissued capital stock of the Company or
obligating the Company to
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issue or sell any shares of capital stock of, or other equity interests in the
Company, including any securities directly or indirectly convertible into or
exercisable or exchangeable for any capital stock or other equity securities of
the Company. There are no outstanding obligations of the Company to
repurchase, redeem or otherwise acquire any shares of its capital stock or make
any investment (in the form of a loan, capital contribution or otherwise) in
any other person. All of the issued and outstanding shares of Company Common
Stock have been duly authorized and validly issued in accordance with
applicable laws and are fully paid and nonassessable and not subject to
preemptive rights. Except as set forth in Schedule 3.4, no shares of capital
stock of the Company have been reserved for any purpose.
SECTION 3.5. AUTHORITY.
The Company has the necessary corporate power and authority to enter
into this Agreement and the Related Agreements and to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the Related
Agreements by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of
the Company are necessary to authorize this Agreement and the Related
Agreements or to consummate the transactions contemplated hereby and thereby.
This Agreement and the Related Agreements have been duly executed and delivered
by the Company and, assuming the due authorization, execution and delivery by
Acquiror and Merger Sub, constitute legal, valid and binding obligations of the
Company, enforceable in accordance with their terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general applicability relating to or
affecting creditors' rights generally and by the application of general
principles of equity.
SECTION 3.6. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement and the Related
Agreements by the Company do not, and the performance by the Company of its
obligations under this Agreement and the Related Agreements will not, (i)
conflict with or violate the articles of incorporation, bylaws or other
organizational document of the Company, (ii) conflict with or violate any Laws
applicable to the Company or to its Assets, or (iii) result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company is a party or by which the Company is bound or to which
any of its Assets is subject, except in the
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case of clauses (ii) and (iii) for such conflicts, violations, breaches and
defaults which would not have a Company Material Adverse Effect.
(b) The Company's execution and delivery of this Agreement and the
Related Agreements does not, and the Company's performance of this Agreement
and the Related Agreements will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any third party
or any court, arbitral tribunal, regulatory body, administrative agency or
commission, whether national or foreign, or Government Entity, except for the
filing and recordation of appropriate merger documents as required by the CGCL
and the DGCL, the filing of required notices and documentation under the
California state securities Laws (the "California Blue Sky Laws"), and except
where the failure to obtain any such consent, approval, authorization or
permit, or to make such filing or notification, would not have a Company
Material Adverse Effect and would not materially adversely affect the Company's
performance of its obligations under this Agreement and the Related Agreements.
SECTION 3.7. COMPANY FINANCIAL STATEMENTS; NO LIABILITIES.
The Company has furnished to Acquiror (a) the audited balance sheets
of the Company as of December 31, 1995, 1996, and 1997, and the related audited
statements of income and cash flows for the fiscal years then ended (such
audited financial statements, including the schedules and notes thereto,
collectively, the "Company Audited Financial Statements"); and (b) the
unaudited balance sheet of the Company as of July 31, 1998, and the unaudited
statements of income and cash flows for the seven-month period then ended (such
unaudited financial statements, collectively, the "Company Unaudited Financial
Statements" and together with the Company Audited Financial Statements, the
"Company Financial Statements"). The Company Financial Statements referred to
in this Section 3.7 present fairly the financial condition of the Company as of
their respective dates and for the respective periods indicated and have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis (except as otherwise noted in the notes thereto and that the
Company Unaudited Financial Statements do not contain all required footnotes
and are subject to normal recurring year-end adjustments). Except as reflected
in the balance sheet of the Company (the "Company Balance Sheet") as of July
31, 1998 (the "Company Balance Sheet Date"), the Company has no material
liabilities, contingent or absolute, matured or unmatured.
SECTION 3.8. ACCOUNTS RECEIVABLE.
The accounts receivable of the Company shown on the Company Balance
Sheet, or acquired by the Company after the Company Balance Sheet Date, have
been collected or are collectible in amounts not less than the amounts thereof
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<PAGE> 20
carried on the books of the Company, except to the extent of the allowance for
doubtful accounts shown on the Company Balance Sheet.
SECTION 3.9. ABSENCE OF CERTAIN CHANGES OR EVENTS.
Since the Company Balance Sheet Date, there has been no change or
event that has caused or would cause a Company Material Adverse Effect. Since
the Company Balance Sheet Date, the Company has conducted its business in the
ordinary course, and the Company has not (a) paid any dividend or distribution
in respect of, or redeemed or repurchased any of, its capital stock; (b) issued
any capital stock, bonds or other corporate securities or debt instruments,
granted any options, warrants or other rights calling for the issuance thereof,
or borrowed any funds; (c) incurred any material loss of, or significant injury
to, any of their respective Assets as the result of any fire, explosion, flood,
windstorm, earthquake, labor trouble, riot, accident, act of God or public
enemy or armed forces, or other casualty; (d) incurred, or become subject to,
any obligation or liability (absolute or contingent, matured or unmatured,
known or unknown), except current liabilities incurred in the ordinary course
of business; (e) mortgaged, pledged or subjected to any Encumbrance any of its
Assets; (f) sold, exchanged, transferred or otherwise disposed of any of its
Assets other than in the ordinary course of business, or canceled any debts or
claims; (g) written down the value of any of its Assets or written off as
uncollectible any accounts receivable, except write downs and write-offs in the
ordinary course of business, none of which, individually or in the aggregate,
are material; (h) entered into any transactions other than in the ordinary
course of business and consistent with its past practice; (i) made any change
in any method of accounting or accounting practice; or (j) made any agreement
or is otherwise legally obligated to do any of the foregoing.
SECTION 3.10. ASSETS.
The Company is the sole and exclusive legal and equitable owner of and
has good and marketable title to its Assets (except for Intellectual Property
with respect to which the Company's representations and warranties are set
forth in Section 3.14), free and clear of all Encumbrances. No person or
Government Entity has an option to purchase, right of first refusal or other
similar right with respect to all or any part of the Company's Assets. All of
the personal property of the Company actively used in the conduct of its
business is in good working order and repair, ordinary wear and tear excepted,
and is suitable and adequate for the uses for which it is intended or is being
used.
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<PAGE> 21
SECTION 3.11. LEASES.
Schedule 3.11 lists and describes all leases and other agreements
under which the Company is lessee or lessor of any Asset, or holds, manages or
operates any Asset owned by any third party, or under which any Asset owned by
the Company is held, operated or managed by a third party, and which involve
payments of more than Five Thousand Dollars ($5,000) individually (or Twenty
Thousand Dollars ($20,000) in the aggregate for all such leases and other
agreements) over its remaining term (including, without limitation, periods
covered by any option to renew by either party). Each such lease and other
agreement is in full force and effect and constitutes a legal, valid and
binding obligation of, and is legally enforceable against, the Company and, to
the knowledge of the Company, the other party or respective parties thereto and
grants the leasehold estate it purports to grant free and clear of all
Encumbrances. With respect to each such lease and other agreement, (a) all
necessary governmental approvals with respect thereto required to be obtained
by the Company have been obtained, (b) all necessary filings or registrations
therefor required to be made by the Company have been made, and (c) there have
been no threatened cancellations thereof and no outstanding disputes
thereunder. The Company has performed in all material respects all obligations
thereunder required to be performed by the Company to date. The Company is not
and, to the Company's knowledge, no other party is in default in any material
respect under any of the foregoing, and there has not occurred any event which
(whether with or without notice, lapse of time or the happening or occurrence
of any other event) would constitute such a default.
SECTION 3.12. CONTRACTS.
(a) Except as set forth in Schedule 3.12, there are no agreements,
contracts and commitments (whether written or oral) to which the Company is a
party or by which the Company or any of its Assets are bound which involve
payments of more than Five Thousand Dollars ($5,000) individually (or Twenty
Thousand Dollars ($20,000) in the aggregate with all other such agreements,
contracts and commitments) (collectively, the "Company Contracts"), including,
without limitation, the following types of contracts and agreements: (i)
employment, severance, termination, consulting and retirement agreements; (ii)
license agreements or distributor, dealer, manufacturer's representative, sales
agency and advertising agreements; (iii) agreements with any labor organization
or other collective bargaining unit; (iv) agreements for the future purchase of
materials, supplies, services, merchandise or equipment; (v) agreements for the
purchase, sale or lease of any real estate or other Assets (excluding the
license agreements described in clause (ii) above); (vi) profit-sharing, bonus,
incentive compensation, deferred compensation, stock option, severance pay,
stock purchase, employee benefit, insurance, hospitalization, pension,
retirement or other similar plans or agreements; (vii) agreements for the sale
of Assets other than in the
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<PAGE> 22
ordinary course of business or the grant of any preferential rights to purchase
Assets; (viii) agreements which contain provisions requiring the Company to
indemnify any person; (ix) joint venture agreements or other agreements
involving the sharing of profits; (x) outstanding loans to any persons or
entities or receivables due from any stockholders or any affiliates of the
Company; (xi) agreements (including, without limitation, agreements not to
compete and exclusivity agreements) that reasonably could be interpreted to
impose any restriction on any business operations of the Company; (xii)
agreements, notes and other instruments evidencing indebtedness for borrowed
money and grants of Encumbrances on any of the Assets of the Company; (xiii)
customer and client contracts; and (xiv) other agreement which by its terms
does not terminate or is not terminable by the Company within thirty (30) days
or upon thirty (30) days' (or less) notice. Schedule 3.12 includes a brief
description of all oral Company Contracts of the types described in clauses (i)
through (xiv) above.
(b) All the Company Contracts are valid and in full force and
effect and constitute legal, valid and binding obligations of, and are legally
enforceable against, the Company and, to the knowledge of the Company, the
other party or respective parties thereto. With respect to each such Company
Contract, (i) all necessary governmental approvals with respect thereto
required to be obtained by the Company have been obtained, (ii) all necessary
filings or registrations therefor required to be made by the Company have been
made, and (iii) there have been no threatened cancellations thereof and no
outstanding disputes thereunder. The Company has performed in all material
respects all obligations thereunder required to be performed by the Company to
date. The Company is not and, to the Company's knowledge, no other party is in
default in any material respect under any of the Company Contracts, and there
has not occurred any event which (whether with or without notice, lapse of time
or the happening or occurrence of any other event) would constitute such a
default. True and complete copies of all Company Contracts have been delivered
to Acquiror.
SECTION 3.13. REAL PROPERTY.
Schedule 3.13 contains a list and brief description of all leasehold
interests in real estate, easements, rights to access, rights-of-way and other
real property interests which are owned, leased, used or held for use by the
Company (collectively, the "Company Real Property"). The Company does not hold
any fee simple interest in any real estate. The Company Real Property
described in Schedule 3.13 constitutes all real property interests necessary to
conduct the business and operations of the Company as now conducted and is
suitable and adequate for the uses for which it is currently devoted.
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<PAGE> 23
SECTION 3.14 INTELLECTUAL PROPERTY.
(a) Schedule 3.14(I)(A) and (B) set forth: (i) all registered and
unregistered trademarks, service marks, trade names, maskworks, registered and,
to the best of Company's knowledge, all unregistered copyrights, including the
jurisdictions in which each such Intellectual Property right has been
registered or in which any application for such registration has been filed,
and (ii) subject to any exceptions set forth in Schedule 3.14(II)(A), all
current written and, to the best of the Company's knowledge, oral license,
sublicense, franchise and other agreements under which the Company licenses the
Company Intellectual Property to third parties or pursuant to which the Company
is authorized to use a third party's Intellectual Property. Schedule
3.14(I)(A) and (B) set forth whether the Company is the sole owner or joint
owner or licensee of each item of Intellectual Property identified therein, and
any license fees, royalties or similar compensation which, are payable or are
due in the future from the Company.
(b) Except as set forth in Schedule 3.14(II)(B), the Company either
owns or has adequate rights to use all of the Intellectual Property that is
necessary to and currently used for its business as now conducted, and the
Company Software (as defined in Schedule 3.14(I)(A)(4)) is free and clear of
Encumbrances and, to the best of Company's knowledge, all other Company
Intellectual Property is free and clear of Encumbrances. Except as set forth
in Schedule 3.14(II)(B), the Company has previously furnished to Acquiror
evidence of either ownership by the Company of or license rights to use its
Intellectual Property. Except as provided in Schedule 3.14(II)(B), the Company
Software (as defined in Schedule 3.14(I)(A)(4)) and Company Custom Software
either do not contain any third party Intellectual Property or, to the extent
they contain third party Intellectual Property, the Company has adequate rights
to include such third party Intellectual Property in the Company Software or
Company Custom Software, as appropriate.
(c) There are no pending or, to the best of the Company's
knowledge, threatened claims against the Company alleging that the conduct of
its business infringes any Intellectual Property rights of others. The
Intellectual Property of the Company is not subject to any outstanding
injunction, judgment, order, decree, ruling or charge. Except as set forth in
Schedule 3.14(II)(C) and to the best of the Company's knowledge, the Company
has not engaged in unfair competition against any third party and the business
of the Company as now conducted does not infringe any third party Intellectual
Property rights.
(d) To the best of the Company's knowledge, no third party is
infringing upon any of the Company's Intellectual Property, and the Company has
not notified any third party that it believes such third party is interfering
with, infringing or misappropriating any of the Company's Intellectual Property
or engaging in any act of unfair competition. Except as set forth in
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<PAGE> 24
Schedule 3.14(II)(D), the Company represents and warrants that it has the right
to bring an action for the infringement of all of its Intellectual Property.
(e) Except as set forth in Schedule 3.14(II)(E), each present or
former employee, consultant, officer, director or stockholder of the Company
has executed a confidentiality and nondisclosure agreement, and an Intellectual
Property assignment agreement, substantially in the forms which have been
furnished to Acquiror. All employees who contributed to the Company's
Intellectual Property did so within the scope of their employment for the
Company. The Company Software was developed by persons who are or were
employees of the Company at the time of such development.
(f) Except as set forth in Schedule 3.14(II)(E) and (F), any third
party to which the Company has disclosed or allowed access to the proprietary
and confidential Intellectual Property of the Company has executed a
confidentiality and nondisclosure agreement with respect to such Intellectual
Property.
(g) To the best of the Company's knowledge, any hardware, software
or firmware licensed or purchased by the Company from third parties, accurately
processes date/time data (including but not limited to, calculating, comparing,
and sequencing) from, into and between the twentieth and twenty-first
centuries, and the years 1999 and 2000 and leap year calculations. The Company
represents and warrants that the Company Software (as defined in Schedule
3.14(I)(A)(4)) and Company Custom Software accurately process date/time data
(including but not limited to, calculating, comparing and sequencing) from,
into and between the twentieth and twenty-first centuries, and the years 1999
and 2000 and leap year calculations when either (A) used as standalone
applications, or (B) integrated into or otherwise used in conjunction with the
third party hardware, software, firmware and data ("Third Party Products") with
which such Company Software or Company Custom Software, as the case may be, was
designed or intended to operate at the time such Company Software or such
Company Custom Software, as the case may be, was (i) developed for internal use
or (ii) provided to the Company customers or tested by the Company for such
customers, whichever is later. Notwithstanding the foregoing, the Company
shall not be considered to be in breach of the representation and warranty in
the immediately preceding sentence if the failure of such Company Software or
Company Customer Software, as the case may be, to comply with such
representation and warranty is attributable solely to (i) a failure by any
Third Party Product to accurately process date/time data (including but not
limited to, calculating, comparing and sequencing) from, into and between the
twentieth and twenty-first centuries, and the years 1999 and 2000 and leap year
calculations; or (ii) any modification of the Company Software or Company
Custom Software, as the case may be, by a Company customer following the
provision of such Company Software or Company Custom Software, as the case may
be, to such customer or the testing of the Company Software or Company
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<PAGE> 25
Custom Software, as the case may be, by the Company for such customer,
whichever is later. The Company does not license or sell any hardware or
firmware to third parties.
SECTION 3.15. ENVIRONMENTAL MATTERS.
(a) The Company has complied and is in compliance in all material
respects with all Environmental Laws (as defined below). The Company does not
have any liability under any Environmental Law, nor is the Company responsible
for any liability of any other person under any Environmental Law. There are
no pending or, to the knowledge of the Company, threatened actions, suits,
claims, legal proceedings or other proceedings based on, and the Company has
not directly or indirectly received any notice of any complaint, order,
directive, citation, notice of responsibility, notice of potential
responsibility, or information request from any Government Entity or any other
person arising out of or attributable to: (i) the current or past presence,
Release or threatened Release of Hazardous Materials at or from any part of the
Company Real Property; (ii) the off-site disposal or treatment of Hazardous
Materials originating on or from the Company Real Property or the businesses or
Assets of the Company; or (iv) any violation of Environmental Laws at any part
of the Company Real Property or otherwise arising from the Company's activities
involving Hazardous Materials.
(b) There are no environmental permits of the Company that are
nontransferable or require consent, notification or other action to remain in
full force and effect following the consummation of the Merger, and no other
consent, notification, approval or other action is required by the Company
under any Environmental Law in order to consummate the Merger.
(c) As used herein, these terms shall have the following meanings:
(i) "Environmental Laws" means all Laws (including, without
limitation, the Comprehensive Environmental Response, Compensation and
Liability Act), including any plans, other criteria, or guidelines promulgated
pursuant to such Laws, now or hereafter in effect relating to the generation,
production, installation, use, storage, treatment, transportation, release,
threatened release, or disposal of Hazardous Materials, noise control, or the
protection of human health or safety, natural resources, or the environment.
(ii) "Hazardous Materials" means wastes, substances,
radiation, or materials (whether solids, liquids or gases) (i) which are
hazardous, toxic, infectious, explosive, radioactive, carcinogenic, or
mutagenic; (ii) which are or become defined as a "pollutants", "contaminants",
"hazardous materials", "hazardous wastes", "hazardous substances", "toxic
substances", "radioactive
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<PAGE> 26
materials", "solid wastes" or other similar designations in, or otherwise
subject to regulation under, any Environmental Laws; (iii) the presence of
which on the Company Real Property or the Acquiror Real Property, as the case
may be, cause or threaten to cause a nuisance pursuant to applicable statutory
or common law upon such Company Real Property or Acquiror Real Property, as the
case may be, or to adjacent properties; (iv) without limitation, which contain
polychlorinated biphenyl (PCBs), asbestos and asbestos-containing materials,
lead-based paints, urea-formaldehyde foam insulation, and petroleum or
petroleum products (including, without limitation, crude oil or any fraction
thereof) or (v) which pose a hazard to human health, safety, natural resources,
industrial hygiene, or the environment, or an impediment to working conditions.
(iii) "Release" means any emission, spill, seepage, leak,
escape, leaching, discharge, injection, pumping, pouring, emptying, dumping,
disposal, or release of Hazardous Materials from any source (including, without
limitation, the Company Real Property or Acquiror Real Property, as the case
may be, and property adjacent thereto) into or upon the environment, including
the air, soil, improvements, surface water, groundwater, the sewer, septic
system, storm drain, publicly owned treatment works, or waste treatment,
storage, or disposal systems at, on, from, above, or under the Company Real
Property or Acquiror Real Property, as the case may be, or any other property
at which Hazardous Materials originating on or from the Company Real Property
or Acquiror Real Property, as the case may be, or the businesses or Assets of
the Company or Acquiror, as the case may be, have been stored, treated or
disposed.
SECTION 3.16 ABSENCE OF LITIGATION.
There are (a) no claims, actions, suits, investigations, or
proceedings pending or, to the Company's knowledge, threatened against the
Company or any of its Assets before any court, administrative, governmental,
arbitral, mediation or regulatory authority or body, domestic or foreign, and
(b) no judgments, decrees, injunctions or orders of any Government Entity or
arbitrator outstanding against the Company or any of its Assets.
SECTION 3.17 POOLING OF INTERESTS.
To the best knowledge of the Company and the Stockholders, neither the
Company nor any of its directors, officers or stockholders has taken any action
which would interfere with Acquiror's ability to account for the Merger as a
pooling of interests. The Stockholders are all of the "affiliates" of the
Company (as such term is used in SEC Accounting Series Release Number 130 and
Release Number 135 and Rule 145 under the Securities Act).
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SECTION 3.18. BOOKS AND RECORDS.
The books of account, stock records, minute books and other records of
the Company are true and complete in all material respects, and the matters
contained therein are appropriately and accurately reflected in the financial
statements to the extent required to be reflected therein.
SECTION 3.19. TAXES AND ASSESSMENTS.
(a) The Company has (or, in the case of returns becoming due after
the date hereof and on or before the Effective Time, will have prior to the
Effective Time) duly filed all Tax returns required to be filed by Company on
or before the Effective Time with respect to all applicable Taxes (as defined
below). No penalties or other charges are or will become due with respect to
any of the Company's Tax returns as the result of the late filing thereof.
All of the Company Tax returns are (or, in the case of returns becoming due
after the date hereof and on or before the Effective Time, will be) true and
complete in all material respects. The Company: (i) has paid all Taxes due or
claimed to be due by any taxing authority in connection with any of the Company
Tax returns (without regard to whether or not such Taxes are shown as due on
such Company Tax returns); or (ii) has established (or, in the case of amounts
becoming due after the date hereof, prior to the Effective Time will have paid
or established) in its financial statements provided to Acquiror adequate
reserves (in conformity with generally accepted accounting principles
consistently applied) for the payment of such Taxes. The amounts set up as
reserves for Taxes on the financial statements of the Company furnished to
Acquiror are, to the Company's knowledge, sufficient for the payment of all
unpaid Taxes, whether or not such Taxes are disputed or are yet due and
payable, for or with respect to the period, and for which the Company may be
liable or as a transferee of the assets of, or successor to, any corporation,
person, association, partnership, joint venture or other entity.
(b) The Company, either in its own right or as a transferee, has
not or on the Effective Time will not have any liability for Taxes payable for
or with respect to any periods prior to and including the Effective Time in
excess of the amounts actually paid prior to the Effective Time or reserved for
in financial statements furnished to Acquiror.
(c) There is no action, suit, proceeding, audit, investigation or
claim pending or, to the knowledge of the Company, threatened in respect of any
Taxes for which the Company is or may become liable, nor has any deficiency or
claim for any such Taxes been proposed, asserted or, to the knowledge of the
Company, threatened. The Company has not consented to any waivers or
extensions of any statute of limitations with respect to any taxable year of
the Company. There is no agreement, waiver or consent providing for an
extension of time with respect to the
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<PAGE> 28
assessment or collection of any Taxes against the Company, and no power of
attorney granted by the Company with respect to any tax matters is currently in
force.
(d) The Company has furnished to Acquiror true and complete copies
of all Company Tax returns and all written communications by or to the Company
relating to any such Company Tax returns or to any deficiency or claim proposed
and/or asserted, irrespective of the outcome of such matter, but only to the
extent such items relate to tax years (i) which are subject to an audit,
investigation, examination or other proceeding, or (ii) with respect to which
the statute of limitations has not expired.
(e) Schedule 3.19 sets forth (i) all federal tax elections that
currently are in effect with respect to Company, and (ii) all elections for
purposes of foreign, state or local Taxes and all consents or agreements for
purposes of federal, foreign, state or local Taxes in each case that reasonably
could be expected to affect or be binding upon Company or its assets or
operations after the Effective Time. Schedule 3.19 sets forth all changes in
accounting methods for Tax purposes at any time made, agreed to, requested or
required with respect to the Company.
(f) The Company (i) is not and never has been a partner in a
partnership or an owner of an interest in an entity treated as a partnership
for federal income tax purposes; (ii) has not executed or filed with the
Internal Revenue Service any consent to have the provisions of Section 341(f)
of the Code apply to it; (iii) is not subject to Section 999 of the Code; (iv)
is not a passive foreign investment company as defined in Section 1296(a) of
the Code; and (v) is not a party to an agreement relating to the sharing,
allocation or payment of, or indemnity for, Taxes.
SECTION 3.20. EMPLOYMENT MATTERS.
(a) Schedule 3.20 contains a true and complete list of names,
positions and annual rates of compensation (including bonuses and other special
compensation arrangements) of all current directors, officers and employees of
the Company. With respect to any persons employed by the Company, the Company
is in compliance with all Laws respecting employment conditions and practices,
have withheld all amounts required by any applicable Laws to be withheld from
wages or any Taxes or penalties for failure to comply with any of the
foregoing.
(b) There are no collective bargaining agreements applicable to any
Company employees and the Company does not have a duty to bargain with any
labor organization with respect to any such persons. There is not pending any
demand for recognition or any other request or demand from a labor organization
for representative status with respect to any persons employed by the Company.
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(c) With respect to any persons employed by the Company, (i) the
Company has not engaged in any unfair labor practice within the meaning of the
National Labor Relations Act and has not violated any legal requirement
prohibiting discrimination on the basis of race, color, national origin, sex,
religion, age, marital status, or handicap in its employment conditions or
practices; and (ii) there are no pending or, to the knowledge of the Company,
threatened unfair labor practice charges or discrimination complaints relating
to race, color, national origin, sex, religion, age, marital status, or
handicap against the Company before any Government Entity nor, to the knowledge
of the Company, does any basis therefor exist.
SECTION 3.21. EMPLOYEE BENEFIT PLANS.
(a) Schedule 3.21 sets forth a list of all of the pension,
retirement, profit-sharing, deferred compensation, stock option, employee stock
ownership, severance pay, sabbatical, vacation, bonus, loans, medical, dental,
vision care, disability, life insurance or other employee programs,
arrangements or agreements and all other material employee benefit plans or
fringe benefit plans, including, without limitation, all "employee benefit
plans" as that term is defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), currently adopted,
maintained by, sponsored in whole or in part by, or contributed to by the
Company or for which the Company could incur a liability or any entity required
to be aggregated with the Company (each, a "Company Commonly Controlled
Entity") pursuant to Section 414 of the Code for the benefit of present and
former employees or directors of the Company or their beneficiaries, or
providing benefits to such persons in respect of services provided to any such
entity (collectively, the "Company Benefit Plans"). Any of the Company Benefit
Plans which is an "employee pension benefit plan", as that term is defined in
Section 3(2) of ERISA, is referred to herein as a "Company ERISA Plan".
(b) Each of the Company Benefit Plans intended to be "qualified"
within the meaning of Section 401(a) or 501 of the Code has been determined by
the Internal Revenue Service to be so qualified and to the Company's knowledge,
no circumstances exist that could reasonably be expected by the Company to
result in the revocation of any such determination. Each of the Company
Benefit Plans is in compliance with their terms and the applicable terms of
ERISA and the Code and any other applicable laws, rules and regulations the
breach or violation of which could result in a material liability to the
Company or any Company Commonly Controlled Entity.
(c) No Company ERISA Plan which is a defined benefit pension plan
has any "unfunded current liability", as that term is defined in
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Section 302(d)(8)(A) of ERISA, and the present fair market value of the assets
of any such plan equals or exceeds the plan's "benefit liabilities", as that
term is defined in Section 4001(a)(16) of ERISA, when determined under
actuarial factors that would apply if the plan terminated in accordance with
all applicable legal requirements. All contributions, premiums and other
payments with respect to each Company ERISA Plan which have become due and
payable have been paid.
(d) No Company Benefit Plan is or has been a multiemployer plan
within the meaning of Section 3(37) of ERISA (a "Multiemployer Plan"). Neither
the Company nor any Commonly Controlled Entity has completely or partially
withdrawn from any Multiemployer Plan. No termination liability to the Pension
Benefit Guaranty Corporation or withdrawal liability to any Multiemployer Plan
that is material in the aggregate has been or is reasonably expected to be
incurred with respect to any Multiemployer Plan by the Company or any Company
Commonly Controlled Entity.
(e) The Company has made available to Acquiror complete copies, as
of the date hereof, of all of the Company Benefit Plans that have been reduced
to writing, together with all documents establishing or constituting any
related trust, annuity contract, insurance contract or other funding
instrument. The Company has made available to Acquiror complete copies of
current plan summaries, employee booklets, personnel manuals and other material
documents or written materials concerning the Company Benefit Plans that are in
the possession of the Company as of the date hereof.
(f) No claim, lawsuit, arbitration or other action has been
threatened or instituted against any Company Benefit Plan.
(g) Except as contemplated by the terms of this Agreement, the
consummation of the transactions contemplated by this Agreement will not give
rise to any liability, including, without limitation, liability for severance
pay or termination pay, or accelerate the time of payment or vesting or
increase the amount of compensation or benefits due to any employee, director
or stockholder of the Company (whether current, former, or retired) or their
beneficiaries solely by reason of such transactions. No amounts payable under
any Company Benefit Plan will fail to be deductible for federal income tax
purposes by virtue of Section 280G or 162(m) of the Code.
(h) The Company does not maintain, contribute to, or in any way
provide for any benefits of any kind (other than under Section 4980B of the
Code, the Federal Social Security Act, or a plan qualified under Section 401(a)
of the Code) to any current or future retiree or terminee.
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(i) Neither the Company nor any Company Commonly Controlled Entity
has (or could incur) any liability under Title IV of ERISA.
SECTION 3.22. TRANSACTIONS WITH RELATED PARTIES.
Except for expense advances to employees in the ordinary course of
business, no present or former officer, director, stockholder or person known
by the Company to be an affiliate of the Company, nor any person known by the
Company to be an affiliate of any such person, is currently a party to any
transaction or agreement with the Company, including any agreement providing
for any loans or advances in an amount in excess of One Thousand Dollars
($1,000) individually (or Five Thousand Dollars ($5,000) in the aggregate for
all such agreements), the employment of, furnishing of services by, rental of
their respective Assets from or to, or otherwise requiring payments to, any
such officer, director, stockholder or affiliate.
SECTION 3.23. INSURANCE.
Schedule 3.23 contains a list of all insurance policies of title,
property, fire, casualty, liability, life, worker's compensation, libel and
slander, and other forms of insurance of any kind relating to the Assets or the
business and operations of the Company, true and correct copies of which have
been made available to Acquiror. All premiums with respect to such policies
covering all periods up to and including the date hereof have been paid, and no
notice of cancellation or termination has been received with respect to any
such policy. All such policies (a) are in full force and effect; (b) are
sufficient for compliance by the Company with all requirements of applicable
Law and of all licenses, franchises and other agreements to which the Company
is a party; (c) are valid, outstanding, and enforceable policies; and (d)
provide adequate insurance coverage for the respective Assets and the business
and operations of the Company. There are no pending claims under any insurance
policies and to the Company's knowledge there are no facts which would lead the
Company to believe that the Company will likely receive a claim under any
insurance policies.
SECTION 3.24. PERMITS.
The Company holds all licenses and permits from Government Entities
which are necessary for the conduct of its business, except where the failure
to hold any such license or permit would not have a Company Material Adverse
Effect.
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SECTION 3.25. BROKERS.
Except as set forth on Schedule 3.25 hereto, no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company.
SECTION 3.26. MINUTE BOOKS.
The minute books of the Company made available to Acquiror contain a
complete and accurate summary of all meetings of directors and shareholders or
actions by written consent since the time of incorporation of the Company
through the date of this Agreement, and reflect all transactions referred to in
such minutes accurately in all material respects.
SECTION 3.27. REORGANIZATION TREATMENT.
Neither the Company nor any Stockholder has taken, agreed to take, is
obligated to take or intends to take any action that would cause the Merger to
fail to qualify as a reorganization within the meaning of Section 368 of the
Code.
SECTION 3.28 HSR ACT COMPLIANCE.
The "Person" (as that term is defined in the HSR Act and implementing
regulations) in which the Company is included does not have total assets of One
Hundred Million Dollars ($100,000,000) or more as stated on the last regularly
prepared consolidated balance sheet of that "Person", and does not have annual
net sales of One Hundred Million Dollars ($100,000,000) or more as stated on
the last regularly prepared consolidated annual statement of income and
expenses of that "Person".
SECTION 3.29. DISCLOSURE.
No representations or warranties by the Company in this Agreement and
no statement or information contained in the Schedules hereto or any
certificate furnished or to be furnished by the Company to Acquiror pursuant to
the provisions of this Agreement, contains or will contain any untrue statement
of a material fact or omits or will omit to state any material fact necessary,
in light of the circumstances under which it was made, in order to make the
statements herein or therein not misleading.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
In addition to the representations and warranties made by the
Stockholders in Article III hereof, each Stockholder hereby severally
represents and warrants, as to himself or herself, to Acquiror and Merger Sub
as follows:
SECTION 4.1. AUTHORITY AND CAPACITY.
Such Stockholder has full legal right, capacity, power and authority
necessary to execute and deliver this Agreement and all other Related
Agreements, to perform the obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. This Agreement
and the Related Agreements have been duly executed and delivered by such
Stockholder and, assuming due authorization, execution and delivery by
Acquiror, Merger Sub and the other parties hereto and thereto, constitute
legal, valid and binding obligations of such Stockholder, enforceable in
accordance with their respective terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium and other similar
laws of general applicability relating to or affecting creditor's rights
generally and by the applications of general principles of equity.
SECTION 4.2. ABSENCE OF VIOLATION.
The execution, delivery and performance by such Stockholder of this
Agreement and all other Related Agreements, the fulfillment of and the
compliance with the respective terms and provisions hereof and thereof, and the
consummation of the transactions contemplated hereby and thereby, do not and
will not (a) conflict with, or violate any provision of, any Laws applicable to
the Stockholder; or (b) conflict with, or result in any material breach of, or
constitute a default under, any agreement to which such Stockholder is a party
or by which such Stockholder or such Stockholder's property is bound or
affected.
SECTION 4.3. RESTRICTIONS AND CONSENTS.
Such Stockholder's execution and delivery of this Agreement and the
Related Agreements does not, and such Stockholder's performance of this
Agreement and the Related Agreements will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any third party
or any court, arbitral tribunal, regulatory body, administrative agency or
commission or Government Entity, except for the filing and recordation of
appropriate merger documents as required by the CGCL.
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SECTION 4.4. TITLE TO CAPITAL STOCK.
The shares of Company Common Stock reflected on Schedule 3.4 as being
owned by such Stockholder are the only shares of voting stock owned
beneficially or of record by such Stockholder, and except as set forth in
Schedule 3.4, such Stockholder does not own any other options, warrants or
rights to acquire shares of any class of capital stock of the Company. Such
Stockholder has the sole power respecting voting and transfer of such
Stockholder's shares, except, in the case of a married Stockholder, for the
interests of such Stockholder's spouse. The shares of Company Common Stock of
such Stockholder are now, and at all times prior to the Effective Time will be,
owned as indicated on Schedule 3.4 by such Stockholder, free and clear of all
Encumbrances, except as set forth on Schedule 3.4. In the case of each
Stockholder who is married, such Stockholder's spouse has executed and
delivered this Agreement and agrees to be bound by all of the provisions of
this Agreement and the Related Agreements to the same extent as if such spouse
were a Stockholder hereunder and thereunder.
SECTION 4.5. NON-REGISTRATION OF SECURITIES; PURCHASE FOR INVESTMENT
ONLY.
(a) Except as otherwise provided in and by this Agreement, the
Merger Stock issued to such Stockholder will be acquired for investment for
such Stockholder's own account, not as a nominee or agent, and not with a view
to the sale or distribution of any part thereof, and such Stockholder has no
present intention of selling, granting any participation in, or otherwise
distributing the same. Such Stockholder represents that the legal and
beneficial interest of the Merger Stock issued to such Stockholder (including
the Escrow Stock) will be held for such Stockholder's account only, and neither
in whole or in part for any other person. Except as otherwise provided in and
by this Agreement, such Stockholder further represents that such Stockholder
has no present contract, undertaking, agreement or arrangement with any person
to sell, transfer, or grant participation to such person or to any third
person, with respect to any of the Merger Stock.
(b) Such Stockholder understands and acknowledges that the offering
of the Merger Stock pursuant to the Merger Agreement is being conducted on the
basis of an exemption from registration under the Securities Act and that
Acquiror's reliance upon such exemption is predicated upon such Stockholder's
representations.
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SECTION 4.6. ABILITY OF STOCKHOLDER TO EVALUATE INVESTMENT AND BEAR
ECONOMIC RISK.
Such Stockholder further represents that he or she: (a) has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of such Stockholder's prospective investment in
the Merger Stock and such Stockholder's liabilities and obligations under this
Agreement; (b) has received all of the information he has requested from
Acquiror for deciding whether to accept the Merger Stock; (c) has the ability
to bear the economic risks of such Stockholder's prospective investment; (d) is
able, without materially impairing his financial condition, to hold the Merger
Stock for an indefinite period of time and to suffer complete loss on his
investment; (e) has been given sufficient time and opportunity to seek the
advice of counsel regarding such Stockholder's liabilities and obligations
hereunder; and (f) is an "accredited investor" as such term is defined in Rule
501 of Regulation D promulgated under the Securities Act.
SECTION 4.7. WAIVER OF DISSENTER'S RIGHTS.
Such Stockholder, by executing this Agreement, approves the Merger and
all other transactions contemplated by this Agreement, and hereby waives any
dissenter's rights to receive payment of the appraised value of such shares of
the Company Common Stock pursuant to Sections 1300 through 1312 of the CGCL.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror represents and warrants to the Company and the Stockholders
as follows:
SECTION 5.1. ORGANIZATION AND QUALIFICATION.
Acquiror is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Acquiror has the requisite
power and authority to own, lease and operate its Assets and properties and to
carry on its business as it is now being conducted and to perform the terms of
this Agreement and the transaction contemplated hereby. Acquiror is duly
qualified to conduct its business, and is in good standing, in each
jurisdiction where the ownership or leasing of its properties or the nature of
its activities in connection with the conduct of its business makes such
qualification necessary.
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SECTION 5.2. CERTIFICATE OF INCORPORATION AND BYLAWS.
Acquiror has heretofore delivered to the Company a complete and
correct copy of the certificate of incorporation and the bylaws of Acquiror,
each as amended to date. Such certificate of incorporation and bylaws are in
full force and effect. Acquiror is not in violation of any of the provisions
of its certificate of incorporation or bylaws.
SECTION 5.3. CAPITALIZATION.
The authorized capital stock of Acquiror consists of: (i) twenty
million (20,000,000) shares of Acquiror Common Stock, of which thirteen million
ninety thousand seven hundred twenty-seven (13,090,727) shares are issued and
outstanding (as of June 30, 1998, determined using the weighted average
treasury stock method); and (ii) five million (5,000,000) shares of preferred
stock, par value $.01 per share, of which two million one thousand four hundred
eighty-three (2,001,483) shares are issued and outstanding (as of June 30,
1998, determined using the weighted average treasury stock method). Acquiror
has made available to the Company true and complete information with respect to
all outstanding options, warrants or other rights, agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock
of Acquiror or obligating Acquiror to issue or sell any shares of capital stock
of, or other equity interests in Acquiror, including any securities directly or
indirectly convertible into or exercisable or exchangeable for any capital
stock or other equity securities of Acquiror. There are no outstanding
obligations of Acquiror to repurchase, redeem or otherwise acquire any shares
of its capital stock or make any investment (in the form of a loan, capital
contribution or otherwise) in any other person. All of the issued and
outstanding shares of Acquiror Common Stock have been, and the Merger Stock
will be, duly authorized and validly issued in accordance with applicable laws
and are and will be fully paid and nonassessable and not subject to preemptive
rights. Acquiror has provided to the Company a true and accurate description
of the capitalization of Acquiror before and immediately after the Merger,
including a description of the shares of capital stock of Acquiror that have
been reserved for any purpose.
SECTION 5.4. AUTHORITY.
Acquiror has the necessary corporate power and authority to enter into
this Agreement and the Related Agreements, to perform its obligations hereunder
and thereunder and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the Related
Agreements by Acquiror and the consummation by Acquiror of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of Acquiror are
necessary to authorize
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this Agreement and the Related Agreements or to consummate the transactions
contemplated hereby and thereby. This Agreement and the Related Agreements
have been duly executed and delivered by Acquiror and, assuming the due
authorization, execution and delivery by the Company, constitute legal, valid
and binding obligations of Acquiror, enforceable in accordance with their
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws of general applicability
relating to or affecting creditors' rights generally and by the application of
general principles of equity.
SECTION 5.5. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement and the Related
Agreements by Acquiror do not, and the performance by Acquiror of its
obligations under this Agreement and the Related Agreements will not, (i)
conflict with or violate the certificate of incorporation, bylaws or other
organizational document of Acquiror, (ii) conflict with or violate any Laws
applicable to Acquiror or its Assets, or (iii) result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Acquiror is a party or by which Acquiror is bound, or by which any of
its Assets is subject, except in the case of clauses (ii) and (iii) for such
conflicts, violations, breaches and defaults which would not have an Acquiror
Material Adverse Effect.
(b) The execution and delivery of this Agreement and the Related
Agreements by Acquiror does not, and the performance of this Agreement by
Acquiror will not, require any consent, approval, authorization or permit of,
or filing with or notification to, any third party or any court, arbitral
tribunal, regulatory body, administrative agency or commission, whether
national or foreign, or Government Entity, except for the filing and
recordation of appropriate merger documents as required by the CGCL and the
DGCL, the filing of required notices and documentation under the California
Blue Sky Laws, and except where the failure to obtain any such consent,
approval, authorization or permit, or to make such filing or notification,
would not have an Acquiror Material Adverse Effect and would not materially
adversely affect Acquiror's performance of its obligations under this Agreement
and the Related Agreements.
SECTION 5.6. ACQUIROR FINANCIAL STATEMENTS; NO LIABILITIES.
Acquiror has furnished to the Company (a) the audited balance sheets
of Acquiror as of December 31, 1996, and 1997, and the related audited
statements of income and cash flows for the fiscal years then ended (such
audited financial statements, including the schedules and notes thereto,
collectively, the "Acquiror Audited Financial Statements"); and (b) the
unaudited balance sheet of Acquiror as
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of June 30, 1998 (the "Acquiror Balance Sheet Date"), and the unaudited
statements of income and cash flows for the six-month period then ended (such
unaudited financial statements, collectively, the "Acquiror Unaudited Financial
Statements" and together with the Acquiror Audited Financial Statements, the
"Acquiror Financial Statements"). The Acquiror Financial Statements referred
to in this Section 5.6 present fairly the financial condition of Acquiror as of
their respective dates and for the respective periods indicated and have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis (except as otherwise noted in the notes thereto and that the
Acquiror Unaudited Financial Statements do not contain all required footnotes
and are subject to normal recurring year-end adjustments). Except as reflected
in the Acquiror Unaudited Financial Statements as of the Acquiror Balance Sheet
Date, Acquiror has no material liabilities, contingent or absolute, matured or
unmatured.
SECTION 5.7. ACCOUNTS RECEIVABLE.
The accounts receivable of Acquiror shown on the Acquiror Balance
Sheet, or acquired by Acquiror after the Acquiror Balance Sheet Date, have been
collected or are collectible in amounts not less than the amounts thereof
carried on the books of Acquiror, except to the extent of the allowance for
doubtful accounts shown on the Acquiror Balance Sheet.
SECTION 5.8. ABSENCE OF CERTAIN CHANGES OR EVENTS.
Since the Acquiror Balance Sheet Date, there has been no change or
event that has caused or would cause a Acquiror Material Adverse Effect and
Acquiror has conducted its business in the ordinary course, and Acquiror has
not (a) paid any dividend or distribution in respect of, or redeemed or
repurchased any of, its capital stock; (b) issued any capital stock, bonds or
other corporate securities or debt instruments, granted any options, warrants
or other rights calling for the issuance thereof, except for issuances of
options and shares of stock upon exercise of options in the ordinary course of
business, or borrowed any funds (except for borrowings under Acquiror's credit
facility in the ordinary course of business); (c) incurred any material loss
of, or significant injury to, any of the Assets as the result of any fire,
explosion, flood, windstorm, earthquake, labor trouble, riot, accident, act of
God or public enemy or armed forces, or other casualty; (d) incurred, or become
subject to, any obligation or liability (absolute or contingent, matured or
unmatured, known or unknown), except current liabilities incurred in the
ordinary course of business; (e) mortgaged, pledged or subjected to any
Encumbrance any of the Assets; (f) sold, exchanged, transferred or otherwise
disposed of any of its Assets except in the ordinary course of business, or
canceled any debts or claims; (g) written down the value of any Assets or
written off as uncollectible any accounts receivable, except write downs and
write-offs in the ordinary course of business,
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none of which, individually or in the aggregate, are material; (h) entered into
any transactions other than in the ordinary course of business and consistent
with past practice; (i) made any change in any method of accounting or
accounting practice; or (j) made any agreement or is otherwise legally
obligated to do any of the foregoing.
SECTION 5.9. ABSENCE OF LITIGATION.
Except for the arbitration/mediation proceeding pending with
Legislate, there are (a) no claims, actions, suits, investigations, or
proceedings pending or, to Acquiror's knowledge, threatened against Acquiror or
any of its Assets before any court, administrative, governmental, arbitral,
mediation or regulatory authority or body, domestic or foreign, and (b) no
judgments, decrees, injunctions or orders of any Government Entity or
arbitrator outstanding against Acquiror or any of its Assets.
SECTION 5.10. BROKERS.
No broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Acquiror.
SECTION 5.11. REORGANIZATION TREATMENT.
Neither Acquiror nor the Merger Sub has taken, agreed to take, or
intends to take any action that would cause the Merger to fail to qualify as a
reorganization within the meaning of Section 368 of the Code.
SECTION 5.12. HSR ACT COMPLIANCE.
The "Person" (as that term is defined in the HSR Act and implementing
regulations) in which Acquiror is included does not have total assets of One
Hundred Million Dollars ($100,000,000) or more as stated on the last regularly
prepared consolidated balance sheet of that "Person", and does not have annual
net sales of One Hundred Million Dollars ($100,000,000) or more as stated on
the last regularly prepared consolidated annual statement of income and
expenses of that "Person".
SECTION 5.13. ASSETS.
Acquiror is the sole and exclusive legal and equitable owner of and
has good and marketable title to its Assets (except for Intellectual Property
with respect to which Acquiror's representations and warranties are set forth
in Section 5.17), free and clear of all Encumbrances, except for Encumbrances
arising under or
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pursuant to Acquiror's credit facility and Encumbrances incurred in the
ordinary course of Acquiror's business. No person or Government Entity has an
option to purchase, right of first refusal or other similar right with respect
to all or any part of Acquiror's Assets. All of the personal property of
Acquiror actively used in the conduct of its business is in good working order
and repair, ordinary wear and tear excepted, and is suitable and adequate for
the uses for which it is intended or is being used.
SECTION 5.14. LEASES.
Acquiror has provided to the Company access to all leases and other
agreements under which Acquiror is lessee or lessor of any Asset, or holds,
manages or operates any Asset owned by any third party, or under which any
Asset owned by Acquiror is held, operated or managed by a third party, and
which involve payments of more than Five Thousand Dollars ($5,000) individually
(or Twenty Thousand Dollars ($20,000) in the aggregate for all such leases and
other agreements) over its remaining term (including, without limitation,
periods covered by any option to renew by either party). Each such lease and
other agreement is in full force and effect and constitutes a legal, valid and
binding obligation of, and is legally enforceable against, Acquiror and, to the
knowledge of Acquiror, the other party or respective parties thereto and grants
the leasehold estate it purports to grant free and clear of all Encumbrances.
With respect to each such lease and other agreement, (a) all necessary
governmental approvals with respect thereto required to be obtained by Acquiror
have been obtained, (b) all necessary filings or registrations therefor
required to be made by Acquiror have been made, and (c) there have been no
threatened cancellations thereof and no outstanding disputes thereunder.
Acquiror has performed in all material respects all obligations thereunder
required to be performed by Acquiror to date. Acquiror is not and, to
Acquiror's knowledge, no other party is in default in any material respect
under any of the foregoing, and there has not occurred any event which (whether
with or without notice, lapse of time or the happening or occurrence of any
other event) would constitute such a default.
SECTION 5.15. CONTRACTS.
(a) All the Acquiror Contracts (as defined below) are valid and in
full force and effect and constitute legal, valid and binding obligations of,
and are legally enforceable against, Acquiror and, to the knowledge of
Acquiror, the other party or respective parties thereto, except where the
failure of any such Acquiror Contract or Acquiror Contracts to be valid, in
full force and effect, or to constitute a legal, valid, binding and enforceable
obligation against Acquiror or the other parties thereto would not,
individually or in the aggregate, have an Acquiror Material Adverse Effect.
With respect to each such Acquiror Contract, (i) all necessary
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governmental approvals with respect thereto required to be obtained by Acquiror
have been obtained and (ii) all necessary filings or registrations therefor
required to be made by Acquiror have been made, except in the case of the
foregoing clauses (i) and (ii) where the failure to obtain any such approvals
or make such filings and registrations would not, individually or in the
aggregate, have an Acquiror Material Adverse Effect. With respect to each such
Acquiror Contract, (i) Acquiror has performed all obligations thereunder
required to be performed by Acquiror to date and (ii) Acquiror is not and, to
Acquiror's knowledge, no other party is in default under any of the Acquiror
Contracts, and there has not occurred any event which (whether with or without
notice, lapse of time or the happening or occurrence of any other event) would
constitute such a default, except in the case of the foregoing clauses (i) and
(ii) for such nonperformance, events and defaults which would not, individually
or in the aggregate, have an Acquiror Material Adverse Effect.
(b) As used herein, an "Acquiror Contract" shall mean any
agreement, contract or commitment (whether written or oral) to which Acquiror
is a party or by which Acquiror or any of its Assets is bound which involves
payments of more than Five Thousand Dollars ($5,000) individually or Twenty
Thousand Dollars ($20,000) in the aggregate with all other similar types of
such agreements, contracts or commitments.
SECTION 5.16. REAL PROPERTY.
Acquiror has provided to the Company access to all documentation
evidencing all leasehold interests in real estate, easements, rights to access,
rights-of-way and other real property interests which are owned, leased, used
or held for use by Acquiror (collectively, the "Acquiror Real Property").
Acquiror does not hold any fee simple interest in any real estate. The
Acquiror Real Property constitutes all real property interests necessary to
conduct the business and operations of Acquiror as now conducted and is
suitable and adequate for the uses for which it is currently devoted.
SECTION 5.17. INTELLECTUAL PROPERTY.
(a) Acquiror either owns or has adequate rights to use all of the
Intellectual Property that is necessary to and currently used for its business
as now conducted. The software which Acquiror licenses to third parties is
free and clear of Encumbrances, and to the best of Acquiror's knowledge, all
other Acquiror Intellectual Property is free and clear of Encumbrances. All
Acquiror Software either does not contain any third party Intellectual Property
or, to the extent it contains third party Intellectual Property, Acquiror has
adequate rights to include such third party Intellectual Property in such
Acquiror Software.
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(b) There are no pending or, to the best of Acquiror's knowledge,
threatened claims against Acquiror alleging that the conduct of its business
infringes any Intellectual Property rights of others. The Intellectual
Property of Acquiror is not subject to any outstanding injunction, judgment,
order, decree, ruling or charge. To the best of Acquiror's knowledge, Acquiror
has not engaged in unfair competition against any third party and the business
of Acquiror as now conducted does not infringe any third party Intellectual
Property rights.
(c) To the best of Acquiror's knowledge, no third party is
infringing upon any of Acquiror's Intellectual Property, and Acquiror has not
notified any third party that it believes such third party is interfering with,
infringing or misappropriating any of Acquiror's Intellectual Property or
engaging in any act of unfair competition. Acquiror represents and warrants
that it has the right to bring an action for the infringement of all of its
Intellectual Property.
(d) Each present or former employee, consultant, officer, director
or stockholder of Acquiror has executed a confidentiality and nondisclosure
agreement substantially in the form which has been made available to the
Company, and an Intellectual Property assignment agreement.
(e) Any third party to which Acquiror has disclosed or allowed
access to the proprietary and confidential Intellectual Property of Acquiror
has executed a confidentiality and nondisclosure agreement with respect to such
Intellectual Property.
(f) To the best of Acquiror's knowledge any hardware, software or
firmware licensed or purchased by Acquiror from third parties, accurately
processes date/time data (including but not limited to, calculating, comparing
and sequencing) from, into and between the twentieth and twenty-first
centuries, and the years 1999 and 2000 and leap year calculations. Acquiror
represents and warrants that Acquiror Software accurately processes date/time
data (including but not limited to, calculating, comparing and sequencing)
from, into and between the twentieth and twenty-first centuries, and the years
1999 and 2000 and leap year calculations when either (A) used as a standalone
application, or (B) integrated into or otherwise used in conjunction with the
Third Party Products with which such Acquiror Software was designed or intended
to operate at the time such Acquiror Software was (i) developed for internal
use or (ii) provided to Acquiror customers or tested by Acquiror for such
customers, whichever is later. Notwithstanding the foregoing, Acquiror shall
not be considered to be in breach of the representation and warranty set forth
in the immediately preceding sentence if the failure of such Acquiror Software
to comply with such representation and warranty is attributable solely to (i) a
failure by any Third Party Product to accurately process date/time data
(including but not limited to, calculating, comparing and sequencing) from,
into and between the twentieth and twenty-first centuries, and the years 1999
and 2000 and
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leap year calculations; or (ii) any modification of the Acquiror Software by an
Acquiror customer following the provision of such Acquiror Software to such
customer or the testing of the Acquiror Software by Acquiror for such customer,
whichever is later.
SECTION 5.18. ENVIRONMENTAL MATTERS.
(a) Acquiror has complied and is in compliance in all material
respects with all Environmental Laws. Acquiror does not have any liability
under any Environmental Law, nor is Acquiror responsible for any liability of
any other person under any Environmental Law. There are no pending or, to the
knowledge of Acquiror, threatened actions, suits, claims, legal proceedings or
other proceedings based on, and Acquiror has not directly or indirectly
received any notice of any complaint, order, directive, citation, notice of
responsibility, notice of potential responsibility, or information request from
any Government Entity or any other person arising out of or attributable to:
(i) the current or past presence, Release or threatened Release of Hazardous
Materials at or from any part of the Acquiror Real Property; (ii) the off-site
disposal or treatment of Hazardous Materials originating on or from the
Acquiror Real Property or the businesses or Assets of Acquiror; or (iv) any
violation of Environmental Laws at any part of the Acquiror Real Property or
otherwise arising from Acquiror's activities involving Hazardous Materials.
(b) No consent, notification, approval or other action is required
by Acquiror under any Environmental Law in order to consummate the Merger.
SECTION 5.19. POOLING OF INTERESTS.
To the best knowledge of Acquiror, Acquiror has not taken any action
which would interfere with Acquiror's ability to account for the Merger as a
pooling of interests.
SECTION 5.20. BOOKS AND RECORDS.
The books of account, stock records, minute books and other records of
Acquiror are true and complete in all material respects, and the matters
contained therein are appropriately and accurately reflected in the financial
statements to the extent required to be reflected therein.
SECTION 5.21. TAXES AND ASSESSMENTS.
(a) Acquiror has (or, in the case of returns becoming due after the
date hereof and on or before the Effective Time, will have prior to the
Effective Time) duly filed all Tax returns required to be filed by Acquiror on
or before the
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Effective Time with respect to all applicable Taxes (as defined below). No
penalties or other charges are or will become due with respect to any of
Acquiror's Tax returns as the result of the late filing thereof. All of
Acquiror Tax returns are (or, in the case of returns becoming due after the
date hereof and on or before the Effective Time, will be) true and complete in
all material respects. Acquiror: (i) has paid all Taxes due or claimed to be
due by any taxing authority in connection with any of Acquiror Tax returns
(without regard to whether or not such Taxes are shown as due on such Acquiror
Tax returns); or (ii) has established (or, in the case of amounts becoming due
after the date hereof, prior to the Effective Time will have paid or
established) in its financial statements made available to the Company adequate
reserves (in conformity with generally accepted accounting principles
consistently applied) for the payment of such Taxes. The amounts set up as
reserves for Taxes on the financial statements of Acquiror made available to
the Company are, to Acquiror's knowledge, sufficient for the payment of all
unpaid Taxes, whether or not such Taxes are disputed or are yet due and
payable, for or with respect to the period, and for which Acquiror may be
liable or as a transferee of the assets of, or successor to, any corporation,
person, association, partnership, joint venture or other entity.
(b) Acquiror, either in its own right or as a transferee, has not
or on the Effective Time will not have any material liability for Taxes payable
for or with respect to any periods prior to and including the Effective Time in
excess of the amounts actually paid prior to the Effective Time or reserved for
in financial statements made available to the Company.
(c) There is no action, suit, proceeding, audit, investigation or
claim pending or, to the knowledge of Acquiror, threatened in respect of any
Taxes for which Acquiror is or may become liable, nor has any deficiency or
claim for any such Taxes been proposed, asserted or, to the knowledge of
Acquiror, threatened. Acquiror has not consented to any waivers or extensions
of any statute of limitations with respect to any taxable year of Acquiror.
There is no agreement, waiver or consent providing for an extension of time
with respect to the assessment or collection of any Taxes against Acquiror, and
no power of attorney granted by Acquiror with respect to any tax matters is
currently in force.
(d) Acquiror has made available to Acquiror true and complete
copies of all Acquiror Tax returns and all written communications by or to
Acquiror relating to any such Acquiror Tax returns or to any deficiency or
claim proposed and/or asserted, irrespective of the outcome of such matter, but
only to the extent such items relate to tax years (i) which are subject to an
audit, investigation, examination or other proceeding, or (ii) with respect to
which the statute of limitations has not expired.
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(e) Acquiror has made available to the Company information
regarding (i) all federal tax elections that currently are in effect with
respect to Acquiror, and (ii) all elections for purposes of foreign, state or
local Taxes and all consents or agreements for purposes of federal, foreign,
state or local Taxes in each case that reasonably could be expected to affect
or be binding upon Acquiror or its assets or operations after the Effective
Time, and (iii) changes in accounting methods for Tax purposes at any time
made, agreed to, requested or required with respect to Acquiror.
(f) Acquiror (i) is not and never has been a partner in a
partnership or an owner of an interest in an entity treated as a partnership
for federal income tax purposes; (ii) has not executed or filed with the
Internal Revenue Service any consent to have the provisions of Section 341(f)
of the Code apply to it; (iii) is not subject to Section 999 of the Code; (iv)
is not a passive foreign investment company as defined in Section 1296(a) of
the Code; and (v) is not a party to an agreement relating to the sharing,
allocation or payment of, or indemnity for, Taxes.
SECTION 5.22. EMPLOYMENT MATTERS.
(a) Acquiror has made available to the Company true and complete
information regarding the names, positions and annual rates of compensation
(including bonuses and other special compensation arrangements) of all current
directors, officers and employees of Acquiror. With respect to any persons
employed by Acquiror, Acquiror is in compliance with all Laws respecting
employment conditions and practices, have withheld all amounts required by any
applicable Laws to be withheld from wages or any Taxes or penalties for failure
to comply with any of the foregoing.
(b) There are no collective bargaining agreements applicable to any
Acquiror employees and Acquiror does not have a duty to bargain with any labor
organization with respect to any such persons. There is not pending any demand
for recognition or any other request or demand from a labor organization for
representative status with respect to any persons employed by Acquiror.
(c) With respect to any persons employed by Acquiror, (i) Acquiror
has not engaged in any unfair labor practice within the meaning of the National
Labor Relations Act and has not violated any legal requirement prohibiting
discrimination on the basis of race, color, national origin, sex, religion,
age, marital status, or handicap in its employment conditions or practices; and
(ii) there are no pending or, to the knowledge of Acquiror, threatened unfair
labor practice charges or discrimination complaints relating to race, color,
national origin, sex, religion, age, marital status, or handicap against
Acquiror before any Government Entity nor, to the knowledge of Acquiror, does
any basis therefor exist.
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SECTION 5.23. EMPLOYEE BENEFIT PLANS.
(a) Acquiror has made available to the Company copies of all of the
pension, retirement, profit-sharing, deferred compensation, stock option,
employee stock ownership, severance pay, sabbatical, vacation, bonus, loans,
medical, dental, vision care, disability, life insurance or other employee
programs, arrangements or agreements and all other material employee benefit
plans or fringe benefit plans, including, without limitation, all "employee
benefit plans" as that term is defined in Section 3(3) of ERISA, currently
adopted, maintained by, sponsored in whole or in part by, or contributed to by
Acquiror or for which Acquiror could incur a liability or any entity required
to be aggregated with Acquiror (each, an "Acquiror Commonly Controlled Entity")
pursuant to Section 414 of the Code for the benefit of present and former
employees or directors of Acquiror or their beneficiaries, or providing
benefits to such persons in respect of services provided to any such entity
(collectively, the "Acquiror Benefit Plans"). Any of the Acquiror Benefit
Plans which is an "employee pension benefit plan", as that term is defined in
Section 3(2) of ERISA, is referred to herein as an "Acquiror ERISA Plan".
(b) Each of the Acquiror Benefit Plans intended to be "qualified"
within the meaning of Section 401(a) or 501 of the Code has been determined by
the Internal Revenue Service to be so qualified and to Acquiror's knowledge, no
circumstances exist that could reasonably be expected by Acquiror to result in
the revocation of any such determination. Each of the Acquiror Benefit Plans
is in compliance with their terms and the applicable terms of ERISA and the
Code and any other applicable laws, rules and regulations the breach or
violation of which could result in a material liability to Acquiror or any
Acquiror Commonly Controlled Entity.
(c) No Acquiror ERISA Plan which is a defined benefit pension plan
has any "unfunded current liability", as that term is defined in Section
302(d)(8)(A) of ERISA, and the present fair market value of the assets of any
such plan equals or exceeds the plan's "benefit liabilities", as that term is
defined in Section 4001(a)(16) of ERISA, when determined under actuarial
factors that would apply if the plan terminated in accordance with all
applicable legal requirements. All contributions, premiums and other payments
with respect to each Acquiror ERISA Plan which have become due and payable have
been paid.
(d) No Acquiror Benefit Plan is or has been a Multiemployer Plan.
Neither Acquiror nor any Acquiror Commonly Controlled Entity has completely or
partially withdrawn from any Multiemployer Plan. No termination liability to
the Pension Benefit Guaranty Corporation or withdrawal liability to any
Multiemployer Plan that is material in the aggregate has been or is reasonably
expected to be incurred with respect to any Multiemployer Plan by Acquiror or
any Acquiror Commonly Controlled Entity.
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(e) Acquiror has made available to the Company complete copies, as
of the date hereof, of all of the Acquiror Benefit Plans that have been reduced
to writing, together with all documents establishing or constituting any
related trust, annuity contract, insurance contract or other funding
instrument. Acquiror has made available to the Company complete copies of
current plan summaries, employee booklets, personnel manuals and other material
documents or written materials concerning the Acquiror Benefit Plans that are
in the possession of Acquiror as of the date hereof.
(f) No claim, lawsuit, arbitration or other action has been
threatened or instituted against any Acquiror Benefit Plan.
(g) Except as contemplated by the terms of this Agreement, the
consummation of the transactions contemplated by this Agreement will not give
rise to any liability, including, without limitation, liability for severance
pay or termination pay, or accelerate the time of payment or vesting or
increase the amount of compensation or benefits due to any employee, director
or stockholder of Acquiror (whether current, former, or retired) or their
beneficiaries solely by reason of such transactions. No amounts payable under
any Acquiror Benefit Plan will fail to be deductible for federal income tax
purposes by virtue of Section 280G or 162(m) of the Code.
(h) Acquiror does not maintain, contribute to, or in any way
provide for any benefits of any kind (other than under Section 4980B of the
Code, the Federal Social Security Act, or a plan qualified under Section 401(a)
of the Code) to any current or future retiree or terminee.
(i) Neither Acquiror nor any Acquiror Commonly Controlled Entity
has (or could incur) any liability under Title IV of ERISA.
SECTION 5.24. TRANSACTIONS WITH RELATED PARTIES.
Except for expense advances to employees in the ordinary course of
business and except for the transactions and agreements previously disclosed to
the Company, no present or former officer, director, stockholder or person
known by Acquiror to be an affiliate of Acquiror, nor any person known by
Acquiror to be an affiliate of any such person, is currently a party to any
transaction or agreement with Acquiror, including any agreement providing for
any loans or advances in an amount in excess of One Thousand Dollars ($1,000)
individually (or Five Thousand Dollars ($5,000) in the aggregate for all such
agreements), the employment of, furnishing of services by, rental of their
respective Assets from or to, or otherwise requiring payments to, any such
officer, director, stockholder or affiliate.
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SECTION 5.25. INSURANCE.
Acquiror has made available to the Company true and correct copies of
all insurance policies of title, property, fire, casualty, liability, life,
worker's compensation, libel and slander, and other forms of insurance of any
kind relating to the Assets or the business and operations of Acquiror. All
premiums with respect to such policies covering all periods up to and including
the date hereof have been paid, and no notice of cancellation or termination
has been received with respect to any such policy. All such policies (a) are
in full force and effect; (b) are sufficient for compliance by Acquiror with
all requirements of applicable Law and of all licenses, franchises and other
agreements to which Acquiror is a party; (c) are valid, outstanding, and
enforceable policies; and (d) provide adequate insurance coverage for the
respective Assets and the business and operations of Acquiror. There are no
pending claims under any insurance policies and to Acquiror's knowledge there
are no facts which would lead Acquiror to believe that Acquiror will likely
receive a claim under any insurance policies.
SECTION 5.26. PERMITS.
Acquiror holds all licenses and permits from Government Entities which
are necessary for the conduct of its business, except where the failure to hold
any such license or permit would not have a Acquiror Material Adverse Effect.
SECTION 5.27. MINUTE BOOKS.
The minute books of Acquiror made available to the Company contain a
complete and accurate summary of all meetings of directors and stockholders or
actions by written consent since the time of incorporation of Acquiror through
the date of this Agreement, and reflect all transactions referred to in such
minutes accurately in all material respects.
SECTION 5.28. DISCLOSURE.
No representations or warranties by Acquiror in this Agreement and no
statement or information contained in the Schedules hereto or any certificate
furnished or to be furnished by Acquiror to the Company pursuant to the
provisions of this Agreement, contains or will contain any untrue statement of
a material fact or omits or will omit to state any material fact necessary, in
light of the circumstances under which it was made, in order to make the
statements herein or therein not misleading.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES
OF MERGER SUB
Acquiror and Merger Sub jointly and severally represent and warrant to
the Company and the Stockholders as follows:
SECTION 6.1. ORGANIZATION AND QUALIFICATION.
Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Merger Sub was formed
solely for the purpose of engaging in the transactions contemplated by this
Agreement. As of the date of this Agreement, except for obligations or
liabilities incurred in connection with its incorporation or organization and
the transactions contemplated by this Agreement, Merger Sub has not incurred,
directly or indirectly, any obligations or liabilities or engaged in any
business activities of any type or kind whatsoever or entered into any
agreements or arrangements with any person.
