<PAGE>
As filed with the Securities and Exchange Commission on April 28, 1999.
Registration No. 333-74731
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 1
to
Form S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
SCIENT CORPORATION
(Exact name of Registrant as specified in its charter)
---------------
<TABLE>
<S> <C> <C>
Delaware 7379 94-3288107
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
One Front Street, 28th Floor
San Francisco, CA 94111
(415) 733-8200
(Address, including zip code, and telephone number, including
area code, of the Registrant's principal executive offices)
---------------
William H. Kurtz
Chief Financial Officer, Executive Vice President, Treasurer and Secretary
Scient Corporation
One Front Street, 28th Floor
San Francisco, CA 94111
(415) 733-8200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
<TABLE>
<S> <C>
Robert V. Gunderson, Jr., Esq. Gregory M. Gallo, Esq.
David T. Young, Esq. Paul A. Blumenstein, Esq.
Gunderson Dettmer Stough Gray Cary Ware & Freidenrich LLP
Villeneuve Franklin & Hachigian, LLP 400 Hamilton Avenue
155 Constitution Drive Palo Alto, California 94301
Menlo Park, California 94025 (650) 328-6561
(650) 321-2400
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of this prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Maximum
Title of Each Class of Proposed Maximum Aggregate Amount of
Securities Amount to be Offering Price Offering Registration
to be Registered Registered(1) per Share(2) Price(2) Fee(3)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.0001
par value per share... 3,450,000 $13.00 $44,850,000 $12,469
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Includes shares that the Underwriters have the option to purchase to cover
over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a).
(3) A registration fee of $14,094 was paid in connection with the original
filing on March 19, 1999.
---------------
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 that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to such Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and we are not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued April 28, 1999
3,000,000 Shares
[Scient Corporation Logo]
COMMON STOCK
-----------
Scient Corporation is offering shares of its common stock. This is our initial
public offering and no public market currently exists for our shares. We have
requested that the underwriters reserve up to 442,901 shares to be offered to
the persons identified on page 62 of the prospectus. We anticipate that the
initial public offering price will be between $11 and $13 per share.
-----------
We have filed an application for the common stock to be quoted on the Nasdaq
National Market under the symbol "SCNT."
-----------
Investing in the common stock involves risks.
See "Risk Factors" beginning on page 7.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
Underwriting
Price Discounts Proceeds
to and to
Public Commissions Company
------ ------------ --------
<S> <C> <C> <C>
Per Share.......................................... $ $ $
Total.............................................. $ $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Scient Corporation has granted the underwriters the right to purchase up to an
additional 450,000 shares of common stock to cover over-allotments. Morgan
Stanley & Co. Incorporated expects to deliver the shares of common stock to
purchasers on , 1999.
-----------
MORGAN STANLEY DEAN WITTER
HAMBRECHT & QUIST
THOMAS WEISEL PARTNERS LLC
-----------
Internet Distribution Offered By
DISCOVER BROKERAGE DIRECT
, 1999
<PAGE>
[Artwork Page 1]
Scient is a leading provider of a new category of professional services
called eBusiness systems innovation.
[Artwork Page 2]
Scient's clients are innovative companies seeking competitive advantage
through eBusiness.
[Corporate logos of clients]
Scient Clients
[Screen shot of REALTOR.com]
REALTOR.com
Pioneering online real estate services, REALTOR.com aids home buyers and
real estate professionals in the buying and selling of homes. RealSelect chose
Scient to execute a technology re-architecture and functional redesign of
REALTOR.com in order to enable the site to be more robust and responsive.
Scient worked with RealSelect to implement a new, feature-rich functional
design in under five months. The result is an online application which allows
for the addition of new features. Scient designed the eBusiness for extended
functionality to help REALTOR.com better serve their customers.
[Screen shot of PlanetRx]
PlanetRx
PlanetRx, an online drugstore, teamed with Scient to accelerate the time to
market of their eBusiness. Scient worked with PlanetRx to define their
business process and determine the functional requirements and technical
specifications needed to support their eBusiness. Based on this assessment,
Scient designed, architected and implemented an eBusiness system for PlanetRx.
From Scient's engagement through the launch of the PlanetRx site, the entire
process took only six months.
[Screen shot of innoVisions]
innoVisions
innoVisions is an integrator and operator of cash access machines, or CAMs,
that provide automated check cashing and cash access in casinos and retail
locations. Based on an open systems architecture, innoVisions has recently
developed CAMs which use emerging technologies to identify individuals using
facial recognition. innoVisions hired Scient to design, develop and test its
CAM platform and networking technologies. In approximately 30 weeks, Scient
assessed the client's needs, and architected and engineered an integrated
system using the Windows NT operating system, browser technologies, standards
for transmitting voice over the Internet and software that recognizes facial
patterns. Further, Scient designed the system to accommodate the addition of
new functionality to innoVisions' CAMs in the future.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary................................................... 4
Risk Factors......................................................... 7
Use of Proceeds...................................................... 18
Dividend Policy...................................................... 18
Preemptive Rights.................................................... 18
Capitalization....................................................... 19
Dilution............................................................. 20
Selected Financial Data.............................................. 21
Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 22
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business.............................................................. 28
Management............................................................ 41
Certain Transactions.................................................. 53
Principal Stockholders................................................ 56
Description of Capital Stock.......................................... 58
Shares Eligible for Future Sale....................................... 60
Underwriters.......................................................... 62
Legal Matters......................................................... 64
Experts............................................................... 65
Additional Information................................................ 65
Index to Financial Statements......................................... F-1
</TABLE>
Scient Corporation was originally incorporated in California on November 7,
1997. We intend to reincorporate in Delaware prior to the effectiveness of the
offering. Our principal executive offices are located at One Front Street,
28th Floor, San Francisco, California 94111 and our telephone number is (415)
733-8200. Our World Wide Web address is www.scient.com. The information on our
website is not incorporated by reference into this prospectus.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of the common stock.
In this prospectus, "Scient," "we," "us" and "our" refer to Scient
Corporation. Unless otherwise indicated, all information in this prospectus:
. gives effect to the conversion of all outstanding shares of preferred
stock into shares of common stock effective upon the closing of the
offering;
. assumes no exercise of the underwriters' over-allotment option;
. assumes no exercise of warrants to purchase an aggregate of 32,875 shares
of our common stock which were outstanding on March 31, 1999; and
. assumes the completion of the reincorporation into Delaware.
Until , 1999, 25 days after commencement of the offering, all dealers
that buy, sell or trade the 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.
We use the following trademarks of Scient in this prospectus: Scient, the
Scient logo, the Scient Approach, The eBusiness Systems Innovator and New
Bottom Line. This prospectus also includes trademarks of other companies.
3
<PAGE>
PROSPECTUS SUMMARY
You should read this summary together with the more detailed information and
our financial statements and notes appearing elsewhere in this prospectus.
OUR COMPANY
Scient is a leading provider of a new category of professional services
called eBusiness systems innovation. eBusinesses are businesses that combine
the reach and efficiency of the Internet with both emerging and existing
technologies to enable companies to strengthen relationships with customers and
business partners, create new revenue opportunities, reduce costs, improve
operating efficiencies, shorten cycle times and improve communications. As an
eBusiness systems innovator, we provide integrated eBusiness strategy and
technology implementation services to clients who are creating eBusinesses or
are rethinking or expanding their existing businesses to integrate eBusiness
capabilities. These services include strategy consulting, customer experience
design, systems architecture, and application and technology infrastructure
development. Our services are designed to rapidly improve a client's
competitive position through the development of innovative business strategies
enabled by the integration of emerging and existing technologies. We have
developed a methodology, the Scient Approach, that provides a framework for
each stage of a client engagement from helping the client conceive its strategy
to architecting, engineering and extending its eBusiness. We believe that our
integrated methodology allows us to deliver reliable, robust, secure, scalable
and extensible eBusiness systems innovation in rapid timeframes.
We have performed professional services for over 35 clients, including AIG,
Chase Manhattan, eBay, First Union, innoVisions, PlanetRx and RealSelect.
OUR MARKET OPPORTUNITY
Scient believes that most companies seeking to build or enhance their
eBusiness capabilities require a professional services provider with a broad
range of integrated capabilities. Such a service provider must provide
strategic industry insights combined with extensive technological skills to
create applications, technology infrastructure and business systems that are
reliable, robust, secure, scalable and extensible. Moreover, it must have a
structured approach and the skills necessary to achieve the rapid innovation
and deployment of eBusinesses demanded by today's competitive marketplace. Such
a skill set must include the ability to understand and integrate a wide
spectrum of both emerging and existing technologies. Scient believes that many
existing service providers are not well suited to address the broad range of
challenges posed by eBusiness because they lack the necessary combination of
strategic consulting and technological expertise. As a result, Scient believes
that there is a growing need for a new category of service providers called
eBusiness systems innovators.
Scient provides the integrated services required to rapidly design, build
and improve eBusinesses. We provide strategy consulting that combines expertise
in eBusiness with market-specific knowledge in order to produce a combined
business and technology strategy for our clients. We also architect and build
applications and technology infrastructure that support a wide variety of
eBusiness functions. We believe that we have a set of integrated skills that
enable our clients to create or enhance competitive eBusinesses in rapid
timeframes. This skill set includes:
. Broad range of integrated strategy and technology capabilities;
. Strategic industry insight;
. Extensive skill with both emerging and existing technologies;
. Customer experience design expertise;
. Security expertise;
. Structured and integrated approach to client engagements;
. Rapid deployment and execution capabilities; and
. Knowledge management expertise.
4
<PAGE>
OUR STRATEGY
Scient's objective is to build upon its position as a leading eBusiness
systems innovator. Our strategies for achieving that objective are as follows:
Target Critical Engagements for Emerging eBusiness Leaders. To continue to
differentiate our services and achieve recognition as a leading eBusiness
systems innovator, we intend to continue to be selective with respect to the
clients we serve and the engagements we undertake, and focus on engagements
that are critical to the efforts of emerging market leaders building and
enhancing innovative eBusinesses.
Hire and Retain Outstanding Professionals and Maintain a Culture that
Fosters Innovation. We place a strong focus on attracting, hiring, developing
and retaining outstanding professionals. We also focus on maintaining a one-
firm culture that fosters innovation and emphasizes professional development.
Target Potential Clients Through Market-Specific Business Units. Our
marketing and sales strategy includes targeting potential clients through
market-specific business units that operate globally. Thus far, we have
established four market-specific business units through which we market and
sell our services. We intend to add additional market-specific business units
as our capabilities and client opportunities warrant.
Establish Global Presence to Support Emerging eBusiness Leaders. In order to
better serve the needs of enterprises operating on a worldwide basis, we intend
to expand our geographic presence within the United States and abroad.
Continue to Develop and Refine the Scient Approach and Knowledge
Management. In order to capture, upgrade and refine our intellectual capital,
including the Scient Approach, we intend to continue to invest in our knowledge
management processes and systems. We believe that these processes and systems
will allow us to use our intellectual capital in order to accelerate the
delivery of our services, reduce our costs and leverage our industry expertise.
5
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common stock offered............................... 3,000,000 shares
Common stock to be outstanding after the offering.. 34,299,560 shares(1)
Use of proceeds.................................... For general corporate
purposes, including
working capital. See "Use
of Proceeds."
Proposed Nasdaq National Market symbol............. SCNT
</TABLE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------
(unaudited)
November 7, 1997
(Inception)
through
March 31, June 30, Sept. 30, Dec. 31, March 31,
1998 1998 1998 1998 1999
---------------- -------- --------- -------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ 179 $ 1,924 $ 3,094 $ 6,270 $ 9,387
Total operating
expenses............... 1,394 2,525 4,569 10,207 15,721
Loss from operations.... (1,215) (601) (1,475) (3,937) (6,334)
Net loss................ (1,159) (523) (1,288) (3,741) (6,149)
Net loss per share:
Basic and diluted...... $ (.19) $ (.09) $ (.21) $ (.56) $ (.81)
Weighted average
shares................ 5,947 6,048 6,155 6,737 7,623
Pro forma net loss per
share:
Basic and diluted(2)... $ (.03) $ (.06) $ (.17) $ (.27)
Weighted average
shares(2)............. 18,321 20,937 21,544 22,707
</TABLE>
The following table presents our summary balance sheet as of March 31, 1999.
The data in the "As Adjusted" column has been adjusted to reflect the
conversion of our preferred stock outstanding as of March 31, 1999 into
14,732,794 shares of common stock and our sale of 3,000,000 shares of our
common stock in this offering at an assumed initial public offering price of
$12.00 per share and the application of the estimated net proceeds. See "Use of
Proceeds" and "Capitalization."
<TABLE>
<CAPTION>
As of March 31, 1999
-----------------------
Actual As Adjusted
---------- ------------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term investments..... $28,129 $ 60,409
Working capital....................................... 28,108 60,388
Total assets.......................................... 38,812 71,092
Bank borrowings and capital lease obligations, long-
term................................................. 1,809 1,809
Total stockholders' equity ........................... 29,977 62,257
</TABLE>
- --------
(1) Based on the number of shares outstanding as of March 31, 1999. Excludes
2,951,916 shares of common stock issuable upon exercise of outstanding
options as of March 31, 1999 at a weighted average exercise price of $2.71.
Also excludes 32,875 shares of common stock issuable upon the exercise of
warrants outstanding as of March 31, 1999 at a weighted average exercise
price of $.37 per share. See "Management--Employee Benefit Plans" and Notes
6 and 8 of Notes to Financial Statements.
(2) See Note 1 of Notes to Financial Statements for an explanation of the
number of shares used in per share computations.
6
<PAGE>
RISK FACTORS
You should carefully consider the following risks before making an
investment decision. The risks described below are not the only ones that we
face. Any of the following risks could seriously harm our business, financial
condition or results of operations. As a result, these risks could cause the
decline of the trading price of our common stock, and you may lose all or part
of your investment. You should also refer to the other information set forth
in this prospectus, including our financial statements and the related notes.
Risks Related to Our Business
We Have a History of Losses and Expect to Incur Losses in the Future
We incurred net losses of $11.7 million during the year ended March 31,
1999. As of March 31, 1999, we had an accumulated deficit of $12.9 million. We
have not had a profitable quarter and may never achieve profitability. We also
expect to continue to incur increasing sales and marketing, infrastructure
development and general and administrative expenses. As a result, we will need
to generate significant revenues to achieve profitability. If we do achieve
profitability, we may not be able to sustain or increase profitability on a
quarterly or annual basis in the future. Although our revenues have grown in
recent quarters, we do not believe that we can sustain our historical growth
rates. Accordingly, you should not view our historical growth rates as
indicative of our future revenues. See "Selected Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Our Quarterly Revenues and Operating Results Are Volatile and May Cause Our
Stock Price to Fluctuate
Our quarterly revenues and operating results are volatile and difficult to
predict. It is likely that in some future quarter or quarters our operating
results will be below the expectations of public market analysts or investors.
In such event, the market price of our common stock may decline significantly.
Our quarterly operating results have varied in the past and are likely to
vary significantly from quarter to quarter. As a result, we believe that
period-to-period comparisons of our results of operations are not a good
indication of our future performance. A number of factors are likely to cause
these variations, including:
. Our ability to obtain new and follow-on client engagements;
. The amount and timing of expenditures by our clients for eBusiness
services;
. Our ability to attract, train and retain skilled management, strategic,
technical, design, sales, marketing and support professionals;
. Our employee utilization rate, including our ability to transition
employees quickly from completed projects to new engagements, for which
we typically receive little or no notice;
. The introduction of new services by us or our competitors;
. Changes in our pricing policies or those of our competitors;
. Our ability to manage costs, including personnel costs and support
services costs; and
. Costs related to the expected opening or expansion of Scient offices.
We derive all of our revenues from professional services, which we
generally provide on a time and materials basis. Revenues pursuant to time and
materials contracts are generally recognized as services are
7
<PAGE>
provided. Since personnel and related costs constitute the substantial
majority of our operating expenses and since we establish these expenses in
advance of any particular quarter, underutilization of our professional
services employees may cause significant reductions in our operating results
for a particular quarter and could result in losses for such quarter. In
addition, we have hired a large number of personnel in core support services,
including knowledge management, technology infrastructure and finance and
administrative, in order to support our anticipated growth. As a result, a
significant portion of our operating expenses are fixed in the short term.
Therefore, any failure to generate revenues according to our expectations in a
particular quarter could result in losses for the quarter. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Although we have limited historical financial data, we have experienced and
expect to continue to experience seasonality in revenues from our electronic
business, or eBusiness, services. These seasonal trends may materially affect
our quarter-to-quarter operating results. Revenues and operating results in
our quarter ending December 31 are typically lower relative to our other
quarters because there are a lower number of billable days in this quarter due
to holidays and vacation days. In addition, operating expenses may increase in
each quarter ending September 30, both on absolute terms and as a percentage
of revenues, due to the potential hiring of large numbers of recent college
graduates each year, which results in increased salary expenses before such
new employees begin to generate substantial revenues for Scient.
Our Ability to Attract, Train and Retain Qualified Employees Is Crucial to
Our Results of Operations and Any Future Growth
Our future success depends in large part on our ability to hire, train and
retain project and engagement managers, technical architects, strategists,
engineers, design professionals, other technical personnel and sales and
marketing professionals of various experience levels. Any inability to hire,
train and retain a sufficient number of qualified employees could hinder the
growth of our business. Skilled personnel are in short supply, and this
shortage is likely to continue for some time. As a result, competition for
these people is intense, and the industry turnover rate for them is high. In
addition, we believe that prospective employees that we target after the
offering may perceive that the stock option component of our compensation
package is not as valuable as that component was prior to this offering.
Consequently, we may have difficulty hiring our desired numbers of qualified
employees after this offering. Moreover, even if we are able to expand our
employee base, the resources required to attract and retain such employees may
adversely affect our operating margins. In addition, some companies have
adopted a strategy of suing or threatening to sue former employees and their
new employers. As we hire new employees from our current or potential
competitors we are likely to become a party to one or more lawsuits involving
the former employment of one of our employees. Any future litigation against
us or our employees, regardless of the outcome, may result in substantial
costs and expenses to us and may divert management's attention away from the
operation of our business.
We Depend on Our Key Personnel, and the Loss of Any Key Personnel May
Adversely Affect Our Business
We believe that our success will depend on the continued employment of our
senior management team and key technical personnel. This dependence is
particularly important to our business because personal relationships are a
critical element of obtaining and maintaining client engagements. If one or
more members of our senior management team or key technical personnel were
unable or unwilling to continue in their present positions, such persons would
be very difficult to replace and our business could be seriously harmed. To
date, a majority of our revenues have been generated by the selling efforts of
our senior management. Accordingly, the loss of one or more members of our
senior management team could have a direct adverse impact on our future sales.
In addition, if any of these key employees joins a competitor or forms a
competing company, some of our clients might choose to use the services of
that competitor or new company instead of our own. Furthermore, clients or
other companies seeking to develop in-house eBusiness capabilities may hire
away some of our key employees. This would not only result in the loss of key
employees but could also result in the loss of a client relationship or a new
business opportunity. Any losses of client relationships could seriously harm
our business.
8
<PAGE>
We Have a Limited Operating History and a Limited Number of Completed
Engagements that Make an Evaluation of Our Business Difficult
We were incorporated in November 1997 and began providing services to
clients in February 1998. Our limited operating history makes an evaluation of
our business and prospects very difficult. Companies in an early stage of
development frequently encounter enhanced risks and unexpected expenses and
difficulties. These risks, expenses and difficulties apply particularly to us
because our market, eBusiness services, is new and rapidly evolving. Our long-
term success will depend on our ability to achieve satisfactory results for
our clients and to form long-term relationships with core clients. We have not
been in operation long enough to judge whether our clients will perceive our
work as being beneficial to their businesses or to form any long-term business
relationships. Also, because of our limited operating history, our business
reputation is based on a limited number of client engagements. All of our
clients have only limited experience with the electronic business systems we
have developed for them. Accordingly, we cannot assure you that the limited
number of electronic business systems we have implemented will be successful
in the longer term. If the electronic business systems we have implemented are
not successful, our brand will be harmed and we may incur liability to our
clients. If one or more of our clients for whom we have done substantial work
suffers a significant failure or setback in its eBusiness, our business
reputation could be severely damaged, whether or not such failure or setback
was caused by our work or within our control. Our ability to obtain new
engagements, retain clients and recruit and retain highly-skilled employees
could be seriously harmed if our work product or our clients' eBusinesses fail
to meet the expectations of our clients.
Competition from Bigger, More Established Competitors Who Have Greater
Financial Resources Could Result in Price Reductions, Reduced Profitability
and Loss of Market Share
Competition in the eBusiness services market is intense. If we fail to
compete successfully against current or future competitors, our business,
financial condition and operating results would be seriously harmed. We
compete against companies selling electronic commerce software and services,
and the in-house development efforts of companies seeking to engage in
electronic commerce. We expect competition to persist and intensify in the
future. We cannot be certain that we will be able to compete successfully with
existing or new competitors.
Our current competitors include, and may in the future include, the
following:
. Systems integrators that primarily engage in fixed-time/fixed-fee
contracts, such as Cambridge Technology Partners, Sapient and Viant;
. Large systems integrators, such as Andersen Consulting and the consulting
arms of the "Big Five" accounting firms;
. Web consulting firms and online agencies, such as Agency.com, iXL,
Proxicom, Razorfish, USWeb/CKS and US Interactive;
. The professional services groups of computer equipment companies, such as
Compaq, Hewlett-Packard and IBM;
. Outsourcing firms, such as Computer Sciences Corporation, Electronic Data
Systems and Perot Systems;
. Information technology staffing firms, such as Keane and Renaissance
Worldwide;
. General management consulting firms, such as Bain & Company, Booz Allen &
Hamilton, Boston Consulting Group and McKinsey & Company; and
. Internal information technology departments of current and potential
clients.
Because relatively low barriers to entry characterize our market, we also
expect other companies to enter our market. We expect that competition will
continue to intensify and increase in the future. Some large information
technology consulting firms have announced that they will focus more resources
on eBusiness opportunities. Because we contract with our clients on an
engagement-by-engagement basis, we compete for
9
<PAGE>
engagements at each stage of our methodology. There is no guarantee that we
will be retained by our existing or future clients on later stages of work.
The vast majority of our current competitors have longer operating
histories, a larger client base, larger professional staffs, greater brand
recognition and greater financial, technical, marketing and other resources
than we do. This may place us at a disadvantage in responding to our
competitors' pricing strategies, technological advances, advertising
campaigns, strategic partnerships and other initiatives. In addition, many of
our competitors have well-established relationships with our current and
potential clients and have extensive knowledge of our industry. As a result,
our competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements and they may also be able to
devote more resources to the development, promotion and sale of their services
than we can. Competitors that offer more standardized or less customized
services than we do may have a substantial cost advantage, which could force
us to lower our prices, adversely affecting our operating margins.
Current and potential competitors also have established or may establish
cooperative relationships among themselves or with third parties to increase
their ability to address customer needs. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. In addition, some of our competitors may develop
services that are superior to, or have greater market acceptance than, the
services that we offer.
Failure to Manage Our Growth May Adversely Affect Our Business
We have grown rapidly and expect to continue to grow rapidly both by hiring
new employees and serving new business and geographic markets. Our growth has
placed, and will continue to place, a significant strain on our management and
our operating and financial systems. Our headcount has grown from 27 as of
March 31, 1998 to 260 as of March 31, 1999, and several members of our senior
management team have only recently joined Scient. We do not believe this
growth rate is sustainable for the long-term. In addition, we recently opened
a New York office and expect to open additional offices in the future.
Our personnel, systems, procedures and controls may be inadequate to
support our future operations. In order to accommodate the increased number of
engagements, number of clients and the increased size of our operations, we
will need to hire, train and retain the appropriate personnel to manage our
operations. We will also need to improve our financial and management
controls, reporting systems and operating systems. We are currently
implementing a new enterprise resource planning software system for human
resource functions and some financial functions. We currently plan to redesign
several internal systems, including recruiting and engagement management
systems. We may encounter difficulties in transitioning to the new enterprise
resource planning software system or in developing and implementing other new
systems.
Potential Future Acquisitions Could Be Difficult to Integrate, Disrupt Our
Business, Dilute Stockholder Value and Adversely Affect Our Operating Results
We may acquire other businesses in the future, which may complicate our
management tasks. We may need to integrate widely dispersed operations with
distinct corporate cultures. Such integration efforts may not succeed or may
distract our management from servicing existing clients. Our failure to manage
future acquisitions successfully could seriously harm our operating results.
Also, acquisition costs could cause our quarterly operating results to vary
significantly. Furthermore, our stockholders would be diluted if we finance
the acquisitions by incurring debt or issuing equity securities.
Our Planned International Operations Face Special Risks
We have limited experience in marketing, selling and supporting our
services in foreign countries. Development of such skills may be more
difficult or take longer than we anticipate, especially due to language
barriers, currency exchange risks and the fact that the Internet
infrastructure in foreign countries may be less
10
<PAGE>
advanced than the United States' Internet infrastructure. To date, we have not
generated significant revenues from engagements with international clients,
although we are currently negotiating one contract that, if successfully
completed, would involve the delivery of services to a client outside of North
America. We intend to expand our operations internationally in future periods
by opening international offices and hiring international management,
strategic, technical, design, sales, marketing and support personnel.
We may be unable to successfully market, sell, deliver and support our
services internationally. If we are unable to expand our international
operations successfully and in a timely manner, our business, financial
condition and operating results could be seriously harmed. We will need to
devote significant management and financial resources to our international
expansion. In particular, we will have to attract and retain experienced
management, strategic, technical, design, sales, marketing and support
personnel for our international offices. Competition for such personnel is
intense, and we may be unable to attract and retain qualified staff.
Moreover, international operations are subject to a variety of additional
risks that could seriously harm our financial condition and operating results.
These risks include the following:
. Problems in collecting accounts receivable;
. The impact of recessions in economies outside the United States;
. Longer payment cycles;
. Fluctuations in currency exchange rates;
. Restrictions on the import and export of certain sensitive technologies,
including data security and encryption technologies that we may use; and
. Seasonal reductions in business activity in certain parts of the world,
such as during the summer months in Europe.
We Have Relied and Expect to Continue to Rely on a Limited Number of
Clients for a Significant Portion of Our Revenues
We currently derive and expect to continue to derive a significant portion
of our revenues from a limited number of clients. To the extent that any
significant client uses less of our services or terminates its relationship
with us, our revenues could decline substantially. As a result, the loss of
any significant client could seriously harm our business, financial condition
and operating results. For the year ended March 31, 1999, our five largest
clients accounted for approximately 50% of our revenues, with First Union,
PlanetRx and innoVisions accounting for 13%, 11% and 11%, respectively, of
such revenues. The volume of work that we perform for a specific client is
likely to vary from period to period, and a significant client in one period
may not use our services in a subsequent period.
Our Lack of Long-Term Contracts with Clients Reduces the Predictability of
Our Revenues
Our clients retain us on an engagement-by-engagement basis, rather than
under long-term contracts. As a result, our revenues are difficult to predict.
Because we incur costs based on our expectations of future revenues, our
failure to predict our revenues accurately may seriously harm our financial
condition and results of operations. Although it is our goal to design and
build complete eBusiness systems for our clients, we are generally retained to
design and build discrete segments of an overall eBusiness system on an
engagement-by-engagement basis. Since large client projects involve multiple
engagements or stages, there is a risk that a client may choose not to retain
us for additional stages of a project or that the client will cancel or delay
additional planned projects. Such cancellations or delays could result from
factors unrelated to our work product or the progress of the project, but
could be related to general business or financial conditions of the client.
For example, many of our current or potential clients that are in the early
stages of development may be unable to retain our services because of
financial constraints. In addition, our existing clients can generally reduce
the scope of or cancel their use of our services without penalty and with
little or no notice. If a client defers, modifies or cancels
11
<PAGE>
an engagement or chooses not to retain us for additional phases of a project,
we must be able to rapidly redeploy our employees to other engagements in
order to minimize underutilization of employees and the resulting harm to our
operating results. Our operating expenses are relatively fixed and cannot be
reduced on short notice to compensate for unanticipated variations in the
number or size of engagements in progress.
We May Lose Money on Fixed-Fee Contracts
If we miscalculate the resources or time we need to complete engagements
with capped or fixed fees, our operating results could be seriously harmed.
The risk of such miscalculations for us is high because we work with complex
technologies in compressed timeframes, and therefore it is difficult to judge
the time and resources necessary to complete a project. To date, we have
generally entered into contracts with our clients on a time and materials
basis, though we sometimes work on a fixed-fee basis or cap the amount of fees
we may invoice on time and material contracts without client consent. In the
future our strategy is to increase the percentage of our client engagements
subject to fixed-fee arrangements, because we believe they have the potential
to be more profitable.
We Sometimes Agree Not to Perform Services for Our Clients' Competitors
We sometimes agree not to perform services for competitors of our clients
for limited periods of time, which have been as long as two years. These non-
compete agreements reduce the number of our prospective clients and the number
of potential sources of revenue. In addition, these agreements increase the
significance of our client selection process because many of our clients
compete in markets where only a limited number of players gain meaningful
market share. If we agree not to perform services for a particular client's
competitors and our client fails to capture a significant portion of its
market, we are unlikely to receive future revenues in that particular market.
Our Efforts to Develop Brand Awareness of Our Services May Not Be
Successful
An important element of our business strategy is to develop and maintain
widespread awareness of the Scient brand name. To promote our brand name, we
plan to increase our marketing expenses, which may cause our operating margins
to decline. Moreover, our brand may be closely associated with the business
success or failure of some of our high-profile clients, many of whom are
pursuing unproven business models in competitive markets. As a result, the
failure or difficulties of one of our high-profile clients may damage our
brand. If we fail to successfully promote and maintain our brand name or incur
significant related expenses, our operating margins and our growth may
decline.
Our Failure to Meet Client Expectations or Deliver Error-Free Services
Could Result in Losses and Negative Publicity
Our client engagements involve the creation, implementation and maintenance
of eBusiness systems and other applications that are often critical to our
clients' businesses. Any defects or errors in these applications or failure to
meet clients' expectations could result in:
. Delayed or lost revenues due to adverse client reaction;
. Requirements to provide additional services to a client at no charge;
. Negative publicity regarding us and our services, which could adversely
affect our ability to attract or retain clients; and
. Claims for substantial damages against us, regardless of our
responsibility for such failure.
Our contracts generally limit our liability for damages that may arise from
negligent acts, errors, mistakes or omissions in rendering services to our
clients. However, we cannot be sure that these contractual provisions
12
<PAGE>
will protect us from liability for damages in the event we are sued.
Furthermore, our general liability insurance coverage may not continue to be
available on reasonable terms or in sufficient amounts to cover one or more
large claims, or the insurer may disclaim coverage as to any future claim. The
successful assertion of any such large claim against us could seriously harm
our business, financial condition and operating results.
Our Business is Dependent on Our Ability to Keep Pace with the Latest
Technological Changes
Our market and the enabling technologies used by our clients are
characterized by rapid technological change. Failure to respond successfully
to these technological developments, or to respond in a timely or cost-
effective way, will result in serious harm to our business and operating
results. We have derived, and we expect to continue to derive, a substantial
portion of our revenues from creating eBusiness systems that are based upon
today's leading technologies and that are capable of adapting to future
technologies. As a result, our success will depend, in part, on our ability to
offer services that keep pace with continuing changes in technology, evolving
industry standards and changing client preferences. In addition, we must hire,
train and retain technologically knowledgeable professionals so that they can
fulfill the increasingly sophisticated needs of our clients.
Our Business Could Be Affected by Year 2000 Issues
Year 2000 issues may adversely affect our business and our clients'
businesses. Many currently installed computer systems and software products
are coded to accept only two-digit year entries in the date code field.
Consequently, on January 1, 2000, many of these systems could fail or
malfunction because they may not be able to distinguish 21st century dates
from 20th century dates. As a result, computer systems and software used by
many companies, including us, our clients and our potential clients, may need
to be upgraded to comply with such "Year 2000" requirements. Any failure on
the part of our principal internal systems or the systems that we create for
our clients could seriously harm our business, financial condition and
operating results. For a more detailed description of our Year 2000
assessment, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Year 2000 Readiness."
We May Not Be Able to Protect Our Intellectual Property and Proprietary
Rights
We cannot guarantee that the steps we have taken to protect our proprietary
rights will be adequate to deter misappropriation of our intellectual
property. In addition, we may not be able to detect unauthorized use of our
intellectual property and take appropriate steps to enforce our rights. If
third parties infringe or misappropriate our trade secrets, copyrights,
trademarks or other proprietary information, our business could be seriously
harmed. In addition, although we believe that our proprietary rights do not
infringe the intellectual property rights of others, other parties may assert
infringement claims against us or claim that we have violated their
intellectual property rights. Such claims, even if not true, could result in
significant legal and other costs and may be a distraction to management. In
addition, protection of intellectual property in many foreign countries is
weaker and less reliable than in the United States, so if our business expands
into foreign countries, risks associated with protecting our intellectual
property will increase.
A Few Individuals Own Much of Our Stock
Upon completion of this offering and assuming that Sequoia Capital and
Benchmark Capital purchase an aggregate of 220,000 shares in this offering,
our directors, executive officers and their affiliates will beneficially own,
in the aggregate, approximately 67.4% of our outstanding common stock. This
percentage will be 66.5% if the underwriters exercise their over-allotment
option in full. As a result, these stockholders will be able to exercise
control over all matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions, such
as acquisitions, and to block an unsolicited tender offer. Accordingly, this
concentration of ownership could have the effect of delaying or preventing a
third party from acquiring control over us at a premium over the then-current
market price of our common stock. See "Principal Stockholders."
13
<PAGE>
We Have Various Mechanisms in Place to Discourage Takeover Attempts
Certain provisions of our certificate of incorporation and bylaws may
discourage, delay or prevent a change in control of Scient that a stockholder
may consider favorable. These provisions include:
. Authorizing the issuance of "blank check" preferred stock that could be
issued by our board of directors to increase the number of outstanding
shares and thwart a takeover attempt;
. A classified board of directors with staggered, three-year, terms, which
may lengthen the time required to gain control of our board of directors;
. Prohibiting cumulative voting in the election of directors, which would
otherwise allow less than majority of stockholders to elect director
candidates;
. Requiring super-majority voting to effect certain amendments to our
certificate of incorporation and bylaws;
. Limitations on who may call special meetings of stockholders;
. Prohibiting stockholder action by written consent, which requires all
actions to be taken at a meeting of the stockholders; and
. Establishing advance notice requirements for nominations of candidates
for election to the board of directors or for proposing matters that can
be acted upon by stockholders at stockholder meetings.
In addition, Section 203 of the Delaware General Corporation Law and our
stock incentive plans may discourage, delay or prevent a change in control of
Scient. See "Management--Employee Benefits Plans" and "Description of Capital
Stock--Anti-Takeover Effects of Provisions of the Certificate of Incorporation,
Bylaws and Delaware Law."
Risks Related to the eBusiness Systems Innovation Industry
Our Success Will Depend on the Development of a Market for eBusiness Systems
Innovation Services
We cannot be certain that a viable market for eBusiness systems innovation
services will emerge or be sustainable. If a viable and sustainable market for
our eBusiness systems innovation services does not develop, Scient will fail.
Even if an eBusiness systems innovation services market develops, we may not be
able to differentiate our services from those of our competitors. If we are
unable to differentiate our services from those of our competitors, our revenue
growth and operating margins may decline.
Our Success Depends on Increased Adoption of the Internet as a Means for
Commerce
Our future success depends heavily on the acceptance and use of the Internet
as a means for commerce. The widespread acceptance and adoption of the Internet
for conducting business is likely only in the event that the Internet provides
businesses with greater efficiencies and improvements. If commerce on the
Internet does not continue to grow, or grows more slowly than expected, our
growth would decline and our business would be seriously harmed. Consumers and
businesses may reject the Internet as a viable commercial medium for a number
of reasons, including:
. Potentially inadequate network infrastructure;
. Delays in the development of Internet enabling technologies and
performance improvements;
. Delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity;
. Delays in the development of security and authentication technology
necessary to effect secure transmission of confidential information;
14
<PAGE>
. Changes in, or insufficient availability of, telecommunications services
to support the Internet; and
. Failure of companies to meet their customers' expectations in delivering
goods and services over the Internet.
Increasing Government Regulation Could Affect Our Business
We are subject not only to regulations applicable to businesses generally,
but also laws and regulations directly applicable to electronic commerce.
Although there are currently few such laws and regulations, both state,
federal and foreign governments may adopt a number of these laws and
regulations. Any such legislation or regulation could dampen the growth of the
Internet and decrease its acceptance as a communications and commercial
medium. If such a decline occurs, companies may decide in the future not to
use our services to create an electronic business channel. This decrease in
the demand for our services would seriously harm our business and operating
results.
Any new laws and regulations may govern or restrict any of the following
issues:
. User privacy;
. The pricing and taxation of goods and services offered over the Internet;
. The content of websites;
. Consumer protection; and
. The characteristics and quality of products and services offered over the
Internet.
For example, the Telecommunications Act of 1996 prohibits the transmission
of certain types of information and content over the Internet. The scope of
the Act's prohibition is currently unsettled. In addition, although courts
recently held unconstitutional substantial portions of the Communications
Decency Act, federal or state governments may enact, and courts may uphold,
similar legislation in the future. Future legislation could expose companies
involved in Internet commerce to liability.
Risks Related to the Securities Markets
We May Need to Raise Additional Capital, Which May Not Be Available
We expect that the net proceeds from this offering will be sufficient to
meet our working capital and capital expenditure needs for at least the next
12 months. After that, we may need to raise additional funds, and we cannot be
certain that we will be able to obtain additional financing on favorable terms
or at all. If we need additional capital and cannot raise it on acceptable
terms, we may not be able to:
. Open new offices, in the United States or internationally;
. Create additional market-specific business units;
. Enhance our infrastructure and leveragable assets;
. Hire, train and retain employees;
. Respond to competitive pressures or unanticipated requirements; or
. Pursue acquisition opportunities.
Our failure to do any of these things could seriously harm our financial
condition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
15
<PAGE>
Our Stock Price May Be Volatile Because Our Shares Have Not Been Publicly
Traded Before
Prior to this offering, you could not buy or sell our common stock
publicly. Accordingly, we cannot assure you that an active public trading
market for our stock will develop or be sustained after this offering. The
market price after this offering may vary significantly from the initial
offering price in response to any of the following factors, some of which are
beyond our control:
. Changes in financial estimates or investment recommendations by
securities analysts relating to our stock;
. Changes in market valuations of other electronic commerce software and
service providers or electronic businesses;
. Announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
. Loss of a major client;
. Additions or departures of key personnel; and
. Fluctuations in the stock market price and volume of traded shares
generally, especially fluctuations in the traditionally volatile
technology sector.
We Are at Risk of Securities Class Action Litigation Due to Our Expected
Stock Price Volatility
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. Due to the potential volatility of our stock price, we may be the
target of similar litigation in the future. Securities litigation could result
in substantial costs and divert management's attention and resources, which
could seriously harm our financial condition and operating results.
Purchasers in this Offering Will Incur Immediate and Substantial Dilution
The initial public offering price of our common stock will be substantially
higher than the book value per share of the outstanding common stock. As a
result, if we were liquidated for book value immediately following this
offering, each stockholder purchasing in this offering would receive less than
the price they paid for their common stock. In addition, because our success
is so heavily dependent on our ability to attract and retain talented
personnel, we expect to offer a significant number of stock options to
employees in the future. Such issuances may cause further dilution to
investors.
Shares Becoming Available for Sale Could Affect Our Stock Price
Sales of a substantial number of shares of common stock after this offering
could adversely affect the market price of our common stock and could impair
our ability to raise capital through the sale of additional equity securities.
For a description of the shares of our common stock that are available for
future sale, see "Shares Eligible for Future Sale."
16
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute forward-
looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include those listed under "Risk Factors" and elsewhere in this
prospectus.
This prospectus contains forward-looking statements. These statements
relate to future events or our future financial performance. In some cases,
you can identify forward-looking statements by terminology such as "may,"
"will," "should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential" or "continue" or the negative of such terms or other
comparable terminology. These statements are only predictions. Actual events
or results may differ materially. In evaluating these statements, you should
specifically consider various factors, including the risks outlined under
"Risk Factors." These factors may cause our actual results to differ
materially from any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of such
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform such statements to
actual results.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to Scient from the sale of the 3,000,000 shares of common
stock offered hereby are estimated to be $32,280,000, assuming an initial
public offering price of $12.00 per share, and after deducting estimated
underwriting discounts and commissions and estimated offering expenses. The
net proceeds of this offering are estimated to be $37,302,000 if the
underwriters' over-allotment option is exercised in full. The primary purposes
of this offering are to obtain additional equity capital, create a public
market for the common stock, and facilitate future access to public markets.
We expect to use the net proceeds for general corporate purposes, including
working capital. A portion of the net proceeds may also be used for the
acquisition of businesses that are complementary to ours. We have no current
plans, agreements or commitments and are not currently engaged in any
negotiations with respect to any such transaction. Pending such uses, we will
invest the net proceeds of this offering in investment grade, interest-bearing
securities.
DIVIDEND POLICY
We have not paid any cash dividends since our inception and do not intend
to pay any cash dividends in the foreseeable future. Pursuant to the terms of
our credit facility, we are unable to pay dividends without first obtaining
the written consent of our bank, which will not be unreasonably withheld.
PREEMPTIVE RIGHTS
As of the date of this prospectus, holders of at least 50,000 shares of our
Series C Preferred Stock have preemptive rights that entitle them to purchase
approximately three percent of the shares to be issued in this offering. The
number of shares that may be purchased under these rights, however, may be
limited at the discretion of the underwriters. Shares purchased by these
stockholders under their preemptive rights will reduce the number of shares
available to new investors in this offering. See "Underwriters."
18
<PAGE>
CAPITALIZATION
The following table sets forth our short-term debt and capitalization as of
March 31, 1999. The pro forma information reflects the filing of an amended
and restated certificate of incorporation to provide for authorized capital
stock of 125,000,000 shares of common stock and 10,000,000 shares of
undesignated preferred stock and the conversion of all shares of preferred
stock outstanding as of March 31, 1999 into 14,732,794 shares of common stock
upon completion of this offering. The pro forma as adjusted information
reflects the receipt of the estimated net proceeds from the sale by us of
3,000,000 shares of common stock in this offering at an assumed initial
offering price of $12.00 per share (after deducting the estimated underwriting
discounts and commissions and estimated offering expenses). This table should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and
accompanying notes.
<TABLE>
<CAPTION>
As of March 31, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands, except share
and per share data)
<S> <C> <C> <C>
Bank borrowings, current....................... $ 413 $ 413 $ 413
Capital lease obligations, current............. 625 625 625
-------- -------- --------
Total short-term debt...................... $ 1,038 $ 1,038 $ 1,038
======== ======== ========
Bank borrowings, long-term..................... $ 1,129 $ 1,129 $ 1,129
Capital lease obligations, long-term........... 680 680 680
-------- -------- --------
Total long-term debt....................... 1,809 1,809 1,809
-------- -------- --------
Stockholders' equity:
Convertible preferred stock, $.0001 par value
per share, 11,500,000 shares authorized;
9,011,960 shares outstanding actual;
10,000,000 shares authorized, no shares
outstanding pro forma; 10,000,000 shares
authorized, no shares outstanding pro forma
as adjusted................................. 1 -- --
Common stock, $.0001 par value per share,
40,000,000 shares authorized, 16,566,766
shares issued and outstanding actual;
125,000,000 shares authorized, 31,299,560
shares outstanding pro forma; 125,000,000
shares authorized, 34,299,560 shares
outstanding pro forma as adjusted(1)........ 2 3 3
Additional paid-in capital................... 70,056 70,056 102,336
Unearned compensation........................ (27,222) (27,222) (27,222)
Accumulated deficit.......................... (12,860) (12,860) (12,860)
-------- -------- --------
Total stockholders' equity................. 29,977 29,977 62,257
-------- -------- --------
Total capitalization..................... $ 31,786 $ 31,786 $ 64,066
======== ======== ========
</TABLE>
- --------
(1) The share numbers exclude:
. 2,951,916 shares of common stock issuable upon exercise of stock options
outstanding as of March 31, 1999 at a weighted average exercise price of
$2.71 per share;
. 2,524,650 shares of common stock available for issuance under our 1997
Stock Option Plan as of March 31, 1999;
. 32,875 shares of common stock issuable upon the exercise of warrants
outstanding as of March 31, 1999, with a weighted average exercise price
of $.37 per share; and
. 1,200,000 shares of common stock available for issuance under our 1999
Equity Incentive Plan.
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<PAGE>
DILUTION
The pro forma net tangible book value of our common stock as of March 31,
1999, giving effect to the conversion of all shares of preferred stock
outstanding as of March 31, 1999 into common stock on the closing of this
offering, was $29,977,000 or approximately $.96 per share. Pro forma net
tangible book value per share represents the amount of our stockholders'
equity less intangible assets, divided by 31,299,560 shares of common stock
outstanding after giving effect to the conversion of the preferred stock
outstanding as of March 31, 1999 into shares of common stock.
Net tangible book value dilution per share to new investors represents the
difference between the amount per share paid by purchasers of common stock in
this offering and the pro forma net tangible book value per share of common
stock immediately after completion of this offering. After giving effect to
the sale by us of 3,000,000 shares of common stock in this offering at an
assumed initial offering price of $12.00 per share and after deducting the
estimated underwriting discounts and commissions and estimated offering
expenses and the application of the estimated net proceeds therefrom, our pro
forma net tangible book value as of March 31, 1999, would have been
$62,257,000, or $1.82 per share. This represents an immediate increase in net
tangible book value of $.86 per share to existing stockholders and an
immediate dilution in net tangible book value of $10.18 per share to
purchasers of common stock in this offering. The following table illustrates
the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $12.00
Pro forma net tangible book value per share as of March 31,
1999........................................................ $.96
Increase per share attributable to new investors............. .86
----
Pro forma net tangible book value per share after this
offering...................................................... 1.82
------
Dilution per share to new investors............................ $10.18
======
</TABLE>
The following table sets forth on a pro forma basis as of March 31, 1999,
after giving effect to the conversion of all outstanding shares of preferred
stock into common stock upon completion of this offering, the difference
between the number of shares of common stock purchased from Scient, the total
consideration paid to Scient and the average price paid by existing
stockholders and by new investors, before deduction of estimated discounts and
commission and estimated offering expenses payable by us:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 31,299,560 91.3% $35,091,000 49.4% $ 1.12
New stockholders............ 3,000,000 8.7 36,000,000 50.6 12.00
---------- ----- ----------- -----
Totals.................. 34,299,560 100.0% $71,091,000 100.0%
========== ===== =========== =====
</TABLE>
As of March 31, 1999, there were options outstanding to purchase a total of
2,951,916 shares of common stock at a weighted average exercise price of $2.71
per share under our 1997 Stock Option Plan. In addition, as of March 31, 1999,
there were warrants outstanding to purchase a total of 32,875 shares of common
stock with a weighted average exercise price of $.37 per share. To the extent
outstanding options or warrants are exercised, there will be further dilution
to new investors.
20
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and is qualified by reference to financial statements and notes
thereto and appearing elsewhere in this prospectus. The statement of
operations data for the period from November 7, 1997 (inception) through March
31, 1998 and the year ended March 31, 1999 and the balance sheet data at March
31, 1998 and March 31, 1999, are derived from, and are qualified by reference
to, the audited financial statements of Scient included elsewhere in this
prospectus. The historical results are not necessarily indicative of results
to be expected in any future period.
<TABLE>
<CAPTION>
November 7, 1997
(Inception) through Year Ended
March 31, 1998 March 31, 1999
------------------- --------------
(in thousands, except per
share data)
<S> <C> <C>
Statement of Operations Data:
Revenues................................... $ 179 $ 20,675
Operating expenses:
Professional services..................... 102 10,028
Selling, general and administrative....... 1,228 15,315
Stock compensation........................ 64 7,679
------- --------
Total operating expenses................... 1,394 33,022
------- --------
Loss from operations....................... (1,215) (12,347)
Interest income, net....................... 56 646
------- --------
Net loss................................... $(1,159) $(11,701)
======= ========
Net loss per share:
Basic and diluted........................ $ (.19) $ (1.77)
======= ========
Weighted average shares.................. 5,947 6,599
Pro forma net loss per share:
Basic and diluted (unaudited)............ $ (.56)
========
Weighted average shares (unaudited)...... 20,836
<CAPTION>
As of March 31,
----------------------------------
1998 1999
------------------- --------------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term
investments............................... $ 3,301 $ 28,129
Working capital............................ 3,299 28,108
Total assets............................... 4,225 38,812
Bank borrowings and capital lease
obligations, long-term.................... 26 1,809
Total stockholders' equity................. 3,805 29,977
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations of Scient should be read in conjunction with "Selected
Financial Data" and Scient's financial statements and notes thereto appearing
elsewhere in this prospectus. This discussion and analysis contains forward-
looking statements that involve risks, uncertainties and assumptions. Our
actual results may differ materially from those anticipated in these forward-
looking statements as a result of certain factors, including, but not limited
to, those set forth under "Risk Factors" and elsewhere in this prospectus.
Overview
Scient is a leading provider of a new category of professional services
called eBusiness systems innovation. As an eBusiness systems innovator, we
provide integrated eBusiness strategy and technology implementation services
to clients who are creating eBusinesses or are rethinking or expanding their
existing businesses to integrate eBusiness capabilities. These services
include strategy consulting, customer experience design, systems architecture,
and application and technology infrastructure development. From our
incorporation on November 7, 1997 through March 31, 1998 (the "Inception
Period"), our operating activities consisted primarily of recruiting key
technical and management personnel, establishing a business and operations
plan, opening a temporary office, developing marketing materials and
establishing relationships with potential clients. We began providing services
to our first client in February 1998. Accordingly, for the Inception Period,
we recognized revenues of $179,000 and incurred a net loss of $1.2 million.
For the year ended March 31, 1999, we increased the number of clients served,
hired strategy consultants, technical personnel and core services staff to
execute client engagements, opened permanent offices in San Francisco and New
York, and began building an operational infrastructure to support the
projected growth of our business. Our headcount grew from 27 as of March 31,
1998, to 260 as of March 31, 1999. Through the year ended March 31, 1999, we
realized revenues of $20.7 million and incurred a net loss of $11.7 million,
of which $7.7 million consisted of non-cash stock compensation expense. Our
limited operating history makes an evaluation of our business and prospects
very difficult. In addition, we cannot be certain that a viable market for our
eBusiness systems innovation services will emerge or be sustainable.
Our revenues are derived primarily from providing professional services to
clients who are creating eBusinesses or are rethinking or expanding their
existing businesses to integrate eBusiness capabilities. We expect that our
revenues will be driven primarily by the number and scope of our client
engagements and by our professional services headcount. In the year ended
March 31, 1999, five clients accounted for approximately 50% of our revenues,
with First Union, Planet Rx and innoVisions accounting for 13%, 11% and 11%,
respectively, of our revenues. Revenues from any given client will vary from
period to period; however, we expect that significant customer concentration
will continue for the foreseeable future. To the extent that any significant
client uses less of our services or terminates its relationship with us, our
revenues could decline substantially. As a result, the loss of any significant
client could seriously harm our business and results of operations.
We market and sell our services through a marketing and direct sales force
organized by market-specific business units. We generally provide our services
on a time and materials basis. For the year ended March 31, 1999,
approximately 67% of revenues were derived from time and materials contracts,
including completed capped contracts that were appropriately recognized on a
time and materials basis. Revenues pursuant to time and materials contracts
are generally recognized as services are provided. Revenues pursuant to fixed-
fee contracts are generally recognized as services are rendered using the
percentage-of-completion method of accounting (based on the ratio of costs
incurred to total estimated costs). Revenues exclude reimbursable expenses
charged to clients. As we obtain greater experience in estimating the costs of
performing eBusiness systems innovation services, our strategy is to enter
into more fixed-fee contracts, which we believe are potentially more
profitable. Accordingly, we anticipate that a larger percentage of revenues
will be derived from fixed-fee contracts in the future. In the year ended
March 31, 1999, substantially all clients were located within North America
and all revenues were denominated in U.S. dollars.
22
<PAGE>
Professional services expenses consist primarily of compensation and
benefits of our employees engaged in the delivery of professional services.
Professional services margins reflect revenues less the professional services
expenses whether or not the employee's time is billed to a client. We expect
that our per capita professional services expenses will increase over time due
to wage increases and inflation. In addition, these cash expenses may increase
after the offering because prospective employees that we target after the
offering may perceive that the stock option component of our compensation
package is not as valuable as that component was prior to the offering. Our
professional services margins are affected by trends in client billability,
defined as the percentage of professional services employees' time that is
billed to clients, and, as such, will vary in the future. Any significant
decline in fees billed to clients or the loss of a significant client would
materially adversely affect our professional services margins. Client
engagements currently average three to six months' duration. If a client
engagement ends earlier than we expect, we must re-deploy professional
services personnel. Any resulting unbillable time will adversely affect
professional services margins. See "Risk Factors--Our Quarterly Revenues and
Operating Results Are Volatile and May Cause Our Stock Price to Fluctuate."
Selling, general and administrative expenses consist of salaries,
commissions, and related expenses for personnel engaged in sales; salaries and
related expenses for executive recruiting, human resources, knowledge
management, information technology, finance and administrative personnel;
office facilities and information technology expenditures; professional fees;
trade shows; promotional expenses; and other general corporate expenses. We
expect selling, general and administrative expenses to increase in absolute
dollars as we expand our direct sales force, continue expenditures on
knowledge management and information technology infrastructure, open new
offices, increase our recruiting efforts and incur additional costs related to
the growth of our business and operation as a public company.
Stock compensation expenses consist of non-cash compensation expenses
arising from option grants. We have recorded aggregate unearned stock
compensation totaling $35.0 million in connection with certain stock option
grants through March 31, 1999. This stock compensation expense will be
recognized over a period ending March 31, 2003, which is the end of the
vesting period for the related options.
Despite growth in our revenues, we have not been profitable and we expect
to continue to incur net losses. Our net losses may not decrease
proportionately with the increase in our revenues primarily because of
increased expenses related to the expansion of the number of company-owned
offices, increased investment in our knowledge management and operations
infrastructure, and increased marketing and sales efforts. To the extent that
future revenues do not increase significantly in the same periods in which
operating expenses increase, our operating results would be adversely
affected. See "Risk Factors--We Have a History of Losses and Expect to Incur
Losses in the Future."
23
<PAGE>
Results of Operations
Given our limited operating history and the fact that we did not begin to
generate significant amounts of revenues until the fiscal year ended March 31,
1999, we do not believe that year-over-year comparisons for our financial
results are meaningful; therefore, we have included the results from
operations on a quarterly basis.
The following table sets forth, for the periods presented, certain data
from our statement of operations in dollars and as a percentage of revenues.
The statement of operations data has been derived from our unaudited financial
statements except for the Inception Period. In our opinion, the unaudited
statements have been prepared on substantially the same basis as the audited
financial statements and include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
information for the periods presented. This information should be read in
conjunction with the financial statements and notes thereto included elsewhere
in this prospectus. The period from November 7, 1997 (inception) through
December 31, 1997 has been combined with the three months ended March 31, 1998
since the period from inception through December 31, 1998 only included
insignificant interest income. The operating results in any quarter or other
period are not necessarily indicative of the results that may be expected for
any future period. We have incurred net losses in each quarter since inception
and expect to continue to incur net losses for the foreseeable future.
<TABLE>
<CAPTION>
Nov. 7, 1997 Three Months Ended
(Inception) -------------------------------------------
through (unaudited)
March 31, June 30, Sept. 30, Dec. 31, March 31,
1998 1998 1998 1998 1999
------------ -------- --------- -------- ---------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ 179 $ 1,924 $ 3,094 $ 6,270 $ 9,387
Operating expenses:
Professional services.. 102 942 1,796 3,000 4,290
Selling, general and
administrative........ 1,228 1,225 1,630 4,852 7,608
Stock compensation..... 64 358 1,143 2,355 3,823
-------- ------- -------- ------- --------
Total operating
expenses............... 1,394 2,525 4,569 10,207 15,721
-------- ------- -------- ------- --------
Loss from operations.... (1,215) (601) (1,475) (3,937) (6,334)
Interest income, net.... 56 78 187 196 185
-------- ------- -------- ------- --------
Net loss................ $ (1,159) $ (523) $ (1,288) $(3,741) $ (6,149)
======== ======= ======== ======= ========
As a Percentage of
Revenues:
Revenues................ 100% 100% 100% 100% 100%
Operating expenses:
Professional services.. 57 49 58 48 46
Selling, general and
administrative........ 686 64 53 77 81
Stock compensation..... 35 18 37 38 41
-------- ------- -------- ------- --------
Total operating
expenses............... 778 131 148 163 168
-------- ------- -------- ------- --------
Loss from operations.... (678) (31) (48) (63) (68)
Interest income, net.... 31 4 6 3 2
-------- ------- -------- ------- --------
Net loss................ (647)% (27)% (42)% (60)% (66)%
======== ======= ======== ======= ========
</TABLE>
Revenues
Our revenues increased in each of the periods presented. The increase in
revenues in these periods reflected the introduction of our eBusiness
professional services in February 1998, the increase in the number of clients
and scope of engagements in each quarter and increased capacity due to
increased investment in our sales and professional services organizations.
24
<PAGE>
Operating Expenses
Professional Services. Our professional services expenses increased in
absolute dollars in each of the periods presented. These increases were
primarily a result of increases in the number of professional services
personnel.
Selling, General and Administrative. Selling, general and administrative
expenses increased in the quarters ended September 30, 1998, December 31, 1998
and March 31, 1999. The increases in absolute dollars were primarily due to
expenses related to the addition of sales, recruiting, knowledge management,
technology, finance and administration personnel and leased office space to
support our growth. The slight decrease in absolute dollars for the quarter
ended June 30, 1998, was primarily due to the fact that the preceding quarter
had included a one-time signing bonus of $330,000 granted to Robert M. Howe,
our President and Chief Executive Officer.
Stock Compensation. In the Inception Period and the year ended March 31,
1999, we recorded aggregate unearned stock compensation totaling $35.0 million
in connection with certain stock option grants. No such compensation was
recorded for the period from April 1, 1999 through the date of this prospectus
since such stock options were granted at fair market value. Stock compensation
expense is being recognized over the vesting period of the related options
(generally four years). During the Inception Period and the year ended
March 31, 1999, we recognized stock compensation of $7.7 million. We expect to
recognize stock compensation expense relating to option grants during the
Inception Period and the year ended March 31, 1999 ranging from $2.7 million
to $4.4 million per quarter during fiscal year 2000, from $1.5 million to $2.3
million per quarter during fiscal year 2001, from $647,000 to $1.3 million per
quarter during fiscal year 2002 and from $86,000 to $485,000 per quarter
during fiscal year 2003. The actual amounts that we recognize will be reduced
to the extent that the affected options are cancelled before they become
fully-vested. See Note 8 of Notes to Financial Statements.
Interest Income, Net
Interest income increased in each of the periods presented. This increase
was due primarily to interest income earned on the invested portion of the
proceeds of our private financing activities during 1997, 1998 and 1999.
Interest income was offset by insignificant interest expense generated from
our increased drawings under our lines of credit necessary to support our
internal growth.
Provision for Income Taxes
From inception through March 31, 1999, we incurred net losses for federal
and state tax purposes and have not recognized any tax provision or benefit.
As of March 31, 1999, we had approximately $4.6 million of federal and state
net operating loss carryforwards to offset future taxable income which expire
in varying amounts beginning in 2018 and 2006, respectively. Given our limited
operating history, losses incurred to date, and the difficulty in accurately
forecasting our future results, we do not believe that the realization of the
related deferred income tax asset meets the criteria required by generally
accepted accounting principles. Accordingly, a 100% valuation allowance has
been recorded. See Note 3 of Notes to Financial Statements.
Liquidity and Capital Resources
To date, we have raised $30.9 million of equity capital from the sale of
preferred stock, net of issuance costs. Since inception we have financed our
operations and capital expenditures primarily through the sale of preferred
stock and capital lease and other debt financing. Cash used in operations for
the Inception Period and each of the quarters ended June 30, 1998,
September 30, 1998, December 31, 1998 and March 31, 1999 was $1.2 million, $1
million, $1.1 million, $1.2 million and $1.3 million, respectively. As of
March 31, 1999, we had $28.1 million in cash, cash equivalents and short-term
investments. We expect that accounts receivable will continue to increase to
the extent our revenues continue to rise. Any such increase that occurs at a
greater rate than increases in revenues can be expected to reduce cash, cash
equivalents and short-term investments.
We have a revolving line of credit for $2.0 million with Venture Banking
Group, a subsidiary of Cupertino National Bank and Trust. Borrowings under
this line of credit bear interest at the bank's prime rate plus .5%. As
25
<PAGE>
of March 31, 1999, there were no outstanding borrowings under this line of
credit. Three standby letters of credit totaling $950,000 have been issued
against this line of credit as security for leased space in San Francisco,
California, and New York, New York and for capital lease obligations. We also
have a capital equipment line with Venture Banking Group for $2.8 million.
Borrowings under this capital equipment line bear interest at the bank's prime
rate plus 1.0%. This agreement requires that we maintain certain financial
ratios and levels of tangible net worth, profitability and liquidity. As of
March 31, 1999, borrowings under this capital equipment line were
approximately $1.5 million.
Capital expenditures for the Inception Period and each of the quarters
ended June 30, 1998, September 30, 1998, December 31, 1998 and March 31, 1999
were approximately $334,000, $392,000, $662,000, $604,000 and $2.1 million,
respectively. These expenditures were primarily for computer equipment and
software, including equipment acquired under capital leases, and furniture and
fixtures. We expect that capital expenditures will continue to increase to the
extent we continue to increase our headcount or expand our operations.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use." Statement of Position 98-1
is effective for financial statements for years beginning after December 15,
1998. Statement of Position 98-1 provides guidance over accounting for
computer software developed or obtained for internal use including the
requirement to capitalize specified costs and amortization of such costs. We
will adopt the provisions of Statement of Position 98-1 in our year ending
March 31, 2000, and we do not expect such adoption to have a material effect
on our financial condition, operating results or cash flows.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative and Hedging
Activities," which establishes accounting and reporting standards of
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. The adoption of Statement of
Financial Accounting Standards No. 133 is not expected to have an impact on
our results of operations, financial position or cash flows.
Market Risk Disclosure
At March 31, 1999, we had an investment portfolio of fixed income
securities excluding those classified as cash and cash equivalents of
$16.9 million (see Note 1 of Notes to Financial Statements). These securities,
like all fixed income instruments, are subject to interest rate risk and will
fall in value if market interest rates increase. If market interest rates were
to increase immediately and uniformly by 10% from levels as of March 31, 1999,
the decline of the fair value of the portfolio would not be material.
Year 2000 Readiness
Many currently installed computer systems and software products are coded
to accept only two-digit year entries in the date code field. Consequently, on
January 1, 2000, many of these systems could fail or malfunction because they
may not be able to distinguish 21st century dates from 20th century dates. As
a result, computer systems and software used by many companies, including us,
our clients and our potential clients, may need to be upgraded to comply with
such "Year 2000" requirements.
Although we believe that our principal internal systems are Year 2000
compliant, some of our systems are not yet certified. We have received Year
2000 compliance statements from the suppliers of some of our principal
internal systems, and have sought similar statements from other vendors.
Because we and our clients are dependent, to a very substantial degree, upon
the proper functioning of our computer systems, a failure of our systems to
correctly recognize dates beyond December 31, 1999 could materially disrupt
our operations, which could seriously harm our business, financial condition
and operating results.
26
<PAGE>
The Year 2000 problem may also affect third-party software products that
are incorporated into the business systems that we create for our clients.
Although our clients license software directly from third parties, we
generally discuss Year 2000 issues with these suppliers and sometimes perform
internal testing on their products, but we do not guarantee that the software
licensed by these suppliers is Year 2000 compliant. Any failure on our part to
provide Year 2000 compliant eBusiness systems to our clients could result in
financial loss, harm to our reputation and liability to others and could
seriously harm our business, financial condition and operating results.
We do not currently have any information concerning the Year 2000
compliance status of our clients, nor do we intend to examine our clients for
Year 2000 compliance. Our current or potential clients may incur significant
expenses to achieve Year 2000 compliance. If our clients are not Year 2000
compliant, they may experience material costs to remedy problems, or they may
face litigation costs. In either case, Year 2000 issues could reduce or
eliminate the budgets that current or potential clients could have for
purchases of our services. In addition, we anticipate that many of our
financial services clients will institute a standstill on electronic services
spending during the second half of 1999 as they attend to Year 2000 issues. As
a result, our business, financial condition and operating results could be
seriously harmed.
We have funded our Year 2000 plan from operating cash flows and have not
separately accounted for these costs in the past. To date, these costs have
not been material. We will incur additional costs related to Year 2000
compliance for administrative personnel to manage the engagement, outside
contractor assistance, engineering and client satisfaction. In addition, we
may experience material problems and costs with Year 2000 compliance that
could seriously harm our business, financial condition and operating results,
including:
. operational disruptions and inefficiencies for us, our clients and
vendors that provide us with internal systems that will divert
management's time and attention and financial and human resources from
ordinary business activities;
. business disputes and claims for pricing adjustments by our clients, some
of which could result in litigation or contract termination; and
. harm to our reputation to the extent that our clients' eBusiness systems
experience errors or interruptions of service.
The worst case scenario for Year 2000 problems for us would be the need to
cease normal operations for an indefinite period of time while we attempted to
respond to clients' Year 2000 problems without having full internal
operational capabilities.
Although it is not yet fully developed, we expect to complete our Year 2000
contingency plan by September 1999. We are designing our Year 2000 contingency
plan to address situations that may result if we are unable to achieve Year
2000 readiness for our critical operations. The cost of developing and
implementing our plan may be material.
27
<PAGE>
BUSINESS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results may differ materially from those indicated in
such forward-looking statements. See "Special Note Regarding Forward-Looking
Statements."
Overview
Scient is a leading provider of a new category of professional services
called eBusiness systems innovation. eBusinesses are businesses that combine
the reach and efficiency of the Internet with both emerging and existing
technologies to enable companies to strengthen relationships with customers
and business partners, create new revenue opportunities, reduce costs, improve
operating efficiencies, shorten cycle times and improve communications. As an
eBusiness systems innovator, we provide integrated eBusiness strategy and
technology implementation services to clients who are creating eBusinesses or
are rethinking or expanding their existing businesses to integrate eBusiness
capabilities. These services include strategy consulting, customer experience
design, systems architecture, and application and technology infrastructure
development. Our services are designed to rapidly improve a client's
competitive position through the development of innovative business strategies
enabled by the integration of emerging and existing technologies. We have
developed a methodology, the Scient Approach, that provides a framework for
each stage of a client engagement from helping the client conceive its
strategy to architecting, engineering and extending its eBusiness. We believe
that our integrated methodology allows us to deliver reliable, robust, secure,
scalable and extensible eBusiness systems innovation in rapid timeframes.
We have performed professional services for over 35 clients, including AIG,
Chase Manhattan, eBay, First Union, innoVisions, PlanetRx and RealSelect.
Industry Background
The emergence and acceptance of the Internet has fundamentally changed the
way that consumers and businesses communicate, obtain information, purchase
goods and services and transact business. International Data Corporation, or
IDC, estimates that the number of Internet users worldwide will grow from
approximately 70 million in 1997 to 320 million in 2002 and that revenues
generated from Internet commerce in 2002 will exceed $400 billion. The
Internet has emerged as a fundamental opportunity to transform the way
business is conducted, joining the telephone, paper-based communication and
face-to-face interaction as one of the primary means of doing business.