SECTION 6.2. ARTICLES OF INCORPORATION AND BYLAWS.
Merger Sub has heretofore made available to the Company a complete and
correct copy of the articles of incorporation and the bylaws of Merger Sub,
each as amended to date. Such articles of incorporation and bylaws are in full
force and effect. Merger Sub is not in violation of any of the provisions of
its articles of incorporation or bylaws or other organizational or governing
document.
SECTION 6.3. AUTHORITY.
Merger Sub has the necessary corporate power and authority to enter
into this Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Merger Sub and the consummation by Merger Sub of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of Merger Sub
are necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Merger Sub and, assuming the due authorization, execution and delivery by the
Company and Acquiror, constitutes a legal, valid and binding obligation of
Merger Sub, enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws of
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general applicability relating to or affecting creditors' rights generally and
by the application of general principles of equity.
SECTION 6.4. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by Merger Sub do
not, and the performance by Merger Sub of its obligations under this Agreement
will not, (i) conflict with or violate the articles of incorporation or bylaws
of Merger Sub, (ii) conflict with or violate any Laws applicable to Merger Sub
or its Assets, or (iii) result in any breach of or constitute a default under
any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Merger Sub is a
party or by which Merger Sub is bound, or by which any of its Assets is
subject.
(b) The execution and delivery of this Agreement by Merger Sub does
not, and the performance of this Agreement by Merger Sub will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any Government Entity, except for the filing and recordation of appropriate
merger documents as required by the CGCL and the DGCL.
ARTICLE VII
COVENANTS
SECTION 7.1. AFFIRMATIVE COVENANTS.
Each of the Company and Acquiror hereby covenants and agrees that,
prior to the Effective Time, unless otherwise expressly contemplated by this
Agreement or consented to in writing by the other party, it shall (a) operate
its business in the usual and ordinary course consistent with past practices
and in accordance with applicable Laws; (b) preserve intact its business
organization, maintain its rights and contracts, use its best efforts to retain
the services of its respective principal officers and key employees and
maintain its relationship with its respective suppliers, contractors,
distributors, customers and others having business relationships with it; (c)
keep its Assets in as good repair and condition as at present, ordinary wear
and tear excepted; and (d) keep in full force and effect in all material
respects insurance comparable in amount and scope of coverage to that currently
maintained.
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SECTION 7.2. NEGATIVE COVENANTS.
Except as expressly contemplated by this Agreement or otherwise
consented to in writing by the other party, from the date hereof until the
Effective Time, each of the Company and Acquiror shall not do any of the
following:
(a) (i) increase the compensation payable to or to become payable
to any of its directors, officers or employees; (ii) grant any severance or
termination pay to, or enter into or modify any employment or severance
agreement with, any of its directors, officers or employees; or (iii) adopt or
amend any employee benefit plan or arrangement, except as may be required by
applicable Law;
(b) declare, set aside or pay any dividend on, or make any other
distribution in respect of, any of its capital stock, except for the purposes
of making tax payments by the Stockholders as a result of the Company's
classification as an "S Corporation" within the meaning of Code Sections 1361
and 1362;
(c) (i) redeem, repurchase or otherwise reacquire any share of its
capital stock or any securities or obligations convertible into or exchangeable
for any share of its capital stock, or any options, warrants or conversion or
other rights to acquire any shares of its capital stock or any such securities
or obligations; (ii) effect any reorganization or recapitalization; or (iii)
split, combine or reclassify any of its capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of, or in
substitution for, shares of its capital stock;
(d) (i) issue, deliver, award, grant or sell, or authorize or
propose the issuance, delivery, award, grant or sale (including the grant of
any Encumbrances) of, any shares of any class of its capital stock (including
shares held in treasury) or other equity securities, any securities or
obligations directly or indirectly convertible into or exercisable or
exchangeable for any such shares, or any rights, warrants or options to
acquire, any such shares or securities or any rights, warrants or options
directly or indirectly to acquire any such shares or securities, except, in the
case of Acquiror, for grants of options and issuances of Acquiror Common Stock
upon the exercise of options in the ordinary course of business; or (ii) amend
or otherwise modify the terms of any such securities, obligations, rights,
warrants or options in a manner inconsistent with the provisions of this
Agreement or the effect of which shall be to make such terms more favorable to
the holders thereof;
(e) acquire or agree to acquire, by merging or consolidating with,
by purchasing an equity interest in or a substantial portion of the Assets of,
or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or otherwise
acquire or agree to acquire any Assets of any other person (other than the
purchase of inventory in the ordinary
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course of business and consistent with past practice), or make or commit to
make any capital expenditures;
(f) sell, lease, exchange, mortgage, pledge, transfer or otherwise
dispose of, or agree to sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, any of its Assets, except for the granting of licenses to
use Intellectual Property in the ordinary course of business;
(g) propose or adopt any amendments to its articles of
incorporation or bylaws;
(h) (i) change any of its methods of accounting, (ii) make or
rescind any express or deemed election relating to taxes, settle or compromise
any claim, action, suit, litigation, proceeding, arbitration, investigation,
audit or controversy relating to taxes, or change any of its methods of
reporting income or deductions for federal income tax purposes from those
employed in the preparation of the federal income tax returns for the taxable
years ending December 31, 1996 and 1997, except, in the case of clause (i) or
clause (ii), as may be required by law or generally accepted accounting
principles, consistently applied; or (iii) in the case of the Company, take any
action, or permit any of the Stockholders to take any action, that would cause
the Company to not be classified as an "S Corporation" within the meaning of
Code Sections 1361 and 1362 at any time prior to the Effective Time;
(i) prepay, before the scheduled maturity thereof, any of its
long-term debt, or incur any obligation for borrowed money, whether or not
evidenced by a note, bond, debenture or similar instrument, other than trade
payables incurred in the ordinary course of business consistent with past
practices.
(j) in the case of the Company, enter into or modify in any
material respect any Company Contract and, in the case of Acquiror, enter into
or modify in any material respect any Acquiror Contract, except for any
modifications to Acquiror's existing lease of space for its Reston, Virginia,
building in connection with the renewal thereof;
(k) take any action that would or could reasonably be expected to
result in any of its representations and warranties set forth in this Agreement
being untrue or in any of the conditions to the Merger set forth in Article IX
not being satisfied; or
(l) agree in writing or otherwise to do any of the foregoing.
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ARTICLE VIII
ADDITIONAL AGREEMENTS
SECTION 8.1. CONSENTS AND APPROVALS; FILINGS AND NOTICES.
Each of the Company and Acquiror shall use reasonable efforts to as
promptly as possible make all filings with, provide all notices to and obtain
all consents and approvals from third parties required to be obtained by the
Company in connection with the transactions contemplated hereunder, including
all filings with, notices to and consents and approvals from any Government
Entities and other persons.
SECTION 8.2. ACCESS TO INFORMATION.
Each of the Company and Acquiror shall afford to the other party and
such other party's accountants, counsel and other representatives, reasonable
access during normal business hours during the period prior to the Effective
Time to (a) all of its properties, books, contracts, commitments and records,
and (b) all other material information concerning its business, properties and
personnel (subject to restrictions imposed by applicable law) as the other
party may reasonably request. No information or knowledge obtained in any
investigation pursuant to this Section 8.2 shall affect or be deemed to modify
any representation or warranty of any party contained herein. In the event of
the termination of this Agreement, each of the Company and Acquiror shall
destroy or deliver to the other party all confidential documents, work papers
and other materials, and all copies thereof, obtained from the other party as a
result of this Agreement or in connection herewith, whether obtained before or
after the execution and delivery of this Agreement.
SECTION 8.3. CONFIDENTIALITY.
Each of the parties hereto hereby agrees that disclosure of any and all
information or knowledge obtained pursuant to this Agreement, or pursuant to
the negotiation and execution of this Agreement or the effectuation of the
transactions contemplated hereby, shall be subject to the terms and conditions
of the Confidentiality Agreement dated June 12, 1998, between the Company and
Acquiror (the "Confidentiality Agreement").
SECTION 8.4. FURTHER ACTION; REASONABLE BEST EFFORTS.
Subject to the terms and conditions herein provided, each of the
parties shall use reasonable best efforts to take, or cause to be taken, all
appropriate action,
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and do, or cause to be done, all things necessary, proper or advisable under
applicable Laws or otherwise to consummate and make effective the transactions
contemplated by this Agreement as promptly as practicable, including using its
reasonable best efforts to obtain all licenses, permits, consents, approvals,
authorizations, qualifications and orders of Government Entities and parties to
contracts with the Company and Acquiror as are necessary for the transactions
contemplated herein.
SECTION 8.5. PUBLIC ANNOUNCEMENTS.
The Company and the Stockholders on the one hand, and Acquiror and
Merger Sub on the other hand, agree that neither will issue any press release or
otherwise make any public statements concerning this Agreement or the
transactions contemplated hereby without the prior written consent of the other
party.
SECTION 8.6. NO SOLICITATION.
During the term of this Agreement, neither the Company, any
Stockholder nor any of their respective affiliates or any person acting on
behalf of such party or affiliate shall (a) solicit or favorably respond to
indications of interest from, or enter into negotiations with, any third party
for any proposed merger, consolidation, sale or acquisition of the Company,
the Assets or the Company Common Stock or (b) furnish or cause to be furnished
any nonpublic information concerning the business to any person other than in
the ordinary course of business or pursuant to applicable Laws and after prior
written notice to Acquiror.
SECTION 8.7. EMPLOYEES.
Each of the Company and Acquiror shall, subject to the terms and
conditions of this Agreement, use its reasonable best efforts to encourage the
current employees of the Company to continue their employment and relationship
with the Company following the Effective Time.
SECTION 8.8. POOLING ACCOUNTING.
Acquiror and the Company shall each use its reasonable efforts to
cause the business combination to be effected by the Merger to be accounted
for as a pooling of interests. Each of Acquiror and the Company shall use its
reasonable efforts to cause its affiliates not to take any action that would
adversely affect the ability of Acquiror to account for the business
combination to be effected by the Merger as a pooling of interests.
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SECTION 8.9. STOCKHOLDERS' COVENANTS NOT TO COMPETE
(a) Each Stockholder acknowledges that the business of the Company
and Acquiror are conducted throughout the United States, and acknowledges and
recognizes the highly competitive nature of the industry in which such business
is involved. Accordingly, in consideration of the premises contained herein,
the consideration to be received by the Stockholders hereunder for the sale of
the goodwill of the Company's business, and in consideration of and as an
inducement to Acquiror to consummate the transactions contemplated hereby, each
Stockholder covenants and agrees that during the Noncompete Period (as defined
below), such Stockholder shall not, directly or indirectly: (i) engage in,
participate in, represent in any way or be connected with, as officer,
director, partner, owner, employee, agent, sales representative, distributor,
independent contractor, consultant, proprietor, stockholder or otherwise, any
Competitive Business (as defined below) in the United States; (ii) solicit
(other than on behalf of the Company or Acquiror) business or contracts for any
products or services of the type provided, developed or under development by
the Company or Acquiror during the Noncompete Period, from or with (A) any
person or entity which was a client of the Company or Acquiror for such
products or services as of, or within twelve (12) months prior to the
expiration of, the Noncompete Period, or (B) any prospective client which the
Company or Acquiror was actively soliciting as of, or within twelve (12) months
prior to the expiration of, the Noncompete Period; (iii) solicit or induce or
attempt to solicit or induce any employee of the Company or Acquiror to leave
the employ of the Company or Acquiror for any reason whatsoever, or hire any
employee or any person who was an employee of the Company or Acquiror within
the twelve (12) month period prior to such hiring; or (iv) interfere with,
disrupt or attempt to disrupt the relationship, contractual or otherwise,
between the Company or Acquiror and any third party, including, without
limitation, any customer, supplier or employee of the Company or Acquiror;
provided, however, that the foregoing shall not preclude any Stockholder from
owning, collectively, less than five percent (5%) of the securities of a
company engaged in a Competitive Business as long as such securities are traded
on a national securities exchange or reported on the NASDAQ National Market.
The "Noncompete Period" for each Stockholder shall mean the
period from and after the Effective Time until two (2) years after the
Effective Time. A "Competitive Business" shall mean any business in which the
Company or Acquiror is engaged at any time during the Noncompete Period.
(b) The covenants contained in this Section 8.9 shall be construed
as a series of separate and severable covenants which are identical in terms
except for geographic coverage. The parties hereto agree that if in any
proceeding, the tribunal shall refuse to enforce fully any covenants contained
herein because such covenants cover too extensive a geographic area or too long
a period of time or for
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any other reason whatsoever, any such covenant shall be deemed amended to the
extent (but only to the extent) required by law. Each party acknowledges that
the covenants contained in this Section 8.9 are reasonable and necessary to
protect the business and interests of the Company and Acquiror and that any
violation of these covenants would cause substantial irreparable injury.
Accordingly, each party agrees that a remedy at law for any breach of the
foregoing covenants would be inadequate and that the Company and Acquiror, in
addition to any other remedies available, shall be entitled to obtain
preliminary and permanent injunctive relief to secure specific performance of
such covenants and to prevent a breach or contemplated breach of such covenants
without the necessity of proving actual damage.
(c) The obligations of each Stockholder under this Section 8.9
shall survive the Effective Time of the Merger.
SECTION 8.11. STOCKHOLDERS' NOMINEE ON ACQUIROR'S BOARD OF DIRECTORS.
The Stockholders hereby nominate Brenda Wong to serve on Acquiror's
Board of Directors. Prior to the Effective Time, Acquiror shall take such
actions as may be reasonably necessary so that such nominee will be duly
elected to the Acquiror's Board of Directors as a Class I Director, effective
one (1) day after the Effective Time, to fill the vacancy created by the
resignation of Christopher Capuano.
SECTION 8.12. SALE OF CERTAIN MERGER STOCK IN ACQUIROR'S IPO.
Subject to the restrictions set forth in Section 2.5(c) of this
Agreement, Acquiror shall use its reasonable efforts to include in the
registration statement for an initial public offering of Acquiror Common Stock
(an "IPO"), a number of shares of Acquiror Common Stock issued to each
Stockholder in the Merger that is equal to the percentage of such Stockholder's
Acquiror Common Stock as of the effective date of such IPO that is no less than
the percentage of Acquiror Common Stock held by Raul Fernandez as of the
effective date of such IPO that is included in such registration statement.
Such inclusion shall be in the discretion of underwriters, and Acquiror makes
no commitments regarding the amount of Merger Stock, if any, that the
underwriters will permit to be included in such IPO. In connection with any
such IPO, each Stockholder agrees to enter into an agreement reasonably
requested by the representatives of the underwriters in the IPO, pursuant to
which such Stockholder will agree not to offer, pledge, sell, contract to offer
or sell or otherwise dispose of, any shares of Acquiror Common Stock
beneficially owned by such Stockholder for such period after the effective date
of the registration statement filed with the SEC in connection with the IPO as
requested by such representatives, provided that all other directors of
Acquiror and holders of ten
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percent (10%) or more of the outstanding shares of Acquiror Common Stock also
so agree.
SECTION 8.13. ADDITIONAL ACQUIROR STOCK OPTIONS.
In addition to the New Options, promptly after the Effective Time,
Acquiror shall issue to certain employees of the Company such additional
options to purchase shares of Acquiror Common Stock that, in the aggregate,
equal options to acquire six hundred fifty thousand (650,000) shares of
Acquiror Common Stock. Each such additional option shall have an exercise
price of Ten Dollars ($10.00) per share of Acquiror Common Stock and shall be
subject to the terms and conditions of Acquiror's Stock Option Plan.
ARTICLE IX
CLOSING CONDITIONS
SECTION 9.1. CONDITIONS TO OBLIGATIONS OF ACQUIROR AND MERGER SUB.
The obligations of Acquiror and Merger Sub to effect the Merger and
the other transactions contemplated in this Agreement are also subject to the
fulfillment at or prior to the Effective Time of the following conditions, any
or all of which may be waived, in whole or in part, to the extent permitted by
applicable law:
(a) Representations and Warranties. The representations and
warranties of the Company and the Stockholders made in this Agreement shall be
true and correct in all material respects, on and as of the Effective Time with
the same effect as though such representations and warranties had been made on
and as of the Effective Time (provided that any representation or warranty
contained herein that is qualified by a materiality standard shall not be
further qualified hereby), except for representations and warranties that speak
as of a specific date or time (which need only be true and correct in all
material respects as of such date or time). Acquiror shall have received a
certificate signed on behalf of the Company by the President of the Company to
that effect and a certificate signed by each Stockholder to that effect.
(b) Agreements and Covenants. The agreements and covenants of the
Company and the Stockholders required to be performed on or before the
Effective Time shall have been performed in all material respects. Acquiror
shall have received a certificate signed on behalf of the Company by the
President of the Company to that effect with respect to the Company's covenants
and agreements
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and a certificate signed by each Stockholder to that effect with respect to
such Stockholder's covenants and agreements.
(c) No Company Material Adverse Effect. Since the date of this
Agreement, no Company Material Adverse Effect shall have occurred and be
continuing.
(d) Legal Proceedings. No action or proceeding before any
Government Entity shall have been instituted or threatened (and not
subsequently settled, dismissed, or otherwise terminated) which is reasonably
expected to restrain, prohibit or invalidate the Merger or other transactions
contemplated by this Agreement other than an action or proceeding instituted or
threatened by a party hereto.
(e) Required Consents. The Company shall have delivered to
Acquiror at or before Closing all consents or notices necessary to be obtained
or made by the Company in connection with the transactions contemplated by this
Agreement.
(f) Pooling of Interests. Acquiror shall have received reasonable
assurances from Price Waterhouse, in form and substance reasonably satisfactory
to Acquiror that the Merger will qualify as a "pooling of interests" in
accordance with generally accepted accounting principles.
(g) Escrow Agreement. The Escrow Agent and the Stockholders'
Representative shall have entered into the Escrow Agreement at or before
Closing pursuant to which the Escrow Stock shall have been retained in escrow.
(h) Legal Opinion. Acquiror shall have received an opinion from
Preston Gates & Ellis LLP, counsel to the Company, in a form reasonably
acceptable to Acquiror and its counsel.
(i) Employment Agreements. The Employment Agreements shall remain
in full force and effect.
(j) Amendment No. 2 to Stockholders' Agreement. Each Stockholder
shall have executed and delivered the Amendment No. 2 to Stockholders'
Agreement.
(k) Other Closing Documents. The Company shall have executed
and/or delivered to Acquiror such additional documents, certificates, opinions
and agreements as Acquiror may reasonably request.
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SECTION 9.2. ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY AND
THE STOCKHOLDERS.
The obligations of the Company and the Stockholders to effect the
Merger and the other transactions contemplated in this Agreement are also
subject to the fulfillment at or prior to the Effective Time of the following
conditions any or all of which may be waived, in whole or in part, to the
extent permitted by applicable law:
(a) Representations and Warranties. The representations and
warranties of Acquiror and Merger Sub made in this Agreement shall be true and
correct in all material respects, on and as of the Effective Time with the same
effect as though such representations and warranties had been made on and as of
the Effective Time (provided that any representation or warranty contained
herein that is qualified by a materiality standard shall not be further
qualified hereby), except for representations and warranties that speak as of a
specific date or time other than the Effective Time (which need only be true
and correct in all material respects as of such date or time). The Company and
the Stockholders shall have received a certificate of the Chief Executive
Officer of Acquiror and the President of Merger Sub to that effect.
(b) Agreements and Covenants. The agreements and covenants of
Acquiror and Merger Sub required to be performed on or before the Effective
Time shall have been performed in all material respects. The Company and the
Stockholders shall have received a certificate of the Chief Executive Officer
of Acquiror and the President of Merger Sub to that effect.
(c) Legal Proceedings. No action or proceeding before any
Government Entity shall have been instituted or threatened (and not
subsequently settled, dismissed, or otherwise terminated) which is reasonably
expected to restrain, prohibit or invalidate the Merger or other transactions
contemplated by this Agreement other than an action or proceeding instituted or
threatened by a party hereto.
(d) Legal Opinion. The Company and the Stockholders shall have
received opinions from Acquiror's General Counsel and Hogan & Hartson L.L.P.,
counsel to the Company, each in a form reasonably acceptable to the Company and
its counsel.
(e) No Acquiror Material Adverse Effect. Since the date of this
Agreement, no Acquiror Material Adverse Effect shall have occurred and be
continuing.
(f) Pooling of Interests. The Company and the Stockholders shall
have received reasonable assurances from Price Waterhouse, in form and
substance
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reasonably satisfactory to the Company, that the Merger will qualify as a
"pooling of interests" in accordance with generally accepted accounting
principles.
(g) Escrow Agreement. The Company, Merger Sub and the Escrow Agent
shall have entered into the Escrow Agreement at or before Closing pursuant to
which the Escrow Stock shall have been retained in escrow.
(h) Registration Rights Agreement. Acquiror and the other parties
to Acquiror's Amended and Restated Registration Rights Agreement dated November
27, 1997, shall have executed and delivered the Amended and Restated
Registration Rights Agreement in substantially the same form as Exhibit C
hereto (the "Amended and Restated Registration Rights Agreement").
(i) Amendment No. 2 to Stockholders' Agreement. Acquiror and each
of the other parties to the Stockholders' Agreement shall have executed and
delivered the Amendment No. 2 to Stockholders' Agreement.
(j) Required Consents. Acquiror and Merger Sub shall have obtained
all consents or made all notices necessary to be obtained or made by Acquiror
or Merger Sub in connection with the transactions contemplated by this
Agreement.
(k) Other Closing Documents. Acquiror shall have executed and/or
delivered to the Company such additional documents, certificates, opinions and
agreements as the Company may reasonably request.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
SECTION 10.1. TERMINATION.
This Agreement may be terminated at any time prior to the Effective
Time:
(a) by mutual written consent of Acquiror and the Company;
(b) by Acquiror if the Company or any Stockholder shall have
breached any of its representations, warranties, covenants or agreements
contained in this Agreement, or any such representation or warranty shall have
become untrue, in any such case such that the conditions precedent to the
obligations of Acquiror to close specified in Section 9.1 will not be satisfied
and such breach has not been promptly cured within thirty (30) days following
receipt by the Company of written notice of such breach;
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(c) by the Company if Acquiror or Merger Sub shall have breached
any of its representations, warranties, covenants or agreements contained in
this Agreement, or any such representation or warranty shall have become
untrue, in any such case such that the conditions precedent to the obligation
of the Company and the Stockholders to close specified in Section 9.2, will not
be satisfied and such breach has not been promptly cured within thirty (30)
days following receipt by Acquiror of written notice of such breach;
(d) by either Acquiror or the Company if any decree, permanent
injunction, judgment, order or other action by any court of competent
jurisdiction or any Government Entity preventing or prohibiting consummation of
the Merger shall have become final and non-appealable; or
(e) by either Acquiror or the Company if the Effective Time has not
occurred on or prior to September 30, 1998 (unless such date shall be extended
by the mutual written consent of the Company and Acquiror); provided, that the
right to terminate this Agreement under this Section 10.1(e) shall not be
available to any party whose breach of representations, warranties, covenants
or agreements contained in this Agreement has been the sole cause of, or
resulted in, the failure of the Effective Time to occur by such date or the
inability of such condition to be satisfied.
SECTION 10.2. EFFECT OF TERMINATION.
If this Agreement is terminated pursuant to Section 10.1, this
Agreement and all Related Agreements shall forthwith become void and there
shall be no obligation on the part of any party hereto, except that the
provisions of Sections 8.3 and 12.11 shall not be extinguished but shall
survive such termination, and nothing herein shall relieve any party from
liability for any breach hereof and each party shall be entitled to any
remedies at law or in equity for such breach.
SECTION 10.3. AMENDMENT.
This Agreement may not be amended except by an instrument in writing
signed by the Company, Acquiror, Merger Sub and the Stockholders'
Representative.
SECTION 10.4. WAIVER.
At any time prior to the Effective Time, one party may (a) extend the
time for the performance of any of the obligations or other acts of the other
party, (b) waive any inaccuracies in the representations and warranties
contained in this Agreement or in any document delivered pursuant to this
Agreement of the other party and (c) waive compliance by the other party with
any of the agreements or
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conditions contained in this Agreement. Any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE XI
SURVIVAL OF REPRESENTATIONS; ESCROW ARRANGEMENTS; REMEDIES
SECTION 11.1. SURVIVAL OF REPRESENTATIONS.
All representations, warranties, covenants, indemnities and other
agreements made by any party to this Agreement herein, shall be deemed made on
and as of the Effective Time as though such representations, warranties,
covenants, indemnities and other agreements were made on and as of such date,
and all such representations, warranties, covenants, indemnities and other
agreements shall survive the Effective Time and shall remain in full force and
effect as follows: (a) unless otherwise specified hereinbelow,
representations, warranties, covenants and agreements shall survive for a
period of twelve (12) months after the Effective Time, (b) the representations
and warranties of the Company and the Stockholders set forth in Section 3.14(g)
shall survive for a period of twenty four (24) months after the Effective Time,
(c) the representations and warranties of the Stockholders for matters relating
to title to the Company Common Stock shall continue in full force and effect in
perpetuity, (d) the covenants and agreements of the Stockholders set forth in
Sections 2.5 and 8.9 shall survive until such covenants and agreements have
been performed or discharged in full, (e) the covenants and agreements in this
Article XI shall continue in full force and effect until fully discharged,
except for the indemnification obligations of the Stockholders set forth in
Section 11.2(c) which shall survive for a period of twelve (12) months after
the Effective Time, and (f) any representation, warranty, covenant, indemnity
or agreement that is the subject of a claim which is asserted in writing prior
to the expiration of the applicable period set forth above shall survive with
respect to such claim until the final resolution thereof.
SECTION 11.2. INDEMNIFICATION BY THE STOCKHOLDERS; ESCROW
ARRANGEMENTS.
(a) From and after the Effective Time and for the survival periods
described in Section 11.1, each Stockholder, severally as to such Stockholder's
representations, warranties, covenants and agreements, and jointly with the
other Stockholders as to the Company's representations, warranties, covenants
and agreements, hereby agrees to indemnify and hold harmless Acquiror, the
Surviving Corporation, and their respective officers, directors, agents and
representatives (collectively, the "Acquiror Indemnified Persons") from and
against all Losses
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resulting from, imposed upon or incurred by any Acquiror Indemnified Person,
directly or indirectly, as a result of (a) any inaccuracy or breach of a
representation or warranty of the Company or any Stockholder, including,
without limitation, the inaccuracy or breach of any representation or warranty
in Section 3.20(a) hereof, (b) any failure by the Company or any Stockholder to
perform or comply with any covenant or agreement contained in this Agreement,
any Related Agreement or any document, certificate or agreement furnished
pursuant to this Agreement, (c) any claim, demand or suit asserting that (i)
any use by the Company of the Company Intellectual Property with respect to the
trade name "Ibis" during the period prior to September 30, 1998, infringes or
violates any trademark right of any third party, and (ii) any use by the
Company of any other Company Intellectual Property during the period prior to
the Effective Time infringes or violates any trademark right of any third
party.
(b) The Escrow Stock shall be available to the Acquiror Indemnified
Persons to compensate them for any such Losses pursuant to the terms and
conditions of the Escrow Agreement; provided, that, subject to the limitations
and qualifications set forth in this Article XI, the indemnification
obligations of the Stockholders hereunder shall survive until the expiration of
the respective survival periods set forth in Section 11.1 notwithstanding the
release of any Escrow Stock. Acquiror, for itself and on behalf of the other
Acquiror Indemnified Persons, acknowledges and agrees that if any Acquiror
Indemnified Persons shall bring a claim for monetary Losses under this Section
11.2 during the twelve (12) month period after the Effective Time, the Acquiror
Indemnified Persons shall first seek to be compensated for such monetary Losses
out of the Escrow Stock before seeking compensation for such monetary Losses
against any other assets of the Stockholders; provided, however, that the
foregoing shall not apply to any equitable remedies that may be available to
the Acquiror Indemnified Persons, or for any claims for Losses arising out of a
willful or intentional breach of representations, warranties or covenants by
the Company or any Stockholder. Notwithstanding any other provision of this
Agreement to the contrary, and except for (i) remedies that the Acquiror
Indemnified Persons may have for Losses arising out of a willful or intentional
breach of representations, warranties or covenants by the Company or any
Stockholder, (ii) equitable remedies that may be available to the Acquiror
Indemnified Persons, including, without limitation, a remedy of specific
performance, and (iii) any remedies for Losses that the Acquiror Indemnified
Persons may have in the event of a termination of this Agreement, Acquiror and
Merger Sub acknowledge and agree that the maximum aggregate liability of the
Stockholders pursuant to this Agreement or otherwise (including, without
limitation, liability for any incidental, consequential or punitive damages),
shall not exceed an amount equal to the number of shares of Escrow Stock issued
as of the Effective Time, multiplied by Ten Dollars ($10.00), regardless of the
form of action or theory of recovery. The parties acknowledge and agree that
the Escrow Stock is being valued at $10.00 per share for such purpose.
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(c) Each Stockholder hereby irrevocably waives any and all right to
recourse against the Company and the Surviving Corporation with respect to any
misrepresentation or breach of any representation, warranty or indemnity, or
noncompliance with any conditions or covenants, given or made by the
Stockholders or the Company in this Agreement. No Stockholder shall be
entitled to contribution from, subrogation to or recovery against the Company
with respect to any liability of any Stockholder that may arise under or
pursuant to this Agreement or the transactions contemplated hereby; provided,
however, the foregoing waiver of recourse and contribution shall not apply in
the case of a claim for Losses against the Stockholders to the extent that the
Acquiror Indemnified Persons have a right to be fully compensated for such
Losses under a liability insurance policy maintained by the Company prior to
the Effective Time, or by the Surviving Corporation or Acquiror from and after
the Effective Time; provided, further, however, that nothing herein shall
obligate Acquiror or the Surviving Corporation to continue, carry or maintain
any liability insurance policy.
SECTION 11.3. THIRD PARTY CLAIMS.
The obligations and liabilities of the Stockholders pursuant to
Section 11.2 resulting from any Third Party Claim shall be subject to the
following terms and conditions:
(a) The Acquiror Indemnified Person seeking indemnification (the
"Indemnified Party") must give the Stockholders (collectively, the
"Indemnifying Party"), notice of any Third Party Claim which is asserted
against, resulting to, imposed upon or incurred by the Indemnified Party and
which may give rise to liability of the Indemnifying Party pursuant to this
Article XI, stating (to the extent known or reasonably anticipated) the nature
and basis of such Third Party Claim and the amount thereof; provided that the
failure to give such notice shall not affect the rights of the Indemnified
Party hereunder except to the extent (i) that the Indemnifying Party shall have
suffered actual material damage by reason of such failure, or (ii) such failure
or delay materially adversely affects the ability of the Indemnifying Party to
defend, settle or compromise such Third Party Claim.
(b) Subject to Section 11.3(c) below, if the Indemnifying Party
assumes responsibility for Losses arising out of such Third Party Claim, then
the Indemnifying Party shall have the right to undertake, by counsel or other
representatives of its own choosing, the defense of such Third Party Claim at
the Indemnifying Party's risk and expense.
(c) In the event that (i) the Indemnifying Party shall elect not to
undertake such defense, (ii) within a reasonable time after notice from the
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Indemnified Party of any such Third Party Claim, the Indemnifying Party shall
fail to undertake to defend such Third Party Claim, or (iii) such Third Party
Claim seeks injunctive or other equitable relief and there is a reasonable
probability that such Third Party Claim may materially and adversely affect the
Indemnified Party other than as a result of money damages or other money
payments, then the Indemnified Party (upon further written notice to the
Indemnifying Party) shall have the right to undertake the defense, compromise
or settlement of such Third Party Claim, by counsel or other representatives of
its own choosing, on behalf of and for the account and risk of the Indemnifying
Party. In the event that the Indemnified Party undertakes the defense of a
Third Party Claim under this Section 11.3(c), the Indemnifying Party shall pay
to the Indemnified Party, in addition to the other sums required to be paid
hereunder, the reasonable costs and expenses incurred by the Indemnified Party
in connection with such defense, compromise or settlement as and when such
costs and expenses are so incurred.
(d) Anything in this Section 11.3 to the contrary notwithstanding,
(i) neither Party shall, without the other party's written consent (which
consent shall not be unreasonably withheld or delayed), settle or compromise
such Third Party Claim or consent to entry of any judgment which does not
include as an unconditional term thereof the giving by the claimant or the
plaintiff to the Indemnified Party of a release from all liability in respect
of such Third Party Claim in form and substance satisfactory to the Indemnified
Party; (ii) in the event that a party hereto undertakes defense of such Third
Party Claim in accordance with this Section 11.3, the other parties, by counsel
or other representative of their own choosing and at their sole cost and
expense, shall have the right to participate in the defense, compromise or
settlement thereof and each party and its counsel and other representatives
shall cooperate with the other party and its counsel and representatives in
connection therewith; and (iii) the party that undertakes the defense of such
Third Party Claim in accordance with this Section 11.3, shall have an
obligation to keep the other parties informed of the status of the defense of
such Third Party Claim and furnish the other parties with all documents,
instruments and information that the other parties shall reasonably request in
connection therewith.
(e) Any claim for indemnification under this Article XI must be
made (i) on or prior to the Claims Deadline (as defined in the Escrow
Agreement) for any claims against the Escrow Stock, and (ii) on or prior to the
expiration of the applicable survival period set forth in Section 11.1
otherwise.
SECTION 11.4. LIMITATION OF LIABILITY OF ACQUIROR AND MERGER SUB.
Notwithstanding any other provision of this Agreement to the contrary,
and except for (i) remedies that the Stockholders may have for Losses
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arising out of a willful or intentional breach of representations, warranties
or covenants by Acquiror or Merger Sub, (ii) equitable remedies that may be
available to the Stockholders to have the obligations of Acquiror hereunder and
under the Related Agreements specifically performed, and (iii) any remedies for
Losses that the Company or the Stockholders may have in the event of a
termination of this Agreement, the Company and the Stockholders acknowledge and
agree that the maximum aggregate liability of Acquiror and Merger Sub (taken as
a whole) pursuant to this Agreement or otherwise (including, without
limitation, liability for any incidental, consequential or punitive damages),
shall not exceed an amount equal to the number of shares of Escrow Stock issued
as of the Effective Time multiplied by Ten Dollars ($10.00), regardless of the
form of action or theory of recovery.
ARTICLE XII
GENERAL PROVISIONS
SECTION 12.1. NOTICES.
All notices, demands, requests, or other communications which may be
or are required to be given, served, or sent by any party to any other party
pursuant to this Agreement shall be in writing and shall be hand delivered,
sent by overnight courier or mailed by first-class, registered or certified
mail, return receipt requested, postage prepaid, or transmitted by telegram,
telecopy or telex, addressed as follows:
(a) If to Acquiror:
Proxicom, Inc.
11600 Sunrise Valley Drive
Reston, Virginia 20191
Telecopy: (703) 262-3201
Attention: Christopher Capuano, Esq.,
General Counsel
With a copy (which shall not constitute notice) to:
Hogan & Hartson L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004
Telecopier No.: (202) 637-5910
Attention: David B.H. Martin, Jr.
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<PAGE> 67
(b) If to the Company:
IBIS Consulting, Inc.
One Ecker Street, Suite 100
San Francisco, California 94104
Telecopier No.: (415) 820-2401
Attention: Brenda Wong
President
With a copy (which shall not constitute notice) to:
Preston Gates & Ellis LLP
One Maritime Plaza
San Francisco, California 94111
Telecopier No.: (415) 788-8819
Attention: Lawrence B. Low
(c) If to the Stockholders:
Brenda Wong
c/o IBIS Consulting, Inc.
One Ecker Street, Suite 100
San Francisco, California 94104
Telecopier No.: (415) 820-2401
Scott McDonald
c/o IBIS Consulting, Inc.
One Ecker Street, Suite 100
San Francisco, California 94104
Telecopier No.: (415) 820-2401
Vincent Hoenigman
c/o IBIS Consulting, Inc.
One Ecker Street, Suite 100
San Francisco, California 94104
Telecopier No.: (415) 820-2401
Each party may designate by notice in writing a new address to which
any notice, demand, request or communication may thereafter be so given,
served or sent. Each notice, demand, request, or communication which shall be
hand delivered, sent, mailed, telecopied or telexed in the manner described
above, or which shall be delivered to a telegraph company, shall be deemed
sufficiently given, served, sent, received or delivered for all purposes at
such time as it is delivered to the addressee (with the return receipt, the
delivery receipt, or (with respect to a
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<PAGE> 68
telecopy or telex) the answerback being deemed conclusive, but not exclusive,
evidence of such delivery) or at such time as delivery is refused by the
addressee upon presentation.
SECTION 12.2. CERTAIN DEFINITIONS.
For purposes of this Agreement, the term:
(a) "Acquiror Material Adverse Effect" means any material
adverse effect on the Assets or the business, financial condition or results of
operations of Acquiror taken as a whole.
(b) "Acquiror Software" means the software developed by
employees, consultants and independent contractors of Acquiror for Acquiror's
internal use and/or provided to Acquiror customers, including any documentation
relating to such software.
(c) "affiliate" means a person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned person.
(d) "Assets" shall mean the assets, rights and properties,
whether owned, leased or licensed, real, personal or mixed, tangible or
intangible, that are used, useful or held for use in connection with the
business of an entity.
(e) "business day" shall mean any day other than a day on which
banks in the Commonwealth of Virginia are authorized or obligated to be closed.
(f) "Company Custom Software" means the software developed by
employees, consultants and independent contractors of the Company for the
Company's internal use and/or provided to the Company customers, including any
documentation relating to such software, but does not include the Company
Software as defined in Schedule 3.14 (I)(A)(4).
(g) "Company Material Adverse Effect" means any material adverse
effect on the Assets or the business, financial condition or results of
operations of the Company taken as a whole.
(h) "control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly or as
trustee or executor, of the power to direct or cause the direction of the
management or policies of a person, whether through the ownership of stock or
as trustee or executor, by contract or credit arrangement or otherwise.
- 60 -
<PAGE> 69
(i) "Encumbrances" means mortgages, liens, pledges, encumbrances,
security interests, deeds of trust, options, encroachments, reservations,
orders, decrees, judgments, restrictions, charges, contract rights, claims or
equity of any kind.
(j) "Government Entity" means any United States or other
national, state, municipal or local government, domestic or foreign, any
subdivision, agency, entity, commission or authority thereof, or any
quasi-governmental or private body exercising any regulatory, taxing, importing
or other governmental or quasi-governmental authority.
(k) "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
(l) "Intellectual Property" means all inventions, improvements
thereto, patents, patent applications, patent disclosures, trademarks, service
marks, trade dress, logos, trade names, and corporate names, copyrights,
maskworks, moral rights, know-how, computer software, formulas, compositions,
manufacturing and production processes and techniques, technical data, designs,
drawings, specifications, customer and supplier lists, business and marketing
plans and proposals, and general intangibles of a like nature, trade secrets,
licenses, and rights and filings with respect to the foregoing, and all
reissues, extensions and renewals thereof.
(m) "Laws" means all foreign, federal, state and local laws,
statutes, ordinances, regulations, rules, resolutions, orders, determinations,
writs, injunctions, awards (including, without limitation, awards of any
arbitrator), judgments and decrees applicable to the specified persons or
entities.
(n) "Losses" means all demands, losses, claims, actions or
causes of action, assessments, damages, liabilities, costs and expenses,
including, without limitation, interest, penalties and reasonable attorneys'
fees and disbursements.
(o) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d) of the Securities Exchange Act of 1934, as amended).
(p) "Related Agreements" mean the Escrow Agreement, the
Employment Agreements, the Amendment No. 2 to Stockholders' Agreement, the
Amended and Restated Registration Rights Agreement and all other agreements
entered into pursuant to this Agreement.
(q) "Subsidiary" means any corporation, partnership, joint
venture or other legal entity of which such person (either alone or through or
together with any other Subsidiary) (i) owns, directly or indirectly, fifty
percent (50%) or more of
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<PAGE> 70
the stock, partnership interests or other equity interests the holders of which
are generally entitled to vote for the election of the board of directors or
other governing body of such corporation, partnership, joint venture or other
legal entity; or (ii) possesses, directly or indirectly, control over the
direction of management or policies of such corporation, partnership, joint
venture or other legal entity (whether through ownership of voting securities,
by agreement or otherwise).
(r) "Taxes" shall mean all federal, state, local and foreign taxes
(including income, profit, franchise, sales, use, real property, personal
property, ad valorem, excise, employment, social security and wage withholding
taxes) and installments of estimated taxes, assessments, deficiencies, levies,
imports, duties, license fees, registration, fees, withholdings or other
similar charges of every kind, character or description imposed by any
governmental authorities, and any interest, penalties or additions to tax
imposed thereon or in connection therewith.
(s) "Third Party Claim" means any claim or other assertion of
liability by any third party.
SECTION 12.3. HEADINGS.
The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
SECTION 12.4. SEVERABILITY.
If any term or other provision of this Agreement is invalid, illegal
or incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
SECTION 12.5. ENTIRE AGREEMENT.
This Agreement (together with the Exhibits, the Schedules and the
other documents delivered pursuant hereto), together with the Related
Agreements and the Confidentiality Agreement constitute the entire agreement of
the parties and supersede all prior agreements and undertakings (including,
without limitation, the Letter of Intent dated July 21, 1998, between Acquiror
and the
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<PAGE> 71
Company), both written and oral, between the parties, or any of them, with
respect to the subject matter hereof and, except as otherwise expressly
provided herein, are not intended to confer upon any other person any rights or
remedies hereunder.
SECTION 12.6. SPECIFIC PERFORMANCE.
The transactions contemplated by this Agreement are unique.
Accordingly, each of the parties acknowledges and agrees that, in addition to
all other remedies to which it may be entitled, each of the parties hereto is
entitled to a decree of specific performance, provided such party is not in
material default hereunder.
SECTION 12.7. ASSIGNMENT.
Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto (whether by operation
of law or otherwise) without the prior written consent of the other party;
provided, however, that Acquiror and Merger Sub shall have the right to assign
this Agreement without the prior written consent of the Company to a direct or
indirect subsidiary of Acquiror, but no such assignment shall relieve Acquiror
or Merger Sub, as the case may be, of its obligations hereunder. Subject to
the preceding sentence, this Agreement shall be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors
and assigns.
SECTION 12.8. THIRD PARTY BENEFICIARIES.
This Agreement shall be binding upon and inure solely to the benefit
of each party hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement.
SECTION 12.9. GOVERNING LAW.
This Agreement shall be governed by, and construed in accordance with,
the laws of the Commonwealth of Virginia, regardless of the laws that might
otherwise govern under applicable principles of conflicts of law, except that,
to the extent applicable, the laws of the State of California shall govern the
effectiveness and effect of the Merger.
SECTION 12.10. COUNTERPARTS.
This Agreement may be executed and delivered in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of
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<PAGE> 72
which when executed and delivered shall be deemed to be an original but all of
which taken together shall constitute one and the same agreement.
SECTION 12.11. FEES AND EXPENSES.
Except as otherwise provided for in this Agreement, each party hereto
shall pay its own fees, costs and expenses incurred in connection with this
Agreement and in the preparation for and consummation of the transactions
provided for herein; provided, however, that if the legal fees, costs and
expenses of the Company exceed One Hundred Fifty Thousand Dollars ($150,000),
then the Stockholders shall be jointly and severally liable for the amount of
such excess.
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<PAGE> 73
IN WITNESS WHEREOF, the parties hereto have caused this AGREEMENT AND
PLAN OF MERGER to be executed and delivered as of the date first written above.
PROXICOM, INC.
By: /s/ Raul Fernandez
----------------------------
Name: Raul Fernandez
--------------------------
Title: CEO
-------------------------
PROXICOM MERGER SUB, INC.
By: /s/ Kenneth J. Tarpey
----------------------------
Name: Kenneth J. Tarpey
--------------------------
Title: Director
-------------------------
IBIS CONSULTING, INC.
By: /s/ Brenda Wong
----------------------------
Name: Brenda Wong
--------------------------
Title: President
-------------------------
STOCKHOLDERS
/s/ Brenda Wong
-------------------------------
Brenda Wong
/s/ [signature illegible]
-------------------------------
Spouse of Brenda Wong
/s/ Scott McDonald
-------------------------------
Scott McDonald
/s/ Vincent Hoenigman
-------------------------------
Vincent Hoenigman
<PAGE> 1
EXHIBIT 10.1
================================================================================
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
among
PROXICOM, INC.,
GENERAL ATLANTIC PARTNERS 34, L.P.
and
GAP COINVESTMENT PARTNERS, L.P.
-----------------------------
Dated: August 30, 1996
-----------------------------
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE 1
DEFINITIONS ............................................................ 1
1.1 Definitions................................................. 1
1.2 Accounting Terms; Financial Statements...................... 7
ARTICLE 2
PURCHASE AND SALE OF PREFERRED STOCK AND WARRANTS...................... 8
2.1 Purchase and Sale of Preferred Stock ...................... 8
2.2 Purchase and Sale of Warrants.............................. 8
2.3 Certificate of Designations................................ 8
2.4 Use of Proceeds............................................ 8
2.5 Closing ................................................... 8
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................... 9
3.1 Corporate Existence and Power.............................. 9
3.2 Authorization; No Contravention............................ 9
3.3 Governmental Authorization; Third Party Consents .......... 9
3.4 Binding Effect ............................................ 10
3.5 Litigation ................................................ 10
3.6 Compliance with Laws ...................................... 10
3.7 Capitalization ............................................ 11
3.8 No Default or Breach; Contractual Obligations.............. 12
3.9 Title to Properties........................................ 12
3.10 FIRPTA .................................................... 12
3.11 Financial Statements ...................................... 12
3.12 Taxes...................................................... 13
3.13 No Material Adverse Change; Ordinary Course of Business.... 13
3.14 Investment Company ........................................ 14
3.15 Subsidiaries .............................................. 14
3.16 Private Offering .......................................... 14
3.17 Labor Relations............................................ 14
3.18 Employee Benefit Plans .................................... 14
3.19 Title to Assets............................................ 15
3.20 Liabilities................................................ 15
3.21 Intellectual Property...................................... 15
3.22 Potential Conflicts of Interest ........................... 17
</TABLE>
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<TABLE>
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<S> <C>
3.23 Trade Relations............................................ 17
3.24 Outstanding Borrowing...................................... 17
3.25 Insurance.................................................. 17
3.26 Environmental Matters...................................... 18
3.27 Broker's, Finder's or Similar Fees......................... 18
3.28 Disclosure................................................. 18
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASES........................ 19
4.1 Existence and Power........................................ 19
4.2 Authorization; No Contravention............................ 19
4.3 Governmental Authorization; Third Party Consents .......... 19
4.4 Binding Effect ............................................ 19
4.5 Purchase for Own Account .................................. 20
4.6 Restricted Securities...................................... 21
4.7 Accredited Investor Status ................................ 21
4.8 Litigation ................................................ 21
4.9 Broker's, Finder's or Similar Fees......................... 21
ARTICLE 5
CONDITIONS TO THE OBLIGATION
OF THE PURCHASERS TO CLOSE............................................ 21
5.1 Representations and Warranties ............................ 22
5.2 Compliance with this Agreement ............................ 22
5.3 Secretary's Certificate.................................... 22
5.4 Officer's Certificate...................................... 22
5.5 Documents.................................................. 22
5.6 Repurchase of Common Stock ................................ 22
5.7 Consummation of Merger with Proxima, Inc................... 22
5.8 Filing of Certificate of Designations...................... 23
5.9 Purchased Shares .......................................... 23
5.10 Warrants .................................................. 23
5.11 Stockholders Agreement .................................... 23
5.12 Registration Rights Agreement.............................. 23
5.13 Opinion of Counsel ........................................ 23
5.14 Approval of Counsel to the Purchasers...................... 23
5.15 Consents and Approvals .................................... 24
5.16 No Material Judgment or Order.............................. 24
5.17 No Litigation ............................................. 24
</TABLE>
ii
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<TABLE>
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ARTICLE 6
CONDITIONS TO THE OBLIGATION
OF THE COMPANY TO CLOSE.............................................. 24
6.1 Representations and Warranties ............................ 24
6.2 Compliance with this Agreement ............................ 25
6.3 General Partners' Certificates ............................ 25
6.4 Payment of Purchase Price.................................. 25
6.5 Stockholders Agreement .................................... 25
6.7 Opinion of Counsel ........................................ 25
6.8 Approval of Counsel to the Company ........................ 25
6.9 Consents and Approvals .................................... 25
6.10 No Material Judgment or Order.............................. 26
6.11 No Litigation ............................................. 26
ARTICLE 7
INDEMNIFICATION........................................................ 26
7.1 Indemnification............................................ 26
7.2 Notification............................................... 27
7.3 Limitations on Indemnification............................. 28
ARTICLE 8
AFFIRMATIVE COVENANTS.................................................. 28
8.1 Preservation of Existence.................................. 28
8.2 Financial Statements and Other Information ................ 29
8.3 Reservation of Common Stock and Preferred Stock............ 30
8.4 Designation of Directors .................................. 30
8.5 Compliance with Laws ...................................... 30
8.6 Insurance.................................................. 30
8.7 Books and Records ......................................... 30
ARTICLE 9
MISCELLANEOUS.......................................................... 31
9.1 Survival of Representations and Warranties................. 31
9.2 Notices.................................................... 31
9.3 Successors and Assign; Third Party Beneficiaries........... 32
9.4 Amendment and Waiver....................................... 33
9.5 Counterparts............................................... 33
</TABLE>
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<TABLE>
<S> <C>
9.6 Headings................................................... 33
9.7 GOVERNING LAW.............................................. 33
9.8 Severability............................................... 33
9.9 Rules of Construction...................................... 34
9.10 Entire Agreement........................................... 34
9.11 Fees....................................................... 34
9.12 Publicity.................................................. 34
9.13 Further Assurances......................................... 34
</TABLE>
iv
<PAGE> 6
EXHIBITS
A-1 Certificate of Incorporation
A-2 By-laws
B Form of Warrant
C Form of Certificate of Designations
D Form of Stockholders Agreement
E Form of Registration Rights Agreement
F Form of Nicholas & Jones Opinion
G Form of Paul, Weiss Opinion
SCHEDULES
2 Purchased Shares, Warrants and Purchase Price
3.1(c) Jurisdictions in which Company Leases or Owns Properties
3.3 Governmental Authorizations; Third Party Consents
3.5 Litigation
3.7 List of Stockholders and Capital Stock and Common Stock Equivalents
owned by such Stockholders; Options, Warrants, Conversion
Privileges, Subscription or Purchase Rights or Other Rights.
3.8 Defaults or Breaches of Contractual Obligations; Contractual
Obligations
3.12 Taxes
3.13 Transactions Outside the Ordinary Course of Business
3.15 Subsidiaries
3.17 Labor Relations
3.18 Employee Benefit Plans
3.19 Title to Assets of the Company
3.20 Liabilities
3.21(a)(ii) Trademarks, Service Marks, Trade Names and Registered Copyrights
Owned by the Company and Applications therefor
3.21(a)(iii) Intellectual Property Licenses under which the Company is a
Licensor or Licensee
3.21(a)(iv) Infringements of the Company
3.21(a)(v) Intellectual Property Litigation
3.21(b) Infringement or Violations of Intellectual Property Rights
3.21(d) License Agreements which require a Material Royalty Payment
3.22 Potential Conflicts of Interest
3.23 Trade Relations
3.24 Outstanding Borrowing
3.25 Insurance
The Exhibits and Schedules to this Preferred Stock and Warrant Purchase
Agreement are not included with this Registration Statement on Form S-1. The
Registrant will provide these Exhibits and Schedules upon the request of the
Securities and Exchange Commission.
v
<PAGE> 7
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
AGREEMENT, dated August 30, 1996 (this "Agreement"), among Proxicom,
Inc., a Delaware corporation (the "Company"), General Atlantic Partners 34,
L.P., a Delaware limited partnership ("GAP LP"), and GAP Coinvestment Partners,
L.P., a New York limited partnership ("GAP Coinvestment" and, together with GAP
LP, the "Purchasers")
WHEREAS, upon the terms and conditions set forth in this Agreement, the
Company proposes to issue and sell to (a) GAP LP (i) for an aggregate purchase
price of $4,541,890.56, an aggregate of 1,389,218 shares, par value $.0l per
share, of Series A Convertible Preferred Stock of the Company (the "Preferred
Stock") and (ii) for an aggregate purchase price of $852.30, a warrant (the "GAP
LP Warrant") to purchase, subject to the terms and conditions thereof, an
aggregate of 861,834 shares of Preferred Stock for an aggregate exercise price
of $7.91 per share (subject to adjustment), containing the terms and conditions
set forth in the form of warrant attached hereto as Exhibit B, and (b) GAP
Coinvestment (i) for an aggregate purchase price of $787,108.07, an aggregate
of 240,751 shares of Preferred Stock and (ii) for an aggregate purchase price of
$147.70, a warrant (the "GAPCO Warrant" and, together with the GAP LP Warrant,
the "Warrants") to purchase, subject to the terms and conditions thereof, an
aggregate of 149,544 shares of Preferred Stock for an aggregate exercise price
of $7.91 per share (subject to adjustment), containing the terms and conditions
set forth in the form of warrant attached hereto as Exhibit B; and
WHEREAS, each share of Preferred Stock is convertible (subject to
adjustment) into one share, par value $.01 per share, of Common Stock of the
Company (the "Common Stock").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. As used in this Agreement, and unless the context
requires a different meaning, the following terms have the meanings indicated:
<PAGE> 8
2
"Affiliate" shall mean, with respect to any Person, any other Person
who controls, is controlled by or is under common control with such Person. In
addition, the following shall be deemed to be Affiliates of GAP LP: (a) GAP LLC,
the members of GAP LLC and the limited partners of GAP LP; (b) any Affiliate of
GAP LLC, the members of GAP LLC and the limited partners of GAP LP; and (c) any
limited liability company or partnership a majority of whose members or
partners, as the case may be, are members of GAP LLC. In addition, GAP LP and
GAP Coinvestment shall be deemed to be Affiliates of one another.
"Agreement" means this Agreement as the same may be amended,
supplemented or modified in accordance with the terms hereof.
"Board of Directors" means the Board of Directors of the Company.
"Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks in the State of New York are authorized or required by
law or executive order to close.
"By-laws" means the by-laws of the Company as in effect as of the
Closing Date substantially in the form attached hereto as Exhibit A-1.
"Capital Lease Obligations" of any Person shall mean, as of the date of
determination, the obligations of such Person to pay rent or other amounts under
any lease of (or other arrangement conveying the right to use) real or personal
property, or a combination thereof, which obligations are required to be
classified and accounted for as capital leases on a balance sheet of such Person
under GAAP and, for the purposes of this Agreement, the amount of such
obligations at any time shall be the capitalized amount thereof at such time
determined in accordance with GAAP consistently applied.
"Certificate of Designations" means the Certificate of Designations
with respect to the Preferred Stock adopted by the Board of Directors and filed
with the Secretary of State of the State of Delaware on or before the Closing
Date substantially in the form attached hereto as Exhibit C.
"Certificate of Incorporation" means the Certificate of Incorporation
of the Company, as the same may have been amended and as in effect as of the
Closing Date substantially in the form attached hereto as Exhibit A-2.
"Claims" has the meaning set forth in Section 3.5 of this Agreement.
"Closing" has the meaning set forth in Section 2.5 of this Agreement.
<PAGE> 9
3
"Closing Date" has the meaning set forth in Section 2.5 of this
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor statute thereto.
"Commission" means the Securities and Exchange Commission or any
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means Common Stock, par value $.01 per share, of the
Company, or any other capital stock of the Company into which such stock is
reclassified or reconstituted.
"Common Stock Equivalents" means any security or obligation which is by
its terms convertible into or exchangeable for shares of Common Stock,
including, without limitation, the Preferred Stock, and any option, warrant or
other subscription or purchase right with respect to Common Stock.
"Company" has the meaning assigned to such term in the recital to this
Agreement.
"Condition of the Company" means the assets, business, properties,
operations or financial condition of the Company, taken as a whole.
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, guaranty, letter of credit or other obligation, contractual or
otherwise (the "primary obligation") of another Person (the "primary obligor"),
whether or not contingent, (a) to purchase, repurchase or otherwise acquire such
primary obligations or any property constituting direct or indirect security
therefor, or (b) to advance or provide funds (i) for the payment or discharge of
any such primary obligation, or (ii) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency or any balance sheet item, level of income or financial condition of
the primary obligor, or (c) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary obligation
of the ability of the primary obligor to make payment of such primary
obligation, or (d) otherwise to assure or hold harmless the owner of any such
primary obligation against loss or failure or inability to perform in respect
thereof. The amount of any Contingent Obligation shall be deemed to be an amount
equal to the stated or determinable amount of the primary obligation in respect
of which such Contingent Obligation is made or, if not stated or determinable,
the maximum reasonably anticipated liability in respect thereof.
<PAGE> 10
4
"Contractual Obligations" means as to any Person, any provision of any
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument to which such Person is a
party or by which it or any of its property is bound.
"Copyrights" means any foreign or United States-copyright registrations
and applications for registration thereof, and any non-registered copyrights.
"Defined Benefit Plan" means a defined benefit plan within the meaning
of Section 3(35) of ERISA or Section 414(j) of the Code, whether funded or
unfunded, qualified or nonqualified (whether or not subject to ERISA or the
Code).
"Environmental Laws" means federal, state, local and foreign laws,
principles of common law, civil law, regulations and codes, as well as orders,
decrees, judgments or injunctions issued, promulgated, approved or entered
thereunder relating to pollution, protection of the environment or public health
and safety.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any Person that is treated as a single employer
with the Company under Section 4 14(b), (c), (m) or (o) of the Code.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder.
"Financial Statements" has the meaning set forth in Section 3.12.
"GAAP" means generally accepted accounting principles in effect from
time to time.
"GAP Coinvestment" has the meaning assigned to such term in the recital
to this Agreement.
"GAP LLC" means General Atlantic Partners, LLC, a Delaware limited
liability company and the general partner of GAP LP, and any successor to such
entity.
"GAP LP" has the meaning assigned to such term in the recital to this
Agreement.
<PAGE> 11
5
"GAP LP Warrant" has the meaning assigned to such term in the recital
to this Agreement.
"GAPCO Warrant" has the meaning assigned to such term in the recital to
this Agreement.
"Governmental Authority" means the government of any nation, state,
city, locality or other political subdivision thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"Indebtedness" means, as to any Person, (a) all obligations of such
Person for borrowed money (including, without limitation, reimbursement and all
other obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured), (b) all obligations of such Person
evidenced by notes, bonds, debentures or similar instruments, (c) all
obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable and accrued commercial or trade
liabilities arising in the ordinary course of business, (d) all interest rate
and currency swaps, caps, collars and similar agreements or hedging devices
under which payments are obligated to be made by such Person, whether
periodically or upon the happening of a contingency, (e) all indebtedness
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (f) all obligations of
such Person under leases which have been or should be, in accordance with GAAP,
recorded as capital leases, (g) all indebtedness secured by any Lien (other than
Liens in favor of lessors under leases other than leases included in clause (f))
on any property or asset owned or held by that Person regardless of whether the
indebtedness secured thereby shall have been assumed by that Person or is
non-recourse to the credit of that Person, and (h) any Contingent Obligation of
such Person.
"Internet Access" means any internet domain names and other computer
user identifiers and any rights in and to sites on the Worldwide Web, including
rights in and to any text, graphics, audio and video files and html or other
code incorporated in such sites.
"Liabilities" has the meaning set forth in Section 3.20 of this
Agreement.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other) or preference, priority,
right or
<PAGE> 12
6
other security interest or preferential arrangement of any kind or nature
whatsoever (excluding preferred stock and equity related preferences),
including, without limitation, those created by, arising under or evidenced by
any conditional sale or other title retention agreement, the interest of a
lessor under a Capital Lease Obligation, or any financing lease having
substantially the same economic effect as any of the foregoing.
"Mask Works" means any mask works and registrations and applications
for registrations thereof.
"Patents" means any foreign or United States patents and patent
applications, including any divisions, continuations, continuations-in-part,
substitutions or reissues thereof, whether or not patents are issued on such
applications and whether or not such applications are modified, withdrawn or
resubmitted.
"Person" means any individual, firm, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
limited liability company, Governmental Authority or other entity of any kind,
and shall include any successor (by merger or otherwise) of such entity.
"Purchased Stock" has the meaning assigned to such term in the recital
to this Agreement.
"Preferred Stock" has the meaning set forth in Section 2.1 of this
Agreement.
"Registration Rights Agreement" means the Registration Rights Agreement
substantially in the form attached hereto as Exhibit E.
"Requirements of Law" means, as to any Person, any law, statute,
treaty, rule, regulation, license or franchise or determination of an arbitrator
or a court or other Governmental Authority, in each case applicable or binding
upon such Person or any of its property or to which such Person or any of its
property is subject or pertaining to any or all of the transactions contemplated
or referred to herein.
"Software" means any computer software programs, source code, object
code and manuals and other written material with respect thereto.
"Securities" means the Purchased Shares, the shares of Common Stock
issuable upon conversion of the Purchased Shares, the Warrants and the Warrant
Shares.
<PAGE> 13
7
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder.
"Stockholders Agreement" means the Stockholders Agreement substantially
in the form attached hereto as Exhibit D.
"Subsidiaries" means, as to any Person, a corporation, partnership,
limited liability company or other entity of which 50% or more of the voting
power of the outstanding voting equity securities or 50% or more of the
outstanding economic equity interest is held, directly or indirectly, by such
Person.
"Trade Secrets" means any trade secrets, research records, processes,
procedures, manufacturing formulae, technical know-how, technology, blue prints,
designs, plans, inventions (whether patentable and whether reduced to practice),
invention disclosures and improvements thereto.
"Trademarks" means any foreign or United States trademarks, service
marks, trade dress, trade names, brand names, designs and logos, corporate
names, product or service identifiers, whether registered or unregistered, and
all registrations and applications for registration thereof.
"Transaction Documents" means collectively, this Agreement, the
Warrant, the Certificate of Designations, the Stockholders Agreement and the
Registration Rights Agreement.
"Warrant Shares" has the meaning set forth in Section 2.2 of this
Agreement.
"Warrants" has the meaning assigned to such term in the recital to this
Agreement.
1.2 Accounting Terms; Financial Statements. All accounting terms used
herein not expressly defined in this Agreement shall have the respective
meanings given to them in accordance with sound accounting practice. The term
"sound accounting practice" shall mean such accounting practice as, in the
opinion of the independent certified public accountants regularly retained by
the Company, conforms at the time to GAAP applied on a consistent basis except
for changes with which such accountants concur.
<PAGE> 14
8
ARTICLE 2
PURCHASE AND SALE OF PREFERRED STOCK AND WARRANTS
2.1 Purchase and Sale of Preferred Stock. Subject to the terms and
conditions herein set forth, the Company agrees to issue and sell to each of the
Purchasers, and each of the Purchasers agrees that it will purchase from the
Company, on the Closing Date, the aggregate number of shares of Preferred Stock
set forth opposite such Purchaser's name on Schedule 2 hereto, for the
aggregate purchase price set forth opposite such Purchaser's name on Schedule 2
hereto (all of the shares of Preferred Stock being purchased pursuant hereto
being referred to herein as the "Purchased Shares").
2.2 Purchase and Sale of Warrants. Subject to the terms and conditions
herein set forth, the Company agrees to issue and sell to each of the
Purchasers, and each of the Purchasers agrees that it will purchase from the
Company, on the Closing Date, the Warrants to purchase the aggregate number of
shares of Common Stock set forth opposite such Purchaser's name on hereto, for
the aggregate purchase price set forth opposite such Purchaser's name on
Schedule 2 hereto (all of the shares of Preferred Stock and, assuming that the
Warrants are exercisable for shares of Common Stock in accordance with the terms
thereof, Common Stock issuable upon exercise of the Warrants being purchased
pursuant hereto being referred to herein as the "Warrant Shares").
2.3 Certificate of Designations. The Purchased Shares shall have the
preferences and rights set forth in the Certificate of Designations.
2.4 Use of Proceeds. The Company shall use the proceeds from the sale
of the Purchased Shares to (a) fund the purchase from Raul Fernandez of an
aggregate of 100,917 shares of Common Stock for an aggregate purchase price of
$329,998.59 and (b) provide for ongoing working capital and capital spending
needs of the Company.
2.5 Closing. The closing of the sale and purchase of the Purchased
Shares and the Warrants (the "Closing") shall take place at the offices of Paul,
Weiss, Rifkind, Wharton & Garrison, at 10:00 a.m., local time, on the date
hereof, or at such other time, place and date that the Company and the
Purchasers may agree in writing (the "Closing Date"). On the Closing Date, the
Company shall deliver to the Purchasers (a) stock certificates representing the
Purchased Shares and (b) the Warrants, against delivery by the Purchasers to the
Company of the aggregate purchase price therefor by wire transfer of immediately
available funds.
<PAGE> 15
9
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers as follows:
3.1 Corporate Existence and Power. The Company (a) is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; (b) has all requisite power and authority to
own and operate its property, to lease the property it operates as lessee and to
conduct the business in which it is currently, or is currently proposed to be,
engaged; (c) is duly qualified as a foreign corporation, licensed and in good
standing under the laws of the Commonwealth of Virginia; and (d) has the
corporate power and authority to execute, deliver and perform its obligations
under this Agreement and each of the other Transaction Documents. No
jurisdiction, other than those referred to in clause (c) above, has claimed, in
writing or otherwise, that the Company is required to qualify as a foreign
corporation therein, and the Company does not file any franchise, income or
other tax returns in any other jurisdiction based upon the ownership or use of
property therein or the derivation of income therefrom. Except as set forth on
Schedule 3.1(c), the Company does not own, lease or operate property in any
jurisdiction other than its jurisdiction of incorporation and the jurisdiction
referred to in clause (c) above.