Initially, companies used the Internet as a means of advertising or
promoting their businesses. Typically they published websites with "read
only," brochure-like information that was intended to enhance internal and
external communications. Companies either used their own internal design and
information technology resources or hired online advertising agencies and web
design firms to develop and deploy their initial websites.
Businesses quickly recognized the Internet's potential, beyond "brochure-
ware," to enhance their ability to attract and serve clients. Thus, the next
stage in the adoption of the Internet as a business medium typically involved
the construction of systems that enabled limited types of transactions to be
conducted over the Internet or that focused on improvements in procurement and
distribution. At this stage, companies generally viewed the Internet primarily
as another channel or adjunct to their core business. In order to build these
sorts of electronic business systems, companies were required to shift their
focus from simple web design to the integration of client/server applications
with those systems. As internal information technology, or IT, departments
often lacked the resources or capabilities to build these systems, firms
increasingly began to hire traditional IT services firms focused on the
integration of client/server systems to complement the services of web design
firms.
Today, many companies are recognizing that the Internet offers even greater
potential for enhancing or defending competitive positions. These companies
understand that the Internet is not simply going to play an
28
<PAGE>
ancillary role in business, but is going to redefine the key determinants of
business success and the way business is conducted. This understanding has led
to the emergence of a new business model, known as eBusiness. eBusiness
combines the reach and efficiency of the Internet with both emerging and
existing technologies to enable companies to strengthen relationships with
customers and business partners, create new revenue opportunities, reduce
costs, improve operating efficiencies, shorten cycle times and improve
communications. In short, eBusiness extends beyond the Internet and represents
a means to improve a company's competitive position through the development of
innovative business strategies enabled by the integration of emerging and
existing technologies.
The emergence of eBusiness is significant for virtually all companies
regardless of industry or location. In many industries, physical or capital
assets are becoming less important as barriers to entry. The increasingly
interconnected world, in which the Internet and other technologies create the
potential to link any communication device to any other, is reducing the
effect of geographic barriers, providing access to the best prices worldwide
and challenging the way many businesses have historically competed.
Competition can come from new, unexpected sources, in addition to traditional
ones. The ability to differentiate products or services and to price
advantageously is greatly reduced as the consumer is given more information,
choice and power. In light of all of these factors, many new and established
companies are rethinking, expanding or creating their businesses to integrate
eBusiness capabilities. They are doing so with the recognition that
establishing and maintaining customer relationships are increasingly important
to success. In addition, as the advantage of being a first mover becomes
increasingly clear, new and existing businesses are eager to establish
eBusinesses in rapid timeframes, with cost being a secondary consideration.
Thus, a continued focus on rapid innovation will be critical as more
eBusinesses emerge and the nature of competition continues to evolve.
In order to develop and implement a successful eBusiness capability in the
required timeframe, companies are increasingly hiring outside service
providers to augment internal resources. However, many companies find that
existing service providers, such as web design firms and traditional IT
service firms, are not well suited to address the broad range of challenges
posed by eBusiness. Web design firms typically focus on user interfaces and
front-end design and do not offer a broad scope of expertise for rapid
development and deployment of innovative eBusiness systems and capabilities.
Traditional IT service firms are currently focused primarily on legacy systems
enhancements, Year 2000 compliance and the implementation of traditional
business applications. Their methodology for delivery is focused on
client/server application development, which is not conducive to short
development cycles and methods required for eBusiness. Hence, they have not
cultivated the skills necessary to design and implement eBusiness systems in a
timeframe consistent with market requirements. Companies that are seeking to
build or enhance their eBusiness capabilities require a professional services
provider that has developed a broad range of integrated capabilities. Such a
services provider must provide strategic industry insights combined with
extensive technological skills to create infrastructure, applications and
business systems that are reliable, robust, secure, scalable and extensible.
Moreover, it must have a structured approach and the skills necessary to
achieve the rapid innovation and deployment of eBusinesses. Such a services
firm must be able to understand and integrate a wide spectrum of emerging
technologies and existing systems. In short, Scient believes that there is a
growing need for a new category of services providers called eBusiness systems
innovators.
The Scient Solution
Scient was established for the specific purpose of becoming the leading
eBusiness systems innovator. Scient provides integrated eBusiness strategy and
technology implementation services to clients who are creating eBusinesses or
are rethinking or expanding their existing businesses to integrate eBusiness
capabilities. Our services are designed to rapidly improve a client's
competitive position through the development of innovative business strategies
enabled by the integration of emerging and existing technologies. By
exclusively focusing on eBusiness services, Scient believes that it can better
serve its clients, as well as enhance its own eBusiness capabilities.
29
<PAGE>
Because eBusiness requires knowledge that extends beyond the Internet, a
broad range of integrated capabilities is required. Scient believes that it
has a set of integrated skills that enable its clients to create or enhance
competitive eBusinesses in rapid timeframes. This skill set includes:
. Broad range of integrated strategy and technology capabilities;
. Strategic industry insight;
. Extensive skill with both emerging and existing technologies;
. Customer experience design expertise;
. Security expertise;
. Structured and integrated approach to client engagements;
. Rapid deployment and execution capabilities; and
. Knowledge management expertise.
Scient provides the services required to design, build and improve an
eBusiness. Scient provides strategy consulting that combines expertise in
eBusiness with industry specific knowledge in order to produce a combined
business and technology strategy for its clients and architects and builds
applications and technology infrastructure that supports a wide variety of
eBusiness functions. Scient works with a wide variety of software and hardware
vendors in order to best address a client's needs. Scient maintains the skills
necessary to build systems that are reliable, robust, secure, scalable and
extensible.
Scient has developed an integrated methodology, the Scient Approach, that
provides a framework for each stage of a client engagement, from helping the
client conceive its strategy to architecting, engineering and extending its
eBusiness. We believe that our integrated methodology allows us to deliver
robust eBusiness systems innovation in rapid timeframes. Scient is also
developing knowledge management systems and processes with the goal of being
able to capture and disseminate intellectual capital and experience throughout
Scient to optimize the execution of client engagements and to continually
update and innovate the Scient Approach. By quickly and efficiently sharing
Scient's intellectual capital with all of our employees, whom we call
"colleagues," we believe we will be able to help our clients achieve faster
time to market and reduce the risks associated with the application and
integration of emerging technologies.
Strategy
Scient's objective is to build upon its position as a leading eBusiness
systems innovator. Our strategies for achieving that objective are as follows:
Target Critical Engagements for Emerging eBusiness Leaders. We focus on
attracting clients that understand and intend to capture the competitive
advantages provided by eBusiness. To continue to differentiate our services
and achieve recognition as a leading eBusiness systems innovator, we intend to
continue to be selective with respect to the clients we serve and the
engagements we undertake, and focus on engagements that are critical to the
efforts of emerging market leaders building and enhancing innovative
eBusinesses. Attracting engagements that are critical for existing and
emerging eBusiness leaders enhances our ability to hire outstanding
professionals that desire to work on such projects and provides the
opportunity to add to our intellectual capital.
Hire and Retain Outstanding Professionals and Maintain a Culture that
Fosters Innovation. We believe that attracting and retaining outstanding
professionals is essential to our growth. We place a strong focus on
attracting, hiring, developing and retaining outstanding personnel. To
facilitate ongoing professional development and innovation, we have
established Innovation Centers that focus on five key skill competencies:
strategic consulting, customer experience, application development,
infrastructure and just-in-time innovation. We also have created a dedicated
recruiting organization that is incentivized to recruit high-quality
professionals
30
<PAGE>
to support our growth. In addition, we focus on maintaining a culture that
fosters innovation and emphasizes professional development. Our culture
embodies our values of spirit, growth, innovation, urgency, community and
excellence. In addition, our one-firm concept, in which the entire company is
operated on a single profit and loss basis, fosters teamwork and cooperation
throughout the company.
Target Potential Clients Through Market-Specific Business Units. Our
marketing and sales strategy includes targeting potential clients through
market-specific business units that operate globally. Thus far, we have
established four such market-specific business units through which we market
and sell our services. We intend to add additional market-specific business
units as our capabilities and client opportunities warrant. Market-specific
expertise helps us attract and service the leading clients that we target. We
believe our market-specific expertise enables us to win the confidence of
target clients' senior management, resulting in engagements that focus on our
clients' most vital issues.
Establish Global Presence to Support Emerging eBusiness Leaders. In order
to better serve the needs of enterprises operating on a worldwide basis, we
intend to expand our geographic presence within the United States and abroad.
We intend to open offices in Asia and Europe and additional offices in the
United States over the next 12 months. In addition, we intend to build our
brand name globally to support our geographic expansion.
Continue to Develop and Refine the Scient Approach and Knowledge
Management. The market for eBusiness systems innovations is evolving rapidly,
and we believe that the leaders in this market will be those who can respond
quickly to changing market conditions and the evolving needs of clients. We
believe that our integrated methodology, the Scient Approach, allows us to
deliver robust and cost-effective business systems innovation in rapid
timeframes. In order to capture, upgrade and refine our intellectual capital,
including the Scient Approach, we intend to continue to invest in our
knowledge management processes and systems. We believe that these processes
and systems will allow us to use our intellectual capital in order to
accelerate the delivery of our services, reduce our costs and leverage our
industry expertise.
Services
We offer professional services to build and enhance eBusinesses. These
services include strategy consulting, customer experience design, systems
architecture, and application and technology infrastructure development.
Recognizing that all clients have different needs at different times, we use
our proprietary methodology, the Scient Approach, to customize our service
offerings based on each client's requirements. The following descriptions
highlight the primary services that we offer.
Strategy Consulting. We work with clients to tailor an eBusiness strategy
designed to provide them with a measurable competitive advantage in a short
timeframe. Our goal is to leverage the industry experience and knowledge base
of our professionals along with the experiences of our clients' senior
executives to formulate innovative, executable and flexible eBusiness
strategies.
Customer Experience Design. Scient develops user interface designs for
clients. Because Scient considers the user interface to be more than just
visual design, we incorporate our abilities in information architecture, user
interface engineering, editorial services and usability research to develop
systems with innovative customer experiences. In addition to offering these
services directly to our clients, Scient also frequently partners with third-
party design firms to achieve our clients' specific visual design
requirements.
Systems Architecture. Using the Internet and emerging technologies, we
architect and design eBusiness applications and technology infrastructure for
clients in rapid timeframes. We offer application designs that range from
intranet solutions to complex business-to-business and business-to-consumer
innovations. Recognizing that the technical infrastructure becomes the
foundation for any future application development, our technology
infrastructure design services focus on enabling eBusiness applications to be
reliable, robust, secure, scalable and extensible.
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Application and Technology Infrastructure Development. We build and
implement innovative eBusiness applications and technology infrastructure that
take into account the current and future business needs of our clients. We
recognize that new types of communications devices are proliferating, network
usage is expanding, and the future of eBusiness will be dependent upon the
development and integration of a variety of technologies. We build
applications and technology infrastructure to be able to accommodate these
changes in the eBusiness environment. Our applications and technology
infrastructure development services utilize our capabilities in application
software, networks, systems, security and infrastructure architecture. Scient
develops applications and technology infrastructure to be robust and to serve
as the foundation for eBusiness innovations that can link to existing systems
and technologies.
We intend in the near future to offer our clients, upon completion of
engagements with them, services to help them extend, enhance and innovate
their eBusinesses. These services draw from all of our major competencies in
order to provide our clients with iterative innovation in all aspects of their
eBusiness implementations. To date we have not been engaged to provide these
services for a client.
Client Case Studies
The following case studies of the services that we have provided for three
of our clients are representative of the services we offer.
REALTOR.com. Pioneering online real estate services, RealSelect's
REALTOR.com real estate website aids home buyers and real estate professionals
in buying and selling homes. REALTOR.com enables homebuyers to search
conveniently for homes and REALTORS nationwide using the online listings of
the National Association of REALTORS, to store home selection criteria in
personalized profiles, to receive updates when new homes become listed and to
access information regarding REALTORS, moving, financing and other topics
relating to home ownership.
RealSelect launched REALTOR.com in 1996. RealSelect chose Scient to execute
a technology re-architecture and functional redesign of REALTOR.com in order
to enable the site to be more robust and responsive. In addition, because the
market for real estate information and online services has become highly
competitive, RealSelect asked Scient to work with its technical staff to add
specific functional capabilities to the REALTOR.com website in a very short
timeframe to enable RealSelect to better serve its consumers.
Over a five month period, Scient analyzed RealSelect's requirements and
goals, evaluated REALTOR.com's design and capabilities, determined the
appropriate hardware and software solutions, redesigned and re-engineered the
site using current Internet tools and technologies, and created new customized
software to provide new user functionality. This new functionality included
Personal Planner, an online tool for storing and retrieving personalized
search criteria and other information, receiving e-mail updates on new home
listings and calculating the proximity of a home to other destinations of
interest. Scient also added Find a Neighborhood, an online application that
integrates third-party information with REALTOR.com to provide consumers with
information on neighborhoods such as schools, income, crime and cultural
attributes and to enable consumers to search for neighborhoods based on
criteria they select in their search queries.
PlanetRx. PlanetRx is a full-service online pharmacy devoted to health and
wellness needs. At PlanetRx, a consumer can fill or refill medical
prescriptions from the convenience and privacy of home. PlanetRx also offers a
full selection of over-the-counter medicines, vitamins, herbs, dietary
supplements, medical supplies, and personal care and beauty products. More
than just a shopping site, PlanetRx is a place to get answers to healthcare
questions. Health information is integrated throughout the PlanetRx site, so
that consumers can shop and learn at the same time.
PlanetRx teamed with Scient to accelerate time to market. Scient worked
with PlanetRx to define its business process and determine the functional
requirements and technical specifications needed to support their eBusiness.
Based on this assessment, Scient designed, architected and implemented an
eBusiness system for
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PlanetRx that covered the entire customer life-cycle, from attracting the
customer through content and coupons to order management, fulfillment, and
customer service functionality. From Scient's engagement through the launch of
the PlanetRx site, the entire process took only six months.
innoVisions. innoVisions is an integrator and operator of cash access
machines, or CAMs, that provide automated check cashing services and cash
access in casinos and retail locations. Based on open-systems architecture,
innoVisions has recently developed CAMs that use emerging technologies to
identify individuals based on facial recognition.
innoVisions hired Scient to design, develop and test its CAM platform and
networking technologies. In approximately 30 weeks, Scient evaluated the
client's needs, and architected and engineered an integrated system using the
Windows NT operating system, browser technologies, standards for transmitting
voice over the Internet and software that recognizes facial patterns. Further,
Scient designed the system to accommodate the addition of new functionality to
innoVisions' CAMs in the future.
The Scient Approach
The Scient Approach is a well-defined methodology that helps us efficiently
and successfully deliver our services. This methodology provides a framework
that facilitates the distribution of knowledge within an engagement and across
all parts of our firm. The Scient Approach is designed to allow us to provide
consistent quality across engagements and to deliver high value to clients in
all aspects of our services.
The key to the Scient Approach is the iterative improvement of the
eBusiness innovations that we deliver. Because the needs of our clients are
dynamic, we have designed the Scient Approach with built-in feedback and
iteration processes in order to improve the services delivered to clients and
to enhance the approach itself. The approach is results-based and focuses on
delivering client-specific economic results that Scient calls the New Bottom
Line. The New Bottom Line measures quantitative and qualitative improvements
specific to a client's business resulting from eBusiness innovations. It
measures the future results to be derived from new markets and audiences,
enhanced relationships and other benefits sought by each client. These metrics
serve as a critical feedback tool that assists Scient in designing and
extending eBusiness systems innovations.
The Scient Approach has four stages: Conceive, Architect, Engineer and
Extend.
Conceive. During the Conceive stage of the approach, Scient works closely
with the client to define the initiatives, strategy and the expected New
Bottom Line results for the engagement. This stage occurs in two phases,
Conceive-Strategy and Conceive-Technical.
. Conceive-Strategy. In this phase Scient develops a high-level eBusiness
strategy that leverages technology to innovate and support the client's
overall business strategy.
. Conceive-Technical. During this portion of the Conceive stage, Scient
examines the client's current technology infrastructure and
organizational structure in order to target and define strategically
critical engagements and associated initiatives.
Upon completion of the Conceive stage, Scient should have the information
necessary to define key business success factors and to prioritize the
client's engagements based on a common understanding of the client's eBusiness
objectives.
Architect. In the Architect stage, Scient defines the scope of the
eBusiness applications to be developed and designs applications to enable
clients to meet their objectives. Scient also scopes and designs the
underlying infrastructure to integrate the software, network and hardware
components necessary to support the applications. This stage includes the
evaluation of any third party software. The architect stage occurs in two
phases, Architect-Scope and Architect-Design.
. Architect-Scope. The goal of this phase is to collect application and
process requirements to develop a baseline for the Architect-Design
phase.
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. Architect-Design. During this phase, Scient defines the processes,
components and timeline necessary to realize the application goals. The
goal of this phase is to create a complete plan that allows the
applications to be constructed, tested and implemented on time and within
budget.
After the Architect stage, the client has a "blueprint" for its eBusiness
development. This blueprint identifies in detail the tasks necessary to meet
the objectives and overall strategy goals as defined in the Conceive stage.
Engineer. In this stage, Scient iteratively builds and delivers the
eBusiness applications, which may include the incorporation or integration of
third party software. Within this stage are three phases that are focused on
successfully implementing the applications defined during the Architect stage.
. Engineer-Detailed Design. In this phase Scient works with the client to
add more specific details to the requirements, including the user
interface and key technical designs.
. Engineer-Implement. In this phase applications are built and refined
until they are ready for testing. This phase is aimed at producing the
tangible results for the client that were identified in the earlier
stages of the Approach. During the Engineer-Implement phase, Scient also
trains both internal and external users on newly built applications.
. Engineer-Test. In this phase applications are rigorously tested to ensure
they meet all functional, technical and user requirements. This phase
intends to ensure that the engineered applications perform in accordance
with the requirements defined in the Architect stage.
Upon completion of the Engineer stage, Scient delivers the applications to
the client.
Extend. In the Extend stage, Scient establishes a plan for ongoing
application development and content management designed to keep the client on
the leading edge of innovation. By utilizing Scient for the ongoing management
and innovation of its eBusiness systems, the client can focus on its core
competencies. The Extend stage is delivered in five distinct phases.
. Extend-Define. During this phase, Scient assesses the client's
established eBusiness system and defines future operational objectives.
. Extend-Transition. Transition activities focus on achieving the future
operational objectives as outlined in the Define phase. These activities
focus on technical, process and user-oriented aspects of further
transforming the client's eBusiness.
. Extend-Manage. The Manage phase involves the ongoing management of the
eBusiness systems, including application management, performance
management and system security management.
. Extend-Infrastructure Evolution. During this phase, Scient identifies and
innovates new technology infrastructure and capacity and performance
specifications on an ongoing basis.
. Extend-Application Innovation. During this phase Scient helps the client
to incorporate new features into its eBusiness.
Given the iterative nature of the entire Scient Approach, the Extend stage
can include all stages of the process starting with Conceive.
Sales and Marketing
Through our direct sales force and marketing organization, we market and
sell our services to clients who are creating eBusinesses or are rethinking or
expanding their existing businesses to integrate eBusiness capabilities. Our
sales professionals are aligned with market-specific business units. We
currently target four principal markets:
. Financial Services Markets, including financial products and services
providers such as banks, brokerage firms, capital markets and securities
firms and insurance companies;
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. Electronic Markets, which we define as companies whose business models
rely primarily on new electronic delivery channels;
. Enterprise Markets, which includes large companies facing the challenges
of adapting their businesses' traditional procurement and distribution
networks to take advantage of eBusiness capabilities; and
. Telecommunications Services Markets, including large international
telecommunications companies, competitive local exchange carriers,
internet service providers and entities delivering voice, data and video
services to their customers through various delivery technologies.
As of March 31, 1999, our sales group and our marketing group consisted of
nine and six professionals, respectively. We employ a team selling approach,
whereby our sales people collaborate with our business unit professionals and
management to identify prospects, conduct sales and manage client
relationships. Due to the strategic nature of our engagements, we typically
negotiate with the senior business and technical management personnel of our
current and potential clients.
Our marketing efforts are focused on creating awareness of the eBusiness
systems innovation category, establishing Scient as the leader in this new
category and building the Scient brand. Scient uses a broad mix of programs to
accomplish these goals, including market research, brochures, information
pieces published for industry forums, public relations activities, marketing
programs, seminars and speaking engagements and website marketing. The goal of
these activities is to promote Scient as a leading authority on eBusiness.
Clients
We have performed professional services for a variety of clients in many
industries. We are currently focused on serving companies in the Financial
Services, Electronic, Enterprise and Telecommunications Services markets. We
have only recently hired the resources to serve the Telecommunications
Services Market and do not yet have clients in that market. In addition,
because of the strategic and competitively sensitive nature of the engagements
we perform for many of our clients, we have agreed to keep some clients'
identities confidential. Accordingly, the following is only a partial list of
our clients that we believe is representative of our overall client base:
<TABLE>
<CAPTION>
Financial Services Electronic Markets Enterprise Markets
------------------ ------------------ ------------------
<S> <C> <C>
AIG eBay Hawaii Medical Service
Bank of Montreal ePhysician Association
Chase Manhattan Exodus Communications S.C. Johnson & Son
First Union Internet Travel Network
Global Sourcing Solutions living.com
innoVisions Naxon
NationsBanc Montgomery PlanetRx
Securities RealSelect (REALTOR.com)
</TABLE>
For the year ended March 31, 1999, our five largest clients accounted for
approximately 50% of our revenues, with First Union, PlanetRx and innoVisions
accounting for 13%, 11% and 11%, respectively, of such revenues.
We generally enter into contracts with our clients on a time and materials
basis, though we sometimes work on a fixed-fee basis or cap the amounts we may
invoice. In the future, we anticipate an increasing percentage of our client
engagements will be under fixed-fee arrangements. If we miscalculate the
resources or time we need to complete engagements with capped or fixed fees,
our operating results could be seriously harmed. Because of the strategic and
competitively sensitive nature of the engagements we perform for some of our
clients, we sometimes agree not to perform services for our clients'
competitors or in a particular field for limited periods of time which to date
have been as long as two years. These non-compete agreements reduce the number
of our prospective clients and reinforce the importance of our client
selection.
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We have also purchased a minority interest in one of our clients and may do
so with other clients in the future. We believe that such equity investments
provide an opportunity to enhance our relationship with our clients and allow
us to share in the potential appreciation of our client's stock, which we
believe will be based in part on our engagement with the client.
Innovation Centers
Scient's professional services colleagues are organized into areas of
expertise and core competencies called Innovation Centers. Our Innovation
Centers are designed to address the full range of expertise and competencies
needed in order to address the eBusiness needs of clients in our targeted
markets. When we deliver services to our clients, we typically build an
integrated team of professionals from several or all of our Innovation
Centers. In addition, the Innovation Centers promote the development of
specialized knowledge, techniques and experience and foster the training,
mentoring and professional development of its members. Each of Scient's
professional services colleagues is in one of the following Innovation
Centers:
. Strategy Innovation Center--Includes strategy consultants and industry
experienced managers, each of whom is focused on one of Scient's targeted
markets;
. Customer Experience Innovation Center--Integrates the disciplines of
information architecture, user interface engineering, visual design,
editorial services and usability research;
. Applications Innovation Center--Builds, tests and implements software
applications and manages Scient's relationships with third party
applications vendors;
. Infrastructure Innovation Center--Focuses on the areas of network,
systems, security, data and infrastructure architecture; and
. Just-In-Time Extend Innovation Center--Develops approaches for achieving
continuing, iterative improvements and enhancements in clients'
eBusinesses.
Knowledge Management
Our knowledge management processes and systems, which we refer to as
Knowledge Management, enable the development and re-use of Scient's
intellectual capital. We have found that while there are unique features to
each client engagement, there is often a degree of commonality. Scient's focus
on particular industries, business processes and technologies creates
intellectual capital that can be adapted for use in different industries and
applications provided that it is not proprietary to a client. Knowledge
Management is designed to enable each engagement team to bring the experiences
of our entire company to bear on each client engagement.
We believe Knowledge Management is important to every aspect of our
business as an eBusiness systems innovator. Our client engagements generate
many forms of knowledge, including requirements, security evaluations,
operational processes, designs, specifications, evaluations, implementations,
technology assessments and project reviews. We have made, and will continue to
make, a substantial investment in Knowledge Management, treating it not just
as desirable infrastructure, but as a core capability. In our view, the
knowledge from all of the functional groups in our organization, including our
Innovation Centers, market-specific business units and administration and
support groups, is part of an integrated whole. By establishing a single,
corporate-wide format for sharing data, we enable information to be accessed
throughout Scient.
Knowledge Management facilitates access to the Scient Approach and helps
our colleagues determine what services to deliver to clients and when to
perform the services during the different steps of the approach. Resources
available through Knowledge Management include tutorial materials, templates,
expert contacts and sample outputs for the different process steps. We are
also constructing an interactive, dynamic environment, the Scient Workbench,
which is being designed to provide our colleagues with a comprehensive context
for creating client deliverables. In addition, we are developing a system to
help us staff engagements that will query our
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Scient Approach process database to determine what skills are needed for an
engagement and examine our skills inventory to identify available colleagues
with the appropriate skills.
A knowledge-sharing expert is assigned to each client engagement. During
the course of an engagement this person is responsible for:
. Guiding the Scient team to information that can be extracted from
Knowledge Management;
. Instructing colleagues on the use of Knowledge Management;
. Incorporating new content and information developed during the engagement
into Knowledge Management, to the extent that such content and
information is not proprietary to the client; and
. Providing feedback to Knowledge Management staff about the use of
Knowledge Management's products and services.
An explicit goal of each engagement is knowledge transfer to our clients.
Through the development of our extranet we intend to share information online
in a secure way with each of our clients.
Adoption of Knowledge Management and its integration into the workflow is
reinforced through our training programs. Learning opportunities for our
colleagues include classroom instruction, informal forums, conferences, client
engagements, mentoring, sponsorship and certification programs.
We have invested significantly in Knowledge Management with the intent that
such expenditures will allow us to use our intellectual capital in order to
accelerate the delivery of our services, reduce our costs and leverage our
industry experience. However, we cannot guarantee that Knowledge Management
will help us achieve these goals or will be adequate to support our future
operations.
Applied Technology Center
We have begun to establish and staff an Applied Technology Center, or Tech
Center, that is responsible for identifying and evaluating new hardware and
software products and emerging technologies. The Tech Center also supports
engagement teams during the initial implementations of new products and
technologies. In addition, the Tech Center is responsible for integrating new
products and technologies into the Scient Approach, in order to help us manage
the risk to clients of working with new products and emerging technologies. We
believe that gaining experience with these new technologies and products in
the Tech Center enables us to develop and implement applications and systems
for clients more quickly than we otherwise could and with less interruption to
and reliance on clients' systems during engagements.
Recruiting, Training, Retention and Culture
To succeed, we must continue to identify, recruit, hire, professionally
develop and retain outstanding professionals. We believe that our success in
recruiting and retaining such individuals will depend significantly on our
ability to provide a rich learning environment, to provide a one-firm culture
and to offer continued professional development as well as financial rewards
and incentives.
Recruiting
We dedicate significant resources to our recruiting efforts and manage it
similar to a sales function. As of March 31, 1999, we employed 12
professionals that focused full-time on recruiting. Our recruiting efforts are
targeted at three levels: executive, technical and college recruiting. In
addition to the efforts of our in-house recruiting group, we seek to meet our
hiring needs through referrals from existing Scient colleagues and through
technical and executive search firms. While recruiting personnel are
responsible for screening candidates, business, functional or administrative
managers make hiring decisions for their own groups in order to help ensure
high-quality hires.
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Career Development
We believe that our continuous focus on career development will help us
retain our colleagues. Upon joining our company, each new colleague
participates in a multi-day training program that covers a broad range of
topics, including technology, consulting and the Scient culture. During their
first year with Scient, we expect that recent college graduates will receive
approximately three to four weeks of training and experienced hires will
receive approximately two weeks of training. We have also created a
sponsorship program where experienced colleagues provide ongoing career
development, mentorship and training to less-experienced colleagues. Our
existing colleagues attend professional development and training programs and
keep apprised of technological advances and developments through on-the-job
exposure to relevant technology and the efforts of our Tech Center.
Corporate Culture
We believe that developing a rich environment and a one-firm concept with a
shared culture is critical to Scient becoming an employer of choice for
management, strategic, technical, design, sales, marketing and support
professionals of all levels. We actively foster a set of core values that were
developed jointly by management and Scient's colleagues. These values include
a dedication to maintaining an innovative and empowering environment where we
work as a team to achieve total client satisfaction and provide our colleagues
with personal and professional growth opportunities. In addition, we believe
that by linking employee compensation to the success of Scient through our
incentive compensation program, we encourage an owner attitude which we
believe results in decisions that benefit our clients, our colleagues and our
company. We believe that our growth and success in attracting and retaining
high-caliber colleagues will be in large part dependent on our adherence to a
one-firm culture supported by the following values:
<TABLE>
<S> <C>
. Spirit .Growth
. Community .Innovation
. Excellence .Urgency
</TABLE>
Operational Infrastructure
Information Technology Infrastructure
We currently have in place an information technology infrastructure which
supports our internal computer network, website, intranet and extranet.
Because Knowledge Management is a significant component of the Scient
Approach, we believe a scalable and robust information technology
infrastructure is critical to our success. Accordingly, we have invested and
will continue to invest significant resources in our information technology
personnel, software and hardware.
Office in a Box
In order to facilitate the creation of new offices both internationally and
in the United States, we are developing an infrastructure template that we
call "office in a box." The template will include policies, procedures and
systems for a new office to become operational, including technology,
recruiting, information and management infrastructures. We anticipate
implementing the office in a box template in the next office we open. However,
since we have not yet used our office in a box template we cannot guarantee
that the template will save us time or money or that it will be an effective
tool in helping us to open new offices.
Management Systems
We are currently implementing a new enterprise resource planning software
system for human resource functions and some financial functions. We currently
plan to redesign several internal systems, including recruiting and engagement
management systems, and to add other financial systems. We may encounter
difficulties in transitioning to the new enterprise resource planning software
system or in developing and implementing other new systems. Even once these
systems are established, we cannot guarantee that our
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personnel, systems, procedures and controls will be adequate to support our
future operations. Difficulties encountered with developing, implementing or
operating such systems could seriously harm our business.
Competition
Competition in the eBusiness services market is intense. We compete against
companies selling electronic commerce software and services, and the in-house
development efforts of companies seeking to engage in electronic commerce.
Our current competitors include, and may in the future include, the
following:
. Systems integrators that primarily engage in fixed-time/fixed-fee
contracts, such as Cambridge Technology Partners, Sapient and Viant;
. Large systems integrators, such as Andersen Consulting and the consulting
arms of the "Big Five" accounting firms;
. Web consulting firms and online agencies, such as Agency.com, iXL,
Proxicom, Razorfish, USWeb/CKS and US Interactive;
. The professional services groups of computer equipment companies, such as
Compaq, Hewlett-Packard and IBM;
. Outsourcing firms, such as Computer Sciences Corporation, Electronic Data
Systems and Perot Systems;
. IT staffing firms, such as Keane and Renaissance Worldwide;
. General management consulting firms, such as Bain & Company, Booz Allen &
Hamilton, Boston Consulting Group and McKinsey & Company; and
. Internal IT departments of current and potential clients.
Because relatively low barriers to entry characterize our market, we also
expect other companies to enter our market.
We believe that the principal competitive factors in our industry are the
speed of development and implementation of eBusiness systems, the quality of
services and deliverables, technical and strategic expertise, project
management capabilities, reputation and experience of professionals delivering
the service, the effectiveness of sales and marketing efforts, brand
recognition, size of firm and value of the services provided compared to the
price of such services. We believe that we presently compete favorably with
respect to most of these factors. In particular, we believe that we offer an
integrated set of strategic consulting skills and technological expertise that
many existing service providers are not well suited to provide. However, the
market for eBusiness services is evolving and we cannot be certain that we
will compete successfully in the future. We expect that competition will
continue to intensify and increase in the future, particularly if large IT
consulting firms focus more resources on eBusiness opportunities. Because we
contract with our clients on an engagement-by-engagement basis, we compete for
engagements at each stage of our methodology. There is no guarantee that we
will be retained by our existing or future clients on later stages of work.
See "Risk Factors--Competition from Bigger, More Established Competitors Who
Have Greater Financial Resources Could Result in Price Reductions, Reduced
Profitability and Loss of Market Share."
Proprietary Rights
We have developed detailed tools, processes and methodologies underlying
the Scient Approach and software code, scripts, libraries and other technology
used internally and in client engagements. We seek to protect our proprietary
rights and our other intellectual property through a combination of
copyrights, trademarks and trade secret protection, as well as through
contractual protections such as proprietary information agreements and
nondisclosure agreements. We cannot guarantee that the steps we have taken to
protect our proprietary rights will be adequate to deter misappropriation of
our intellectual property, and we may not be able to detect unauthorized use
and take appropriate steps to enforce our intellectual property rights. See
"Risk Factors--We May Not Be Able to Protect Our Intellectual Property and
Proprietary Rights."
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Colleagues
We generally use the term "colleagues" instead of "employees" to reinforce
our one-firm concept and collegial culture. As of March 31, 1999, we had a
total of 260 colleagues. Of these, 173 were in professional services, 15 in
sales and marketing, 12 in recruiting and 60 in core services, including
Knowledge Management, the Tech Center, finance and administration. Our future
success will depend in part on our ability to attract, retain and motivate
highly qualified technical and management personnel, for whom competition is
intense. None of our colleagues is represented by any collective bargaining
unit, and we have never experienced a work stoppage. We believe our relations
with our colleagues are good.
Facilities
In October 1998, we moved our headquarters to a new facility in San
Francisco, California, consisting of approximately 53,000 square feet of
office space. We have leased this new facility through April 2001. We also
currently lease office space in New York, New York, consisting of
approximately 38,000 square feet of office space. This lease expires in
September 2009. We continue to be obligated under a lease for our prior
headquarters facility in San Francisco, California. We have leased all space
in our prior headquarters facility to a subtenant. The lease and corresponding
sublease expire in February 2000.
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MANAGEMENT
Officers and Directors
The executive officers and directors and other key employees of Scient, and
their ages as of March 31, 1999, are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Executive Officers and
Directors
Eric Greenberg.......... 34 Chairman and Founder
Robert M. Howe(1)....... 54 President, Chief Executive Officer and Director
Stephen A. Mucchetti.... 57 Chief Operating Officer and Executive Vice President
William H. Kurtz........ 42 Chief Financial Officer, Executive Vice President,
Treasurer and Secretary
David M. Beirne(2)...... 35 Director
Frederick W. Gluck(3)... 63 Director
Douglas Leone(2)(3)..... 42 Director
Other Key Employees
Robert N. Beck.......... 60 Vice President, People
Diana L. Brown.......... 42 Vice President and General Manager, Financial Services
Nicholas J. DiGiacomo... 46 Vice President and General Manager, Electronic Markets
Aron Dutta.............. 35 Vice President and General Manager, Enterprise Markets
C. Scott Frisbie........ 43 Chief Technology Officer
Joseph G. Galuszka...... 42 Vice President, Recruiting
Andres Gutierrez........ 45 Master Architect
Douglas I. Kalish....... 46 Chief Knowledge Officer
William P. Kim.......... 34 Vice President, Operations
Christopher W. 30 Chief Marketing Officer
Lochhead...............
Randall McComas......... 49 Vice President and General Manager, Telecommunications
James McKee............. 33 Vice President, Sales
Jeff B. Van Zanten...... 39 Vice President, Finance and Administration
</TABLE>
- --------
(1) Member of Employee Stock Purchase Plan Committee
(2) Member of Audit Committee
(3) Member of Compensation Committee
Executive Officers and Directors
Eric Greenberg founded Scient and has served as our Chairman since November
1997. Mr. Greenberg served as our President and Chief Executive Officer from
December 1997 to February 1998. Prior to founding Scient, from February 1996
to November 1996, Mr. Greenberg was Founder, Chairman and Chief Executive
Officer at Viant, a systems integrator. Prior to founding Viant, he held
various positions at Gartner Group, a market research company, from April 1992
to December 1995, most recently as the Vice President of Sales and Marketing
for the @vantage Online Service. Mr. Greenberg previously served as a
management consultant with Price Waterhouse and Andersen Consulting.
Mr. Greenberg received a Bachelor of Business Administration in Finance from
the University of Texas at Austin in 1985.
Robert M. Howe has served as our President and Chief Executive Officer
since February 1998. He is also a member of our board of directors. Prior to
joining Scient, Mr. Howe was General Manager of the IBM Worldwide Banking,
Finance and Securities Industry Group from January 1996 to March 1998. From
November 1994 to January 1996, Mr. Howe managed IBM's North American Banking,
Finance and Securities Industry Group. From March 1991 to November 1994, Mr.
Howe founded and ran the IBM Consulting Group. From
41
<PAGE>
January 1976 to February 1991, Mr. Howe was a consultant at Booz Allen &
Hamilton, a management consulting firm. Mr. Howe is a member of the boards of
directors of the Development Bank of Singapore and S.C. Johnson Commercial
Markets. Mr. Howe received a Bachelor in Business Administration from Southern
Methodist University and a Master in Business Administration from the Harvard
University Graduate School of Business.
Stephen A. Mucchetti has served as our Chief Operating Officer since
October 1998. Prior to joining us, Mr. Mucchetti was the General Manager of
IBM's Telecommunications and Media Group from October 1992 to October 1998.
Prior to joining IBM, Mr. Mucchetti was a Partner in the consulting division
of Coopers & Lybrand from January 1984 to November 1989 and was Managing
Partner for Coopers & Lybrand's northeast United States region from November
1989 to October 1992. Prior to joining Coopers & Lybrand, he was a consultant
at Booz Allen & Hamilton. from December 1975 to January 1984. Mr. Mucchetti
received a Bachelor of Science in Electrical Engineering from Villanova
University.
William H. Kurtz has served as our Chief Financial Officer since August
1998. Before joining Scient, Mr. Kurtz served in various capacities at AT&T
from July 1983 to August 1998, including Vice President of Cost Management and
Chief Financial Officer of AT&T's Business Markets Division. Prior to joining
AT&T, he worked at Price Waterhouse from June 1979 to July 1983. Mr. Kurtz is
a certified pubic accountant and received a Bachelor of Science in Accounting
from Rider University and a Master of Science in Management from the Stanford
University Graduate School of Business.
David M. Beirne has served as a member of our board of directors since
December 1997. Mr. Beirne has been a Managing Member of Benchmark Capital
Management Co. II, L.P., a venture capital firm, since June 1997. Prior to
joining Benchmark, Mr. Beirne founded Ramsey/Beirne Associates, an executive
search firm, and served as its Chief Executive Officer from October 1987 to
June 1997. Mr. Beirne serves as a director to several private companies. Mr.
Beirne received a Bachelor of Science in Management from Bryant College.
Frederick W. Gluck has served has as a member of our board of directors
since March 1998. Since July 1998, Mr. Gluck has served as Of Counsel at
McKinsey & Company, a management consulting firm. From February 1995 to June
1998, he served as Vice Chairman and Director at Bechtel Corporation, an
industrial corporation. From June 1967 to February 1995, Mr. Gluck was a
consultant at McKinsey & Company, holding a variety of positions, including
Managing Director of the firm. Mr. Gluck serves as a director to Amgen, ACT
Networks, Columbia/HCA Healthcare Corporation, Thinking Tools, Inc. and
several private companies. Mr. Gluck received a Bachelor of Science in
Electrical Engineering from Manhattan College and a Master of Science in
Electrical Engineering from New York University.
Douglas Leone has served as a member of our board of directors since
December 1997. Mr. Leone has been at Sequoia Capital, a venture capital firm,
since August 1988, most recently as a General Partner. He is a member of the
board of directors of Hybrid Networks, Inc. as well as several private
companies. Mr. Leone received a Bachelor of Mechanical Engineering from
Cornell University, a Master of Industrial Engineering from Columbia
University and a Master of Management from Massachusetts Institute of
Technology, Sloan School of Management.
Other Key Employees
Robert N. Beck has served as Vice President, People since August 1998.
Prior to joining Scient, Mr. Beck was President and Managing Director of Beck
& Associates, a consulting firm, from January 1998 to August 1998. From June
1995 to December 1997, Mr. Beck was Senior Vice President of Global Human
Resources at Gateway 2000, a computer company. Prior to joining Gateway, he
served as Senior Vice President of Human Resources at Abbott Laboratories, a
pharmaceutical company, from March 1992 to May 1995. Mr. Beck received a
Bachelor of Science in Business and a Master of Science in Business from San
Diego State University.
Diana L. Brown has served as Vice President and General Manager, Financial
Services since April 1998. Prior to joining Scient, Ms. Brown served in
various capacities at IBM from July 1978 to March 1998, including Vice
President, eBusiness Solutions for the Global Banking, Finance and Securities
Industry Group. Ms. Brown
42
<PAGE>
received a Bachelor of Science in Physics from St. Lawrence University and a
Master of Business Administration from New York University, Stern School of
Business.
Nicholas J. DiGiacomo has served as Vice President and General Manager,
Electronic Markets since July 1998. From July 1993 to July 1998, Mr. DiGiacomo
was Senior Vice President at Science Applications International Corporation,
or SAIC, a technology services company. While at SAIC, he began the Global
Integrity Corporation and Tenth Mountain Systems, both subsidiaries of SAIC.
Mr. DiGiacomo received a Bachelor of Science in Physics from Siena College, a
Master of Physics from the University of Colorado at Boulder and a Ph.D. in
Physics from the University of Colorado at Boulder.
Aron Dutta has served as Vice President and General Manager, Enterprise
Markets since January 1999. Prior to joining Scient, Mr. Dutta was Vice
President, General Manager of the New York Market at Viant from October 1996
to January 1999. From February 1992 to October 1996, Mr. Dutta was a principal
at Booz Allen & Hamilton. Mr. Dutta received a Bachelor of Science in
Electrical Engineering from Polytechnic University.
C. Scott Frisbie has served as Chief Technology Officer since July 1998.
Prior to joining Scient, Mr. Frisbie served in various capacities at IBM from
April 1984 to July 1998, most recently as Manager of Advanced Technology and
Strategy for the Worldwide Banking, Finance and Securities Industry Group.
Joseph G. Galuszka has served as Vice President, Recruiting since April
1998. Prior to joining Scient, Mr. Galuszka served in various capacities at
Gartner Group from May 1986 to April 1998, most recently as Regional Vice
President, Sales. Mr. Galuskza received a Bachelor of Science in Mechanical
Engineering from the University of Buffalo, State University of New York.
Andres Gutierrez has served as Master Architect since February 1998. Prior
to joining Scient, Mr. Gutierrez served in various capacities at Pacific Bell,
a division of SBC Communications, a telecommunications company, from October
1984 to February 1998. Mr. Gutierrez received a Bachelor of Science in
Education from New Mexico State University and a Master of Business
Administration, emphasis in Finance, from New Mexico State University.
Douglas I. Kalish has served as Chief Knowledge Officer since April 1998.
Prior to joining Scient, Mr. Kalish served in various capacities at Price
Waterhouse from October 1984 to April 1998, including Director of Systems of
the Consumer Financial Institute Division, Chief Operating Partner and
Managing Partner of the Price Waterhouse Technology Centre and Managing
Partner of the Electronic Business Solutions Center. Mr. Kalish received an
Bachelor of Arts in Neurobiology from the University of Michigan, a Master of
Arts in Biology from Harvard University and a Ph.D. in Biology from Harvard
University.
William P. Kim has served as Vice President, Operations since April 1998.
Prior to joining Scient, Mr. Kim was Vice President, Product Management at
Vivant! a software company, from October 1997 to April 1998. From July 1988 to
July 1997, Mr. Kim was a Managing Partner at Cambridge Technology Partners, a
systems integrator. Mr. Kim received a Bachelor of Arts in Electrical
Engineering and Music from Massachusetts Institute of Technology.
Christopher W. Lochhead has served as Chief Marketing Officer since April
1998. Prior to joining Scient, Mr. Lochhead was Executive Vice President,
Strategic Marketing at The Vantive Corporation, a software company, from June
1996 to April 1998. From November 1993 to June 1996, Mr. Lochhead was
President and Chief Executive Officer of Always an Adventure, a consulting
firm.
Randall McComas has served as Vice President and General Manager,
Telecommunications since February 1999. Prior to joining Scient, Mr. McComas
served in various capacities at IBM from July 1983 to February 1999, including
Vice President of Telecommunications for Global Telecommunications and Media
Industries. Mr. McComas received a Bachelor of Science in Civil/Structural
Engineering from The Citadel.
43
<PAGE>
James McKee has served as Vice President, Sales since February 1999. Prior
to joining Scient, Mr. McKee served in various capacities at Renaissance
Worldwide, an information technology staffing firm, from November 1991 to
January 1999, most recently as Vice President, Business Development.
Jeff B. Van Zanten has served as Vice President, Finance and Administration
since January 1999. Prior to joining Scient, Mr. Van Zanten was Chief
Financial Officer at Purple Moon Media, a software company, from August 1997
to August 1998. From September 1989 to June 1997, Mr. Van Zanten was Vice
President, Finance and Operations at Advent Software. Mr. Van Zanten is a
certified public accountant and received a Bachelor of Science in Accounting
from the University of Southern California.
Board of Directors
Scient currently has authorized six directors. Upon the completion of the
offering, the terms of the office of the board of directors will be divided
into three classes: Class I, whose term will expire at the annual meeting of
the stockholders to be held in 2000; Class II, whose term will expire at the
annual meeting of stockholders to be held in 2001; and Class III, whose term
will expire at the annual meeting of stockholders to be held in 2002. The
Class I director will be Frederick Gluck; the Class II directors will be David
Beirne and Douglas Leone; and the Class III directors will be Eric Greenberg
and Robert Howe. At each annual meeting of stockholders after the initial
classification, each elected director will serve from the time of his election
and qualification until the third annual meeting following his election. This
classification of the board of directors may have the effect of delaying or
preventing changes in control or management of Scient. All of our officers
serve at the discretion of the board of directors. There are no family
relationships among the directors and officers of Scient.
Board Committees. Our board of directors has an audit committee, a
compensation committee and an Employee Stock Purchase Plan committee. The
audit committee consists of Messrs. Beirne and Leone. The audit committee
makes recommendations to the board of directors regarding the selection of
independent accountants, reviews the results and scope of audit and other
services provided by our independent accountants and reviews and evaluates our
audit and control functions. The compensation committee consists of
Messrs. Leone and Gluck. The compensation committee administers our stock
plans, other than the 1999 Employee Stock Purchase Plan, and makes decisions
concerning salaries and incentive compensation for our employees. The Employee
Stock Purchase Plan committee consists of Mr. Howe. This committee administers
our 1999 Employee Stock Purchase Plan.
Director Compensation. Currently we do not provide our directors with cash
compensation for their services as members of the board of directors, although
members are reimbursed for some expenses in connection with attendance at
board and committee meetings. In each calendar quarter after this offering,
our non-employee directors will automatically receive options to purchase
2,500 shares of our common stock under our 1999 Equity Incentive Plan. See
"Employee Stock Plans--1999 Equity Incentive Plan--Automatic Grants to Non-
Employee Directors."
In March 1998, when we appointed Mr. Gluck to our board of directors, we
granted him an option to purchase 240,000 shares of our common stock at an
exercise price of $.05 per share, subject to our repurchase right. In April
1998, when we appointed Morton H. Meyerson to our board of directors, we
granted him an option to purchase 240,000 shares of our common stock at an
exercise price of $.25 per share, subject to our repurchase right. In
connection with his resignation from our board of directors on March 13, 1999,
we repurchased 142,500 shares of unvested common stock from Mr. Meyerson for
$.25 per share, his original exercise price.
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee is currently or has been
at any time since the formation of Scient, an officer or employee of Scient.
No member of our compensation committee serves as a member of the board of
directors or compensation committee of any entity that has one or more
executive officers serving as a member of our board of directors or
compensation committee.
44
<PAGE>
Indemnification
Scient has entered into indemnification agreements with each of our
directors and executive officers. The form of indemnity agreement provides
that we will indemnify our directors or executive officers for expenses
incurred because of their status as a director or executive officer, to the
fullest extent permitted by Delaware law, our certificate of incorporation and
our bylaws.
Scient's certificate of incorporation and bylaws contain provisions
relating to the limitation of liability and indemnification of our directors
and officers. The certificate of incorporation provides that directors shall
not be personally liable to Scient or its stockholders for monetary damages
for any breach of fiduciary duty as a director, except for liability for:
. any breach of a director's duty of loyalty to Scient or its stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law; or
. any transaction from which the director derives any improper personal
benefit.
Our certificate of incorporation also provides that if the Delaware General
Corporation Law is amended to authorize corporate action further eliminating
or limiting the personal liability of directors after our stockholders approve
the certificate of incorporation, then the liability of our directors shall be
eliminated or limited to the fullest extent permitted by the amended Delaware
General Corporation Law. The foregoing provisions of our certificate of
incorporation are not intended to limit the liability of directors or officers
for any violation of applicable federal securities laws. In addition, as
permitted by Section 145 of the Delaware General Corporation Law, our bylaws
provide that:
. we are required to indemnify our directors and executive officers to the
fullest extent permitted by the Delaware General Corporation Law;
. we may, in our discretion, indemnify other officers, employees and agents
to the fullest extent permitted by the Delaware General Corporation Law;
. we are required to advance all expenses incurred by our directors and
executive officers in connection with a legal proceeding to the fullest
extent permitted by the Delaware General Corporation Law, subject to
limited exceptions;
. the rights conferred in the bylaws are not exclusive;
. we may, in our discretion, enter into indemnification agreements with our
directors, officers, employees and agents; and
. we may not retroactively amend the bylaw provisions relating to indemnity
in a way that would adversely affect the rights of our directors or
executive officers.
Our bylaws further provide that we shall indemnify our directors to the
fullest extent permitted by Delaware law, including in circumstances in which
indemnification is otherwise discretionary under Delaware law.
45
<PAGE>
Executive Compensation
The following table sets forth information with respect to compensation for
the fiscal year ended March 31, 1999 earned by our Chief Executive Officer and
our three other executive officers, collectively referred to as the Named
Executive Officers:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Awards
------------
Number of
Annual Compensation Securities
-------------------- Underlying All Other
Name and Principal Position Salary Bonus Options Compensation(1)
--------------------------- ---------- --------- ------------ ---------------
<S> <C> <C> <C> <C>
Robert M. Howe.............. $250,000 $ -- -- $52,474
President and Chief
Executive Officer
Eric Greenberg.............. 239,583 $ 33,333 -- --
Chairman of the Board of
Directors
Stephen A. Mucchetti(2)..... 118,429 50,000 750,000 58,879
Chief Operating Officer and
Executive Vice President
William H. Kurtz(3)......... 159,135 50,000 550,000 78,967
Chief Financial Officer,
Executive Vice President,
Treasurer and Secretary
</TABLE>
- --------
(1) Amount shown for Mr. Howe includes $45,808 in relocation expenses and
$6,666 for reimbursement of taxes paid by him. Amount shown for Mr.
Mucchetti includes $42,035 in commuting expenses and $16,844 for
reimbursement of taxes paid by him. Amount shown for Mr. Kurtz includes
$77,214 in relocation expenses and $1,753 for reimbursement of taxes paid
by him.
(2) Mr. Mucchetti commenced employment with Scient in October 1998.
(3) Mr. Kurtz commenced employment with Scient in August 1998.
46
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth the stock options we granted during the
fiscal year ended March 31, 1999, to each of the Named Executive Officers.
Generally, our stock options are immediately exercisable. We have the right to
repurchase all unvested shares at the original exercise price upon the
optionee's cessation of service. Generally, our repurchase right lapses and
the optionee vests in 25% of his option shares upon completion of 12 months of
service from the vesting start date and vests in the balance in a series of
equal monthly installments over the next three years of service. The option
shares will vest upon an acquisition of Scient by merger or asset sale, unless
we transfer our repurchase right with respect to the unvested option shares to
the acquiring entity. Each of the options has a ten-year term, subject to
earlier termination in the event of the optionee's cessation of service. The
percentages in the column entitled "Percent of Total Options Granted to
Employees during the fiscal year ended March 31, 1999" are based on an
aggregate of 7,677,850 options granted to employees of Scient under the 1997
Stock Plan during the fiscal year ended March 31, 1999.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term(2)
--------------------------------------------------- ------------------------
Percent of Total
Options Granted
Number of to Employees
Securities During
Underlying the Fiscal Year Exercise
Options Ended Price Expiration
Name Granted March 31, 1999 ($/share)(1) Date 5% 10%
- ---- ---------- ---------------- ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert M. Howe.......... -- -- % $ -- -- $ -- $ --
Eric Greenberg.......... -- -- -- -- -- --
Stephen A.
Mucchetti(3)........... 500,000 6.5 $1.60 10/12/08 6,841,357 10,893,718
100,000 1.3 1.60 11/10/08 1,368,271 2,178,744
150,000 2.0 1.60 12/22/08 2,052,407 3,268,115
William H. Kurtz(4)..... 500,000 6.5 .65 8/12/08 7,615,082 12,125,746
50,000 0.7 1.60 1/28/09 684,136 1,089,372
</TABLE>
- --------
(1) The exercise price was equal to the fair market value of our common stock
as determined by the board of directors on the date of grant. The exercise
price may be paid in cash, in shares of our common stock valued at fair
market value on the exercise date or through a cashless exercise procedure
involving a same-day sale of the purchased shares. We may also finance the
option exercise by loaning the optionee sufficient funds to pay the
exercise price for the purchased shares, together with any federal and
state income tax liability incurred by the optionee in connection with
such exercise. The fair market value of our common stock was estimated by
the board of directors on the basis of the purchase price paid by
investors for shares of our preferred stock, taking into account the
liquidation preferences and other rights, privileges and preferences
associated with the preferred stock and an evaluation by the board of our
revenues, operating history and prospects.
(2) We calculated the potential realizable value based on the ten-year term of
the option at the time of grant. For purposes of this column, we have
assumed stock price appreciation of 5% and 10% pursuant to rules
promulgated by the Securities and Exchange Commission. These rates of
appreciation do not represent our prediction of our stock price
performance. We calculated the potential realizable values at 5% and 10%
appreciation by assuming that the estimated fair market value on the date
of grant appreciates at the indicated rate for the entire term of the
option and that the option is exercised at the exercise price and sold on
the last day of its term at the appreciated price. See footnote 1 for
information on how we determined the fair market value of our common
stock. The initial public offering price will be higher than the estimated
fair market value on the date of grant. Therefore, the potential
realizable value of the option grants would be significantly higher than
the numbers shown in this column if future stock prices were projected to
the end of the option term by applying the same annual rates of stock
price appreciation to the initial public offering price.
(3) For the options granted on October 12, 1998, Mr. Mucchetti was immediately
vested in 20% of these option shares, and he will vest in an additional
20% of these option shares upon completion of his first 12 months of
service from the vesting start date. After that, he will vest in the
balance in a series of equal monthly installments over his next three
years of service. For the options granted on November 10, 1998, Mr.
Mucchetti will become fully vested after 60 months of continuous service
to Scient. For the options granted on December 22, 1998, Mr. Mucchetti
will vest after 48 months of continuous service to Scient. If we discharge
him without cause or if he resigns because we reduce his salary,
Mr. Mucchetti will receive an additional 12 months of service credit. If
Scient is acquired but Mr. Mucchetti's remaining option shares do not vest
in full, Mr. Mucchetti will receive an additional 12 months of service
credit if he is discharged or if he resigns because his salary is reduced
or he is not designated as the Chief Operating Officer, or a higher
position, of the surviving company.
(4) If Scient is acquired but Mr. Kurtz's option shares do not vest in full,
Mr. Kurtz receives an additional 12 months of service credit if he is
discharged or if he resigns because his salary is reduced or he is not
designated as the Chief Financial Officer of the surviving company.
47
<PAGE>
Aggregated Option Exercises in the Fiscal Year Ended March 31, 1999 and Option
Values at March 31, 1999
The following table sets forth for each of the Named Executive Officers
options exercised during the fiscal year ended March 31, 1999, and the number
and value of securities underlying unexercised options that were held by the
Named Executive Officers at March 31, 1999. The numbers in the column entitled
"Value Realized" are equal to the fair market value of the purchased shares on
the option exercise date, less the exercise price paid for such shares.
<TABLE>
<CAPTION>
Value
Number of of Unexercised
Securities Underlying In-the-Money
Number of Unexercised Options at Options at
Shares March 31, 1999(1) March 31, 1999(2)
Acquired on Value ----------------------- -------------------
Name Exercise Realized Vested Unvested Vested Unvested
- ---- ----------- -------- ---------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert M. Howe.......... -- $ -- -- -- $ -- $ --
Eric Greenberg.......... -- -- -- -- -- --
Stephen A. Mucchetti.... 500,000 -- 12,500 237,500 105,000 1,995,000
William H. Kurtz........ 425,000 213,750 -- 125,000 -- 1,121,250
</TABLE>
- --------
(1) Generally, our stock options are immediately exercisable. We have the
right to repurchase all unvested option shares at the original exercise
price upon the optionee's cessation of service. The heading "Vested"
refers to shares no longer subject to our right of repurchase; the heading
"Unvested" refers to shares subject to our right of repurchase as of March
31, 1999.
(2) The numbers in this column are based on the fair market value of our
common stock at March 31, 1999 as determined by our board of directors,
$10.00, less the exercise price payable for such shares. The fair market
value of our common stock at March 31, 1999 was estimated by the board of
directors on the basis of the purchase price paid by investors for shares
of our preferred stock (taking into account the liquidation preferences
and other rights, privileges and preferences associated with the preferred
stock) and an evaluation by the board of our revenues, operating history
and prospects. The initial public offering price is expected to be higher
than the estimated fair market value at March 31, 1999. Consequently, the
value of unexercised options could be higher than the numbers shown in the
table if the values were calculated by subtracting the option's exercise
price from the initial public offering price.
Employment Agreements and Change of Control Arrangements
We have entered into an employment agreement, dated December 10, 1997, with
Eric Greenberg, our Chairman, which provides for annual base salary of
$200,000, annual bonus at the discretion of our board of directors and
participation in our employee benefit plans. On June 12, 1998, our board of
directors increased Mr. Greenberg's annual salary to $250,000. The employment
agreement provides that we will pay Mr. Greenberg a lump sum equal to 100% of
the greater of (1) his then current annual base compensation or (2) his actual
base compensation plus bonus for the most recently completed fiscal year if we
terminate Mr. Greenberg without his consent for any reason other than for
cause or permanent disability. In addition, we have the right to repurchase
Mr. Greenberg's shares, which lapses pursuant to a four-year vesting schedule.
Our repurchase right will lapse in its entirety upon a change of control of
Scient, or upon Mr. Greenberg's involuntary termination.
We have entered into an employment agreement, dated February 9, 1998, with
Robert Howe, our President and Chief Executive Officer, which provides for
annual base salary of $250,000, annual bonus at the discretion of the board of
directors and participation in our employee benefit plans. The employment
agreement also provides that we will pay Mr. Howe a lump sum equal to 100% of
the greater of (1) his then current annual base compensation or (2) his actual
base compensation plus bonus for the most recently completed fiscal year if we
terminate Mr. Howe without his consent for any reason other than for cause or
permanent disability. In addition, we granted Mr. Howe an immediately
exercisable option to purchase 2,400,000 shares of our common stock upon
commencement of his employment, subject to our right of repurchase which
lapses pursuant to a four-year
48
<PAGE>
vesting schedule. Our repurchase right will lapse with respect to 25% of such
shares if we terminate Mr. Howe without cause, and with respect to 100% of
such shares upon a change of control of Scient. In addition, we made a
one-time payment of $330,000 to Mr. Howe upon his joining Scient.
We have entered into an employment agreement, dated June 12, 1998, with
William Kurtz, our Chief Financial Officer, which provides for annual base
salary of $250,000, annual bonus at the discretion of the board of directors
and participation in our employee benefit plans. The employment agreement also
provides that we will pay Mr. Kurtz a lump sum equal to six months' salary if
we terminate Mr. Kurtz. In addition, we granted Mr. Kurtz an option to
purchase 500,000 shares of our common stock upon commencement of his
employment, subject to our right of repurchase which lapses pursuant to a
four-year vesting schedule. The four-year vesting schedule will be adjusted to
provide accelerated vesting on 12 months' worth of shares if, upon a change of
control of Scient, Mr. Kurtz is terminated or not offered the position of
Chief Financial Officer with the surviving entity.
We have entered into an employment agreement, dated September 14, 1998,
with Stephen A. Mucchetti, our Chief Operating Officer, which provides for
annual base salary of $250,000, annual bonus of $50,000 for his first two
years at Scient and participation in our employee benefit plans. In addition,
we granted Mr. Mucchetti an option to purchase 500,000 shares of our common
stock upon commencement of his employment, of which 20% was immediately vested
and the remainder was subject to our right of repurchase which lapses pursuant
to a four-year vesting schedule. The employment agreement provides that if we
terminate Mr. Mucchetti, we will pay him a lump sum equal to one year's
salary, and he will vest in 12 months' of stock options. The four-year vesting
schedule will be adjusted to provide accelerated vesting on 12 months' worth
of shares if, upon a change of control of Scient, Mr. Mucchetti is terminated
or not offered the position of Chief Operating Officer with the surviving
entity.
Employee Stock Plans
1999 Equity Incentive Plan
Share Reserve. Our board of directors adopted our 1999 Equity Incentive
Plan on March 18, 1999. Our stockholders also approved this plan. We have
reserved 1,200,000 shares of our common stock for issuance under the 1999
Equity Incentive Plan. Any shares not yet issued under our 1997 Stock Plan on
the date of this offering will also be available under the 1999 Equity
Incentive Plan. On January 1 of each year, starting with the year 2000, the
number of shares in the reserve will automatically increase by 8% of the sum
of the total number of shares of common stock that are outstanding at that
time plus the number of shares of common stock issuable upon the exercise of
outstanding options at that time or, if less, by 5,000,000 shares. In general,
if options or shares awarded under the 1999 Equity Incentive Plan or the 1997
Stock Plan are forfeited, then those options or shares will again become
available for awards under the 1999 Equity Incentive Plan. We have not yet
granted any options or other awards under the 1999 Equity Incentive Plan.
Administration. The compensation committee of our board of directors
administers the 1999 Equity Incentive Plan. The committee has the complete
discretion to make all decisions relating to the interpretation and operation
of the 1999 Equity Incentive Plan. The committee has the discretion to
determine who will receive an award, what type of award it will be, how many
shares will be covered by the award, what the vesting requirements will be, if
any, and what the other features and conditions of each award will be. The
compensation committee may also reprice outstanding options and modify
outstanding awards in other ways.
Eligibility. The following groups of individuals are eligible to
participate in the 1999 Equity Incentive Plan:
. Employees;
. Members of our board of directors who are not employees; and
. Consultants.
49
<PAGE>
Types of Awards. The 1999 Equity Incentive Plan provides for the following
types of award:
. Options to purchase shares of our common stock;
. Stock appreciation rights;
. Restricted shares of our common stock; and
. Stock units, sometimes called phantom shares.
Options and Stock Appreciation Rights. Options may be incentive stock
options or nonstatutory stock options. An optionee who exercises an incentive
stock option may qualify for favorable tax treatment under Section 422 of the
Internal Revenue Code of 1986. On the other hand, nonstatutory stock options
do not qualify for such favorable tax treatment. The exercise price for all
options and stock appreciation rights granted under the 1999 Equity Incentive
Plan may not be less than 100% of the fair market value of our common stock on
the option grant date. Optionees may pay the exercise price by using:
. Cash;
. Shares of common stock that the optionee already owns;
. A full-recourse promissory note, except that the par value of newly
issued shares must be paid in cash;
. An immediate sale of the option shares through a broker designated by us;
or
. A loan from a broker designated by us, secured by the option shares.
Options and stock appreciation rights vest at the time or times determined
by the compensation committee. In most cases, our options vest over the four-
year period following the date of grant. Options and stock appreciation rights
generally expire 10 years after they are granted, except that they generally
expire earlier if the optionee's service terminates earlier. The 1999 Equity
Incentive Plan provides that no participant may receive options covering more
than 1,000,000 shares and stock appreciation rights covering more than
1,000,000 shares in the same year, except that a newly hired employee may
receive options covering up to 2,000,000 shares and stock appreciation rights
covering up to 2,000,000 shares in the first year of employment.
Restricted Shares. Restricted shares may be awarded under the 1999 Equity
Incentive Plan in return for:
. Cash;
. A full-recourse promissory note, except that the par value of newly
issued shares must be paid in cash;
. Services already provided to us; and
. In the case of treasury shares only, services to be provided to us in the
future.
Restricted shares and stock units vest at the time or times determined by
the compensation committee.
Change in Control. If a change in control of Scient occurs, an option or
other award under the 1999 Equity Incentive Plan will generally become fully
vested, unless the surviving corporation assumes the option or award or
replaces it with a comparable award. In addition, an option or other award
will ordinarily become vested in full--even if it was assumed or replaced--if
the participant is discharged within 12 months after the change in control
other than for cause. For this purpose, a participant is also treated as
having been discharged other than for cause if the participant resigns after
being asked to relocate, after suffering a reduction in compensation, or after
being demoted. A change in control includes:
. A merger of Scient after which our own stockholders own 50% or less of
the surviving corporation;
. A sale of all or substantially all of our assets;
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<PAGE>
. A proxy contest that results in the replacement of more than one-half of
our directors over a 24-month period; or
. An acquisition of 30% or more of our outstanding stock by any person or
group, other than a person related to Scient, such as a holding company
owned by our stockholders.
Automatic Grants to Non-Employee Directors. The non-employee members of our
board of directors will be eligible for automatic option grants under the 1999
Equity Incentive Plan. After the effective date of this offering, each non-
employee director will receive options for 2,500 shares of our common stock
during each calendar quarter. These options are exercisable immediately after
the grant, and the option shares will be fully vested from the outset.
The exercise price of each non-employee director's option will be equal to
the fair market value of our common stock on the option grant date. A director
may pay the exercise price by using cash, shares of common stock that the
director already owns or an immediate sale of the option shares through a
broker designated by us. The non-employee directors' options have a 10-year
term, except that they expire one year after a director leaves the board, if
earlier.
Our board may amend or terminate the 1999 Equity Incentive Plan at any
time. If our board amends the plan, it does not need to ask for stockholder
approval of the amendment unless applicable law requires it. The 1999 Equity
Incentive Plan will continue in effect indefinitely, unless the board decides
to terminate the plan.
1999 Employee Stock Purchase Plan
Our board of directors adopted the 1999 Employee Stock Purchase Plan on
April 22, 1999. Our stockholders also approved this plan. The 1999 Employee
Stock Purchase Plan is intended to qualify under Section 423 of the Internal
Revenue Code. We have reserved 1,000,000 shares of our common stock for
issuance under the plan. On May 1 of each year, starting with the year 2000,
the number of shares in the reserve will be increased by the number of shares
that have been issued under the 1999 Employee Stock Purchase Plan during the
prior 12-month period, such that the number of available shares in the reserve
will automatically be restored to 1,000,000. The plan will be administered by
the Employee Stock Purchase Plan committee of our board of directors.
All of our employees are eligible to participate if they are employed by us
for more than 20 hours per week and for more than five months per year.
Eligible employees may begin participating in the 1999 Employee Stock Purchase
Plan at the start of any offering period. Each offering period lasts six
months. Offering periods start on May 1 and November 1 of each year. However,
the first offering period will start on the effective date of this offering
and end on October 31, 1999.
The 1999 Employee Stock Purchase Plan permits each eligible employee to
purchase common stock through payroll deductions. An employee's payroll
deductions may not exceed 15% of the employee's salary. Purchases of our
common stock will occur on April 30 and October 31 of each year or on the last
trading day prior to those dates. Each participant may purchase up to 2,000
shares on any purchase date, provided that the value of the shares purchased
in any calendar year, measured as of the beginning of the offering period may
not exceed $25,000.
The price of each share of common stock purchased under the 1999 Employee
Stock Purchase Plan will be 85% of the lower of:
. The fair market value per share of common stock on the trading day
immediately before the first day of the applicable offering period; or
. The fair market value per share of common stock on the purchase date.
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<PAGE>
In the case of the first offering period, the price per share under the
plan will be 85% of the lower of:
. The price per share to the public in this offering; or
. The fair market value per share of common stock on the purchase date.
Employees may end their participation in the 1999 Employee Stock Purchase
Plan at any time. Participation ends automatically upon termination of
employment with Scient. If a change in control of Scient occurs, the 1999
Employee Stock Purchase Plan will terminate and shares will be purchased with
the payroll deductions accumulated to date by participating employees, unless
the plan is assumed by the surviving corporation or its parent. Our board of
directors may amend or terminate the 1999 Employee Stock Purchase Plan at any
time. If our board increases the number of shares of common stock reserved for
issuance under the plan, except for the automatic increases described above,
it must seek the approval of our stockholders.
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<PAGE>
CERTAIN TRANSACTIONS
Transactions with Directors and Officers
In December 1997, Scient sold shares of Series A Preferred Stock to obtain
equity capital for general corporate purposes, including working capital.
Purchasers in the offering were, among others, the following stockholders in
the amounts indicated for $.90 per share or an aggregate of $4,720,001. These
shares of Series A Preferred Stock convert into 10,488,890 shares of our
common stock.
<TABLE>
<CAPTION>
Shares of Series A
Preferred Stock
------------------
<S> <C>
Benchmark Capital Partners II, L.P........................... 2,844,445
Sequoia Capital VII.......................................... 2,196,000
Sequoia Technology Partners VII.............................. 96,000
SQP 1997..................................................... 44,544
Sequoia 1997................................................. 25,056
Sequoia International Partners............................... 38,400
---------
Total Shares............................................. 5,244,445
=========
</TABLE>
Mr. Beirne, a director of Scient, is a managing member of the general partner
of Benchmark Capital Partners II, L.P. Mr. Leone, a director of Scient, is a
managing member of the general partner of the funds affiliated with Sequoia
Capital VII.
In May 1998, Scient sold 950,000 shares of Series A Preferred Stock to
obtain additional equity capital for general corporate purposes, including
working capital, to the following director and former director for $1.50 per
share or an aggregate of $1,425,000. These shares of Series A Preferred Stock
convert into 1,900,000 shares of our common stock.
<TABLE>
<CAPTION>
Shares of Series A
Preferred Stock
------------------
<S> <C>
Frederick W. Gluck........................................... 200,000
Morton H. Meyerson........................................... 750,000
-------
Total Shares............................................. 950,000
=======
</TABLE>
In connection with his purchase of Series A Preferred Stock, we loaned Mr.
Meyerson, one of our former directors, $843,750. Mr. Meyerson issued us a
promissory note dated May 11, 1998 for the principal sum of $843,750, with
interest accruing at 5.5% per annum. The loan was secured by 562,500 shares of
his Series A Preferred Stock pursuant to a Stock Pledge Agreement dated
May 11, 1998. The 562,500 shares of Series A Preferred Stock were also subject
to repurchase by Scient pursuant to an October 31, 1998 Stock Repurchase
Agreement. In connection with his resignation from our board of directors on
March 13, 1999, we repurchased the 562,500 shares of Series A Preferred Stock
pursuant to the Stock Restriction Agreement by canceling the promissory note.
In connection with the cancellation, we forgave approximately $38,400 of
accrued interest that was due under the note.
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<PAGE>
In June 1998, Scient sold shares of Series B Preferred Stock to obtain
additional equity capital for general corporate purposes, including working
capital. Purchasers in the offering were, among others, the following
stockholders in the amounts indicated for $6.35 per share or an aggregate of
$13,499,992:
<TABLE>
<CAPTION>
Shares of Series B
Preferred Stock
------------------
<S> <C>
Benchmark Capital Partners II, L.P........................... 157,480
Sequoia Capital VII.......................................... 144,094
Sequoia Technology Partners VII.............................. 6,299
SQP 1997..................................................... 2,923
Sequoia 1997................................................. 1,644
Sequoia International Partners............................... 2,520
Smallcap World Fund Inc...................................... 1,417,323
Morgan Stanley Dean Witter Equity Funding, Inc............... 393,700
---------
Total Shares............................................. 2,125,983
=========
</TABLE>
Mr. Beirne, a director of Scient, is a managing member of the general partner
of Benchmark Capital Partners II, L.P. Mr. Leone, a director of Scient, is a
managing member of the general partner of the funds affiliated with Sequoia
Capital VII.
In February 1999, Scient sold shares of Series C Preferred Stock to obtain
additional equity capital for general corporate purposes, including working
capital. Purchasers in the offering were, among others, the following
stockholders in the amounts indicated for $10.85 per share or an aggregate
consideration of $11,249,540:
<TABLE>
<CAPTION>
Shares of Series C
Preferred Stock
------------------
<S> <C>
Sequoia Capital Franchise Fund............................. 460,830
Entities Affiliated with Amerindo Investment Advisors,
Inc....................................................... 483,829
Palantir Partners L.P...................................... 92,165
---------
Total Shares........................................... 1,036,824
=========
</TABLE>
Mr. Leone, a director of Scient, is a managing member of the general partner
of Sequoia Capital Franchise Fund. In connection with the purchase of Series C
Preferred Stock, the purchasers of at least 50,000 shares of Series C
Preferred Stock were granted preemptive rights that entitle them to purchase
approximately three percent of the shares to be issued in this offering. See
"Preemptive Rights."
To provide further incentive to Stephen Mucchetti, our Chief Operating
Officer, we granted him an option to purchase 150,000 shares of our common
stock on December 22, 1998. The option vests in one installment on December
31, 2002 and has an exercise price of $1.60 per share. In connection with the
grant to Mr. Mucchetti, we entered into a stock repurchase agreement with
Mr. Howe, dated December 22, 1998. Under the stock repurchase agreement, Mr.
Howe agreed to sell 150,000 shares of our common stock held by him to us at
$1.60 per share if Mr. Mucchetti vests in his December 22, 1998 option to
purchase 150,000 shares of common stock.
In March 1999, Eric Greenberg, our Chairman, and Robert Howe, our President
and Chief Executive Officer, sold 300,000 shares of common stock and 150,000
shares of common stock, respectively, to Gryphon Holdings, L.P. At the closing
of the sales, Gryphon made initial payments to Messrs. Greenberg and Howe
equal to $10.85 per share. Additionally, if we consummate this offering at a
per share price greater than $10.85 on or before March 5, 2001, Messrs.
Greenberg and Howe shall receive additional payments equal to the difference
between (1) the initial public offering price and (2) $10.85. If, however, we
do not consummate this offering on or before a sale of Scient or March 5,
2001, Messrs. Greenberg and Howe will receive additional payments from Gryphon
equal to $4.15 per share on such date. We received no proceeds from either
sale. In connection with the sale by
54
<PAGE>
Mr. Greenberg we waived our right of first refusal. As a holder of these
shares, Gryphon is subject to a restriction from selling the shares during the
180 day period following this offering.
In addition, we have granted options to and have entered into compensation
agreements and other arrangements to attract, retain and provide incentive to
our directors and executive officers. These transactions are described in
"Management."
Transactions with Entities Related to Directors and Greater than 5%
Stockholders
In connection with the recruiting of our Chief Financial Officer and Chief
Technology Officer, we engaged the services of Ramsey/Beirne Associates, an
executive search firm. Mr. Beirne, one of our directors, is the chairman of
Ramsey/Beirne and owns more than 5% of the stock of Ramsey/Beirne. As payment
for services, we paid Ramsey/Beirne $100,000 and issued a warrant to purchase
80,000 shares of common stock, with an exercise price of $.10 per share.
Ramsey/Beirne exercised the warrant on September 9, 1998.
In connection with the recruiting of our Vice President, Sales, we again
engaged the services of Ramsey/Beirne. As payment for services, we paid
Ramsey/Beirne $50,000 and issued a warrant to purchase 7,875 shares of common
stock, with an exercise price of $.75 per share.
Two of our directors have interests in some of our clients. Mr. Beirne is a
managing member of the general partner of funds affiliated with Benchmark
Capital. Mr. Leone is a managing member of the general partner of funds
affiliated with Sequoia Capital. Benchmark and Sequoia are venture capital
firms that hold equity interests exceeding ten percent of the total
outstanding equity of several of our clients. In addition, Benchmark and
Sequoia each control a seat on the board of directors of some of these
clients.
Benchmark is a significant shareholder of PlanetRx, living.com, ePhysician
and WebVan and has a right to nominate one member of each company's board of
directors. We have agreements to provide eBusiness services amounting to an
estimated $1.8 million, $1.1 million, $702,000 and $78,000, respectively, for
each of these companies. In addition, Benchmark has an equity interest in
eBay, a client for whom we have provided approximately $168,000 in eBusiness
services.
Sequoia is also a significant shareholder of PlanetRx and WebVan and has a
right to nominate one member of each company's board of directors. We have
agreements to provide eBusiness services to each of these companies as
discussed above.
We believe that we made all of the transactions set forth above on terms no
less favorable to us than we could have obtained from unaffiliated third
parties. A majority of the disinterested outside directors on our board of
directors will approve all future transactions, including loans between us and
our officers, directors, principal stockholders and their affiliates. Such
transactions will continue to be on terms no less favorable to us than we
could have obtained from unaffiliated third parties.
55
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of March 31, 1999, information with
respect to shares beneficially owned by (1) each person who we know to be the
beneficial owner of more than five percent of our outstanding shares of common
stock; (2) each of the Named Executive Officers; (3) each of our directors;
and (4) all current directors and executive officers as a group. The number of
shares shown as beneficially owned by each stockholder is adjusted to reflect
the sale of shares offered in this offering and the conversion of all
outstanding preferred stock and other convertible securities into common
stock. We have determined beneficial ownership in accordance with Rule 13d-3
under the Securities Exchange Act of 1934. Under this rule, certain shares may
be deemed to be beneficially owned by more than one person (if, for example,
persons share the power to vote or the power to dispose of the shares). In
addition, shares are deemed to be beneficially owned by a person if the person
has the right to acquire shares (for example, upon exercise of an option or
warrant) within 60 days of the date as of which the information is provided.
In computing the percentage ownership of any person, the number of shares
beneficially owned by him is deemed to include the number of shares
beneficially owned by that person (and only that person) by reason of such
acquisition rights. In general, options to purchase our capital stock are
exercisable in full, with the underlying shares subject to repurchase rights
that lapse as the shares vest. As a result, the percentage of outstanding
shares of any person as shown in the following table does not necessarily
reflect the person's actual voting power at any particular date. The
percentage of beneficial ownership for the following table is based on
31,299,560 shares of common stock outstanding as of March 31, 1999, and
34,299,560 shares of common stock outstanding after the completion of this
offering. Unless otherwise indicated, the address for each listed stockholder
is: c/o Scient Corporation, One Front Street, 28th Floor, San Francisco,
California, 94111. To our knowledge, except as indicated in the footnotes to
this table or pursuant to applicable community property laws, the persons
named in the table have sole voting and investment power with respect to the
shares of common stock indicated.
<TABLE>
<CAPTION>
Shares Percent
Beneficially Beneficially
Owned Owned
------------ -----------------
5% Stockholders, Named Officers, Directors, Before After
and Directors and Executive Officers as a Group Number Offering Offering
- ----------------------------------------------- ------------ -------- --------
<S> <C> <C> <C>
Eric Greenberg................................. 6,403,332 20.5% 18.7%
Entities associated with Benchmark Capital(1).. 5,846,370 18.7 17.0
David M. Beirne(2)........................... 5,934,245 19.0 17.3
Entities associated with Sequoia Capital(3).... 5,418,310 17.3 15.8
Douglas Leone(3)............................. 5,418,310 17.3 15.8
Robert M. Howe(4).............................. 3,650,000 11.7 10.6
Stephen A. Mucchetti(5)........................ 562,500 1.8 1.6
William H. Kurtz(6)............................ 501,562 1.6 1.5
Frederick W. Gluck(7).......................... 538,672 1.7 1.6
All directors and executive officers as a group
(7 persons)(8)................................ 23,008,621 73.2 66.8
</TABLE>
- --------
(1) Benchmark Capital Partners II, L.P. holds 5,846,370 shares as nominee for
Benchmark Capital Partners II, L.P., Benchmark Founders Fund II, L.P.,
Benchmark Founders Fund II-A, L.P., and Benchmark Members' Fund, L.P. The
address for Benchmark Capital is 2480 Sand Hill Road, Suite 200, Menlo
Park, CA 94025.
(2) Includes 5,846,370 shares held by Benchmark Capital Partners II, L.P., as
nominee for Benchmark Capital Partners II, L.P., Benchmark Founders Fund
II, L.P., Benchmark Founders Fund II-A, L.P. and Benchmark Members' Fund,
L.P. Mr. Beirne disclaims beneficial ownership of the shares held by
Benchmark Capital Partners II, L.P. except to the extent of his pecuniary
interest therein. The amount shown for Mr. Beirne also includes 80,000
shares held by Ramsey/Beirne Associates and 7,875 shares subject to
warrants held by Ramsey/Beirne. Mr. Beirne is a stockholder in
Ramsey/Beirne. Mr. Beirne disclaims beneficial ownership of the shares and
the warrant to purchase shares held by Ramsey/Beirne except to the extent
of his pecuniary interest therein.
56
<PAGE>
(3) Includes 4,536,094 shares held by Sequoia Capital VII, 198,299 shares held
by Sequoia Technology Partners VII, 92,011 shares held by SQP 1997, 51,756
shares held by Sequoia 1997, 79,320 shares held by Sequoia International
Partners and 460,830 shares held by Sequoia Capital Franchise Fund. Mr.
Leone, a director of Scient, is a Managing Member of SC VII-A Management,
L.L.C. which is the general partner of Sequoia Capital VII, Sequoia
Technology Partners VII, SQP 1997, Sequoia 1997, Sequoia International
Partners and Sequoia Capital Franchise Fund. Mr. Leone disclaims
beneficial ownership of the shares held by Sequoia Capital Franchise Fund,
Sequoia Capital VII, Sequoia Technology Partners VII, SQP 1997, Sequoia
1997 and Sequoia International Partners except to the extent of his
pecuniary interest therein. The address for Sequoia Capital is 3000 Sand
Hill Road, Building 4, Suite 280, Menlo Park, CA 94025.
(4) Includes 2,400,000 shares held by Robert M. Howe and Althea M. Howe as
Joint Tenants with Right of Survivorship. Includes 150,000 shares which
are subject to a stock repurchase agreement that allows Scient to
repurchase up to all of such shares in the event that Stephen A.
Mucchetti, Scient's Chief Operating Officer, vests in a December 22, 1998
150,000 share option grant by Scient. Mr. Mucchetti will vest in such
options if he remains employed by the Company through December 22, 2002.
(5) Includes 500,000 shares held by Stephen A. Mucchetti and Rebecca S.
Mucchetti as Joint Tenants with Right of Survivorship and options
immediately exercisable for 62,500 shares.
(6) Includes 425,000 shares held by William H. Kurtz and Kathy H. Kurtz as
Joint Tenants with Right of Survivorship and options immediately
exercisable for 76,562 shares.
(7) Includes 146,666 shares held by the Gluck 1997 Irrevocable Trust.
(8) Includes options immediately exercisable for 139,062 shares and warrants
immediately exercisable for 7,875 shares.
57
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, our authorized capital stock will
consist of 125,000,000 shares of common stock, $.0001 par value, and
10,000,000 shares of preferred stock, $.0001 par value.
Common Stock
As of March 31, 1999, there were 31,299,560 shares of common stock
outstanding that were held of record by approximately 194 stockholders. As of
March 31, 1999 there were 2,951,916 shares of common stock subject to
outstanding options, 2,375,777 of which were then currently exercisable. There
will be 34,299,560 shares of common stock outstanding after giving effect to
the sale of the shares of common stock to the public offered hereby, the
conversion of our Series A Preferred Stock into common stock on a two-for-one
basis, and the conversion of our Series B Preferred Stock and Series C
Preferred Stock into common stock on a one-for-one basis. The holders of
common stock are entitled to one vote per share on all matters to be voted on
by the stockholders. Subject to preferences that may be applicable to any
outstanding preferred stock, the holders of common stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time
by the board of directors out of legally available funds. In the event of the
liquidation, dissolution, or winding up of Scient, the holders of common stock
are entitled to share ratably in all assets remaining after payment of our
liabilities, subject to prior distribution rights of preferred stock, if any,
then outstanding. Our common stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to our common stock. All outstanding shares of common stock are
fully paid and nonassessable, and the shares of common stock to be issued on
completion of this offering will be fully paid and nonassessable. See
"Dividend Policy."
Preferred Stock
Upon the closing of this offering, 10,000,000 shares of preferred stock
will be authorized, and no shares of preferred stock will be outstanding. The
board of directors has the authority to issue the preferred stock in one or
more series and to fix the rights, preferences, privileges and restrictions on
any series of preferred stock, including dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any series or
the designation of such series, without further vote or action by the
stockholders. The issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of Scient without further action
by our stockholders and may adversely affect the voting and other rights of
the holders of common stock. Any issuance of preferred stock with voting and
conversion rights may adversely affect the voting power of the holders of
common stock, including the loss of voting control to others. We currently do
not plan to issue any of the preferred stock.
Anti-Takeover Effects of Provisions of the Certificate of Incorporation,
Bylaws and Delaware Law
Certificate of Incorporation and Bylaws. Our certificate of incorporation,
to be effective upon the closing of this offering, provides that the board of
directors will be divided into three classes of directors, with each class
serving a staggered three-year term. The classification of directors may tend
to discourage a party from making a tender offer or otherwise attempting to
obtain control of Scient and may maintain the incumbency of the board of
directors. The classification of boards of directors has the effect of
delaying the time when a party can replace a majority of the incumbent
directors thus it generally increases the difficulty of replacing a majority
of the directors. Our certificate of incorporation also provides that,
effective on the closing of this offering, all stockholder actions must be
effected at a duly called meeting and not by a consent in writing. Further,
provisions of our bylaws and certificate of incorporation provide that the
stockholders may amend the bylaws or certain provisions of our certificate of
incorporation only with the affirmative vote of 75% of our outstanding capital
stock. These provisions of our certificate of incorporation and bylaws could
discourage potential acquisition proposals and could delay or prevent a change
in control of Scient. We intended these provisions to enhance the likelihood
of continuity and stability in the composition of the board of directors and
in the policies formulated
58
<PAGE>
by the board of directors. The provisions are also meant to discourage
transactions that may involve a change of control of Scient. These provisions
are designed to reduce our vulnerability to an unsolicited acquisition
proposal. The provisions also are intended to discourage tactics that may be
used in proxy fights. However, such provisions could have the effect of
discouraging others from making tender offers for our shares and, as a
consequence, they also may inhibit fluctuations in the market price of our
shares that could result from actual or rumored takeover attempts. Such
provisions also may have the effect of preventing changes in our management.
See "Risk Factors--We Have Various Mechanisms in Place to Discourage Takeover
Attempts."
Delaware Takeover Statute. We are subject to Section 203 of the Delaware
General Corporation Law which regulates corporate acquisitions. Section 203
prevents Delaware corporations whose securities are listed on the Nasdaq
National Market from engaging in a "business combination" with any "interested
stockholder" for three years following the date that such stockholder became
an "interested stockholder." For purposes of Section 203, a "business
combination" includes a merger or consolidation involving Scient and the
interested stockholder and the sale of 10% or more of Scient's assets. In
general, Section 203 defines an "interested stockholder" as any entity or
person beneficially owning 15% or more of the outstanding voting stock of
Scient and any entity or person affiliated with or controlling or controlled
by such entity or person. A Delaware corporation may "opt out" of Section 203
with an express provision in its original certificate of incorporation or an
express provision in its certificate of incorporation or bylaws resulting from
amendments approved by the holders of at least a majority of the corporation's
outstanding voting shares. We have not "opted out" of the provisions of
Section 203.
Registration Rights
After this offering, the holders of approximately 22,561,126 shares of
common stock and rights to acquire common stock, including Eric Greenberg, our
Chairman, and the holders of our Series A, Series B and Series C Preferred
Stock, will be entitled to rights with respect to the registration of such
shares under the Securities Act. Under the terms of the agreement between us
and the holders of such registrable securities, if we proposes to register any
of our securities under the Securities Act, either for our own account or for
the account of other security holders exercising registration rights, such
holders are entitled to notice of such registration and are entitled to
include shares of such common stock therein. Additionally, such holders are
entitled to require us on up to two occasions to file a registration statement
under the Securities Act at our expense with respect to their shares of common
stock, and we are required to use all reasonable efforts to cause such
registration to become effective. Further, holders may require us to file an
unlimited number of additional registration statements on Form S-3 at our
expense. All of these registration rights terminate four (4) years following
the consummation of our initial public offering and are subject to conditions
and limitations, including the right of the underwriters of an offering to
limit the number of shares included in such registration and our right not to
effect a requested registration within 180 days following an offering of our
securities, including the this offering.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the common stock is U.S. Stock
Transfer Corporation, and its telephone number is (818) 502-1404.
59
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 34,299,560 shares of common
stock outstanding, assuming no exercise of options after March 31, 1999. Of
the 3,000,000 shares which are offered hereby, at least 2,557,099 shares will
be available for immediate sale in the public market as of the date of this
prospectus, up to 252,901 shares will be subject to a 180-day lockup period
and up to 190,000 shares will be subject to a one-year lock up period after
which they will be available for sale in the public market, subject in some
cases to compliance with volume and other limitations of Rule 144. See
"Underwriters." Approximately 29,951,812 additional shares will be available
for sale in the public market following the expiration of 180-day lockup
agreements with representatives of the underwriters, subject in some cases to
compliance with the volume and other limitations of Rule 144. Thereafter,
1,790,649 shares will remain subject to either a one-year holding period under
Rule 144, which will lapse over a period ending on March 16, 2000 or the one-
year lock-up described above. The foregoing is represented in the following
table:
<TABLE>
<CAPTION>
Days after Date of Approximate Shares
this Prospectus Eligible for Future Sale Comment
------------------ ------------------------ -------
<C> <C> <S>
On Effectiveness.... 2,557,099 Freely tradeable shares sold in
offering
180 Days............ 29,951,812 180 day lock-up expires; shares
salable under Rule 144 or 701
More than 180 Days.. 1,790,649 Restricted securities held for
one year or less; securities
sold in offering but subject to
one-year lock-up
</TABLE>
In general, under Rule 144 a person, or persons whose shares are
aggregated, who has beneficially owned shares for at least one year is
entitled to sell within any three-month period commencing 90 days after the
date of this prospectus a number of shares that does not exceed the greater of
1% of the then outstanding shares of common stock, which amounts to
approximately 342,996 shares after giving effect to this offering, or the
average weekly trading volume during the four calendar weeks preceding the
sale, in each case subject to manner of sale requirements, and depending on
the amount sold, the filing of a Form 144 with respect to the sale. A person,
or persons whose shares are aggregated, who is not deemed to have been an
affiliate of Scient--such as an officer, director or 10%-or-greater
stockholder--at any time during the 90 days immediately preceding the sale who
has beneficially owned his or her shares for at least two years is entitled to
sell his or her shares pursuant to Rule 144(k) without regard to the
limitations described above. Persons deemed to be affiliates of Scient must
always sell pursuant to Rule 144, even after the applicable holding periods
have been satisfied.
We are unable to estimate the number of shares that will be sold under Rule
144, since this will depend on the market price for our common stock, the
personal circumstances of the sellers and other factors. Prior to this
offering, there has been no public market for the common stock, and there can
be no assurance that a significant public market for the common stock will
develop or be sustained after the offering. Any future sale of substantial
amounts of the common stock in the open market may adversely affect the market
price of the common stock offered hereby.
Scient, its directors and executive officers and some other stockholders,
including the stockholders purchasing shares in this offering through the
exercise of their preemptive rights, have agreed not to sell any common stock
without the prior consent of Morgan Stanley & Co. Incorporated for a period of
180 days from the date of this prospectus, except that Scient may, without
such consent, grant options and sell shares pursuant to its stock plans.
Any of our employees or consultants who purchased his or her shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701, which permits nonaffiliates to sell their Rule
701 shares without having to comply with the public information, holding
period, volume limitation or notice provisions of Rule 144 and permits
affiliates to sell their Rule 701 shares without having to comply with the
Rule 144 holding period restrictions, in each case commencing 90 days after
the date of this prospectus. As of March 31, 1999, the holders of options
exercisable into approximately 2,375,777 shares of common stock
60
<PAGE>
will be eligible to sell their shares on the expiration of the 180-day lockup
period or subject in some cases to vesting of such options.
We intend to file one or more registration statements on Form S-8 under the
Securities Act to register all shares of common stock subject to outstanding
stock options and common stock issued or issuable under our stock plans. We
expect to file the registration statement covering shares offered pursuant to
the 1997 Stock Plan, the 1999 Equity Incentive Plan and the 1999 Employee
Stock Purchase Plan within 180 days after the date of this prospectus, thus
permitting the resale of such shares by nonaffiliates in the public market
without restriction under the Securities Act.
In addition, after this offering, the holders of approximately 21,136,126
shares of common stock will be entitled to rights with respect to registration
of such shares under the Securities Act. Registration of such shares under the
Securities Act would result in such shares, except for shares purchased by
affiliates of Scient, becoming freely tradable without restriction under the
Securities Act immediately on the effectiveness of such registration. See
"Description of Capital Stock--Registration Rights."
61
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in the underwriting
agreement dated the date hereof, the underwriters named below, for whom Morgan
Stanley & Co. Incorporated, Hambrecht & Quist LLC and Thomas Weisel Partners
LLC are acting as representatives, have severally agreed to purchase, and we
have agreed to sell to them, an aggregate of 3,000,000 shares of common stock.
The number of shares of common stock that each underwriter has agreed to
purchase is set forth opposite its name below:
<TABLE>
<CAPTION>
Number of
Name Shares
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated..................................
Hambrecht & Quist LLC..............................................
Thomas Weisel Partners LLC.........................................
---------
Total.............................................................. 3,000,000
=========
</TABLE>
The underwriters are offering the shares subject to their acceptance of the
shares from us and the selling stockholders and subject to prior sale. The
underwriting agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the shares of common stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The underwriters are obligated to
take and pay for 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 taken. Discover Brokerage Direct Inc., an affiliate of Morgan Stanley &
Co. Incorporated and facilitator of Internet distribution, is acting as a
selected dealer in connection with the offering.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the
cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ a share under the public offering price. Any
underwriters may allow, and such dealers may reallow, a concession not in
excess of $ a share to other underwriters or to certain other dealers.
After the initial offering of the shares of common stock, the offering price
and other selling terms may from time to time be varied by the representatives
of the underwriters.
Pursuant to the underwriting agreement, we have granted to the underwriters
an option, exercisable for 30 days from the date of this prospectus, to
purchase up to an aggregate of 450,000 additional shares of common stock at
the public offering price set forth on the cover page hereof, less
underwriting discounts and commissions. The underwriters may exercise such
option solely for the purpose of covering over-allotments, if any, made in
connection with the offering of the shares of common stock offered hereby. To
the extent such option is exercised, each underwriter will become obligated,
subject to certain conditions, to purchase approximately the same percentage
of such additional shares of common stock as the number set forth next to such
underwriter's name in the preceding table bears to the total number of shares
of common stock set forth next to the names of all underwriters in the
preceding table.
At our request, the underwriters have reserved up to 442,901 shares of
common stock to be sold in the offering and offered hereby for sale, at the
public offering price, to specified parties. Of this total, 190,000 shares and
30,000 shares have been reserved for entities affiliated with Sequoia Capital
and Benchmark Capital, respectively, 50,401 shares have been reserved for
holders of at least 50,000 shares of our Series C Preferred Stock, other than
Sequoia Capital, and 172,500 shares have been reserved for our directors,
officers, employees, business associates and related persons. The number of
shares of common stock available for sale to the general public will be
reduced to the extent such persons purchase such reserved shares. Any reserved
shares which are not so purchased will be offered by the underwriters to the
general public on the same basis as the other shares offered hereby.
62
<PAGE>
We, the directors, officers and certain other of our stockholders have each
agreed that, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the underwriters, during the period ending 180 days
after the date of this prospectus, we will not, directly or indirectly:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock (whether
such shares or any such securities are then owned by such person or are
thereafter acquired directly from us); or
. enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of common
stock,
whether any such transaction described above is to be settled by delivery of
common stock or such other securities, in cash or otherwise.
The restrictions described in the previous paragraph do not apply to:
. the sale to the underwriters of the shares of common stock under the
underwriting agreement;
. the issuance by Scient of shares of common stock upon the exercise of an
option or a warrant or the conversion of a security outstanding on the
date of this prospectus which is described in the prospectus;
. transactions by any person other than Scient relating to shares of common
stock or other securities acquired in open market transactions after the
completion of the offering of the shares of common stock; or
. issuances of shares of common stock or options to purchase shares of
common stock pursuant to our employee benefit plans that are in existence
on the date of the prospectus and consistent with past practices.
As a condition of purchasing the reserved shares described above, the
purchasers of up to 252,901 of these shares will be required to agree not to
sell those shares for a period of 180 days after the date of this prospectus,
and Sequoia Capital, which may purchase up to 190,000 of these shares, will be
required to agree not to sell such shares for one year after the date of this
prospectus.
The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
We have submitted an application to have our common stock approved for
quotation on the Nasdaq National Market under the symbol "SCNT."
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the common stock, the underwriters may bid for, and purchase,
shares of common stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an underwriter or a dealer for
distributing the common stock in the offering if the syndicate repurchases
previously distributed shares of common stock in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the common
stock above independent market levels. The underwriters are not required to
engage in these activities and may end any of these activities at any time.
We and the underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act.
63
<PAGE>
In June 1998, we sold shares of our Series B Preferred Stock in a private
placement. In this private placement, Morgan Stanley Dean Witter Equity
Funding, Inc., or MSDW Equity Funding, purchased 393,700 shares of Series B
Preferred Stock, which are convertible into 393,700 shares of common stock
(subject to adjustment), for $2,449,995, or $6.35 per share. MSDW Equity
Funding purchased these shares on the same terms as the other investors in the
private placement. Morgan Stanley & Co. Incorporated, one of the underwriters
in this offering, and MSDW Equity Funding are both wholly-owned subsidiaries
of Morgan Stanley Dean Witter & Co.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners has been named as a lead or co-manager
on 20 filed public offerings of equity securities, of which seven have been
completed, and has acted as a syndicate member in an additional 10 public
offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with
us pursuant to the underwriting agreement entered into in connection with this
offering.
Pricing of the Offering
Prior to this offering, there has been no public market for our common
stock. Consequently, the public offering price for the shares of common stock
will be determined by negotiations between Scient and the representatives of
the underwriters. Among the factors considered in determining the public
offering price were our record of operations, our current financial position
and future prospects, the experience of our management, sales, earnings and
certain of our other financial and operating information in recent periods,
the price-earnings ratios, price-sales ratios, market prices of securities and
certain financial and operating information of companies engaged in activities
similar to ours.
LEGAL MATTERS
The validity of the issuance of the common stock offered hereby will be
passed upon for us by Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP, Menlo Park, California. Members of Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP, participating in the consideration of
legal matters relating to the common stock offered hereby are the beneficial
owners of 13,825 shares of our Series C Preferred Stock. Legal matters in
connection with this offering will be passed upon for the underwriters by Gray
Cary Ware & Freidenrich LLP, Palo Alto, California.
64
<PAGE>
EXPERTS
The financial statements as of March 31, 1998 and March 31, 1999, and for
the period from November 7, 1997 through March 31, 1998 and the year ended
March 31, 1999 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 auditing and accounting.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, a registration statement on Form S-1 under the Securities Act with
respect to the common stock offered hereby. This prospectus does not contain
all of the information set forth in the registration statement and the
exhibits and schedules to the registration statement. For further information
with respect to us and such common stock offered hereby, reference is made to
the registration statement and the exhibits and schedules filed as a part of
the registration statement. Statements contained in this prospectus concerning
the contents of any contract or any other document referred to are not
necessarily complete; reference is made in each instance to the copy of such
contract or document filed as an exhibit to the registration statement. Each
such statement is qualified in all respects by such reference to such exhibit.
The registration statement, including exhibits and schedules thereto, may be
inspected without charge at the Commission's principal office in Washington,
D.C., and copies of all or any part thereof may be obtained from such office
after payment of fees prescribed by the Commission. The Commission maintains a
website that contains reports, proxy and information statements and other
information regarding registrants, including us, that file electronically with
the Commission. The address of the site is http://www.sec.gov.
65
<PAGE>
SCIENT CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Balance Sheet.............................................................. F-3
Statement of Operations.................................................... F-4
Statement of Stockholders' Equity.......................................... F-5
Statement of Cash Flows.................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
The reincorporation described in Note 1 to the financial statements has not
been consummated at April 26, 1999. When the reincorporation has been
consummated, we will be in a position to furnish the following report:
Report of Independent Accountants
"To the Board of Directors and Stockholders
of Scient Corporation
In our opinion, the accompanying balance sheet and the
related statements of operations, of stockholders' equity and of
cash flows present fairly, in all material respects, the
financial position of Scient Corporation at March 31, 1998 and
1999, and the results of its operations and its cash flows for
the period from November 7, 1997 (Inception) through March 31,
1998 and for the year ended March 31, 1999 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
San Jose, California
April 26, 1999
F-2
<PAGE>
SCIENT CORPORATION
BALANCE SHEET
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
Equity at
March 31, March 31, March 31,
1998 1999 1999
--------- --------- -------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................... $ 3,301 $ 11,261
Short-term investments...................... -- 16,868
Restricted cash............................. 100 --
Accounts receivable, net.................... 155 6,141
Prepaid expenses and other current assets... 137 864
------- --------
Total current assets....................... 3,693 35,134
Notes receivable............................. -- 160
Property and equipment, net.................. 322 3,410
Other assets................................. 210 108
------- --------
$ 4,225 $ 38,812
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank borrowings, current.................... $ -- $ 413
Accounts payable............................ 351 832
Accrued expenses............................ 32 4,632
Deferred revenue............................ -- 524
Capital lease obligations, current.......... 11 625
------- --------
Total current liabilities.................. 394 7,026
Bank borrowings, long-term................... -- 1,129
Capital lease obligations, long-term......... 26 680
------- --------
420 8,835
------- --------
Commitments (Note 5)
Stockholders' equity
Convertible Preferred Stock; issuable in
series, $.0001 par value; 11,500 shares
authorized; 5,333 and 9,012 actual shares
issued and outstanding, respectively;
10,000 shares authorized; no shares issued
and outstanding, pro forma................. 1 1 $ --
Common Stock: $.0001 par value; 40,000
shares authorized; 10,934 and 16,567 shares
issued and outstanding, respectively;
125,000 shares authorized; 31,300 issued
and outstanding, pro forma................. 1 2 3
Additional paid-in capital.................. 6,497 70,056 70,056
Unearned compensation....................... (1,535) (27,222) (27,222)
Accumulated deficit......................... (1,159) (12,860) (12,860)
------- -------- --------
Total stockholders' equity................. 3,805 29,977 $ 29,977
------- -------- ========
$ 4,225 $ 38,812
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
SCIENT CORPORATION
STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
November 7,
1997
(Inception) Year
through Ended
March 31, March 31,
1998 1999
----------- ---------
<S> <C> <C>
Revenues................................................. $ 179 $ 20,675
Operating expenses:
Professional services................................... 102 10,028
Selling, general and administrative..................... 1,228 15,315
Stock compensation...................................... 64 7,679
------- --------
Total operating expenses................................. 1,394 33,022
------- --------
Loss from operations..................................... (1,215) (12,347)
Interest income, net..................................... 56 646
------- --------
Net loss................................................. $(1,159) $(11,701)
======= ========
Net loss per share:
Basic and diluted....................................... $ (.19) $ (1.77)
======= ========
Weighted average shares................................. 5,947 6,599
======= ========
Pro forma net loss per share:
Basic and diluted (unaudited)........................... $ (.56)
========
Weighted average shares (unaudited)..................... 20,836
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
SCIENT CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Convertible
Preferred
Stock Common Stock
------------- -------------
Additional Stock Total
Paid-in Subscription Unearned Accumulated Stockholders'
Shares Amount Shares Amount Capital Receivable Compensation Deficit Equity
------ ------ ------ ------ ---------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Common Stock
to founder............. -- $ -- 8,534 $ -- $ -- $ -- $ -- $ -- $ --
Issuance of Series A
Convertible Preferred
Stock, net of issuance
cost of $20............ 5,333 1 -- -- 4,779 -- -- -- 4,780
Unearned compensation... -- -- -- -- 1,599 -- (1,599) -- --
Amortization of unearned
compensation........... -- -- -- -- -- -- 64 -- 64
Exercise of Common Stock
options................ -- -- 2,400 1 119 -- -- -- 120
Net loss................ -- -- -- -- -- -- -- (1,159) (1,159)
------ ----- ------ ----- -------- ----- -------- -------- --------
Balance at March 31,
1998................... 5,333 1 10,934 1 6,497 -- (1,535) (1,159) 3,805
Issuance of Series A
Convertible Preferred
Stock.................. 950 -- -- -- 1,425 (873) -- -- 552
Issuance of Series B
Convertible Preferred
Stock, net of issuance
cost of $38............ 2,240 -- -- -- 14,189 -- -- -- 14,189
Issuance of Series C
Convertible Preferred
Stock, net of issuance
cost of $54............ 1,051 -- -- -- 11,346 -- -- -- 11,346
Repurchase of Series A
Convertible Preferred
Stock by cancelling the
stock subscription
receivable............. (562) -- -- -- (844) 873 -- -- 29
Unearned compensation... -- -- -- -- 33,366 -- (33,366) -- --
Amortization of unearned
compensation........... -- -- -- -- -- -- 7,679 -- 7,679
Exercise of Common Stock
options and warrants,
net.................... -- -- 5,633 1 4,077 -- -- -- 4,078
Net loss................ -- -- -- -- -- -- -- (11,701) (11,701)
------ ----- ------ ----- -------- ----- -------- -------- --------
Balance at March 31,
1999................... 9,012 $ 1 16,567 $ 2 $ 70,056 $ -- $(27,222) $(12,860) $ 29,977
====== ===== ====== ===== ======== ===== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
SCIENT CORPORATION
STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
November 7,
1997
(Inception) Year
through Ended
March 31, March 31,
1998 1999
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................ $(1,159) $(11,701)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 12 622
Provision for doubtful accounts........................ -- 200
Amortization of unearned compensation.................. 64 7,679
Changes in current assets and liabilities:
Accounts receivable.................................. (155) (6,186)
Notes receivable..................................... -- (160)
Prepaid expenses and other current assets............ (137) (727)
Other assets......................................... (210) 103
Accounts payable..................................... 351 481
Accrued expenses..................................... 32 4,600
Deferred revenue..................................... -- 524
------- --------
Net cash used in operating activities............... (1,202) (4,565)
------- --------
Cash flows from investing activities:
Purchase of property and equipment, net................. (297) (2,360)
Purchase of short-term investments...................... -- (16,868)
------- --------
Net cash used in investing activities............... (297) (19,228)
------- --------
Cash flows from financing activities:
Proceeds from bank borrowing............................ -- 1,542
Proceeds from Convertible Preferred Stock, net.......... 4,780 26,116
Proceeds from exercise of Common Stock options and
warrants, net.......................................... 120 4,077
Principal payments on capital lease obligations......... -- (82)
Restricted cash......................................... (100) 100
------- --------
Net cash provided by financing activities........... 4,800 31,753
------- --------
Increase in cash and cash equivalents.................... 3,301 7,960
Cash and cash equivalents at beginning of period......... -- 3,301
------- --------
Cash and cash equivalents at end of period............... $ 3,301 $ 11,261
======= ========
Supplemental cash flow information:
Cash paid for interest.................................. $ 1 $ 85
======= ========
Supplemental non-cash financing activity:
Property and equipment acquired under capital leases.... $ 37 $ 1,350
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. The Company and Summary of Significant Accounting Policies
The Company
Scient Corporation (the "Company") was incorporated in California on
November 7, 1997. The Company is a leading provider of a new category of
professional services called eBusiness systems innovation. As an eBusiness
systems innovator, the Company provides integrated eBusiness strategy and
technology implementation services to clients who are creating eBusinesses or
are rethinking or expanding their existing businesses to integrate eBusiness
capabilities. These services include strategy consulting, customer experience
design, systems architecture, and application and technology infrastructure
development.
Reincorporation
In March 1999, the Company's Board of Directors authorized, and in April
1999 the stockholders approved, the reincorporation of the Company in the
State of Delaware. Following the reincorporation, the Company will be
authorized to issue 40,000,000 shares of $.0001 par value Common Stock and
11,500,000 shares of $.0001 par value Preferred Stock. The Board of Directors
has the authority to issue the undesignated Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions
thereof. Share information for the year ended March 31, 1999 has been
retroactively adjusted to reflect the reincorporation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Revenue Recognition
The Company derives its revenues from service agreements. Revenues pursuant
to time and materials contracts are generally recognized as services are
performed. Revenues pursuant to fixed-fee contracts are generally recognized
as services are rendered on the percentage-of-completion method of accounting
(based on the ratio of costs incurred to total estimated costs). Revenues
exclude reimbursable expenses charged to and collected from clients.
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 become probable and can be reasonably estimated. To date, such losses
have been insignificant. Unbilled fees and services on contracts are comprised
of costs plus fees on certain contracts in excess of contractual billings on
such contracts. Advanced billings and billings in excess of costs plus fees
are classified as deferred revenue.
Operating Expenses
Professional Services. Professional services expenses consist primarily of
compensation and benefits of the Company's employees engaged in the delivery
of professional services.
Stock Compensation. The Company amortizes unearned compensation recorded in
connection with certain stock option grants over the vesting periods of the
related options.
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
F-7
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
1. The Company and Summary of Significant Accounting Policies (continued)
During 1998, in accordance with the terms of a credit arrangement, the
Company purchased a certificate of deposit for $100,000. The use of this cash
was restricted at March 31, 1998 and such restriction has lapsed. The fair
value of the certificate of deposit approximated cost at March 31, 1998.
Short-Term Investments
The Company considers all investments with maturities of less than one year
as of March 31, 1999 to be short-term investments. In accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," the Company has categorized its
marketable securities as "available-for-sale." At March 31, 1999, amortized
cost approximated fair value and unrealized gains and losses were
insignificant.
The portfolio of short-term investments (including cash and cash
equivalents) consisted of the following:
<TABLE>
<CAPTION>
March 31,
1999
---------
<S> <C>
Cash............................................................. $ 2,251
Commercial paper................................................. 5,956
Government securities............................................ 10,582
Foreign securities............................................... 3,176
Term notes....................................................... 6,164
-------
$28,129
=======
</TABLE>
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents, short-term
investments and accounts receivable. Cash and cash equivalents are deposited
with high credit quality financial institutions. The Company's accounts
receivable are derived from revenue earned from clients located in the U.S.
The Company performs ongoing credit evaluations of its clients' financial
condition and generally requires no collateral from its clients. To date, the
Company has not experienced any material losses.
The following table summarizes the revenue from clients in excess of 10% of
total revenues:
<TABLE>
<CAPTION>
November 7,
1997
(Inception)
through Year Ended
March 31, March 31,
1998 1999
----------- ----------
<S> <C> <C>
Company A........................................... 60% 7%
Company B........................................... 35 3
Company C........................................... -- 13
Company D........................................... -- 11
Company E........................................... -- 11
</TABLE>
At March 31, 1998, Company A and B accounted for 54% and 40% of accounts
receivable, respectively. At March 31, 1999, three clients represented 31%,
21% and 12% of accounts receivable.
F-8
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
1. The Company and Summary of Significant Accounting Policies (continued)
Fair Value of Financial Instruments
The Company's financial instruments, including cash and cash equivalents,
short-term investments, accounts receivable, accounts payable, debt and
capital lease obligations, are carried at cost, which approximates their fair
value because of the short-term maturity of these instruments.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is generally computed using the straight-line method ranging from
eighteen months to five years for computer equipment and software and
furniture and fixtures, which is deemed to be the estimated useful lives of
the assets. Leasehold improvements and assets held under capital leases are
amortized over the term of the lease or estimated useful lives, whichever is
shorter.
Stock Compensation
The Company accounts for employee stock compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25"), and complies with
the disclosure provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). Under APB No.
25, compensation expense is based on the difference, if any, on the date of
grant between the fair value of the Company's stock and the exercise price.
Income Taxes
Income taxes are accounted for using an asset and liability approach, which
requires the recognition of taxes payable or refundable for the current year
and deferred tax liabilities and assets for the future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. The measurement of current and deferred tax liabilities and assets
are based on provisions of the enacted tax law; the effects of future changes
in tax laws or rates are not anticipated.
Pro Forma Stockholders' Equity (Unaudited)
Effective upon the closing of this offering, the outstanding shares of
Series A, Series B and Series C Convertible Preferred Stock will automatically
convert into approximately 11,442,000, 2,240,000 and 1,051,000 shares,
respectively, of Common Stock. Also effective upon the closing of this
offering 125,000,000 shares of Common Stock and 10,000,000 shares of
undesignated Convertible Preferred Stock will be authorized. The pro forma
effects of these transactions are unaudited and have been reflected in the
accompanying pro forma Stockholders' Equity at March 31, 1999.
Net Loss Per Share
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share," and SEC Staff Accounting Bulletin No. 98 ("SAB 98").
Under the provisions of SFAS No. 128 and SAB 98, basic and diluted net loss
per share is computed by dividing the net loss available to common
stockholders for the period by the weighted average number of shares of Common
Stock outstanding during the period. The calculation of diluted net loss per
share excludes potential common shares if the effect is antidilutive.
Potential common shares are composed of Common Stock subject to repurchase
rights and incremental shares of Common
F-9
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
1. The Company and Summary of Significant Accounting Policies (continued)
Stock issuable upon the exercise of stock options and warrants and upon
conversion of Series A, B and C Convertible Preferred Stock.
The following table sets forth the computation of basic and dilutive net
loss per share for the periods indicated (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
November 7,
1997
(Inception)
through Year Ended
March 31, March 31,
1998 1999
----------- ----------
<S> <C> <C>
Numerator
Net loss........................................... $(1,159) $(11,701)
======= ========
Denominator
Weighted average shares............................ 8,533 13,375
Weighted average unvested common shares subject to
repurchase........................................ (2,586) (6,776)
------- --------
Denominator for basic and diluted calculation...... 5,947 6,599
======= ========
Net loss per share:
Basic and diluted ................................. $ (.19) $ (1.77)
======= ========
</TABLE>
The following table sets forth common stock equivalents that are not
included in the diluted net income per share calculation above because to do
so would be antidilutive for the periods indicated:
<TABLE>
<CAPTION>
November 7,
1997
(Inception)
through Year Ended
March 31, March 31,
1998 1999
----------- ----------
<S> <C> <C>
Weighted average effect of common stock equivalents:
Series A Convertible Preferred Stock................... 8,680 12,300
Series B Convertible Preferred Stock................... -- 1,811
Series C Convertible Preferred Stock................... -- 127
Common Stock warrants.................................. 15 63
Unvested common shares subject to repurchase........... 2,586 6,776
Employee Stock Options................................. 972 2,351
------ ------
12,253 23,428
====== ======
</TABLE>
Pro Forma Net Loss Per Share (Unaudited)
Pro forma net loss per share for the year ended March 31, 1999 is computed
using the weighted average number of common shares outstanding, including the
conversion of the Company's Series A, Series B and Series C Convertible
Preferred Stock into shares of the Company's Common Stock effective upon the
closing of the Company's initial public offering, as if such change in
conversion rate and conversion occurred on April 1, 1998 or at the date of
original issuance, if later. The resulting pro forma adjustment includes an
increase in the
F-10
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
1. The Company and Summary of Significant Accounting Policies (continued)
weighted average shares used to compute basic and diluted net loss per share
of 14,238,000 for the year ended March 31, 1999. The calculation of diluted
net loss per share excludes potential common shares as the effect would be
antidilutive. Pro forma potential common shares are composed of Common Stock
subject to repurchase rights and incremental common shares issuable upon the
exercise of stock options and warrants.
Comprehensive Income
Effective March 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. To date, the Company has not had any
significant transactions that are required to be reported in comprehensive
income.
Segment Information
Effective March 1, 1998, the Company adopted the provisions of SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information."
The Company identifies its operating segments based on business activities,
management responsibility and geographical location. During the period from
November 7, 1997 (inception) through March 31, 1998 and the year ended March
31, 1999, the Company operated in a single business segment providing
eBusiness professional services, primarily in the United States. Through March
31, 1999, foreign operations have not been significant in either revenue or
investment in long-lived assets.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is
effective for financial statements for years beginning after December 15,
1998. SOP 98-1 provides guidance over accounting for computer software
developed or obtained for internal use including the requirement to capitalize
specified costs and amortization of such costs. The Company will adopt the
provisions of SOP 98-1 in its fiscal year ending March 31, 2000, and does not
expect such adoption to have a material effect on the Company's financial
statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities" ("SFAS 133"). SFAS 133 is effective for all fiscal
quarters beginning with the quarter ending June 30, 2000. SFAS 133 establishes
accounting and reporting standards of derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. The Company will adopt SFAS 133 in its quarter ending June 30,
2000 and does not expect such adoption to have an impact on the Company's
results of operations, financial position or cash flows.
F-11
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. Balance Sheet Components
<TABLE>
<CAPTION>
March 31, March 31,
1998 1999
--------- ---------
(in thousands)
<S> <C> <C>
Accounts receivable:
Accounts receivable..................................... $ 83 $ 3,701
Unbilled fees and services.............................. 72 2,640
------ -------
155 6,341
Less allowance for doubtful accounts.................... ( -- ) (200)
------ -------
$ 155 $ 6,141
====== =======
Property and equipment, net:
Computer equipment and software......................... $ 278 $ 1,775
Equipment under capital leases.......................... 37 1,387
Furniture and fixtures.................................. 19 524
Leasehold improvements.................................. -- 358
------ -------
334 4,044
Less accumulated depreciation and amortization.......... (12) (634)
------ -------
$ 322 $ 3,410
====== =======
Depreciation expense from inception through March 31, 1998 and for the year
ended March 31, 1999 was $12,000 and $552,000, respectively. Accumulated
depreciation of assets under capital leases totaled $70,000 at March 31, 1999.
The equipment under capital leases collaterizes the related lease obligations.
<CAPTION>
March 31, March 31,
1998 1999
--------- ---------
(in thousands)
<S> <C> <C>
Accrued expenses:
Accrued compensation and benefits....................... $ 32 $ 2,554
Professional expenses................................... -- 735
Purchased software...................................... -- 750
Other................................................... -- 593
------ -------
$ 32 $ 4,632
====== =======
</TABLE>
3. Income Taxes
At March 31, 1998 and 1999, the Company had approximately $1,069,000 and
$4,575,000, respectively, of federal and state net operating loss
carryforwards available to offset future taxable income which expire in
varying amounts beginning in 2018 and 2006, respectively. Under the Tax Reform
Act of 1986, the amounts of and benefits from net operating loss carryforwards
may be impaired or limited in certain circumstances. Events which cause
limitations in the amount of net operating losses that the Company may utilize
in any one year include, but are not limited to, a cumulative ownership change
of more than 50%, as defined, over a three year period.
The Company has incurred losses from inception through March 31, 1998 and
for the year ended March 31, 1999. Management believes that, based on the
history of such losses and other factors, the weight of available evidence
indicates that it is more likely than not that the Company will not be able to
realize its deferred tax assets and thus a full valuation reserve has been
recorded at March 31, 1998 and March 31, 1999.
F-12
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. Income Taxes (continued)
Deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
March 31, March 31,
1998 1999
--------- ---------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................ $ 439 $1,877
Accruals and reserves................................... 7 123
----- ------
446 2,000
Less valuation allowance................................ (446) (2,000)
----- ------
$ -- $ --
===== ======
</TABLE>
4. Borrowings
In May 1998, the Company entered into a $1,400,000 equipment lease line and
a $1,000,000 line of credit under a Loan and Security Agreement. The equipment
line draw down expires in May 1999. Interest will accrue from the date of each
draw down at a rate of one percent plus prime per annum (8.8% at March 31,
1999) and is payable monthly through May 15, 1999. Equipment draw downs that
are outstanding on May 15, 1999 are payable in 36 equal monthly principal
installments, plus all accrued interest, beginning on June 15, 1999. The line
of credit expires in November 1999 and charges interest at a rate of one-half
percent plus prime per annum (8.3% at March 31, 1999). The assets of the
Company are pledged as collateral for the Company's credit facilities.
In August 1998, the Company amended the Loan and Security Agreement to add
a second $1,400,000 equipment lease line and increased the line of credit to
$2,000,000. The second equipment lease line draw down expires in September
1999. Interest accrual and payment terms are similar to the terms of the first
equipment lease line.
At March 31, 1999, the Company had $1,542,000 outstanding under the
equipment lease line. Under the lines of credit, the Company is required to
maintain certain financial covenants. At March 31, 1999, the Company was in
compliance with all such covenants.
5. Commitments
Leases
The Company leases office space and equipment under noncancelable operating
and capital leases with various expiration dates through 2010. Rent expense
from inception through March 31, 1998 and for the year ended March 31, 1999
was $72,000 and $1,156,000, respectively. There was no sublease income for the
period from inception through March 31, 1998 and sublease income for the year
ended March 31, 1999 was $181,000. The terms of the facility leases provide
for rental payments on a graduated scale. The Company recognizes rent expense
on a straight-line basis over the lease period, and has recognized prepaid
expense for rent expenditures not incurred but paid.
F-13
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. Commitments (continued)
Future minimum lease payments, (excluding future minimum sublease income of
$397,000), under noncancelable operating and capital leases at March 31, 1999
are as follows:
<TABLE>
<CAPTION>
Year Ended Capital Operating
March 31, Leases Leases
---------- ------- ---------
(in thousands)
<S> <C> <C>
2000....................................................... $ 713 $ 2,285
2001....................................................... 656 2,457
2002....................................................... 29 1,277
2003....................................................... 22 1,176
2004....................................................... 9 1,212
Thereafter................................................. -- 7,157
------ -------
Total minimum lease payments............................... 1,429 $15,564
=======
Less amount representing interest.......................... 124
------
Present value of capital lease obligations................. 1,305
Less current portion....................................... 625
------
Capital lease obligations, long-term..................... $ 680
======
</TABLE>
Letter of Credit
At March 31, 1999, the Company maintained a $400,000 letter of credit to
secure the lease deposit on one of its office facilities. The letter of credit
expires October 1999 at which time a new letter of credit will automatically
be issued at $300,000 which expires May 2001. The Company also maintained a
$250,000 letter of credit to secure the lease deposit on another one of its
office facilities. The letter of credit expires October 2003. The Company
maintained a $300,000 letter of credit to secure one of its capital leases.
The letter of credit expires March 31, 2000. The letters of credit are secured
by the line of credit.
Contingencies
From time to time, the Company may have certain contingent liabilities that
arise in the ordinary course of its business activities. The Company accrues
contingent liabilities when it is probable that future expenditures will be
made and such expenditures can be reasonably estimated. In the opinion of
management, there are no pending claims of which the outcome is expected to
result in a material adverse effect in the financial position or results of
operations of the Company.
6. Convertible Preferred Stock
Convertible Preferred Stock at March 31, 1999 consists of the following,
(in thousands):
<TABLE>
<CAPTION>
Proceeds
Shares Liquidation Net of
---------------------- Liquidation Amount Per Issuance
Series Authorized Outstanding Amount Share Costs
------ ---------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
A................... 6,283 5,721 $ 5,149 $ .90 $ 5,360
B................... 2,241 2,240 14,224 6.35 14,189
C................... 1,382 1,051 11,403 10.85 11,346
Undesignated........ 1,594 -- -- --
------ ----- ------- -------
Total............... 11,500 9,012 $30,776 $30,895
====== ===== ======= =======
</TABLE>
F-14
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. Convertible Preferred Stock (continued)
The holders of Series A, B and C Convertible Preferred Stock ("Convertible
Preferred") have various rights and preferences as follows:
Voting
Each share of Convertible Preferred has voting rights equal to an
equivalent number of shares of Common Stock into which it is convertible and
votes together as one class with the Common Stock. Series A, voting together
as a separate class, is entitled to elect two Directors to the Board as long
as 750,000 shares originally issued are outstanding at each annual election.
The holders of outstanding Common Stock, voting together as a separate class,
are entitled to elect two Directors. Convertible Preferred (on an as
converted-basis) and Common Stock are entitled to elect any remaining
Directors together as a single class.
Dividends
Holders of Series A, B and C Convertible Preferred Stock are entitled to
receive noncumulative dividends at the per annum rate of $.072, $.508 and
$.868 per share, respectively, or if greater, an amount equal to that paid on
any other shares when and if declared by the Board of Directors. No dividends
on Convertible Preferred or Common Stock have been declared by the Board from
inception through March 31, 1999.
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
including a merger, acquisition or sale of assets where the beneficial owners
of the Company's Common Stock and Convertible Preferred own less than 50% of
the resulting voting power of the surviving entity, the holders of Series C
Convertible Preferred Stock are entitled to receive an amount of $10.85 per
share, plus any declared but unpaid dividends prior to and in preference to
any distribution to the holders of Series A and B Convertible Preferred Stock.
The holders of Series B Convertible Preferred Stock are entitled to receive an
amount of $6.35, per share, plus any declared but unpaid dividends prior to
and in preference to any distribution to the holders of Series A Convertible
Preferred Stock. The holders of Series A Convertible Preferred Stock are
entitled to receive an amount of $.90 per share, plus any declared but unpaid
dividends prior to and in preference to any distribution to the holders of
Common Stock. The remaining assets, if any, shall be distributed to the
holders of Common Stock.
Conversion
Each share of Convertible Preferred Stock is convertible, at the option of
the holder, according to a conversion ratio, subject to adjustment for
dilution. The initial Conversion Price per share for Series A Convertible
Preferred Stock shall be two shares of common for one share of Convertible
Preferred Stock, and Series B and C Convertible Preferred Stock shall be one
share of common for one share of Convertible Preferred Stock. Each share of
Series A and B Convertible Preferred Stock automatically converts into the
number of shares of Common Stock into which such shares are convertible at the
then effective conversion ratio upon the closing of a public offering of
Common Stock at a per share price of at least $12.70 per share with gross
proceeds of at least $15,000,000. Each share of Series C Convertible Preferred
Stock automatically converts into the number of shares of Common Stock into
which such shares are convertible at the then effective conversion ratio, the
closing of a public offering of Common Stock at a per share price of at least
$10.85 per share with gross proceeds of at least $15,000,000. In addition,
each share of Convertible Preferred Stock shall automatically convert into
shares of Common Stock upon either (1) a firm commitment underwritten public
offering of the Company's Common Stock approved by all Convertible Preferred
Stock voting together as a single class or (2) upon the vote of Convertible
Preferred Stock as a single class and the vote of Series C Convertible
Preferred Stock voting as a separate class.
F-15
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. Convertible Preferred Stock (continued)
Stock Subscription Receivable
In May 1998, the Company entered into a full-recourse note receivable (the
"Note") with a Director of the Company for approximately $844,000 bearing
interest at 5.5% per annum with principal and accrued interest payable
annually over three years. The Note was secured by Convertible Preferred
Stock. In October 1998, the Company entered into a Stock Restriction Agreement
with the Director that provided the Company the right to repurchase of the
Convertible Preferred Stock purchased with the Note upon the Director's
resignation upon certain criteria. In March 1999, upon the Director's
resignation, the Company repurchased the 562,500 shares of Convertible
Preferred Stock at $1.50 per share, the original issuance price, by canceling
the note receivable.
7. Common Stock
The Company's Articles of Incorporation, as amended, authorize the Company
to issue 40,000,000 shares of $.0001 par value Common Stock. A portion of the
shares sold are subject to the right of repurchase by the Company subject to
vesting, which is generally over a four year period from the employee hire
date until vesting is complete. At March 31, 1998 and 1999, there were
2,400,000 and 6,866,000 shares subject to repurchase, respectively.
Founder Stock Agreement
Certain Common Stock was issued to the founder of the Company and is
subject to repurchase in the event of voluntary termination or involuntary
termination with cause. 75% of the shares vested over a one-year period. The
remaining 25% generally vest over an additional three-year period. In the
event of termination without cause, a substantial sale of the Company's
assets, or a merger, all remaining shares would immediately vest. At March 31,
1998 and 1999, approximately 2,587,000 and 1,544,000 shares, respectively, of
outstanding Common Stock were subject to repurchase by the Company at the
original purchase price of $.00005.
Employee Loan
At March 31, 1999, the Company had a full-recourse note receivable with an
employee of the Company for $160,000 bearing interest at 4.64% per annum.
Interest is payable annually over the next two years on the anniversary date
of the note. The principal is due on January 28, 2001. The note is secured by
the Company's Common Stock.
Warrants for Common Stock
In March 1998, the Company issued a warrant to purchase 80,000 shares of
Common Stock for $.10 per share to a company affiliated with a member of the
Board of Directors of the Company in exchange for services rendered. The
Company, using the Black-Scholes option pricing model, determined that the
fair value of the warrant at the date of issuance was nominal. In September
1998, the warrant was exercised.
In May 1998, the Company issued a warrant to purchase 25,000 shares of
Common Stock for $.25 per share to a non-employee of the Company in exchange
for services rendered. The Company, using the Black-Scholes option pricing
model, determined that the fair value of the warrant at the date of issuance
was nominal. Such warrant is outstanding at March 31, 1999 and expires in
2003.
In January 1999, the Company issued a warrant to purchase 7,875 shares of
Common Stock for $.75 per share to a company affiliated with a member of the
Board of Directors of the Company in exchange for services
F-16
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. Common Stock (continued)
rendered. The Company, using the Black-Scholes option pricing model,
determined that the fair value of the warrant at the date of issuance was
nominal. Such warrant is outstanding at March 31, 1999 and expires in 2004.
At March 31, 1999, the Company had reserved shares of Common Stock for
future issuance as follows (in thousands):
<TABLE>
<CAPTION>
March 31,
1999
---------
<S> <C>
Conversion of Series A............................................. 11,442
Conversion of Series B............................................. 2,240
Conversion of Series C............................................. 1,051
Exercise of options under the 1997 Stock Option Plan............... 13,430
Exercise of outstanding warrants................................... 33
Undesignated....................................................... 11,804
------
40,000
======
</TABLE>
Stock Split
In April 1998, the Company approved a 2-for-1 stock split of Common Stock.
Share information for the period ended March 31, 1998 has been retroactively
adjusted to reflect the stock split.
8. Employee Benefit Plans
401(k) Savings Plan
The Company has a savings plan (the "Savings Plan") that qualifies as a
defined contribution arrangement under Section 401(a), 401(k) and 501(a) of
the Internal Revenue Code. Under the Savings Plan, participating employees may
defer a percentage (not to exceed 25%) of their eligible pretax earnings up to
the Internal Revenue Service's annual contribution limit. All employees on the
United States payroll of the Company are eligible to participate in the Plan.
The Company will determine its contributions, if any, based on its current
profits and/or retained earnings; however, no contributions have been made
since the inception of the Savings Plan.
1999 Equity Incentive Plan
In March 1999, effective upon the closing of this offer, the Board of
Directors adopted and the stockholders approved, the 1999 Equity Incentive
Plan (the "Plan") and reserved 1,200,000 shares plus the aggregate number of
shares available under the 1997 Stock Option Plan of Common Stock for issuance
thereunder. In January 2000, and every year thereafter, shares reserved for
issuance will automatically increase by a number equal to the lesser of 8% of
the total number of Common Stock outstanding or 5,000,000 shares. The Plan
authorized the award of options, restricted stock awards and stock bonuses
(the "Award"). No person will be eligible to receive more than 1,000,000
shares in any calendar year pursuant to Awards under the Plan other than a new
employee of the Company who will be eligible to receive no more than 2,000,000
shares in the calendar year in which such employee commences employment.
Options granted under the Plan may be either incentive stock options ("ISO")
or nonqualified stock options ("NSO"). ISOs may be granted only to Company
employees (including officers and directors who are also employees). NSOs may
be granted to Company employees, outside directors, and consultants of the
Company.
F-17
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. Employee Benefit Plans (continued)
Options under the Plan may be granted for periods of up to ten years and at
prices no less than 85% of the estimated fair value of the shares on the date
of grant as determined by the Board of Directors, provided, however, that (i)
the exercise price of an ISO may not be less than 100% of the estimated fair
value of the shares on the date of grant, and (ii) the exercise price of an
ISO granted to a 10% shareholder may not be less than 110% of the estimated
fair value of the shares on the date of grant. The maximum term of options
granted under the 1999 Plan is ten years.
1997 Stock Option Plan
In December 1997, the Company adopted the Scient Corporation 1997 Stock
Option Plan (the "Plan"). The Plan provides for the granting of stock options
to employees, outside directors, and consultants of the Company. Options
granted under the Plan may be either incentive stock options or nonqualified
stock options. Incentive stock options ("ISO") may be granted only to Company
employees (including officers and directors who are also employees).
Nonqualified stock options ("NSO") may be granted to Company employees and
consultants. The Company has reserved 13,430,000 shares of Common Stock for
issuance under the Plan.
The Plan provides that the options shall be exercisable over a period not
to exceed ten years from the date of the grant; however, in the case of an ISO
granted to a person owning more than 10% of the combined voting power of all
classes of the stock of the Company, the term of the option will be five years
from the date of the grant.
In accordance with the Plan, the stated exercise price shall not be less
than 85% of the estimated fair value of the shares on the date of grant as
determined by the Board of Directors, provided, however, that (i) the exercise
price of an ISO and NSO shall not be less than 100% and 85% of the estimated
fair value of the shares on the date of grant, respectively, and (ii) the
exercise price of an ISO and NSO granted to a 10% shareholder shall not be
less than 110% of the estimated fair value of the shares on the date of grant,
respectively.
Options are exercisable immediately and are subject to repurchase by the
Company, the repurchase restriction lapses at such times and under such
conditions as determined by the Board of Directors. Options granted to date
generally vest with respect to 25% of the options after one year from date of
grant, with the remaining options vesting in equal monthly installments over
the following 36 months.