3.2 Authorization; No Contravention. The execution, delivery and
performance by the Company of this Agreement and each of the other Transaction
Documents and the transactions contemplated hereby and thereby, including,
without limitation, the sale, issuance and delivery of the Securities, (a) have
been duly authorized by all necessary corporate action of the Company; (b) do
not contravene the terms of the Certificate of Incorporation or the By-laws, or
any amendment thereof; (c) do not violate, conflict with or result in any breach
or contravention of, or the creation of any Lien under, any Contractual
Obligation of the Company, or any Requirement of Law applicable to the Company;
and (d) do not violate any judgment, injunction, writ, award, decree or order of
any nature (collectively, "Orders") of any Governmental Authority against, or
binding upon, the Company. The Company has not previously entered into any
Contractual Obligation which is currently in effect or by which the Company is
currently bound, granting any rights to any Person which are inconsistent with
the rights to be granted by the Company in this Agreement and each of the other
Transaction Documents.
3.3 Governmental Authorization; Third Party Consents. Except as set
forth in Schedule 3.3, no approval, consent, compliance, exemption,
authorization or other action by, or notice to, or filing with, any Governmental
Authority or any other Person in respect of any Requirement of Law, and no lapse
of a waiting period
<PAGE> 16
10
under a Requirement of Law, is necessary or required in connection with the
execution, delivery or performance (including, without limitation, the sale,
issuance and delivery of the Securities) by, or enforcement against, the Company
of this Agreement and the other Transaction Documents or the transactions
contemplated hereby and thereby.
3.4 Binding Effect. This Agreement and each of the other Transaction
Documents have been duly executed and delivered by the Company, and constitute
the legal, valid and binding obligations of the Company enforceable against the
Company in accordance with their terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or
transfer, moratorium or similar laws affecting the enforcement of creditors'
rights generally and by general principles of equity relating to enforceability
(regardless of whether considered in a proceeding at law or in equity).
3.5 Litigation. Except as set forth on Schedule 3.5, there are no
actions, suits, proceedings, claims, complaints, disputes, arbitrations or
investigations (collectively, "Claims") pending or, to the knowledge of the
Company, threatened, at law, in equity, in arbitration or before any
Governmental Authority against the Company which would, if adversely
determined, have a material adverse effect on (a) the Condition of the Company
or (b) the ability of the Company to perform its obligations under this
Agreement or any of the other Transaction Documents. No Order has been issued
by any court or other Governmental Authority against the Company purporting to
enjoin or restrain the execution, delivery or performance of this Agreement or
any of the other Transaction Documents.
3.6 Compliance with Laws.
(a) The Company is in compliance with all Requirements of Law and
all Orders issued by any court or Governmental Authority against the Company in
all respects, except to the extent that the failure to comply with such
Requirements of Law or Orders would not have a material adverse effect on the
Condition of the Company.
(b) (i) The Company has all licenses, permits, orders and approvals
of any Governmental Authority (collectively, "Permits") that are necessary for
the conduct of the business of the Company, except to the extent that the
failure to have such Permits would not have a material adverse effect on the
Condition of the Company; (ii) such Permits are in full force and effect; and
(iii) no violations are or have been recorded in respect of any Permit.
(c) No material expenditure is presently required by the Company to
comply with any existing Requirement of Law or Order.
<PAGE> 17
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(d) The property, assets and operations owned or leased by the
Company are in compliance in all material respects with all applicable
Environmental Laws, while so owned or leased.
3.7 Capitalization. On the Closing Date, after giving effect to the
transactions contemplated by this Agreement, the authorized capital stock of the
Company shall consist of (a) 20,000,000 shares of Common Stock, of which
8,899,084 shares shall be issued and outstanding to Raul Fernandez and (b)
5,000,000 shares of Preferred Stock, of which 1,629,969 shares shall be
outstanding and issued to the Purchasers. Schedule 3.7 sets forth a true and
complete list of (i) the stockholders of the Company and, opposite the name of
each stockholder, the amount of all outstanding capital stock and Common Stock
Equivalents owned by such stockholder and (ii) the holders of Common Stock
Equivalents (other than the stockholders set forth in clause (i) above) and,
opposite the name of each such holder, the amount of all outstanding Common
Stock Equivalents owned by such holder. The Company has reserved an aggregate of
1,629,969 shares of Common Stock for issuance upon conversion of the Purchased
Shares, an aggregate of 1,011,378 shares of Preferred Stock for issuance upon
exercise of the Warrants and, assuming that the Warrants are exercisable for
shares of Common Stock in accordance with the terms thereof, 1,011,378 shares of
Common Stock for issuance upon exercise of the Warrants. Except as set forth on
Schedule 3.7 and except for the Warrants, there are no options, warrants,
conversion privileges, subscription or purchase rights or other rights presently
outstanding to purchase or otherwise acquire (x) any authorized but unissued,
unauthorized or treasury shares of the Company's capital stock, (y) any Common
Stock Equivalents or (z) other securities of the Company. The Purchased Shares
and the Warrants are duly authorized, and, assuming the accuracy of the
representations and warranties of the Purchasers set forth in Sections 4.6 and
4.7, when issued and sold to the Purchasers after payment therefor, will be
validly issued, fully paid and nonassessable and will be issued in compliance
with the registration and qualification requirements of all applicable federal
securities laws. The shares of Common Stock issuable upon conversion of the
Purchased Shares and the Warrant Shares are duly authorized and, when issued in
compliance with the provisions of the Certificate of Incorporation, the
Certificate of Designations (in the case of the shares of Common Stock issuable
upon conversion of the Purchased Shares) and the Warrants (in the case of the
Warrant Shares), will be validly issued, fully paid and nonassessable and will
be issued in compliance with the registration and qualification requirements of
all applicable federal securities laws. The issued and outstanding shares of
Common Stock are all duly authorized, validly issued, fully paid and
nonassessable, and were issued in compliance with the registration and
qualification requirements of all applicable federal securities laws.
<PAGE> 18
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3.8 No Default or Breach; Contractual Obligations. Except as set forth
in Schedule 3.8, the Company has not received notice of, and is not in default
under, or with respect to, any Contractual Obligation in any respect, which,
individually or together with all such defaults, could have a material adverse
effect on (i) the Condition of the Company or (ii) the ability of the Company to
perform its obligations under this Agreement or the other Transaction Documents.
Schedule 3.8 lists all of the Contractual Obligations to which the Company is a
party, whether written or oral, other than this Agreement, which involve an
amount in excess of $100,000 or which are otherwise material to the Condition of
the Company. All of such Contractual Obligations are valid, in full force and
effect and binding upon the Company and, to the knowledge of the Company, the
other parties thereto, and the Company has paid in full or accrued all amounts
due thereunder and has satisfied in full or provided for all of its liabilities
and obligations thereunder, and is not in default under any of them. To the
knowledge of the Company, no other party to any such Contractual Obligation is
in default thereunder, nor does any condition exist that with notice or lapse of
time or both would constitute a default thereunder. Except as separately
identified on Schedule 3.8, the Company is not a party to or bound by any
Contractual Obligation that individually or in the aggregate adversely affects
the Condition of the Company.
3.9 Title to Properties. The Company has good, record and marketable
title in fee simple to, or holds interests as lessee under leases in full force
and effect in, all real property used in connection with its business or
otherwise owned or leased by it, except for such defects in title as would not,
individually or in the aggregate, have a material adverse effect on the
Condition of the Company, or a material adverse effect on the ability of the
Company to perform its obligations under this Agreement or the other Transaction
Documents.
3.10 FIRPTA. The Company is not a "foreign person" within the meaning
of Section 1445 of the Code.
3.11 Financial Statements. The Company has delivered to the Purchasers
its audited financial statements (balance sheet and statements of operations,
cash flows and stockholders' equity, together with the notes thereto) for the
fiscal years ended and as at December 31, 1995 and December 31, 1994 (the
"Audited Financial Statements"), and its unaudited financial statements (balance
sheet and statement of operations) for the six months ended and as at June 30,
1996 (the "Unaudited Financial Statements"; the Audited Financial Statements and
Unaudited Financial Statements being collectively referred to as the "Financial
Statements"). The Financial Statements are complete and correct in all material
respects and have been prepared in accordance with GAAP applied on a consistent
basis throughout the periods indicated and with each other, except that the
Unaudited Financial Statements do not contain footnotes or typical year-end
adjustments. The Financial Statements
<PAGE> 19
13
fairly present the financial position, operating results and cash flows of the
Company as of the respective dates and for the respective periods indicated,
subject, in the case of the Unaudited Financial Statements, to normal year-end
audit adjustments.
3.12 Taxes. (i) The Company has paid all federal, state, county, local,
foreign and other taxes, including, without limitation, income taxes, estimated
taxes, excise taxes, sales taxes, use taxes, gross receipts taxes, franchise
taxes, employment and payroll related taxes, property taxes and import duties,
whether or not measured in whole or in part by net income (hereinafter, "Taxes"
or, individually, a "Tax") which have come due and are required to be paid by it
through the date hereof, and all deficiencies or other additions to Tax,
interest and penalties owed by it in connection with any such Taxes, and shall
timely pay any Taxes including additions, interest and penalties, required to be
paid by it on, before or after the date hereof; (ii) the Company has timely
filed returns for Taxes that it is required to file on and through the date
hereof, and shall timely file all returns for Taxes that it is required to file
after the date hereof; (iii) with respect to all Tax returns of the Company, (x)
except as set forth in Schedule 3.12, to the knowledge of the Company, there is
no unassessed tax deficiency proposed or threatened against the Company and (y)
except as set forth in Schedule 3.12, no audit is in progress and no extension
of time is in force with respect to any date on which any return for Taxes was
or is to be filed and no waiver or agreement is in force for the extension of
time for the assessment or payment of any Tax; (iv) except as set forth in
Schedule 3.12, the Company has not agreed to or is required to make any
adjustments under Section 481(a) of the Code by reason of a change in
accounting methods or otherwise; and (v) all provisions for income and other
Tax liabilities of the Company with respect to the Audited Financial Statements
and the Unaudited Financial Statements have been made in accordance with GAAP
consistently applied, and all liabilities for Taxes of the Company attributable
to periods prior to or ending on December 31, 1995 and June 30, 1996 have been
adequately provided for on the Audited Financial Statements and the Unaudited
Financial Statements, respectively. Schedule 3.12 sets forth the status of
federal income tax audits and state, local and foreign tax audits of the Tax
returns of the Company for each taxable year for which the statute of
limitations has not expired.
3.13 No Material Adverse Change; Ordinary Course of Business. Since
December 31, 1995, there has not been any material adverse change, nor to the
knowledge of the Company is any such change threatened, in the Condition of the
Company. Except as set forth on Schedule 3.13, since June 30, 1996, the Company
has not participated in any transaction or otherwise acted outside the ordinary
course of business, including, without limitation, declaring or paying any
dividend or declaring or making any distribution to its stockholders, except out
of the earnings of the Company.
<PAGE> 20
14
3.14 Investment Company. The Company is not an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
3.15 Subsidiaries. The Company has no Subsidiaries. Except as set forth
in Schedule 3.15, the Company does not directly or indirectly own nor has it
made any investment in any of the capital stock of, or any other proprietary
interest in, any other Person.
3.16 Private Offering. No form of general solicitation or general
advertising was used by the Company or its representatives in connection with
the offer or sale of the Purchased Shares or the Warrants. No registration of
the Securities, pursuant to the provisions of the Securities Act or any state
securities or "blue sky" laws, will be required by the offer, sale or issuance
of the Securities. The Company agrees that neither it, nor anyone acting on its
behalf, shall offer to sell the Securities or any other security of the Company
so as to require the registration of the Securities pursuant to the provisions
of the Securities Act or any state securities or "blue sky" laws, unless such
Securities or other security is so registered.
3.17 Labor Relations. (a) The Company is not engaged in any unfair
labor practice; (b) there is (i) no grievance or arbitration proceeding arising
out of or under collective bargaining agreements pending or, to the knowledge of
the Company, threatened against the Company, and (ii) no strike, labor dispute,
slowdown or stoppage pending or, to the knowledge of the Company, threatened
against the Company; (c) except as set forth on Schedule 3.17, the Company is
not a party to any collective bargaining agreement or contract; (d) to the
knowledge of the Company, no union representation question existing with respect
to the employees of the Company; and (e) to the knowledge of the Company, no
union organizing activities are taking place.
3.18 Employee Benefit Plans. The Company has no actual or contingent,
direct or indirect, liability in respect of any employee benefit plan or
arrangement, including any plan subject to ERISA, other than to make
contributions under or pay benefits pursuant to the plans listed on Schedule
3.18 (collectively, the "Plans"). All of the Plans are in compliance with all
applicable Requirements of Law except to the extent that noncompliance with such
Requirements of Law would not have a material adverse effect on the Condition of
the Company. No Plan (a) is subject to Title IV of ERISA, or is otherwise a
Defined Benefit Plan, or is a multiple employer plan (within the meaning of
Section 413(c) of the Code); or (b) provides for post-retirement welfare
benefits or a "parachute payment" (within the meaning of Section 280G(b) of the
Code). The execution and delivery of this Agreement and each of the other
Transaction Documents, the purchase and sale of the Securities and the
consummation of the transactions contemplated hereby and thereby will not result
in
<PAGE> 21
15
any prohibited transaction within the meaning of Section 406 of ERISA or Section
4975 of the Code.
3.19 Title to Assets. Except as set forth on Schedule 3.19, the
Company owns and has good, valid, and marketable title to all of its properties
and assets used in its business and reflected as owned on the Financial
Statements or so described in any Schedule hereto (collectively, the "Assets"),
in each case free and clear of all Liens, except for (a) Liens specifically
described on the notes to the Financial Statements and (b) Liens on Assets not
material to the Condition of the Company.
3.20 Liabilities. As at June 30, 1996, except as set forth on Schedule
3.20, the Company has no obligation or liability ("Liabilities") other than (i)
Liabilities fully and adequately reflected or reserved against on the Financial
Statements, (ii) Liabilities not required by GAAP to be set forth on the
Financial Statements and (iii) Liabilities incurred since June 30, 1996 in the
ordinary course of business. The Company has no knowledge of any circumstance,
condition, event or arrangement that may hereafter give rise to any Liabilities
of the Company except in the ordinary course of business or as otherwise set
forth on Schedule 3.20.
3.21 Intellectual Property.
(a)(i) The Company is the exclusive owner of or has the license or
right to use, sell, license or dispose of all of the Copyrights, Patents, Trade
Secrets, Trademarks, Internet Assets, Mask Works, Software and other proprietary
rights (collectively, "Intellectual Property") that are used in connection with
its business as presently conducted, free and clear of all Liens.
(a)(ii) Schedule 3.21(a)(ii) sets forth all of the Intellectual
Property owned by, and applications for any of the above filed by, the Company.
None of the Intellectual Property listed on Schedule 3.21(a)(ii) is subject to
any outstanding Order, and no action, suit, proceeding, hearing, investigation,
charge, complaint, claim or demand is pending or, to the knowledge of the
Company, threatened, which challenges the validity, enforceability, use or
ownership of the item.
(a)(iii) Schedule 3.21(a)(iii) sets forth all Intellectual
Property licenses, sublicenses and other agreements under which the Company is
either a licensor or licensee of any Intellectual Property, except such
licenses, sublicenses and other agreements relating to software used solely on
the computers of the Company. The Company has substantially performed all
obligations imposed upon it thereunder, and the Company is not, nor to the
knowledge of the Company is any other party thereto, in breach of or default
thereunder in any respect, nor is there any event
<PAGE> 22
16
which with notice or lapse of time or both would constitute a default
thereunder. All of the Intellectual Property licenses listed on Schedule
3.21(a)(iii) are valid, enforceable and in full force and effect, and will
continue to be so on identical terms immediately following the Closing, except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity relating to enforceability (regardless of whether
considered in a proceeding at law or in equity).
(a)(iv) To the knowledge of the Company, other than as set forth
on Schedule 3.21(a)(iv), none of the Intellectual Property currently sold or
licensed by the Company to any Person or used by or licensed to the Company
infringes upon or otherwise violates any Intellectual Property rights of others.
(a)(v) Except as set forth on Schedule 3.21(a)(v), no litigation
is pending and no Claim has been made against the Company or, to the knowledge
of the Company, is threatened, contesting the right of the Company to sell or
license to any Person or use the Intellectual Property presently sold or
licensed to such Person or used by the Company.
(b) Except as set forth on Schedule 3.21(b), to the knowledge of
the Company, no Person is infringing upon or otherwise violating the
Intellectual Property rights of the Company.
(c) No former employer of any employee of the Company, and no
current or former client of any consultant of the Company, has made a claim
against the Company that such employee or such consultant is utilizing
proprietary information of such former employer or client.
(d) Except as set forth on Schedule 3.21(d), the Company is not a
party to or bound by any license or other agreement requiring the payment of any
material royalty payment, excluding such agreements relating to software
licensed for use solely on the computers of the Company.
(e) To the knowledge of the Company, no employee of the Company is
in violation of any term of any employment agreement, patent or invention
disclosure agreement or other contract or agreement relating to the relationship
of such employee with the Company.
(f) To the knowledge of the Company, none of the designs, plans,
trade secrets, inventions, processes, procedures, research records,
manufacturing know-how and formulae, wherever located, the value of which is
contingent upon maintenance of confidentiality thereof, has been disclosed to
any
<PAGE> 23
17
Person other than employees, representatives and agents of the Company, except
as required pursuant to the filing of a patent application by the Company, or
when disclosure to a Person is necessary pursuant to confidentiality agreements
entered into by the Company.
3.22 Potential Conflicts of Interest. Except as set forth on Schedule
3.22, no officer, director or stockholder of the Company, no spouse of any such
officer, director or stockholder and, to the knowledge of the Company, no
relative of such spouse or of any such officer, director or stockholder and no
Affiliate of any of the foregoing (a) owns, directly or indirectly, any
interest in (excepting less than 1% stock holdings for investment purposes in
securities of publicly held and traded companies), or is an officer, director,
employee or consultant of, any Person which is, or is engaged in business as, a
competitor, lessor, lessee, supplier, distributor, sales agent or customer of,
or lender to or borrower from, the Company; (b) owns, directly or indirectly,
in whole or in part, any tangible or intangible property that the Company has
used, or that the Company will use, in the conduct of business; or (c) has any
cause of action or other claim whatsoever against, or owes or has advanced any
amount to, the Company, except for claims in the ordinary course of business
such as for accrued vacation pay, accrued benefits under employee benefit
plans, and similar matters and agreements existing on the date hereof.
3.23 Trade Relations. Except as set forth on Schedule 3.23, there
exists no actual or, to the knowledge of the Company, threatened termination,
cancellation or limitation of, or any adverse modification or change in, the
business relationship of the Company, or the business of the Company, with any
customer or distributor or any group of customers or distributors whose
purchases are individually or in the aggregate material to the Condition of the
Company, or with any material supplier of the Company, and, to the knowledge of
the Company, there exists no present condition or state of fact or circumstances
that would materially adversely affect the Condition of the Company or prevent
the Company from conducting such business relationships or such business with
any such customer, such group of customers or distributors or such material
supplier in the same manner as heretofore conducted by the Company.
3.24 Outstanding Borrowing. Schedule 3.24 sets forth (a) the amount of
all Indebtedness of the Company as of the Closing Date, (b) the Liens that
relate to such Indebtedness and that encumber the Assets and (c) the name of
each lender thereof.
3.25 Insurance. The Company maintains insurance with insurance
companies or associations in such amounts and covering such risks as are usually
and customarily carried by Persons engaged in the business conducted by the
Company. Except as set forth on Schedule 3.25, such policies and binders are
valid and
<PAGE> 24
18
enforceable in accordance with their terms and are in full force and effect.
None of such policies will be affected by, or terminate or lapse by reason of,
any transaction contemplated by this Agreement or any of the other Transaction
Documents.
3.26 Environmental Matters. The Company is and has been in compliance
with all applicable Environmental Laws, except to the extent that the failure to
comply with such Environmental Laws would not have a material adverse effect on
the Condition of the Company. There is no civil, criminal or administrative
judgment, action, suit, demand, claim, hearing, notice of violation,
investigation, proceeding, notice or demand letter pending or, to the knowledge
of the Company, threatened against the Company pursuant to Environmental Laws
which would reasonably be expected to result in a fine, penalty or other
obligation, cost or expense that would have a material adverse affect on the
Condition of the Company; and, to the knowledge of the Company, there are no
past or present events, conditions, circumstances, activities, practices,
incidents, agreements, actions or plans which may prevent compliance with, or
which have given rise to or will give rise to liability under, Environmental
Laws that would have a material adverse affect on the Condition of the Company.
3.27 Broker's, Finder's or Similar Fees. There are no brokerage
commissions, finder's fees or similar fees or commissions payable by the Company
in connection with the transactions contemplated hereby based on any agreement,
arrangement or understanding with the Company or any action taken by any such
Person.
3.28 Disclosure.
(a) Agreement and Other Documents. This Agreement and the
documents and certificates furnished to the Purchasers by the Company, taken as
a whole, do not contain any untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which they were made, not
misleading.
(b) Material Adverse Effects. There is no fact known to the
Company, which the Company has not disclosed to the Purchasers in writing, which
materially adversely affects the Condition of the Company or the ability of the
Company to perform its obligations under this Agreement, any of the other
Transaction Documents or any document contemplated hereby or thereby.
<PAGE> 25
19
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each of the Purchasers hereby represents and warrants (severally as to
itself and not jointly) to the Company as follows:
4.1 Existence and Power. Such Purchaser (a) is a partnership duly
organized and validly existing under the laws of the jurisdiction of its
formation and (b) has the requisite partnership power and authority to execute,
deliver and perform its obligations under this Agreement and each of the other
Transaction Documents to which it is a party.
4.2 Authorization; No Contravention. The execution, delivery and
performance by such Purchaser of this Agreement and each of the other
Transaction Documents to which it is a party and the transactions contemplated
hereby and thereby, including, without limitation, the purchase of the Purchased
Shares and the Warrants, (a) have been duly authorized by all partnership
necessary action, (b) do not contravene the terms of such Purchaser's
organizational documents, or any amendment thereof, and (c) do not violate,
conflict with or result in any breach or contravention of or the creation of any
Lien under, any Contractual Obligation of such Purchaser, or any Requirement of
Law applicable to such Purchaser.
4.3 Governmental Authorization; Third Party Consents. No approval,
consent, compliance, exemption, authorization, or other action by, or notice to,
or filing with, any Governmental Authority or any other Person with respect to
any Requirement of Law, and no lapse of a waiting period under any Requirement
of Law, is necessary or required in connection with the execution, delivery or
performance (including, without limitation, the purchase of the Purchased Shares
and the Warrants) by, or enforcement against, such Purchaser of this Agreement
and each of the other Transaction Documents to which such Purchaser is a party
or the transactions contemplated hereby and thereby.
4.4 Binding Effect. This Agreement and each of the other Transaction
Documents to which such Purchaser is a party have been duly executed and
delivered by such Purchaser and constitute the legal, valid and binding
obligations of such Purchaser, enforceable against it in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance or transfer, moratorium or
similar laws affecting the enforcement of creditors' rights generally or by
equitable principles relating to enforceability (regardless of whether
considered in a proceeding at law or in equity).
<PAGE> 26
20
4.5 Purchase for Own Account. The Purchased Shares and the Warrants to
be acquired by such Purchaser pursuant to this Agreement are being or will be
acquired for its own account and with no intention of distributing or reselling
such Purchased Shares or Warrants or any part thereof in any transaction that
would be in violation of the securities laws of the United States of America, or
any state, without prejudice, however, to the rights of such Purchaser at all
times to sell or otherwise dispose of all or any part of such Purchased Shares
or Warrants under an effective registration statement under the Securities Act,
or under an exemption from such registration available under the Securities Act,
and subject, nevertheless, to the disposition of such Purchaser's property being
at all times within its control. If such Purchaser should in the future decide
to dispose of any of the Securities, such Purchaser understands and agrees that
it may do so only in compliance with the Securities Act and applicable state
securities laws, as then in effect. Such Purchaser agrees to the imprinting, so
long as required by law, of a legend on certificates representing all of its
Purchased Shares, shares of Common Stock issuable upon conversion of its
Purchased Shares and Warrant Shares to the following effect:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE
SECURITIES LAWS OF ANY STATE. THE SECURITIES MAY NOT BE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS
OR PURSUANT TO A WRITTEN OPINION OF COUNSEL FOR THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE OR OTHER
DISPOSITION (EACH A "TRANSFER") AND VOTING OF ANY OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE TERMS OF THE
STOCKHOLDERS AGREEMENT, DATED AUGUST 30, 1996, AMONG PROXICOM, INC.,
GENERAL ATLANTIC PARTNERS 34, L.P., GAP COINVESTMENT PARTNERS, L.P. AND
RAUL FERNANDEZ, A COPY OF WHICH MAY BE INSPECTED AT THE COMPANY'S
PRINCIPAL OFFICE. THE COMPANY WILL NOT REGISTER THE TRANSFER OF SUCH
SECURITIES ON THE BOOKS OF THE COMPANY UNLESS AND UNTIL THE TRANSFER
HAS BEEN MADE IN COMPLIANCE WITH THE TERMS OF THE STOCKHOLDERS
AGREEMENT.
<PAGE> 27
21
4.6 Restricted Securities. Such Purchaser understands that the
Purchased Shares will not be registered at the time of their issuance under the
Securities Act for the reason that the sale provided for in this Agreement is
exempt pursuant to Section 4(2) of the Securities Act and that the reliance of
the Company on such exemption is predicated in part on such Purchaser's
representations set forth herein. Such Purchaser represents that it is
experienced in evaluating recently organized companies such as the Company, has
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of its investment and has the ability to
suffer the total loss of its investment. Such Purchaser further represents that
it has had the opportunity to ask questions of and receive answers from the
Company concerning the terms and conditions of the offering and to obtain
additional information (to the extent the Company possessed such information or
could acquire it without unreasonable effort or expense).
4.7 Accredited Investor Status. Such Purchaser is an "accredited
investor" as that term is defined by Rule 501 of Regulation D promulgated under
the Securities Act.
4.8 Litigation. There are no Claims pending or, to the knowledge of
such Purchaser, threatened, at law, in equity, in arbitration or before any
Governmental Authority against any Purchaser which would, if adversely
determined, have a material adverse effect on the ability of such Purchaser to
perform its obligations under this Agreement or any of the other Transaction
Documents. No Order has been issued by any court or other Governmental Authority
against such Purchaser purporting to enjoin or restrain the execution, delivery
or performance of this Agreement or any of the other Transaction Documents.
4.9 Broker's, Finder's or Similar Fees. There are no brokerage
commissions, finder's fees or similar fees or commissions payable by the
Purchasers, in connection with the transactions contemplated hereby based on any
agreement, arrangement or understanding with the Purchasers or any action taken
by the Purchasers.
ARTICLE 5
CONDITIONS TO THE OBLIGATION
OF THE PURCHASERS TO CLOSE
The obligation of the Purchasers to purchase the Purchased Shares and
the Warrants, to pay the purchase price therefor at the Closing and to perform
any obligations hereunder shall be subject to the satisfaction as determined by,
or waiver by, the Purchasers of the following conditions on or before the
Closing Date.
<PAGE> 28
22
5.1 Representations and Warranties. The representations and warranties
of the Company contained in Article 3 hereof shall be true and correct in all
material respects at and on the Closing Date as if made at and on such date.
5.2 Compliance with this Agreement. The Company shall have performed
and complied in all material respects with all of its agreements and conditions
set forth herein that are required to be performed or complied with by the
Company on or before the Closing Date.
5.3 Secretary's Certificate. The Purchasers shall have received a
certificate from the Company, in form and substance satisfactory to the
Purchasers, dated the Closing Date and signed by the Secretary or an Assistant
Secretary of the Company, certifying (a) that the attached copies of the
Certificate of Incorporation, the By-laws and resolutions of the Board of
Directors of the Company approving this Agreement and each of the other
Transaction Documents to which the Company is a party and the transactions
contemplated hereby and thereby, are all true, complete and correct and remain
unamended and in full force and effect and (b) as to the incumbency and specimen
signature of each officer of the Company executing this Agreement, each other
Transaction Document and any other document delivered in connection herewith on
behalf of the Company.
5.4 Officer's Certificate. The Purchasers shall have received a
certificate from the Company, in form and substance satisfactory to the
Purchaser, dated the Closing Date and signed by the Chief Executive Officer and
Treasurer of the Company, certifying that (a) the representations and warranties
of the Company contained in Article 3 hereof are true and correct in all
material respects at and on the Closing Date and (b) the Company has performed
and complied in all material respects with all of the agreements and conditions
set forth or contemplated herein that are required to be performed or complied
with by the Company on or before the Closing Date.
5.5 Documents. The Purchasers shall have received true, complete and
correct copies of such documents as they may reasonably request in connection
with or relating to the sale of the Purchased Shares, the Warrants and the
transactions contemplated hereby, all in form and substance reasonably
satisfactory to the Purchasers.
5.6 Repurchase of Common Stock. Simultaneously with the Closing, the
Company shall have purchased from Raul Fernandez an aggregate of 100,917 shares
of Common Stock for an aggregate purchase price of $329,998.59.
5.7 Consummation of Merger with Proxima, Inc.. (a) The merger agreement
(the "Proxima Merger Agreement") between Proxima, Inc., a Maryland
<PAGE> 29
23
corporation ("Proxima"), and the Company shall have been duly executed and
delivered by each of Proxima and the Company, (b) the Proxima Merger Agreement
and the transactions contemplated thereby shall have been approved and adopted
at a meeting of the stockholders of Proxima, or in a written consent executed in
lieu of such meeting, in accordance the Articles of Incorporation, as amended,
of Proxima and the Business Corporation Law of the State of Maryland, (c) the
Proxima Merger Agreement and the transactions contemplated thereby shall have
been approved and adopted at a meeting of the stockholders of the Company, or in
a written consent executed in lieu of such meeting, in accordance with the
Certificate of Incorporation and the General Corporation Law of the State of
Delaware and (d) the merger of Proxima with and into the Company in accordance
with the Proxima Merger Agreement shall have been consummated.
5.8 Filing of Certificate of Designations. The Certificate of
Designations shall have been duly filed by the Company with the Secretary of
State of the State of Delaware in accordance with the General Corporation Law of
the State of Delaware.
5.9 Purchased Shares. The Company shall have delivered to the
Purchasers certificates in definitive form representing the number of Purchased
Shares set forth opposite such Purchaser's name on Schedule 2 hereto, registered
in the name of such Purchaser.
5.10 Warrants. The Company shall have duly executed and delivered to
GAP LP the GAP LP Warrant and to GAP Coinvestment the GAPCO Warrant, each
substantially in the form attached hereto as Exhibit B, and registered in the
name of GAP LP and GAP Coinvestment, respectively.
5.11 Stockholders Agreement. The Company shall have duly executed and
delivered the Stockholders Agreement, substantially in the form attached hereto
as Exhibit D.
5.12 Registration Rights Agreement. The Company shall have duly
executed and delivered the Registration Rights Agreement, substantially in the
form attached hereto as Exhibit E.
5.13 Opinion of Counsel. The Purchasers shall have received an opinion
of Nicholas & Jones, corporate counsel to the Company, dated the Closing Date,
relating to the transactions contemplated by or referred to herein,
substantially in the form attached hereto as Exhibit F.
5.14 Approval of Counsel to the Purchasers. All actions and proceedings
hereunder and all documents required to be delivered by the Company
<PAGE> 30
24
hereunder or in connection with the consummation of the transactions
contemplated hereby, and all other related matters, shall have been acceptable
to Paul, Weiss, Rifkind, Wharton & Garrison, counsel to the Purchasers, in their
reasonable judgment as to their form and substance.
5.15 Consents and Approvals. All consents, exemptions, authorizations,
or other actions by, or notices to, or filings with, Governmental Authorities
and other Persons required in respect of all Requirements of Law and with
respect to those Contractual Obligations of the Company which are necessary in
connection with the execution, delivery or performance by, or enforcement
against, the Company of this Agreement and each of the other Transaction
Documents shall have been obtained and be in full force and effect, and the
Purchasers shall have been furnished with appropriate evidence thereof.
5.16 No Material Judgment or Order. There shall not be on the Closing
Date any Order of a court of competent jurisdiction or any ruling of any
Governmental Authority or any condition imposed under any Requirement of Law
which, in the reasonable judgment of the Purchasers, would prohibit the purchase
of the Purchased Shares or the Warrants or subject the Purchasers to any penalty
or other onerous condition under or pursuant to any Requirement of Law if the
Purchased Shares or the Warrants were to be purchased hereunder.
5.17 No Litigation. No action, suit, proceeding, claim or dispute shall
have been brought or otherwise arisen at law, in equity, in arbitration or
before any Governmental Authority against the Company which would, if adversely
determined, (a) have a material adverse effect on the Condition of the Company
or (b) have a material adverse effect on the ability of the Company to perform
its obligations under this Agreement or each of the other Transaction Documents.
ARTICLE 6
CONDITIONS TO THE OBLIGATION
OF THE COMPANY TO CLOSE
The obligation of the Company to issue and sell the Purchased Shares
and the Warrants and the obligation of the Company to perform its other
obligations hereunder, shall be subject to the satisfaction as determined by, or
waiver by, the Company of the following conditions on or before the Closing
Date:
6.1 Representations and Warranties. The representations and warranties
of the Purchasers contained in Article 4 hereof shall be true and correct in all
material respects at and on the Closing Date as if made at and on such date.
<PAGE> 31
25
6.2 Compliance with this Agreement. The Purchasers shall have performed
and complied in all material respects with all of its agreements and conditions
set forth herein that are required to be performed or complied with by the
Purchasers on or before the Closing Date.
6.3 General Partners' Certificates. The Company shall have received a
certificate from the general partner of each of GAP LP and GAP Coinvestment, in
form and substance satisfactory to the Company, dated the Closing Date and
signed by such general partner(s), certifying that (a) the representations and
warranties of GAP LP or GAP Coinvestment, as the case may be, contained in
Article 4 hereof are true and correct in all material respects at and on Closing
Date and (b) GAP LP or GAP Coinvestment, as the case may be, has performed and
complied in all material respects with all of its agreements and conditions set
forth or contemplated herein that are required to be performed or complied with
by GAP LP or GAP Coinvestment, as the case may be, on or before the Closing
Date.
6.4 Payment of Purchase Price. The Company shall have received the
aggregate purchase price for the Purchased Shares.
6.5 Stockholders Agreement. The Purchasers shall have duly executed and
delivered the Stockholders Agreement, substantially in the form attached hereto
as Exhibit D.
6.6 Registration Rights Agreement. The Purchasers shall have duly
executed and delivered the Registration Rights Agreement, substantially in the
form attached hereto as Exhibit E.
6.7 Opinion of Counsel. The Company shall have received an opinion of
Paul, Weiss, Rifkind, Wharton & Garrison, counsel to the Purchasers, dated the
Closing Date, relating to the transactions contemplated by or referred to
herein, substantially in the form attached hereto as Exhibit G.
6.8 Approval of Counsel to the Company. All actions and proceedings
hereunder and all documents required to be delivered by the Purchasers hereunder
or in connection with the consummation of the transactions contemplated hereby,
and all other related matters, shall have been acceptable to Hogan & Hartson,
counsel to the Company, in their reasonable judgment as to their form and
substance.
6.9 Consents and Approvals. All consents, exemptions, authorizations,
or other actions by, or notices to, or filings with, Governmental Authorities
and other Persons required in respect of all Requirements of Law and with
respect to those Contractual Obligations of the Purchasers which are necessary
in connection with the execution, delivery or performance by, or enforcement
against,
<PAGE> 32
26
the Company of this Agreement and each of the other Transaction Documents shall
have been obtained and be in full force and effect, and the Company shall have
been furnished with appropriate evidence thereof.
6.10 No Material Judgment or Order. There shall not be on the Closing
Date any Order of a court of competent jurisdiction or any ruling of any
Governmental Authority or any condition imposed under any Requirement of Law
which, in the reasonable judgment of the Company, would prohibit the sale of the
Purchased Shares or the Warrants or subject the Company to any penalty or other
onerous condition under or pursuant to any Requirement of Law if the Purchased
Shares or the Warrants were to be sold hereunder.
6.11 No Litigation. No action, suit, proceeding, claim or dispute shall
have been brought or otherwise arisen at law, in equity, in arbitration or
before any Governmental Authority against the Purchasers which would, if
adversely determined, have a material adverse effect on the ability of the
Purchasers to perform their obligations under this Agreement or any of the other
Transaction Documents to which they are a party.
ARTICLE 7
INDEMNIFICATION
7.1 Indemnification. Except as otherwise provided in this Article 7,
the Company (the "Indemnifying Party") agrees to indemnify, defend and hold
harmless the Purchasers and their Affiliates and their respective officers,
directors, agents, employees, subsidiaries, partners, members and controlling
persons (each, an "Indemnified Party") to the fullest extent permitted by law
from and against any and all losses, Claims, or written threats thereof
(including, without limitation, any Claim brought by the Purchasers or another
Person), damages, expenses (including reasonable fees, disbursements and other
charges of counsel incurred by the Indemnified Party in any action between the
Indemnifying Party and the Indemnified Party or between the Indemnified Party
and any third party or otherwise) or other liabilities (collectively, "Losses")
resulting from or arising out of any breach of any representation or warranty,
covenant or agreement by the Company in this Agreement or the other Transaction
Documents; provided, however, that the Indemnifying Party shall not be liable
under this Section 7.1 to an Indemnified Party to the extent that it is finally
judicially determined that such Losses resulted or arose from the breach by
such Indemnified Party of any representation, warranty, covenant or other
agreement of such Indemnified Party contained in this Agreement or the other
Transaction Documents; and provided further, that if and to the extent that
such indemnification is unenforceable for any reason, the Indemnifying Party
shall make the maximum
<PAGE> 33
27
contribution to the payment and satisfaction of such Losses which shall be
permissible under applicable laws. The amount of any payment to any Indemnified
Party herewith in respect of any Loss shall be of sufficient amount to make such
Indemnified Party whole. In connection with the obligation of the Indemnifying
Party to indemnify for expenses as set forth above, the Indemnifying Party
shall, upon presentation of appropriate invoices containing reasonable detail,
reimburse each Indemnified Party for all such expenses (including reasonable
fees, disbursements and other charges of counsel incurred by the Indemnified
Party in any action between the Indemnifying Party and the Indemnified Party or
between the Indemnified Party and any third party or otherwise) (a) after the
final resolution or disposition of the particular action, investigation, claim
or other proceeding and (b) if such Indemnified Party prevails with respect
thereto.
7.2 Notification. Each Indemnified Party under this Article 7 shall,
promptly after the receipt of notice of the commencement of any action,
investigation, claim or other proceeding against such Indemnified Party in
respect of which indemnity may be sought from the Indemnifying Party under this
Article 7, notify the Indemnifying Party in writing of the commencement thereof.
The omission of any Indemnified Party to so notify the Indemnifying Party of any
such action shall not relieve the Indemnifying Party from any liability which it
may have to such Indemnified Party (a) other than pursuant to this Article 7 or
(b) under this Article 7 unless, and only to the extent that, such omission
results in the Indemnifying Party's forfeiture of substantive rights or
defenses. In case any such action, claim or other proceeding shall be brought
against any Indemnified Party, and it shall notify the Indemnifying Party of the
commencement thereof, the Indemnifying Party shall be entitled to assume the
defense thereof at its own expense, with counsel satisfactory to such
Indemnified Party in its reasonable judgment; provided, however, that any
Indemnified Party may, at its own expense, retain separate counsel to
participate in such defense at its own expense. Notwithstanding the foregoing,
in any action, claim or proceeding in which both the Indemnifying Party, on the
one hand, and an Indemnified Party, on the other hand, are, or are reasonably
likely to become, a party, such Indemnified Party shall have the right to employ
separate counsel and to control its own defense of such action, claim or
proceeding if, in the reasonable opinion of counsel to such Indemnified Party, a
conflict or potential conflict exists between the Indemnifying Party, on the one
hand, and such Indemnified Party, on the other hand, that would make such
separate representation advisable; provided, however, that the Indemnifying
Party (i) shall not be liable for the fees and expenses of more than one
counsel to all Indemnified Parties and (ii) shall reimburse the Indemnified
Parties for all of such fees and expenses of such counsel incurred in any
action between the Indemnifying Party and the Indemnified Parties or between
the Indemnified Parties and any third party or otherwise (x) after the final
resolution or disposition of such action, claim or proceeding and (y) if the
Indemnified Parties prevail with respect thereto. The Indemnifying Party agrees
that it will not, without
<PAGE> 34
28
the prior written consent of the Purchasers, settle, compromise or consent to
the entry of any judgment in any pending or threatened claim, action or
proceeding relating to the matters contemplated hereby (if any Indemnified Party
is a party thereto or has been actually threatened to be made a party thereto)
unless such settlement, compromise or consent includes an unconditional release
of the Purchasers and each other Indemnified Party from all liability arising or
that may arise out of such claim, action or proceeding. The Indemnifying Party
shall not be liable for any settlement of any claim, action or proceeding
effected against an Indemnified Party without its written consent, which consent
shall not be unreasonably withheld. The rights accorded to Indemnified Party
hereunder shall be in addition to any rights that any Indemnified Party may have
at common law, by separate agreement or otherwise; provided, however, that
notwithstanding the foregoing or anything to the contrary contained in this
Agreement, nothing in this Article 7 should restrict or limit any rights that
any Indemnified Party may have to seek equitable relief.
7.3 Limitations on Indemnification. Notwithstanding anything to the
contrary contained in this Article 7, the Indemnifying Party shall have no
obligation to pay any amounts for indemnification pursuant to Section 7.1 to the
extent that the aggregate of such amounts for indemnification do not exceed
$250,000 (the "Basket Amount"), whereupon the Indemnifying Party shall be
obligated to pay in full all of such amounts for indemnification, including the
Basket Amount.
ARTICLE 8
AFFIRMATIVE COVENANTS
The Company hereby covenants and agrees with the Purchasers as follows:
8.1 Preservation of Existence. So long as the Purchasers and/or any
Affiliate thereof own shares of Common Stock and/or shares of Preferred Stock or
other securities of the Company convertible into or exchangeable for shares of
voting capital stock of the Company that represent (after giving effect to any
adjustments) at least 5% of the total number of shares of Common Stock
outstanding on an as-converted basis, the Company shall:
(a) use its reasonable efforts to preserve and maintain in full
force and effect its existence and good standing under the laws of its
jurisdiction of formation or organization;
<PAGE> 35
29
(b) use its reasonable efforts to preserve and maintain in full
force and effect all material rights, privileges, qualifications, applications,
estimates, licenses and franchises necessary in the normal conduct of its
business;
(c) use its reasonable efforts to preserve its business
organization;
(d) conduct its business in accordance with sound business
practices, keep its properties in good working order and condition (normal wear
and tear excepted) so that the efficiency of its business operations shall be
fully maintained and preserved; and
(e) file or cause to be filed in a timely manner all reports,
applications, estimates and licenses that shall be required by a Governmental
Authority and that, if not timely filed, would have a material adverse effect on
the Condition of the Company.
8.2 Financial Statements and Other Information. The Company shall
deliver to each Purchaser, in form and substance satisfactory to such Purchaser:
(a) as soon as available, but not later than ninety (90) days after
the end of each fiscal year of the Company, a copy of the audited balance sheet
of the Company as of the end of such fiscal year and the related statements of
operations and cash flows for such fiscal year, setting forth in each case in
comparative form the figures for the previous year, all in reasonable detail and
accompanied by a management summary and analysis of the operations of the
Company for such fiscal year and by the opinion of a nationally recognized
independent certified public accounting firm which report shall state without
qualification that such financial statements present fairly the financial
condition as of such date and results of operations and cash flows for the
periods indicated in conformity with GAAP applied on a consistent basis;
(b) commencing with the fiscal period ending on September 30, 1996,
as soon as available, but in any event not later than forty-five (45) days after
the end of each of the first three fiscal quarters of each fiscal year, the
unaudited balance sheet of the Company, and the related statements of operations
and cash flows for such quarter and for the period commencing on the first day
of the fiscal year and ending on the last day of such quarter, all certified by
an appropriate officer of the Company as presenting fairly the financial
condition as of such date and results of operations and cash flows for the
periods indicated in conformity with GAAP applied on a consistent basis, subject
to normal year-end adjustments and the absence of footnotes required by GAAP;
and
<PAGE> 36
30
(c) as promptly as practicable, but not later than five (5) days
after the end of each fiscal year of the Company, a certificate signed by the
Chief Executive Officer of the Company in customary form certifying that the
Company is not a "foreign person" within the meaning of Section 1445 of the
Code.
8.3 Reservation of Common Stock and Preferred Stock. The Company shall
at all times (a) reserve and keep available out of its authorized shares of
Common Stock, solely for the purpose of issue or delivery upon conversion of the
Purchased Shares, and (b) reserve and keep available out of its authorized
shares of Preferred Stock and, assuming that the Warrants are exercisable for
shares of Common Stock in accordance with the terms thereof, Common Stock,
solely for the purpose of issue or delivery upon exercise of the Warrants, as
provided in the Certificate of Incorporation, the Certificate of Designations
(in the case of the shares of Common Stock issuable upon conversion of the
Purchased Shares) and the Warrants (in the case of the Warrant Shares), the
maximum number of shares of Common Stock and Preferred Stock that may be
issuable or deliverable upon such conversion or exercise, as the case may be.
Such shares of Common Stock and Preferred Stock are duly authorized and, when
issued or delivered in accordance with the Certificate of Incorporation, the
Certificate of Designations (in the case of the shares of Common Stock issuable
upon conversion of the Purchased Shares) and the Warrants (in the case of the
Warrant Shares), as the case may be, against payment therefor, shall be validly
issued, fully paid and non-assessable. The Company shall issue such shares of
Common Stock and Preferred Stock in accordance with the terms of the Certificate
of Incorporation and the Certificate of Designations or the Warrants, as the
case may be, and otherwise comply with the terms hereof and thereof.
8.4 Designation of Directors. Within ninety (90) days of the Closing
Date, the Company shall identify and obtain the commitment of two individuals to
serve on the Board of Directors, who shall (a) not be Affiliates of or
Affiliated with the Company or Raul Fernandez, (b) be reasonably acceptable to
the Purchasers and (c) be designated to serve on the Board of Directors in
accordance with Section 6.3(d) of the Stockholders Agreement.
8.5 Compliance with Laws. The Company shall comply in all material
respects with all Requirements of Law and with the directions of any
Governmental Authority having jurisdiction over the Company or its business or
property.
8.6 Insurance. The Company shall maintain key-man insurance with
respect to Raul Fernandez in an aggregate amount of not less than $500,000.
8.7 Books and Records. The Company shall keep proper books of record
and account, in which full and correct entries shall be made of all financial
<PAGE> 37
31
transactions and the assets and business of the Company in accordance with GAAP
consistently applied.
ARTICLE 9
MISCELLANEOUS
9.1 Survival of Representations and Warranties. All of the
representations and warranties made herein shall survive the execution and
delivery of this Agreement until the date that is ninety (90) days after the
receipt by the Purchasers of audited financial statements of the Company for the
fiscal year ending December 31, 1997 (or, if such fiscal year changes and no
such audited consolidated financial statements are available, then the successor
fiscal year), except for (a) Sections 3.1, 3.2, 3.4, 3.7, 4.1, 4.2, 4.4, 4.6 and
4.7, which representations and warranties shall survive until the second
anniversary of the Closing Date and (b) Section 3.12, which shall survive until
the later to occur of (i) the lapse of the statute of limitations with respect
to the assessment of any Tax to which such representation and warranty relates
(including any extensions or waivers thereof) and (y) sixty (60) days after the
final administrative or judicial determination of the Taxes to which such
representation and warranty relates, and no claim with respect to Section 3.12
may be asserted thereafter with the exception of claims arising out of any fact,
circumstance, action or proceeding to which the party asserting such claim shall
have given notice to the other parties to this Agreement prior to the
termination of such period of reasonable belief that a tax liability will
subsequently arise therefrom.
9.2 Notices. All notices, demands and other communications provided for
or permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, telecopier, courier
service or personal delivery:
(a) if to the Company:
Proxicom, Inc.
1749 Old Meadow Road
McLean, Virginia 22102-4310
Telecopy: (703) 506-4797
Attention: Christopher Capuano, Esq.,
General Counsel
<PAGE> 38
32
with a copy to:
Nicholas & Jones
440 Louisiana
625 Lyric Office Center
Houston, Texas 77002
Telecopy: (713) 224-8525
Attention: Nelson M. Jones III, Esq.
and
Hogan & Hartson
555 13th Street, N.W.
Washington, D.C. 20004-1109
Telecopy: (202) 637-5910
Attention: Jacquelyn E. Grillon, Esq.
(b) if to GAP LP or GAP Coinvestment:
c/o General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, Connecticut 06830
Telecopy: (203) 622-8818
Attention: Mr. Stephen P. Reynolds
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Matthew Nimetz, Esq.
All such notices and communications shall be deemed to have been duly
given when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial courier service; five (5) Business Days
after being deposited in the mail, postage prepaid, if mailed; and when receipt
is mechanically acknowledged, if telecopied.
9.3 Successors and Assigns: Third Party Beneficiaries. This Agreement
shall inure to the benefit of and be binding upon the successors and permitted
assigns of the parties hereto. Subject to applicable securities laws, the
Purchasers may assign any of its rights under any of the Transaction Documents
to any
<PAGE> 39
33
of its Affiliates. The Company may not assign any of their rights under this
Agreement without the written consent of the Purchasers. Except as provided in
Article 7, no Person other than the parties hereto and their successors and
permitted assigns is intended to be a beneficiary of this Agreement.
9.4 Amendment and Waiver.
(a) No failure or delay on the part of the Company or the
Purchasers in exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to the
Company or the Purchasers at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any
provision of this Agreement, any waiver of any provision of this Agreement, and
any consent to any departure by the Company or the Purchasers from the terms of
any provision of this Agreement, shall be effective (i) only if it is made or
given in writing and signed by the Company and the Purchasers, and (ii) only in
the specific instance and for the specific purpose for which made or given.
Except where notice is specifically required by this Agreement, no notice to or
demand on the Company in any case shall entitle the Company to any other or
further notice or demand in similar or other circumstances.
9.5 Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
9.6 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
9.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF VIRGINIA, WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW THEREOF.
9.8 Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or
<PAGE> 40
34
unenforceable shall substantially impair the benefits of the remaining
provisions hereof.
9.9 Rules of Construction. Unless the context otherwise requires,
references to sections or subsections refer to sections or subsections of this
Agreement.
9.10 Entire Agreement. This Agreement, together with the exhibits and
schedules hereto, and the other Transaction Documents are intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein and therein. There are no
restrictions, promises, representations, warranties or undertakings, other than
those set forth or referred to herein or therein. This Agreement, together with
the exhibits and schedules hereto, and the other Transaction Documents supersede
all prior agreements and understandings between the parties with respect to such
subject matter.
9.11 Fees. The Purchasers shall bear all of their fees, disbursements
and other charges of counsel incurred in connection with this Agreement and the
transactions contemplated hereby.
9.12 Publicity. Except as may be required by applicable Requirement of
Law, none of the parties hereto shall issue a publicity release or public
announcement or otherwise make any disclosure concerning this Agreement or the
transactions contemplated hereby, without prior approval by the other parties
hereto; provided, however, that nothing in this Agreement shall restrict any
Purchaser from disclosing information (a) that is already publicly available;
(b) to the prospective transferee in connection with any contemplated transfer
of any of the Purchased Shares; and (c) to its attorneys, accountants,
consultants and other advisors to the extent necessary to obtain their services
in connection with such Purchaser's investment in the Company. If any
announcement is required by law to be made by any party hereto, prior to making
such announcement such party will deliver a draft of such announcement to the
other parties and shall give the other parties an opportunity to comment
thereon.
9.13 Further Assurances. Each of the parties shall execute such
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations or other actions by, or
giving any notices to, or making any filings with, any Governmental Authority or
any other Person) as may be reasonably required or desirable to carry out or to
perform the provisions of this Agreement.
<PAGE> 41
35
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective officers hereunto duly authorized on
the date first above written.
PROXICOM, INC.
By: /s/ RAUL FERNANDEZ
-----------------------------
Name: Raul Fernandez
Title: President and Chief Executive Officer
GENERAL ATLANTIC PARTNERS 34, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
its General Partner
By: /s/ DAVID C. HODGSON
--------------------------
Name: David C. Hodgson
Title: A Managing Member
GAP COINVESTMENT PARTNERS, L.P.
By: /s/ DAVID C. HODGSON
-----------------------------
Name: David C. Hodgson
Title: A General Partner
<PAGE> 1
EXHIBIT 10.2
================================================================================
PREFERRED STOCK PURCHASE AGREEMENT
among
PROXICOM, INC.,
GENERAL ATLANTIC PARTNERS 34, L.P.,
GAP COINVESTMENT PARTNERS, L.P.,
FBR VENTURE CAPITAL MANAGERS INC.
and
THE MARIO M. MORINO TRUST
-------------------------------
Dated: February 20, 1997
-------------------------------
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE 1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Accounting Terms; Financial Statements . . . . . . . . . . . . 7
ARTICLE 2 PURCHASE AND SALE OF PREFERRED STOCK . . . . . . . . . . . . . 7
2.1 Purchase and Sale of Preferred Stock . . . . . . . . . . . . . 7
2.2 Certificate of Designations . . . . . . . . . . . . . . . . . . 7
2.3 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . 7
2.4 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . 8
3.1 Corporate Existence and Power . . . . . . . . . . . . . . . . . 8
3.2 Authorization; No Contravention . . . . . . . . . . . . . . . . 8
3.3 Governmental Authorization; Third Party Consents . . . . . . . 9
3.4 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . 9
3.5 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.6 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . 9
3.7 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . 10
3.8 No Default or Breach; Contractual Obligations . . . . . . . . . 10
3.9 FIRPTA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.10 Financial Statements . . . . . . . . . . . . . . . . . . . . . 11
3.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.12 No Material Adverse Change; Ordinary Course of Business . . . . 12
3.13 Private Offering . . . . . . . . . . . . . . . . . . . . . . . 12
3.14 Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . 12
3.15 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.16 Intellectual Property . . . . . . . . . . . . . . . . . . . . . 13
3.17 Trade Relations . . . . . . . . . . . . . . . . . . . . . . . . 14
3.18 Broker's, Finder's or Similar Fees . . . . . . . . . . . . . . 15
3.19 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS . . . . . . . 15
4.1 Existence and Power . . . . . . . . . . . . . . . . . . . . . . 15
4.2 Authorization; No Contravention . . . . . . . . . . . . . . . . 15
4.3 Governmental Authorization; Third Party Consents . . . . . . . 16
4.4 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . 16
4.5 Purchase for Own Account . . . . . . . . . . . . . . . . . . . 16
4.6 Restricted Securities . . . . . . . . . . . . . . . . . . . . . 17
4.7 Accredited Investor Status . . . . . . . . . . . . . . . . . . 17
4.8 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.9 Broker's, Finder's or Similar Fees . . . . . . . . . . . . . . 18
i
<PAGE> 3
Page
----
ARTICLE 5 CONDITIONS TO THE OBLIGATION OF THE
PURCHASERS TO CLOSE . . . . . . . . . . . . . . . . . . . . 18
5.1 Representations and Warranties . . . . . . . . . . . . . . . . 18
5.2 Compliance with this Agreement . . . . . . . . . . . . . . . . 18
5.3 Secretary's Certificate . . . . . . . . . . . . . . . . . . . . 18
5.4 Officer's Certificate . . . . . . . . . . . . . . . . . . . . . 19
5.5 Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.6 Repurchase of Common Stock . . . . . . . . . . . . . . . . . . 19
5.7 Filing of Certificate of Designations . . . . . . . . . . . . . 19
5.8 Purchased Shares . . . . . . . . . . . . . . . . . . . . . . . 19
5.9 Stockholders Agreement . . . . . . . . . . . . . . . . . . . . 19
5.10 Registration Rights Agreement . . . . . . . . . . . . . . . . . 19
5.11 Approval of Counsel to the Purchasers . . . . . . . . . . . . . 19
5.12 Consents and Approvals . . . . . . . . . . . . . . . . . . . . 20
5.13 No Material Judgment or Order . . . . . . . . . . . . . . . . . 20
5.14 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 6 CONDITIONS TO THE OBLIGATION OF THE
COMPANY TO CLOSE . . . . . . . . . . . . . . . . . . . . . 20
6.1 Representations and Warranties . . . . . . . . . . . . . . . . 21
6.2 Compliance with this Agreement . . . . . . . . . . . . . . . . 21
6.3 General Partners' Certificates . . . . . . . . . . . . . . . . 21
6.4 Trustee's Certificate . . . . . . . . . . . . . . . . . . . . . 21
6.5 Officer's Certificate . . . . . . . . . . . . . . . . . . . . . 21
6.6 Payment of Purchase Price . . . . . . . . . . . . . . . . . . . 21
6.7 Stockholders Agreement . . . . . . . . . . . . . . . . . . . . 22
6.8 Registration Rights Agreement . . . . . . . . . . . . . . . . . 22
6.9 Approval of Counsel to the Company . . . . . . . . . . . . . . 22
6.10 Consents and Approvals . . . . . . . . . . . . . . . . . . . . 22
6.11 No Material Judgment or Order . . . . . . . . . . . . . . . . . 22
6.12 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 7 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . 23
7.1 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 23
7.2 Notification . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.3 Limitations on Indemnification . . . . . . . . . . . . . . . . 24
ARTICLE 8 AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . 25
8.1 Preservation of Existence . . . . . . . . . . . . . . . . . . . 25
8.2 Financial Statements and Other Information . . . . . . . . . . 25
8.3 Reservation of Common Stock and Preferred Stock . . . . . . . . 26
8.4 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . 26
8.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.6 Books and Records . . . . . . . . . . . . . . . . . . . . . . . 27
ii
<PAGE> 4
Page
----
ARTICLE 9 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.1 Survival of Representations and Warranties . . . . . . . . . . 27
9.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.3 Successors and Assigns; Third Party Beneficiaries . . . . . . . 29
9.4 Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . 30
9.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.6 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.7 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.8 Severability . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.9 Rules of Construction . . . . . . . . . . . . . . . . . . . . . 31
9.10 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 31
9.11 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.12 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.13 Further Assurances . . . . . . . . . . . . . . . . . . . . . . 31
iii
<PAGE> 5
SCHEDULES
2 Purchased Shares and Purchase Price
3.1(c) Jurisdictions in which Company Leases or Owns Properties
3.3 Governmental Authorizations; Third Party Consents
3.5 Litigation
3.7 Options, Warrants, Conversion Privileges, Subscription or
Purchase Rights or Other Rights
3.8 Defaults
3.11 Taxes
3.12 Transactions Outside the Ordinary Course of Business
3.14 Title to Assets of the Company
3.15 Liabilities
3.16(a)(ii) Trademarks. Service Marks, Trade Names and Registered
Copyrights Owned by the Company and Applications therefor
3.16(a)(iii) Intellectual Property Licenses under which the Company is
a Licensor or Licensee
3.16(a)(iv) Infringements of the Company
3.16(a)(v) Intellectual Property Litigation
3.16(b) Infringement or Violations of Intellectual Property Rights
3.16(d) License Agreements which require a Material Royalty
Payment
3.17 Trade Relations
The Exhibits and Schedules to this Preferred Stock Purchase Agreement are not
included with this Registration Statement on Form S-1. The Registrant will
provide these Exhibits and Schedules upon the request of the Securities and
Exchange Commission.
iv
<PAGE> 6
EXHIBITS
A Certificate of Incorporation
B By-laws
C Form of Certificate of Designations
D Form of Stockholders Agreement
E Form of Registration Rights Agreement
v
<PAGE> 7
PREFERRED STOCK PURCHASE AGREEMENT
AGREEMENT, dated February 20, 1997 (this "Agreement"), among Proxicom,
Inc., a Delaware corporation (the "Company"), General Atlantic Partners 34,
L.P., a Delaware limited partnership ("GAP LP"), GAP Coinvestment Partners,
L.P., a New York limited partnership ("GAP Coinvestment"; and, together with GAP
LP, the "GAP Entities"), The Mario M. Morino Trust ("Morino Trust") and FBR
Venture Capital Managers Inc., a Delaware corporation ("FBR"; and, together with
GAP LP, GAP Coinvestment and Morino Trust, the "Purchasers").
WHEREAS, upon the terms and conditions set forth in this Agreement, the
Company proposes to issue and sell to (a) GAP LP for an aggregate purchase price
of $340,000, an aggregate of 81,535 shares, par value $.01 per share, of Series
B Convertible Preferred Stock of the Company (the "Preferred Stock"); (b) GAP
Coinvestment for an aggregate purchase price of $60,000, an aggregate of 14,388
shares of Preferred Stock; (c) FBR for an aggregate purchase price of $100,000,
an aggregate of 23,981 shares of Preferred Stock; and (c) Morino Trust for an
aggregate purchase price of $1,000,000, an aggregate of 239,808 shares of
Preferred Stock.
WHEREAS, each share of Preferred Stock is convertible (subject to
adjustment) into one share, par value $.0l per share, of Common Stock of the
Company (the "Common Stock").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. As used in this Agreement, and unless the context
requires a different meaning, the following terms have the meanings indicated:
"Affiliate" shall mean, with respect to any Person, any other Person who
controls, is controlled by or is under common control with such Person. In
addition, the following shall be deemed to be Affiliates of GAP LP: (a) GAP LLC,
the members of GAP LLC and the limited partners of GAP LP; (b) any Affiliate of
GAP LLC, the members of GAP LLC and the limited partners of GAP LP; and (c) any
limited liability company or partnership a majority of whose members or
<PAGE> 8
2
partners, as the case may be, are members of GAP LLC. In addition, GAP LP and
GAP Coinvestment shall be deemed to be Affiliates of one another.
"Agreement" means this Agreement as the same may be amended, supplemented
or modified in accordance with the terms hereof.
"Board of Directors" means the Board of Directors of the Company.
"Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks in the State of New York are authorized or required by
law or executive order to close.
"By-laws" means the by-laws of the Company as in effect as of the Closing
Date substantially in the form attached hereto as Exhibit B.
"Capital Lease Obligations" of any Person shall mean, as of the date of
determination, the obligations of such Person to pay rent or other amounts under
any lease of (or other arrangement conveying the right to use) real or personal
property, or a combination thereof, which obligations are required to be
classified and accounted for as capital leases on a balance sheet of such Person
under GAAP and, for the purposes of this Agreement, the amount of such
obligations at any time shall be the capitalized amount thereof at such time
determined in accordance with GAAP consistently applied.
"Certificate of Designations" means the Certificate of Designations with
respect to the Preferred Stock adopted by the Board of Directors and filed with
the Secretary of State of the State of Delaware on or before the Closing Date
substantially in the form attached hereto as Exhibit C.
"Certificate of Incorporation" means the Certificate of Incorporation of
the Company, as the same may have been amended and as in effect as of the
Closing Date substantially in the form attached hereto as Exhibit A.
"Claims" has the meaning set forth in Section 3.5 of this Agreement.
"Closing" has the meaning set forth in Section 2.4 of this Agreement.
"Closing Date" has the meaning set forth in Section 2.4 of this
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor statute thereto.
<PAGE> 9
3
"Commission" means the Securities and Exchange Commission or any similar
agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means Common Stock, par value $.01 per share, of the
Company, or any other capital stock of the Company into which such stock is
reclassified or reconstituted.
"Common Stock Equivalents" means any security or obligation which is by
its terms convertible into or exchangeable for shares of Common Stock,
including, without limitation, the Preferred Stock, and any option, warrant or
other subscription or purchase right with respect to Common Stock.
"Company" has the meaning assigned to such term in the recital to this
Agreement.
"Condition of the Company" means the assets, business, properties,
operations or financial condition of the Company, taken as a whole.
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, guaranty, letter of credit or other obligation, contractual or
otherwise (the "primary obligation") of another Person (the "primary obligor"),
whether or not contingent, (a) to purchase, repurchase or otherwise acquire such
primary obligations or any property constituting direct or indirect security
therefor, or (b) to advance or provide funds (i) for the payment or discharge of
any such primary obligation, or (ii) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency or any balance sheet item, level of income or financial condition of
the primary obligor, or (c) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary obligation
of the ability of the primary obligor to make payment of such primary
obligation, or (d) otherwise to assure or hold harmless the owner of any such
primary obligation against loss or failure or inability to perform in respect
thereof. The amount of any Contingent Obligation shall be deemed to be an amount
equal to the stated or determinable amount of the primary obligation in respect
of which such Contingent Obligation is made or, if not stated or determinable,
the maximum reasonably anticipated liability in respect thereof.
"Contractual Obligations" means as to any Person, any provision of any
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument to which such Person is a
party or by which it or any of its property is bound.
<PAGE> 10
4
"Copyrights" means any foreign or United States copyright registrations
and applications for registration thereof, and any non-registered copyrights.
"Environmental Laws" means federal, state, local and foreign laws,
principles of common law, civil law, regulations and codes, as well as orders,
decrees, judgments or injunctions issued, promulgated, approved or entered
thereunder relating to pollution, protection of the environment or public health
and safety.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission thereunder.
"FBR" has the meaning assigned to such term in the recital to this
Agreement.
"Financial Statements" has the meaning set forth in Section 3.10.
"GAAP" means generally accepted accounting principles in effect from time
to time.
"GAP Coinvestment" has the meaning assigned to such term in the recital
to this Agreement.
"GAP LLC" means General Atlantic Partners, LLC, a Delaware limited
liability company and the general partner of GAP LP, and any successor to such
entity.
"GAP LP" has the meaning assigned to such term in the recital to this
Agreement.
"Governmental Authority" means the government of any nation, state, city,
locality or other political subdivision thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"Indebtedness" means, as to any Person, (a) all obligations of such
Person for borrowed money (including, without limitation, reimbursement and all
other obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured), (b) all obligations of such Person
evidenced by notes, bonds, debentures or similar instruments, (c) all
obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable and accrued commercial or trade
liabilities arising in the ordinary course of business,
<PAGE> 11
5
(d) all interest rate and currency swaps, caps, collars and similar agreements
or hedging devices under which payments are obligated to be made by such Person,
whether periodically or upon the happening of a contingency, (e) all
indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property), (f)
all obligations of such Person under leases which have been or should be, in
accordance with GAAP, recorded as capital leases, (g) all indebtedness secured
by any Lien (other than Liens in favor of lessors under leases other than leases
included in clause (f)) on any property or asset owned or held by that Person
regardless of whether the indebtedness secured thereby shall have been assumed
by that Person or is non-recourse to the credit of that Person, and (h) any
Contingent Obligation of such Person.