The following summarizes stock option activity under the Plan (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Options Outstanding
--------------------------
Options Weighted
Available Outstanding Average
for Grant Shares Exercise Price
--------- ----------- --------------
<S> <C> <C> <C>
Shares authorized..................... 4,800 -- $ --
Options granted below fair value...... (3,582) 3,582 .05
Options exercised..................... -- (2,400) .05
Options canceled...................... -- -- --
------ ------
Balance at March 31, 1998.............. 1,218 1,182 .05
------ ------
Shares authorized..................... 8,630 --
Options granted below fair value...... (7,918) 7,918 1.53
Options exercised..................... -- (5,696) .71
Options canceled...................... 452 (452) .21
Unvested shares repurchsed............ 143 -- .05
------ ------
Balance at March 31, 1999.............. 2,525 2,952 $ 2.71
====== ======
</TABLE>
F-18
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. Employee Benefit Plans (continued)
The minimum value of options granted from inception through March 31, 1998
and year ended March 31, 1999 was $.012 and $.962, respectively.
The following table summarizes the information about stock options
outstanding and exercisable at March 31, 1999 (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Options Vested and
Options Outstanding Exercisable
-------------------------------- --------------------
Weighted
Average Weighted Number Weighted
Remaining Average Vested Average
Range of Number Contractual Exercise and Exercise
Exercise Price Outstanding Life Price Outstanding Price
-------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ .05-.25 229 9.20 years $ .08 31 $ .05
$ .65 780 9.57 years $ .65 -- $ --
$ 1.10-1.60 1,333 9.98 years $1.55 13 $1.60
$6.50-10.00 610 10.20 years $8.88 -- $ --
----- ---
2,952 9.86 years $2.71 44 $ .50
===== ===
</TABLE>
Fair Value Disclosures
The Company applies the measurement principles of APB No. 25 in accounting
for its stock option plan. Had compensation expense for options granted for
the period ended March 31, 1998 and the year ended March 31, 1999 been
determined based on the fair value at the grant dates as prescribed by SFAS
No. 123, the Company's net loss would have been increased to the pro forma
amounts indicated below.
<TABLE>
<CAPTION>
November 7, 1997
(Inception) through Year Ended
March 31, 1998 March 31, 1999
------------------- --------------
<S> <C> <C>
Net loss:
As reported.............................. $(1,159) $(11,701)
======= ========
Pro forma................................ $(1,159) $(12,265)
======= ========
Net loss per share:
As reported.............................. $ (.19) $ (1.77)
======= ========
Pro forma................................ $ (.19) $ (1.86)
======= ========
</TABLE>
The Company calculated the minimum fair value of each option grant on the
date of grant using the Black-Scholes option pricing model as prescribed by
SFAS No. 123 using the following assumptions:
<TABLE>
<CAPTION>
November 7, 1997
(Inception) through Year Ended
March 31, 1998 March 31, 1999
------------------- --------------
<S> <C> <C>
Risk-free interest rates.................. 5.52% 5.26%
Expected lives (in years)................. 5 5
Dividend yield............................ 0% 0%
Expected volatility....................... 0% 0%
</TABLE>
F-19
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. Employee Benefit Plans (continued)
Because the determination of fair value of all options granted after such
time as the Company becomes a public entity will include an expected
volatility factor in addition to the factors described in the preceding
paragraph, the above results may not be representative of future periods.
Unearned Compensation
In connection with certain stock option grants from inception through March
31, 1998 and the year ended March 31, 1999, the Company recognized unearned
compensation totaling $1,599,000 and $33,366,000, respectively, which is being
amortized over the vesting periods, generally four years, of the related
options. During the period from inception through March 31, 1999, the weighted
average exercise price of stock options was $1.18 and the weighted average
fair value was $4.47. Amortization expense recognized from inception through
March 31, 1998 and the year ended March 31, 1999 totaled approximately $64,000
and $7,679,000, respectively. During the period from April 1, 1999 through
April 22, 1999, the Company granted options to purchase an aggregate of
335,500 shares of Common Stock at an exercise price of $12 per share, the
estimated fair value of Common Stock.
9. Subsequent Events
Borrowings
In April 1999, the Company drew down an additional $278,000 under the
equipment lease line.
Capital Lease Obligations
In April 1999, the Company entered into a capital lease agreement to
purchase furniture and fixtures totaling approximately $116,000. Principal and
interest under the capital lease are payable in 60 equal monthly installments.
Letter of Credit
In April 1999, the Company maintained an additional letter of credit for
approximately $104,000 to secure a lease deposit on one of its office
facilities. The letter of credit expires April 2000. The letter of credit is
secured by the line of credit.
1999 Employee Stock Purchase Plan
In April 1999, the board of directors and stockholders adopted the 1999
Employee Stock Purchase Plan (the "Plan"), which will become effective
immediately prior to the effective date of the offering. The Plan reserves
1,000,000 shares of common stock for issuance thereunder. On each May 1
beginning in 2000, the aggregate number of shares reserved for issuance under
the Plan will be increased automatically to 1,000,000 shares. Employees
generally will be eligible to participate in the Plan if they are customarily
employed by the Company for more than 20 hours per week and more than five
months in a calendar year and are not (and would not become as a result of
being granted an option under the Plan) 5% stockholders of the Company. Under
the Plan, eligible employees may select a rate of payroll deduction up to 15%
of their W-2 cash compensation subject to certain maximum purchase
limitations. The first Offering Period is expected to begin on the first
business day on which price quotations for the Company's common stock are
available on The Nasdaq National Market. Depending on the effective date, the
first Purchase Period may be more or less than six months long. Offering
Periods thereafter will begin on May 1 and November 1. Purchases will occur on
April 30 and October 31, or the last day of trading prior to these dates. The
price at which the common stock is purchased under the Plan is 85% of the
lesser of the fair market value of the Company's common stock on the first day
of the applicable offering period or on the last day of that purchase period.
F-20
<PAGE>
[Inside Back Cover Art Work]
The Scient Approach
[Schematic of the Scient Approach]
[Text explaining the schematic:
Scient's methodology delivers eBusiness systems innovation and helps our
clients go to market rapidly.
Scient's strategy is to help our clients leverage and innovate their
eBusiness capabilities in an iterative fashion.
Scient Innovation
The Scient Approach
Scient's approach is a well-defined methodology that has built-in feedback
and iteration processes that allow us to improve the services delivered to our
clients and to enhance the approach itself.
Knowledge Management
To capture, upgrade and refine our intellectual capital--including the
Scient Approach--Scient invests in knowledge management processes and systems
which are designed to enable us to bring the experiences of our entire company
to bear on each client engagement.
Technology
Scient's investments in its Innovative Centers, Applied Technology Center
and information technology infrastructure are intended to provide the robust
foundation required to deliver the full range of expertise and competencies
demanded by our clients' eBusiness needs.
People
Scient is developing a rich environment--that emphasizes professional
development--and a shared culture that we believe helps us attract, train and
retain outstanding management, strategic, technical, design, sales, marketing
and support professionals of all levels.
<PAGE>
[Scient Corporation Logo]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of common stock being registered. All amounts are estimates
except the SEC registration fee and the NASD filing fees.
<TABLE>
<S> <C>
SEC Registration fee.......................................... $ 14,094
NASD fee...................................................... 5,570
Nasdaq National Market initial listing fee.................... 95,000
Printing and engraving........................................ 165,000
Legal fees and expenses of the Company........................ 600,000
Accounting fees and expenses.................................. 300,000
Blue sky fees and expenses.................................... 5,000
Transfer agent fees........................................... 10,000
Miscellaneous................................................. 5,336
----------
Total....................................................... $1,200,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's board of directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933
(the "Act"). Article VII of the Registrant's Bylaws provides for mandatory
indemnification of its directors and officers and permissible indemnification
of employees and other agents to the maximum extent permitted by the Delaware
General Corporation Law. The Registrant's Amended and Restated Certificate of
Incorporation provides that, pursuant to Delaware law, its directors shall not
be liable for monetary damages for breach of the directors' fiduciary duty as
directors to the Registrant and its stockholders. This provision in the
Amended and Restated Certificate of Incorporation does not eliminate the
directors' fiduciary duty, and in appropriate circumstances equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Registrant for
acts or omissions not in good faith or involving intentional misconduct, for
knowing violations of law, for actions leading to improper personal benefit to
the director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws. The Registrant has
entered into Indemnification Agreements with its officers and directors, a
form of which is attached as Exhibit 10.1 hereto and incorporated herein by
reference. The Indemnification Agreements provide the Registrant's officers
and directors with further indemnification to the maximum extent permitted by
the Delaware General Corporation Law. The Registrant maintains liability
insurance for its directors and officers. Reference is also made to Section 7
of the underwriting agreement contained in Exhibit 1.1 hereto, indemnifying
officers and directors of the Registrant against certain liabilities, and
Section 1.10 of the Amended and Restated Investor Rights Agreement contained
in Exhibit 4.1 hereto, indemnifying certain of the Company's stockholders,
including controlling stockholders, against certain liabilities.
Item 15. Recent Sales of Unregistered Securities
(a) Since November 7, 1997 (inception), we have issued and sold the
following securities:
1. In December 1997, we issued and sold an aggregate of 8,533,332 shares
of our common stock (which number reflects the two-for-one stock
split effected May 8, 1998) to Eric Greenberg, our founder, for
aggregate consideration of $427 pursuant to a Restricted Stock
Purchase Agreement.
II-1
<PAGE>
2. We granted stock options to purchase 11,909,800 shares of our common
stock at exercise prices ranging from $.05 to $10.00 per share to
employees, consultants, directors and other service providers
pursuant to our 1997 Stock Plan.
3. On December 11, 1997 and May 11, 1998, we issued and sold an
aggregate of 12,566,668 shares of our Series A Preferred Stock (which
number reflects the two-for-one stock split effected May 8, 1998) for
an aggregate purchase price of approximately $6,225,000 to a group of
investors pursuant to a stock purchase agreement.
4. On March 5, 1998, we issued a warrant to purchase 80,000 shares of
our common stock (which number reflects the two-for-one stock split
effected May 8, 1998) with an exercise price of $.10 per share to
Ramsey/Beirne Associates, Inc. The warrant was subsequently exercised
and we issued 80,000 shares thereunder.
5. On May 8, 1998, we issued a warrant to purchase 25,000 shares of our
common stock with an exercise price of $.25 per share to Jerry
Michalski. The warrant was subsequently exercised and we issued
25,000 shares thereunder.
6. On June 8, 1998, we issued and sold an aggregate of 2,240,477 shares
of our Series B Preferred Stock for an aggregate purchase price of
approximately $14,227,029 to a group of investors pursuant to a stock
purchase agreement.
7. On January 28, 1999, we issued a warrant to purchase 7,875 shares of
our common stock with an exercise price of $.75 per share to
Ramsey/Beirne Associates, Inc.
8. On February 16, 1999, we issued and sold an aggregate of 1,050,649
shares of our Series C Preferred Stock for an aggregate purchase
price of approximately $11,399,542 to a group of investors pursuant
to a stock purchase agreement.
The issuances described in Items 15(a)(2) were deemed exempt from
registration under the Act in reliance upon Rule 701 promulgated under the
Act. The issuances of the securities described in Items 15(a)(1) and 15(a)(3)
through 15(a)(8) were deemed to be exempt from registration under the Act in
reliance on Section 4(2) of such Act as transactions by an issuer not
involving any public offering. In addition, the recipients of securities in
each such transaction represented their intentions to acquire the securities
for investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and warrants issued in such transactions. All recipients had
adequate access, through their relationships with the Registrant, to
information about us.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1.1 Form of underwriting agreement.
2.1 Agreement and Plan of Merger, dated May , 1999, for the
reincorporation of Scient Corporation, a California corporation, into
Scient Corporation, a Delaware corporation.
3.1 Amended and Restated Certificate of Incorporation of Scient, filed
with the Secretary of State of Delaware on April 15, 1999.
3.2 Form of Second Amended and Restated Certificate of Incorporation of
Scient to be filed after the closing of the offering made pursuant to
this Registration Statement.
3.3 Amended and Restated Bylaws of Scient.
4.1+ Amended and Restated Investor Rights Agreement, dated February 16,
1999, among Scient and the investors and founder named therein, as
amended.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
4.2* Specimen Certificate of Scient's common stock.
5.1 Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP, counsel to Scient.
10.1 Form of Indemnification Agreement entered into between Scient and its
directors and executive officers.
10.2+ 1997 Stock Plan.
10.3 1999 Equity Incentive Plan.
10.4 1999 Employee Stock Purchase Plan.
10.5+ Employment Agreement between Scient and Eric Greenberg, dated December
10, 1997.
10.6+ Employment Agreement between Scient, Eric Greenberg and Robert M. Howe,
dated February 9, 1998.
10.7+ Employment Agreement between Scient and William H. Kurtz, dated June
12, 1998.
10.8+ Employment Agreement between Scient and Stephen A. Mucchetti, dated
September 14, 1998.
10.9+ Stock Repurchase Agreement between Scient and Robert M. Howe, dated
December 22, 1998.
10.10+ Recruiting Letter Agreement between Scient and Ramsey/Beirne
Associates, Inc., dated August 20, 1998.
10.11+ Recruiting Letter Agreement between Scient and Ramsey/Beirne
Associates, Inc., dated February 25, 1998.
10.12+ Recruiting Letter Agreement between Scient and Ramsey/Beirne
Associates, Inc., dated February 25, 1998.
10.13+ Sub-Sub-Sub-Sub-Sublease between Scient and Charles Schwab & Co., Inc.,
dated October 7, 1998.
10.14+ Standard Form of Loft Lease between Scient and Lautob Realty Company,
dated October 28, 1998.
10.15+ Agreement to Sub-Sublease between Scient and Northpoint Communications,
Inc., dated October 16, 1998.
10.16+ Full-Recourse Promissory Note between Scient and Aron Dutta, dated
January 28, 1999.
10.17 Sublease between Scient and Robins, Kaplan, Miller & Ciresi, LLP, dated
April 13, 1999.
10.18 Sub-Sub-Sub-Sublease between Scient and Charles Schwab & Co., Inc.,
dated October 1, 1998.
10.19 Addendum to Sub-Sub-Sub-Sublease and Sub-Sub-Sub-Sub-Sublease between
Scient and Charles Schwab & Co., Inc., dated October 8, 1998.
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants (see
page II-6).
23.2 Consent of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP, counsel to Scient. Reference is made to Exhibit 5.1.
24.1+ Power of Attorney.
27.1 Financial Statement Schedule (See Item 16(b) and Schedule II).
</TABLE>
- --------
* To be supplied by amendment.
+ Previously filed with the Commission.
(b) Financial Statement Schedule
Schedule II--Valuations and Qualifying accounts.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
Item 17. Undertakings
The Registrant hereby undertakes to provide to the underwriters at the
closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the Delaware General Corporation Law, the Amended and
II-3
<PAGE>
Restated Certificate of Incorporation or the Bylaws of the Registrant,
Indemnification Agreements entered into between the Registrant and its
officers and directors, the underwriting agreement, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the 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 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>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San
Francisco, State of California, on this 28th day of April, 1999.
SCIENT CORPORATION
/s/ Robert M. Howe
By: ____________________________
Robert M. Howe
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Howe President, Chief Executive Officer and April 28, 1999
____________________________________ Director (Principal Executive Officer)
Robert M. Howe
* Chairman April 28, 1999
____________________________________
Eric Greenberg
/s/ William H. Kurtz Chief Financial Officer, Executive April 28, 1999
____________________________________ Vice President, Treasurer and
William H. Kurtz Secretary (Principal Financial and
Accounting Officer)
* Director April 28, 1999
____________________________________
David M. Beirne
* Director April 28, 1999
____________________________________
Frederick W. Gluck
* Director April 28, 1999
____________________________________
Douglas Leone
*By: /s/ Robert M. Howe
__________________________________
(Robert M. Howe, Attorney-in-
Fact)
</TABLE>
II-5
<PAGE>
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 April 26, 1999 relating
to the financial statements of Scient Corporation, which appears in such
Prospectus. We also consent to the application of such report to the Financial
Statement schedules for the period from November 7, 1997 (inception) to March
31, 1998 and the year ended March 31, 1999 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 reference to us
under the heading "Experts" in such Prospectus.
PricewaterhouseCoopers LLP
San Jose, California
April 26, 1999
II-6
<PAGE>
SCHEDULE II
SCIENT CORPORATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Additions Charged to
Balance at Costs and Deductions- Balance at
Year Ended March 31 Beginning of Period Expenses Write-offs End of Period
------------------- ------------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
1998.................. $ -- $ -- $ -- $ --
1999.................. $ -- $ 200 $ -- $ 200
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1.1 Form of underwriting agreement.
2.1 Agreement and Plan of Merger, dated May , 1999, for the
reincorporation of Scient Corporation, a California corporation, into
Scient Corporation, a Delaware corporation.
3.1 Amended and Restated Certificate of Incorporation of Scient, filed
with the Secretary of State of Delaware on April 15, 1999.
3.2 Form of Second Amended and Restated Certificate of Incorporation of
Scient to be filed after the closing of the offering made pursuant to
this Registration Statement.
3.3 Amended and Restated Bylaws of Scient.
4.1+ Amended and Restated Investor Rights Agreement, dated February 16,
1999, among Scient and the investors and founder named therein, as
amended.
4.2* Specimen Certificate of Scient's common stock.
5.1 Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP, counsel to Scient.
10.1 Form of Indemnification Agreement entered into between Scient and its
directors and executive officers.
10.2+ 1997 Stock Plan.
10.3 1999 Equity Incentive Plan.
10.4 1999 Employee Stock Purchase Plan.
10.5+ Employment Agreement between Scient and Eric Greenberg, dated December
10, 1997.
10.6+ Employment Agreement between Scient, Eric Greenberg and Robert M.
Howe, dated February 9, 1998.
10.7+ Employment Agreement between Scient and William H. Kurtz, dated June
12, 1998.
10.8+ Employment Agreement between Scient and Stephen A. Mucchetti, dated
September 14, 1998.
10.9+ Stock Repurchase Agreement between Scient and Robert M. Howe, dated
December 22, 1998.
10.10+ Recruiting Letter Agreement between Scient and Ramsey/Beirne
Associates, Inc., dated August 20, 1998.
10.11+ Recruiting Letter Agreement between Scient and Ramsey/Beirne
Associates, Inc., dated February 25, 1998.
10.12+ Recruiting Letter Agreement between Scient and Ramsey/Beirne
Associates, Inc., dated February 25, 1998.
10.13+ Sub-Sub-Sub-Sub-Sublease between Scient and Charles Schwab & Co.,
Inc., dated October 7, 1998.
10.14+ Standard Form of Loft Lease between Scient and Lautob Realty Company,
dated October 28, 1998.
10.15+ Agreement to Sub-Sublease between Scient and Northpoint
Communications, Inc., dated October 16, 1998.
10.16+ Full-Recourse Promissory Note between Scient and Aron Dutta, dated
January 28, 1999.
10.17 Sublease between Scient and Robins, Kaplan, Miller & Ciresi, LLP,
dated April 13, 1999.
10.18 Sub-Sub-Sub-Sublease between Scient and Charles Schwab & Co., Inc.,
dated October 1, 1998.
10.19 Addendum to Sub-Sub-Sub-Sublease and Sub-Sub-Sub-Sub-Sublease between
Scient and Charles Schwab & Co., Inc., dated October 8, 1998.
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants (see
page II-6).
23.2 Consent of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP, counsel to Scient. Reference is made to Exhibit 5.1.
24.1+ Power of Attorney.
27.1 Financial Statement Schedule (See Item 16(b) and Schedule II).
</TABLE>
- --------
* To be supplied by amendment.
+ Previously filed with the Commission.
<PAGE>
Exhibit 1.1
3,000,000 Shares
SCIENT CORPORATION
COMMON STOCK, PAR VALUE $0.0001 PER SHARE
UNDERWRITING AGREEMENT
_________________, 1999
<PAGE>
_____________, 1999
Morgan Stanley & Co. Incorporated
Hambrecht & Quist LLC
Thomas Weisel Partners LLC
c/o Morgan Stanley & Co.
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
Scient Corporation, a Delaware corporation (the "Company"), proposes to
issue and sell to the several Underwriters named in Schedule I hereto (the
"Underwriters") 3,000,000 shares of its Common Stock, par value $0.0001 per
share (the "Firm Shares"). The Company also proposes to issue and sell to the
several Underwriters not more than an additional 450,000 shares of its Common
Stock, par value $0.0001 per share (the "Additional Shares"), if and to the
extent that you, as Managers of the offering, shall have determined to exercise,
on behalf of the Underwriters, the right to purchase such shares of common stock
granted to the Underwriters in Section 2 hereof. The Firm Shares and the
Additional Shares are hereinafter collectively referred to as the "Shares." The
shares of Common Stock, par value $0.0001 per share, of the Company to be
outstanding after giving effect to the sales contemplated hereby are hereinafter
referred to as the "Common Stock."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement, including a prospectus, relating to the
Shares. The registration statement as amended at the time it becomes effective,
including the information (if any) deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the
Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the "Registration Statement"; the prospectus in the form first
used to confirm sales of Shares is hereinafter referred to as the "Prospectus."
If the Company has filed an abbreviated registration statement to register
additional shares of Common Stock pursuant to Rule 462(b) under the Securities
Act (the "Rule 462 Registration Statement"), then any reference herein to the
term "Registration Statement" shall be deemed to include such Rule 462
Registration Statement.
As part of the offering contemplated by this Agreement, Morgan Stanley &
Co. Incorporated ("Morgan Stanley") has agreed to reserve out of the Shares set
forth opposite its name on Schedule II to this Agreement, up to 442,901 shares,
for sale to the Company's employees, officers, and directors and other parties
associated with the Company (collectively, "Participants"), as set forth in the
Prospectus under the heading "Underwriting" (the "Directed Share Program"). The
Shares to be sold by Morgan Stanley pursuant to the Directed Share Program (the
"Directed Shares") will be sold by Morgan Stanley pursuant to this Agreement at
the public offering price. Any Directed Shares not orally confirmed for
purchase by any
<PAGE>
Participants by the end of the business day on which this Agreement is
executed will be offered to the public by Morgan Stanley as set forth in the
Prospectus.
1. Representations and Warranties. The Company represents and warrants
------------------------------
to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect; and
no proceedings for such purpose are pending before or threatened by the
Commission.
(b) (i) The Registration Statement, when it became effective,
did not contain and, as amended or supplemented, if applicable, will not
contain, any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading; (ii) the Registration Statement and the Prospectus comply and,
as amended or supplemented, if applicable, will comply in all material
respects with the Securities Act and the applicable rules and regulations of
the Commission thereunder; and (iii) the Prospectus does not contain and, as
amended or supplemented, if applicable, will not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except that the representations and warranties set forth
in this paragraph do not apply to statements or omissions in the Registration
Statement or the Prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you expressly
for use in the Registration Statement or Prospectus.
(c) The Company has been duly incorporated, is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property and
to conduct its business as described in the Prospectus and is duly qualified
to transact business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or be
in good standing would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole.
(d) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to
own its property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or leasing
of property requires such qualification, except to the extent that the failure
to be so qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole; all of the
issued shares of capital stock of each subsidiary of the Company have been
duly and validly authorized and issued, are fully paid and non-assessable and
are owned directly by the Company, free and clear of all liens, encumbrances,
equities or claims.
(e) This Agreement has been duly authorized, executed and
delivered by the Company.
2
<PAGE>
(f) On the Closing Date (as defined below), the authorized capital
stock of the Company will conform as to legal matters to the description
thereof contained in the Prospectus.
(g) The shares of Common Stock outstanding prior to the issuance
of the Shares have been duly authorized and are validly issued, fully paid and
non-assessable.
(h) The Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and except as described in the
Prospectus, the issuance of such Shares will not be subject to any preemptive
or similar rights.
(i) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement will not
contravene any provision of applicable law or the certificate of incorporation
or by-laws of the Company or any agreement or other instrument binding upon
the Company or any of its subsidiaries that is material to the Company and its
subsidiaries, taken as a whole, or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company or any
subsidiary, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, except
such as may be required by the securities or Blue Sky laws of the various
states in connection with the offer and sale of the Shares.
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the condition,
financial or otherwise, or in the earnings, business or operations of the
Company and its subsidiaries, taken as a whole, from that set forth in the
Prospectus (exclusive of any amendments or supplements thereto subsequent to
the date of this Agreement).
(k) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is a party or to
which any of the properties of the Company or any of its subsidiaries is
subject that are required to be described in the Registration Statement or the
Prospectus and are not so described or any statutes, regulations, contracts or
other documents that are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement that are not described or filed as required.
(l) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Securities Act, complied when so filed in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder.
(m) The Company is not and, after giving effect to the offering
and sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as such term
is defined in the Investment Company Act of 1940, as amended.
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(n) The Company and its subsidiaries (i) are in compliance with
any and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and conditions
of such permits, licenses or approvals would not, singly or in the aggregate,
have a material adverse effect on the Company and its subsidiaries, taken as a
whole.
(o) There are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related constraints
on operating activities and any potential liabilities to third parties) which
would, singly or in the aggregate, have a material adverse effect on the
Company and its subsidiaries, taken as a whole.
(p) Except as described in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting such
person the right to require the Company to file a registration statement under
the Securities Act with respect to any securities of the Company or to require
the Company to include such securities with the Shares registered pursuant to
the Registration Statement.
(q) The Company has complied with all provisions of Section
517.075, Florida Statutes relating to doing business with the Government of
Cuba or with any person or affiliate located in Cuba.
(r) Except in each case as described in the Prospectus, subsequent
to the respective dates as of which information is given in the Registration
Statement and the Prospectus, (i) except in the ordinary course of business,
the Company and its subsidiaries have not incurred any material liability or
obligation, direct or contingent; (ii) the Company and its subsidiaries have
not entered into any material transaction not in the ordinary course of
business; (iii) except for repurchases of shares of its capital stock in
connection with the termination of employees, consultants or directors
pursuant to the Company's 1997 Stock Plan or restricted stock agreements, the
Company has not purchased any of its outstanding capital stock, nor declared,
paid or otherwise made any dividend or distribution of any kind on its capital
stock other than ordinary and customary dividends; and (iv) there has not been
any material change in the capital stock, short-term debt or long-term debt of
the Company and its subsidiaries, taken as a whole.
(s) The Company and its subsidiaries have good and marketable
title to all personal property owned by them which is material to the business
of the Company and its subsidiaries, free and clear of all liens, encumbrances
and defects except such as are described in the Prospectus or such as do not
materially affect the value of such property and do not interfere
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in any material respect with the use made and proposed to be made of such
property by the Company and its subsidiaries; and any real property and
buildings held under lease by the Company and its subsidiaries are held by
them under valid, subsisting and enforceable leases with such exceptions as
are not material and do not interfere in any material respect with the use
made and proposed to be made of such property and buildings by the Company and
its subsidiaries, in each case except as described in the Prospectus. The
Company does not own any real property.
(t) The Company and its subsidiaries own, or possess adequate
licenses or other rights to use, or can acquire on reasonable terms, all
material patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary
or confidential information, systems or procedures), trademarks, service marks
and trade names currently employed by them in connection with the business now
operated by them (collectively, the "Intellectual Property"), and neither the
Company nor any of its subsidiaries has received any notice of infringement of
or conflict with asserted rights of others with respect to any of the
Intellectual Property which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a material adverse affect
on the Company and its subsidiaries, taken as a whole.
(u) No material labor dispute with the employees of the Company or
any of its subsidiaries exists, except as described in the Prospectus, or, to
the knowledge of the Company, is imminent; and the Company is not aware of any
existing, threatened or imminent labor disturbance by the employees of any of
its principal suppliers or contractors that would have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(v) The Company and its subsidiaries, taken as a whole, are
insured by the insurers of recognized financial responsibility against such
losses and risks and in such amounts as are customary in the businesses in
which they are engaged; neither the Company nor any of its subsidiaries has
been refused any insurance coverage sought or applied for; and neither the
Company nor any of its subsidiaries has any reason to believe that it will not
be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole, except
as described in the Prospectus.
(w) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective businesses,
except to the extent that the failure to obtain such certificates,
authorizations and permits would not have a material adverse effect on the
Company and its subsidiaries, taken as a whole, and neither the Company nor
any of its subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would have a material adverse effect on the Company and its
subsidiaries, taken as a whole, except as described the Prospectus.
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(x) The Company and its subsidiaries together maintain a system of
internal accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(y) The Company and its subsidiaries have implemented a program,
as described in the Prospectus, to analyze and address the risk that the
computer hardware and software used by them and each material supplier,
including financial service organizations, vendor or customer used or serviced
by them may be unable to recognize and properly execute date-sensitive
functions involving certain dates prior to and any dates after December 31,
1999 (the "Year 2000 Problem"), and the Company has no reason to believe
-----------------
and does not believe that the Year 2000 Problem will have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(z) To the Company's knowledge, no officer or director of the
Company is in breach or violation of any employment agreement, non-competition
agreement, confidentiality agreement, or other agreement restricting the
nature or scope of employment to which such officer or director is a party,
other than such breaches or violations which could not reasonably be expected,
individually or in the aggregate, to have a material adverse effect on the
Company and its subsidiaries, taken as whole; to the Company's knowledge, the
conduct of the Company's business, as described in the Registration Statement
and Prospectus, will not result in a breach or violation of any such
agreement, other than such breaches or violations which could not reasonably
be expected, individually or in the aggregate, to have a material adverse
effect on the Company and its subsidiaries, taken as whole.
(aa) There are no outstanding options to acquire shares of capital
stock of the Company except as disclosed in the Registration Statement and the
Prospectus and except as have been granted under the 1997 Stock Plan since
March 31, 1999.
Furthermore, the Company represents to Morgan Stanley that (i) the
Registration Statement, the Prospectus and any preliminary prospectus comply in
all material respects, and any further amendments or supplements thereto will
comply in all material respects, with any applicable laws or regulations of
foreign jurisdictions in which the Prospectus or any preliminary prospectus, as
amended or supplemented, if applicable, are distributed in connection with the
Directed Share Program, (ii) no authorization, approval, consent, license,
order, registration or qualification of or with any government, governmental
instrumentality or court, other than such as have been obtained, is necessary
under the securities laws and regulations of foreign jurisdictions in which the
Directed Shares are offered outside the United States, and (iii) the Company has
not offered, or caused the Underwriters to offer, Shares to any person pursuant
to the Directed Share Program with the specific intent to unlawfully influence
(x) a customer or supplier of the Company to alter the customer's or supplier's
level or type of business with the
6
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Company, or (y) a trade journalist or publication to write or publish
favorable information about the Company or its products.
2. Agreements to Sell and Purchase. The Company hereby agrees to sell
-------------------------------
to the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Company the respective numbers of Firm Shares set forth in Schedule I hereto
opposite its name at $______ a share (the "Purchase Price").
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the Underwriters the Additional Shares, and the Underwriters shall have a
one-time right to purchase, severally and not jointly, up to 450,000 Additional
Shares at the Purchase Price. If you, on behalf of the Underwriters, elect to
exercise such option, you shall so notify the Company in writing not later than
30 days after the date of this Agreement, which notice shall specify the number
of Additional Shares to be purchased by the Underwriters and the date on which
such shares are to be purchased. Such date may be the same as the Closing Date
(as defined below) but not earlier than the Closing Date nor later than ten
business days after the date of such notice. Additional Shares may be purchased
as provided in Section 4 hereof solely for the purpose of covering over-
allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each Underwriter agrees, severally and
not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Additional Shares to be purchased as the
number of Firm Shares set forth in Schedule I hereto opposite the name of such
Underwriter bears to the total number of Firm Shares.
The Company hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, it will not, during the period ending 180
days after the date of the Prospectus, (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, lend, or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock
or (ii) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (i) or (ii) above is to
be settled by delivery of Common Stock or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to (A) the Shares to be sold
hereunder or (B) the issuance by the Company of shares of Common Stock upon the
exercise of an option or warrant or the conversion of a security outstanding on
the date hereof, (C) issuances of shares of Common Stock or options to purchase
Common Stock pursuant to the Company's 1997 Stock Plan, the 1999 Equity
Incentive Plan, and the Directors Option Plan, and the shares of Common Stock
issuable upon exercise of any such options, (D) the issuance by the Company of
shares of Common Stock pursuant to the Company's 1999 Employee Stock Purchase
Plan or (E) warrants issued in connection with loan or leasing transactions.
7
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3. Terms of Public Offering. The Company is advised by you that the
------------------------
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Company is further
advised by you that the Shares are to be offered to the public initially at
$_____________ a share (the "Public Offering Price") and to certain dealers
selected by you at a price that represents a concession not in excess of
$_____________ a share under the Public Offering Price, and that any Underwriter
may allow, and such dealers may reallow, a concession, not in excess of
$_____________ a share, to any Underwriter or to certain other dealers.
4. Payment and Delivery. Payment for the Firm Shares shall be made to
--------------------
the Company in Federal or other funds immediately available in New York City
against delivery of such Firm Shares for the respective accounts of the
several Underwriters at 10:00 a.m., New York City time, on _____________,
1999, or at such other time on the same or such other date, not later than
_____________, 1999, as shall be designated in writing by you. The time and
date of such payment are hereinafter referred to as the "Closing Date".
Payment for any Additional Shares shall be made to the Company in Federal
or other funds immediately available in New York City against delivery of such
Additional Shares for the respective accounts of the several Underwriters at
10:00 a.m., New York City time, on the date specified in the notice described in
Section 2 or at such other time on the same or on such other date, in any event
not later than _____________, 1999, as shall be designated in writing by you.
The time and date of such payment are hereinafter referred to as the "Option
Closing Date".
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
5. Conditions to the Underwriters' Obligations. The obligations of the
-------------------------------------------
Company to sell the Shares to the Underwriters and the several obligations of
the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than 2:00 p.m. (New York City time) on the date hereof.
The several obligations of the Underwriters are subject to the following
further conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall
any notice have been given of any intended or potential downgrading or of any
review for a possible
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change that does not indicate the direction of the possible change, in the
rating accorded any of the Company's securities by any "nationally recognized
statistical rating organization," as such term is defined for purposes of Rule
436(g)(2) under the Securities Act; and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition, financial or
otherwise, or in the earnings, business or operations of the Company and its
subsidiaries, taken as a whole, from that set forth in the Prospectus
(exclusive of any amendments or supplements thereto subsequent to the date of
this Agreement) that, in your judgment, is material and adverse and that makes
it, in your judgment, impracticable to market the Shares on the terms and in
the manner contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of the
Company, to the effect set forth in Section 5(a)(i) above and to the effect
that the representations and warranties of the Company contained in this
Agreement are true and correct in all material respects as of the Closing Date
and that the Company has complied in all material respects with all of the
agreements and satisfied all of the conditions on its part to be performed or
satisfied hereunder on or before the Closing Date. The officer signing and
delivering such certificate may rely upon the best of his or her knowledge as
to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date an
opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
outside counsel for the Company, dated the Closing Date, to the effect that:
(i) the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the State of
Delaware, has the corporate power and authority to own its property and to
conduct its business as described in the Prospectus and is duly qualified to
transact business and is in good standing as a foreign corporation in
California, Maryland, New York, North Carolina and Texas;
(ii) the authorized capital stock of the Company conforms as
to legal matters to the description thereof contained in the Prospectus;
(iii) the shares of Common Stock outstanding prior to the
issuance of the Shares have been duly authorized and are validly issued, non-
assessable and, to such counsel's knowledge, fully paid;
(iv) the Shares have been duly authorized and, when issued
and delivered in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares will
not be subject to any preemptive or similar rights contained in the Company's
charter documents or any agreement filed as an exhibit to the Registration
Statement;
(v) this Agreement has been duly authorized, executed and
delivered by the Company;
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(vi) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement will not
contravene any provision of applicable federal law, California law or Delaware
corporate law or the certificate of incorporation or by-laws of the Company
or, to such counsel's knowledge, any agreement filed as an exhibit to the
Registration Statement or other instrument binding upon the Company that is
filed as an exhibit to the Registration Statement, or, to such counsel's
knowledge, any judgment, order or decree of any governmental body, agency or
court having jurisdiction over the Company, and no consent, approval,
authorization or order of, or qualification with, any governmental body or
governmental agency is required for the performance by the Company of its
obligations under this Agreement, except such as may be required by the
securities or Blue Sky laws of the various states in connection with the offer
and sale of the Shares (as to which such counsel need not opine);
(vii) the statements (A) in the Prospectus under the captions
"Management Indemnification," "Management Employment Agreements and Change of
Control Agreements," "Management Employee Stock Plans," "Certain
Transactions," "Description of Capital Stock," "Shares Eligible" and, to the
extent of the description of this Agreement, "Underwriters" and (B) in the
Registration Statement in Items 14 and 15, in each case insofar as such
statements constitute summaries of the legal matters, documents or proceedings
referred to therein, fairly present the information called for with respect to
such legal matters, documents and proceedings and fairly summarize the matters
referred to therein;
(viii) such counsel does not know of any legal or governmental
proceedings pending or threatened to which the Company is a party or to which
any of the properties of the Company is subject that are required to be
described in the Registration Statement or the Prospectus and are not so
described or, to such counsel's knowledge, of any statutes, regulations, or
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required;
(ix) the Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as such term
is defined in the Investment Company Act of 1940, as amended; and
(x) such counsel (A) shall state that it believes that the
Registration Statement and Prospectus (except for financial statements and
schedules and other financial and statistical data included therein as to
which such counsel need not express any opinion) comply as to form in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder, (B) has no reason to believe that
(except for financial statements and schedules and other financial and
statistical data as to which such counsel need not express any belief) the
Registration Statement and the prospectus included therein at the time the
Registration Statement became effective contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading and (C) has
no reason to believe that (except for financial statements and
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schedules and other financial and statistical data as to which such counsel
need not express any belief) the Prospectus at the time the Registration
Statement became effective or on the Closing Date contained any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(d) The Underwriters shall have received on the Closing Date an
opinion of Gray Cary Ware & Freidenrich LLP, counsel for the Underwriters,
dated the Closing Date, covering the matters referred to in Sections 5(c)(vi),
5(c)(vii), 5(c)(ix) (but only as to the statements in the Prospectus under
"Description of Capital Stock" and "Underwriters") and 5(c)(xiii) above.
With respect to Section 5(c)(xiii) above, Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP and Gray Cary Ware & Freidenrich LLP may
state that their opinion and belief are based upon their participation in the
preparation of the Registration Statement and Prospectus and any amendments or
supplements thereto and review and discussion of the contents thereof, but are
without independent check or verification, except as specified.
The opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP described in Section 5(c) above shall be rendered to the Underwriters at the
request of the Company and shall so state therein.
(e) The Underwriters shall have received, on each of the date
hereof and the Closing Date, a letter dated the date hereof or the Closing
Date, as the case may be, in form and substance satisfactory to the
Underwriters, from PricewaterhouseCoopers LLP, independent public accountants,
containing statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the financial
statements and certain financial information contained in the Registration
Statement and the Prospectus; provided that the letter delivered on the
Closing Date shall use a "cut-off date" not earlier than the date hereof.
(f) The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and certain stockholders, officers and directors
of the Company relating to sales and certain other dispositions of shares of
Common Stock or certain other securities, delivered to you on or before the
date hereof, shall be in full force and effect on the Closing Date.
The several obligations of the Underwriters to purchase Additional Shares
hereunder are subject to the delivery to you on the Option Closing Date of such
documents as you may reasonably request with respect to the good standing of the
Company, the due authorization and issuance of the Additional Shares and other
matters related to the issuance of the Additional Shares.
6. Covenants of the Company. In further consideration of the agreements
------------------------
of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, three (3) signed copies of
the Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a
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conformed copy of the Registration Statement (without exhibits thereto) and to
furnish to you in New York City, without charge, prior to 10:00 a.m. New York
City time on the second business day succeeding the date of this Agreement and
during the period mentioned in Section 6(c) below, as many copies of the
Prospectus and any supplements and amendments thereto or to the Registration
Statement as you may reasonably request.
(b) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to which
you reasonably object, and to file with the Commission within the applicable
period specified in Rule 424(b) under the Securities Act any prospectus
required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters the
Prospectus is required by law to be delivered in connection with sales by an
Underwriter or dealer, any event shall occur or condition exist as a result of
which it is necessary to amend or supplement the Prospectus in order to make
the statements therein, in the light of the circumstances when the Prospectus
is delivered to a purchaser, not misleading, or if, in the opinion of counsel
for the Underwriters, it is necessary to amend or supplement the Prospectus to
comply with applicable law, forthwith to prepare, file with the Commission and
furnish, at its own expense, to the Underwriters and to the dealers (whose
names and addresses you will furnish to the Company) to which Shares may have
been sold by you on behalf of the Underwriters and to any other dealers upon
request, either amendments or supplements to the Prospectus so that the
statements in the Prospectus as so amended or supplemented will not, in the
light of the circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus, as amended or supplemented, will comply
with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.
(e) To make generally available to the Company's security holders
and to you as soon as practicable an earning statement covering the twelve-
month period ending ________, 1999 that satisfies the provisions of Section
11(a) of the Securities Act and the rules and regulations of the Commission
thereunder.
(f) Whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, to pay or cause to be paid
all expenses incident to the performance of its obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the
Company's counsel and the Company's accountants in connection with the
registration and delivery of the Shares under the Securities Act and all other
fees or expenses in connection with the preparation and filing of the
Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing
costs associated therewith, and the mailing and delivering of copies thereof
to the Underwriters and dealers, in the quantities hereinabove specified, (ii)
all costs and expenses related to the transfer and delivery of the Shares to
the Underwriters, including any transfer or
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other taxes payable thereon, (iii) the cost of printing or producing any Blue
Sky memorandum in connection with the offer and sale of the Shares under state
securities laws and all expenses in connection with the qualification of the
Shares for offer and sale under state securities laws as provided in Section
6(d) hereof, including filing fees and the reasonable fees and disbursements
of counsel for the Underwriters in connection with such qualification and in
connection with the Blue Sky memorandum, (iv) all filing fees and the
reasonable fees and disbursements of counsel to the Underwriters incurred in
connection with the review and qualification of the offering of the Shares by
the National Association of Securities Dealers, Inc., (v) all fees and
expenses in connection with the preparation and filing of the registration
statement on Form 8-A relating to the Common Stock and all costs and expenses
incident to listing the Shares on the Nasdaq National Market, (vi) the cost of
printing certificates representing the Shares, (vii) the costs and charges of
any transfer agent, registrar or depositary, (viii) the costs and expenses of
the Company relating to investor presentations on any "road show" undertaken
in connection with the marketing of the offering of the Shares, including,
without limitation, expenses associated with the production of road show
slides and graphics, fees and expenses of any consultants engaged in
connection with the road show presentations with the prior approval of the
Company, travel and lodging expenses of the representatives and officers of
the Company and any such consultants, and the cost of any aircraft chartered,
if approved by the Company, in connection with the road show, and (ix) all
other costs and expenses incident to the performance of the obligations of the
Company hereunder for which provision is not otherwise made in this Section.
It is understood, however, that except as provided in this Section, Section 7
entitled "Indemnity and Contribution", and the last paragraph of Section 9
below, the Underwriters will pay all of their costs and expenses, including
fees and disbursements of their counsel, stock transfer taxes payable on
resale of any of the Shares by them and any advertising expenses connected
with any offers they may make.
(g) That in connection with the Directed Share Program, the
Company will ensure that the Directed Shares will be restricted to the extent
required by the National Association of Securities Dealers, Inc. (the "NASD")
or the NASD rules from sale, transfer, assignment, pledge or hypothecation for
a period of three (3) months following the date of the effectiveness of the
Registration Statement. Morgan Stanley will notify the Company as to which
Participants will need to be so restricted. The Company will direct the
transfer agent to place stop transfer restrictions upon such securities for
such period of time.
(h) To pay all fees and disbursements of counsel incurred by the
Underwriters in connection with the Directed Share Program and stamp duties,
similar taxes or duties or other taxes, if any, incurred by the Underwriters
in connection with the Directed Share Program.
Furthermore, the Company covenants with Morgan Stanley that the Company will
comply with all applicable securities and other applicable laws, rules and
regulations in each foreign jurisdiction in which the Directed Shares are
offered in connection with the Directed Share Program.
13
<PAGE>
7. Indemnity and Contribution.
---------------------------
(a) The Company agrees to indemnify and hold harmless each
Underwriter and Discover Brokerage Direct Inc. ("Discover") and each person,
if any, who controls any Underwriter or Discover within the meaning of either
Section 15 of the Securities Act or Section 20 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), from and against any and all losses,
claims, damages and liabilities (including, without limitation, any legal or
other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any preliminary prospectus or the
Prospectus (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto), or caused by 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
such losses, claims, damages or liabilities are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information relating to any Underwriter or Discover furnished to the Company
in writing by such Underwriter or Discover through you expressly for use
therein; provided, however, that the foregoing indemnity agreement with
respect to any preliminary prospectus shall not inure to the benefit of any
Underwriter or Discover, or any person controlling such Underwriter or
Discover, from whom the person asserting any such losses, claims, damages or
liabilities purchased Shares, if a copy of the Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such Underwriter or Discover
to such person, if required by law so to have been delivered, at or prior to
the written confirmation of the sale of the Shares to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect giving
rise to such losses, claims, damages or liabilities; provided, further,
however, that the foregoing exception shall not apply if the Company has not
fulfilled its obligations under Section 6(a) hereto.
(b) The Company agrees to indemnify and hold harmless Morgan
Stanley and each person, if any, who controls Morgan Stanley within the
meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act ("Morgan Stanley Entities"), from and against any and all losses,
claims, damages and liabilities (including, without limitation, any legal or
other expenses reasonably incurred in connection with defending or
investigating any such action or claim) (i) caused by any untrue statement or
alleged untrue statement of a material fact contained in the prospectus
wrapper material prepared by or with the consent of the Company for
distribution in foreign jurisdictions in connection with the Directed Share
Program attached to the Prospectus or any preliminary prospectus, or caused by
any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statement therein, when considered
in conjunction with the Prospectus or any applicable preliminary prospectus,
not misleading; (ii) caused by the failure of any Participant to pay for and
accept delivery of the shares which, immediately following the effectiveness
of the Registration Statement, were subject to a properly confirmed agreement
to purchase; or (iii) related to, arising out of, or in connection with the
Directed Share Program, provided that, the Company shall not be responsible
under this subparagraph (iii) for any losses, claim, damages or liabilities
(or expenses relating thereto) that are finally judicially determined to have
14
<PAGE>
resulted from the bad faith or gross negligence of Morgan Stanley Entities;
provided, however, that the foregoing indemnity agreement with respect to any
preliminary prospectus shall not inure to the benefit of any Morgan Stanley
Entities, or any person controlling such Morgan Stanley Entities, from whom
the person asserting any such losses, claims, damages or liabilities purchased
Shares, if a copy of the Prospectus (as then amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) was not
sent or given by or on behalf of such Morgan Stanley Entities to such person,
if required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Shares to such person, and if the Prospectus
(as so amended or supplemented) would have cured the defect giving rise to
such losses, claims, damages or liabilities; provided, further, however, that
the foregoing exception shall not apply if the Company has not fulfilled its
obligations under Section 6(a) hereto.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement and each person, if any, who controls the Company
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act, from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement or any amendment
thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by 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, but only with reference to information
relating to such Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use in the Registration Statement, any
preliminary prospectus, the Prospectus or any amendments or supplements
thereto.
(d) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to Section 7(a), 7(b) or 7(c), such person
(the "indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party and any others the indemnifying party may designate in such
proceeding and shall pay the fees and disbursements of such counsel related to
such proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel, but the fees and expenses of such counsel
shall be at the expense of such indemnified party unless (i) the indemnifying
party and the indemnified party shall have mutually agreed to the retention of
such counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It
is understood that the indemnifying party shall not, in respect of the legal
expenses of any indemnified party in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses of
more than one separate firm (in addition to any local counsel) for all such
indemnified parties and that all such fees and expenses shall be reimbursed as
they are incurred. Such firm shall be
15
<PAGE>
designated in writing by Morgan Stanley & Co. Incorporated, in the case of
parties indemnified pursuant to Section 7(a), and by the Company, in the case
of parties indemnified pursuant to Section 7(c). Notwithstanding anything
contained herein to the contrary, if indemnity may be sought pursuant to
Section 7(b) hereof in respect of such action or proceeding, then in addition
to such separate firm for the indemnified parties, the indemnifying party
shall be liable for the reasonable fees and expenses of not more than one
separate firm (in addition to any local counsel) for Morgan Stanley for the
defense of any losses, claims, damages and liabilities arising out of the
Directed Share Program, and all persons, if any, who control Morgan Stanley
within the meaning of either Section 15 of the Act or Section 20 of the
Exchange Act. The indemnifying party shall not be liable for any settlement of
any proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by the second and third sentences of this
paragraph, the indemnifying party agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
(e) To the extent the indemnification provided for in Section 7(a),
7(b) or 7(c) is unavailable to an indemnified party or insufficient in respect
of any losses, claims, damages or liabilities referred to therein, then each
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable
by such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party or parties on the other hand from the offering of the Shares
or (ii) if the allocation provided by clause 7(e)(i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause 7(e)(i) above but also the relative
fault of the indemnifying party or parties on the one hand and of the
indemnified party or parties on the other hand in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Underwriters
on the other hand in connection with the offering of the Shares shall be
deemed to be in the same respective proportions as the net proceeds from the
offering of the Shares (before deducting expenses) received by the Company and
the total underwriting discounts and commissions received by the Underwriters,
in each case as set forth in the table on the cover of the Prospectus, bear to
the aggregate Public Offering Price of the Shares. The relative fault of the
Company on the one hand and the Underwriters on the other hand shall be
16
<PAGE>
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company or by the
Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Underwriters' respective obligations to contribute pursuant to this
Section 7 are several in proportion to the respective number of Shares they
have purchased hereunder, and not joint.
(f) The Company and the Underwriters agree that it would not be
just or equitable if contribution pursuant to this Section 7 were determined
by pro rata allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in Section 7(e). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages that such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The remedies provided for in this
Section 7 are not exclusive and shall not limit any rights or remedies which
may otherwise be available to any indemnified party at law or in equity.
(g) The indemnity and contribution provisions contained in this
Section 7 and the representations, warranties and other statements of the
Company contained in this Agreement shall remain operative and in full force
and effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter or by or on behalf of the Company, its officers or
directors or any person controlling the Company and (iii) acceptance of and
payment for any of the Shares.
8. Termination. This Agreement shall be subject to termination by
-----------
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the
Chicago Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses 8(a)(i) through 8(a)(iv), such event, singly
or together with any other such event, makes
17
<PAGE>
it, in your judgment, impracticable to market the Shares on the terms and in
the manner contemplated in the Prospectus.
9. Effectiveness; Defaulting Underwriters. This Agreement shall become
--------------------------------------
effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may be, any
one or more of the Underwriters shall fail or refuse to purchase Shares that it
has or they have agreed to purchase hereunder on such date, and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate number
of the Shares to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the number of Firm Shares set forth
opposite their respective names in Schedule I bears to the aggregate number of
Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as you may specify, to purchase the
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase on such date; provided that in no event shall the number of
Shares that any Underwriter has agreed to purchase pursuant to this Agreement be
increased pursuant to this Section 9 by an amount in excess of one-ninth of such
number of Shares without the written consent of such Underwriter. If, on the
Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase
Firm Shares and the aggregate number of Firm Shares with respect to which such
default occurs is more than one-tenth of the aggregate number of Firm Shares to
be purchased, and arrangements satisfactory to you and the Company for the
purchase of such Firm Shares are not made within 36 hours after such default,
this Agreement shall terminate without liability on the part of any non-
defaulting Underwriter or the Company. In any such case either you or the
Company shall have the right to postpone the Closing Date, but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. If, on the Option Closing Date, any Underwriter
or Underwriters shall fail or refuse to purchase Additional Shares and the
aggregate number of Additional Shares with respect to which such default occurs
is more than one-tenth of the aggregate number of Additional Shares to be
purchased, the non-defaulting Underwriters shall have the option to (i)
terminate their obligation hereunder to purchase Additional Shares or (ii)
purchase not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase in the absence of such
default. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of them,
because of any failure or refusal on the part of the Company to comply with the
terms or to fulfill any of the conditions of this Agreement, or if for any
reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
18
<PAGE>
10. Counterparts. This Agreement may be signed in two or more
------------
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
11. Applicable Law. This Agreement shall be governed by and construed in
--------------
accordance with the internal laws of the State of New York.
12. Headings. The headings of the sections of this Agreement have been
--------
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
Very truly yours,
SCIENT CORPORATION
By:_____________________________
Name:
Title:
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
Hambrecht & Quist LLC
Thomas Weisel Partners LLC
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto.
By: Morgan Stanley & Co. Incorporated
By:___________________________
Name:
Title:
19
<PAGE>
SCHEDULE I
Number of
Firm Shares
Underwriter To Be Purchased
Morgan Stanley & Co. Incorporated
Hambrecht & Quist LLC
Thomas Weisel Partners LLC
-----------
Total................................. 3,000,000
===========
<PAGE>
EXHIBIT A
[FORM OF LOCK-UP LETTER]
_____________, 1999
Morgan Stanley & Co. Incorporated
Hambrecht & Quist LLC
Thomas Weisel Partners LLC
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated ("Morgan
Stanley") proposes to enter into an Underwriting Agreement (the "Underwriting
Agreement") with Scient Corporation, a Delaware corporation (the "Company"),
providing for the public offering (the "Public Offering") by the several
Underwriters, including Morgan Stanley (the "Underwriters"), shares (the
"Shares") of the Common Stock, par value $0.0001 per share, of the Company (the
"Common Stock").
To induce the Underwriters that may participate in the Public Offering to
continue their efforts in connection with the Public Offering, the undersigned
hereby agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending 180 days after the date of the final prospectus relating
to the Public Offering (the "Prospectus"), (1) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, lend, or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock
or (2) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (1) or (2) above is to
be settled by delivery of Common Stock or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to (a) the sale of any Shares
to the Underwriters pursuant to the Underwriting Agreement or (b) transactions
relating to shares of Common Stock or other securities acquired in open market
transactions after the completion of the Public Offering. In addition, the
undersigned agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending 180 days after the date of the Prospectus, make any
demand for or exercise any right with respect to, the registration of any shares
of Common Stock or any security convertible into or exercisable or exchangeable
for Common Stock.
<PAGE>
Whether or not the Public Offering actually occurs depends on a number of
factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters.
Very truly yours,
-------------------------------
(Name)
-------------------------------
(Address)
2
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
OF SCIENT CORPORATION,
A DELAWARE CORPORATION
AND
SCIENT CORPORATION,
A CALIFORNIA CORPORATION
THIS AGREEMENT AND PLAN OF MERGER, dated as of April ___, 1999, (the
"Agreement"), is between Scient Corporation, a Delaware corporation ("Scient-
Delaware") and Scient Corporation, a California corporation ("Scient-
California"). Scient-Delaware and Scient-California are sometimes referred to
herein as the "Constituent Corporations."
R E C I T A L S
- - - - - - - -
A. Scient-Delaware is a corporation duly organized and existing
under the laws of the State of Delaware and has an authorized capital stock of
51,500,000 shares, 40,000,000 of which are designated "Common Stock," and
11,500,000 of which are designated "Preferred Stock." Of such authorized
shares of Preferred Stock, 6,283,334 shares are designated as Series A
Preferred Stock, 2,240,477 shares are designated as Series B Preferred Stock
and 1,382,488 shares are designated Series C Preferred Stock. As of the date
of this Agreement, 1,000 shares of Common Stock of Scient-Delaware are issued
and outstanding, all of which are held by Scient-California and no shares of
Preferred Stock of Scient-Delaware are issued and outstanding.
B. Scient-California is a corporation duly organized and existing
under the laws of the State of California and has an authorized capital stock of
51,500,000 shares, 40,000,000 of which are designated "Common Stock," and
11,500,000 of which are designated "Preferred Stock." Of such authorized shares
of Preferred Stock, 6,283,334 shares are designated as Series A Preferred Stock,
2,240,477 shares are designated as Series B Preferred Stock and 1,382,488 shares
are designated Series C Preferred Stock. As of March 25, 1999, the record date
for determining shareholders of Scient-California entitled to vote on this
Agreement, 16,576,866 shares of Common Stock, 6,283,334 shares of Series A
Preferred Stock, 2,240,477 shares of Series B Preferred Stock and 1,050,649
shares of Series C Preferred Stock were issued and outstanding.
C. The Board of Directors of Scient-California has determined that,
for the purpose of effecting the reincorporation of Scient-California in the
State of Delaware, it is advisable and in the best interests of Scient-
California that Scient-California merge with and into Scient-Delaware upon the
terms and conditions herein provided.
D. The respective Boards of Directors of Scient-Delaware and Scient-
California have approved this Agreement and have directed that this Agreement be
submitted to a vote of their respective sole stockholder and shareholders, and
executed by the undersigned officers.
<PAGE>
E. Scient-Delaware is a wholly owned subsidiary of Scient-California.
NOW, THEREFORE, in consideration of the mutual agreements and
covenants set forth herein, Scient-Delaware and Scient-California hereby agree,
subject to the terms and conditions hereinafter set forth, as follows:
I. MERGER
1.1 Merger. In accordance with the provisions of this Agreement, the
------
Delaware General Corporation Law and the California Corporations Code, Scient-
California shall be merged with and into Scient-Delaware (the "Merger"), the
separate existence of Scient-California shall cease and Scient-Delaware shall
be, and is herein sometimes referred to as, the "Surviving Corporation," and
the name of the Surviving Corporation shall be "Scient Corporation."
1.2 Filing and Effectiveness. The Merger shall become effective when the
------------------------
following actions shall have been completed:
A. This Agreement and the Merger shall have been adopted and approved by
the shareholders of Scient-California and the sole stockholder of Scient-
Delaware in accordance with the requirements of the California Corporations
Code and the Delaware General Corporation Law;
B. All of the conditions precedent to the consummation of the Merger
specified in this Agreement shall have been satisfied or duly waived by the
party entitled to satisfaction thereof; and
C. An executed Certificate of Ownership and Merger or an executed
counterpart of this Agreement meeting the requirements of the Delaware General
Corporation Law shall have been filed with the Secretary of State of the State
of Delaware.
The date and time when the Merger shall become effective, as
aforesaid, is herein called the "Effective Date of the Merger."
1.3 Effect of the Merger. Upon the Effective Date of the Merger, the
--------------------
separate existence of Scient-California shall cease and Scient-Delaware, as
the Surviving Corporation (i) shall continue to possess all of its assets,
rights, powers and property as constituted immediately prior to the Effective
Date of the Merger, (ii) shall be subject to all actions previously taken by
its and Scient-California's Board of Directors, (iii) shall succeed, without
other transfer, to all of the assets, rights, powers and property of Scient-
California, including all shares of any subsidiary held by Scient-California,
in the manner more fully set forth in Section 259 of the Delaware General
Corporation Law, (iv) shall continue to be subject to all of its debts,
liabilities and obligations as constituted immediately prior to the Effective
Date of the Merger, and (v) shall succeed, without other transfer, to all of
the debts, liabilities and obligations of Scient-California in the same manner
as if Scient-Delaware had itself incurred them, all as more fully provided
under the applicable provisions of the Delaware General Corporation Law and
the California Corporations Code.
2
<PAGE>
II. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 Certificate of Incorporation. The Amended and Restated Certificate of
----------------------------
Incorporation of Scient-Delaware as in effect immediately prior to the Effective
Date of the Merger shall continue in full force and effect as the Amended and
Restated Certificate of Incorporation of the Surviving Corporation until duly
amended in accordance with the provisions thereof and applicable law.
2.2 Bylaws. The Bylaws of Scient-Delaware as in effect immediately prior
------
to the Effective Date of the Merger shall continue in full force and effect as
the Bylaws of the Surviving Corporation until duly amended in accordance with
the provisions thereof and applicable law.
2.3 Directors and Officers. The directors and officers of Scient-Delaware
----------------------
immediately prior to the Effective Date of the Merger shall be the directors and
officers of the Surviving Corporation until their successors shall have been
duly elected and qualified or until as otherwise provided by law, the Amended
and Restated Certificate of Incorporation of the Surviving Corporation or the
Bylaws of the Surviving Corporation.
III. MANNER OF CONVERSION OF STOCK
3.1 Scient-California Common Shares. Upon the Effective Date of the
-------------------------------
Merger, each share of Scient-California Common Stock issued and outstanding
immediately prior to the Merger shall, by virtue of the Merger and without any
action by the Constituent Corporations, the holder of such shares or any other
person, be converted into and exchanged for one (1) fully paid and
nonassessable share of Common Stock, par value $0.0001 per share, of the
Surviving Corporation. No fractional share interests of the Surviving
Corporation's Common Stock shall be issued but shall, instead, be paid in cash
or check by Scient-Delaware to the holder of such shares in that amount equal
to the fair market value of such fractional shares.
3.2 Scient-California Preferred Shares. Upon the Effective Date of the
----------------------------------
Merger each share of Series A Preferred Stock of Scient-California issued and
outstanding immediately prior to the Merger shall, by virtue of the Merger and
without any action by the Constituent Corporations, the holder of such shares or
any other person, be converted into or exchanged for one (1) fully paid and
nonassessable share of Series A Preferred Stock of the Surviving Corporation,
par value $0.0001 per share. The rights, preferences and privileges of the
Series A Preferred Stock of the Surviving Corporation are as set forth in the
Amended and Restated Certificate of Incorporation of the Surviving Corporation.
No fractional share interests of the Surviving Corporation's Preferred Stock
shall be issued but shall, instead, be paid in cash or check by Scient-Delaware
to the holder of such shares in that amount equal to the fair market value of
such fractional shares.
Upon the Effective Date of the Merger each share of Series B Preferred
Stock of Scient-California issued and outstanding immediately prior to the
Merger shall, by virtue of the Merger and without any action by the Constituent
Corporations, the holder of such shares or any
3
<PAGE>
other person, be converted into or exchanged for one (1) fully paid and
nonassessable share of Series B Preferred Stock of the Surviving Corporation,
par value $0.0001 per share. The rights, preferences and privileges of the
Series B Preferred Stock of the Surviving Corporation are as set forth in the
Amended and Restated Certificate of Incorporation of the Surviving
Corporation. No fractional share interests of the Surviving Corporation's
Preferred Stock shall be issued but shall, instead, be paid in cash or check
by Scient-Delaware to the holder of such shares in that amount equal to the
fair market value of such fractional shares.
Upon the Effective Date of the Merger each share of Series C Preferred
Stock of Scient-California issued and outstanding immediately prior to the
Merger shall, by virtue of the Merger and without any action by the Constituent
Corporations, the holder of such shares or any other person, be converted into
or exchanged for one (1) fully paid and nonassessable share of Series C
Preferred Stock of the Surviving Corporation, par value $0.0001 per share. The
rights, preferences and privileges of the Series C Preferred Stock of the
Surviving Corporation are as set forth in the Amended and Restated Certificate
of Incorporation of the Surviving Corporation. No fractional share interests of
the Surviving Corporation's Preferred Stock shall be issued but shall, instead,
be paid in cash or check by Scient-Delaware to the holder of such shares in that
amount equal to the fair market value of such fractional shares.
3.3 Scient-California Warrants to Purchase Common Stock. Upon the
---------------------------------------------------
Effective Date of the Merger each warrant to purchase one (1) share of Common
Stock of Scient-California issued and outstanding immediately prior to the
Merger ("Common Warrant"), shall, by virtue of the Merger and without any
action by the Constituent Corporations, the holder of such Warrant or any
other person, be converted into a warrant to purchase one (1) share of Common
Stock of the Surviving Corporation, par value $0.0001 per share ("New Common
Warrant"); provided, however, that no New Common Warrant shall be exercisable
for fractional shares of the Surviving Corporation's Common Stock, but instead
shall be rounded-down to and exercisable for the nearest whole number of
shares of the Surviving Corporation's Common Stock. The per share exercise
price of each of the New Common Warrant shall be the same as the original
Common Warrant.
3.4 Scient-California 1997 Stock Plan.
---------------------------------
(a) Upon the Effective Date of the Merger, the Surviving Corporation
shall assume the obligations of Scient-California under its 1997 Stock Plan
(the "1997 Plan"). Each outstanding and unexercised option to purchase one (1)
share of Common Stock of Scient-California (an "Option") under the 1997 Plan
shall be converted into, subject to the provisions in paragraph (b) of this
Section 3.4, an option to purchase one (1) share of the Surviving
Corporation's Common Stock (a "New Option") on the same terms as described
above.
(b) Following the Effective Date of the Merger, the number of shares
of the Surviving Corporation's Common Stock to which an Option holder would be
otherwise entitled upon exercise of an assumed Option shall be rounded down to
the nearest whole number. In addition, no "additional benefits" (within the
meaning of Section 424(a)(2) of the Internal
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Revenue Code of 1986, as amended) shall be accorded to the optionees pursuant
to the assumption of their options.
3.5 Scient-Delaware Common Stock. Upon the Effective Date of the Merger,
----------------------------
each share of Common Stock, par value $0.0001 per share, of Scient-Delaware
issued and outstanding immediately prior thereto shall, by virtue of the
Merger and without any action by Scient-Delaware, the holder of such shares or
any other person, be canceled and returned to the status of authorized but
unissued shares.
3.6 Exchange of Certificates. After the Effective Date of the Merger, each
------------------------
holder of an outstanding certificate representing shares of Scient-California
Common Stock or Preferred Stock may be asked to surrender the same for
cancellation to an exchange agent, whose name will be delivered to holders prior
to any requested exchange (the "Exchange Agent"), and each such holder shall be
entitled to receive in exchange therefor a certificate or certificates
representing the number of shares of the Surviving Corporation's Common Stock or
Preferred Stock, as the case may be, into which the surrendered shares were
converted as herein provided. Until so surrendered, each outstanding
certificate theretofore representing shares of Scient-California Common Stock or
Preferred Stock shall be deemed for all purposes to represent the number of
shares of the Surviving Corporation's Common Stock or Preferred Stock,
respectively, into which such shares of Scient-California Common Stock or
Preferred Stock, as the case may be, were converted in the Merger.
The registered owner on the books and records of the Surviving
Corporation or the Exchange Agent of any such outstanding certificate shall,
until such certificate shall have been surrendered for transfer or conversion or
otherwise accounted for to the Surviving Corporation or the Exchange Agent, have
and be entitled to exercise any voting and other rights with respect to and to
receive dividends and other distributions upon the shares of Common Stock or
Preferred Stock of the Surviving Corporation represented by such outstanding
certificate as provided above.
Each certificate representing Common Stock or Preferred Stock of the
Surviving Corporation so issued in the Merger shall bear the same legends, if
any, with respect to the restrictions on transferability as the certificates of
Scient-California so converted and given in exchange therefore, unless otherwise
determined by the Board of Directors of the Surviving Corporation in compliance
with applicable laws, or other such additional legends as agreed upon by the
holder and the Surviving Corporation.
If any certificate for shares of Scient-Delaware stock is to be issued
in a name other than that in which the certificate surrendered in exchange
therefor is registered, it shall be a condition of issuance thereof that the
certificate so surrendered shall be properly endorsed and otherwise in proper
form for transfer, that such transfer otherwise be proper and comply with
applicable securities laws and that the person requesting such transfer pay to
the Exchange Agent any transfer or other taxes payable by reason of issuance of
such new certificate in a name other than that of the registered holder of the
certificate surrendered or establish to the satisfaction of Scient-Delaware that
such tax has been paid or is not payable.
5
<PAGE>
IV. GENERAL
4.1 Covenants of Scient-Delaware. Scient-Delaware covenants and agrees
----------------------------
that it will, on or before the Effective Date of the Merger:
(a) Qualify to do business as a foreign corporation in the State of
California and in connection therewith irrevocably appoint an agent for
service of process as required under the provisions of Section 2105 of the
California Corporations Code.
(b) File any and all documents with the California Franchise Tax Board
necessary for the assumption by Scient-Delaware of all of the franchise tax
liabilities of Scient-California.
(c) Take such other actions as may be required by the California
Corporations Code.
4.2 Further Assurances. From time to time, as and when required by Scient-
------------------
Delaware or by its successors or assigns, there shall be executed and delivered
on behalf of Scient-California such deeds and other instruments, and there shall
be taken or caused to be taken by it such further and other actions as shall be
appropriate or necessary in order to vest or perfect in or conform of record or
otherwise by Scient-Delaware the title to and possession of all the property,
interests, assets, rights, privileges, immunities, powers, franchises and
authority of Scient-California and otherwise to carry out the purposes of this
Agreement, and the officers and directors of Scient-Delaware are fully
authorized in the name and on behalf of Scient-California or otherwise to take
any and all such action and to execute and deliver any and all such deeds and
other instruments.
4.3 Abandonment. At any time before the Effective Date of the Merger, this
-----------
Agreement may be terminated and the Merger may be abandoned for any reason
whatsoever by the Board of Directors of either Scient-California or of Scient-
Delaware, or of both, notwithstanding the approval of this Agreement by the
shareholders of Scient-California.
4.4 Amendment. The Boards of Directors of the Constituent Corporations may
---------
amend this Agreement at any time prior to the filing of this Agreement (or
certificate in lieu thereof) with the Secretary of State of the State of
Delaware, provided that an amendment made subsequent to the adoption of this
Agreement by the stockholders of either Constituent Corporation shall not: (1)
alter or change the amount or kind of shares, securities, cash, property and/or
rights to be received in exchange for or on conversion of all or any of the
shares of any class or series thereof of such Constituent Corporation, (2) alter
or change any term of the Amended and Restated Certificate of Incorporation of
the Surviving Corporation to be effected by the Merger, or (3) alter or change
any of the terms and conditions of this Agreement if such alteration or change
would adversely affect the holders of any class or series of capital stock of
any Constituent Corporation.
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4.5 Registered Office. The registered office of the Surviving
-----------------
Corporation in the State of Delaware is 15 East North Street, Dover, Delaware
19901 and Incorporating Services, Inc. is the registered agent of the
Surviving Corporation at such address.
4.6 Agreement. Executed copies of this Agreement will be on file at the
---------
principal place of business of the Surviving Corporation at One Front Street,
28th Floor, San Francisco, California 94111, and copies thereof will be
furnished to any stockholder of either Constituent Corporation, upon request and
without cost.
4.7 Governing Law. This Agreement shall in all respects be construed,
-------------
interpreted and enforced in accordance with and governed by the laws of the
State of Delaware and, so far as applicable, the merger provisions of the
California Corporations Code.
4.8 Counterparts. In order to facilitate the filing and recording of this
------------
Agreement, the same may be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which together shall constitute one
and the same instrument.
7
<PAGE>
IN WITNESS WHEREOF, this Agreement having first been approved by the
resolutions of the Board of Directors of Scient-Delaware and Scient-California
is hereby executed on behalf of each of such two corporations and attested by
their respective officers thereunto duly authorized.
SCIENT CORPORATION,
a Delaware corporation
By:
--------------------------------------------
Robert M. Howe
President and Chief Executive Officer
ATTEST:
- --------------------------
Assistant Secretary
SCIENT CORPORATION,
a California corporation
By:
--------------------------------------------
Robert M. Howe
President and Chief Executive Officer
ATTEST:
- --------------------------
Assistant Secretary
8
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF SCIENT CORPORATION
a Delaware corporation
(Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware)
Scient Corporation, a corporation organized and existing under and by
virtue of the provisions of the General Corporation Law of the State of Delaware
(the "General Corporation Law"),
DOES HEREBY CERTIFY:
FIRST: That the name of this corporation is Scient Corporation and
that this corporation was originally incorporated pursuant to the General
Corporation Law on February 26, 1999 under the name Scient Corporation.
SECOND: That the Board of Directors duly adopted resolutions
proposing to amend and restate the Certificate of Incorporation of this
corporation, declaring said amendment and restatement to be advisable and in the
best interests of this corporation and its stockholders, and authorizing the
appropriate officers of this corporation to solicit the consent of the
stockholders therefor, which resolution setting forth the proposed amendment and
restatement is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended and restated in its entirety as follows:
ARTICLE I
The name of this corporation is Scient Corporation.
ARTICLE II
The address of the registered office of this corporation in the State
of Delaware is 15 East North Street, in the City of Dover, County of Kent. The
name of its registered agent at such address is Incorporating Services, Ltd.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
<PAGE>
ARTICLE IV
A. Classes of Stock. This corporation is authorized to issue two
----------------
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares which the corporation is authorized to issue
is fifty one million five hundred thousand (51,500,000) shares. Forty million
(40,000,000) shares shall be Common Stock and eleven million five hundred
thousand (11,500,000) shares shall be Preferred Stock, each with a per share par
value of $0.0001.
B. Rights, Preferences and Restrictions of Preferred Stock. The
-------------------------------------------------------
Preferred Stock authorized by this Amended and Restated Certificate of
Incorporation may be issued from time to time in one or more series. The rights,
preferences, privileges, and restrictions granted to and imposed on the Series A
Preferred Stock, which series shall consist of six million two hundred eighty-
three thousand three hundred thirty-four (6,283,334) shares (the "Series A
Preferred Stock"), Series B Preferred Stock, which series shall consist of two
million two hundred forty thousand four hundred seventy-seven (2,240,477) shares
(the "Series B Preferred Stock") and Series C Preferred Stock, which series
shall consist of one million three hundred eighty-two thousand four hundred
eighty-eight (1,382,488) shares, are as set forth below in this Article III(B).
The Board of Directors is hereby authorized to fix or alter the rights,
preferences, privileges and restrictions granted to or imposed upon additional
series of Preferred Stock, and the number of shares constituting any such series
and the designation thereof, or of any of them. Subject to compliance with
applicable protective voting rights which have been or may be granted to the
Preferred Stock or series thereof in Certificates of Determination or the
corporation's Certificate of Incorporation ("Protective Provisions"), but
notwithstanding any other rights of the Preferred Stock or any series thereof,
the rights, privileges, preferences and restrictions of any such additional
series may be subordinated to, pari passu with (including, without limitation,
---- -----
inclusion in provisions with respect to liquidation and acquisition preferences,
redemption and/or approval of matters by vote or written consent), or senior to
any of those of any present or future class or series of Preferred or Common
Stock. Subject to compliance with applicable Protective Provisions, the Board of
Directors is also authorized to increase or decrease the number of shares of any
series (other than the Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock), prior or subsequent to the issue of that series, but
not below the number of shares of such series then outstanding. In case the
number of shares of any series shall be so decreased, the shares constituting
such decrease shall resume the status which they had prior to the adoption of
the resolution originally fixing the number of shares of such series.
1. Dividend Provisions.
-------------------
(a) Subject to the rights of series of Preferred Stock which may
from time to time come into existence, the holders of shares of Series C
Preferred Stock shall be entitled to receive dividends, out of any assets
legally available therefor, prior and in preference to any declaration or
payment of any dividend (payable other than in Common Stock or other securities
and rights convertible into or entitling the holder thereof to receive, directly
or indirectly, additional shares of Common Stock of this corporation) on the
Series A Preferred Stock, Series B Preferred Stock and Common Stock of this
corporation, at the rate of $0.868 per share per annum or, if greater (as
determined on a per annum basis and an as converted basis for the Series C
Preferred Stock), an amount equal to that paid on any other outstanding shares
of
2
<PAGE>
this corporation, payable quarterly when, as and if declared by the Board of
Directors. The right to such dividends on shares of Series C Preferred Stock
shall not be cumulative and no right shall accrue to the holders of shares of
Series C Preferred Stock by reason of the fact that dividends on such shares are
not declared in any prior year, nor shall undeclared or unpaid dividends bear or
accrue interest.
(b) Subject to the rights of the Series C Preferred Stock and any
other series of Preferred Stock which may from time to time come into existence,
the holders of shares of Series B Preferred Stock shall be entitled to receive
dividends, out of any assets legally available therefor, prior and in preference
to any declaration or payment of any dividend (payable other than in Common
Stock or other securities and rights convertible into or entitling the holder
thereof to receive, directly or indirectly, additional shares of Common Stock of
this corporation) on the Series A Preferred Stock and Common Stock of this
corporation, at the rate of $0.508 per share per annum or, if greater (as
determined on a per annum basis and an as converted basis for the Series B
Preferred Stock), an amount equal to that paid on any other outstanding shares
of this corporation (other than the Series C Preferred Stock), payable quarterly
when, as and if declared by the Board of Directors. The right to such dividends
on shares of Series B Preferred Stock shall not be cumulative and no right shall
accrue to the holders of shares of Series B Preferred Stock by reason of the
fact that dividends on such shares are not declared in any prior year, nor shall
undeclared or unpaid dividends bear or accrue interest.
(c) Subject to the rights of the Series C Preferred Stock, the
Series B Preferred Stock and any other series of Preferred Stock which may from
time to time come into existence, the holders of shares of Series A Preferred
Stock shall be entitled to receive dividends, out of any assets legally
available therefor, prior and in preference to any declaration or payment of any
dividend (payable other than in Common Stock or other securities and rights
convertible into or entitling the holder thereof to receive, directly or
indirectly, additional shares of Common Stock of this corporation) on the Common
Stock of this corporation, at the rate of $0.072 per share per annum or, if
greater (as determined on a per annum basis and an as converted basis for the
Series A Preferred Stock), an amount equal to that paid on any other outstanding
shares of this corporation (other than the Series C Preferred Stock and Series B
Preferred Stock), payable quarterly when, as and if declared by the Board of
Directors. The right to such dividends on shares of Series A Preferred Stock
shall not be cumulative and no right shall accrue to the holders of shares of
Series A Preferred Stock by reason of the fact that dividends on such shares are
not declared in any prior year, nor shall undeclared or unpaid dividends bear or
accrue interest.
2. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up of
this corporation, either voluntary or involuntary, subject to the rights of
series of Preferred Stock that may from time to time come into existence, the
holders of Series C Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets of this corporation to the
holders of Series A Preferred Stock, Series B Preferred Stock or Common Stock by
reason of their ownership thereof, an amount per share equal to the sum of (i)
$10.85 for each outstanding share of Series C Preferred Stock (the "Original
Series C Issue Price") and
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<PAGE>
(ii) an amount equal to declared but unpaid dividends on such share. If upon the
occurrence of such event, the assets and funds thus distributed among the
holders of the Series C Preferred Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amounts, then,
subject to the rights of series of Preferred Stock that may from time to time
come into existence, the entire assets and funds of the corporation legally
available for distribution shall be distributed among the holders of the Series
C Preferred Stock in proportion to the amount of such stock owned by each such
holder.
(b) Upon the completion of the distribution required by
subparagraph (a) of this Section 2, subject to the rights of series of Preferred
Stock that may from time to time come into existence, the holders of Series B
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets of this corporation to the holders of Series A
Preferred Stock or Common Stock by reason of their ownership thereof, an amount
per share equal to the sum of (i) $6.35 for each outstanding share of Series B
Preferred Stock (the "Original Series B Issue Price") and (ii) an amount equal
to declared but unpaid dividends on such share. If upon the occurrence of such
event, the assets and funds thus distributed among the holders of the Series B
Preferred Stock shall be insufficient to permit the payment to such holders of
the full aforesaid preferential amounts, then, subject to the rights of series
of Preferred Stock that may from time to time come into existence, the entire
assets and funds of the corporation legally available for distribution shall be
distributed among the holders of the Series B Preferred Stock in proportion to
the amount of such stock owned by each such holder.
(c) Upon the completion of the distribution required by
subparagraphs (a) and (b) of this Section 2, subject to the rights of series of
Preferred Stock that may from time to time come into existence, the holders of
Series A Preferred Stock shall be entitled to receive, prior and in preference
to any distribution of any of the assets of this corporation to the holders of
Common Stock by reason of their ownership thereof, an amount per share equal to
the sum of (i) $0.90 for each outstanding share of Series A Preferred Stock (the
"Original Series A Issue Price") and (ii) an amount equal to declared but unpaid
dividends on such share. If upon the occurrence of such event, the assets and
funds thus distributed among the holders of the Series A Preferred Stock shall
be insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then, subject to the rights of series of Preferred Stock
that may from time to time come into existence, the entire assets and funds of
the corporation legally available for distribution shall be distributed among
the holders of the Series A Preferred Stock in proportion to the amount of such
stock owned by each such holder.
(d) Upon the completion of the distribution required by
subparagraphs (a), (b) and (c) of this Section 2 and any other distribution that
may be required with respect to series of Preferred Stock that may from time to
time come into existence, if assets remain in this corporation, the holders of
the Common Stock of this corporation, shall receive all of the remaining assets
of this corporation.
(e) (i) For purposes of this Section 2, a liquidation,
dissolution or winding up of this corporation shall be deemed to be occasioned
by, or to include, (A) the acquisition of the corporation by another entity by
means of any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation,
4
<PAGE>
but excluding any merger effected exclusively for the purpose of changing the
domicile of the corporation); or (B) a sale of all or substantially all of the
assets of the corporation; unless the corporation's stockholders of record as
constituted immediately prior to such acquisition or sale will, immediately
after such acquisition or sale (by virtue of securities issued as consideration
for the corporation's acquisition or sale or otherwise) hold at least 50% of the
voting power of the surviving or acquiring entity.
(ii) In any of such events, if the consideration received by
the corporation is other than cash, its value will be deemed its fair market
value. Any securities shall be valued as follows:
(A) Securities not subject to investment letter or
other similar restrictions on free marketability covered by (B) below:
(1) If traded on a securities exchange or through
NASDAQ-NMS, the value shall be deemed to be the average of the closing prices of
the securities on such exchange over the thirty-day period ending three (3) days
prior to the closing;
(2) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or sale prices (whichever
is applicable) over the thirty-day period ending three (3) days prior to the
closing; and
(3) If there is no active public market, the value
shall be the fair market value thereof, as mutually determined by the
corporation and the holders of at least a majority of the voting power of all
then outstanding shares of Preferred Stock.
(B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (A) (1), (2) or (3) to reflect the approximate fair
market value thereof, as mutually determined by the corporation and the holders
of at least a majority of the voting power of all then outstanding shares of
such Preferred Stock.
(iii) In the event the requirements of subsections 2(e)(i)
and 2(e)(ii) are not complied with, this corporation shall forthwith either:
(A) cause such closing to be postponed until such time
as the requirements of this Section 2 have been complied with; or
(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Preferred Stock shall revert to
and be the same as such rights, preferences and privileges existing immediately
prior to the date of the first notice referred to in subsection 2(e)(iv) hereof.
(iv) The corporation shall give each holder of record of
Preferred Stock written notice of such impending transaction not later than
twenty (20) days
5
<PAGE>
prior to the stockholders' meeting called to approve such transaction, or twenty
(20) days prior to the closing of such transaction, whichever is earlier, and
shall also notify such holders in writing of the final approval of such
transaction. The first of such notices shall describe the material terms and
conditions of the impending transaction and the provisions of this Section 2,
and the corporation shall thereafter give such holders prompt notice of any
material changes. The transaction shall in no event take place sooner than
twenty (20) days after the corporation has given the first notice provided for
herein or sooner than ten (10) days after the corporation has given notice of
any material changes provided for herein; provided, however, that such periods
may be shortened upon the written consent of the holders of Preferred Stock that
are entitled to such notice rights or similar notice rights and that represent
at least a majority of the voting power of all then outstanding shares of such
Preferred Stock.
3. Redemption. The Preferred Stock is not redeemable.
----------
4. Conversion. The holders of the Preferred Stock shall have
----------
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Preferred Stock shall be
----------------
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share at the office of this corporation or any transfer agent
for such stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing the Original Series A Issue Price with
respect to each share of Series A Preferred Stock, the Original Series B Issue
Price with respect to each share of Series B Preferred Stock and the Original
Series C Issue Price with respect to each share of Series C Preferred Stock by
the Conversion Price applicable to such share, determined as hereafter provided,
in effect on the date the certificate is surrendered for conversion. The initial
Conversion Price per share for shares of Series A Preferred Stock shall be
$0.45, the initial Conversion Price per share for shares of Series B Preferred
Stock shall be the Original Series B Issue Price and the initial Conversion
Price per share for shares of Series C Preferred Stock shall be the Original
Series C Issue Price; provided, however, that the Conversion Price for the
Series C Preferred Stock shall be subject to adjustment as set forth in
subsection 4(d).
(b) Automatic Conversion.
--------------------
(i) Each share of Series A Preferred Stock and Series B
Preferred Stock shall automatically be converted into shares of Common Stock at
the applicable Conversion Price at the time in effect for each such series of
Preferred Stock immediately upon the corporation's sale of its Common Stock in a
firm commitment underwritten public offering pursuant to a registration
statement under the Securities Act of 1933, as amended, the public offering
price of which was not less than $12.70 per share (adjusted to reflect
subsequent stock dividends, stock splits or recapitalization) and $15,000,000 in
the aggregate.
(ii) Each share of Series C Preferred Stock shall
automatically be converted into shares of Common Stock at the applicable
Conversion Price at the time in effect for the Series C Preferred Stock
immediately upon the corporation's sale of its Common Stock in a firm commitment
underwritten public offering pursuant to a registration statement under the
Securities Act of 1933, as amended, the public offering price of which was
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<PAGE>
not less than $10.85 per share (adjusted to reflect subsequent stock dividends,
stock splits or recapitalization and as adjusted pursuant to subsection 4(d)(i))
and $15,000,000 in the aggregate.
(iii) Notwithstanding subsections (i) and (ii) above, each
share of Preferred Stock shall automatically be converted into shares of Common
Stock at the applicable Conversion Price at the time in effect for such series
of Preferred Stock immediately upon the earlier of (1) the corporation's sale of
its Common Stock in a firm commitment underwritten public offering pursuant to a
registration statement under the Securities Act of 1933, as amended, provided
that such offering has been by approved in a written consent of or written
agreement among the holders of a majority of the then outstanding shares of
Preferred Stock, voting together as a single class on an as converted into
Common Stock basis, or (2) the date specified by written consent or agreement of
the holders of (x) a majority of the then outstanding shares of Preferred Stock,
voting together as a single class on an as converted into Common Stock basis and
(y) a majority of the then outstanding shares of Series C Preferred Stock
(c) Mechanics of Conversion. Before any holder of Preferred Stock
-----------------------
shall be entitled to convert the same into shares of Common Stock, he shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of this corporation or of any transfer agent for the Preferred Stock, and shall
give written notice to this corporation at its principal corporate office, of
the election to convert the same and shall state therein the name or names in
which the certificate or certificates for shares of Common Stock are to be
issued. This corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Preferred Stock, or to the nominee or
nominees of such holder, a certificate or certificates for the number of shares
of Common Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of such date. If the
conversion is in connection with an underwritten offering of securities
registered pursuant to the Securities Act of 1933, as amended, the conversion
may, at the option of any holder tendering Preferred Stock for conversion, be
conditioned upon the closing with the underwriters of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive the
Common Stock upon conversion of the Preferred Stock shall not be deemed to have
converted such Preferred Stock until immediately prior to the closing of such
sale of securities.
(d) Conversion Price Adjustments of Preferred Stock for Splits
----------------------------------------------------------
and Combinations. The Conversion Price of the Series A Preferred Stock, Series B
- ----------------
Preferred Stock and Series C Preferred Stock shall be subject to adjustment from
time to time as follows:
(i) (A) If this corporation shall issue, after the date
upon which any shares of Series C Preferred Stock were first issued (the
"Purchase Date"), any Additional Stock (as defined below) without consideration
or for a consideration per share less than the Conversion Price for the Series C
Preferred Stock in effect immediately prior to the issuance of such Additional
Stock, the Conversion Price for the Series C Preferred Stock in effect
immediately prior to each such issuance shall forthwith (except as otherwise
provided in this clause (i)) be adjusted to a price determined by multiplying
such Conversion Price by a
7
<PAGE>
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance (including (x) shares of Common
Stock deemed to be issued pursuant to subsection 4(d)(i)(E)(1) or (2) and (y)
any shares of Common Stock authorized pursuant to subsection 4(d)(ii)(E) for
issuance to employees, consultants or directors of this corporation directly or
pursuant to a stock option plan or restricted stock plan approved by the Board
of Directors of this corporation less the number of such shares which are deemed
to be issued pursuant to subsection 4(d)(i)(E)(1) or (2)) plus the number of
shares of Common Stock that the aggregate consideration received by this
corporation for such issuance would purchase at such Conversion Price; and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance (including (x) shares of Common Stock deemed
to be issued pursuant to subsection 4(d)(i)(E)(1) or (2) and (y) any shares of
Common Stock authorized pursuant to subsection 4(d)(ii)(E) for issuance to
employees, consultants or directors of this corporation directly or pursuant to
a stock option plan or restricted stock plan approved by the Board of Directors
of this corporation less the number of such shares which are deemed to be issued
pursuant to subsection 4(d)(i)(E)(1) or (2)) plus the number of shares of such
Additional Stock.
(B) No adjustment of the Conversion Price for the
Series C Preferred Stock shall be made in an amount less than one cent per
share, provided that any adjustments that are not required to be made by reason
of this sentence shall be carried forward and shall be either taken into account
in any subsequent adjustment made prior to three (3) years from the date of the
event giving rise to the adjustment being carried forward, or shall be made at
the end of three (3) years from the date of the event giving rise to the
adjustment being carried forward. Except to the limited extent provided for in
subsections (E)(3) and (E)(4), no adjustment of such Conversion Price pursuant
to this subsection 4(d)(i) shall have the effect of increasing the Conversion
Price above the Conversion Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
before deducting any reasonable discounts, commissions or other expenses
allowed, paid or incurred by this corporation for any underwriting or otherwise
in connection with the issuance and sale thereof.
(D) In the case of the issuance of the Common Stock for
a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined by the
Board of Directors irrespective of any accounting treatment.
(E) In the case of the issuance (whether before, on or
after the Purchase Date) of options to purchase or rights to subscribe for
Common Stock, securities by their terms convertible into or exchangeable for
Common Stock (including, without limitation, shares of Preferred Stock) or
options to purchase or rights to subscribe for such convertible or exchangeable
securities, the following provisions shall apply for all purposes of this
subsection 4(d)(i) and subsection 4(d)(ii):
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(1) The aggregate maximum number of shares of
Common Stock deliverable upon exercise (assuming the satisfaction of any
conditions to exercisability, including without limitation, the passage of time,
but without taking into account potential antidilution adjustments) of such
options to purchase or rights to subscribe for Common Stock shall be deemed to
have been issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the manner provided in
subsections 4(d)(i)(C) and (d)(i)(D)), if any, received by this corporation upon
the issuance of such options or rights plus the minimum exercise price provided
in such options or rights (without taking into account potential antidilution
adjustments) for the Common Stock covered thereby.
(2) The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange (assuming the
satisfaction of any conditions to convertibility or exchangeability, including,
without limitation, the passage of time, but without taking into account
potential antidilution adjustments) for any such convertible or exchangeable
securities or upon the exercise of options to purchase or rights to subscribe
for such convertible or exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued at the time such securities
were issued or such options or rights were issued and for a consideration equal
to the consideration, if any, received by this corporation for any such
securities and related options or rights (excluding any cash received on account
of accrued interest or accrued dividends), plus the minimum additional
consideration, if any, to be received by this corporation (without taking into
account potential antidilution adjustments) upon the conversion or exchange of
such securities or the exercise of any related options or rights (the
consideration in each case to be determined in the manner provided in
subsections 4(d)(i)(C) and (d)(i)(D)).
(3) In the event of any change in the number of
shares of Common Stock deliverable or in the consideration payable to this
corporation upon exercise of such options or rights or upon conversion of or in
exchange for such convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions thereof (unless
such options or rights or convertible or exchangeable securities were merely
deemed to be included in the numerator and denominator for purposes of
determining the number of shares of Common Stock outstanding for purposes of
subsection 4(d)(i)(A)), the Conversion Price of the Series C Preferred Stock, to
the extent in any way affected by or computed using such options, rights or
securities, shall be recomputed to reflect such change, but no further
adjustment shall be made for the actual issuance of Common Stock or any payment
of such consideration upon the exercise of any such options or rights or the
conversion or exchange of such securities.
(4) Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price of the Series C Preferred Stock, to the extent
in any way affected by or computed using such options, rights or securities or
options or rights related to such securities (unless such options or rights were
merely deemed to be included in the numerator and denominator for purposes of
determining the number of shares of Common Stock outstanding for purposes of
subsection 4(d)(i)(A)), shall be recomputed to reflect the issuance of only the
number of shares of Common
9
<PAGE>
Stock (and convertible or exchangeable securities that remain in effect)
actually issued upon the exercise of such options or rights, upon the conversion
or exchange of such securities or upon the exercise of the options or rights
related to such securities.
(5) The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor pursuant to subsections
4(d)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any change,
termination or expiration of the type described in either subsection
4(d)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to subsection 4(d)(i)(E)) by this
corporation after the Purchase Date other than
(A) Common Stock issued pursuant to a transaction
described in subsection 4(d)(iii) hereof;
(B) Common Stock actually issued upon conversion of
shares of Preferred Stock (this provision does not exclude from the definition
of Additional Stock shares of Common Stock deemed to be issued pursuant to
subsection 4(d)(i)(E)(1) or (2));
(C) Common Stock issued pursuant to a bona fide, firmly
underwritten public offering approved by the holders of a majority of the shares
of Preferred Stock outstanding prior to the closing of such offering, voting
together as a single class on an as converted into Common Stock basis;
(D) Common Stock issuable or issued to employees,
consultants or directors of this corporation directly or pursuant to a stock
option plan or restricted stock plan provided such issuance is approved by two-
thirds of the members of the corporation's Board of Directors;
(E) Up to 17,000,000 shares of Common Stock (excluding
shares repurchased at cost by this corporation in connection with the
termination of service) issuable or issued after approval by the corporation's
Board of Directors or the Compensation Committee of the corporation's Board of
Directors to employees, consultants or directors of this corporation directly or
pursuant to a stock option plan or restricted stock plan approved by the Board
of Directors of this corporation;
(F) Common Stock, Preferred Stock or securities
convertible into or exchangeable for Common Stock issued in connection with a
bona fide business acquisition of or by the corporation, whether by merger,
consolidation, sale of assets, sale or exchange of stock or otherwise; or
(G) Common Stock, Preferred Stock or securities
convertible into or exchangeable for Common Stock issued to persons or entities
with which the corporation has business relationships (if such issuances are for
other than primarily equity financing purposes) provided that such issuance is
approved by two-thirds of the members of the corporation's Board of Directors.
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(iii) In the event the corporation should at any time or
from time to time after the date of filing this Amended and Restated Certificate
of Incorporation fix a record date for the effectuation of a split or
subdivision of the outstanding shares of Common Stock or the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in additional shares of Common Stock or other securities or rights
convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the Conversion
Prices of the Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock shall be appropriately decreased so that the number of shares of
Common Stock issuable on conversion of each share of such series shall be
increased in proportion to such increase of the aggregate of shares of Common
Stock outstanding and those issuable with respect to such Common Stock
Equivalents.
(iv) If the number of shares of Common Stock outstanding at
any time after the Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Prices for the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock shall be appropriately increased so
that the number of shares of Common Stock issuable on conversion of each share
of such series shall be decreased in proportion to such decrease of the
aggregate of the shares of Common Stock outstanding.
(e) Other Distributions. In the event this corporation shall
-------------------
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by this corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 4(d)(iii), then,
in each such case for the purpose of this subsection 4(e), the holders of the
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the corporation into which their shares of Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the corporation entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time there
-----------------
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4 or Section 2) provision shall be made so that the holders of the
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Preferred Stock the number of shares of stock or other securities or property of
the corporation or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 4 with respect to the rights of the holders of the Preferred Stock
after the recapitalization to the end that the provisions of this Section 4
(including adjustment of the Conversion Prices then in effect and the number of
shares purchasable upon conversion of the Preferred Stock) shall be applicable
after that event as nearly equivalent as may be practicable.
11
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(g) No Impairment. This corporation will not, by amendment of
-------------
this Amended and Restated Certificate of Incorporation or through any
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by this corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 4 and in the
taking of all such action as may be necessary or appropriate in order to protect
the Conversion Rights of the holders of the Preferred Stock against impairment.
(h) No Fractional Shares. No fractional shares shall be issued
--------------------
upon the conversion of any share or shares of the Preferred Stock, and the
number of shares of Common Stock to be issued shall be rounded to the nearest
whole share (with one-half being rounded upward). Whether or not fractional
shares are issuable upon such conversion shall be determined on the basis of the
total number of shares of Preferred Stock the holder is at the time converting
into Common Stock and the number of shares of Common Stock issuable upon such
aggregate conversion.
(i) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Conversion Price of the Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock pursuant to this
Section 4, this corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. This corporation shall, upon the written
request at any time of any holder of Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (A) such adjustment
and readjustment, (B) the Conversion Price for such series of Preferred Stock at
the time in effect, and (C) the number of shares of Common Stock and the amount,
if any, of other property which at the time would be received upon the
conversion of a share of Preferred Stock.
(j) Notices of Record Date. In the event of any taking by this
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Preferred Stock, at least twenty (20)
days prior to the date specified therein, a notice specifying the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right.
(k) Reservation of Stock Issuable Upon Conversion. This
---------------------------------------------
corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Preferred Stock; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Preferred Stock, in
addition to such
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<PAGE>
other remedies as shall be available to the holder of such Preferred Stock, this
corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes,
including, without limitation, engaging in best efforts to obtain the requisite
stockholder approval of any necessary amendment to this Certificate.
(l) Notices. Any notice required by the provisions of this
Section 4 to be given to the holders of shares of Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of this
corporation.
5. Voting Rights.
-------------
(a) General Voting Rights. The holder of each share of Preferred
---------------------
Stock shall have the right to one vote for each share of Common Stock into which
such share of Preferred Stock could then be converted, and with respect to such
vote, such holder shall have full voting rights and powers equal to the voting
rights and powers of the holders of Common Stock, and shall be entitled,
notwithstanding any provision hereof, to notice of any stockholders' meeting in
accordance with the bylaws of this Corporation, and shall be entitled to vote,
together with holders of Common Stock, with respect to any question upon which
holders of Common Stock have the right to vote. Fractional votes shall not,
however, be permitted and any fractional voting rights available on an as-
converted basis (after aggregating all shares into which shares of Preferred
Stock held by each holder could be converted) shall be rounded to the nearest
whole number (with one-half being rounded upward).
(b) Voting for the Election of Directors. As long as seven
------------------------------------
hundred fifty thousand (750,000) or more of the shares of Series A Preferred
Stock originally issued remain outstanding, the holders of such shares of Series
A Preferred Stock voting together as a separate class shall be entitled to elect
two (2) directors of this corporation at each annual election of directors. The
holders of outstanding Common Stock voting together as a separate class shall be
entitled to elect two (2) directors of this corporation at each annual election
of directors. The holders of Preferred Stock and Common Stock (voting together
as a single class and not as a separate series, and on an as-converted basis)
shall be entitled to elect any remaining directors of this corporation.
In the case of any vacancy (other than a vacancy caused by removal) in
the office of a director occurring among the directors elected by the holders of
a class or series of stock pursuant to this Section 5(b), the remaining
directors so elected by that class or series may by affirmative vote of a
majority thereof (or the remaining director so elected if there be but one, or
if there are no such directors remaining, by the affirmative vote of the holders
of a majority of the shares of that class or series), elect a successor or
successors to hold office for the unexpired term of the director or directors
whose place or places shall be vacant. Any director who shall have been elected
by the holders of a class or series of stock or by any directors so elected as
provided in the immediately preceding sentence hereof may be removed during the
aforesaid term of office, either with or without cause, by, and only by, the
affirmative vote of the holders of the shares of the class or series of stock
entitled to elect such director or directors, given either at a special meeting
of such stockholders duly called for that purpose or pursuant to a written
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<PAGE>
consent of stockholders, and any vacancy thereby created may be filled by the
holders of that class or series of stock represented at the meeting or pursuant
to a written consent.
6. Protective Provisions. Subject to the rights of series of
---------------------
Preferred Stock which may from time to time come into existence, so long as any
shares of Preferred Stock are outstanding, this corporation shall not without
first obtaining the approval (by vote or written consent, as provided by law) of
the holders of at least a majority of the then outstanding shares of Preferred
Stock, voting together as a single class:
(a) alter or change the rights, preferences or privileges of the
shares of the Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock so as to affect adversely the shares;
(b) increase or decrease (other than by redemption or conversion)
the total number of authorized shares;
(c) authorize or issue, or obligate itself to issue, any other
equity security, including any other security convertible into or exercisable
for any equity security having a preference over, or being on a parity with, the
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock
with respect to voting, dividends or upon liquidation; or
(d) sell, convey, or otherwise dispose of all or substantially
all of its property or business or merge into or consolidate with any other
corporation (other than a wholly-owned subsidiary corporation) or effect any
transaction or series of related transactions in which more than fifty percent
(50%) of the voting power of this corporation is disposed of.
7. Status of Converted Stock. In the event any shares of Series A
-------------------------
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock shall be
converted pursuant to Section 4 hereof, the shares so converted shall be
canceled and shall not be issuable by the corporation. This Amended and Restated
Certificate of Incorporation of this corporation shall be appropriately amended
to effect the corresponding reduction in the corporation's authorized capital
stock.
8. Repurchase of Shares. In connection with repurchases by this
--------------------
corporation of its Common Stock pursuant to its agreements with certain of the
holders thereof, Sections 502 and 503 of the California General Corporation Law
shall not apply in whole or in part with respect to such repurchases.
C. Common Stock.
------------
1. Dividend Rights. Subject to the prior rights of holders of all
---------------
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
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2. Liquidation Rights. Upon the liquidation, dissolution or winding
------------------
up of the corporation, the assets of the corporation shall be distributed as
provided in Section 2 of Division (B) of this Article IV hereof.
3. Voting Rights. The holder of each share of Common Stock shall have
-------------
the right to one vote, and shall be entitled to notice of any stockholders'
meeting in accordance with the bylaws of this corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
ARTICLE V
Except as otherwise provided in this Certificate of Incorporation, in
furtherance and not in limitation of the powers conferred by statute, the Board
of Directors is expressly authorized to make, repeal, alter, amend and rescind
any or all of the Bylaws of this corporation.
ARTICLE VI
The number of directors of this corporation shall be fixed from time
to time by a bylaw or amendment thereof duly adopted by the Board of Directors
or by the stockholders.
ARTICLE VII
Elections of directors need not be by written ballot unless the Bylaws
of this corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of this corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of this corporation.
ARTICLE IX
A director of this corporation shall, to the fullest extent permitted
by the General Corporation Law as it now exists or as it may hereafter be
amended, not be personally liable to this corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to this
corporation or its stockholders, (ii) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law, or (iv) for any transaction from
which the director derived any improper personal benefit. If the General
Corporation Law is amended, after approval by the stockholders of this Article,
to authorize corporation action further eliminating or limiting the personal
liability of directors, then the liability of a director of this corporation
shall be eliminated or limited to the fullest extent permitted by the General
Corporation Law, as so amended.
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Any amendment, repeal or modification of this Article IX, or the
adoption of any provision of this Amended and Restated Certificate of
Incorporation inconsistent with this Article IX, by the stockholders of this
corporation shall not apply to or adversely affect any right or protection of a
director of this corporation existing at the time of such amendment, repeal,
modification or adoption.
ARTICLE X
This corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
ARTICLE XI
To the fullest extent permitted by applicable law, this corporation is
authorized to provide indemnification of (and advancement of expenses to) agents
of this corporation (and any other persons to which General Corporation Law
permits this corporation to provide indemnification) through bylaw provisions,
agreements with such agents or other persons, vote of stockholders or
disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the General Corporation Law,
subject only to limits created by applicable General Corporation Law (statutory
or non-statutory), with respect to actions for breach of duty to this
corporation, its stockholders, and others.
Any amendment, repeal or modification of the foregoing provisions of
this Article XI shall not adversely affect any right or protection of a
director, officer, agent, or other person existing at the time of, or increase
the liability of any director of this corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to, such amendment,
repeal or modification.
* * *
THIRD: The foregoing amendment and restatement was approved by the
holders of the requisite number of shares of said corporation in accordance with
Section 228 of the General Corporation Law.
FOURTH: That said amendment and restatement was duly adopted in
accordance with the provisions of Section 242 and 245 of the General Corporation
Law.
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IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation has
been executed by the President and Secretary of this corporation on this 31 day
of March, 1999.
----------------------------------------
Robert M. Howe
Chief Executive Officer and President
----------------------------------------
William H. Kurtz
Secretary
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EXHIBIT 3.2
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
SCIENT CORPORATION
a Delaware corporation
(Pursuant to Sections 228, 242 and 245
of the Delaware General Corporation Law)
Scient Corporation, a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "General Corporation Law")
DOES HEREBY CERTIFY:
FIRST: That this corporation was originally incorporated on February
26, 1999, pursuant to the General Corporation Law.
SECOND: That the Board of Directors duly adopted resolutions
proposing to amend and restate the Amended and Restated Certificate of
Incorporation of this corporation, declaring said amendment and restatement to
be advisable and in the best interests of this corporation and its stockholders,
and authorizing the appropriate officers of this corporation to solicit the
consent of the stockholders therefor, which resolution setting forth the
proposed amendment and restatement is as follows:
"RESOLVED, that the Amended and Restated Certificate of Incorporation
of this corporation, as amended, be amended and restated in its entirety as
follows:
ARTICLE I
The name of the corporation is Scient Corporation (the "Corporation").
ARTICLE II
The address of the registered office of this corporation in the State
of Delaware is 15 East North Street, Dover, Delaware 19901, County of Kent. The
name of its registered agent at such address is Incorporating Services, Ltd.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
ARTICLE IV
The Corporation is authorized to issue two classes of stock to be
designated common stock ("Common Stock") and preferred stock ("Preferred
Stock"). The number of
<PAGE>
shares of Common Stock authorized to be issued is One Hundred Twenty-Five
Million (125,000,000), par value $.0001 per share, and the number of Preferred
Stock authorized to be issued is Ten Million (10,000,000) par value $.0001 per
share.
The Preferred Stock may be issued from time to time in one or more
series, without further stockholder approval. The Board of Directors is hereby
authorized, in the resolution or resolutions adopted by the Board of Directors
providing for the issue of any wholly unissued series of Preferred Stock, within
the limitations and restrictions stated in this Second Amended and Restated
Certificate, to fix or alter the dividend rights, dividend rate, conversion
rights, voting rights, rights and terms of redemption (including sinking fund
provisions), the redemption price or prices, and the liquidation preferences of
any wholly unissued series of Preferred Stock, and the number of shares
constituting any such series and the designation thereof, or any of them, and to
increase or decrease the number of shares of any series subsequent to the issue
of shares of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status that they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.
ARTICLE V
Except as otherwise provided in this Second Amended and Restated
Certificate, in furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend and rescind any or all of the Bylaws of the Corporation.
ARTICLE VI
The number of directors of the Corporation shall be fixed from time to
time by a bylaw or amendment thereof duly adopted by the Board of Directors.
The Board of Directors shall be and is divided into three classes,
Class I, Class II and Class III. Such classes shall be as nearly equal in
number of directors as possible. Each director shall serve for a term ending on
the third annual meeting following the annual meeting at which such director was
elected; provided, however, that the directors first elected to Class I shall
serve for a term ending on the annual meeting next following the end of fiscal
year 2000, the directors first elected to Class II shall serve for a term ending
on the annual meeting next following the end of fiscal year 2001, and the
directors first elected to Class III shall serve for a term ending on the annual
meeting next following the end of fiscal year 2002. The foregoing
notwithstanding, each director shall serve until such director's successor shall
have been duly elected and qualified, unless such director shall resign, become
disqualified, disabled or shall otherwise be removed.
At each annual election, directors chosen to succeed those whose terms
then expire shall be of the same class as the directors they succeed, unless by
reason of any intervening changes in the authorized number of directors, the
Board shall designate one or more
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<PAGE>
directorships whose term then expires as directorships of another class in
order more nearly to achieve equality of number of directors among the
classes.
Notwithstanding the rule that the three classes shall be as nearly
equal in number of directors as possible, in the event of any change in the
authorized number of directors each director then continuing to serve as such
shall nevertheless continue as a director of the class of which the director is
a member until the expiration of the director's current term, or the director's
prior death, resignation or removal. If any newly created directorship may,
consistently with the rule that the three classes shall be as nearly equal in
number of directors as possible, be allocated to either class, the Board shall
allocate it to that of the available class whose term of office is due to expire
at the earliest date following such allocation.
ARTICLE VII
Elections of directors need not be by written ballot unless the Bylaws
of the Corporation shall so provide.
ARTICLE VIII
Except as otherwise provided in this Second Amended and Restated
Certificate, any action required or permitted to be taken by the stockholders of
the Corporation must be effected at an annual or special meeting of the
stockholders of the Corporation, and may not be effected by any consent in
writing of such stockholders.
ARTICLE IX
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law as so amended.
Any repeal or modification of the foregoing provisions of this Article
IX by the stockholders of the Corporation shall not adversely affect any right
or protection of a director of the Corporation existing at the time of, or
increase the liability of any director of this Corporation with respect to any
acts or omissions of such director occurring prior to, such repeal or
modification.
3
<PAGE>
ARTICLE X
In addition to any vote of the holders of any class or series of the
stock of this Corporation required by law or by this Second Amended and Restated
Certificate, the affirmative vote of the holders of a majority of the voting
power of all of the then outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class, shall be required to amend or repeal the provisions of Article I,
Article II, Article III and Article IV of this Second Amended and Restated
Certificate. Notwithstanding any other provision of this Second Amended and
Restated Certificate of Incorporation or any provision of law which might
otherwise permit a lesser vote or no vote, but in addition to any vote of the
holders of any class or series of the stock of this Corporation required by law
or by this Second Amended and Restated Certificate, the affirmative vote of the
holders of at least seventy-five percent (75%) of the voting power of all of the
then outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to amend or repeal any provision of this Second Amended and Restated
Certificate not specified in the preceding sentence.
* * * *
THIRD: The foregoing Second Amended and Restated Certificate of
Incorporation has been duly adopted by the Corporation's Board of Directors in
accordance with the applicable provisions of Section 245 of the General
Corporation Law of the State of Delaware.
4
<PAGE>
IN WITNESS WHEREOF, the undersigned has signed this Second Amended and
Restated Certificate this _____ day of May, 1999.
-------------------------------------------
Robert M. Howe
President and Chief Executive Officer
ATTEST:
- ----------------------------
William H. Kurtz
Secretary
5
<PAGE>
EXHIBIT 3.3
AMENDED AND RESTATED
BYLAWS OF
SCIENT CORPORATION
A DELAWARE CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE I OFFICE AND RECORDS............................................. 1
Section 1.1 Delaware Office......................................... 1
Section 1.2 Other Offices........................................... 1
Section 1.3 Books and Records....................................... 1
ARTICLE II STOCKHOLDERS.................................................. 1
Section 2.1 Annual Meeting.......................................... 1
Section 2.2 Special Meeting......................................... 1
Section 2.3 Place of Meeting........................................ 1
Section 2.4 Notice of Meeting....................................... 2
Section 2.5 Quorum and Adjournment.................................. 2
Section 2.6 Proxies................................................. 2
Section 2.7 Notice of Stockholder Business and Nominations.......... 2
Section 2.8 Procedure for Election of Directors..................... 5
Section 2.9 Inspectors of Elections; Opening and Closing the Polls.. 5
Section 2.10 Consent of Stockholders in Lieu of Meeting............. 5
ARTICLE III BOARD OF DIRECTORS........................................... 6
Section 3.1 General Powers.......................................... 6
Section 3.2 Number, Tenure and Qualifications....................... 6
Section 3.3 Regular Meetings........................................ 6
Section 3.4 Special Meetings........................................ 6
Section 3.5 Notice.................................................. 6
Section 3.6 Conference Telephone Meetings........................... 7
Section 3.7 Quorum.................................................. 7
Section 3.8 Vacancies............................................... 7
Section 3.9 Committee............................................... 7
Section 3.10 Removal................................................ 8
ARTICLE IV OFFICERS...................................................... 8
Section 4.1 Elected Officers........................................ 8
Section 4.2 Election and Term of Office............................. 8
Section 4.3 Chairman of the Board................................... 8
Section 4.4 President and Chief Executive Officer................... 8
Section 4.5 Secretary............................................... 8
Section 4.6 Treasurer............................................... 9
Section 4.7 Removal................................................. 9
Section 4.8 Vacancies............................................... 9
ARTICLE V STOCK CERTIFICATES AND TRANSFERS............................... 9
Section 5.1 Stock Certificates and Transfers........................ 9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE VI INDEMNIFICATION............................................... 10
Section 6.1 Right to Indemnification................................ 10
Section 6.2 Prepayment of Expenses.................................. 10
Section 6.3 Claims.................................................. 10
Section 6.4 Nonexclusivity of Rights................................ 11
Section 6.5 Amendment or Repeal..................................... 11
Section 6.6 Other Indemnification and Prepayment of Expenses........ 11
ARTICLE VII MISCELLANEOUS PROVISIONS..................................... 11
Section 7.1 Fiscal Year............................................. 11
Section 7.2 Dividends............................................... 11
Section 7.3 Seal.................................................... 11
Section 7.4 Waiver of Notice........................................ 11
Section 7.5 Audits.................................................. 11
Section 7.6 Resignations............................................ 11
Section 7.7 Contracts............................................... 12
Section 7.8 Proxies................................................. 12
ARTICLE VIII AMENDMENTS.................................................. 12
Section 8.1 Amendments.............................................. 12
</TABLE>
<PAGE>
ARTICLE I
OFFICES AND RECORDS
Section 1.1 Delaware Office. The registered office of the Corporation in
---------------
the State of Delaware shall be located in the City of Dover, County of Kent.
Section 1.2 Other Offices. The Corporation may have such other offices,
-------------
either within or without the State of Delaware, as the Board of Directors may
designate or as the business of the Corporation may from time to time require.
Section 1.3 Books and Records. The books and records of the Corporation
-----------------
may be kept at the Corporation's headquarters in San Francisco, California or at
such other locations outside the State of Delaware as may from time to time be
designated by the Board of Directors.
ARTICLE II
STOCKHOLDERS
Section 2.1 Annual Meeting. The annual meeting of the stockholders of
--------------
the Corporation shall be held at such date, place and/or time as may be fixed by
resolution of the Board of Directors.
Section 2.2 Special Meeting.
---------------
A. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of stockholders owning at least ten
percent (10%) in amount of the entire capital stock of the corporation issued
and outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
B. Notwithstanding the above provisions of this Section 2.2(A),
effective upon a closing of an initial public offering of the Corporation's
securities pursuant to a registration statement filed under the Securities Act
of 1933, as amended, a special meeting of the stockholders of the corporation
may be called only by the President, the Chairman of the Board or by the Board
of Directors pursuant to a resolution adopted by a majority of the total number
of directors which the Corporation would have if there were no vacancies (the
"Whole Board"), or at the request in writing of stockholders owning at least
fifty percent (50%) in amount of the entire capital stock of the corporation
issued and outstanding and entitled to vote.
Section 2.3 Place of Meeting. The Board of Directors may designate the
----------------
place of meeting for any meeting of the stockholders. If no designation is made
by the Board of Directors, the place of meeting shall be the principal office of
the Corporation.
<PAGE>
Section 2.4 Notice of Meeting. Written or printed notice, stating the
-----------------
place, day and hour of the meeting and the purposes for which the meeting is
called, shall be prepared and delivered by the Corporation not less than ten
days nor more than sixty days before the date of the meeting, either personally,
or by mail, to each stockholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail with postage thereon prepaid, addressed to the stockholder at his
address as it appears on the stock transfer books of the Corporation. Such
further notice shall be given as may be required by law. Meetings may be held
without notice if all stockholders entitled to vote are present (except as
otherwise provided by law), or if notice is waived by those not present. Any
previously scheduled meeting of the stockholders may be postponed and (unless
the Certificate of Incorporation otherwise provides) any special meeting of the
stockholders may be cancelled, by resolution of the Board of Directors upon
public notice given prior to the time previously scheduled for such meeting of
stockholders.
Section 2.5 Quorum and Adjournment. Except as otherwise provided by law
----------------------
or by the Certificate of Incorporation, the holders of a majority of the voting
power of the outstanding shares of the Corporation entitled to vote generally in
the election of directors (the "Voting Stock"), represented in person or by
proxy, shall constitute a quorum at a meeting of stockholders, except that when
specified business is to be voted on by a class or series voting separately as a
class or series, the holders of a majority of the voting power of the shares of
such class or series shall constitute a quorum for the transaction of such
business. The chairman of the meeting or a majority of the shares of Voting
Stock so represented may adjourn the meeting from time to time, whether or not
there is such a quorum (or, in the case of specified business to be voted on by
a class or series, the chairman or a majority of the shares of such class or
series so represented may adjourn the meeting with respect to such specified
business). No notice of the time and place of adjourned meetings need be given
except as required by law. The stockholders present at a duly organized meeting
may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
Section 2.6 Proxies. At all meetings of stockholders, a stockholder may
-------
vote by proxy executed in writing by the stockholder or as may be permitted by
law, or by his duly authorized attorney-in-fact. Such proxy must be filed with
the Secretary of the Corporation or his representative at or before the time of
the meeting.
Section 2.7 Notice of Stockholder Business and Nominations.
----------------------------------------------
A. Annual Meeting of Stockholders.
(1) Nominations of persons for election to the Board of
Directors of the Corporation and the proposal of business to be considered by
the stockholders may be made at an annual meeting of stockholders: (a) pursuant
to the Corporation's notice of meeting delivered pursuant to Section 2.4 of
these Bylaws; (b) by or at the direction of the Chairman of the Board or the
Board of Directors; or (c) by any stockholder of the Corporation who is entitled
to vote at the meeting, who has complied with the notice procedures set forth in
2
<PAGE>
clauses (2) and (3) of this paragraph (A) of this Bylaw and who was a
stockholder of record at the time such notice was delivered to the Secretary of
the Corporation.
(2) For nominations or other business to be properly
brought before an annual meeting by a stockholder pursuant to a clause (c) of
paragraph (A)(1) of this Bylaw, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation and such other business
must otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not less than seventy days nor more than
ninety days prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the annual
-------- -------
meeting is advanced by more than twenty days, or delayed by more than seventy
days, from such anniversary date, notice by the stockholder to be timely must be
so delivered not earlier than the ninetieth day prior to such annual meeting and
not later than the close of business on the later of the seventieth day prior to
such annual meeting or the ten day following the day on which public
announcement of the date of such meeting is first made. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Rule 14a-11 thereunder, including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected; (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the Corporation's books, and of
such beneficial owner and (ii) the class and number of shares of the Corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner. In no event shall the public announcement of an adjournment of
an annual meeting commence a new time period for the giving of a stockholder's
notice as described above.
(3) Notwithstanding anything in the second sentence of
paragraph (A)(2) of this Bylaw to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement naming all of the nominees for
director or specifying the size of the increased Board of Directors made by the
Corporation at least eighty days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this Bylaw shall also
be considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the tenth day following the day on which such public announcement is
first made by the Corporation.
3
<PAGE>
B. Special Meetings of Stockholders. Only such business shall
--------------------------------
be conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to the Corporation's notice of meeting pursuant to
Section 2.4 of these Bylaws. Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the Corporation's notice of meeting (a) by or at
the direction of the Board of Directors or (b) by any stockholder of the
Corporation who is entitled to vote at the meeting, who complies with the notice
procedures set forth in this Bylaw and who is a stockholder of record at the
time such notice is delivered to the Secretary of the Corporation. In the event
the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as are specified in the Corporation's Notice of Meeting, if the
stockholder's notice as required by paragraph (A)(2) of this Bylaw shall be
delivered to the Secretary at the principal executive offices of the Corporation
not earlier than the ninetieth day prior to such special meeting and not later
than the close of business on the later of the seventieth day prior to such
special meeting or the tenth day following the day on which public announcement
is first made of the date of the special meeting and of the nominees proposed by
the Board of Directors to be elected at such meeting. In no event shall the
public announcement of an adjournment of a special meeting commence a new time
period for the giving of a stockholder's notice as described above.
C. General.
-------
(1) Only persons who are nominated in accordance with the
procedures set forth in this Bylaw shall be eligible to serve as directors and
only such business shall be conducted at a meeting of stockholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this Bylaw. Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, the chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the procedures set forth
in this Bylaw and, if any proposed nomination or business is not in compliance
with this Bylaw, to declare that such defective proposal or nomination shall be
disregarded.
(2) For purposes of this Bylaw, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Bylaw,
a stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Bylaw. Nothing in this Bylaw shall be deemed to affect any rights
of stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
4
<PAGE>
Section 2.8 Procedure for Election of Directors. Election of directors
-----------------------------------
at all meetings of the stockholders at which directors are to be elected shall
be by written ballot, and, except as otherwise set forth in the Certificate of
Incorporation with respect to the right of the holders of any series of
Preferred Stock or any other series or class of stock to elect additional
directors under specified circumstances, a plurality of the votes cast thereat
shall elect directors. Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, all matters other than the election of directors
submitted to the stockholders at any meeting shall be decided by the affirmative
vote of a majority of the voting power of the outstanding Voting Stock present
in person or represented by proxy at the meeting and entitled to vote thereon.
Section 2.9 Inspectors of Elections; Opening and Closing the Polls.
------------------------------------------------------
A. The Board of Directors by resolution shall appoint one or
more inspectors, which inspector or inspectors may include individuals who serve
the Corporation in other capacities, including, without limitation, as officers,
employees, agents or representatives of the Corporation, to act at the meeting
and make a written report thereof. One or more persons may be designated as
alternate inspectors to replace any inspector who fails to act. If no inspector
or alternate has been appointed to act, or if all inspectors or alternates who
have been appointed are unable to act, at a meeting of stockholders, the
chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before discharging his or her duties, shall take and
sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his or her ability. The inspectors
shall have the duties prescribed by the General Corporation Law of the State of
Delaware.
B. The chairman of the meeting shall fix and announce at the
meeting the date and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at a meeting.
Section 2.10 Consent of Stockholders in Lieu of Meeting.
------------------------------------------
A. Unless otherwise provided in the certificate of
incorporation, any action required to be taken at any annual or special meeting
of stockholders of the Corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. Any written consent may be
revoked by a writing received by the Secretary of the Corporation prior to the
time that written consents of the number of shares required to authorize the
proposed action have been filed with the Secretary.
B. Notwithstanding the above provisions of this Section
2.10(A), effective upon a closing of an initial public offering of the
Corporation's securities pursuant to a registration statement filed under the
Securities Act of 1933, as amended, the stockholders of
5
<PAGE>
the Corporation may not take action by written consent without a meeting but
must take any such actions at a duly called annual or special meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1 General Powers. The business and affairs of the Corporation
--------------
shall be managed by or under the direction of its Board of Directors. In
addition to the powers and authorities by these Bylaws expressly conferred upon
them, the Board of Directors may exercise all such powers of the Corporation and
do all such lawful acts and things as are not by law, by the Certificate of
Incorporation or by these Bylaws required to be exercised or done by the
stockholders.
Section 3.2 Number, Tenure and Qualifications. Subject to the rights of
---------------------------------
the holders of any series of Preferred Stock, or any other series or class of
stock as set forth in the Certificate of Incorporation, to elect directors under
specified circumstances, the number of directors shall initially be four (4) and
shall be fixed from time to time thereafter by a majority of the Board of
Directors.
Section 3.3 Regular Meetings. A regular meeting of the Board of
----------------
Directors shall be held without notice other than this Bylaw immediately after,
and at the same place as, each annual meeting of stockholders. The Board of
Directors may, by resolution, provide the time and place for the holding of
additional regular meetings without notice other than such resolution.
Section 3.4 Special Meetings. Special meetings of the Board of Directors
----------------
shall be called at the request of the Chairman of the Board, the President or a
majority of the Board of Directors. The person or persons authorized to call
special meetings of the Board of Directors may fix the place and time of the
meetings.
Section 3.5 Notice. Notice of any special meeting shall be given to each
------
director at his business or residence in writing or by telegram or by telephone
communication. If mailed, such notice shall be deemed adequately delivered when
deposited in the United States mails so addressed, with postage thereon prepaid,
at least five days before such meeting. If by telegram, such notice shall be
deemed adequately delivered when the telegram is delivered to the telegraph
company at least twenty-four hours before such meeting. If by facsimile
transmission, such notice shall be transmitted at least twenty-four hours before
such meeting. If by telephone, the notice shall be given at least twelve hours
prior to the time set for the meeting. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the Board of Directors
need be specified in the notice of such meeting, except for amendments to these
Bylaws as provided under Section 8.1 of Article VIII hereof. A meeting may be
held at any time without notice if all the directors are present (except as
otherwise provided by law) or if those not present waive notice of the meeting
in writing, either before or after such meeting.
6
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Section 3.6 Conference Telephone Meetings. Members of the Board of
-----------------------------
Directors, or any committee thereof, may participate in a meeting of the Board
of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
Section 3.7 Quorum. A whole number of directors equal to at least a
------
majority of the Whole Board shall constitute a quorum for the transaction of
business, but if at any meeting of the Board of Directors there shall be less
than a quorum present, a majority of the directors present may adjourn the
meeting from time to time without further notice. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
Section 3.8 Vacancies. Subject to the rights of the holders of any
---------
series of Preferred Stock, or any other series or class of stock as set forth in
the Certificate of Incorporation, to elect additional directors under specified
circumstances, and unless the Board of Directors otherwise determines, vacancies
resulting from death, resignation, retirement, disqualification, removal from
office or other cause, and newly created directorships resulting from any
increase in the authorized number of directors, may be filled only by the
affirmative vote of a majority of the remaining directors, though less than a
quorum of the Board of Directors, and directors so chosen shall hold office for
a term expiring at the annual meeting of stockholders at which the term of
office of the class to which they have been elected expires and until such
director's successor shall have been duly elected and qualified. No decrease in
the number of authorized directors constituting the Whole Board shall shorten
the term of any incumbent director.
Section 3.9 Committee.
---------
A. The Board of Directors may designate one or more committees,
each committee to consist of one or more of the directors of the Corporation.
The Board of Directors may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of the
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Any such committee,
to the extent permitted by law and to the extent provided in the resolution of
the Board of Directors, shall have and may exercise all the powers and authority
of the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it.
B. Unless the Board of Directors otherwise provides, each
committee designated by the Board of Directors may make, alter and repeal rules
for the conduct of its business. In the absence of such rules each committee
shall conduct its business in the same manner as the Board of Directors conducts
its business pursuant to these Bylaws.
7
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Section 3.10 Removal. Subject to the rights of the holders of any series
-------
of Preferred Stock, or any other series or class of stock as set forth in the
Certificate of Incorporation, to elect additional directors under specified
circumstances, any director, or the entire Board of Directors, may be removed
from office at any time, with or without cause, only by the affirmative vote of
the holders of at least sixty-six and two-thirds percent (66 2/3 %) of the
voting power of the then outstanding Voting Stock, voting together as a single
class.
ARTICLE IV
OFFICERS
Section 4.1 Elected Officers. The elected officers of the Corporation
----------------
shall be a Chairman of the Board, a President, a Secretary, a Treasurer, and
such other officers as the Board of Directors from time to time may deem proper.
The Chairman of the Board shall be chosen from the directors. All officers
chosen by the Board of Directors shall each have such powers and duties as
generally pertain to their respective offices, subject to the specific
provisions of this Article IV. Such officers shall also have powers and duties
as from time to time may be conferred by the Board of Directors or by any
committee thereof.
Section 4.2 Election and Term of Office. The elected officers of the
---------------------------
Corporation shall be elected annually by the Board of Directors at the regular
meeting of the Board of Directors held after each annual meeting of the
stockholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as convenient. Subject to Section
4.7 of these Bylaws, each officer shall hold office until his successor shall
have been duly elected and shall have qualified or until his death or until he
shall resign.
Section 4.3 Chairman of the Board. The Chairman of the Board shall
---------------------
preside at all meetings of the Board.
Section 4.4 President and Chief Executive Officer. The President and
-------------------------------------
Chief Executive Officer shall be the general manager of the Corporation, subject
to the control of the Board of Directors, and as such shall preside at all
meetings of shareholders, shall have general supervision of the affairs of the
Corporation, shall sign or countersign or authorize another officer to sign all
certificates, contracts, and other instruments of the Corporation as authorized
by the Board of Directors, shall make reports to the Board of Directors and
shareholders, and shall perform all such other duties as are incident to such
office or are properly required by the Board of Directors. If the Board of
Directors creates the office of Chief Executive Officer as a separate office
from President, the President shall be the chief operating officer of the
corporation and shall be subject to the general supervision, direction, and
control of the Chief Executive Officer unless the Board of Directors provides
otherwise.
Section 4.5 Secretary. The Secretary shall give, or cause to be given,
---------
notice of all meetings of stockholders and directors and all other notices
required by law or by these Bylaws, and in case of his absence or refusal or
neglect so to do, any such notice may be given by any person thereunto directed
by the Chairman of the Board or the President, or by the Board
8
<PAGE>
of Directors, upon whose request the meeting is called as provided in these
Bylaws. He shall record all the proceedings of the meetings of the Board of
Directors, any committees thereof and the stockholders of the Corporation in a
book to be kept for that purpose, and shall perform such other duties as may be
assigned to him by the Board of Directors, the Chairman of the Board or the
President. He shall have custody of the seal of the Corporation and shall affix
the same to all instruments requiring it, when authorized by the Board of
Directors, the Chairman of the Board or the President, and attest to the same.
Section 4.6 Treasurer. The Treasurer shall have the custody of the
---------
corporate funds and securities and shall keep full and accurate receipts and
disbursements in books belonging to the Corporation. The Treasurer shall deposit
all moneys and other valuables in the name and to the credit of the Corporation
in such depositaries as may be designated by the Board of Directors. The
Treasurer shall disburse the funds of the Corporation as may be ordered by the
Board of Directors the Chairman of the Board, or the President, taking proper
vouchers for such disbursements. The Treasurer shall render to the Chairman of
the Board, the President and the Board of Directors, whenever requested, an
account of all his transactions as Treasurer and of the financial condition of
the Corporation. If required by the Board of Directors, the Treasurer shall give
the Corporation a bond for the faithful discharge of his duties in such amount
and with such surety as the Board of Directors shall prescribe.
Section 4.7 Removal. Any officer elected by the Board of Directors may
-------
be removed by the Board of Directors whenever, in their judgment, the best
interests of the Corporation would be served thereby. No elected officer shall
have any contractual rights against the Corporation for compensation by virtue
of such election beyond the date of the election of his successor, his death,
his resignation or his removal, whichever event shall first occur, except as
otherwise provided in an employment contract or an employee plan.
Section 4.8 Vacancies. A newly created office and a vacancy in any
---------
office because of death, resignation, or removal may be filled by the Board of
Directors for the unexpired portion of the term at any meeting of the Board of
Directors.
ARTICLE V
STOCK CERTIFICATES AND TRANSFERS
Section 5.1 Stock Certificates and Transfers.
--------------------------------
A. The interest of each stockholder of the Corporation shall be
evidenced by certificates for shares of stock in such form as the appropriate
officers of the Corporation may from time to time prescribe. The shares of the
stock of the Corporation shall be transferred on the books of the Corporation by
the holder thereof in person or by his attorney, upon surrender for cancellation
of certificates for the same number of shares, with an assignment and power of
transfer endorsed thereon or attached thereto, duly executed, and with such
proof of the authenticity of the signature as the Corporation or its agents may
reasonably require.
9
<PAGE>
B. The certificates of stock shall be signed, countersigned and
registered in such manner as the Board of Directors may by resolution prescribe,
which resolution may permit all or any of the signatures on such certificates to
be in facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
ARTICLE VI
INDEMNIFICATION
Section 6.1 Right to Indemnification. The Corporation shall indemnify
------------------------
and hold harmless, to the fullest extent permitted by applicable law as it
presently exists or may hereafter be amended, any person (an "Indemnitee") who
was or is made or is threatened to be made a party or is otherwise involved in
any action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "Proceeding"), by reason of the fact that he, or a person for
whom he is the legal representative, is or was a director or officer of the
Corporation or, while a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust,
enterprise or nonprofit entity, including service with respect to employee
benefit plans, against all liability and loss suffered and expenses (including
attorneys' fees) reasonably incurred by such Indemnitee. Notwithstanding the
preceding sentence, except as otherwise provided in Section 6.3, the Corporation
shall be required to indemnify an Indemnitee in connection with a proceeding (or
part thereof) commenced by such Indemnitee only if the commencement of such
proceeding (or part thereof) by the Indemnitee was authorized by the Board of
Directors of the Corporation.
Section 6.2 Prepayment of Expenses. The Corporation shall pay the
----------------------
expenses (including attorneys' fees) incurred by an Indemnitee in defending any
proceeding in advance of its final disposition, provided, however, that, to the
extent required by law, such payment of expenses in advance of the final
disposition of the proceeding shall be made only upon receipt of an undertaking
by the Indemnitee to repay all amounts advanced if it should be ultimately
determined that the Indemnitee is not entitled to be indemnified under this
Article VI or otherwise.
Section 6.3 Claims. If a claim for indemnification or payment of
------
expenses under this Article VI is not paid in full within sixty days after a
written claim therefor by the Indemnitee has been received by the Corporation,
the Indemnitee may file suit to recover the unpaid amount of such claim and, if
successful in whole or in part, shall be entitled to be paid the expense of
prosecuting such claim. In any such action the Corporation shall have the burden
of proving that the Indemnitee is not entitled to the requested indemnification
or payment of expenses under applicable law.
10
<PAGE>
Section 6.4 Nonexclusivity of Rights. The rights conferred on any
------------------------
Indemnitee by this Article VI shall not be exclusive of any other rights which
such Indemnitee may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, these Bylaws, agreement, vote of stockholders
or disinterested directors or otherwise.
Section 6.5 Amendment or Repeal. Any repeal or modification of the
-------------------
foregoing provisions of this Article VI shall not adversely affect any right or
protection hereunder of any Indemnitee in respect of any act or omission
occurring prior to the time of such repeal or modification.
Section 6.6 Other Indemnification and Prepayment of Expenses. This
------------------------------------------------
Article VI shall not limit the right of the Corporation, to the extent and in
the manner permitted by law, to indemnify and to advance expenses to persons
other than Indemnitees when and as authorized by appropriate corporate action.
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 7.1 Fiscal Year. The fiscal year of the Corporation shall begin
-----------
on the first day of January and end on the thirty-first day of December of each
year.
Section 7.2 Dividends. The Board of Directors may from time to time
---------
declare, and the Corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law and its Certificate of
Incorporation.
Section 7.3 Seal. The corporate seal shall have inscribed the name of
----
the Corporation thereon and shall be in such form as may be approved from time
to time by the Board of Directors.
Section 7.4 Waiver of Notice. Whenever any notice is required to be
----------------
given to any stockholder or director of the Corporation under the provisions of
the General Corporation Law of the State of Delaware, a waiver thereof in
writing, signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice. Neither the business to be transacted at, nor the purpose of, any
annual or special meeting of the stockholders of the Board of Directors need be
specified in any waiver of notice of such meeting.
Section 7.5 Audits. The accounts, books and records of the Corporation
------
shall be audited upon the conclusion of each fiscal year by an independent
certified public accountant selected by the Board of Directors, and it shall be
the duty of the Board of Directors to cause such audit to be made annually.