"Internet Assets" means any internet domain names and other computer user
identifiers and any rights in and to sites on the Worldwide Web, including
rights in and to any text, graphics, audio and video files and html or other
code incorporated in such sites.
"Liabilities" has the meaning set forth in Section 3.15 of this
Agreement.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other) or preference, priority,
right or other security interest or preferential arrangement of any kind or
nature whatsoever (excluding preferred stock and equity related preferences),
including, without limitation, those created by, arising under or evidenced by
any conditional sale or other title retention agreement, the interest of a
lessor under a Capital Lease Obligation, or any financing lease having
substantially the same economic effect as any of the foregoing.
"Mask Works" means any mask works and registrations and applications for
registrations thereof.
"Patents" means any foreign or United States patents and patent
applications, including any divisions, continuations, continuations-in-part,
substitutions or reissues thereof, whether or not patents are issued on such
applications and whether or not such applications are modified, withdrawn or
resubmitted.
"Person" means any individual, firm, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
limited liability company, Governmental Authority or other entity of any kind,
and shall include any successor (by merger or otherwise) of such entity.
<PAGE> 12
6
"Preferred Stock" has the meaning assigned to such term in the recital to
this Agreement.
"Purchased Shares" has the meaning set forth in Section 2.1 of this
Agreement.
"Registration Rights Agreement" means the Amended and Restated
Registration Rights Agreement substantially in the form attached hereto as
Exhibit E.
"Requirements of Law" means, as to any Person, any law, statute, treaty,
rule, regulation, license or franchise or determination of an arbitrator or a
court or other Governmental Authority, in each case applicable or binding upon
such Person or any of its property or to which such Person or any of its
property is subject or pertaining to any or all of the transactions contemplated
or referred to herein.
"Securities" means the Purchased Shares and the shares of Common Stock
issuable upon conversion of the Purchased Shares.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder.
"Series A Preferred Stock" means the Series A Convertible Preferred Stock
of the Company, par value $.01 per share.
"Software" means any computer software programs, source code, object
code and manuals and other written material with respect thereto.
"Stockholders Agreement" means the Amended and Restated Stockholders
Agreement substantially in the form attached hereto as Exhibit D.
"Subsidiaries" means, as to any Person, a corporation, partnership,
limited liability company or other entity of which 50% or more of the voting
power of the outstanding voting equity securities or 50% or more of the
outstanding economic equity interest is held, directly or indirectly, by such
Person.
"Trade Secrets" means any trade secrets, research records, processes,
procedures, manufacturing formulae, technical know-how, technology, blue prints,
designs, plans, inventions (whether patentable and whether reduced to practice),
invention disclosures and improvements thereto.
"Trademarks" means any foreign or United States trademarks, service
marks, trade dress, trade names, brand names, designs and logos, corporate
names,
<PAGE> 13
7
product or service identifiers, whether registered or unregistered, and all
registrations and applications for registration thereof.
"Transaction Documents" means collectively, this Agreement, the
Certificate of Designations, the Stockholders Agreement and the Registration
Rights Agreement.
1.2 Accounting Terms; Financial Statements. All accounting terms used
herein not expressly defined in this Agreement shall have the respective
meanings given to them in accordance with sound accounting practice. The term
"sound accounting practice" shall mean such accounting practice as, in the
opinion of the independent certified public accountants regularly retained by
the Company, conforms at the time to GAAP applied on a consistent basis except
for changes with which such accountants concur.
ARTICLE 2
PURCHASE AND SALE OF PREFERRED STOCK
2.1 Purchase and Sale of Preferred Stock. Subject to the terms and
conditions herein set forth, the Company agrees to issue and sell to each of the
Purchasers, and each of the Purchasers agrees that it will purchase from the
Company, on the Closing Date, the aggregate number of shares of Preferred Stock
set forth opposite such Purchaser's name on Schedule 2 hereto, for the aggregate
purchase price set forth opposite such Purchaser's name on Schedule 2 hereto
(all of the shares of Preferred Stock being purchased pursuant hereto being
referred to herein as the "Purchased Shares").
2.2 Certificate of Designations. The Purchased Shares shall have the
preferences and rights set forth in the Certificate of Designations.
2.3 Use of Proceeds. The Company shall use the proceeds from the sale
of the Purchased Shares to fund the purchase from Raul Fernandez of an aggregate
of 359,712 shares of Common Stock for an aggregate purchase price of $1,500,000.
2.4 Closing. The closing of the sale and purchase of the Purchased
Shares (the "Closing") shall take place at the offices of Paul, Weiss, Rifkind,
Wharton & Garrison, at 10:00 a.m., local time, on the date hereof, or at such
other time, place and date that the Company and the Purchasers may agree in
writing (the "Closing Date"). On the Closing Date, the Company shall deliver to
the Purchasers stock certificates representing the Purchased Shares against
delivery by the Purchasers
<PAGE> 14
8
to the Company of the aggregate purchase price therefor by wire transfer of
immediately available funds.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers as follows:
3.1 Corporate Existence and Power. The Company (a) is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; (b) has all requisite power and authority to
own and operate its property, to lease the property it operates as lessee and to
conduct the business in which it is currently, or is currently proposed to be,
engaged; (c) is duly qualified as a foreign corporation, licensed and in good
standing under the laws of the Commonwealth of Virginia; and (d) has the
corporate power and authority to execute, deliver and perform its obligations
under this Agreement and each of the other Transaction Documents. No
jurisdiction, other than those referred to in clause (c) above, has claimed, in
writing or otherwise, that the Company is required to qualify as a foreign
corporation therein, and the Company does not file any franchise, income or
other tax returns in any other jurisdiction based upon the ownership or use of
property therein or the derivation of income therefrom. Except as set forth on
Schedule 3.1(c), the Company does not own, lease or operate property in any
jurisdiction other than its jurisdiction of incorporation and the jurisdiction
referred to in clause (c) above.
3.2 Authorization: No Contravention. The execution, delivery and
performance by the Company of this Agreement and each of the other Transaction
Documents and the transactions contemplated hereby and thereby, including,
without limitation, the sale, issuance and delivery of the Securities, (a) have
been duly authorized by all necessary corporate action of the Company; (b) do
not contravene the terms of the Certificate of Incorporation or the By-laws, or
any amendment thereof; (c) do not violate, conflict with or result in any breach
or contravention of, or the creation of any Lien under, any Contractual
Obligation of the Company, or any Requirement of Law applicable to the Company;
and (d) do not violate any judgment, injunction, writ, award, decree or order of
any nature (collectively, "Orders") of any Governmental Authority against, or
binding upon, the Company. The Company has not previously entered into any
Contractual Obligation which is currently in effect or by which the Company is
currently bound, granting any rights to any Person which are inconsistent with
the rights to be granted by the Company in this Agreement and each of the other
Transaction Documents.
<PAGE> 15
9
3.3 Governmental Authorization; Third Party Consents. Except as set
forth in Schedule 3.3, no approval, consent, compliance, exemption,
authorization or other action by, or notice to, or filing with, any Governmental
Authority or any other Person in respect of any Requirement of Law, and no lapse
of a waiting period under a Requirement of Law, is necessary or required in
connection with the execution, delivery or performance (including, without
limitation, the sale, issuance and delivery of the Securities) by, or
enforcement against, the Company of this Agreement and the other Transaction
Documents or the transactions contemplated hereby and thereby.
3.4 Binding Effect. This Agreement and each of the other Transaction
Documents have been duly executed and delivered by the Company, and constitute
the legal, valid and binding obligations of the Company enforceable against the
Company in accordance with their terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or
transfer, moratorium or similar laws affecting the enforcement of creditors'
rights generally and by general principles of equity relating to enforceability
(regardless of whether considered in a proceeding at law or in equity).
3.5 Litigation. Except as set forth on Schedule 3.5, there are no
actions, suits, proceedings, claims, complaints, disputes, arbitrations or
investigations (collectively, "Claims") pending or, to the knowledge of the
Company, threatened, at law, in equity, in arbitration or before any
Governmental Authority against the Company which would, if adversely determined,
have a material adverse effect on (a) the Condition of the Company or (b) the
ability of the Company to perform its obligations under this Agreement or any of
the other Transaction Documents. No Order has been issued by any court or other
Governmental Authority against the Company purporting to enjoin or restrain the
execution, delivery or performance of this Agreement or any of the other
Transaction Documents.
3.6 Compliance with Laws.
(a) The Company is in compliance with all Requirements of
Law and all Orders issued by any court or Governmental Authority against the
Company in all respects, except to the extent that the failure to comply with
such Requirements of Law or Orders would not have a material adverse effect on
the Condition of the Company.
(b) (i) The Company has all licenses, permits, orders and
approvals of any Governmental Authority (collectively, "Permits") that are
necessary for the conduct of the business of the Company, except to the extent
that the failure to have such Permits would not have a material adverse effect
on the Condition of the
<PAGE> 16
10
Company; (ii) such Permits are in full force and effect; and (iii) no violations
are or have been recorded in respect of any Permit.
(c) No material expenditure is presently required by the Company
to comply with any existing Requirement of Law or Order.
(d) The property, assets and operations owned or leased by the
Company are in compliance in all material respects with all applicable
Environmental Laws, while so owned or leased.
3.7 Capitalization. On the Closing Date, after giving effect to the
transactions contemplated by this Agreement, the authorized capital stock of the
Company shall consist of (a) 20,000,000 shares of Common Stock, of which
8,899,084 shares shall be issued and outstanding to Raul Fernandez, (b)
5,000,000 shares of Series A Preferred Stock, of which (i) 1,389,218 shares
shall be outstanding and issued to GAP LP and (ii) 240,751 shares shall be
outstanding and issued to GAP Coinvestment and (c) 359,712 shares of Preferred
Stock, of which (i) 81,535 shares shall be outstanding and issued to GAP LP,
(ii) 14,388 shares shall be outstanding and issued to GAP Coinvestment, (iii)
23,981 shares shall be outstanding and issued to FBR and (iv) 239,808 shares
shall be outstanding and issued to Morino Trust. The Company has reserved an
aggregate of 359,712 shares of Common Stock for issuance upon conversion of the
Purchased Shares. Except as set forth on Schedule 3.7, there are no options,
warrants, conversion privileges, subscription or purchase rights or other rights
presently outstanding to purchase or otherwise acquire (x) any authorized but
unissued, unauthorized or treasury shares of the Company's capital stock, (y)
any Common Stock Equivalents or (z) other securities of the Company. The
Purchased Shares are duly authorized, and, assuming the accuracy of the
representations and warranties of the Purchasers set forth in Sections 4.6 and
4.7, when issued and sold to the Purchasers after payment therefor, will be
validly issued, fully paid and nonassessable and will be issued in compliance
with the registration and qualification requirements of all applicable federal
securities laws. The shares of Common Stock issuable upon conversion of the
Purchased Shares are duly authorized and, when issued in compliance with the
provisions of the Certificate of Incorporation and the Certificate of
Designations, will be validly issued, fully paid and nonassessable and will be
issued in compliance with the registration and qualification requirements of all
applicable federal securities laws. The issued and outstanding shares of Common
Stock are all duly authorized, validly issued, fully paid and nonassessable, and
were issued in compliance with the registration and qualification requirements
of all applicable federal securities laws.
3.8 No Default or Breach; Contractual Obligations. Except as set forth
in Schedule 3.8, the Company has not received notice of, and is not in default
under, or with respect to, any Contractual Obligation in any respect, which,
individu-
<PAGE> 17
11
ally or together with all such defaults, could have a material adverse effect on
(i) the Condition of the Company or (ii) the ability of the Company to perform
its obligations under this Agreement or the other Transaction Documents.
3.9 FIRPTA. The Company is not a "foreign person" within the meaning of
Section 1445 of the Code.
3.10 Financial Statements. The Company has delivered to the Purchasers
its audited financial statements (balance sheet and statements of operations,
cash flows and stockholders' equity, together with the notes thereto) for the
fiscal years ended and as at December 31, 1995 and December 31, 1994 (the
"Audited Financial Statements"), and its unaudited financial statements (balance
sheet and statement of operations) for the fiscal year ended and as at December
31, 1996 (the "Unaudited Financial Statements"; the Audited Financial Statements
and Unaudited Financial Statements being collectively referred to as the
"Financial Statements"). The Financial Statements are complete and correct in
all material respects and have been prepared in accordance with GAAP applied on
a consistent basis throughout the periods indicated and with each other, except
that the Unaudited Financial Statements do not contain footnotes or typical
year-end adjustments. The Financial Statements fairly present the financial
position, operating results and cash flows of the Company as of the respective
dates and for the respective periods indicated, subject, in the case of the
Unaudited Financial Statements, to normal year-end audit adjustments. The net
income of the Company for the fiscal year ended December 31, 1996 will not be
less than $800,000.
3.11 Taxes. (i) The Company has paid all federal, state, county, local,
foreign and other taxes, including, without limitation, income taxes, estimated
taxes, excise taxes, sales taxes, use taxes, gross receipts taxes, franchise
taxes, employment and payroll related taxes, property taxes and import duties,
whether or not measured in whole or in part by net income (hereinafter, "Taxes"
or, individually, a "Tax") which have come due and are required to be paid by it
through the date hereof, and all deficiencies or other additions to Tax,
interest and penalties owed by it in connection with any such Taxes, and shall
timely pay any Taxes including additions, interest and penalties, required to be
paid by it on, before or after the date hereof; (ii) the Company has timely
filed returns for Taxes that it is required to file on and through the date
hereof, and shall timely file all returns for Taxes that it is required to file
after the date hereof; (iii) with respect to all Tax returns of the Company, (x)
except as set forth in Schedule 3.11, to the knowledge of the Company, there is
no unassessed tax deficiency proposed or threatened against the Company and (y)
except as set forth in Schedule 3.11, no audit is in progress and no extension
of time is in force with respect to any date on which any return for Taxes was
or is to be filed and no waiver or agreement is in force for the extension of
time for the assessment or payment of any Tax; (iv) except as set forth in
Schedule 3.11, the
<PAGE> 18
12
Company has not agreed to or is required to make any adjustments under Section
481(a) of the Code by reason of a change in accounting methods or otherwise;
and (v) all provisions for income and other Tax liabilities of the Company with
respect to the Audited Financial Statements and the Unaudited Financial
Statements have been made in accordance with GAAP consistently applied, and all
liabilities for Taxes of the Company attributable to periods prior to or ending
on December 31, 1995 and December 31, 1996 have been adequately provided for on
the Audited Financial Statements and the Unaudited Financial Statements,
respectively. Schedule 3.11 sets forth the status of federal income tax audits
and state, local and foreign tax audits of the Tax returns of the Company for
each taxable year for which the statute of limitations has not expired.
3.12 No Material Adverse Change; Ordinary Course of Business. Since
December 31, 1996, there has not been any material adverse change, nor to the
knowledge of the Company is any such change threatened, in the Condition of the
Company. Except as set forth on Schedule 3.12, since December 31, 1996, the
Company has not participated in any transaction or otherwise acted outside the
ordinary course of business, including, without limitation, declaring or paying
any dividend or declaring or making any distribution to its stockholders, except
out of the earnings of the Company.
3.13 Private Offering. No form of general solicitation or general
advertising was used by the Company or its representatives in connection with
the offer or sale of the Purchased Shares. No registration of the Securities,
pursuant to the provisions of the Securities Act or any state securities or
"blue sky" laws, will be required by the offer, sale or issuance of the
Securities. The Company agrees that neither it, nor anyone acting on its behalf,
shall offer to sell the Securities or any other security of the Company so as to
require the registration of the Securities pursuant to the provisions of the
Securities Act or any state securities or "blue sky" laws, unless such
Securities or other security is so registered.
3.14 Title to Assets. Except as set forth on Schedule 3.14, the Company
owns and has good, valid, and marketable title to all of its properties and
assets used in its business and reflected as owned on the Financial Statements
or so described in any Schedule hereto (collectively, the "Assets"), in each
case free and clear of all Liens, except for (a) Liens specifically described
on the notes to the Financial Statements and (b) Liens on Assets not material
to the Condition of the Company.
3.15 Liabilities. Except as set forth on Schedule 3.15, the Company has
no obligation or liability ("Liabilities") other than (i) Liabilities fully and
adequately reflected or reserved against on the Financial Statements, (ii)
Liabilities not required by GAAP to be set forth on the Financial Statements
and (iii) Liabilities
<PAGE> 19
13
incurred since December 31, 1996 in the ordinary course of business. The Company
has no knowledge of any circumstance, condition, event or arrangement that may
hereafter give rise to any Liabilities of the Company except in the ordinary
course of business or as otherwise set forth on Schedule 3.15.
3.16 Intellectual Property.
(a)(i) The Company is the exclusive owner of or has the license
or right to use, sell, license or dispose of all of the Copyrights, Patents,
Trade Secrets, Trademarks, Internet Assets, Mask Works, Software and other
proprietary rights (collectively, "Intellectual Property") that are used in
connection with its business as presently conducted, free and clear of all
Liens.
(a)(ii) Schedule 3.16(a)(ii) sets forth all of the Intellectual
Property owned by, and applications for any of the above filed by, the Company.
None of the Intellectual Property listed on Schedule 3.16(a)(ii) is subject to
any outstanding Order, and no action, suit, proceeding, hearing, investigation,
charge, complaint, claim or demand is pending or, to the knowledge of the
Company, threatened, which challenges the validity, enforceability, use or
ownership of the item.
(a)(iii) Schedule 3.16(a)(iii) sets forth all Intellectual
Property licenses, sublicenses and other agreements under which the Company is
either a licensor or licensee of any Intellectual Property, except such
licenses, sublicenses and other agreements relating to software used solely on
the computers of the Company. The Company has substantially performed all
obligations imposed upon it thereunder, and the Company is not, nor to the
knowledge of the Company is any other party thereto, in breach of or default
thereunder in any respect, nor is there any event which with notice or lapse of
time or both would constitute a default thereunder. All of the Intellectual
Property licenses listed on Schedule 3.16(a)(iii) are valid, enforceable and in
full force and effect, and will continue to be so on identical terms immediately
following the Closing, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity relating to enforceability
(regardless of whether considered in a proceeding at law or in equity).
(a)(iv) To the knowledge of the Company, other than as set forth
on Schedule 3.16(a)(iv), none of the Intellectual Property currently sold or
licensed by the Company to any Person or used by or licensed to the Company
infringes upon or otherwise violates any Intellectual Property rights of others.
<PAGE> 20
14
(a)(v) Except as set forth on Schedule 3.16(a)(v), no litigation
is pending and no Claim has been made against the Company or, to the knowledge
of the Company, is threatened, contesting the right of the Company to sell or
license to any Person or use the Intellectual Property presently sold or
licensed to such Person or used by the Company.
(b) Except as set forth on Schedule 3.16(b), to the knowledge of
the Company, no Person is infringing upon or otherwise violating the
Intellectual Property rights of the Company.
(c) No former employer of any employee of the Company, and no
current or former client of any consultant of the Company, has made a claim
against the Company that such employee or such consultant is utilizing
proprietary information of such former employer or client.
(d) Except as set forth on Schedule 3.161(d), the Company is not a
party to or bound by any license or other agreement requiring the payment of any
material royalty payment, excluding such agreements relating to software
licensed for use solely on the computers of the Company.
(e) To the knowledge of the Company, no employee of the Company is
in violation of any term of any employment agreement, patent or invention
disclosure agreement or other contract or agreement relating to the relationship
of such employee with the Company.
(f) To the knowledge of the Company, none of the designs, plans,
trade secrets, inventions, processes, procedures, research records,
manufacturing know-how and formulae, wherever located, the value of which is
contingent upon maintenance of confidentiality thereof, has been disclosed to
any Person other than employees, representatives and agents of the Company,
except as required pursuant to the filing of a patent application by the
Company, or when disclosure to a Person is necessary pursuant to confidentiality
agreements entered into by the Company.
3.17 Trade Relations. Except as set forth on Schedule 3.17, there exists
no actual or, to the knowledge of the Company, threatened termination,
cancellation or limitation of, or any adverse modification or change in, the
business relationship of the Company, or the business of the Company, with any
customer or distributor or any group of customers or distributors whose
purchases are individually or in the aggregate material to the Condition of the
Company, or with any material supplier of the Company, and, to the knowledge of
the Company, there exists no present condition or state of fact or circumstances
that would materially adversely affect the Condition of the Company or prevent
the Company from conducting such
<PAGE> 21
15
business relationships or such business with any such customer, such group of
customers or distributors or such material supplier in the same manner as
heretofore conducted by the Company.
3.18 Broker's, Finder's or Similar Fees. There are no brokerage
commissions, finder's fees or similar fees or commissions payable by the Company
in connection with the transactions contemplated hereby based on any agreement,
arrangement or understanding with the Company or any action taken by any such
Person.
3.19 Disclosure.
(a) Agreement and Other Documents. This Agreement and the
documents and certificates furnished to the Purchasers by the Company, taken as
a whole, do not contain any untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which they were made, not
misleading.
(b) Material Adverse Effects. There is no fact known to the
Company, which the Company has not disclosed to the Purchasers in writing, which
materially adversely affects the Condition of the Company or the ability of the
Company to perform its obligations under this Agreement, any of the other
Transaction Documents or any document contemplated hereby or thereby.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each of the Purchasers hereby represents and warrants (severally as to
itself and not jointly) to the Company as follows:
4.1 Existence and Power. Such Purchaser (a) is a partnership, trust or
corporation, as the case may be, duly organized and validly existing under the
laws of the jurisdiction of its formation and (b) has the requisite power and
authority to execute, deliver and perform its obligations under this Agreement
and each of the other Transaction Documents to which it is a party.
4.2 Authorization; No Contravention. The execution, delivery and
performance by such Purchaser of this Agreement and each of the other
Transaction Documents to which it is a party and the transactions contemplated
hereby and thereby, including, without limitation, the purchase of the Purchased
Shares, (a) have been duly authorized by all necessary action, (b) do not
contravene the terms of such
<PAGE> 22
16
Purchaser's organizational documents, or any amendment thereof, and (c) do not
violate, conflict with or result in any breach or contravention of or the
creation of any Lien under, any Contractual Obligation of such Purchaser, or any
Requirement of Law applicable to such Purchaser.
4.3 Governmental Authorization; Third Party Consents. No approval,
consent, compliance, exemption, authorization, or other action by, or notice to,
or filing with, any Governmental Authority or any other Person with respect to
any Requirement of Law, and no lapse of a waiting period under any Requirement
of Law, is necessary or required in connection with the execution, delivery or
performance (including, without limitation, the purchase of the Purchased
Shares) by, or enforcement against, such Purchaser of this Agreement and each of
the other Transaction Documents to which such Purchaser is a party or the
transactions contemplated hereby and thereby.
4.4 Binding Effect. This Agreement and each of the other Transaction
Documents to which such Purchaser is a party have been duly executed and
delivered by such Purchaser and constitute the legal, valid and binding
obligations of such Purchaser, enforceable against it in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance or transfer, moratorium or
similar laws affecting the enforcement of creditors' rights generally or by
equitable principles relating to enforceability (regardless of whether
considered in a proceeding at law or in equity).
4.5 Purchase for Own Account. The Purchased Shares to be acquired by
such Purchaser pursuant to this Agreement are being or will be acquired for its
own account and with no intention of distributing or reselling such Purchased
Shares or any part thereof in any transaction that would be in violation of the
securities laws of the United States of America, or any state, without
prejudice, however, to the rights of such Purchaser at all times to sell or
otherwise dispose of all or any part of such Purchased Shares under an effective
registration statement under the Securities Act, or under an exemption from such
registration available under the Securities Act, and subject, nevertheless, to
the disposition of such Purchaser's property being at all times within its
control. If such Purchaser should in the future decide to dispose of any of the
Securities, such Purchaser understands and agrees that it may do so only in
compliance with the Securities Act and applicable state securities laws, as then
in effect. Such Purchaser agrees to the imprinting, so long as required by law,
of a legend on certificates representing all of its Purchased Shares and shares
of Common Stock issuable upon conversion of its Purchased Shares to the
following effect:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF
<PAGE> 23
17
1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE. THE
SECURITIES MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS
OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF SUCH ACT AND SUCH LAWS OR PURSUANT TO A WRITTEN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE OR OTHER
DISPOSITION (EACH A "TRANSFER") AND VOTING OF ANY OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE TERMS OF THE
STOCKHOLDERS AGREEMENT, DATED FEBRUARY __, 1997, AMONG PROXICOM, INC.,
GENERAL ATLANTIC PARTNERS 34, L.P., GAP COINVESTMENT PARTNERS, L.P., RAUL
FERNANDEZ, THE MARIO M. MORINO TRUST AND FBR VENTURE CAPITAL MANAGERS
INC., A COPY OF WHICH MAY BE INSPECTED AT THE COMPANY'S PRINCIPAL OFFICE.
THE COMPANY WILL NOT REGISTER THE TRANSFER OF SUCH SECURITIES ON THE
BOOKS OF THE COMPANY UNLESS AND UNTIL THE TRANSFER HAS BEEN MADE IN
COMPLIANCE WITH THE TERMS OF THE STOCKHOLDERS AGREEMENT.
4.6 Restricted Securities. Such Purchaser understands that the
Purchased Shares will not be registered at the time of their issuance under the
Securities Act for the reason that the sale provided for in this Agreement is
exempt pursuant to Section 4(2) of the Securities Act and that the reliance of
the Company on such exemption is predicated in part on such Purchaser's
representations set forth herein. Such Purchaser represents that it is
experienced in evaluating recently organized companies such as the Company, has
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of its investment and has the ability to
suffer the total loss of its investment. Such Purchaser further represents that
it has had the opportunity to ask questions of and receive answers from the
Company concerning the terms and conditions of the offering and to obtain
additional information (to the extent the Company possessed such information or
could acquire it without unreasonable effort or expense).
4.7 Accredited Investor Status. Such Purchaser is an "accredited
investor" as that term is defined by Rule 501 of Regulation D promulgated under
the Securities Act.
<PAGE> 24
18
4.8 Litigation. There are no Claims pending or, to the knowledge of
such Purchaser, threatened, at law, in equity, in arbitration or before any
Governmental Authority against any Purchaser which would, if adversely
determined, have a material adverse effect on the ability of such Purchaser to
perform its obligations under this Agreement or any of the other Transaction
Documents. No Order has been issued by any court or other Governmental Authority
against such Purchaser purporting to enjoin or restrain the execution, delivery
or performance of this Agreement or any of the other Transaction Documents.
4.9 Broker's, Finder's or Similar Fees. There are no brokerage
commissions, finder's fees or similar fees or commissions payable by the
Purchasers, in connection with the transactions contemplated hereby based on any
agreement, arrangement or understanding with the Purchasers or any action taken
by the Purchasers.
ARTICLE 5
CONDITIONS TO THE OBLIGATION
OF THE PURCHASERS TO CLOSE
The obligation of the Purchasers to purchase the Purchased Shares, to pay
the purchase price therefor at the Closing and to perform any obligations
hereunder shall be subject to the satisfaction as determined by, or waiver by,
the Purchasers of the following conditions on or before the Closing Date.
5.1 Representations and Warranties. The representations and warranties
of the Company contained in Article 3 hereof shall be true and correct in all
material respects at and on the Closing Date as if made at and on such date.
5.2 Compliance with this Agreement. The Company shall have performed
and complied in all material respects with all of its agreements and conditions
set forth herein that are required to be performed or complied with by the
Company on or before the Closing Date.
5.3 Secretary's Certificate. The Purchasers shall have received a
certificate from the Company, in form and substance satisfactory to the
Purchasers, dated the Closing Date and signed by the Secretary or an Assistant
Secretary of the Company, certifying (a) that the attached copies of the
Certificate of Incorporation, the By-laws and resolutions of the Board of
Directors of the Company approving this Agreement and each of the other
Transaction Documents to which the Company is a party and the transactions
contemplated hereby and thereby, are all true, complete and correct and remain
unamended and in full force and effect and (b) as to the
<PAGE> 25
19
incumbency and specimen signature of each officer of the Company executing this
Agreement, each other Transaction Document and any other document delivered in
connection herewith on behalf of the Company.
5.4 Officer's Certificate. The Purchasers shall have received a
certificate from the Company, in form and substance satisfactory to the
Purchaser, dated the Closing Date and signed by the Chief Executive Officer and
Treasurer of the Company, certifying that (a) the representations and warranties
of the Company contained in Article 3 hereof are true and correct in all
material respects at and on the Closing Date and (b) the Company has performed
and complied in all material respects with all of the agreements and conditions
set forth or contemplated herein that are required to be performed or complied
with by the Company on or before the Closing Date.
5.5 Documents. The Purchasers shall have received true, complete and
correct copies of such documents as they may reasonably request in connection
with or relating to the sale of the Purchased Shares and the transactions
contemplated hereby, all in form and substance reasonably satisfactory to
the Purchasers.
5.6 Repurchase of Common Stock. Simultaneously with the Closing, the
Company shall have purchased from Raul Fernandez an aggregate of 359,712 shares
of Common Stock for an aggregate purchase price of $1,500,000.
5.7 Filing of Certificate of Designations. The Certificate of
Designations shall have been duly filed by the Company with the Secretary of
State of the State of Delaware in accordance with the General Corporation Law of
the State of Delaware.
5.8 Purchased Shares. The Company shall have delivered to the
Purchasers certificates in definitive form representing the number of
Purchased Shares set forth opposite such Purchaser's name on Schedule 2
hereto, registered in the name of such Purchaser.
5.9 Stockholders Agreement. The Company shall have duly executed and
delivered the Stockholders Agreement, substantially in the form attached hereto
as Exhibit D.
5.10 Registration Rights Agreement. The Company shall have duly executed
and delivered the Registration Rights Agreement, substantially in the form
attached hereto as Exhibit E.
5.11 Approval of Counsel to the Purchasers. All actions and proceedings
hereunder and all documents required to be delivered by the Company
<PAGE> 26
20
hereunder or in connection with the consummation of the transactions
contemplated hereby, and all other related matters, shall have been acceptable
to Paul, Weiss, Rifkind, Wharton & Garrison, counsel to the GAP Entities, and to
Comiskey & Hunt, counsel to Morino Trust, in their respective reasonable
judgment as to their form and substance.
5.12 Consents and Approvals. All consents, exemptions, authorizations,
or other actions by, or notices to, or filings with, Governmental Authorities
and other Persons required in respect of all Requirements of Law and with
respect to those Contractual Obligations of the Company which are necessary in
connection with the execution, delivery or performance by, or enforcement
against, the Company of this Agreement and each of the other Transaction
Documents shall have been obtained and be in full force and effect, and the
Purchasers shall have been furnished with appropriate evidence thereof.
5.13 No Material Judgment or Order. There shall not be on the Closing
Date any Order of a court of competent jurisdiction or any ruling of any
Governmental Authority or any condition imposed under any Requirement of Law
which, in the reasonable judgment of the Purchasers, would prohibit the purchase
of the Purchased Shares or subject the Purchasers to any penalty or other
onerous condition under or pursuant to any Requirement of Law if the Purchased
Shares were to be purchased hereunder.
5.14 No Litigation. No action, suit, proceeding, claim or dispute shall
have been brought or otherwise arisen at law, in equity, in arbitration or
before any Governmental Authority against the Company which would, if adversely
determined, (a) have a material adverse effect on the Condition of the Company
or (b) have a material adverse effect on the ability of the Company to perform
its obligations under this Agreement or each of the other Transaction Documents.
ARTICLE 6
CONDITIONS TO THE OBLIGATION
OF THE COMPANY TO CLOSE
The obligation of the Company to issue and sell the Purchased Shares and
the obligation of the Company to perform its other obligations hereunder, shall
be subject to the satisfaction as determined by, or waiver by, the Company of
the following conditions on or before the Closing Date:
<PAGE> 27
21
6.1 Representations and Warranties. The representations and warranties
of the Purchasers contained in Article 4 hereof shall be true and correct in all
material respects at and on the Closing Date as if made at and on such date.
6.2 Compliance with this Agreement. The Purchasers shall have performed
and complied in all material respects with all of its agreements and conditions
set forth herein that are required to be performed or complied with by the
Purchasers on or before the Closing Date.
6.3 General Partners' Certificates. The Company shall have received a
certificate from the general partner of each of GAP LP and GAP Coinvestment, in
form and substance satisfactory to the Company, dated the Closing Date and
signed by such general partner(s), certifying that (a) the representations and
warranties of GAP LP or GAP Coinvestment, as the case may be, contained in
Article 4 hereof are true and correct in all material respects at and on Closing
Date and (b) GAP LP or GAP Coinvestment, as the case may be, has performed and
complied in all material respects with all of its agreements and conditions set
forth or contemplated herein that are required to be performed or complied with
by GAP LP or GAP Coinvestment, as the case may be, on or before the Closing
Date.
6.4 Trustee's Certificate. The Company shall have received a
certificate from the trustee of Morino Trust, in form and substance satisfactory
to the Company, dated the Closing Date and signed by such trustee, certifying
that (a) the representations and warranties of Morino Trust contained in Article
4 hereof are true and correct in all material respects at and on Closing Date
and (b) Morino Trust has performed and complied in all material respects with
all of its agreements and conditions set forth or contemplated herein that are
required to be performed or complied with by Morino Trust on or before the
Closing Date.
6.5 Officer's Certificate. The Company shall have received a
certificate from FBR, in form and substance satisfactory to the Company, dated
the Closing Date and signed by the chief executive officer, certifying that (a)
the representations and warranties of FBR contained in Article 4 hereof are true
and correct in all material respects at and on the Closing Date and (b) FBR has
performed and complied in all material respects with all of its agreements and
conditions set forth as contemplated herein that are required to be performed or
complied with by the Company on or before the Closing Date.
6.6 Payment of Purchase Price. The Company shall have received the
aggregate purchase price for the Purchased Shares.
<PAGE> 28
22
6.7 Stockholders Agreement. The Purchasers shall have duly executed and
delivered the Stockholders Agreement, substantially in the form attached hereto
as Exhibit D.
6.8 Registration Rights Agreement. The Purchasers shall have duly
executed and delivered the Registration Rights Agreement, substantially in the
form attached hereto as Exhibit E.
6.9 Approval of Counsel to the Company. All actions and proceedings
hereunder and all documents required to be delivered by the Purchasers hereunder
or in connection with the consummation of the transactions contemplated hereby,
and all other related matters, shall have been acceptable to Hogan & Hartson,
counsel to the Company, in their reasonable judgment as to their form and
substance.
6.10 Consents and Approvals. All consents, exemptions, authorizations,
or other actions by, or notices to, or filings with, Governmental Authorities
and other Persons required in respect of all Requirements of Law and with
respect to those Contractual Obligations of the Purchasers which are necessary
in connection with the execution, delivery or performance by, or enforcement
against, the Company of this Agreement and each of the other Transaction
Documents shall have been obtained and be in full force and effect, and the
Company shall have been furnished with appropriate evidence thereof.
6.11 No Material Judgment or Order. There shall not be on the Closing
Date any Order of a court of competent jurisdiction or any ruling of any
Governmental Authority or any condition imposed under any Requirement of Law
which, in the reasonable judgment of the Company, would prohibit the sale of the
Purchased Shares or subject the Company to any penalty or other onerous
condition under or pursuant to any Requirement of Law if the Purchased Shares
were to be sold hereunder.
6.12 No Litigation. No action, suit, proceeding, claim or dispute shall
have been brought or otherwise arisen at law, in equity, in arbitration or
before any Governmental Authority against the Purchasers which would, if
adversely determined, have a material adverse effect on the ability of the
Purchasers to perform their obligations under this Agreement or any of the other
Transaction Documents to which they are a party.
<PAGE> 29
23
ARTICLE 7
INDEMNIFICATION
7.1 Indemnification. Except as otherwise provided in this Article 7,
the Company (the "Indemnifying Party") agrees to indemnify, defend and hold
harmless the Purchasers and their Affiliates and their respective officers,
directors, agents, employees, subsidiaries, partners, members and controlling
persons (each, an "Indemnified Party") to the fullest extent permitted by law
from and against any and all losses, Claims, or written threats thereof
(including, without limitation, any Claim brought by the Purchasers or another
Person), damages, expenses (including reasonable fees, disbursements and other
charges of counsel incurred by the Indemnified Party in any action between the
Indemnifying Party and the Indemnified Party or between the Indemnified Party
and any third party or otherwise) or other liabilities (collectively, "Losses")
resulting from or arising out of any breach of any representation or warranty,
covenant or agreement by the Company in this Agreement or the other Transaction
Documents; provided, however, that the Indemnifying Party shall not be liable
under this Section 7.1 to an Indemnified Party to the extent that it is finally
judicially determined that such Losses resulted or arose from the breach by such
Indemnified Party of any representation, warranty, covenant or other agreement
of such Indemnified Party contained in this Agreement or the other Transaction
Documents; and provided further, that if and to the extent that such
indemnification is unenforceable for any reason, the Indemnifying Party shall
make the maximum contribution to the payment and satisfaction of such Losses
which shall be permissible under applicable laws. The amount of any payment to
any Indemnified Party herewith in respect of any Loss shall be of sufficient
amount to make such Indemnified Party whole. In connection with the obligation
of the Indemnifying Party to indemnify for expenses as set forth above, the
Indemnifying Party shall, upon presentation of appropriate invoices containing
reasonable detail, reimburse each Indemnified Party for all such expenses
(including reasonable fees, disbursements and other charges of counsel incurred
by the Indemnified Party in any action between the Indemnifying Party and the
Indemnified Party or between the Indemnified Party and any third party or
otherwise) (a) after the final resolution or disposition of the particular
action, investigation, claim or other proceeding and (b) if such Indemnified
Party prevails with respect thereto.
7.2 Notification. Each Indemnified Party under this Article 7 shall,
promptly after the receipt of notice of the commencement of any action,
investigation, claim or other proceeding against such Indemnified Party in
respect of which indemnity may be sought from the Indemnifying Party under this
Article 7, notify the Indemnifying Party in writing of the commencement thereof.
The omission of any Indemnified Party to so notify the Indemnifying Party of any
such action shall not relieve the Indemnifying Party from any liability which it
may have to such
<PAGE> 30
24
Indemnified Party (a) other than pursuant to this Article 7 or (b) under this
Article 7 unless, and only to the extent that, such omission results in the
Indemnifying Party's forfeiture of substantive rights or defenses. In case any
such action, claim or other proceeding shall be brought against any Indemnified
Party, and it shall notify the Indemnifying Party of the commencement thereof,
the Indemnifying Party shall be entitled to assume the defense thereof at its
own expense, with counsel satisfactory to such Indemnified Party in its
reasonable judgment; provided, however, that any Indemnified Party may, at its
own expense, retain separate counsel to participate in such defense at its own
expense. Notwithstanding the foregoing, in any action, claim or proceeding in
which both the Indemnifying Party, on the one hand, and an Indemnified Party, on
the other hand, are, or are reasonably likely to become, a party, such
Indemnified Party shall have the right to employ separate counsel and to control
its own defense of such action, claim or proceeding if, in the reasonable
opinion of counsel to such Indemnified Party, a conflict or potential conflict
exists between the Indemnifying Party, on the one hand, and such Indemnified
Party, on the other hand, that would make such separate representation
advisable; provided, however, that the Indemnifying Party (i) shall not be
liable for the fees and expenses of more than one counsel to all Indemnified
Parties and (ii) shall reimburse the Indemnified Parties for all of such fees
and expenses of such counsel incurred in any action between the Indemnifying
Party and the Indemnified Parties or between the Indemnified Parties and any
third party or otherwise (x) after the final resolution or disposition of such
action, claim or proceeding and (y) if the Indemnified Parties prevail with
respect thereto. The Indemnifying Party agrees that it will not, without the
prior written consent of the Purchasers, settle, compromise or consent to the
entry of any judgment in any pending or threatened claim, action or proceeding
relating to the matters contemplated hereby (if any Indemnified Party is a party
thereto or has been actually threatened to be made a party thereto) unless such
settlement, compromise or consent includes an unconditional release of the
Purchasers and each other Indemnified Party from all liability arising or that
may arise out of such claim, action or proceeding. The Indemnifying Party shall
not be liable for any settlement of any claim, action or proceeding effected
against an Indemnified Party without its written consent, which consent shall
not be unreasonably withheld. The rights accorded to Indemnified Party hereunder
shall be in addition to any rights that any Indemnified Party may have at common
law, by separate agreement or otherwise; provided, however, that notwithstanding
the foregoing or anything to the contrary contained in this Agreement, nothing
in this Article 7 should restrict or limit any rights that any Indemnified Party
may have to seek equitable relief.
7.3 Limitations on Indemnification. Notwithstanding anything to the
contrary contained in this Article 7, the Indemnifying Party shall have no
obligation to pay any amounts for indemnification pursuant to Section 7.1 to the
extent that the aggregate of such amounts for indemnification do not exceed
$60,000 (the "Basket
<PAGE> 31
25
Amount"), whereupon the Indemnifying Party shall be obligated to pay in full all
of such amounts for indemnification, including the Basket Amount.
ARTICLE 8
AFFIRMATIVE COVENANTS
The Company hereby covenants and agrees with the Purchasers as follows:
8.1 Preservation of Existence. So long as the Purchasers and/or any
Affiliate thereof own shares of Common Stock and/or shares of Preferred Stock or
other securities of the Company convertible into or exchangeable for shares of
voting capital stock of the Company that represent (after giving effect to any
adjustments) at least 5% of the total number of shares of Common Stock
outstanding on an as-converted basis, the Company shall:
(a) use its reasonable efforts to preserve and maintain in full
force and effect its existence and good standing under the laws of its
jurisdiction of formation or organization;
(b) use its reasonable efforts to preserve and maintain in full
force and effect all material rights, privileges, qualifications, applications,
estimates, licenses and franchises necessary in the normal conduct of its
business;
(c) use its reasonable efforts to preserve its business
organization;
(d) conduct its business in accordance with sound business
practices, keep its properties in good working order and condition (normal wear
and tear excepted) so that the efficiency of its business operations shall be
fully maintained and preserved; and
(e) file or cause to be filed in a timely manner all reports,
applications, estimates and licenses that shall be required by a Governmental
Authority and that, if not timely filed, would have a material adverse effect on
the Condition of the Company.
8.2 Financial Statements and Other Information. The Company shall
deliver to each Purchaser, in form and substance satisfactory to such Purchaser:
<PAGE> 32
26
(a) as soon as available, but not later than ninety (90) days
after the end of each fiscal year of the Company, a copy of the audited balance
sheet of the Company as of the end of such fiscal year and the related
statements of operations and cash flows for such fiscal year, setting forth in
each case in comparative form the figures for the previous year, all in
reasonable detail and accompanied by a management summary and analysis of the
operations of the Company for such fiscal year and by the opinion of a
nationally recognized independent certified public accounting firm which report
shall state without qualification that such financial statements present fairly
the financial condition as of such date and results of operations and cash flows
for the periods indicated in conformity with GAAP applied on a consistent basis;
(b) commencing with the fiscal period ending on March 31, 1997, as
soon as available, but in any event not later than forty-five (45) days after
the end of each of the first three fiscal quarters of each fiscal year, the
unaudited balance sheet of the Company, and the related statements of operations
and cash flows for such quarter and for the period commencing on the first day
of the fiscal year and ending on the last day of such quarter, all certified
by an appropriate officer of the Company as presenting fairly the financial
condition as of such date and results of operations and cash flows for the
periods indicated in conformity with GAAP applied on a consistent basis, subject
to normal year-end adjustments and the absence of footnotes required by GAAP;
and
(c) as promptly as practicable, but not later than five (5) days
after the end of each fiscal year of the Company, a certificate signed by the
Chief Executive Officer of the Company in customary form certifying that the
Company is not a "foreign person" within the meaning of Section 1445 of the
Code.
8.3 Reservation of Common Stock and Preferred Stock. The Company shall
at all times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issue or delivery upon conversion of the
Purchased Shares, as provided in the Certificate of Incorporation and the
Certificate of Designations, the maximum number of shares of Common Stock that
may be issuable or deliverable upon such conversion. Such shares of Common Stock
are duly authorized and, when issued or delivered in accordance with the
Certificate of Incorporation and the Certificate of Designations against payment
therefor, shall be validly issued, fully paid and non-assessable. The Company
shall issue such shares of Common Stock in accordance with the terms of the
Certificate of Incorporation and the Certificate of Designations and otherwise
comply with the terms hereof and thereof.
8.4 Compliance with Laws. The Company shall comply in all material
respects with all Requirements of Law and with the directions of any
<PAGE> 33
27
Governmental Authority having jurisdiction over the Company or its business or
property.
8.5 Insurance. The Company shall maintain key-man insurance with
respect to Raul Fernandez in an aggregate amount of not less than $500,000.
8.6 Books and Records. The Company shall keep proper books of record
and account, in which full and correct entries shall be made of all financial
transactions and the assets and business of the Company in accordance with GAAP
consistently applied.
ARTICLE 9
MISCELLANEOUS
9.1 Survival of Representations and Warranties. All of the
representations and warranties made herein shall survive the execution and
delivery of this Agreement until the date that is ninety (90) days after the
receipt by the Purchasers of audited financial statements of the Company for the
fiscal year ending December 31, 1997 (or, if such fiscal year changes and no
such audited consolidated financial statements are available, then the successor
fiscal year), except for (a) Sections 3.1, 3.2, 3.4, 3.7, 4.1, 4.2, 4.4, 4.6 and
4.7, which representations and warranties shall survive until the second
anniversary of the Closing Date and (b) Section 3.11, which shall survive until
the later to occur of (i) the lapse of the statute of limitations with respect
to the assessment of any Tax to which such representation and warranty relates
(including any extensions or waivers thereof) and (y) sixty (60) days after the
final administrative or judicial determination of the Taxes to which such
representation and warranty relates, and no claim with respect to Section 3.11
may be asserted thereafter with the exception of claims arising out of any fact,
circumstance, action or proceeding to which the party asserting such claim shall
have given notice to the other parties to this Agreement prior to the
termination of such period of reasonable belief that a tax liability will
subsequently arise therefrom.
9.2 Notices. All notices, demands and other communications provided for
or permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, telecopier, courier
service or personal delivery:
<PAGE> 34
28
(a) if to the Company:
Proxicom, Inc.
1749 Old Meadow Road
McLean, Virginia 22102-4310
Telecopy: (703) 506-4797
Attention: Christopher Capuano, Esq.,
General Counsel
with a copy to:
Nicholas & Jones
440 Louisiana
625 Lyric Office Center
Houston, Texas 77002
Telecopy: (713) 224-8525
Attention: Nelson M. Jones III, Esq.
and
Hogan & Hartson
555 13th Street, N.W.
Washington, D.C. 20004-1109
Telecopy: (202) 637-5910
Attention: Jacquelyn E. Grillon, Esq.
(b) if to GAP LP or GAP Coinvestment:
c/o General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, Connecticut 06830
Telecopy: (203) 622-8818
Attention: Mr. Stephen P. Reynolds
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Matthew Nimetz, Esq.
<PAGE> 35
29
(c) if to Morio Trust:
The Mario M. Morino Trust
c/o Morino Institute
1801 Robert Fulton Drive
Suite 550
Reston, Virginia 20191
Telecopy: (703) 620-4102
Attention: Mario M. Morino, trustee
with a copy to:
Comiskey & Hunt
1501 Farm Credit Drive
Suite 4400
McLean, Virginia 22102-5000
Telecopy: (703) 790-7867
Attention: Stephen W. Comiskey, Esq.
(d) if to FBR:
c/o FBR Venture
Capital Managers Inc.
1001 19th Street
North Arlington, Virginia 22209
Telecopy: 703-312-9601
Attention: Suzanne Richardson
All such notices and communications shall be deemed to have been duly
given when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial courier service; five (5) Business Days
after being deposited in the mail, postage prepaid, if mailed; and when receipt
is mechanically acknowledged, if telecopied.
9.3 Successors and Assigns: Third Party Beneficiaries. This Agreement
shall inure to the benefit of and be binding upon the successors and permitted
assigns of the parties hereto. Subject to applicable securities laws, the
Purchasers may assign any of its rights under any of the Transaction Documents
to any of its Affiliates. The Company may not assign any of their rights under
this Agreement without the written consent of the Purchasers. Except as provided
in Article 7, no Person other than the parties hereto and their successors and
permitted assigns is intended to be a beneficiary of this Agreement.
<PAGE> 36
30
9.4 Amendment and Waiver.
(a) No failure or delay on the part of the Company or the
Purchasers in exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to the
Company or the Purchasers at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any
provision of this Agreement, any waiver of any provision of this Agreement, and
any consent to any departure by the Company or the Purchasers from the terms of
any provision of this Agreement, shall be effective (i) only if it is made or
given in writing and signed by the Company and the Purchasers, and (ii) only in
the specific instance and for the specific purpose for which made or given.
Except where notice is specifically required by this Agreement, no notice to or
demand on the Company in any case shall entitle the Company to any other or
further notice or demand in similar or other circumstances.
9.5 Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
9.6 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
9.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF VIRGINIA, WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW THEREOF.
9.8 Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
<PAGE> 37
31
9.9 Rules of Construction. Unless the context otherwise requires,
references to sections or subsections refer to sections or subsections of this
Agreement.
9.10 Entire Agreement. This Agreement, together with the exhibits and
schedules hereto, and the other Transaction Documents are intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein and therein. There are no
restrictions, promises, representations, warranties or undertakings, other than
those set forth or referred to herein or therein. This Agreement, together with
the exhibits and schedules hereto, and the other Transaction Documents supersede
all prior agreements and understandings between the parties with respect to such
subject matter.
9.11 Fees. The Purchasers shall bear all of their fees, disbursements
and other charges of counsel incurred in connection with this Agreement and the
transactions contemplated hereby.
9.12 Publicity. Except as may be required by applicable Requirement of
Law, none of the parties hereto shall issue a publicity release or public
announcement or otherwise make any disclosure concerning this Agreement or the
transactions contemplated hereby, without prior approval by the other parties
hereto; provided, however, that nothing in this Agreement shall restrict any
Purchaser from disclosing information (a) that is already publicly available;
(b) to the prospective transferee in connection with any contemplated transfer
of any of the Purchased Shares; and (c) to its attorneys, accountants,
consultants and other advisors to the extent necessary to obtain their services
in connection with such Purchaser's investment in the Company. If any
announcement is required by law to be made by any party hereto, prior to making
such announcement such party will deliver a draft of such announcement to the
other parties and shall give the other parties an opportunity to comment
thereon.
9.13 Further Assurances. Each of the parties shall execute such
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations or other actions by, or
giving any notices to, or making any filings with, any Governmental Authority or
any other Person) as may be reasonably required or desirable to carry out or to
perform the provisions of this Agreement.
<PAGE> 38
32
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective officers hereunto duly authorized on
the date first above written.
PROXICOM, INC.
By: /s/ Raul Fernandez
------------------------------------------------
Name: Raul Fernandez
Title: President and Chief Executive Officer
GENERAL ATLANTIC PARTNERS 34, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
its General Partner
By: /s/ Stephen P. Reynolds
------------------------------------------
Name: Stephen P. Reynolds
Title: A Managing Member
GAP COINVESTMENT PARTNERS, L.P.
By: /s/ Stephen P. Reynolds
------------------------------------------------
Name: Stephen P. Reynolds
Title: A General Partner
THE MARIO M. MORINO TRUST
By: /s/ Mario M. Morino
------------------------------------------------
Name: Mario M. Morino
Title: Trustee
FBR VENTURE CAPITAL MANAGERS INC.
By: /s/ Gene Riechers
------------------------------------------------
Name: Gene Riechers
Title: Managing Director
<PAGE> 1
EXHIBIT 10.3
- --------------------------------------------------------------------------------
PREFERRED STOCK PURCHASE AGREEMENT
between
PROXICOM, INC.
and
GENERAL ELECTRIC CAPITAL CORPORATION
------------------------------
Dated: November 24, 1997
------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 DEFINITIONS.................................................1
-----------
1.1 DEFINITIONS.......................................................1
-----------
1.2 ACCOUNTING TERMS; FINANCIAL STATEMENTS............................6
--------------------------------------
ARTICLE 2 PURCHASE AND SALE OF PREFERRED STOCK........................7
------------------------------------
2.1 Purchase and Sale of Preferred Stock............................7
------------------------------------
2.2 Certificate of Designations.....................................7
---------------------------
2.3 Use of Proceeds.................................................7
---------------
2.4 Closing ........................................................7
-------
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY...............7
---------------------------------------------
3.1 Corporate Existence and Power...................................8
-----------------------------
3.2 Authorization; No Contravention.................................8
-------------------------------
3.3 Governmental Authorization; Third Party Consents................8
------------------------------------------------
3.4 Binding Effect..................................................9
--------------
3.5 Litigation......................................................9
----------
3.6 Compliance with Laws............................................9
--------------------
3.7 CAPITALIZATION..................................................10
--------------
3.8 No Default or Breach; Contractual Obligations...................10
---------------------------------------------
3.9 FIRPTA..........................................................11
------
3.10 Financial Statements...........................................11
--------------------
3.11 Taxes..........................................................11
-----
3.12 No Material Adverse Change; Ordinary Course of Business........12
-------------------------------------------------------
3.13 Private Offering...............................................12
----------------
3.14 Title to Assets................................................12
---------------
3.15 Liabilities....................................................13
-----------
3.16 Intellectual Property..........................................13
---------------------
3.17 Trade Relations; Computer Systems..............................14
---------------------------------
3.18 Broker's, Finder's or Similar Fees.............................15
----------------------------------
3.19 Disclosure.....................................................15
----------
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.............15
-----------------------------------------------
4.1 Existence and Power.............................................16
-------------------
4.2 Authorization; No Contravention.................................16
-------------------------------
4.3 Governmental Authorization; Third Party Consents................16
------------------------------------------------
4.4 Binding Effect..................................................16
--------------
4.5 Purchase for Own Account........................................16
------------------------
4.6 Restricted Securities...........................................18
---------------------
4.7 Accredited Investor Status......................................18
--------------------------
4.8 Litigation......................................................18
----------
4.9 Broker's, Finder's or Similar Fees..............................18
----------------------------------
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 5 CONDITIONS TO THE OBLIGATION OF THE PURCHASER TO CLOSE......18
------------------------------------------------------
5.1 Representations and Warranties..................................19
------------------------------
5.2 Compliance with this Agreement..................................19
------------------------------
5.3 Secretary's Certificate.........................................19
-----------------------
5.4 Officer's Certificate...........................................19
---------------------
5.5 Documents.......................................................19
---------
5.6 Filing of Certificate of Designations...........................20
-------------------------------------
5.7 Purchased Shares................................................20
----------------
5.8 Stockholders Agreement..........................................20
----------------------
5.9 Registration Rights Agreement...................................20
-----------------------------
5.10 Approval of Counsel to the Purchaser...........................20
------------------------------------
5.11 Consents and Approvals.........................................20
----------------------
5.12 No Material Judgment or Order..................................20
-----------------------------
5.13 No Litigation..................................................21
-------------
5.14 Opinions.......................................................21
--------
ARTICLE 6 CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE.......21
-----------------------------------------------------
6.1 Representations and Warranties..................................21
------------------------------
6.2 Compliance with this Agreement..................................21
------------------------------
6.3 Officers' Certificate...........................................21
---------------------
6.4 Payment of Purchase Price.......................................22
-------------------------
6.5 Stockholders' Agreement.........................................22
-----------------------
6.6 Registration Rights Agreement...................................22
-----------------------------
6.7 Approval of Counsel to the Company..............................22
----------------------------------
6.8 Consents and Approvals..........................................22
----------------------
6.9 No Material Judgment or Order...................................22
-----------------------------
6.10 No Litigation..................................................23
-------------
ARTICLE 7 INDEMNIFICATION.............................................23
---------------
7.1 Indemnification.................................................23
---------------
7.2 Notification....................................................24
------------
7.3 Limitations on Indemnification..................................25
------------------------------
ARTICLE 8 AFFIRMATIVE COVENANTS.......................................25
---------------------
8.1 Preservation of Existence.......................................25
-------------------------
8.2 Financial Statements and Other Information......................26
------------------------------------------
8.3 Reservation of Common Stock and Preferred Stock.................26
-----------------------------------------------
8.4 Compliance with Laws............................................27
--------------------
8.5 Insurance.......................................................27
---------
8.6 Books and Records...............................................27
-----------------
8.7 Future Issuances................................................27
----------------
8.8 Directors and Officers' Liability Insurance.....................27
-------------------------------------------
ARTICLE 9 MISCELLANEOUS...............................................28
-------------
9.1 Survival of Representations and Warranties......................28
------------------------------------------
9.2 Notices.........................................................28
-------
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
9.3 Successors and Assigns; Third Party Beneficiaries...............29
-------------------------------------------------
9.4 Amendment and Waiver............................................30
--------------------
9.5 Professional Services; Seminars.................................30
-------------------------------
9.6 Counterparts....................................................30
------------
9.7 Headings........................................................31
--------
9.8 GOVERNING LAW...................................................31
-------------
9.9 Severability....................................................31
------------
9.10 Rules of Construction..........................................31
---------------------
9.11 Entire Agreement...............................................31
----------------
9.12 Fees...........................................................31
----
9.13 Publicity......................................................31
---------
9.14 Further Assurances.............................................32
------------------
9.15 Confidentiality................................................32
---------------
</TABLE>
iii
<PAGE> 5
EXHIBITS
A Certificate of Incorporation
B By-laws
C Form of Certificate of Designations
D Stockholders Agreement
E Form of Registration Rights Agreement
F Form of Amendment No. 1 to Amended and Restated
Stockholders Agreement
The Exhibits and Schedules to this Preferred Stock Purchase Agreement are not
included with this Registration Statement on Form S-1. The Registrant will
provide these Exhibits and Schedules upon the request of the Securities and
Exchange Commission.
<PAGE> 6
SCHEDULES
2 Purchased Shares and Purchase Price
3.1(c) Jurisdictions in which Company Leases or Owns Properties
3.3 Governmental Authorizations; Third Party Consents
3.5 Litigation
3.7 Options, Warrants, Conversion Privileges, Subscription
or Purchase Rights or Other Rights
3.8 Defaults
3.11 Taxes
3.12 Transactions Outside the Ordinary Course of Business
3.14 Title to Assets of the Company
3.15 Liabilities
3.16(a)(ii) Trademarks, Service Marks, Trade Names and Registered
Copyrights Owned by the Company and Applications
therefor
3.16(a)(iii) Intellectual Property Licenses under which the Company
is a Licensor or Licensee
3.16(a)(iv) Infringements of the Company
3.16(a)(v) Intellectual Property Litigation
3.16(b) Infringement or Violations of Intellectual
Property Rights
3.16(d) License Agreements which require a Material
Royalty Payment
3.17 Trade Relations
<PAGE> 7
EXECUTION COPY
PREFERRED STOCK PURCHASE AGREEMENT
PREFERRED STOCK PURCHASE AGREEMENT, dated November 24, 1997 (this
"Agreement"), between PROXICOM, INC., a Delaware corporation (the "Company") and
GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation (the "Purchaser").
WHEREAS, upon the terms and conditions set forth in this Agreement,
the Company proposes to issue and sell to the Purchaser for an aggregate
purchase price of $2,000,000, an aggregate of 419,302 shares, par value $.01 per
share, of Series C Convertible Preferred Stock of the Company (the "Preferred
Stock").
WHEREAS, each share of Preferred Stock is convertible (subject to
adjustment) into one share, par value $.01 per share, of Common Stock of the
Company (the "Common Stock").
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for good and valuable consideration, the receipt
and adequacy of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. As used in this Agreement, and unless the context
requires a different meaning, the following terms have the meanings indicated:
"Affiliate" shall mean, with respect to any Person, any other Person
who controls, is controlled by or is under common control with such Person.
"Amendment No. 1 to Amended and Restated Stockholders Agreement" means
the Amendment No. 1 to Amended and Restated Stockholders Agreement substantially
in the form attached hereto as Exhibit F.
"Agreement" means this Agreement as the same may be amended,
supplemented or modified in accordance with the terms hereof.
"Board of Directors" means the Board of Directors of the Company.
<PAGE> 8
"Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks in the State of New York are authorized or
required by law or executive order to close.
"By-laws" means the by-laws of the Company as in effect as of the
Closing Date substantially in the form attached hereto as Exhibit B.
"Capital Lease Obligations" of any Person shall mean, as of the date
of determination, the obligations of such Person to pay rent or other amounts
under any lease of (or other arrangement conveying the right to use) real or
personal property, or a combination thereof, which obligations are required to
be classified and accounted for as capital leases on a balance sheet of such
Person under GAAP and, for the purposes of this Agreement, the amount of such
obligations at any time shall be the capitalized amount thereof at such time
determined in accordance with GAAP consistently applied.
"Certificate of Designations" means the Certificate of Designations
with respect to the Preferred Stock adopted by the Board of Directors and filed
with the Secretary of State of the State of Delaware on or before the Closing
Date substantially in the form attached hereto as Exhibit C.
"Certificate of Incorporation" means the Certificate of Incorporation
of the Company, as the same may have been amended and as in effect as of the
Closing Date substantially in the form attached hereto as Exhibit A.
"Claims" has the meaning set forth in Section 3.5 of this Agreement.
"Closing" has the meaning set forth in Section 2.4 of this Agreement.
"Closing Date" has the meaning set forth in Section 2.4 of this
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor statute thereto.
"Commission" means the Securities and Exchange Commission or any
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means Common Stock, par value $.01 per share, of the
Company, or any other capital stock of the Company into which such stock is
reclassified or reconstituted.
"Common Stock Equivalents" means any security or obligation which is
by its terms convertible into or exchangeable for shares of Common Stock,
including, without limitation, the Preferred Stock, and any option, warrant or
other subscription or purchase right with respect to Common Stock.
2
<PAGE> 9
"Company" has the meaning assigned to such term in the recital to this
Agreement.
"Condition of the Company" means the assets, business, properties,
operations or financial condition of the Company, taken as a whole.
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, guaranty, letter of credit or other obligation, contractual or
otherwise (the "primary obligation") of another Person (the "primary obligor"),
whether or not contingent, (a) to purchase, repurchase or otherwise acquire such
primary obligations or any property constituting direct or indirect security
therefor, or (b) to advance or provide funds (i) for the payment or discharge of
any such primary obligation, or (ii) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency or any balance sheet item, level of income or financial condition of
the primary obligor, or (c) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary obligation
of the ability of the primary obligor to make payment of such primary
obligation, or (d) otherwise to assure or hold harmless the owner of any such
primary obligation against loss or failure or inability to perform in respect
thereof. The amount of any Contingent Obligation shall be deemed to be an amount
equal to the stated or determinable amount of the primary obligation in respect
of which such Contingent Obligation is made or, if not stated or determinable,
the maximum reasonably anticipated liability in respect thereof.
"Contractual Obligations" means as to any Person, any provision of any
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument to which such Person is a
party or by which it or any of its property is bound.
"Copyrights" means any foreign or United States copyright
registrations and applications for registration thereof, and any non-registered
copyrights.
"Environmental Laws" means federal, state, local and foreign laws,
principles of common law, civil law, regulations and codes, as well as orders,
decrees, judgments or injunctions issued, promulgated, approved or entered
thereunder relating to pollution, protection of the environment or public health
and safety.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder.
"FBR" means FBR Venture Capital Managers Inc., a Delaware corporation.
3
<PAGE> 10
"Financial Statements" has the meaning set forth in Section 3.10.
"GAAP" means generally accepted accounting principles in effect from
time to time.
"GAP Coinvestment" means GAP Coinvestment Partners, L.P., a New York
limited partnership.
"GAP LP" means General Atlantic Partners 34, L.P., a Delaware limited
partnership.
"Governmental Authority" means the government of any nation, state,
city, locality or other political subdivision thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"Indebtedness" means, as to any Person, (a) all obligations of such
Person for borrowed money (including, without limitation, reimbursement and all
other obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured), (b) all obligations of such Person
evidenced by notes, bonds, debentures or similar instruments, (c) all
obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable and accrued commercial or trade
liabilities arising in the ordinary course of business, (d) all interest rate
and currency swaps, caps, collars and similar agreements or hedging devices
under which payments are obligated to be made by such Person, whether
periodically or upon the happening of a contingency, (e) all indebtedness
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (f) all obligations of
such Person under leases which have been or should be, in accordance with GAAP,
recorded as capital leases, (g) all indebtedness secured by any Lien (other than
Liens in favor of lessors under leases other than leases included in clause (f))
on any property or asset owned or held by that Person regardless of whether the
indebtedness secured thereby shall have been assumed by that Person or is
non-recourse to the credit of that Person, and (h) any Contingent Obligation of
such Person.
"Internet Assets" means any internet domain names and other computer
user identifiers and any rights in and to sites on the Worldwide Web, including
rights in and to any text, graphics, audio and video files and html or other
code incorporated in such sites.
4
<PAGE> 11
"Liabilities" has the meaning set forth in Section 3.15 of this
Agreement.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other) or preference, priority,
right or other security interest or preferential arrangement of any kind or
nature whatsoever (excluding preferred stock and equity related preferences),
including, without limitation, those created by, arising under or evidenced by
any conditional sale or other title retention agreement, the interest of a
lessor under a Capital Lease Obligation, or any financing lease having
substantially the same economic effect as any of the foregoing.
"Mask Works" means any mask works and registrations and applications
for registrations thereof.
"Morino Trust" means The Mario M. Morino Trust.
"Patents" means any foreign or United States patents and patent
applications, including any divisions, continuations, continuations-in-part,
substitutions or reissues thereof, whether or not patents are issued on such
applications and whether or not such applications are modified, withdrawn or
resubmitted.
"Person" means any individual, firm, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
limited liability company, Governmental Authority or other entity of any kind,
and shall include any successor (by merger or otherwise) of such entity.
"Preferred Stock" has the meaning assigned to such term in the recital
to this Agreement.
"Purchased Shares" has the meaning set forth in Section 2.1 of this
Agreement.
"Registration Rights Agreement" means the Amended and Restated
Registration Rights Agreement dated November __, 1997 among the Company, GAP LP,
GAP Coinvestment, Raul Fernandez, Morino Trust, FBR and the Purchaser.
"Requirements of Law" means, as to any Person, any law, statute,
treaty, rule, regulation, license or franchise or determination of an arbitrator
or a court or other Governmental Authority, in each case applicable or binding
upon such Person or any of its property or to which such Person or any of its
property is subject or pertaining to any or all of the transactions contemplated
or referred to herein.
5
<PAGE> 12
"Securities" means the Purchased Shares and the shares of Common Stock
issuable upon conversion of the Purchased Shares.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder.
"Series A Preferred Stock" means the Series A Convertible Preferred
Stock of the Company, par value $.01 per share.
"Series B Preferred Stock" means the Series B Convertible Preferred
Stock of the Company, par value $.01 per share.
"Software" means any computer software programs, source code, object
code and manuals and other written material with respect thereto.
"Stockholders Agreement" means the Amended and Restated Stockholders
Agreement, dated February 20, 1997, among the Company, Raul Fernandez, GAP LP,
GAP Coinvestment, Morino Trust and FBR in the form attached hereto as Exhibit D.
"Subsidiaries" means, as to any Person, a corporation, partnership,
limited liability company or other entity of which 50% or more of the voting
power of the outstanding voting equity securities or 50% or more of the
outstanding economic equity interest is held, directly or indirectly, by such
Person.
"Trade Secrets" means any trade secrets, research records, processes,
procedures, manufacturing formulae, technical know-how, technology, blue prints,
designs, plans, inventions (whether patentable and whether reduced to practice),
invention disclosures and improvements thereto.
"Trademarks" means any foreign or United States trademarks, service
marks, trade dress, trade names, brand names, designs and logos, corporate
names, product or service identifiers, whether registered or unregistered, and
all registrations and applications for registration thereof.
"Transaction Documents" means collectively, this Agreement, the
Certificate of Designations, Amendment No. 1 to Amended and Restated
Stockholders Agreement, the Stockholders Agreement, and the Registration Rights
Agreement.
1.2 Accounting Terms; Financial Statements. All accounting terms used
herein not expressly defined in this Agreement shall have the respective
meanings given to them in accordance with sound accounting practice. The term
"sound accounting practice" shall mean such accounting practice as, in the
opinion of the independent certified public accountants regularly retained by
the Company,
6
<PAGE> 13
conforms at the time to GAAP applied on a consistent basis except for changes
with which such accountants concur.
ARTICLE 2
PURCHASE AND SALE OF PREFERRED STOCK
2.1 Purchase and Sale of Preferred Stock. Subject to the terms and
conditions herein set forth, the Company agrees to issue and sell to the
Purchaser, and the Purchaser agrees that it will purchase from the Company, on
the Closing Date, the aggregate number of shares of Preferred Stock set forth
opposite the Purchaser's name on Schedule 2 hereto, for the aggregate purchase
price set forth opposite the Purchaser's name on Schedule 2 hereto (all of the
shares of Preferred Stock being purchased pursuant hereto being referred to
herein as the "Purchased Shares").
2.2 Certificate of Designations. The Purchased Shares shall have the
preferences and rights set forth in the Certificate of Designations.
2.3 Use of Proceeds. The Company shall use the proceeds from the sale
of the Purchased Shares for working capital purposes.
2.4 Closing. The closing of the sale and purchase of the Purchased
Shares (the "Closing") shall take place at the offices of Hogan & Hartson, at
10:00 a.m., local time, on the date hereof, or at such other time, place and
date that the Company and the Purchaser may agree in writing (the "Closing
Date"). On the Closing Date, the Company shall deliver to the Purchaser a stock
certificate representing the Purchased Shares against delivery by the Purchaser
to the Company of the aggregate purchase price therefor by wire transfer of
immediately available funds.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser as follows:
3.1 Corporate Existence and Power. The Company (a) is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; (b) has all requisite power and authority to
own and operate its property, to lease the property it operates as lessee and to
conduct the business in which it is currently, or is currently proposed to be,
engaged; (c) is duly qualified as a foreign corporation, licensed and in good
standing under the
7
<PAGE> 14
laws of the Commonwealth of Virginia and the State of New York; and (d) has the
corporate power and authority to execute, deliver and perform its obligations
under this Agreement and each of the other Transaction Documents. The Company
does not file (and is not required to file) any franchise, income or other tax
returns in any other jurisdiction other than set forth in clause (c) above based
upon the ownership or use of property in other jurisdictions or the derivation
of income therefrom. Except as set forth on Schedule 3.1(c), the Company does
not own, lease or operate property in any jurisdiction other than its
jurisdiction of incorporation and the jurisdictions referred to in clause (c)
above.
3.2 Authorization; No Contravention. The execution, delivery and
performance by the Company of this Agreement and each of the other Transaction
Documents and the transactions contemplated hereby and thereby, including,
without limitation, the sale, issuance and delivery of the Securities, (a) have
been duly authorized by all necessary corporate action of the Company; (b) do
not contravene the terms of the Certificate of Incorporation or the By-laws, or
any amendment thereof; (c) do not violate, conflict with or result in any breach
or contravention of, or the creation of any Lien under, any Contractual
Obligation of the Company, or any Requirement of Law applicable to the Company;
and (d) do not violate any judgment, injunction, writ, award, decree or order of
any nature (collectively, "Orders") of any Governmental Authority against, or
binding upon, the Company. The Company has not previously entered into any
Contractual Obligation which is currently in effect or by which the Company is
currently bound, granting any rights to any Person which are inconsistent with
the rights to be granted by the Company in this Agreement and each of the other
Transaction Documents.
3.3 Governmental Authorization; Third Party Consents. Except as set
forth in Schedule 3.3, no approval, consent, compliance, exemption,
authorization or other action by, or notice to, or filing with, any Governmental
Authority or any other Person in respect of any Requirement of Law, and no lapse
of a waiting period under a Requirement of Law, is necessary or required in
connection with the execution, delivery or performance (including, without
limitation, the sale, issuance and delivery of the Securities) by, or
enforcement against, the Company of this Agreement and the other Transaction
Documents or the transactions contemplated hereby and thereby.
3.4 Binding Effect. This Agreement and each of the other Transaction
Documents have been duly executed and delivered by the Company, and constitute
the legal, valid and binding obligations of the Company enforceable against the
Company in accordance with their terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or
transfer, moratorium or similar laws affecting the enforcement of
8
<PAGE> 15
creditors' rights generally and by general principles of equity relating to
enforceability (regardless of whether considered in a proceeding at law or in
equity).
3.5 Litigation. Except as set forth on Schedule 3.5, there are no
actions, suits, proceedings, claims, complaints, disputes, arbitrations or
investigations (collectively, "Claims") pending or, to the knowledge of the
Company, threatened, at law, in equity, in arbitration or before any
Governmental Authority against the Company which would, if adversely determined,
have a material adverse effect on (a) the Condition of the Company or (b) the
ability of the Company to perform its obligations under this Agreement or any of
the other Transaction Documents. No Order has been issued by any court or other
Governmental Authority against the Company purporting to enjoin or restrain the
execution, delivery or performance of this Agreement or any of the other
Transaction Documents.
3.6 Compliance with Laws.
(a) The Company is in compliance with all Requirements of Law and
all Orders issued by any court or Governmental Authority against the Company in
all respects, except to the extent that the failure to comply with such
Requirements of Law or Orders would not have a material adverse effect on the
Condition of the Company.
(b) (i) The Company has all licenses, permits, orders and
approvals of any Governmental Authority (collectively, "Permits") that are
necessary for the conduct of the business of the Company, except to the extent
that the failure to have such Permits would not have a material adverse effect
on the Condition of the Company; (ii) such Permits are in full force and effect;
and (iii) no violations are or have been recorded in respect of any Permit.
(c) No material expenditure is presently required by the Company
to comply with any existing Requirement of Law or Order.
(d) The property, assets and operations owned or leased by the
Company are in compliance in all material respects with all applicable
Environmental Laws, while so owned or leased.
3.7 CAPITALIZATION. ON THE CLOSING DATE, AFTER GIVING EFFECT TO THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, THE AUTHORIZED CAPITAL STOCK OF THE
COMPANY SHALL CONSIST OF 20,000,000 SHARES OF COMMON STOCK, OF WHICH 8,539,371
SHARES SHALL BE ISSUED AND OUTSTANDING TO RAUL FERNANDEZ, AND 5,000,000 SHARES
OF PREFERRED STOCK (WHICH MAY BE ISSUED IN ONE OR MORE SERIES), WHICH SHALL BE
ISSUED AND OUTSTANDING AS FOLLOWS: (a) 1,629,969 SHARES OF SERIES A PREFERRED
STOCK, OF WHICH (i) 1,389,218 SHARES SHALL BE OUTSTANDING AND ISSUED TO GAP LP,
AND (ii) 240,751 SHARES
9
<PAGE> 16
SHALL BE OUTSTANDING AND ISSUED TO GAP COINVESTMENT, (b) 359,712 SHARES OF
SERIES B PREFERRED STOCK, OF WHICH (i) 81,535 SHARES SHALL BE OUTSTANDING AND
ISSUED TO GAP LP, (ii) 14,388 SHARES SHALL BE OUTSTANDING AND ISSUED TO GAP
COINVESTMENT, (iii) 23,981 SHARES SHALL BE OUTSTANDING AND ISSUED TO FBR AND
(iv) 239,808 SHARES SHALL BE OUTSTANDING AND ISSUED TO MORINO TRUST, AND (c)
419,302 SHARES OF PREFERRED STOCK, ALL OF WHICH SHALL BE OUTSTANDING AND ISSUED
TO THE PURCHASER. THE COMPANY HAS RESERVED AN AGGREGATE OF 419,302 SHARES OF
COMMON STOCK FOR ISSUANCE UPON CONVERSION OF THE PURCHASED SHARES. EXCEPT AS SET
FORTH ON SCHEDULE 3.7, THERE ARE NO OPTIONS, WARRANTS, CONVERSION PRIVILEGES,
SUBSCRIPTION OR PURCHASE RIGHTS OR OTHER RIGHTS PRESENTLY OUTSTANDING TO
PURCHASE OR OTHERWISE ACQUIRE (x) ANY AUTHORIZED BUT UNISSUED, UNAUTHORIZED OR
TREASURY SHARES OF THE COMPANY'S CAPITAL STOCK, (y) ANY COMMON STOCK EQUIVALENTS
OR (z) OTHER SECURITIES OF THE COMPANY. THE PURCHASED SHARES ARE DULY
AUTHORIZED, AND, ASSUMING THE ACCURACY OF THE REPRESENTATIONS AND WARRANTIES OF
THE PURCHASER SET FORTH IN SECTIONS 4.6 AND 4.7, WHEN ISSUED AND SOLD TO THE
PURCHASER AFTER PAYMENT THEREFOR, WILL BE VALIDLY ISSUED, FULLY PAID AND
NONASSESSABLE AND WILL BE ISSUED IN COMPLIANCE WITH THE REGISTRATION AND
QUALIFICATION REQUIREMENTS OF ALL APPLICABLE FEDERAL SECURITIES LAWS. THE SHARES
OF COMMON STOCK ISSUABLE UPON CONVERSION OF THE PURCHASED SHARES ARE DULY
AUTHORIZED AND, WHEN ISSUED IN COMPLIANCE WITH THE PROVISIONS OF THE CERTIFICATE
OF INCORPORATION AND THE CERTIFICATE OF DESIGNATIONS, WILL BE VALIDLY ISSUED,
FULLY PAID AND NONASSESSABLE AND WILL BE ISSUED IN COMPLIANCE WITH THE
REGISTRATION AND QUALIFICATION REQUIREMENTS OF ALL APPLICABLE FEDERAL SECURITIES
LAWS. THE ISSUED AND OUTSTANDING SHARES OF COMMON STOCK ARE ALL DULY AUTHORIZED,
VALIDLY ISSUED, FULLY PAID AND NONASSESSABLE, AND WERE ISSUED IN COMPLIANCE WITH
THE REGISTRATION AND QUALIFICATION REQUIREMENTS OF ALL APPLICABLE FEDERAL
SECURITIES LAWS. THE COMPANY HAS NO SUBSIDIARIES.
3.8 No Default or Breach; Contractual Obligations; Insurance. Except
as set forth in Schedule 3.8, the Company has not received notice of, and is not
in default under, or with respect to, any Contractual Obligation in any respect,
which, individually or together with all such defaults, could have a material
adverse effect on (i) the Condition of the Company or (ii) the ability of the
Company to perform its obligations under this Agreement or the other Transaction
Documents. The Company maintains directors and officers' liability insurance
covering certain claims against the directors and officers of the Company, and
such insurance is in full force and effect. Such policy provides annual coverage
of $3,000,000 for such claims (including defense costs).
3.9 FIRPTA. The Company is not a "foreign person" within the meaning
of Section 1445 of the Code.
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3.10 Financial Statements. The Company has delivered to the Purchaser
its (i) audited financial statements (balance sheet and statements of
operations, cash flows and stockholders' equity, together with the notes
thereto) for the fiscal years ended and as at December 31, 1996, December 31,
1995 and December 31, 1994 (the "Audited Financial Statements"), and (ii) its
unaudited financial statements (balance sheet and statement of operations) for
the fiscal quarters ended and as at March 31, 1997, June 30, 1997 and September
30, 1997 (the "Unaudited Financial Statements"; the Audited Financial Statements
and Unaudited Financial Statements being collectively referred to as the
"Financial Statements"). The Financial Statements are complete and correct in
all material respects and have been prepared in accordance with GAAP applied on
a consistent basis throughout the periods indicated and with each other, except
that the Unaudited Financial Statements do not contain footnotes or typical
year-end adjustments. The Financial Statements fairly present the financial
position, operating results and cash flows of the Company as of the respective
dates and for the respective periods indicated, subject, in the case of the
Unaudited Financial Statements, to normal year-end audit adjustments.
3.11 Taxes. (i) The Company has paid all federal, state,
county, local, foreign and other taxes, including, without limitation, income
taxes, estimated taxes, excise taxes, sales taxes, use taxes, gross receipts
taxes, franchise taxes, employment and payroll related taxes, property taxes and
import duties, whether or not measured in whole or in part by net income
(hereinafter, "Taxes" or, individually, a "Tax") which have come due and are
required to be paid by it through the date hereof, and all deficiencies or other
additions to Tax, interest and penalties owed by it in connection with any such
Taxes, and shall timely pay any Taxes including additions, interest and
penalties, required to be paid by it on, before or after the date hereof; (ii)
the Company has timely filed returns for Taxes that it is required to file on
and through the date hereof, and shall timely file all returns for Taxes that it
is required to file after the date hereof; (iii) with respect to all Tax returns
of the Company, (x) except as set forth in Schedule 3.11, to the knowledge of
the Company, there is no unassessed tax deficiency proposed or threatened
against the Company and (y) except as set forth in Schedule 3.11, no audit is in
progress and no extension of time is in force with respect to any date on which
any return for Taxes was or is to be filed and no waiver or agreement is in
force for the extension of time for the assessment or payment of any Tax; (iv)
except as set forth in Schedule 3.11, the Company has not agreed nor is it
required to make any adjustments under Section 481(a) of the Code by reason of a
change in accounting methods or otherwise; and (v) all provisions for income and
other Tax liabilities of the Company with respect to the Financial Statements
have been made in accordance with GAAP consistently applied, and all liabilities
for Taxes of the Company attributable to periods prior to or ending on December
31, 1995 and December 31, 1996 have been adequately provided for on the
Financial Statements. Schedule 3.11 sets forth the status of federal income tax
audits and state, local and
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foreign tax audits of the Tax returns of the Company for each taxable year for
which the statute of limitations has not expired.
3.12 No Material Adverse Change; Ordinary Course of Business. Since
December 31, 1996, there has not been any material adverse change, nor to the
knowledge of the Company is any such change threatened, in the Condition of the
Company. To the knowledge of the Company there is no material adverse change
threatened with respect to the prospects of the Company, taken as a whole.
Except as set forth on Schedule 3.12, since December 31, 1996, the Company has
not participated in any transaction or otherwise acted outside the ordinary
course of business, including, without limitation, declaring or paying any
dividend or declaring or making any distribution to its stockholders, except out
of the earnings of the Company.
3.13 Private Offering. No form of general solicitation or general
advertising was used by the Company or its representatives in connection with
the offer or sale of the Purchased Shares. No registration of the Securities,
pursuant to the provisions of the Securities Act or any state securities or
"blue sky" laws, will be required by the offer, sale or issuance of the
Securities. The Company agrees that neither it, nor anyone acting on its behalf,
shall offer to sell the Securities or any other security of the Company so as to
require the registration of the Securities pursuant to the provisions of the
Securities Act or any state securities or "blue sky" laws, unless such
Securities or other security is so registered.
3.14 Title to Assets. Except as set forth on Schedule 3.14, the
Company owns and has good, valid, and marketable title to all of its properties
and assets used in its business and reflected as owned on the Financial
Statements or so described in any Schedule hereto (collectively, the "Assets"),
in each case free and clear of all Liens, except for (a) Liens specifically
described on the notes to the Financial Statements and (b) Liens on Assets which
Liens individually or in the aggregate are not material to the Condition of the
Company.
3.15 Liabilities. Except as set forth on Schedule 3.15, the Company
has no obligation or liability ("Liabilities") other than (i) Liabilities fully
and adequately reflected or reserved against on the Financial Statements, (ii)
Liabilities not required by GAAP to be set forth on the Financial Statements and
(iii) Liabilities incurred since December 31, 1996 in the ordinary course of
business. The Company has no knowledge of any circumstance, condition, event or
arrangement that may hereafter give rise to any Liabilities of the Company
except in the ordinary course of business or as otherwise set forth on Schedule
3.15.
3.16 Intellectual Property.
(a)(i) The Company is the exclusive owner of or has the license
or right to use, sell, license or dispose of all of the Copyrights, Patents,
Trade
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Secrets, Trademarks, Internet Assets, Mask Works, Software and other proprietary
rights (collectively, "Intellectual Property") that are used in connection with
its business as presently conducted, free and clear of all Liens.
(a)(ii) Schedule 3.16(a)(ii) sets forth all of the Intellectual
Property owned by, and applications for any of the above filed by, the Company.
None of the Intellectual Property listed on Schedule 3.16(a)(ii) is subject to
any outstanding Order, and no action, suit, proceeding, hearing, investigation,
charge, complaint, claim or demand is pending or, to the knowledge of the
Company, threatened, which challenges the validity, enforceability, use or
ownership of the item.
(a)(iii) Schedule 3.16(a)(iii) sets forth all Intellectual
Property licenses, sublicenses and other agreements under which the Company is
either a licensor or licensee of any Intellectual Property, except such
licenses, sublicenses and other agreements relating to software used solely on
the computers of the Company (such as standard office products and products not
necessary in the use or operation of the Company's products or services). The
Company has substantially performed all obligations imposed upon it thereunder,
and the Company is not, nor to the knowledge of the Company is any other party
thereto, in breach of or default thereunder in any respect, nor is there any
event which with notice or lapse of time or both would constitute a default
thereunder. All of the Intellectual Property licenses listed on Schedule
3.16(a)(iii) are valid, enforceable and in full force and effect, and will
continue to be so on identical terms immediately following the Closing, except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity relating to enforceability (regardless of whether
considered in a proceeding at law or in equity).
(a)(iv) To the knowledge of the Company, other than as set forth
on Schedule 3.16(a)(iv), none of the Intellectual Property currently sold or
licensed by the Company to any Person or used by or licensed to the Company
infringes upon or otherwise violates any Intellectual Property rights of others.
(a)(v) Except as set forth on Schedule 3.16(a)(v), no litigation
is pending and no Claim has been made against the Company or, to the knowledge
of the Company, is threatened, contesting the right of the Company to sell or
license to any Person or use the Intellectual Property presently sold or
licensed to such Person or used by the Company.
(b) Except as set forth on Schedule 3.16(b), to the knowledge of
the Company, no Person is infringing upon or otherwise violating the
Intellectual Property rights of the Company.
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(c) No former employer of any employee of the Company, and no
current or former client of any consultant of the Company, has made a claim
against the Company that such employee or such consultant is utilizing
proprietary information of such former employer or client.
(d) Except as set forth on Schedule 3.16(d), the Company is not a
party to or bound by any license or other agreement requiring the payment of any
material royalty payment, excluding such agreements relating to software
licensed for use solely on the computers of the Company.
(e) To the knowledge of the Company, no employee of the Company
is in violation of any term of any employment agreement, patent or invention
disclosure agreement or other contract or agreement relating to the relationship
of such employee with the Company.
(f) To the knowledge of the Company, none of the designs, plans,
trade secrets, inventions, processes, procedures, research records,
manufacturing know-how and formulae, wherever located, the value of which is
contingent upon maintenance of confidentiality thereof, has been disclosed to
any Person other than employees, representatives and agents of the Company,
except as required pursuant to the filing of a patent application by the
Company, or when disclosure to a Person is necessary pursuant to confidentiality
agreements entered into by the Company.
3.17 Trade Relations; Computer Systems. Except as set forth on
Schedule 3.17, there exists no actual or, to the knowledge of the Company,
threatened termination, cancellation or limitation of, or any adverse
modification or change in, the business relationship of the Company, or the
business of the Company, with any customer or distributor or any group of
customers or distributors whose purchases are individually or in the aggregate
material to the Condition of the Company, or with any material supplier of the
Company, and, to the knowledge of the Company, there exists no present condition
or state of fact or circumstances that would materially adversely affect the
Condition of the Company or prevent the Company from conducting such business
relationships or such business with any such customer, such group of customers
or distributors or such material supplier in the same manner as heretofore
conducted by the Company. The Company represents and warrants that its computer
systems and software are able to accurately process date data, including but not
limited to, calculating, comparing and sequencing from, into and between the
twentieth century (through year 1999), the year 2000 and the twenty-first
century, including leap year calculations.
3.18 Broker's, Finder's or Similar Fees. There are no brokerage
commissions, finder's fees or similar fees or commissions payable by the Company
in connection with the transactions contemplated hereby based on any agreement,
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arrangement or understanding with the Company or any action taken by any such
Person.
3.19 Disclosure.
(a) Agreement and Other Documents. This Agreement and the
documents and certificates furnished to the Purchaser by the Company, taken as a
whole, do not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which they were made, not
misleading.
(b) Material Adverse Effects. There is no fact known to the
Company, which the Company has not disclosed to the Purchaser in writing, which
materially adversely affects the Condition of the Company or the ability of the
Company to perform its obligations under this Agreement, any of the other
Transaction Documents or any document contemplated hereby or thereby.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company as
follows:
4.1 Existence and Power. The Purchaser (a) is a partnership, trust or
corporation, as the case may be, duly organized and validly existing under the
laws of the jurisdiction of its formation and (b) has the requisite power and
authority to execute, deliver and perform its obligations under this Agreement
and each of the other Transaction Documents to which it is a party.
4.2 Authorization; No Contravention. The execution, delivery and
performance by the Purchaser of this Agreement and each of the other Transaction
Documents to which it is a party and the transactions contemplated hereby and
thereby, including, without limitation, the purchase of the Purchased Shares,
(a) have been duly authorized by all necessary action, (b) do not contravene the
terms of the Purchaser's organizational documents, or any amendment thereof, and
(c) do not violate, conflict with or result in any breach or contravention of or
the creation of any Lien under, any Contractual Obligation of the Purchaser, or
any Requirement of Law applicable to the Purchaser.
4.3 Governmental Authorization; Third Party Consents. No approval,
consent, compliance, exemption, authorization, or other action by, or notice to,
or filing with, any Governmental Authority or any other Person with
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respect to any Requirement of Law, and no lapse of a waiting period under any
Requirement of Law, is necessary or required in connection with the execution,
delivery or performance (including, without limitation, the purchase of the
Purchased Shares) by, or enforcement against, the Purchaser of this Agreement
and each of the other Transaction Documents to which the Purchaser is a party or
the transactions contemplated hereby and thereby.
4.4 Binding Effect. This Agreement and each of the other Transaction
Documents to which the Purchaser is a party have been duly executed and
delivered by the Purchaser and constitute the legal, valid and binding
obligations of the Purchaser, enforceable against it in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance or transfer, moratorium or
similar laws affecting the enforcement of creditors' rights generally or by
equitable principles relating to enforceability (regardless of whether
considered in a proceeding at law or in equity).
4.5 Purchase for Own Account. The Purchased Shares to be acquired by
the Purchaser pursuant to this Agreement are being or will be acquired for its
own account and with no intention of distributing or reselling such Purchased
Shares or any part thereof in any transaction that would be in violation of the
securities laws of the United States of America, or any state, without
prejudice, however, to the rights of the Purchaser at all times to sell or
otherwise dispose of all or any part of such Purchased Shares under an effective
registration statement under the Securities Act, or under an exemption from such
registration available under the Securities Act, and subject, nevertheless, to
the disposition of the Purchaser's property being at all times within its
control. If the Purchaser should in the future decide to dispose of any of the
Securities, the Purchaser understands and agrees that it may do so only in
compliance with the Securities Act and applicable state securities laws, as then
in effect. The Purchaser agrees to the imprinting, so long as required by law,
of a legend on certificates representing all of its Purchased Shares and shares
of Common Stock issuable upon conversion of its Purchased Shares to the
following effect:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES MAY NOT BE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO
AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH
ACT AND SUCH LAWS OR PURSUANT TO A WRITTEN OPINION OF COUNSEL
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REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE OR OTHER
DISPOSITION (EACH A "TRANSFER") AND VOTING OF ANY OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE TERMS OF THE
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT, DATED FEBRUARY 20,
1997, AMONG PROXICOM, INC. (THE "COMPANY"), GENERAL ATLANTIC
PARTNERS 34, L.P., GAP COINVESTMENT PARTNERS, L.P., RAUL FERNANDEZ,
THE MARIO M. MORINO TRUST, AND FBR VENTURE CAPITAL MANAGERS INC.
(COLLECTIVELY, THE "ORIGINAL STOCKHOLDERS"), AS AMENDED BY AMENDMENT
NO. 1 TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT DATED NOVEMBER
__, 1997 AMONG THE COMPANY, THE ORIGINAL STOCKHOLDERS AND GENERAL
ELECTRIC CAPITAL CORPORATION (COLLECTIVELY, THE "STOCKHOLDERS
AGREEMENT"), A COPY OF WHICH MAY BE INSPECTED AT THE COMPANY'S
PRINCIPAL OFFICE. THE COMPANY WILL NOT REGISTER THE TRANSFER OF SUCH
SECURITIES ON THE BOOKS OF THE COMPANY UNLESS AND UNTIL THE TRANSFER
HAS BEEN MADE IN COMPLIANCE WITH THE TERMS OF THE STOCKHOLDERS
AGREEMENT.
4.6 Restricted Securities. The Purchaser understands that the
Purchased Shares will not be registered at the time of their issuance under the
Securities Act for the reason that the sale provided for in this Agreement is
exempt pursuant to Section 4(2) of the Securities Act and that the reliance of
the Company on such exemption is predicated in part on the Purchaser's
representations set forth herein. The Purchaser represents that it is
experienced in evaluating recently organized companies such as the Company, has
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of its investment and has the ability to
suffer the total loss of its investment. The Purchaser further represents that
it has had the opportunity to ask questions of and receive answers from the
Company concerning the terms and conditions of the offering and to obtain
additional information (to the extent the Company possessed such information or
could acquire it without unreasonable effort or expense).
4.7 Accredited Investor Status. The Purchaser is an "accredited
investor" as that term is defined by Rule 501 of Regulation D promulgated under
the Securities Act.
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4.8 Litigation. There are no Claims pending or, to the knowledge of
the Purchaser, threatened, at law, in equity, in arbitration or before any
Governmental Authority against any Purchaser which would, if adversely
determined, have a material adverse effect on the ability of the Purchaser to
perform its obligations under this Agreement or any of the other Transaction
Documents. No Order has been issued by any court or other Governmental Authority
against the Purchaser purporting to enjoin or restrain the execution, delivery
or performance of this Agreement or any of the other Transaction Documents.
4.9 Broker's, Finder's or Similar Fees. There are no brokerage
commissions, finder's fees or similar fees or commissions payable by the
Purchaser, in connection with the transactions contemplated hereby based on any
agreement, arrangement or understanding with the Purchaser or any action taken
by the Purchaser.
ARTICLE 5
CONDITIONS TO THE OBLIGATION
OF THE PURCHASER TO CLOSE
The obligation of the Purchaser to purchase the Purchased Shares, to
pay the purchase price therefor at the Closing and to perform any obligations
hereunder shall be subject to the satisfaction as determined by, or waiver by,
the Purchaser of the following conditions on or before the Closing Date.
5.1 Representations and Warranties. The representations and
warranties of the Company contained in Article 3 hereof shall be true and
correct in all material respects at and on the Closing Date as if made at and on
such date.
5.2 Compliance with this Agreement. The Company shall have performed
and complied in all material respects with all of its agreements and conditions
set forth herein that are required to be performed or complied with by the
Company on or before the Closing Date.
5.3 Secretary's Certificate. The Purchaser shall have received a
certificate from the Company, in form and substance satisfactory to the
Purchaser, dated the Closing Date and signed by the Secretary or an Assistant
Secretary of the Company, certifying (a) that the attached copies of the
Certificate of Incorporation, the By-laws and resolutions of the Board of
Directors of the Company approving this Agreement and each of the other
Transaction Documents to which the Company is a party and the transactions
contemplated hereby and thereby, are all true, complete and correct and remain
unamended and in full force and effect and (b) as to the incumbency and specimen
signature of each officer of the Company
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executing this Agreement, each other Transaction Document and any other document
delivered in connection herewith on behalf of the Company.
5.4 Officer's Certificate. The Purchaser shall have received a
certificate from the Company, in form and substance satisfactory to the
Purchaser, dated the Closing Date and signed by the Chief Executive Officer of
the Company, certifying that (a) the representations and warranties of the
Company contained in Article 3 hereof are true and correct in all material
respects at and on the Closing Date and (b) the Company has performed and
complied in all material respects with all of the agreements and conditions set
forth or contemplated herein that are required to be performed or complied with
by the Company on or before the Closing Date.
5.5 Documents. The Purchaser shall have received true, complete and
correct copies of such documents as it may reasonably request in connection with
or relating to the sale of the Purchased Shares and the transactions
contemplated hereby, all in form and substance reasonably satisfactory to the
Purchaser.
5.6 Filing of Certificate of Designations. The Certificate of
Designations shall have been duly filed by the Company with the Secretary of
State of the State of Delaware in accordance with the General Corporation Law of
the State of Delaware.
5.7 Purchased Shares. The Company shall have delivered to the
Purchaser certificates in definitive form representing the number of Purchased
Shares set forth opposite the Purchaser's name on Schedule 2 hereto, registered
in the name of the Purchaser.
5.8 Stockholders Agreement. The Company shall have duly executed and
delivered the Amendment No. 1 to Amended and Restated Stockholders Agreement,
substantially in the form attached hereto as Exhibit F.
5.9 Registration Rights Agreement. The Company shall have duly
executed and delivered the Registration Rights Agreement, substantially in the
form attached hereto as Exhibit E.
5.10 Approval of Counsel to the Purchaser. All actions and proceedings
hereunder and all documents required to be delivered by the Company hereunder or
in connection with the consummation of the transactions contemplated hereby, and
all other related matters, shall have been acceptable to Paul, Hastings,
Janofsky & Walker LLP, counsel to the Purchaser, in its reasonable judgment as
to their form and substance.
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5.11 Consents and Approvals. All consents, exemptions, authorizations,
or other actions by, or notices to, or filings with, Governmental Authorities
and other Persons required in respect of all Requirements of Law and with
respect to those Contractual Obligations of the Company which are necessary in
connection with the execution, delivery or performance by, or enforcement
against, the Company of this Agreement and each of the other Transaction
Documents shall have been obtained and be in full force and effect, and the
Purchaser shall have been furnished with appropriate evidence thereof.
5.12 No Material Judgment or Order. There shall not be on the Closing
Date any Order of a court of competent jurisdiction or any ruling of any
Governmental Authority or any condition imposed under any Requirement of Law
which, in the reasonable judgment of the Purchaser, would prohibit the purchase
of the Purchased Shares or subject the Purchaser to any penalty or other onerous
condition under or pursuant to any Requirement of Law if the Purchased Shares
were to be purchased hereunder.
5.13 No Litigation. No action, suit, proceeding, claim or dispute
shall have been brought or otherwise arisen at law, in equity, in arbitration or
before any Governmental Authority against the Company which would, if adversely
determined, (a) have a material adverse effect on the Condition of the Company
or (b) have a material adverse effect on the ability of the Company to perform
its obligations under this Agreement or each of the other Transaction Documents.
5.14 Opinions. The Purchaser shall have received the opinion of Hogan
& Hartson and the opinion of Nicholas & Jones, counsel to the Company,
substantially in the forms attached hereto as Exhibit G-1 and Exhibit G-2,
respectively.
ARTICLE 6
CONDITIONS TO THE OBLIGATION
OF THE COMPANY TO CLOSE
The obligation of the Company to issue and sell the Purchased Shares
and the obligation of the Company to perform its other obligations hereunder,
shall be subject to the satisfaction as determined by, or waiver by, the Company
of the following conditions on or before the Closing Date:
6.1 Representations and Warranties. The representations and
warranties of the Purchaser contained in Article 4 hereof shall be true and
correct in all material respects at and on the Closing Date as if made at and
on such date.
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6.2 Compliance with this Agreement. The Purchaser shall have
performed and complied in all material respects with all of its agreements and
conditions set forth herein that are required to be performed or complied with
by the Purchaser on or before the Closing Date.
6.3 Officers' Certificate. The Company shall have received a
certificate from the Purchaser, in form and substance satisfactory to the
Company, dated the Closing Date and signed by an authorized signatory of the
Purchaser, certifying that (a) the representations and warranties of the
Purchaser contained in Article 4 hereof are true and correct in all material
respects at and on Closing Date, and the Purchaser has performed and complied in
all material respects with all of its agreements and conditions set forth or
contemplated herein that are required to be performed or complied with by the
Purchaser on or before the Closing Date.
6.4 Payment of Purchase Price. The Company shall have received the
aggregate purchase price for the Purchased Shares.
6.5 Stockholders' Agreement. The Purchaser shall have duly executed
and delivered the Amendment No. 1 to Amended and Restated Stockholders'
Agreement, substantially in the form attached hereto as Exhibit F.
6.6 Registration Rights Agreement. The Purchaser shall have duly
executed and delivered the Registration Rights Agreement, substantially in the
form attached hereto as Exhibit E.
6.7 Approval of Counsel to the Company. All actions and proceedings
hereunder and all documents required to be delivered by the Purchaser hereunder
or in connection with the consummation of the transactions contemplated hereby,
and all other related matters, shall have been acceptable to Hogan & Hartson,
counsel to the Company, in its reasonable judgment as to their form and
substance.
6.8 Consents and Approvals. All consents, exemptions, authorizations,
or other actions by, or notices to, or filings with, Governmental Authorities
and other Persons required in respect of all Requirements of Law and with
respect to those Contractual Obligations of the Purchaser which are necessary in
connection with the execution, delivery or performance by, or enforcement
against, the Company of this Agreement and each of the other Transaction
Documents shall have been obtained and be in full force and effect, and the
Company shall have been furnished with appropriate evidence thereof.
6.9 No Material Judgment or Order. There shall not be on the Closing
Date any Order of a court of competent jurisdiction or any ruling of any
Governmental Authority or any condition imposed under any Requirement of Law
which, in the reasonable judgment of the Company, would prohibit the sale of the
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Purchased Shares or subject the Company to any penalty or other onerous
condition under or pursuant to any Requirement of Law if the Purchased Shares
were to be sold hereunder.
6.10 No Litigation. No action, suit, proceeding, claim or dispute
shall have been brought or otherwise arisen at law, in equity, in arbitration or
before any Governmental Authority against the Purchaser which would, if
adversely determined, have a material adverse effect on the ability of the
Purchaser to perform its obligations under this Agreement or any of the other
Transaction Documents to which it is a party.
ARTICLE 7
INDEMNIFICATION
7.1 Indemnification. Except as otherwise provided in this Article 7,
the Company (the "Indemnifying Party") agrees to indemnify, defend and hold
harmless the Purchaser and its Affiliates and its officers, directors, agents,
employees, subsidiaries, partners, members and controlling persons (each, an
"Indemnified Party") to the fullest extent permitted by law from and against any
and all losses, Claims, or written threats thereof (including, without
limitation, any Claim brought by the Purchaser or another Person), damages,
expenses (including reasonable fees, disbursements and other charges of counsel
incurred by the Indemnified Party in any action between the Indemnifying Party
and the Indemnified Party or between the Indemnified Party and any third party
or otherwise) or other liabilities (collectively, "Losses") resulting from or
arising out of any breach of any representation or warranty, covenant or
agreement by the Company in this Agreement or the other Transaction Documents;
provided, however, that the Indemnifying Party shall not be liable under this
Section 7.1 to an Indemnified Party to the extent that it is finally judicially
determined that such Losses resulted or arose from the breach by such
Indemnified Party of any representation, warranty, covenant or other agreement
of such Indemnified Party contained in this Agreement or the other Transaction
Documents; and provided further, that if and to the extent that such
indemnification is unenforceable for any reason, the Indemnifying Party shall
make the maximum contribution to the payment and satisfaction of such Losses
which shall be permissible under applicable laws. The amount of any payment to
any Indemnified Party herewith in respect of any Loss shall be of sufficient
amount to make such Indemnified Party whole. In connection with the obligation
of the Indemnifying Party to indemnify for expenses as set forth above, the
Indemnifying Party shall, upon presentation of appropriate invoices containing
reasonable detail, reimburse each Indemnified Party for all such expenses
(including reasonable fees, disbursements and other charges of counsel incurred
by the Indemnified Party in any action between the
22
<PAGE> 29
Indemnifying Party and the Indemnified Party or between the Indemnified Party
and any third party or otherwise) (a) after the final resolution or disposition
of the particular action, investigation, claim or other proceeding and (b) if
such Indemnified Party prevails with respect thereto.
7.2 Notification. Each Indemnified Party under this Article 7 shall,
promptly after the receipt of notice of the commencement of any action,
investigation, claim or other proceeding against such Indemnified Party in
respect of which indemnity may be sought from the Indemnifying Party under this
Article 7, notify the Indemnifying Party in writing of the commencement thereof.
The omission of any Indemnified Party to so notify the Indemnifying Party of any
such action shall not relieve the Indemnifying Party from any liability which it
may have to such Indemnified Party (a) other than pursuant to this Article 7 or
(b) under this Article 7 unless, and only to the extent that, such omission
results in the Indemnifying Party's forfeiture of substantive rights or
defenses. In case any such action, claim or other proceeding shall be brought
against any Indemnified Party, and it shall notify the Indemnifying Party of the
commencement thereof, the Indemnifying Party shall be entitled to assume the
defense thereof at its own expense, with counsel satisfactory to such
Indemnified Party in its reasonable judgment; provided, however, that any
Indemnified Party may, at its own expense, retain separate counsel to
participate in such defense at its own expense. Notwithstanding the foregoing,
in any action, claim or proceeding in which both the Indemnifying Party, on the
one hand, and an Indemnified Party, on the other hand, are, or are reasonably
likely to become, a party, such Indemnified Party shall have the right to employ
separate counsel and to control its own defense of such action, claim or
proceeding if, in the reasonable opinion of counsel to such Indemnified Party, a
conflict or potential conflict exists between the Indemnifying Party, on the one
hand, and such Indemnified Party, on the other hand, that would make such
separate representation advisable; provided, however, that the Indemnifying
Party (i) shall not be liable for the fees and expenses of more than one counsel
to all Indemnified Parties and (ii) shall reimburse the Indemnified Parties for
all of such fees and expenses of such counsel incurred in any action between the
Indemnifying Party and the Indemnified Parties or between the Indemnified
Parties and any third party or otherwise (x) after the final resolution or
disposition of such action, claim or proceeding and (y) if the Indemnified
Parties prevail with respect thereto. The Indemnifying Party agrees that it will
not, without the prior written consent of the Purchaser, settle, compromise or
consent to the entry of any judgment in any pending or threatened claim, action
or proceeding relating to the matters contemplated hereby (if any Indemnified
Party is a party thereto or has been actually threatened to be made a party
thereto) unless such settlement, compromise or consent includes an unconditional
release of the Purchaser and each other Indemnified Party from all liability
arising or that may arise out of such claim, action or proceeding. The
Indemnifying Party shall not be liable for any settlement of any claim, action
or proceeding effected against an Indemnified Party without its
23
<PAGE> 30
written consent, which consent shall not be unreasonably withheld. The rights
accorded to Indemnified Party hereunder shall be in addition to any rights that
any Indemnified Party may have at common law, by separate agreement or
otherwise; provided, however, that notwithstanding the foregoing or anything to
the contrary contained in this Agreement, nothing in this Article 7 should
restrict or limit any rights that any Indemnified Party may have to seek
equitable relief.
7.3 Limitations on Indemnification. Notwithstanding anything to the
contrary contained in this Article 7, the Indemnifying Party shall have no
obligation to pay any amounts for indemnification pursuant to Section 7.1 to the
extent that the aggregate of such amounts for indemnification do not exceed
$50,000 (the "Basket Amount"), whereupon the Indemnifying Party shall be
obligated to pay in full all of such amounts for indemnification, including the
Basket Amount.
ARTICLE 8
AFFIRMATIVE COVENANTS
The Company hereby covenants and agrees with the Purchaser as follows:
8.1 Preservation of Existence. So long as the Purchaser and/or any
Affiliate thereof owns shares of Common Stock and/or shares of Preferred Stock
or other securities of the Company convertible into or exchangeable for shares
of voting capital stock of the Company that represent (after giving effect to
any adjustments) at least 1% of the total number of shares of Common Stock
outstanding on an as-converted basis, the Company shall:
(a) use its reasonable best efforts to preserve and maintain in
full force and effect its existence and good standing under the laws of its
jurisdiction of formation or organization;
(b) use its reasonable best efforts to preserve and maintain in
full force and effect all material rights, privileges, qualifications,
applications, estimates, licenses and franchises necessary in the normal conduct
of its business;
(c) use its reasonable best efforts to preserve its business
organization;
(d) conduct its business in accordance with sound business
practices, keep its properties in good working order and condition (normal wear
and tear excepted) so that the efficiency of its business operations shall be
fully maintained and preserved; and
24
<PAGE> 31
(e) file or cause to be filed in a timely manner all reports,
applications, estimates and licenses that shall be required by a Governmental
Authority and that, if not timely filed, would have a material adverse effect on
the Condition of the Company.
8.2 Financial Statements and Other Information. The Company shall
deliver to each Purchaser, in form and substance satisfactory to the Purchaser:
(a) as soon as available, but not later than ninety (90) days
after the end of each fiscal year of the Company, a copy of the audited balance
sheet of the Company as of the end of such fiscal year and the related
statements of operations and cash flows for such fiscal year, setting forth in
each case in comparative form the figures for the previous year, all in
reasonable detail and accompanied by a management summary and analysis of the
operations of the Company for such fiscal year and by the opinion of a
nationally recognized independent certified public accounting firm which report
shall state without qualification that such financial statements present fairly
the financial condition as of such date and results of operations and cash flows
for the periods indicated in conformity with GAAP applied on a consistent basis;
(b) commencing with the fiscal period ending on September 30,
1997, as soon as available, but in any event not later than forty-five (45) days
after the end of each of the first three fiscal quarters of each fiscal year,
the unaudited balance sheet of the Company, and the related statements of
operations and cash flows for such quarter and for the period commencing on the
first day of the fiscal year and ending on the last day of such quarter, all
certified by an appropriate officer of the Company as presenting fairly the
financial condition as of such date and results of operations and cash flows for
the periods indicated in conformity with GAAP applied on a consistent basis,
subject to normal year-end adjustments and the absence of footnotes required by
GAAP; and
(c) as promptly as practicable, but not later than five (5) days
after the end of each fiscal year of the Company, a certificate signed by the
Chief Executive Officer of the Company in customary form certifying that the
Company is not a "foreign person" within the meaning of Section 1445 of the
Code.
8.3 Reservation of Common Stock and Preferred Stock. The Company
shall at all times reserve and keep available out of its authorized shares of
Common Stock, solely for the purpose of issue or delivery upon conversion of the
Purchased Shares, as provided in the Certificate of Incorporation and the
Certificate of Designations, the maximum number of shares of Common Stock that
may be issuable or deliverable upon such conversion. Such shares of Common Stock
are duly authorized and, when issued or delivered in accordance with the
Certificate of Incorporation and the Certificate of Designations against payment
25
<PAGE> 32
therefor, shall be validly issued, fully paid and non-assessable. The Company
shall issue such shares of Common Stock in accordance with the terms of the
Certificate of Incorporation and the Certificate of Designations and otherwise
comply with the terms hereof and thereof.
8.4 Compliance with Laws. The Company shall comply in all material
respects with all Requirements of Law and with the directions of any
Governmental Authority having jurisdiction over the Company or its business or
property.
8.5 Insurance. The Company shall maintain key-man insurance with
respect to Raul Fernandez in an aggregate amount of not less than $500,000.
8.6 Books and Records. The Company shall keep proper books of record
and account, in which full and correct entries shall be made of all financial
transactions and the assets and business of the Company in accordance with GAAP
consistently applied.
8.7 Future Sales of Company Stock to Third Parties. Following the
Closing Date for a period of six (6) months, if the Company or the Fernandez
Stockholders (as defined in the Stockholders Agreement) issue or sell shares of
Common Stock or Common Stock Equivalents to any purchaser at a price per share
less than the Preferred Stock price of $4.77 per share (as adjusted for items in
Section 7, Conversion, of the Certificate of Designations) or on terms and
conditions more favorable to such purchaser than the terms and conditions set
forth herein (taken as a whole), the Preferred Stock conversion price, terms and
conditions shall be adjusted accordingly to protect against dilution of such a
future transaction. In addition, if the Company offers any shares of Common
Stock or Common Stock Equivalents prior to December 31, 1998 pursuant to an
initial public offering at a price per share of less than $4.77 per share (as
adjusted for items in Section 7, Conversion, of the Certificate of
Designations), the Preferred Stock conversion price shall be adjusted
accordingly to protect against dilution. Notwithstanding the foregoing, this
Section 8.7 shall not apply to (a) capital stock of the Company which may be
issued to employees, consultants or directors of the Company pursuant to a stock
option plan or other employee benefit arrangement approved by the Board of
Directors, (b) a subdivision of the outstanding shares of common stock of the
Company into a larger number of shares of common stock, (c) capital stock issued
upon exercise, conversion or exchange of any Common Stock Equivalent (as defined
in the Stockholders Agreement, (d) capital stock of the Company issued in
consideration of the acquisition, approved by the Board of Directors, by the
Company or any of its Subsidiaries of another Person, if the Company wishes to
issue any shares of capital stock or any other securities convertible into or
exchangeable for capital stock of the Company to any Person, (e) any Permitted
26
<PAGE> 33
Transfer by Fernandez or (f) any transfer pursuant to the death of any of the
Fernandez Stockholders.
8.8 Directors and Officers' Liability Insurance. The Company shall at
all times maintain in full force and effect Directors and Officers' Liability
Insurance covering the Company's officers and directors and having an annual
coverage limit in an amount equal to at least the annual coverage limit in
effect as of the date hereof.
ARTICLE 9
MISCELLANEOUS
9.1 Survival of Representations and Warranties. All of the
representations and warranties made herein shall survive the execution and
delivery of this Agreement until the date that is ninety (90) days after the
receipt by the Purchaser of audited financial statements of the Company for the
fiscal year ending December 31, 1997 (or, if such fiscal year changes and no
such audited consolidated financial statements are available, then the successor
fiscal year), except for (a) Sections 3.1, 3.2, 3.4, 3.7, 4.1, 4.2, 4.4, 4.6 and
4.7, which representations and warranties shall survive until the second
anniversary of the Closing Date and (b) Section 3.11, which shall survive until
the later to occur of (i) the lapse of the statute of limitations with respect
to the assessment of any Tax to which such representation and warranty relates
(including any extensions or waivers thereof) and (ii) sixty (60) days after the
final administrative or judicial determination of the Taxes to which such
representation and warranty relates, and no claim with respect to Section 3.11
may be asserted thereafter with the exception of claims arising out of any fact,
circumstance, action or proceeding to which the party asserting such claim shall
have given notice to the other parties to this Agreement prior to the
termination of such period of reasonable belief that a tax liability will
subsequently arise therefrom.
9.2 Notices. All notices, demands and other communications provided
for or permitted hereunder shall be made in writing and shall be by registered
or certified first-class mail, return receipt requested, telecopier, courier
service or personal delivery:
(a) if to the Company:
Proxicom, Inc.
11600 Sunrise Valley Drive
Reston, Virginia 20191
Telecopy: (703) 262-3201
Attention: Christopher Capuano, Esq.,
27
<PAGE> 34
General Counsel
with a copy to:
Hogan & Hartson
555 13th Street, N.W.
Washington, D.C. 20004-1109
Telecopy: (202) 637-5910
Attention: Jacquelyn E. Grillon, Esq.
(b) if to the Purchaser:
General Electric Capital Corporation
260 Long Ridge Road
Stamford, Connecticut 06927
Telecopy: (203) 357-6075
Attention: Thomas A. Crowley
Managing Director
with a copy to:
General Electric Capital Corporation
120 Long Ridge Road
Stamford, Connecticut 06927
Telecopy: (203) 357-3047
Attention: Barbara Gould, Esq.
All such notices and communications shall be deemed to have been duly
given when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial courier service; five (5) Business Days
after being deposited in the mail, postage prepaid, if mailed; and when receipt
is mechanically acknowledged, if telecopied.
9.3 Successors and Assigns; Third Party Beneficiaries. This Agreement
shall inure to the benefit of and be binding upon the successors and permitted
assigns of the parties hereto. Subject to applicable securities laws, the
Purchaser may assign any of its rights under any of the Transaction Documents to
any of its Affiliates. The Company may not assign any of its rights under this
Agreement without the written consent of the Purchaser. Except as provided in
Article 7, no Person other than the parties hereto and their successors and
permitted assigns is intended to be a beneficiary of this Agreement.
9.4 Amendment and Waiver.
28
<PAGE> 35
(a) No failure or delay on the part of the Company or the
Purchaser in exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to the
Company or the Purchaser at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any
provision of this Agreement, any waiver of any provision of this Agreement, and
any consent to any departure by the Company or the Purchaser from the terms of
any provision of this Agreement, shall be effective (i) only if it is made or
given in writing and signed by the Company and the Purchaser, and (ii) only in
the specific instance and for the specific purpose for which made or given.
Except where notice is specifically required by this Agreement, no notice to or
demand on the Company in any case shall entitle the Company to any other or
further notice or demand in similar or other circumstances.
9.5 Professional Services; Seminars Within 12 months following the
Closing Date hereof, the Purchaser or its Affiliates shall engage the Company to
provide the Purchaser or its Affiliates with at least $250,000 of professional
services offered by the Company. Such professional services provided by the
Company under this Agreement will be identified by the Purchaser and/or its
Affiliates and offered by the Company at preferred billing rates. In addition,
the Company and the Purchaser agree to co-sponsor two industry seminars by
December 31, 1998 that will cover topics related to the internet and intranet.
The Company and the Purchaser will identify and agree on the specific subject
matter of such seminars subsequent to the Closing. For each seminar, the
Purchaser will fund the first $25,000 of seminar cost, and the Company will fund
the next $25,000 of seminar cost. Costs in excess of $50,000 for each seminar
shall be mutually agreed to by the Company and the Purchaser, and, if such
excess costs are agreed to, such excess costs will be evenly shared by the
Purchaser and the Company. Any fees charged to participants for attending the
seminars will first be used to reimburse the costs of the Purchaser and the
Company on a pro rata basis and subsequently after such costs have been
reimbursed in full will be shared evenly between the Purchaser and the Company.
9.6 Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
9.7 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
29
<PAGE> 36
9.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW THEREOF.
9.9 Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
9.10 Rules of Construction. Unless he context otherwise requires,
references to sections or subsections refer to sections or subsections of this
Agreement.
9.11 Entire Agreement. This Agreement, together with the exhibits and
schedules hereto, and the other Transaction Documents are intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein and therein. There are no
restrictions, promises, representations, warranties or undertakings, other than
those set forth or referred to herein or therein. This Agreement, together with
the exhibits and schedules hereto, and the other Transaction Documents supersede
all prior agreements and understandings between the parties with respect to such
subject matter.
9.12 Fees. The Purchaser shall bear all of its fees, disbursements and
other charges of counsel incurred in connection with this Agreement and the
transactions contemplated hereby.
9.13 Publicity. Except as may be required by applicable Requirement of
Law, none of the parties hereto shall issue a publicity release or public
announcement or otherwise make any disclosure concerning this Agreement or the
transactions contemplated hereby, without prior approval by the other parties
hereto; provided, however, that nothing in this Agreement shall restrict the
Purchaser from disclosing information (a) that is already publicly available;
(b) to the prospective transferee in connection with any contemplated transfer
of any of the Purchased Shares; and (c) to its attorneys, accountants,
consultants and other advisors to the extent necessary to obtain their services
in connection with the Purchaser's investment in the Company. If any
announcement is required by law to be made by any party hereto, prior to making
such announcement such party will deliver a draft of such announcement to the
other parties and shall give the other parties an opportunity to comment
thereon.
30
<PAGE> 37
9.14 Further Assurances. Each of the parties shall execute such
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations or other actions by, or
giving any notices to, or making any filings with, any Governmental Authority or
any other Person) as may be reasonably required or desirable to carry out or to
perform the provisions of this Agreement.
9.15 Confidentiality. Each party agrees that it shall be providing
certain proprietary and confidential information concerning its business to the
other party; accordingly, each party agrees to hold such other party's
information confidential, and such party shall not disclose such information to
any other person except for such persons who need to know such information for
purposes of evaluating the acquisition of the Purchased Shares and who agree to
be bound by confidentiality obligations not less restrictive than this
provision.
31
<PAGE> 38
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered by their respective officers hereunto duly authorized
on the date first above written.
PROXICOM, INC.
By: /s/ Raul Fernandez
-------------------------------------
Name: Raul Fernandez
Title: President and
Chief Executive Officer
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Thomas A. Crowley
-------------------------------------
Name: Thomas A. Crowley
Managing Director - Technology Ventures
(As Attorney in fact)
32
<PAGE> 1
EXHIBIT 10.4
================================================================================
PREFERRED STOCK PURCHASE AGREEMENT
among
PROXICOM, INC.
and
JACK KEMP
THEODORE J. LEONSIS
JOHN MCKINLEY
THE WASHINGTON POST COMPANY
GENERAL ATLANTIC PARTNERS 52, L.P.
GAP COINVESTMENT PARTNERS II, L.P.,
THE MARIO M. MORINO TRUST
and
GE CAPITAL EQUITY INVESTMENTS, INC.
------------------------------
Dated: February 1, 1999
------------------------------
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 DEFINITIONS......................................................1
1.1 DEFINITIONS.............................................................1
1.2 ACCOUNTING TERMS; FINANCIAL STATEMENTS..................................7
ARTICLE 2 PURCHASE AND SALE OF PREFERRED STOCK AND COMMON STOCK.............7
2.1 Purchase and Sale of Preferred Stock............................7
2.3 Use of Proceeds from Purchased Preferred Shares.................8
2.4 Closing ........................................................8
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................8
3.1 Corporate Existence and Power...................................8
3.2 Authorization; No Contravention.................................9
3.3 Governmental Authorization; Third Party Consents................9
1.3 Binding Effect..................................................9
3.5 Litigation......................................................9
3.6 Compliance with Laws............................................10
3.7 CAPITALIZATION..................................................10
3.8 No Default or Breach; Contractual Obligations; Insurance........11
3.9 FIRPTA..........................................................11
3.10 Financial Statements...........................................11
3.11 Taxes..........................................................12
4.12 No Material Adverse Change; Ordinary Course of Business........12
3.13 Private Offering...............................................12
3.14 Title to Assets................................................13
3.15 Liabilities....................................................13
3.16 Intellectual Property..........................................13
3.17 Trade Relations; Computer Systems..............................15
3.18 Broker's, Finder's or Similar Fees.............................15
3.19 Labor Relations................................................15
3.20 Pension and Benefit Plans......................................16
3.21 Leases.........................................................16
3.22 Subsidiaries...................................................16
3.23 Disclosure.....................................................16
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER...................17
4.1 Existence and Power.............................................17
4.2 Authorization; No Contravention.................................17
4.3 Governmental Authorization; Third Party Consents................17
4.4 Binding Effect..................................................17
</TABLE>
i
<PAGE> 3
\
<TABLE>
<S> <C> <C>
4.5 Purchase for Own Account........................................18
4.6 Restricted Securities...........................................19
4.7 Accredited Investor Status......................................19
4.8 Litigation......................................................19
4.9 Broker's, Finder's or Similar Fees..............................19
ARTICLE 5 CONDITIONS TO THE OBLIGATION OF THE PURCHASER TO CLOSE............20
5.1 Representations and Warranties..................................20
5.2 Compliance with this Agreement..................................20
5.3 Secretary's Certificate.........................................20
5.4 Officer's Certificate...........................................20
5.5 Documents.......................................................20
5.6 Filing of Certificate of Designations...........................21
5.7 Purchased Shares................................................21
5.8 Stockholders Agreement..........................................21
5.9 Registration Rights Agreement...................................21
5.10 Approval of Counsel to the Purchaser...........................21
5.11 Consents and Approvals.........................................21
5.12 No Material Judgment or Order..................................21
5.13 No Litigation..................................................22
5.14 Opinions.......................................................22
ARTICLE 6 CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE..............22
6.1 Representations and Warranties..................................22
6.2 Compliance with this Agreement..................................22
6.3 Officers' Certificate...........................................22
6.4 Payment of Purchase Price.......................................22
6.5 Stockholders' Agreement.........................................23
6.6 Registration Rights Agreement...................................23
6.7 Approval of Counsel to the Company..............................23
6.8 Consents and Approvals..........................................23
6.9 No Material Judgment or Order...................................23
6.10 No Litigation..................................................23
ARTICLE 7 INDEMNIFICATION...................................................23
7.1 Indemnification.................................................23
7.2 Notification....................................................24
7.3 Limitations on Indemnification..................................25
ARTICLE 8 AFFIRMATIVE COVENANTS.............................................25
8.1 Preservation of Existence.......................................26
8.2 Financial Statements and Other Information......................26
8.3 Reservation of Common Stock and Preferred Stock.................27
8.4 Compliance with Laws............................................27
8.5 Insurance.......................................................27
8.6 Books and Records...............................................27
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
8.7 Directors and Officers' Liability Insurance.....................27
9.1 Survival of Representations and Warranties......................28
9.2 Notices.........................................................28
9.3 Successors and Assigns; Third Party Beneficiaries...............30
9.4 Amendment and Waiver............................................30
9.5 Counterparts....................................................31
9.6 Headings........................................................31
9.7 GOVERNING LAW...................................................31
9.8 Severability....................................................31
9.9 Rules of Construction...........................................31
9.10 Entire Agreement...............................................31
9.11 Fees...........................................................32
9.12 Publicity......................................................32
9.13 Further Assurances.............................................32
9.14 Confidentiality................................................32
</TABLE>
iii
<PAGE> 5
EXHIBITS
<TABLE>
<S> <C>
A Certificate of Incorporation
B By-laws
C Form of Certificate of Designations
D Stockholders Agreement
E Form of Registration Rights Agreement
F Form of Amendment No. 3 to Stockholders Agreement
G Form of Opinion of Company's Counsel
</TABLE>
The Exhibits and Schedules to this Preferred Stock Purchase Agreement are not
included with this Registration Statement on Form S-1. The Registrant will
provide these Exhibits and Schedules upon the request of the Securities and
Exchange Commission.
<PAGE> 6
SCHEDULES
<TABLE>
<S> <C>
2.1 Purchased Preferred Shares and Purchase Price
3.1(c) Jurisdictions in which Company Leases or Owns Properties
3.3 Governmental Authorizations; Third Party Consents
3.5 Litigation
3.7 Options, Warrants, Conversion Privileges, Subscription
or Purchase Rights or Other Rights; List of Subsidiaries
3.8 Defaults
3.11 Taxes
3.12 Transactions Outside the Ordinary Course of Business
3.14 Title to Assets of the Company
3.15 Liabilities
3.16(a)(ii) Trademarks, Service Marks, Trade Names and Registered
Copyrights Owned by the Company and Applications therefor
3.16(a)(iii) Intellectual Property Licenses under which the Company is a
Licensor or Licensee
3.16(a)(iv) Infringements of the Company
3.16(a)(v) Intellectual Property Litigation
3.16(b) Infringement or Violations of Intellectual Property Rights
3.16(d) License Agreements which require a Material Royalty Payment
3.17 Trade Relations
</TABLE>
<PAGE> 7
PREFERRED STOCK PURCHASE AGREEMENT
PREFERRED STOCK PURCHASE AGREEMENT, dated as of February 1, 1999 (this
"Agreement"), among PROXICOM, INC., a Delaware corporation (the "Company"), and
Jack Kemp ("Kemp"), Theodore J. Leonsis ("Leonsis"), John McKinley ("McKinley"),
The Washington Post Company, a Delaware corporation ("WPC"), General Atlantic
Partners 52, L.P., a Delaware limited partnership ("GAP LP"), GAP Coinvestment
Partners II, L.P., a Delaware, limited partnership ("GAP Coinvestment"), The
Mario M. Morino Trust ("Morino Trust"), and GE Capital Equity Investments, Inc.,
a Delaware corporation ("GE Capital Equity") (Kemp, Leonsis, McKinley, WPC, GAP
LP, GAP Coinvestment, Morino Trust, and GE Capital Equity, hereinafter are
referred to individually as a "Purchaser" and collectively as the "Purchasers").
WHEREAS, upon the terms and conditions set forth in this Agreement, the
Company proposes to issue and sell to the Purchasers for an aggregate purchase
price of $7,310,000, an aggregate of 1,218,333 shares, par value $.01 per share,
of Series D Convertible Preferred Stock of the Company (the "Preferred Stock").
WHEREAS, each share of Preferred Stock is convertible (subject to
adjustment) into one share, par value $.01 per share, of Common Stock of the
Company.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1 DEFINITIONS
1.1 Definitions. As used in this Agreement, and unless the context
requires a different meaning, the following terms have the meanings indicated:
"Affiliate" shall mean, with respect to any Person, any other Person who
controls, is controlled by or is under common control with such Person.
"Agreement" means this Agreement as the same may be amended, supplemented
or modified in accordance with the terms hereof.
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"Amendment No. 3 to Stockholders Agreement" means Amendment No. 3 to
Amended and Restated Stockholders Agreement, substantially in the form attached
hereto as Exhibit F.
"Board of Directors" means the Board of Directors of the Company.
"Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks in the State of New York are authorized or required by
law or executive order to close.
"By-laws" means the by-laws of the Company as in effect as of the Closing
Date substantially in the form attached hereto as Exhibit B.
"Capital Lease Obligations" of any Person shall mean, as of the date of
determination, the obligations of such Person to pay rent or other amounts under
any lease of (or other arrangement conveying the right to use) real or personal
property, or a combination thereof, which obligations are required to be
classified and accounted for as capital leases on a balance sheet of such Person
under GAAP and, for the purposes of this Agreement, the amount of such
obligations at any time shall be the capitalized amount thereof at such time
determined in accordance with GAAP consistently applied.
"Certificate of Designations" means the Certificate of Designations with
respect to the Preferred Stock adopted by the Board of Directors and filed with
the Secretary of State of the State of Delaware on or before the Closing Date
substantially in the form attached hereto as Exhibit C.
"Certificate of Incorporation" means the Certificate of Incorporation of
the Company, as the same may have been amended and as in effect as of the
Closing Date substantially in the form attached hereto as Exhibit A.
"Claims" has the meaning set forth in Section 3.5 of this Agreement.
"Closing" has the meaning set forth in Section 2.3 of this Agreement.
"Closing Date" has the meaning set forth in Section 2.3 of this
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor statute thereto.
"Commission" means the Securities and Exchange Commission or any similar
agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means Common Stock, par value $.01 per share, of the
Company, or any other capital stock of the Company into which such stock is
reclassified or reconstituted.
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"Common Stock Equivalents" means any security or obligation which is by
its terms convertible into or exchangeable for shares of Common Stock,
including, without limitation, the Preferred Stock, and any option, warrant or
other subscription or purchase right with respect to Common Stock.
"Common Stock Purchase Agreement" means the Stock Purchase Agreement of
even date herewith among the Company, the stockholders of the Company named
therein, and the Purchasers.
"Company" has the meaning assigned to such term in the recital to this
Agreement.
"Condition of the Company" means the assets, business, properties,
operations or financial condition of the Company, taken as a whole.
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, guaranty, letter of credit or other obligation, contractual or
otherwise (the "primary obligation") of another Person (the "primary obligor"),
whether or not contingent, (a) to purchase, repurchase or otherwise acquire such
primary obligations or any property constituting direct or indirect security
therefor, or (b) to advance or provide funds (i) for the payment or discharge of
any such primary obligation, or (ii) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency or any balance sheet item, level of income or financial condition of
the primary obligor, or (c) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary obligation
of the ability of the primary obligor to make payment of such primary
obligation, or (d) otherwise to assure or hold harmless the owner of any such
primary obligation against loss or failure or inability to perform in respect
thereof. The amount of any Contingent Obligation shall be deemed to be an amount
equal to the stated or determinable amount of the primary obligation in respect
of which such Contingent Obligation is made or, if not stated or determinable,
the maximum reasonably anticipated liability in respect thereof.
"Contractual Obligations" means as to any Person, any provision of any
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument to which such Person is a
party or by which it or any of its property is bound.
"Copyrights" means any foreign or United States copyright registrations
and applications for registration thereof, and any non-registered copyrights.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all laws promulgated pursuant thereto or in connection therewith.
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"Environmental Laws" means federal, state, local and foreign laws,
principles of common law, civil law, regulations and codes, as well as orders,
decrees, judgments or injunctions issued, promulgated, approved or entered
thereunder relating to pollution, protection of the environment or public health
and safety.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission thereunder.
"FBR" means FBR Venture Capital Managers Inc., a Delaware corporation.
"Fernandez" means Raul Fernandez.
"Financial Statements" has the meaning set forth in Section 3.10.
"GAAP" means generally accepted accounting principles in effect from time
to time.
"GAP Coinvestment I" means GAP Coinvestment Partners, L.P., a New York
limited partnership.