Section 7.6 Resignations. Any director or any officer, whether elected
------------
or appointed, may resign at any time by serving written notice of such
resignation on the Chairman of the Board, the President or the Secretary, and
such resignation shall be deemed to be effective
11
<PAGE>
as of the close of business on the date said notice is received by the Chairman
of the Board, the President, or the Secretary or at such later date as is stated
therein. No formal action shall be required of the Board of Directors or the
stockholders to make any such resignation effective.
Section 7.7 Contracts. Except as otherwise required by law, the
---------
Certificate of Incorporation or these Bylaws, any contracts or other instruments
may be executed and delivered in the name and on the behalf of the Corporation
by such officer or officers of the Corporation as the Board of Directors may
from time to time direct. Such authority may be general or confined to specific
instances as the Board may determine. The Chairman of the Board, the President
or any Vice President may execute bonds, contracts, deeds, leases and other
instruments to be made or executed for or on behalf of the Corporation. Subject
to any restrictions imposed by the Board of Directors or the Chairman of the
Board, the President or any Vice President of the Corporation may delegate
contractual powers to others under his jurisdiction, it being understood,
however, that any such delegation of power shall not relieve such officer of
responsibility with respect to the exercise of such delegated power.
Section 7.8 Proxies. Unless otherwise provided by resolution adopted by
-------
the Board of Directors, the Chairman of the Board, the President or any Vice
President may from time to time appoint any attorney or attorneys or agent or
agents of the Corporation, in the name and on behalf of the Corporation, to cast
the votes which the Corporation may be entitled to cast as the holder of stock
or other securities in any other corporation or other entity, any of whose stock
or other securities may be held by the Corporation, at meetings of the holders
of the stock and other securities of such other corporation or other entity, or
to consent in writing, in the name of the Corporation as such holder, to any
action by such other corporation or other entity, and may instruct the person or
persons so appointed as to the manner of casting such votes or giving such
consent, and may execute or cause to be executed in the name and on behalf of
the Corporation and under its corporate seal or otherwise, all such written
proxies or other instruments as he may deem necessary or proper in the premises.
ARTICLE VIII
AMENDMENTS
Section 8.1 Amendments. These Bylaws may be amended, altered, added to,
----------
rescinded or repealed at any meeting of the Board of Directors or of the
stockholders, provided notice of the proposed change was given in the notice of
the meeting and, in the case of a meeting of the Board of Directors, in a notice
given no less than twenty-four hours prior to the meeting; provided, however,
-------- -------
that, notwithstanding any other provisions of these Bylaws or any provision of
law which might otherwise permit a lesser vote or no vote, but in addition to
any affirmative vote of the holders of any particular class or series of the
stock required by law, the Certificate of Incorporation or these Bylaws, the
affirmative vote of the holders of at least 75 percent of the voting power of
the then outstanding Voting Stock, voting together as a single class, shall be
required in order for stockholders to alter, amend or repeal any provision of
these Bylaws or to adopt any additional bylaw.
12
<PAGE>
Exhibit 5.1
Gunderson Dettmer Stough Villeneuve Franklin Hachigian, LLP
155 Constitution Drive
Menlo Park, California 94025
April 26, 1999
Scient Corporation
One Front Street, 28th Floor
San Francisco, California 94111
Re: Registration Statement on Form S-1
----------------------------------
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 (File No. 333-
74731) originally filed by Scient Corporation (the "Company") with the
Securities and Exchange Commission (the "Commission") on March 19, 1999, as
thereafter amended or supplemented (the "Registration Statement"), in connection
with the registration under the Securities Act of 1933, as amended, of up to
3,450,000 shares of the Company's Common Stock (the "Shares"). The Shares, which
include an over-allotment option granted by the Company to the Underwriters to
purchase up to 450,000 additional shares of the Company's Common Stock, are to
be sold to the Underwriters by the Company as described in the Registration
Statement for resale to the public. As your counsel in connection with this
transaction, we have examined the proceedings taken and are familiar with the
proceedings proposed to be taken by you in connection with the sale and issuance
of the Shares.
It is our opinion that, upon completion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares being sold by the Company and upon completion of the proceedings being
taken in order to permit such transactions to be carried out in accordance with
the securities laws of the various states where required, the Shares being sold
by the Company, when issued and sold in the manner described in the Registration
Statement and in accordance with the resolutions adopted by the Board of
Directors of the Company, will be legally and validly issued, fully paid and
non-assessable.
We consent to the use of this opinion as an exhibit to said Registration
Statement and further consent to the use of our name wherever appearing in said
Registration Statement, including the prospectus constituting a part thereof,
and in any amendment or supplement thereto.
Very truly yours,
/s/ Gunderson Dettmer Stough,
Villeneuve Franklin & Hachigian, LLP
Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP
<PAGE>
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into as of
________ __, 1999, between Scient Corporation, a Delaware corporation ("the
Company"), and _____________ ("Indemnitee").
WITNESSETH THAT:
WHEREAS, Indemnitee performs a valuable service for the Company; and
WHEREAS, the Board of Directors of the Company has adopted Bylaws (the
"Bylaws") providing for the indemnification of the officers and directors of the
Company to the maximum extent authorized by Section 145 of the Delaware General
Corporation Law, as amended ("Law"); and
WHEREAS, the Bylaws and the Law, by their nonexclusive nature, permit
contracts between the Company and the officers or directors of the Company with
respect to indemnification of such officers or directors; and
WHEREAS, in accordance with the authorization as provided by the Law,
the Company may purchase and maintain a policy or policies of directors' and
officers' liability insurance ("D & O Insurance"), covering certain liabilities
which may be incurred by its officers or directors in the performance of their
obligations to the Company; and
WHEREAS, in recognition of past services and in order to induce
Indemnitee to continue to serve as an officer or director of the Company, the
Company has determined and agreed to enter into this contract with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's service as an officer
or director after the date hereof, the parties hereto agree as follows:
1. Indemnity of Indemnitee. The Company hereby agrees to hold
-----------------------
harmless and indemnify Indemnitee to the full extent authorized or permitted by
the provisions of the Law, as such may be amended from time to time, and Article
VII of the Bylaws, as such may be amended. In furtherance of the foregoing
indemnification, and without limiting the generality thereof:
(a) Proceedings Other Than Proceedings by or in the Right of the
------------------------------------------------------------
Company. Indemnitee shall be entitled to the rights of indemnification provided
- -------
in this Section l(a) if, by reason of his Corporate Status (as hereinafter
defined), he is, or is threatened to be made, a party to or participant in any
Proceeding (as hereinafter defined) other than a Proceeding by or in the right
of the Company. Pursuant to this Section 1(a), Indemnitee shall be indemnified
against all Expenses (as hereinafter defined), judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such Proceeding or any claim, issue or matter therein,
if he acted in good faith
<PAGE>
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company and, with respect to any criminal Proceeding, had no
reasonable cause to believe his conduct was unlawful.
(b) Proceedings by or in the Right of the Company. Indemnitee
---------------------------------------------
shall be entitled to the rights of indemnification provided in this Section 1(b)
if, by reason of his Corporate Status, he is, or is threatened to be made, a
party to or participant in any Proceeding brought by or in the right of the
Company. Pursuant to this Section 1(b), Indemnitee shall be indemnified against
all Expenses actually and reasonably incurred by him or on his behalf in
connection with such Proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company; provided, however, that, if applicable law so provides, no
indemnification against such Expenses shall be made in respect of any claim,
issue or matter in such Proceeding as to which Indemnitee shall have been
adjudged to be liable to the Company unless and to the extent that the Court of
Chancery of the State of Delaware shall determine that such indemnification may
be made.
(c) Indemnification for Expenses of a Party Who is Wholly or
--------------------------------------------------------
Partly Successful. Notwithstanding any other provision of this Agreement, to
- -----------------
the extent that Indemnitee is, by reason of his Corporate Status, a party to and
is successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified to the maximum extent permitted by law against all Expenses actually
and reasonably incurred by him or on his behalf in connection therewith. If
Indemnitee is not wholly successful in such Proceeding but is successful, on the
merits or otherwise, as to one or more but less than all claims, issues or
matters in such Proceeding, the Company shall indemnify Indemnitee against all
Expenses actually and reasonably incurred by him or on his behalf in connection
with each successfully resolved claim, issue or matter. For purposes of this
Section and without limitation, the termination of any claim, issue or matter in
such a Proceeding by dismissal, with or without prejudice, shall be deemed to be
a successful result as to such claim, issue or matter.
2. Additional Indemnity. In addition to, and without regard to any
--------------------
limitations on, the indemnification provided for in Section 1, the Company shall
and hereby does indemnify and hold harmless Indemnitee against all Expenses,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf if, by reason of his Corporate
Status, he is, or is threatened to be made, a party to or participant in any
Proceeding (including a Proceeding by or in the right of the Company),
including, without limitation, all liability arising out of the negligence or
active or passive wrongdoing of Indemnitee. The only limitation that shall exist
upon the Company's obligations pursuant to this Agreement shall be that the
Company shall not be obligated to make any payment to Indemnitee that is finally
determined (under the procedures, and subject to the presumptions, set forth in
Sections 6 and 7 hereof) to be unlawful under Delaware law.
3. Contribution in the Event of Joint Liability.
--------------------------------------------
(a) Whether or not the indemnification provided in Sections 1 and
2 hereof is available, in respect of any threatened, pending or completed
action, suit or proceeding
2
<PAGE>
in which Company is jointly liable with Indemnitee (or would be if joined in
such action, suit or proceeding), Company shall pay, in the first instance, the
entire amount of any judgment or settlement of such action, suit or proceeding
without requiring Indemnitee to contribute to such payment and Company hereby
waives and relinquishes any right of contribution it may have against
Indemnitee. Company shall not enter into any settlement of any action, suit or
proceeding in which Company is jointly liable with Indemnitee (or would be if
joined in such action, suit or proceeding) unless such settlement provides for a
full and final release of all claims asserted against Indemnitee.
(b) Without diminishing or impairing the obligations of the
Company set forth in the preceding subparagraph, if, for any reason, Indemnitee
shall elect or be required to pay all or any portion of any judgment or
settlement in any threatened, pending or completed action, suit or proceeding in
which Company is jointly liable with Indemnitee (or would be if joined in such
action, suit or proceeding), Company shall contribute to the amount of expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred and paid or payable by Indemnitee in proportion
to the relative benefits received by the Company and all officers, directors or
employees of the Company other than Indemnitee who are jointly liable with
Indemnitee (or would be if joined in such action, suit or proceeding), on the
one hand, and Indemnitee, on the other hand, from the transaction from which
such action, suit or proceeding arose; provided, however, that the proportion
determined on the basis of relative benefit may, to the extent necessary to
conform to law, be further adjusted by reference to the relative fault of
Company and all officers, directors or employees of the Company other than
Indemnitee who are jointly liable with Indemnitee (or would be if joined in such
action, suit or proceeding), on the one hand, and Indemnitee, on the other hand,
in connection with the events that resulted in such expenses, judgments, fines
or settlement amounts, as well as any other equitable considerations which the
law may require to be considered. The relative fault of Company and all
officers, directors or employees of the Company other than Indemnitee who are
jointly liable with Indemnitee (or would be if joined in such action, suit or
proceeding), on the one hand, and Indemnitee, on the other hand, shall be
determined by reference to, among other things, the degree to which their
actions were motivated by intent to gain personal profit or advantage, the
degree to which their liability is primary or secondary, and the degree to which
their conduct is active or passive.
(c) Company hereby agrees to fully indemnify and hold Indemnitee
harmless from any claims of contribution which may be brought by officers,
directors or employees of the Company other than Indemnitee who may be jointly
liable with Indemnitee.
4. Indemnification for Expenses of a Witness. Notwithstanding any
-----------------------------------------
other provision of this Agreement, to the extent that Indemnitee is, by reason
of his Corporate Status, a witness in any Proceeding to which Indemnitee is not
a party, he shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection therewith.
5. Advancement of Expenses. Notwithstanding any other provision of
-----------------------
this Agreement, the Company shall advance all Expenses incurred by or on behalf
of Indemnitee in connection with any Proceeding by reason of Indemnitee's
Corporate Status within ten (10) days
3
<PAGE>
after the receipt by the Company of a statement or statements from Indemnitee
requesting such advance or advances from time to time, whether prior to or after
final disposition of such Proceeding. Such statement or statements shall
reasonably evidence the Expenses incurred by Indemnitee and shall include or be
preceded or accompanied by an undertaking by or on behalf of Indemnitee to repay
any Expenses advanced if it shall ultimately be determined that Indemnitee is
not entitled to be indemnified against such Expenses. Any advances and
undertakings to repay pursuant to this Section 5 shall be unsecured and interest
free. Notwithstanding the foregoing, the obligation of the Company to advance
Expenses pursuant to this Section 5 shall be subject to the condition that, if,
when and to the extent that the Company determines that Indemnitee would not be
permitted to be indemnified under applicable law, the Company shall be entitled
to be reimbursed, within thirty (30) days of such determination, by Indemnitee
(who hereby agrees to reimburse the Company) for all such amounts theretofore
paid; provided, however, that if Indemnitee has commenced or thereafter
commences legal proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under applicable law, any
determination made by the Company that Indemnitee would not be permitted to be
indemnified under applicable law shall not be binding and Indemnitee shall not
be required to reimburse the Company for any advance of Expenses until a final
judicial determination is made with respect thereto (as to which all rights of
appeal therefrom have been exhausted or lapsed).
6. Procedures and Presumptions for Determination of Entitlement to
---------------------------------------------------------------
Indemnification. It is the intent of this Agreement to secure for Indemnitee
- ---------------
rights of indemnity that are as favorable as may be permitted under the law and
public policy of the State of Delaware. Accordingly, the parties agree that the
following procedures and presumptions shall apply in the event of any question
as to whether Indemnitee is entitled to indemnification under this Agreement:
(a) To obtain indemnification (including, but not limited to, the
advancement of Expenses and contribution by the Company) under this Agreement,
Indemnitee shall submit to the Company a written request, including therein or
therewith such documentation and information as is reasonably available to
Indemnitee and is reasonably necessary to determine whether and to what extent
Indemnitee is entitled to indemnification. The Secretary of the Company shall,
promptly upon receipt of such a request for indemnification, advise the Board of
Directors in writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification
pursuant to the first sentence of Section 6(a) hereof, a determination, if
required by applicable law, with respect to Indemnitee's entitlement thereto
shall be made in the specific case by one of the following three methods, which
shall be at the election of Indemnitee: (1) by a majority vote of the
disinterested directors, even though less than a quorum, or (2) by independent
legal counsel in a written opinion, or (3) by the stockholders.
(c) If the determination of entitlement to indemnification is to
be made by Independent Counsel pursuant to Section 6(b) hereof, the Independent
Counsel shall be selected as provided in this Section 6(c). The Independent
Counsel shall be selected by
4
<PAGE>
Indemnitee (unless Indemnitee shall request that such selection be made by the
Board of Directors). Indemnitee or the Company, as the case may be, may, within
10 days after such written notice of selection shall have been given, deliver to
the Company or to Indemnitee, as the case may be, a written objection to such
selection; provided, however, that such objection may be asserted only on the
ground that the Independent Counsel so selected does not meet the requirements
of "Independent Counsel" as defined in Section 13 of this Agreement, and the
objection shall set forth with particularity the factual basis of such
assertion. Absent a proper and timely objection, the person so selected shall
act as Independent Counsel. If a written objection is made and substantiated,
the Independent Counsel selected may not serve as Independent Counsel unless and
until such objection is withdrawn or a court has determined that such objection
is without merit. If, within 20 days after submission by Indemnitee of a written
request for indemnification pursuant to Section 6(a) hereof, no Independent
Counsel shall have been selected and not objected to, either the Company or
Indemnitee may petition the Court of Chancery of the State of Delaware or other
court of competent jurisdiction for resolution of any objection which shall have
been made by the Company or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by the court or by such other person as the court shall designate, and the
person with respect to whom all objections are so resolved or the person so
appointed shall act as Independent Counsel under Section 6(b) hereof. The
Company shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with acting pursuant
to Section 6(b) hereof, and the Company shall pay all reasonable fees and
expenses incident to the procedures of this Section 6(c), regardless of the
manner in which such Independent Counsel was selected or appointed.
(d) In making a determination with respect to entitlement to
indemnification hereunder, the person or persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification under
this Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 6(a) of this Agreement. Anyone seeking to overcome this
presumption shall have the burden of proof and the burden of persuasion, by
clear and convincing evidence.
(e) Indemnitee shall be deemed to have acted in good faith if
Indemnitee's action is based on the records or books of account of the
Enterprise, including financial statements, or on information supplied to
Indemnitee by the officers of the Enterprise in the course of their duties, or
on the advice of legal counsel for the Enterprise or on information or records
given or reports made to the Enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care by
the Enterprise. In addition, the knowledge and/or actions, or failure to act, of
any director, officer, agent or employee of the Enterprise shall not be imputed
to Indemnitee for purposes of determining the right to indemnification under
this Agreement. Whether or not the foregoing provisions of this Section 6(e) are
satisfied, it shall in any event be presumed that Indemnitee has at all times
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company. Anyone seeking to overcome this
presumption shall have the burden of proof and the burden of persuasion, by
clear and convincing evidence.
5
<PAGE>
(f) If the person, persons or entity empowered or selected under
Section 6 to determine whether Indemnitee is entitled to indemnification shall
not have made a determination within thirty (30) days after receipt by the
Company of the request therefor, the requisite determination of entitlement to
indemnification shall be deemed to have been made and Indemnitee shall be
entitled to such indemnification, absent (i) a misstatement by Indemnitee of a
material fact, or an omission of a material fact necessary to make Indemnitee's
statement not materially misleading, in connection with the request for
indemnification, or (ii) a prohibition of such indemnification under applicable
law; provided, however, that such 30 day period may be extended for a reasonable
time, not to exceed an additional fifteen (15) days, if the person, persons or
entity making the determination with respect to entitlement to indemnification
in good faith requires such additional time for the obtaining or evaluating
documentation and/or information relating thereto; and provided, further, that
the foregoing provisions of this Section 6(g) shall not apply if the
determination of entitlement to indemnification is to be made by the
stockholders pursuant to Section 6(b) of this Agreement and if (A) within
fifteen (15) days after receipt by the Company of the request for such
determination the Board of Directors or the Disinterested Directors, if
appropriate, resolve to submit such determination to the stockholders for their
consideration at an annual meeting thereof to be held within seventy five (75)
days after such receipt and such determination is made thereat, or (B) a special
meeting of stockholders is called within fifteen (15) days after such receipt
for the purpose of making such determination, such meeting is held for such
purpose within sixty (60) days after having been so called and such
determination is made thereat.
(g) Indemnitee shall cooperate with the person, persons or entity
making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity upon
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
Independent Counsel, member of the Board of Directors, or stockholder of the
Company shall act reasonably and in good faith in making a determination under
the Agreement of the Indemnitee's entitlement to indemnification. Any costs or
expenses (including attorneys' fees and disbursements) incurred by Indemnitee in
so cooperating with the person, persons or entity making such determination
shall be borne by the Company (irrespective of the determination as to
Indemnitee's entitlement to indemnification) and the Company hereby indemnifies
and agrees to hold Indemnitee harmless therefrom.
(h) The Company acknowledges that a settlement or other
disposition short of final judgment may be successful if it permits a party to
avoid expense, delay, distraction, disruption and uncertainty. In the event that
any action, claim or proceeding to which Indemnitee is a party is resolved in
any manner other than by adverse judgment against Indemnitee (including, without
limitation, settlement of such action, claim or proceeding with or without
payment of money or other consideration) it shall be presumed that Indemnitee
has been successful on the merits or otherwise in such action, suit or
proceeding. Anyone seeking to overcome this presumption shall have the burden of
proof and the burden of persuasion, by clear and convincing evidence.
6
<PAGE>
7. Remedies of Indemnitee.
----------------------
(a) In the event that (i) a determination is made pursuant to
Section 6 of this Agreement that Indemnitee is not entitled to indemnification
under this Agreement, (ii) advancement of Expenses is not timely made pursuant
to Section 5 of this Agreement, (iii) no determination of entitlement to
indemnification shall have been made pursuant to Section 6(b) of this Agreement
within 90 days after receipt by the Company of the request for indemnification,
(iv) payment of indemnification is not made pursuant to this Agreement within
ten (10) days after receipt by the Company of a written request therefor, or (v)
payment of indemnification is not made within ten (10) days after a
determination has been made that Indemnitee is entitled to indemnification or
such determination is deemed to have been made pursuant to Section 6 of this
Agreement, Indemnitee shall be entitled to an adjudication in an appropriate
court of the State of Delaware, or in any other court of competent jurisdiction,
of his entitlement to such indemnification. Indemnitee shall commence such
proceeding seeking an adjudication within 180 days following the date on which
Indemnitee first has the right to commence such proceeding pursuant to this
Section 7(a). The Company shall not oppose Indemnitee's right to seek any such
adjudication.
(b) In the event that a determination shall have been made
pursuant to Section 6(b) of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding commenced pursuant to this Section 7
shall be conducted in all respects as a de novo trial, on the merits and
Indemnitee shall not be prejudiced by reason of that adverse determination under
Section 6(b).
(c) If a determination shall have been made pursuant to Section
6(b) of this Agreement that Indemnitee is entitled to indemnification, the
Company shall be bound by such determination in any judicial proceeding
commenced pursuant to this Section 7, absent a prohibition of such
indemnification under applicable law.
(d) In the event that Indemnitee, pursuant to this Section 7,
seeks a judicial adjudication of his rights under, or to recover damages for
breach of, this Agreement, or to recover under any directors' and officers'
liability insurance policies maintained by the Company the Company shall pay on
his behalf, in advance, any and all expenses (of the types described in the
definition of Expenses in Section 13 of this Agreement) actually and reasonably
incurred by him in such judicial adjudication, regardless of whether Indemnitee
ultimately is determined to be entitled to such indemnification, advancement of
expenses or insurance recovery.
(e) The Company shall be precluded from asserting in any judicial
proceeding commenced pursuant to this Section 7 that the procedures and
presumptions of this Agreement are not valid, binding and enforceable and shall
stipulate in any such court that the Company is bound by all the provisions of
this Agreement.
7
<PAGE>
8. Non-Exclusivity; Survival of Rights; Insurance; Subrogation.
-----------------------------------------------------------
(a) The rights of indemnification as provided by this Agreement
shall not be deemed exclusive of any other rights to which Indemnitee may at any
time be entitled under applicable law, the certificate of incorporation of the
Company, the Bylaws, any agreement, a vote of stockholders or a resolution of
directors, or otherwise. No amendment, alteration or repeal of this Agreement or
of any provision hereof shall limit or restrict any right of Indemnitee under
this Agreement in respect of any action taken or omitted by such Indemnitee in
his Corporate Status prior to such amendment, alteration or repeal. To the
extent that a change in the Law, whether by statute or judicial decision,
permits greater indemnification than would be afforded currently under the
Bylaws and this Agreement, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits so afforded by
such change. No right or remedy herein conferred is intended to be exclusive of
any other right or remedy, and every other right and remedy shall be cumulative
and in addition to every other right and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise. The assertion or employment
of any right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other right or remedy.
(b) To the extent that the Company maintains an insurance policy
or policies providing liability insurance for directors, officers, employees, or
agents or fiduciaries of the Company or of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise which such
person serves at the request of the Company, Indemnitee shall be covered by such
policy or policies in accordance with its or their terms to the maximum extent
of the coverage available for any such director, officer, employee or agent
under such policy or policies.
(c) In the event of any payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make
any payment of amounts otherwise indemnifiable hereunder if and to the extent
that Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
9. Exception to Right of Indemnification. Notwithstanding any other
-------------------------------------
provision of this Agreement, Indemnitee shall not be entitled to indemnification
under this Agreement with respect to any Proceeding brought by Indemnitee, or
any claim therein, unless (a) the bringing of such Proceeding or making of such
claim shall have been approved by the Board of Directors of the Company or (b)
such Proceeding is being brought by the Indemnitee to assert, interpret or
enforce his rights under this Agreement.
10. Duration of Agreement. All agreements and obligations of the
---------------------
Company contained herein shall continue during the period Indemnitee is an
officer or director of the
8
<PAGE>
Company (or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise) and shall continue thereafter so long as Indemnitee
shall be subject to any Proceeding (or any proceeding commenced under Section 7
hereof) by reason of his Corporate Status, whether or not he is acting or
serving in any such capacity at the time any liability or expense is incurred
for which indemnification can be provided under this Agreement. This Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
parties hereto and their respective successors (including any direct or indirect
successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), assigns, spouses,
heirs, executors and personal and legal representatives. This Agreement shall
continue in effect regardless of whether Indemnitee continues to serve as an
officer or director of the Company or any other Enterprise at the Company's
request.
11. Security. To the extent requested by the Indemnitee and approved
--------
by the Board of Directors of the Company, the Company may at any time and from
time to time provide security to the Indemnitee for the Company's obligations
hereunder through an irrevocable bank line of credit, funded trust or other
collateral. Any such security, once provided to the Indemnitee, may not be
revoked or released without the prior written consent of the Indemnitee.
12. Enforcement.
-----------
(a) The Company expressly confirms and agrees that it has entered
into this Agreement and assumed the obligations imposed on it hereby in order to
induce Indemnitee to serve as an officer or director of the Company, and the
Company acknowledges that Indemnitee is relying upon this Agreement in serving
as an officer or director of the Company.
(b) This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral, written and implied, between the
parties hereto with respect to the subject matter hereof.
13. Definitions. For purposes of this Agreement:
-----------
(a) "Corporate Status" describes the status of a person who is or
was a director, officer, employee or agent or fiduciary of the Company or of any
other corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise which such person is or was serving at the express written
request of the Company.
(b) "Disinterested Director" means a director of the Company who
is not and was not a party to the Proceeding in respect of which indemnification
is sought by Indemnitee.
(c) "Enterprise" shall mean the Company and any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise of
which Indemnitee is
9
<PAGE>
or was serving at the express written request of the Company as a director,
officer, employee, agent or fiduciary.
(d) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, participating, or being or preparing to
be a witness in a Proceeding.
(e) "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither presently
is, nor in the past five years has been, retained to represent: (i) the Company
or Indemnitee in any matter material to either such party (other than with
respect to matters concerning the Indemnitee under this Agreement, or of other
indemnitees under similar indemnification agreements), or (ii) any other party
to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the Company
or Indemnitee in an action to determine Indemnitee's rights under this
Agreement. The Company agrees to pay the reasonable fees of the Independent
Counsel referred to above and to fully indemnify such counsel against any and
all Expenses, claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto.
(f) "Proceeding" includes any threatened, pending or completed
action, suit, arbitration, alternate dispute resolution mechanism,
investigation, inquiry, administrative hearing or any other actual, threatened
or completed proceeding, whether brought by or in the right of the Company or
otherwise and whether civil, criminal, administrative or investigative, in which
Indemnitee was, is or will be involved as a party or otherwise, by reason of the
fact that Indemnitee is or was a director of the Company, by reason of any
action taken by him or of any inaction on his part while acting as an officer or
director of the Company, or by reason of the fact that he is or was serving at
the request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other Enterprise; in each case
whether or not he is acting or serving in any such capacity at the time any
liability or expense is incurred for which indemnification can be provided under
this Agreement; including one pending on or before the date of this Agreement;
and excluding one initiated by an Indemnitee pursuant to Section 7 of this
Agreement to enforce his rights under this Agreement.
14. Severability. If any provision or provisions of this Agreement
------------
shall be held by a court of competent jurisdiction to be invalid, void, illegal
or otherwise unenforceable for any reason whatsoever: (a) the validity, legality
and enforceability of the remaining provisions of this Agreement (including
without limitation, each portion of any section of this Agreement containing any
such provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall not in any way be affected or impaired
thereby and shall remain enforceable to the fullest extent permitted by law; and
(b) to the fullest extent
10
<PAGE>
possible, the provisions of this Agreement (including, without limitation, each
portion of any section of this Agreement containing any such provision held to
be invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
thereby.
15. Modification and Waiver. No supplement, modification, termination
-----------------------
or amendment of this Agreement shall be binding unless executed in writing by
both of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
16. Notice By Indemnitee. Indemnitee agrees promptly to notify the
--------------------
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification covered hereunder. The failure
to so notify the Company shall not relieve the Company of any obligation which
it may have to the Indemnitee under this Agreement or otherwise unless and only
to the extent that such failure or delay materially prejudices the Company.
17. Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
(a) If to Indemnitee, to the address set forth below Indemnitee
signature hereto.
(b) If to the Company, to:
One Front Street, 28th Floor
San Francisco, CA 94111
Attn: Chief Financial Officer
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
18. Identical Counterparts. This Agreement may be executed in one
----------------------
or more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute one and the same Agreement.
Only one such counterpart signed by the party against whom enforceability is
sought needs to be produced to evidence the existence of this Agreement.
19. Headings. The headings of the paragraphs of this Agreement are
--------
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
11
<PAGE>
20. Governing Law. The parties agree that this Agreement shall be
-------------
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware without application of the conflict of laws principles
thereof.
21. Gender. Use of the masculine pronoun shall be deemed to include
------
usage of the feminine pronoun where appropriate.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
SCIENT CORPORATION
By:
---------------------------------------
Name:
---------------------------------
Title:
--------------------------------
---------------------------------------
Name:
---------------------------------
Address:
---------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
<PAGE>
EXHIBIT 10.3
SCIENT CORPORATION
1999 EQUITY INCENTIVE PLAN
(AS ADOPTED EFFECTIVE MAY __, 1999)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1. INTRODUCTION................................................ 1
ARTICLE 2. ADMINISTRATION.............................................. 1
2.1 Committee Composition......................................... 1
2.2 Committee Responsibilities.................................... 1
2.3 Committee for Non-Officer Grants.............................. 1
ARTICLE 3. SHARES AVAILABLE FOR GRANTS................................. 2
3.1 Basic Limitation.............................................. 2
3.2 Annual Increase in Shares..................................... 2
3.3 Additional Shares............................................. 2
3.4 Dividend Equivalents.......................................... 2
ARTICLE 4. ELIGIBILITY................................................. 3
4.1 Incentive Stock Options....................................... 3
4.2 Other Grants.................................................. 3
ARTICLE 5. OPTIONS..................................................... 3
5.1 Stock Option Agreement........................................ 3
5.2 Number of Shares.............................................. 3
5.3 Exercise Price................................................ 3
5.4 Exercisability and Term....................................... 3
5.5 Effect of Change in Control................................... 4
5.6 Modification or Assumption of Options......................... 4
5.7 Buyout Provisions............................................. 4
ARTICLE 6. PAYMENT FOR OPTION SHARES................................... 4
6.1 General Rule.................................................. 4
6.2 Surrender of Stock............................................ 5
6.3 Exercise/Sale................................................. 5
6.4 Exercise/Pledge............................................... 5
6.5 Promissory Note............................................... 5
6.6 Other Forms of Payment........................................ 5
ARTICLE 7. AUTOMATIC OPTION GRANTS TO OUTSIDE DIRECTORS................ 5
7.1 Quarterly Grants.............................................. 5
7.2 Exercise Price................................................ 6
7.3 Term.......................................................... 6
7.4 Affiliates of Outside Directors............................... 6
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 8. STOCK APPRECIATION RIGHTS................................... 6
8.1 SAR Agreement................................................. 6
8.2 Number of Shares.............................................. 6
8.3 Exercise Price................................................ 6
8.4 Exercisability and Term....................................... 7
8.5 Effect of Change in Control................................... 7
8.6 Exercise of SARs.............................................. 7
8.7 Modification or Assumption of SARs............................ 7
ARTICLE 9. RESTRICTED SHARES........................................... 7
9.1 Restricted Stock Agreement.................................... 7
9.2 Payment for Awards............................................ 8
9.3 Vesting Conditions............................................ 8
9.4 Voting and Dividend Rights.................................... 8
ARTICLE 10. STOCK UNITS................................................ 8
10.1 Stock Unit Agreement......................................... 8
10.2 Payment for Awards........................................... 8
10.3 Vesting Conditions........................................... 9
10.4 Voting and Dividend Rights................................... 9
10.5 Form and Time of Settlement of Stock Units................... 9
10.6 Death of Recipient........................................... 9
10.7 Creditors' Rights............................................ 10
ARTICLE 11. PROTECTION AGAINST DILUTION................................ 10
11.1 Adjustments.................................................. 10
11.2 Dissolution or Liquidation................................... 10
11.3 Reorganizations.............................................. 10
ARTICLE 12. DEFERRAL OF AWARDS......................................... 11
ARTICLE 13. AWARDS UNDER OTHER PLANS................................... 11
ARTICLE 14. PAYMENT OF DIRECTOR'S FEES IN SECURITIES................... 12
14.1 Effective Date............................................... 12
14.2 Elections to Receive NSOs, Restricted Shares or Stock Units.. 12
14.3 Number and Terms of NSOs, Restricted Shares or Stock Units... 12
ARTICLE 15. LIMITATION ON RIGHTS....................................... 12
15.1 Retention Rights............................................. 12
15.2 Stockholders' Rights......................................... 12
15.3 Regulatory Requirements...................................... 12
ARTICLE 16. WITHHOLDING TAXES.......................................... 13
16.1 General...................................................... 13
16.2 Share Withholding............................................ 13
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 17. FUTURE OF THE PLAN......................................... 13
17.1 Term of the Plan............................................. 13
17.2 Amendment or Termination..................................... 13
ARTICLE 18. LIMITATION ON PAYMENTS..................................... 13
18.1 Scope of Limitation.......................................... 13
18.2 Basic Rule................................................... 14
18.3 Reduction of Payments........................................ 14
18.4 Overpayments and Underpayments............................... 14
18.5 Related Corporations......................................... 15
ARTICLE 19. DEFINITIONS................................................ 15
ARTICLE 20. EXECUTION.................................................. 19
</TABLE>
iii
<PAGE>
SCIENT CORPORATION
1999 EQUITY INCENTIVE PLAN
ARTICLE 1. INTRODUCTION.
The Plan was adopted by the Board effective as of the date of the
Company's initial public offering. The purpose of the Plan is to promote the
long-term success of the Company and the creation of stockholder value by (a)
encouraging Colleagues, Outside Directors and Consultants to focus on critical
long-range objectives, (b) encouraging the attraction and retention of
Colleagues, Outside Directors and Consultants with exceptional qualifications
and (c) linking Colleagues, Outside Directors and Consultants directly to
stockholder interests through increased stock ownership. The Plan seeks to
achieve this purpose by providing for Awards in the form of Restricted Shares,
Stock Units, Options (which may constitute incentive stock options or
nonstatutory stock options) or stock appreciation rights.
The Plan shall be governed by, and construed in accordance with, the
laws of the State of Delaware (except their choice-of-law provisions).
ARTICLE 2. ADMINISTRATION.
2.1 Committee Composition. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of two or more directors of
the Company, who shall be appointed by the Board. In addition, the composition
of the Committee shall satisfy:
(a) Such requirements as the Securities and Exchange Commission
may establish for administrators acting under plans intended to qualify for
exemption under Rule 16b-3 (or its successor) under the Exchange Act; and
(b) Such requirements as the Internal Revenue Service may
establish for outside directors acting under plans intended to qualify for
exemption under section 162(m)(4)(C) of the Code.
2.2 Committee Responsibilities. The Committee shall (a) select the
Colleagues, Outside Directors and Consultants who are to receive Awards under
the Plan, (b) determine the type, number, vesting requirements and other
features and conditions of such Awards, (c) interpret the Plan and (d) make
all other decisions relating to the operation of the Plan. The Committee may
adopt such rules or guidelines as it deems appropriate to implement the Plan.
The Committee's determinations under the Plan shall be final and binding on
all persons.
2.3 Committee for Non-Officer Grants. The Board may also appoint a
secondary committee of the Board, which shall be composed of one or more
directors of the Company who need not satisfy the requirements of Section 2.1.
Such secondary committee may administer the
<PAGE>
Plan with respect to Colleagues and Consultants who are not considered
officers or directors of the Company under section 16 of the Exchange Act, may
grant Awards under the Plan to such Colleagues and Consultants and may
determine all features and conditions of such Awards. Within the limitations
of this Section 2.3, any reference in the Plan to the Committee shall include
such secondary committee.
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 Basic Limitation. Common Shares issued pursuant to the Plan may be
authorized but unissued shares or treasury shares. The aggregate number of
Options, SARs, Stock Units and Restricted Shares awarded under the Plan shall
not exceed (a) 1,200,000 plus (b) the aggregate number of Common Shares
remaining available for grants under the Predecessor Plan on the date of the
Company's initial public offering plus (c) the additional Common Shares
described in Sections 3.2 and 3.3. No additional grants shall be made under the
Predecessor Plan after the date of the Company's initial public offering. The
limitations of this Section 3.1 and Section 3.2 shall be subject to adjustment
pursuant to Article 11.
3.2 Annual Increase in Shares. As of January 1 of each year, commencing
with the year 2000, the aggregate number of Options, SARs, Stock Units and
Restricted Shares that may be awarded under the Plan shall automatically
increase by a number equal to the lesser of (a) 8% of the total number of Common
Shares then outstanding or (b) five million.
3.3 Additional Shares. If Options granted under this Plan or the
Predecessor Plan are forfeited or terminate for any other reason before being
exercised, then the corresponding Common Shares shall again become available for
Awards under this Plan. If Common Shares issued upon the exercise of Options
granted under this Plan or the Predecessor Plan are forfeited, then such Common
Shares shall again become available for Awards under this Plan. If Restricted
Shares issued under this Plan or the Predecessor Plan are forfeited, then the
corresponding Common Shares shall again become available for Awards under this
Plan. If Stock Units or SARs are forfeited or terminate for any other reason
before being exercised, then the corresponding Common Shares shall again become
available for Awards under the Plan. If Stock Units are settled, then only the
number of Common Shares (if any) actually issued in settlement of such Stock
Units shall reduce the number available under Section 3.1 and the balance shall
again become available for Awards under the Plan. If SARs are exercised, then
only the number of Common Shares (if any) actually issued in settlement of such
SARs shall reduce the number available under Section 3.1 and the balance shall
again become available for Awards under the Plan. The foregoing
notwithstanding, the aggregate number of Common Shares that may be issued under
the Plan upon the exercise of ISOs shall not be increased when Restricted Shares
or other Common Shares are forfeited.
3.4 Dividend Equivalents. Any dividend equivalents paid or credited under
the Plan shall not be applied against the number of Restricted Shares, Stock
Units, Options or SARs available for Awards, whether or not such dividend
equivalents are converted into Stock Units.
2
<PAGE>
ARTICLE 4. ELIGIBILITY.
4.1 Incentive Stock Options. Only Colleagues who are common-law employees
of the Company, a Parent or a Subsidiary shall be eligible for the grant of
ISOs. In addition, a Colleague who owns more than 10% of the total combined
voting power of all classes of outstanding stock of the Company or any of its
Parents or Subsidiaries shall not be eligible for the grant of an ISO unless the
requirements set forth in section 422(c)(6) of the Code are satisfied.
4.2 Other Grants. Only Colleagues, Outside Directors and Consultants
shall be eligible for the grant of Restricted Shares, Stock Units, NSOs or
SARs.
ARTICLE 5. OPTIONS.
5.1 Stock Option Agreement. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms of the Plan and may be
subject to any other terms that are not inconsistent with the Plan. The Stock
Option Agreement shall specify whether the Option is an ISO or an NSO. The
provisions of the various Stock Option Agreements entered into under the Plan
need not be identical. Options may be granted in consideration of a reduction
in the Optionee's other compensation. A Stock Option Agreement may provide that
a new Option will be granted automatically to the Optionee when he or she
exercises a prior Option and pays the Exercise Price in the form described in
Section 6.2.
5.2 Number of Shares. Each Stock Option Agreement shall specify the
number of Common Shares subject to the Option and shall provide for the
adjustment of such number in accordance with Article 11. Options granted to
any Optionee in a single fiscal year of the Company shall not cover more than
one million Common Shares, except that Options granted to a new Colleague in
the fiscal year of the Company in which his or her service as a Colleague
first commences shall not cover more than two million Common Shares. The
limitations set forth in the preceding sentence shall be subject to adjustment
in accordance with Article 11.
5.3 Exercise Price. Each Stock Option Agreement shall specify the
Exercise Price; provided that the Exercise Price shall in no event be less than
100% of the Fair Market Value of a Common Share on the date of grant. In the
case of an NSO, a Stock Option Agreement may specify an Exercise Price that
varies in accordance with a predetermined formula while the NSO is outstanding.
5.4 Exercisability and Term. Each Stock Option Agreement shall specify
the date or event when all or any installment of the Option is to become
exercisable. The Stock Option Agreement shall also specify the term of the
Option; provided that the term of an ISO shall in no event exceed 10 years from
the date of grant. A Stock Option Agreement may provide for accelerated
exercisability in the event of the Optionee's death, disability or retirement or
other events and may provide for expiration prior to the end of its term in the
event of the termination of the Optionee's service. Options may be awarded in
combination with SARs, and such an
3
<PAGE>
Award may provide that the Options will not be exercisable unless the related
SARs are forfeited.
5.5 Effect of Change in Control. The Committee may determine, at the time
of granting an Option or thereafter, that such Option shall become exercisable
as to all or part of the Common Shares subject to such Option in the event that
the Company is subject to a Change in Control or in the event that the Optionee
is subject to an Involuntary Termination within 12 months after a Change in
Control, subject to the following limitations:
(a) In the case of an ISO, the acceleration of exercisability
shall not occur without the Optionee's written consent.
(b) If the Company and the other party to the transaction
constituting a Change in Control agree that such transaction is to be
treated as a "pooling of interests" for financial reporting purposes, and
if such transaction in fact is so treated, then the acceleration of
exercisability shall not occur to the extent that the Company's independent
accountants and such other party's independent accountants separately
determine in good faith that such acceleration would preclude the use of
"pooling of interests" accounting.
5.6 Modification or Assumption of Options. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding options or may
accept the cancellation of outstanding options (whether granted by the Company
or by another issuer) in return for the grant of new options for the same or a
different number of shares and at the same or a different exercise price. The
foregoing notwithstanding, no modification of an Option shall, without the
consent of the Optionee, alter or impair his or her rights or obligations under
such Option.
5.7 Buyout Provisions. The Committee may at any time (a) offer to buy out
for a payment in cash or cash equivalents an Option previously granted or (b)
authorize an Optionee to elect to cash out an Option previously granted, in
either case at such time and based upon such terms and conditions as the
Committee shall establish.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
6.1 General Rule. The entire Exercise Price of Common Shares issued upon
exercise of Options shall be payable in cash or cash equivalents at the time
when such Common Shares are purchased, except as follows:
(a) In the case of an ISO granted under the Plan, payment shall
be made only pursuant to the express provisions of the applicable Stock
Option Agreement. The Stock Option Agreement may specify that payment may
be made in any form(s) described in this Article 6.
(b) In the case of an NSO, the Committee may at any time accept
payment in any form(s) described in this Article 6.
4
<PAGE>
6.2 Surrender of Stock. To the extent that this Section 6.2 is
applicable, all or any part of the Exercise Price may be paid by surrendering,
or attesting to the ownership of, Common Shares that are already owned by the
Optionee. Such Common Shares shall be valued at their Fair Market Value on the
date when the new Common Shares are purchased under the Plan. The Optionee
shall not surrender, or attest to the ownership of, Common Shares in payment of
the Exercise Price if such action would cause the Company to recognize
compensation expense (or additional compensation expense) with respect to the
Option for financial reporting purposes.
6.3 Exercise/Sale. To the extent that this Section 6.3 is applicable, all
or any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Company) an irrevocable direction to a
securities broker approved by the Company to sell all or part of the Common
Shares being purchased under the Plan and to deliver all or part of the sales
proceeds to the Company.
6.4 Exercise/Pledge. To the extent that this Section 6.4 is applicable,
all or any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Company) an irrevocable direction to
pledge all or part of the Common Shares being purchased under the Plan to a
securities broker or lender approved by the Company, as security for a loan, and
to deliver all or part of the loan proceeds to the Company.
6.5 Promissory Note. To the extent that this Section 6.5 is applicable,
all or any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Company) a full-recourse promissory
note. However, the par value of the Common Shares being purchased under the
Plan, if newly issued, shall be paid in cash or cash equivalents.
6.6 Other Forms of Payment. To the extent that this Section 6.6 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid in any other form that is consistent with applicable laws, regulations
and rules.
ARTICLE 7. AUTOMATIC OPTION GRANTS TO OUTSIDE DIRECTORS.
7.1 Quarterly Grants. Upon the close of each calendar quarter, commencing
on September 30, 1999, each Outside Director shall receive an NSO covering 2,500
Common Shares (subject to adjustment under Article 11). NSOs granted under this
Section 7.1 shall be exercisable immediately for fully vested shares. An
Outside Director who previously was an Employee shall be eligible to receive
grants under this Section 7.1.
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7.2 Exercise Price. The Exercise Price under all NSOs granted to an
Outside Director under this Article 7 shall be equal to 100% of the Fair Market
Value of a Common Share on the date of grant, payable in one of the forms
described in Sections 6.1, 6.2, 6.3 and 6.4.
7.3 Term. All NSOs granted to an Outside Director under this Article 7
shall terminate on the earlier of (a) the 10th anniversary of the date of grant
or (b) the date 12 months after the termination of such Outside Director's
service for any reason.
7.4 Affiliates of Outside Directors. The Committee may provide that the
NSOs that otherwise would be granted to an Outside Director under this Article 7
shall instead be granted to an affiliate of such Outside Director. Such
affiliate shall then be deemed to be an Outside Director for purposes of the
Plan, provided that the service-related termination provisions pertaining to the
NSOs shall be applied with regard to the service of the Outside Director.
ARTICLE 8. STOCK APPRECIATION RIGHTS.
8.1 SAR Agreement. Each grant of an SAR under the Plan shall be evidenced
by an SAR Agreement between the Optionee and the Company. Such SAR shall be
subject to all applicable terms of the Plan and may be subject to any other
terms that are not inconsistent with the Plan. The provisions of the various
SAR Agreements entered into under the Plan need not be identical. SARs may be
granted in consideration of a reduction in the Optionee's other compensation.
8.2 Number of Shares. Each SAR Agreement shall specify the number of
Common Shares to which the SAR pertains and shall provide for the adjustment of
such number in accordance with Article 11. SARs granted to any Optionee in a
single calendar year shall in no event pertain to more than one million Common
Shares, except that SARs granted to a new Colleague in the fiscal year of the
Company in which his or her service as a Colleague first commences shall not
pertain to more than two million Common Shares. The limitations set forth in
the preceding sentence shall be subject to adjustment in accordance with Article
11.
8.3 Exercise Price. Each SAR Agreement shall specify the Exercise Price;
provided that the Exercise Price shall in no event be less than 100% of the Fair
Market Value of a Common Share on the date of grant. An SAR Agreement may
specify an Exercise Price that varies in accordance with a predetermined formula
while the SAR is outstanding.
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8.4 Exercisability and Term. Each SAR Agreement shall specify the date
when all or any installment of the SAR is to become exercisable. The SAR
Agreement shall also specify the term of the SAR. An SAR Agreement may provide
for accelerated exercisability in the event of the Optionee's death, disability
or retirement or other events and may provide for expiration prior to the end of
its term in the event of the termination of the Optionee's service. SARs may be
awarded in combination with Options, and such an Award may provide that the SARs
will not be exercisable unless the related Options are forfeited. An SAR may be
included in an ISO only at the time of grant but may be included in an NSO at
the time of grant or thereafter. An SAR granted under the Plan may provide that
it will be exercisable only in the event of a Change in Control.
8.5 Effect of Change in Control. The Committee may determine, at the time
of granting an SAR or thereafter, that such SAR shall become fully exercisable
as to all Common Shares subject to such SAR in the event that the Company is
subject to a Change in Control or in the event that the Optionee is subject to
an Involuntary Termination within 12 months after a Change in Control, subject
to the following sentence. If the Company and the other party to the
transaction constituting a Change in Control agree that such transaction is to
be treated as a "pooling of interests" for financial reporting purposes, and if
such transaction in fact is so treated, then the acceleration of exercisability
shall not occur to the extent that the Company's independent accountants and
such other party's independent accountants separately determine in good faith
that such acceleration would preclude the use of "pooling of interests"
accounting.
8.6 Exercise of SARs. Upon exercise of an SAR, the Optionee (or any
person having the right to exercise the SAR after his or her death) shall
receive from the Company (a) Common Shares, (b) cash or (c) a combination of
Common Shares and cash, as the Committee shall determine. The amount of cash
and/or the Fair Market Value of Common Shares received upon exercise of SARs
shall, in the aggregate, be equal to the amount by which the Fair Market Value
(on the date of surrender) of the Common Shares subject to the SARs exceeds the
Exercise Price. If, on the date when an SAR expires, the Exercise Price under
such SAR is less than the Fair Market Value on such date but any portion of such
SAR has not been exercised or surrendered, then such SAR shall automatically be
deemed to be exercised as of such date with respect to such portion.
8.7 Modification or Assumption of SARs. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding SARs or may accept
the cancellation of outstanding SARs (whether granted by the Company or by
another issuer) in return for the grant of new SARs for the same or a different
number of shares and at the same or a different exercise price. The foregoing
notwithstanding, no modification of an SAR shall, without the consent of the
Optionee, alter or impair his or her rights or obligations under such SAR.
ARTICLE 9. RESTRICTED SHARES.
9.1 Restricted Stock Agreement. Each grant of Restricted Shares under the
Plan shall be evidenced by a Restricted Stock Agreement between the recipient
and the Company. Such Restricted Shares shall be subject to all applicable
terms of the Plan and may be subject to
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any other terms that are not inconsistent with the Plan. The provisions of the
various Restricted Stock Agreements entered into under the Plan need not be
identical.
9.2 Payment for Awards. Subject to the following sentence, Restricted
Shares may be sold or awarded under the Plan for such consideration as the
Committee may determine, including (without limitation) cash, cash equivalents,
full-recourse promissory notes, past services and future services. To the
extent that an Award consists of newly issued Restricted Shares, the
consideration shall consist exclusively of cash, cash equivalents or past
services rendered to the Company (or a Parent or Subsidiary) or, for the amount
in excess of the par value of such newly issued Restricted Shares, full-recourse
promissory notes, as the Committee may determine.
9.3 Vesting Conditions. Each Award of Restricted Shares may or may not be
subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Restricted Stock Agreement. A
Restricted Stock Agreement may provide for accelerated vesting in the event of
the Participant's death, disability or retirement or other events. The
Committee may determine, at the time of granting Restricted Shares or
thereafter, that all or part of such Restricted Shares shall become vested in
the event that the Company is subject to a Change in Control or in the event
that the Participant is subject to an Involuntary Termination within 12 months
after a Change in Control, except as provided in the next following sentence.
If the Company and the other party to the transaction constituting a Change in
Control agree that such transaction is to be treated as a "pooling of interests"
for financial reporting purposes, and if such transaction in fact is so treated,
then the acceleration of vesting shall not occur to the extent that the
Company's independent accountants and such other party's independent accountants
separately determine in good faith that such acceleration would preclude the use
of "pooling of interests" accounting.
9.4 Voting and Dividend Rights. The holders of Restricted Shares awarded
under the Plan shall have the same voting, dividend and other rights as the
Company's other stockholders. A Restricted Stock Agreement, however, may
require that the holders of Restricted Shares invest any cash dividends received
in additional Restricted Shares. Such additional Restricted Shares shall be
subject to the same conditions and restrictions as the Award with respect to
which the dividends were paid.
ARTICLE 10. STOCK UNITS.
10.1 Stock Unit Agreement. Each grant of Stock Units under the Plan shall
be evidenced by a Stock Unit Agreement between the recipient and the Company.
Such Stock Units shall be subject to all applicable terms of the Plan and may be
subject to any other terms that are not inconsistent with the Plan. The
provisions of the various Stock Unit Agreements entered into under the Plan need
not be identical. Stock Units may be granted in consideration of a reduction in
the recipient's other compensation.
10.2 Payment for Awards. To the extent that an Award is granted in the
form of Stock Units, no cash consideration shall be required of the Award
recipients.
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10.3 Vesting Conditions. Each Award of Stock Units may or may not be
subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Stock Unit Agreement. A Stock
Unit Agreement may provide for accelerated vesting in the event of the
Participant's death, disability or retirement or other events. The Committee
may determine, at the time of granting Stock Units or thereafter, that all or
part of such Stock Units shall become vested in the event that the Company is
subject to a Change in Control or in the event that the Participant is subject
to an Involuntary Termination within 12 months after a Change in Control, except
as provided in the next following sentence. If the Company and the other party
to the transaction constituting a Change in Control agree that such transaction
is to be treated as a "pooling of interests" for financial reporting purposes,
and if such transaction in fact is so treated, then the acceleration of vesting
shall not occur to the extent that the Company's independent accountants and
such other party's independent accountants separately determine in good faith
that such acceleration would preclude the use of "pooling of interests"
accounting.
10.4 Voting and Dividend Rights. The holders of Stock Units shall have no
voting rights. Prior to settlement or forfeiture, any Stock Unit awarded under
the Plan may, at the Committee's discretion, carry with it a right to dividend
equivalents. Such right entitles the holder to be credited with an amount equal
to all cash dividends paid on one Common Share while the Stock Unit is
outstanding. Dividend equivalents may be converted into additional Stock Units.
Settlement of dividend equivalents may be made in the form of cash, in the form
of Common Shares, or in a combination of both. Prior to distribution, any
dividend equivalents which are not paid shall be subject to the same conditions
and restrictions as the Stock Units to which they attach.
10.5 Form and Time of Settlement of Stock Units. Settlement of vested
Stock Units may be made in the form of (a) cash, (b) Common Shares or (c) any
combination of both, as determined by the Committee. The actual number of Stock
Units eligible for settlement may be larger or smaller than the number included
in the original Award, based on predetermined performance factors. Methods of
converting Stock Units into cash may include (without limitation) a method based
on the average Fair Market Value of Common Shares over a series of trading days.
Vested Stock Units may be settled in a lump sum or in installments. The
distribution may occur or commence when all vesting conditions applicable to the
Stock Units have been satisfied or have lapsed, or it may be deferred to any
later date. The amount of a deferred distribution may be increased by an
interest factor or by dividend equivalents. Until an Award of Stock Units is
settled, the number of such Stock Units shall be subject to adjustment pursuant
to Article 11.
10.6 Death of Recipient. Any Stock Units Award that becomes payable after
the recipient's death shall be distributed to the recipient's beneficiary or
beneficiaries. Each recipient of a Stock Units Award under the Plan shall
designate one or more beneficiaries for this purpose by filing the prescribed
form with the Company. A beneficiary designation may be changed by filing the
prescribed form with the Company at any time before the Award recipient's death.
If no beneficiary was designated or if no designated beneficiary survives the
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Award recipient, then any Stock Units Award that becomes payable after the
recipient's death shall be distributed to the recipient's estate.
10.7 Creditors' Rights'. A holder of Stock Units shall have no rights
other than those of a general creditor of the Company. Stock Units represent an
unfunded and unsecured obligation of the Company, subject to the terms and
conditions of the applicable Stock Unit Agreement.
ARTICLE 11. PROTECTION AGAINST DILUTION.
11.1 Adjustments. In the event of a subdivision of the outstanding Common
Shares, a declaration of a dividend payable in Common Shares, a declaration of a
dividend payable in a form other than Common Shares in an amount that has a
material effect on the price of Common Shares, a combination or consolidation of
the outstanding Common Shares (by reclassification or otherwise) into a lesser
number of Common Shares, a recapitalization, a spin-off or a similar occurrence,
the Committee shall make such adjustments as it, in its sole discretion, deems
appropriate in one or more of:
(a) The number of Options, SARs, Restricted Shares and Stock
Units available for future Awards under Article 3;
(b) The limitations set forth in Sections 5.2 and 8.2;
(c) The number of NSOs to be granted to Outside Directors under
Article 7;
(d) The number of Common Shares covered by each outstanding
Option and SAR;
(e) The Exercise Price under each outstanding Option and SAR; or
(f) The number of Stock Units included in any prior Award which
has not yet been settled.
Except as provided in this Article 11, a Participant shall have no rights by
reason of any issue by the Company of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class.
11.2 Dissolution or Liquidation. To the extent not previously exercised
or settled, Options, SARs and Stock Units shall terminate immediately prior to
the dissolution or liquidation of the Company.
11.3 Reorganizations. In the event that the Company is a party to a
merger or other reorganization, outstanding Awards shall be subject to the
agreement of merger or
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reorganization. Such agreement shall provide for (a) the continuation of the
outstanding Awards by the Company, if the Company is a surviving corporation,
(b) the assumption of the outstanding Awards by the surviving corporation or its
parent or subsidiary, (c) the substitution by the surviving corporation or its
parent or subsidiary of its own awards for the outstanding Awards, (d) full
exercisability or vesting and accelerated expiration of the outstanding Awards
or (e) settlement of the full value of the outstanding Awards in cash or cash
equivalents followed by cancellation of such Awards.
ARTICLE 12. DEFERRAL OF AWARDS.
The Committee (in its sole discretion) may permit or require a
Participant to:
(a) Have cash that otherwise would be paid to such Participant as
a result of the exercise of an SAR or the settlement of Stock Units
credited to a deferred compensation account established for such
Participant by the Committee as an entry on the Company's books;
(b) Have Common Shares that otherwise would be delivered to such
Participant as a result of the exercise of an Option or SAR converted into
an equal number of Stock Units; or
(c) Have Common Shares that otherwise would be delivered to such
Participant as a result of the exercise of an Option or SAR or the
settlement of Stock Units converted into amounts credited to a deferred
compensation account established for such Participant by the Committee as
an entry on the Company's books. Such amounts shall be determined by
reference to the Fair Market Value of such Common Shares as of the date
when they otherwise would have been delivered to such Participant.
A deferred compensation account established under this Article 12 may be
credited with interest or other forms of investment return, as determined by the
Committee. A Participant for whom such an account is established shall have no
rights other than those of a general creditor of the Company. Such an account
shall represent an unfunded and unsecured obligation of the Company and shall be
subject to the terms and conditions of the applicable agreement between such
Participant and the Company. If the deferral or conversion of Awards is
permitted or required, the Committee (in its sole discretion) may establish
rules, procedures and forms pertaining to such Awards, including (without
limitation) the settlement of deferred compensation accounts established under
this Article 12.
ARTICLE 13. AWARDS UNDER OTHER PLANS.
The Company may grant awards under other plans or programs. Such
awards may be settled in the form of Common Shares issued under this Plan. Such
Common Shares shall be treated for all purposes under the Plan like Common
Shares issued in settlement of Stock Units and shall, when issued, reduce the
number of Common Shares available under Article 3.
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ARTICLE 14. PAYMENT OF DIRECTOR'S FEES IN SECURITIES.'
14.1 Effective Date. No provision of this Article 14 shall be effective
unless and until the Board has determined to implement such provision.
14.2 Elections to Receive NSOs, Restricted Shares or Stock Units. An
Outside Director may elect to receive any annual retainer payments and/or
meeting fees from the Company in the form of cash, NSOs, Restricted Shares or
Stock Units, or a combination thereof, as determined by the Board. Such NSOs,
Restricted Shares and Stock Units shall be issued under the Plan. An election
under this Article 14 shall be filed with the Company on the prescribed form.
14.3 Number and Terms of NSOs, Restricted Shares or Stock Units. The
number of NSOs, Restricted Shares or Stock Units to be granted to Outside
Directors in lieu of any annual retainers and meeting fees that would otherwise
be paid in cash shall be calculated in a manner determined by the Board. The
terms of such NSOs, Restricted Shares or Stock Units shall also be determined by
the Board.
ARTICLE 15. LIMITATION ON RIGHTS.
15.1 Retention Rights. Neither the Plan nor any Award granted under the
Plan shall be deemed to give any individual a right to remain a Colleague,
Outside Director or Consultant. The Company and its Parents, Subsidiaries and
Affiliates reserve the right to terminate the service of any Colleague, Outside
Director or Consultant at any time, with or without cause, subject to applicable
laws, the Company's certificate of incorporation and by-laws and a written
employment agreement (if any).
15.2 Stockholders' Rights'. A Participant shall have no dividend rights,
voting rights or other rights as a stockholder with respect to any Common Shares
covered by his or her Award prior to the time when a stock certificate for such
Common Shares is issued or, if applicable, the time when he or she becomes
entitled to receive such Common Shares by filing any required notice of exercise
and paying any required Exercise Price. No adjustment shall be made for cash
dividends or other rights for which the record date is prior to such time,
except as expressly provided in the Plan.
15.3 Regulatory Requirements. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue Common Shares under the
Plan shall be subject to all applicable laws, rules and regulations and such
approval by any regulatory body as may be required. The Company reserves the
right to restrict, in whole or in part, the delivery of Common Shares pursuant
to any Award prior to the satisfaction of all legal requirements relating to the
issuance of such Common Shares, to their registration, qualification or listing
or to an exemption from registration, qualification or listing.
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ARTICLE 16. WITHHOLDING TAXES.
16.1 General. To the extent required by applicable federal, state, local
or foreign law, a Participant or his or her successor shall make arrangements
satisfactory to the Company for the satisfaction of any withholding tax
obligations that arise in connection with the Plan. The Company shall not be
required to issue any Common Shares or make any cash payment under the Plan
until such obligations are satisfied.
16.2 Share Withholding. The Committee may permit a Participant to satisfy
all or part of his or her withholding or income tax obligations by having the
Company withhold all or a portion of any Common Shares that otherwise would be
issued to him or her or by surrendering all or a portion of any Common Shares
that he or she previously acquired. Such Common Shares shall be valued at their
Fair Market Value on the date when they are withheld or surrendered.
ARTICLE 17. FUTURE OF THE PLAN.
17.1 Term of the Plan. The Plan, as set forth herein, shall become
effective as of the date of the Company's initial public offering. The Plan
shall remain in effect until it is terminated under Section 17.2, except that no
ISOs shall be granted on or after the 10th anniversary of the later of (a) the
date when the Board adopted the Plan or (b) the date when the Board adopted the
most recent increase in the number of Common Shares available under Article 3
that was approved by the Company's stockholders.
17.2 Amendment or Termination. The Board may, at any time and for any
reason, amend or terminate the Plan. An amendment of the Plan shall be subject
to the approval of the Company's stockholders only to the extent required by
applicable laws, regulations or rules. No Awards shall be granted under the
Plan after the termination thereof. The termination of the Plan, or any
amendment thereof, shall not affect any Award previously granted under the Plan.
ARTICLE 18. LIMITATION ON PAYMENTS.
18.1 Scope of Limitation. This Article 18 shall apply to an Award only
if:
(a) The independent auditors most recently selected by the Board
(the "Auditors") determine that the after-tax value of such Award to the
Participant, taking into account the effect of all federal, state and local
income taxes, employment taxes and excise taxes applicable to the
Participant (including the excise tax under section 4999 of the Code), will
be greater after the application of this Article 18 than it was before the
application of this Article 18; or
(b) The Committee, at the time of making an Award under the Plan
or at any time thereafter, specifies in writing that such Award shall be
subject to this Article 18 (regardless of the after-tax value of such Award
to the Participant).
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If this Article 18 applies to an Award, it shall supersede any contrary
provision of the Plan or of any Award granted under the Plan.
18.2 Basic Rule. In the event that the Auditors determine that any
payment or transfer by the Company under the Plan to or for the benefit of a
Participant (a "Payment") would be nondeductible by the Company for federal
income tax purposes because of the provisions concerning "excess parachute
payments" in section 280G of the Code, then the aggregate present value of all
Payments shall be reduced (but not below zero) to the Reduced Amount. For
purposes of this Article 18, the "Reduced Amount" shall be the amount, expressed
as a present value, which maximizes the aggregate present value of the Payments
without causing any Payment to be nondeductible by the Company because of
section 280G of the Code.
18.3 Reduction of Payments. If the Auditors determine that any Payment
would be nondeductible by the Company because of section 280G of the Code, then
the Company shall promptly give the Participant notice to that effect and a copy
of the detailed calculation thereof and of the Reduced Amount, and the
Participant may then elect, in his or her sole discretion, which and how much of
the Payments shall be eliminated or reduced (as long as after such election the
aggregate present value of the Payments equals the Reduced Amount) and shall
advise the Company in writing of his or her election within 10 days of receipt
of notice. If no such election is made by the Participant within such 10-day
period, then the Company may elect which and how much of the Payments shall be
eliminated or reduced (as long as after such election the aggregate present
value of the Payments equals the Reduced Amount) and shall notify the
Participant promptly of such election. For purposes of this Article 18, present
value shall be determined in accordance with section 280G(d)(4) of the Code.
All determinations made by the Auditors under this Article 18 shall be binding
upon the Company and the Participant and shall be made within 60 days of the
date when a Payment becomes payable or transferable. As promptly as practicable
following such determination and the elections hereunder, the Company shall pay
or transfer to or for the benefit of the Participant such amounts as are then
due to him or her under the Plan and shall promptly pay or transfer to or for
the benefit of the Participant in the future such amounts as become due to him
or her under the Plan.
18.4 Overpayments and Underpayments. As a result of uncertainty in the
application of section 280G of the Code at the time of an initial determination
by the Auditors hereunder, it is possible that Payments will have been made by
the Company which should not have been made (an "Overpayment") or that
additional Payments which will not have been made by the Company could have been
made (an "Underpayment"), consistent in each case with the calculation of the
Reduced Amount hereunder. In the event that the Auditors, based upon the
assertion of a deficiency by the Internal Revenue Service against the Company or
the Participant which the Auditors believe has a high probability of success,
determine that an Overpayment has been made, such Overpayment shall be treated
for all purposes as a loan to the Participant which he or she shall repay to the
Company, together with interest at the applicable federal rate provided in
section 7872(f)(2) of the Code; provided, however, that no amount shall be
payable by the Participant to the Company if and to the extent that such payment
would not reduce the amount which is subject to taxation under section 4999 of
the Code. In the event that the Auditors determine that an Underpayment has
occurred, such Underpayment shall promptly be
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paid or transferred by the Company to or for the benefit of the Participant,
together with interest at the applicable federal rate provided in section
7872(f)(2) of the Code.
18.5 Related Corporations. For purposes of this Article 18, the term
"Company" shall include affiliated corporations to the extent determined by the
Auditors in accordance with section 280G(d)(5) of the Code.
ARTICLE 19. DEFINITIONS.
19.1 "Affiliate" means any entity other than a Subsidiary, if the Company
and/or one or more Subsidiaries own not less than 50% of such entity.
19.2 "Award" means any award of an Option, an SAR, a Restricted Share or a
Stock Unit under the Plan.
19.3 "Board" means the Company's Board of Directors, as constituted from
time to time.
19.4 "Cause" means:
(a) The unauthorized use or disclosure of the confidential
information or trade secrets of the Company, which use or disclosure causes
material harm to the Company;
(b) Conviction of, or a plea of "guilty" or "no contest" to, a
felony under the laws of the United States or any state thereof;
(c) Gross negligence or willful misconduct, after the Board has
given the Participant written notice and a reasonable opportunity to cure
such negligence or misconduct; or
(d) Continued failure to perform assigned duties, after the Board
has given the Participant written notice and a reasonable opportunity to
cure such failure.
The foregoing, however, shall not be deemed an exclusive list of all acts or
omissions that the Company (or a Parent, Subsidiary or Affiliate) may consider
as grounds for the discharge of a Participant without Cause.