"GAP 34" means General Atlantic Partners 34, L.P., a Delaware limited
partnership.
"GE Capital" means General Electric Capital Corporation, a New York
corporation.
"GE Capital Equity" means GE Capital Equity Investments, Inc., a Delaware
corporation.
"Governmental Authority" means the government of any nation, state, city,
locality or other political subdivision thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"IBIS Stockholders" means, collectively, Brenda Wong, Scott McDonald and
Vincent Hoenigman.
"Indebtedness" means, as to any Person, (a) all obligations of such
Person for borrowed money (including, without limitation, reimbursement and all
other obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured), (b) all obligations of such Person
evidenced by notes, bonds, debentures or similar instruments, (c) all
obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable and accrued commercial or trade
liabilities arising in the ordinary
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course of business, (d) all interest rate and currency swaps, caps, collars and
similar agreements or hedging devices under which payments are obligated to be
made by such Person, whether periodically or upon the happening of a
contingency, (e) all indebtedness created or arising under any conditional sale
or other title retention agreement with respect to property acquired by such
Person (even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), (f) all obligations of such Person under leases which have been or
should be, in accordance with GAAP, recorded as capital leases, (g) all
indebtedness secured by any Lien (other than Liens in favor of lessors under
leases other than leases included in clause (f)) on any property or asset owned
or held by that Person regardless of whether the indebtedness secured thereby
shall have been assumed by that Person or is non-recourse to the credit of that
Person, and (h) any Contingent Obligation of such Person.
"Internet Assets" means any internet domain names and other computer user
identifiers and any rights in and to sites on the Worldwide Web, including
rights in and to any text, graphics, audio and video files and html or other
code incorporated in such sites.
"Kemp" means Jack Kemp.
"Leonsis" means Theodore J. Leonsis.
"Liabilities" has the meaning set forth in Section 3.15 of this
Agreement.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other) or preference, priority,
right or other security interest or preferential arrangement of any kind or
nature whatsoever (excluding preferred stock and equity related preferences),
including, without limitation, those created by, arising under or evidenced by
any conditional sale or other title retention agreement, the interest of a
lessor under a Capital Lease Obligation, or any financing lease having
substantially the same economic effect as any of the foregoing.
"Mask Works" means any mask works and registrations and applications for
registrations thereof.
"McKinley" means John McKinley.
"Morino Trust" means The Mario M. Morino Trust.
"Patents" means any foreign or United States patents and patent
applications, including any divisions, continuations, continuations-in-part,
substitutions or reissues thereof, whether or not patents are issued on such
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applications and whether or not such applications are modified, withdrawn or
resubmitted.
"Person" means any individual, firm, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
limited liability company, Governmental Authority or other entity of any kind,
and shall include any successor (by merger or otherwise) of such entity.
"Preferred Stock" has the meaning assigned to such term in the recital to
this Agreement.
"Purchased Preferred Shares" has the meaning set forth in Section 2.1 of
this Agreement.
"Purchasers" mean, collectively, Kemp, Leonsis, McKinley, WPC, GAP LP,
GAP Coinvestment, Morino Trust, and GE Capital Equity.
"Registration Rights Agreement" means the Second Amended and Restated
Registration Rights Agreement dated the date hereof among the Company, GAP LP,
GAP 34, GAP Coinvestment I, GAP Coinvestment, Fernandez, Morino Trust, FBR, GE
Capital, the IBIS Stockholders, GE Capital Equity, Kemp, Leonsis, McKinley, and
WPC.
"Requirements of Law" means, as to any Person, any foreign or domestic
law, statute, treaty, rule, regulation, license or franchise or determination of
an arbitrator or a court or other Governmental Authority, in each case
applicable or binding upon such Person or any of its property or to which such
Person or any of its property is subject or pertaining to any or all of the
transactions contemplated or referred to herein.
"Securities" means the Purchased Preferred Shares and the shares of
Common Stock issuable upon conversion of the Purchased Preferred Shares.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder.
"Series A Preferred Stock" means the Series A Convertible Preferred Stock
of the Company, par value $.01 per share.
"Series B Preferred Stock" means the Series B Convertible Preferred Stock
of the Company, par value $.01 per share.
"Series C Preferred Stock" means the Series C Convertible Preferred Stock
of the Company, par value $.01 per share.
"Software" means any computer software programs, source code, object code
and manuals and other written material with respect thereto.
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"Stockholders Agreement" means, collectively, the Amended and Restated
Stockholders Agreement, dated February 20, 1997, among the Company, Fernandez,
GAP 34, GAP Coinvestment I, Morino Trust and FBR, as amended by Amendment No. 1,
dated November 24, 1997, among the Company, Fernandez, GAP 34, GAP Coinvestment
I, Morino Trust, FBR and GE Capital, and as further amended by Amendment No. 2,
dated August 21, 1998, among the Company, Fernandez, GAP 34, GAP Coinvestment I,
Morino Trust, FBR, GE Capital, and the IBIS Stockholders, in the form attached
hereto as Exhibit D.
"Subsidiaries" means, as to any Person, a corporation, partnership,
limited liability company or other entity of which 50% or more of the voting
power of the outstanding voting equity securities or 50% or more of the
outstanding economic equity interest is held, directly or indirectly, by such
Person.
"Trade Secrets" means any trade secrets, research records, processes,
procedures, manufacturing formulae, technical know-how, technology, blue prints,
designs, plans, inventions (whether patentable and whether reduced to practice),
invention disclosures and improvements thereto.
"Trademarks" means any foreign or United States trademarks, service
marks, trade dress, trade names, brand names, designs and logos, corporate
names, product or service identifiers, whether registered or unregistered, and
all registrations and applications for registration thereof.
"Transaction Documents" means collectively, this Agreement, the Common
Stock Purchase Agreement, the Certificate of Designations, Amendment No. 3 to
Stockholders Agreement, the Stockholders Agreement, and the Registration Rights
Agreement.
"WPC" means The Washington Post Company, a Delaware corporation.
1.2 Accounting Terms; Financial Statements. All accounting terms used
herein not expressly defined in this Agreement shall have the respective
meanings given to them in accordance with sound accounting practice. The term
"sound accounting practice" shall mean such accounting practice as, in the
opinion of the independent certified public accountants regularly retained by
the Company, conforms at the time to GAAP applied on a consistent basis except
for changes with which such accountants concur.
ARTICLE 2 PURCHASE AND SALE OF PREFERRED STOCK
2.1 Purchase and Sale of Purchased Preferred Shares. Subject to the terms
and conditions herein set forth, the Company agrees to issue and sell to each
Purchaser, and each Purchaser agrees that such Purchaser will purchase from
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the Company, on the Closing Date, the aggregate number of shares of Preferred
Stock set forth opposite such Purchaser's name on Schedule 2.1 hereto, for the
aggregate purchase price set forth opposite such Purchaser's name on Schedule
2.1 hereto (all of the shares of Preferred Stock being purchased pursuant hereto
being referred to herein as the "Purchased Preferred Shares"). The Purchased
Preferred Shares shall have the preferences and rights set forth in the
Certificate of Designations.
2.2 Use of Proceeds from Purchased Preferred Shares. The Company shall
use the proceeds from the sale of the Purchased Preferred Shares for working
capital purposes.
2.3 Closing. The closing of the sale and purchase of the Purchased
Preferred Shares (the "Closing") shall take place at the offices of Hogan &
Hartson, at 10:00 a.m., local time, on the date hereof, or at such other time,
place and date that the Company and the Purchasers purchasing a majority of the
Purchased Preferred Shares may agree in writing (the "Closing Date"). On the
Closing Date, the Company shall deliver to each Purchaser a stock certificate or
stock certificates representing the Purchased Preferred Shares against delivery
by such Purchaser to the Company of the aggregate purchase price therefor by
wire transfer of immediately available funds.
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each of the Purchasers as follows:
3.1 Corporate Existence and Power. The Company (a) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; (b) has all requisite power and authority to
own and operate its property, to lease the property it operates as lessee and to
conduct the business in which it is currently, or is currently proposed to be,
engaged; (c) is duly qualified as a foreign corporation, licensed and in good
standing under the laws of the Commonwealth of Virginia, the District of
Columbia, the State of New York, the State of Illinois, the State of Texas and
Germany; and (d) has the corporate power and authority to execute, deliver and
perform its obligations under this Agreement and each of the other Transaction
Documents. Except as set forth on Schedule 3.1(c), the Company does not file
(and is not required to file) any franchise, income or other tax returns in any
other jurisdiction other than set forth in clause (c) above based upon the
ownership or use of property in other jurisdictions or the derivation of income
therefrom. Except as set forth on Schedule 3.1(c), the Company and its
Subsidiaries do not own, lease or operate property in any jurisdiction other
than its jurisdiction of incorporation and the jurisdictions referred to in
clause (c) above.
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3.2 Authorization; No Contravention. The execution, delivery and
performance by the Company of this Agreement and each of the other Transaction
Documents and the transactions contemplated hereby and thereby, including,
without limitation, the sale, issuance and delivery of the Securities, (a) have
been duly authorized by all necessary corporate action of the Company; (b) do
not contravene the terms of the Certificate of Incorporation or the By-laws, or
any amendment thereof; (c) do not violate, conflict with or result in any breach
or contravention of, or the creation of any Lien under, any Contractual
Obligation of the Company, or any Requirement of Law applicable to the Company;
and (d) do not violate any judgment, injunction, writ, award, decree or order of
any nature (collectively, "Orders") of any Governmental Authority against, or
binding upon, the Company. Neither the Company nor any of its Subsidiaries has
previously entered into any Contractual Obligation which is currently in effect
or by which the Company or such Subsidiary is currently bound, granting any
rights to any Person which are inconsistent with the rights to be granted by the
Company in this Agreement and each of the other Transaction Documents.
3.3 Governmental Authorization; Third Party Consents. Except as set forth
in Schedule 3.3, no approval, consent, compliance, exemption, authorization or
other action by, or notice to, or filing with, any Governmental Authority or any
other Person in respect of any Requirement of Law, and no lapse of a waiting
period under a Requirement of Law, is necessary or required in connection with
the execution, delivery or performance (including, without limitation, the sale,
issuance and delivery of the Securities) by, or enforcement against, the Company
of this Agreement and each of the other Transaction Documents or the
transactions contemplated hereby and thereby.
3.4 Binding Effect. This Agreement and each of the other Transaction
Documents have been duly executed and delivered by the Company, and constitute
the legal, valid and binding obligations of the Company enforceable against the
Company in accordance with their terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or
transfer, moratorium or similar laws affecting the enforcement of creditors'
rights generally and by general principles of equity relating to enforceability
(regardless of whether considered in a proceeding at law or in equity).
3.5 Litigation. Except as set forth on Schedule 3.5, there are no
actions, suits, proceedings, claims, complaints, disputes, arbitrations or
investigations (collectively, "Claims") pending or, to the knowledge of the
Company, threatened, at law, in equity, in arbitration or before any
Governmental Authority against the Company or the Subsidiaries which would, if
adversely determined, have a material adverse effect on (a) the Condition of the
Company or (b) the ability of the Company to perform its obligations under this
Agreement or any of the other Transaction Documents. No Order has been issued by
any court or other Governmental Authority against the Company purporting to
enjoin or restrain the
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execution, delivery or performance of this Agreement or any of the other
Transaction Documents.
3.6 Compliance with Laws.
(a) The Company is in compliance with all Requirements of Law and
all Orders issued by any court or Governmental Authority against the Company in
all respects, except to the extent that the failure to comply with such
Requirements of Law or Orders would not have a material adverse effect on the
Condition of the Company.
(b) (i) The Company has all licenses, permits, orders and
approvals of any Governmental Authority (collectively, "Permits") that are
necessary for the conduct of the business of the Company as presently conducted,
except to the extent that the failure to have such Permits would not have a
material adverse effect on the Condition of the Company; (ii) such Permits are
in full force and effect; and (iii) no violations are or have been recorded in
respect of any Permit.
(c) No material expenditure is presently required by the Company
to comply with any existing Requirement of Law or Order.
(d) The property, assets and operations owned or leased by the
Company are in compliance in all material respects with all applicable
Environmental Laws, while so owned or leased.
3.7 CAPITALIZATION. ON THE CLOSING DATE, AFTER GIVING EFFECT TO THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND THE COMMON STOCK PURCHASE
AGREEMENT, THE AUTHORIZED CAPITAL STOCK OF THE COMPANY, AND THE NUMBER OF SHARES
OF CAPITAL STOCK ISSUED AND OUTSTANDING, SHALL BE AS SET FORTH IN SCHEDULE 3.7.
THE COMPANY HAS RESERVED AN AGGREGATE OF 1,218,333 SHARES OF COMMON STOCK FOR
ISSUANCE UPON CONVERSION OF THE PURCHASED PREFERRED SHARES. EXCEPT AS SET FORTH
ON SCHEDULE 3.7, THERE ARE NO OPTIONS, WARRANTS, CONVERSION PRIVILEGES,
SUBSCRIPTION OR PURCHASE RIGHTS OR OTHER RIGHTS PRESENTLY OUTSTANDING TO
PURCHASE OR OTHERWISE ACQUIRE (x) ANY AUTHORIZED BUT UNISSUED, UNAUTHORIZED OR
TREASURY SHARES OF THE COMPANY'S CAPITAL STOCK, (y) ANY COMMON STOCK EQUIVALENTS
OR (z) OTHER SECURITIES OF THE COMPANY. THE PURCHASED PREFERRED SHARES ARE DULY
AUTHORIZED, AND, ASSUMING THE ACCURACY OF THE REPRESENTATIONS AND WARRANTIES OF
EACH OF THE PURCHASERS SET FORTH IN SECTIONS 4.6 AND 4.7, WHEN ISSUED AND SOLD
TO SUCH PURCHASER AFTER PAYMENT THEREFOR, WILL BE VALIDLY ISSUED, FULLY PAID AND
NONASSESSABLE AND WILL BE ISSUED IN COMPLIANCE WITH THE REGISTRATION AND
QUALIFICATION REQUIREMENTS OF ALL APPLICABLE FEDERAL AND STATE SECURITIES LAWS.
THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THE PURCHASED PREFERRED
SHARES ARE DULY AUTHORIZED AND, WHEN ISSUED IN COMPLIANCE WITH THE PROVISIONS OF
THE CERTIFICATE OF INCORPORATION AND THE CERTIFICATE OF DESIGNATIONS, WILL BE
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VALIDLY ISSUED, FULLY PAID AND NONASSESSABLE AND WILL BE ISSUED IN COMPLIANCE
WITH THE REGISTRATION AND QUALIFICATION REQUIREMENTS OF ALL APPLICABLE FEDERAL
AND STATE SECURITIES LAWS. THE ISSUED AND OUTSTANDING SHARES OF COMMON STOCK,
INCLUDING, WITHOUT LIMITATION, THE SHARES OF COMMON STOCK BEING PURCHASED AND
SOLD PURSUANT TO THE COMMON STOCK PURCHASE AGREEMENT, ARE ALL DULY AUTHORIZED,
VALIDLY ISSUED, FULLY PAID AND NONASSESSABLE, AND WERE ISSUED IN COMPLIANCE WITH
THE REGISTRATION AND QUALIFICATION REQUIREMENTS OF ALL APPLICABLE FEDERAL AND
STATE SECURITIES LAWS. THE COMPANY HAS NO SUBSIDIARIES OTHER THAN AS SET FORTH
ON SCHEDULE 3.7.
3.8 No Default or Breach; Contractual Obligations; Insurance. Except as
set forth in Schedule 3.8, the Company has not received notice of, and is not in
default under, or with respect to, any Contractual Obligation in any respect,
which, individually or together with all such defaults, could have a material
adverse effect on (i) the Condition of the Company or (ii) the ability of the
Company to perform its obligations under this Agreement or the other Transaction
Documents. The Company maintains directors and officers' liability insurance
covering certain claims against the directors and officers of the Company, and
such insurance is in full force and effect. Such policy provides annual coverage
of $3,000,000 for such claims (including defense costs).
3.9 FIRPTA. The Company is not a "foreign person" within the meaning of
Section 1445 of the Code.
3.10 Financial Statements. The Company has delivered to the Purchasers
its (i) audited financial statements (balance sheet and statements of
operations, cash flows and stockholders' equity, together with the notes
thereto) for the fiscal years ended and as at December 31, 1997, December 31,
1996 and December 31, 1995 (the "Audited Financial Statements"), and (ii) its
unaudited financial statements (balance sheet and statement of operations) for
the fiscal quarters ended and as at March 31, 1998, June 30, 1998 and September
30, 1998 and a draft of the financial statements (balance sheet and statements
of operations, cash flows and stockholders' equity, together with the notes
thereto) for the fiscal year ended and as at December 31, 1998 (the "Unaudited
Financial Statements"; the Audited Financial Statements and Unaudited Financial
Statements being collectively referred to as the "Financial Statements"). The
Financial Statements are complete and correct in all material respects and have
been prepared in accordance with GAAP applied on a consistent basis throughout
the periods indicated and with each other, except that the Unaudited Financial
Statements do not contain footnotes or typical year-end adjustments. The
Financial Statements present fairly the financial position, operating results
and cash flows of the Company as of the respective dates and for the respective
periods indicated, subject, in the case of the Unaudited Financial Statements,
to normal year-end audit adjustments.
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3.11 Taxes. (i) The Company and each Subsidiary has paid all federal,
state, county, local, foreign and other taxes, including, without limitation,
income taxes, estimated taxes, excise taxes, sales taxes, use taxes, gross
receipts taxes, franchise taxes, employment and payroll related taxes, property
taxes and import duties, whether or not measured in whole or in part by net
income (hereinafter, "Taxes" or, individually, a "Tax") which have come due and
are required to be paid by it through the date hereof, and all deficiencies or
other additions to Tax, interest and penalties owed by the Company and each
Subsidiary in connection with any such Taxes, and shall timely pay any Taxes
including additions, interest and penalties, required to be paid by the Company
and each Subsidiary on, before or after the date hereof; (ii) the Company and
each Subsidiary has timely filed returns for Taxes that the Company and each
Subsidiary is required to file on and through the date hereof, and shall timely
file all returns for Taxes that the Company and each Subsidiary are required to
file after the date hereof; (iii) with respect to all Tax returns of the
Company, (x) except as set forth in Schedule 3.11, to the knowledge of the
Company, there is no unassessed tax deficiency proposed or threatened against
the Company and (y) except as set forth in Schedule 3.11, no audit is in
progress and no extension of time is in force with respect to any date on which
any return for Taxes was or is to be filed and no waiver or agreement is in
force for the extension of time for the assessment or payment of any Tax; (iv)
except as set forth in Schedule 3.11, the Company has not agreed nor is it
required to make any adjustments under Section 481(a) of the Code by reason of a
change in accounting methods or otherwise; and (v) all provisions for income and
other Tax liabilities of the Company with respect to the Financial Statements
have been made in accordance with GAAP consistently applied, and all liabilities
for Taxes of the Company attributable to periods prior to or ending on December
31, 1996 and December 31, 1997 have been adequately provided for on the
Financial Statements. Schedule 3.11 sets forth the status of federal income tax
audits and state, local and foreign tax audits of the Tax returns of the Company
for each taxable year for which the statute of limitations has not expired.
3.12 No Material Adverse Change; Ordinary Course of Business. Since
December 31, 1997, there has not been any material adverse change, nor to the
knowledge of the Company is any such change threatened, in the Condition of the
Company. To the knowledge of the Company there is no material adverse change
threatened with respect to the prospects of the Company, taken as a whole.
Except as set forth on Schedule 3.12, since December 31, 1997, the Company has
not participated in any transaction or otherwise acted outside the ordinary
course of business, including, without limitation, declaring or paying any
dividend or declaring or making any distribution to its stockholders, except out
of the earnings of the Company.
3.13 Private Offering. No form of general solicitation or general
advertising was used by the Company or its representatives in connection with
the offer or sale of the Purchased Preferred Shares. No registration of the
Securities,
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pursuant to the provisions of the Securities Act or any state securities or
"blue sky" laws, will be required by the offer, sale or issuance of the
Securities. The Company agrees that neither it, nor anyone acting on its behalf,
shall offer to sell the Securities or any other security of the Company so as to
require the registration of the Securities pursuant to the provisions of the
Securities Act or any state securities or "blue sky" laws, unless such
Securities or other security is so registered.
3.14 Title to Assets. Except as set forth on Schedule 3.14, the Company
owns and has good, valid, marketable and insurable title to all of its
properties and assets used in its business and reflected as owned on the
Financial Statements or so described in any Schedule hereto (collectively, the
"Assets"), in each case free and clear of all Liens, except for (a) Liens
specifically described on the notes to the Financial Statements, (b) the Liens
set forth and described in Schedule 3.14, and (c) Liens on Assets which Liens
individually or in the aggregate are not material to the Condition of the
Company.
3.15 Liabilities. Except as set forth on Schedule 3.15, the Company has
no obligation or liability ("Liabilities") other than (i) Liabilities fully and
adequately reflected or reserved against on the Financial Statements, (ii)
Liabilities not required by GAAP to be set forth on the Financial Statements and
(iii) Liabilities incurred since December 31, 1997 in the ordinary course of
business. The Company has no knowledge of any circumstance, condition, event or
arrangement that may hereafter give rise to any Liabilities of the Company
except in the ordinary course of business or as otherwise set forth on Schedule
3.15.
3.16 Intellectual Property.
(a)(i) The Company is the exclusive owner of or has the license or
right to use, sell, license or dispose of all of the Copyrights, Patents, Trade
Secrets, Trademarks, Internet Assets, Mask Works, Software and other proprietary
rights (collectively, "Intellectual Property") that are used in connection with
its business as presently conducted, free and clear of all Liens except for
Liens disclosed on Schedule 3.16.
(a)(ii) Schedule 3.16(a)(ii) sets forth all of the Intellectual
Property owned by, and applications for any of the above filed by, the Company.
None of the Intellectual Property listed on Schedule 3.16(a)(ii) is subject to
any outstanding Order, and no action, suit, proceeding, hearing, investigation,
charge, complaint, claim or demand is pending or, to the knowledge of the
Company, threatened, which challenges the validity, enforceability, use or
ownership of the item.
(a)(iii) Schedule 3.16(a)(iii) sets forth all Intellectual
Property licenses, sublicenses and other agreements under which the Company is
either a licensor or licensee of any Intellectual Property, except such
licenses, sublicenses and other agreements relating to software used solely on
the computers of the
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<PAGE> 20
Company (such as standard office products and products not necessary in the use
or operation of the Company's products or services). The Company has
substantially performed all obligations imposed upon it thereunder, and the
Company is not, nor to the knowledge of the Company is any other party thereto,
in breach of or default thereunder in any respect, nor is there any event which
with notice or lapse of time or both would constitute a default thereunder. All
of the Intellectual Property licenses listed on Schedule 3.16(a)(iii) are valid,
enforceable and in full force and effect, and will continue to be so on
identical terms immediately following the Closing, except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance or transfer, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity relating to
enforceability (regardless of whether considered in a proceeding at law or in
equity).
(a)(iv) To the knowledge of the Company, other than as set forth
on Schedule 3.16(a)(iv), none of the Intellectual Property currently sold or
licensed by the Company to any Person or used by or licensed to the Company
infringes upon or otherwise violates any Intellectual Property rights of others.
(a)(v) Except as set forth on Schedule 3.16(a)(v), no litigation
is pending and no Claim has been made against the Company or, to the knowledge
of the Company, is threatened, contesting the right of the Company to sell or
license to any Person or use the Intellectual Property presently sold or
licensed to such Person or used by the Company.
(b) Except as set forth on Schedule 3.16(b), to the knowledge of
the Company, no Person is infringing upon or otherwise violating the
Intellectual Property rights of the Company.
(c) No former employer of any employee of the Company, and no
current or former client of any consultant of the Company, has made a claim
against the Company that such employee or such consultant is utilizing
proprietary information of such former employer or client.
(d) Except as set forth on Schedule 3.16(d), the Company is not a
party to or bound by any license or other agreement requiring the payment of any
material royalty payment, excluding such agreements relating to software
licensed for use solely on the computers of the Company.
(e) To the knowledge of the Company, no employee of the Company is
in violation in any material respect of any term of any employment agreement,
patent or invention disclosure agreement or other contract or agreement relating
to the relationship of such employee with the Company.
(f) To the knowledge of the Company, none of the designs, plans,
trade secrets, inventions, processes, procedures, research records,
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<PAGE> 21
manufacturing know-how and formulae, wherever located, the value of which is
contingent upon maintenance of confidentiality thereof, has been disclosed to
any Person other than employees, representatives and agents of the Company,
except as required pursuant to the filing of a patent application by the
Company, or when disclosure to a Person is necessary pursuant to confidentiality
agreements entered into by the Company.
3.17 Trade Relations; Computer Systems. Except as set forth on Schedule
3.17, there exists no actual or, to the knowledge of the Company, threatened
termination, cancellation or limitation of, or any adverse modification or
change in, the business relationship of the Company, or the business of the
Company, with any customer or distributor or any group of customers or
distributors whose purchases are individually or in the aggregate material to
the Condition of the Company, or with any material supplier of the Company, and,
to the knowledge of the Company, there exists no present condition or state of
fact or circumstances that would materially adversely affect the Condition of
the Company or prevent the Company from conducting such business relationships
or such business with any such customer, such group of customers or distributors
or such material supplier in the same manner as heretofore conducted by the
Company. The Company represents and warrants that its computer systems and
software are able to accurately process date data, including but not limited to,
calculating, comparing and sequencing from, into and between the twentieth
century (through year 1999), the year 2000 and the twenty-first century,
including leap year calculations. To the extent that the Company has knowledge
that any vendor to the Company or any software provided to the Company by third
parties is not year 2000 compliant, the Company will take action either (i) to
discontinue its relationship with such non-compliant vendor or its use of such
third party software or (ii) to use its reasonable best efforts to cause such
non-compliant vendor or such third party software, as the case may be, to come
into compliance.
3.18 Broker's, Finder's or Similar Fees. There are no brokerage
commissions, finder's fees or similar fees or commissions payable by the Company
in connection with the transactions contemplated hereby based on any agreement,
arrangement or understanding with the Company or any action taken by any such
Person.
3.19 Labor Relations. There are no strikes, work stoppages, grievance
proceedings, or union organizational efforts pending or threatened between the
Company and (i) any current or former employees of the Company or (ii) any union
or other collective bargaining unit representing such employees which would have
a material adverse effect on the Condition of the Company. The Company has
complied and is in compliance in all material respects with all laws relating to
employment or the workplace, including, without limitation, provisions relating
to wages, hours, collective bargaining, safety and health, work authorization,
equal employment opportunity, immigration, withholding,
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<PAGE> 22
unemployment compensation, worker's compensation, employee privacy and right to
know.
3.20 Pension and Benefit Plans. The Company has complied in all material
respects with all applicable provisions of the Code, ERISA, and all other laws
pertaining to employee or employment related benefits, and all premiums and
assessments relating to any pension plans or other similar arrangements of the
Company. The Company has no liability for any delinquent contributions within
the meaning of Section 515 of ERISA or for any arrearages of wages. The Company
has no pending unfair labor practice charges, claims, grievances or lawsuits
before any court, governmental agency, regulatory body, or arbiter arising under
any law governing any pension plan of the Company. There are no unpaid fees,
penalties, interest or assessments due from the Company or from any other person
that are or could materially adversely affect the Condition of the Company. In
all material respects, the Company has collected or withheld amounts that are
required to be collected or withheld by the Company to discharge its
obligations, and those amounts have been paid to the appropriate governmental
agencies or set aside in appropriate accounts for future payment when due.
3.21 Leases. The Company is lessee under certain leases between the
Company and the lessors named therein whereby the Company leases certain real
property and other assets (the "Leases"). Each such Lease is in full force and
effect and constitutes a legal, valid and binding obligation of, and is legally
enforceable against, the respective parties thereto and grants the leasehold
estate it purports to grant free and clear of all encumbrances. There have been
no threatened cancellations thereof and there are no outstanding disputes
thereunder which would have a material adverse effect on the Condition of the
Company. The Company has in all material respects performed all obligations
thereunder required to be performed by the Company to date. To the Company's
knowledge, no party is in default in any respect under any of the foregoing, and
there has not occurred any event which (whether with or without notice, lapse of
time or the happening or occurrence of any other event) would constitute such a
default.
3.22 Subsidiaries. None of the business or operations performed at or
through the Subsidiaries have a material adverse effect on the Condition of the
Company. Except as otherwise disclosed in the schedules hereto, the existing
liabilities of the Subsidiaries do not have a material and adverse effect on the
Condition of the Company.
3.23 Disclosure.
(a) Agreement and Other Documents. This Agreement and the
documents and certificates furnished to each of the Purchasers by the Company,
taken as a whole, do not contain any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements contained
herein or
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<PAGE> 23
therein, in the light of the circumstances under which they were made,
not misleading.
(b) Material Adverse Effects. There is no fact known to the
Company, which the Company has not disclosed to each of the Purchasers in
writing, which materially adversely affects the Condition of the Company or the
ability of the Company to perform its obligations under this Agreement, any of
the other Transaction Documents or any document contemplated hereby or thereby.
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser hereby severally and not jointly represents and warrants
to the Company as follows:
4.1 Existence and Power. Such Purchaser, as applicable, (a) is a
partnership, trust or corporation, as the case may be, duly organized and
validly existing under the laws of the jurisdiction of its formation and (b) has
the requisite power and authority to execute, deliver and perform its
obligations under this Agreement and each of the other Transaction Documents to
which it is a party.
4.2 Authorization; No Contravention. The execution, delivery and
performance by such Purchaser of this Agreement and each of the other
Transaction Documents to which it is a party and the transactions contemplated
hereby and thereby, including, without limitation, the purchase of the Purchased
Preferred Shares, (a) have been duly authorized by all necessary action, (b) do
not contravene the terms of such Purchaser's organizational documents, if
applicable, or any amendment thereof, and (c) do not violate, conflict with or
result in any breach or contravention of or the creation of any Lien under, any
Contractual Obligation of such Purchaser, or any Requirement of Law applicable
to such Purchaser.
4.3 Governmental Authorization; Third Party Consents. No approval,
consent, compliance, exemption, authorization, or other action by, or notice to,
or filing with, any Governmental Authority or any other Person with respect to
any Requirement of Law, and no lapse of a waiting period under any Requirement
of Law, is necessary or required in connection with the execution, delivery or
performance (including, without limitation, the purchase of the Purchased
Preferred Shares) by, or enforcement against, such Purchaser of this Agreement
and each of the other Transaction Documents to which such Purchaser is a party
or the transactions contemplated hereby and thereby.
4.4 Binding Effect. This Agreement and each of the other Transaction
Documents to which such Purchaser is a party have been duly executed and
delivered by such Purchaser and constitute the legal, valid and binding
obligations of such Purchaser, enforceable against it in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency,
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<PAGE> 24
reorganization, fraudulent conveyance or transfer, moratorium or similar laws
affecting the enforcement of creditors' rights generally or by equitable
principles relating to enforceability (regardless of whether considered in a
proceeding at law or in equity).
4.5 Purchase for Own Account. The Purchased Preferred Shares to be
acquired by such Purchaser pursuant to this Agreement are being or will be
acquired for its own account and with no intention of distributing or reselling
such Purchased Preferred Shares or any part thereof in any transaction that
would be in violation of the securities laws of the United States of America, or
any state, without prejudice, however, to the rights of such Purchaser at all
times to sell or otherwise dispose of all or any part of such Purchased
Preferred Shares under an effective registration statement under the Securities
Act, or under an exemption from such registration available under the Securities
Act, and subject, nevertheless, to the disposition of such Purchaser's property
being at all times within its control. If such Purchaser should in the future
decide to dispose of any of the Securities, such Purchaser understands and
agrees that it may do so only in compliance with the Securities Act and
applicable state securities laws, as then in effect. Such Purchaser agrees to
the imprinting, so long as required by law, of a legend on certificates
representing all of its Purchased Preferred Shares and shares of Common Stock
issuable upon conversion of any of its Purchased Preferred Shares to the
following effect:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE
SECURITIES LAWS OF ANY STATE. THE SECURITIES MAY NOT BE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS OR PURSUANT
TO A WRITTEN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED.
THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE OR OTHER
DISPOSITION (EACH A "TRANSFER") AND VOTING OF ANY OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE TERMS OF THE
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT, DATED FEBRUARY 20, 1997,
AMONG PROXICOM, INC. (THE "COMPANY"), GENERAL ATLANTIC PARTNERS 34, L.P.,
GAP COINVESTMENT PARTNERS, L.P., RAUL FERNANDEZ, THE MARIO M. MORINO
TRUST, AND FBR VENTURE CAPITAL MANAGERS INC.
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<PAGE> 25
(COLLECTIVELY, THE "ORIGINAL STOCKHOLDERS"), AS AMENDED, A COPY OF WHICH
MAY BE INSPECTED AT THE COMPANY'S PRINCIPAL OFFICE. THE COMPANY WILL NOT
REGISTER THE TRANSFER OF SUCH SECURITIES ON THE BOOKS OF THE COMPANY
UNLESS AND UNTIL THE TRANSFER HAS BEEN MADE IN COMPLIANCE WITH THE TERMS
OF THE STOCKHOLDERS AGREEMENT.
4.6 Restricted Securities. Such Purchaser understands that the Purchased
Preferred Shares will not be registered at the time of their issuance under the
Securities Act for the reason that the sale provided for in this Agreement is
exempt pursuant to Section 4(2) of the Securities Act and that the reliance of
the Company on such exemption is predicated in part on such Purchaser's
representations set forth herein. Such Purchaser represents that it is
experienced in evaluating recently organized companies such as the Company, has
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of its investment and has the ability to
suffer the total loss of its investment. Such Purchaser further represents that
it has had the opportunity to ask questions of and receive answers from the
Company concerning the terms and conditions of the offering and to obtain
additional information (to the extent the Company possessed such information or
could acquire it without unreasonable effort or expense).
4.7 Accredited Investor Status. Such Purchaser (other than GAP
Coinvestment) is an "accredited investor" as that term is defined by Rule 501 of
Regulation D promulgated under the Securities Act.
4.8 Litigation. There are no Claims pending or, to the knowledge of such
Purchaser, threatened, at law, in equity, in arbitration or before any
Governmental Authority against such Purchaser which would, if adversely
determined, have a material adverse effect on the ability of such Purchaser to
perform its obligations under this Agreement or any of the other Transaction
Documents. No Order has been issued by any court or other Governmental Authority
against such Purchaser purporting to enjoin or restrain the execution, delivery
or performance of this Agreement or any of the other Transaction Documents.
4.9 Broker's, Finder's or Similar Fees. There are no brokerage
commissions, finder's fees or similar fees or commissions payable by such
Purchaser, in connection with the transactions contemplated hereby based on any
agreement, arrangement or understanding with such Purchaser or any action taken
by such Purchaser.
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<PAGE> 26
ARTICLE 5 CONDITIONS TO THE OBLIGATION OF THE PURCHASERS TO CLOSE
The obligation of each Purchasers to purchase the Purchased Preferred
Shares, to pay the purchase price therefor at the Closing and to perform any
obligations hereunder shall be subject to the satisfaction as determined by, or
waiver by, each of the Purchasers of the following conditions on or before the
Closing Date.
5.1 Representations and Warranties. The representations and warranties of
the Company contained in Article 3 hereof shall be true and correct in all
material respects at and on the Closing Date as if made at and on such date.
5.2 Compliance with this Agreement. The Company shall have performed and
complied in all material respects with all agreements and conditions set forth
herein and in each of the other Transaction Documents that are required to be
performed or complied with by the Company on or before the Closing Date.
5.3 Secretary's Certificate. Each of the Purchasers shall have received a
certificate from the Company, in form and substance satisfactory to each of the
Purchasers, dated the Closing Date and signed by the Secretary or an Assistant
Secretary of the Company, certifying (a) that the attached copies of the
Certificate of Incorporation, the By-laws and resolutions of the Board of
Directors of the Company approving this Agreement and each of the other
Transaction Documents to which the Company is a party and the transactions
contemplated hereby and thereby, are all true, complete and correct and remain
unamended and in full force and effect and (b) as to the incumbency and specimen
signature of each officer of the Company executing this Agreement, each other
Transaction Document and any other document delivered in connection herewith on
behalf of the Company.
5.4 Officer's Certificate. Each of the Purchasers shall have received a
certificate from the Company, in form and substance satisfactory to each of the
Purchasers, dated the Closing Date and signed by the Chief Executive Officer of
the Company, certifying that (a) the representations and warranties of the
Company contained in Article 3 hereof are true and correct in all material
respects at and on the Closing Date and (b) the Company has performed and
complied in all material respects with all of the agreements and conditions set
forth or contemplated herein and in each of the other Transaction Documents that
are required to be performed or complied with by the Company on or before the
Closing Date.
5.5 Documents. Each of the Purchasers shall have received true, complete
and correct copies of such documents as it may reasonably request in connection
with or relating to the sale of the Purchased Preferred Shares and the
transactions contemplated hereby, all in form and substance reasonably
satisfactory to each of the Purchasers.
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<PAGE> 27
5.6 Filing of Certificate of Designations. The Certificate of
Designations shall have been duly filed by the Company with the Secretary of
State of the State of Delaware in accordance with the General Corporation Law of
the State of Delaware.
5.7 Purchased Preferred Shares. The Company shall have delivered to the
Purchasers certificates in definitive form representing 1,218,333 Purchased
Preferred Shares, registered in the names of the Purchasers as specified in
Schedule 2.1.
5.8 Stockholders Agreement. The Company shall have duly executed and
delivered the Amendment No. 3 to Stockholders Agreement, substantially in the
form attached hereto as Exhibit F.
5.9 Registration Rights Agreement. The Company shall have duly executed
and delivered the Registration Rights Agreement, substantially in the form
attached hereto as Exhibit E.
5.10 Approval of Counsel to GAP LP and GE Capital Equity. All actions and
proceedings hereunder and all documents required to be delivered by the Company
hereunder or in connection with the consummation of the transactions
contemplated hereby, and all other related matters, shall have been acceptable
to counsel to GAP LP and GE Capital Equity, in their reasonable judgment as to
their form and substance.
5.11 Consents and Approvals. All consents, exemptions, authorizations, or
other actions by, or notices to, or filings with, Governmental Authorities and
other Persons required in respect of all Requirements of Law and with respect to
those Contractual Obligations of the Company which are necessary in connection
with the execution, delivery or performance by, or enforcement against, the
Company of this Agreement and each of the other Transaction Documents shall have
been obtained and be in full force and effect, and each of the Purchasers shall
have been furnished with appropriate evidence thereof.
5.12 No Material Judgment or Order. There shall not be on the Closing
Date any Order of a court of competent jurisdiction or any ruling of any
Governmental Authority or any condition imposed under any Requirement of Law
which, in the reasonable judgment of each of the Purchasers, would prohibit the
purchase of the Purchased Preferred Shares or subject each of the Purchasers to
any penalty or other onerous condition under or pursuant to any Requirement of
Law if the Purchased Preferred Shares were to be purchased hereunder.
5.13 No Litigation. No action, suit, proceeding, claim or dispute shall
have been brought or otherwise arisen at law, in equity, in arbitration or
before any Governmental Authority against the Company which would, if adversely
determined, (a) have a material adverse effect on the Condition of the Company
or
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<PAGE> 28
(b) have a material adverse effect on the ability of the Company to perform
its obligations under this Agreement or each of the other Transaction Documents.
5.14 Opinion. The Purchasers shall have received the opinion of Hogan &
Hartson, counsel to the Company, substantially in the form attached hereto as
Exhibit G.
ARTICLE 6 CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE
The obligation of the Company to issue and sell the Purchased Preferred
Shares and to perform its other obligations hereunder shall be subject to the
satisfaction as determined by, or waiver by, the Company of the following
conditions on or before the Closing Date:
6.1 Representations and Warranties. The representations and warranties of
each of the respective Purchasers contained in Article 4 hereof shall be true
and correct in all material respects at and on the Closing Date as if made at
and on such date.
6.2 Compliance with this Agreement. Each of the respective Purchasers
shall have performed and complied in all material respects with all of its
agreements and conditions set forth herein that are required to be performed or
complied with by such Purchasers on or before the Closing Date.
6.3 Officers' Certificates. The Company shall have received a certificate
from each of the respective Purchasers, in form and substance satisfactory to
the Company, dated the Closing Date and signed by an authorized signatory of
each of the respective Purchasers, certifying that (a) the representations and
warranties of such Purchaser contained in Article 4 hereof are true and correct
in all material respects at and on Closing Date, and such Purchaser has
performed and complied in all material respects with all of its agreements and
conditions set forth or contemplated herein that are required to be performed or
complied with by such Purchaser on or before the Closing Date.
6.4 Payment of Purchase Price. The Company shall have received the
aggregate purchase price for the Purchased Preferred Shares from such Purchaser.
6.5 Stockholders' Agreement. Each of the respective Purchasers shall have
duly executed and delivered the Amendment No. 3 to Stockholders' Agreement,
substantially in the form attached hereto as Exhibit F.
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<PAGE> 29
6.6 Registration Rights Agreement. Each of the respective Purchasers
shall have duly executed and delivered the Registration Rights Agreement,
substantially in the form attached hereto as Exhibit E.
6.7 Approval of Counsel to the Company. All actions and proceedings
hereunder and all documents required to be delivered by each of the Purchasers
hereunder or in connection with the consummation of the transactions
contemplated hereby, and all other related matters, shall have been acceptable
to Hogan & Hartson, counsel to the Company, in its reasonable judgment as to
their form and substance.
6.8 Consents and Approvals. All consents, exemptions, authorizations, or
other actions by, or notices to, or filings with, Governmental Authorities and
other Persons required in respect of all Requirements of Law and with respect to
those Contractual Obligations of each of the Purchasers which are necessary in
connection with the execution, delivery or performance by, or enforcement
against, the Company of this Agreement and each of the other Transaction
Documents shall have been obtained and be in full force and effect, and the
Company shall have been furnished with appropriate evidence thereof.
6.9 No Material Judgment or Order. There shall not be on the Closing Date
any Order of a court of competent jurisdiction or any ruling of any Governmental
Authority or any condition imposed under any Requirement of Law which, in the
reasonable judgment of the Company, would prohibit the sale of the Purchased
Preferred Shares or subject the Company to any penalty or other onerous
condition under or pursuant to any Requirement of Law if the Purchased Preferred
Shares were to be sold hereunder.
6.10 No Litigation. No action, suit, proceeding, claim or dispute shall
have been brought or otherwise arisen at law, in equity, in arbitration or
before any Governmental Authority against each of the Purchasers which would, if
adversely determined, have a material adverse effect on the ability of such
Purchaser to perform its obligations under this Agreement or any of the other
Transaction Documents to which it is a party.
ARTICLE 7 INDEMNIFICATION
7.1 Indemnification. Except as otherwise provided in this Article 7, the
Company (the "Indemnifying Party") agrees to indemnify, defend and hold harmless
each of the Purchasers and its respective Affiliates and its officers,
directors, agents, employees, subsidiaries, partners, members and controlling
persons (each, an "Indemnified Party") to the fullest extent permitted by law
from and against any and all losses, Claims, or written threats thereof
(including, without limitation, any Claim brought by the Purchasers or another
Person), damages, expenses (including reasonable fees, disbursements and other
charges of
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<PAGE> 30
counsel incurred by the Indemnified Party in any action between the
Indemnifying Party and the Indemnified Party or between the Indemnified Party
and any third party or otherwise) or other liabilities (collectively, "Losses")
resulting from or arising out of any breach of any representation or warranty,
covenant or agreement by the Company in this Agreement or the other Transaction
Documents; provided, however, that the Indemnifying Party shall not be liable
under this Section 7.1 to an Indemnified Party to the extent that it is finally
judicially determined that such Losses resulted or arose from the breach by such
Indemnified Party of any representation, warranty, covenant or other agreement
of such Indemnified Party contained in this Agreement or the other Transaction
Documents; and provided further, that if and to the extent that such
indemnification is unenforceable for any reason, the Indemnifying Party shall
make the maximum contribution to the payment and satisfaction of such Losses
which shall be permissible under applicable laws. The amount of any payment to
any Indemnified Party herewith in respect of any Loss shall be of sufficient
amount to make such Indemnified Party whole. In connection with the obligation
of the Indemnifying Party to indemnify for expenses as set forth above, the
Indemnifying Party shall, upon presentation of appropriate invoices containing
reasonable detail, reimburse each Indemnified Party for all such expenses
(including reasonable fees, disbursements and other charges of counsel incurred
by the Indemnified Party in any action between the Indemnifying Party and the
Indemnified Party or between the Indemnified Party and any third party or
otherwise) (a) after the final resolution or disposition of the particular
action, investigation, claim or other proceeding and (b) if such Indemnified
Party prevails with respect thereto.
7.2 Notification. Each Indemnified Party under this Article 7 shall,
promptly after the receipt of notice of the commencement of any action,
investigation, claim or other proceeding against such Indemnified Party in
respect of which indemnity may be sought from the Indemnifying Party under this
Article 7, notify the Indemnifying Party in writing of the commencement thereof.
The omission of any Indemnified Party to so notify the Indemnifying Party of any
such action shall not relieve the Indemnifying Party from any liability which it
may have to such Indemnified Party (a) other than pursuant to this Article 7 or
(b) under this Article 7 unless, and only to the extent that, such omission
results in the Indemnifying Party's forfeiture of substantive rights or
defenses. In case any such action, claim or other proceeding shall be brought
against any Indemnified Party, and it shall notify the Indemnifying Party of the
commencement thereof, the Indemnifying Party shall be entitled to assume the
defense thereof at its own expense, with counsel satisfactory to such
Indemnified Party in its reasonable judgment; provided, however, that any
Indemnified Party may, at its own expense, retain separate counsel to
participate in such defense at its own expense. Notwithstanding the foregoing,
in any action, claim or proceeding in which both the Indemnifying Party, on the
one hand, and an Indemnified Party, on the other hand, are, or are reasonably
likely to become, a party, such Indemnified Party shall have the right to employ
separate counsel and to control its own defense of such action,
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<PAGE> 31
claim or proceeding if, in the reasonable opinion of counsel to such
Indemnified Party, a conflict or potential conflict exists between the
Indemnifying Party, on the one hand, and such Indemnified Party, on the other
hand, that would make such separate representation advisable; provided,
however, that the Indemnifying Party (i) shall not be liable for the fees and
expenses of more than one counsel to all Indemnified Parties and (ii) shall
reimburse the Indemnified Parties for all of such fees and expenses of such
counsel incurred in any action between the Indemnifying Party and the
Indemnified Parties or between the Indemnified Parties and any third party or
otherwise (x) after the final resolution or disposition of such action, claim
or proceeding and (y) if the Indemnified Parties prevail with respect thereto.
The Indemnifying Party agrees that it will not, without the prior written
consent of each of the Purchasers, settle, compromise or consent to the entry
of any judgment in any pending or threatened claim, action or proceeding
relating to the matters contemplated hereby (if any Indemnified Party is a
party thereto or has been actually threatened to be made a party thereto)
unless such settlement, compromise or consent includes an unconditional release
of each of the Purchasers and each other Indemnified Party from all liability
arising or that may arise out of such claim, action or proceeding. The
Indemnifying Party shall not be liable for any settlement of any claim, action
or proceeding effected against an Indemnified Party without its written
consent, which consent shall not be unreasonably withheld. The rights accorded
to Indemnified Party hereunder shall be in addition to any rights that any
Indemnified Party may have at common law, by separate agreement or otherwise;
provided, however, that notwithstanding the foregoing or anything to the
contrary contained in this Agreement, nothing in this Article 7 should restrict
or limit any rights that any Indemnified Party may have to seek equitable
relief.
7.3 Limitations on Indemnification. Notwithstanding anything to the
contrary contained in this Article 7, the Indemnifying Party shall have no
obligation to pay any amounts for indemnification pursuant to Section 7.1 to the
extent that the aggregate of such amounts for indemnification do not exceed
$250,000 (the "Basket Amount"), whereupon the Indemnifying Party shall be
obligated to pay in full all of such amounts for indemnification, including the
Basket Amount.
ARTICLE 8 AFFIRMATIVE COVENANTS
The Company hereby covenants and agrees with the Purchasers as follows:
8.1 Preservation of Existence. So long as each of the Purchasers and/or
any Affiliate thereof owns shares of Common Stock and/or shares of Preferred
Stock or other securities of the Company convertible into or exchangeable for
shares of voting capital stock of the Company that represent (after giving
effect
- 25 -
<PAGE> 32
to any adjustments) at least 1% of the total number of shares of Common
Stock outstanding on an as-converted basis, the Company shall:
(a) use its reasonable best efforts to preserve and maintain in
full force and effect its existence and good standing under the laws of its
jurisdiction of formation or organization;
(b) use its reasonable best efforts to preserve and maintain in
full force and effect all material rights, privileges, qualifications,
applications, estimates, licenses and franchises necessary in the normal conduct
of its business;
(c) use its reasonable best efforts to preserve its business
organization;
(d) conduct its business in accordance with sound business
practices, keep its properties in good working order and condition (normal wear
and tear excepted) so that the efficiency of its business operations shall be
fully maintained and preserved; and
(e) file or cause to be filed in a timely manner all reports,
applications, estimates and licenses that shall be required by a Governmental
Authority and that, if not timely filed, would have a material adverse effect on
the Condition of the Company.
8.2 Financial Statements and Other Information. The Company shall deliver
to each Purchaser, in form and substance satisfactory to each Purchaser:
(a) as soon as available, but not later than ninety (90) days
after the end of each fiscal year of the Company, a copy of the audited balance
sheet of the Company as of the end of such fiscal year and the related
statements of operations and cash flows for such fiscal year, setting forth in
each case in comparative form the figures for the previous year, all in
reasonable detail and accompanied by a management summary and analysis of the
operations of the Company for such fiscal year and by the opinion of a
nationally recognized independent certified public accounting firm which report
shall state without qualification that such financial statements present fairly
the financial condition as of such date and results of operations and cash flows
for the periods indicated in conformity with GAAP applied on a consistent basis;
(b) commencing with the fiscal period ending on March 31, 1999, as
soon as available, but in any event not later than forty-five (45) days after
the end of each of the first three fiscal quarters of each fiscal year, the
unaudited balance sheet of the Company, and the related statements of operations
and cash flows for such quarter and for the period commencing on the first day
of the fiscal year and ending on the last day of such quarter, all certified by
an appropriate
- 26 -
<PAGE> 33
officer of the Company as presenting fairly the financial condition as of such
date and results of operations and cash flows for the periods indicated in
conformity with GAAP applied on a consistent basis, subject to normal year-end
adjustments and the absence of footnotes required by GAAP; and
(c) as promptly as practicable, but not later than five (5) days
after the end of each fiscal year of the Company, a certificate signed by the
Chief Executive Officer of the Company in customary form certifying that the
Company is not a "foreign person" within the meaning of Section 1445 of the
Code.
8.3 Reservation of Common Stock and Preferred Stock. The Company shall at
all times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issue or delivery upon conversion of the
Purchased Preferred Shares, as provided in the Certificate of Incorporation and
the Certificate of Designations, the maximum number of shares of Common Stock
that may be issuable or deliverable upon such conversion. Such shares of Common
Stock are duly authorized and, when issued or delivered in accordance with the
Certificate of Incorporation and the Certificate of Designations and after
receipt of consideration therefor, shall be validly issued, fully paid and
non-assessable. The Company shall issue such shares of Common Stock in
accordance with the terms of the Certificate of Incorporation and the
Certificate of Designations and otherwise comply with the terms hereof and
thereof.
8.4 Compliance with Laws. The Company shall comply in all material
respects with all Requirements of Law and with the directions of any
Governmental Authority having jurisdiction over the Company or its business or
property.
8.5 Insurance. The Company shall maintain key-man insurance with respect
to Fernandez in an aggregate amount of not less than $500,000.
8.6 Books and Records. The Company shall keep proper books of record and
account, in which full and correct entries shall be made of all financial
transactions and the assets and business of the Company in accordance with GAAP
consistently applied.
8.7 Directors and Officers' Liability Insurance. The Company shall at all
times maintain in full force and effect Directors and Officers' Liability
Insurance covering the Company's officers and directors and having an annual
coverage limit in an amount equal to at least the annual coverage limit
in effect as of the date hereof.
ARTICLE 9 MISCELLANEOUS
- 27 -
<PAGE> 34
9.1 Survival of Representations and Warranties. All of the
representations and warranties made herein shall survive the execution and
delivery of this Agreement until the date that is ninety (90) days after the
receipt by the Purchasers of audited financial statements of the Company for the
fiscal year ending December 31, 1999 (or, if such fiscal year changes and no
such audited consolidated financial statements are available, then the successor
fiscal year), except for (a) Sections 3.1, 3.2, 3.4, 3.7, 3.10, 3.16, 4.1, 4.2,
4.4, 4.6 and 4.7, which representations and warranties shall survive until the
second anniversary of the Closing Date and (b) Section 3.11, which shall survive
until the later to occur of (i) the lapse of the statute of limitations with
respect to the assessment of any Tax to which such representation and warranty
relates (including any extensions or waivers thereof) and (ii) sixty (60) days
after the final administrative or judicial determination of the Taxes to which
such representation and warranty relates, and no claim with respect to Section
3.11 may be asserted thereafter with the exception of claims arising out of any
fact, circumstance, action or proceeding to which the party asserting such claim
shall have given notice to the other parties to this Agreement prior to the
termination of such period of reasonable belief that a tax liability will
subsequently arise therefrom.
9.2 Notices. All notices, demands and other communications provided for
or permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, telecopier, courier
service or personal delivery:
(a) if to the Company:
Proxicom, Inc.
11600 Sunrise Valley Drive
Reston, Virginia 20191
Telecopy: (703)262-3201
Attention: Christopher Capuano, Esq.,
General Counsel
with a copy to:
Hogan & Hartson
555 13th Street, N.W.
Washington, D.C. 20004-1109
Telecopy: (202)637-5910
Attention: Jacquelyn E. Grillon, Esq.
(b) if to the Purchasers:
Jack Kemp
Empower America
- 28 -
<PAGE> 35
1776 I Street, N.W.
Suite 890
Washington, DC 20006
Theodore J. Leonsis
America Online
22000 AOL Way
Dulles, VA 20166-9323
with a copy to:
Holland & Knight
Suite 400
2100 Pennsylvania, N.W.
Washington, DC 20037-3202
Telecopy:
Attention: T. Wayne Gray, Esq.
John McKinley
Merrill Lynch & Co.
World Financial Center
North Tower
New York, NY 10281
The Washington Post Company
1150 15th Street, N.W.
Washington, D.C. 20007
Attn.: Mr. Jay Morse
GAP LP or GAP Coinvestment
c/o General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, Connecticut 06830
Telecopy: (203) 622-8818
Attention: Mr. David C. Hodgson
The Mario M. Morino Trust
c/o Morino Institute
1801 Robert Fulton Drive
Suite 550
Reston, Virginia 20191
Telecopy: (703) 620-4102
Attention: Mario M. Morino, Trustee
- 29 -
<PAGE> 36
with a copy to:
Comiskey & Hunt
1501 Farm Credit Drive
Suite 4400
McLean, Virginia 22102-5000
Telecopy: (703) 790-7867
Attention: Stephen W. Comiskey, Esq.
GE Capital Equity Investments, Inc.
120 Long Ridge Road
Stamford, Connecticut 06927
Telecopy: (203) 357-3400
Attention: Thomas A. Crowley
with a copy to:
GE Capital Equity Capital Group, Inc.
120 Long Ridge Road
Stamford, Connecticut 06927
Telecopy: (203) 357-3400
Attention: General Counsel
Legal Department
All such notices and communications shall be deemed to have been duly
given when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial courier service; five (5) Business Days
after being deposited in the mail, postage prepaid, if mailed; and when receipt
is mechanically acknowledged, if telecopied.
9.3 Successors and Assigns; Third Party Beneficiaries. This Agreement
shall inure to the benefit of and be binding upon the successors and permitted
assigns of the parties hereto. Subject to applicable securities laws, each
Purchaser may assign any of its rights under any of the Transaction Documents to
any of its Affiliates. The Company may not assign any of its rights under this
Agreement without the written consent of the Purchasers. Except as provided in
Article 7, no Person other than the parties hereto and their successors and
permitted assigns is intended to be a beneficiary of this Agreement.
9.4 Amendment and Waiver.
(a) No failure or delay on the part of the Company or the
Purchasers in exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other
- 30 -
<PAGE> 37
right, power or remedy. The remedies provided for herein are cumulative and are
not exclusive of any remedies that may be available to the Company or each of
the Purchasers at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any
provision of this Agreement, any waiver of any provision of this Agreement, and
any consent to any departure by the Company or the Purchasers from the terms of
any provision of this Agreement, shall be effective (i) only if it is made or
given in writing and signed by the Company and each of the Purchasers, and (ii)
only in the specific instance and for the specific purpose for which made or
given. Except where notice is specifically required by this Agreement, no notice
to or demand on the Company in any case shall entitle the Company to any other
or further notice or demand in similar or other circumstances.
9.5 Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
9.6 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
9.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW THEREOF.
9.8 Severability. If any one or more of the provisions contained herein,
or the application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
9.9 Rules of Construction. Unless the context otherwise requires,
references to sections or subsections refer to sections or subsections of this
Agreement.
9.10 Entire Agreement. This Agreement, together with the exhibits and
schedules hereto, and the other Transaction Documents are intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein and therein. There are no
restrictions, promises, representations, warranties or undertakings, other than
those set forth or referred to herein or therein. This Agreement, together with
the
- 31 -
<PAGE> 38
exhibits and schedules hereto, and the other Transaction Documents supersede
all prior agreements and understandings between the parties with respect to such
subject matter.
9.11 Fees. The Purchasers shall bear all of its fees, disbursements and
other charges of counsel incurred in connection with this Agreement and the
transactions contemplated hereby.
9.12 Publicity. Except as may be required by applicable Requirement of
Law, none of the parties hereto shall issue a publicity release or public
announcement or otherwise make any disclosure concerning this Agreement or the
transactions contemplated hereby, without prior approval by the other parties
hereto; provided, however, that nothing in this Agreement shall restrict the
Purchasers from disclosing information (a) that is already publicly available;
(b) to the prospective transferee in connection with any contemplated transfer
of any of the Purchased Preferred Shares; and (c) to its attorneys, accountants,
consultants and other advisors to the extent necessary to obtain their services
in connection with the Purchasers' investment in the Company. If any
announcement is required by law to be made by any party hereto, prior to making
such announcement such party will deliver a draft of such announcement to the
other parties and shall give the other parties an opportunity to comment
thereon.
9.13 Further Assurances. Each of the parties shall execute such documents
and perform such further acts (including, without limitation, obtaining any
consents, exemptions, authorizations or other actions by, or giving any notices
to, or making any filings with, any Governmental Authority or any other Person)
as may be reasonably required or desirable to carry out or to perform the
provisions of this Agreement.
9.14 Confidentiality. Each party agrees that it shall be providing
certain proprietary and confidential information concerning its business to the
other party; accordingly, each party agrees to hold such other party's
information confidential, and such party shall not disclose such information to
any other Person except for such Persons who need to know such information for
purposes of evaluating the acquisition of the Purchased Preferred Shares and who
agree to be bound by confidentiality obligations not less restrictive than this
provision.
- 32 -
<PAGE> 39
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective officers hereunto duly authorized on
the date first above written.
COMPANY:
PROXICOM, INC.
By:/s/ Raul Fernandez
------------------------------------
Name: Raul Fernandez
Title: President and
Chief Executive Officer
PURCHASERS:
/s/ Jack Kemp
---------------------------------------
Jack Kemp
/s/ Theodore J. Leonsis
---------------------------------------
Theodore J. Leonsis
/s/ John McKinley
---------------------------------------
John McKinley
THE WASHINGTON POST COMPANY
By [signature illegible]
-------------------------------------
GENERAL ATLANTIC PARTNERS 52, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
Its General Partner
By: /s/ David C. Hodgson
-------------------------------
Name: David C. Hodgson
-----------------------------
Title: A Managing Member
<PAGE> 40
GAP COINVESTMENT PARTNERS II, L.P.
By: /s/ David C. Hodgson
------------------------------------
Name: David C. Hodgson
----------------------------------
Title: A General Partner
THE MARIO M. MORINO TRUST
By: /s/ Mario M. Morino
------------------------------------
Name: Mario M. Morino
Title: Trustee
GE CAPITAL EQUITY INVESTMENTS, INC.
By: /s/ Roger Hurwitz
------------------------------------
Name: Roger Hurwitz
----------------------------------
Title: Vice President
---------------------------------
- 34 -
<PAGE> 1
EXHIBIT 10.5
================================================================================
SECOND AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
among
PROXICOM, INC.,
GENERAL ATLANTIC PARTNERS 34, L.P.,
GENERAL ATLANTIC PARTNERS 52, L.P.,
GAP COINVESTMENT PARTNERS, L.P.,
GAP COINVESTMENT PARTNERS II, L.P.,
RAUL FERNANDEZ,
THE MARIO M. MORINO TRUST,
FBR VENTURE CAPITAL MANAGERS INC.,
GENERAL ELECTRIC CAPITAL CORPORATION,
GE CAPITAL EQUITY INVESTMENTS, INC.,
BRENDA WONG,
SCOTT MCDONALD,
VINCENT HOENIGMAN,
JACK KEMP,
THEODORE J. LEONSIS,
JOHN MCKINLEY,
THE WASHINGTON POST COMPANY
Dated: February 1, 1999
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1.Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 3
-----------
2.General; Securities Subject to this Agreement . . . . . . . . 9
---------------------------------------------
(a) Grant of Rights . . . . . . . . . . . . . . . . . . . . . 9
---------------
(b) Registrable Securities . . . . . . . . . . . . . . . . . 9
----------------------
(c) Holders of Registrable Securities . . . . . . . . . . . . 9
---------------------------------
3.Demand Registration . . . . . . . . . . . . . . . . . . . . 10
-------------------
(a) Request for Demand Registration . . . . . . . . . . . . 10
-------------------------------
(b) Incidental or . . . . . . . . . . . . . . . . . . . . . 10
-------------
(c) Effective Demand Registration . . . . . . . . . . . . . 10
-----------------------------
(d) Expenses . . . . . . . . . . . . . . . . . . . . . . . 11
--------
(e) Underwriting Procedures . . . . . . . . . . . . . . . . 11
-----------------------
(f) Selection of Underwriters . . . . . . . . . . . . . . . 11
-------------------------
4.Incidental or . . . . . . . . . . . . . . . . . . . . . . . 12
-------------
(a) Request for Incidental Registration . . . . . . . . . . 12
-----------------------------------
(b) Expenses . . . . . . . . . . . . . . . . . . . . . . . 12
--------
5.Holdback Agreements . . . . . . . . . . . . . . . . . . . . 12
-------------------
(a) Restrictions on Public Sale by Designated Holders . . . 12
-------------------------------------------------
(b) Restrictions on Public Sale by the Company . . . . . . 13
------------------------------------------
6.Registration Procedures . . . . . . . . . . . . . . . . . . 13
-----------------------
(a) Obligations of the Company . . . . . . . . . . . . . . 13
--------------------------
(b) Seller Information . . . . . . . . . . . . . . . . . . 16
------------------
(c) Notice to Discontinue . . . . . . . . . . . . . . . . . 16
---------------------
(d) Registration Expenses . . . . . . . . . . . . . . . . . 17
---------------------
7.Indemnification; Contribution . . . . . . . . . . . . . . . 17
-----------------------------
(a) Indemnification by the Company . . . . . . . . . . . . 17
------------------------------
(b) Indemnification by Designated Holders . . . . . . . . . 17
-------------------------------------
(c) Conduct of Indemnification Proceedings . . . . . . . . 18
--------------------------------------
(d) Contribution . . . . . . . . . . . . . . . . . . . . . 18
------------
8.Rule 144 . . . . . . . . . . . . . . . . . . . . . . . . . 19
--------
9.Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . 19
-------------
(a) Recapitalizations, Exchanges, etc. . . . . . . . . . . 19
----------------------------------
(b) No Inconsistent Agreements . . . . . . . . . . . . . . 19
--------------------------
(c) Remedies . . . . . . . . . . . . . . . . . . . . . . . 20
--------
(d) Amendments and Waivers . . . . . . . . . . . . . . . . 20
----------------------
(e) Notices . . . . . . . . . . . . . . . . . . . . . . . . 20
-------
(f) Successors and Assigns; Third Party Beneficiaries . . . 24
-------------------------------------------------
(g) Counterparts . . . . . . . . . . . . . . . . . . . . . 25
------------
(h) Headings . . . . . . . . . . . . . . . . . . . . . . . 25
--------
(i) GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . 25
-------------
(j) Severability . . . . . . . . . . . . . . . . . . . . . 25
------------
(k) Entire Agreement . . . . . . . . . . . . . . . . . . . 25
----------------
(l) Further Assurances . . . . . . . . . . . . . . . . . . 26
------------------
</TABLE>
i
<PAGE> 3
SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
THIS SECOND AMENDED AND RESTATED REGISTRATION RIGHTS
AGREEMENT, dated February 1, 1999 (this "AGREEMENT"), among Proxicom, Inc., a
Delaware corporation (the "COMPANY"), General Atlantic Partners 34, L.P., a
Delaware limited partnership ("GAP LP"), General Atlantic Partners 52, L.P., a
Delaware limited partnership ("GAP 52"), GAP Coinvestment Partners, L.P., a New
York limited partnership ("GAP COINVESTMENT I"), GAP Coinvestment Partners II,
L.P., a Delaware limited partnership ("GAP COINVESTMENT II"), Raul Fernandez
("FERNANDEZ"), The Mario M. Morino Trust ("MORINO TRUST"), FBR Venture Capital
Managers Inc., a Delaware corporation ("FBR"), General Electric Capital
Corporation, a New York corporation ("GE CAPITAL"), GE Capital Equity
Investments, Inc., a Delaware corporation ("GE CAPITAL EQUITY"), Brenda Wong,
Scott McDonald and Vincent Hoenigman (THE "IBIS STOCKHOLDERS"), and Jack Kemp
("KEMP"), Theodore J. Leonsis ("LEONSIS"), John McKinley ("MCKINLEY"), and The
Washington Post Company, a Delaware corporation ("WPC", and together with Kemp,
Leonsis, and McKinley, THE "NEW STOCKHOLDERS").