19.5 "Change in Control" shall mean:
(a) The consummation of a merger or consolidation of the Company
with or into another entity or any other corporate reorganization, if
persons who were not stockholders of the Company immediately prior to such
merger, consolidation or other reorganization own immediately after such
merger, consolidation or other reorganization 50% or more of the voting
power of the
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outstanding securities of each of (i) the continuing or surviving entity
and (ii) any direct or indirect parent corporation of such continuing or
surviving entity;
(b) The sale, transfer or other disposition of all or
substantially all of the Company's assets;
(c) A change in the composition of the Board, as a result of
which fewer than 50% of the incumbent directors are directors who either
(i) had been directors of the Company on the date 24 months prior to the
date of the event that may constitute a Change in Control (the "original
directors") or (ii) were elected, or nominated for election, to the Board
with the affirmative votes of at least a majority of the aggregate of the
original directors who were still in office at the time of the election or
nomination and the directors whose election or nomination was previously so
approved; or
(d) Any transaction as a result of which any person is the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing at least
30% of the total voting power represented by the Company's then outstanding
voting securities. For purposes of this Paragraph (d), the term "person"
shall have the same meaning as when used in sections 13(d) and 14(d) of the
Exchange Act but shall exclude (i) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or of a Parent or
Subsidiary and (ii) a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as their
ownership of the common stock of the Company.
A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.
19.6 "Code" means the Internal Revenue Code of 1986, as amended.
19.7 "Colleague" means a common-law employee of the Company, a Parent, a
Subsidiary or an Affiliate.
19.8 "Committee" means a committee of the Board, as described in Article
2.
19.9 "Common Share" means one share of the common stock of the Company.
19.10 "Company" means Scient Corporation, a Delaware corporation.
19.11 "Consultant" means a consultant or adviser who provides bona fide
services to the Company, a Parent, a Subsidiary or an Affiliate as an
independent contractor. Service as a Consultant shall be considered employment
for all purposes of the Plan, except as provided in Section 4.1.
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19.12 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
19.13 "Exercise Price," in the case of an Option, means the amount for
which one Common Share may be purchased upon exercise of such Option, as
specified in the applicable Stock Option Agreement. "Exercise Price," in the
case of an SAR, means an amount, as specified in the applicable SAR Agreement,
which is subtracted from the Fair Market Value of one Common Share in
determining the amount payable upon exercise of such SAR.
19.14 "Fair Market Value" means the market price of Common Shares,
determined by the Committee in good faith on such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in The Wall Street Journal. Such determination
-----------------------
shall be conclusive and binding on all persons.
19.15 "Involuntary Termination" means the termination of the Participant's
service by reason of:
(a) The involuntary discharge of the Participant by the Company
(or the Parent, Subsidiary or Affiliate employing him or her) for reasons
other than Cause; or
(b) The voluntary resignation of the Participant following (i) a
change in his or her position with the Company (or the Parent, Subsidiary
or Affiliate employing him or her) that materially reduces his or her
stature, authority or responsibilities, (ii) a reduction in his or her
compensation, including base salary, fringe benefits and participation in
bonus or incentive programs based on corporate performance, or (iii) a
relocation of his or her principal workplace by more than 30 miles.
19.16 "ISO" means an incentive stock option described in section 422(b) of
the Code.
19.17 "NSO" means a stock option not described in sections 422 or 423 of
the Code.
19.18 "Option" means an ISO or NSO granted under the Plan and entitling
the holder to purchase Common Shares.
19.19 "Optionee" means an individual or estate who holds an Option or SAR.
19.20 "Outside Director" shall mean a member of the Board who is not a
Colleague. Service as an Outside Director shall be considered employment for all
purposes of the Plan, except as provided in Section 4.1.
19.21 "Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent
on a date after the adoption of the Plan shall be considered a Parent commencing
as of such date.
17
<PAGE>
19.22 "Participant" means an individual or estate who holds an Award.
19.23 "Plan" means this Scient Corporation 1999 Equity Incentive Plan, as
amended from time to time.
19.24 "Predecessor Plan" means the Scient Corporation 1997 Stock Plan.
19.25 "Restricted Share" means a Common Share awarded under the Plan.
19.26 "Restricted Stock Agreement" means the agreement between the Company
and the recipient of a Restricted Share which contains the terms, conditions and
restrictions pertaining to such Restricted Share.
19.27 "SAR" means a stock appreciation right granted under the Plan.
19.28 "SAR Agreement" means the agreement between the Company and an
Optionee which contains the terms, conditions and restrictions pertaining to his
or her SAR.
19.29 "Stock Option Agreement" means the agreement between the Company and
an Optionee that contains the terms, conditions and restrictions pertaining to
his or her Option.
19.30 "Stock Unit" means a bookkeeping entry representing the equivalent
of one Common Share, as awarded under the Plan.
19.31 "Stock Unit Agreement" means the agreement between the Company and
the recipient of a Stock Unit which contains the terms, conditions and
restrictions pertaining to such Stock Unit.
19.32 "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that
attains the status of a Subsidiary on a date after the adoption of the Plan
shall be considered a Subsidiary commencing as of such date.
18
<PAGE>
ARTICLE 20. EXECUTION.
To record the adoption of the Plan by the Board on March 18, 1999, the
Company has caused its duly authorized officer to execute this document in the
name of the Company.
SCIENT CORPORATION
By:
------------------------------------
Title:
---------------------------------
19
<PAGE>
Exhibit 10.4
Scient Corporation
1999 Employee Stock Purchase Plan
(As Adopted Effective May __, 1999)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
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<S> <C>
SECTION 1. PURPOSE OF THE PLAN...................................... 1
SECTION 2. ADMINISTRATION OF THE PLAN............................... 1
(a) Committee Composition...................................... 1
(b) Committee Responsibilities................................. 1
SECTION 3. ENROLLMENT AND PARTICIPATION............................. 1
(a) Offering Periods........................................... 1
(b) Enrollment................................................. 1
(c) Duration of Participation.................................. 1
SECTION 4. EMPLOYEE CONTRIBUTIONS................................... 2
(a) Frequency of Payroll Deductions............................ 2
(b) Amount of Payroll Deductions............................... 2
(c) Changing Withholding Rate.................................. 2
(d) Discontinuing Payroll Deductions........................... 2
(e) Limit on Number of Elections............................... 2
SECTION 5. WITHDRAWAL FROM THE PLAN................................. 3
(a) Withdrawal................................................. 3
(b) Re-Enrollment After Withdrawal............................. 3
SECTION 6. CHANGE IN EMPLOYMENT STATUS.............................. 3
(a) Termination of Employment.................................. 3
(b) Leave of Absence........................................... 3
(c) Death...................................................... 3
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES..................... 3
(a) Plan Accounts.............................................. 3
(b) Purchase Price............................................. 4
(c) Number of Shares Purchased................................. 4
(d) Available Shares Insufficient.............................. 4
(e) Issuance of Stock.......................................... 4
(f) Unused Cash Balances....................................... 4
(g) Stockholder Approval....................................... 5
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP........................... 5
(a) Five Percent Limit......................................... 5
(b) Dollar Limit............................................... 5
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
SECTION 9. RIGHTS NOT TRANSFERABLE.................................. 6
SECTION 10. NO RIGHTS AS AN EMPLOYEE................................ 6
SECTION 11. NO RIGHTS AS A STOCKHOLDER.............................. 6
SECTION 12. SECURITIES LAW REQUIREMENTS............................. 6
SECTION 13. STOCK OFFERED UNDER THE PLAN............................ 7
(a) Authorized Shares.......................................... 7
(b) Anti-Dilution Adjustments.................................. 7
(c) Reorganizations............................................ 7
SECTION 14. AMENDMENT OR DISCONTINUANCE............................. 7
SECTION 15. DEFINITIONS............................................. 7
(a) "Board".................................................... 7
(c) "Code"..................................................... 7
(d) "Committee"................................................ 8
(e) "Company".................................................. 8
(f) "Compensation"............................................. 8
(f) "Corporate Reorganization"................................. 8
(g) "Eligible Colleague"....................................... 8
(h) "Exchange Act"............................................. 8
(i) "Fair Market Value"........................................ 8
(j) "IPO"...................................................... 9
(k) "Offering Period".......................................... 9
(l) "Participant".............................................. 9
(m) "Participating Company".................................... 9
(n) "Plan"..................................................... 9
(o) "Plan Account"............................................. 9
(p) "Purchase Price"........................................... 9
(q) "Stock".................................................... 9
(r) "Subsidiary"............................................... 9
SECTION 15. EXECUTION............................................... 10
</TABLE>
ii
<PAGE>
SCIENT CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE OF THE PLAN.
The Plan was adopted by the Board effective as of the date of the IPO. The
purpose of the Plan is to provide Eligible Colleagues with an opportunity to
increase their proprietary interest in the success of the Company by purchasing
Stock from the Company on favorable terms and to pay for such purchases through
payroll deductions. The Plan is intended to qualify under section 423 of the
Code.
SECTION 2. ADMINISTRATION OF THE PLAN.
(a) Committee Composition. The Plan shall be administered by the Committee.
The Committee shall consist exclusively of one or more directors of the Company,
who shall be appointed by the Board.
(b) Committee Responsibilities. The Committee shall interpret the Plan and
make all other policy decisions relating to the operation of the Plan. The
Committee may adopt such rules, guidelines and forms as it deems appropriate to
implement the Plan. The Committee's determinations under the Plan shall be final
and binding on all persons.
SECTION 3. ENROLLMENT AND PARTICIPATION.
(a) Offering Periods. While the Plan is in effect, two Offering Periods
shall commence in each calendar year. The Offering Periods shall consist of the
six-month periods commencing on each May 1 and November 1, except that the first
Offering Period shall commence on the date of the IPO and end on October 29,
1999.
(b) Enrollment. Any individual who, on the day preceding the first day of
an Offering Period, qualifies as an Eligible Colleague may elect to become a
Participant in the Plan for such Offering Period by executing the enrollment
form prescribed for this purpose by the Committee. The enrollment form shall be
filed with the Company at the prescribed location not later than the first day
of such Offering Period.
(c) Duration of Participation. Once enrolled in the Plan, a Participant
shall continue to participate in the Plan until he or she ceases to be an
Eligible Colleague, withdraws from the Plan under Section 5(a) or reaches the
end of the Offering Period in which his or her employee contributions were
discontinued under Section 4(d) or 8(b). A Participant who discontinued employee
contributions under Section 4(d) or withdrew from the Plan under Section 5(a)
may again become a Participant, if he or she then is an Eligible Colleague, by
following the procedure described in Subsection (b) above. A Participant whose
employee contributions were discontinued automatically under Section 8(b) shall
automatically resume
<PAGE>
participation at the beginning of the earliest Offering Period ending in the
next calendar year, if he or she then is an Eligible Colleague.
SECTION 4. EMPLOYEE CONTRIBUTIONS.
(a) Frequency of Payroll Deductions. A Participant may purchase shares of
Stock under the Plan solely by means of payroll deductions. Payroll deductions,
as designated by the Participant pursuant to Subsection (b) below, shall occur
on each payday during participation in the Plan.
(b) Amount of Payroll Deductions. An Eligible Colleague shall designate on
the enrollment form the portion of his or her Compensation that he or she elects
to have withheld for the purchase of Stock. Such portion shall be a whole
percentage of the Eligible Colleague's Compensation, but not less than 1% nor
more than 15%.
(c) Changing Withholding Rate. If a Participant wishes to change the rate
of payroll withholding, he or she may do so by filing a new enrollment form with
the Company at the prescribed location at any time. The new withholding rate
shall be effective as soon as reasonably practicable after such form has been
received by the Company. The new withholding rate shall be a whole percentage of
the Eligible Colleague's Compensation, but not less than 1% nor more than 15%.
(d) Discontinuing Payroll Deductions. If a Participant wishes to
discontinue employee contributions entirely, he or she may do so by filing a new
enrollment form with the Company at the prescribed location at any time. Payroll
withholding shall cease as soon as reasonably practicable after such form has
been received by the Company. (In addition, employee contributions may be
discontinued automatically pursuant to Section 8(b).) A Participant who has
discontinued employee contributions may resume such contributions by filing a
new enrollment form with the Company at the prescribed location. Payroll
withholding shall resume as soon as reasonably practicable after such form has
been received by the Company.
(e) Limit on Number of Elections. No Participant shall make more than two
elections under Subsection (c) or (d) above during any Offering Period.
SECTION 5. WITHDRAWAL FROM THE PLAN.
(a) Withdrawal. A Participant may elect to withdraw from the Plan by filing
the prescribed form with the Company at the prescribed location at any time
before the last day of an Offering Period. As soon as reasonably practicable
thereafter, payroll deductions shall cease and the entire amount credited to the
Participant's Plan Account shall be refunded to him or her in cash, without
interest. No partial withdrawals shall be permitted.
2
<PAGE>
(b) Re-Enrollment After Withdrawal. A former Participant who has withdrawn
from the Plan shall not be a Participant until he or she re-enrolls in the Plan
under Section 3(c). Re-enrollment may be effective only at the commencement of
an Offering Period.
SECTION 6. CHANGE IN EMPLOYMENT STATUS.
(a) Termination of Employment. Termination of employment as an Eligible
Colleague for any reason, including death, shall be treated as an automatic
withdrawal from the Plan under Section 5(a). (A transfer from one Participating
Company to another shall not be treated as a termination of employment.)
(b) Leave of Absence. For purposes of the Plan, employment shall not be
deemed to terminate when the Participant goes on a military leave, a sick leave
or another bona fide leave of absence, if the leave was approved by the Company
in writing. Employment, however, shall be deemed to terminate 90 days after the
Participant goes on a leave, unless a contract or statute guarantees his or her
right to return to work. Employment shall be deemed to terminate in any event
when the approved leave ends, unless the Participant immediately returns to
work.
(c) Death. In the event of the Participant's death, the amount credited to
his or her Plan Account shall be paid to a beneficiary designated by him or her
for this purpose on the prescribed form or, if none, to the Participant's
estate. Such form shall be valid only if it was filed with the Company at the
prescribed location before the Participant's death.
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES.
(a) Plan Accounts. The Company or its agent shall maintain a Plan Account
on its books in the name of each Participant. Whenever an amount is deducted
from the Participant's Compensation under the Plan, such amount shall be
credited to the Participant's Plan Account. Amounts credited to Plan Accounts
shall not be trust funds and may be commingled with the Company's general assets
and applied to general corporate purposes. No interest shall be credited to Plan
Accounts.
(b) Purchase Price. The Purchase Price for each share of Stock purchased at
the close of an Offering Period shall be the lower of:
(i) 85% of the Fair Market Value of such share on the last trading
day in such Offering Period; or
(ii) 85% of the Fair Market Value of such share on the last trading
day before the commencement of such Offering Period or, in the case of the
first Offering Period under the Plan, 85% of the price at which one share
of Stock is offered to the public in the IPO.
(c) Number of Shares Purchased. As of the last day of each Offering Period,
each Participant shall be deemed to have elected to purchase the number of
shares of Stock calculated
3
<PAGE>
in accordance with this Subsection (c), unless the Participant has previously
elected to withdraw from the Plan in accordance with Section 5(a). The amount
then in the Participant's Plan Account shall be divided by the Purchase Price,
and the number of shares that results shall be purchased from the Company with
the funds in the Participant's Plan Account. The foregoing notwithstanding, no
Participant shall purchase more than 2,000 shares of Stock with respect to any
Offering Period nor more than the amounts of Stock set forth in Sections 8(b)
and 13(a). The Committee may determine with respect to all Participants that any
fractional share, as calculated under this Subsection (c), shall be (i) rounded
down to the next lower whole share or (ii) credited as a fractional share.
(d) Available Shares Insufficient. In the event that the aggregate number
of shares that all Participants elect to purchase during an Offering Period
exceeds the maximum number of shares remaining available for issuance under
Section 13(a), then the number of shares to which each Participant is entitled
shall be determined by multiplying the number of shares available for issuance
by a fraction, the numerator of which is the number of shares that such
Participant has elected to purchase and the denominator of which is the number
of shares that all Participants have elected to purchase.
(e) Issuance of Stock. Certificates representing the shares of Stock
purchased by a Participant under the Plan shall be issued to him or her as soon
as reasonably practicable after the close of the applicable Offering Period,
except that the Committee may determine that such shares shall be held for each
Participant's benefit by a broker designated by the Committee (unless the
Participant has elected that certificates be issued to him or her). Shares may
be registered in the name of the Participant or jointly in the name of the
Participant and his or her spouse as joint tenants with right of survivorship or
as community property.
(f) Unused Cash Balances. Any amount remaining in the Participant's Plan
Account that represents the Purchase Price for a fractional share shall be
carried over in the Participant's Plan Account to the next Offering Period. Any
amount remaining in the Participant's Plan Account that represents the Purchase
Price for whole shares that could not be purchased by reason of Subsection (c)
above, Section 8(b) or Section 13(a) shall be refunded to the Participant in
cash, without interest.
(g) Stockholder Approval. Any other provision of the Plan notwithstanding,
no shares of Stock shall be purchased under the Plan unless and until the
Company's stockholders have approved the adoption of the Plan.
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP.
(a) Five Percent Limit. Any other provision of the Plan notwithstanding, no
Participant shall be granted a right to purchase Stock under the Plan if such
Participant, immediately after his or her election to purchase such Stock, would
own stock possessing more than 5% of the total combined voting power or value of
all classes of stock of the Company or any parent or Subsidiary of the Company.
For purposes of this Subsection (a), the following rules shall apply:
4
<PAGE>
(i) Ownership of stock shall be determined after applying the
attribution rules of section 424(d) of the Code;
(ii) Each Participant shall be deemed to own any stock that he or she
has a right or option to purchase under this or any other plan; and
(iii) Each Participant shall be deemed to have the right to purchase
2,000 shares of Stock under this Plan with respect to each Offering Period.
(b) Dollar Limit. Any other provision of the Plan notwithstanding, no
Participant shall purchase Stock with a Fair Market Value in excess of the
following limit:
(i) In the case of Stock purchased during an Offering Period that
commenced in the current calendar year, the limit shall be equal to (A)
$25,000 minus (B) the Fair Market Value of the Stock that the Participant
previously purchased in the current calendar year (under this Plan and all
other employee stock purchase plans of the Company or any parent or
Subsidiary of the Company).
(ii) In the case of Stock purchased during an Offering Period that
commenced in the immediately preceding calendar year, the limit shall be
equal to (A) $50,000 minus (B) the Fair Market Value of the Stock that the
Participant previously purchased (under this Plan and all other employee
stock purchase plans of the Company or any parent or Subsidiary of the
Company) in the current calendar year and in the immediately preceding
calendar year.
For purposes of this Subsection (b), the Fair Market Value of Stock shall be
determined in each case as of the beginning of the Offering Period in which such
Stock is purchased. Employee stock purchase plans not described in section 423
of the Code shall be disregarded. If a Participant is precluded by this
Subsection (b) from purchasing additional Stock under the Plan, then his or her
employee contributions shall automatically be discontinued and shall resume at
the beginning of the earliest Offering Period ending in the next calendar year
(if he or she then is an Eligible Colleague).
SECTION 9. RIGHTS NOT TRANSFERABLE.
The rights of any Participant under the Plan, or any Participant's interest
in any Stock or moneys to which he or she may be entitled under the Plan, shall
not be transferable by voluntary or involuntary assignment or by operation of
law, or in any other manner other than by beneficiary designation or the laws of
descent and distribution. If a Participant in any manner attempts to transfer,
assign or otherwise encumber his or her rights or interest under the Plan, other
than by beneficiary designation or the laws of descent and distribution, then
such act shall be treated as an election by the Participant to withdraw from the
Plan under Section 5(a).
5
<PAGE>
SECTION 10. NO RIGHTS AS AN EMPLOYEE.
Nothing in the Plan or in any right granted under the Plan shall confer
upon the Participant any right to continue in the employ of a Participating
Company for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Participating Companies or of the
Participant, which rights are hereby expressly reserved by each, to terminate
his or her employment at any time and for any reason, with or without cause.
SECTION 11. NO RIGHTS AS A STOCKHOLDER.
A Participant shall have no rights as a stockholder with respect to any
shares of Stock that he or she may have a right to purchase under the Plan until
such shares have been purchased on the last day of the applicable Offering
Period.
SECTION 12. SECURITIES LAW REQUIREMENTS.
Shares of Stock shall not be issued under the Plan unless the issuance and
delivery of such shares comply with (or are exempt from) all applicable
requirements of law, including (without limitation) the Securities Act of 1933,
as amended, the rules and regulations promulgated thereunder, state securities
laws and regulations, and the regulations of any stock exchange or other
securities market on which the Company's securities may then be traded.
SECTION 13. STOCK OFFERED UNDER THE PLAN.
(a) Authorized Shares. The number of shares of Stock available for purchase
under the Plan shall be 1,000,000 (subject to adjustment pursuant to this
Section 13). On May 1 of each year, commencing with May 1, 2000, the aggregate
number of shares of Stock available for purchase during the life of the Plan
shall automatically be increased by the number of shares necessary to cause the
number of shares then available for purchase to be restored to 1,000,000
(subject to adjustment pursuant to this Section 13).
(b) Anti-Dilution Adjustments. The aggregate number of shares of Stock
offered under the Plan, the 2,000-share limitation described in Section 7(c) and
the price of shares that any Participant has elected to purchase shall be
adjusted proportionately by the Committee for any increase or decrease in the
number of outstanding shares of Stock resulting from a subdivision or
consolidation of shares or the payment of a stock dividend, any other increase
or decrease in such shares effected without receipt or payment of consideration
by the Company, the distribution of the shares of a Subsidiary to the Company's
stockholders or a similar event.
(c) Reorganizations. Any other provision of the Plan notwithstanding,
immediately prior to the effective time of a Corporate Reorganization, the
Offering Period then in progress shall terminate and shares shall be purchased
pursuant to Section 7, unless the Plan is continued or assumed by the surviving
corporation or its parent corporation. The Plan shall in no event be construed
to restrict in any way the Company's right to undertake a dissolution,
liquidation, merger, consolidation or other reorganization.
6
<PAGE>
SECTION 14. AMENDMENT OR DISCONTINUANCE.
The Board shall have the right to amend, suspend or terminate the Plan at
any time and without notice. Except as provided in Section 13, any increase in
the aggregate number of shares of Stock to be issued under the Plan shall be
subject to approval by a vote of the stockholders of the Company. In addition,
any other amendment of the Plan shall be subject to approval by a vote of the
stockholders of the Company to the extent required by an applicable law or
regulation.
SECTION 15. DEFINITIONS.
(a) "Board" means the Board of Directors of the Company, as constituted
from time to time.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Committee" means a committee of the Board, as described in Section 2.
(d) "Company" means Scient Corporation, a Delaware corporation.
(e) "Compensation" means (i) salaries, wages, overtime pay and shift
premiums paid in cash to a Participant by a Participating Company plus (ii) any
pre-tax contributions made by the Participant under section 401(k) or 125 of the
Code. "Compensation" shall exclude bonuses, incentive compensation, commissions,
all non-cash items, moving or relocation allowances, cost-of-living equalization
payments, car allowances, tuition reimbursements, imputed income attributable to
cars or life insurance, severance pay, fringe benefits, contributions or
benefits received under employee benefit plans, income attributable to the
exercise of stock options, and similar items. The Committee shall determine
whether a particular item is included in Compensation.
(f) "Corporate Reorganization" means:
(i) The consummation of a merger or consolidation of the Company with
or into any other entity or any other corporate reorganization; or
(ii) The sale, transfer of other disposition of all or substantially
all of the Company's assets or the complete liquidation or dissolution of the
Company.
(g) "Eligible Colleague" means any common-law employee of a Participating
Company whose customary employment is for more than five months per calendar
year and for more than 20 hours per week. The foregoing notwithstanding, an
individual shall not be considered an Eligible Colleague if his or her
participation in the Plan is prohibited by the law of any country which has
jurisdiction over him or her or if he or she is subject to a collective
bargaining agreement that does not provide for participation in the Plan.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
7
<PAGE>
(i) "Fair Market Value" means the market price of Stock, determined by the
Committee as follows:
(i) If the Stock was traded on The Nasdaq National Market on the date
in question, then the Fair Market Value shall be equal to the last-
transaction price quoted for such date by The Nasdaq National Market;
(ii) If the Stock was traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing price
reported by the applicable composite transactions report for such date; or
(iii) If none of the foregoing provisions is applicable, then the Fair
Market Value shall be determined by the Committee in good faith on such basis as
it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in The Wall Street Journal or as reported
-----------------------
directly to the Company by Nasdaq or a stock exchange. Such determination shall
be conclusive and binding on all persons.
(j) "IPO" means the initial offering of Stock to the public pursuant to a
registration statement filed by the Company with the Securities and Exchange
Commission.
(k) "Offering Period" means a six-month period with respect to which the
right to purchase Stock may be granted under the Plan, as determined pursuant to
Section 3(a).
(l) "Participant" means an Eligible Colleague who elects to participate in
the Plan, as provided in Section 3(b).
(m) "Participating Company" means (i) the Company and (ii) each present or
future Subsidiary designated by the Committee as a Participating Company.
(n) "Plan" means this Scient Corporation 1999 Employee Stock Purchase Plan,
as it may be amended from time to time.
(o) "Plan Account" means the account established for each Participant
pursuant to Section 7(a).
(p) "Purchase Price" means the price at which Participants may purchase
Stock under the Plan, as determined pursuant to Section 7(b).
(q) "Stock" means the Common Stock of the Company.
(r) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
8
<PAGE>
SECTION 16. EXECUTION.
To record the adoption of the Plan by the Board on April 22, 1999, the
Company has caused its duly authorized officer to execute this document in the
name of the Company.
SCIENT CORPORATION
By:
------------------------------------
Title:
---------------------------------
9
<PAGE>
EXHIBIT 10.17
SUBLEASE
--------
THIS SUBLEASE dated April 13,1999, is entered into by and between ROBINS,
KAPLAN, MILLER & CIRESI, L.L.P., a Minnesota limited liability partnership,
formerly Robins, Zelle, Larson & Kaplan ("RKMC"), as Sublessor, and SCIENT
CORPORATION, a Delaware Corporation, ("Sublessee"), as Sublessee with respect to
certain premises in the building located at 444 Market Street, San Francisco,
California (the "Building").
RECITALS:
- --------
A. Shaklee Corporation ("Shaklee") is the Lessee under that certain
Amended and Restated Office Lease dated June 25, 1985, by and between 444 MLHIRP
Partnership: a New York general partnership, as Lessor ("Master Lessor"), and
Shaklee, as Lessee and related documents (the "Master Lease"), an edited copy of
which is attached hereto as Exhibit A.
---------
B. RKMC is the Sublessee under that certain Sublease dated July 2, 1987
(as amended by that certain letter agreement dated November 22, 1995, and that
certain letter agreement dated July 25, 1995), by and between Shaklee and
Sublessor, and RKMC, as Sublessee, (collectively the "Prior Sublease").
C. Sublessee desires to sublease from RKMC, and Shaklee is prepared to
sublease to Sublessee, the portion of the premises demised under the Master
Lease that is the entire 27th floor at the Building, consisting of approximately
17,256 rentable square feet, the same being all of the space subleased by RKMC
from Shaklee (the "Subleased Premises").
AGREEMENT:
- ---------
NOW, THEREFORE, in consideration oft he premises and the mutual promises
contained herein, RKMC hereby subleases to Sublessee, and Sublessee hereby
subleases from RKMC, the Subleased Premises for the term and subject to the
terms, covenants, and conditions hereinafter set forth, to each and all of which
RKMC and Sublessee hereby mutually agree.
1. Term
----
(a) The term of this Sublease shall commence on May 1,1999, and,
unless sooner terminated as hereinafter provided, shall end on April 30, 2001.
If RKMC, for any reason whatsoever, cannot deliver possession of the Subleased
Premises to Sublessee on the commencement date of said term, this Sublease shall
not be void or voidable, nor shall RKMC be liable to Sublessee for any loss or
damage resulting therefrom, but in such event, commencement of Sublessee's
obligation to pay rent hereunder (the "Rent Start Date") shall be delayed one
day for each day' s delay in delivery of the Subleased Premises. If possession
of the Subleased Premises cannot be delivered by May 15, 1999 (as such date may
be extended due to fire, accident, strike, governmental authority, acts of God,
delay in obtaining required building permits, or other causes beyond the
reasonable
<PAGE>
control of RKMC), this Sublease and all rights hereunder shall terminate. No
delay in delivery of possession shall operate to extend the term hereof.
(b) In the event the Subleased Premises are ready for occupancy prior
to the commencement of the term of this Sublease, Sublessee shall have the fight
to take early occupancy of the Subleased Premises on such date, and
notwithstanding the provisions of paragraph (a) above, the term of the Sublease
shall commence upon such occupancy. Any such early occupancy shall not affect
the termination date of this Sublease, but, in such event, the commencement date
of the Sublease term shall be deemed to be the date the Subleased Premises are
made ready for such early occupancy; provided, however, that notwithstanding the
foregoing, the Rent Start Date shall be May 1, 1999.
2. Rental.
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(a) Base Sublease Rent. Sublessee shall pay to RKMC throughout the
------------------
term of this Sublease as rental for the Subleased Premises the sum of Six
Hundred Twenty-one Thousand Two Hundred Sixteen Dollars ($621,216.00) per annum
as the Base Sublease Rent, in advance in 12 equal installments of Fifty-one
Thousand Seven Hundred Sixty-eight Dollars ($51,768.00), payable upon execution
hereof for the first two (2) months of the term hereof and on or before the
first of each and every successive calendar month thereafter. If the Rent Start
Date is other than the first day of a calendar month, the first payment of rent
shall be appropriately prorated on the basis of a 30-day month.
(b) Additional Sublease Rent. Commencing January, 2000 and for each
------------------------
whole or partial calendar year thereafter during the term of this Sublease,
Sublessee shall pay RKMC as Additional Sublease Rent of the mount by which
Operating Expenses and Taxes attributable to the Subleased Premises for such
year exceed Operating Expenses and Taxes for the 1999 calendar year, as those
terms are defined in paragraph 5.1 of the Master Lease (incorporated by
reference in paragraph 4 of this Sublease).
(c) Rental shall be paid to RKMC, without deduction or offset, in
lawful money of the United States of America at RKMC's address for notices
hereunder or to such other person or at such other place as RKMC may from time
to time designate in writing. All amounts of money payable by Sublessee to RKMC
hereunder, if not paid when due and within 5 days after receipt of written
notice thereof from RKMC, shall be subject to a one-time late charge of five
percent (5%) thereof and, in addition, bear interest from the due date until
paid at the highest rate legally permitted, but in no event to exceed 18%.
3. Use. The Subleased Premises shall be used for general office purposes
---
and no other purpose. Sublessee shall not do or permit to be done in or about
the Subleased Premises, nor bring or keep or permit to be brought or kept
therein, anything that is prohibited by the Master Lease or the prior Sublease.
2
<PAGE>
4. Other Sublease Terms.
--------------------
(a) The following terms and provisions of the Master Lease are hereby
incorporated in this Sublease by this reference: paragraphs 2 (but not the third
and fourth sentences thereof), 5.1 (a), 5.1 Co) (first paragraph only), 5.3,
5.4, 5.5, 5.7, 6, 8(a)-(f) and (h)-(j) (but not the last sentence of 8(h) or the
portion of 8(i) deleted from Exhibit A to the Sublease), 10, 11 (but not 11.1 or
---------
the sentence stricken on Exhibit A to the prior Sublease), 12, 13, 15, 17 (but
---------
not the last sentence thereof), 18, 19, 20, 21, 22, 23, 24, 25, 27, 30.2(2),
30.2(4) (but not the second paragraph thereof), 33, 36, 37, 39, 40, 44, 45, 48
(second sentence, only), and 50 (as to Exhibits C (excluding the work letter)-
H, only). The letter agreement dated June 25, 1985, between Shaklee and Master
Lessor (the "Letter Agreement"), is incorporated to the extent it provides that
Shaklee, as Lessee, under the Master Lease, will not have to pay any part of any
increase in taxes due to a reassessment under Proposition 13, if Shaklee is
correct in its contention that any such increase in assessment does not include
the reassessment of Shaklee's, 30% of the building. Except as is specified in
this Sublease, this subletting is upon and subject to all of the terms of the
Master Lease and Letter Agreement, and the Prior Sublease so incorporated in
this Sublease. Such incorporated terms shall constitute the terms of this
Sublease as between RKMC and Sublessee as "Landlord" and "Tenant," respectively,
except that paragraph 5.1 shall be incorporated reading "Landlord" to refer to
the Master Lessor insofar as the calculation of Operating Expenses and Taxes is
concerned, and paragraphs 2, 18, and 27 shall be incorporated reading "Landlord"
to refer to both RKMC, Shaklee and Master Lessor. Sublessee shall assume and
perform for the benefit of RKMC, Shaklee and Master Lessor each and all of the
conditions, covenants, and obligations to be performed by RKMC under the Prior
Sublease and by Shaklee as Tenant under the Master Lease, to the extent said
conditions, covenants, and obligations are incorporated in this Sublease and are
applicable to the Subleased Premises. Master Lessor shall have the same fights
and privileges under this Sublease that it has under the Master Lease, to the
extent such rights and privileges are incorporated in this Sublease and are
applicable to the Subleased Premises, and shall have the fight, but not the
obligation, to enforce such conditions, covenants, and obligations directly
against Sublessee. Sublessee shall not commit or permit to be committed on the
Subleased Premises any act or omission that would constitute a breach of any of
the terms, conditions, covenants, or obligations of Shaklee, under the Master
Lease or of RKMC under the Prior Sublease. RKMC irrevocably assigns to Shaklee
all rent and obligations of Sublessee under this Sublease which Shaklee may
demand upon breach of the Prior Sublease by RKMC, and Sublessee agrees, upon
written demand from Shaklee, to pay the rent and other sums owed by Sublessee to
RKMC directly to Shaklee and to fulfill all of Sublessee obligations under this
Sublease for the benefit of Shaklee; provided any obligations so paid or
fulfilled to Shaklee will be deemed to be for the benefit of RKMC as well.
(b) Notwithstanding the incorporation herein of the foregoing
provisions of the Master Lease, Sublessee acknowledges that RKMC and Shaklee
shall have no responsibility or obligation with respect to (i) furnishing any
services under paragraph 8 of the Master Lease, including, but not limited to,
utilities, or (ii) making any alterations, repairs, or replacements under
paragraphs 11, 12, or 15 of the Master Lease, and the sole responsibility of
RKMC and Shaklee thereunder shall be to use reasonable efforts to cause Master
Lessor to furnish such services or make such alterations, repairs, or
replacements as are required under the Master Lease. Any notices given to Master
Lessor in connection with paragraphs 8, 11, 12, or 15 of the Master Lease, or
any other provisions of this Sublease, shall also simultaneously be given to
RKMC and Shaklee, whether or not RKMC and Shaklee have any responsibility to
take action in response to such notices. With
3
<PAGE>
respect to paragraph 8(h), it is understood that Sublessee's rent shall be
abated as and to the extent that RKMC's rent is abated under the Prior Sublease.
(c) Sublessee shall indemnify and save RKMC and Shaklee harmless
against any loss, damage, or injury that RKMC or Shaklee may suffer or incur
under the Prior Sublease as the result of any breach by Sublessee of its
obligations under this Sublease.
(d) RKMC and Sublessee acknowledge that certain of the provisions of
the Master Lease enumerated above that are not incorporated in this Sublease
have been deleted from the copy of the Master Lease attached hereto as Exhibit A
---------
in order to protect the confidential aspects of the contractual relationship
between Shaklee and Master Lessor. Sublessee agrees not to disclose the contents
of the Master Lease, the Letter Agreement or the Prior Sublease, or any portion
thereof, to any third parties, other than the listed brokers, and Sublessee's
attorneys, without the prior written consent of Shaklee.
5. "AS IS" Condition; No Representations or Warranties; ADA Compliance.
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Sublessee accepts the Subleased Premises in its existing condition and repair,
in "as is" condition with all faults, and without representation or warranties,
express or implied, as the condition of the Subleased premises. In furtherance,
but not in limitation of the foregoing, no disclosure, representation or
warranty is requested or given with respect to environmental matters, the
presence of disposal of toxic substances or waste, seismic matters, problems or
concerns, or the compliance or non-compliance of the Subleased Premises with
applicable laws, codes or regulations, including but not limited to building
codes and the Americans with Disabilities Act or any rules, requirements or
regulations thereunder (collectively the "ADA").
6. Alterations. Sublessee shall not make any alterations, additions, or
-----------
improvements to the Subleased Premises, or attach any fixtures or equipment
thereto, without RKMC'S, Shaklee's and Master Lessor's prior written consent,
which consent from RKMC shall not be unreasonably withheld or delayed.
7. Excess Electrical Usage. Sublessee shall pay RKMC for any electrical
-----------------------
use in excess of that required for normal office use in the Building, as
provided in the portions of paragraph 8(i) of the Master Lease that are
incorporated herein.
8. Assignment of Parking, Fitness Center and Cafeteria Rights. RKMC hereby
------------------------------------------------------------
assigns to Sublessee, to 'the extent assignable under the Prior Sublease, all of
RKMC's rights (and subject to RKMC's obligations) under Paragraphs 4 and 9 of
the Prior Sublease.
9. Waiver and Indemnification.
---------------------------
(a) Neither RKMC, Shaklee nor Master Lessor shall be liable or
responsible in any way for, and Sublessee hereby waives all claims against RKMC,
Shaklee and Master Lessor with respect to or arising out of, any death or injury
of any nature whatsoever that may be suffered or sustained by Sublessee or any
employee, licensee, invitee, guest, agent, or customer of Sublessee or any other
person, from any causes whatsoever, or any loss or damage or injury to any
property outside or within the Subleased Premises belonging to Sublessee or its
employees, agents, customers, licensees, invitees, guests, or any other person,
excepting, as to RKMC, Shaklee or Master Lessor,
4
<PAGE>
only injury or damage caused solely by the negligence or willful misconduct of
such party or its employees or agents.
(b) Sublessee shall hold RKMC, Shaklee and Master Lessor harmless from
and defend and indemnify RKMC, Shaklee and Master Lessor against any and all
losses, damages, claims, or liability for any damage to any property or injury,
illness, or death of any person (i) occurring in or on the Subleased Premises or
any part thereof arising at any time and from any cause whatsoever except, as to
RKMC, Shaklee or Master Lessor, to the extent of any negligence or Willful
misconduct of such party or its employees or agents; and (ii) occurring in, on,
or about any part of the Building other than the Subleased Premises, to the
extent such damage, injury, illness, or death has been caused in whole or in
part by the negligence or willful misconduct of Sublessee or its employees,
agents, customers, licensees, invitees, or guests.
(c) The provisions of this paragraph 8 shall survive the termination
of this Sublease with respect to any damage, injury, illness, or death occurring
prior to such termination.
10. Insurance.
----------
(a) Sublessee shall, at its sole cost and expense, obtain and keep in
force during the term of this Sublease fire and extended coverage insurance on
Sublessee's improvements, fixtures, furnishings, and equipment in and upon the
Subleased Premises in an amount not less than one hundred percent (100%) of the
full replacement cost (without deduction for depreciation) thereof. All amounts
that shall be received under the insurance specified in this paragraph shall
first be applied to the payment of the cost of repair or replacement of any of
Sublessee's improvements, fixtures, furnishings, and equipment that are damaged
or destroyed, or, if this Sublease terminates prior to such repair or
replacement being made, paid over to Shaklee to the extent that the improvements
or fixtures damaged or destroyed would have become Shaklee's property pursuant
to paragraph 19 hereof, provided, however, that Sublessee shall be entitled to
that portion of said insurance proceeds equal to the unamortized value of said
improvements and fixtures.
(b) Sublessee shall, at its sole cost and expense, obtain and keep in
force during the term of this Sublease (i) liability insurance with limits of
not less than One Million Dollars ($1,000,000) per person and Five Million
Dollars ($5,000,000) per occurrence for injury to or illness or death of persons
occurring in, upon, or about the Subleased Premises or the Building; and (ii)
liability insurance with a limit of not less than One Million Dollars
($1,000,000) per occurrence for damage to property occurring in, upon, or about
the Subleased Premises or the Building. All such insurance shall insure the
performance by Sublessee of the indemnity agreement as to liability for injury
to or illness or death of persons and damage to property set forth in paragraph
8 hereof.
(c) All insurance required under this paragraph and all renewals
thereof shall be issued by such good and responsible companies qualified to do
and doing business in the State of California as may be approved by Master
Lessor, Shaklee and RKMC, which approvals shall not be withheld unreasonably.
Each policy shall expressly provide that the policy shall not be cancelled or
altered without 45 days' prior written notice to Master Lessor, Shaklee and
RKMC, and shall remain
5
<PAGE>
in effect notwithstanding any such cancellation or alteration until such notice
shall have been given to Master Lessor, Shaklee and RKMC and such 45-day period
shall have expired. All insurance under this paragraph shall name Master Lessor,
Shaklee, RKMC and Master Lessor's mortgagee as additional insureds, shall be
primary and noncontributing with any insurance that may be carried by Master
Lessor, Shaklee or RKMC, and shall expressly provide that Master Lessor,
Shaklee, and Master Lessor's mortgagee, although named as insureds, shall
nevertheless be entitled to recover under the policy for any loss, injury, or
damage to Master Lessor, Shaklee and RKMC, the employees or contractors of
either, or Master Lessor's mortgagee. Upon the issuance thereof, each such
policy or a duplicate or certificate thereof shall be delivered to Master
Lessor, Shaklee and RKMC for retention by both of them. In the event that
Sublessee (i) shall fail to insure or (ii) shall fail to furnish to Master
Lessor, Shaklee and RKMC, within 15 days after written request therefor, any
such policy, duplicate policy, or certificate as herein required, Master Lessor,
Shaklee and RKMC may from time to time effect such insurance for the benefit of
Sublessee, Master Lessor, Shaklee and RKMC, or any or all of them for a period
not exceeding one year, and any premium paid by Master Lessor, Shaklee or RKMC
shall be recoverable from Sublessee as additional rent on demand.
11. Assignment and Subletting.
-------------------------
(a) Except as set forth in this paragraph, Sublessee shall not: (i)
assign, encumber, or otherwise transfer this Sublease, the term or estate hereby
granted, or any interest hereunder; (ii) permit the Subleased Premises or any
part thereof to be used by anyone other than Sublessee (whether as licensee,
permittee, or otherwise); or (iii) sublet or offer or advertise for subletting
the Subleased Premises or any part thereof. Any attempted assignment,
encumbrance, transfer, or sublease not done in accordance with the provisions of
this paragraph shall be voidable and, at RKMC's election, shall constitute a
default hereunder. RKMC hereby assigns, to the extent assignable under the Prior
Sublease, RKMC's rights (but subject to RKMC's obligations) to assign or sublet
to a Small Tenant (as defined in the Prior Sublease and to subdivide the
Subleased Premises as shown in Exhibit B to the Prior Sublease.
---------
(b) If at any time during the term hereof Sublessee desires to sublet
all or any part of the Subleased Premises, then Sublessee shall submit to RKMC
and Shaklee, in writing, a notice of intent to assign or sublease, setting
forth: (i) the proposed effective date of the assignment or sublease; (ii) the
name of the proposed subtenant or assignee (collectively hereinafter,
"subtenant/assignee"): and (iii) the nature of the proposed subtenant/assignee's
business to be carried on in the Subleased Premises. Such notice shall be
accompanied by (x) such reasonable financial information as Master Lessor, RKMC
or Shaklee may request concerning the proposed subtenant/assignee, including
recent financial statements and bank references; and (y) a conformed or
photostatic copy of the proposed sublease or assignment agreement (or, if not
yet available, a description of the contemplated form of agreement).
(c) In the event that Sublessee complies with the provisions of
subparagraph Co), RKMC's consent to a proposed sublease or assignment, subject
to approval by Master Lessor and Shaklee, shall not be unreasonably withheld.
RKMC shall respond to Sublessee's notice to sublet
6
<PAGE>
within five (5) business days of receipt by RKMC of all information required
herein concerning the proposed subtenant or assignee. Sublessee shall promptly
reimburse Shaklee's reasonable out-of-pocket costs actually incurred in
reviewing the proposed sublease or assignment, including reasonable attorney's
fees following the demand therefor accompanied by reasonable backup
documentation. In determining whether to grant or withhold such consent, RKMC,
Master Lessor and Shaklee may consider any reasonable factor. Without limiting
what may be construed as a reasonable factor, it is hereby agreed that any one
of the following factors will be reasonable grounds for disapproval of a
proposed assignment or sublease:
(i) The proposed subtenant/assignee does not, in the
reasonable judgment of RKMC or Shaklee, have sufficient financial
worth in view of the responsibility involved;
(ii) The proposed subtenant/assignee does not, in the
reasonable judgment of RKMC or Shaklee, have a good reputation as a
tenant of property;
(iii) RKMC or Shaklee has received from any prior lessor of the
proposed subtenant/assignee a significant negative report concerning
such prior lessor's experience with the proposed subtenant/assignee as
a tenant;
(iv) RKMC or Shaklee has been involved in a previous
landlord/tenant dispute with the proposed subtenant/assignee;
(v) The proposed subtenant/assignee is not, in the reasonable
judgment of RKMC or Shaklee, of the type, character, and quality
consistent with the high quality and prestigious image of the
Building;
(vi) In the reasonable judgment of RKMC, Master Lessor or
Shaklee, the proposed assignment or sublease would violate the Master
Lease;
(vii) The use of the Premises by the proposed subtenant/assignee
would violate some applicable law, ordinance, or regulation;
(viii) The proposed subtenant/assignee is a person with whom
Shaklee is negotiating to lease space in the Building comparable in
both length of term and net rentable square footage to the space
Sublessee is seeking to assign or sublet;
(ix) The proposed subtenant/assignee is in the business of
manufacturing or in the general business of selling nutritional
supplements, household or personal care products, gourmet foods, or
flowers, or deals in any other product lines that Shaklee manufactures
or sells, or plans to manufacture or sell as of the date of the
proposed sublease or assignment, or is in the business of marketing
any such merchandise through direct sale or direct mail, at the time
of the proposed assignment or sublease;
7
<PAGE>
(x) In the case of a proposed sublease, the proposed sublease
would cause there to be more than one subtenant of the Subleased
Premises;
(xi) The proposed assignment or sublease fails to include all
of the terms and provisions required to be included therein pursuant
to this paragraph;
(xii) Sublessee is in default of any-of its obligations under
this Sublease, or has defaulted under this Sublease on three or more
occasions during the twelve months preceding the date Sublessee
requests Sublessee's consent to the proposed assignment or sublease;
or
(xiii) Shaklee or Master Lessor shall not consent to the
proposed assignment or sublease.
(d) The instrument by which assignment or subletting is accomplished
shall (i) expressly provide that the subtenant/assignee shall perform and
observe all the agreements, covenants, and conditions to be performed and
observed by Sublessee under this Sublease (except as to rent and term or as
otherwise agreed to by RKMC); (ii) be expressly subject and subordinate to each
and every provision of this Sublease; (iii) have a term that expires on or
before the expiration of the term of this Sublease; (iv) provide that if
Shaklee, Master Lessor, or RKMC succeeds to Sublessee' s position as landlord
vis-a-vis the subtenant/assignee, neither Shaklee, Master Lessor nor RKMC shall
be liable to such subtenant/assignee for advance rental payments, rental
deposits, or other payments that have not actually been delivered to Shaklee,
Master Lessor or RKMC by Sublessee, and (v) provide that Sublessee or the
subtenant/assignee shall reimburse RKMC for any additional costs or expenses
incurred by RKMC for repairs or maintenance or otherwise as a result of the
change in occupancy.
(e) No assignment or sublease shall be valid, and no
subtenant/assignee shall take possession of the Subleased Premises or any part
thereof, until consented to in writing by Shaklee and until an executed
counterpart Of the assignment or sublease has been delivered to RKMC and
Shaklee.
(f) Notwithstanding RKMC' s consent, no subletting or assignment
shall release or otherwise alter Sublessee's obligations to pay the rent and to
perform all other obligations to be performed by Sublessee hereunder. The
acceptance of rent by RKMC from any other person shall not be deemed to be a
waiver by RKMC of arty provision hereof. Consent to one assignment or subletting
shall not be deemed consent to any subsequent assignment or subletting. If any
assignee of Sublessee or any successor of Sublessee defaults in the performance
of any of the terms hereof, Sublessee may proceed directly against Sublessee
without the necessity of exhausting remedies against such assignee or successor.
(g) In the event that RKMC assigns, transfers, or conveys its
interest in the Sublease, and provided that the instrument of assignment,
transfer, or conveyance shall expressly require the assignee or transferee to
assume all such liabilities and obligations, all liabilities and
8
<PAGE>
obligations on the part of RKMC under this Sublease shall terminate. Sublessee
agrees to attorn to such assignee or transferee.
12. Holdover. Sublessee shall have no fight to remain on possession of the
--------
Subleased Premises after expiration or earlier termination of this Sublease. If
Sublessee remains in possession of the Subleased Premises after expiration, but
not earlier termination, of this Sublease, all of the terms, covenants, and
agreements hereof shall continue to bind Sublessee to the extent applicable,
except that, if Sublessee remains in possession without RKMC's, Shaklee's and
Master Lessor's written consent, then: (a) the monthly rent shall be two (2)
times the monthly rent payable for the last month of the Sublease term, prorated
on a daily basis for each day Sublessee remains in possession, and (b) Sublessee
shall indemnify RKMC and Shaklee against any and all claims, losses, and
liabilities for damages, consequential or otherwise, resulting from Sublessee's
failure to surrender possession, including without limitation any claims by
Master Lessor or any succeeding sublessee.
13. Notices. All notices and demands that may or are required to be given
-------
by either party to the other hereunder shall be in writing and shall be deemed
to have been fully given when deposited in the United States mail, certified or
registered, postage prepaid, and addressed as follows: to Sublessee on the 28th
floor of the Building, or to such other place as Sublessee may from time to time
designate in a notice to RKMC; to RKMC at 2800 LaSalle Plaza, 800 LaSalle
Avenue, Minneapolis, Minnesota 55402, Attention: Steven A. Schumeister, or to
such other place as RKMC may from time to time designate in a notice to
Sublessee. Sublessee hereby appoints as its agent to receive the service of all
dispossessory or distraint proceedings and notices thereunder the person in
charge or occupying the Subleased Premises at the time.
14. Subordinate to Master Lease and Prior Sublease. This Sublease is and
------------------------------------------------
shall be at all times subject and subordinate to all of the terms and conditions
of, and all fights of Master Lessor and Shaklee under, the Master Lease and
Prior Sublease, respectfully. Without limiting the generality of the foregoing,
any termination of the Master Lease prior to the end of the term of this
Sublease shall terminate this Sublease. So long as Sublessee is not in default
hereunder, beyond any applicable cure period, RKMC shall not voluntarily
terminate the Prior Sublease without the prior written consent of Sublessee.
15. No Privity. Nothing contained in this Sublease shall be construed to
----------
create privity of estate or of contract between Sublessee, Shaklee and Master
Lessor. RKMC and Sublessee each agrees not to do or permit to be done any act or
thing that will constitute a breach or violation of any of the terms, covenants,
conditions, or provisions of the Master Lease.
16. No Representations. In making and executing this Sublease, Sublessee
--------------------
has not relied upon or been induced by any statements or representations of any
persons with respect to the physical condition of the Building or the Subleased
Premises or with respect to any other matter affecting the Subleased Premises or
this transaction, that might be pertinent in considering the leasing of the
Subleased Premises or the execution of this Sublease. Sublessee has, on the
contrary, relied solely on such representations, if any, as are expressly made
herein and on such investigations, examinations, and inspections as Sublessee
has chosen to make or have made. Sublessee
9
<PAGE>
acknowledges that RKMC has afforded Sublessee the opportunity for full and
complete investigations, examinations, and inspections.
17. Time Limits. The time limits provided in the Master Lease for the
-----------
giving of notices, making demands, performance of any act, condition, or
covenant, or the exercise of any fight or remedy, are changed solely for the
purposes of incorporation as the terms of this Sublease by lengthening or
shortening the same in each instance 3 days, as appropriate, so that notices may
be given, demands made, or any act, condition, or covenant performed, or any
fight or remedy exercised, by RKMC or Sublessee, as the case may be, within the
time limit relating thereto contained in the Master Lease. RKMC shall, no later
than 5 business days after receipt thereof, give to Sublessee a copy of each
notice and demand received from Master Lessor or Shaklee concerning the
Subleased Premises.
18. Security Deposit. Sublessee has deposited (subject to Sublessee's
----------------
fight to substitute a letter of credit (the "LOC") therefor as hereafter
provided) with RKMC the sum of One Hundred Three Thousand Five Hundred Thirty-
six Dollars ($103,536.00) (the "Deposit"). At sublessee's option, the Deposit
may be a LOC, drawn to RKMC's account on a federally insured banking
institution, in form reasonably acceptable to RKMC. The LOC shall be for a term
of not less than one (1) year, and shall be renewed by Sublessee each year of
the term of this Sublease. Such new LOC shall be delivered to RKMC not less than
thirty (30) days before the expiration of the then current LOC. All expenses for
obtaining, maintaining and replacing the LOC shall be paid by Sublessee. If RKMC
uses or applies all or any portion of the LOC as provided for with respect to
the application of the Deposit, Sublessee shall, within ten (10) days after
notice from RKMC, deposit with RKMC an amount sufficient to restore the Deposit
to its full amount, as required above.
The Deposit shall be held by RKMC as security for the faithful performance
by Sublessee of all of the provisions of this Sublease. In the event Sublessee
fails to perform or observe any such provisions, then, at the option of RKMC,
RKMC may (but shall not be obligated to) apply the Deposit or so much thereof as
may be necessary to remedy any default and reimburse RKMC for any out-of-pocket
costs incurred thereby, and Sublessee shall forthwith upon demand restore the
Deposit to the sum so specified. If a LOC shall not be utilized by Sublessee,
RKMC shall not be required to keep the Deposit separate from its general
accounts. No trust relationship is created herein between RKMC and Sublessee
with respect to the Deposit.
19. Broker. Sublessee warrants and represents that it dealt with no
------
leasing agent or broker in connection with this Sublease other than The CAC
Group and Rosen & Reynolds Commercial Real Estate, and that no conversations or
prior negotiations were had by Sublessee with any agent or broker other than the
Brokers concerning the Subleased Premises that could give rise to liability for
payment of a commission in connection with this Sublease. Any commission due the
Brokers shall be paid by RKMC. Sublessee agrees to hold RKMC harmless against
any claims for brokerage commissions arising out of any conversations or
negotiations had by Sublessee with any agent or broker other than the Brokers.
10
<PAGE>
20. Surrender of Premises. Except for those trade fixtures of Sublessee of
---------------------
which Sublessee notifies Master Lessor, Shaklee and RKMC in writing within 6
months of their installation, all alterations, additions, and improvements by
Sublessee to the Subleased Premises (the "Tenant Improvements") shall
immediately become RKMC's property and, at the end of the term hereof, shall
remain on the Subleased Premises without compensation to Sublessee. So long as
the Tenant Improvements in the Subleased Premises at the end of the term are of
the same general character, quantity and configuration as RKMC's Initial Tenant
Improvements under the sublease, except for normal wear and tear, Sublessee
shall have no obligation to make any changes in the then existing Tenant
Improvements; otherwise, at RKMC's request, Sublessee shall take such action at
Sublessee's expense as shall be necessary to restore the Tenant Improvements to
their condition as initially constructed or installed under the Sublease, except
for normal wear and tear. Subject to the prior written approval of Master Lessor
and Shaklee, RKMC agrees that so long as RKMC is not required to do so,
Sublessee shall not be required to remove Sublessee's Tenant Improvements,
alterations or modifications, and in no event shall Sublessee be required to
remove RKMC or Shaklee Tenant Improvements, alterations or modifications.
Notwithstanding the foregoing, nothing in this paragraph shall be construed to
waive the requirements of this Sublease.
21. Approval. This Sublease shall be of no force or effect until fully
--------
executed by Sublessee and RKMC and approved by Master Lessor and Shaklee.
22. Miscellaneous.
-------------
(a) The paragraph titles in this Sublease are used for convenience in
finding the subject matter. Such titles are not to be taken as part of this
instrument or to be used in determining the intent of the parties or otherwise
in interpreting this instrument.
(b) This Sublease shall apply to and bind the respective heirs,
distributees, executors, administrators, successors, and assigns of the parties
hereto. This subparagraph shall not be construed, however, as a consent to any
assignment or subletting by Sublessee.
(c) The failure of either party to insist on strict performance of
any covenant or condition hereof, or to exercise any option herein contained,
shall not be construed as a waiver of such covenant, condition, or option in any
other instance.
(d) This Sublease cannot be changed or terminated orally. All
understandings and agreements heretofore made between the parties are merged in
this Sublease, including any exhibits hereto, which alone fully and completely
expresses the agreement between RKMC and Sublessee.
(e) Shaklee represents that the Master Lease is in full force and
effect as of the date hereof and will be in full force and effect as of the
commencement of the term hereof and that no notice or notices of default have
been served thereunder by Master Lessor that have not been cured.
11
<PAGE>
(f) Submission of this Sublease for examination by Sublessee does not
constitute a reservation of or option far the Subleased Premises and does not
become effective unless and until executed and delivered by both parties.
IN WITNESS WHEREOF, the parties have executed this Sublease of the day and
year first April 13 1999, hereinabove set forth.
RKMC:
ROBINS, KAPLAN, MILLER & CIRESI, L.L.P. a
Minnesota limited partnership
By /s/ Steven A. Schumeister
__________________________________
Steven A. Schumeister
Managing Partner
SUBLESSEE:
SCIENT CORPORATION
a Delaware corporation
By /s/ [signature illegible]
__________________________________
Its CFO
____________________________
12
<PAGE>
APPROVAL - 27th Floor
---------------------
By executing this Approval, Shaklee hereby consents to the making of the
attached Sublease by and between RKMC and Sublessee, on, and only on the terms
set forth herein, without releasing RKMC from any obligations of RKMC under the
Prior Sublease and without waiving any restriction on further assignment of the
Sublease, or the Prior Sublease. This Approval shall not constitute consent to
any other or further sub-sublease, modify in any way the terms of the Sublease,
or create any privity of estate or contract between the undersigned and any
other person or entity. Shaklee shall not require Sublessee or RKMC to remove
and/or restore any of Sublessee's Tenant Improvements, alterations or
modifications at the end of the Sublease Term.
SHAKLEE:
SHAKLEE CORPORATION,
a Delaware corporation
By: ______________________
Name: ____________________
Its: _______________________
Date: _________________,1999
13
<PAGE>
Shaklee Corporation
Shaklee Terraces Telephone 415/954-2554 Kay M. Childs
444 Market Street Fax 415/954-2627 Vice President
San Francisco, CA 94111-5325 Human Resources
November 22, 1995
Mr. John D. Shuff
Robins, Kaplan, Miller & Ciresi
444 Market Street, Suite 2700
San Francisco, CA 94111
Dear John:
This letter agreement amends the sublease agreement between Shaklee Corporation
("Shaklee") and Robins, Kaplan, Miller & Ciresi, ("Sublessee"), dated .July
2,1987 and amended on July 25. 1995 (the "Agreement").
Sublessee wishes to use the security access system located in the high-rise
elevator at 444 Market owned by Shaklee to access Sublesee's 27th floor
subleased premises. Elevator access is the only portion of the security system
Sublessee desires to use. Shaklee agrees that the Sublessee can use this system
effective upon signing of this letter agreement and for as long as Shaklee
continues to own and operate the system but no later than April 30, 2001.
Sublessee understands that Shaklee has purchased the security access system and
acknowledges that Sublessee must use the system as is under the term, and
conditions in which Shaklee purchased the system, and Shaklee cannot customize
the system in any way for Sublessee.
The terms and conditions for use of the card access system are as follows:
Sublessee shall pay to Shaklee an initial set up fee of seven hundred dollars
($700) for fifty (50) access cards. This payment shall be paid upon signing of
this agreement. If there are less than fifty (50) cards installed, the fee
remains the same.
Sublessee shall pay to Shaklee a monthly usage fee of three hundred dollars
($300i for fifty (5(3) cards accessing the system. This monthly fee will include
any changes to the data base far not more than fifty (59) cards. Payment of this
fee is upon the same terms as Section 2 of the Agreement.
1
<PAGE>
Shaklee Corporation
Sublessee is responsible for purchasing its own-access cards and issuing the
same to those who should have access to the card access system. Sublessee shall
notify Shaklee of the names of each person to whom a card is issued. Sublessee
shall also notify Shaklee if a card is to be deleted from the system.
Sublessee can have use of the system for more than fifty cards but for no
greater than eighty (80) cards. There will be an additional monthly fee of $5.00
for each card above fifty (50) that is added to the system. Them will be no
additional charge for set up for these additional cards. If a card is required
on or before the 15th day of the month, it is counted for the entire month. If
it is required after the 15a day of the month, it is not counted until the
following month. All additions and deletions should be submitted in writing to
Helen Ott. at 444 Market St, 32nd floor, via hand delivery or facsimile (415-
986-0808).
Shaklee agrees to input all card access data into the system within five (5)
business days of receipt of written notice of original information or of any
change.
Sublessee understands that the system is not monitored by Shaklee or anyone
else; therefore, Shaklee has no responsibility for controlling unauthorized
attempts to gain entry.
Sublessee understands that in the case of system failures Shaklee will promptly
attempt to have the system repaired in a timely manner. Sublessee also
understands that Shaklee uses outside vendors for repairs to the system and has
therefore no control over their response time.
Further, Sublessee agrees to defend, indemnify and hold Shaklee and Shaklee's
agents, employees, directors and officers harmless from and against any and all
losses, actions, costs, liabilities or claims, arising out of or in connection
with Sublessee's use of the card access system.
Either party has the right to terminate this agreement upon ten days written
notice to the other party.
2
<PAGE>
Shaklee Corporation
Except as set forth in this letter agreement, all other terms and conditions of
the Agreement shall remain the same.
Please indicate your approval of this amendment by signing below and returning a
fully executed copy of this letter to me.
Sincerely yours,
/s/ Kay M. Childs
-----------------
Kay M. Childs
Vice President
Human Resources
Agreed and accepted:
by: /s/ [signature illegible]
_______________________________
its: Managing Partner
_______________________________
Robins, Kaplan, Miller & Ciresi
Date: 12-4-95
_______________________________
cc: Edward Beck
Jan Kessler
Ed Robitaille
Helen Ott
3
<PAGE>
Shaklee Corporation
Shaklee Terraces
444 Market Street Telephone 415/954-2554
San Francisco, CA 94111-5325
July 25, 1995
Mr. John D. Shuff
Robins, Kaplan, Miller & Ciresi
444 Market Street. 27th Floor
San Francisco, CA 94111
Re: Amendment to July 2, 1987, Sublease Agreement
Dear Mr. Shuff:
This letter amends the sublease agreement between Shaklee Corporation and
Robins, Kaplan, Miller & Ciresi dated July 2, 1987 ("Agreement"). Robins,
Kaplan, Miller & Ciresi, ("Sublessee") wishes to remodel the Sublease Pries (as
that term is defined in the Agreement). The scope of the currently anticipated
remodeling is set forth in the drawings prepared by ADP dated July 20, 1995.
Shaklee Corporation ("Shaklee") agrees that the Sublessee can perform the
proposed remodeling and any further remodeling and/or construction during the
term of the Agreement, provided that the Sublessee agrees to the following terms
and conditions:
With respect to the currently anticipated remodeling and any future
remodeling and/or construction to be performed by Sublessee on the Sublease
Premises, Sublessee shall obtain both Master Lessor and Shaklee's written
approval before beginning any remodeling and/or construction work on the
Sublease Premises. Sublessee agrees to reimburse Shaklee for any and all costs
that Shaklee may incur as a result of sublessee's remodeling.1 Sublessee shall
reimburse Shaklee for such costs within 30 days of the date of Shaklee's
invoice.
Further, in accordance with the terms of the Agreement and/or the Master
Lease, Sublessee agrees to defend, indemnify and hold Shaklee and Shaklee's
agents, employees, directors and officers harmless from and against any and nil
losses, actions, costs, liabilities or claims, arising out of or in connection
with Sublesee's remodeling and/or construction an the Sublease Premises.
Sublessee warrants that upon expiration or sooner termination of its Agreement,
it will
__________________________________
1 As of the date of this letter there am no such expenses envisioned.
<PAGE>
Shaklee Corporation
Mr. John D. Shuff
Page Two of Two
remove all remodeling and/or construction work that the Master Lessor requires
to be removed which is installed on the Sublease Premises.
If, Sublessee fails to remove any remodeling end/or construction work by
the expiration or sooner termination of the Agreement, then Shaklee will do so
at Sublesee's cost and expense. Sublessee shall reimburse Shaklee for such costs
within 30 days of the date of Shaklee's invoice.
Except as set forth in this letter, the terms of the Agreement remain in
full force and effect.
If the terms of this amendment are acceptable to you, please sign where
indicated below end return a copy of this letter to me.
Sincerely,
/s/ Kay Childs
_______________________________
Kay Childs
Vice President, Human Resources
KC/dkp
Accepted and agreed to on be. haft of Robins, Kaplan, Miller & Ciresi
this 2nd day of August, 1995.
/s/ David Bocan
__________________________
Signature
David Bocan
__________________________
Print Name
Partner
__________________________
Title
<PAGE>
Exhibit 10.18
444 MARKET STREET
SAN FRANCISCO, CALIFORNIA
SUB-SUB-SUB-SUBLEASE
BASIC LEASE INFORMATION
<TABLE>
<CAPTION>
Date: October 7. 1998
<S> <C> <C>
Sub-sub-sub-sublessor: CHARLES SCHWAB & CO., INC. a
California Corporation
Sub-sub-sub-sublessee: SCIENT CORPORATION, a California
Corporation
Premises: Entire 29th floor, comprising approximately
18,058 rentable square feet
Paragraph 1(a): Commencement Date: October 1, 1998
Paragraph 1(a): Termination Date: April 30th, 2001
Paragraph 2(a): Base Rent: $650.088.00 per annum
Paragraph 2(b): Additional Rent: Any increases in Operating Expenses over
and the 1998 calendar year and in Taxes over
the 1997/98 fiscal year.
Paragraph 2(b): Percentage Share: 2.98%
Paragraph 17: Sub-sub-sub-sublessee's SCIENT CORPORATION
Address for notices: * 444 Market Street
San Francisco, CA 94105
Attn: William Kurtz *
Paragraph 17: Sub-sub-sub-sublesseor's CHARLES SCHWAB & CO., INC.
Address for notices: * 101 Montgomery Street
San Francisco, CA 94014
Attn: Senior Vice President Administrative
Services
Paragraph 23: Letter of Credit/Security $400,000.00
Deposit:
Paragraph 24: Brokers:
Sub-sub-sub-sublessor's Colliers International
Broker: Two Embarcadero Center, Suite 1000
San Francisco, CA 94111
</TABLE>
1
<PAGE>
<TABLE>
<S> <C> <C>
Attn: Mr. Steven Corbitt
Mr Clint Holland
Sub-sub-sub-sublessee's The CAC Group
Broker: 255 California Street
San Francisco, CA 94104
</TABLE>
The following exhibits are attached to this Sub-sub-sub-sublease and by
this reference made a part hereof:
Exhibit A- Sub-sub-sublease
Exhibit B - Plan of Premises
*Address for notices prior to Commencement Date is:
SCIENT CORPORATION
720 California Street
6th Floor
San Francisco, CA 94109
Attn: William Kurtz
2
<PAGE>
THE PROVISIONS OF THE SUB-SUB-SUB-SUBLEASE identified above in the
margin are for the purpose of providing a convenient reference to the provisions
in the Sub-sub-sub-sublease where the particular Basic Lease Information
appears. The foregoing Basic Lease Information is hereby incorporated into and
made a part of the Sub-sub-sub-sublease. Each reference in the Sub-sub-sub-
sublease to any of the terms described above shall have the meaning, and
incorporate the information, hereinabove set forth. In the event of any conflict
between any Basic Lease Information and the Sub-sub-sub-sublease, the Sub-sub-
sub-sublease shall control.
SUB-SUB-SUB-SUBLESSOR: SUB-SUB-SUB-SUBLESSEE:
CHARLES SCHWAB & CO., INC., SCIENT CORPORATION,
a California Corporation a California corporation
By: _____________________________ By:____________________________
Name: ___________________________ Name:__________________________
Its: ____________________________ Its:___________________________
By: ___________________________
Name: _________________________
Its: __________________________
3
<PAGE>
SUB-SUB-SUB-SUBLEASE
--------------------
THIS SUB-SUB-SUB-SUBLEASE dated October 7, 1998 is entered into by and between
CHARLES SCHWAB & CO., INC. (hereinafter referred to as "Schwab"), and SCIENT
CORPORATION (hereinafter referred to as "Scient") with respect to certain
premises in the building located at 444 Market Street, San Francisco, California
(the "Building").
RECITALS:
---------
A. Schwab is the Sub-sub-sublessee under that certain Sub-sub-sublease
dated December 1, 1996 entered into by and between PACIFIC BELL NETWORK
INTEGRATION, a California Corporation (hereinafter referred to as "PBNI'),
successor in interest to PACIFIC BELL DEVELOPMENT COMPANY, as Sub-sub-sublessor
and Schwab as Sub-Sub-sublessee, (the "Sub-sub-sublease") a copy of which is
attached hereto as Exhibit A, with respect to the premises described therein
(the "Sub-sub-subleased Premises").
B. PACIFIC BELL DEVELOPMENT COMPANY is the Sub-sublessee under that
certain Sub-sublease (the "Sub-sublease") dated July 9, 1996, entered into by
and between TIG INSURANCE COMPANY, a California corporation, ("TIG") as Sub-
sublessor and PACIFIC BELL NETWORK INTEGRATION as Sub-sublessee, a copy of which
is attached as Exhibit A to the Sub-sub-sublease (Exhibit A hereto), with
respect to the premises described therein (the "Sub-subleased Premises").
C. TIG is the Sublessee under that certain Sublease dated October 7, 1987,
entered into by and between SHAKLEE CORPORATION, a Delaware corporation
("Shaklee"), as Sublessor, and TIG INSURANCE COMPANY, a California corporation,
as Sublessee, as amended by that certain Amendment No. 1 to Sublease dated April
7, 1994, that certain Second Amendment to Sublease dated April 30, 1996, and
that certain Third Amendment to Sublease dated July 3, 1996 (the "Sublease"), a
copy of which is attached to the Sub-sublease as Exhibit A thereto, except for
the Amendments, which are attached to the Sub-sub-sublease as Exhibit B with
---------
respect to the premises described therein (the "Subleased Premises").
D. Shaklee is the Lessee under that certain Amended and Restated Office
Lease (the "Master Lease") dated June 25, 1985, by and between 444 MLHIRP
Partnership, a New York general partnership, as Lessor, and Shaklee, as Lessee,
an edited copy of which is attached to the Sublease as Exhibit A thereto. Market
---------
Front Associates, L.P. ("Master Lessor") is the successor-in-interest to 444
MLHIRP Partnership.
E. Scient desires to sub-sub-sub-sublease from Schwab, and Schwab is
prepared to sub-sub-sub-sublease to Scient, the sub-sub-sub-subleased Premises
as cross-hatched on Exhibit B attached hereto and by this reference made a part
hereof (hereinafter referred to as the "Premises").
4
<PAGE>
AGREEMENT:
----------
NOW, THEREFORE, in consideration of the premises and the mutual promises
contained herein, Schwab hereby sub-sub-sub-subleases to Scient, and Scient
hereby hires from Schwab, the Premises for the term and subject to the terms,
covenants, and conditions hereinafter set forth, to each and all of which Schwab
and Scient hereby mutually agree.
1. Term; Delivery of Possession.
-----------------------------
(a) The term of this Sub-sub-sub-sublease shall commence as of the
last to occur of (i) Schwab's delivery of the Premises to Scient, broom clean,
vacant of Schwab's employees, and free of Schwab's personal property (other than
personal property which Scient has, in advance, in writing agreed to accept
pursuant to the provisions of Section 1.(d) below); (ii) Schwab and Scient have
mutually executed and delivered this Sub-sub-sub-sublease and that certain Sub-
sub-sub-sub-sublease of even date herewith, pursuant to which Scient shall sub-
sub-sub-sub-sublease the entire twenty-eighth (28th) floor of the Building from
Schwab (the "Concurrent Sub-sub-sub-sub-sublease') and (iii) this Sub-sub-sub-
sublease has been approved to the extent required, by PBNI, TIG, Shaklee and
Master Lessor and the Concurrent Sub-sub-sub-sub-sublease has been approved to
the extent required by PBNI, ADP (defined in the Concurrent Sub-sub-sub-sub-
sublease), TIG, Shaklee and Master Lessor, to the extent required under the
Concurrent Sub-sub-sub-sub-sublease (such date being referred to herein as the
"Commencement Date") (the estimated Commencement Date being set forth in the
Basic Lease Information) and unless sooner terminated as hereinafter provided,
shall end on the Termination Date specified in the Basic Lease Information. If
for any reason whatsoever the Commencement Date has not occurred as of the
estimated Commencement Date set forth in the Basic Lease Information, this Sub-
sub-sub-sublease shall not be void or voidable, nor shall Schwab be liable to
Scient for any loss or damage resulting therefrom. No delay in the Commencement
Date shall operate to extend the term hereof.
(b) The Premises shall be delivered broom-clean and free of all
personal property; however, the Premises are otherwise leased by Schwab to
Scient without any representation or warranty, express or implied, of any kind
by Schwab, the Brokers named herein, or any of Schwab's other employees or
agents (including without limitation any warranty of habitability or fitness for
a particular use), in their "as-is, where-is" condition.
(c) Scient hereby acknowledges that it has had a full and fair
opportunity to review and inspect the condition of the Building and the Premises
and will not hold any of the above parties responsible therefor.
(d) Any personal property or cabling remaining in the Premises on the
Commencement Date shall be deemed abandoned by Schwab and may be demolished,
removed and/or reused by Scient without any liability to Schwab. Scient accepts
responsibility for and shall remove all existing cabling from the Premises upon
the expiration or earlier termination of this Sub-sub-sub-sublease or earlier,
if required by Master Lessor.
2. Rental.
-------
(a) Base Rent. From and after the Commencement Date, Scient shall pay
-----------
to Schwab throughout the term of this Sub-sub-sub-sublease as rental for the
Premises the amount per annum specified in the Basic Lease Information as the
Base Rent, payable monthly in advance in 12 equal
5
<PAGE>
installments. The first month's rent shall be payable on execution of this Sub-
sub-sub-sublease by Scient and thereafter, the rental shall be payable on or
before the fast day of each and every successive calendar month of the term of
this Sub-sub-sub-sublease.
(b) Additional Rent. Scient shall pay Schwab in equal monthly
---------------
installments as Additional Rent Scient's percentage share, as specified in the
Basic Lease Information, of the amount by which Operating Expenses for such year
exceed Operating Expenses for the 1998 calendar year, as "Operating Expenses"
are defined in paragraph 5.1 of the Master Lease (incorporated by reference in
paragraph 4 of this Sub-sub-sub-sublease); and Scient shall pay Schwab in equal
monthly installments as Additional Rent Scient's percentage share of the mount
by which Taxes for such year exceed Taxes for the 1997/98 fiscal year (the "Tax
Base Year"), as "Taxes" are defined in paragraph 5.1 of the Master Lease
(incorporated by reference in paragraph 4 of this Sub-sub-sub-sublease). Scient
shall pay monthly one-twelfth (1/12th) of the Additional Rent to be paid for
such year hereunder, based on the Master Lessor's estimate of Operating Expenses
and Taxes; and after the end of a calendar year, in the case of Operating
Expenses, or a fiscal year, in the case of Taxes, promptly after receipt by
Scient of a statement of actual Operating Expenses or Taxes, Scient shall pay
any additional amount owing on account of Operating Expenses or Taxes, or Schwab
shall refund any amount owed to Scient on account of Operating Expenses or
Taxes, as the case may be, in accordance with the terms of the Master Lease.
Scient acknowledges that TIG may not receive from Shaklee, and hence PBNI may
not receive from TIG, and hence Schwab may not receive from PBNI, and hence
Scient may not receive from Schwab, notice of the estimated increase in
Additional Rent for any calendar year until some months after the fast of such
calendar year, and Scient agrees that, upon receipt of such notice from Schwab,
Scient shall pay Schwab in a lump sum all payments designated in such notice as
payments owing for estimated increases in Additional Rent not previously paid
and attributable to the period prior to the date of payment, such lump sum
payment being payable with the monthly installment of Base Rent that is next
due. Schwab agrees to forward to Scient a copy of any such notice applicable to
the term of this Sub-sub-sub-sublease or the base year that Schwab receives
within ten (10) business days; provided, however, that failure to do so shall
not be a default on the part of Schwab. Schwab and Scient acknowledge that
Scient's percentage share has been determined by dividing the net rentable area
of the Premises, as specified in the Basic Lease Information, by 605,459 square
feet, which is the net rentable area of the Building. Scient shall also pay
Schwab, as Additional Rent, (i) for any special services Schwab, PBNI, TIG,
Shaklee or Master Lessor may agree to provide in connection with this Sub-sub-
sub-sublease and (ii) those amounts and charges set forth in paragraphs 7 and 7A
below.
(c) Notwithstanding the definition of Taxes in paragraph 5.1 of the
Master Lease, for purposes of this Sub-sub-sub-sublease, the amount of Taxes
during the Tax Base Year shall be deemed to be the amount of Taxes incurred
during the Tax Base Year, reduced by any reduction obtained under California
Revenue and Taxation Code, Section 51 ("Proposition 8"), attributable to the
value of the real property on which the Building is located, the Building, the
parking facilities located on the real property on which the Building is
located, and all tenant improvements. If, in any comparison year subsequent to
the Tax Base Year (the "Adjustment Year"), the amount of Taxes decreases as a
result of a Proposition 8 reduction, then for purposes of that Adjustment Year
and all subsequent comparison years, the Taxes for the Tax Base Year shall be
deemed to be decreased by an amount equal to the decrease in Taxes in the
Adjustment Year. Conversely, if the Taxes thereafter are increased during any
comparison year subsequent to the Adjustment Year (the "Readjustment Year"), as
a result of the failure to obtain a Proposition 8 reduction that is at least as
large as the Proposition 8 reduction obtained during the Adjustment Year, then
for purposes of the Readjustment Year and all subsequent comparison years, the
Taxes for the Tax Base Year shall be increased by an amount equal to the
increase in Taxes during such Readjustment Year that resulted from the failure
to obtain a Proposition 8 reduction at least as large as the
6
<PAGE>
Proposition 8 reduction obtained during the Adjustment Year. Schwab and Scient
acknowledge that this Paragraph 2(c) is not intended in any way to affect (i)
the statutory two percent (2 %) annual increase in Taxes (as such statutory
increase may be modified by subsequent legislation), or (ii) the inclusion or
exclusion of Taxes pursuant to the terms of Article XIII A of the California
Constitution, commonly referred to as Proposition 13.
(d) Notwithstanding anything elsewhere in this Sub-sub-sub-sublease to
the contrary, Scient shall not be required to pay any increased Taxes to the
extent that such increase has resulted from a "change in ownership" of the
Building, as defined in Division i, Chapter 2 of the California Revenue &
Taxation Code, or "new construction", as defined in Division 1, Chapter 3 of the
California Revenue & Taxation Code.
(e) In the event the Commencement Date is a day other than the first
day of a calendar month or the term of this Sub-sub-sub-sublease ends on a day
other than the last day of a calendar month, then the monthly rental for the
first and last fractional months of the term hereof shall be appropriately
prorated.
(f) Rental shall be paid to Schwab, without deduction or offset, in
lawful money of the United States of America at Schwab's address for notices
hereunder or to such other person or at such other place as Schwab may from time
to time designate in writing. All mounts of money payable by Scient to Schwab
hereunder, if not paid when due and after 5 days' written notice from Schwab,
shall bear interest from 5 days after such notice is given until paid at the
rate of 10% per annum or, if a higher rate is legally permissible, at the
highest rate legally permitted.
3. Use. The Premises shall be used for general office purposes and no
---
other purpose. Scient shall not do or permit to be done in or about the
Premises, nor bring or keep or permit to be brought or kept therein, anything
that is prohibited by paragraph 7 of the Master Lease.
4. Other Sub-sub-sub-sublease Terms.
---------------------------------
(a) The following terms and provisions of the Master Lease are hereby
incorporated in this Sub-sub-sub-sublease by this reference: paragraphs 2 (but
not ~e third and fourth sentences thereof), 5.1(a), 5.1(b) (first paragraph,
only), 5.3, 5.4, 5.5, 5.7, 6, 7 (other than the first sentence), 8(a)-(f)
(except that paragraph 8(e) is modified pursuant to that certain letter
agreement dated September 23, 1987, between Master Lessor and Shaklee ("Letter
Agreement") attached to the Sub-sub-sublease as Exhibit D, and Scient hereby
understands and accepts that Master Lessor, pursuant to TIG's original HVAC
design, will maintain indoor conditions with respect to the Premises no higher
than 75 degrees Fahrenheit dry bulb during the cooling season) and (h)-(j) (but
not the last sentence of 8(h) or the portion of 8(i) deleted from Exhibit A to
the Sublease), 10, 11 (but not 11.1 or the sentences stricken on Exhibit A to
the Sublease), 12, 15, 17 (but not the last sentence thereof), 18, 19, 20, 21,
22, 23, 24, 25, 27, 30.2(2), 30.2(4) (but not the second paragraph thereof), 33,
36, 37, 39, 40, 43, 44, 45, 50 (as to Exhibits C-H thereto, only). The Sublease
(except Paragraphs 5,11 and 13 and Exhibit C thereto), including paragraphs 1
and 2 of the Second Amendment to Sublease, but excluding all of Amendment No. 1
to Sublease, is incorporated except as may be inconsistent with this Sub-sub-
sub-sublease. The Sub-sublease (including Exhibit C, that certain Letter
Agreement attached thereto) is incorporated except as may be inconsistent with
this Sub-sub-sub-sublease. The Sub-sub-sublease is incorporated except as may be
inconsistent with this Sub-sub-sub-sublease. Except as is specified in this Sub-
sub-sub-sublease, this subletting is upon and subject to all of the terms of the
Master Lease, the Sublease, the Sub-sublease and the Sub-sub-sublease so
incorporated in this Sub-sub-sub-sublease. Such incorporated terms shall
7
<PAGE>
constitute the terms of this Sub-sub-sub-sublease as between Schwab and Scient
as "Landlord" and "Tenant," respectively, except that paragraph 5.1 of the
Master Lease shall be incorporated reading "Landlord" to refer to the Master
Lessor insofar as the calculation of Operating Expenses and Taxes is concerned,
and paragraphs 2, 18, and 26 of the Master Lease shall be incorporated reading
"Landlord" to refer to Shaklee, Master Lessor, TIG, PBNI and Schwab. Scient
shall perform and observe for the benefit of Shaklee, Master Lessor, TIG, PBNI
and Schwab each and all of the conditions, covenants, and obligations to be
performed by Shaklee as Tenant under the Master Lease, by TIG under the
Sublease, by PBNI under the Sub-sublease and by Schwab under the Sub-sub-
sublease, to the extent said conditions, covenants, and obligations are
incorporated in this Sub-sub-sub-sublease and are applicable to the Premises.
Master Lessor, Shaklee, TIG, and PBNI shall have the same fights and privileges
under this Sub-sub-sub-sublease that they have under the Master Lease, Sublease,
Sub-sublease and the Sub-sub-sublease, to the extent such rights and privileges
are incorporated in this Sub-sub-sub-sublease and are applicable to the
Premises, and shall have the fight, but not the obligation, to enforce such
conditions, covenants, and obligations directly against Scient. Scient and
Schwab covenant not to take any action or do or perform any act or fail to
perform any act on the Premises that would result in the failure or breach of
any of the terms, conditions, covenants, agreements, provisions or obligations
of Shaklee under the Master Lease, of TIG under the Sublease, of PBNI under the
Sub-sublease, or of Schwab under the Sub- sub-sublease. Notwithstanding the
incorporation herein of the foregoing provisions of the Master Lease, Scient
acknowledges that Schwab shall have no responsibility or obligation with respect
to (i) furnishing any services under paragraph 8 of the Master Lease, including,
but not limited to, utilities, or (ii) making any alterations, repairs, or
replacements under paragraphs 11, 12, or 15 of the Master Lease, and the sole
responsibility of Schwab thereunder shall be as described in paragraph 28(g)
below, to use reasonable efforts, without out-of-pocket cost to Schwab, to cause
Master Lessor, Shaklee, TIG or PBNI to furnish such services or make such
alterations, repairs, or replacements as are required under the Master Lease,
Sublease, Sub-sublease or Sub-sub-sublease. Any notices given to Master Lessor
in connection with paragraphs 8, 11, 12, or 15 of the Master Lease, or any other
provisions of this Sub-sub-sub-sublease, shall also simultaneously be given to
Schwab, PBNI, TIG and Shaklee, whether or not Schwab, PBNI, TIG or Shaklee has
any responsibility to take action in response to such notices. Scient shall
indemnify and save Schwab, PBNI, TIG and Shaklee harmless against any loss,
damage, or injury that Schwab, PBNI, TIG or Shaklee may suffer or incur under
the Master Lease, Sublease, Sub-sublease or Sub-sub-sublease as the result of
any breach by Scient of its obligations under this Sub-sub-sub-sublease.
(b) Schwab and Scient acknowledge that certain of the provisions of
the Master Lease enumerated above that are not incorporated in this Sub-sub-sub-
sublease have been deleted from the copy of the Master Lease attached to the
Sublease as Exhibit A, in order to protect the confidential aspects of the
contractual relationship between Shaklee and Master Lessor, and subject to all
of the terms and conditions stated therein. Schwab hereby represents and
warrants that, to the knowledge of Schwab, the provisions so deleted are not
inconsistent with the incorporated terms of the Master Lease and shall not
affect Scient's rights and obligations under this Sub-sub-sub-sublease. Except
for such deletions and the portions of Exhibit A to the Sublease that have been
stricken as described in subparagraph (a), above, Schwab represents and warrants
that, to Schwab's knowledge, Exhibit A to the Sublease is a true and correct
copy of the Master Lease. Scient agrees not to disclose the contents of the
Master Lease or any portion thereof to any third parties, other than its counsel
and the persons listed as brokers in the Basic Lease Information, without the
prior written consent of Schwab, PBNI, TIG and Shaklee.
(c) Any default by Scient under the terms of this Sub-sub-sub-sublease
shall also constitute a default by Scient under the terms of the Concurrent Sub-
sub-sub-sub-sublease and vice-versa and shall entitle Schwab to exercise its
remedies under either or both of the Sub-sub-sub-sublease or the Concurrent Sub-
sub-sub-sub-sublease.
8
<PAGE>
5. [INTENTIONALLY OMITTED]
6. Alterations. Scient shall not make any alterations, additions, or
-----------
improvements to the Premises, or attach any fixtures or equipment thereto,
without the prior written consent of Schwab, PBNI, Master Lessor, Shaklee, and
TIG. Scient shall not make any alterations, additions, or improvements to the
Premises, or attach any fixtures or equipment thereto that would violate any
provisions of the Master Lease, Sublease, Sub-sublease or Sub-sub-sublease. Any
such alterations, additions or improvements, or fixtures or equipment, shall be
subject to, without limitation, Paragraph 2 of the Second Amendment to the
Sublease. Schwab acknowledges that Scient intends to construct certain
improvements within the Premises Scient Improvements") following the
Commencement Date and will not unreasonably withhold its consent to construct
the Scient Improvements.
7. Excess Electrical Usage. Scient agrees to pay Schwab, in lieu of
-----------------------
any payment to Schwab, PBNI, TIG, Shaklee or the Master Lessor of any direct
charges for electrical usage in excess of the electrical usage included within
the definition of "Operating Expenses" under the Master Lease ("Excess
Electrical Usage"), a fiat fee of $135.00 per month, regardless of the amount,
if any, of Scient's actual Excess Electrical Usage, and without any adjustment.
Without limiting the generality of the foregoing, such fiat fee shall not be
adjusted to reflect any changes in utility rates or the actual amount of Excess
Electrical Usage in the Premises.
7A. Other Charge. Notwithstanding anything in this Sub-sub-sub-
------------
sublease to the contrary, Scient shall pay Schwab for those charges incurred
during the term of this Sub-sub-sub-sublease pursuant to paragraphs 2.d(1), (2)
and 5 of that certain Agreement Regarding Improvements dated as of February ___,
1997 between Master Lessor, Shaklee and Schwab. Scient acknowledges receipt of a
copy of said agreement.
8. Fitness Center and Cafeteria. Scient acknowledges that Schwab is
----------------------------
not entitled to any memberships in the fitness center located on the third floor
of the Building (the "Fitness Center"). Scient acknowledges that Shaklee has
reserved the fight to close or otherwise limit access to the Fitness Center or
the cafeteria located on the second floor of the Building (the "Cafeteria"), or
to transfer ownership or operation of either facility, at any time and in its
sole discretion. In the event the Cafeteria or Fitness Center should close or be
made unavailable, or in the event of a transfer of ownership or operation of
either facility, all Scient's fights, if any, to use of such facility shall
terminate.
9. Signage. Schwab agrees to use reasonable efforts to obtain the
---------
necessary approvals for Scient to place identification signs in the Building.
Placement of such signs shall in any event be limited to the elevator lobbies of
the floor occupied by Scient and the directory located in the ground floor lobby
of the Building.
10. Parking. Scient acknowledges that Schwab makes no representations
-------
regarding the availability of parking stalls in the Building garage for use by
Scient. Notwithstanding the foregoing, Schwab agrees that it will make available
to Scient its fights, if any, to parking stalls in the Building and will make
reasonable efforts without out-of-pocket costs to Schwab to assist Scient in
obtaining additional stalls up to a total of seven (7) stalls. Scient shall pay
for any parking stalls it obtains at the then-prevailing market rate for parking
in the Building garage and such use shall be subject to the prevailing terms and
conditions imposed by garage management. Scient shall pay Master Lessor, Shaklee
or garage management (as appropriate) directly for such parking, if any, monthly
upon invoicing.
9
<PAGE>
11. [INTENTIONALLY OMITTED]
12. Waiver and Indemnification.
---------------------------
(a) Neither Shaklee, Master Lessor, TIG, PBNI nor Schwab shall be
liable or responsible in any way for, and Scient hereby waives all claims
against Shaklee, Master Lessor, TIG, PBNI and Schwab with respect to or arising
out of, any death or injury of any nature whatsoever that may be suffered or
sustained by Scient or any employee, licensee, invitee, guest, agent, or
customer of Scient or any other person, from any causes whatsoever, or any loss
or damage or injury to any property outside or within the Premises belonging to
Scient or its employees, agents, customers, licensees, invitees, guests, or any
other person, except, as to Schwab, to the extent such injury or damage is
caused by the negligence or willful act or omission of Schwab or its employees,
agents, customers, licensees, invitees, or guests; and except, as to PBNI, to
the extent such injury or damage is caused by the negligence or willful act or
omission of PBNI or its employees, agents, customers, licensees, invitees, or
guests; and except, as to TIG, to the extent such injury or damage is caused by
the negligence or willful act or omission of TIG or its employees, agents,
customers, licensees, invitees, or guests; and except, as to Shaklee, to the
extent such injury or damage is caused by the negligence or willful act or
omission of Shaklee or its employees, agents, customers, licensees, invitees, or
guests; and except, as to Master Lessor, to the extent such injury or damage is
caused by the negligence or willful act or omission of Master Lessor or its
employees, agents, customers, licensees, invitees, or guests.
(b) Scient shall hold Shaklee, Master Lessor, TIG, PBNI and Schwab
harmless from and defend and indemnify Shaklee, Master Lessor, TIG, .PBNI and
Schwab against any and all losses, damages, claims, or liability for any damage
to any property or injury, illness, or death of any person (i) occurring in or
on the Premises, or any part thereof, arising at any time and from any cause
whatsoever except, as to Schwab, to the extent caused by the negligence or
willful act or omission of Schwab or its employees or agents; except, as to
PBNI, to the extent caused by the negligence or willful act or omission of PBNI
or its employees or agents; except, as to TIG, to the extent caused by the
negligence or willful act or omission of TIG or its employees or agents; except,
as to Shaklee, to the extent caused by the negligence or willful act or omission
of Shaklee or its employees or agents; and except, as to Master Lessor, to the
extent caused by the negligence or willful act or omission of Master Lessor or
its employees or agents; and (ii) occurring in, on, or about any part of the
Building other than the Premises, when such damage, injury, illness, or death
shall be caused in whole or in part by the negligence or willful act or omission
of Scient or its employees, agents, customers, licensees, invitees, or guests.
(c) The provisions of this paragraph 12: (i) are subject and
subordinate to the provisions of paragraph 14 below; and (ii) shall survive the
termination of this Sub-sub-sub-sublease with respect to any damage, injury,
illness, or death occurring prior to such termination.
13. Insurance.
----------
(a) Scient shall, at its sole cost and expense, obtain and keep in
force during the term of this Sub-sub-sub-sublease fire and extended coverage
insurance on all improvements, fixtures, furnishings, and equipment in and upon
the Premises in an amount not less than one hundred percent (100%) of the full
replacement cost (without deduction for depreciation) thereof. All amounts that
shall be received under the insurance specified in this paragraph shall first be
applied to the payment of the cost of repair or replacement of any fixtures,
furnishings, equipment, and improvements that are damaged or destroyed, or, if
this Sub-sub-sub-sublease terminates prior to such repair or replacement being
made,
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<PAGE>
paid over to Schwab, to the extent that the improvements or fixtures damaged or
destroyed would have become Schwab's property pursuant to paragraph 25 hereof,
provided, however, that Scient shall be entitled to that portion of said
insurance proceeds equal to the unamortized value of said improvements and
fixtures.
(b) Scient shall, at its sole cost and expense, obtain and keep in
force during the term of this Sub-sub-sub-sublease commercial general liability
insurance with limits of not less than Five Million Dollars ($5,000,000) per
occurrence for injury to or illness or death of persons occurring in, upon, or
about the Premises (or the premises subleased by Scient from Schwab under the
Concurrent Sub-sub-sub-sub-sublease) or the Building or damage to property
occurring in, upon, or about the Premises or the Building. All such insurance
shall insure the performance by Scient of the indemnity agreement as to
liability for injury to or illness or death of persons and damage to property
set forth in paragraph 12 hereof.
(c) All insurance required under this paragraph and all renewals
thereof shall be issued by an insurance company licensed to do business in
California and maintaining no less than an A-31I Best's rating and approved by
Master Lessor, Shaklee, TIG, PBNI and Schwab, which approvals shall not be
withheld unreasonably if the insurance and company meet all requirements of the
Sub-sub-sub-sublease, Sub-sub-sublease, Sub-sublease, Sublease and Master Lease.
Each policy shall expressly provide that the insurer shall give not less than 45
days' prior written notice to Master Lessor, Shaklee, TIG, PBNI and Schwab prior
to cancelling or altering the policy in a way that would affect the coverage,
limits or substantive coverage terms affecting the Premises (an "Alteration").
Scient shall give Master Lessor, Shaklee, TIG, PBNI and Schwab 45 days' prior
written notice of any cancellation or Alteration. All insurance under this
paragraph shall name Master Lessor, Shaklee, TIG, PBNI and Schwab as additional
insureds, shall be primary and noncontributing with any insurance that may be
carried by Master Lessor, Shaklee, TIG, PBNI or Schwab, and shall expressly
provide that Master Lessor, Shaklee, TIG, PBNI and Schwab shall be named as
additional insureds by endorsement to the policy or policies, and, as such,
shall be entitled to recover under the policy for any loss, injury, or damage to
Master Lessor, Shaklee, TIG, PBNI, Schwab or the employees or contractors of any
of them arising out of this Sub-sub-sub-sublease. Upon the Commencement Date and
upon annual renewal of the policy or policies throughout the term of this Sub-
sub-sub-sublease, each such policy or a duplicate or certificate of insurance,
and endorsement to the policy or policies, evidencing such coverage shall be
delivered to Master Lessor, Shaklee, TIG, PBNI, and Schwab for retention by each
of them. In the event that Scient shall fail to insure or shall fail to furnish
to Master Lessor, Shaklee, TIG, PBNI and Schwab any such policy, duplicate
policy, or certificate and endorsement to the policy or policies as herein
required, Master Lessor, Shaklee, TIG, PBNI or Schwab may from time to time
effect such insurance for the benefit of Scient, Master Lessor, Shaklee, TIG,
PBNI, Schwab or any or all of them for a period not exceeding one year, and any
premium paid by Master Lessor, Shaklee, TIG, PBNI or Schwab shall be recoverable
from Scient as additional rent on demand.
14. Waiver of Subrogation. Schwab hereby waives all claims against Scient
---------------------
for loss or damage to the extent that such loss or damage is insured against
under any insurance policy insuring Schwab, or would have been insured against
under any insurance policy required to be maintained by Schwab under the Sub-
sub-sublease had such policy been obtained, except to the extent that such
waiver would impair coverage under any such insurance policy, and except that
Schwab does not waive any claims it may have with respect to any deductible
amount under any such policy. Scient waives all claims against Shaklee, Master
Lessor, TIG, PBNI and Schwab for loss or damage to the extent such loss or
damage is insured against under any insurance policy insuring Scient, or would
have been insured against under any insurance policy required to be maintained
by Scient under this Sub-sub-sub-sublease had such
11
<PAGE>
policy been obtained, or would have been insured against but for any deductible
amount under any such policy, except to the extent that such waiver would impair
coverage under any such insurance policy, and except that Scient does not waive
any claims against Schwab it may have with respect to any deductible amount
under any such policy. Schwab and Scient shall each, prior to or immediately
after the execution of this Sub-sub-sub-sublease, use best efforts to obtain
from each insurer under all insurance policies now or hereafter existing during
the term of this Sub-sub-sub-sublease and purchased by either of them insuring
or covering any portion of the Building or the Premises, the contents thereof,
or any operations therein, a waiver of all fights of subrogation that the
insurer might otherwise, if at all, have against the other party to this Sub-
sub-sub-sublease.
15. Assignment and Subletting.
--------------------------
(a) Except as set forth in this paragraph, Scient shall not: (i)
assign, encumber, or otherwise transfer this Sub-sub-sub-sublease, the term or
estate hereby granted, or any interest hereunder; (ii) permit the Premises or
any part thereof to be used by anyone other than Scient (whether as licensee,
permittee, or otherwise); or (iii) sublet or offer or advertise for subletting
the Premises or any part thereof. Any attempted assignment, encumbrance,
transfer, or sublease not done in accordance with the provisions of this
paragraph shall be voidable and, at Schwab's election, shall constitute a
default hereunder.
(b) If at any time during the term hereof Scient desires to sublet
all or any part of the Premises, then Scient shall submit to Schwab, PBNI, TIG
and Shaklee, in writing, a notice of intent to assign or sublease, setting
forth: (i) the proposed effective date of the assignment or sublease; (ii) the
name of the proposed subtenant or assignee (collectively hereinafter,
"subtenant/assignee"); and (iii) the nature of the proposed subtenant/assignee's
business to be carried on in the Premises. Such notice shall be accompanied by
(x) such reasonable financial information as Schwab, PBNI, TIG or Shaklee may
request concerning the proposed subtenant/assignee, including recent financial
statements and bank references; and (y) a conformed or photostatic copy of the
proposed sublease or assignment agreement (or, if not yet available, a
description of the contemplated form of agreement).
(c) In the event that Scient complies with the provisions of
subparagraph (b), Schwab's consent to a proposed sublease or assignment, subject
to approval by PBNI, TIG and Shaklee, shall not be unreasonably withheld. Schwab
shall respond to Scient's notice to sublet within eighteen (18) business days of
receipt by Schwab of all information required herein concerning the proposed
subtenant or assignee. Scient shall promptly reimburse Schwab for Schwab's,
PBNI's, TIG's and Shaklee's reasonable out-of-pocket costs actually incurred in
reviewing the proposed sublease or assignment, including reasonable attorneys'
fees following the demand therefor accompanied by reasonable backup
documentation. In determining whether to grant or withhold such consent, Schwab,
PBNI, TIG and Shaklee may consider any reasonable factor. Without limiting what
may be construed as a reasonable factor, it is hereby agreed that any one of the
following factors will be reasonable grounds for disapproval of a proposed
assignment or sublease:
(i) The proposed subtenant/assignee does not, in the
reasonable judgment of Schwab, PBNI, TIG or Shaklee, have sufficient
financial worth in view of the responsibility involved;
(ii) The proposed subtenant/assignee does not, in the
reasonable judgment of Schwab, PBNI, TIG or Shaklee, have a good reputation
as a tenant of property;
12
<PAGE>
(iii) Schwab, PBNI, TIG or Shaklee has received from any prior
"" lessor of the proposed subtenant/assignee a significant negative report
concerning such prior lessor's experience with the proposed
subtenant/assignee as a tenant;
(iv) Schwab, PBNI, TIG or Shaklee has been involved in a
previous landlord/tenant dispute with the proposed subtenant/assignee;
(v) The proposed subtenant/assignee is not, in the reasonable
judgment of Schwab, PBNI, TIG or Shaklee, of the type, character, and
quality consistent with the high quality and prestigious image of the
Building;
(vi) In the reasonable judgment of Schwab, PBNI, TIG or
Shaklee, the proposed assignment or sublease would violate paragraph 7 or
16 of the Master Lease;
(vii) The use of the Premises by the proposed subtenant/assignee
would violate some applicable law, ordinance, or regulation;
(viii) The proposed assignment or sublease would create a
vacancy elsewhere in the Building;
(ix) The proposed subtenant/assignee is a person with whom
Schwab, PBNI, TIG or Shaklee is negotiating to lease space in the Building
comparable in both length of term and net rentable square footage to the
space Scient is seeking to assign or sublet;
(x) The proposed subtenant/assignee is in the business of
manufacturing or in the general business of selling nutritional
supplements, household or personal care products, gourmet foods, or
flowers, or deals in any other product lines that Shaklee manufactures or
sells, or plans to manufacture or sell as of the date of the proposed
sublease or assignment, or is in the business of marketing any such
merchandise through direct sale or direct mail, at the time of the proposed
assignment or sublease;
(xi) In the case of a proposed sublease, the proposed sublease
would cause there to be more than one subtenant of the Subleased Premises,
the Sub-subleased Premises the Sub-sub-subleased Premises, or the Premises;
(xii) The proposed assignment or sublease fails to include all
of the terms and provisions required to be included therein pursuant to
this paragraph 15;
(xiii) Scient is in default of any of its obligations under this
Sub-sub-sub-sublease, or has defaulted under this Sub-sub-sub-sublease on
three or more occasions during the twelve months preceding the date Scient
requests Schwab's consent to the proposed assignment or sublease; or
(xiv) Shaklee, TIG or PBNI shall not consent to the proposed
assignment or sublease.
(d) The instrument by which assignment .or subletting is accomplished
shall (i) expressly provide that the subtenant/assignee shall perform and
observe all the agreements, covenants, and conditions to be performed and
observed by Scient under this Sub-sub-sub-sublease (except as to rent and
13
<PAGE>
term or as otherwise agreed to by Schwab); (ii) be expressly subject and
subordinate to each and every provision of this Sub-sub-sub-sublease; (iii) have
a term that expires on or before the expiration of the term of this Sub-sub-sub-
sublease; (iv) provide that if Shaklee, Master Lessor, TIG, PBNI or Schwab
succeeds to Scient's position as landlord vis-a-vis the subtenant/assignee,
neither Shaklee, Master Lessor, TIG, PBNI nor Schwab shall be liable to such
subtenant/assignee for advance rental payments, rental deposits, or other
payments that have not actually been delivered to Shaklee, TIG, PBNI or Schwab
by Scient; and (v) provide that Scient or the subtenant/assignee shall reimburse
Schwab for any additional costs or expenses incurred by Schwab for repairs or
maintenance or otherwise as a result of the change in occupancy.
(e) No assignment or sublease shall be valid, and no
subtenant/assignee shall take possession of the Premises or any part thereof,
until an executed counterpart of the assignment or sublease has been delivered
to Schwab, PBNI, TIG and Shaklee.
(f) Notwithstanding Schwab's consent, no subletting or assignment
shall release or otherwise alter Scient's obligations to pay the rent and to
perform all other obligations to be performed by Scient hereunder. The
acceptance of rent by Schwab from any other person shall not be deemed to be a
waiver by Schwab of any provision hereof. Consent to one assignment or
subletting shall not be deemed consent to any subsequent assignment or
subletting. If any assignee of Scient or any successor of Scient defaults in the
performance of any of the terms hereof, Schwab may proceed directly against
Scient without the necessity of exhausting remedies against such assignee or
successor.
(g) In the event that Schwab assigns, transfers, or conveys its
interest in the Sub-sub-sublease, and provided that the instrument of
assignment, transfer, or conveyance shall expressly require the assignee or
transferee to assume all such liabilities and obligations, all liabilities and
obligations on the part of Schwab under this Sub-sub-sub-sublease shall
terminate. Scient agrees to attorn to such assignee or transferee.
16. Holdover. If Scient remains in possession of the Premises after
---------
expiration, but not earlier termination, of this Sub-sub-sub-sublease, all of
the terms, covenants, and agreements hereof shall continue to bind Scient to the
extent applicable, except that, if Scient remains in possession without Schwab's
written consent, then: (a) the monthly rent shall be two (2) times the monthly
rent payable for the last month of the Sub-sub-sub-sublease term, prorated on a
daily basis for each day Scient remains in possession, and (b) Scient shall
indemnify Schwab against any and all claims, losses, and liabilities for
damages, consequential or otherwise, resulting from Scient's failure to
surrender possession, including without limitation any claims by PBNI, TIG,
Shaklee, Master Lessor or any succeeding sublessee.
17. Notices. All notices and demands that may or are required to be given
--------
by either party to the other hereunder shall be in writing and shall be deemed
to have been fully given when delivered by reputable overnight courier, or when
deposited in the United States mail, certified or registered, postage prepaid,
and addressed as follows: to Scient at the address specified in the Basic Lease
Information, or to such other place as Scient may from time to time designate in
a notice to Schwab; to Schwab at the address specified in the Basic Lease
Information, or to such other place as Schwab may from time to time designate in
a notice to Scient; or, in the case of Scient, delivered to Scient at the
Premises. Scient acknowledges that it may receive notices at the Premises from
PBNI, TIG, Shaklee, or Master Lessor. Scient hereby appoints as its agent to
receive the service of all dispossessory or distraint proceedings and notices
thereunder the person in charge or occupying the Premises at the time, and, if
no person shall be in charge of or occupying the same, then such service may be
made by attaching the same on the main entrance of the Premises.
14
<PAGE>
18. Subordinate to Master Lease, Sublease, Sub-sublease and Sub-sub-
----------------------------------------------------------------
sublease.
---------
(a) This Sub-sub-sub-sublease is and shall be at all times subject
and subordinate to all of the terms and conditions of, and all fights of Master
Lessor under, the Master Lease. Without limiting the generality of the
foregoing, any termination of the Master Lease prior to the end of the term of
this Sub-sub-sub-sublease shall terminate this Sub-sub-sub-sublease.
(b) This Sub-sub-sub-sublease is and shall be at all times subject
and subordinate to all of the terms and conditions of, and all fights of Shaklee
under, the Sublease. Without limiting the generality of the foregoing, any
termination of the Sublease prior to the end of the term of this Sub-sub-
sublease shall terminate this Sub-sub-sub-sublease.
(c) This Sub-sub-sub-sublease is and shall be at all times subject
and subordinate to all of the terms and conditions of, and all fights of TIG
under, the Sub-sublease. Without limiting the generality of the foregoing, any
termination of the Sub-sublease prior to the end of the term of this Sub-sub-
sub-sublease shall terminate this Sub-sub-sub-sublease.
(d) This Sub-sub-sub-sublease is and shall be at all times subject
and subordinate to all of the terms and conditions of, and all fights of PBNI
under, the Sub-sub-sublease. Without limiting the generality of the foregoing,
any termination of the Sub-sub-sublease prior to the end of the term of this
Sub-sub-sub-sublease shall terminate this Sub-sub-sub-sublease. Schwab covenants
to do all acts reasonably necessary and perform all obligations required to be
performed by it under the Sub-sub-sublease, Sub-sublease, Sublease and the
Master Lease (insofar as incorporated into the Sub-sub-sub-sublease), except
insofar as such acts or obligations are required to be performed by Scient
hereunder; and Schwab covenants not to cancel or terminate, or suffer, consent
or agree to the cancellation or termination of, the Sublease, Sub-sublease, Sub-
sub-sublease during the term of this Sub-sub-sub-sublease, so long as Scient is
not in default of this Sub-sub-sub-sublease beyond any applicable cure period.
(e) If PBNI, TIG, Shaklee or Master Lessor succeeds to Schwab's
position as landlord vis-a-vis Scient, neither PBNI, TIG, Shaklee nor Master
Lessor shall be liable to Scient for advance rental payments, rental deposits,
or other payments that have not actually been delivered to PBNI, TIG, Shaklee or
Master Lessor.
(f) If Schwab receives any notice or demand from Master Lessor under
the Master Lease, from Shaklee under the Sublease, from TIG under the Sub-
sublease, from PBNI under the Sub-sub-sublease with respect to the Premises,
Schwab shall, pursuant to Paragraph 22, deliver a tree and correct copy of same
to Scient.
19. No Privity. Nothing contained in this Sub-sub-sub-sublease shall be
-----------
construed to create privity of estate or of contract between Scient and Master
Lessor, Shaklee, TIG, or PBNI. Schwab and Scient each agrees not to do or permit
to be done any act or thing that will constitute a breach or violation of any of
the terms, covenants, conditions, or provisions of the Master Lease, Sublease,
Sub-sublease or Sub-sub-sublease.
20. No Representations. In making and executing this Sub-sub-sub-sublease,
-------------------
Scient has not relied upon or been induced by any statements or representations
of any persons, including, without limitation, Schwab, the Brokers named herein,
and Schwab's other employees and agents (other than those representations, if
any, set forth expressly in this Sub-sub-sub-sublease) with respect to the
physical
15
<PAGE>
condition of the Building or the Premises or with respect to any other matter
affecting the Premises or this transaction that might be pertinent in
considering the leasing of the Premises or the execution of this Sub- sub-sub-
sublease, including, without limitation, the following: (i) the legality of the
present or any possible future use of the Building or Premises under federal,
state or local law; (ii) the physical condition of the Building and/or Premises,
including but not limited to soil condition and the structural integrity of the
Building and/or Premises; (iii) the accuracy or completeness of square footage
figures, and of the texts of agreements affecting the Building and/or Premises;
or (iv) the possibility that leases, options or other documents or agreements
exist that affect or encumber the Building and/or Premises and which have not
been provided or disclosed by the Master Lessor, Shaklee, TIG, PBNI, or, with
respect to the Brokers named herein and Schwab's other agents, contractors,
employees, officers and directors, by Schwab. Scient has, on the contrary,
relied solely on such representations, if any, as are expressly made herein and
on such investigations, examinations, and inspections as Scient has chosen to
make or have made. Scient acknowledges that Schwab has afforded Scient the
opportunity for full and complete investigations, examinations, and inspections.
21. Schwab's Approval. Whenever Scient shall request Schwab's consent or
-------------------
approval, such consent or approval shall not be unreasonably withheld, provided
that Schwab's refusal to consent to or approve any matter, whenever Schwab's
consent or approval is required or requested under this Sub-sub-sub-sublease,
shall be deemed reasonable, if, among other things, Schwab has used its best
efforts to obtain such consent or approval but PBNI, TIG, Shaklee or Master
Lessor has refused to give such consent or approval. Nothing in this Sub-sub-
sub-sublease shall diminish or in any way affect Master Lessor's fight to
approve or consent under the Master Lease, Shaklee's fight to approve or consent
under the Sublease, or TIG's fight to approve or consent under the Sub-sublease,
or PBNI's fight to approve or consent under the Sub-sub-sublease nor imply a
constraint of reasonableness with respect to the exercise of such fights.
22. Time Limits. Schwab shall, no later than 5 business days after receipt
-------------
thereof, give to Scient a copy of each notice and demand received from Master
Lessor, Shaklee, TIG or PBNI concerning the Premises, Sub-sub-sub-sublease, Sub-
sub-sublease, Sub-sublease, Sublease or Master Lease.
23. Letter of Credit.
-----------------
(a) During the entire term of this Sub-sub-sub-sublease, Scient shall
have obtained letter(s) of credit from a financial institution satisfactory to
Schwab naming Schwab as beneficiary to secure Scient's obligations hereunder, at
the times, in the mounts and for the purposes set forth below or in paragraph 23
of the Concurrent Sub-sub-sub-sub-sublease. Each letter of credit shall be for a
term of not less than one year and irrevocable during that period. Each letter
of credit shall provide that it will be honored upon a signed statement by
Schwab that Schwab is entitled to draw upon the letter of credit under this Sub-
sub-sub-sublease and shall require no signature or statement from any party
other than Schwab. No notice to Scient shall be required to enable Schwab to
draw upon the letter of credit. Each letter of credit shall also provide that
following the honor of any drafts in an amount less than the aggregate amount of
a letter of credit, the financial institution shall return the original letter
of credit to Schwab and Schwab's fights as to the remaining amount of the letter
of credit will not be extinguished. If the financial institution from which
Scient has obtained a letter of credit shall admit in writing its inability to
pay its debts generally as they become due, file a petition in bankruptcy or a
petition to take advantage of any insolvency act, make an assignment for the
benefit of its creditors, consent to the appointment of a receiver of itself or
of the whole or any substantial part of its property, or file a petition or
answer seeking reorganization or arrangement under the Federal Bankruptcy Code
or any other applicable law or statute of the United States of America or any
state thereof, then Scient shall obtain a replacement letter of credit
16
<PAGE>
within ten (10) days of such act from another financial institution satisfactory
to Schwab.
(b) Times for Obtaining Letter of Credit. A letter of credit in the
-------------------------------------
amount of $400,000 shall be obtained and delivered to Schwab at least five (5)
business days prior occupancy by Scient. It shall cover the twelve (12) month
period beginning on the Commencement Date. If Scient does not commit any breach
or default hereunder or under the Concurrent Sub-sub-sub-sub-sublease during the
first year of the term of this Sub-sub-sub-sublease and the Concurrent Sub-sub-
sub-sub-sublease, the letter(s) of credit which shall cover subsequent years of
the term of this Sub-sub-sub-sublease shall be in the amount of $300,000 for
each year and be obtained and delivered to Schwab prior to September 15 each
year of the term of this Sub-sub-sub-sublease; each letter of credit shall cover
the one (1) year period beginning on the anniversary of the Commencement Date
immediately following thereafter.
(c) If Scient fails to pay rent or other charges when due under this
Sub-sub-sub-sublease, or fails to perform any of its other obligations
hereunder, Schwab may, but shall not be required to, draw upon the letter of
credit for the payment of any rent or other amount then due hereunder and
unpaid, for the payment of any other sum for which Schwab may become obligated
by reason of Scient's default or breach, or for any loss or damage sustained by
Schwab as a result of Scient's default or breach. If Schwab so draws on any
portion of the letter of credit, Scient shall, within ten (10) days after
written demand by Schwab, restore the letter of credit to the full amount
required, and Scient's failure to do so shall constitute a default under this
Sublease.
(d) In the event Scient fails to obtain satisfactory letter(s) of
credit as required under this paragraph 23 when due, Schwab shall have the fight
to draw the full amount of the then existing letters of credit; provided,
however, that in the event of a draw pursuant to this paragraph 23(d), Schwab
shall hold the amounts drawn as a security deposit (the "Security Deposit'). If
Scient fails to pay rent or other charges when due under this Sub-sub-sub-
sublease, or fails to perform any of its other obligations hereunder, Schwab
may, but shall not be required to, use or apply all or any portion of the
Security Deposit for the payment of any rent or other amount then due hereunder
and unpaid, for the payment of any other sum for which Schwab may become
obligated by reason of Scient's default or breach, or for any loss or damage
sustained by Schwab as a result of Scient's default or breach. If Schwab so uses
any portion of the Security Deposit, Scient shall, within ten (10) days after
written demand by Schwab, restore the Security Deposit to the full amount
originally deposited, and Scient's failure to do so shall constitute a default
under this Sublease. Schwab shall not be required to keep the Security Deposit
separate from its general accounts, and shall have no obligation or liability
for payment of interest on the Security Deposit. In the event Schwab assigns its
interest in this Sublease, Schwab shall deliver to its assignee so much of the
Security Deposit as is then held by Schwab. Within thirty (30) days after the
Termination Date, and provided Scient is not then in default of any of its
obligations hereunder, the Security Deposit, or so much thereof as had not t.
heretofore been applied by Schwab, shall be returned to Scient or to the last
assignee, if any, of Scient's interest hereunder. Scient hereby waives the
provisions of Section 1950.7 of the California Civil Code, and all other
provisions of law, now or hereafter in force, which provide that Schwab may
claim from a security deposit only those sums reasonably necessary to remedy
defaults in the payment of rent, to repair damage caused by Scient or to clean
the Premises, it being agreed that Schwab may, in addition, claim those sums
reasonably necessary to compensate Schwab for any other loss or damage,
foreseeable or unforeseeable, caused by the act or omission of Scient or any
employee, agent, customer, licensee, invitee or guest of Scient.
24. Broker. Each party hereto warrants and represents to the other that it
-------
dealt with no leasing agent or broker in connection with this Sub-sub-sub-
sublease other than the person or persons identified as Brokers in the Basic
Lease Information, and that no conversations or prior negotiations were
17
<PAGE>
had by the warranting and representing party with any agent or broker other than
the Brokers concerning the Premises that could give rise to liability for
payment of a commission in connection with this Sub-sub- sub-sublease. Schwab
shall compensate Colliers International pursuant to separate agreement, and
Colliers International will compensate The CAC Group, pursuant to separate
agreement.
25. Surrender of Premises. Except for those trade fixtures of Scient of
-----------------------
which Scient notifies Master Lessor, Shaklee, TIG, PBNI and Schwab in writing
within 6 months of their installation, all alterations, additions, and
improvements by Scient to the Premises (the "Tenant Improvements") shall
immediately become Schwab's property and, at the end of the term hereof, shall
remain on the Premises without compensation to Scient. So long as the Tenant
Improvements in the Premises at the end of the term are of the same general
character, quantity, and configuration as Schwab's Initial Tenant Improvements
under the Sub-sub-sublease, except for normal wear and tear, Scient shall have
no obligation to make any changes in the then existing Tenant Improvements;
otherwise, at Schwab's request, Scient shall take such action at Scient's
expense as shall be necessary to restore the Tenant Improvements to their
condition as initially constructed or installed under the Sub-sub-sublease,
except for normal wear and tear. Notwithstanding the foregoing, nothing in this
paragraph shall be construed to waive the requirements of paragraph 6 hereof or
of paragraph 2 of the Second Amendment to Sublease.
26. PBNI's, TIG's and Shaklee's Approval. This Sub-sub-sub-sublease shall
--------------------------------------
be of no force or effect until fully executed by Scient and Schwab and approved
by PBNI, TIG and Shaklee.
27. Hazardous Materials. Schwab covenants that, within five (5) days after
---------------------
execution of this Sub-sub-sub-sublease by Schwab and Scient, it will provide
Scient with copies of all seismic reports or notices, asbestos reports or
notices, and any correspondence, reports or notices regarding Hazardous
Materials (as defined below) with respect to the Building or the Premises that
Schwab has in its possession in the Building, and that Schwab will continue to
provide such correspondence, reports and notices to Scient throughout the term
hereof if any are received by Schwab. Scient shall have no obligation or
liability to Schwab with respect to any substances or materials regulated under
any statute, law or ordinance relating to hazardous or toxic materials or the
environment ("Hazardous Materials") found on, in or under the Building or
Premises or released therefrom, except for those brought into the Premises or
the Building by Scient or its agents, employees, contractors or invitees; and
Schwab shall indemnify, defend, protect and hold harmless Scient from any and
all loss, costs, damage, expense and liability (including, without limitation,
reasonable attorneys' fees) incurred by Scient in connection with or arising
from such Hazardous Materials not brought into the Premises or the Building by
Scient or its agents, employees, contractors or invitees. Scient shall
indemnify, defend, protect and hold harmless Schwab from any and all loss,
costs, damage, expense and liability (including, without limitation, reasonable
attorneys' fees) incurred by Schwab in connection with or arising from the
introduction by Scient, or its agents, employees, contractors or invitees, of
Hazardous Materials in, on or about the Premises, the Building or the real
property on which the Building is located.
28. Miscellaneous.
--------------
(a) The paragraph titles in this Sub-sub-sub-sublease are used for
convenience in finding the subject matter. Such titles are not to be taken as
part of this instrument or to be used in determining the intent of the parties
or otherwise in interpreting this instrument.
(b) This Sub-sub-sub-sublease shall apply to and bind the respective
heirs, distributees, executors, administrators, successors, and assigns of the
parties hereto. This subparagraph shall not be construed, however, as a consent
to any assignment or subletting by Scient.
18
<PAGE>
29. Exhibits The following exhibits are attached to this Sub-sub-sub-
--------
sublease and by this ,.
reference made a part hereof:
Exhibit A - Sub-sub-sublease
Exhibit B - Plan of Premises
IN WITNESS WHEREOF, the parties have executed this Sub-sub-sub-sublease as of
the day and year first hereinabove set forth.
SCHWAB: SCIENT:
CHARLES SCHWAB & CO., INC., SCIENT CORPORATION,
a California corporation a California Corporation
By: /s/ Parkash P. Ahuja By: /s/ William H. Kurtz
---------------------------- ----------------------------
Name: Parkash P. Ahuja Name: William H. Kurtz
---------------------------- ----------------------------
Its: Senior Vice President Its: CFO
----------------------------- ----------------------------
Date: 10-8-98 Date: October 8, 1998
---------------------------- ----------------------------
By:
------------------------------
Name:
----------------------------
Its:
-----------------------------
Date:
----------------------------
20
<PAGE>
APPROVAL- 29th Floor
By executing this Approval, Shaklee hereby consents to the making of
the attached Sub-sub-sub-sublease by and between Schwab and Scient, on, and only
on, the terms set forth herein, without releasing TIG from any obligations of
the sublessee under the Sublease, without releasing PBNI from any obligations of
the sub-sublessee under the Sub-sublease, without releasing Schwab from any
obligations of the sub-sub-sublessee under the Sub-sub-sublease and without
waiving any restriction on further assignment of the Sublease, the Sub-sublease
or the Sub-sub-sublease. This Consent shall not constitute consent to any other
or further sub-sublease, modify in any way the terms of the Sublease, or create
any privity of estate or contract between the undersigned and any other person
or entity.
SHAKLEE:
SHAKLEE CORPORATION,
a Delaware corporation
By: /s/ Kay Childs
----------------------------------
Name: Kay Childs
--------------------------------
Its: Vice President, Human Resources
---------------------------------
Date: September 29, 1998
--------------------------------
<PAGE>
APPROVAL
By executing this Approval, TIG hereby consents to the making of
the attached Sub-sub-sub-sublease by and between Schwab and Scient, on the terms
set forth herein, without releasing PBNI from any obligations of the sub-
sublessee under the Sub-sublease, and without releasing Schwab from any
obligations of the sub-sub-sublessee under the Sub-sub-sublease and without
waiving any restriction on further assignment of the Sub-sublease or Sub-sub-
sublease. There are no alterations which TIG has required be removed at Sub-
sublease termination pursuant to paragraph 2 of the Second Amendment to Sublease
except: Those improvements which TIG is required to remove by Shaklee.
--------------------------------------------------------------
TIG:
TIG INSURANCE COMPANY
a California Corporation
By: ______________________
Name: Lon P. McClimon
----------------------
Its: Senior Vice President
-----------------------
Date: 9-24-98
----------------------
By: ______________________
Name: Thomas J. Miller
----------------------
Its: Vice President
-----------------------
Date: 9-24-98
----------------------
21
<PAGE>
CONSENT TO SUB-SUB-SUB-SUBLEASE
-------------------------------
The undersigned, as sub-sub-sublessor under that certain Sub-sub-
sublease dated December 1, 1996 between Pacific Bell Network
Integration, a California corporation ("PBNI") and Charles Schwab &
Co., Inc. ("Schwab") as amended and modified to date (as amended,
the "Sub-sub-sublease") for the Premises known as the 29~' Floor, at
444 Market Street, San Francisco, California 94105 as further
defined in the Sub-sub-sublease ("Premises"), hereby consents to the
attached Sub-Sub-Sub-Sublease between Schwab and Scient Corporation,
a Delaware corporation; provided, however, that (i) PBNI shall not
be bound by any of the terms of the Sub-Sub-Sub-Sublease, (ii) the
Sub-Sub-Sub-Sublease is subject and subordinate to the Master
Lease(as defined therein) and all subleases thereof, (iii) the Sub-
Sub-Sub-Sublease shall not constitute a release of Schwab from any
liability under the Master Lease or any subleases thereof, and (iv)
neither the Sub-Sub-Sub-Sublease nor this Consent shall be construed
as a waiver of any of PBNI's fights under the Sub-sub-sublease,
including the fight to consent to any future proposed transfers, nor
shall it relieve Schwab or anyone claiming under or through Schwab
of the obligation to obtain PBNI's consent to any future assignments
and subleases as may be required under the terms of the Sub-sub-
sublease.
PBNI:
PACIFIC BELL NETWORK INTEGRATION,
a California corporation
By: /s/ [signature illegible]
--------------------------
Its: Director-PTSS CRE
--------------------------
-1-
<PAGE>
Exhibit 10.19
ADDENDUM TO SUB-SUB-SUB-SUBLEASE
AND SUB-SUB-SUB-SUB-SUBLEASE
This Addendum to Sub-sub-sub-sublease and Sub-Sub-sub-sub-sublease
("Addendum") is made and entered into as of October 8, 1998 by and between
Charles Schwab & Co., Inc., a California Corporation ("Landlord") and Scient
Corporation, a California Corporation ("Scient").
RECITALS
WHEREAS, Schwab and Scient entered into a Sub-sub-sub-sublease dated
October 7, 1998 and Sub-sub-sub-sub-sublease dated October 7, 1998
(respectively, the "Sub-sub-sub-sublease" and "Sub-sub-sub-sub-sublease" for
which reference is made for the definition of capitalized terms used and not
otherwise defined herein) for the lease of certain Premises (described
respectively as the entire 28th floor and the entire 29th floor) located in the
building commonly known as 444 Market Street, San Francisco, California, as more
particularly described therein. The Sub-sub-sub-sublease and the Sub-sub-sub-
sub-sublease are collectively referred to as the "Subleases".
WHEREAS the parties desire to enter into this Addendum to amend and clarify
certain of their obligations under and other terms and conditions of the
Subleases.
NOW, THEREFORE, in consideration of the foregoing and for good and valuable
consideration the receipt and sufficiency of which is hereby acknowledged,
Schwab and Scient agree that the Subleases shall be amended as follows:
1. The parties acknowledge and agree that, as of the date of this Addendum,
satisfactory consents to the Subleases have been obtained from Shaklee, TIG, ADP
and PBNI. Notwithstanding any provisions of the Subleases to the contrary, the
parties agree and confirm that: (a) the actual Commencement Date of each of the
Subleases is October 8, 1998; and (b) each of the Subleases shall be in full
force and effect as of October 8, 1998.
2. In the first sentence of paragraph 2(a) of each of the Subleases, the words
"Commencement Date" are deleted and replaced by the following: "October 10, 1998
(the 'Rent Start Date')". In the first line of paragraph 2(e) of each of the
Subleases, the words "Commencement Date" are deleted and are replaced by the
words: "Rent Start Date". The amount of the first month's Base Rent under each
Sublease shall be $38,446.06 (or a total of $76,892.12 for both Subleases).
3. Schwab agrees to leave the existing cabling on the Premises and to leave the
existing racks and patch panels located in the IDF rooms and Scient agrees to
accept such property.
1
<PAGE>
4. Notwithstanding any provision to the contrary contained in the Subleases,
Schwab and Scient agree that their respective obligations to restore the
Premises upon expiration,. or earlier termination of either or both of the
Subleases shall be as follows:
a) If Schwab is required pursuant to the Agreement Regarding Improvements
between Master Lessor, Shaklee and Schwab referenced in paragraph 7A of each of
the -Subleases (which was executed on or about February 11, 1997) to perform
removal or restoration work regarding the HVAC Work (as defined in said
agreement), then Scient shall, at Schwab's option, either perform such work at
its sole cost and expense or reimburse Schwab for its cost of performing such
work upon presentation of documentation of such cost;
b) If Master Lessor, Shaklee, TIG, ADP or PBNI require the removal or
restoration of any alterations, additions or improvements to the Premises
("Alterations"), then: (i) Scient shall be obligated to remove or restore such
Alterations made by or on behalf of Scient, including, without limitation, the
Scient Improvements and Scient shall be obligated to remove any and all cabling,
patch panels and racks from the Premises whether installed by Scient, Schwab or
any other person or entity; and (ii) Schwab shall be obligated to remove or
restore any other such Alterations to the Premises.
The provisions of this paragraph 4 are intended only to divide between Schwab
and Scient such removal and restoration obligations as exist under the Subleases
and Agreement Regarding Improvements and not to confer any fights on other
person or entity, including, without limitation, Master Lessor, Shaklee, TIG,
ADP or PBNI. No other party shall be entitled to rely on or receive any benefit
from this paragraph 4 or to enforce it against any party hereto.
5. Attached hereto as Exhibit C and incorporated herein by reference is the
form of the letter of credit to be furnished by Scient to Schwab in accordance
with paragraph 23 of the Subleases. The parties acknowledge that only one letter
of credit in the amount of Four Hundred Thousand Dollars ($400,000.00) (subject
to reduction as provided in paragraph 23 of each of the Subleases) is required
by the Subleases.
6. Notwithstanding any provision of the Subleases to the contrary, Scient shall
be entitled to occupy the Premises under each of the Subleases upon delivery to
Schwab of all of the following: (a) the Subleases and this Addendum duly
executed on behalf of Scient; (b) the letter of credit in the form of Exhibit C
hereto; and (c) certificates of insurance evidencing the coverages required by
the Subleases and in the form required by the Subleases.
7. Notwithstanding any provision of the Subleases to the contrary, the parties
acknowledge and agree that certain of Schwab's equipment described in Exhibit D
hereto (the "Equipment") will remain in the IDF Room on the 28~ Floor of the
Premises, that Schwab retains the right to remove such Equipment after the
Commencement Date, that Schwab will use all reasonable efforts to remove such
Equipment no later than November 30, 1998 and that the Rent Start Date has been
delayed from October 5, 1998 to October
2
<PAGE>
10, 1998 in consideration of the agreements set forth in this paragraph 7.
Scient agrees to maintain power and HVAC for the Equipment. Schwab will
indemnify and hold Scient harmless from any loss or damage incurred by Scient as
a result of the maintenance of the Equipment in the Premises after the
Commencement Date and/or the removal of the Equipment by Schwab and will repair
any material damage to the Premises caused by the removal of the Equipment by
Schwab. Schwab shall have 7 day a week 24 hour access to the Premises after the
Commencement Date (upon reasonable notice to Scient except in case of emergency)
for purposes of servicing, using and maintaining and then removing the Equipment
and Scient shall provide Schwab with a key, card key, entry code or other access
device for such purpose. Scient agrees not to tamper, interrupt or interfere
with the operation of the Equipment and to have its electrician consult with
Schwab's electrician in order to prevent interruption or interference with the
operation of the Equipment. Schwab shall maintain comprehensive general
liability insurance and personal property insurance on the Equipment during the
time the Equipment is on the Premises.
8. Except as herein specifically modified and amended, each of the Subleases
shall remain in full force and effect and all provisions of the Subleases are
hereby ratified and confirmed.
9. If any portions of this Addendum conflict with any portion of either of the
Subleases, the terms of this Addendum shall govern.
10. This Addendum shall be binding on and inure to the benefit of the parties
hereto and their respective successors and assigns.
IN WITNESS WHEREOF, Schwab and Scient have executed this Addendum as
of the day and year first written above.
SCHWAB SCIENT:
CHARLES SCHWAB & CO., INC., SCIENT CORPORATION,
a California corporation a California Corporation
By: /s/ Parkash P. Ahuja By: /s/ William H. Kurtz
---------------------------- ----------------------------
Name: Parkash P. Ahuja Name: William H. Kurtz
---------------------------- ----------------------------
Its: Senior Vice President Its: CFO
---------------------------- ----------------------------
By: ____________________________
Name: __________________________
Its: ___________________________
3
<PAGE>
[Letter of Credit]
October __ , 1998
Charles Schwab & Co., Inc.
101 Montgomery Street
San Francisco, CA 94104
Re: Our Irrevocable Letter of Credit No.
______________
("Letter of Credit")
-------------------------------------------------
Gentlemen:
We hereby establish our irrevocable letter of credit in your favor for
account of Charles Schwab & Co., Inc., 101 Montgomery Street, San Francisco,
California 94104 for the sum not exceeding U.S. $400,000.00 (Four Hundred
Thousand Dollars and 00/100).
Available by your sight draft drawn on ________________________________,
accompanied by one of the following documents:
- Your signed statement that, pursuant to the Sub-sub-sub-sublease or Sub-
sub-sub-sub-sublease (collectively, the "Lease") dated September __ , 1998
between Charles Schwab & Co., Inc. ("Schwab") and Scient Corporation ("Scient),
Schwab is entitled to draw on the Letter of Credit in the amount of the sight
draft.
- Your signed statement that Scient has failed to renew or replace the
Letter of Credit prior to September 15 of the year of the Expiration Date (as
defined below). Upon receipt by us of such document, you may draw down the
entire proceeds of the Letter of Credit.
All drafts drawn under this credit must bear in their face the clause:
"Drawn Under __________________________ Credit No. ____________________"
We hereby engage with the drawer and/or bona fide holders that drafts drawn
under and in compliance with the terms of this credit will be duly honored on
presentation at the office of ______________________ on or after October 5, 1998
and on or before October 4, 1999 (the "Expiration Date").
Except so far as otherwise expressly stated, this credit is subject to the
Uniform Customs and Practice for Documentary Credits (1983 Revision)
International Chamber of Commerce, Publication No. 400.
_______________________ __________________
Authorized Signature Authorized Signature
4
<PAGE>
EXHIBIT D
SCHWAB EQUIPMENT
1 Cisco Catalyst 5000 with cards:
Supervisor Module (WS-X5509)
10/100 Base Ethernet Module (WS-5213A)
1 Cisco 2514 Router
1 3COM AB6100 inverse Mux
7 MFS T1 circuits with MFS circuit boards.
5