WHEREAS, this Agreement is made in connection with the
Preferred Stock and Warrant Purchase Agreement, dated August 30, 1996 (the
"STOCK AND WARRANT PURCHASE AGREEMENT"), among the Company, GAP LP and GAP
Coinvestment I, pursuant to which the Company has agreed to, among other
things, issue and sell to (i) GAP LP, and GAP LP has agreed to purchase from
the Company, (x) an aggregate of 1,389,218 shares, par value $.01 per share, of
Series A Convertible Preferred Stock of the Company (the "SERIES A PREFERRED
STOCK") and (y) a warrant (the "GAP LP WARRANT") to purchase, subject to the
terms and conditions thereof, an aggregate of 861,834 shares of Series A
Preferred Stock and (ii) GAP Coinvestment I, and GAP Coinvestment I has agreed
to purchase from the Company, (x) an aggregate of 240,751 shares of Series A
Preferred Stock and (y) a warrant (the "GAPCO WARRANT" and, together with the
GAP LP Warrant, the "WARRANTS") to purchase, subject to the terms and
conditions thereof, an aggregate of 149,544 shares of Series A Preferred Stock.
WHEREAS, this Agreement is made in connection with the
Preferred Stock Purchase Agreement, dated February 20, 1997, among the Company,
GAP LP, GAP Coinvestment I, Morino Trust and FBR, pursuant to which the Company
has agreed to, among other things, issue and sell (i) GAP LP, and GAP LP has
agreed to purchase from the Company, an aggregate of 81,535 shares, par value
$.01 per share, of Series B Convertible Preferred Stock of the Company (the
"SERIES B PREFERRED STOCK"), (ii) GAP Coinvestment I and GAP Coinvestment I has
agreed to purchase from the Company an aggregate of 14,388 shares of Series B
Preferred Stock, (iii) Morino Trust, and Morino Trust has agreed to purchase
from the Company an aggregate of 239,808 shares of Series B Preferred Stock and
(iv) FBR, and FBR has agreed to purchase from the Company an aggregate of
23,981 shares of Series B Preferred Stock.
<PAGE> 4
WHEREAS, this Agreement is made in connection with the
Preferred Stock Purchase Agreement, dated November 24, 1997, between the
Company and GE Capital, pursuant to which the Company has agreed to, among
other things, issue and sell GE Capital, and GE Capital has agreed to purchase
from the Company, 419,302 shares, par value $.01 per share, of Series C
Convertible Preferred Stock of the Company (the "SERIES C PREFERRED STOCK").
WHEREAS, this Agreement is made in connection with the
Agreement and Plan of Merger by and among Proxicom, Inc., Proxicom Merger Sub,
Inc., IBIS Consulting, Inc. and the IBIS Stockholders, dated as of August 21,
1998 (the "MERGER AGREEMENT"), pursuant to which the Company has agreed to,
among other things, issue a total of 4,988,297 shares of Common Stock to the
IBIS Stockholders.
WHEREAS, this Agreement is made in connection with the Stock
Purchase Agreement, dated as of the date hereof (the "COMMON STOCK PURCHASE
AGREEMENT"), between the Company, certain selling stockholders named therein,
and the Purchasers named therein, pursuant to which, among other things,
certain selling stockholders named in the Common Stock Purchase Agreement agree
to sell and transfer to the Purchasers, and the Purchasers agree to purchase
from such selling stockholders, an aggregate of 758,667 shares of Common Stock
of the Company.
WHEREAS, this Agreement is made in connection with the
Preferred Stock Purchase Agreement, dated as of the date hereof (the "SERIES D
STOCK PURCHASE AGREEMENT"), between the Company and the Purchasers named
therein, pursuant to which, among other things, the Company agrees to issue and
sell to the Purchasers, and the Purchasers agree to purchase from the Company,
an aggregate of 1,218,333 shares, par value $.01 per share, of Series D
Convertible Preferred Stock of the Company (the "SERIES D PREFERRED STOCK";
and, together with the Series A Preferred Stock, the Series B Stock, and the
Series C Stock, the "PREFERRED STOCK").
WHEREAS, each share of Preferred Stock is convertible (subject
to adjustment) into one (1) share, par value $.01 per share, of Common Stock of
the Company (the "COMMON STOCK").
WHEREAS, the Company, GAP LP, GAP Coinvestment I, Fernandez,
Morino Trust and FBR are parties to the Original Stockholders Agreement (as
hereinafter defined), pursuant to which the parties thereto have agreed to,
among other things, certain first offer, preemptive and corporate governance
rights and obligations.
WHEREAS, the Company, GAP LP, GAP Coinvestment I, Fernandez,
Morino Trust, FBR and GE Capital are parties to Amendment No. 1 to the Original
Stockholders Agreement ("AMENDMENT NO. 1"), pursuant to which, among other
things, GE Capital became a party to the Original Stockholders Agreement.
- 2 -
<PAGE> 5
WHEREAS, the Company, GAP LP, GAP Coinvestment I, Fernandez,
Morino Trust, FBR, GE Capital and the IBIS Stockholders are parties to
Amendment No. 2 to the Original Stockholders' Agreement ("AMENDMENT NO. 2"),
pursuant to which, among other things, the IBIS Stockholders became a party to
the Original Stockholders' Agreement (as amended by the Amendment No. 1).
WHEREAS, concurrently with the execution hereof, the Company,
GAP LP, GAP Coinvestment I, GAP 52, GAP Coinvestment II, Fernandez, Morino
Trust, FBR, GE Capital, GE Capital Equity, the IBIS Stockholders, and the New
Stockholders are entering into Amendment No. 3 to the Original Stockholders'
Agreement ("AMENDMENT NO. 3"), pursuant to which, among other things, the New
Stockholders, GAP 52, GAP Coinvestment II and GE Capital Equity shall become
party to the Original Stockholders' Agreement (as amended by Amendment No. 1
and Amendment No. 2).
WHEREAS, as a condition precedent to the obligations of the
Purchasers under the Common Stock Purchase Agreement and the transactions under
the Series D Stock Purchase Agreement to consummate the transactions
thereunder, the Company has agreed to amend and restate in its entirety the
Amended and Restated Registration Rights Agreement (as hereinafter defined) by
entering into this Agreement pursuant to which the Company has agreed to grant
registration rights with respect to the Registrable Securities (as hereinafter
defined) as set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the parties hereby agree
as follows:
1. Definitions. As used in this Agreement the following
terms have the meanings indicated:
"Affiliate" shall mean, with respect to any Person,
any other Person who controls, is controlled by or is under common control with
such Person. In addition, the following shall be deemed to be Affiliates of
GAP LP and GAP 52: (a) GAP LLC, the members of GAP LLC, the limited partners
of GAP LP and the limited partners of GAP 52; (b) any Affiliate of GAP LLC, the
members of GAP LLC, the limited partners of GAP LP and the limited partners of
GAP 52; and (c) any limited liability company or partnership a majority of
whose members or partners, as the case may be, are members of GAP LLC. In
addition, GAP LP, GAP 52, GAP Coinvestment I and GAP Coinvestment II shall be
deemed to be Affiliates of one another.
"Amended and Restated Registrations Rights Agreement"
means the Amended and Restated Registration Rights Agreement dated August 21,
1998, among the Company, GAP LP, GAP Coinvestment I, Fernandez, Morino Trust,
FBR, GE Capital, and the IBIS Stockholders.
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<PAGE> 6
"Amendment No. 1" has the meaning assigned to such
term in the recital to this Agreement.
"Amendment No. 2" has the meaning assigned to such
term in the recital to this Agreement.
"Amendment No. 3" has the meaning assigned to such
term in the recital to this Agreement.
"Approved Underwriter" has the meaning set forth in
Section 3(f) of this Agreement.
"Common Stock" means the Common Stock, par value $.01
per share, of the Company or any other equity securities of the Company into
which such securities are converted, reclassified, reconstituted or exchanged.
"Common Stock Purchase Agreement" has the meaning
assigned to such term in the recital to this Agreement.
"Company" has the meaning assigned to such term in
the recital to this Agreement.
"Company Underwriter" has the meaning set forth in
Section 4(a) of this Agreement.
"Demand Registration" has the meaning set forth in
Section 3(a) of this Agreement.
"Designated Holder" means each of the Fernandez
Stockholders, the Morino Stockholders, the General Atlantic Stockholders, the
FBR Stockholders, the GE Capital Stockholders, the IBIS Stockholders, the Kemp
Stockholders, the Leonsis Stockholders, the McKinley Stockholders and the WPC
Stockholders and any transferee of any of them to whom Registrable Securities
have been transferred in accordance with the provisions of the Stockholders
Agreement (as hereinafter defined) and Section 9(f) of this Agreement, other
than a transferee to whom such securities have been transferred pursuant to a
registration statement under the Securities Act or Rule 144 or Regulation S
under the Securities Act.
"Exchange Act" means the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
"FBR" has the meaning assigned to such term in the
recital to this Agreement.
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<PAGE> 7
"FBR Stockholders" means FBR and any Permitted
Transferee (as defined in the Stockholders Agreement) thereof to which
Registrable Securities are transferred in accordance with Section 2.2 of the
Stockholders Agreement.
"Fernandez" has the meaning assigned to such term in
the recital to this Agreement.
"Fernandez Stockholders" means Fernandez and any
Permitted Transferee (as defined in the Stockholders Agreement) thereof to
which Registrable Securities are transferred in accordance with Section 2.2 of
the Stockholders Agreement.
"GAP 52" has the meaning assigned to such term in
the recital to this Agreement.
"GAP Coinvestment I" has the meaning assigned to such
term in the recital to this Agreement.
"GAP Coinvestment II" has the meaning assigned to
such term in the recital to this Agreement.
"GAP LLC" means General Atlantic Partners, LLC, a
Delaware limited liability company and the general partner of GAP LP, and any
successor to such entity.
"GAP LP" has the meaning assigned to such term in the
recital to this Agreement.
"GAP LP Warrant" has the meaning assigned to such
term in the recital to this Agreement.
"GAPCO Warrant" has the meaning assigned to such term
in the recital to this Agreement.
"GE Capital" has the meaning assigned to such term in
the recital to this Agreement.
"GE Capital Equity" has the meaning assigned to such
term in the recital to this Agreement.
"GE Capital Stockholders" means GE Capital, GE
Capital Equity and any Affiliate thereof to which Registrable Securities are
transferred in accordance with Section 2.2 of the Stockholders Agreement.
"General Atlantic Stockholders" means GAP LP, GAP 52,
GAP Coinvestment I, GAP Coinvestment II and any Affiliate thereof to which
Registrable Securities are transferred in accordance with Section 2.2 of the
Stockholders Agreement.
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<PAGE> 8
"Holders' Counsel" has the meaning set forth in
Section 6(a)(i) of this Agreement.
"IBIS Stockholders" means the IBIS Stockholders as
such term is defined in the recital to this Agreement and any Permitted
Transferee (as defined in the Stockholders Agreement) thereof to which
Registrable Securities are transferred in accordance with Section 2.2 of the
Stockholders Agreement.
"Incidental Registration" has the meaning set forth
in Section 4(a) of this Agreement.
"Indemnified Party" has the meaning set forth in
Section 7(c) of this Agreement.
"Indemnifying Party" has the meaning set forth in
Section 7(c) of this Agreement.
"Initial Public Offering" means a firm commitment
underwritten initial public offering pursuant to an effective Registration
Statement filed under the Securities Act covering the offer and sale of shares
of Common Stock for the account of the Company at a price per share of Common
Stock not less than $6.60 and resulting in aggregate net proceeds (after
expenses and underwriting commissions and discounts) to the Company of at least
$10,000,000.
"Initiating Holder" has the meaning set forth in
Section 3(a) of this Agreement.
"Inspector" has the meaning set forth in Section
6(a)(viii) of this Agreement.
"IPO Effectiveness Date" means the date upon which
the Company commences its Initial Public Offering.
"Kemp" has the meaning assigned to such term in the
recital to this Agreement.
"Kemp Stockholders" means Kemp and any Permitted
Transferee (as defined in the Stockholders Agreement) thereof to which
Registrable Securities are transferred in accordance with Section 2.2 of the
Stockholders Agreement.
"Leonsis" has the meaning assigned to such term in
the recital to this Agreement.
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<PAGE> 9
"Leonsis Stockholders" means Leonsis and any
Permitted Transferee (as defined in the Stockholders Agreement) thereof to
which Registrable Securities are transferred in accordance with Section 2.2 of
the Stockholders Agreement.
"McKinley" has the meaning assigned to such term in
the recital to this Agreement.
"McKinley Stockholders" means McKinley and any
Permitted Transferee (as defined in the Stockholders Agreement) thereof to
which Registrable Securities are transferred in accordance with Section 2.2 of
the Stockholders Agreement.
"Morino Trust" has the meaning assigned to such term
in the recital to this Agreement.
"Morino Stockholders" means Morino Trust and any
Permitted Transferee (as defined in the Stockholders Agreement) thereof to
which Registrable Securities are transferred in accordance with Section 2.2 of
the Stockholders Agreement.
"NASD" has the meaning set forth in Section 6(a)(xiv)
of this Agreement.
"New Stockholders" means the New Stockholders as such
term is defined in the recital to this Agreement and any Permitted Transferee
(as defined in the Stockholders Agreement) thereof to which Registrable
Securities are transferred in accordance with Section 2.2 of the Stockholders
Agreement.
"Original Stockholders Agreement" means,
collectively, the Stockholders Agreement, dated August 30, 1996, among the
Company, GAP LP, GAP Coinvestment and Fernandez, as amended and restated by the
Amended and Restated Stockholders Agreement, dated February 20, 1997, among the
Company, GAP LP, GAP Coinvestment, Fernandez, Morino Trust and FBR.
"Person" means any individual, firm, corporation,
partnership, limited liability company, trust, incorporated or unincorporated
association, joint venture, joint stock company, limited liability company,
government (or an agency or political subdivision thereof) or other entity of
any kind, and shall include any successor (by merger or otherwise) of such
entity.
"Purchasers" means GAP LP, GAP Coinvestment, Morino
Trust, GE Capital and the New Stockholders.
"Preferred Stock" has the meaning assigned to such
term in the recital to this Agreement.
"Records" has the meaning set forth in Section
6(a)(viii) of this Agreement.
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<PAGE> 10
"Registrable Securities" means each of the following:
(a) any and all shares of Common Stock owned by the Designated Holders or
issued or issuable upon conversion of shares of Preferred Stock or exercise of
the Warrants, including, without limitation, any additional shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or warrants exercisable for shares of Common Stock or Series A
Preferred Stock or Series B Preferred Stock or Series C Preferred Stock or
Series D Preferred Stock acquired by any of the Designated Holders after the
date hereof, (b) any other shares of Common Stock acquired or owned by any of
the Designated Holders prior to the IPO Effectiveness Date, or acquired or
owned by any of the Designated Holders after the IPO Effectiveness Date if such
Designated Holder is an Affiliate of the Company and (c) any shares of Common
Stock issued or issuable to any of the Designated Holders with respect to
shares of Common Stock, shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock or Series D Preferred Stock by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise
and shares of Common Stock issuable upon conversion, exercise or exchange
thereof.
"Registration Expense Cap" has the meaning set forth
in Section 3(d) of this Agreement.
"Registration Expenses" has the meaning set forth in
Section 6(d) of this Agreement.
"Registration Statement" means a registration
statement filed pursuant to the Securities Act.
"SEC" means the Securities and Exchange Commission or
any similar agency then having jurisdiction to enforce the Securities Act.
"Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
"Series A Preferred Stock" has the meaning assigned
to such term in the recital to this Agreement.
"Series B Preferred Stock" has the meaning assigned
to such term in the recital to this Agreement.
"Series C Preferred Stock" has the meaning assigned
to such term in the recital to this Agreement.
"Series D Preferred Stock" has the meaning assigned
to such term in the recital to this Agreement.
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<PAGE> 11
"Series D Stock Purchase Agreement" has the meaning
assigned to such term in the recital to this Agreement.
"Stockholders Agreement" means, collectively, the
Original Stockholders Agreement, as amended by Amendment No. 1, Amendment No.
2, and Amendment No. 3.
"WPC" has the meaning assigned to such term in the
recital to this Agreement.
"WPC Stockholders" means WPC and any Permitted
Transferee (as defined in the Stockholders Agreement) thereof to which
Registrable Securities are transferred in accordance with Section 2.2 of the
Stockholders Agreement.
"Warrants" has the meaning assigned to such term in
the recital to this Agreement.
2. General; Securities Subject to this Agreement.
(a) Grant of Rights. The Company hereby grants
registration rights to the Fernandez Stockholders, the Morino Stockholders, the
General Atlantic Stockholders, the FBR Stockholders, the GE Capital
Stockholders, the IBIS Stockholders, and the New Stockholders upon the terms
and conditions set forth in this Agreement.
(b) Registrable Securities. For the purposes of
this Agreement, Registrable Securities will cease to be Registrable Securities
when (i) a registration statement covering such Registrable Securities has been
declared effective under the Securities Act by the SEC and such Registrable
Securities have been disposed of pursuant to such effective registration
statement, (ii) the entire amount of Registrable Securities proposed to be sold
in a single sale, in the opinion of counsel satisfactory to the Company and the
Designated Holder thereof, each in their reasonable judgment, may be
distributed to the public without any limitation as to volume for such sale
pursuant to Rule 144 (or any successor provision then in effect) under the
Securities Act or (iii) the Registrable Securities are proposed to be sold or
distributed by a Person not entitled to the registration rights granted by this
Agreement.
(c) Holders of Registrable Securities. A Person
is deemed to be a holder of Registrable Securities whenever such Person owns of
record Registrable Securities, or holds an option to purchase, or a security
convertible into or exercisable or exchangeable for, Registrable Securities
whether or not such acquisition or conversion has actually been effected. If
the Company receives conflicting instructions, notices or elections from two or
more Persons with respect to the same Registrable Securities, the Company may
act upon the basis of the instructions, notice or election received from the
registered owner of such Registrable Securities. Registrable Securities
issuable upon exercise of an option or upon conversion of another security
shall be deemed outstanding for the purposes of this Agreement.
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<PAGE> 12
3. Demand Registration.
(a) Request for Demand Registration. At any time
after the IPO Effectiveness Date, one or more of the General Atlantic
Stockholders as a group, acting through GAP LLC or its written designee (the
"INITIATING HOLDER(S)"), may make a written request to the Company to register,
under the Securities Act (other than pursuant to a registration statement on
Form S-4 or S-8 or any successor thereto) and under the securities or "blue
sky" laws of any jurisdiction designated by such holder or holders (a "DEMAND
REGISTRATION"), the number of Registrable Securities stated in such request;
provided, however, that the Company shall not be obligated to effect more than
one (1) Demand Registration pursuant to this Section 3. If at the time of any
request to register Registrable Securities pursuant to this Section 3(a), the
Company is engaged in, or has fixed plans to engage in within ninety (90) days
of the time of such request, a registered public offering or is engaged in any
other activity which, in the good faith determination of the Board of Directors
of the Company, would be materially adversely affected by the requested
registration to the material detriment of the Company, then the Company may at
its option direct that such request be delayed for a reasonable period not in
excess of (i) one hundred eighty (180) days from the effective date of such
offering or (ii) ninety (90) days from the date of completion of such other
material activity, as the case may be, such right to delay a request to be
exercised by the Company not more than once in any one-year period. In
addition, the Company shall not be required to effect any registration within
sixty (60) days after the effective date of any other Registration Statement of
the Company. Each request for a Demand Registration by the Initiating
Holder(s) shall state the amount of the Registrable Securities proposed to be
sold and the intended method of disposition thereof. Upon a request for a
Demand Registration, the Company shall promptly take such steps as are
necessary or appropriate to prepare for the registration of the Registrable
Securities to be registered.
(b) Incidental or "Piggy-Back" Rights with
Respect to a Demand Registration. Each of the Designated Holders (other than
the Initiating Holders) may offer its or his Registrable Securities under any
Demand Registration pursuant to this Section 3. Within ten (10) days after the
receipt from an Initiating Holder of a request for a Demand Registration, the
Company shall (i) give written notice thereof to all of the Designated Holders
(other than the Initiating Holder) and (ii) subject to Section 3(e), include in
such registration all of the Registrable Securities held by such Designated
Holders from whom the Company has received a written request for inclusion
therein within ten (10) days of the receipt by such Designated Holders of such
written notice referred to clause (i) above. Each such request by such
Designated Holders shall specify the number of Registrable Securities proposed
to be registered and the intended method of disposition thereof. The failure
of any Designated Holder to respond within such 10-day period referred to in
clause (ii) above shall be deemed to be a waiver of such Designated Holder's
rights under this Section 3, provided that any Designated Holder may waive its
rights under this Section 3 prior to the expiration of such 10-day period by
giving written notice to the Company, with a copy to the Initiating Holder.
(c) Effective Demand Registration. The Company
shall use its best efforts to cause any such Demand Registration to become and
remain effective not later than
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<PAGE> 13
ninety (90) days after it receives a request under Section 3(a) hereof. A
registration shall not constitute a Demand Registration until it has become
effective and remains continuously effective for the lesser of (i) the period
during which all Registrable Securities registered in the Demand Registration
are sold and (ii) 120 days; provided, however, that a registration shall not
constitute a Demand Registration if (x) after such Demand Registration has
become effective, such registration or the related offer, sale or distribution
of Registrable Securities thereunder is interfered with by any stop order,
injunction or other order or requirement of the SEC or other governmental
agency or court for any reason not attributable to the Initiating Holders and
such interference is not thereafter eliminated or (y) the conditions to closing
specified in the underwriting agreement, if any, entered into in connection
with such Demand Registration are not satisfied or waived, other than by reason
of a failure by the Initiating Holders.
(d) Expenses. In any registration initiated as a
Demand Registration pursuant to Section 3(a), the Company shall pay 50% of all
Registration Expenses (other than underwriting discounts and commissions) in
connection therewith (the "REGISTRATION EXPENSE CAP"), whether or not such
Demand Registration becomes effective.
(e) Underwriting Procedures. If the Initiating
Holders holding a majority of the Registrable Securities held by all of the
Initiating Holders to which the requested Demand Registration relates so elect,
the offering of such Registrable Securities pursuant to such Demand
Registration shall be in the form of a firm commitment underwritten offering
and the managing underwriter or underwriters selected for such offering shall
be the Approved Underwriter (as hereinafter defined) selected in accordance
with Section 3(f). In connection with any Demand Registration under this
Section 3 involving an underwriting, none of the Registrable Securities held by
any Designated Holder making a request for inclusion of such Registrable
Securities pursuant to Section 3(b) hereof shall be included in such
underwriting unless such Designated Holder accepts the terms of the
underwriting as agreed upon by the Company, the Initiating Holders and the
Approved Underwriter, and then only in such quantity as will not, in the
opinion of the Approved Underwriter, jeopardize the success of such offering by
the Initiating Holders. If the Approved Underwriter advises the Company in
writing that in its opinion the aggregate amount of such Registrable Securities
requested to be included in such offering is sufficiently large to have a
material adverse effect on the success of such offering, then the Company shall
include in such registration only the aggregate amount of Registrable
Securities that in the opinion of the Approved Underwriter may be sold without
any such material adverse effect and shall reduce, first as to the Designated
Holders who requested to participate in such registration pursuant to Section
3(b) hereof) as a group, if any (other than the Initiating Holders and the GE
Capital Stockholders); and second as to the Initiating Holders and the GE
Capital Stockholders as a group, pro rata within each group based on the number
of Registrable Securities included in the request for Demand Registration.
(f) Selection of Underwriters. If any Demand
Registration of Registrable Securities is in the form of an underwritten
offering, the Initiating Holders holding a majority of the Registrable
Securities held by all such Initiating Holders shall select and
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<PAGE> 14
obtain an investment banking firm of national reputation to act as the managing
underwriter of the offering (the "APPROVED UNDERWRITER"); provided, however,
that the Approved Underwriter shall, in any case, be acceptable to the Company
in its reasonable judgment.
4. Incidental or "Piggy-Back" Registration.
(a) Request for Incidental Registration. At any
time after the IPO Effectiveness Date, if the Company proposes to file a
Registration Statement under the Securities Act with respect to an offering by
the Company for its own account (other than a registration statement on Form
S-4 or S-8 or any successor thereto), then the Company shall give written
notice of such proposed filing to each of the Designated Holders of Registrable
Securities at least twenty (20) days before the anticipated filing date, and
such notice shall describe the proposed registration and distribution and offer
such Designated Holders the opportunity to register the number of Registrable
Securities as each such holder may request (an "INCIDENTAL REGISTRATION"). The
Company shall, and shall use its best efforts (within ten (10) days of the
notice provided for in the preceding sentence) to cause the managing
underwriter or underwriters of a proposed underwritten offering (the "COMPANY
UNDERWRITER") to permit each of the Designated Holders who have requested in
writing to participate in the Incidental Registration to include its or his
Registrable Securities in such offering on the same terms and conditions as the
securities of the Company included therein. In connection with any Incidental
Registration under this Section 4(a) involving an underwriting, the Company
shall not be required to include any Registrable Securities in such
underwriting unless the holders thereof accept the terms of the underwriting as
agreed upon between the Company and the Company Underwriter, and then only in
such quantity as will not, in the opinion of the Company Underwriter,
jeopardize the success of the offering by the Company. If in the written
opinion of the Company Underwriter the registration of all or part of the
Registrable Securities which the Designated Holders have requested to be
included would materially adversely affect such offering, then the Company
shall be required to include in such Incidental Registration, to the extent of
the amount that the Company Underwriter believes may be sold without causing
such adverse effect, first, all of the securities to be offered for the account
of the Company; second, the Registrable Securities to be offered for the
account of the Designated Holders pursuant to this Section 4, pro rata based on
the amount recommended by the Company Underwriter; and third, any other
securities requested to be included in such underwriting.
(b) Expenses. The Company shall bear all
Registration Expenses (other than underwriting discounts and commissions) in
connection with any Incidental Registration pursuant to this Section 4, whether
or not such Incidental Registration becomes effective; provided, however, that
each Designated Holder participating in such registration shall bear the costs
and expenses (including disbursements) of its own legal counsel.
5. Holdback Agreements.
(a) Restrictions on Public Sale by Designated
Holders. Each of the Designated Holders agrees not to effect any public sale
or distribution of any Registrable
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<PAGE> 15
Securities being registered or of any securities convertible into or
exchangeable or exercisable for such Registrable Securities, including a public
sale pursuant to Rule 144 under the Securities Act, during the ninety (90) day
period beginning on the effective date of such registration statement (except
as part of such registration), (i) in the case of a non-underwritten public
offering, if and to the extent requested by the Initiating Holders (in the
event of a Demand Registration pursuant to Section 3) or the Company (in the
event of an Incidental Registration pursuant to Section 4(a)), as the case may
be, or (ii) in the case of an underwritten public offering, if and to the
extent requested by the Approved Underwriter (in the event of a Demand
Registration pursuant to Section 3) or the Company Underwriter (in the event of
an Incidental Registration pursuant to Section 4(a)), as the case may be.
(b) Restrictions on Public Sale by the Company.
The Company agrees not to effect any public sale or distribution of any of its
securities, or any securities convertible into or exchangeable or exercisable
for such securities (except pursuant to registrations on Form S-4 or S-8 or any
successor thereto), during the period beginning on the effective date of any
registration statement in which the Designated Holders of Registrable
Securities are participating and ending on the earlier of (i) the date on which
all Registrable Securities registered on such registration statement are sold
and (ii) 90 days after the effective date of such registration statement.
6. Registration Procedures.
(a) Obligations of the Company. Whenever
registration of Registrable Securities has been requested pursuant to Section 3
or Section 4 of this Agreement, the Company shall use its best efforts to
effect the registration and sale of such Registrable Securities in accordance
with the intended method of distribution thereof as quickly as practicable, and
in connection with any such request, the Company shall, as expeditiously as
possible:
(i) use its best efforts to prepare and
file with the SEC a registration statement on any form for which the Company
then qualifies or which counsel for the Company shall deem appropriate and
which form shall be available for the sale of such Registrable Securities in
accordance with the intended method of distribution thereof, and use its best
efforts to cause such registration statement to become effective; provided,
however, that (x) before filing a registration statement or prospectus or any
amendments or supplements thereto, the Company shall provide counsel selected
by the Designated Holders holding a majority of the Registrable Securities
being registered in such registration ("HOLDERS' COUNSEL") and any other
Inspector (as hereinafter defined) with an adequate and appropriate opportunity
to participate in the preparation of such registration statement and each
prospectus included therein (and each amendment or supplement thereto) to be
filed with the SEC, which documents shall be subject to the review of Holders'
Counsel, and (y) the Company shall notify the Holders' Counsel and each seller
of Registrable Securities of any stop order issued or threatened by the SEC and
take all reasonable action required to prevent the entry of such stop order or
to remove it if entered;
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<PAGE> 16
(ii) prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective for the lesser of (x) twelve (12) months and (y) such
shorter period which will terminate when all Registrable Securities covered by
such registration statement have been sold, and 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;
(iii) as soon as reasonably possible,
furnish to each seller of Registrable Securities, prior to filing a
registration statement, copies of such registration statement as is proposed to
be filed, and thereafter such number of copies of such registration statement,
each amendment and supplement thereto (in each case including all exhibits
thereto), the prospectus included in such registration statement (including
each preliminary prospectus) and such other documents as each such seller may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such seller;
(iv) use its reasonable best efforts to
register or qualify such Registrable Securities under such other securities or
"blue sky" laws of such jurisdictions as any seller of Registrable Securities
may request, and to continue such qualification in effect in such jurisdiction
for as long as permissible pursuant to the laws of such jurisdiction, or for as
long as any such seller requests or until all of such Registrable Securities
are sold, whichever is shortest, and do any and all other acts and things which
may be reasonably necessary or advisable to enable any such seller to
consummate the disposition in such jurisdictions of the Registrable Securities
owned by such seller; provided, however, that the Company shall not be required
to (x) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 6(a)(iv), (y) subject
itself to taxation in any such jurisdiction or (z) consent to general service
of process in any such jurisdiction;
(v) use its reasonable best efforts to
cause the Registrable Securities covered by such registration statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary by virtue of the business and operations of the Company to
enable the seller or sellers of Registrable Securities to consummate the
disposition of such Registrable Securities;
(vi) notify each seller of Registrable
Securities at any time when a prospectus relating thereto is required to be
delivered under the Securities Act, upon discovery that, or upon the happening
of any event as a result of which, the prospectus included in such registration
statement contains an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances under which they were
made, and the Company shall promptly prepare a supplement or amendment to such
prospectus and furnish to each seller a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that,
after delivery to the purchasers of such Registrable Securities, such
prospectus shall not contain an untrue statement of a material fact or omit to
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<PAGE> 17
state any material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which
they were made;
(vii) enter into and perform customary
agreements (including an underwriting agreement in customary form with the
Approved Underwriter or Company Underwriter, if any, selected as provided in
Section 3 or Section 4, as the case may be) and take such other actions as are
prudent and reasonably required in order to expedite or facilitate the
disposition of such Registrable Securities;
(viii) make available for inspection by any
seller of Registrable Securities, any managing underwriter participating in any
disposition pursuant to such registration statement, Holders' Counsel and any
attorney, accountant or other agent retained by any such seller or any managing
underwriter (each, an "INSPECTOR" and collectively, the "INSPECTORS"), all
financial and other records, pertinent corporate documents and properties of
the Company and its subsidiaries (collectively, the "RECORDS") as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's and its subsidiaries' officers,
directors and employees, and the independent public accountants of the Company,
to supply all information reasonably requested by any such Inspector in
connection with such registration statement. Records that the Company
determines, in good faith, to be confidential and which it notifies the
Inspectors are confidential shall not be disclosed by the Inspectors unless (x)
the disclosure of such Records is necessary to avoid or correct a misstatement
or omission in the registration statement, (y) the release of such Records is
ordered pursuant to a subpoena or other order from a court of competent
jurisdiction or (z) the information in such Records was known to the Inspectors
on a non-confidential basis prior to its disclosure by the Company or has been
made generally available to the public. Each seller of Registrable Securities
agrees that it shall, upon learning that disclosure of such Records is sought
in a court of competent jurisdiction, give notice to the Company and allow the
Company, at the Company's expense, to undertake appropriate action to prevent
disclosure of the Records deemed confidential;
(ix) if such sale is pursuant to an
underwritten offering, use its best efforts to obtain a "cold comfort" letter
from the Company's independent public accountants in customary form and
covering such matters of the type customarily covered by "cold comfort" letters
as Holders' Counsel or the managing underwriter reasonably request;
(x) use its reasonable best efforts to
furnish, at the request of any seller of Registrable Securities on the date
such securities are delivered to the underwriters for sale pursuant to such
registration or, if such securities are not being sold through underwriters, on
the date the registration statement with respect to such securities becomes
effective, an opinion, dated such date, of counsel representing the Company for
the purposes of such registration, addressed to the underwriters, if any, and
to the seller making such request, covering such legal matters with respect to
the registration in respect of which such opinion is being given as such seller
may reasonably request and are customarily included in such opinions;
- 15 -
<PAGE> 18
(xi) otherwise use its reasonable best
efforts to comply with all applicable rules and regulations of the SEC, and
make available to its security holders, as soon as reasonably practicable but
no later than fifteen (15) months after the effective date of the registration
statement, an earnings statement covering a period of twelve (12) months
beginning after the effective date of the registration statement, in a manner
which satisfies the provisions of Section 11(a) of the Securities Act and Rule
158 thereunder;
(xii) cause all such Registrable Securities
to be listed on each securities exchange on which similar securities issued by
the Company are then listed, provided that the applicable listing requirements
are satisfied;
(xiii) keep Holders' Counsel advised in
writing as to the initiation and progress of any registration under Section 3
or Section 4 hereunder;
(xiv) cooperate with each seller of
Registrable Securities and each underwriter participating in the disposition of
such Registrable Securities and their respective counsel in connection with any
filings required to be made with the National Association of Securities
Dealers, Inc. (the "NASD"); and
(xv) use reasonable best efforts to take
all other steps necessary to effect the registration of the Registrable
Securities contemplated hereby.
(b) Seller Information. The Company may require
each seller of Registrable Securities as to which any registration is being
effected to furnish to the Company such information regarding the seller and
the distribution of such securities as the Company may from time to time
reasonably request in writing.
(c) Notice to Discontinue. Each Designated
Holder of Registrable Securities agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section
6(a)(vi), such Designated Holder shall forthwith discontinue disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such Designated Holder's receipt of the copies of
the supplemented or amended prospectus contemplated by Section 6(a)(vi) and, if
so directed by the Company, such Designated Holder shall deliver to the Company
(at the Company's expense) all copies, other than permanent file copies then in
such Designated Holder's possession, of the prospectus covering such
Registrable Securities which is current at the time of receipt of such notice.
If the Company shall give any such notice, the Company shall extend the period
during which such registration statement shall be maintained effective pursuant
to this Agreement (including, without limitation, the period referred to in
Section 6(a)(ii)) by the number of days during the period from and including
the date of the giving of such notice pursuant to Section 6(a)(vi) to and
including the date when the Designated Holder shall have received the copies of
the supplemented or amended prospectus contemplated by and meeting the
requirements of Section 6(a)(vi).
- 16 -
<PAGE> 19
(d) Registration Expenses. Subject to the
Registration Expense Cap in the case of a Demand Registration pursuant to
Section 3 and subject to Section 4(b) in the case of an Incidental
Registration, the Company shall pay all expenses arising from or incident to
the performance of, or compliance with, this Agreement, including, without
limitation, (i) SEC, stock exchange and NASD registration and filing fees, (ii)
all fees and expenses incurred in complying with securities or "blue sky" laws
(including reasonable fees, charges and disbursements of counsel in connection
with "blue sky" qualifications of the Registrable Securities), (iii) all
printing, messenger and delivery expenses, (iv) the fees, charges and
disbursements of counsel to the Company and of its independent public
accountants and any other accounting fees, charges and expenses incurred by the
Company (including, without limitation, any expenses arising from any special
audits incident to or required by any registration or qualification) and any
legal fees, charges and expenses incurred by the Company and, in the case of a
Demand Registration, the Initiating Holders and (v) any liability insurance or
other premiums for insurance obtained in connection with any Demand
Registration or Incidental Registration pursuant to the terms of this
Agreement, regardless of whether such registration statement is declared
effective. All of the expenses described in this Section 6(d) are referred to
herein as "REGISTRATION EXPENSES".
7. Indemnification; Contribution.
(a) Indemnification by the Company. The Company
agrees to indemnify and hold harmless, to the fullest extent permitted by law,
each Designated Holder, its officers, directors, trustees, partners, employees,
advisors and agents and each Person who controls (within the meaning of the
Securities Act or the Exchange Act) such Designated Holder from and against any
and all losses, claims, damages, liabilities and expenses (including reasonable
costs of investigation) arising out of or based upon any untrue, or allegedly
untrue, statement of a material fact contained in any registration statement,
prospectus or preliminary prospectus or notification or offering circular (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) or arising out of or based upon any omission or alleged
omission to state therein 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 concerning such Designated
Holder furnished in writing to the Company by such Designated Holder expressly
for use therein. The Company shall also provide customary indemnities to any
underwriters of the Registrable Securities, their officers, directors and
employees and each Person who controls such underwriters (within the meaning of
the Securities Act and the Exchange Act) to the same extent as provided above
with respect to the indemnification of the Designated Holders of Registrable
Securities.
(b) Indemnification by Designated Holders. In
connection with any registration statement in which a Designated Holder is
participating pursuant to Section 3 or Section 4 hereof, each such Designated
Holder shall furnish to the Company in writing such information with respect to
such Designated Holder as the Company may reasonably request or as may be
required by law for use in connection with any such registration statement or
prospectus and each Designated Holder agrees to indemnify and hold harmless, to
the fullest
- 17 -
<PAGE> 20
extent permitted by law, the Company, any underwriter retained by the Company
and their respective directors, officers, employees and each Person who
controls the Company or such underwriter (within the meaning of the Securities
Act and the Exchange Act) to the same extent as the foregoing indemnity from
the Company to the Designated Holders, but only with respect to any such
information with respect to such Designated Holder furnished in writing to the
Company by such Designated Holder expressly for use therein.
(c) Conduct of Indemnification Proceedings. Any
Person entitled to indemnification hereunder (the "INDEMNIFIED PARTY") agrees
to give prompt written notice to the indemnifying party (the "INDEMNIFYING
PARTY") after the receipt by the Indemnified Party of any written notice of the
commencement of any action, suit, proceeding or investigation or threat thereof
made in writing for which the Indemnified Party intends to claim
indemnification or contribution pursuant to this Agreement; provided, however,
that the failure so to notify the Indemnifying Party shall not relieve the
Indemnifying Party of any liability that it may have to the Indemnified Party
hereunder. If notice of commencement of any such action is given to the
Indemnifying Party as above provided, the Indemnifying Party shall be entitled
to participate in and, to the extent it may wish, jointly with any other
Indemnifying Party similarly notified, to assume the defense of such action at
its own expense, with counsel chosen by it and satisfactory to such Indemnified
Party. The Indemnified Party shall have the right to employ separate counsel
in any such action and participate in the defense thereof, but the fees and
expenses of such counsel (other than reasonable costs of investigation) shall
be paid by the Indemnified Party unless (i) the Indemnifying Party agrees to
pay the same, (ii) the Indemnifying Party fails to assume the defense of such
action with counsel satisfactory to the Indemnified Party in its reasonable
judgment or (iii) the named parties to any such action (including any impleaded
parties) have been advised by such counsel that either (x) representation of
such Indemnified Party and the Indemnifying Party by the same counsel would be
inappropriate under applicable standards of professional conduct or (y) there
may be one or more legal defenses available to it which are different from or
additional to those available to the Indemnifying Party. In either of such
cases, the Indemnifying Party shall not have the right to assume the defense of
such action on behalf of such Indemnified Party. No Indemnifying Party shall
be liable for any settlement entered into without its written consent, which
consent shall not be unreasonably withheld.
(d) Contribution. If the indemnification
provided for in this Section 7 from the Indemnifying Party is unavailable to an
Indemnified Party hereunder in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then the Indemnifying Party, in
lieu of indemnifying such Indemnified Party, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such losses, claims,
damages, liabilities or expenses in such proportion as is appropriate to
reflect the relative fault of the Indemnifying Party and Indemnified Party in
connection with the actions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable
considerations. The relative faults of such Indemnifying Party and Indemnified
Party shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such Indemnifying
- 18 -
<PAGE> 21
Party or Indemnified Party, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such action. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include, subject
to the limitations set forth in Sections 7(a), 7(b) and 7(c), any legal or
other fees, charges or expenses reasonably incurred by such party in connection
with any investigation or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person.
8. Rule 144. The Company covenants that it shall file
(a) any reports required to be filed by it under the Exchange Act and (b) take
such further action as each Designated Holder of Registrable Securities may
reasonably request (including providing any information necessary to comply
with Rules 144 and 144A under the Securities Act), all to the extent required
from time to time to enable such Designated Holder to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (i) Rule 144 under the Securities Act, as such
rule may be amended from time to time, or (ii) any similar rules or regulations
hereafter adopted by the SEC. The Company shall, upon the request of any
Designated Holder of Registrable Securities, deliver to such Designated Holder
a written statement as to whether it has complied with such requirements.
9. Miscellaneous.
(a) Recapitalizations, Exchanges, etc.. The
provisions of this Agreement shall apply, to the full extent set forth herein
with respect to (i) the shares of Common Stock and (ii) any and all equity
securities of the Company or any successor or assign of the Company (whether by
merger, consolidation, sale of assets or otherwise) which may be issued in
respect of, in conversion of, in exchange for or in substitution of, the shares
of Common Stock and shall be appropriately adjusted for any stock dividends,
splits, reverse splits, combinations, recapitalizations and the like occurring
after the date hereof. The Company shall cause any successor or assign
(whether by merger, consolidation or otherwise) to enter into a new
registration rights agreement with the Designated Holders on terms
substantially similar to this Agreement as a condition of any such transaction.
(b) No Inconsistent Agreements. The Company
shall not enter into any agreement with respect to its securities that is
inconsistent with the rights granted to the Designated Holders in this
Agreement or grant any additional registration rights to any Person or with
respect to any securities which are not Registrable Securities which are prior
in right to or inconsistent with the rights granted in this Agreement.
- 19 -
<PAGE> 22
(c) Remedies. The Designated Holders, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, shall be entitled to specific performance of their rights
under 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 this Agreement and hereby agrees to waive in any action for
specific performance the defense that a remedy at law would be adequate.
(d) Amendments and Waivers. Except as otherwise
provided herein, the provisions of this Agreement may not be amended, modified
or supplemented, and waivers or consents to departures from the provisions
hereof may not be given unless consented to in writing by (i) the Company, (ii)
the Fernandez Stockholders holding Registrable Securities representing (after
giving effect to any adjustments) at least 60% of the aggregate number of
Registrable Securities owned by all of the Fernandez Stockholders, (iii) the
General Atlantic Stockholders holding Registrable Securities representing
(after giving effect to any adjustments) at least 60% of the aggregate number
of Registrable Securities owned by all of the General Atlantic Stockholders,
(iv) the Morino Stockholders holding Registrable Securities representing (after
giving effect to any adjustments) at least 60% of the aggregate number of
Registrable Securities owned by all of the Morino Stockholders, (v) the FBR
Stockholders holding Registrable Securities representing (after giving effect
to any adjustments) at least 60% of the aggregate number of Registrable
Securities owned by all of the FBR Stockholders, (vi) the GE Capital
Stockholders holding Registrable Securities representing (after giving effect
to any adjustments) at least 60% of the aggregate number of Registrable
Securities owned by all of the GE Capital Stockholders, (vii) the IBIS
Stockholders holding Registrable Securities representing (after giving effect
to any adjustments) at least 60% of the aggregate number of Registrable
Securities owned by all of the IBIS Stockholders, (viii) the Kemp Stockholders
holding Registrable Securities representing (after giving effect to any
adjustments) at least 60% of the aggregate number of Registrable Securities
owned by all of the Kemp Stockholders, (ix) the Leonsis Stockholders holding
Registrable Securities representing (after giving effect to any adjustments) at
least 60% of the aggregate number of Registrable Securities owned by all of the
Leonsis Stockholders, (x) the McKinley Stockholders holding Registrable
Securities representing (after giving effect to any adjustments) at least 60%
of the aggregate number of Registrable Securities owned by all of the McKinley
Stockholders and (xi) the WPC Stockholders holding Registrable Securities
representing (after giving effect to any adjustments) at least 60% of the
aggregate number of Registrable Securities owned by all of the WPC
Stockholders. Any such written consent shall be binding upon the Company and
all of the Designated Holders.
(e) Notices. All notices, demands and other
communications provided for or permitted hereunder shall be made in writing and
shall be made by registered or certified first-class mail, return receipt
requested, telecopier, courier service, overnight mail or personal delivery:
- 20 -
<PAGE> 23
<TABLE>
<S> <C>
(i) if to the Company:
Proxicom, Inc.
1749 Old Meadow Road
McLean, Virginia 22102-4310
Telecopy: (703) 566-4797
Attention: Christopher Capuano, Esq.
General Counsel
with a copy to:
Hogan & Hartson
555 13th Street, N.W.
Washington, D.C. 20004-1109
Telecopy: (202) 637-5910
Attention: Jacquelyn E. Grillon, Esq.
(ii) if to the Fernandez Stockholders:
c/o Proxicom, Inc.
1749 Old Meadow Road
McLean, Virginia 22102-4310
Telecopy: (703) 506-4797
Attention: Christopher Capuano, Esq.
General Counsel
with a copy to:
Hogan & Hartson
555 13th Street, N.W.
Washington, D.C. 20004-1109
Telecopy: (202) 637-5910
Attention: Jacquelyn E. Grillon, Esq.
and
Comiskey & Hunt
1501 Farm Credit Drive
Suite 4400
McLean, Virginia 22102-5000
Telecopy: (703) 790-7867
Attention: Stephen W. Comiskey, Esq.
</TABLE>
- 21 -
<PAGE> 24
<TABLE>
<S> <C>
(iii) if to GAP LP, GAP 52, GAP Coinvestment I or GAP
Coinvestment II:
c/o General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, Connecticut 06830
Telecopy: (203) 622-8818
Attention: Mr. David C. Hodgson
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Matthew Nimetz, Esq.
(iv) if to Morino Trust:
The Mario M. Morino Trust
c/o Morino Institute
1801 Robert Fulton Drive
Suite 550
Reston, Virginia 20191
Telecopy: (703) 620-4102
Attention: Mario M. Morino, Trustee
with a copy to:
Comiskey & Hunt
1501 Farm Credit Drive
Suite 4400
McLean, Virginia 22102-5000
Telecopy: (703) 790-7867
Attention: Stephen W. Comiskey, Esq.
(v) if to FBR:
c/o FBR Venture Capital Managers Inc.
1001 19th Street
North Arlington, Virginia 22209
Telecopy: (703) 312-9601
Attention: Suzanne Richardson
</TABLE>
- 22 -
<PAGE> 25
<TABLE>
<S> <C>
(vi) if to GE Capital or GE Capital Equity:
GE Capital Equity Capital Group, Inc.
120 Long Ridge Road
Stamford, Connecticut 06927
Telecopy: (203) 357-3400
Attention: General Counsel
Legal Department
(vii) if to the IBIS Stockholders:
Brenda Wong
Scott McDonald
Vincent Hoenigman
c/o IBIS Consulting, Inc.
One Ecker Street
Suite 100
San Francisco, California 94104
Telecopy: (415) 820-2401
with a copy to:
Preston Gates & Ellis LLP
One Maritime Plaza
San Francisco, California 94111
Telecopy: (415) 788-8819
Attention: Lawrence B. Low
(viii) if to the Kemp Stockholders:
Jack Kemp
Empower America
1776 I Street, N.W.
Suite 890
Washington, DC 20006
</TABLE>
- 23 -
<PAGE> 26
<TABLE>
<S> <C>
(ix) if to the Leonsis Stockholders:
Theodore J. Leonsis
America Online
22000 AOL Way
Dulles, Virginia 20166-9323
with a copy to:
Holland & Knight
Suite 400
2100 Pennsylvania, N.W.
Washington, DC 20037-3202
Telecopy: Attention: T. Wayne Gray, Esq.
(x) if to the McKinley Stockholders:
John McKinley
Merrill Lynch & Co.
World Financial Center
North Tower
New York, New York 10281
(xi) if the WPC Stockholders:
The Washington Post Company
1150 15th Street, N.W.
Washington, D.C. 20007
Attention: Mr. Jay Morse
with a copy to:
(x) if to any other Designated Holder, at its address as it
appears on the record books of the Company.
</TABLE>
All such notices and communications shall be deemed to have
been duly given when delivered by hand, if personally delivered; when delivered
by courier or overnight mail, if delivered by commercial courier service or
overnight mail; five (5) Business Days after being deposited in the mail,
postage prepaid, if mailed; and when receipt is mechanically acknowledged, if
telecopied.
(f) Successors and Assigns; Third Party
Beneficiaries. This Agreement shall inure to the benefit of and be binding
upon the successors and assigns of each
- 24 -
<PAGE> 27
of the parties hereto. The Demand Registration rights of the General Atlantic
Stockholders contained in Section 3 hereof and the other rights of each of the
General Atlantic Stockholders with respect thereto shall be, with respect to
any Registrable Security, (i) automatically transferred among the General
Atlantic Stockholders and (ii) in all other cases, transferred only with the
consent of the Company. The incidental or "piggy-back" registration rights of
the Designated Holders contained in Sections 3(b) and 4 hereof and the other
rights of each of the Designated Holders with respect thereto shall be, with
respect to any Registrable Security, automatically transferred by such
Designated Holder to any Person who is the transferee of such Registrable
Security. All of the obligations of the Company hereunder shall survive any
such transfer. No Person other than the parties hereto and their successors
and permitted assigns is intended to be a beneficiary of any of the rights
granted hereunder.
(g) Counterparts. This Agreement may be executed
in any number of counterparts and by the parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are
for convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE,
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.
(j) Severability. If any one or more of the
provisions contained herein, or the application thereof in any circumstances,
is held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way
impaired, it being intended that all of the rights and privileges of the
Designated Holders shall be enforceable to the fullest extent permitted by law.
(k) Entire Agreement. This Agreement, the other
Transaction Documents (as defined in the Series D Stock Purchase Agreement)
and, as between the Company and the IBIS Stockholders, the Merger Agreement,
are intended by the parties as a final expression of their agreement and
intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein. There are no restrictions, promises, representations, warranties or
undertakings, other than those set forth or referred to herein or therein.
This Agreement, the other Transaction Documents and, as between the Company and
the IBIS Stockholders, the Merger Agreement, supersede all prior agreements and
understandings between the parties with respect to such subject matter,
including, without limitation, the Amended and Restated Registration Rights
Agreement.
- 25 -
<PAGE> 28
(l) Further Assurances. Each of the parties
shall execute such documents and perform such further acts as may be reasonably
required or desirable to carry out or to perform the provisions of this
Agreement.
- 26 -
<PAGE> 29
IN WITNESS WHEREOF, the undersigned have executed, or have
caused to be executed, this Agreement on the date first written above.
PROXICOM, INC.
By: /s/ Raul Fernandez
------------------------------------
Name: Raul Fernandez
Title: President and Chief Executive
Officer
GENERAL ATLANTIC PARTNERS 34,
L.P.
By: GENERAL ATLANTIC
PARTNERS, LLC, Its General
Partner
By: /s/ David C. Hodgson
---------------------------------
Name: David C. Hodgson
-------------------------------
Title: A Managing Member
GENERAL ATLANTIC PARTNERS 52,
L.P.
By: GENERAL ATLANTIC
PARTNERS, LLC, Its General
Partner
By: /s/ David C. Hodgson
--------------------------------
Name: David C. Hodgson
------------------------------
Title: A Managing Member
<PAGE> 30
GAP COINVESTMENT PARTNERS, L.P.
By: /s/ David C. Hodgson
--------------------------------
Name: David C. Hodgson
------------------------------
Title: A General Partner
GAP COINVESTMENT PARTNERS II,
L.P.
By: /s/ David C. Hodgson
--------------------------------
Name: David C. Hodgson
------------------------------
Title: A General Partner
/s/ Raul Fernandez
-----------------------------------
Raul Fernandez
THE MARIO M. MORINO TRUST
By: /s/ Mario M. Morino
--------------------------------
Name: Mario M. Morino
------------------------------
Title: Trustee
FBR VENTURE CAPITAL MANAGERS
INC.
By: [signature illegible]
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE> 31
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Roger Hurwitz
--------------------------------
Name: Roger Hurwitz
------------------------------
Title: Regional Operations Manager
-----------------------------
GE CAPITAL EQUITY INVESTMENTS,
INC.
By: /s/ Roger Hurwitz
--------------------------------
Name: Roger Hurwitz
------------------------------
Title: Vice President
-----------------------------
/s/ Brenda Wong
-----------------------------------
Brenda Wong
/s/ Scott McDonald
-----------------------------------
Scott McDonald
/s/ Vincent Hoenigman
-----------------------------------
Vincent Hoenigman
/s/ Jack Kemp
-----------------------------------
Jack Kemp
/s/ Ted Leonsis
-----------------------------------
Ted Leonsis
/s/ John McKinley
-----------------------------------
John McKinley
<PAGE> 32
THE WASHINGTON POST COMPANY
By: [signature illegible]
--------------------------------
<PAGE> 1
EXHIBIT 10.10
SECURED CREDIT AGREEMENT
This SECURED CREDIT AGREEMENT (as amended, supplemented or modified from
time to time, this "Agreement") is dated as of October 30, 1998 and is between
PROXICOM, INC. and NATIONSBANK, N.A.
The parties hereto agree as follows:
ARTICLE I
GENERAL DEFINITIONS
SECTION 1.1. DEFINITIONS. The following terms, as used herein, have the
following meanings:
"Acquisition" means any transaction, or any series of related
transactions, consummated after the date of this Agreement, by which the
Borrower or any of its Consolidated Subsidiaries (a) acquires a division or
similar business unit, any going business or all or substantially all of the
assets of any Person, whether through the purchase of assets, merger or
otherwise, (b) directly or indirectly acquires control of at least a majority
(in number of votes) of the securities of a corporation which have ordinary
voting power for the election of directors, or (c) directly or indirectly
acquires control of a majority ownership interest in any Person that is not a
corporation. The terms "Acquire", "Acquired" and "Acquiring" used as verbs
shall have correlative meanings.
"Acquisition Agreement" means (i) the agreement between an Acquisition
Company and a Target or the seller or sellers of a Target, pursuant to which
such Acquisition Company agrees to Acquire a division or similar business unit
from a Target, all or substantially all of the assets, stock or other ownership
interests of a Target, or merge with a Target; (ii) the documents described in
any such agreement and related in any manner to the Acquisition of any Acquired
assets, including, but not limited to, the buy/sell agreement, historical
financial statements of the Target and a detailed description of the Acquired
assets, and every other document, instrument or certificate executed in
connection with such agreement; together with (iii) all amendments to any of the
foregoing.
"Acquisition Analysis" means, with respect to any proposed Acquisition,
an analysis, prepared by the chief financial officer of the Borrower, of the
structure and financial impact of the Acquisition in question, including the
Target's audited financial statements (or other financial statements reasonably
acceptable to the Bank) for the last two fiscal years and a summary of the
material tax and accounting consequences related to the Acquisition, which
analysis shall be in form and substance reasonably satisfactory to the Bank.
"Acquisition Company" means the Borrower or any Consolidated Subsidiary
of the Borrower Acquiring a Target.
"Affiliate" means (i) any Person that directly, or indirectly through one
or more intermediaries, controls the Borrower (a "Controlling Person") or (ii)
any Person (other than the Borrower or a Subsidiary) which is controlled by or
is under common control with a Controlling Person, and if such Person is an
individual, any member of the immediate family (including parent, spouse,
children and siblings) of such individual and any trust whose principal
beneficiary is such individual or one or more members of such immediate family
and any Person who is controlled by any such member or trust. As used herein,
the term "control" means possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ownership of voting securities, by contract, or otherwise.
"Bank" means NationsBank, N.A., a national banking association, and its
successors and assigns.
"Borrower" means Proxicom, Inc., a Delaware corporation, and its
successors.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in Virginia are authorized by law to close.
"Code" means the Internal Revenue Code of 1986, as amended.
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"Collateral" means all of the property which is subject or is to be
subject to the Liens granted by the Collateral Documents.
"Collateral Documents" means the Security Agreements, the Pledge
Agreements, the Mortgages, the Intellectual Property Assignments, and all
supplemental assignments, mortgages, deeds of trust and other documents
delivered or to be delivered pursuant thereto.
"Commitment" has the meaning set forth in Section 2.1.
"Consolidated Subsidiary" means at any date any Subsidiary or other
entity the accounts of which would be consolidated with those of the Borrower in
its consolidated financial statements as of such date.
"Debt" means, collectively, and includes, with respect to any specified
Person (a) indebtedness or liability for borrowed money whether by loan, the
issuance and sale of debt securities or the sale of assets to another Person
subject to an understanding or agreement, contingent or otherwise, to repurchase
such assets from such Person, or for the deferred purchase price of property or
services; (b) obligations of a lessee under a capital lease; (c) obligations to
reimburse the issuer of letters of credit or acceptances; (d) Debt of others
guaranteed by such Person; (e) obligations under interest rate swap, cap or
collar agreements or other similar agreements or arrangements designed to
protect that Person against fluctuations in interest rates; (f) obligations
under any foreign exchange contract, currency swap agreements or other similar
agreements or arrangements designed to protect that Person against fluctuations
in currency values; (g) obligations secured by any Lien on property owned by the
specified Person, whether or not the obligations have been assumed, provided
that the amount of such Debt shall be limited to the lesser of (i) the
outstanding principal balance of such Debt or (ii) the fair market value of the
property of such Person securing such Debt; and (h) the purchaser's obligations
under seller-take-back transactions.
"Default" means any condition or event which constitutes an Event of
Default or which, with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Effective Date" means the date on which this Agreement becomes effective
in accordance with Section 9.8.
"Event of Default" has the meaning set forth in Section 8.1.
"GAAP" means generally accepted accounting principles in the United
States.
"Guaranty" means any guaranty of payment executed and delivered by a
Guarantor in accordance with the requirements of Article III and substantially
in the form of Exhibit B hereto, as such guaranty may be amended, modified or
supplemented from time to time, and "Guaranties" means all of said documents.
"Guarantor" means each Subsidiary of the Borrower which becomes a
Guarantor pursuant to the requirements of Section 6.17, and "Guarantors" means
all of such Persons.
"Intellectual Property Assignment" means any security agreement between
the Borrower or a Guarantor and the Bank, substantially in the form of Exhibit C
hereto, as such agreement may be amended, supplemented or modified from time to
time, and "Intellectual Property Assignments" means all of said agreements.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, the Borrower or a Guarantor shall be deemed
to own subject to a Lien any asset which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such asset.
"Loan" means a loan made by the Bank to the Borrower pursuant to this
Agreement, and "Loans" means all of such Loans.
"Mortgage" means any mortgage or deed of trust executed and delivered by
the Borrower or a Guarantor in accordance with the requirements of Article III,
as such mortgage or deed of trust may be amended, modified or supplemented from
time to time, and "Mortgages" means all of said documents.
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<PAGE> 3
"Net Income" means, for any Person for any period, the consolidated net
income (or deficit) of such Person and its Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP; provided that there
shall be excluded from the calculation thereof any extraordinary, unusual or
non-recurring gains or losses during such period in accordance with GAAP.
"Note" has the meaning set forth in Section 2.4(a).
"Permitted Liens" means the Liens referred to in clauses (i) through
(vii) of Section 6.8.
"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Pledge Agreement" means any pledge agreement executed and delivered by
the Borrower or a Guarantor in accordance with the requirements of Article III
and substantially in the form of Exhibit D hereto, as such agreement may be
amended, modified or supplemented from time to time, and "Pledge Agreements"
means all of said documents.
"Pro Forma Financials" means, with respect to any Acquisition,
consolidated and consolidating balance sheets and income statements of the
Acquisition Company and Target, as of the closing of the applicable Acquisition,
setting forth projections for the three year period following the Acquisition
after giving effect to the closing of the related Acquisition Agreement, and
setting forth in reasonable detail the assumptions underlying such projections,
which assumptions are acceptable to the Bank in its sole discretion.
"Revolving Credit Period" means the period from and including the
Effective Date to but excluding the later of (i) August 31, 2000 or (ii) the
date to which the Revolving Credit Period has been extended pursuant to Section
2.3.
"Security Agreement" means any security agreement between the Borrower or
a Guarantor and the Bank, substantially in the form of Exhibit E hereto, as such
Agreement may be amended, supplemented or modified from time to time, and
"Security Agreements" means all of said agreements.
"Subsidiary" means any corporation or other entity of which securities or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are at the
time directly or indirectly owned by the Borrower.
"Target" means any Person, a majority of the stock (or comparable
ownership interests) of which (directly or indirectly), a division or similar
business unit of which, or all or substantially all of the assets and business
of any of the foregoing of which, are to be Acquired by an Acquisition Company,
pursuant to the terms of an Acquisition Agreement.
"Tax" means any fee (including license, filing and registration fee), tax
(including any income, gross receipts, franchise, sales, use or real, personal,
tangible or intangible property tax), interest equalization or stamp tax,
assessment, levy, impost, duty, charge or withholding of any kind or nature
whatsoever, imposed or assessed by any governmental body, agency or official,
together with any penalty, fine or interest thereon.
"Wholly-Owned Consolidated Subsidiary" means any Consolidated Subsidiary
all of the shares of capital stock or other ownership interests of which (except
directors' qualifying shares) are at the time directly or indirectly owned by
the Borrower.
SECTION 1.2. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared, in accordance with GAAP as
in effect from time to time, applied on a basis consistent (except for changes
concurred in by the Borrower's independent public accountants) with the most
recent audited consolidated financial statements of the Borrower and its
Consolidated Subsidiaries delivered to the Bank.
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ARTICLE II
THE CREDIT
SECTION 2.1. COMMITMENT TO MAKE LOANS. The Bank agrees, on the terms and
conditions set forth in this Agreement, to make loans ("Loans") to the Borrower
from time to time during the Revolving Credit Period in an aggregate principal
amount not to exceed $10,000,000.00 at any one time outstanding (such amount, as
it may be reduced from time to time pursuant to Section 2.6, being herein
referred to as the "Commitment"). Subject to the foregoing, the Borrower may
borrow under this Section 2.1, prepay and reborrow.
SECTION 2.2. METHOD OF BORROWING. The Borrower shall give the Bank notice
not later than 11:00 a.m. (Eastern Time) on the date of each proposed borrowing
hereunder, specifying the date on which it proposes to borrow (which shall be a
Business Day), the amount of the Loan to be borrowed and the Borrower's deposit
account at the Bank into which such amount is to be deposited. Not later than
2:00 p.m. (Eastern Time) on the date so specified, the Bank shall (unless it
determines that any applicable condition specified in this Agreement has not
been satisfied) deposit the amount of the requested loan, in immediately
available funds in McLean, Virginia, to the Borrower in said deposit account.
SECTION 2.3. EXTENSION OF REVOLVING CREDIT PERIOD. The Revolving Credit
Period shall be automatically extended on August 31, 2000 to but excluding
August 31, 2001 unless the Bank shall have given notice not later than ninety
(90) days prior to the date on which the Revolving Credit Period would otherwise
terminate that the Bank has elected not to extend the Revolving Credit Period.
The ability of the Bank not to extend the Revolving Credit Period shall be
unconditional and within its sole discretion, notwithstanding that no Event of
Default exists under this Agreement or the Note and regardless of the adequacy
of the Collateral for the Borrower's performance of its obligations hereunder
and thereunder.
SECTION 2.4. NOTE.
(a) The Loans shall be evidenced by, and repayable with interest in
accordance with, a single note substantially in the form of Exhibit A hereto and
appropriately completed (the "Note").
(b) The Bank shall record, and prior to any transfer of the Note shall
endorse on the schedule forming a part thereof appropriate notations to
evidence, the date and amount of each Loan and the date and amount of each
payment of principal made by the Borrower with respect thereto; Provided,
however, that any failure of the Bank to make such a notation or any error
therein shall not in any manner affect the obligation of the Borrower to repay
the Loans in accordance with the terms of the Note. The Borrower hereby
irrevocably authorizes the Bank so to endorse the Note and to attach to and
make part of the Note a continuation of any such schedule as and when required.
SECTION 2.5. COMMITMENT FEE. During the Revolving Credit Period, the
Borrower shall pay to the Bank a commitment fee at the rate of one-quarter of
one percent (0.25%) per annum on the unused portion of the Commitment. Such
commitment fee shall accrue from and including the Effective Date to but
excluding the last day of the Revolving Credit Period and shall be payable
quarterly in arrears on January 15, April 15, July 15 and October 15 of each
year, commencing January 15, 1999, and on the last day of the Revolving Credit
Period.
SECTION 2.6. OPTIONAL TERMINATION OR PERMANENT REDUCTION OF THE
COMMITMENT. The Borrower may, upon at least three Business Days' notice to the
Bank, (i) terminate at any time, or (ii) permanently reduce, not more frequently
than once per year, by an aggregate amount of $1,000,000 or more, the unused
portion of the Commitment. If the Commitment is terminated in its entirety, any
accrued commitment fee shall be payable on the effective date of such
termination.
SECTION 2.7. OPTIONAL PREPAYMENTS. The Borrower may prepay the Loans in
whole or in part at any time, by paying the principal amount to be prepaid
together with accrued interest thereon to the date of prepayment.
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<PAGE> 5
ARTICLE III
CONDITIONS TO LOANS
The obligation of the Bank to make each Loan is subject to the
satisfaction of the following conditions:
SECTION 3.1. ALL LOANS. In the case of each Loan:
(i) receipt by the Bank of notice of borrowing as required by
Section 2.2;
(ii) the fact that no Default has occurred and is continuing or
would result from such Loan;
(iii) the fact that the representations and warranties of the
Borrower contained in this Agreement and of the Guarantors contained in
the Guaranties shall be true on and as of the date of such Loan (or, with
respect to representations and warranties that speak as of an earlier
date, as of such earlier date); and
(iv) the fact that such Loan will be guaranteed under the
Guaranties and secured by the Collateral Documents.
Each borrowing hereunder shall be deemed to be a representation and warranty by
the Borrower on the date thereof that the facts hereinabove set forth in clauses
(ii), (iii) and (iv) of this Section are true as of such date.
SECTION 3.2. FIRST LOAN. In the case of the first Loan:
(i) receipt by the Bank of a duly executed Note, dated on or
before the date of such Loan, complying with the provisions of Section
2.4;
(ii) all legal matters incident to this Agreement, the Note, the
Collateral Documents and the Guaranties and the transactions
contemplated hereby and thereby shall be reasonably satisfactory to Mays
& Valentine, L.L.P., counsel for the Bank;
(iii) receipt by the Bank of (A) a copy of the Borrower's
certificate of incorporation, as amended, certified by the appropriate
office of the State of Delaware; (B) a certificate of such office, dated
as of a recent date, as to the good standing and charter documents of
the Borrower on file; and (C) a certificate of the Secretary or an
Assistant Secretary of the Borrower dated the date of such Loan and
certifying (1) that the certificate of incorporation of the Borrower has
not been amended since the date of the last amendment thereto indicated
on the certificate furnished pursuant to clause (B) above, (2) as to the
absence of dissolution or liquidation proceedings by or against the
Borrower, (3) that attached thereto is a true and complete copy of the
by-laws of the Borrower as in effect on the date of such certification,
(4) that attached thereto is a true, correct and complete copy of
resolutions adopted by the board of directors of the Borrower
authorizing the execution, delivery and performance of this Agreement,
the Notes and the Collateral Documents to which the Borrower is a party
and that said resolutions have not been amended and are in full force
and effect on the date of such certificate and (5) as to the incumbency
and specimen signatures of each officer of the Borrower executing this
Agreement, the Note and any Collateral Documents to which it is a party,
or any other document delivered in connection herewith or therewith;
(iv) receipt by the Bank of duly executed copies of the
Guaranties of all Guarantors in existence on the date of said Loan;
(v) receipt by the Bank of executed copies of the Collateral
Documents of the Borrower, and all Guarantors in existence on the date
of said Loan, granting to the Bank a first Lien in all the Collateral
described therein;
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<PAGE> 6
(vi) receipt by the Bank of certificates representing the shares
of any stock pledged under the Pledge Agreements in effect on the date
of said Loan, duly indorsed in blank or accompanied by stock powers duly
executed in blank;
(vii) receipt by the Bank of an opinion of Christopher Capuano,
general counsel for the Borrower, substantially in the form of Exhibit H
hereto and covering such additional matters relating to the transactions
contemplated hereby as the Bank may reasonably request;
(viii) (A) on or prior to the date of such Loan, each document
(including, without limitation, each Uniform Commercial Code financing
statement but excluding filings with the U.S. Copyright Office and the
U.S. Patent and Trademark Office) required by law or reasonably
requested by the Bank to be filed, registered or recorded in order to
create in favor of the Bank a perfected first priority security interest
in the Collateral shall have been properly filed, registered or recorded
in each jurisdiction in which the filing, registration or recordation
thereof is so required or requested; (B) within 10 days after the date
of such Loan, each filing with the U.S. Copyright Office and the U.S.
Patent and Trademark Office required by law or reasonably requested by
the Bank to be filed, registered or recorded with respect to the
Collateral shall have been properly filed, registered or recorded in the
appropriate office; and (C) the Bank shall have received, within 30 days
after the date of such Loan, an acknowledgment copy, or other evidence
satisfactory to it, of each of the foregoing filings, registrations and
recordations;
(ix) receipt by the Bank of (A) certified copies of Requests for
Information or Copies (Form UCC-11), or equivalent reports, listing the
financing statements referred to in clause (viii) above and all other
effective financing statements that name the Borrower (under its present
names and any previous names) as debtors or sellers and that are filed
in the jurisdictions referred to in clause (viii) above, together with
copies of such other financing statements (none of which shall cover the
Collateral, except as otherwise disclosed in writing to, and accepted
by, the Bank); and (B) completed Lien search requests for all filings in
the U.S. Copyright Office and the U.S. Patent and Trademark Office;
(x) receipt by the Bank of a landlord's waiver with respect to the
Borrower's lease of its office space in Reston, Virginia and of evidence
of the completion of all recordings and filings of the Collateral
Documents as may be necessary or, in the opinion of the Bank, desirable
to perfect the Liens created by the Collateral Documents;
(xi) receipt by the Bank of evidence of the insurance required by
the Collateral Documents;
(xii) receipt by the Bank of a certificate signed by the
President of the Borrower, to the effect set forth in clauses (ii) and
(iii) of Section 3.1; and
(xiii) receipt by the Bank of all documents it may reasonably
request relating to the existence of the Borrower and the Guarantors,
and their respective authority to execute, deliver and perform, as
applicable, this Agreement, the Note, the Guaranties, and the Collateral
Documents and the validity of this Agreement, the Note, the Guaranties
and the Collateral Documents and any other matters relevant hereto or
thereto, all in form and substance reasonably satisfactory to the Bank.
The failure of any action to be taken, or the failure of any documentation to be
delivered to the Bank, required by this Section to be taken or delivered after
the making of the related Loan, shall constitute a breach of covenant under this
Agreement.
SECTION 3.3. ACQUISITIONS. In the case of each Loan made to finance an
Acquisition (and in addition to the requirements of Section 3.1):
(i) The Acquisition Company shall deliver to the Bank a
certificate, dated as of the date of disbursement of said Loan, pursuant
to which the
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<PAGE> 7
Acquisition Company shall warrant and represent to the Bank that (A) to
the best of its knowledge, each of the representations and warranties
made by the sellers of the Target to the Acquisition Company under such
Acquisition Agreement is true and correct; (B) except as specifically
disclosed in writing to the Bank prior to the date of said Loan, no
broker or finder brought about the making or closing of such Loan made
with respect to such Acquisition Agreement, and neither the Acquisition
Company nor the Bank has any obligation to any Person in respect of any
finder's or brokerage fees in connection with such Loan; (C) the parties
to the Acquisition Agreement have complied with all requirements of every
bulk sales or transfer law that may be applicable to the sale of the
Acquired assets to the Acquisition Company, or the Acquisition Company
has obtained indemnification against any and all liability arising from
the failure to so comply; (D) the Acquisition Agreement has not been
amended except as set forth in written amendments thereto delivered to
the Bank prior to the date of said Loan, (E) the applicable Acquisition
Analysis and Pro Forma Financials remain accurate and complete in all
material respects; and (F) as of the date immediately after the
consummation of all the agreements and transactions under and pursuant to
such Acquisition Agreement, the Acquisition Company and its Subsidiaries
will not have any material amount of liabilities, contingent or
otherwise, not reflected in the Pro Forma Financials.
(ii) Termination statements or releases shall have been filed with
respect to any financing statements or Liens covering all or any portion
of the Acquired assets, except for financing statements perfecting Liens
permitted by this Agreement.
(iii) The Bank shall have received evidence satisfactory to it
that, after giving effect to the Loan, neither the Borrower nor any
Subsidiary of the Borrower is or will be rendered insolvent within the
meaning of Section 548 of the Federal Bankruptcy Code and any applicable
state fraudulent conveyance laws. This condition may be satisfied by
delivering to the Bank a Solvency Certificate, in substantially the form
of Exhibit F attached to this Agreement, dated as of the disbursement
date of the Loan.
(iv) The Acquisition shall comply with Section 6.17.
All documents and opinions referred to in this Article shall be in form and
substance reasonably satisfactory to the Bank and its counsel.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
SECTION 4.1. CORPORATE EXISTENCE AND POWER. The Borrower is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted. The Borrower and each Subsidiary is duly qualified as
a foreign corporation, licensed and in good standing in each jurisdiction where
qualification or licensing is required by the nature of its business or the
character and location of its property, business or customers and in which the
failure to so qualify or be licensed, as the case may be, in the aggregate,
could have a material adverse effect on the business, financial position,
results of operations, properties or prospects of the Borrower and its
Consolidated Subsidiaries, considered as a whole.
SECTION 4.2. CORPORATE AND GOVERNMENTAL AUTHORIZATION; CONTRAVENTION. The
execution, delivery and performance by the Borrower of this Agreement, the Notes
and the Collateral Documents to which it is a party are within its corporate
power, have been duly authorized by all necessary corporate action, require no
action by or in respect of, or filing with, any governmental body, agency or
official and do not contravene, or constitute (with or without the giving of
notice or lapse of time or both) a default under, any provision of applicable
law or of the articles of incorporation or by-laws of the Borrower or of any
material agreement, or any judgment, injunction, order, decree or other
instrument binding upon or affecting the Borrower or result in the creation or
imposition of any Lien (other than the Lien of the Collateral Documents) on any
of its assets.
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<PAGE> 8
SECTION 4.3. BINDING EFFECT. This Agreement constitutes a valid and
binding agreement of the Borrower and the Note, when executed and delivered in
accordance with this Agreement, will constitute the valid and binding obligation
of the Borrower, in each case enforceable against the Borrower in accordance
with its terms, except as (i) the enforceability hereof and thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (ii) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability.
SECTION 4.4. FINANCIAL INFORMATION.
(a) The consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries as of December 31, 1997 and the related consolidated statements of
income for the fiscal year then ended, reported on by PWC, LLC, a copy of which
has been delivered to the Bank, fairly present, in conformity with GAAP, the
consolidated financial position of the Borrower and its Consolidated
Subsidiaries as of such date and their results of operations and changes in
financial position for such fiscal year. As of the date of such financial
statements, the Borrower and its Consolidated Subsidiaries did not have any
material contingent obligation, contingent liability or liability for Taxes,
long-term lease or unusual forward or long-term commitment, which is not
reflected in any of such financial statements or notes thereto.
(b) The unaudited consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of June 30, 1998 and the related unaudited
consolidated statements of income for the six months then ended, a
copy of which has been delivered to the Bank, fairly present, in conformity with
GAAP applied on a basis consistent with the financial statements referred to in
clause (a) of this Section, the consolidated financial position of the Borrower
and its Consolidated Subsidiaries as of such date and their results of
operations and changes in financial position for such six-month period (subject
to normal year-end adjustments).
(c) Since June 30, 1998, there has been no material adverse change in the
business, financial position, results of operations or prospects of the Borrower
and its Consolidated Subsidiaries, considered as a whole.
SECTION 4.5. LITIGATION. Except as set forth on Schedule 4.5 hereto,
there is no action, suit or proceeding pending against, or to the knowledge of
the Borrower threatened against or affecting, the Borrower or any of its
Consolidated Subsidiaries before any court, governmental body, agency or
official in which there is a reasonable possibility of an adverse decision which
could materially adversely affect the business, financial position or results of
operations of the Borrower and its Consolidated Subsidiaries or which in any
manner draws into question the validity of this Agreement, the Note, the
Guaranties or any Collateral Document and there is no basis known to the
Borrower for any such action, suit or proceeding.
SECTION 4.6. MARKETABLE TITLE. The Borrower has good and marketable title
to all its properties and assets subject to no Lien, except Permitted Liens.
SECTION 4.7. FILINGS. Except for the 10-day grace period set forth in
Section 3.2(viii)(B), all actions by or in respect of, and all filing with, any
governmental body, agency or official required in connection with the execution,
delivery and performance of this Agreement, the Note and the Collateral
Documents, or necessary for the validity or enforceability thereof or for the
protection or perfection of the rights and interests of the Bank thereunder,
will, prior to the date of delivery thereof, have been duly taken or made, as
the case may be, and will at all times thereafter remain in full force and
effect.
SECTION 4.8. REGULATION U. The Borrower does not own any "margin stock"
as such term is defined in Regulation U. The proceeds of the Loans will be used
by the Borrower only for the purposes set forth in Section 6.14 hereof. None of
the Loan proceeds will be used, directly or indirectly, for the purpose of (i)
purchasing or carrying any margin stock or for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase or carry
margin stock or for any other purchase which might constitute the Loans a
"purpose credit" within the meaning of Regulation U or Regulation X of the Board
of Governors of the Federal Reserve System; or (ii) acquiring any equity
security of a class which is registered pursuant to Section 12 of the Securities
Exchange Act of 1934.
SECTION 4.9. TAXES. United States Federal income tax returns of the
Borrower and its Subsidiaries have been examined and closed through the fiscal
year ended December 31, 1997. The
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<PAGE> 9
Borrower and its Subsidiaries have filed all United States Federal income tax
returns and all other material tax returns which are required to be filed by
them and have paid (or made adequate provision for the payment of) all Taxes due
pursuant to such returns or pursuant to any assessment received by the Borrower
or any Subsidiary, except where the payment of such Tax is being disputed in
good faith and adequate reserves have been established in accordance with GAAP.
The charges, accruals and reserves on the books of the Borrower and its
Subsidiaries in respect of Taxes or other governmental charges are, in the
opinion of the Borrower, adequate.
SECTION 4.10. SUBSIDIARIES. Each of the Borrower's corporate Subsidiaries
is a corporation duly incorporated, validly existing and in good standing under
the laws of its jurisdiction of incorporation, and has all corporate powers and
all material governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted.
SECTION 4.11. ENVIRONMENTAL COMPLIANCE. (a) The Borrower (including for
purposes of this Section 4.11, any former or current Affiliate or Subsidiary of
the Borrower) is in material compliance with all applicable laws, rules,
regulations and orders of all governmental bodies, agencies and officials
relating to environmental matters and the release, handling and disposal of
hazardous, toxic and polluting substances.
(b) The Borrower has obtained and is in material compliance with all
required Governmental permits, certificates, licenses, approvals and other
authorizations, and has filed all notifications relating to air emissions,
effluent discharges and solid and hazardous waste storage, treatment and
disposal required in connection with its ownership or use of real estate or the
operation of its business.
(c) There are no outstanding notices of violation, orders, claims,
citations, complaints, penalty assessments, suits or other proceedings,
administrative, criminal or civil, at law or in equity, pending against the
Borrower or its properties that would have a material adverse effect on the
Borrower's business, financial position, results of operations or prospects or
on any facility or the operation of any facility, and no investigation or review
is pending or to the knowledge of the Borrower threatened against the Borrower
by any governmental body, agency or official with respect to any alleged
violation of any governmental environmental law, regulation, ordinance,
standard, permit or order in connection with its ownership or use of any real
estate or the conduct of its business.
(d) All toxic or hazardous substances generated by the Borrower have been
transported in material compliance with law to storage, treatment and disposal
facilities permitted or authorized to handle such substances by the governmental
agency with jurisdiction thereof. No notification of release of a hazardous
substance pursuant to the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendment and to
Reauthorization Act of 1986 ("CERCLA"), the Federal Clean Water Act or the Clean
Air Act of any other environmental law, regulation or ordinance has been filed
as to any property now or formerly occupied or owned by the Borrower.
(e) No hazardous, toxic or polluting substances have been released,
discharged or disposed of on property now or formerly owned or occupied by the
Borrower that would have a material adverse effect on the Borrower's business,
financial position, results of operations or prospects or any facility or
operation of such facility.
(f) The Borrower has not received from any environmental regulatory
entity any requests for information, notices of claim, demand letters or other
notification that in connection with the ownership or use of any real estate or
the conduct of the Borrower's business it is or may be potentially responsible
with respect to any investigation or clean-up hazardous substances or toxic
waste or pollutants at any sites.
(g) To the best knowledge of the Borrower, no waste generated by the
Borrower has ever been sent, nor is waste generated by the Borrower being sent,
directly or indirectly, to any site listed or formerly proposed for listing on
the National Priority List promulgated pursuant to CERCLA or to any site listed
on any state list of hazardous substances sites requiring investigation or clean
up.
SECTION 4.12. YEAR 2000 COMPLIANCE. The Borrower (i) has begun analyzing
the operations of the Borrower and its Subsidiaries and Affiliates that could be
adversely affected by the failure to become Year 2000 compliant (that is, that
computer applications, imbedded microchips and other systems will be able to
perform date-sensitive functions prior to and after December 31, 1999); and (ii)
has developed a plan for becoming Year 2000 compliant in a timely manner, the
implementation of which is on schedule in all material respects. The Borrower
reasonably believes that
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it will become Year 2000 compliant for its operations and those of its
Subsidiaries and Affiliates on a timely basis except to the extent that a
failure to do so could not reasonably be expected to have a material adverse
effect upon the financial condition of the Borrower. The Borrower reasonably
believes any suppliers and vendors that are material to the operations of the
Borrower or its Subsidiaries and Affiliates will be Year 2000 compliant for
their own computer applications except to the extent that a failure to do so
could not reasonably be expected to have a material adverse effect upon the
financial condition of the Borrower.
SECTION 4.13. DISCLOSURE. None of this Agreement, any Collateral
Document, any schedule or exhibit thereto or document, certificate, report,
statement or other information furnished to the Bank in connection herewith or
therewith or with the consummation of the transactions contemplated hereby or
thereby contains any material misstatement of fact or omits to state a material
fact necessary to make the statements contained herein or therein not
misleading. There is no fact materially adversely affecting the assets,
business, financial position, results of operations or prospects of the Borrower
which has not been set forth in a footnote included in the financial statements
referred to in Section 4.4(a) or in an exhibit or schedule thereto.
ARTICLE V
FINANCIAL COVENANTS
The Borrower agrees that so long as the Bank is committed to make Loans
hereunder or any amount payable hereunder or under the Note or any Collateral
Document remains unpaid:
SECTION 5.1. CERTAIN DEFINITIONS. As used in this Article V and hereafter
in this Agreement, the following terms have the following meanings:
"Capital Expenditures" shall mean, for any Person for any period,
expenditures made by such Person or any of its Subsidiaries to acquire or
construct fixed assets, plant and equipment (including renewals, improvements
and replacements, but excluding repairs) during such period, computed in
accordance with GAAP.
"Capital Leases" means all leases that should be capitalized on the
balance sheet of the lessee prepared in accordance with GAAP.
"Current Maturities of Long -Term Debt means, as of any date, the
aggregate amount of principal payments (including, without limitation, the
portion of any obligation under Capital Leases allocable to amortization in
accordance with GAAP) in respect of Long-Term Debt which are, in accordance with
GAAP, properly classified as of such date as current liabilities.
"Current Taxes" means, for any period, Taxes paid in such period (rather
than merely accrued or deferred.)
"Dispose" shall mean sell, assign, transfer or otherwise dispose of any
assets (whether now owned or hereafter acquired) by the Borrower or any of its
Subsidiaries to any other Person, excluding any sale, assignment, transfer or
other disposition of any assets sold or disposed of in the ordinary course of
business and on ordinary business terms. The term "Disposed" shall have a
correlative meaning.
"EBITDA" shall mean, for any period, the sum for the Borrower and its
Consolidated Subsidiaries (determined without duplication in accordance with
GAAP) of (a) Net Income for such period, plus (b) taxes, Interest Expense,
depreciation and amortization for such period; provided that (1) if the Borrower
shall have Disposed of a business (or any part thereof) during such period,
EBITDA shall be computed as if such business (or part thereof) had been Disposed
of prior to the first day of such period, and (2) if the Borrower shall have
Acquired a business (or any part thereof) during such period, and if the
Borrower has provided the Bank with audited financial statements (prepared in
accordance with GAAP by an accounting firm acceptable to the Bank) of such
business, or (if such statements are unavailable) other due diligence as to the
financial position of such business acceptable to the Bank, for that portion of
such period preceding the Acquisition, EBITDA shall be computed as if such
business (or part thereof) had been owned by the Borrower for the whole of such
period. If a Target has been generating a negative EBITDA, the adjusted amount
shall be deducted for purposes of calculating compliance with Section 5.4.
"EBITDAR" shall mean, for any period, the sum for the Borrower and its
Consolidated Subsidiaries (determined without duplication in accordance with
GAAP) of (a) Net Income for such
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<PAGE> 11
period, plus (b) taxes, Interest Expense, depreciation, amortization and Lease
Expense, for such period.
"Fixed Charge Coverage Ratio" means, at any time, the ratio of (a)
EBITDAR, minus unfinanced Capital Expenditures and dividends paid to
shareholders, of the Borrower and its Consolidated Subsidiaries, to (b) Current
Maturities of Long-Term Debt, plus Interest Expense, Current Taxes and Lease
Expense, of the Borrower and its Consolidated Subsidiaries.
"Funded Debt" means at any date, with respect to any Person, all senior
debt, letters of credit, stockholder debt, subordinated debt, seller notes and
capitalized leases at such date.
"Funded Debt Ratio" means, at any time, the ratio of (a) Funded Debt of
the Borrower and its Consolidated Subsidiaries, to (b) EBITDA of the Borrower
and its Consolidated Subsidiaries.
"Interest Expense" means, for any period, the sum for the Borrower and
its Consolidated Subsidiaries (determined without duplication in accordance with
GAAP) of the following: (a) all interest in respect of Funded Debt (including
the interest component of any payments in respect of obligations of a lessee
under capital leases) accrued or capitalized during such period plus (b) the net
amount payable (or minus the net amount receivable) under interest rate
protection agreements during such period.
"Lease Expense" means for any period the aggregate lease expense of the
Borrower and its Consolidated Subsidiaries for such period (excluding any
portion of lease expense in respect of Capital Leases).
"Long-Term Debt" means as of any date, those Funded Debts scheduled to
mature more than one year from such date and which are classified properly as
long-term debt in accordance with GAAP.
"Minimum Compliance Level" means $8,000,000, adjusted upward, effective
as of December 31, 1999, and as of the end of each fiscal year thereafter, by an
amount equal to 75% of the consolidated Net Income of the Borrower and its
Consolidated Subsidiaries for such fiscal year, with each of the foregoing
increases being fully cumulative, and with no reduction being made on account of
any negative consolidated Net Income of the Borrower and its Consolidated
Subsidiaries for any fiscal quarter.
"Net Worth" means, at any date, all amounts that, in accordance with
GAAP, would be included under stockholders' equity on the consolidated balance
sheet of the Borrower and its Consolidated Subsidiaries at such time.
SECTION 5.2. NET WORTH. As of the end of each fiscal quarter of the
Borrower, Net Worth shall not be less than the Minimum Compliance Level.
SECTION 5.3. FIXED CHARGE COVERAGE RATIO. For each 12-month period ending
on the last day of each fiscal quarter of the Borrower, a Fixed Charge Coverage
Ratio of not less than 1.20 to 1. The calculation will also include the trailing
twelve months EBITDAR of Acquired entities. For the periods ending on the last
day of each of the first, second and third quarters of 1999, annualized figures
will be used to determine the ratio. Annualization will be calculated as
follows: by multiplying first quarter 1999 figures by 4; by multiplying second
quarter 1999 figures by 2; and by dividing third quarter 1999 figures by 3 and
multiplying the result by 4.
SECTION 5.4. FUNDED DEBT RATIO. For each 12-month period ending on the
last day of each fiscal quarter of the Borrower, a Funded Debt Ratio of not
greater than 3.0 to 1. The calculation will also include the trailing twelve
months EBITDA of Acquired entities. For the periods ending on the last day of
each of the first, second and third quarters of 1999, annualized figures will be
used to determine the ratio. Annualization will be calculated as set forth in
Section 5.3.
ARTICLE VI
OTHER COVENANTS
The Borrower agrees that so long as the Bank is committed to make Loans
hereunder or any amount payable hereunder or under the Notes or any Collateral
Document remains unpaid:
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<PAGE> 12
SECTION 6.1. INFORMATION. The Borrower will deliver or cause to be
delivered to the Bank:
(i) as soon as available and in any event within 120 days after
the end of each fiscal year of the Borrower, a consolidated balance sheet
of the Borrower and its Consolidated Subsidiaries as of the end of such
fiscal year and the related statements of income and cash flow for such
fiscal year, setting forth in each case in comparative form the figures
for the previous fiscal year, all in reasonable detail and accompanied by
an opinion thereon by PWC, LLC or other independent public accountants
satisfactory to the Bank, which opinion shall state that such
consolidated financial statements present fairly the consolidated
financial position of the Borrower and its Consolidated Subsidiaries as
of the date of such financial statements and the results of their
operations for the period covered by such financial statements in
conformity with GAAP applied on a consistent basis (except for changes in
the application of which such accountants concur) and shall not contain
any "going concern" or like qualification or exception or qualifications
arising out of the scope of the audit;
(ii) as soon as available and in any event within 45 days after
the end of each of the first three quarters of each fiscal year of the
Borrower, a consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries and the related consolidated statements of
income and cash flow for such quarter and for the portion of the
Borrower's fiscal year ended at the end of such quarter, setting forth in
each case in comparative form the figures for the corresponding quarter
and the corresponding portion of the Borrower's previous fiscal year, all
certified (subject to normal year-end audit adjustments) as complete and
correct by the chief financial officer or chief accounting officer of the
Borrower;
(iii) simultaneously with the delivery of each set of financial
statements referred to in clauses (i) and (ii) above, a certificate of
the chief financial officer or chief accounting officer of the Borrower,
substantially in the form of Exhibit G hereto and appropriately
completed;
(iv) forthwith upon the occurrence of any Default, a certificate
of the chief financial officer or chief accounting officer of the
Borrower setting forth the details thereof and the action which the
Borrower is taking or proposes to take with respect thereto;
(v) as soon as reasonably practicable after obtaining knowledge of
the commencement of, or of a material threat of the commencement of, an
action, suit or proceeding against the Borrower or any of its
Subsidiaries which could materially adversely affect the business,
properties, financial position, results of operations or prospects of the
Borrower and its Consolidated Subsidiaries, considered as a whole, or
which in any manner questions the validity of this Agreement, the Note,
the Guaranties, any Collateral Document or any of the other transactions
contemplated hereby or thereby, the nature of such pending or threatened
action, suit or proceeding and such additional information as may be
reasonably requested by the Bank;
(vi) promptly upon transmission thereof, copies of all press
releases and other statements made available generally by the Borrower or
its Subsidiaries to the public concerning material developments in the
results of operations, financial condition, business or prospects of the
Borrower or its Subsidiaries;
(vii) promptly upon receipt thereof, copies of each report
submitted to the Borrower or any of its Consolidated Subsidiaries by
independent public accountants in connection with any annual, interim or
special audit made by them of the books of the Borrower or any of its
Consolidated Subsidiaries including, without limitation, each report
submitted to the Borrower or any of its Consolidated Subsidiaries
concerning its accounting practices and systems and any final comment
letter submitted by such accountants to management in connection with the
annual audit of the Borrower and its Consolidated Subsidiaries; and
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<PAGE> 13
(viii) as soon as available, and in any event within 60 days after
the beginning of each fiscal year, a copy of the Borrower's formally
adopted annual budget or other form of Borrower's consolidated financial
projections (but in any event to include, without limitation, pro forma
income and cash flow) for the following fiscal year;
(ix) as soon as available, and in any event within 45 days after
the end of each fiscal quarter, a schedule of all outstanding accounts
receivable of the Borrower and its Subsidiaries showing the initial
invoice date of each such receivable and the age of such receivables in
intervals of 30 days; and
(x) from time to time such additional information regarding the
financial position, results of operations or business of the Borrower or
any of its Subsidiaries as the Bank may reasonably request.
SECTION 6.2. PAYMENT OF OBLIGATIONS. The Borrower will, and will cause
each of its Subsidiaries to, pay and discharge, as the same shall become due and
payable, (i) all their respective obligations and liabilities, including all
claims or demands of materialmen, mechanics, carriers, warehousemen, landlords
and other like persons which, in any such case, if unpaid, might by law give
rise to a Lien upon any of their properties or assets, and (ii) all lawful
Taxes, assessments and charges or levies made upon their properties or assets,
by any governmental body, agency or official except where any of the items in
clause (i) or (ii) of this Section 6.2 may be diligently contested in good faith
by appropriate proceedings, and the Borrower or such Subsidiary shall have set
aside on its books, if required under GAAP, appropriate reserves for the accrual
of any such items.
SECTION 6.3. MAINTENANCE OF PROPERTY; INSURANCE.
(a) The Borrower will keep, and will cause each of its Subsidiaries to
keep, all property useful and necessary in their respective businesses in good
working order and condition, subject to ordinary wear and tear and obsolescence;
will maintain (either in the name of the Borrower or in such Subsidiary's own
name or in the name of the Bank if required by the Security Agreement) with
financially sound and reputable insurance companies, insurance on all their
respective properties in at least such amounts and against at least such risks
(and with such risk retentions) as are usually insured against by companies
engaged in the same or a similar business; and will furnish to the Bank upon
request full information as to the insurance carried.
(b) In addition to the general requirements of subparagraph (a), the
Borrower will keep the Collateral in such condition and will maintain in effect
such insurance on the Collateral as is required by the terms of the Collateral
Documents.
SECTION 6.4. CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. Except as
otherwise permitted by Section 6.9, the Borrower will continue, and will cause
each of its Subsidiaries to continue, to engage in business of the same general
type as now conducted by the Borrower or such Subsidiary, and will preserve,
renew and keep in full force and effect, and will cause each of its Subsidiaries
to preserve, renew and keep in full force and effect, their respective corporate
existence and their respective rights, privileges and franchises necessary or
desirable in the normal conduct of business.
SECTION 6.5. COMPLIANCE WITH LAWS. The Borrower will remain in material
compliance, and will cause each of its Subsidiaries to remain in material
compliance, with all applicable laws, ordinances, rules, regulations, and
requirements of governmental authorities (including, without limitation, ERISA
and the rules and regulations thereunder) except where the necessity of
compliance therewith is contested in good faith by appropriate proceedings.
SECTION 6.6. ACCOUNTING; INSPECTION OF PROPERTY, BOOKS AND RECORDS. The
Borrower will keep, and will cause each of its Subsidiaries to keep, proper
books of record and account in which full, true and correct entries in
conformity with GAAP shall be made of all dealings and transactions in relation
to their respective businesses and activities, will maintain, and will cause
each of its Subsidiaries to maintain, their respective fiscal reporting periods
on the present basis and will permit, and will cause each of its Subsidiaries to
permit, representatives of the Bank to visit and inspect any of their respective
properties during the Borrower's normal business hours, to examine and make
abstracts from any of their respective books and records and to discuss their
respective affairs, finances and accounts with their officers, employees and
independent public accountants, all at such reasonable times and as often as may
reasonably be desired.
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SECTION 6.7. DEBT. The Borrower and its Consolidated Subsidiaries will
not incur or at any time be liable with respect to any Funded Debt in excess of
$2,500,000 in the aggregate at any time, except Debt outstanding under this
Agreement and the Note.
SECTION 6.8. RESTRICTION ON LIENS. The Borrower will not, and will not
permit any of its Subsidiaries to at any time create, assume or suffer to exist
any Lien on any property or asset now owned or hereafter acquired by the
Borrower or any of its Subsidiaries or assign or subordinate any present or
future right to receive assets except:
(i) any Liens created by the Collateral Documents;
(ii) any purchase money security interest on any capital asset of
the Borrower or any of its Subsidiaries if such purchase money security
interest attaches to such capital asset concurrently with the acquisition
thereof and if the Debt secured by such purchase money security interest
does not exceed 80% of the lesser of the cost or fair market value as of
the time of acquisition of the asset covered thereby to the Borrower or
such Subsidiary; provided, that no such purchase money security interest
shall extend to or cover any property or asset of the Borrower or such
Subsidiary other than the related asset;
(iii) Liens securing Taxes, assessments or governmental charges or
levies or the claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords and other like persons; provided (A) with respect
to Liens securing state and local Taxes, such Taxes are not yet payable,
(B) with respect to Liens securing claims or demands of materialmen,
mechanics, carriers, warehousemen, landlords and the like, such Liens are
unfiled and no other action has been taken to enforce the same, or (C)
with respect to Taxes, assessments or governmental charges or levies or
claims or demands secured by such Liens, payment of which is not at the
time required by Section 6.2;
(iv) Liens not securing Debt which are incurred in the ordinary
course of business in connection with workmen's compensation,
unemployment insurance, social security and other like laws;
(v) any Lien arising pursuant to any order of attachment,
distraint or similar legal process arising in connection with court
proceedings so long as the execution or other enforcement thereof is
effectively stayed and the claims secured thereby are being contested in
good faith by appropriate proceedings;
(vi) Liens existing on Acquired assets or the assets of Acquired
entities at the time of Acquisition, and
(vii) Liens in existence on the Effective Date and set forth on
Schedule 6.8(vii) hereto.
SECTION 6.9. CONSOLIDATIONS, MERGERS AND SALES OF ASSETS. Except for
Acquisitions, the Borrower will not (i) consolidate or merge with or into any
other Person or (ii) sell, lease or otherwise transfer all or any substantial
part of its assets to any other Person. The Borrower will not permit any of its
Subsidiaries to consolidate or merge with or into, or transfer all or any
substantial part of its assets to, any Person other than the Borrower or a
Wholly-Owned Consolidated Subsidiary.
SECTION 6.10. TRANSACTIONS WITH AFFILIATES. The Borrower will not, and
will not permit any of its Subsidiaries to, directly or indirectly, pay any
funds to or for the account of, make any investment in, engage in any
transaction with or effect any transaction in connection with any joint
enterprise or other joint arrangement with, any Affiliate of the Borrower or any
of its Subsidiaries, except that the Borrower or any Subsidiary of the Borrower
may make payment or provide compensation (including without limitation the
establishment of customary employee benefit plans) for personal services
rendered by employees and other Persons on terms fair and reasonable in light of
the circumstances under which such services were or are to be rendered.
Nothing in this Section 6.10 shall prohibit the Borrower or any
Subsidiary of the Borrower from making sales to or purchases from any Affiliate
and, in connection therewith, extending credit or making payments, or from
making payments for services rendered by any Affiliate, if such
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<PAGE> 15
sales or purchases are made or such services are rendered in the ordinary
course of business and on terms and conditions at least as favorable to the
Borrower or such Subsidiary as the terms and conditions which would apply in a
similar transaction with a Person not an Affiliate, or prohibit the Borrower or
any Subsidiary of the Borrower from participating in, or effecting any
transaction in connection with, any joint enterprise or other joint arrangement
with any Affiliate if the Borrower or such Subsidiary participates in the
ordinary course of its business and on a basis no less advantageous than on the
basis on which such Affiliate participates.
SECTION 6.11. RESTRICTED PAYMENTS. The Borrower will not, and will not
permit any of its Subsidiaries to, (i) declare or pay any dividend or other
distribution on any shares of the Borrower's or such Subsidiary's capital stock
(except dividends payable solely in shares of the Borrower's or such
Subsidiary's capital stock), (ii) make any payment on account of the purchase,
redemption, retirement or acquisition of (A) any shares of the Borrower's or
such Subsidiary's capital stock (except shares acquired upon the conversion
thereof into other shares of the Borrower's or such Subsidiary's capital stock)
or (B) any option, warrant or other right to acquire shares of the Borrower's or
such Subsidiary's capital stock; provided, however, the following may be made:
(a) bona fide payments and redemptions required to be made under the Borrower's
or any of its Subsidiaries' qualified stock option plans, (b) dividends payable
to the Borrower from its Consolidated Subsidiaries, and (c) required payments on
bona fide Debts between the Borrower and a Consolidated Subsidiary or between
Consolidated Subsidiaries.
SECTION 6.12. INVESTMENTS. The Borrower will not, and will not permit
any of its Subsidiaries to, make or acquire any investment in any Person
(whether by share purchase, capital contribution, loan, time deposit or
otherwise) other than (i) in direct obligations of the United States or any
agency thereof, or obligations guaranteed by the United States or any agency
thereof, (ii) in commercial paper rated in the highest grade by a nationally
recognized credit rating agency, (iii) in time deposits with, including
certificates of deposit issued by, any office located in the United States of
any bank or trust company which is organized under the laws of the United States
or any state thereof and has capital, surplus and undivided profits aggregating
at least $200,000,000, provided in each case that such investment matures within
one year from the date of acquisition thereof by the Borrower, (iv) loans and
advances to employees for travel in the ordinary course of business and in an
amount consistent with past practice, (v) Subsidiaries other than Consolidated
Subsidiaries, provided that such investment may not exceed $1,000,000 in the
aggregate at any time, (vi) Acquisitions, (vii) Wholly-Owned Subsidiaries
existing on the date hereof, (viii) deposits required to be maintained with
utility companies, (ix) required security deposits, (x) trade accounts created
in the ordinary course of the Borrower's or any of its Subsidiaries' business,
and (xi) insured money market funds in prudent amounts.
SECTION 6.13. TRANSACTIONS WITH OTHER PERSONS. The Borrower will not,
and will not permit any of its Subsidiaries to, enter into any agreement with
any Person whereby any of them shall agree to any restriction on the Borrower's
right to amend or waive any of the provisions of this Agreement.
SECTION 6.14. USE OF PROCEEDS. The proceeds of the Loans will be used
by the Borrower to support the working capital needs of the Borrower and
Guarantors, and to make Acquisitions. None of the proceeds of the Loans will be
used, directly or indirectly, for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying any "margin stock" within the meaning of
Regulation U.
SECTION 6.15. INDEPENDENCE OF COVENANTS. All covenants contained
herein shall be given independent effect so that if a particular action or
condition is not permitted by any of such covenants, the fact that such action
or condition would be permitted by an exception to, or otherwise be within the
limitations of another covenant shall not avoid the occurrence of a Default if
such action is taken or condition exists.
SECTION 6.16. RESTRICTIONS WITH RESPECT TO SUBSIDIARIES.
(a) The Borrower will not, and will not permit any of its Subsidiaries
to, sell, assign, transfer or otherwise dispose of (except to the Borrower or to
a Wholly-Owned Subsidiary and except to directors for the purpose of qualifying
them as directors, if required, and except pursuant to presently outstanding
warrants, options or other rights) any shares of stock of any class of such
Subsidiary unless all of the capital stock and the entire Debt of such
Subsidiary at the time owing to the Borrower and to all other Subsidiaries shall
be sold, assigned, transferred or otherwise disposed of at the same time if
permissible under Section 6.11.
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(b) The Borrower will not permit any of its Subsidiaries (i) to issue or
sell any shares of preferred stock except to the Borrower or to a Wholly-Owned
Subsidiary or (ii) to issue or sell any shares of its common stock (except to
directors for the purpose of qualifying them as directors, if required) unless,
after such issue or sale, the Borrower and its Subsidiaries, taken together,
shall retain the same proportionate interest in such Subsidiary.
(c) Notwithstanding subsections (a) and (b) of this Section, the Borrower
and its Subsidiaries may sell, assign, or otherwise dispose of stock pursuant to
the Borrower's or any of its Subsidiaries' qualified stock option plans.
SECTION 6.17. RESTRICTIONS WITH RESPECT TO ACQUISITIONS.
(a) Each Acquisition must comply with all of the following conditions on
or before the date of Acquisition.
(i) An executed letter of intent with respect to such Acquisition,
a pro forma certificate of the Borrower described in Section 6.1(iii)
and supporting Pro Forma Financials, and an Acquisition Analysis shall be
delivered to the Bank at least 20 days prior to the Acquisition. Said
documentation shall reflect that, after giving effect to such
Acquisition, (a) the Borrower and its Subsidiaries will be in compliance
with all of the financial covenants set forth in Article V of this
Agreement, and (a) the Net Income (before any non-cash write-offs or one
time acquisition costs associated with purchase accounting) of the Target
for the 12-month period ending with the last day of the quarter in which
the Acquisition occurred, is not less than $1. True and substantially
complete copies of the applicable Acquisition Agreement shall be
delivered to the Bank at least 10 days prior to the Acquisition.
(ii) The Target shall be in substantially the same or a related
line of business as the Borrower or any of its Subsidiaries.
(iii) The Acquisition shall not have been preceded by an
unsolicited tender offer for the capital stock or other ownership
interests of the Target that was not recommended or approved by the
Target's board of directors or similar governing body.
(iv) The Acquisition Company shall have given the Bank at least 5
Business Days' prior written notice of the closing.
(v) A majority (in number of votes) of the shares of capital stock
or other ownership interests of the Target shall, as a result of said
Acquisition, be directly or indirectly owned by the Acquisition Company.
In the case of a merger, the Acquisition Company must be the surviving
entity.
(vi) No Default shall have occurred and be continuing.
(b) Each domestic Consolidated Subsidiary that is in existence on, formed
or Acquired on or after, the Effective Date, shall become a Guarantor, and the
Borrower shall cause each such Subsidiary to satisfy each of the following
conditions forthwith upon such Subsidiary's formation or Acquisition, except as
otherwise set forth below:
(i) Such Subsidiary shall execute and deliver to the Bank a
Guaranty, and, within 30 days after the Acquisition or formation, a
Pledge Agreement, Security Agreement and an Intellectual Property
Assignment.
(ii) All legal matters incident to such Subsidiary's becoming a
Guarantor shall be reasonably satisfactory to counsel for the Bank, and
the Subsidiary shall execute and deliver to the Bank, within 30 days
after the Acquisition or formation, such additional documents and
certificates relating to the Loans as the Bank reasonably may request.
(iii) The Bank shall have received, within 30 days after the
Acquisition or formation, an opinion of counsel to such Subsidiary,
addressed to the Bank, covering such matters as the Bank may reasonably
request, in form and substance reasonably satisfactory to the Bank.
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<PAGE> 17
(iv) Financing statements in form and substance reasonably
satisfactory to the Bank shall have been properly filed in each office
where necessary to perfect the security interest of the Bank in the
Collateral of such Subsidiary, and, within 30 days after the Acquisition
or formation, (A) termination statements shall have been filed with
respect to any other financing statements covering all or any portion of
such Collateral (except with respect to Liens permitted by this
Agreement), (B) all Taxes and fees with respect to such recording and
filing shall have been paid by such Subsidiary or the Borrower and (C)
the Bank shall have received such Lien searches or reports as it shall
reasonably require confirming that the foregoing filings and recordings
have been completed.
(v) Such Subsidiary shall have delivered the following documents
to the Bank, each of which shall be certified as of the date on which
such Subsidiary is to become a Guarantor, by its secretary or
representative performing similar functions: (1) copies of evidence of
all actions taken by such Subsidiary to authorize the execution and
delivery of the applicable Loan Documents; (2) copies of the articles or
certificate of incorporation and bylaws (or the organizational documents
for a Guarantor that is not a corporation) of such Subsidiary; and (3) a
certificate as to the incumbency and signatures of the officers of such
Subsidiary executing the Loan Documents.
(vi) The Bank shall have received current certificates of good
standing and qualification issued by the appropriate state official of
the state of formation of such Subsidiary and in each jurisdiction in
which it is qualified to do business.
(vii) The Bank shall have received, within 30 days after the
Acquisition or formation, such information and documents the Bank may
reasonably request with respect to the Collateral of such Subsidiary.
(viii) If required by the Bank, the Bank shall have received,
within 30 days after the Acquisition or formation, a satisfactory field
examination of the Collateral and internal control systems of such
Subsidiary performed by a consultant selected by the Bank, and the
Borrower shall have reimbursed the Bank for the cost of such consultant.
(ix) All securities of such Subsidiary owned by the Acquisition
Company after the Acquisition or formation shall be subject to the Lien
of the Acquisition Company's Pledge Agreement, and the certificates
representing such securities shall be delivered to the Bank within 30
days after such Acquisition or formation.
(x) If reasonably required by the Bank, it shall have received a
landlord waiver from each landlord of such Subsidiary, which shall be in
form and substance reasonably acceptable to the Bank.
(xi) Within 30 days after the Acquisition or formation, all
intellectual property of such Subsidiary that is subject to United States
copyright, patent or trademark protection shall have been duly registered
with the Register of Copyrights or the United States Patent and Trademark
Office, as applicable, an Intellectual Property Assignment shall have
been recorded in such office, and the Bank shall have received evidence
that it has a first priority perfected Lien with respect thereto.
(c) The Borrower shall obtain the written consent of the Bank, no later
than 10 Business Days prior to (i) each Acquisition (other than a
stock-for-stock Acquisition) of over $1,000,000, whether or not Loan proceeds
are used in whole or in part, (ii) each (other than a stock-for-stock
Acquisition) Acquisition which would cause the aggregate amount of all
Acquisitions (other than stock-for-stock Acquisitions) to exceed $5,000,000,
whether or not Loan proceeds are used in whole or in part in connection with any
of said Acquisitions, and (iii) any Acquisition of a foreign entity. For all
other Acquisitions, and for any Acquisition which is entirely stock-for-stock
(other than pursuant to clause (iii) above), prior Bank consent is not required,
but prior written notice of each such Acquisition shall be given in accordance
with Section 6.17(a)(iv).
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<PAGE> 18
SECTION 6.18. CHANGE IN MANAGEMENT; CONTROL. Raul J. Fernandez shall not
for any reason cease to be the President and Chief Executive Officer of the
Borrower. The Borrower shall give the Bank 15 Business Days' prior written
notice of the termination or resignation of Raul J. Fernandez as President and
Chief Executive Officer of the Borrower. The Borrower shall not make, engage in,
or suffer to exist any change, or any transaction which results or could result
in a change, in the Control of the Borrower or any Guarantor. As used herein,
the term "Control" of a Person means (i) ownership, control, or power to vote
30% or more of any class of voting securities of such Person, directly or
indirectly or acting through one or more other Persons; (ii) control in any
manner over the election or appointment of a majority of the directors,
trustees, managers or general partners (or individuals exercising similar
functions) of such Person; (iii) the direct or indirect power to exercise a
controlling influence over the management or policies of such Person, whether
through the ownership of voting securities, by contract, or otherwise; or (iv)
conditioning in any manner the transfer of 30% or more of any class of voting
securities of such Person upon the transfer of 30% or more of any class of
voting securities of another Person.
SECTION 6.19. YEAR 2000 COMPLIANCE. The Borrower shall promptly notify
the Bank in the event the Borrower determines that any computer application
which is material to the operations of the Borrower, its Subsidiaries, or any of
its material vendors or suppliers will not be fully Year 2000 compliant on a
timely basis, except to the extent that such failure could not reasonably be
expected to have a material adverse effect upon the financial condition of the
Borrower and its Subsidiaries, taken as a whole.
ARTICLE VII
EMPLOYEE BENEFIT PLANS
SECTION 7.1. CERTAIN DEFINITIONS. As used in this Article VII, the
following terms have the following meanings:
"Controlled Group" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Borrower, are treated as a single
employer under Section 414(b) or 414(c) of the Code.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Plan" means at any time an employee pension benefit plan which is
covered by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code and is either (i) maintained by a member of the
Controlled Group for employees of a member or members of the Controlled Group or
(ii) maintained pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and to which
a member of the Controlled Group is then making or accruing an obligation to
make contributions or has within the preceding five plan years made
contributions.
"Unfunded Vested Liabilities" means, with respect to any Plan at any
time, the amount (if any) by which (i) the present value of all vested
nonforfeitable benefits under such Plan exceeds (ii) the fair market value of
all Plan assets allocable to such benefits, all determined as of the then most
recent valuation date for such Plan, but only to the extent that such excess
represents a potential liability of a member of the Controlled Group to the PBGC
or the Plan under Title IV of ERISA.
SECTION 7.2. COMPLIANCE WITH ERISA. Each member of the Controlled Group
has fulfilled its obligations under the minimum funding standards of ERISA and
the Code with respect to each Plan and is in compliance in all material respects
with provisions of ERISA and the Code presently applicable to each Plan. No
member of the Controlled Group has incurred any liability, or has entered into
any transaction that is likely to cause any liability to be incurred, to the
PBGC or any Plan under Title IV of ERISA. No Lien has been attached and, to the
Borrower's knowledge, no Person has threatened to attach a Lien on any property
of the Borrower as a result of the Borrower's failure to comply with ERISA.
SECTION 7.3. PROHIBITED TRANSACTIONS. The Borrower will not at any time
permit any Plan to:
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<PAGE> 19
(i) engage in any "prohibited transaction", as such term is
defined in Section 4975 of the Code or in Section 406 of ERISA;
(ii) incur any "accumulated funding deficiency", as such term is
defined in Section 302 of ERISA, whether or not waived; or
(iii) be terminated in a manner which could result in the
imposition of a Lien on the property of the Borrower pursuant to Section
4068 of ERISA.
SECTION 7.4. INFORMATION. The Borrower agrees that so long as the Bank is
committed to make Loans hereunder, or the Note remains unpaid, the Borrower will
deliver or cause to be delivered to the Bank if and when any member of the
Controlled Group (i) gives or is required to give notice to the PBGC of any
"reportable event" (as defined in Section 4043 of ERISA) with respect to any
Plan which might constitute grounds for a termination of such Plan under Title
IV of ERISA, or knows that the plan administrator of any Plan has given or is
required to give notice of any such reportable event, a copy of the notice of
such reportable event given or required to be given to the PBGC; (ii) receives
notice of complete or partial withdrawal liability under Title IV of ERISA, a
copy of such notice; or (iii) receives notice from the PBGC under Title IV of
ERISA of an intent to terminate or appoint a trustee to administer any Plan, a
copy of such notice.
ARTICLE VIII
DEFAULTS
SECTION 8.1. EVENTS OF DEFAULT. If one or more of the following events
("Events of Default") shall have occurred:
(i) the Borrower shall fail to pay, within 10 days after the due
date therefor, any principal of or interest on any Loan, any fee or any
other amount payable hereunder or under the Note;
(ii) the Borrower shall fail to observe or perform any covenant
contained in Article V or in Section 3.2, 6.7, 6.8, 6.9, 6.11, 6.12,
6.14, 6.16, 6.17 or 6.18;
(iii) the Borrower shall fail to observe or perform any covenant
or agreement contained in this Agreement (other than those covered by
clauses (i) or (ii) above) for 30 days after the earlier to occur of (A)
the date written notice thereof is given to the Borrower by the Bank, or
(B) the date notice thereof should have been given to the Bank pursuant
to Section 6.1(iv);
(iv) any representation, warranty, certification or statement made
by the Borrower in this Agreement or any Collateral Document to which it
is a party or by any Guarantor in a Guaranty or Pledge Agreement to which
it is a party or by the Borrower or a Guarantor in any certificate,
financial statement or other document delivered pursuant hereto or
thereto shall prove to have been incorrect in any material respect when
made;
(v) the Borrower, any Subsidiary of the Borrower or any Guarantor
shall fail to make any payment in respect of any Debt in excess of
$100,000 (other than the Note) when due or within any applicable grace
period, unless waived by the creditor;
(vi) any event or condition shall occur which results in the
acceleration of the maturity of any Debt in excess of $100,000 of the
Borrower, any Subsidiary of the Borrower or any Guarantor or enables (or,
with the giving of notice or lapse of time or both, would enable) the
holder of such Debt or any Person acting on such holder's behalf to
accelerate the maturity thereof;
(vii) the Borrower, any Subsidiary of the Borrower or any
Guarantor shall commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or its
debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other
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<PAGE> 20
similar official of it or any substantial part of its property, or shall
consent to any such relief or to the appointment of or taking possession
by any such official in an involuntary case or other proceeding commenced
against it, or shall make a general assignment for the benefit of
creditors, or shall fail generally to pay its debts as they become due,
or shall take any corporate action to authorize any of the foregoing;
(viii) an involuntary case or other proceeding shall be commenced
against the Borrower, any Subsidiary of the Borrower or any Guarantor
seeking liquidation, reorganization or other relief with respect to it or
its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial
part of its property, and such involuntary case or other proceeding shall
remain undismissed and unstayed for a period of 60 days; or an order for
relief shall be entered against the Borrower, any Subsidiary of the
Borrower or any Guarantor under the federal bankruptcy laws as now or
hereafter in effect;
(ix) any member of the Controlled Group shall fail to pay when due
an amount or amounts aggregating in excess of $100,000 which it shall
have become liable to pay to the PBGC, any Plan or any Plan trustee under
Title IV of ERISA or Section 412 of the Code; or notice of intent to
terminate a Plan or Plans having aggregate Unfunded Vested Liabilities in
excess of $100,000 (collectively, a "Material Plan") shall be provided
under Title IV of ERISA by any member of the Controlled Group, any plan
administrator or any combination of the foregoing; or the PBGC shall
institute proceedings under Title IV of ERISA to terminate or to cause a
trustee to be appointed to administer any Material Plan or a proceeding
shall be instituted by a fiduciary of any Material Plan against any
member of the Controlled Group to enforce Section 515 of ERISA and such
proceeding shall not have been dismissed within 30 days thereafter; or a
condition shall exist by reason of which the PBGC would be entitled to
obtain a decree adjudicating that any Material Plan must be terminated;
(x) one or more judgments or orders for the payment of money in
excess of $500,000 (except for any judgment or order arising from the
matter disclosed in Schedule 4.5 hereof and except for any judgment or
order which has been disclosed to and approved in writing by the Bank as
an exception to this Default provision within 5 Business Days after the
rendering thereof) shall be rendered against the Borrower or any
Subsidiary of the Borrower and such judgment or order shall continue
unsatisfied and unstayed for a period of 30 days;
(xi) (A) any Collateral Document shall cease for any reason to be
in full force and effect or shall cease to be effective to grant a
perfected security interest in the Collateral with the priority stated to
be created thereby or such security interest shall cease to be in full
force and effect or shall be declared null and void, or the validity or
enforceability of such security interest or any Collateral Document shall
be contested by the Borrower, any Subsidiary of the Borrower or any
Guarantor, or the Borrower, any Subsidiary of the Borrower or any
Guarantor shall deny that it has any further liability or obligation
under a Collateral Document to which it is a party, or the Borrower, any
Subsidiary of the Borrower or any Guarantor shall fail to perform any of
its obligations under the Collateral Documents, or (B) any creditor of
the Borrower, any Subsidiary of the Borrower or any Guarantor (other than
a creditor having a purchase money security interest permitted by Section
6.8(ii) and then solely with respect to the related asset) shall obtain
possession of any of the Collateral by any means, including, without
limitation, levy, distraint, replevin or self-help, or any such creditor
shall establish or obtain any right in the Collateral which is equal to
or senior to the security interests of the Bank in such Collateral;
(xii) a Guaranty shall at any time and for any reason cease to be
in full force and effect or shall be declared null and void, or the
validity or enforceability thereof shall be contested by any Guarantor,
or any Guarantor shall deny that it has any further liability or
obligation under or shall fail to perform its obligations under a
Guaranty; or
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<PAGE> 21
(xiii) (A) the expiration of 30 days after the Bank has given the
Borrower notice (which notice shall set forth in reasonable detail the
basis for the Bank's determination) of the Bank's good faith
determination that (x) the Bank deems itself insecure or (y) that a
material adverse change in the financial condition of the Borrower has
occurred since the date hereof or (z) that the Bank's prospect of payment
hereunder has been impaired, or (B) the reasonable suspicion by the Bank
that one or more Events of Default have occurred and the failure of the
Borrower, upon 30 days' notice thereof from the Bank, to provide
reasonably satisfactory evidence to the Bank that such Events of Default
have not in fact occurred;
then, and in every such event, the Bank, at its option, may by notice to the
Borrower terminate the Commitment and it shall thereupon terminate, and may, at
its option, by notice to the Borrower declare the Note (together with accrued
interest thereon) to be, and the Note shall thereupon become, immediately due
and payable without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrower; provided that in the case of any
of the Events of Default specified in paragraph (vii) or (viii) above with
respect to the Borrower, without any notice to the Borrower or any other act by
the Bank, the Commitment shall thereupon terminate and the Note (together with
accrued interest thereon) shall become immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. NOTICES. All notices, requests and other communications to a
party hereunder shall be in writing and shall be given to such party at its
address set forth on the signature pages hereof or such other address as such
party may hereafter specify for the purpose by notice to the other. Each such
notice, request or other communication shall be effective when delivery to the
addressee, at the address specified in this Section is accepted or refused
provided that notices to the Bank under Section 2.2 and 2.6 shall not be
effective until received.
SECTION 9.2. NO WAIVERS. No failure or delay by the Bank in exercising
any right, power or privilege hereunder or under the Note shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.
SECTION 9.3. EXPENSES.
(a) The Borrower shall pay all out-of-pocket expenses of the Bank,
including: (i) $12,000 in fees, plus disbursements of counsel for the Bank in
connection with the preparation of this Agreement, the Collateral Documents and
the other documents contemplated hereby to be prepared by the Bank's counsel;
(ii) reasonable fees and disbursements of counsel for the Bank, in connection
with the enforcement of this Agreement, any waiver or consent hereunder or any
amendment hereof or any Default or alleged Default hereunder; and (iii) if an
Event of Default occurs, all out-of-pocket expenses incurred by the Bank,
including reasonable fees and disbursements of counsel, in connection with such
Event of Default and collection and other enforcement proceedings resulting
therefrom. The Borrower shall indemnify the Bank against any transfer taxes,
documentary taxes, assessments or charges made by any governmental authority by
reason of the execution and delivery of this Agreement or the Note.
(b) If the Bank shall determine that the adoption after the date hereof
of any law, rule, regulation or guidelines regarding capital adequacy, or any
change in any of the foregoing or in the interpretation or administration of any
of the foregoing by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by the Bank with any request or directive regarding capital adequacy (whether or
not having the force of law) of any such authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on the
Bank's capital or the capital of any Person controlling the Bank as a
consequence of the Bank's obligations hereunder to a level below that which the
Bank or such Person could have achieved but for such law, change or compliance
(taking into consideration the Bank's policies with respect to capital adequacy)
by an amount deemed by the Bank to be material, then from time to time within
ten days after demand by the Bank, the Borrower shall pay to the Bank such
additional amount or amounts (but without duplicating any amount paid as
additional commitment fee pursuant to Section 2.5) as will compensate the Bank
for such reduction. A certificate of the Bank claiming compensation
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<PAGE> 22
under this Section 9.3(b) and setting forth the additional amount or amounts to
be paid to it hereunder shall be conclusive in the absence of manifest error. In
determining any such amount, the Bank may use any reasonable averaging and
attribution methods.
SECTION 9.4. RIGHT OF SET-OFF. Upon the occurrence and during the
continuance of any Event of Default, the Bank is hereby authorized at any time
and from time to time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by the Bank to
or for the credit or the account of the Borrower against any and all of the
obligations now or hereafter existing under this Agreement, the Note or any
Collateral Document, irrespective of whether or not the Bank shall have made any
demand hereunder or under the Note and although such obligation may be
unmatured. The rights of the Bank under this Section 9.4 are in addition to
other rights and remedies (including, without limitation, other rights of
set-offs) which the Bank may have. The Borrower agrees, to the fullest extent it
may effectively do so under applicable law, that any holder of a participation
in any Note may exercise rights of set-off or counterclaim or other rights with
respect to such participation as fully as if such holder of a participation were
a direct creditor of the Borrower in the amount of such participation.
SECTION 9.5. AMENDMENTS AND WAIVERS. Any provision of this Agreement or
of the Note may be amended or waived if, but only if, such amendment or waiver
is in writing and is signed by the Borrower and the Bank.
SECTION 9.6. SUCCESSORS AND ASSIGNS. (a) The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the Borrower may not assign or
otherwise transfer any of its rights under this Agreement without the prior
written consent of the Bank.
(b) The Bank may at any time grant to one or more banks or other
institutions (each a "Participant") participating interests in the Commitment or
in any or all of the Loans or the Note. In the event of any such grant by the
Bank of a participating interest to a Participant, whether or not upon notice to
the Borrower, the Bank shall remain responsible for the performance of its
obligations hereunder, and the Bank shall continue to deal solely and directly
with the Borrower in connection with the Bank's rights and obligations under
this Agreement. Any agreement pursuant to which the Bank may grant such a
participating interest shall provide that the Bank shall retain the sole right
and responsibility to enforce the obligations of the Borrower hereunder
including, without limitation, the right to approve any amendment, modification
or waiver of any provision of this Agreement and the Collateral Documents;
provided that such participation agreement may provide that the Bank will not
agree to any modification, amendment or waiver of this Agreement or the
Collateral Documents which would have the effect of (i) increasing, decreasing
or extending the Commitment or subjecting the Bank to any additional obligation,
(ii) reducing the principal of or rate of interest on any Loan, (iii) postponing
the date fixed for any payment of principal of or interest on any Loan or fees
hereunder or under the Note, (iv) extending the Revolving Credit Period, (v)
releasing any substantial part of the Collateral or other direct or indirect
security for the Loans without the consent of the Participant. An assignment or
other transfer which is not permitted by subsection (c) or (d) below shall be
given effect for purposes of this Agreement only to the extent of a
participating interest granted in accordance with this subsection (b).
(c) The Bank may at any time assign to one or more banks or other
institutions (each an "Assignee") all, or a proportionate part of all, of its
rights and obligations under this Agreement and the Note, and such Assignee
shall assume such rights and obligations, pursuant to an instrument executed by
such Assignee and the Bank, with (and subject to) the consent of the Borrower;
provided that if an Assignee is an affiliate of the Bank, no such consent shall
be required. Upon execution and delivery of such an instrument and payment by
such Assignee to the Bank of an amount equal to the purchase price agreed
between the Bank and such Assignee, such Assignee shall become a Bank party to
this Agreement and shall have all the rights and obligations of a Bank with a
Commitment as set forth in such instrument of assumption, and the transferor
Bank shall be released from its obligations hereunder to a corresponding extent,
and no further consent or action by any party shall be required. Upon the
consummation of any assignment pursuant to this subsection (c), the transferor
Bank and the Borrower shall make appropriate arrangements so that, if required,
a new Note or Notes is issued to the Assignee. If the Assignee is not
incorporated under the laws of the United States of America or a state thereof,
it shall, prior to the first date on which interest or fees are payable
hereunder for its account deliver to the Borrower certification as to exemption
from deduction or withholding of any United States federal income taxes.
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<PAGE> 23
(d) The Bank may at any time assign all or any portion of its rights
under this Agreement and the Note to a Federal Reserve Bank. No such assignment
shall release the Bank from its obligations hereunder.
(e) The Bank may furnish any information concerning the Borrower in its
possession from time to time to Assignees and Participants (including
prospective Assignees and Participants) and may furnish such information in
response to credit inquiries consistent with general banking practice.
SECTION 9.7. VIRGINIA LAW. This Agreement and the Notes shall be governed
by and construed in accordance with the laws of the Commonwealth of Virginia
without reference to conflicts of laws principles.
SECTION 9.8. COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when the Bank shall have received
counterparts hereof signed by both parties.
SECTION 9.9. WAIVER OF JURY TRIAL; SUBMISSION TO JURISDICTION. The
Borrower hereby irrevocably and unconditionally waives all right to trial by
jury in any action, proceeding, or counterclaim arising out of or related to
this Agreement, the Note, any Collateral Document or any of the transactions
contemplated hereby or thereby. Any legal action or proceeding with respect to
this Agreement, the Note, or any Collateral Document or any document related
hereto or thereto shall be brought in the courts of the Commonwealth of Virginia
in Fairfax County, Virginia or of the United States of America for the Eastern
District of Virginia and in no other courts, and by execution and delivery of
this Agreement the Borrower hereby accepts for itself and in respect of its
property, generally and unconditionally, the jurisdiction of the aforesaid
courts. The Borrower hereby irrevocably and unconditionally waives any
objection, including without limitation, any objection to the laying of venue or
based on the grounds of the forum non conveniens which it now or hereafter may
have to the bringing of any action or proceeding in such respective
jurisdictions.
SECTION 9.10. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE
PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING
ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY
BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT
APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR
THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR ANY SUCCESSOR
THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF
ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY
ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO
THIS AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING,
TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT
APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
(i) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF
THE BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS AGREEMENT AND
ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE
OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN
ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED
WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL
ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH
HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
(ii) RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL
BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT OR (II) BE A
WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY
SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE BANK (A) TO
EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO
FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN
FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO)
INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. THE BANK
MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH
PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY
ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS AGREEMENT. NEITHER THIS EXERCISE
OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR
FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF
THE RIGHT OF ANY
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<PAGE> 24
PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
SECTION 9.11. ENTIRE AGREEMENT. This Agreement, the Note, the Guaranties,
the Collateral Documents and other loan documents set forth the entire agreement
of the parties with respect to the subject matter hereof and thereof and
supersede all previous understandings. written or oral, in respect thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
PROXICOM, INC. [SEAL]
By /s/ CHRISTOPHER CAPUANO
----------------------------
Name C. Capuano
Title VP
11600 Sunrise Valley Drive
Reston, Virginia 20191
NATIONSBANK, N.A. [SEAL]
By /s/ BRIAN A. ROUNTREE
----------------------------
Brian A. Rountree, Vice President
8300 Greensboro Drive, Suite 550
McLean, Virginia 22102
53093v7
The Exhibits and Schedules to this Secured Credit Agreement are not included
with this Registration Statement on Form S-1. The Registrant will provide these
Exhibits and Schedules upon the request of the Securities and Exchange
Commission.
-24-
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
- ---- -----------------------------
<S> <C>
Square Earth, Inc. Delaware
IBIS Consulting, Inc. California
Proxicom (Barbados), Inc. Barbados
ProxiCom GmbH Germany
</TABLE>
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 5, 1998,
relating to the consolidated financial statements of Proxicom, Inc., which
appears in such Prospectus. We also consent to the application of such report to
the Financial Statement Schedules for the three years ended December 31, 1998
listed under Item 16(b) of this Registration Statement when such schedules are
read in conjunction with the financial statements referred to in our report. The
audits referred to in such report also included these schedules. We also consent
to the references to us under the headings "Experts" and "Selected Financial
Data" in such Prospectus. However, it should be noted that
PricewaterhouseCoopers LLP has not prepared or certified such "Selected
Financial Data."
PricewaterhouseCoopers LLP
McLean, VA
February 12, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 12/31/98 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,482
<SECURITIES> 278
<RECEIVABLES> 14,372
<ALLOWANCES> 500
<INVENTORY> 0
<CURRENT-ASSETS> 17,461
<PP&E> 5,527
<DEPRECIATION> 2,669
<TOTAL-ASSETS> 22,077
<CURRENT-LIABILITIES> 15,081
<BONDS> 0
0
20
<COMMON> 146
<OTHER-SE> 6,830
<TOTAL-LIABILITY-AND-EQUITY> 22,077
<SALES> 42,405
<TOTAL-REVENUES> 42,405
<CGS> 23,862
<TOTAL-COSTS> 23,862
<OTHER-EXPENSES> 39,974
<LOSS-PROVISION> 959
<INTEREST-EXPENSE> 227
<INCOME-PRETAX> (21,542)
<INCOME-TAX> (900)
<INCOME-CONTINUING> (20,642)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,642)
<EPS-PRIMARY> (1.50)
<EPS-DILUTED> (1.50)
</TABLE>
